Drive Mark & Spencer in South Korea - Drivers for Divestment - Case Study Example

Drive Mark & Spencer to South Korea. Contents Introduction and objectives 3 Company Overview 3 Environmental Analysis 3 Key theories 3 External and internal analysis 3 Buyer, supplier and competitor analysis 5 Drivers for divestment: Illustrative Cases in South Korea 8 Case 1: Wal-Mart & Carrefour 8 Case 2: General Motors 9 Case 3: E-bay 10 Cross-case analysis 10 Potential problems 11 Recommendations 11 Conclusion 12 References 13 15 Introduction and objectives South Korea has very well organized private sectors. Country also has very innovative, capable, dedicated and fairly educated work force. These kinds of business environments are attracting different companies around the world. Mark & Spencer have able to recognize those possibilities and expanding in the country. The country is showing long term economic growths perspective. Overall atmosphere is conducive for the businesses. Company Overview Mark & Spencer is a Multinational company head quartered in London. Company was founded in 1884. It is a public limited company. It is a retail company. Company sells quality cloths, quality food products and products needed for household purposes. In the last 129 years company has grown internationally. The organization now operates in worldwide. Number of employees are 82,000. Quality of products and Services are main priority of the company. Innovation in and trust is a mantra for the organization (Cameron, Sutton and Whetton, 1998, pp. 234-236). Organization is focusing to very hard for globalization. Environmental Analysis Key theories External and internal analysis Political scenario In the past the country faced lots of political unrests. Previously government was changing very frequently. Political freedom was on the lower side. Country even faced army coups. After the 1986 country’s democracy improved a lot President was provided with the maximum power. The president is elected by the citizens. Governance has become more centralized in nature. Country’s economy and politics is very much dependent on USA (Chaston, 2004, pp. 123-125). Military of the country now also holds a very considerable power. Country is having serious problems with its neighbouring country North Korea. It is the hostile relationship with the North Korea making the country’s political situation very complex and uncertain. Country is trying to strengthen its relationship with European Union. Country is having very well organized strong foreign affairs policies (Briggs, 1984, pp. 90-93). Political violence is of concern for the country. Economic overview The country is very well backed up by sound economical policies. Country is having the benefit of powerful sector regarding exports. It is making country’s economy very robust. Country has undergone different economic reforms over the years. Those reforms helped the country to stay in the growth trajectory (Boulding, 1950, pp. 78-81). Country has very strict rules and regulations related with FDI and imports. Overall climate for investments the country is very good. Strict FDI rules and imports rule are reducing the competitive edge of the country. Country’s FDI scenario is not impressive but country is achieving economic growth. Country has very good tax policies. Nuclear unrest created by North Korea is a bad sign for the country as the investors are very much apprehended about their investments (Coade, 1997, pp. 98-101). Country’s strong service sector is a very important contributor for its economic growth. Customer analysis in terms of buying behaviour South Korea is facing a problem of increasingly aging populations. Country is having great literacy rate. It makes workforces of the country is very well educated and technically sound. Generally wages are very good for the workforce in the country. It makes a very well organized accomplished life style oriented society. Country is going through urbanization lots of new towns and cities are coming up very well. Society in the country has good awareness related to human rights (Aldrich, 1979, pp. 125-131). Country is having lower rate of unemployment. Country is facing a serious problem from lower fertility rates of its citizens. Wages are generally good but wages inequality is there. Social welfare is somewhat neglected in this country. Labour unions are there in the country. Future trend of the company with the help of technological advancement The country is well known for its technological innovation. Country is having good research and development infrastructures. Country experiences large presence of global and domestic technical giant companies. Country has able to convert their innovative ideas into commercialization (Shapiro and Glicksman, 2004, pp. 201-203). Government policies are also very supportive to encourage its technological growth. Country is having well educated workforce to handle different modern technologies. In terms of natural resources company is facing serious scarcity. As the cost of R&D is rising, it is making very difficult to innovate. As the rules are very strict technical innovation s are getting hampered. Buyer, supplier and competitor analysis This study would give a clear picture about the industries competitiveness in South Korea. Five forces are discussed below. Threat of New Entrants The industry is having lower threat from new entrants. Creating favourable supply chain and making of huge set up is a very tough task for any new organization. Chain stores are having more vertical structures and all the being is done in very centralize fashion (Akehurst and Alexander, 1996. pp. 121-123). It gives a chain store more and more competitive advantages. New entrants are finding it more attractive than the retail system. Set up cost is also very high. New entrants are very reluctant to invest that much of money. The South Korean market is very mature so, new entrants must come up with very unique ideas to grip the market. New entrants don’t enjoy brand loyalty. The South Korean retail industry is full of big fishes in the market. It would produce huge resistance for any new entrants in the industry. Experience and knowledge about the South Korean market is also very important for a new entrant. Often these two are missing in case of new entrants. Every company doesn’t have that much of capacity for huge risky investments (Koch, 1995, pp. 130-135). Power of Suppliers Bargaining power of suppliers is also low. It is a large company present across the world. Lots of suppliers are related with this company. Most of the suppliers in South Korea want to be a part of this organization. Dependency upon any single suppliers is not there. There is lots of option for the organization (Pichtel, 2010, pp. 55-58). The industry in the South Korea is designed in such a way that it reduces the power of the suppliers for this kind of huge retailer. Company like Mark & Spencer follows very strict supplier’s policy. Size of the company is so big that it can make or break a business of small suppliers. Suppliers usually don’t bargain that hard in the market. In other words supplier is having very less scope of bargaining. Suppliers are very serious related with this kind of organization (Kotler, 1997, pp. 78-81). Power of Buyers In this industry bargaining power of customers is very high. There are lots of other established players are there in the market. Buyers are having with lots of option. Customers can switch from one brand to another brand very easily. In this industry pricing of different brands are almost same. It causes very low switching cost for the customers. It is being noticed that as the buyers are with lots of option in their kitty they tries to dictate terms. The industry is very competitive in nature (Coleman, 1988, pp. 90-95). Buyers tests also changes from time to time which compels industry to change according to the need of buyers. Buyers in this industry are having great power like most of the other industries. Buyers can change the fate of an organization related to this industry in South Korea (Jones, 2010, pp. 35-40). Availability of Substitutes Substitutes of foods and clothes are very low. Food and apparel Products of the company is substitutable by products from other retailers. Most directly different products of Tesco can easily substitute the products of the company. It shows that this industry available of substitute products. This industry is highly competitive in nature. Every company is coming up with almost similar kind of products with different names and packaging. Basic products are same (Lasserre and Hellmut, 1999, pp. 67-71). Customers would get almost same kind of feeling about different products. Only brand names are different. It shows that in this industry availability of the substitute products are on the higher side. Apart from global brands lots of local brands are present in the South Korean industry with good range of substitute products. Sometimes those local products overshadow the global brand (Mitchell, 1996, pp. 24-27). Competitive Rivalry Competition in the retail market in South Korea is very cut-throat. Each and every player in the industry is battling very hard to outperform others. Sustainability is very critical in this fierce market. Company historical followed a strategy of higher quality value in exchange of money. Recently the market compels the company to lower its price of some clothes (Bevan, 2001, pp. 35-40). The industry is so competitive that company is thinking of diversification of products. All those products are not very familiar with its existing products. It shows that the industry is so competitive that compelling company to change their old strategies. Market size is constant. Every player in the industry is trying to gain large chunk of the markets share of the industry. Competition is growing day by day. All the players maybe global or may be local are investing a lot to gain competitive advantage in the market. Drivers for divestment: Illustrative Cases in South Korea Case 1: Wal-Mart & Carrefour In this section of the study some of the practical cases are going to be analysed based on three levels that are industry level, firm level and institutional level. World largest retail brand Wal-Mart leaved South Korea in 2006. French retail brand Carrefour also closed down its operation earlier than the Wal-Mart (Michell, 1998, pp. 37-41). These two companies strangely failed to understand the choice of the South Korean customers. It is a great failure for company like Walt-Mart and Carrefour to localize its brand. Customers: Two companies failed to understand the buying behaviour of South Korean people. Two companies slowed their process of opening counters, causes lose of customers to other competitors. Suppliers: These two companies failed to tackle the bargaining power of their suppliers. Due to very small market share companies were not able to bargain very well with its suppliers (Alexander, 1997, pp. 78-81). Wal-Mart and Carrefour was not that much proactive in their strategies causes its downfall in the market. They failed in addressing local issues. Future Policy: Unrest in the political environment making very difficult for those two companies to attains their desired profitability. Over the years it has been noticed that The South Korean market caused serious problems for different famous brands. Case 2: General Motors This case will also be analysed based on three levels that are industry level, firm level and institutional level. General Motors in South Korea will go to down size its works force in the country. Company is planning p to eliminate more than one thousand jobs. This decision is taken for the revenue consideration (Bookbinder, 1993, pp. 32-35). Earlier in 2012 company threatened to pull up its entire operation from the country. Earlier top management of the company requested the government of South Korea to reduce the wages of the labour. Company is facing great problems regarding revenue earning out Korean market. Company is considering different steps to downsize its costs. High wages of South Korean labours backed up by global auto slowdown creating some serious problems for the company (Reuvid, 2012, pp. 78-79). Company is facing serious problems from Korean automobile union. Overall situation of GM in South Korean market is very delicate. Case 3: E-bay The above mentioned three level of analysis will be conducted in the case of E-Bay. E-bay is performing very well in the South Korean market. Company has able to place its strategies very well (Fitzroy and Herbert, 2007, pp. 124-126). They acquired local market and Internet Auction Co. Ltd. It helped them to establish their brand in the market very prominently. E-bay has able to recognize the market very well. South Korea generates huge revenue in the world of e-commerce. By acquiring local companies, E-bay firms its foot step in Korean market as well as global market of e-commerce. Overall situation of the E-bay in South Korean market is very well balanced. Cross-case analysis This analysis is based on two aspects. One is informal institutions which are concern with cultural risks and other one is formal institutions which are concern with country, currency and commercial risks (Argenti, 1976, pp. 17-21). Here in this study situation of Wal-Mart and Carrefour are discussed. These institutions have failed to realize the local Korean cultural issues, results in total downfall of companies. Companies like Wal-Mart and Carrefour was less flexible in their strategies ignoring local needs. GM is very disturbed with the labour reforms in the South Korean market. Company is also very disturbed with the country’s unstable political situation caused by North Korea (Newton, 1998, pp. 89-93). E-bay has managed its commercial risk very well by acquiring different local ecommerce companies. It has strengthened company’s business in the South Korean market. Potential problems This section of the study would give a guideline about the potential problems Mark & Spencer may face in South Korean Market. Company would face lots of problems from the unrest in the country. Country is having high nuclear threat from North Korea. Company would face problems regarding labour wages. Labour wages are generally very high in the country. Shaping revenue and paying wages to the labour would create a very serious strategic problem. Company may face problems from the local retail players (Bookbinder, 1989, pp.12-15). Company may face problem in understanding the local sentiment of the customers. Company may face problem from the labour union of the country. Company may face problems in terms of the buying behaviour of the local customers. Company may face the problem of copying by the local brand. Local brand can copy different famous products of the company and can sell in the market with local name. Company may face pricing issues from local brands. Recommendations Company must keep its every step very carefully in this highly volatile market. Company must monitor its every strategy periodically. It must gives priority to the buying behaviour of the local customers. Company must design its products and services very well suitable with South Korean customer’s demand. Company must be very flexible about their strategy. Quality products and services are very important. Company should not compromise with its quality of the products and services. Organization must have a very well designed wages structure for its employees, without hampering its revenue aspect out of the country. Company must read the socioeconomic situations of the country. It may follow different successful strategies taken by other global players in terms of South Korea. Company must take its investment decision very wisely after doing serious research. Innovation and creative must be there to sustain in the market of South Korea. Company always must go for proactive measures rather than preventive measures. It should be at-per with modern technologies available in the industry and in the country. Company must keep very calculative steps to avoid any disasters. Company must learn from the past mistakes made by other players in the industry. Conclusion The business world is ever changing. The only constant thing is to change. South Korean retail industry is also very fluctuating in nature. It causes downfall of two global retail giants. It shows that the market is so volatile there is no place for complacency for any players. Organization willing to change according to the need of the hour would be a success story in long run. This study also shows that organization must recognize the real challenges and should design strategies according to that (Kannegiesser, 2008, pp. 123-128). The country is having a very mixed environment for retail business. The gap between a success story and a tale of failure is very delicate. Organizations able to react properly are counting success on the other hand organization not reacting properly facing failures. It is very important to take right decision in the right time. It is very important that organization must abide by all the legalities of South Korea. References Akehurst, G.and Alexander, N. 1996. The Internationalization of Retailing. London: Frank Cass. 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