Market Entry for Primark - Case Study Example

Market Entry Proposal Market Entry Proposal For Primark Brief Summary This market entry proposal aims at persuading the Board Of Directors of Primark to enter a new global market in Brazil. Brazil is one of the emerging market economies with great economic potential and huge prospects for future economic growth. The emerging economies commonly referred to as the BRICS comprise of Brazil and other countries such as Russia, India, Brazil and South Africa (Atale, 2012, pp. 17). These countries have made great strides in recent years with regard to modernization, substantial industrialization, and real economic growth, which has seen these countries move from developing countries to pile pressure on the developed countries. Brazil is currently the seventh largest economy in the world, and the largest economy in Latin America. Future prospects of the economy indicate the country will be among the five biggest economies in the world in the near future. Brazils population is almost getting to the 200 million mark with a GDP f about $2.5 trillion, representing a 0.9% growth. The country’s Foreign Direct Investment (FDI) inflow currently stands at 65.4 billion dollars. The country’s inflation is at 5.4% with an employment rate of 5%. With these attributes and other characteristics of the economy such as free markets, Brazil is emerging as one of the best markets for companies and business that are expanding on the global scene. Primark will benefit a great deal by venturing into the Brazilian market. This market proposal makes use of a wide range of economic concepts and theories, global trade strategies, case studies and market analyses to assess the profitability and suitability of the Brazilian market. The Brazilian textile industry is still growing and has very many untapped potential, which Primark should aim at maximizing. Brazil is also opening up its economy to foreign investors and is likely to welcome potential investors like Primark, who offer great insights for economic growth. Recommendations Some of the recommendations that the Board of Directors of Primark need to adopt when venturing in to the Brazilian market include the following; Primark should embrace the adaptation approach when reaching out to the Brazilian market. The adaptation approach will enable the company to customize its products taking into consideration various aspects of the Brazilian economy, culture, religion, and legal environment. The company should also target the Brazil’s middle class as the primary customer target. This class comprises of about half of the country’s population. Employment rates in the country are at another historic low level. This implies that the middle class in Brazil has more purchasing power and will be willing to spend on new products. Primark should also consider establishing a strong online presence in the country. Despite the fact, that only about 40% of the country’s people have internet access, their willingness and ability to engage in online transactions cannot be underestimated. About $13 Billion is spent online in Brazil per year. Primark should also be ready to adhere to the legal structure in the country. Brazil has a very bureaucratic system that makes some business transactions complicated. It is, however, recommended that the company follows all the legal guidelines strictly in order to be successful in the long-run. Finally, Primark should also consider setting up strategic partnerships with leading companies in the country. This approach will enable the company to access suppliers and consumers with much ease and will help the company build a great rapport with various stakeholders in the country. Background This market entry proposal analyzes the Brazilian market to determine the countrys suitability as a destination for Primark’s expansion plan. The analysis focuses on Brazil’s suitability to provide a favorable business environment for the company and the country’s ability to ensure the company experiences profits into the future. The proposal applies various economic theories, models and concepts alongside various theories of international trade while also borrowing from experiences of other companies that endeavored to access international markets. The analysis, therefore, assesses Brazil’s social, economic, and political situation in relation to the company’s plans. The proposal is organized into various sections, each dealing with a different aspect of the analysis. The proposal begins with a brief introduction and summary of the case, followed by brief recommendations for Primark. The third section is the background, which gives more information about the structure of the proposal. Other subsequent sections include the Analysis of Market opportunities in Brazil, Assessment of Brazil’s attractiveness, Company Situation Analysis, readiness to go overseas, global sourcing and production, market entry strategy, and implementation of the entry strategy. With globalization taking root in and transforming cultural aspects of the world, businesses worldwide are moving with haste to expand their operations to other parts of the world. While some companies, such as those that establish themselves on the internet, are born with a global dimension, most businesses have to begin with localized domestic production before venturing on the global scene. Companies like Toyota, a Japanese automobile manufacturer, and Nestle, a Swiss beverage company, rose from a little known local businesses to some of the most known global brands in the world. However, Expansion in to the global market is no easy task. It is a long and risky process involves strategic thinking and analyzing global market trends. Globalization of business operations involves assessing attractiveness of prospective markets to determine their suitability and ability to enable a business make profits. International trade takes into account many factors and requires a business to change in many aspects, including its organizational structure. Analysis of Market opportunities in Brazil Michael Porter’s diamond model can be used to assess the viability of the Brazilian market opportunities. The model identifies four main areas of competitive advantage for analyzing market opportunities. These are firm strategy and structure, Demand conditions, related supporting industries, and factor conditions. If these conditions are favorable, then it is prudent to invest in the market. When analyzing the government of Brazil, it is important to look at the structures the government has put in place to support businesses. The fact that Brazil is an emerging economic hub implies that the country’s industries and businesses are finally finding it easier to conduct business and that the population has more opportunities to access money thereby having a higher purchasing power. For businesses, this is an opportune time to venture in to the Brazilian market. The first market opportunity in Brazil is the population with a majority of the people in the middle class. The other factor of analysis is related industries. The Clothing and fashion industry in Brazil is the second largest employer in the country. The industry is well developed with many industries. It is the second largest employer in Brazil. There are, therefore, several companies that Primark collaborate with when entering the market. There are also many people willing to work in the industry. Primark will benefit a great deal from this ready labor. Many people in the country are well educated thereby providing a huge pool of reliable human resource. There is also high demand for clothing in Brazil. The huge profits that businesses in the industry make attest to this fact. Brazil is a vast country with a very big population. The middle class provides a great opportunity for Primark because of the financial power they have (Mújica, et al., 2014, pp. 400). The financial power of the middle class ensures there is great demand for products. Primark can use this ready demand as a basis for establishing strong presence in the country. The business environment currently supports establishment of new businesses and there is a ready market for products given the purchasing power that more than half the population has. Other factor conditions include availability of raw materials, which make the market a favorable destination. Brazil has numerous raw materials and a well established supply chain. With widespread cotton plantations, Primark has an opportunity to establish itself closer to raw materials, which will boost the production process for the company’s clothing products. The fact that the clothing industry is the second biggest contributor to the country’s economy indicates that there are strong and well established distribution channels, which can benefit Primark. Country Attractiveness Assessment For Brazil Assessment of a country’s attractiveness for new investors involves analyzing trends in social, economic, and political events unfolding in the country to determine the benefits, risks, and costs of doing business in the country. Brazil has several areas of competitive advantage over other countries, which makes it the best option for investors. Socially, Brazil has a very strong culture coupled with environmental sustainability (Galdi & Lopes, 2013, pp. 123). Brazilian culture fosters unity and cooperation of individuals in achieving common good. The Brazilian people find joy and pride in their diversity support each other. The cohesive nature of the Brazilian population is very fundamental in facilitating business transactions and other relationships among the people. Economically, Brazil’s currency, the Real, is one of the strongest and most attractive currencies in international trade (Holloway, Rochman, & Laes, 2013, pp. 20). The country’s economy is also very stable having experienced immense growth and expansion in the past decade. Businesses are flourishing, unemployment rates are declining, and the downward trend in the inflation rate. All these are indications of a great economy that is likely to propel a business to greater heights. The political situation is predictable, reliable and operates based on known laws. The level of crime around the country is relatively low with minimal instances of social unrest. These factors make the political situation of Brazil very stable in comparison to most of its neighbors in the Latin America (Thomas, 2013, pp. 44). Political stability is measured based on the level of political violence, government interruption in private businesses, occurrence of riots and strikes, social unrest as well as political uncertainty. Looking at these standards, Brazil is indeed a politically stable country because there are no major instances of violence, government interference and the political system in place is predictable and stable (Hilmersson, and Hans, 2012, pp. 99). However, this political stability thrives on the back of a huge political risk coupled with inadequate or lack of regulatory and legal transparency. Despite the political situation being stable, lack of transparency and weak institutional frameworks are major threats for both locals and foreigners who invest in the country. Lack of transparency has created room for conflict of interest to thrive in both political and economical institutions in the country (Trebat, 2013, pp. 139). Brazil lacks an appropriate legal and regulatory framework that can promote transparency, reform political institutions, and encourage business growth. This situation is the root cause of corruption. Corruption has been part-and-parcel of Brazil’s growth over the years, but has taken a significantly high trajectory as Brazil becomes the center of focus on the global scene. Lack of transparency in the government and the business world is a breeding ground for corrupt acts like bribery, nepotism and backdoor deals (Kayhan, Bayat, & Uğur, (2013, pp. 232) Inadequate legislation framework makes public institutions weak thereby opening up avenues for structural corruption, which is very common in Brazil. There are loopholes within the current legal framework that make it easy for corrupt individuals to escape scot-free. For instance, while Brazil has an appropriate legal framework to protect real property, intellectual property remains a grey area in the law. This creates more room for piracy, counterfeiting, and industrial espionage, which promote corruption. From this analysis of Brazil’s attractiveness, it is clear that Primark will have to deal with several risks, costs, and enjoy several benefits if it invests in Brazil. Among the risks, include a weak regulatory framework, and massive corruption (Kingsley, Vanden, & Bonardi, 2012, pp. 57). Costs include expensive labor costs and the costs of adhering to a highly bureaucratic system. However, some of the benefits include high demand, readily available labor, and a strong economy. Company Analysis Company analysis assesses the firm’s readiness and ability to thrive in a new global market. Primark is a very strong and stable organization. The company has experienced great growth in recent years, which as facilitate growth and expansion into various different markets. This financial stability provides the company with a backbone for further growth into other new markets such as Brazil. In relation to Porter’s diamond model, it is important to analyze the company’s structure in order to determine if the company is suited to enter the Brazilian market. Primark has substantial experience working in other international markets. This experience will come in handy when venturing in the Brazilian market. The company already has a strong structure in place that ensure there is sufficient control for operations in foreign countries in terms of managing redundancy, creating more value, maximizing efficiencies and integrating worldwide operations. These structures will be important in setting up operations in Brazil. The company is also suitably established to make use of Foreign Direct Investment (FDI) when setting up strategic partnerships and alliances in Brazil and other foreign markets. Primark’s financial power can support the company’s projects to form mergers and acquisitions, joint ventures, or establishing Greenfield investments. Readiness To Go Overseas Primark’s readiness to go abroad is informed by its previous experience in other international markets. The company has been successful in other markets, prompting a desire to venture into other markets with a great potential for business growth. Primark is also getting prepared for the new market through assessing and analyzing viability and suitability of the Brazilian market before making a final decision. The company’s readiness to venture on the new global market is informed by its financial position. Financial success the company has experienced in recent years gives the firm great power to stretch beyond borders and reach out to other markets on the global scene. Global Sourcing and Production Global sourcing entails procurement of goods and services from other suppliers in other countries for consumption in a home country. Global sourcing is a very effective strategy of producing goods and services because it enables firm access cheaper materials for producing goods and services thereby reducing the costs of production. Global sourcing also benefits the firm in terms of accessing skilled personnel, promotes cost efficiency and technological flexibility( Kumar, et. Al, 2013. Pp. 78). Primark will make use of global sourcing to a gain access to highly skilled personnel and technology with the objective of improving productivity. Global sourcing will also enable Primark to form meaningful relations with people and businesses from other countries thereby creating avenues for venturing into those markets in the future. There are several countries which can be good sources for materials, personnel and technology that can benefit Primark. The company will buy or source from reputable and respected individuals and organizations around the world. The firm, however, notes that global sourcing comes with various challenges such as fluctuations in exchange rates, ethical issues, and limited protection of intellectual property. Primark, therefore, will try as much as it can to minimize the vulnerabilities of global sourcing and maximize the benefits that come with it. Market Entry Strategy Market entry strategy refers to a plan of how a business will enter a new market and carry out its business activities (Deutschmann, 2014, pp 38). There are various entry strategies that business can use to force themselves into new markets. With regard to operational strategies, Primark can adopt one of the many global marketing strategies such as the standardization strategy, localization, transnational ad international business strategies (Murray, Ju, & Gao, 2012, pp. 61). Primark should adopt a localization, or adaptation approach for producing and marketing its goods and services. Localization is the best strategy for the company because it is based on responsiveness of the local community where the company ensures maximum responsiveness by adapting the company’s strategies to the needs of the local people (Hongsik, Chang-Hoan, & Sutherland, 2007, pp. 130). This will require the company to decentralize its operations and customize its products for the Brazilian market. This strategy, however, has its own weaknesses (Holtbrügge, and Anastasia, 2013, pp. 240). The process of customizing products for the local consumers is very costly. This is likely to increase the costs of production. Implementation Of The Market Entry Strategy Entering a new market requires a business to form strategic partnerships with other established businesses, organizations, and individuals in order to have a significant impact in the industry. Among some strategic partnerships and alliances that a business can use include licensing, franchising, and international leasing among others (Ofek, & Turut, 2008, pp. 583). Primark can use Franchising as the best strategy of implementing the market entry strategy identified above. This strategy allows the company to grant permission to other businesses to use its entire business system at a certain fee for instance royalties (Ramarapu, & Timmerman, 1999, pp. 97). This is advantageous because it enables the company to have widespread presence in the new market by opening up many franchises. In order to implement this strategy effectively, Primark has to go through several steps and procedures to ensure that they adhere to the Brazilian law on franchising and business registration. The first step in franchising is conducting a research of potential businesses that can be successful franchises. This entails studying and analyzing the clothing industry in Brazil to identify successful and reputable businesses that Primark can associate itself with. The next step is contacting the potential businesses and reaching them out for an agreement. This step is very important because it helps Primark to determine the pitch in the industry as well as assessing the interest of businesses in the industry to collaborate with international companies. The next step is signing a confidentiality agreement with interested parties. This enables parties to the agreement to share business strategies with each other without fear of the other party compromising the discussion. After signing the confidentiality agreement, Primark will receive a Confidentiality Information Memorandum (CIM), which contains information about the prospective franchises. The next step is to submit a written offer to the businesses and invite them for business meetings that will culminate in signing a working agreement. References Atale, N., (2012). A Decade of BRICs: Prospects and Challenges for the Next Decade, Vidwat: The Indian Journal Of Management, 5(2), 16-21. Deutschmann, M. (2014). A System of Country Market and Entry Strategy Choice: a New Holistic Model of Internationalization, Global Management Journal, 6(1), 31-42. Galdi, F, & Lopes, A (2013). Limits to Arbitrage and Value Investing: Evidence From Brazil, Latin American Business Review, 14(2), 107-137. Hilmersson, M., and Hans J. (2012). "Reducing Uncertainty in the Emerging Market Entry Process: On the Relationship Among International Experiential Knowledge, Institutional Distance, and Uncertainty." 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