Argos Enter the Chinese Market - Research Paper Example

Argos Enter Chinese Market: An Investigation CONTENTS CHAPTER 1: INTRODUCTION 3 CHAPTER 2: LITERATURE REVIEW 3 2.1 Introduction 3 2.2. Financial Condition of Argos 3 2.3 Strategical Key Elements in Retailing 4 CHAPTER 3: METHODOLOGY 5 3.1 Introduction 5 3.2 Performance of retail market in China 5 3.3 Role played by Argos in China 6 3.4 Argos and Chinese Politics 8 3.5 Argos’ market of Organic Goods 10 CHAPTER 4: ANALYSIS 12 4.1 Introduction 12 4.2 Application of PEST and Porter’s 5forces 12 4.3 Modeling changes in markets and trade 15 CHAPTER 5 Conclusion 16 Questionnaire 18 References 20 Recommendations 21 CHAPTER 1: INTRODUCTION The chief area of investigation of this paper is to check out the role played by the ARGOS (Agricultural Research Group on Sustainability) by the process of entering the market. This paper concentrates at the continuous growth of the retailing market of China and thereby tries to find out the contributions as forwarded by Argos. Argos is part of Home Retail Group; and it sells an excess of 17,000 general merchandise products for the homes. All these products are set out in its twice-yearly 1,700-page catalogue on the internet. Customers from every corner of the world can purchase products through its network of over 700 stores. They can order them online or over the phone. It also have the facility of picking up the purchased materials from a store branch of any choice or can have them delivered at home directly. The online market of China on the other hand is chiefly dominated by Taobao. It is not only the most popular but also has got a very good reputation for is services and products. Taobao is the biggest website of shopping in China; there have a lot of information about suppliers. It is already making a huge profit and is exceptionally doing well. CHAPTER 2: LITERATURE REVIEW 2.1 Introduction This chapter highlight the financial status of Argos and also will check the retail market of China on the basis of online selling. 2.2. Financial Condition of Argos The sales of Argos has been up by 2.4% and down 1.4% at Homebase; reported sales of £5,607m. The benchmark of Pro forma operating profit is up 8% to £359.4m of which Argos and Homebase; reported profit of £305.2m. Below are the detailed graphs showing sales-continuing operations, benchmark operating profit-continuing operations and pre-tax return on invested capital. Source - http://www.homeretailgroupar.com/ Source - http://www.homeretailgroupar.com/ 2.3 Strategical Key Elements in Retailing Argos, always adopted the strategy of developing world-class, low-cost sourcing capabilities. It is the best way to enable Home Retail Group to deliver even greater value to customers. Added to this there is the facility of delivering end-to-end solutions that give the customers convenient ways to order, pay for and obtain the goods that they want. The target is to deliver sustainable returns for all its stakeholders. They believe in delivering the growth in total shareholder return which must have some relevance to the top quartile of comparable listed companies over the medium to long-term. The company achieves this by delivering sales and profit growth throughout the group. In the process there has to be the support of investment programmes that give returns in excess of their cost of capital. These objectives get recognised and accordingly the company constructs its long term strategies. Consistent investment in businesses with competitive advantages is another key factor for the rise of Argos in the retail market. Accordingly there are regular attempts for achieving the objectives for shareholder return. This data is on a 52-week pro forma basis CHAPTER 3: METHODOLOGY 3.1 Introduction The purpose of this chapter is to find out the chief causes and contribution of Argos in getting in the markets of China. The processes and the motives are the part of this investigation. 3.2 Performance of retail market in China China has made about 40% of the world's socks in 2007.1 It has been found that the retail sales of China are growing at a continuous rate from July 20072. Chinese consumer sales growth is out of control, and is vigorously increasing. The survey from the investment market it has been found that from last three years the retail market of China is growing in the quickest possible way. Even in the International competition of the investment market China could make its own static reputation of growth. The rise in the retail sales is helping in the rise of wages and in the disposable income nationwide as a key to solve unemployment. The country is growing economically like a giant dragon. The increased economy is 11.5% in the first half of 2007. This was an unexpected analysis of the business experts. The consumer retail sales got a rise of 16.4% over the year in July. Added to this there was the display of 0.4% point growth since June’s 16%. The growth in the retail sales were calculated to have grown by 5.6% through the course of July. This is undoubtedly the declaration rapid expansion in high street profits. The contributions made by the export section too are of great worth. Exports have helped in the shift of Yuan with more productions to international shores. On the other hand the domestic consumptions are getting better hype. It is equally improving and is getting the touch of well furnish 3.3 Role played by Argos in China In 2003, price premiums on organic products as initiated by Argos varied in different countries in different way. The price premium in China was estimated to a range between 10-400 per cent. This was a clear realization of the ARGOS (Agricultural Research Group on Sustainability) about Chinese market and thus it planned to enter the markets of China. In Argos the stock is held in stockrooms to which only staff have got the access. For shop floor display Argos often packages its goods in plain packaging or simple plastic bags, rather than smart packaging. By means of having no direct access to most stock by the customers the incidents of shoplifting and customers damaging stock are reduced to a great extent. Argos also plans to grow dividends for shareholders broadly in line with earnings. This is what it applied while making China its target. These dividends are subject to the investment needs of the business and with an acceptable level of dividend cover it tries it tries to get the economic support. Argos maintains an appropriate capital structure, financing their operations through a combination of retained profits, bank borrowings and property leases. With this process it can give a kind of support and backup to the China market. Argos has gained an industry wide reputation as being one of the fastest, most accurate and cost-effective document translation vendors. This is something very effective for the market of China as it rally needs some good translating organisations to meet the international level of selling and buying. Most of the documentations are in Chinese, the interaction in international basis gets blocked. These hurdles are going to get solved by the translating skills of Argos. With increased globalization of the business world, it is very important to being able to make the brand image and message carried to the other side of the border. And in case of the market of China it is the brand image and the message that is facing the obstacles of being in Chinese language. This is what Argos translation is going to change and will thereby give the market an international route of communication. Argos Company Ltd. is very particular about the document translations. It helps the companies in extending their business offerings to new markets and improves their internal and external, lines of communication with the world. 3.4 Argos and Chinese Politics China's government is the Communist in nature. However like other communist countries its economy involves considerable private enterprise and market forces in both private and public sectors. Argos took this plan on hand to get the possible way to foresee an economic system that can make room for it in the market of China. As the country has got the cooperative, democratic worker ownership and market allocation of final goods and services; the strategical inputs led by Argos will surely going to work over the marketing management levels. As the labour-managed market economy is one of several proposed forms of market socialism, the business of retail marketing is going to have a very good perspective in China. Argos believed and applied the formulation of getting into the markets of China via its hold over the market economy of the country. Argos very clearly understands that in any business, the consumers got the right to decide over their own volition of what they will purchase from the store. The company accordingly made the marketing surveys and introduces the products those are of more demands but are of less supply. It produced, through the allocation of those resources that are without government intervention.3 It adopted the theoretical implementation of the strategy that the producer gets to decide what to produce, how much to produce, what to charge customers for those goods, what to pay employees, etc., and not the government. All these decisions were taken after investigating the market economy of the country, which are again under the influence of competition, supply and demand. As opposed to a planned economy, in which a central government decides what will be produced and in what quantities4, in China there is the liberty of production. This became the real boost for Argos to get into the country. As there were less influence of mixed economy; where there are market operations though the markets system is not entirely free but under some government control [that is not extensive enough to constitute a planned economy], Argos studied the phenomenal structures before its entrance. It followed the idea of the real world, where there is no nation that has a pure market economy.5 Accordingly it made a very specific and accurate entry. Argos and Homebase are supported by an in-house financial services business. This makes the business easier. This in-house financial services business provides a high range of credit and insurance products to customers through each of the customer-facing channels of stores, online and over the phone. Argos serves more than 130 million customers per year through its stores and takes 4 million customer orders per year either online or over the phone. On average, it takes 17 million UK households, or around two-thirds of the population, have a current Argos catalogue at home at any time. The table6 below shows the categories and the overlap between the Argos and Homebase businesses are7: Product markets Argos Homebase Group position Market size Home Enhancement         Housewares Yes Yes Number 1 £8.9bn Furniture Yes Yes Number 1 £8.4bn Home Improvement (DIY/fitted kitchens/bathrooms) Yes Yes Number 2 £11.4bn Horticulture, Garden Furniture and Outdoor Living Yes Yes Number 2 £3.1bn General Merchandise         Small Domestic Appliances Yes Yes Number 1 £1.4bn Consumer Electronics Yes Yes Number 3 £14.8bn Large Domestic Appliances Yes Yes Number 3 £4.0bn Toys Yes No Number 1 £1.8bn Jewellery Yes No Number 1 £3.1bn Sports and Leisure Equipment Yes No Number 1 £1.2bn         3.5 Argos’ market of Organic Goods Argos understands the demand for organic food and beverages. As it is primarily attributed to food safety and health considerations, the awareness of owning it is also very high. In general, through out the world there is a regular increase in personal health awareness. This is not a trend but an emergence of the demand. Argos is very particular in this section of its market. There are the implementation of many ways to bring the attention to the methods used in intensive conventional agriculture, and a lack of confidence in mainstream food production. Most of the people prefer organic food as it has not been treated with pesticide, hormone or antibiotic treatments. This is further in demand as it is good for personal health. It is also popular due to the increasing concern for the health of the environment around the world. The whole revolution is about consuming the best thing and those things that are close to nature. This trend is not only getting particularization especially in developed nations but also in the developing countries. China is one such country that is following this trend of consuming organic food. Being the country with world’s largest population, Argos can have no better market for it than China. The methods of producing organic food have been favoured by most of the people over current conventional practices. As being more environmentally benign, this system is getting much hype. There are also the contribution of the ethical reasons have an influence on consumers demand for organic produce. China in particular is experiencing growth in demand for organics. It has been found that there is the market maturity in few countries on a limited range of commodities. This helps in the overall continued growth of the expectations of the consumers that keeps on varying by degree across nations. Price premiums may decrease over time as the organic industry sector increases in size, yet potentially remaining at a significant level in a mature market. The production costs for organics have decreased over time, while increasing economies of scale as the industry grows, but also due to improvement in production technology as research and service industry support develops alongside the expanding production. Argos is sure to pick up all these factors and will manage the uncertainty and risks of the organic industry, for the establishment of its market. CHAPTER 4: ANALYSIS 4.1 Introduction The attempt of this section is to check the sustainability of Argos in the Chinese market  4.2 Application of PEST and Porter’s 5forces The application of a PEST analysis in case of this particular phenomenon of Argos entering China, gives the insight of the whole strategical plan. As it is an investigation of the important factors that are changing which influence a business from the outside, the predictably capacity of Argos about the retail market of China has to be very clear and transparent. China being a static communist country the political changes are very less likely to happen. The communist government as discussed above makes certain restrictions and applies certain norms for the company that comes from outside. This is what Argos needs to take care of. In case of the economic changes in China the intervention of Argos is remarkable. It is into the markets of China when there is every possibilities of having economical rise among the natives. The status quo has been marked among the young Chinese by means of their cell phones. Somebody who cannot afford to purchase a house or a car, a fashionable cell phone is the next best opportunity to showcase one’s status. This is going to help the company a lot. There are all possibilities of rise in living standards of the Chinese people, opening new marketing zones for Argos. The social structure of China is also very suitable for Argos as almost every class and creed of the society are adopting for independent lifestyle. The speculations negated the whole thought. 90% of interviewees said they expected to “spend considerably more” in 2008 than they did in 2007, and the vast majority was “very optimistic” about salary potential in the next two years, with the majority expecting salary increases of 10% to 25% in next year. Argos is looking forward for the same. Argos is going to make its space in that. For the technological sector, China is a country that is having youths who are very aspirants towards techno freak world. This is the reason that they always prefers to own new cell phones and new watches with multidimensional aspects. Argos with its advanced technological sector can get the best of the clients for its business. Whereas in the near future, mobile-phone advertising will become critical as the number of mobile-phone users in China grows to 600 million by the end of 2008, well over 50% of the world totals. As Argos presents similar product ranges to the customers in two different shopping environments. By means of this they are opting to have a regular increase in the opportunity to maximize the market share. No way it’s going to have any loss. By the application of Porters 5 Forces, we get the hurdles that the company is going to face in China. The Five Competitive Forces of Porter are going to make Argos face tough competition in the China market. The chief hurdles are a) Bargaining Power of Suppliers b) Bargaining Power of Customers c) Threat of New Entrants d) Threat of Substitutes e) Competitive Rivalry between Existing Players The psychology is that the consumers wish to touch products and compare different brands directly has been shifted to looking at products from behind a counter. Argos have come in and not only specialized based on Chinese needs and preferences, but also adopted a higher level of indispensable service of retail stores. By the utilisation of all the five forces the company needs to study the upcoming hurdles and should get prepared with some solutions. The implementation would be by the influencing the Power of Argos of in the China market. It also has to reduce the bargaining power of the specific suppliers and also of the customers. As for the customers the online selling is no doubt the best way. Argos has to reduce the treat of the new entrants in the retail markets of China. However initially since it is the new entrants it has to follow some proceedings for the same. The threat of substitution too is going to give Argos a tough time. Te retail market online, in China is dominated by Taobao and that is something Argos has to think for making the shift. Argos must have the tactics and the proceedings to show a positive attitude to its rival companies in China. The model of the Five Competitive Forces by Michael E. Porter is an important tool for analyzing an organizations industry structure in strategic processes. This particular model is based on the insight that a corporate strategy should meet the opportunities and threats in the organizations external environment. By means of choice and value-led product offering Argos has got better chances to occupy the market than any one else. Retail services in China have traditionally been somewhat limited. Consumers going out to shop for products were accustomed to dealing with poorly trained salespeople with little knowledge of the products they sell and little interest in helping their customers. 4.3 Modeling changes in markets and trade LTEM is an empirical method used to check the modelling changes in markets and trade. Adoption of it by Argos made it efficient with a multi-country, multi-commodity modelling, and had the capacity of focusing on the agricultural sector in a partial equilibrium framework. This particular framework is used to analyse the impact of various shifts in demand or supply on the country and commodity based price, net trade levels and producer returns, with the commodities in the LTEM differentiated to organic and conventional. Argos believes that LTEM is a dynamic framework as it provides the time paths of endogenous variables within a short to medium-term time horizon with a specific investigational result. The main purpose of this model is to work by simulating the commodity based world market clearing price on the domestic quantities and prices, which may or may not be under the effect of policy changes, in each country. For Argos the application will be in China. As LTEM allows the application of various domestic and border policies explicitly, Argos can very easily, by the means of production quotas, set-aside policies, input and/or output related producer subsidies/taxes, consumer subsidies/taxes, minimum prices, import tariffs and quotas, export subsidies and taxes; can get hold over the market of China in the long run. It is in regular check with the excess domestic supply or demand in China can spill over to get the world market to determine world prices. With the adaptation of the world market-clearing price, that gets determined at the level that equilibrates the total excess demand and supply of each commodity in the world market, Argos is going to get the Chinese data through a non-linear optimization algorithm. CHAPTER 5. Conclusion Argos is very particular in the application of its strategic growth and that is the basic thing it has done while entering the Chinese market. These strategies are basically - a) Being influential with all extensive product portfolio, market leadership and purchasing scale. It can be attained by getting market leading positions, enhancing and developing both the product range and the offering in core areas. b) There is a compulsion of increasing the market share in targeted large product markets by capitalising upon the strength of the Argos and Homebase brands. It is the means to identify opportunities in product markets. The utilisation of inherent flexibility of the Argos and Homebase formats are the added scopes for the same. c) Argos’ and Homebase’s store networks always meet the target of opening approximately 30 Argos stores per year. d) There has to be an extension and expansion of multi-channel leadership by the company. It is achieved by driving incremental sales growth over and above that which is achieved through new store openings. Thus with all the key strengths and the strategical implementation Argos got into the markets of China. The basic thing is the question of sustainability. Its records show that it has always made its mark and so there is the flow of an optimistic thought in the company. Questionnaire: 1. What are the expectations of youth towards the services provided by Argos? 2. What is the role of shared scale and logistics in providing value for money and wide range of choices? 3. How can shared infrastructure efficiency to make these products available to customers? 4. Will the translating sector of Argos will be of any use to China? 5. Is the brand image of Argos in Europe will help to have establishment in China? 6. What is going to be the basic target of Argos for the matter of sustainability in the market? 7. Do you think Argos will be able to shift the brand image of Taobao to itself among the Chinese population? 8. What are the basic variation Argos should have to suit the needs of Chinese population? 9. Is there any solution to the fact that the communist party will not intervene in the marketing strategies of Argos? 10. What is going to be the reaction of the youth community of China towards Argos? 11. Will Argos be able to perform better in future? i/ UK ii/ Ireland iii/ New Zealand iv/ China 12. Who should be the target customer for Argos in China, for more profitability? i/ Working Women ii/ Housewives iii/ Youngsters iv/ Men 13. Which are the special threats that Argos is going to face on the basis of Porter’s five forces? 14. Would Argos be able to meet the food demand of Chinese population? 15. Discus the application of technology in the markets of China, that Argos has to follow? 16. Will the communist form of Government in China going to be favourable for Argos? 17. What are the probable hurdles the company can face politically? 18. How far will Argos be able to meet the online customers in China? 19. Analyse the categories of organic food that most of the Chinese prefer to buy? 20. What are the most selling gadgets in China? i/ Cell Phones ii/ Automobiles iii/ Music Systems iv/ Watches References 1. Borking, Seline (1998). The Fascinating History of Shopping Malls. The Hague: MAB Groep BV. 2. Chung, Chuihua Judy (ed.) (2002). Harvard Design School Guide to Shopping. Köln: Taschen. 3. China’s Rising Retail Market,April 9th, 2008 by China Business Success Stories,http://www.chinasuccessstories.com/2008/04/09/chinese-youth-consumers/ 18 April 2008 4. Gorman, Tom. The Complete Idiots Guide to Economics, Alpha Books (2003), p. 9 5. Hardwick, M. Jeffrey (2003). Mall Maker: Victor Gruen, Architect of an American Dream. Philadelphia: University of Pennsylvania Press. 6. Kowinski, William Severini (2002). The Malling of America: travels in the United States of Shopping, 2nd ed., XLibris. 7. 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The Commanding Heights: The Battle for the World Economy, Simon and Schuster, 1998. Read More