Comparing Japan and the USA to Supermarket Retail - Case Study Example

Comparing Japan and USA to Supermarket retail (Using PESTLE analysis) Name of the Student: Name of the Instructor: Name of the course: Code of the course: Submission date: Table of Contents Table of Contents 2 Introduction 3 Global overview 3 Part 1 5 PESTLE analysis 5 Political factors 6 Economic factors 7 Social factors 9 Technological factors 10 Legal factors 11 Environmental factors 11 Table 1: PESTLE Analysis of Japan 12 Table 2: PESTLE Analysis of USA 13 Merits and demerits of internationalization into US and Japan 13 Part 2 15 Change in the global environment as a result of recent financial crisis 15 Conclusion 16 References 18 Introduction In a generic perspective, the supermarket retail can be perceived as the final chain the distribution process which plays a fundamental role in linking the manufacturers or merchandise to the consumers. These retailers purchase products from the manufacturers and wholesalers among other suppliers and proceed to sell them in both large and smaller quantities to the consumers (Reisman & Vu, 2012, p. 2). This this analysis will primarily focus on the supermarket retail industry in two countries, namely the USA and Japan. PESTLE framework analysis will be put into utility with the aim of comparing the viability of internationalization of a company based in the UK seeking to expand its operations into other countries in the Supermarket retailer industry. Nonetheless, it is imperative to first gain a summative insight into the global supermarket industry aimed at gaining an understanding onto the niche of these two countries in the global scale and the role of this industry in their economic capacity. Global overview It is an apparent fact that the supermarket retail industry plays an integral role in the global economy. This is founded on the fact that efficiency in the retailing industry ensures that there is expanded access of the producers to the consumers while on the other hand, the consumers are endowed with the capacity of accessing a wide alley of goods at the best prices in the market. In addition, this industry also plays a vital role in the provision of substantial share of employment and outputs in different countries around the world. This phenomenon is best epitomized in the USA whereby in the year 2010, this industry accounted for 13.4% of employment (14.7 million workers) as well as 6.1% of value added as a share of the U.S gross domestic product ($884.9 billion) (Reisman & Vu, 2012, p. 1). In addition, it is also imperative to note that amid diverse challenges in diverse regions of the globe like natural disasters and the global financial slump in 2008, different scholars have cited that the supermarket retail industry has recorded substantial growth in the recent past, with these outlets being no longer regarded as places where only the wealthy shop. This is founded on the fact that in the period of over one past decade, supermarkets have spread from wealthy suburbs of major cities to poorer areas and smaller towns (Traill, 2006, p. 163). This reveals the central role of the supermarket retail industry in different countries around the world as well as in the larger global economy. This is evidenced by Reisman & Vu, (2012, p. 2) who revealed that the retail sales at the global level totaled to $16.5 trillion in 2010, equaling to around one-quarter of the global GDP. Figure 1.0: Retail sales by country, 2010 Source: Reisman & Vu (2012, p. 3) Part 1 PESTLE analysis According to Johnson et. al (2008, p 2), the PESTLE framework is a tool of analysis which is basically put into utility in the identification of principle change drivers in the strategic environment. In this regard, PESTLE analysis entails political, economic, social, technological, legal and environmental factors. All these factors are key in shaping the external operating environment this company which is based in the United Kingdom whose international operations are confined in Europe and seeking to expand its operations into other countries in the Supermarket retailer industry. Political factors The importance of this factor is founded on the rationale that the company seeking to expand its internationalization efforts ought to understand the rules and regulations in the countries they are targeting to based their operations. This is based on the massive influence of the political arena in any given country or region on the regulations of the businesses, the spending power of the consumers as well as other businesses. It is important to note that both of these countries have fairly stable political systems which encourage foreign investment, mostly after the trade liberalization efforts in the past decades. This is evident in Japan whereby according to the US Commercial Service (2011, p. 5), the role of the governmental institutions in the national economy has experienced drastic changes in the recent decades with the central government pursuing long-term programs in deregulation, administrative reforms and decentralization. This has been a key contributor to the country having a robust democratic system resulting in the country scoring well in this aspect by the 2009 governance indicators by World Bank. In this aspect, Japan scored commendably on governance, with an exemplary 81.0 percentile ranking in regard to the voice and accountability parameters (Data Monitor, 2011, p. 1). In addition, the Japanese government has embarked on e-governance initiatives which are projected towards instigating greater level of transparency in the Japanese politics as well as enhancing the political administration in the country (Data Monitor, 2011, p. 3). Therefore, this makes the company willing to undertake extended internationalization to be in a favorable niche to enjoy these political-economic reforms in the country. Similarly, the United States enjoys a highly decentralized market and for many years, the political system in this country has held a positive perception of foreign investment. It has thus made extensive efforts to execute policies aimed at promoting this generic belief and ensuring that investors from other countries enjoy access to the market without any unnecessary restrictions and thus increased investment in the supermarket retail industry (Candidate, 2009, p. 1489). Economic factors It is imperative to note that both USA and Japan have in the recent past experienced dynamics in economic growth, mostly which is attributed to the unique socio-economic and environmental realities in this areas. This is best exemplified by the tsunami and earthquake which adversely affected Japan in March, 2011 and had detrimental impacts on business and economy of this country. This tsunami wiped out towns and industrial zones that supplied fundamental components and this disruption of supply affected economic activities in the supermarket retail industry (Data Monitor, 2011, p. 3). The following figure shows the GDP growth in these countries from 2010. Figure 1.1: GDP Growth (half-over-half annualized percent change) Source: IMF (2012, p. 10). Another economic factor that is worth noting is that both of these countries have membership in international trade blocs aimed at facilitating trade relations.This is best epitomized in NAFTA which has significant relevance to the bilateral trade agreements which is integral to the USA based on the fact that it was the first trade agreement in a non-multilateral set-up between two developed countries (US and Canada) and a developing country (Mexico) (Honbeck, 2004, p. 1). This trading bloc can pose significant advantage to the new company from the UK seeking to internationalize its operations into the US supermarket retail industry. This is in the sense of ready market for its products, workforce as well as clear channels of expansion if it considers expanding to these other partners in the future. On the other hand, Japan is a member of the regional framework commonly referred to as ASEAN Plus Six which comprises of 10 members of the Association of Southeast Asian Nations plus other countries like India, China, Australia, Japan, South Korea and New Zealand. This regional framework gained a concrete shape during the first East Asia Summit in December, 2005 (Urata, 2008, p. 1). According to Data monitor (2011, p. 3), the foreign reserves in Japan stood at $1.14tn by the end of May 2011, second only to China among the countries with official reserves exceeding $1tn (Data monitor, 2011, p. 3). Just like the membership of US in NAFTA discussed above, the membership of Japan in ASEAN Plus Six provides a robust foundation for the establishment of this venture in the country’s supermarket retail industry which is bound to expand to other member states. In addition, the relaxed trade tariffs and barriers between these state means that the company will be strategically niched to import products from these countries which will be key in expanding its portfolio. Social factors The labor force in these two countries is bound to affect the viability of internationalization efforts of this company either in the US or in Japan. This is whereby in the US, there has been a historical growth of the labor force in the last four decades, a phenomenon which can be attributed to both the growth of the population size as well as the elevated participation rates of women in the labor force (Lee & Mather, 2008, p. 3). In addition, the US government has encouraged foreigners to enter into the workforce of its country which is bound to guarantee a strong workforce in the supermarket retail industry (Data Monitor, 2011, p. 3). This is an extra incentive to this UK based company which is seeking to expand its operations outside the borders of Europe. On the contrary, the population which contributes to the labor force (15-64 years) has seen a steady decline in Japan since 1996 and comprises around 64% of the overall population (81.5 million). This phenomenon has been perceived to possibly culminate in acute shortage of both labor and industrial productivity in the long-term (Data Monitor, 2011, p. 3). It is projected that Japan will see a drop of 12% of its labor force between 2000 and 2020 (Lee & Mather, 2008, p. 3). In addition, unlike in the US where there are high English standards which are bound to increase the level of efficiency in this UK based company (UK is predominantly English speaking), Japanese students have in the recent past recorded the lowest points in Asia in TOEFL tests. Nonetheless, Japan has been credited for launching the new curriculum for Japanese student aged 10-12 to study English and aimed to be industry leaders of finishing a decades-long English shortfall (McCurry, 2011, p. 1). Lastly, it has been noted that unlike in the US where there are liberal policies on immigration which has been attributed to the growing labor force in the country, Japan has a closed door policy which is bound to negatively affect the injection of more labor force in this country amid the declining labor force both in the short and in the long-run. This is bound to affect the labor force in the supermarket retail industry in Japan. Technological factors The advent of new technology in any nation has been credited for benefiting both the consumers as well as the companies based therein. For the consumers, this result to the increase of consumer satisfaction based on the availability of a wide alley of goods, and on the other hand, the services become more personalized thus elevating convenience in shopping. In Japan, the government has steadily increased its expenditure on research and development by around 36% from $128bn in 2001 to $174bn in 2010 (Data Monitor, 2011, p. 4). This is bound to elevate the technological capacity in this country which will benefit even foreign investors like this UK based company seeking to venture into the supermarket retail industry. Nonetheless, commentators have pointed out that Japan ought to make more efforts towards enhancing its R&D environment in order to counter the challenges posed by China and India. Both of these countries have developed robust R&D outsourcing centers as a result of the low cost and skilled labor that they can provide (Data Monitor, 2011, p. 4). Similarly, investment in R&D in the US has increased in the recent past which has posed positive impacts on technological advancement in terms of communication and transport among other infrastructure (Moore et. al, 2005, p. 11). This has increased the level of efficiency which is bound to favor this new company considering internationalizing into the US supermarket retail industry. Legal factors According to Data Monitor (2011, p. 4), recent legal dynamics in Japan have also seen the move by the government to minimize the corporate tax rates from 40% to around 36% in the recent years aimed at boosting foreign investment. This has left the US in an uncompetitive position by the virtue of having highest statutory tax rate in the world, with a combined federal-state rate of about 40% (Chen & Mintz, 2012, p. 1). Environmental factors As previously mentioned in the economic factors section, Japan has in the recent past been confronted by environmental impediments, mostly by the March 2011 tsunami and earthquake which adversely affected the country and had detrimental impacts on business and economy of this country. US has also been confronted by environmental challenges, most notably the Hurricane Irene and Tropical Storm Lee, both of which made landfall in the U.S in the period between late August and early September, 2011. The possible recurrence of such environmental hazards is a major consideration of this company seeking to internationalize into the supermarket retail industry in either of these countries. Table 1: PESTLE Analysis of Japan Political Technological -81.0 percentile ranking in voice and accountability parameters -e-governance initiatives -Increased R&D expenditure from $128bn in 2001 to $174bn in 2010 Social Economic -Decline of labor force to around 64% of total population (81.5 million). -Projected 12% drop of labor force between 2000 and 2020 -Below average English standards -Second highest foreign reserves in the world ($1.14tn by May 2011). -Member of the ASEAN plus six trading bloc Legal Environmental - Corporate tax rate at 36% -Affected by March 2011 tsunami and earthquake Table 2: PESTLE Analysis of USA Political Technological - Stable political systems -Highly decentralized market -Elevated investment in R&D Social Economic -Growing labor force and population size -Increased women participation in the labor force -Liberal policies on immigration -Constant growth of the GDP -Member of the NAFTA trading bloc Legal Environmental - Corporate tax rate at a high of 40% -Affected by Hurricane Irene and Tropical Storm Lee among others Merits and demerits of internationalization into US and Japan In Japan, the company seeking to internationalize in this region will benefit from the conducive corporate taxes for the foreign investors which have been reduced to around 36%. This will have positive impacts on the profitability of the firm. Secondly, by the virtue of Japan having membership in trading blocs like ASEAN Plus Six which constitute highly populous countries like China and India among others, this will give it an extra advantage of access to the market of its products as well as reduced tariffs while importing diverse products from these countries. Thirdly, the high technological advancements in Japan will also be an added advantage to this company. This is based on the fact that it will elevate the level of efficiency in terms of communication, transport and warehousing among other aspects. In addition, increased investment of the Japanese government in R&D is projected to yield greater technological innovations which will also benefit this company in the long-run. Nonetheless, there is the disadvantage of the shrinking labor force in Japan. This is bound to affect access to skilled workforce to work in the supermarket retail outlet which will pose negative impacts on this firm. Moreover, the decline of the labor force will also increase the operational cost in terms of high cost of hiring competent human resource in the firm. In addition, this company is bound to be confronted by cut-throat competition by companies from China and India which are in the same trading bloc and which are seeking to expand into Japan. This is bound to affect the capacity of this company to effectively penetrate into the Japanese market. In the US, the company is bound to benefit from the stable political arena. On the other hand, the constant increase of the labor force will ensure that the company has constant supply of competent and relatively cheap human resource which will not only increase the performance of the company but also cut down on the operational cost. In addition, the high level of technological advancement will be an added advantage for this company in terms of increased efficiency and effectiveness in service delivery. However, the high corporate taxes in this country are bound to affect the profit margins of this company, both in the short and in the long-run if urgent measures are not taken by the government to avert this trend. In addition, this company is bound to be confronted by stiff competition in the supermarket retail industry from multi-national companies like Wal-Mart which are based in the US. Part 2 Change in the global environment as a result of recent financial crisis According to Otobe (2011, p. 1), what started as a financial crisis in the US resulted in sweeping global downturn in real economy and posed detrimental impacts on diverse sectors. Firstly, it culminated in extensive global job crisis as different companies around the globe were confronted by indefinite liquidation. These impacts were felt across diverse countries both in the industrialized north as well as in the developing south. On the other hand, the global financial crisis resulted in the decline of national savings in different countries. This phenomenon was evident in Japan based on the fact that many banks offered lower interest rates to people who had money in their savings accounts. As a result, many investors greatly suffered when it was compared to the period before the crisis (Batten & Szilagyi, 2011, p. 1). The financial crisis also had impacts on the consumer spending as majority of the people both in the US and Japan restrained from purchasing some products which were considered secondary and opted to buy basic commodities as a response to the harsh economic times. This had detrimental impacts on different firms selling these secondary products and services which affected their overall performance. Thus, the financial slump had great impacts on changing the consumer behavior. In addition, efforts towards recovery from the financial crisis have seen many industrialized countries including the US and Japan make profound attempts to loosen their monetary policies with characteristically low interest rates (Grant & Wilson, 2012, p. 109). This is a relief to different companies seeking to expand their venture in different regions of the world. All these might influence the internationalization scenario whereby most of the companies making efforts towards internationalization are bound to greatly favor countries with conducive monetary policies in terms of low interest rates on loans as well as low corporate taxes on foreign investors. In addition, majority of these companies are bound to favor regions which have gained some stability in terms of consumer behavior in order to avoid the dynamics brought about by constant fluctuations of consumers in terms of purchasing behaviors. Moreover, as a result of increased regionalization which has been accelerated by the global financial crisis, companies are bound to favor countries in wide regional trading blocs in order to take advantage of the extensive market capacity. Conclusion The preceding analysis has shown revealed the important role of the supermarket retail industry in the global economy. It has also shown the differences between the US and Japan in terms of political, economic, social, technological, legal and environmental factors which might influence the decision of internationalization of the UK based company into the supermarket retail industry of both countries. Lastly, it has revealed the impacts of the global financial crisis and how they are bound to influence the internationalization scenario. References Batten, JA., & Szilagyi, PG., 2011, ‘The Impact of the Global Financial Crisis on Emerging Financial markets, Emerald Group Publishing, Bingley, England. 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Lee, MA., & Mather, M., 2008, ‘U.S. Labor Force Trends’, Population Bulletin, Vol. 63, No. 2, pp. 1-17. McCurry, J., ‘Japan launches primary push to teach English’, The Guardian, 8th March, p. 1 Moore, MC., et. al, 2005, ‘R&D Advancement, Technology Diffusion, and Impact on Evaluation of Public R&D’, retrieved 19th December, 2012, http://www.nrel.gov/docs/fy05osti/37102.pdf. Otobe, N., 2011, ‘Global economic crisis, gender and employment: The impact and policy response’, Employment Working Paper No. 74, ILO, Geneva. Reisman, M. & Vu, D. 2012, ‘Nontariff Measures in the Global Retailing Industry’, No. ID-30, International Trade Commission, Washington, DC. Traill, WD., 2006, ‘The Rapid Rise of Supermarkets?’, Development Policy Review, Vol. 24, No. 2, pp. 163-174. Urata, S., 2008, ‘An ASEAN+6 Economic Partnership: Significance and Tasks’, Asia Research Report 2007, Japan Center for Economic Research, Tokyo. US Commercial Service, 2011, ‘Doing Business in Japan: 2011 Country Commercial Guide for U.S. Companies’, retrieved 19th December, 2012, . Read More