Global Marketing Plan Report in Saudi Arabian market - Assignment Example

Global Marketing Plan Report in Saudi Arabian market Summary Saudi Arabian market has been the centre of the Middle East economy. The nation has been developing and government has shown potential for the growth through various investments in the country. The opportunities for Argos Ltd in the Saudi Arabia market are more than the threats and weaknesses identified from the various conducted analysis. There are potentials to enter in this market for the UK based retail company if they implement appropriate strategies for the analysis that have been presented in the study. Introduction Argos Ltd is the UK based company that operates in the retail industry of UK market. The company wants to enter in the market of Saudi Arabia. In this context, the market of Saudi Arabia will be analysed with respect to different parameters. The analysis of the market will help to bring out the potential and threats of the market for the international business operations. This report will assist to provide details about marketing opportunities and potentials for the global business environment. Background of Argos Ltd Argos Ltd is the UK based retail firm that operates as a multi-channel retailer recognised for delivering value, choice and convenience to the customers. The company offers general merchandise and products for home through their 700 stores located in the UK market and Republic of Ireland along with online and telephone assistance. During the financial year of 2010, the company had been able to generate more than £4.30 billion with the workforce of 33,000 across the business segments. The company serves more than 130 million customers annually. They are able to generate sales through the internet that consists of 26% of the total sales. These are few of the reasons for selecting the company for the analysis (Argos Limited, 2011). Marketing Plan Considering the Business Environment In order to identify the various aspects of Saudi Arabian retail market, SWOT analysis will be conducted which will bring out strengths, weaknesses, opportunities and threats prevalent in the market. Strengths The Fast Moving Consumable Goods (FMCG) segment of Saudi Arabia shows huge potential. There are more than 24.20 million people out of which 7.0 million are non-Saudi residents consuming FMCG goods (Mousa, 2009). The retail sector of Saudi Arabia is expected to grow by a hopping US$ 125 billion by 2014 as there are several international brands planning to enter the retail market of Saudi Arabia. In the global retail ranking, Saudi Arabia has positioned itself in the ninth place. The market has been able to attract many international retailers and had overtaken well-known retail destinations such as Russia, Hong Kong and Japan. More than 43% of international brands are attracted towards this retail destination. The present micro as well as macro economic factors such as population growth and local infrastructural expenditure on new cities highlights Saudi Arabia’s rising influence as a retail destination to expand to (Sambidge, 2010). Weaknesses The economy is highly dependent upon oil industry. The fluctuation in the price of oil creates imbalance in the economic situation. In addition, there are several political threats that make the country’s environment unfavourable for business. There had been huge decrease in the employment rate in 2009 and its effect is still seen in current year by considerable extent. Due to unemployment, per capita income reduced which renders lesser amount of money in the hands of the customers to spend and it is not a positive sign for the retailers (International Labour Office, 2010). Opportunities The Saudi Arabia Retail Report forecasted that there are huge opportunities for growth. According to CNBC, the country's retail sales will grow from an expected SAR99.27bn (US$26.51bn) in 2011 to SAR136.07bn (US$36.34bn) by 2015 (CNBC, 2011). The retail sector benefits maximum from the Muslim tourists who visit the country for the purpose of Umrah pilgrimages and the Hajj every year. This increases the demand and sales for gift items and souvenirs. According to the CNBC report, in 2008, there had been increase in the sales of these items which increased by SAR4bn (US$1.1bn) due to tourist shopping (CNBC, 2011). By the year 2011, Saudi Arabia’s GDP is expected to be US$ 474.60 billion with a growth of 2.50%. In addition, it is expected that there will be increase in the annual GDP from 2011 to 2015 by more than 3.20%. The rate of population will also increase and the per capita income is also expected to increase to US$ 22,320 by 2015 (CNBC, 2011). The segments of gift items are highly profitable for the business so as to gain maximum revenues. Apart form this, FMCG segments has huge potential as the government also encourages the FMCG merchandises. There is Foreign Direct Policy of Saudi Arabia that allows for investment in the economy and in the sector as well. From the FDI policy, the business can raise funds from national as well as international market. This will provide an opportunity for the company to manage the capital and funds and thereby take advantage of Saudi Arabia’s market. The World Trade Organization (WTO) agreement of Saudi Arabia is an opportunity for Argos Ltd as it is focused upon the competitive sustainability of firms through export and import policies. There are better opportunities for Argos Ltd as the WTO agreement favours business operations in Saudi Arabia economy. The agreement focuses upon long term benefits in order to stimulate competence and excellence, raise expertise and technology levels and move towards superior value products and services. These strategies are considered to be better opportunities for Argo Ltd so as to invest in the economy through setting up stores in Saudi Arabia (Ministry of Commerce and Industry, 2006). Threats There are several international retailers and brands that are planning to open their stores in Saudi Arabia. There will be huge competition not only from local retailers but also from international retailers. In Saudi Arabia by 2012, the international retailer GAP has planned to open approximately 44 GAP stores including variations and 10 Banana Republic Stores (PRLog, 2010). Centrepoint is the largest retail chain of Saudi Arabia and has more than 300 stores in the region. They have been operating from several years and have captured the market as well as retained the customers. They understand the consumers’ needs and accordingly have developed the concepts of shopping. Centrepoint attracts more than 8 million customers since they have the pricing strategy that best suits the customers (Centrepoint, 2011). There are short and long term risks of the retail industry in Saudi Arabian market. These risks are of various natures that can affect the business operations of Argos Ltd. These risks may be systematic and unsystematic and that should be analyzed for future before setting up of the stores in Saudi Arabian market. PEST Analysis Political Environmental Analysis The political control and policies are formulated by the King. Members of the royal family of Saudi Arabia hold most important business, military, governmental and judicial positions (EDC, 2011). Saudi Arabia is considered as a CRT-3 country. All six countries that encompass the Gulf Cooperation Council, i.e. Saudi Arabia, Kuwait, Oman, Bahrain, Qatar and United Arab Emirates are in CRT-3. They have greater political influential power over trade practices in these regions. Political instability in any one of the six nations will affect Saudi Arabia’s politics as well. This hampers the trade relationship between the countries. The trade relationship between Saudi Arabia and the USA can be taken as an example. The USA’s political decisions upon the Israel conflict affected their business relations. In order to settle the issues and develop healthier trade relations, the nations are trying to resolve the disputes between them (AMB, 2010). Argos Ltd also has to face problems in opening up stores if there any political instability arises between the UK and one of the members of the Gulf Cooperation Council. The problem that will be faced by the political pressure is related to certain products and merchandises that are banned in the nations. There are certain FMCG products that are forbidden in Saudi Arabian market. Argos Ltd has to develop their strategy in products and product lines along with the brands they deal in. The terms of contract between the vendors and Argos Ltd need to be revaluated and fresh contracts should be designed for the new market and equally make careful choice of vendors. The political pressure upon the products and product lines are strict and bears penalties and punishments towards manufacturers on non-adherence that will have adverse impact upon the business. There are restrictions in certain FMCG goods as well as merchandises that need to be carefully examined before opening the stores in Saudi Arabia. Thus, maintaining the international standards will become difficult for Argos Ltd. For political policies, the UK retailer needs to modify and restructure the format of the retail store according to the product and products lines that are permitted in the Saudi market. The GCC’s objectives encompass private sector collaboration, creating dependable regulatory environment. These objectives will affect the business operations. If there are changes in the currency then the question of valuation will be raised which might be overvalued or undervalued as compared to the UK’s currency. If there is dependable regulatory environment, then this will also affect the business operations in Saudi Arabia. The framework of the regulatory environment might be favourable or adverse for the business operations of the UK based firm such as Argos Ltd (AMB, 2010). Economical Analysis There are anticipated economic growths in the future. As the nation is the largest exporter of oil production, the economy depends greatly upon oil productivity. It is expected that there will be rise of 4% to 5% of economic growth in 2011 to 2012 due to the rising petroleum production with enhanced petrochemical and refinery output. This shows positive signs for the development of the nation. The improvements will increase the demand for merchandises and Argos Ltd will get the opportunity to capture the potential market (EDC, 2011). The GDP (purchasing power parity) of 2009 was US$ 599.7 billion that increased to US$ 622.5 billion in 2010. It is expected to increase in the future and thus to be considered as a potential market for Argos Ltd. There had been 3.80% of GDP real growth rate during 2010, thereby showing the strength of stronger economy. The GDP in terms of per capita income had risen by US$ 500 million during 2010 which reveals the spending capacity of individuals. Argos Ltd can attract many consumers towards the stores as people have huge spending capacity. There is zero percent of population below poverty line that creates the market for every individual for the store. The industrial growth rate estimated in 2010 was 3.10% showing positivity in the development. Overall, the economic condition for Argos Ltd for Saudi Arabia market is positive (Index Mundi, 2011). Socio-Cultural Analysis The nation is influenced by the Muslim culture and therefore society developments are also according to the culture. 90% of the population ethnic group belongs to Arab and rest 10% are Afro-Asian population (U.S. Department of States, 2010). In order to set up stores in the Kingdom, Argos Ltd needs to identify the culture and society of the people thoroughly in order to offer the merchandise and services that are best suitable to them. Wrong perception will lead to disaster in terms of investment, return on investment within the time period and might lead to unsuccessful venture. Centrepoint of Saudi Arabia has been able to perceive the socio-cultural aspects of the people and is efficient enough to offer merchandises and services that are best suitable for the people with appropriate pricing strategy. The process will require time in developing the concept for the stores for this region and the pressure of competition is also present. Saudis are generally ethnically Arabs, but there are certain mixed ethnic origins as well. They descended from Indonesians, Iranians, Indians, Africans, Turks and others. They are immigrants from Asian nations as well, thereby representing varied cultures and societies. They nearly consist of 100,000 populations in Saudi Arabia (U.S. Department of States, 2010). Argos Ltd not only has to identify and develop strategies according to the culture and society of Arabs but it also needs to identify the Asian culture and other Middle East nations in order to offer merchandises and services as well to them. This way the company can develop the market in the region. Technological Analysis (Online) Technology plays an important role in the retail industry to assist the retailers to operate efficiently and effectively. The application of online sales has made the retailers gain advantage in this industry. Argos Ltd is able to generate their sale of 26% from the online source in the UK market. This strategy has been significantly important for the company. It offers to promote different merchandises and sales (Argos Limited, 2011). The challenge is the technical advancement of Saudi Arabia. The people are not accustomed to purchase or shop through online terminals. The challenge is bigger as Argos Ltd has to totally depend upon the walk-in-customers in the stores. The strategy to generate revenue from the online system might not work in this market at the initial phase. Saudi people prefer to shop directly as it is one of the sources of entertainment for them. This increases the challenges in developing the strategy to generate revenues from other sources as online system might not be efficient enough as it is in the UK market. The probable reason for such behaviour might be the ‘cash based’ society with respect to the shopping experience. For most of the Saudi people going out for shopping in the malls or souk, it is a part of their social interaction or social outing experience. Legal Analysis (Saudi Customs & Regulations) The Saudi Arabians Customs regulate the operations of import and export of the nation. There are several clauses that regulate the flow of goods within the nation. Mostly goods are imported through sea and therefore certain registrations are required along with payment of tax incentives. The Saudi Customs follows the General Sales Tax (GST) system of taxation. Any goods that are imported to the nation through sea, air or any means are eligible for taxation and have to follow the Saudi Customs’ rules and regulations (Saudi Customs, 2007). For the operation of business in Saudi Arabian market, Argos Ltd needs to submit details of the merchandises that will be imported in the nation. In addition, the samples should be submitted to Quality Control Laboratory at the Ministry of Commerce and Industry according to different category of goods. For setting up the stores of Argos Ltd in different locations in Saudi Arabia the company needs to comply with the regulations of Intellectual Property Rights (IPR) regulation of Saudi Arabia for each region. The company needs to submit the documents and publications to the Ministry of Information and Culture representative for the verification of the fulfilment of the IPR regulations (Saudi Customs, 2007). The Saudi Customs have banned certain commodities along with certain frozen commodities that are traded and sold in the UK market and other places. Argos Ltd needs to follow the Code of Items while importing in the nation. These items are in H.S. Code of items (Saudi Customs, 2007). Investment Environment Saudi Arabia is open to foreign investment only in certain sectors. Retail sectors are open to investment. Saudi Arabia has taken several steps to ease the authoritarian limits and to develop the taxation system for driving the nation to a highly competitive position in the world (EDC, 2011). The Saudi Arabian General Investment Authority (SAGIA) has undertaken multi-billion dollar strategy for the development of industrialization zones and economic cities around the country. The cities are designed for this purpose of attracting foreign investments in diversified sectors through various incentives. The government has planned to develop infrastructure and human resource development from 2010 to 2014 with a budget of approximately US$ 385 billion. The opportunity for Argos Ltd is huge as the market will be growing with better infrastructure and cities would develop that will boost the retail sector in Saudi Arabia (EDC, 2011). The economic indicators of Saudi Arabia are listed below in figure 1. Figure 1: Economic Indicators (EDC, 2011). From the economic indicators that are represented in figure 1, it can be evaluated that the Saudi Arabia market has huge potential in the future for the retail industry. Argos Ltd should tap the market before any other international retail players enter the market. If Argos Ltd can set up business prior to their competitors, they will gain more benefit than their international competitors who are planning to enter the same market. Marketing Plan: Marketing Mix (4P’s) Analysis Product: Products are generally considered as tangible objects that require consideration for Argos Ltd in order to properly take right kind assortment of products to the unexplored market of Saudi Arabia. In the retail market segment that Argos Ltd serves at present their main products are related to consumer goods products. The offerings varies from kitchen and laundry items, home and furniture, jewellery and watches to office and computer related items, gifts and hobbies items (Argos Limited, 2011). In Saudi Arabian market it can be observed that it has a significant market for Homeware products, which accounted to around 50.7% in 2007. This growth had increased annually from 2002 to 2007 at compound annual growth rate of 12.6%. Home furniture as well as homewares can be considered as a major product segment to be taken to the Saudi Arabian market by Argos Ltd (ReportLinker, 2011). The products and brands which belong to US origin have favourable consumer preference in Saudi Arabia. Thus, such products and also US food products can be kept in among the assortment of products in the offerings of Argos Ltd. In product labelling, Argos Ltd needs to keep in mind to abide by certain values and customs prevalent in the country such as refraining from showing women’s legs in the labelling, a product which contains recipe of pork, product containing alcohol, as these aspects are not acceptable in Saudi Arabia. Thus, in order to address such issues Argos Ltd needs to provide specific biotech labelling for selling a particular product such as food product. They also need to provide bilingual labelling of products which contains both English and Arabian languages (Mousa, 2010). Place: In Saudi Arabia, Argos Ltd can look to initially use various distribution channels to provide their assortment of products to various locations such as supermarket, convenience stores, and super stores as well as other local retailers. They can initially look to find an organization which possess strong distribution channel, and through which they can look to make their products available in the market. After gaining a substantial market for their products, Argos Ltd can look to open their own retail store in the country. Price: Price of the products offered has to be kept such that it creates an added attraction to the consumers. As in the consumer goods segment the product offering is expected to be almost similar for Argos Ltd as compared to its competitors, thus it needs to prepare a pricing strategy initially so that consumers look to purchase their product instead of their competitors (Mousa, 2010). Promotion: Promotion of Argos Ltd in Saudi Arabia can be formulated through methods such as advertising, promotional selling, personal selling and by creating public relations. In order to create awareness of the presence of Argos Ltd in Saudi Arabia, the company can look to provide advertisement of their product offerings through various media such as television, newspaper and others. They can also look to promote their products through billboards in which they can look to highlight their special offering of products especially keeping in mind the taste and preferences of consumers of Saudi Arabia. In order to tackle the difficulties related to customs and traditions related to food items, Argos Ltd can look to highlight that they are providing consumers of Saudi Arabia with absolutely customs adhered products which will enable Argos Ltd to gain the trust of the people of the country which in turn will aid in increasing their sales and awareness in the market. Argos Ltd in order to tackle the difficulty related to unfamiliarity of Saudi people with online shopping can look to promote their products through personal selling. This will spread the awareness of the products of Argos Ltd (Mousa, 2010). Conclusion In the context of the existing scenario of the Saudi Arabia’s economy and marketing condition, it can be concluded that the potential for business in this region is huge. The strengths and opportunities are more than level of threats in Saudi Arabia. The economical, socio-cultural, technical advancement and environmental factors along with legal factors are in favourable position to offer the business an opportunity to develop in this economy. There is political instability that might create difficulties for the business. But this aspect is quite inconsequential as compared to the level of benefits that can be derived. The business of Argos Ltd needs to take certain risks in different forms to establish their venture in the Saudi Arabia’s market. Overall there are greater potential for Argos Ltd in Saudi Arabia’s economy to expand their business and grow. References Argos Limited, 2011. Kitchen & laundry. Home. [Online] Available at: http://www.argos.co.uk/static/Home.htm [Accessed March 28, 2011]. Argos Limited, 2011. About Us. Customer Service. [Online] Available at: http://www.argos.co.uk/static/StaticDisplay/includeName/AboutArgos.htm#about [Accessed March 23, 2011]. AMB, 2010. Saudi Arabia. Risk Report. 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