The Role of Retail Industry towards the Economic Advancement of the Country - Essay Example

ADVANCES IN STRATEGIC MANAGEMENT Introduction Different industries play different roles towards the economic advancement of the country. Within various industries also, the roles played by individual organisations and businesses go a long way to determine the extent of growth that will be recorded by the industry at large. Because of this, it is important that various companies and organisations within different sectors of the economic play their parts in a well coordinated manner that ensures the collective growth of the industries. Very often, the extent to which individual companies can experience growth is very much dependent on the strategic management policies that are used to run these organisations (Juran, 2002). By strategic management policy, reference is being made to the use of key decision making processes that ensure that the companies come to terms with the selection of best strategies, policies, principles, and action plans that focus directly on their competitive growth (Kearney, 2002). One such industry where the kind of strategic management used is very important in determining extent of competitiveness is the retail industry. This is because as the days go by, there continues to be more and more new openings within the industry, calling for the need of individual organisations to strategise their ways out to becoming competitive. Brief analysis of the industry and why it is considered to be of strategic importance The selected industry for the study is the retail industry. This is the industry that is responsible for the sale of goods and services directly to the end user, who is the customer (Lamb, Hair and McDaniel, 2008). This means that retailers do not go through such production processes as manufacturing and logistics but find a means of directly receiving out to the customer with finished products and services from manufacturers. Retailing has been a core part of the economic composition of the country for several years. This is because since time immemorial, people have had the need to make purchases of products and services to meet their needs and wants. Very often though, the means to going directly to the manufacturer is not there due to such limitations as transportation and distribution channel (Krafft and Mantrala, 2006). It is in such instances that retailers become very important to the ordinary consumer and the nation at large by meeting the consumer at the point of his or her need. One unique feature about the retail industry is that it is found in almost every corner of the country, and has very limited restrictions in the form of market penetration (Lamb, Hair and McDaniel, 2008). Indeed, there is no denying the fact that the retail industry is a strategic one, and very important to the economic development of the United Kingdom (UK). One of the factors that make the retail industry of strategic importance is that it is often carried out among very ordinary people who do not have huge capital to start big businesses (Krafft and Mantrala, 2006). Meanwhile, such classes of people within the socioeconomic status who would be described as low and middle income earners make up the largest position of the population (Ferrara, 2009). Consequently, it is right to say that the retail industry satisfies the economic needs of greater number of people who otherwise would have had no source of income. What is more, the retail industry is highly strategic to national economic growth because it is scattered through several product types and market strategies. Consequently, the industry helps in meeting the needs of almost all other industries. Typical examples of types of retail outlets that can be given by product include food product, hard goods, consumables, and art (Krafft and Mantrala, 2006). It can therefore be said that the retail industry is the parent of all other industries, feeding them with basic necessities to make them operational. It is not surprising that in the UK, retail trade was said to have contributed up to 16% of employment and economic output in 2012 alone (Rhodes, 2014). Below is a graph showing the economic output of the retail industry as compared to the whole economy of UK, where it is seen that the industry is growing at a faster pace and even ahead of the national economy. Figure 1: Economic Output of Retail Sector and Whole Economy of UK Source: Rhodes (2014, p. 3). In terms of employment and business openings also, it can be noted from the table below that the retail industry is far ahead of other industries such as the wholesale industry. Table 1: Retail Industry versus Wholesale Industry Source: Rhodes (2014, p.4) Description of Selected Organisation Wal-Mart is one of the major retail corporations on the UK. Originating from the United States, Wal-Mart has grown in the UK market to become one of the largest and most patronised retail stores (Fishman, 2006). Unlike most other forms of retail stores which operate as small and medium scale enterprises (SME), Wal-Mart is considered a large international company with openings all around the globe. In the UK, Wal-Mart is known to operate the third largest retailer, ASDA, which is into grocery, clothing, and home wears (Hall, 2008). For the sake of this case study, and in order to refine the scope of discussion within the UK setting, the selected organisation will be ASDA rather than its operator, Wal-Mart. This is possible because ASDA functions as an independent company that has the right to make its decisions, necessary for consideration in this paper. In terms of resources and capabilities, the brand equity of ASDA has been considered as one of the company’s most vibrant tools which have ensured continual growth over the years. Today, the company is estimated to make an annual sale of £ 18,250,000,000 with an operating income of £638 million (Sweney, 2013). Knowing the power of financial wealth in today’s global market, there is no doubt that the financial strength of the company is one of its most reliable resources. As indicated earlier, ASDA is considered UK’s third largest retailer. Tesco and J Sainsbury are the company’s key competitors that come before it in first and second position respectively (Hall, 2008). Other competitors are William Morrison, which is also into groceries, Mark and Spencer, which deals in general goods, and John Lewis Partnership, which is into departmental stores and groceries. The market position of ASDA has always been greatly influenced by activities of its key competitors. This is because the company’s strategic management and marketing plans are constantly based on what is happening among other competitors. As noted by Butler and Seib (2006), this is an expected development for any company that finds itself in a highly competitive market, where the market structure is also favourable for new entrants. Such form of competition has come with its own advantages ad challenges for ASDA. A major advantage is that that company has always been kept on its toes about the need to making the right strategic decision, knowing that there are always competitors to overcome if this falls short. The challenge has however been that the company hardly gets the freedom to be itself in some cases, given the fact that the marketing niche does not allow this sometimes (Sweney, 2013). From the figure below, the impact of the kind of competition received by ASDA is evident in an unsustained growth pattern for its year-on-year change in income tracker. Figure 2: Income Tracker of ASDA from 2008 to 2013 Source: 2013 ASDA Annual Report (2014, p. 7) Recent strategic decision made by ASDA Very recently in 2013, ASDA expressed interest in the acquisition of HMV. HMV is a collapsed entertainment retailer, which specialised in the distribution of various entertainment products to consumers. What is unique about HMV however is that its mode of operation is highly focused on digital trading, whereby consumers make purchases of entertainment products, including games, music, fashion, books, and cinema ticketing through online purchasing and other offline platforms. This proposed acquisition is considered to be strategic, based on a number of reasons and arguments. In the first instance, ASDA will be rightly responding to its key competitors, who are Sainsbury’s and Tesco, both of which have made similar acquisitions in the digital retail business (Lawson, 2013). It is known for example that Blinkbox and Global Media Vault have been acquired and currently owned by Tesco and Sainsbury’s respectively. As indicated earlier, responding to competitor strategy is an important and strategic way of avoiding competitive disadvantage (Chaffee, 2005). This is because as competitors have a means through which they engage in a new business opening, it is important to respond in an equal or much active way so that consumers will not be shifted to the position of the competitor (Deming, 2012). Another reason the acquisition is considered to be strategic is that it seeks to respond directly to the future needs of the retail industry. This is because the entire global business environment is now shifting to a point that can be termed as a digital future. There is no denying the fact that electronic commerce is taking greater part of business operations today. Consequently, acquiring a company that already has its feet firmly rooted in the digital component of operations is a way of meeting the needs of tomorrow today. In advanced strategic management, the need to respond to future needs has been explained to be an important way of gaining competitive advantage (Crosby, 2009). This is because such decisions ensure that companies are always a step ahead of its existing generation. Meanwhile, today’s consumer has been described as a highly sophisticated and advanced one, whose purchasing behaviour is directed at having future needs met (Kearney, 2002). It is not surprising that people are constantly looking for updated versions of whatever it is that they have. With such speed with which the consumer is jumping into the digital future, it is only prudent that ASDA would respond accordingly by taking a step into the future with this acquisition. Risks associated with strategic decision Even though the acquisition has been described as strategic, there are a number of risks that the ASDA stands to face as a result of the acquisition. It is important to mention that the risks do not necessarily mean that the acquisition is bad. Rather, it means that there are aspects of the acquisition that the company must be on the lookout for to ensure that they do not impact negatively on the company. One of such risks has to do with the band name of HMV. The reason this is said is that HMV has lately been in the news for most negative business economic reasons (Lawson, 2013). Key among these has been the inability of the company to fight its financially woes, which lead to the company going into administration On January 15, 2013. This condition is considered a risk because in business, brand name is very important in determining competitive advantage. Very often, customers base their purchases on such factors as brand image and brand equity (Deming, 2012). These two are however things that HMV lack at this time and could affect business with the company after the acquisition. Apart from the issue of brand, there is also the risk with acquisition purchasing with Hilco, a condition that can really raise the acquisition price. It will be noted that on April 5 2013, Hilco UK agreed to buy HMV out of administration at a price estimated at £50 million (Graham, 2013). This consequently raises the price of the acquisition, whereby ASDA will be required to outmuscle Hilco in what seems now to be an open bid (Lawson, 2013). This is considered a risk because when the initial prices of companies are pecked very high, it takes the buyer relatively much time to draw pulling before making profits. In a bid to pulling even, chances that ad-hoc and non-strategic decisions will be made that will eventually affect the company negatively is higher (Feignbaum, 2000). What is more, after the acquisition, it is required that ASDA will have much means by which it engages in active publicity and promotion to raise public attention on the company. All these are things that require much capital to attain. Alternative course of strategic action in response to risks There are alternative course of strategic action that ASDA may take in response to each of the two risks identified above. On the risk of HMV’s brand name, ASDA could strategically change the name of the company into something new. This has been an acquisition branding strategy that has been used over the years through rebranding. Rebranding takes many different forms, some of which include change of name, change of logo, change of organisational culture, and change of administrative management (Heskett, 2006). Any of these, when applied changes the core business outlook of the company and gives the business a new brand identity in the face of the ordinary consumer. In order to be more strategic, ASDA should be focusing on more external forms of rebranding, which has to do with the company name and logo. Once this happens, it may only take insiders and others who read wide to know that the newly branded company is what used to be HMV. This way, whatever negative connotations associated with the company will be duly taken care of. On the risk of price of the acquisition, the most strategic alternative that ASDA can use to get a fair and much low-cost deal is to opt for a merger instead of an acquisition. Comparatively, merger is far cheaper than acquisition and requires only little paperwork to get it through (Heskett, 2006). The reason this is so is that unlike acquisition, in merger, ASDA will not be claiming total ownership of HMV. This means that such thing as buying out the total price debt of HMV will not be part of the deal. In such a situation, the price of the whole merger will be much lower for ASDA. Once sufficient money has been saved on the merger, ASDA will then be better placed to have sufficient funds to go into such other revenue generating business activity such as promotion and publicity. At the end of the day, the savings made on the acquisition can be used to guarantee a profit margin that total possession of HMV could have brought. Analysis of current situation with regard to the specific decision There is a current situation within ASDA that can be said to contribute very positively and directly to the success of the company in terms of the intended acquisition. This has to do with the existing corporate culture and business model of the company, which puts so much emphasis on online sales through internet operations. It would be noted that since 1998, ASDA has been operating an online retailer service (Butler and Seib, 2006). This is a medium by which consumers around the world can make purchases by the click of a button. The advantage that such online retailer service comes with is that it expands the company’s presence to an international and borderless status, where people around the world can freely engage in shopping with ASDA without the need to have the physical presence of the company in their countries. Meanwhile, HMV has been praised as a leader in the digital retail business as internet shopping was the company’s major means of market operation. Because of the similarity in corporate culture and business model between the two companies, it is expected that there will be a very smooth transition in terms of transfer of business ideas. From the graph below, it will be noted that online retail is fast becoming a very profitable and lucrative venture in the UK. It is therefore appropriate that ASDA puts itself in a position where it can be part of this new transformation. Figure 3: UK Online Sales Growth Rate Source: Rhodes (2014, p. 6) There is however another aspect of the business model of ASDA that could affect the company negatively. This has to do with the fact that ASDA operates on low costs in terms of the use of out-of-town sites that offer lower rents. Meanwhile, most of HMV’s stores are of high street location, which could increase the cost of rent for ASDA and affect amount of capital needed to pump into business negatively. Speculation on the future of the decision’s impact on business performance Having weighed the pros and cons, it can be speculated that the business performance of ASDA will be affected in a progressively positive manner into the future. There are two major reasons that inform this speculation. In the first place, the future of business performance is clearly digital model. As this happens, it is important that ASDA starts warming itself up into the future. When the future takes shape and the figures in figure 3 begins to go up, ASDA can be said to be part of profit makers. The acquisition can therefore be said to impact on the business performance of ASDA positively. The other reason it is said that the decision will impact on business performance positively is that it will lead to an expanded base of ASDA’s retail items. The entertainment industry is a fast growing business with a lot of future prospectus. Entertainment is part of humans and never seems to expire. Consequently, investing in the entertainment industry is a good way to shape one’s self for a readily existing business platform. With this said, the need for the company to put its house in proper order, so as to ensure that the kind of poor performance that befell HMV will not happen again. Conclusion From the case discussions so far, it can be concluded that ASDA has taken a very bold decision by taking its own destiny in hands to take the strategic management decision to acquire HMV. Even though there are pros and cons that can be argued for the acquisition, ASDA seems to have taken a huge leap into the future in a manner that has not been critically considered by critics and competitors. This is because the case discussion has reviewed that the acquisition is directly focused on the need to serving the future needs of the company, which is a need that puts the spotlight on digital advancement. Very clearly, the world is moving to a state of digital future, where is it almost a must for every company to have a very strong digital backing (Edwards, 2014). It is not surprising therefore that the parent company of ASDA, which is Wal-Mart has also made a similar acquisition of Adtech to be the digital future of the company (Edwards, 2014). Based on this, it can be concluded that ASDA has showed much maturity with its strategic management. What makes ASDA’s strategic management particular outstanding is that it is directly based and rooted in the corporate culture of the company, which seeks to emphasise more on online sales. The company can therefore be said to have positioned itself well to benefit from this acquisition. References ASDA Annual Report (2014). 2013 ASDA Annual Report [Online] Available at http://your.asda.com/system/dragonfly/production/2014/01/24/15_48_47_562_v2_1_ASDA_income_tracker_January_2014_with_regional_slides_Final.pdf [June 18, 2014] Butler, S. and Seib, C. (2006). "Asda ends Scottish Widows tie-up". The Times Online (London). 9 October 2008. 20 September 2006. Chaffee, E. (2005). “Three models of strategy”, Academy of Management Review, vol 10, no. 1, 45-66 Crosby, P. (2009). Quality is Free, New York: McGraw Hill, New York. Deming, W.E. (2012). 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