Joint Venture entry mode of Marks and Spencer in China - Essay Example

Analysis of the Joint Venture Entry Mode of Marks and Spencer in China with Secondary Data Table of Contents Introduction 2 Justification of the Problems faced by M&S while entering China 2 Comparison of M&S with the situation of TESCO 4 Conclusion 5 References 7 8 Bibliography 9 Introduction Entering into a new market has been commonly accounted as one of the major challenges faced by companies seeking the benefits of internationalisation market expansion. In its course to diversify in the global plethora, the company needs to deal with many barriers including cross-border trade regulations, cultural paradoxes and various other socio-economic factors that are deemed to influence business operations in the targeted host country. Contextually, entering into the market of China also posed considerable challenges to Marks & Spencer (M&S), which is a renowned British multinational retail chain. Critics have thereon argued that it is fundamentally owing to lack of market understanding and appropriate strategies adopted by companies to mark its failure in Asian countries like China (Hopkins, 2013). The discussion henceforth will aim at analysing the reasons for the breakdown of M&S in the Chinese market. Correspondingly, a comparison will be made with Tesco’s failure in China, where both the multinationals, i.e. M&S and Tesco had penetrated the market through joint venture (JV). Justification of the Problems faced by M&S while entering China Several challenges and problems encompass the entry of M&S in the market of China. With the opening of their first outlet in the Chinese market, the company experienced a dip in its performance, which was accounted as considerably lower than the expected level in the Chinese market (The Telegraph, 2013). The outlets opened by M&S, at the initial phases of its operations in the Mainland China, failed to satisfy the needs of the Chinese local customers owing to the company’s lacuna to identify customers’ preferences in the market and offer services accordingly. For instance, the M&S stores were unable to provide garments of smaller sizes, as preferred by the customers in China (Wood, 2012). Reportedly, the supply chain of the company was also lacking its usual effectiveness, which further inhibited the reputation of the company in the Chinese market, at its introductory phase. Additionally, it was also known that the management of the retail chain was implementing its strategic experiences gained from its operations in Hong Kong, irrespective of the fact that the consumer buying behaviour are found to be considerably distinct in these two regions. This again depicts the lack of market survey of the company taking into account the tastes and preferences of customers in the host country (China Retail News, 2009). In addition, the decisions taken by the company for not collaborating with any of the local firms in China, i.e. ignoring the benefits of JV also barricaded the utmost efficiency of its strategies by restricting the cooperation of local firms to a certain extent. It was thus considered as a mistake made by M&S, which retarded its smooth entry in the Chinese market. However the company focused on concentrating on its size and range of services offered to the Chinese customers as its major Unique Selling Propositions (USPs). Subsequently, the first shop of the company was opened in the Mainland and was propounded to be one of the biggest shopping centres in Asia. Nonetheless, this decision of the company came as a surprise for many investors in the stock market, as opening of the store came just after the global economic turmoil that kept investors wondering regarding the finances of M&S. It has also been noted that competition level from the local marketers were observed to be quite high in this area, as the local retailers are more competent in serving the customers in the market providing products preferred by customers of lower age groups and lower income groups. On the contrary, it would be vital to mention that the products of M&S appeals less to the young generation and is also deemed unaffordable for the lower income group, which comprised a major portion of the Chinese Mainland region. Hence, selection of the location for the shop can be considered as another reason for the failure of the company when entering China. Reportedly, the approach of M&S to operate in a more routine and in a convention mode, disregarding innovation and flexibility, affected its entry in China. Specifically, it was due to this reason that it failed to adopt the socio-cultural and demographic environment of the Chinese market (Harrison, 2009; Jiyao, 2009). Comparison of M&S with the situation of TESCO Tesco Plc, one of the leading retail chains of the world, also faced similar sort of problems as experienced by M&S, when they enter in the Chinese market. The decision of the company to move into a JV with a local company and enter the Chinese market failed to click the right note. This was majorly attributed as a causal effect of its failure to gain a commendable market share in its host nation owing to the weak brand image of the local firm (Gupta and Wang, 2013). Another factor that was held responsible for the failure of the company concentrated on the quality of its performance. Reportedly, issues of deteriorating quality of products in comparison to those served by the local companies widened the chances of failure for Tesco in China. Additionally, the company has also failed to judge the preferences and tastes of the customers, which further led to its failure to satisfy the demands of the customers efficiently. These aspects can further be observed to be coinciding largely with the failure of M&S to enter smoothly in the Chinese market. Both Tesco and M&S can thus be ascertained to have failed to analyse the preferences of the local customers, which ultimately resulted in their failure in China (Barford, 2012). Hence, the key findings that can be ascertained from the above discussion revealed certain facts with regard to the probable common barriers or problems that not only obstructed M&S but also Tesco to introduce itself in the Chinese market. M&S is among the leading retail chains of the word operating in more than 30 countries. However, majorly due to the limitations of the strategic decisions made by M&S to decode the customers’ preferences and tastes in the local market context of China and grow a cooperative alliance in the host country, resulted in its expansionary failure. Conclusion From the overall analysis it can be comprehended that M&S, in spite of being a globally recognised brand, had to deal with certain specific difficulties while entering the markets in the Asia Pacific region, especially in China being strongly affected by the cross-cultural divergences and considerably different customer preferences compared to the Western markets. This can further be considered as the failure of the strategies and modes chosen by the company with regard to its entry in specific foreign markets. Hence, it can be concluded that the M&S were incapable of successfully creating its competitive position in the market of China that resulted in its failure. References Barford, V., 2012. Five things Tesco got wrong. BBC. [Online] Available at: http://www.bbc.co.uk/news/magazine-17767565 [Accessed September 17, 2013]. China Retail News, 2009. Marks And Spencer Admits Mistakes In China. Home. [Online] Available at: http://www.chinaretailnews.com/2009/02/16/2273-marks-and-spencer-admits-mistakes-in-china/ [Accessed September 17, 2013]. Gupta, A. and Wang, H., 2013. Why Foreign Retailers Stumble in China. Bloomberg. [Online] Available at: http://www.businessweek.com/articles/2013-09-06/why-foreign-retailers-stumble-in-china [Accessed September 17, 2013]. Hopkins, E., 2013. Industrialisation and Society: A Social History, 1830-1951. Routledge. Harrison, N., 2009. Marks & Spencer Admits Mistakes In Shanghai. Home. [Online] Available at: http://www.retail-week.com/marks-and-spencer-admits-mistakes-in-shanghai/1986775.article#.UjfpKtIiaEo [Accessed September 17, 2013]. Jiyao, X., 2009. Marks and Spencer's Shanghai debut: bull in a China shop? Home. [Online] Available at: http://www.thefreelibrary.com/Marks+and+Spencer's+Shanghai+debut%3A+bull+in+a+China+shop%3F-a0283984618 [Accessed September 17, 2013]. The Telegraph, 2013. Marks & Spencer 'Missing Chinese Sales Targets. Home. [Online] Available at: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9832782/Marks-and-Spencer-missing-Chinese-sales-targets.html [Accessed September 17, 2013]. Wood, Z., 2012. M&S Admits Women’s Wear Stock Shortages Hit Sales. The Guardian. [Online] Available at: http://www.theguardian.com/business/2012/apr/17/marks-spencer-womenswear-stock-shortages [Accessed September 17, 2013]. Bibliography Butler, S., 2013. Marks & Spencer Chief Faces A Less Than Happy New Year After Christmas Turkey. Home. [Online] Available at: http://www.theguardian.com/business/2013/jan/13/marks-and-spencer-marc-bolland [Accessed September 17, 2013]. Thorniley, T., 2010. City Focus: Tough test for M&S in China. Mail Online. [Online] Available at: http://www.thisismoney.co.uk/money/markets/article-1694856/City-Focus-Tough-test-for-MS-in-China.html [Accessed September 17, 2013]. Read More