Trust-Mart expansion on to UKs supermarket retail market - Assignment Example

?Retail Marketing Table of Contents Retail Marketing Table of Contents 2 Introduction 4 Competitive Strategy of Trust-Mart 4 Michael Porter’s Generic Strategy 5 Critical Success Factors 7 Core Competences 7 Capabilities 7 Value Network Analysis of Trust-Mart 8 Tangible Value 8 Intangible Value 9 7 P’s Analysis of Trust-Mart 10 Products 10 Place 10 Price 11 Promotion 12 People 13 Process 13 Physical Evidence 13 Operational Challenges 14 PEST Analysis of Supermarket Retail Industry in the UK 14 Conceptual Framework for Internationalisation 16 Market Entry Methods 19 Logistics and Supply Chain Issues 20 Unpredictability 20 Risk Management 20 Market Dynamics 21 Supplier Network 21 Single Incorporated Entity 22 Application of Retail Specific Theories 22 Simpson and Thorpe’s PLIN Model 22 Alexander and Myers Market and Operational Matrix 24 Viability of Internationalisation 25 References 27 Introduction The supermarket retailing industry is one of the strong competitive industries in China. The retailing industry in China has strong prospects of growth. It is the fifth biggest consumption market in the world. From 2006–2009, the turnover of China’s supermarket retail industry had improved from 51.2 billion USD to 86.4 billion USD. The composite yearly growth rate of supermarket retail industry is almost 15.6%. There are almost 23,814 supermarkets operating in China (Retail in Asia Limited, 2010) & (Research in China, 2009). The study is based on one of the retail supermarkets of China named Trust-Mart. The study will describe the strategic analysis of Trust-Mart and its operational challenges that it might face while expanding its business into foreign market. The foreign market chosen for the study is the UK’s supermarket retail industry. Trust-Mart’s viability in the internationalisation is based on overseas market of the UK. Competitive Strategy of Trust-Mart Since inception, Trust-Mart had showed immense growth in the retail supermarket industry. Trust-Mart operates in almost 20 areas of China. It has rapidly enhanced the number of outlets throughout China. Trust-Mart focuses on three strategies to compete in the supermarket retail environment [1] (Trust-Mart, 2011). Freshness: Trust-Mart aims to provide fresh products compared to other supermarkets in China. For maintaining freshness in its products Trust-Mart has enough employees in every department (production, marketing and distribution). By proper management, Trust-Mart is able to obtain food products quicker and much fresher. Cost: Trust-Mart strives to provide low cost for any products which makes the company a strong competitor in retail market environment of China. Trust-Mart provides impressive rate across various products. The rate of product does not affect the freshness of the products (Canton365, n.d.). Service: Trust-Mart has improved distribution network which initiates the company to provide right product to the people. Trust-Mart has experienced employees who know the needs and preferences of customers and thus provide products according to their choice. Providing better service is a competitive strategy for Trust-Mart which helps the company to make available the desired products to the customers. Michael Porter’s Generic Strategy Michael Porter had established generic strategy to identify a company’s competitive advantage. According to him a company can take three types of competitive strategies which are cost leadership, differentiation and focus. Fig 1: Porter’s Generic Strategy Diagram Source: (Provenmodels, 2011). Trust-Mart does not follow the focus strategy because the resources and assets of Trust-Mart allow it to compete on broader factors. Trust-Mart follows the differentiation strategy by making their products under their own brand name. Trust-Mart also follows the cost leadership strategy by providing inexpensive products to customers. Trust-Mart’s strong sales distribution makes it possible to gain cost advantage over other competitors. Critical Success Factors Core Competences For any company, the core competences are the aptitude that helps the company to accomplish competitive advantage. In order to sustain in the international environment, Trust-Mart needs to understand the level of competition in that industry and competence to create its position in the international market. Trust-Mart’s core competency is its operations. It follows the expansion strategy. Within 13 years of business in China, it has expanded its numbers of outlet to 100 and the management team persists to improve. Capabilities The management structure of Trust-Mart is developing as the numbers of outlets have increased. Its operating structure is reasonable and open. The management personnel are in charge of designing the outlook of new store, planning activities and maintaining consistency [1] (Trust-Mart, 2011). Fig 2: The Critical Success Factors of Trust-Mart in China Value Network Analysis of Trust-Mart Tangible Value Trust-Mart provides products which are necessary for people’s daily consumption. The products of Trust-Mart are supplied by abiding sustainable and responsible principles. Trust-Mart provides valuable services for the handiness of customers and helps them to ‘save precious time and money’ (Trust-Mart, 2011). Fig 3: The Valuable Services of Trust-Mart Sources: [2] (Trust-Mart, 2011). Intangible Value Trust-Mart focuses on their management system to improve their operations in the supermarket. The aspects of intangible value of Trust-Mart are constant up gradation, assimilation and maintenance of product standards. For accomplishing good relations between customer and company, Trust-Mart provides suggestions and supervisions through their complaints line. Trust- Mart also provides sound education and training system to their employees [1] (Trust-Mart, 2011). 7 P’s Analysis of Trust-Mart Products Trust-Mart provides variety of food products and the customer can enjoy consuming fresh foods at Trust-Mart. Trust-Mart’s ‘Home Field’ department has ranges of home appliance products, for example furniture, exclusive textiles, bedding, lavatory appliances and other home decorating products. In the apparel department of Trust-Mart, customers can enjoy variety of fashionable apparel products. It provides ranges of metropolitan clothing, leather shoes, standard watches, cosmetics products and jewellery items. The products range from domestic brands to foreign brands. Besides the above products, Trust-Mart also has home appliances products with variety of choices [2] (Trust-Mart, 2011). Place Trust-Mart had first opened its store in the year 1997 and continuously increased the number of outlets throughout China. Presently, it has in excess of 100 stores in China [3] (Trust-Mart, 2011). Trust-Mart supermarkets outlets can be found from east to north regions of China. The following map shows the places where Trust-Mart is located in China. Fig 4: Map Showing Trust-Mart’s Operation in China Source: [4] (Trust-Mart, 2011). Price Trust-Mart always offers products at reasonable prices to stay competitive in the retail industry. Its ranges of products are available to customers in great prices. Fig 5: The 7P’s Analysis of Trust-Mart Promotion For promoting their brand, Trust-Mart engages in several activities, for example, in the year 2008, Trust-Mart had organised corporate culture show to develop the unity and centripetal strength of the company. It also arranges many seasonal promotional programmes for customers such as Valentine’s Day event, Christmas event and New Year Special events among others. On these events, Trust-Mart provides customers’ attractive offers on shopping and arranging luck delivery, and thus improves its brand image towards customers. Trust-Mart provides several gift cards and shopping card facilities for frequent customers as a promotional activity. Trust-Mart also sponsors sports events which is one of the promotional activities of the company. In 2006, it had organised “Trust-Mart Football Championship’ for encouraging and drawing people towards their brands who love sports, it had also organised drawing competition to increase brand awareness among children and their parents and improve its social welfare image [5] (Trust-Mart, 2008). People People are the key for Trust-Mart’s success in China. The employees of Trust-Mart are honest and provide earnest services to the customers. The employees of Trust-Mart represent its corporate traditions. The employees perform as a team for better performance. The employees engage in recreational activities such as sports and contests which help to develop harmony among team members [6] (Trust-Mart, 2011). Process Trust-Mart provides great services to the customers by listening to consumers’ feedback about their services. For providing great services, the employees of Trust-Mart are provided with appropriate training and sharing of knowledge and experience. The research section of Trust- Mart helps to develop the efficiency of employees by seminar, interaction between managers and employees, encouragement and training [7] (Trust-Mart, 2011) & [8] (Trust-Mart, 2011). Physical Evidence The appearances of Trust-Mart supermarket are suitable for customers. In the popular occasions and festivals, Trust-Mart changes the exterior and designs their outlets to create a sense of festive ambience among customers and attract them. For example, on Valentine’s Day, Trust-Mart develops a romantic atmosphere in their supermarkets to attract couples and provide attractive gift products for them. On Christmas, Trust-Mart creates winter atmosphere and more fun by music, various salutation programmes and colourful appearances [5] (Trust-Mart, 2008). Operational Challenges PEST Analysis of Supermarket Retail Industry in the UK In order to enter the supermarket retail industry in the UK, first the factors that can impact on the market should be determined. PEST analysis can reveal the major political, economical, social and technological issues that Trust-Mart must consider before internationalisation in the new supermarket retail industry. In the UK, the supermarket retail industry accounts for 9% of GDP. The UK supermarket retail industry is characterised by strong supplier base and branded products. Political Factors: The political factors that can impact on the business of Trust-Mart are the government legislations. Various rules and regulations such as minimum wages, change in taxes and import duties can affect the revenue of Trust-Mart while operating in the UK. The major concern for Trust-Mart with regard to political factors is the changes in import duties and taxes which can affect the business performance. Economical Factors: The economical factors are the other issues which can affect the demand of products and price of products, and thus profit of the company. The economical factors can reveal the purchasing power of customer in the country. It includes the GDP growth rate, inflation rate, and unemployment rate that will determine the buying behaviour of customers. With regard to economy, the UK is sixth biggest economy in the world. According to 2010 statistics, the UK’s GDP per capita was around ?24,486. The inflation rate in 2011 is 4.2% and the unemployment rate was quite low i.e. almost 7.7%. Thus, majority of people have the ability to spend on food and other consumer products. Thus, Trust-Mart has high prospect in the UK with regard to economic condition (Trading Economics, 2011); (Trading Economics, 2011). The following chart represents the purchasing behaviours of the consumers in the UK. Fig 6: The Consumer Spending on Food Products in the UK Source: (Euromonitor, 2010). Social Factors: Social factors can determine the buying pattern of customers. In the UK, the people tend to follow high standard of lifestyle. They tend to shop in the supermarkets and prefer high volume ‘one–stop shopping’. The British people are quite fashion centric and prefer trendy and stylish products. Meanwhile, Trust-Mart has food, apparel, home appliances and other fashionable items for customers which suit the lifestyle of the UK. The demographic factors also impact the supermarket retail industry. Majority of the UK customers are busy and do not have adequate time to prepare food and prefer to take outside food of supermarkets or restaurants. Trust-Mart provides customers an opportunity to enjoy meal in their outlets which is a favourable social condition for Trust-Mart. With regard to food products, British customers are becoming quite concerned about the health factors. Trust-Mart focuses on maintaining quality products to customers while maintaining the price. Technological Factors: Technology is another major factor in supermarket retail industry. The market infrastructure of the UK is highly advanced. Trust-Mart utilises technology in their supermarkets which is profitable for the customers as well as the company. Customer satisfaction enhances when the desirable products are found in the stores and the shopping is well-situated. The main issues which need to be considered in Trust-Mart are the use of advanced technology such as wireless devices and online buying systems because the use of internet has increased among the people of the UK and many customers prefer online purchasing. In order to expand the business in the foreign country, Trust-Mart needs to decide a strategy for entering in the overseas supermarket. Conceptual Framework for Internationalisation ‘The Uppsala School of Business’ had developed a model for internationalisation of company. The conceptual framework can assess how Trust-Mart, a retail supermarket of China can internationalise in other countries such as UK. The internationalisation of Trust-Mart can follow the ‘Stage Model’. According to this model Trust-Mart can internationalise by four major steps which are: Fig 7: The Internationalisation Process Source: (MIT & Hewlett-Packard, 2007). This is the most reliable strategy for entering in the UK’s supermarket retail industry, as Trust- Mart does not have experience in operating in the new market. Export through agents will provide valuable information to Trust-Mart about the supermarket retail industry in the UK. When the business becomes more controlled, Trust-Mart can realise the important aspects which impact on the resources of retail market. Trust-Mart can slowly begin to engage more in the supermarket retail industry by manufacturing the products in the UK. The internationalisation is a time-consuming method and thus Trust-Mart must choose the strategy carefully. Market Entry Methods There are plenty of methods available to a company that wants to enter in the international market. According to risk, level of control and expenses a company chooses the method by which it will enter in the market. Fig 8: Market Entry Methods for Internationalisation Source: (Docstoc, 2011). Trust-Mart can take the organic growth strategy for expanding the business in the supermarket retail industry of the UK. Trust-Mart can enlarge its business by experiencing and adjusting itself to the environment and culture. The organic strategy is based on four factors which are income, employees, public relation and product quality. This is the most suitable method for Trust-Mart to perform by increasing sales quantity. This strategy helps to reduce the risk, expenditure and ensure greater control. Logistics and Supply Chain Issues In the international market, there are several issues regarding the supply chain and logistics which can impact on the performance of Trust-Mart. Unpredictability The market is unpredictable because of constant alteration in the demand and supply of products. Thus, the estimation of demand and supply is the major issue in supply chain. The high degree of market simplicity and price sensitivity can decrease the customer loyalty of any company. Thus, to deal with the unpredictability, Trust-Mart needs to identify its major customers and concentrate on maintaining good association for dealing with unexpected changes in product demand. Risk Management Risk is another issue for supply chain and logistics management. Maximum companies try to develop the supply chain by imposing more risks on the suppliers. For Trust-Mart, an ‘End–to-End’ method is suitable to deal with the risks in each phase of supply chain. Trust-Mart needs to play more dynamic role in forecasting the demand to make sure that the amount of products are appropriate for satisfying the demand. Market Dynamics The globalisation and outsourcing are the major factors which can decrease the expenditure of supply chain and logistics. Majority of companies that operate in overseas markets perform the supply chain activities internally. Fig 9: Percentage of Supply Chain Function Source: (Supply Chain Digest, 2010). The outsourcing can lead to saving of employee cost and thus minimises the management cost. Supplier Network To facilitate secure improvement in the international business environment, there is a need to create a good supplier network. In the UK’s supermarket retail industry the major factor of growth for Trust-Mart is the international customers and tailored products. Thus, the current supply chain system of Trust-Mart needs to be globalised and controlled efficiently. The higher density in supply chain can lead to expansion of Trust-Mart in the UK. Globally organised supply chain is the key to survive in the UK market. The supply chain can serve the international customers according to their demands. Trust-Mart needs to control the supply chain associates, production department, distribution networks as much as possible to gain economic benefit. Single Incorporated Entity The supply chain of any company needs to be operated as a single incorporated entity. Improvement of degree of incorporation and strengthening of supply chain can help a company to effectively manage the resources. Application of Retail Specific Theories Simpson and Thorpe’s PLIN Model In the supermarket retail industry of the UK, there are many strong players which will be major competitors of Trust-Mart. Thus, in order to survive in the new market Trust-Mart will need to differentiate its products from the competitors. In this regard, the Simpson and Thorpe’s PLIN model can help to make a difference in the products. The components of PLIN model are described below. Fig 10: The PLIN Model Source: (Docstoc, 2011). The above four aspects must exist in Trust-Mart which will help to make a difference in the products. Product: Trust-Mart has variety of products which ranges from food items to home appliance products and cosmetics items to jewellery products with attractive prices. Lifecycle: The citizens of the UK prefer to go to supermarkets for purchasing items such as grocery, home appliances and apparel items. Trust-Mart supermarket possesses products and services that can suit the lifestyle of the UK. Image: Trust-Mart has strong brand image in terms of providing inexpensive products in the retail market chains. Trust-Mart is more acknowledged by the young and adult customers and it has higher HHI (Herfindahl–Hirschman Index). Fig 11: The Acceptability of Trust-Mart in China Source: (JWT Shanghai, 2007). Niche: In terms of niche marketing, Trust-Mart does not possess any focus on a particular segment. In order to differentiate its products, Trust-Mart needs to specialise on certain products which can meet the needs and preferences of certain customer segments in the UK. For example, focusing on fashion apparel items for young or adult customer segment will be beneficial for Trust-Mart because the citizens of UK follow high standard of living and tend to prefer fashionable items. Alexander and Myers Market and Operational Matrix An internationalisation strategy was proposed by Alexander and Myers. The following figure depicts the strategies a company can take to expand its business in overseas market. Fig 12: The Operational Matrix Source: (Bruce & Et. Al., 2004). According to above diagram a company can take ethnocentric or geocentric approach where the market extension is low. A company which has high level of market extension can take multinational or global approach. With regard to Trust-Mart, the ethnocentric approach will be suitable for internationalisation. Trust-Mart is renowned for its cultural values and its business performance in domestic market (China) is in leading position. The higher authorities from headquarters will create strategies and hold the major position of Trust-Mart in case of any major decision in other branches. It can ensure the reliability of Trust-Mart in overseas market. This approach can help to lessen the labour cost and efficiently represent the brand in the new marketing environment. As Trust-Mart is not an international retailer and is not experienced in reacting in the market condition of the UK, the ethnocentric approach will be useful at the entry level (Bruce & Et. Al., 2004). The above factors are the operational challenges that can occur for internationalisation of Trust- Mart and need to be managed carefully (Supply Chain Digest, 2010). Viability of Internationalisation From the above assessment, it can be concluded that Trust-Mart is viable for internationalism. Trust-Mart seems to be quite stable in China. In the international market such as UK, Trust-Mart can pursue strong growth. Though there are many operational challenges that Trust-Mart will face if it going to internationalise its business, Trust-Mart has appropriate infrastructure and stable base to operate in international market. The major issues which Trust-Mart will confront are supply chain management, technology and culture. As Trust-Mart is unknown in the operation of new market it will be difficult to find a reliable supplier and majority of operations must be done from headquarters. It can cause failure in the equilibrium of demand. The culture of Trust-Mart must be adjusted with the culture of overseas country where it is going to operate. There are many competitors in the international market; thus Trust-Mart should be able to attract customers towards its brand. As it has no niche marketing strategy, it is difficult to create a unique brand image for Trust-Mart in international market. Trust-Mart also does not provide online shopping. It should implement new technology in its supermarket according to the custom of customers. References Bruce, M. & Et. Al., 2004. International Retail Marketing: A Case Study Approach. Butterworth-Heinemann. Canton365, No Date. About Trust-Mart. 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