Marks and Spencers in Saudi Arabia - Essay Example

A CRITICAL ENVIRONMENTAL AUDIT FOR MARKS& SPENCER, A POPULAR UK BRAND PREPARING TO ENTER THE SAUDI ARABIAN MARKET BACKGROUND Marks & Spencer is a leading UK retailer that is involved in the manufacture and sale of clothing, home appliances and furniture, technology, flowers and gifts, food and wine. In 2010, clothing and home appliances was responsible for about 49% of sales and 51% of sales was from food and related items (Marks & Spencer website). It has a limited presence in Saudi Arabia. This paper seeks to draw strategy for Marks and Spencer’s entry into Saudi Arabia. “The strategic management process is the full set of commitments, decisions and actions required for a firm to achieve strategic competitiveness and earn above average results.” (Hitt et al, 2009) In order to come up with a comprehensive strategy, the research will analyse the Macro Environment, Micro Environment and the Internal Environment as recommended by the Marketing Made Simple Website. MACRO ENVIRONMENT The macro environment refers to the factors in the nation within which the business seeks to operate. Henry (2008) states that macro environmental audit is mainly about the factors that affect entire population of the whole country within which the organisation operates. The main tool for this is PESTEL. Political Saudi Arabia is a monarchy ruled by a king. The current king, Abdullah bin Abdulaziz was enthroned in August 2005. Ever since he came into power, he has sought to make reforms to a nation that was mainly ran by the Royal family and the religious elite who ruled according to strict Islamic codes and systems (Ramady, 2010). There are reforms that are being made to enable people to take part in governance. Also, the reforms aim to cut down on government interference in the economy. However, due to the central and exemplary role that Saudi Arabia plays in the Arab and Muslim world, the reforms are being practiced at a very slow pace. Governance at all levels are controlled and affected by members of the Royal family (The House of Sauds) and their agents and representatives. Also, the religious elites are very powerful and they have a lot of say in the policies of the nation, which remains for strategic and international purposes, influenced mainly by Sharia. It is clear that the current wave of demonstrations that have swept over North Africa and the Middle East will not affect Saudi Arabia. The Saudi government, like other Arab nations maintains limited contacts with Israel. Economic The Saudi economy is based on the export of crude oil. Saudi Arabia’s GDP stood at US$622.5 billion in 2010 (CIA World Factbook). The main authority in charge of the regulation of the financial sector is the Saudi Arabia Monetary Agency, which is the Central Bank. Taxes are collected by the Department of Zakat and Income Tax. Income tax is levied on non-Saudi individuals and entities. Saudi Arabian citizens and entities are normally exempt from taxation. Also, most non-Saudi individual salaries and employment benefits are tax-free (SaudiNet). It is only professional foreigners and foreign investment income that is taxed. Corporation tax, which is only for foreign businesses is often 25% increasing progressively up to 45%. Social Socially, Saudi Arabia is the most Islamized state in the world. Saudi Arabia’s social setting has however gone through a lot of modernisation of traditional activities and traits (Ramady, 2010). Most people have and observe tight links to their extended families and tribal folks. Social life is governed by Sharia Islamic law. There is a campaign to divest Saudi Arabia’s economy and reduce the reliance on oil. This means that other institutions and areas of business are being encouraged to grow. This has caused the migration of many foreigners from all over the world. However, there are so many checks to ensure that the nation does not lose its Islamic identity. There is a wing of the police responsible for this. Note that Sharia Law forbids the sale and possession of alcohol as well as the immodest dressing of women. The GDP of Saudi Arabia is estimated to be around US$24,200 in 2010 and population is around 26 million (CIA Fact book). This makes the nation one of the richest nations outside the West. It has a thriving migrant population and the purchasing power strength of the nation is ranked amongst the highest in the region. Technological The biggest global technological brands have outlets and branches in Saudi Arabia. One of the reforms that the current king has focused on is to improve technology. Research institutions are given grants and support for the improvement of systems and methods in the nation. Environmental Article 32 of the Kingdom’s Basic Law of Governance creates the impetus for the preservation, protection and improvement of the environment. It also has a provision against pollution in the kingdom. Saudi Arabia is signatory to many international conventions for the protection of natural resources. Legal According to Ramady, King Abdullah has shown clearly that he is interested in making reforms in the judicial sector. He began by reshuffling the leading figures in the ministry of justice to make it more “dynamic and proactive”. This, is speculated to be done through the process of solving disputes through more modern legal systems. There are also signs that the Saudi Judiciary seeks to improve respect for human rights and foreigners (Ramady, 2010) MICRO ENVIRONMENT The micro environment is concerned with stakeholders directly linked to the activities of Marks & Spencer, when they enter the Saudi Arabian market. Johnson, Scholes and Whittington (2008) defined a stakeholder as an entity that affects or is affected by the activities of the organisation in question. Using Porter’s five forces, it is possible to zoom in on the stakeholders that can have a direct influence on the operations of Marks & Spencer in Saudi Arabia. Porter identified five main components of a given industry that can affect the activities of an organisation. From the detailed explanation of Porters five forces given by of Jeffs (2008) the following could be inferred: 1. Buyer power: When Marks & Spencer opens a main operation in Saudi Arabia, it is likely to sell franchises to Saudi individual retailers because the culture in Saudi Arabia. This means that the franchise owners can influence the activities of Marks & Spencer in Saudi Arabia. 2. Supplier power: Since most of the land of Saudi Arabia does not produce food or raw materials for clothing, it is likely that Marks & Spencer will have to import from nearby countries. This means that Marks & Spencer will have a wide range of suppliers to talk to like food producers in fertile lands in East Africa, South Africa, India or Egypt. Also, for silk and cotton, Marks and Spencer can contact Indian and Chinese suppliers and for electrical and home appliances, Chinese and Turkish suppliers can be contacted. Due to proximity, it is not likely that suppliers can integrate horizontally to become competitors. 3. Threat of new entrants to the industry: This is a genuine concern since the Saudi government is putting in efforts to invite more investors to diversify the economy. The clothing and food sectors are some of the most opened areas in this drive as there is little regulation and fewer barriers. There is therefore a big risk that many people can enter and quickly become competitors. 4. Threat of substitutes: Traditionally, Saudi law supports producers of local Arab cloths. These manufacturers already exist in Saudi Arabia and more of them are entering the market. Additionally, Saudi Arabia has become a highly diversified country when compared to the 1970s. This means there are many options for clothing and home appliances that can offer the same or similar services to what Marks & Spencer can offer. 5. The competitive rivalry: Already, there are other American, European and Japanese brands that sell similar products that Marks & Spencer deals in. A few established brands from China, India, UAE and Russia also exist. SWOT ANALYSIS SWOT analysis matches the strengths of a business to its opportunities, and also translate its weaknesses into threats for further analysis (Bamford & West, 2010). The SWOT analysis for Marks & Spencer in Saudi Arabia (facts from official website) include: Strengths 1. Established global brand and great history 2. Maintains Basic presence in Saudi Arabia 3. Healthy financial position 4. Strong and ethical entity 5. Maintains good and innovative production technology Weaknesses 1. Current strategy (2010-2013) focuses mainly on the British markets 2. Cost of production generally high 3. Expensive to maintain ethical & CSR standards 4. Limited expertise in local Arab foods and clothing 5. High investor expectations Opportunities 1. Brand can be potentially promoted easily in Saudi Arabia 2. Can build on the basic Saudi presence as core operations. 3. Strong financial position means a stronger capital base to launch a Saudi entity. 4. Good reputation 5. Production of high quality goods for the Saudi market Threats 1. The current strategy might limit investments to Saudi Arabia 2. High cost of production means higher prices or lower profits which consumers might not like. 3. Maintaining corporate ethics in Saudi Arabia might add up to costs. 4. Smaller market share in Saudi Arabia or higher costs of recruiting experts on Arab foods and clothing. 5. Pressure on managers in the region References Bamford, Charles & West, Page III (2010) Strategic Management: Value Creation, Sustainability & Performance Mason OH: South-Western Cengage Learning. CIA World Factbook [Online] Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/sa.html. Accessed: March 4, 2011 Henry Anthony (2008) Understanding Strategic Management. Oxford: Oxford University Press. Hitt, M., Ireland, D. & Hoskisson, R. (2009) Strategic Management: Competitiveness & Globalization Concepts & Cases. NY: Cengage Jeffs, Chris (2008) Strategic Management London: Sage Publications Johnson, G. Scholes, K. Whittington, R. (2008) Exploring Corporate Strategy London: Pearson Education. Marks & Spencer Overview [Online] Available at: http://www.marksandspencer.com. Accessed: March 5, 2011 Marketing Made Simple [Online]. Available at http://www.marketing-made-simple.com/articles/marketing-plan.htm. Accessed: March 6, 2011. Ramady, M. A. (2010) The Saudi Arabian Economy: Policies, Achievements and Challenges. London: Springer SaudiNet [Online] Available at: http://www.the-saudi.net/saudi-arabia/taxation.htm. Accessed March 5, 2011. Read More