Taking Business Abroad - Essay Example

Taking Business Abroad Table of Content Section Background 3 Section 2: Strategy 5 Section 3: Implementation 9 Reference 11 Bibliography 12 Section 1: Background Shopko is a company who has it’s headquarter in Green Bay, Wisconsin and at present has two division- Shopko and Shopko Express Rx. The company has 136 stores which are situated in 13 states throughout Midwest, Mountain and Pacific Northwest regions. Right now the company has a workforce of 16,000 peoples with annual sales exceeding $2.2 billion. Shopko was founded by James Ruben who was a pharmacist. In 1962 he opened the first store in Green Bay with an aim of quality, convenience and value by combining health care services along with a large discount store; thus soon the company succeeded to emerge out as the first mass retailer in the sector of pharmacies and eye care. In the year 1991 Shopko got enlisted in New York Stock Exchange under the symbol "SKO". Shopko Inc was purchased by Sun Capital Partners Inc in December 2005, a leading investment firm who focuses on leveraged buyouts, equity, debt, and other investment in the leading companies. Before that in the year 1999, a regional discount chain called Pamida was purchased by Shopko. Pamida was a part of Shopko till the year 2007 as a separate division, but later got separated as an individual company. Now the company has its stores in 13 different states which include Northern California, Idaho, Iowa, Illinois, Minnesota, Montana, Michigan’s Upper Peninsula, Nebraska, Oregon, South Dakota, Utah, Wisconsin and Washington. In 2001, Shopko closedown few of its multidepartment stores which where situated in mid sized communities. The present slogan of the Shopko is “My life…my style…my store” and the slogan of Shopko Express pharmacy is “Every day. On the way”. Another division of Shopko is Shopko expresses which is a chain of pharmacies. This division offers limited general goods like merchandise, groceries, beer, liquor, health supplies and other medicines through out the country. Shopko in its 1306 stores sells brand merchandise, great values, pharmacy and optical services and in the 6 Shopko Express Rx stores, company offers high quality merchandise, services and values for customers’ house hold need along with family basics, casual apparel and seasonal products. They pays especial emphasis on the retail health sector. Company pay good amount of care toward stores’ cleanliness and interior decoration along with space and light. Thus creates friendly atmosphere in the shops. In the retail stores, list of brands is endless like Nike, Adidas, Reebok, Kitchen Aid, Fisher-Price & Sony any many others (Shopko, n.d.). Retail stores of the company offers wide ranges of products includes apparels, active footwear, furniture, house entertainment, houseweares, along with health, beauty and grocery products. Recently the Shopko foundation, on behalf of Shopko teammates has awarded $35,000 as a grant to the charitable organisations which are situated in nine states. In 2007, the company has awarded $152,000 to the charitable group. (Shopko, 2009.). Biggest strength of the company is its long time experience in the field of retail business and its wide range of product which they offer to the customers. The company has strong product promotion strategies like attractive ads, coupons, warranty policies, gift cards, rebates, Shopko script program and a good customer services. With growth and development of American economy, the company has also experienced growth and development. But at present as the US economy is facing global recession phase, thus retail business is among those sectors that has faced the biggest hit. When the world economic growth goes negative, liquidity crises is very normal. The disposable income got reduced and people are left with little purchasing capacity, so undertaking the strength and weakness of Shopko, and of the industry in which it is; they has planned to internationalise their business. In the present state of recession where all the big economies are suffering with sharp decline in their GDP, most of the developing nations performed pretty satisfactorily. Among them the economical performance of South East Asian countries is really noticeable. Thus all the major retail companies are trying to enter these South Eastern Asian countries. Section 2: Strategy To go for globalisation, the company has to make a thorough analysis of all those factors which will have divert impact on the company’s decision. These factors, if does not taken care beforehand, can lead to high risks in failure. First thing which the company has to taken into consideration is cultural differentiation. As the retail chain provides necessary merchandises to fulfill need of customers, thus it is very important for Shopko to understand culture, ethics and value system of the people. Culture is most complex thing to understand as it is not a single matter but it has segregation of different factors which can be broken down into three subparts such as Ideational, Material and Social factors. By Ideational factors, one means the values & beliefs followed by country persons. It may be found that there exist some minor variation in the values and belief of the people who lives in different economical and cultural surrounding, but still some similarities exists which leads to a common culture for the whole region. The next factor is Material factor which includes artifacts, clothes, building structures or all other visible and physical factors which provides uniqueness to each culture. Again these factors are influenced by the geographic position and the climatic condition of that particular region. Another major factor is Social factor, which is again an outcome of many individual factors like size of family, nature of relation which the family members shares among themselves, hierarchy and power distribution in the family. Then comes religion which is prevailing in that particular religion, as religion have influence in each and every sector of life. The public organisations indirectly effect the culture as because through these organisations government carryout public welfare and development of the region. So before taking the decision of internationalising, company should take these cultural factors of home country and of the country in which they are planning to subsidise their business. As the US based company is planning to start their venture in South East Asian countries those culture is completely different, hence Shopko should take proper strategic decision. Second very important factor which Shopko has to take into account is the economic state of the country in which they will start their new venture. Considering the present economic slowdown, it had been proved that the all major retail stores of US has booked a huge lose. Due to the global slowdown US stock market faced a sharp downfall. For example on May 14th, 2009 the commerce department announced that the retail sale dropped by 0.4 percent in April. On the contrary, fall in retail sector was not so severer for developing countries like India and Indonesia who really managed a high economic growth, even in the phase of the global economic slowdown. The government of these developing countries has injected good amount of liquidity in spite of growing fiscal deficit. Another factor is that, the economy of these companies is less dependent on export; they are more dependent on agriculture or on the domestic market. Thus these countries remain isolated from the downfall of the Western countries. As these countries are at a developing state, so industrialisation is taking place at faster rate and resulting into increase in per capita income. Hence the living of standard is increasing not only in the urban areas, but also in the rural sectors. All these factors have resulted into growth of demand for the goods and services which are of general requirements. So it can be said that the developing countries of South East Asia has emerged out as heaven for retail chain companies. These companies are finding great opportunities in the unexplored marked having a diversified demographic state. For any diversifying company who goes to some other countries to develop a new subsidiary, risk related to the legal and political factor is much high. Both the political and the economical factor is outcome of the economic system followed in a country. A country which follows capitalism system has lenient rules and regulation regarding entry and exit of the foreign companies who comes for making foreign direct investment (FDI). Government makes no interference as the economy is controlled by big corporate giant. On the contrary, in socialist economic system where full economic and political control is in the hand of government, entry for foreign company is too tough. Condition is different when it comes for mixed economy where both government and private sector works hand in hand. The government in mixed economic system has realized that for a nation to develop and to prosper, Foreign Direct investment plays an important role. These foreign companies make investment for industrialisation & infrastructure development and increase the employment opportunities. So the government tries to keep their policies such that the foreign companies find it comfortable to make investment, but on the same time government kept a keen eye on functioning of these foreign companies because due to their presence, the domestic market should not suffer (Thompson,1993). There are many other risk factors which are associated with internationalisation such as the demand patter of the goods and services in foreign countries. Then the foreign exchange market risk also effect profitability of investing country. All these factors leads to high cost of capital and due to high risk factors, company will have high break even sale. To manage these risks, Shopko have to make a strong strategy that how these factors will be handled. Miller (19992) has described few strategies which companies should take into account before they go for internationalisation; these are- First one is “Imitation strategy” which means following the action of giant companies who already has succeeded in establishing themselves. But this doesn’t mean that a company will be able to attain success by following this strategy. Many companies go for “Deep niche” strategy through which they focuses on a narrow market which they can capture and then go for expansion strategy. Hence these companies go for uniqueness instead of imitation. The second strategy is “avoidance”, which mean whenever a firm find that it is unacceptably uncertain to establish a profitable venture into a country, they make the decision to work only within a limited sector or they may also decide to quite and to come out from that venture. The third strategy is “flexible” strategy through which the companies can adopt change in their design, size of their work place, employees’ skill and cost structure. By introducing these change, company try to adjust itself into new environment. As per fourth strategy which is “cooperation” strategy, company tries to reduce risk of uncertainty by cooperating with other companies. For this they go for joint ventures or mergers. Through this strategy companies get an opportunity to learn more about the cultural and economical environment of foreign companies and after understanding and gathering knowledge, they can expand themselves independently. The last strategy is “control” strategy through which companies try to influence behavior of others, especially the firms how are in that particular industries in which the company is planning to enter, so the company goes for horizontal and vertical integration. Section 3: Implementation After taking all the factors into consideration, Shopko may adopt the strategy of cooperation, hence they will try to make joint venture with any retail chain which itself has a plan to expand their business. This strategy will be very useful for Shopko as because the cultural and socio-economical structure of US is very much different from that of South East Asian countries. No one else other than the domestic company can understand requirement of local people. Also the existing retail chain has deep penetration into the prevailing market. By making such joint venture, Shopko will get the opportunity to use logistic of domestic company. It may be that initially the company will not make huge profit, but as soon they will understand the consumption patter of their customers and their product gets accepted in the market, Shopko may plan for starting their own new venture and to enter into new unexplored market. In developing countries due to extension of cities and development of town, many new shopping centers are developing. By setting new stores in these places, the company will get good number of clients and also publicity of the company will be high. Latter on when company will manage to have high revenue, they can go for specialty stores which will pay full attention on the need of one particular segment of market like exclusively for the a certain age group, or for a particular gender, class or even region. Opening giant sized stores which on single roof will provide all the basic goods for satisfying need of full family is also a good way of capturing market. In present world people are getting too much busy and hardly have time to go for shopping, so if under a single roof they can get goods for satisfying need of the full family, then such a place will be highly appreciated by them. Shopko can also go for e-shop as because the use of internet is growing day by day in the developing countries and people find it more time effective. The major advantage of e-shopping is that the cost of setting an e-shop is much less compared to a physical shape and on the contrary e-shops have high accessibility to the customer and can work for 24*7. By adopting all these strategies Shopko will sure be able to attain success in making their business internationalized. Reference Thompson, Bradley, October 1993. Socialism vs. Capitalism: Which is the Moral System. [onlike]. Available at: http://www.mahg.ashland.edu/publicat/onprin/v1n3/thompson.html [Accessed 10 July 2009]. Shopko, 11 June 2009. Shopko foundation awards $34,000 in community grants. [Ppt]. Available at: http://www.shopko.com/images/060909_Grant1.pdf [Accessed 10 July 2009]. Shopko, no date. Company. [onlike]. Available at: http://www.shopko.com/site?view=content&content=company [Accessed 10 July 2009]. Shrader, Rodney C. & Benjamin. Oviatt M. 2000. Risk Management in the International Arena. How New Ventures Exploits Trade-Off Among The Accelerated Internationization Of The 21st Century.[Ppt]. p.3 Bibliography Easton, Anthony T. No date. The US: Can a Mixed Economy Be Free? [Ppt]. Available at: http://ares.sjsu.edu/upload/course/course_1662/The_US_Mixed_Economy.ppt Office of the Director of National Intelligence. No date. Global Trends 2020 – East Asia. [Ppt]. Available at: http://www.dni.gov/nic/PDF_GIF_2020_Support/2003_12_08_papers/dec8_eastasia.pdf Preece, Stephen B. Miles, Grant. & Baetz, Mark C. 1998. Explaining the International Intensity and Global Diversity Of early-stage Technology-based Firms. Fernhaber, Stephanie A. Gilbert, Brett Anitra and McDougall, Patricia P. 2008. International Entrepreneurship And Geographic Location: An Empirical Examination Of New Venture Internationalization. Read More