Company Background
Dsicuss about the Guidelines For Applying Porter Five Force Framework.
In the present business environment, leading organisations gains and maintains a competitive advantage in the industry by effectively developing business strategies after evaluating internal and external factors which affect their business. NTUC FairPrice Co-operative is one of such corporations that evaluate a number of factors before implementing business strategies for promoting their profitability. Singapore is one of the leading economies in the world, and it offers significant growth opportunities to organisations operating in the country (Min, 2018a). The purpose of this report is to conduct an external analysis of NTUC FairPrice by using PESTEL analysis and Porter’s five forces framework to provide appropriate strategies for improving its profitability and effectiveness. The structure of this report will include a background analysis of NTUC FairPrice and Singapore. Furthermore, the report will conduct an external analysis of NTUC FairPrice and provide appropriate strategies for the enterprise.
Figure 1: NTUC FairPrice’s Logo
(Source: FairPrice, 2018a)
NTUC FairPrice Co-operative was founded in 1973, and it operates in the retail industry. It is a co-operative of NTUC or the National Trades Union Congress. The company has grown as the largest retailer in Singapore, and it has established a network of over 230 outlets which include brands such as FairPrice Xtra, FairPrice supermarkets, Cheers convenience stores and FairPrice Finest (FairPrice, 2018a). The corporation offers a wide range of products to its customers including drinks, snacks, bakery, sea foods, frozen foods, meat, grocery, alcoholic beverages, deli, pharmacy, dairy and others. Moreover, the enterprise has established an online retailing facility for its customers through which they can book their order, and the company delivers them to their house.
Singapore was established as a British trading colony in 1819, and it became independent in 1965 after separating with Malaysian Federation. It has a strong per capita GDP (52,600.6 USD) which in on par with western nations (Trading Economics, 2018). Singapore’s economy is second freest in the world according to Index of Economic Freedom 2018 (Min, 2018b). In terms of location, Singapore has become an economic success, and it is considered as the business gateway to Southeast Asia because it is growing faster than every other nation (McLean, 2018). Its government is made up of the President and the Cabinet of Singapore, and the National assembly amends most provisions in the Constitution through majority votes. Singapore government has established effective trading policies for encouraging companies and investors to invest and expand their operations in the country.
Country Background
A PESTEL analysis is referred to a tool which is used by enterprises in order to evaluate different macroenvironmental factors that affect their business (Jurevicius, 2013). The primary reason to use PESTEL analysis is that it allows the management to systematically and thoroughly evaluate external factors that are likely to affect their business. The second reason is that it enables the management to develop business strategies after assessing external factors which resulted in improving the effectiveness of business policies. Following is a diagram of PESTEL analysis of Singapore.
Figure 2: PESTEL Analysis
(Source: Business-to-you, 2016)
Figure 3: PESTEL Analysis of Singapore
The government policies in a country affect the operations of a business. These policies include factors such as labour laws, trade restrictions, political stability and tax regulations. There is one of the more efficient and high-quality governance structure established in the country which creates positive opportunities for NTUC FairPrice. The government policies are favourable for NTUC FairPrice, and other enterprises operating in the country and the process of development and implementation of new government policies are efficient as well (Rikvin, 2018). While planning new venture, NTUC FairPrice faces substantially lower risks relating to political environment and investments.
Economic factors that affect the business of a corporation include exchange rates, inflation rates, interest rates and others. In Singapore, the economic growth is strong with per capita GDP around 52,600.6 USD that is growing continuously in past years (Trading Economics, 2018) (Figure 4). Furthermore, the GNI per capita in Singapore is 51,880 USD which is on par with western nations (The World Bank, 2018). Due to strong economic growth, the average income and living standard of citizens in Singapore is higher than compared to other nations which create positive business opportunity for NTUC FairPrice.
Figure 4: Singapore GDP Per Capita (in USD)
(Source: Trading Economics, 2018)
Social factors which influence the operations of an enterprise include age distribution, health and cultural aspects, career and income distribution and population growth. As of 2018, Singapore has a population of 5,780,501 which is growing continuously, and all of its population lives in urban areas (Worldometers, 2018) (Figure 5). Furthermore, the literacy rate in Singapore is considerably high with over 97.05 percent. The male literacy rate in the country is 98.73 percent, and the female literacy rate is 95.45 percent (Country Economy, 2018). These factors create a positive business opportunity for NTUC FairPrice because most people prefer to purchase products from supermarkets which are situated near their houses. Moreover, people are literate, and they prefer to use online shopping facility of NTUC FairPrice which resulted in increasing their overall profitability.
PESTEL Analysis
Figure 5: Singapore Population
(Source: Worldometers, 2018)
Technological factors include rapid change in technologies, automation, rate of technological advancements and investment in research and development. In Singapore, there are over 4.41 million smartphone users that create a positive business opportunity for NTUC FairPrice (Statista, 2018) (Figure 6). People use their smartphones for activities such as social media, banking, communication, shopping and others. NTUC FairPrice advertises their products and services through social media sites in order to let people know about its offers and expand its customer base. Moreover, the enterprise offers online shopping facility for its customers which they can easily access through smartphones. The number of smartphone users is expected to grow up to 4.82 million by 2022 which creates a huge business opportunity for NTUC FairPrice (Statista, 2018).
Figure 6: Number of Smartphone Users in Singapore
(Source: Statista, 2018)
There are a number of environmental factors that affect the business of corporations such as climate change, natural disasters, epidemics, eco-friendly regulations, weather and others. Singapore is a developed country, and its government is concerned about the environment and factors such as global warming, climate change and cleanliness of the nation. The strict laws regarding environmental protection affect the business of NTUC FairPrice in both positive and negative way. The company focuses towards implementing recyclable policies in the business in order to reduce waste and carbon footprint. The corporation has introduced recyclable plastic bags since 2006 which are durable, reusable, washable and created by 100 percent polypropylene (FairPrice, 2018b). Furthermore, in order to increase their use, the company offered 20 shopping vouchers to customers who use them. The company has also launched an initiative to discourage food waste at the stores (Boh, 2015). These factors increased operating costs of NTUC FairPrice which is negative for the company’s profitability; however, they positively affect the brand image of the corporation which creates new business opportunities.
The legal factors that affect a company’s operations include law and order established in the country. The regulations such as consumer tax, labour laws, discrimination laws and other regulations affect the way an enterprise operates in the country. Singapore government has established an efficient legal system in the country, and it has the lowest corporate tax rates than compared to other nations in Asia. The flexibility in legal regulations positively affects the business of NTUC FairPrice. While expanding its business or investing in new ventures, NTUC FairPrice receives the support of the government, and they face fewer issues due to flexible legal regulations. For example, Singapore government applies 7 percent Goods and Services Tax on all products and services of enterprises which is a relatively simpler process of taxation (MOF, 2018). NTUC FairPrice complies with this regulation, and it allows the company to maintain a low cost of their products and services. The company has introduced Everyday Low Price (EDLP) basket in which offers the lowest prices on products than compared to its competitors.
Political factors
The five forces framework was developed by Michael Porter, and it focuses on evaluating the attractiveness or unattractiveness of an industry (Dobbs, 2014). Marketers use the model for analysing the competitive environment in which the company or a product works. The five forces that affect the attractiveness of industry include the threat of entry, the bargaining power of suppliers, the intensity of competition, the bargaining power of customers and the threat of substitutes. The five forces model is an important tool because it assists the management in evaluating the attractiveness of the industry in which their product operates or assists them while launching a new product in the industry. Following is a diagram of five forces that affect the retailing industry in Singapore.
Figure 7: Porter’s Five Forces Model
(Source: Joly, 2015)
|
Buyer Power |
High |
|
Supplier Power |
Low |
|
Threat of Substitutes |
High |
|
Threat of New Entrant |
Low |
|
Competitive Rivalry |
Mid to high |
The buyers’ bargaining power of customers in Singapore retailing industry is high. The first reason for high buyer power is that it is easier for customers to switch between NTUC FairPrice or its competitors without any additional costs. The second reason is that many companies offer similar prices and services to customers such as Giant Singapore, Sheng Siong and Cold Storage.
The bargaining power of suppliers is low. There are a large number of suppliers available in the Singapore retailing industry, and NTUC FairPrice does not depend upon single suppliers, and it can easily switch between them. Furthermore, NTUC FairPrice creates a contract with its suppliers based on which they cannot increase the price of their products which reduce their bargaining power (Unglobalcompact, 2017).
The threat of substitution is high because there are a number of competitors available in prime locations that offer similar products as NTUC FairPrice. Another factor is that customers can easily compare similar products prices through their smartphone and book their order through an online platform which increases the threat of substitution for NTUC FairPrice.
The threat of new entrants is low in Singapore retailing industry. The first reason is that the initial investment cost is considerably high with relatively lower returns. The second reason is that there are already established market players such as NTUC FairPrice and Sheng Siong which makes it difficult for new companies to capture the market share.
The competitive rivalry is low to medium in the retailing industry of Singapore. The competitors of NTUC FairPrice include Giant Singapore, Sheng Siong and Cold Storage. Sheng Siong is the primary competitive of NTUC FairPrice because it also targets low-income individuals by offering them competitive pricing. Furthermore, Dairy Farm International focuses on mid to high-level income customers which resulted in increasing competition for NTUC FairPrice. However, NTUC FairPrice stays ahead of its competition by offering high-quality services and competitive pricing on their products and it also improvises its services which provide it’s a competitive advantage (Prakash and Tan, 2014).
Following are different recommendations based on the external analysis conducted above which should be adopted by NTUC FairPrice.
- Singapore retailing market is highly competitive, and NTUC FairPrice faces high competitive from its competitors. In order to stay relevant in the market, NTUC FairPrice should supply products which are high in demand at relatively lower prices and introduce new and creative ideas and services to stay relevant in the market.
- The company should focus on health and safety of its customers since the awareness of healthy food is growing continuously. In order to compensate the healthy food requirement of growing population of Singapore, the company should introduce new category in which it offers healthy food at relatively lower prices.
- Along with growing number of smartphone users, the influence of social media has grown as well. NTUC FairPrice should improve its social media image by increasing interactions with customers through social media sites and resolving their queries which would establish a loyal customer base of the company.
- NTUC FairPrice should improve its operations by making them more environmentally In the long run, it will reduce the operating costs and create a positive brand reputation of the company which will provide it a competitive advantage and assists it in addressing fierce competition in the industry.
Conclusion
In conclusion, NTUC FairPrice has established its operations throughout Singapore, and it offers high-quality services and products to its customers at relatively lower prices. The background of the company and Singapore was analysed along with the external analysis of the company which assists in analysing different political, social, environmental, legal, technological and economic factors which influence the business of the firm. Furthermore, the attractiveness of the industry was analysed by using five forces framework. Based on these factors, various recommendations are given for NTUC FairPrice such as the use of social media, healthy food section, creative new services and environment-friendly operations. These strategies can assist NTUC FairPrice in improving its market share and efficiency of its operations which resulted in sustaining its future growth.
References
Boh, S. (2015). NTUC FairPrice launches initiative to discourage food wastage at stores. Retrieved from https://www.straitstimes.com/singapore/ntuc-fairprice-launches-initiative-to-discourage-food-wastage-at-stores
Business-to-you. (2016). Scanning the Environment: PESTEL Analysis. Retrieved from https://www.business-to-you.com/scanning-the-environment-pestel-analysis/
Country Economy. (2018). Singapore – Literacy Rate. Retrieved from https://countryeconomy.com/demography/literacy-rate/singapore
Dobbs, M. (2014). Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), 32-45.
FairPrice. (2018a). Out Stores. Retrieved from https://www.fairprice.com.sg/wps/portal/fp/ourretailformats
FairPrice. (2018b). NTUC FairPrice ramps up ongoing sustainability efforts with inaugural sustainability report and community engagement. Retrieved from https://www.fairprice.com.sg/wps/portal/fp/pressreleases/2016/NTUC%20FairPrice%20ramps%20up%20ongoing%20sustainability%20efforts%20with%20inaugural%20sustainability%20report%20and%20community%20engagement
Joly, N. (2015). How to Competitive Analysis using Porter’s Five Forces Framework. Retrieved from https://www.logiq3.com/blog/how-to-competitive-analysis-using-porters-five-forces-framework
Jurevicius, O. (2013). Pest & pestel analysis. Strategic Management Insight, 13, 2013.
McLean, M. (2018). Why Singapore is Your Business’ Gateway to Southeast Asia. Retrieved from https://www.veem.com/singapore/singapore-business-gateway-southeast-asia/
Min, C.Y. (2018a). Singapore among 25 countries leading the world in advanced manufacturing: World Economic Forum. Retrieved from https://www.straitstimes.com/business/economy/singapore-among-25-countries-leading-the-world-in-advanced-manufacturing-world
Min, C.Y. (2018b). Singapore still 2nd freest economy in the world but gap with top-ranked Hong Kong widens. Retrieved from https://www.straitstimes.com/business/economy/singapore-still-2nd-freest-economy-in-the-world-but-gap-with-top-ranked-hong-kong-0
MOF. (2018). Goods and Services Tax. Retrieved from https://www.mof.gov.sg/Policies/Tax-Policies/Goods-and-Services-Tax
Prakash, R., & Tan, P. (2014). Landscape of social enterprises in Singapore. Ridge Drive: Asia Centre for Social Entrepreneurship & Philanthropy (ACSEP).
Rikvin. (2018). Why Singapore is Preferred by Foreign Companies. Retrieved from https://www.rikvin.com/incorporation/why-singapore-is-preferred-by-foreign-companies/
Statista. (2018). Number of smartphone users in Singapore from 2014 to 2022 (in millions). Retrieved from https://www.statista.com/statistics/494598/smartphone-users-in-singapore/
The World Bank. (2018). Singapore. Retrieved from https://data.worldbank.org/country/singapore
Trading Economics. (2018). Singapore GDP per capita. Retrieved from https://tradingeconomics.com/singapore/gdp-per-capita
Unglobalcompact. (2017). FairPrice CSR Online Report. Retrieved from https://www.unglobalcompact.org/system/attachments/13159/original/FairPrice_CSR_Online_Report.pdf?1322554756
Worldometers. (2018). Singapore population. Retrieved from https://www.worldometers.info/world-population/singapore-population/
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