Analysis Of External Environment And International Marketing Strategy For Ocado In China

Ocado: Company Profile

The report would try to evaluate the external and industrial market scenarios of China so as to infer a marketing strategy for the grocery store Ocado. PESTEL analysis and Porter’s Five Forces would be used to identify threats and opportunities in the market of China. Further, availability of physical, human and financial resources would also be analyzed along with Core competency and threshold competency to construe mission statement of the company. Using the inference from PESTEL analysis, Porter’s Five Forces analysis, core competency and availability of resources SWOT analysis would be constructed of Ocado. After constructing SWOT analysis international marketing strategy would be construed to enter the market of China. Appropriate entry mode would be selected for the market of China.

Ocado is an online supermarket that was founded sixteen years ago and occupies a position on London Stock Exchange in July 2010. Ocado has established itself as the largest online grocery store by occupying more than 580, 000 customers (Ocado, 2017). The organization aims to provide a unique shopping experience to the consumers and deliver value to the shareholders. The value proposition offered by the company is its online services with best rates (Ocado, 2017).

Ocado has built a unique model by merging innovation and technology together. It recognized that grocery market is the largest market segment and with the emerging technology people have become accustomed to mobile and internet usage. The company very well used this as an opportunity and positioned itself strategically in the market to attract huge customers. Thus, the company designed its own process and technology to develop a pioneering business.

China is the most populated country of the world and has gone through political instability throughout the twentieth century (BBC, 2017). China has been struggling so far to establish stable politics within the country. Though China has overcome many challenges and threats to bring stability within the country and thus, cannot be claimed as politically unstable country (Zheng, 2012). China is an overseas investor and has established strong foreign and defence policy.

From the political analysis it can be inferred that Ocado could explore the opportunity in the market of China as China is politically more stable as compared to other developing countries. Ocado would also benefit from the growing economy of China and large population would also assist the growth of the company. China’s consistent growth indicates that it has huge market potential that would support the growth of the company.

External Environment and Industry Competition in China

China is one of the fastest growing economies in the world and has been estimated to stay stable in the next coming years (Magnier, 2016). The growth rate was 6.7% in the year 2016 and the country has uplifted more than 800 million people from the poverty (Fortune, 2017). China’s GDP growth may have slowed in the past few years, yet the country maintains it global standards (The World Bank, 2017).

For Ocado, economic situation of a country is very important as it would affect the cost & prices, supply & demand and profitability of the company. Growing economy of China would facilitate the establishment of company’s operations in the country. Further, China’s performance during global recession was least affected as compared to other countries. This clearly indicates that Ocado has great market opportunity in the market of China.

Socio-cultural factors play vital role in the success of Ocado’s business. China’s fast growing economy has led to improved living standards in the country. This also changes consumer behavior in the country. The consumers of China prefer to shop online to save their time. The increasing trend of online shopping in the country would also benefit the company and Ocado would not have to make huge efforts to place the brand in market. Ocado’s unique services are likely to attract the attention of the consumer.

China has a significance contribution to science and technology and spent around one trillion yuan on research and development in 2012 (Wu, 2015). China has great technological infrastructure to support the operations of Ocado. The country has witnessed increasing trend of online shopping with the introduction of the websites such as Alibaba.com. Thus, Ocado could easily establish its online grocery store in the market of China

China has recently revised its Food Safety Laws that were reinforced in the year 2015 (Sim and Yang, 2016). The rules and laws were made stricter to ensure that the organizations adhere to the country’s laws and health safety of public is ensured. These laws would make it difficult for Ocado to run its operations in the country. Though there lies an opportunity as well for the company to improve its existing processes that would ultimately attract more number of customers.

China has strict environmental policies that would pressurize Ocado to reduce it carbon emission in the country. Though Ocado has been consistently thriving to reduce its carbon emission and has made huge progress in the process.

PESTEL Analysis

Porter’s five forces helps to evaluate the industrial factors of the country including existing competitors, threat of new entrants, bargaining power of suppliers and threat of substitute products or services.

China has the world’ largest grocery market and has been estimated to reach $180 billion by the year 2020 according to the research of IGD. Yihaodian is online grocery store that delivers to the consumers across the country. Ocado faces major competition from Yihaodian because of its huge sales and network. Further, Ocado faces tough competition from the supermarket stores including Sun Art G, Vanguard G, Wal-Mart, Carrefour, Yanghui, WSL G, SPAR G, Bubugaa and Bailine G.

The figure above presents the market share figures for grocery market in China. Sun Art G occupies the largest share of 8.1% followed by Vanguard G and Wal-Mart with a market share of 6.3% and 5.0% (Kanter World Panel, 2017). Thus, Ocado would faces severe competition in the grocery market of China from the local companies as well as foreign companies. Ocado is likely to face competition from the supermarket stores in China and its core online services could serve as a competitive edge over others.

The grocery store industry does not have any substitute since groceries are the necessity of the consumers. The supermarket retailers have established their trust in the market. With the emerging technology every retailer has utilized the online channel to increase their overall sales. An organization offering new product or substitute would have to invest huge amount of money to enter the market.

The bargaining power of suppliers is significantly low because of presence of large number of suppliers in the market of China (Hu, 2006). Further, they consistently fear that they may lose the agreement with large organizations due to which Ocado would get the advantage to negotiate for low prices.

The bargaining power of customers is very high and with the increasing supermarkets and retail services, their demand is increasing. Low switching cost enables the consumers to quickly move towards low prices and outstanding services. The customers can easily compare the prices online that gives them the opportunity to select their retailer.

The industry has significantly high barriers because of high investment involved. There is a huge set up cost to open a retail chain in the market of China. Further, gaining consumer trust in the market through brand recognition requires time.

China is a hub of warehouses and has excellent infrastructure for Ocado’s plant set up in the country. The country’s products are distributed all over the world that indicates that country has existing set up for distribution facilities and product inventory management.

Porter’s Five Forces Analysis

China being the fastest growing economy in the world has a highly regulated financial system. The country has focused on banks to provide finance to the businesses and small-medium enterprises to support them financially for plant set up and run operational activities smoothly (Yinan, 2017). Thus, Ocado could easily avail credit facility from any Chinese banks to establish its set up including warehouses, distribution facilities, research development cell and other operational activities. Bank of China, China Construction Bank and Industrial and Commercial Bank of China are the top three banks of China (Ernst & Young, 2016).

China is the world’s largest populated country in the world and around seven million university students graduate every year. Further, the government of China also promotes vocational training and has plans to create 600 vocational training institutes in the country to provide skill based training to the people. Some 38.2 million students have been estimated to be trained by the year 2020 (Roberts, 2014). Thus, China has abundance of skilled labor that would support the growth of Ocado.

Ocado was the pioneer to start online grocery operations in UK by developing a unique technological in-built process to ensure fair prices to the consumers at their convenience. Further, because Ocado has no retail store, customer has to order grocery using the phone application and can also select the preferred delivery time. Ocado is one of the few grocery stores that do not have a brick and mortar outlet and that enables the company to offer best prices and services to the customers.

Ocado offers a wide range of grocery products to the customers through its online retail store. The company has an effective system that offers very low prices to the customers along with timely delivery and fast services.

Ocado offers great services to the customers through its great services. The customers can select their preferred timings for the delivery. In order to provide great services, a company must have a dedicated and skilled staff who can understand the need of the customers. Ocado could utilize the skilled labor force of China to continue with its existing services. Further, Ocado could also easily avail credit facilities from any of the banks using its brand recognition in the market.

The vision of Ocado is “shopping made easy”. The mission of the company is “Delivering quality products that are both healthy and tasty straight to your door but considering our carbon footprint”. The consumers can easily place their orders using Ocado application and can receive free delivery if their purchase crosses 40 pounds.

Ocado retains its customers through competitive prices, freshness of products and wide range of products. The company has a dedicated destination sites for its specialized product range. Further, the company continuously innovates and invests in technology and infrastructure to enhance consumer shopping experience.

In order to serve the market of China, Ocado needs to develop new business strategy. Following are the vision, mission and value proposition for Ocado:

Vision: “To change the concept of grocery shopping in China” (Ocado, 2017).

Mission: “To offer groceries at affordable prices for middle class consumers” (Ocado, 2017).

Since Chinese people perceive western brands as their aspiration brands due to which low pricing strategy would not work in China. The connect quality, high price and great services with the western brands and low pricing strategy would confuse the public. Low prices in Europe are comparatively high for the Chinese and thus, lower class market segment would not be able to connect them with the brand. Thus, the target market would comprise of middle class consumers who have busy schedule and prefer to buy groceries online to save their time.

Strengths

Ocado has established its brand recognition in the market and is the first organization to strategically incorporate technology within grocery retail shopping. Ocado is able to save its store infrastructure cost, labor cost and other costs incurred to maintain a retail store. Therefore, Ocado provides products and services at the lowest possible costs that becomes difficult for other retail chains to compete with. Thus, Ocado has lucrative business model that has a competitive edge over traditional grocery retailers.

Weaknesses

Ocado only provides online services to the consumers due to which it is not able to compete with the traditional retailers. Further, it becomes challenging to create brand awareness without a brick and mortar establishment. Ocado has only been operating for 17-18 years in the market and does not have global recognition in the market of China.

Opportunities

Ocado could expand its operations in the international market to create global brand recognition. The company could also expand the capacity of warehouses to increase its market share.

Threats

Since the competitors have their buying power over the company, therefore, they can exert pressure on the company to offer better services. In order to offer better and enhanced service, Ocado would have to invest huge amount of money into research and development that would ultimately increase product prices. Further, Ocado is being perceived as a logistics company instead of grocery company.

Ocado has great market opportunity to enter the international market and expand its overseas businesses. In order to enter the market of China, Ocado would have to review the food safety governing laws of China that have been very strictly implemented within the country. State Food and Drug Administration and Ministry of Health regulate the laws of food safety (Hedley, 2017).

If Ocado goes for non equity mode then that would incur huge cost for the company because complete set up requires huge amount of investment. Further, the company does not have access to the local market and vendors, thus, Ocado must go for joint venture mode to gain local market access (Prescott and Swartz, 2010).

Conclusion

The report has successfully analyzed the market of China for Ocado online grocery store. PESTEL analysis revealed that China has huge opportunity for future market growth. The growing economy of China has uplifted the standards of people due to which people prefer online shopping as compared to traditional shopping. Environmental and legal factors may pose threat because of strict laws and regulations but Ocado could use this as an opportunity to improve its processes. Porter’s five forces revealed that there is a threat buyer pressure because of their increasing demand.

The core competency of Ocado is that its unique business model and unique consumer services that ensure delivery as per customer’s convenience. Since Chinese perceive western brands as their aspiring brand, therefore, market strategy was changed from low prices to affordable prices for new market segment of middle class consumer.

Joint venture market entry mode was selected to reduce initial investment cost of the company. The model would also give the company an access to the local market and vendors.  

References

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