Pros and Cons of Business Expansion
Discuss about the Business Expansion Decision Making Process.
Internationalization is the process of promoting brand and the products in the multiple countries in such a way that it meets the needs of the customers as well as easily adopted by the countries. The companies are taking steps to increase its business sales and customer base by tapping the global or international markets. Because of the globalization, there are many opportunities available for the countries to expand the business across the borders and contributes towards the economic development. There are many companies who are going global for gaining the profits as well as the competitive position. The company that chosen for this report is Sainsbury and it expanded its business in Hong Kong Country of the Asian Market. There are many challenges and risks are involved while establishing the business in the market of Asia such as political, legal, social and technological risks (Citigroup, 2008).
Working in a global environment has various merits and demerits. Deciding on whether to invest money on the expansion is the common decision. Business expansion has positive as well as negative impact on the performance and productivity of the business. The positive points that have been observed in this essay are related to the business growth for long term, increasing the customer base, and increase the profits for the company. The decision making is also playing a vital role in deciding whether to invest money in on the business expansion or not. It is a great opportunity for the Sainsbury Company offer its services and products to the large number of customers and attracts them to increase the profits of the company. One more positive point of the business expansion is that by doing this, companies can also spread the risks. On the other hand, the negative points are that company needs a huge amount of money in order to establish the business in the new market. The risk of political instability and the terrorism is high in the business expansion in the developing countries like Pakistan, Iran, India and Iraq.
Sainsbury is a very famous brand of the supermarket and it deals with the various grocery, food and non-food items. This company is UK based company and because of its successful operations this company is the largest supermarket in UK. This supermarket is established in the year 1869 by John James and is wife Mary. The main objectives of the company are to offer products and services as per the needs of the customers in relation to the food, clothing and grocery products. According to the financial statements for the year 2017, profit earned by the company for the financial year is of £377 million and retail sales including VAT is around £28,705 million. (See appendix 1). Also, people that are working at Sainsbury are around 150,000 in the 950 stores across UK (Gladding, 2017).
Sainsbury Overview
Global business environment is the environment in which the company operates and it involves range of factors that can influence the business such as politics, technology, culture and geographic location in the country. Globalization plays a very intense role in the expansion of the business in the international markets as globalization opens the door for companies across the borders. There are numerous challenges that can be faced by the companies while expanding in the Asian markets. Therefore, it is very important to analyze the business market internally and externally with the help of PEST analysis and SWOT analysis. PEST analysis includes all the factors such as political, economic, social, technological and legal that affects the business and performance of the company. SWOT analysis can be used to analyze the internal business environment.
However, it is also not an easy to expand the business in Asian Market as there are many UK organizations have failed to gain the competitive advantages because of many reasons. Different organizations are trying to enter into the Asian market because 40% of the global economic activity is occurring in Asia and it is expected that in the next decade, Asia will lead the world. Half of the current population also lives in Asian Countries and there is a wide scope for companies to increase its customer base and earn attractive profits. It has been observed by the researcher that Asia will not be just the producer of the goods and services; it will also be the biggest global consumer (Gibson, 2004).
With so many opportunities for the companies across Asia, the companies can receive great benefits, but some of the challenges faced by the Sainsbury while expanding its business in Hong Kong are going to be discussed in this section. First challenge faced by the company is related to the limited financial regulation and enforcement in Asia that presents corruption risks and legal compliance issues for company. Because of these issues, company found it very difficult to operate under compliance controls in this corrupted climate and there are fewer chances for the companies to gain the competitive advantages. The change in the political environment is the biggest challenges for the companies and it increases the level of risk to expand the business. Moreover, political risks in Asia involve the government restrictions on the trading business and on the business expansion in the international market. The policies of Hong Kong Government were also playing an effective role at that time of the establishment of the Sainsbury. For example, government is lowering down the jobs in government sector with a purpose to increase the growth of the private sector. These factors, however, should be considered while working in the era of the globalization. However, Sainsbury need to understand the laws of Hong Kong before the business expansion in global business environment. Moving to the second challenge faced by Sainsbury is the currency convertibility issues and economic manipulation in Hong Kong. The currency rates in the Asian countries are low because of the no single regulator as well as the diverse trading centers (Bradford, 2014). The enterprises from different nations do not operate under the provincial regulations or national regulations. Moreover, the economic factors have the great influence on the business of Sainsbury as these factors are affecting the buying behavior of the customers. It is observed that the spending power of the customers is not static as it depends upon the financial condition of the customers. Therefore, uncertain financial risks are the challenge for the Sainsbury Company. Social and cultural issues are another challenges faced by the company as it involves the tastes and preferences of customers, business values and analysis of the cultural values. Before expanding the business in any new market, it is very important to understand their culture, languages and the needs of the customers in order to attract the maximum people of Hong Kong. To add more, it is identified that the companies need to invest heavily on their own corporate culture and infrastructure and people in order to match the consumer demands in Asia. The culture of the Hong Kong gives importance to the quality as well as the brand value of the product (Tyler, 2014). Also, Sainsbury needs to manage its business values and strict to these values in order to gain the competitive advantage and to hold the leadership position in that country. The business model that depicts the values and services of Sainsbury has been shown in the (appendix 2).
Global Business Environment
Technological factors are the most important factors that influence the business growth to a great extent. Change in the technology is other challenge for the company in Asian countries. In the business of supermarket, technology is used to improve the supply chain, operations and the process of the retailers. Because of the globalization, the influence of the information technology is growing day by day. Nowadays, people are busy in their personal and professional lives, so they do not have the time to visit to the supermarkets or retail stores to buy the products, so they prefer to buy the products through online stores. However, online stores of Sainsbury are running more successfully and it covers the 92% of the customers in the UK economy. It is quite difficult for the companies to cope up with the changing technologies which is the another issue (RU, 2018).
Environmental issues include the business operations that affect the society and the environment. With the expansion of the business, the level of production activities also increases and this will lead to affect the environment of the country. The company has the responsibilities towards the society as well as towards the environment so it is recommended for the companies seeking to expand the business should focus on the eco- friendly environment as well as the make use of the reusable bags that reduces the cost of the company also. Moving further, the legal system of every nation is different such as there are strict laws on the operations of foreign companies in China and Malaysia. Taking an example of the intellectual property protection laws is highly limited because of technology theft and counterfeiting products are common in some of the areas and accepted by the higher authorities. Also, according to the repot of the international IP theft, the US companies suffered from the loss of $300 billion in a year on the exports to Asia. There are many questions arises about the impartiality of the judiciary in the different nations. It is also analyzed that the American enterprises are not protected under the local legal system. The policies of Hong Kong Government were also playing an effective role at that time of the establishment of the Sainsbury (Group, 2014).
Moving ahead, the role of the globalization in the expansion of the business is very important as it opens the door for the companies. There are 80% of business executives agree with the fact that the US companies expand their business in the international markets for the long term business growth. It is identified through the records that there are more opportunities for the growth of the companies today in comparison to the previous times. However, when entering into the new markets, there are numerous factors that need to be focused by the companies. According to the survey, there was 89% of the US corporations focus on the political stability of the international market. Other factors that need to consider before going global are infrastructures (82%), trade regulations, enforcement of contracts (80%), trading across borders (80%). Some more factors include the availability of the skilled labor force, favorable tax regulations, labor costs and laws and the access to credit. (The results of this survey shows in the appendix 3 and 4)
Challenges Faced by Sainsbury in Hong Kong
Global competition is another threat for the companies like Sainsbury expanding their business in the Asian market. The competition is increasing day by day because of the globalization. Hong Kong, China, Malaysia is the countries having high potential of growth. High competition and the changing tastes and preferences of the customers are the biggest threat for the company. It is a well-known fact that the tastes, needs, demands and preferences of the customers cannot be static in nature. Because of the static nature of consumers, it lowers the demand of the company’s products. The strong place of the competitors across the world also threatens leadership position of Sainsbury. The biggest competitors for the Sainsbury are Wal-Mart, Tesco, Morrison and Aldi. These companies are still giving the strong competition to Sainsbury. Therefore, it is very essential to develop and implement some strategies to handle the threat of competition as well as to tackle the other problems. The strategy will also help one to ignore the exaggerating and misunderstanding your specific market, introducing a badly designed product or services, or products or services that doesn’t fulfill the demands of the customers, wrongly setting the price of products, investing resources and showing your business to higher risks and threats from unpredictable competition (Homer, 2013).
Furthermore, in order to navigate the challenges, there are various things that businesses need to consider while expanding the business in the Asian Market. First and most important thing is to consider the local country infrastructure as well as the different capabilities and consider local regulation. Each country has different rights from country to country and it is important to understand all the rights to deal with the challenges. Also, Sainsbury should consider the cloud infrastructure platform that took care if the data storage as well as the data safety. It is essential to examine every factor carefully and find out the solutions. Another important thing is to understand the local markets in order to navigate the risks. For example, according to many business corporations, Asia is single market entity but the real fact is that within Asia there is much different type of markets which can be considered for doing the business (Limited, 2017). However, to excel in the Asian markets, it is necessary to have the technological expertise of the region. To overcome the risks and challenges associated with the business expansion in Asian markets, the companies need to be flexible enough to deal any unexpected change occur in the market. Moving ahead, the Sainsbury Company should make sue about the government policies and political stability of the country and then understand the needs of people to expand the business in the global environment. The challenges and risks can be overcome by making changes in the communication management and environmental practices. There is also a need for the collaboration between the offices across the globe to maintain the productivity levels. This means the companies like Sainsbury can quickly grab the opportunities to expand business as well as to increase the profitability levels of the company. In order to make sure expansion into Asia is a profitable venture, companies should look for advice and expertise from technology partners that have the experience in the market and knowledge to guide them (Chilton, 2013). At the end, after the analysis of the global business environment, it is important that company should formulate the strategy to achieve the high amount of profits. Therefore, companies are taking steps to increase its business sales and customer base by tapping the global or international markets. Because of the globalization, there are many opportunities available for the countries to expand the business across the borders and contributes towards the economic development. There are many companies who are going global for gaining the profits as well as the competitive position. The company that chosen for this report is Sainsbury and it expanded its business in Hong Kong Country of the Asian Market. There are many challenges and risks are involved while establishing the business in the market of Asia such as political, legal, social and technological risks (Hitachi, 2015).
Technological and Environmental Issues
From above, we have analyzed that business expansion has positive as well as negative impact on the performance and productivity of the business. The positive points that have been observed in this essay are related to the business growth for long term, increasing the customer base, and increase the profits for the company. The decision making is also playing a vital role in deciding whether to invest money in on the business expansion or not. It is a great opportunity for the Sainsbury Company offer its services and products to the large number of customers and attracts them to increase the profits of the company. One more positive point of the business expansion is that by doing this, companies can also spread the risks. On the other hand, the negative points are that company needs a huge amount of money in order to establish the business in the new market. The risk of political instability and the terrorism is high in the business expansion in the developing countries like Pakistan, Iran, India and Iraq (Twarowska & K?kol, 2013).
Conclusion
Global business environment is the environment in which the company operates and it involves range of factors that can influence the business such as politics, technology, culture and geographic location in the country. Globalization plays a very intense role in the expansion of the business in the international markets as globalization opens the door for companies across the borders. There are numerous challenges that can be faced by the companies while expanding in the Asian markets. Therefore, it is very important to analyze the business market internally and externally with the help of PEST analysis and SWOT analysis. Moving ahead, the role of the globalization in the expansion of the business is very important as it opens the door for the companies. There are 80% of business executives agree with the fact that the US companies expand their business in the international markets for the long term business growth. Global competition is another threat for the companies like Sainsbury expanding their business in the Asian market. The competition is increasing day by day because of the globalization. The strong place of the competitors across the world also threatens leadership position of Sainsbury. The biggest competitors for the Sainsbury are Wal-Mart, Tesco, Morrison and Aldi.
References
Bradford, N., 2014. Case Study: Sainsbury, Available at: https://www.stateofflux.co.uk/getmedia/d74d72d5-c597-41e9-9fa7-7e9863d72701/Sainsbury-s-SRM-case-study.pdf?ext=.pdf [Accessed 14 May 2018].
Chilton, J., 2013. The Business Expansion Decision Making Process for Multinational Enterprises Investing in Canada, Available at: https://dspace.library.uvic.ca/bitstream/handle/1828/4639/chilton_jenny_mpa_2013.pdf?sequence=1 [Accessed 18 May 2018].
Citigroup, 2008. J Sainsbury PLC (SBRY.L): Reviewing the Annual Report, Previewing the Trading Statement, Available at: https://www.borsaitaliana.it/bitApp/view.bit?target=StudiDownloadFree&filename=pdf/71065.pdf [Accessed 18 May 2018].
Gibson, A., 2004. Sainsbury’s Online, A Strategic Success?, Available at: https://minerva.leeds.ac.uk/bbcswebdav/orgs/SCH_Computing/FYProj/reports/0304/Gibson.pdf [Accessed 17 May 2018].
Gladding, N., 2017. Trading with Sainsbury’s: Full year 2016/17 results and strategic priorities, Available at: https://www.igd.com/Portals/0/Downloads/Events/Trading%20with%20Sainsbury’s%20201617.pdf [Accessed 14 May 2018].
Group, B. A., 2014. Expansion Business Plan, Available at: https://www.unescap.org/sites/default/files/Session%202c_Armenia_Voskanyan_Business%20Plan%20Final_10APR14.pdf [Accessed 14 May 2018].
Hitachi, 2015. Global business expansion, Available at: https://www.hitachi-chem.co.jp/english/ir/annual/2015/report2015_7_2.pdf [Accessed 15 May 2018].
Homer, T., 2013. Expanding business into Asia: Why it’s important and how to be strategic, Available at: https://www.telstraglobal.com/uk/insights/blogs/blog/expanding-business-into-asia-why-it-s-important-and-how-to-be-strategic [Accessed 16 May 2018].
Limited, C. M., 2017. Looking for a taste of British quality? Sainsbury’s launches product line in Hong Kong!, Available at: https://coconuts.co/hongkong/food-drink/sainsburys-launches-product-line-hong-kong/ [Accessed 15 May 2018].
RU, 2018. Globalization: Challenges of Corporations During Expansion, Available at: https://online.rutgers.edu/blog/globalization-challenges-corporations-expansion/ [Accessed 18 May 2018].
Twarowska, K. & K?kol, M., 2013. International business strategy – reasons and forms of expansion into foreign markets, Available at: https://www.toknowpress.net/ISBN/978-961-6914-02-4/papers/ML13-349.pdf [Accessed 17 May 2018].
Tyler, D., 2014. Annual Report and Financial Statements, Available at: https://www.annualreports.com/HostedData/AnnualReportArchive/j/LSE_GB0767628_2014.pdf [Accessed 16 May 2018].
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
