PESTLE Analysis And Porter’s Value Chain Analysis Of Toys R Us For International Expansion

Overview of the internal and external environment

Toys R Us has been significantly operating in the US toy sector for a considerable period of time and with a prominent market share as it plans to expand overseas, this report thus is formulated to give an overview of the aspects of internal and external environment, the overseas environment, the barriers to be confronted and the factors of competition that needs to be taken into consideration by the organisation preceding the decision of expansion. Effective recommendations would also be provided to ensure that the international marketing procedures remain fruitful for the organisation.

The health of any business can be understood clearly from the environment and the factors that surround the company in the market competition and hence the study of the macro environment through PESTLE Analysis and the competitive factors is of primal importance to gain knowledge about its effect on global toys industry.

Political- as the toy industry is comparatively less harmful from the social perspective, the political restrictions are not very stringent on them. It is less cumbersome for the industry to carry forward its global operations. However lax political barriers would not mean a constraint free existence as certain administrative restrictions like plush toy selling to toddlers below three years of age would be very much in practice (Terpstra, Foley and Sarathy, 2012, p, 71).

Economic – the most important determinant of the economic environment is the consumer’s spending and buying power. With the increasing demand of toys in many of the developed countries, in developing countries like China and India there has been an increase in the spending power and demand of toys that can be a hugely contributing factor in the business development of the various toy brands like that of “Toys R Us” (Czinkota & Ronkainen, 2013 p, 67).

Social – Awareness about the changes in the global social environment is important since transformations in the environment of the society reflect in the generation of revenue and sales of toys industry. In the contemporary times, the children are more eager to use the electronic gadgets like mobile phones, computers and tablets at an early age thus reducing the demand for soft toys which happens to be a pertinent issue for the toy industries that are in operation. The proliferation of the online gaming platforms and the exposure of internet have posed a challenge to companies like “Toys R Us” to strategise effectively so that the effect the new trend can be either reduced or harnessed for gaining competitive advantage (Papadopoulos & Heslop, 2014 p, 89).

PESTLE analysis of the global toys industry

Technological – on the face of the emerging technological evolution in almost all the sectors “Toys R Us” would have to insurmountable pressure to keep its customers interested in the products of the brand. The market demand for toys has fallen manifold and so have the desire amongst children to possess toys. The various toy companies are thus engaged in incorporating technology in respect of the latest trends to retain its customer base and attract new ones to the brand.

Environmental – the toy factories in China has been under the scanner lately because of its indulgence in producing toys for children that was observed to possess considerable amount of lead and magnets that are regarded as unsafe for use and was found to be equally harmful for the environment in cases of being disposed. The toys were thus pulled back in huge quantities on the basis of spreading harmful impact on children’s health and the environment at large (Berthon et al., 2012 p, 56).

Legal – the corporate tussle over the issue of copyrights and patents has dominated the toys sector in the wake of utilisation of lax standards of safety in the production processes. The companies like MGA and Mattel has been exposed to legal implications. In the global business circuit resentment caused by the brands like Mattel and Hasbro has not only affected the industry in general but also a large section of the consumers (Paliwoda & Thomas, 2013 p, 67).

Evolving consumer needs – the needs of the consumer is probably the most vital factor in competition that the companies must remain aware of continuously to sustain itself in the long run market competition. In the toys sector, the traditional needs have been replaced by the want of technological gizmos by consumers making the industry more competitive for the companies to focus on providing the appropriate product matching the present trend.

Quality and Price – it is regarded as one of the vital factors of competitiveness especially since the quality and price are quite similar for the existing companies thus making it difficult for the buyer to select a trustworthy brand (Meissner, 2012 p, 89).

Range of products – the competitiveness of the toy companies has taken an upward swing in the presence of an increased variety of products from the various global toy brands to cater to the new generation of customers.

The toys brand can gain an understanding about its internal environment through the application of the Porter’s Value Chain Analysis in the following manner:

Porter’s value chain analysis of Toys R Us

                                                                   Fig 1: Porter’s Value Chain – “Toys R Us”

The aspects of inventory management, transport, control and warehousing comes under the head of Inbound Logistics. The ingredients and raw materials received from North America is quite effective as commodities for the organisation.

It is through the Operations that the future demand can be understood and the final demand can be met effectively leading to right product mix. In case of the toy brand, the analytical approach has helped in the effective projection of future demand (Fletcher and Crawford, 2013 p, 90).

The key strength of the brand has been the Outbound Logistics as it has tied up its supply chain with DHL to ease off its pressure of distribution thereby reducing costs and achieving effective distributions of its products to the end users (Akaka , Vargo and Lusch, 2013 p, 13).

Successful themes and portfolios have been instrumental in the area of organisational Sales and Marketing. The primary focus of the brand has been on the various aspects of marketing mix which has facilitated the process of sales.

Toy R Us has grabbed effective share of the market due to its exemplary Services. The company outlets have provided top of the order customer reception and high quality pre and post sales services.

There is a continuous development of the Firm Infrastructure for suiting the organisational needs. The production capabilities are in focus through the use of IBM solutions for maintenance of accounting and production management.

For maintaining an effective workforce the HRM acts as one of the crucial support activity for the organisation. The brand’s undivided attention on the aspect of customer service by employing effective and knowledgeable workforce has been facilitated by the HRM activities (Robertson and Breen, 2013 p, 55).

Through the aspect of Technology Development the toy brand integrates technologies in its operations to secure better customer response and also for creating appropriate impact on the clients. Upgraded technologies such as 3D printing have enabled production of goods in a much advanced manner.

Accumulation of credits and assets apart from various raw materials also is covered under the head of Procurement and the focus of the toy brand on asset development has led to achievement of financial needs of the organisation through better production opportunities. The organisation has been smooth in its operation on account of availing of credit facilities from credit institutions and banks (Majaro, 2013 p, 76).

Market barriers and competition factors for international expansion

The framework of 12Cs facilitates the effective selection of the right market for Toys R Us on the basis of market attractiveness from the given target markets in the following manner:

Country – out of the given target markets of India, Russia, Sri Lanka and Nigeria, the developed economy of Russia although has the presence of global toy manufacturers, the internal conflict with US would pose as a business and trade barrier for “Toys R Us” (Laxhminarayan, 2012 p, 112-113). Among the rest India has one of the one of the largest and fast developing economy compared to the other two while Nigeria suffers from issues of poverty and lack of food and education which are anyways more vital than the development of toys industry.

Culture – as Russia boasts of an orthodox culture that is against the influence of western culture which is reflective in its products and services, “Toys R Us” would find it rather difficult to capture any kind of market share with its strong western influences. However much the culture of Sri Lanka is open to development of business by foreign brands the traditional mind set would be a deterrent factor in the operations of the toy company if it negatively affects the culture of the nation. Although from the business point of view Nigeria is quite open to foreign brands the low rate of literacy and communication would pose as severe barriers in recruitment of the local community people in the outlets of “Toys R Us” (Woodard, 2012 p, 107). The multilayered culture of India would be the best choice for the brand since the foreign brands are welcomed and supported strongly to facilitate industrial development in the country.

Concentration – from the perspective of the concentration of the inhabitants, India would be the perfect choice for Toys R Us because of its urban centeredness. Although Sri Lanka and Nigeria both are developing economies, issues of poverty and lack of basic needs in the latter and segmented economical development in the former would make them a difficult choice. The egalitarian wealth distribution of Russian populace also could come close to being the second option.

Communication – in this segment while Russia and India being larger nations can boast of better networks of communication, Nigeria rues from the lack of proper communicative channels. The media connection networks in Sri Lanka are well developed, however the wider coverage available in India would make it the best choice for Toys R Us for effective promotion of their products within the nation (Bapuji, 2012 p, 88).

Effective recommendations and strategies for international marketing

Channels of Distribution – out of the various kinds of distribution channels available in all of these nations, it would be beneficial for the organisation to adopt a strategy of third party distribution or direct distribution to reach the target segments effectively.

Capacity – Although in Russia the distribution of wealth is even, the nations of Sri Lanka and Nigeria much like India lacks even wealth distribution, but the high purchasing power of the larger sections of masses in India would help the toy brand to record higher volume of sales.  

Currency – the international acceptability of the Indian and Russian currency are many notches higher than that of Sri Lankan or Nigerian currencies making one of the former countries a better choice for business expansion of the toys brand (Dadwal and Hassan, 2015 p, 31).

Control and Coordination – while in Russia the exercising power of the international marketers is limited, it can dominate the developing economies of India, Sri Lanka and Nigeria.

Commitment – the commitment of Toys R Us for providing quality services and products through their operations is a common factor that all the given nations would accept equally.

Choices – the Russian communities are influenced largely by the native culture while the developing nations of India, Nigeria and Sri Lanka are influenced by the foreign culture. Especially in India as the culture is mixed hence standardisation of the product and market mix can help in reduction of costs for “Toys R Us” (Wang and Yang, 2013 p, 76).

Contractual Obligations – although there is much similarity in the contractual obligations in all of these countries with regard to foreign businesses, India’s overt inclination for fast industrial development makes the nation offer wide relaxations to the foreign brands making it the best choice for “Toys R Us”.

Caveats – The tumultuous political environment of Sri Lanka and Nigeria makes it a difficult choice for business development while both Russia and India are much similar in the context of political environment. The developing economy of India with its wide expanse of market however gives enough motivation for the export salesman to flourish their activities in the nation (Boone and Kurtz, 2013 p, 99).

The Indian toy market is quite voluminous and highly competitive in nature. In the last few years the industry has seen a rise because of the presence of almost all the top toy makers in the sector. Hence Toys R Us must strategise effectively so that the fiercely competitive arena can be penetrated in a cheaper and faster manner. Initially a low margin would be necessary for settling down in the market. Toys R Us can be recommended to implement the procedure of penetration pricing to find a strong foothold in the stiff market competition. The process of penetration pricing involves entering the market with low priced products in comparison to the competitors without compromising on the product or service quality (Auster and Mansbach, 2012 p, 67).  The brands like Hasbro and Mattel followed premium pricing techniques that involves market entry with high priced products hence for “Toys R Us”, spreading brand awareness and capturing market share can be effectively achieved by the process of penetration pricing. “Toys R Us” in other words, is thus recommended to enter the Indian market with the best or equivalent quality products and services in regard to the competitors but with a low price tag so that it gets to capture substantial amount of market share within a limited period of time (Kasriel-Alexander, 2015 p, 78).

The multicultural society of India has a variety of socio-cultural factors that needs careful consideration in the process of formulation of an effective marketing mix for the organisation of “Toys R Us”. As the education and the rate of literacy is lower than the other developing nations there is an increased level of vulnerability among the emerging generation towards the issues of social welfare and health. High level of poverty is a crucial factor that deters educational endeavours amongst larger sections of the society resulting in the evils of child labour and unemployment in the country. The nuclear family trend prevalent in most of the states of the nation creates an educational void amongst the younger generations. The social issue of domestic violence and addiction has affected the ageing population thus bringing a change in the country’s culture (Auster and Mansbach, 2012 p, 80).

Product – the core products of “Toys R Us” constitute synthetic as well as soft toys.  The product range has to be standardised according to the Indian market. The toys of traditional nature and the brick and mortar games would be appropriate for effectively engaging the present generation of young customers.

Price – an overview of the competitiveness present in the Indian Toy sector reveals that the implementation of the penetrative pricing strategy would benefit “Toys R Us” in reaching the target segment of the market comprising of mostly young first time parents (Boone and Kurtz, 2013 p, 77).  

Place – Toys R Us must focus on opening outlets in the metropolitan cities to attract large sections of consumers towards the brand. The decor of the outlets must reflect the facets of the country’s culture so that customer’s attention can be drawn towards the products. The effective website of Toys R Us with the utilisation of technological integration would also help in developing a culture among the buyers to undergo the experience of visiting a virtual toy store and making online purchases suiting their needs.

Promotion – the promotional mix of added package and a sales discount for the first time parents would be quite effective for the organisation in attraction as well as retention of customers (Woodard, 2012, 23). The direct marketing techniques of newsletters and emails would help in spreading awareness about the products and the target segment of the Indian consumers can be reached effectively through the vehicles of mass media advertisements, press releases etc.

Conclusion

In the report the key aspects of international marketing has been discussed in detail in the context of the toy organisation, Toys R Us and recommendations has also been suggested for the company to facilitate entry into the Indian market for further business expansion and growth.

References

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