International Expansion Strategy For Sainsbury’s: Analysis Of The Irish Market

Introduction to Sainsbury’s and its history

Introduction Sainsbury Company was founded in 1869 by J.J Sainsbury.  It is largest chain supermarket in UK. It developed as a largest grocery retailer in 1922. This company was the adopter of retailing in self-service. In 1995, it was overtaken by the Tesco to become the leader of the market. This company is structured as: Sainsbury Bank, Sainsbury supermarket ltd and Sainsbury’s Argos having its head office in London. Presently it has 800 stores including convenience stores and supermarkets. This company keeps its values in a best health and food quality with integrity. Sainsbury’s is expanded in a chain with 872 stores and 537 supermarkets with 335 convenience stores and banks. It makes approaches for quality maintenance for their goods and services. In this report this company needs to expand its business internationally and for that it is targeting a potential attractive target market. Three target markets were provided for the expansion from which one has to be chosen with the help of comparative analysis (Sainsbury, 2017)
For the expansion of Sainsbury’s market, I have chosen the international market of Ireland after my analysis of macro environment of all three of those countries. Expansion of market in Ireland is beneficial because of its stable government and low level of corruption which protects the property rights of the citizens. It has a 7th highest gross national income in the world with independent monetary policy. Ireland is also a member of many different international organisation and multicultural country which helps in developing a company in the market. It has good infrastructure and improved public transport which is helpful in the better growth of the company. These all benefits of the country can be understood in a better way with a wider PESTEL analysis of Ireland (Wijingaarden, Scholten and Wijik, 2012)
Ireland has a parliamentary system of government with a constitutional government. Ireland joined the European Union in 1973 which is a beneficial in business point of view. It has lenient price regulation system with no controlling on pricing for the minimum and maximum level. It has flexibility in the changing of pricing system where they just need to inform the regulator for any proposed changes. There is a low level of corruption with which it gets easy for a company to regulate its business freely. In the political scenario of Ireland tariff and trade control is lower which ease the market of any company to expand (Costello 7 Thomson, 2008).       EconomicalIreland’s economy is strong and protected by property rights and it is mainly focused on agricultural aspect which came with a transformation in last couple of years. Its economy is mainly focused on high tech industries, investments and services. It has a largest exporter of services throughout the world. Ireland is adaptable to open market policies that facilitate investment flows and global trade with a resilient economy to face domestic and international challenges. It streamlines its regulatory procedure in contribution to the support business decisions and dynamic investments to increase the productivity. It does not have a burdensome payment system. There are few barriers to investment and international trade (Murphy & Power, 2009).SocialIreland is considered as progressive in terms of social issues. It still promotes its traditional music or culture which helps in retaining the identity of the traditions or cultures of the country. New upcoming companies also work the same way, following the trends of social values. It has become progressive in resolving the social issues. Ireland is member of many international organisations and has its contribution in many peacekeeping missions which helps a company to get a wide international support and exposure. Irish country provides all three tier of education to all the European Union citizens in relation to social issues. It has a wide multicultural environment which helps a company in many social welfare programmes (Daly & Haahr, 2007).
TechnologicalIreland has a good infrastructure and wide transportation with three international airports and good railway services. Proper authorities are appointed for better management of road networks as National roads Authority and Local Authority. To attain the minimum requirement of job market high- school rates of graduation are provided. Proper transport facility increases the exports internationally and nationally. Ireland protects its environment through technological actions. According to Forbes, Ireland is best suited country for business with high levels of investments from the technological corporation. Ireland has a track record of world’s leading technology with technically skilled resources (Peggy Johnson, 2013).EnvironmentalEnvironmental factors of Ireland are the high quality assets which provide a strong healthy foundation for a company to expanding its business. The quality environment fulfils the clean, safe and healthy water, food and air which are the basic needs of the human society. Sustainable environmental growth helps a company with low risk and low negative impact on business operations. Environmental sustainability gives an increasingly effective competitive market for a business to grow.  According to Environmental Protection Agency 2012, Ireland is tackling climate change and creating job creation in low carbon economy. As a member of European Union which has a set principles of protecting Ireland and rest of its members from the threat of pollution and global warming which is a important aspect for a company to grow its business in the environmentally developing country (murphy & McKeogh, 2004).

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Rationale for selecting the Irish market

Common law is followed in Ireland by the legislation and administered by courts. Ireland has some legislation with regard to Environmental control, land development, waste management, chemicals, and water pollution control and so on for the protection of environment from the procedural aspects of the company. Irish law includes some competitive laws or regulation for the healthy competitive environment between the companies. Formation or establishment of any company in the Ireland is administered and managed by the company law with respect to duties and liabilities of directors and auditors. Irish country has insider trading legislation and market abuse rules and penalties for the corporate offences. Irish country mainly focuses on consumer protection by developing consumer protection laws (McEvopy, 2007).

Business Opportunities Ireland comes in the category of most business friendly nation in the world economy. According to Forbes report 2013, Ireland maintains an extremely positive business environment with attractive investments that helps a company to grow in the lands of Irish market with appropriate financial resources. Ireland has few advantages for any new business establishment in a way of less tax burden, personal freedom and protection of investors. Ireland focuses on direct investment says Melanie Bowler. Ireland has a well-developed market which helps a new establishment or company to grow its wings. It has a healthy competitive environment in which other similar businesses grow their business with a healthy competition policies. Technological up gradation helps a new establishing company to bring the innovative products for their consumers. Any company which is expanding its business internationally in a county like Ireland gets a good social networking opportunity to widen its business (Short, ketchen, Shook and Ireland, 2010).

Any company which wants to expand in a new market internationally has to face some threats for its new business establishments. Likewise, Sainsbury’s also has to face some threats in the market of Ireland. Company has to face some regulatory measures which will be different from its origin country. Establishment of business in the new country gets difficult in a ways of its social trends which are completely different and new for the new company to adapt which was developing its business with its own social terms and customs. Adaptation of the new company by the economy or already prevailing competitors is sometimes gets difficult. Manpower needed in any new establishing company is also a major factor because company needs to train the new workers that will cost the company as an extra expense (Gupta, goktan & Gunay, 2014).

A business strategy of a company helps the company to set its goals to achieve success. It evaluate the past performance and set the objectives for future. In this analysis we will get to know the 5 forces of Irish market which will help the new establishing Sainsbury’s Company to achieve its goals and maintain its goodwill in the new Irish business environment (Fennelly & Cormican, 2006).

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Buying power of consumers in Ireland is fairly high. After the recession period consumers started buying branded products which were in discounted rate rather than buying it in its original value. This tells the business authorities about the pricing which their customers need and environment for their retail market (Butler, 2013). By promotions and discounted offers, company can retain its customer’s satisfaction. By knowing the buying power of consumers, a company can maintain its quality and prices to maintain the bargaining power of its customers. Company can retain itself from cost cutting by pre determining the choice and preferences of the consumers. If a company which is newly does not maintain its price balance than it will be a great effect on companies itself as it is very for a consumer to switch himself from one brand to another (Ireland & Webb,2007).

Political and legal environment of Ireland

After determining and balancing buying power of the company’s consumer, it is possible for a company to pay the prices to its suppliers who are indirectly responsible for fulfilling the needs of the consumers. Supplier has a power to increase and decrease the prices of the commodity but if they will rise the prices without getting concerned about the buyer than they may face the termination of their contracts with the buyer.  With that it can be said that in Ireland bargaining power of supplier is fairly low. So in the Irish market it is easy for a company to deal with their supplier in respect of pricing policies. But in the same way if any supplier wants to maintain its position, he has to provide his buyer the unique product or services in a nominal required prices (Yeung, Selen, Zhang & Huo, 2009).

Every industry or company faces competition in the market and to sustain in the market it is necessary to strongly face the competition in the market. As Ireland is very growing and technologically profound country, it has many company in the same field as Sainsbury’s who are in the market. To stand in the market this company needs to do the evaluation of the strength and number of the competitors in the market and their quality products and services which they are giving. If company faces some aggressive rivalry, it should attract their consumers with attractive price cuts and market campaigns. In the same way a strong rivalry can minimize company’s buyer and supplier by giving them good deal. So in this case to deal with a rivalry or to get the healthy profits in the market, company should come with a unique idea or product line with which no one else is dealing (Fennelly & Cormican, 2006).

In today’s times every single commodity has its substitute with an attractive price. This concept of substitutes can divert the consumer of one product to another product of another company. The competitors in the market can come up with the idea of similar product or services with lower price that can lower the consumer of the company which is producing the main product. To deal with the substitute in a healthy way, a company needs to introduce the ‘price promise’ scheme (Reuters, 2013). Another way of dealing with the competitors is to make the substitute which is cheap and easy to weaken the position of the competitors. Basically the treat of substitute in grocery supermarkets stores is substantially low for food items and medium to high for non-food products (Stevenson & Young, 2007).

Threats to Sainsbury’s in the Irish market

Ireland is politically and economically growing and upgraded country in which every leading company wants to expand its business so there is always a threat for any company of the new entrants in the market. But n case of a new entrants as a Sainsbury’s, it is difficult for them to come in the highly developed market like Ireland and deal with the over grown existing supermarkets. Developed supply chain and large fixed cost makes difficult for new entrants to raise its capital (Ivory Research, 2009). The new establishing company always has threat of replacing its services or products because of high market share of the existing companies or supermarkets (Nwewnham, 2013). This threat of new entrant is harmful in terms of being a new entrant itself or existing company. It’s on the ability of the company to grow in the market as a new entrant or maintain its position if already in the market (Marchington, 2015).

Strength of any company is identified as the abilities or resources of the company by which it become successful (Brennam, 2009). Sainsbury’s has heterogeneous business units that are different with one another. This quality of diversification units minimize the risk of the company in case of loss in the one unit or threat to any single business unit (Carel, 2008). The company has a wider market through IT infrastructure which is affordable and revenue generating. It has a quality training for its human resources with the establishment of staff training colleges. Quality staff in the stores improve the services by the stores and increase the customer satisfaction which results into customer satisfaction. These qualities helps this company to expand its business worldwide with greater profits (Devitt, Boyle, Teixeire, Connell, Hawe & Hanlon, 2016).

Weakness in any company is the trigger point for any company to decrease its potential market power.  Sainsbury’s as one of the oldest supermarket has exploit its opportunity to maintain the leading market share and growing among the existing competitors. In 2004, company faced big issues regarding supply chain management and inventory management that affected its products. It fails to understand the trends and environment where it wants to operate its business internationally. Due to these failures it faced “disappoint investors” in comparison to Tesco (Thompson, 2012). Sainsbury’s also has faced issues regarding the expansion plans in the new international market which can be supported with expansion of its business in the international market of Ireland (Anic & Nusinovic, 2005).

Five Forces analysis of the Irish market

VRIO analysis is done to analyse firm’s internal capabilities and resources to find out the sustainability of the company for the competitive advantage. Likewise VRIO analysis or Sainsbury’s is done in a following way to get the understanding of internal resources for the competitive advantage (Cardeal & Antonio, 2012)

To analyse the value of the company in the form of quality and fresh food which adds higher value propositions that Sainsbury’s offers to its consumers. The company is adding its value in the form of electric home delivery vehicles and solar power energy use in the stores. In addition to the value generation company is delivering its financial products in a better way. Private labels like “taste the difference” which is TU is also a good aspect for the company to its value addition. Likewise, company shows its resources as valuable to defend the threats in the market and retain the customer’s value. (Sebestova, Rylkova & Smysl, 2007)

The concept of Rare in any company is differentiating it from the other companies. In Sainsbury’s, company introduced two meal ticket for students which helps parents loading money in the card for their children to purchase food products online or from the stores. This concept of producing rare products helps a company to get the temporary advantage in the competitive environment (Falkenberg, 2011)

Inimitability is a cost effective factor for a company. Company has to buy or substitute in case other firms don’t have it. Sainsbury’s as a brand is known as a reliable supermarket selling fresh, quality and tasty foods for many generations. This company imitate its resources by substituting it. They have resources to resolve the complex social capabilities. With the help of this process this company can maintain its sustainability with the way of substitution and making the process cost effective (Knott, 2009)

Organisation is useful tool for any company to get the advantage over the profits in the market. The resources which are not well organised will not confer any benefit to the company. Company should organise its system, policies, structure, processes and management. This company applies the process of strategic management practices in their organisation and effective reward system.  They apply the effective motivation scheme for their employees to work effectively and efficiently (Lin, Tsai, Wu & Kiang, 2012)

Modes of entry are a channel for any organisation to get the entry in the international market. This has a procedure or key elements which need to be followed by the company. These can be considered as elements of internationalization (Kolvereid & Lsaksen, 2006)

Sainsbury’s internal strengths

This includes contracts manufacturing, franchising and turnkey contracts. For any company to expand its business it needs to get the licensing processing done for its technology, expertise and brand. Franchising involves the franchiser to operate the overseas market in a way of providing branding, expertise and so on. Turnkey contracts are the developmental production by the contracting member and shift the project when it is done (Rasheed, 2005).

International agents and distributors are the contracted individuals who market the business in behalf of the company in another international market. They take a commission on every sale they done. The only difference between agents and distributors is the ownership of distributors over the product and for that they have an incentive for the product with which they make (Ojala & Tyrvainen, 2006)

This concept is termed as the series of relationships which are completely different between the companies the deal internationally. Like an alliance between the Research and Development arrangement of different countries. This remains the country separate and independent in their own businesses (Brouthers & Hennart, 2007).

When two or more firms join together to establish a new company with the uniqueness of shared ownership. This venture may get benefited by the economic, social, political and technological environments of the companies (Raff, Ryan & Stahler, 2009).

Wholly owned subsidiary can be made with the acquisition of the existing firm and direct ownership in the production in the targeted international business environment.  It is like a long term commitment by the company who is getting acquired, to transfer the technology, resources and personnel to the potential market. It has some administrative control over the firm’s business operations and gets a better chance to analyse the competitive market and consumers in the target market (Fritsch & Mueller, 2004)

This is also a way of entering into a new international market for any domestic market. It helps in increasing the sales volume. Exporting procedure is done in a passive and active way with less risk or low investment (Sharma & Erramilli, 2004).

To enable Sainsbury’s strategic international expansion to be successful, this company should enter into the new international market in a mode of Merger and Acquisition. The reason behind choosing this mode is mainly the support of host country directly as the host country is involved in the processing of the giving a direct help in international markets. The company who is acquiring the host country will get the direct ownership over the firm’s assets with the acquisition. The probability of earning more revenues and reaching the optimum capacity level is easier for the company. Acquisition procedure gives benefits of both the countries like the expertise and man power (Rasheed, 2005).

Conclusion

This report mainly undertake a comparative analysis of the macro environment of the three countries like; Czech Republic, Ireland and Lithuania. After undertaking the macro analysis Ireland was chosen for the international expansion of Sainsbury’s company. After determining the macro environmental factors, firm’s industrial environment was analysed in a way of the analysing opportunities and threats by the Irish market for any new establishing company. A better analysis of the Ireland was done by evaluating the supplying and buying power, substitution and threats for any new arrival in the market of the Irish market. For the expanding business in the Irish market understanding of company’s strength and weaknesses should be analysed which will support and challenge the expansion of the firm. Finally it focuses on the entry procedure and relative factors of Sainsbury’s company like micro and macro environment which affects the expansion of the company in any new international market. After analysing all the entry modes, the mode of Merger and Acquisition was chosen for entry of Sainsbury’s company in the Irish market.

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