Global Business Environment - Case Study

Hamilton and Webster (2009) state that “globalization generates opportunities for business to enter new markets, take advantage of differences in the costs and quality of labor and other resources, gain economies of scale and get access to raw materials”. Business globalization, or in other words international business, refers to the increased of mobility of services, goods, capital and technology throughout the world. The goods and services created in one location can now be found throughout the world.

According to Harrison (2010) globalization is characterized by several aspects: he development of international trades and the creation of the global marketplace lead to the increase over time of international trade and service.

Then, production and investment flows are globally organized. Thus, costs are lower and specialist advantages are in different geographical location. Thanks to the technological development, people around the world are more connected and migration is a major feature of the globalization. This later offers them the possibility of moving across national borders.

With this migration and the speed with which communication has improved, communication and cultural flows are important.

Although globalization can be a real opportunities for companies, it could be also a threat for their development if managers in charge of this expansion have not gathered and analyses all the information they need about the marketplace they are considering. Indeed, they have to be sure they target areas where there is a market opportunity. They also need to be aware of several factors like laws, culture, society habits and other ones that might conflict the business.

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Over the past 40 years, the Careful Group has grown to become the second world’s largest and the Rupee’s largest retailer of groceries and consumer odds. During these years, Careful expanded internationally. A pioneer in countries such as Brazil (1975) and China (1 995), Careful operates more than 9,500 stores, which are present in 32 countries across 3 geographic zones: Latin America, Europe and Asia, through 4 main formats: hypermarket, supermarket, cash and carry and convenience stores. (www. Careful. Com). However, Carouser’s situation is not as good as we can think.

Since few years, Careful has been hit by falling profit and drooping sales caused by the uncertain economic environment and strategic missteps. Net profits fell by 4% last year and net sales rose only by 1% to 81. Ban euros. In the first nine months of the year, Carouser’s total like-for-like sales were down 0. 2% (Latin America is the only region to report an increase in like-for-like sales of 8. 6%). (Carouser’s press release, 2012). In recent years, Careful has abandoned several countries including Japan, Mexico, Russia and Thailand.

These decisions are “in line with Carouser’s new strategy of focusing on geographies and countries in which it holds or aims to develop a leading position”. (Carouser’s press release, 201 2) Mr. Plats took over in May with a rife “to reverse years Of underperformed in Carouser’s European markets” (Vidalia, D. 2012). “He wants it to pull out of encore markets, cut costs at home in France and give store managers more autonomy. ” (Misleader, N. 2012). Thus, he has started to refocus on core markets, notably in Europe, Brazil and China.

According to Black (201 2), Shore Capital analyst, “Careful has been run like a dysfunctional football team, where the owners and the management haven’t seen eye-to-eye, and that impacts the players on the ground and that’s exactly what’s happened at Careful. It’s important that he represents a period of sustained stability and control of the business,” To sum up, Carouser’s strategic missteps took its toll but like the retailing market, Careful has also been hit by the uncertain economic environment.

This paper is going to constitute a fictive internal management report for Careful, analyzing the effects of the external global environment on Carouser’s business process and strategies. TO do so, a first chapter will provide an outlook of the retailing market allowing understanding what the current situation of this market is, especially in a global context. Then the second chapter will focus on Carouser’s analyses, to understand to what extent Careful can use its strengths and improve its weaknesses but also take advantage of opportunities and resist threats.

Finally, the last chapter will investigate the key challenges and implications of Careful by carrying out a PEST analysis. I. Globalization and Retailing market According to Marcel Correctness and Rajah Ala (2012) retailers want expend globally for several reasons. “Common ones include a quest for greater economies of scale and scope, a need to diversify risks, a desire to attract rest talent and create new opportunities for existing leaders, and a need to make up for constraints imposed by regulatory agencies when a retailer becomes too big for its home market.

Market overview Between 2007 and 2011, the global retailing industry experienced a moderate compound growth of 4. 3%. (Marketing, 2012). Food and grocery is the largest segment, accounting for 61% of the industry total value, with total revenues of $6,678. 9 in 2011. For comparison, the apparel, luxury goods and accessories segment accounts only for 15. 6% of the industry’ generated revenues of $1708. 7 billion in 201 1 . (Marketing, 2012). Economists forecast an acceleration of this performance with an increase of 26. 2% since 2011.

This expected growth would drive the industry to a value of 313,815. 8 billion by the end of 2016. Surprisingly, despite the economic crisis, 2012 was the fastest growing year for retailing since 1999. And this is due to emerging markets that are performing well. For example, China has seen a 10% growth in its retailing market in 2012. The other factor that contributed to this growth is the growth of Internet retailing. This fastest growing channel grew 20% in 201 2 and now account for 4% of all retail sales globally. This trend is expected to grow and rise 6% by 2017.

However, this global growth has to be moderate since there is some inflation to be taken into account. (Late, D. 2012). The other trend that is important to notice is the Middle East and Africans growths. Indeed, these markets surpassed Latin America in 2012, which was one of the markets driving the global growth. Increasing by 14%, they became the fastest growing region. (Remuneration, 2012). According to Daniel Late (2012), unlike in Europe where non-grocery sales suffered of the economic crisis, in the Middle East and Africa, non-grocery sales outperformed grocery sales.

Forces driving competition According to Porter (1980), there are “5 forces” driving the competition on a market: buyer power, Supplier power, new entrants, threats of substitutes, and degree of rivalry. This model provides a useful framework for analyzing the competitive environment of an industry and thus identify and analyses the main threats that can face Careful. ; Buyer power In a market, there are consumers who have wants and needs, and suppliers who supply their demands. (Heathery and Otter, 2011). Since there are a large amount of customers within the global retailing industry, the consumer power is low.

However, because of the economic downturn, consumers are cost conscious and seek value for money, which puts pressure on retailers to deliver products, especially brand product at low cost. In France, the French retailer Lecher has understood this trend and has developed a strategy to make low price its competitive advantage. Thus, thanks to low prices and an aggressive communication campaign, sales in 2012 were up 5%. According to a Nielsen Panel, Lecher prices are between 4 and 5% below Carouser’s prices. (Nicolas, 2012). ; Supplier power In the retailing industry, there are a lot of suppliers.

Thanks to this high imputation, retailers can easily use it to have lower prices. Indeed, leading incumbents find their product from various suppliers so they can choose the more interesting according to the price and quality. Furthermore, switching costs are usually low. The leading position and global presence of retailers like Wall-mart or Careful are also strength to negotiate with suppliers. The difference of inputs and the importance of quality/cost are the two main supplier power drivers. ; New entrants Since there are several leading multinational retailers in the market, it may be difficult and may need significant costs to entry.

Such companies have developed strong brand awareness through advertising and marketing campaigns. To succeed their entry, new retailers will have to study consumers so that they can provide efficient products but also communicate efficiently. For that, new competitors need sufficient funding to launch their activity and survive in this high competitive context. Careful is a perfect illustration. Indeed, Careful failed against an aggressive development of it competitors in Singapore because this later did not succeed to localize and Offer products expected by the local population (Sharing Ely, 2012).

Threats of substitutes There are no real substitutes to the retailing industry. ; Degree of rivalry The retailing market is heavily fragmented, with a large number of players present and is lead by several main industry groups like Wall-Mart, Careful, Metro and Tests. Moreover, with the development of Internet retailing, it is easier for new companies to enter into the market. The similarity of players due to a lack of differentiated products reduces their competitive advantage and thus, drives the degree of rivalry. That is why Lecher chose to capitalize on regional product.

This decision was a key of success and participated to he 5% growth in sales occurred in 201 1 (Mortar, 2012). Careful should try to follow the same scheme, by accentuating its implication in the local economies and thus, collaborating more with the local suppliers. This strategy can also enable Careful to meet more effectively the demand of local consumers. . Careful SOOT According to Heathery and Otter (2011 “the capacity of a business to take advantage of opportunities and resist threats will depend on its internal strengths and weaknesses.

Thus it is essential to undertake an internal analyses to understand to what extent Careful can take advantage of opportunities and resist threats, and in the next chapter, understand by using a PEST analysis how Careful is influenced by the external environment. Strengths ; Leading retailer in Europe and second largest in the world present in mature and emerging markets Thanks to its notoriety and its size, Careful has a high bargaining power. Indeed, bigger a company is, more economies of scale and business scalability will be high.

Moreover, the high growth rates offered by emerging countries enables Careful to boost revenues and profits and thus to make up for the sluggish situation in its home market. This illustrates perfectly the other advantage to expand worldwide: diversify risks. Presence in several economies enables to diversify the revenues and reduced vulnerability to a single economy. ; Multi-format and convergence of brands strategies Careful operates through 4 different formats. While the hypermarket format offers a wide selection of merchandises, the supermarket and convenience formats target the daily or monthly purchases and are more accessible.

F-Rutherford, small retailers and other businesses purchase in cash and carry stores. In addition, Careful is also present on-line, selling its reduce on e-commerce websites. Thus, the different formats enable Careful to adapt its stores to the market, to the consumers’ needs. According to the location and the consumers’ habits in this location, the strategic format varies. Moreover, it also enables to suit the merchandise selection and price preferences of varying consumers. In other words, Careful can target different customer segments. In order to beneficial of its brand reputation, the group has initiated a single brand strategy.

Furthermore, this strategy increases the group’s market visibility and facilitates quick penetration in new markets. 30 years of experience in retailing private label products Because of the economic slowdown, consumers prefer generic and private label products instead of expensive brands. With its first unbranded product launched in 1976 and Careful brand-name products in 1 985, Careful has an important experience in this field meeting the consumers demand, especially in Europe, which is the key growing markets for private label products.

Denominator, 2011 Weaknesses ; Continuous decline in profit margins and slow revenue growth in France More than 70% of the firm’s sales are in Europe but this is its slowest growth area. According to Correctness and Ala ‘The stronger the retailer’s market position at home, the better its chances of sustaining overseas investments. ” (Quoted in Retail Doesn’t Cross Borders, 2012). Careful lost market share and its profits fell by 40% in the first half of 201 1. ; Careful has been slow in moving into internet retailing Retailers have developed a new way for consumers to purchase.

Nowadays, it is possible De order groceries online and collect them at drives stores which at pick up point. Careful opened Its first drive in 2011 and had only 30 drives at the end of the years. In imprison, Lecher had 144 drives in 2011 and expected 250 units by the end of the year in 2012. (Nicolas, 2012). Opportunities ; Emerging market Careful being present in emerging markets like Brazil, Argentina or India, takes advantage of these growing market to ameliorate its revenues and margins. According too Careful s press release, in 2012, sales in Latin America up 5,2% and 12,3% in Asia. Emergence of internet retailing in Latin America In Latin America, Internet retailing is almost three times smaller than direct sales.

However, this market has almost tripled in size over the last five years ND it is expected to keep growing. Brazil, the biggest Internet retail market, accounts for 70% of all regional sales. (Late, D. 201 2) ; Retail reform in India Mufti-national retailers are now able to buy up to a 51 % stake in Indian’s multi- brand retailers. This decision allows these chains to sell directly to Indian consumers. (BBC, 2012). However, some conditions are imposed on groups wanting to invest in India.

For example, “companies will have to invest at least $mm (Meme), open outlets only in towns with a population of more than one million and source at least 30% of produce from India В» (BBC, 2012). The retreats ; High competition The competition in Carousers home market as well as in the other regions is high. Not only Careful competes with multinational retailers but also with local retailers dominating the local market, more adapted to the consumers needs. In France, Careful has to face the significant growth of Lecher which sales grew 5% in 2011.

In China, Wall-Mart plans a vast expansion of its stores. The Times reports the US retail group В« would open 100 new stores in China over the next three years, adding to the 370 stores it already owns -? the highest number of any of the foreign supermarkets. The new stores will add 18,000 jobs to its 100,000-strong workforce in the world’s biggest food and grocery market. R, ; High exposure to low growth European markets Careful derives a majority of its revenues from France and Western European countries. Due to the debt crisis, the economies of these nations are estimated to record low growth rates.

According to a Carouser’s press release, sales down 2,2% in 201 2, “impacted by continued pressure on consumption in Southern Europe”. ; Fiscal cliff The other threat that Careful and the economy sector can worry about is the “fiscal Cliff’. At the end of the year, the terms of the Budget Control Act of 201 1 in the USA are scheduled to go into effect. This means a 2% tax increase for most workers, and to several tax breaks for business and charges in alternative minimum tax, tax increase for higher income and spending cuts in more than 1 000 government programs.

The positive aspect is that this will enable to reduce the US budget deficit by estimated $ 560 billions but on the other hand, it will cut the gross domestic product by 4% points and cause an economic slowdown. Unemployed would rise 1% point and a loss of 2 lions jobs. (C. Larger, 2012). Many analysts say that would send U. S. Economy into a recession, if not a depression. (CNN, 2012). Even if Careful is not present in the USA, the Fiscal Cliff threatens the global economy. But a disaster can be avoided by the Congress action. II.

External business environment: Key challenges and implications Political and legal Nowadays, government and business are interdependent (Harrison, 2008). That means that they are linked through several relationships. For example, government determines the legal framework, manages the macroeconomic environment etc. Furthermore, government also need business. Indeed, businesses are a source of tax revenues and since the private sector is the dominant element within capitalist economies, these private business investments drive the economic growth and prosperity.

However, with the globalization, governments have now to deal with multinational companies and multinational companies have to deal with different governments, so with different laws and rules. Government decisions are key factor in the international expansion of companies and can be opportunities to take advantage of. For example, the Indian government decided recently to open its retail sector to global supermarket chains. Thus, these chains are allowed to sell directly to Indian consumers by buying up to a 51 % stake in Indian’s multi-brand retailers. BBC, 2012). According to the 201 2 global retail Development Index (Takeaway, 2012), India is ranked 5 and thus is an interesting market to consider.

Indeed, “India market with accelerated retail growth of 15 to 20% expected over the next five years. Growth is supported by strong macroeconomic conditions, including a 6 to 7% rise in GAP, higher exposable incomes, and rapid arbitration. Yet, while the overall retail market contributes to 14% of Indian’s GAP, organized retail penetration remains low, at 5 to 6%, indicating room for growth. So, it would be an interesting market for Carouser’s supermarkets, all the more Careful is already established in the country through cash and carry stores. However, groups wanting to invest in India should be also aware of the conditions imposed by India. For example, В« companies will have to invest at least $ mm (Meme), open outlets only in towns with a population of more than one million ND source at least 30% of produce from India, according to reports. В» (BBC, 2012). Moreover, since countries are linked through international trade, some political decision can influence these trades.

As Harrison States “political and economic instability is a major cause of risk in the external environment, whether it affects the international environments as a whole or the environment in a particular country”. (2010, quoted IPPP). The case of Italy is a good illustration. Reacting to the news that Prime Minister Mario Mont plans to resign, Italian stockers have fallen of Local banks as well as European Banks had been hardly hit by this news: Germany’s Commemorate fell 2. 2% and France’s BAN Paris dropped 1. 4%. (BBC, 2012). So this shows that political and economical environments are strongly linked.

Economic and Financial The economic and financial environment comprises different factors like the rate of economic growth, exchanges rates, inflation, and so on, which influence business. The rate of economic growth for example enables to indicate the speed at which the total level of demand for goods and services is changing. (Hamilton and Webster, 2009). According to specialists, the world economy will grow at an annual rate of 3% up to 2030 and 4,3% in developing countries. (World Bank, 2012). Goldman Sacks (2003) adds that China and India are predicted to be the world’s two biggest economies in 2050.

As We could understand thanks to the previous numbers, developing economies, in particular BRICK economies grow quickly and can therefore be attractive for business. But according to PWS, other countries have to be considered. PWS estimate that the E (BRICK economies, Mexico, Indonesia, Turkey) will be 50% bigger than the GO (USA, Japan, Germany, Uk, Italy, France, Canada) by 2020. PWS, http://www. PWS. Com) However, before thinking to enter a new market, Careful should be aware of national barriers to trade like tariffs, imposed quotas and non-tariffs barrier. (Morrison, 2009).

Tariffs protect local industry and provide government revenue. Imposed quotas limit imports to a specific quantity of value. Thus, in this case, it is better to consider sourcing locally using local suppliers. Moreover, institutions or agreements like the General Agreement on tariffs and Trade, The World Bank and The International Monetary fund can have a dramatic influence on retailers. They help manage, regulate, and police the global marketplace and thus provide the stability in the trading environment. Nowadays, economic power is hold by these supranational organizations.

Moreover, through globalization, barriers between nations are reduced. Thereby, nations are more and more interdependent. Thus, globalization carriers dangers because depending on foreign suppliers, business are vulnerable to events in foreign economies and market outside their control. (Hamilton and Webster, 2009). This explains the current recession in Japan. This later depends strongly on its exports and yet, robbers in other markets like the slowdown in the US and Rezone and the anti-Japan protest in China has hurt demand for exports.

Social, cultural, and Environmental Although globalization can have some beneficial aspects, it also brings a number of problems of a social nature. Indeed, globalization increases the gap between rich and poor. On one hand the income of the rich increase as a faster rate than the income of the poor. On the other hand, all economies do not participates in the international trades. (Harrison 2010). However, business is not only about making profits. “The purpose of business activity is o provide goods and services to satisfy people’s want and needs.

There is therefore a social purpose behind business activity. ” (Harrison, 2010, Pl 80). Held (1 999, quoted in Hamilton and Webster, 2009, pep) added that globalization can be seen as “the widening, deepening and speeding up of worldwide interconnectedness in all expects of contemporary social life, from the cultural to the criminal, the financial to the spiritual Thus globalization is not only an economic phenomenon. It involved also many other cultural and social dimensions. Nowadays, one of the key challenges facing by businesses s the rise of CARS concerns.

Consumers are conscious of the social and environmental impacts that are caused by businesses. Thereby, associations to protect consumers, employees and environment multiply and businesses have to prove their commitment. Thus Careful has implemented environmental and social policies in all countries. Careful offers more environment-friendly product and sourcing, and tries to reduce the impact of its stores and its logistic impact on the environment. Careful also carries out its social and societal responsibilities through different actions. (www. Refocus. Com).

Amongst them, the integration in the local economy is also interesting to face cultural challenges. Through a local integration, Careful benefits from local products needed by local consumers and provided by local suppliers. Indeed, Careful has to deal with customers but also employees from different cultures. This difference can be an obstacle if not well considered. For example, Careful did not succeeded in providing relevant product to its Japanese consumers. Thus, its main local concurrent knew better how to meet the local consumes demand and could attract ore consumers, forcing Careful to leave the market.