The International Business Context - the food industry.

Due to an increase in the number of women working the need for convenience foods have increased which increases the demand for M&S pre-packaged convenience foods. The most common household now consists of an individual living on their own or an unmarried couple living together, this affects the way people shop.  This differs from the old traditional 2.4 family which M&S was used to catering for; producing the need for new strategies.

Society has accepted the increase of discounted shops as a valid method of shopping; they now seek value for money. This has made the shops which value quality and not cost, stand up and take notice, which encourages them to change their strategies.

The increase in levels of education has made the general public a much more demanding consumer.

Technological

The level of research in the UK is lower than many other countries, yet companies need to be aware of what the consumer wants and demands, their tastes and behaviour.

The wide spread use of loyalty cards allows organisations to know more about the individual consumers hence gaining an advantage when targeting these consumer groups.  Monitoring customer purchases through their charge cards and computer systems also aids in market research.

Environmental

Society now expects every organisation to take into account environment issues and be aware of how they impact on the environment in terms of their waste products.  In turn many organisations wish to be thought of as ‘green’ as this improves their image.  

M&S have taken corporate social reporting seriously and moved ahead of many competitors, winning many awards for their innovations.

The increase of imports from foreign locations has caused a stir between British farmers - fruit growers -who have come up with a plan to label fresh produce with what they call a "pollution factor". This would inform shoppers about where the food comes from and details of the fuel used to bring it to the point of sale. 

Legal

The health and safety laws that apply to every organisation mean that the needs of every employee are met and the working conditions are safe.

A Company needs to be aware of all legal issues in other countries; this is especially important where franchises are located abroad.

M&S suppliers have moved abroad and the human rights of these new foreign workers need to be considered.

SWOT Analysis

Opportunities:  The opportunities available in the finance market such as their cards.   Opportunities for strategic alliances in the electrical sector such as with JVC.  Adopting the Asda/Walmart approaches and followed by Tesco and Sainsburys where you offer a wider range of products under one roof.  Due to the strength of their name it would be much easier to exploit any market.  Many opportunities still exist to further exploit the foreign markets because at present, Marks and Spencer’s hold most of their strength in the UK market.

Threats:  The possibility of making an error in one of their strategic decisions because the company is extremely vulnerable, and the fear of another failure could have a detrimental effect, one that could prove irreversible.

If they return to previous success the threat of becoming complacent again could prove dangerous.  The threat of not segmenting and trying to please everyone could prove fatal, as a decision needs to be made about whom they want as their target market.  The fact their products are now produced by foreign counterparts may render the quality to a much lower standard.

Along with this external analysis an internal review is needed in order to form strengths and weaknesses to complete a SWOT analysis. This will reveal the strategic issues that need to be addressed and highlight critical success factors.

Strengths: “For the second year in a row, Marks & Spencer has been ranked as the retail market sector leader in the Dow Jones Sustainability Index. This is an international index that ranks companies according to an assessment of their financial, social and environmental performance”.  They have also received the ‘Welfare Ideal Award’ and many ‘Quality Food and Drink awards 2003’ Strong brand, quality, well established reputation, reliability, retail leader, customer service, employee care, strong customer base, offering of many products under one roof, location as normally situated in the central business district.  All their products are returnable.

The movement of 75% of production abroad allows them to take advantage of what Adam Smith (1776) calls ‘Absolute Advantage’.  Which means Marks and Spencer’s sources their products from countries that can produce the products at the lowest resource prices.

  The introduction of new management may be just what M&S require for new innovative ideas to drive the company forward.

Weaknesses: Complacency, previous communication problems.  Cost of their locations.  Their movement away from many St Michael products.  High price of food and poorer control of their suppliers.  Foreign makers of their products may deplete the quality.  Reluctant to make major changes due to failures in the past.

Competitor analysis-PORTERS FIVE FORCES MODEL

Suppliers: M&S have moved 75% of production out of the UK, resulting in quality and timing of supply harder to control and maintain.  Increasing global expansion and international competition has brought new challenges co-ordinating timing of supply.  There is a need to maintain high quality, as it is the main factor with which they are competing on in the market.

Buyers:  M&S have an extremely loyal customer base; this is of great importance when considering product ranges that veer away from the traditional M&S design.  It was these customers that kept M&S afloat when profits halved in 1999.   More and more customers are buying microwaveable meals and convenience foods to fit with their demanding and fast paced lifestyles.  M&S have responded to these needs by providing a wide range of quality convenience goods.  They have a stable base of 130-franchise business worldwide.

Substitutes:  M&S are in direct competition with many well known supermarkets such as Tesco, Sainsburys, Asda and safeway .  As M&S do not compete on price the substitutes for its own products would be the discounter stores such as Aldi and Lidl, or the finest range produced by Tesco and the taste the difference products offered from Sainsbury’s.

Threat of entry: Large already existing foreign companies that dominate the market and have an interest in gaining a foothold in the UK market such as Wal-Mart and Uniqlo.

Rivals: Wal-mart, due to their sheer size and strength, Tesco’s finest range and Sainsbury’s taste the difference for food.

Further Internal Analysis

Resources

Financial -

Human – reliable and loyal workforce, one of the top one hundred companies to work for as rated by the Times.  

Physical – Most outlets located in CBD.

Capabilities        

Their sheer size leads to benefiting from economies of scale, difficult to imitate due to their name and reputation makes Marks and Spencer unique and robust.

Values

M&S pride themselves on their quality value, service, innovation and trust.

Strengths

The ability to function alongside its competitors and ability to change when needed.  Good staff training given, professional service offered.

So what potential Key problems exist for this company and Industry in the future?

Industry Factors:

• Shrinkage in size as a result of further globalisation of the industry.

• Increase trend in smaller convenience stores

• Consolidation of the market hence fewer competitors in the market, resulting in a smaller number of Companies offering a wider range of products and services at lower prices.

• More stores opening 24 hours in order to accommodate the change in lifestyles of today’s busy society.

• More international harmonised products in that, the same product is marketed, produced, wrapped and sold the same way to different countries.

• Greater reliance on technological advances

• Loyalty cards

• Diversification into other industries, many supermarkets are offering industry services that dramatically differ from that of the retail food industry, such as financial services.

• Consumers now demand a wider choice of convenience products, produced to a high quality but at competitive prices.

• Many large stores are now located out of the central business district and hence is car dependent.  

• A new breed of consumers has arrived - a population concerned about human rights, fair trade, the environment, sustainable practices, and spiritual and personal development. The marketplace must understand that these consumers want to integrate their values with the products and services they buy and use.

Marks and Spencer’s as a firm.

Marks and Spencer’s are predominately located in the Central Business District, that is most city high streets in the UK have their own dominating store, which means high rates/rents which may disadvantage them on a costing basis.  Consumers are now willing to travel further as many are car owners and hence take advantage of the competitively priced products.

Marks and Spencer’s are not solely concentrated on the retail food industry and to date have been struggling with their clothing ranges, this may perhaps draw their attention away from the food industry at a time when greatest attention needs to be paid!  Especially when through their economic downturn their food department aided in keeping them afloat.

They currently do not offer a 24 hour service which again may disadvantage them as the normal 9-5.30 day is not convenient for the majority of the population.

Currently M&S are predominately UK based and although they have shifted 75% of production into foreign markets, they may want to further exploit those markets.  With their strong and well-known brand name, entering new markets should be relatively easy.  The drawbacks of this would be an increase in complex logistical decision making and the increase in the level of competition.

The Key Question, Is it globalisation that is putting Marks and Spencer’s under pressure to change or is simply that they have exploited the UK market and the natural progression is to move to a new country?

“The striking internationalisation of competition in the decades after World War II has been accompanied by major shifts in the economic features in nations and their firms.  Governments and firms have inevitably been drawn into a heated debate about what to do!” Porter, (1990)

According to Levitt, the world is quickly moving towards a converging commonality, he believes ‘the world’s needs and desires have been irrevocably homogenised’ driven by technology, which has facilitated communication, transport, and travel.   However, research carried out by Douglas and Wind have found in certain circumstances ‘new technologies have actually lowered the minimum efficient scale of operations and also point out that within certain industries economies of scale do not feature on the importance list’.  What he predicts for the future is the standardisation of products, ‘obsolescence of the local circumstance, and absolution of the global corporation’.  I tend to disagree with this stance, mainly because whilst the same branded products are sold all around the world, they are adapted specifically to the target market/country which suggests locality still exists.  Take coca-cola for example, their product is made sweeter to satisfy the tastes of certain countries.  Backing me on this viewpoint is the theory of Ohmae, whom like Levitt agrees that “customer needs around the world have become similar, partly due to the increase in fixed costs.  Yet like my view he states ‘the lure of a universal product is a false allure’.  The challenge is to localise products while retaining global economies.’’

I do not believe homogenisation of products in the food industry is feasible.  This due to the differing tastes, cultures and traditions.  It is unlikely that the Asian culture would appreciate lasagne, for example.  Comparative Advantage however, can be gained from universal products such as fruit and vegetables.

Recommendations/Strategic Issues

 Problems with strategic issues in today’s volatile environment

• Complexity
• Uncertainty
• Require an integrated approach
• Affect relationships and networks
• Involve change
• Flexibility

M&S need to identify what market they actually exist in order to establish who exactly their competitors are, so as to develop their strategy to counteract their competitors and maintain their competitive edge.  They could do a segmentation analysis to identify their segment.

M&S need to identify their target consumers so that they can produce the goods for this consumer group.  Today’s market is very much consumer dominated therefore they need to conduct a lot of market research to establish exactly what their consumers require.  This may be done through charge cards, on-line surveys this would help in enhancing their critical success factors and therefore highlight where they should excel to outperform competition.  

It is important to establish a benchmark so as to keep their purpose and vision feasible.  

Keep up to date with their internet shopping and also their general layout on-line, as more and more consumers are reverting to this type of shopping.

Maintain their superior quality but don’t loose sight of current trends, lifestyle changes yet maintaining the product range for the older loyal traditionalist population.  Incorporate this into a well-developed and strategically laid out shop floor.

Consider their store opening times as currently they are lagging behind their competitors.

Current advertising campaigns are still trying to promote the ‘Exclusively for Everyone’ and so run the risk of not defining each segment successfully, advertising campaigns need to be more specific to target each market group profitably.

Are the current strategies suitable?

One of the main problems is managerial understanding of strategy.  As Hamel and Prahalad explain, ‘many Western companies believe strategy is built on three component elements:

1. the concept of fit or the relationship between the company and its competitive environment
2. the allocation of resources among competing investment opportunities
3. the long-term perspective in which “patient money” figures prominently.’

Most have the viewpoint that strategic investments are those that require a large commitment of resources, but many fail to recognise their internal resources.  Surely, it would be more advantageous to leverage the resources already in existence before you allocate them.

Corporate level Strategies

M&S mission: To make aspirational quality available to all.  

M&S vision – ‘to be the standard against which all others are measured’

M&S have tried to be everything for everyone, this is illustrated in their advertising slogan ‘Exclusively for everyone’ which in today’s volatile market is not an easy task. Perhaps they would need to define their target market, then spend resources developing their stores and product ranges in an attempt to maintain and satisfy this segment. "Significant changes in supermarket design are just over the horizon. Only today's best supermarket chains are beginning to get it." The idea behind decor is simple: with better decor, shopping will be a more pleasant experience for your customers. Happy customers will return to your store, shopping longer and more often.

Perhaps Marks and Spencer’s should adopt the Portfolio approach of formulating their corporate level strategy.  Whereby, M&S would view the corporate centre ‘as an investor with financial stakes in a number of stand-alone business units.  What keeps the company together is cash and the role of the centre is selecting a promising portfolio and keeping tight financial control – redirecting financial flows were prospects are dim.’  This viewpoint relies heavily on the Boston Matrix as a guide to where resources and money should be allocated.  The problem in practice with this approach is the defining of the product or business unit.  Often there are overlaps and hence a business unit or product does not fit neatly into one of the boxes, (stars, cash cows, dogs or question marks) inevitably leading to the wrong diagnosis of strategy prediction for the company to follow.  As Michael Porter states in his article “From Competitive Advantage to Corporate Strategy” ‘the interdependencies between the business units are the very raison d’e^tre of the multibusiness firm.’  He argues that shareholders are better at spreading investment risks than companies are, while capital markets are far better at providing financing.

Goold and Campbell strike the balance between Porter and Haspeslagh in that they believe the corporate parent should not only add value to the company but also add more value than any other parent.  And Secondly, they point out how extremely difficult it is to forecast which linkages will add value and so they believe estimating synergies are not as simple as Porter suggests.  

Prahalad and Hamel also criticise Porter as they point out that Porter believes competition exists at the business level and hence views the business units as the primary drivers of competitiveness.  They believe competitiveness exists at the corporate level in which the competitiveness roots are embedded.   Arguing that a company’s diversification efforts should all arise from the companies core competencies.

Business level

As Marks and Spencer’s do not compete on price, but rather, pride themselves on quality, they must ensure they do not price themselves out of the market.  This could be achieved through careful segmentation of the market, perfectly defining their customers, producing what they want and hence reaping the benefits of a loyal customer base.  However, if they price themselves out of the market, Tesco’s finest range and Sainsbury’s taste the difference range may act as an appealing substitute.  

Porter suggests using his five-force model in order to position them in the marketplace and hence, determining whether the firm’s profitability levels are above or below the industry average.  His theory suggests that the only way M&S can maintain sustainable competitive advantage is to adopt one of three defensible positions, cost leadership, differentiation, or focus.  This theory suggests M&S should continue to pursue their current strategy, which is one of differentiation using quality as their main driver.  In practice, it is not important to incorporate a little of each strategy?  I would have thought all companies would want to be slightly defensive!

 Perhaps a better theory is that of George Stalk his argument is one steeped in tradition, stating; ‘that swiftness is an important organisational capability and that this skill can be used to rewrite the rules of competition.’

Marks and Spencer’s have undoubtedly managed to distinguish themselves successfully within the marketplace, priding itself as a high quality, loyal and trustworthy company.  This backed by Stalk, Evans and Shulman’s theory stating ‘the key to competitive success lies in identifying and developing “hard-to-imitate organisational capabilities that distinguish a company from its competitiors’. 

It would seem only fair to state that the theory of Gilbert and Strebel best incorporate the success and strength of M&S.  They state ‘that successful firms have the capability of introducing new formulas that were simultaneously innovative and competitively priced……a concept known as outpacing strategy’  With Marks and Spencer’s going through its economic downturn, yet fighting to maintain its position within the marketplace and did successfully through constant innovation which has allowed them to shape the product life cycle rather than the product life cycle determining the firms years of existence.  

 

Operational level

Managing the value chain is essential in any business. To manage the linkages will boost margins through increased efficiency, hence achieving high quality at a reasonable price as little wastage ensures all costs are kept to a minimum and customers feel they are getting value for money.  Communication is an essential part of any business as a lack of communication has led to problems in the past where by valuable information was not made available to the higher management such as customer satisfaction levels and staffing levels. 

Competition is fierce in the supermarket industry, with increased pressure coming from non-traditional challengers such as Wal-Mart as well as new Internet grocers. Supermarkets need to set themselves apart.

Perhaps it would be advantageous for Marks and Spencer’s to communicate with other organisations/competitors as it has been ‘argued that at this level strategy has ceased to be the sole domain of one business unit or corporation and therefore must be developed jointly with other organisations’ De witt and Meyer Contractor and Lorange back this in their belief that ‘co-operation and confrontation are complementary paths to business success’.    However, in contrast to this is the theory of Quinn, Doorley and Paquette who believe that collaboration on a horizontal axis suggests signs of weakness, the cliché ‘if you can’t beat them – join them’

Using Hamel, Doz and Prahalads’ theory suggest M&S can learn from competitors through collaboration but ‘should only enter into collaboration if they have clear objectives of what they wish to learn’.

Conclusion:

The UK and European Supermarket industry will undoubtedly continue in its current strength due to the stability of the products they sell.  However, there will come a point where it will simply be unfeasible to reduce prices of products further in a bid to out-perform competitors.  Differentiation of products and strength of brand name will be essential for survival.  

Future trends such as small-store expansion, non-food lines and internet usage must all be taken into account when developing future strategies as this is a consumer driven market, response to demands is imperative.

Marks and Spencer is in a favourable position, due to the portfolio of different industries they market in. This spreads the risk of the threat of another economic downturn and to date their food products have remained strong.  There is little room for complacency however, in an environment that is rapidly changing and survival will be determined by those who posses the flexibility to adapt to market changes, successfully defining their position within the market and hence develop coherent strategies to drive them into the future.  Flexible opening hours should be considered by M&S as market competitors are already steps ahead, many whom open 24 hours.

Theory was difficult to use to explain potential strategies and key factors affecting supermarkets due to the diversity of the product ranges, how they operate and the rate at which changes are occurring.  It seems much of the theory is not relevant to this type of industry.  Predominately because the grocery industry does not conform to the patterns existing in many other industries.   When effected by externalities, such as economic downturn, the grocery industry profits continued to rise when all other industries were adversely affected.  Many theorists predict standardisation of products in the future, this I believe is unlikely to happen in the grocery industry because food is country specific strongly linked to culture, tradition and lifestyle changes.  I cannot ever invisage the existence of a standardised culture.

Bibliography

Books

1. Contractor, F.J. and Lorange, P.  (1988) ‘Cooperative strategies in international business’.  Macmillan.

2. Porter, M. (1985)  ‘Creating and Sustaining Superior Performance’.  Macmillan.  

3. Mintzberg, H. (1989) ‘Mintzberg on Management – Inside our Strange World of Organizations’  Macmillan.

4.  Mintzberg, H.  Quinn,J. and Ghoshal, S. (1995)  ‘The Strategy Process, European Edition’.  Prentice Hall.

5. Brooke, M.Z. and Remmers, H.L. (1977) ‘The International Firm’.  Pitman International Text.  

6. Preston, Jill. (1993)  ‘International business, Text and Cases’.  Pitman.

7. Johnson,G. and Scholes, K. (1999) ‘Exploring Corporate Strategy, text and cases’.  Fifth Edition.  Prentice Hall.  

8. De-Witt, B. & Meyer, R. (1998) “Strategy: Process, Content, Context; An International Perspective”, London, ITP Thompson Business Press.

9. Mintzberg, H.  Quinn,J.B.& Ghoshal, S. (2003) The Strategy Process; Concepts, Contexts and Cases, Harlow, Pearson Edition.

10. Porter, M.E., (1990), “The Competitive Advantage of Nations”, Macmillan Press, London.

11. Whittington, R. (2001) What is Strategy and what does it Matter?, London, Routledge

Websites

1.  - Sourced at 07/01/04
   
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10. www.greenmoneyjournal.com/ article.mpl?newsletterid=15&articleid

11. www.themanager.org/Models/diamond.htm

Articles

1. Quinn, Dooley and Paquette.  “Technology in Services: Rethinking Strategic Focus”  Sloan Management Review.  Winter 1990.  

2. Hamel, Doz and Prahalad.  ‘Collaborate with your Competitors – and Win’  Harvard Business Review.  January/February 1989.

3. Gilbert, X and Strebel, P.  ‘From Innovation to Outpacing’  Business Quarterly.  Summer 1989, Vol 54 #1, pp. 19-22.

4. Douglas, S. &Wind, Y.  ‘The Myth of Globalisation’ Colombia Journal of World Business.  Winter 1987.

5. Stalk, Evans & Shulman.  “Competing on Capabilities” Harvard Business Review, March/April 1992.

6. Haspeslagh, P.  “Portfolio Planning : Uses and Limits” January/February 1982.

7. Levitt, T.  “The Globalisation of Markets”  Harvard Business Review.  May/June 1983.

8. Stalk, G.  “Time – The next source of Competitive Advantage”  Harvard Business Review.  July/August 1988.

9. Ohmae, Kenichi.  ‘Managing in a Borderless World’  Harvard Business Review.  May/June 1989.

10. Porter, M . “From Competitive Advantage to Corporate Strategy”  Harvard Business Review May/June 1987

11. Prahalad, C.K and Hamel, G.  “The Core Competence of the Corporation”  Harvard Business Review.  May/June 1990

12. Goold, M and Campbell, A.  “Brief Case: From Corporate Strategy to Parenting Advantage,”  Long Range Planning, February 1991.  Vol. 24 PP 115 – 117.

Market Reports:

1. Key notes, 2003.  Supermarket and Superstores.  Source  - University Abertay,                       Dundee.

Conclusion

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