International Business: Marks and Spencer's Expansion into Australia

This presentation discusses the important points to consider while internationalizing an organization, using Marks and Spencer as a case study. It explores the competitive advantage, Porter's Five Forces model, potential competitive advantage, country risks and exposures, and more.

INTERNATIONAL
BUSINESS

INTRODUCTION
The presentation brings out a discussion of
important points which has to be considered
while internationalisation an organisation. In
context of this presentation, marks and
spencer is chosen as an organisation.
Marks and spencer is an major British
multinational retailer headquartered in London.
The company is listed on London stock
exchange. In 2016, the company has launched
new online store to target the Australian online
shoppers.
(Source: UK investor, 2019)

COMPETITIVE ADVANTAGE OF
MARKS AND SPENCER'S
• Marks and spencer is well known for its standardised and
information-emerged management style of supply chain
management.
• Standardisation is the company`s consistent style, type and design
of store layouts, product quality, and even staff of their service
program has a standard.
• Managing the standards is the greatest advantage that can save a
lot of management cost.
• “Customer satisfaction” is the business philosophy of Marks and
spencer.

PORTER`S FIVE FORCES
MODEL
Threat of Competition
• Marks & spencer is not only vulnerable to
food products but also apparels,
supermarkets and households such as
Tesco, Asla, Zara, John Lewis and
Sainsbury.
Threat of substitutes
The threat of substitutes is low. Other
retailers for food and apparel products
have direct rivals. For example- in food
market, Waitrose can be direct rival and
for apparels, the direct rival can be peter
Jones. (Source: LinkedIn corporation,2011)

Threat of new domestic and international entrants
It needs huge capital investment to set a chain of retail stores.
Australian market is mature enough and to promote Marks and
spencer, it needs to maintain its competitive advantage even
when it is incurring profit in short run.
Bargaining power of buyers and suppliers
Australian market is well concentrated with buyers. There are
enormous alternatives and certain switching costs that can be
lower for the customers. Moreover, the bargaining power of the
suppliers can be adjusted as it already maintains a standardised
image in the business world.

POTENTIAL COMPETITIVE
ADVANTAGE
• As marks and spencer enjoys a considerable
brand name in the retail world. While
entering into Australia, the company can
start by offering wide range of products
from apparels, households, to food.
• This huge offering will help the company to
grab the market share in the Australia`s
retail industry.
• The company already provides standardised
products that can be a differentiation
strategy for the company while offering
products.
(Source: Carubba, 2018)

COUNTRY RISKS AND
EXPOSURES
• Country risk is defined as risks that
affect the investors and foreign direct
investors.
• Country risks differ from country to
country. In order to define this risk,
certain risks have to be considered such
as political risks, economic risks,
transfer risks, and exchange-rate risks
(Sadhye, 2014).
• It is the degree to which economic and
political unrest influence the FDI or the
securities of various issuers who do
business in Australia. (Source: LinkedIn corporation, 2011)

POLITICAL RISK
• Meaning- political factors refer to stability of political conditions and how
attitude of political parties affect the business operations.
• Australia is a liberal and capitalistic democratic country. The political
conditions of Australia promotes free trade for retail business by
liberalising the economy.
• Marks and spencer's can get the support of political conditions as
Australia has a strong national government, provides equal opportunities,
efficient and transparent legal framework.

• Some of government intervention in the international business-
• Tariffs
• Subsidies
• Import quotas
• Currency controls
• Anti-dumping rules
• Free-trade zone
• Export financing
• Administrative policies
• Marks and spencer will be supported by country`s political stability and
favourable taxation system. It also provides a competitive business cost
with world class infrastructure.

ECONOMIC FACTORS
• Australia has a strong economy with high
per capita GDP.
• Australia has large service sector that
signifies the company will be efficient
enough to operates delivery to its
customers.
• In case of Australia- the country`s GDP was
estimated as AUD 1677.47 billions in 2016.
Moreover, per capita GDP is estimated at
USD at 51850.27 and the purchasing power
parity on the basis of per capita GDP is
estimated at USD 1187.32. (Source: Statista,

SOCIAL FACTORS
• Social trends of the country have a crucial
impact on whole retail sector and Marks and
spencer.
• In case of Australia- the Country`s population
is estimated at 24.281 million in 2016 and it is
expected to reach 26.425 million till 2022. the
country`s unemployment rate was 5.73
percent of total workforce.
• While analysing the social conditions, it is
seen that 81 percent of the population speaks
English.
(Source: Statista, 2019)

TECHNOLOGICAL FACTORS
• Availability of technology factors helps the
company to improve its supply chain, customer
services and sales. With the increasing growth of
technology has increased the number of
organisations in retail sector.
• In Australia, the household access to the
internet has increased from 1.1 million in 1998
to 4.7 million in 2006.
• The country`s expenditure on the research and
innovation has reached more than $15.7 billion
in 2005 and it increased at 40 percent in last few
years.
• Australia`s businesses generally account for 54
percent expenditure on R&D (Singizi, 2018).

• Some of the recent technology advancements in Australia are-
• Wi-Fi- Marks and spencer can use internet to communicate to its
customers.
• Various computer programs and software that allow the employees to
process more information than the other manual methods. The
developing technology has become a game changer for retail sector.
• E-commerce is a platform that enable the company to compete on
price.

LEGAL FACTORS
• Australian legal system is based on fundamental belief and treats
both Australians and non-Australians equally before the law.
• Each federal and state system regulates three separate sectors of
government- legislative, executive, and the judiciary.
• These legal regulations ensures fair competition among both
domestic and international organisation, sufficient protection for the
related parties of the business.
• The business laws are flexible and make favourable procedures for
business opening.

• Australian government offers a range of
grant schemes and incentives in order to
promote FDI in the country.
• Australian trade commission promotes
and supports productive FDI in Australia.
Certain incentives are taxable grants,
provision of infrastructure services on
discounted rates and tax reliefs.
• In 2018, implication of GST on Australian
retailers can affect the value of imported
goods. It will affect the drop shipping that
relates to sales of products which are
located overseas during sales and send it
directly to consumers from the overseas
source. (Source: McCowage, 2018)

ENVIRONMENTAL FACTORS
• Australia is the largest island which is one of the biological diversified
country.
• Like industry sector, retail sector affects the sustainability. Marks and
spencer have already invested in minimising the carbon print and
production of other chemicals during manufacturing the its products.
• Managers have to take into consideration the ecological factors in their
decisions. As the country is already suffering from water sanitation.

POTENTIAL EXPOSURE TO
FOREIGN EXCHANGE RISKS
• Foreign exchange rate- it is defined as risk in which the investment
value changes according to the changes in the value od two separate
currencies.
• The exposure to foreign exchange is associated with foreign exchange
rate that frequently change which will further have adverse effect on
financial transactions especially when these transactions are executed
in foreign currency.
• It depends on marks and spencer what type of internationalisation it
adopts such as if the company relies on exporting and importing
procedures. Here in this presentation, if the company adopts joint
venture as process, the currency fluctuation will affect the investment
criteria.

FINANCIAL RISK
• The crucial risk related to internal business is the fluctuation of foreign
exchange rates. There are myriad factors that affect the foreign exchange
rates that considers the political risk too that ultimately increases the cost of
doing businesses.
• Transfer pricing- it is important for the Marks and spencer to adopt transfer
pricing strategy. When the company but its material through overseas trade
then it has to adopt the transfer pricing of Australia by converting the pricing
into the Australian dollar and adding other expenses such as custom duty
and tariffs in AUD dollar.
(Source: Forex masters, (2018)

INTEREST RISK
• Undoubtedly, the company`s capital structure will
comprise of both debt and equity. While indulging the
debt, the risk of fluctuating interest rate will
remained a risk.
• Interest risk or market risk is related to unexpected
changes in the change rates. The company can
control and mitigate this risk by involving fixed-rate
loans rather than fluctuating bonds (Vettickal, 2013).
• Commercial risk- it defines the potential losses that
arise form trading partner. It is very important to
secure that trading companies are reliable. In this
case the other partner in the joint venture will help as
it is well acquaint with the methods of payments from
trading partners. (Source: VETTICKAL,
2013)

CONCLUSION
• This presentation can be concluded on a positive note that company has
the potential to expand in Australia. The company will be supported by
liberalised trade for both internationalisation and ownership.
• the company can take the advantage of growing population and it can
establish more retail stores that can give employment to people.
• The legal risks indicate that the company can advantage of productive
FDI in Australia.
• On the darker side, the company may suffer from the lack of
transportation facilities.

RECOMMENDATION
• In order to expand Marks and spencer, the company has to opt a certain
process of internationalisation such as Wholly-owned subsidiaries,
franchising, Licensing, Indirect export, Export (as a distributor or a agent),
and Joint venture (local partner).
• As a recommendation, the marks and spencer should use joint venture so
that it can get the benefit of another partner`s knowledge of complying
with the legal requirement of the country.
• Moreover, the company should use its brand name and competitive
advantage to grab the market.

REFERENCES
• Australian Government, (2014) Social and emotional wellbeing. Available on: https://www.pmc.gov.au/sites/default/files/publications/indigenous/Health-
Performance-Framework-2014/tier-1-health-status-and-outcomes/118-social-and-emotional-well being.html [Accessed on 19/02/2019]
• Statista, (2019) Australia: Unemployment rate from 2012 to 2022*. Available on: https://www.statista.com/statistics/263695/unemployment-rate-in-australia/
[Accessed on 19/02/2019]
• . Available on: http://www.australianrdreview.com/164/ARDR-ICT.html [Accessed on 19/02/2019]
• McCowage, M. (2018) trends in China's Capital Account. Available on: https://www.rba.gov.au/publications/bulletin/2018/jun/trends-in-chinas-capital-account.html
[Accessed on 19/02/2019]
• Its about Australia, (2015) Australian economy. Available on: http://mmelo3.blogspot.com/2015/04/australias-economy.html [Accessed on 19/02/2019]
• Legalvision, (2019) 8 Steps to Set Up a Company in Australia. Available on: https://legalvision.com.au/8-steps-to-set-up-a-company/ [Accessed on 19/02/2019]
• Statista, (2019) Australia: Real gross domestic product (GDP) growth rate from 2012 to 2022* (compared to the previous year). Available on:
https://www.statista.com/statistics/263602/gross-domestic-product-gdp-growth-rate-in-australia/ [Accessed on 19/02/2019]
• UK investor, (2019). Available on: https://ukinvestormagazine.co.uk/marks-spencer-scrutiny-change/ [Accessed on 19/02/2019]
• Sadhye, T. (2014) Pestle analysis for doing business in australia. it talks about different environments that affect your business in good ways or bad ways
depending on how you use it. Available on: https://www.slideshare.net/tushars650/pestle-analysis-doing-business-in-australia-39831072 [Accessed on 19/02/2019]
• Singizi, J. (2018) Impact of technology in business: Retail Sector. Available on: https://www.eyetrodigital.com/2017/12/07/impact-technology-business-retail-sector/
[Accessed on 19/02/2019]
• Linkedn corporation, (2011) Dealing with risks in international business. Available on: https://www.slideshare.net/ibc-business-strategy/dealing-with-risks-in-
internationa-business [Accessed on 19/02/2019]
• Forex masters, (2018). FOREX Trading Facts. Available on: https://www.forexmasters.co.za/fxtradingfacts02.htm [Accessed on 19/02/2019]
VETTICKAL, V. (2013) International Bond Market. Available on: https://www.slideshare.net/vipinvettickal/citi-28730633 [Accessed on 19/02/2019]
• Carubba, J. (2018) Finding Your Body Shop’s Competitive Advantage in a Changing Industry. Available on: https://www.bodyshopbusiness.com/finding-body-shops-
competitive-advantage-changing-industry/ [Accessed on 19/02/2019]
,