Softcat International Expansion: Market Analysis of Canada and Japan

This report analyses Softcat's business operations and provides a market analysis of Canada and Japan for international expansion. PESTLE analysis and Porter’s 5 forces model are used to compare and contrast the IT industry of both countries. The report concludes that Japan is the best market for Softcat to enter and suggests franchising as the mode of entry.

601 MAN
International Business
and Globalisation

EXECUTIVE SUMMARY
The main aim of this report was to analyse the business operations of an ICT company
known as Softcat which is a provider of client centric and customized digital infrastructure
solutions such as cloud integration and Ecat point to point purchase control systems. The
operations of the company were listed in detail and major statistics were provided to prove that
the company is ready for international expansion. Two major international markets were chosen
for the business to expand into which were Canada and Japan and the IT industry of both
countries were compared and contrasted using tools of strategic management such as PESTLE
analysis and Porter’s 5 forces model. The market of both countries was also analysed using
Porter’s generic strategies and Ansoff matrix and it was concluded that Japan is the best market
to enter for Softcat. The report then included the major mode of entry suggested for Softcat to
enter Japan which was Franchising and problems and apparent solutions were also discussed.
The report was concluded with some recommendations for Softcat to conduct their business in
Japan.

Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Section 1A...................................................................................................................................1
Importance and Impact of Global Trade & Globalisation.......................................................1
Section 1B....................................................................................................................................3
Company Background.............................................................................................................3
Section 2......................................................................................................................................6
PESTLE Analysis....................................................................................................................6
Porter’s 5 forces model..........................................................................................................11
Section 3....................................................................................................................................13
Internationalisation................................................................................................................13
Ansoff matrix.........................................................................................................................14
Porter’s generic strategies......................................................................................................15
Drivers of internationalisation...............................................................................................16
Section 4....................................................................................................................................18
Major findings.......................................................................................................................18
Proposed strategy...................................................................................................................18
Practical issues and solutions.................................................................................................19
RECOMMENDATIONS...............................................................................................................19
CONCLUSION..............................................................................................................................20
REFERENCES..............................................................................................................................21

INTRODUCTION
Globalisation can be defined as a process of expanding social and economic contracts to
various different nations. It is the term which is used for defining rising interdependence on
different culture, custom and norms all around the globe. In general terms international
expansion refers to the process of expanding business from local markets to divergent
international markets all around the globe. International expansion is important for business as it
allows growth of the business with prospective increase in market share. Expansion of business
to the new markets provides several opportunities to the business and it also grant new consumer
base to the organisation. It also allows business to diversify itself and it also help in improving
the reputation of the company which provide competitive advantage to the firm over others in the
marketplace (Pattnaik, Singh and Gaur, 2021). The main reasons that support international
expansion for companies is increased revenue and profits along with the chance of increasing the
reach of their innovative products and services. This report will critically analyse Softcat, which
is a London based technological solutions provider specializing in offering advanced IT
infrastructure to a variety of clients. This report will undertake a critical market analysis of 2
foreign locations and recommend the best possible methods for Softcat to undertake international
expansion.
MAIN BODY
Section 1A
Importance and Impact of Global Trade & Globalisation
Global trade helps in expanding the connections from national and local economies to all
around the globe. It plays an important role in growth and development of a business.
Globalisation helps the business to operate from various perspectives, views, aspects etc. It not
only enhances the efficiency of the country but also provide opportunities to several different
countries for foreign investment which leads to faster growth, higher standard of living and
various economic opportunities. It also helps in improvement of inter cultural communication
and it also improve transportation among different countries. It also enhances technological
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advancement in several sectors as well as countries. It also helps the business in adaptation of
new strategies and practices (Gulanowski, Papadopoulos, and Plante,2018).
Globalisation has both positive and negative impacts and some of the positive impacts of
Globalisation are with the rising influence of global trade the cost of manufacturing is reduced
which helps the businesses to sell goods at lower and reasonable price to the customer. It also
provides new trading opportunities to the businesses across the world. It also aids developed
countries in investing more amount in developing countries. With the rising globalisation the
communication and relationships between different countries becomes easier. The negative
impacts of Globalisation are that sometimes global trade creates adverse influence on the culture
and custom of different countries, Higher demand for goods and services also lead to inflation in
the economy and it also leads to rise in inequality among wealth and income. There are several
benefits that are linked to Global trade and Globalisation. These benefits have been highlighted
below.
 Higher standards of Living - Globalisation helps in development of various countries
which result in improved standard of living of the individuals.
 Entrance in New market - Global trade has resulted in increased connectivity among
various different markets all around the globe.
 Access to New Culture – Globalisation has improved the diversification and adaptation
of different culture, norms and beliefs which include foreign art, music, food etc.
There are also various challenges which are associated with global trade and taking the business
on an international level, a few of which have been listed herein.
 Loss of Cultural Identity - As globalisation helps in adaptation of various new and
different cultures which leads in loss of own cultural identity in many countries.
 International recruiting – With the immense rise of globalisation it becomes necessary
for the companies to hire personnel from various different countries to understand the
norms and culture of different nations (Namba, 2022)
 Cultural barriers – Companies which open multiple offices in different foreign
locations often find it difficult to adapt to local traditions and culture and struggle to
control the local workforce properly
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 Currency issues – The rate at which the currency flows can have adverse impact on the
economic growth, GDP and overall level of inflation in the host countries which might
make business difficult for any company entering that market
Section 1B
Company Background
Founded originally as Wardswift, Softcat was founded by Peter Kelly on 30th March, 1993
in High Wycombe under its original business name which was “Software Catalogue”. The
company has made decent progress when it comes to undergoing domestic expansion as it has
offices all over UK in places such as Bristol, London, Manchester, Leeds, Marlow, Southampton
and Birmingham. The company has also taken advantage of its positive growth prospects and
innovative solution oriented products and services to expand outside of UK marginally by
opening offices in Glasgow and an Irish office in Dublin (All Solutions, 2022).
The company primarily functions as a provider of high quality and market relevant
advanced IT solutions ranging from point to point technology guidance and implementation for
all sorts of businesses. The solutions offered by the company ranges from cloud services plan
and implementation, data security, supply chain operations, data centre and connectivity along
with financial solutions and modern management. The company can benefit a lot from
undergoing major digital expansions in expansive foreign locations due to the following reasons.
 In the aftermath of the COVID-19 pandemic, it has basically become the norm for
businesses to undergo a digital transformation and companies like Softcat which
specialize in IT and cloud infrastructure are in major global demand
 Softcat provides a comprehensive range of solutions ranging from cloud implementation
to supply chain streamlining which can help in accumulating a wider audience globally
 Softcat became a public limited company as of 2015 and it has decent financial resources
to undergo international expansion in at least one major foreign location as part of an
experimentation and growth oriented market strategy
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The current financial situation of the company is promising as the post pandemic financial
recovery has been positive and this is reflected in some of the company’s basic financial
statistics listed herein.
Figure 1 Softcat company financials
Source – Softcat PLC Interim report, 2022
Figure 2 Softcat Profit and Loss year ending 2021
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Source – Softcat PLC Annual report, 2021
Figure 3 Softcat Annual Growth and revenue
Source - Softcat PLC Annual report, 2021
It can be analysed from the above statistics that the company is prime for growth via
international expansion as it has grown steadily even in the face of the pandemic in 2021. The
gross profit of the company rose by 17.2% and the overall revenue growth registered as of 2021
was 7.2% which is quite positive for a firm in the field of IT technology driven business (Softcat
plc Annual Report and Accounts 2021, 2021).
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Section 2
For the purpose of undertaking international expansion, there are two major international
markets which have been selected for Softcat which are Canada’s IT industry and Japan’s IT
industry which are both exhibiting positive growth prospects along with supporting relative ease
of conducting business. The international IT markets of both the countries have been contrasted
herein with the help of a PESTLE analysis and Porter’s 5 forces model (Grygoryeva, 2020).
PESTLE Analysis
A PESTLE analysis refers to a strategic model which divides the external business layer
into multiple segments for analysis of external business factors and this model has been applied
herein in context of both Canada and Japan.
Figure 4 PESTLE Analysis
 Political – The way in which the government runs the domestic and international affairs
of a given location can have major impact on businesses expanding in that country. When
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it comes to Canada, Softcat can expect an extremely stable working environment as the
same government has been in power for a long time. The firm can also benefit from
Canadas having close trade ties with two major markets in USA and Mexico through
USMCA which was earlier known as NAFTA. Japan on the other hand has been through
constant shifts and has had 3 different prime ministers in the last 3 years which has
resulted in a disruptive environment which can cause trouble for Softcat. However, the
company can benefit from the Japanese government providing heavy incentives and tax
reliefs to foreign firms, especially smaller companies with an investment of 10 million
yen or more are allowed to deduct the 25% value of their investments from their taxable
income (Innis, 2018).
Figure 5 Japan Corporate Tax Rate and Structure from 2012 to 2022
Source – National Tax Agency
 Economical – The robustness of the economy and the financial prospects are also very
important expansion considerations for companies like Softcat. Japan is one of the
strongest economies in the world and the financial prospects of the country are also very
strong with an increase of $1.7 Billion as of January, 2022. Canada on the other hand is
also one of world’s top 50 economies with an annual growth rate of 6.7% which is quite
robust but Softcat must keep in mind that the company is projected to undergo negative
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growth in this year according to market projections (IT industry in Japan - statistics and
facts, 2022). When it comes to the comparison between the IT markets of both the
countries, Japan appears as a clear winner as the IT industry valuation of the country is at
$449.4 Billion as of 2021 compared to Canada’s $242 Billion (Nishioka and Takeuchi,
2018).
Figure 6 Contribution of IT industry in Canada's GDP
Source – Statista
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Figure 7 Contribution of IT services industry in Japan's GDP
Source – Data originating from the Office of Internal Affairs and Communication
 Social – Social factors also have major impact on businesses expanding in a foreign
location. Both Canada and Japan boast literacy rates higher than 99% which results in
heavy demand for IT services and solutions which Softcat specializes in. Softcat can cater
to a much bigger market in Japan as the population of Japan (125,598,560) is much
higher than of Canada (38,493,036). However, Canada might be better socially for IT
firms to expand into as the country has a higher proportion of private consumption at 54.6
% and the trend of working from home is not much prevalent in Japan and people have
the mentality of “spending time to save money” rather than “spending money to save
time” (Sasaki, Sato and Palvia, 2020).
 Technological – The investment made by Japan’s government in the field of advanced
ICT technologies at 19.51 Billion yen is much higher than that of Canada. The IT
industry of Japan is quite advanced with all businesses from retail to travel are utilizing
digital infrastructure solutions which Softcat specializes in. Growth in the IT technology
sector in Canada is forecasted to be at 5.3% as of 2022 compared to Japan whose IT and
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tech services market is growing at the rate of 7.22% which indicates the latter being a
much better expansion prospect for Softcat (Domurath and et.al.,2020).
Figure 8 Cloud computing Marker Size of Japan
Source – Research and markets, 2022
 Legal – The Canadian legal system provides various leave provisions for the employees
and prevent companies from tracking them anywhere which Softcat must be wary of.
Japan on the other hand is much stricter and companies have to comply with major
privacy acts and rules built around protecting consumer interest. Japan has the added
benefit of allowing patents for 25 years rather than 20 in most other countries which can
potentially result in long term profit increase for Softcat.
 Environmental – Due to Japan’s excessive focus on video games, the country produces
approximately 65000 tons of e-wastage which adds major financial burden on companies
expanding there. Canada on the other hand is much less pollutant in comparison and
Softcat can conduct their IT operations without much worry of E-wastage in the country.
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Porter’s 5 forces model
Porter’s 5 forces model helps analyse the operational environment and the level of existing
competition among particular industries and this model has been applied herein to contrast the IT
market of both Japan and Canada.
Figure 9 Porter's 5 Forces Model
 Threat of new entrants – Both the Canadian and Japan IT markets require a hefty
amount of investment in order to properly enter the market which is not possible for
small time firms. Softcat can especially benefit from Japan where new players take a lot
of time to get established in the market.
 Bargaining power of suppliers – The bargaining power of suppliers is quite low in
Japan compared to Canada as the people there are much more conservative regarding
their finances and affordable costing is a major selling point. If Softcat expands in Japan,
it will have to cut the costs of its solutions (Chandra, Paul, and Chavan, 2020).
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 Bargaining power of buyers – The buyers have major power when it comes to both
Japan and Canada’s IT markets as both populations are highly educated and believe in
deriving the best possible utility from their products. The Japanese buyer’s consumption
patterns are centred around digital goods which might be more beneficial for Softcat.
 Threat of substitutes – When it comes to the varied solutions provided by Softcat which
ranges from cloud infrastructure, digital purchasing and contracting through Ecat, there
are no major substitutes available in Canada. Japan on the other hand has major
domestically established IT services which Softcat will need to deal with.
 Industry rivalry – The Canadian IT market involves heavyweights such as Shopify,
Constellation and OpenText corporation in terms of IT consultation services. Japan on
the other hand has major players such as Principle Co. and Sentree. A major market
opportunity for the firm in Japan might arise from companies focusing on big data and
not on focused business architecture solutions for small firms looking to undergo
digitization which Softcat could potentially exploit in Japan (Tan, 2021).
Figure 10 Major IT companies of Japan
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Source - Freshtrax
Section 3
Internationalisation
When it comes to the personal choice of both the countries to undergo
internationalisation, Japan is much more effective than Canada as the country is much more
export focused. The ICT services and solutions also form a major part of Japan’s service exports
to rest of the world which signals a major market growth opportunity for Softcat in Japan
indicated by the statistic given below (Japan - ICT Service Exports (% Of Service Exports, BoP),
2021).
Figure 11 Japan's ICT services export % from 2010 to 2022
Source – World Bank
The businessmen and entrepreneurs of Japan are also fully focused on collaborative business
relationships and mergers and joint ventures are major strategies which foreign firms employ in
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Japan to gain market success at a quicker rate. Franchising is also largely followed in both Japan
and Canada and can be a viable strategy for Softcat.
Ansoff matrix
Also known as the product and market expansion grid, this model helps firm identify
their strategies in both domestic and international markets. If Softcat employs some of the
business strategies suggested herein, it can effectively expand in foreign countries such as Japan
and Canada.
Figure 12 Ansoff Matrix Grid
Market penetration – This is the least risky strategy in which companies sell similar products in
similar markets and this is not advised for Softcat as the growth potential is quite limited
Market development – This strategy involves a firm leveraging its existing products in new
markets and this is suggested for Softcat as it less risky and opens new market opportunities for
the company
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Product development – In this strategy, a firm invests into research and development and
comes up with new product offerings in similar markets. Softcat can also use this strategy as it
comes up with many unique IT solutions but it does not suit the firm’s international ambitions
Diversification – This is the riskiest strategy in which the firm comes up with new products to
sell in newer markets and this is not advised currently to Softcat. The reason being that this
strategy required hefty investment with major chance of losses which might be
counterproductive in Japan amidst the high competition.
Porter’s generic strategies
These strategies given by Michael Porter can be applied to any company and organization
and helps firms undertake specific strategic approaches to strengthen their market outlook and
prospects.
Figure 13 Porter's Generic Strategies
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Cost leadership – In this strategy, a firm aims to increase their market share by selling goods at
the industry average price and lowering their costs and also selling at lower prices to increase
reach and affordability of their products and services. This strategy is recommended for Softcat
in Japan where people are much more stringent in comparison to Canada.
Differentiation – In this strategy, a firm aims to invest into R&D and come up with new and
innovative products and services to gain competitive advantage by differing their products and
services from their competitors.
Cost focus – In this strategy, a firm selects their target demographic and selects cost leadership
as their way of gaining competitive advantage in their respective target markets. This strategy is
highly recommended for Softcat, especially in Japan as the IT solutions such as Cloud
integration and Ecat at low prices can help the firm find niche target markets in both Japan and
Canada.
Differentiation focus – This generic strategy advocates firms to target niche market segments by
coming up with new products and services catering to their needs. This strategy requires long
term hefty investments and experimentation which might not be suitable for Softcat.
Drivers of internationalisation
There are many drivers of internationalisation which serve as motives of firms expanding
internationally like Softcat or attract foreign companies to certain countries such as Japan and
these drivers are listed herein.
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Figure 14 Drivers of Internationalisation
 Technological drivers – Businesses often expand internationally to take advantage of
new technologies in emerging markets and countries undertake rapid export of their
technologies to earn more profits. For Softcat, the technological potential of Japan is
quite high as the country is pioneering both big data and advanced AI systems which
needs a robust digital infrastructure which the company specializes in.
 Political drivers – Softcat being based in UK has been subjected to major political
disturbances in the form of COVID-19 and Brexit and it would face a much better
political climate in Canada. The stability offered by other locations is a major driver of
internationalization.
 Market drivers – Both Japan and Canada are major markets with a booming ICT
industry which Softcat can expand into and take advantage of the opportunities. Japan is
a land of technological innovation and Canada has the advantage of being tied to both US
and Mexico through USMCA making both markets valuable for Softcat.
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Section 4
Major findings
On the basis of the analysis done in both section 2 and 3, Softcat is recommended to
expand in Japan over Canada as the former is a much more lucrative market for ICT companies
due to the following reasons.
 There is major demand for ICT solutions and digital infrastructure in the country due to
the pioneering technology landscape which fits Softcat’s business model
 The digital literacy of Japan is higher than most other countries and there is rapid demand
for businesses to go online which Softcat has custom made solutions for
 There are many small businesses in Japan which are struggling to adapt to the changing
business landscape for which Softcat solutions such as Ecat can be quite beneficial
 Japan offers a much flexible tax structure and more economic reliefs to companies like
Softcat (IT Sector, 2022)
Proposed strategy
There are many options related to a mode of entry in a country such as Japan which are
listed herein.
 Joint ventures
 Mergers and Acquisitions
 Franchising
 Licensing
 Wholly owned subsidiaries
Out of all these strategies, the one proposed to Softcat for internationally entering Japan is
Franchising which is the method of granting rights or licenses to individuals to conduct trade
based on the franchised goods in a given territory or state. There are many advantages of
franchising for Softcat in Japan such as gaining quick exposure in new markets, spreading the
reach of their ICT solutions organically. It also boosts their capacity of the firm to take calculate
risks in a new foreign location (Kuntsevich, 2021).
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Practical issues and solutions
There are major issues which Softcat can face while expanding into Japan which are listed
herein.
 Cultural barriers as Japanese people are stanch nationalists who prefer domestic goods
over foreign products and services
 Meeting and complying with local legal compliances and regulations
 Hiring the right talent and ensuring proper supply chain management locally
The cultural barriers can be resolved by hiring experienced veteran workers who understand
the local culture and by taking help of data and case studies on Japanese business culture. Local
law experts and business bodies can help with legal compliances of Softcat and supply chain can
be streamlined by incorporating digital systems which Softcat specializes in and developing agile
supply chains
RECOMMENDATIONS
In order to properly conduct their business operations in Japan, the following
recommendations should be followed by Softcat in Japan.
 The company should understand the cultural differences between Japan and UK and hire
locally experienced people to train the company’s foreign workers to understand local
dialect and traditions
 They must price their patented ICT solutions such as the Ecat at a lower price to corner a
large share of the market and build appeal in the eyes of small businesses looking to
undergo rapid and robust digitization
 The firm should look to come up with new ICT solutions in the field of artificial
intelligence and robotics as these markets have major future growth prospect in Japan and
are tied to business digitization solutions which Softcat has many services for (Ghantous
and Das, 2018).
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CONCLUSION
The above report went into detail regarding the importance of globalization and global trade
and the contrast of two major global markets in the form of Canada and Japan. The report
involved a critical analysis of the IT industry of both countries using models such as PESTLE
analysis and Porter’s 5 force model along with strategic tools such as Ansoff matrix and Porter’s
generic strategies. It was concluded from the analysis conducted in this report that for companies
specializing in ICT solutions and looking for international expansion as a growth strategy, Japan
is a much more lucrative market for entry than Canada.
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REFERENCES
Books and Journals
Chandra, A., Paul, J. and Chavan, M., 2020. Internationalization barriers of SMEs from
developing countries: a review and research agenda. International Journal of Entrepreneurial
Behavior & Research.
Domurath and et.al.,2020. New venture adaptation in international markets: A goal orientation
theory perspective. Journal of World Business, 55(1), p.101019.
Ghantous, N. and Das, S.S., 2018. International franchising and performance: a resource-based
perspective. International Journal of Retail & Distribution Management.
Grygoryeva, I., 2020. Features of doing business in Japan.
Gulanowski, D., Papadopoulos, N. and Plante, L., 2018. The role of knowledge in international
expansion: Toward an integration of competing models of internationalization. Review of
International Business and Strategy.
Innis, H., 2018. The historical development of the IT industry in Canada. In Essays in Canadian
economic history (pp. 211-219). University of Toronto Press.
Kuntsevich, P., 2021. Advantages of doing business in Canada.
Namba, K., 2022, August. Impact of New Resources from Unrelated Person on the Entrepreneur
Activity Process in Business Succession in Japan. In 2022 Portland International Conference on
Management of Engineering and Technology (PICMET) (pp. 1-8). IEEE.
Nishioka, H. and Takeuchi, A., 2018. The development of high technology industry in Japan.
In The development of high technology industries (pp. 262-295). Routledge.
Pattnaik, C., Singh, D. and Gaur, A.S., 2021. Home country learning and international expansion
of emerging market multinationals. Journal of International Management, 27(3), p.100781.
Sasaki, H., Sato, O. and Palvia, P., 2020. Information technology issues in Japan. In The World
IT Project: Global issues in information technology (pp. 209-221).
Tan, S.K., 2021. Global Pandemic, Technology Booms and New Business Trends: The Case of
Japan. WILAYAH: The International Journal of East Asian Studies, 10(1), pp.120-140.
Online referencing
All Solutions, 2022 [online] available through < https://www.softcat.com/solutions>
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Softcat plc Annual Report and Accounts 2021, 2021 [online] available through
https://www.softcat.com/6216/4458/6872/Softcat_plc_Annual_Report_and_Accounts_2021_002
.pdf
Japan - ICT Service Exports (% Of Service Exports, BoP), 2021 [online] available through <
https://tradingeconomics.com/japan/ict-service-exports-percent-of-service-exports-bop-wb-
data.html#:~:text=ICT%20service%20exports%20(%25%20of%20service%20exports%2C
%20BoP)%20in%20Japan,compiled%20from%20officially%20recognized%20sources.>
IT Sector, 2022 [online] available through
https://www.investtokyo.metro.tokyo.lg.jp/en/industries/it.php#:~:text=Situation%20in
%20Japan&text=The%20IT%20market%20is%20forecasted,be%20driving%20future
%20market%20growth.
IT industry in Japan - statistics and facts, 2022 [online] available through <
https://www.statista.com/topics/7755/it-industry-in-japan/>
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