Analysis of Competitive Advantage and German Business Culture

The assignment analyzes various business concepts such as competitive advantage, cost leadership, franchising, merger and acquisition, PESTEL analysis, psychographic segmentation, strategic alliances, and market segmentation within the framework of Germany's economy. It examines economic factors, environmental issues, and political outlines in Germany. The document also discusses German business culture, including facts, customs, and traditions.

STRATEGIC MARKETING

EXECUTIVE SUMMARY
Germany is a sovereign state situated in central western Europe. It includes 16
constituent states and is the most populous state of the European Union. Berlin is the capital of
Germany. Expanding business is a new trend and every company is focusing on expansion of
their business. Germany has great scope for growth as its markets has significant potential. This
report has been prepared by Ashanti Market Solutions for Arcadia. This report will focus on
expansion of Arcadia in Germany with new herbal cream name “Elegant”, that is a Beauty
products with herbal ingredients.
In PESTEL Analysis, company will evaluate all the macro factors of Germany in order to
analyse and measure the impact it can pose on their business. As this will help them to develop
and formulate important decisions and plans for company. This report will cover different
external factors with possible threats and opportunities which will provide accurate information
and knowledge about environment of Germany.
With the help of different market entry modes, Arcadia can get access to new markets
and this will can result in greater outputs and results. Company will choose the best market
option which will be beneficial and profitable for them. It will also discuss different entry modes
with best option used by Arcadia to expand their business and maximise their profits.
Market segmentation is another crucial business strategy which assist company to choose
best segment in order to plan and expand business. Arcadia will choose the best suitable market
segmentation which will maximise their profits and attract customers as many as possible. As
cosmetics is preferred by almost every customer between the age group of 17 – 50 this idea
becomes one of the great opportunity for company.
Company will utilise Porter's Generic Model in order to achieve competitive advantage
over their competitors in Germany. For that, they will use the best strategy possible to
accomplish the same.It will further enlighten best market strategy which can be used by
company in order to provide unique products at low cost.

Table of Content
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION ..........................................................................................................................2
MAIN BODY...................................................................................................................................2
PESTLE Analysis...................................................................................................................2
Market Entry Modes...............................................................................................................7
Market Segmentation..............................................................................................................9
Porter's generic strategy........................................................................................................11
CONCLUSION .............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Strategic marketing is used by an organisation in order to develop best of their market
plans which can fulfil needs and demands of customers. With the help of this strategy, company
can increase their performance and therefore maximise their profits. It also aids company to
become more innovative and creative and also facilitate better penetration in different and new
markets (Wilson and Gilligan, 2012). Arcadia Group is multinational retail company which deals
in clothing, accessories and footwear. It was founded in 2002 and is headquartered in London,
United Kingdom. New beauty herbal cream name “Elegant” is introduced by Arcadia Group in
the markets of Germany. Arcadia has chosen Germany for its business expansion due to
renowned infrastructure, innovation power and presence of excellent workforce which will
definitely improve economic outcomes. Compared to other country such as Spain, they does not
have good research facilities and capable workforce, this is the reason for choosing Germany
over Spain.
MAIN BODY
PESTLE Analysis
Arcadia is a retail company which is recently dealing in three sectors and they are
accessories, clothing and footwear. In this report, Arcadia has come up with new venture to start
a new herbal cream name “Elegant” which is a beauty product that will be launched in
Germany.
PESTEL analysis is the best tool to analyse and identify different macro factors that can
influence business. Marketers of Arcadia use this framework in order to monitor different factors
that pose great impact on profitability and smooth functioning of company (Babatunde and
Adebisi, 2012). With this analysis, leaders of the referred enterprise will come to know about
possible threats and different opportunities that will be present in the selected country for the
new product. Brief description of vital elements of PESTEL analysis is given below:
Political factors: This factor mainly focuses on political environment and legislative
bodies that are present in Germany. Arcadia can analyse their political environment and measure
the influence posed by different political regulation on their new venture. As company is
expanding their business by launching new herbal cream, so they have to analyse all legal set ups
and policies regarding opening and expansion of business (Davis and et al, 2011). This will
2

ensure better establishment and smooth functioning of business operations. It will provide them
with several opportunities as it has stable political environment and they can run their operation
smoothly.
Opportunity
One advantage of operating business in Germany is that, they are free from regulations
and have no restriction on day to day business as they are being part of EU (GERMANY:
ECONOMIC AND POLITICAL OUTLINE, 2018). They don't differentiate between Germans and
foreign people related to investment and opening up a company in their market place.
Threat
There are two political parties governing in Germany, there might be a situation, where
other party can come into power and because of that, rules and regulation related to business
might change. This will ultimately pose a threat to company and by having flexible
organisational policies, they can encounter this situation. They can implement new regulations
within enterprise and run their business accordingly.
Economic factors: These factors are one of the crucial parts as they greatly influence
profitability of a company. GDP of Germany is mainly contributed by three sectors, they are
service sector (70%), agriculture (0.9%) and industry (29.1%). Current GDP of Germany is
around $3.684 trillions (2017) and annual growth rate is 2% estimate (PESTEL Analysis of
Germany. 2018).
Opportunity
As they have largest population in Europe, there will be better chances for profits and
revenues. One of the advantage for company is that, economic condition of Germany is stable
and is less affected by fluctuations.
Threat
Growth rate is merely 2% which may cause a threat to company and they might grow
slowly. Another threat to company is that, labour cost in Germany is increasing every year and
this might become expensive for Arcadia to employ labours in large number (Economic factors
in Germany, 2018). In order to rescue from this, company can hire freshers as they don't demand
high salaries and can work at minimal wages .
3

Source: Germany Labour Cost, 2018.
Social factor: As mentioned above, Germany has the largest population in Europe and its
population is greatly diversified by different lifestyles. Social factor mainly includes people, their
lifestyles, beliefs, values, attitudes, habits, etc. and people living in Germany value their culture
(German Culture: Facts, Customs and Traditions, 2018). It has rich diversity and culture and in
that country, Arcadia can expand their business and attract people towards their new herbal
cream. They have developed this beauty product which will focus on both men and women and
people of any age group can use this products as it has less side effects and is manufactured by
using herbal ingredients .
Opportunity
Due to increase of chemicals in cosmetics and beauty products, customers are switching
towards herbal and organic products. This is a great opportunity for Arcadia to develop this
herbal product and entertain profitable results. Due to the herbal nature of product, customers
will be attracted towards them and this will result in more profits.
Threat
Social issues may rise and sometime they can influence the business without any reason.
In order to develop herbal cream, company has to cut down trees and plants which will
ultimately effect the nature and this might cause aggression in parties who works for protection
4
Illustration 1: Germany Labour Cost Statistics.

of environment. This can be a threat to the company as this will impact on the goodwill of their
company. Reputation is necessary for company to maintain in order to attract customers and
operate successfully. By caring about beliefs and values of people, company can maintain their
goodwill in the market and avail improved results (German business culture, 2014). Solution for
this threat is that, company can organise various activities in which every member of the firm
can plant trees in a month in order to repay the loss to environment which was caused by cutting
down the trees for the production of herbal products. This will also lead to proper balance of
nature.
Technological factor: Arcadia is launching Elegant herbal cream that is of herbal nature
so they require proper research laboratories which is equipped with latest technologies which can
check the quality of product and provide customers with best quality (Proctor, 2014). There are
national laboratories where company can perform their research part. Germany support national
science and technology at many levels. They give full assistance to any type R&D. There is a
Ministry for Science and Technology which coordinates and set priorities for entire national
science and technology program for Germany (PESTEL Analysis of Germany, 2018).
Opportunity
One of the major chance or opportunity for Arcadia is that, they can develop this product
by performing research and can use latest technology. This will help them to provide better
quality product to customers which can maximise their sales. The reason is that Germany being a
renowned innovator possess a favourableness towards technological advancement (The German
approach to Tech Investment, 2018.). Company have to upgrade their technology with time in
order to stay ahead of other organisations. As they are starting a new venture, they needed to
establish a good image in market, so to achieve that, they have to implement best and latest
technologies.
Threat
When a new machinery is adopted, huge investment is required. In case of technology
failure, great loss may be suffered by the enterprise which may make it difficult for Arcadia to
recover on financial grounds. Apart from this, it can sometime become difficult to adopt new
technology at initial stage of establishment. In order to resolve this threat, company can buy
expensive machine on instalments or by taking loans from bank. This will become more easy and
feasible for company to establish necessary machines within organisation.
5

Environmental factor: This factor has great impact on nature and environment of
country as Germany is world 6th largest and European largest carbon emitter. There has been an
increased emphasis on the environment factor when looking to establish operations in a
relatively newer market.
Opportunity
Germany is also focusing more towards green business and are highly concerned for
environmental performance (Germany: Environmental Issues, Policies and Clean Technology,
2018). Company can use eco-friendly procedures and techniques in order to prevent pollutions
and this can be a great factor to attract customers toward their herbal cream. By using these
techniques and procedures, they get necessary assistance from government side, which can be a
great opportunity for company to establish eco–friendly procedures. With this, they can
contribute towards healthy environment .
Threat
As every company is manufacturing something and directly and indirectly emitting
carbon and other harmful fumes and gases in the air which are directly impacting on health of
people. In order to reduce this, Germany has signed an international agreement known as Kyoto
Protocol which is linked to United Nations Framework Conventions on climate change (A
PESTEL Analysis of Germany, 2015). So it is necessary for Arcadia to follow the guidelines of
Kyoto in order to form a credible reputation in the market.
 Legal factors: It include legal policies and regulations made by legislature of Germany.
Their legal system is dependent on the principles laid out by Federal Republic of
Germany. It is mainly composed of public and private law. Public law is related to the
relation between a citizen and the state or any two bodies of the state (it includes criminal
law) and the private law regulated relation between two people or companies and the
criminal law.
Opportunity
Arcadia has great opportunity in Germany as there are less legal complications which
provide them with fewer number of restrictions while running business. There is strong
protection related to trademark and patents which is being undertaken by the organisation
(Nandakumar, Ghobadian and O'Regan, 2011).
Threat
6

Company should follow legal regulations related to cosmetics and herbal products and
non obeying can lead to major consequence and penalties. Regulation (EC) on cosmetics sets
binding requirements for cosmetic products which are available in the market within European
Union (A PESTEL Analysis of Germany, 2015). Company has to follow this regulation in order
to avoid illegal action against them .
SUMMARY
Above were different macro factors which can influence expansion of Arcadia business.
In order to run smooth operations and successful business expansion, marketers should analyse
every detail of these factors and plan their strategies accordingly so that there major risks could
be eliminated.
Market Entry Modes
Market entry mode provides approaches through which an organisation can successfully
venture in the foreign markets. Following are some aspects of market entry modes:
Strategic Alliances: This strategy is basically an agreement between two or more parties
in order to pursue some business objectives such as manufacturing, development, sales of
products or services, etc (What are strategic alliances, 2018). In this, both organisation share
their resources and partnership but run their organisation independently. It is less binding
agreement as compared to joint venture. Company join with other company in order to perform
common business goals and this alliance agreement can be made with its suppliers, customers,
competitors, etc. for a certain duration of time. This agreement offers great advantages to both
parties as it increases the profit and revenue level and lowers the risks (De Villa, Rajwani and
Lawton, 2015). It also provides company to learn other company's techniques and skills and can
implement within their work environment so that objectives are being fulfilled (The Five Factors
of a Strategic Alliance, 2018). It also reduces business costs by distributing them among different
members of alliances. This agreement is also used in order to get access to different and latest
technologies. One of the major advantage is that, by making agreement with foreign company, it
provides access to foreign markets and reduces legal entry barriers .
Franchising: Franchising occurs when product or service is marketed by Franchise
which is developed by franchisor under an agreement and license to do so (Definition of
Franchise, 2018.). This is based on marketing concept and in this, owner grants the authority to
other party to use their trademark as well as their business systems and procedures in order to
7

produce and commercialize good or services into market (Franchising, 2018). In this, the owner
is known as franchiser and the party who will take the advantage is known as franchisee.
Another party can use business of franchiser and its system for certain period of time in order to
gain financial benefits, merchandising, marketing etc (Laufs and Schwens, 2014). There is no
need business experience to run a franchise as franchiser provides necessary training that is
required by franchisee to operate their business models. Franchising provides higher rate of
success than start up venture.
Mergers & Acquisitions: This is an effective and most commonly used approach for
organisation. Merger is an agreement which is made between different exiting organisations in
order to form one single company. This is done in order to enhance the financial and operational
strengths of organisation. On the other hand, acquisition is done when one company takes the
ownership of another business stock's assets, share, etc. (Merger and Acquisition – M&A, 2018).
They perform this in order to get control and access over another business. The main motive
behind merger and acquisition is to enhance their competitiveness and growth in the market.
When two business combines into bigger firm, the value of new organisation will be more than
the combined value of companies running separately.
Arcadia can make agreement with another company that can provide them with herbal
ingredients which will be required by Arcadia company to produce herbal cream and also helps
the company to expand their business by supplying their products to other clients and company.
Bionaturehouse is an import / export and trading company in the Business to Business area of
herbal cosmetics. Arcadia can make alliance with this company in order to get herbal ingredients
and provide customers with best cream. By making alliance with this company, they can get
access to different markets of Germany and can attract customers of Bionaturehouse. This will
maximise their profits and ultimately would make a better image in the market. This approach is
beneficial for Arcadia as this will provide them necessary assistance from Bionaturehouse
Company and they can maximise their profits and revenues for their company.
With alliance they can give better competition to other company and will get access to
different untouched markets (The Five Factors of a Strategic Alliance, 2018). Strategic alliance
divide possible risks and forming economies of scale. Control of the business will be less that is
why franchising is not a feasible option for Arcadia. Merger and Acquisition is less appropriate
as compared to strategic alliance because, both company cannot work as an independent entity
8

and have to follow each other rules and regulation. In merger and acquisition, company has to
work according to dominating company and inferior company cannot market their products with
their brand name. Due to these reasons, strategic alliance is best and most feasible option for
Arcadia.
SUMMARY
In order to get access to different markets, Arcadia made an agreement with
Bionaturehouse which are facilitating company with supply of organic ingredients and necessary
equipment and tools. Strategic alliance is the best way to make agreement with different
company, so that they can achieve their goals while running their business separately.
Market Segmentation
This section will enlighten different segments of markets which are divided on the
grounds of several factors. It is mainly classified into four main segments which will be
elaborated under this section. According to (Kotler, 2012), Market segmentation is the division
of market into homogeneous small sections of customers, where any sub section can be selected
as a main target and can achieve marketing objectives. This is most widely concept used by
companies in order to divide target markets and segments in order to focus properly and
providing them with best products and services. In other words, market segmentation is a process
of dividing the marketplace into different groups and segments on the basis of some
characteristics. Generally, customers of these groups share similar traits and characteristics
which is kept as a base to make distinct groups. This segmentation is performed by considering
different elements such as demographics, lifestyles geographic location, buying behaviours of
customers, etc (What is Market Segmentation? 2018). Following is the brief description of
different market segmentation strategies among which selection of best suitable can be made by
Arcadia while operating in new country: Behavioural Segmentation: This segmentation divides population according to their
behaviour, decision making patterns, etc (Behavioural Segmentation, 2018.). Company
implement this strategy in order to categorise customers into different groups on the
grounds of above mentioned factors (Weinstein and Cahill, 2014). This help marketer to
focus on potential and desired customers and can manufacture products in that direction.
Arcadia can focus on desired customers before expanding their business in Germany as
this will assist them to concentrate on preferences and behaviour of customers. In this,
9

Arcadia can choose young and adult generation for their Elegant cream as they prefer
herbal product more as compared to children and old people. Demographic segmentation: This segmentation in one of the simplest and most widely
used approach by most of the companies. Different variables like age, gender, income,
occupation, religion, race, nationality, etc (Wedel and Kamakura, 2012). are major
grounds on which, marketers carry out demographic segmentation. This provide company
with crucial information related to right population which can use their product. Psychographic segmentation: This segmentation uses lifestyle of people, their interests,
activities, etc. It is much more similar to behavioural segmentation. This is an effective
strategy for Arcadia as they can differentiate people according to their lifestyles and their
interests as company will provide better product according to likings and preferences of
customer (Cleveland, Papadopoulos and Laroche, 2011). This will gain customer strength
and will prefer them over others.
 Geographic Segmentation: Population is divided on the basis of geographic region and
people living in different parts of world exhibit different characteristics (Weinstein,
2013). In this marketers can develop their market strategy by dividing the target market
on the basis of different factors such as food habits, clothing habits, languages, traditions,
etc.
Above are some market segmentation strategies which can be used by Arcadia but from
those, best strategy which can used by them is Psychographic segmentation (Psychographic
segmentation, 2018). With this, they can select a group of potential people and provide their
herbal cream. As most of the teenagers and youth prefer creams while going outdoors, thus it
will be the best target for Arcadia. This will ultimately maximise revenues and profits for
company and will able to satisfy their customers in better manner. By focusing certain groups
(teenagers and youth) and fulfilling their needs will lead to complete satisfaction of customers.
They can also focus on target market where they can get maximum access to customers and can
attract them by using strong promotional and advertisement tools. Satisfied customers will prefer
their brand over other rival organisation and thus company can build loyal relationship with
them. So, this strategy will be beneficial for them in both manner, first, they can satisfy their
customers in proper manner and second, they can maximise their profits and revues.
10

Porter's generic strategy
This strategy is utilised to achieve competitive advantage in chosen market place. In
order to achieve this, company sometime lowers their prices as compared to their competitors or
by offering its products into different market segments (Tanwar, 2013). According to Michael
Porter, sustainable competitive advantage can be obtained by low cost and differentiation.
Following is the brief description of various strategies:
 Cost leadership: Main approach of company is to achieve cost leadership in the market.
According to this strategy, if a business lowers their cost of production, competitive
advantage can be facilitated. In order to maintain this strategy, continuous search for cost
reduction is required in all aspect of business (Definition of 'Cost Leadership, 2018).
 Differentiation strategy: In this, company manufactures unique products and services in
order to gain competitive advantage over other company (Differentiation strategy. 2018).
They implement this strategy so that they can attract customers towards their products
and establish a totally different image in market. With better products, customers can
perceive them as a good company and will prefer them over others. This will increase
their profits and maximise their revenues .
 Focus: In this strategy, company mainly focuses on niche market and manufacture
unique and creative products at low cost and provide them to customers. With this,
company can develop loyal relationship with their consumers. One more advantage of
this strategy is that, market segment in which company is operating become less
attractive for other competitors.
From above strategies, the best approach for Arcadia is Focus strategy as this focus on
particular segment of market. Arcadia uses differentiation strategy in order to provide unique and
quality products to the customers of Germany. The reason being this strategy is been advised si
that there is a niche segment in the market which is known to prefer herbal products and are
ready to pay premium prices for the same. So such opportunity could be capitalised to expand
successfully in the German market.This become easier for them to concentrate on target market.
This will enhance their profits and also satisfy their customers in better way by providing them
with herbal cream at low price as compared to competitors. If Arcadia become successful in
satisfying their customers once with product quality and features, then company can develop
better and loyal relationship with customers which will prefer them over others.
11

CONCLUSION
From above report, it can be concluded that, environmental analysis is crucial for
company in order to establish a successful business in foreign country. Proper analysis and
research provide information related to external factors and according to that Arcadia can plan
their future operations. It is identified from the preceding discussion that the referred enterprise
can even make agreement with other company in order to gain help and access to different
markets in foreign company. This provide Arcadia with several benefits and better establishment
in market. Lastly it is evaluated that focus strategy can be adopted to manufacture unique beauty
products and introduce them at low cost in order to attract maximum customers towards the new
products.
12

REFERENCES
Books and Journals
Babatunde, B.O. and Adebisi, A.O., 2012. Strategic Environmental Scanning and Organization
Performance in a Competitive Business Environment. Economic Insights-Trends &
Challenges. 64(1).
Cleveland, M., Papadopoulos, N. and Laroche, M., 2011. Identity, demographics, and consumer
behaviors: International market segmentation across product categories. International
Marketing Review. 28(3). pp. 244-266.
Davis, J.A. And et al, 2011. An examination of entrepreneurial orientation, environmental
scanning, and market strategies of nonprofit and for-profit nursing home administrators.
Nonprofit and Voluntary Sector Quarterly. 40(1). pp.197-211.
De Villa, M.A., Rajwani, T. and Lawton, T., 2015. Market entry modes in a multipolar world:
Untangling the moderating effect of the political environment. International Business
Review. 24(3). pp.419-429.
Kotler, P., 2012. Kotler on marketing. Simon and Schuster.
Laufs, K. and Schwens, C., 2014. Foreign market entry mode choice of small and medium-sized
enterprises: A systematic review and future research agenda. International Business
Review. 23(6). pp.1109-1126.
Nandakumar, M.K., Ghobadian, A. and O'Regan, N., 2011. Generic strategies and performance–
evidence from manufacturing firms. International Journal of productivity and
performance management. 60(3). pp. 222-251.
Proctor, T., 2014. Strategic marketing: an introduction. Routledge.
Tanwar, R., 2013. Porter’s generic competitive strategies. Journal of business and management.
15(1). pp. 11-17.
Wedel, M. and Kamakura, W.A., 2012. Market segmentation: Conceptual and methodological
foundations (Vol. 8). Springer Science & Business Media.
Weinstein, A. and Cahill, D.J., 2014. Lifestyle market segmentation. Routledge.
Weinstein, A., 2013. Handbook of market segmentation: Strategic targeting for business and
technology firms. Routledge.
Wilson, R.M. and Gilligan, C., 2012. Strategic marketing management. Routledge.
Online
A PESTEL Analysis of Germany. 2015. [Online]. Available through
<https://www.ukessays.com/essays/economics/a-pestle-analysis-of-germany-economics-
essay.php>.
Behavioural Segmentation. 2018. [Online]. Available through
<https://www.marketing91.com/behavioral-segmentation/>.
Competitive advantage. 2018. [Online]. Available through
<https://www.amazon.com/Competitive-Advantage-Michael-Porter/dp/0743260872/>
Country risk of Germany : Economy. 2018. [Online]. Available through <https://import-
export.societegenerale.fr/en/country/germany/economy-country-risk>.
Definition of 'Cost Leadership. 2018. [Online]. Available through
<https://economictimes.indiatimes.com/definition/cost-leadership>
Definition of Franchise. 2018. [Online]. Available through <http://bankofinfo.com/definition-
of-franchise-by-various-author/>.
13

Differentiation strategy. 2018. [Online]. Available through
<https://www.marketing91.com/differentiation-strategy/>
Economic factors in Germany. 2018 [Online]. Available through
<https://www.propertyshowrooms.com/germany/property/investment/germany-investment-
economic-factors.asp>.
Franchising. 2018. [Online]. Available through
<https://www.entrepreneur.com/encyclopedia/franchising>.
German business culture. 2014. [Online]. Available through <http://businessculture.org/western-
europe/business-culture-in-germany/>
German Culture: Facts, Customs and Traditions. 2018. [Online]. Available through
<https://www.livescience.com/44007-german-culture.html>
GERMANY: ECONOMIC AND POLITICAL OUTLINE. 2018. [Online]. Available through
<https://en.portal.santandertrade.com/analyse-markets/germany/economic-political-outline>
Germany: Environmental Issues, Policies and Clean Technology. 2018. [Online]. Available
through <https://www.azocleantech.com/article.aspx?ArticleID=549>
Merger and Acquisition – M&A. 2018. [Online]. Available through
<https://www.investopedia.com/terms/m/mergersandacquisitions.asp>.
PESTEL Analysis of Germany. 2018. [Online]. Available through
<https://prezi.com/suqojorfimrg/pestle-analysis-of-germany/>
PESTEL Analysis of Germany. 2018. [Online]. Availble through
<https://www.scribd.com/doc/137312288/Pestel-Analysis-of-Germany>.
Psychographic segmentation. 2018. [Online]. Available through
<https://www.marketing91.com/psychographic-segmentation/>
The Five Factors of a Strategic Alliance. 2018. [Online]. Available through
<https://iveybusinessjournal.com/publication/the-five-factors-of-a-strategic-alliance/>
The German approach to Tech Investment. 2018. [Online]. Available through
<https://www.usnews.com/news/best-countries/articles/2018-04-05/the-german-approach-to-
tech-investment>.
What are strategic alliances? 2018. [Online]. Available through
<https://smallbusiness.chron.com/strategic-alliances-23997.html>
What is Market Segmentation? 2018. [Online]. Available through
<https://www.feedough.com/market-segmentation-definition-basis-types-examples/>
14

15