Global Strategy Development and Implementation: Costco in Romania

This report delves into Costco's global strategy, examining the company's rationale for internationalization and its expansion plans, particularly its potential entry into the Romanian market. The analysis includes a competitive assessment using Porter's Diamond model, alongside an evaluation of various internationalization strategies, with a focus on the transnational approach. The report also details the reasons behind selecting Romania as a target market, supported by a PESTLE analysis to evaluate the political, economic, social, technological, legal, and environmental factors. Furthermore, it employs Porter's five forces to assess the competitive landscape within Romania. The report also addresses potential organizational and managerial challenges that Costco might encounter in a new market, proposing strategic advice to mitigate these issues and facilitate a successful market entry and operation. The document is intended to assist students with their business development and global strategy assignments on Desklib.

GLOBAL STRATEGY
DEVELOPMENT AND
IMPLEMENTATION

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Reason for internationalization:...................................................................................................3
Competitive analysis....................................................................................................................4
Strategies of internalization.........................................................................................................5
Reason for choosing Romania to expand and operate the business of Costco............................7
Method of entry and their possible consequences.......................................................................7
Organizational and managerial problem for subsidiaries operating in new market....................9
Strategic advice for overcoming organizational and managerial problems in respect of
subsidiary company...................................................................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES................................................................................................................................1

INTRODUCTION
Costco Wholesale is one of the biggest retailing whole-seller of the entire world.
It is one of the biggest company of America. Its headquarter is in Issaquan, Washington.
It sales a bulk quantity of goods and products at highly discounted prices to its members
who have membership of this company and who pay annual membership fees to it.
Costco operate its business around 804 countries. It has a huge share of employees
because of its good policies regarding remuneration. It has workforce around 273,000
employees out of them 156,000 are full time employees whereas 117,000 are part-time
employees (Number of Costco employees worldwide, 2020). In addition, of operating its
business in many countries it is planning its expansion into Romania where it wants to
establish its business and raise its more market share.
MAIN BODY
Reason for internationalization:
There are many reasons of internationalization that guides Costco Whole-seller
to plan its expansion in Romania. As it is one of the biggest retailer of the entire world
with a wide coverage over large market and many countries. So if it will expand its
business at global level then it will lead to availing more opportunities of growth to it
(Vietor, 2007). In addition, of that its competitive strength will also helps it to grab and
capture new market so its not only its coverage but its sales and revenue will also raise
substantially (Hill and Hult, 2019). It will also help it to raise its brand image in the
international market in addition of local market and economy (Ciravegna, 2018). If it will
expand its business at international level then its productive efficiency will also raise.
Since it is planning its internationalization in Romania then it will also lead to its market
diversification and it would be able to operate in more country too.
Also in Romania the natural resources are present in abundance quantity. It is to
be noted that the Romania is one the largest agricultural denoted country with a
presence of 39.2% of its land for arable along with a 28% presence of forest (Romania’s
Economy, 2021). Due to presence of such natural resources the Costco’s sale in terms
of meeting the need of more tourist and local customer of the country would raise. Also

Romania has high business opportunities with regard to manufacturing,
telecommunication, customer product and many more. This will also enable the Costco
a better success.
Competitive analysis
It plays an important role before making plan regarding establishment of
business in any new country. It is very essential to have knowledge about the
competitive strength of that country as well as its respective competitors (Porter, 1998).
This can be better understood with this model:
Porter's Diamond model:
This model shows that how a firm or industry will get competitive advantage or it will be
competitive that no one can beet it and it will establish its special place in competitive
market. As per this model there are majorly 6 strategies that Costco Whole-seller can
implement and adapt:
Factor condition:
As per this strategy there are basically two factors that a company and industry
can posses. This includes basic and advanced factor. The basic factors includes access
to natural resources, availability of good number of labours and many more . On the
other hand advances factor are those factor which will give competitive advantage to
company in terms of availability of efficient workforce, skilled labours, knowledgeable
employees and various other (Sharma, 2021). Thus, if Costco will have such kind of
advance factors then it can easily grab competitive advantage by which it can explore
its business at international level.
Firm's strategy:
As per this factor it is very essential that there should be some level of
competition in the country. This means that if there is no competition then no company
will take initiative in making it competitive and gain competitive advantage. As Costco
operates in many countries which has strong degree of market competition. As a result
of that it is being getting encouragement that it have to take adequate strategies so that
it will not only meet competition of local economy but it can easily deal at international
level.

Demand conditions:
This is also very important terms that make the company competitive
advantageous. Availability of customer's demand for the company and its products also
plays an important role in availing it competitive advantage (Maharani, 2017). As Costco
is having a large degree of customers so it itself encourage it makes innovation in its
existing product and thereby making it more competitive that it can easily face market
competition internationally.
Related and supported industry:
This has a major role in making the company competitive. As per this concept if
the company will get support of local market including local government then this will
definitely lead to raising its efficiency and performance level. As if company's
performance will be high then it will automatically raise competitive advantage of the
company at international level (Vlados, 2019).
The next two important elements of this model include government and chance.
As per this factors if there is a support of government which could either by local
government or the government of foreign country then every company including Costco
will find easier in implementing internationalization. Similarly, the last factor is also
important that if the company will adopt any strategy regarding any change and if it
succeeds then it will lead benefits to company, but in case if it fails then this could
severely affect its brand image.
Thus, implementation of this model will help Costco to take decision regarding
internalization of business or moving its business to Romania.
Strategies of internalization
Multi domestic:
As per this strategy companies will instead of directly moving their business at
international level will lied more focus over domestic economy and market (Hunger and
Wheelen, 2014). It will plan its marketing strategy in order to meet and grab local market
and economy (Tulung, 2017). This means that while planning its marketing strategies it
will take consideration towards the local economy's demographies and culture.
Global:

It refers to that strategy where companies instead of selling their standard
product will plan to sell it at global level (Hill and Hult, 2018). This strategy is usually
adopted by firms when there is a high pressure for the reduction of cost but the firm is
not getting local response. At such moment, firms will globalize their business (Johnson,
2018). One more reason of this globalization also includes is the running of business
because if companies will not able to meet the reduced cost demand of local country
then their business will greatly affect, but by adopting globalization strategy they will at-
least maintain their sales percentage (Wheelen and et.al., 2018).
Transnational:
It is a combination of both multi domestic and global strategies where companies
will not only plan to meet the need and demand of the local economy but at the same
time they also avail their product at global level (Wall and Minocha, 2015). Although it
seems difficult but it has a great advantage towards the companies because they not
only operate their business at local level but global level is also being approached by
companies (Raby and Zhang, 2020). This has a direct relation with the company's sales
and raising of its revenue.
International:
As per this strategy companies will produce main products in the place where
they have their headquarter. After production of products it will be exported to
worldwide. Thus, this strategy is mainly focussing over production in home country and
after that availing their product at international level (Daniels, Radebaugh and Sullivan,
2019). This will not only help the companies to take advantage of local economy but it
will also raise their sales and revenue percentages.
From the above strategies the Costco whole-seller will adopt for internalization of
its business is transnational. The reason behind the selection of this strategy is its
competitive advantage which it has in comparison of other companies. Also, Costco has
great coverage over its local country in addition of many other countries so for making
expansion and internalization in Romania it will adopt transnational strategy where it will
in addition of meeting the need of its local market and country, it will also capture new
market in new country (Collinson, Narula and Rugman, 2017).

Reason for choosing Romania to expand and operate the business of Costco
In order to make the decision related with expansion of Costco to Romania the
implication of PESTLE analysis would proves to be useful so that the external factors
and the impact of those factors with regard to Romania would be analysed.
PESTLE analysis:
Political:
It is an important factor with regard to external environment analysis. It is
concerned with the policies of the government in the respective country (Perera, 2017).
It also includes the political situation and pressure of the country. With regard to
Romania the political situation is highly uncertain in terms of corruptions, inter
relationship between countries, wars, lack of long terms plan and many other factors.
Thus, it is very essential for the Costco to analyse this factor.
Economic:
This environment is concerned with economic condition of the country. Various
factors including the GDP, inflation rate, employment rate, and various other factors are
associated with this environment. In case of Romania, the inflation rate is around 3.83%
in 2019 (Romania: Inflation rate from 1985 to 2025, 2020). While the GDP rate is 4.2 in
2019 (GDP growth, 2021). As the GDP rate in Romania is quite better in comparison of
other countries which raises the chances of success for the Costco. Likewise, the
inflation rate is also lies in the rage of normal to high so it will further raise the growth
opportunities for Costco.
Social:
It consists of demographic factors along with taste and preferences of the
customers (Helmold, 2019). Since the social force of the Romania in terms of larger
population of low age would definitely favour Costco in terms of their preference of
items towards the company or the adaptability. Thus, by grabbing more customers
Costco can easily plan expansion in Romania.
Technological:
This environment is related with the technological upgradation or the
advancement of the country (Shtal and et.al., 2018). Romania in terms of technological

advancement is quite slow in comparison of other countries. So it would be needed to
be considered by the Costco before making expansion because if it plans to explore
through the concept of advanced technology then it would not get support from the
country.
Legal:
This environment consists of laws and regulations (Aithal, 2017). This an
important factor that is needed to be considered by every company including Costco so
that it can perform its business operation in accordance with the compliance of the law.
Environmental:
As the Romania is having an appropriate presence of natural resources along
with a more focus economy with context of environment. Thus, it is very essential for the
Costco if it plan to make expansion of its business in the country.
As the analysis of the external forces is important, in the same manner it is also
necessary for the company to measure the strength of competition in the country. Thus,
applicability of Porter’s five forces would enable the Costco to have an analysis of the
intensity of competition.
Porter’s five forces:
Rivalry among existing companies:
It refers to the intensity of competition among the existing firms in the competitive
market (Berisha Qehaja, Kutllovci and Shiroka Pula, 2017). The level of competition in
the market of Romania is also high. In order to meet that competition Costco can either
adopt the strategy of market diversification by increasing the size of operation or it can
either make its product distinct. Thus the intensity would be moderate.
Bargaining power of customers:
It refers to the power of buyer in terms of lowering the prices of the offered
products (Min, Liangwen and Yue, 2018). It is very essential for the Costco that along
with meeting competition they can grab more customers but without sacrificing the
profits. The intensity of this force is high.
Bargaining power of supplier:

It is the suppliers power in terms of delivering the raw material (Bruijl, 2018). In
case of Costco this power would be low because of the presence of many suppliers in
the Romania.
Threat of new entry:
It is also a high intensity force. This is because the local economy of Romania is
a supporter of new entrants or the companies so by having a high entry the sales or the
business of the Costco could be affected.
Threat of substitute products:
This force can be reduced by the Costco if it will enable its specialize products
among the customers. So by availing better and best product Costco can easily meet
this force.
Apart from this analysis, an analysis of the market in terms of marketing
strategies of Romania would also help the Costco to make its decision.
Marketing mix:
It is a combination of marketing strategies that is used by the companies in order
to pursue marketing objectives (Thabit and Raewf, 2018).
Product:
It refers to the physical product that is being offered by the company to their
customers (Solan, 2020). It is an important element that lead the company to raise their
sales and sever more customer. As the market of Romania is having an availability of
wide rages of product so it is important to carefully design the product.
Price:
It refers to the price of the product. It is very important that it should be minimum
so that the sales of the product would be raise.
Place:
It is the place where the customer can avail the products (Pomering, 2017). It is
related with distribution channels so it is important that the product of the company
would be readily available.
Promotion:
Using of local media or the digital media would assist the company to have a
promotion of product.

Thus, from the above analysis it can be concluded that the factors of external
environment of the Romania with respect to PESTLE are in favour of the Costco so it
would be beneficial for the company to make expansion of business in the country.
Likewise, as the intensity of competition with respect to the Costco’s strategies would be
reduced so it can easily meet the intense market competition of Romania. Also, by
adopting and considering the appropriate marketing strategies, Costco can make
expansion along with grabbing of more success in the market.
Method of entry and their possible consequences
There are many strategic methods by which companies will enter into new market and
expand their business. Out of them some are:
Licensing:
As per this technique companies will be allotted licences to use the intangible
property of other country. This is also one of the cost saving techniques which allows
the companies to incur low cost and raise maximum advantage. This method also
allows international expansion along with using of trademark and name of company in
other country.
Consequences:
Adoption of this method by Costco will leads to expansion of business of the
company along with entering into new country. However, it will also raises its
dependency over licensor which as a result affect its plans and strategies.
Franchising:
This is also an important method of market entry and expansion of company's
business. It is also somewhat similar to licensing but it contains some strict rules and
regulations regarding the carrying out of business (Rosado-Serrano and Paul, 2018).
Consequences:
It is also a good method of market entry but as it contain strict rules and
regulation regarding operation of company's business and processing. Thus, it would
not be considered as that much good method of entry for Costco whole-seller.
Joint venture:

It is one of the best method by which companies will enter into new market along
with establishing their business in new country. As per this method two companies will
agrees to joint together their business (Nippa and Reuer, 2019). One company will be
from local country while the other will be of different country. This method is considered
as best because it will not only save the cost of the companies in the establishment of
their business but it will also lead to getting knowledge of local economy and market.
Consequences:
If Costco will choose this method for entering into new country then this will
considered as best because it will get support of local company which is again an import
factor of Porter's diamond force. Although it may lead to some issues regarding co-
ordination between local company and new company but in terms of advantages it will
consider as suitable method of market entry as well as establishment of company's
business.
Merger and acquisition:
Merger:
Under this process of expansion two companies will merge their resources to form a
new company.
Acquisition:
As per this concept, one company will take-over the other company or entity. It is also a
best mode of expansion (Maung and et.al., 2019).
As the Costco is planning it expansion in Romania where most of the factors in
terms of environmental conditions, marketing situation with level of competition and
various other. It would be right to said that the company must adopt the practice of Joint
venture because through this mode it can expand its business without having an impact
over the existing firm.
Organizational and managerial problem for subsidiaries operating in new market
While entering into new market every subsidiary including Costco will face some
kind of organizational as well as managerial problems. As they are going to operate in
new countries so everything including the business environment of the new country will

quite be different from other home country. Then in order to manage and operate in
such environment, subsidiaries will ofens face many problems and challenges. Out of
them some are:
Co-ordination:
It is one of the common but important organizational problem. This is common in
case of Costco too because it would become very difficult for the company to make and
establish co-ordination specially in the initial period. It would may find difficulty in the
form of co-ordinating with head branch or with the local employees too.
Cultural:
This problem can also be faced by the Costco because of the cultural differences
between the Romania and the country in which is it is currently operating.
Organizational structure:
It is also counted as problem because it is very important that the company must
implement adequate centralization or the decentralization concept so that adequate
management of operation can take place. While centralization allows the concentration
of power in one hand (Hutchcroft, 2018). In the other way decentralization is related with
equal distribution of power among different departments.
Strategic advice for overcoming organizational and managerial problems in respect of
subsidiary company
In order to overcome with the issue concerned with co-ordination Costco have to
adopt the strategy of effective communication in workplace so that it can readily co-
ordinate among different department and the issue can be resolved.
Likewise, in order to incorporate with the problem of culture difference, Costco
may appoint some local employees of the Romania so that the existing employees of
the company would not face this difficulty and they can learn the new culture too. In
addition of this it can also implement Hofstede model and create understanding of the
cross cultural knowledge.
In order to resolve the problem of organizational structure the company can follow
the structure of decentralization so that better management of the work can be
implemented and the problem can be resolved.

CONCLUSION
From the above report it would be concluded that how internalization will lead to
capturing of new market and growth of company. It is also being understood that what
are the reasons which are responsible for such move of expansion. In addition, of this
various strategies of internalization along with various issues and their solutions are
also being understood in this report.

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