International Business Analysis Report: Indonesian Retail Industry

This report provides a comprehensive analysis of the Indonesian retail industry, commissioned by a consulting company advising on international business expansion. The report begins with an executive summary, followed by a detailed application of Porter's National Diamond model to assess the competitiveness and investment attractiveness of the Indonesian retail market. The analysis covers factor conditions, related and supporting industries, home demand conditions, rivalry, government influence, and chance events. The second part of the report focuses on market entry strategies, evaluating the advantages and disadvantages of foreign direct investment, joint ventures, and acquisitions. Recommendations for the most appropriate entry strategy are provided, along with suggestions for potential partners. The report concludes with an examination of contemporary management issues relevant to internationalization. The report uses data, charts, and academic sources to support the analysis.

Running head: INTERNATIONAL BUSINESS
International Business
Name of the Student
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Author note

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Executive Summary
The report has helped in the entire analysis of the different factors which are required to be
considered by while implementing and starting a new business in a new country. With the
help of Porter’s Diamond model, the proper analysis has been done which has helped in
analyzing and identifying the different factors which are advantageous and non-advantageous
in nature for the success of the retail firm in Indonesian market. Furthermore, the market
entry strategy has been analyzed which has helped in understanding the disadvantages and
advantages for the same effectively and appropriately. Lastly, the different management
issues have been identified from the two sections which have been analyzed as to gain more
knowledge on the internationalization.

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Table of Contents
Introduction................................................................................................................................3
Part 1: Porter’s National Diamond Analysis..............................................................................3
Factors Conditions.................................................................................................................4
Related and supporting Industries..........................................................................................6
Home Demand Conditions.....................................................................................................7
Rivalry....................................................................................................................................8
Government..........................................................................................................................10
Chance events.......................................................................................................................11
Part 2: Market Entry Strategy..................................................................................................12
Foreign Direct Investment....................................................................................................12
Advantages of Using Foreign Direct Investment in Indonesian Market..............................12
Disadvantages of Using Foreign Direct Investment in Indonesian Market.........................13
Recommendations................................................................................................................14
Advantages of Joint Venture in Indonesian Market.............................................................14
Disadvantages of Joint Venture in Indonesian Market........................................................15
Advantages of Acquisition in Indonesian Market................................................................15
Disadvantages of Acquisition in Indonesian Market...........................................................15
Proposition of Choice of Entry............................................................................................15
Recommendation of Appropriate Partners for Joint Acquisition.........................................16
Part 3: Contemporary Management Issues..............................................................................16
References................................................................................................................................18

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Introduction
The report helps in analysis of the different new business opportunities for the retail
industry for the expansion of the same in Indonesian retail industry. Proper and effective kind
of research is required to be taken into consideration which will help in analysis of the overall
competitiveness along with the investment attractiveness as well. The entire analysis is
required to be conducted with the help of the Porter’s National Diamond Analysis of the
entire Indonesian Retail Store.
On the other hand, the market entry strategy of the retail market in the Indonesian
Retail Store is required to be analysed effectively which will help in analysis and
identification of institutional environment of Indonesia market. Lastly, the contemporary
management issues is required to be analysed as well which has to be taken into account
before starting the operations in the Indonesian Retail market.
Part 1: Porter’s National Diamond Analysis
Michael Porter has developed economic diamond model for the different businesses
as this will help them in understanding their competitive position in the market in the entire
global market (West, Ford & Ibrahim, 2015). The Porters Diamond model is also known as
Porter Diamond Theory of National Advantage which plays an essential role in global
business competition and the competitiveness of the business is related to the performance of
the business.

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Figure 1: Porter’s Diamond Model
(Source: Pavicevic, Haleblian & Keil, 2018)
From the diagram, this can be analysed that the retail sector can take advantage of the
Porter’s Diamond Model to establish the processes through which they can translate the
national kind of advantages into international advantages. In order to create advantage in the
global scale, this is essential in nature to analyse the different factors of the Indonesian Retail
Market which will help in managing the competitiveness in an efficient and appropriate
manner.
The different kinds of determinants of the Porter’s Diamond Model includes the following:
Factors Conditions
This is the entire situation in the Indonesian market in which there are different
factors related to production of the retail sector which includes the knowledge and
infrastructure. The infrastructure of the Indonesian Retail market is effective in nature which
will help the retail market to achieve success and gain competitive advantage in such

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infrastructure (Haleblian, Pfarrer & Kiley, 2017). The population is large and the operational
infrastructure is effective in the respective market which will assist them in selling products
effectively. Furthermore, the labour costs, knowledge resources and infrastructure are the
other essential factors which is required to be analysed and identified as this plays a major
role in the market.
Figure 1: Number of Household and population in Indonesia
(Source: Haleblian, Pfarrer & Kiley, 2017)
The climate of the Indonesian market is effective and appropriate for starting and
expanding the retail store business and this is the international competitive position
which can be gained by the company in an effective manner.
Furthermore, in case of Indonesian Retail market, Indonesia is the best option which
can be chosen by the marketers as the climate and the natural resources are easily
available.

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The infrastructure is effective in Indonesian market as the country has different kinds
of geographical information technologies advantages and the government tries to put
huge effort on IT policies which will make the entire project successful in nature
Related and supporting Industries
Furthermore, the entire success of the market depends on the different kinds of
presence of the suppliers and related industries within the similar region. The competitive
kind of suppliers help in reinforce internationalization along with innovation. Besides the
suppliers, the related kinds of companies are essential and plays a major role in the
organization as well.
Additionally, this has been analysed that when one such organization of the same
domain is successful in nature, then this will be beneficial for the other company as well.
Both the companies can benefit from one another in an appropriate manner.
In the case of retail market which will be expanded in the Indonesian market, the
suppliers are in large number who are having huge knowledge on the market
conditions and this will improve the quality of the product which will be delivered to
the customers in the entire market (Haleblian, Pfarrer & Kiley, 2017).
Furthermore, the country Indonesia is leading in the retail segment and the
government in Indonesia is trying to expand their operations in the retail sector.
Indonesia is leading in the retail and IT related production which will help the country
in being more successful
Lastly, the government of Indonesia is trying to analyse the other areas in which the
country can be successful and retail sector or industry is one of them which will help
retail industry to be successful as the suppliers are huge in nature who will lessen the
work and cost to the market and improves the overall quality of the product

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Home Demand Conditions
The important determinant question in this area is the reasons which help in making
the market successful in nature. The market size along with the nature of the market has to be
analysed effectively which will help the companies to understand the position before the
internationalisation or shifting from home country to the global market. There is an
interaction between economies of scale, cost of transportation and size of the home market. It
is the duty of the retail or other sector to understand the economies of scale and size of the
home market effectively.
Figure 2: Retail Ecommerce Sales in Indonesia
(Source: Haleblian, Pfarrer & Kiley, 2017)
In case of the retail sector which is required to be transferred to the Indonesian
market, there are different kinds of analysis which is done as this will help them in
understanding and gaining knowledge on the weaknesses and opportunities of the host
country in which the expansion is required to be done.

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From the above table, this can be analysed that the sales of retail industry in the 2017 and
2018 have been huge and this will be a big opportunity for the retail sector to be more
competitive in nature in comparison to the other competitors in the Indonesian market.
With the implementation or the growth of the retail industry or sector, this can be seen
and identified that the retail company expansion in Indonesia market will be effective in
nature to be more successful as the sales and profit will be increased in nature.
In case of the retail sector which will be starting their new operations in the
Indonesian market, this is essential for them to understand the costs which is required
to be incurred by them for installation of the business. In Indonesian market, the
transportation costs are less and the business of retail industry can gain huge success
(Greve & Man Zhang, 2017)
Secondly, retail industry which will be starting their operations in the Indonesian
market, they can start their business from a single location and the innovation and the
development of the product has huge scope in the market of Indonesia as well
(Requejo et al., 2018)
Rivalry
This is the other factor which is required to be analysed in the international expansion
of the business in other parts of the world. The respective factor is in relation to whether the
organization is managed or organized in nature with the different kinds of corporate
objectives along with the analysis of the rivalry within the organizational culture.
Furthermore, the strategy, structure and rivalry mainly focus on conditions of the
respective country in which the sector or the industry is trying to set up their business
effectively. Furthermore, the cultural aspects play a major role in rivalry and strategy as the
regions along with provinces may differ from one another and the different kinds of factors

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such as working morale, interactions along with management of the different provinces and
places vary from one another as well.
These all factors can be both advantageous and disadvantageous for the new firm
which will be or planning to establish their market in that respective market of the respective
country. As per Michael Porter, the domestic kind of rivalry and the continuous kind of
research for the competitive advantage in the nation can help the organizations in achieving
the advantages on international scale.
There are various other factors which are required to be taken into consideration while
setting up the business in the other country such as the different kinds of interventions from
the government in the respective market of the respective country as well. In case of retail
market or sector which is planning to establish their position in the Indonesian market, there
are different factors which are required to be undertaken and considered while implementing
their position that are as follows:
The retail market which will be establishing their position in the Indonesian market
can face different issues in the respective market such as the cultural differences as
the preferences of the individuals in the respective market in Indonesia (Gronroos,
2016).
Furthermore, it has been seen that in Indonesian market, there are different
supermarkets which have already gained large position in the market and this can be a
huge challenge for the other company which is ineffective in nature. The domestic
companies in Indonesia has already taken a huge position which will be difficult for
gaining a share in the market (Erel, Jang & Weisbach, 2018)
Furthermore, the government interventions are strong along with different tariff
barriers are of strict nature in Indonesia market which can create huge issues for

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setting their business in the respective market as well. The cultural differences play a
major role in affecting the business opportunities for the retail industry in Indonesia
market which can be a big challenge for making the entire business successful in
nature.
Government
The governments play a major role in encouraging the entire development of the
companies and industries both at abroad and home as well. the finance which is gained from
government and construct infrastructure and invest in different kinds of activities effectively
as well (Eriksson et al., 2015). Furthermore, the government helps in encouraging the
different organizations in order to use the alternative energy or the environmental systems
which affects the entire production.
In case of the retail sector or the retail industry, this has been seen and analysed that
government agencies play a major and important role in the encouraging the
development of the retail sector in the Indonesia market. This has been seen and
analysed that in Indonesia there are different kinds of tariffs and barriers which are
required to be analysed while setting up the business in the respective market (Adams,
Gabler & Landers, 2017).
Furthermore, the financial matters can be undertaken by the government of Indonesia
such as investments and other decisions can be taken care by the government of the
respective country which will be effective in nature for gaining a competitive position
in the entire market (Miller & Weinberg, 2017).
From the diagram below, this can be analysed and seen that the government spending
in the Indonesia market is such that this will be helpful for the companies which are thinking
for global expansion in the Indonesia market. Furthermore, this can be seen that Indonesia is

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ethnically diverse country and this will be helpful for the retail sector in gaining huge benefits
in an effective manner as well (Sheth & Sisodia, 2015).
Figure 3: Population of Indonesia
(Source: Armstrong et al., 2015)
Chance events
Michael Porter has indicated that the chance of the market plays a major role as this
helps in providing different kinds of opportunities for the different companies which are
innovative in nature and they are ready to set up different kinds of operations in the Indonesia
market. The chance events play a major role in understanding and gaining competitive
advantage in setting up their business in a different country and this will help in being
competitive.
In case of the retail industry, this can be seen that the retail industry which will be
setting their business in the Indonesia market, this will be beneficial for the company