Individual Strategic Management Report: JD Sports Hong Kong Venture

This strategic management report analyzes JD Sports PLC's potential expansion into the Hong Kong market. It begins with an executive summary outlining the report's objectives: to provide strategic direction for international growth and competitive advantage. The report then delves into a PESTEL analysis of the external environment, identifying opportunities and risks, followed by a Porter's Five Forces analysis to assess the industry's competitive structure. Internal analysis using VRIO identifies strengths and weaknesses. The report also identifies suitable competitive strategies (Porter's Generic Strategies) for success in Hong Kong and explores strategic directions and expansion methods, including market, product, and service strategies. Finally, the report concludes with key findings and recommendations to support JD Sports' decision-making process for entering the Hong Kong market. Appendices provide detailed PESTEL and Five Forces analyses, and a staged international expansion model.

Strategic Management - 21496486
UNIVERSITY OF WEST LONDON | 15.09.2021
JD Sports Business Strategic Report
Module: Strategic Management
Student Number: 21496486
Assignment Name: Individual Strategic Management Report (100%)
Lecturer Name: Mr. Rizwan Anise
Word Count: 3761
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Executive Summary
The main goal of this report is to provide a detailed perspective to the board of
directors as to why JD Sports PLC, a UK-based retailer, should expand their business
in an Asian market. It will emphasis on providing the best strategic direction to grow
internationally and developing strategies that will have a positive influence on the
firm and give them a competitive advantage over their competitors. It starts with a
macro (PESTEL) examination of the external environment to identify opportunities
and risks, followed by a micro (Forces Framework) analysis of the industrial structure
and nature of competition. Following that, VRIO is utilized to comprehend the
internal environmental analysis in order to find strengths and shortcomings.
Determine the Competitive Strategies (Porter's Generic Strategies) that are required
for JD Sports' success and how they will affect the business if they build a store in the
Hong Kong financial markets. Furthermore, what current tools do businesses employ
in their UK stores and what they will bring to their Hong Kong stores when they
choose to start a business over there, as well as strategic directions (Markets,
Products, Services) and methods of expansion. Finally, the report summarizes the
research's important findings and gives recommendations to ensure that the company's
decision to open a store in Hong Kong is the appropriate one.
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Table of Contents
Executive Summary.......................................................................................................2
1.0 Introduction..............................................................................................................4
2.0 External Environmental Analysis for identifying opportunities and threats.......5
2.1 Macro Environmental Analysis – PESTEL.....................................................5
2.2 Micro Environmental Analysis – 5 Forces Framework..................................7
3.0 Internal Environmental Analysis for identifying strengths and weaknesses......9
3.1 VRIO Analysis................................................................................................9
4.0 Identification of Competitive Strategies...........................................................12
4.1 Porter’s Generic Strategies............................................................................12
5.0 Strategic Directions & Methods of Expansion..................................................13
5.1 Strategic Direction (Markets, Products, Services)........................................13
5.2 Methods of Expansion...................................................................................14
6.0 Conclusion and Recommendations...................................................................15
7.0 References.........................................................................................................16
Appendix 1 - PESTEL analysis of Hong Kong market for JD Sports Fashion Plc.....20
Appendix 2 - Porters Five Force Analysis of JD Sports Fashion Plc in Hong Kong. .24
Appendix 3 – Staged International Expansion Model for Hong Kong Market...........26
List of Tables
Table 1: Porter’s Five Forces Model for JD Sports Fashion Plc....................................8
List of Figures
Figure 1: PESTEL Analysis Model................................................................................5
Figure 2: Michael Porter’s Five Forces Framework......................................................7
Figure 3: VRIO Framework.........................................................................................10
Figure 4: Generic Strategy Options..............................................................................12
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1.0 Introduction
In today's competitive environment, every company requires certain clear guidelines
in order to grow and produce money from its major assets. Objective setting,
competitive environmental analysis, strategic evaluation, and assuring management
success are all examples of strategic management procedures (Wheelen and Hunger,
2002). JD Sports PLC, a UK-based retailer selling stylish casual and branded
sportswear, has been chosen to perform the strategic management project. Founded in
1983 by John Wardle and David Makin, the company has grown to become the UK's
leading sports and casual clothing brand. JD Sports started off as a single store in
England, and by 1996, it had expanded to 56 sites across the United Kingdom, as well
as over 2420 outlets in 18 countries. The organization's management and leadership
department recently decided to expand its market in the Asian region, and Hong Kong
was chosen as the site of expansion since it is one of the world's most compactly
inhabited areas and the world's third-largest international financial hub, benefiting
from cheap taxation and free trade while having the greatest per-capita income.
Sports goods and services retailing has a strong presence in the UK apparel market,
and the business is likely to grow even more in the coming years. Sports Direct and
JD Sports, two of the most well-known retail businesses in the United Kingdom, are
both in the sports fashion market. By the end of 2023, the UK sportswear market is
expected to have grown by over 20.9 percent, reaching €6.7 billion. Even after the
current pandemic, when most organizations are unable to make as much cash as they
would like, the organization has been fairly profitable. Internal and external analysis
of the company will be portrayed in the assignment from the standpoint of their
market expansion plan in Hong Kong. Finally, the company's competitive strategies
and strategic directions will be discussed.
Key challenges faced by JD Sports Fashion Plc.
 JD has not given the rent for its 390 stores established in the UK because of
the covid-19 outbreak (Kollewe, 2020).
 JD has come under criticism because of the “worse than prison” situation at its
warehouse (Independent, 2020).
 Shoppers are complaining about poor consumer service facilities (Butler-
Young, 2020).
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2.0External Environmental Analysis for identifying opportunities
and threats
Understanding the environment in which your organization operates is an important
component of planning because it allows you to identify the opportunities and dangers
that are unique to your industry (Wheelen and Hunger, 2010). An external study
examines the larger business environment in which your company operates.
2.1 Macro Environmental Analysis – PESTEL
PESTEL analysis is a strategic method for analyzing external factors that affect JD
Sports. These external aspects will aid them in comprehending the market and
preparing the organization with a market-specific strategy (Smith and Zook, 2011).
Figure 1: PESTEL Analysis Model
Source: (Professional Academy, 2018)
 Political factors: Obtaining official approval is the first step in entering a new
country and beginning a new business (Kotler and Armstrong, 2014). In a
political setting, issues such as political stability, changing legislation,
governance, and taxation, among others, have a vital influence in defining the
factors that may affect JD Sports' ability to operate in the Hong Kong fashion
industry (Kolios and Read, 2013). According to Appendix 1, Hong Kong's
political stability occasionally has a detrimental influence on businesses due to
shifting trade restrictions. However, due to its low taxes of high-net-worth
individuals and businesses, the city-state remains one of the world's biggest
tax havens.
5
PESTEL
Economic
Social
Technological
Enviornmental
Legal
Political

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 Economic factors: Employment opportunities, fiscal consequences, and
material costs are recognized as PESTEL economic elements (“Oxford
College”, 2016). As a result, economic issues such as foreign
exchange/interest rates, labor market conditions, inflation, and savings rates,
among others, are crucial for JD Sports Fashion Plc to understand, as these
factors influence the country's global fiscal environment (Hill and Jones,
1995). According to a deep understanding of the Hong Kong economic
environment (Appendix 1), JD Sports Fashion Plc's business practices will be
influenced by the current economic structure, which will provide a wide range
of growth opportunities. Similarly, it's critical to understand the stage of an
industry's life cycle, as mature sectors might be more difficult to break into
due to market saturation than businesses in the early stages. Beyond the
current difficulties and uncertainties, the Hong Kong economy has a positive
medium-term prognosis.
 Social factors: Cultural conventions, values, and trends have a significant
impact on organizational culture (Armstrong et al., 2012). JD Sports Fashion
Plc can use demographic trends, power structures, customer buying patterns
(Ferrel et al., 2011), and shared values to develop effective marketing
messages and fulfill organizational objectives, as illustrated in Appendix 1.
For instance, JD Sports Fashion Plc can identify the appropriate market
segment/segments with great development potential by studying changes in
demographic patterns such as the aging population, migration trends, and
socio-economic features. Similarly, foreign marketing executives consider
culture to be crucial. Each community has its own set of values and norms that
influence consumer behavior (Samson and Richard, 2012). As a result,
personal contacts at JD Sports are critical to doing business in Hong Kong
successfully.
 Technological factors: Appendix 1 is a broad study of the technical
environment that can help JD Sports Fashion Plc capture technological trends
and acquire key business advantages like greater profitability, swift revolution,
and enhanced operational productivity. The evolution of information and
communication technologies has resulted in the use of innovative marketing
tactics to encourage consumer collaboration. JD Sports Fashion Plc should
closely evaluate continuing technical improvements in Hong Kong to stay
ahead of the competition. JD Sports, for example, has used TrueRating
technology throughout its locations, allowing the company to receive real-time
data on customer experiences (Fashionnetwork, 2020). Such technological
advancements have the potential to rewrite market success criteria and
transform the industry (Ferrel et al., 2011). As a result, JD Sports may take
advantage of these technical capabilities to gain a foothold in the Hong Kong
market.
 Environmental factors: Greater environmental awareness and changing
circumstances has made environmental analysis a critical component of the
PESTEL study. Environmental norms, laws, and regulations fluctuate
depending on the market. The international presence of JD Sports Fashion Plc
needs careful analysis of these differences in order to avoid undesirable
scenarios. According to Appendix 1 analysis, changes in weather and climatic
conditions can have an impact on business efficiency. Furthermore, regulatory
agencies' emphasis on ensuring environmental compliance is altering product
innovation aims. As a result, JD Sports must focus on selling the
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environmentally responsible component of their items rather than traditional
value propositions.
 Legal factors: JD Sports Fashion Plc cannot enter a new market without first
researching its legal and regulatory environment thoroughly. To avoid going
into serious legal difficulties, a thorough examination of legal risks is required.
Unawareness in this area can lead to negative consequences for JD Sports,
such as a loss of competitive advantage due to intellectual property breach and
a tarnished business image due to desecrations of employee, consumer, and
environmental protection rules. The legal framework of Hong Kong
(Appendix 1) provides a solid foundation for its free market, competitive
economy, with the judicial system enforcing contracts and resolving disputes
effectively. In addition, the legal requirements for forming a company or
starting a business are minimal.
2.2 Micro Environmental Analysis – 5 Forces Framework
The Porter Five Forces Analysis is a strategic management instrument for assessing
industries and discovering the basic profitability levers of a particular company
(Porter, 1985).
Figure 2: Michael Porter’s Five Forces Framework
Source: (Ryortho, 2020)
The Porter's 5 forces model (Appendix 2) vividly depicts the market's powers, which
clearly reveal that their powerful forces are directed towards JD Sports Fashion Plc.
By seeing the whole picture of Porter Five Forces, a company can better mold those
forces in its advantage and respond quickly to seize the developing opportunity in
Hong Kong.
7
Industry
Rivalry
Bargaining
Power of
Buyers
Bargaining
Power of
Suppliers
Threat of
Substitutes
Threat of
New
Entrants

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Table 1: Porter’s Five Forces Model for JD Sports Fashion Plc.
Porter’s Force
Level of
Impact on JD
Sports
How JD Sports can shape these forces
in their favor
Rivalry among the
Existing Competitors
High  By creating a long-term
differentiating strategy.
 If it expands its scope, it will be
able to compete more effectively.
 Increasing market size by
collaborating with competitors
rather than battling for a small
market.
Bargaining power of
buyers
High  The buyer's bargaining power will
be decreased as a result of
creating a large client base, and
the company will be able to
streamline its sales and production
operations.
 When companies quickly invent
new products, customers typically
seek discounts and offers on
current products; therefore, if JD
Sports continues to innovate new
products, buyers' negotiation
power will be limited
(Management study guide, 2019).
 The introduction of new items will
reduce the number of JD Sports
customers that defect to
competitors.
Bargaining power of
suppliers
Low  By forming a cost-effective
supply chain with a number of
different providers.
 By investigating with product
designs that use a variety of
materials, the company will be
able to swap to a new raw material
if the price of one rise.
 Developing loyal suppliers who
rely on the company for a living.
One of the things JD Sports may
learn from Wal-Mart and Nike is
how they developed third-party
manufacturers whose company is
completely reliant on them,
resulting in third-party
manufacturers having far less
bargaining power than Wal-Mart
and Nike.
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Threat of substitutes or
substitution
Medium  By putting a premium on
customer service above product
sales.
 By emphasizing the customer's
core needs rather than the goods
being purchased.
 By making switching more
expensive for customers.
Threat of new entrants
Medium  Through the creation of new
goods and services. New products
not only entice new customers to
shop at JD Sports Fashion Plc, but
they also encourage existing
customers to do so. As a result,
product diversification is not as
difficult.
 The fixed cost per unit can be
decreased by reaching economies
of scale. As a result, economies
are vast in scope.
 By increasing capacity and
investing in research &
development, the capital demand
will be reduced. Novices are less
likely to enter a dynamic industry
where reputable firms set the
norms on a regular basis, such as
JD Sports Fashion Plc. It
significantly decreases the
window of opportunity for new
enterprises to generate
extraordinary profits, deterring
new arrivals (Hill and Jones,
2009).
3.0Internal Environmental Analysis for identifying strengths and
weaknesses
The internal environment refers to the corporate environment that exists within a
company and has a direct and unique impact on the company (Hubeis and Najib,
2008).
3.1 VRIO Analysis
The VRIO framework, created by Jay Barney, one of the pioneers of the resource-
based view, focuses on a company's internal resources and capabilities (Barney, 2001;
Barney et al., 2011).
Figure 3: VRIO Framework
Is the Resource or Capability…
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And is the Firm…
Source: (Rothaermel, 2013)
 Valuable: Financial resources, people resources, marketing experience, and
operations management are all key resources for JD Sports. JD Sports Plc's
suppliers, for example, are dependable. Since its founding in 1983, the
company has grown to 56 outlets in the United Kingdom alone, with a
10
SUSTAINED
COMPETITIVE
ADVANTAGE
R
INIMITABLE
I
VVALUABLE
RARE
OORGANIZED
COMPETITIVE
DISADVANTAGE
COMPETITIVE
PARITY
TEMPORARY
COMPETITIVE
ADVANTAGE
UNUSED
COMPETITIVE
ADVANTAGE
YES
YES
YES
YES
NO
NO
NO
NO

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presence in other EU nations to back it up. The ability to retain suppliers in a
market that is volatile and, according to Paparoidamis et al. (2019),
particularly vulnerable to supplier loss due to increased competition. However,
JD Sports' ability to retain suppliers is a crucial feature that contributes to their
competitive edge. Research and development, on the other hand, is a waste of
money because it costs more than the advantages it brings in the form of
innovation.
 Rare: JD Sports is a unique corporation in that no other company can match
their brand. Financial resources, staff, and a distribution network are all scarce
resources that require a competitor to invest a lot of money and time to
acquire. For example, the company's earlier US and Asian operations have
garnered excellent feedback. They opened over 44 stores in the United States
alone in 2018, which is unusual for a sports brand. Their collaboration with
"Finish Line" has also been lauded as a successful market move (JD Sports
Fashion plc, 2020).
 Inimitable: In the face of competition, it appears that JD Sports' primary
difference is tough to duplicate. Imitation of JD Sports items on a larger scale
might take two forms. For example, competitors developing replacement
products that disrupt the current industry structure and duplication of the
company's offerings. JD Sports Plc, for example, operates a completely other
area of sportwear that has been dubbed "athleisure" because of their product
lines. Generation Z and millennials have been their primary target
demographics, as they are the most likely to engage in sports or lead active
lifestyles. JD Sports is one of the few companies that can provide both sports
functionality and fashion statement on a single plate. Their designs and goods
are a constant competitive edge for them (Nadkar and Khan, 2019).
 Organised: It assesses how well the company has been able to capitalize on
the market's valuable, uncommon, and difficult-to-replicate resources. When it
comes to exploitation levels, JD Sports items can be examined from two
perspectives. Is the company able to completely use the resource's potential, or
is there still opportunity for expansion? The firm's execution team and
execution strategy typically influence the level of exploitation. JD Sports, for
example, places a greater emphasis on employee well-being and offers
activities such as "FirstAid and Mental Health First Aid training." This is a
unique technique that sets them apart from their competitors' internal
organizations (JD Sports Fashion plc, 2020).
4.0Identification of Competitive Strategies
Competitive tactics will be identified in the context of the Hong Kong market. In this
case, Porter's Generic methods will be used to have a deeper understanding of the
product market.
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4.1 Porter’s Generic Strategies
Differentiating products and services from those of competitors, as well as
maintaining a low-cost structure, can help businesses acquire a competitive advantage
(Otundo, 2016). Firms might opt to target their product at a broad level, embracing
the bulk of the market, or they can narrow their focus to a specific market segment
(Lynch, 2003). Porter (1980) recommended three generic competitive advantage
methods as a result: cost leadership, product differentiation, and focus.
Figure 4: Generic Strategy Options
Competitive Advantage
Lower Cost Differentiation
Broad target
Competitive Scope
Narrow target
Source: (Porter, 1985)
 Cost leadership: The goal of the cost leadership approach is to achieve a
competitive advantage through cutting costs (Otundo, 2016). The main goal of
this strategy is to maintain market leadership through efficient value chain
management. JD Sports is able to grow its market share by focusing on the
middle class, which accounts for the majority of income in most nations. They
control low rates through reducing production costs and increasing supply
chain efficiency, and they routinely provide discounts and coupons to assist
them meet their sales goals (Lynch, 2003). Discounts and promotional
programs are used to boost brand awareness and stimulate purchase. A cost
leadership approach, which emphasizes product affordability and accessibility,
results in significant sales growth and a strong competitive advantage. Gaining
brand awareness, expanding the client base, increasing consumption, and
meeting sales targets are all advantages of a cost leadership approach, which
emphasizes product affordability and accessibility, resulting in significant
sales growth and a strong competitive advantage.
 Product differentiation: When a corporation differentiates its products, it may
frequently command a higher price for its goods or services in the market. JD
Sports distinguishes itself by integrating innovation and responding to
customers' evolving concerns. Henderson (1981) defines distinction as "a
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Cost Leadership Differentiation
Focus