Market Entry Strategy for Next Plc in China and Japan

Desklib provides past papers and solved assignments for students. This report analyzes Next Plc's international expansion strategy.

Marketing and Business Environment
1

Contents
Introduction......................................................................................................................................3
Macro and Micro factor analysis.....................................................................................................4
Evaluation of market potential.........................................................................................................9
The justification for market selection............................................................................................12
Market entry strategy.....................................................................................................................16
Marketing Mix...............................................................................................................................18
Conclusion.....................................................................................................................................22
References......................................................................................................................................23
2

Introduction
In current time, business expansion is essential for each and every company in the global market
for ensuring growth and success. In the case of foreign marketing, the companies expand their
business across the national boundaries so that the sales of the products can be increased (Gong,
2013). Expanding the business in the international market also enable the companies to achieve
the economies of scale. In the modern era, the global business strategies are important for the
companies by which the success or failure of the business in the international markets can be
determined (Ball, 2013). In order to enter the global market, there are various factors that need to
be considered by companies. Currently, there is the trend of expanding the business in the
international markets with the intention to achieve exposure and create global pressure. This
report focuses on the business expansion of a company in the international market. For the
discussion, famous retail company Next Plc is selected. The report analyzes the macro and micro
factors affecting the retail market and provides the recommendations for the markets. In addition
to this, the report evaluates the market potential of the selected markets for the business
expansions. Based on the analysis, the two markets are recommended for the business expansion.
Further, the recommendation and justified market entry strategy that can be adopted by Next Plc
in the business. The report also proposes the marketing mix for Next by ensuring the differences
in the consumer behaviour and culture in the marketing mix activities.
3

Company Background: Next Plc
Company Next Plc is the British multinational retailer which deals in various products including
footwear, clothing and home products. Headquarter of the company in Enderby, Leicestershire.
The company has web stores, and 700 physical stores out of which 540 stores are operated in the
United Kingdom and Ireland. In addition to this, 200 stores are operated in Asia, continental
Europe, and the Middle East. The brand was established in 1982 an now this is the famous brand
of UK. The company has a ‘Next’ directory which is a home shopping website on which 4
million customers are registered. Currently, the company is now focused on improved delivery
and global expansion to improve online sales in the upcoming year.
Macro and Micro factor analysis
In the marketing process, there are various macro and micro environmental factors that impact
the business operations of the retail industry. The retail marketing environment includes various
factors that impact on the retailers' ability to develop and maintain proper business operations
and relationship with the targeted customers. In the case of micro environmental factors, the
factors include the actors in the retailer's immediate achievement that impact the ability to serve
the markets i.e. intermediaries, suppliers, competitors, customers, and the public. On the other
hand, macro environmental factors include technological factors, political factors, demographic
factors and social and cultural factors (Hollensen, 2015). The analysis of macro and micro
factors affecting the retail industry is as follows:
Microenvironment factors
The primary objective of the retailer is to serve and satisfy the needs of the customers in the
target markets. In order to achieve the objectives, Next Plc is connected with the set of suppliers
and intermediaries so that the company can achieve to its target customers. The chain of
4

suppliers, customers and intermediaries are included in the core marketing system of the
company. Some of the micro factors affecting the retail industry are as follows:
Suppliers- In the business, suppliers are the individuals or business firms who provide all the
required resources to the retailers. For instance, the retail stores get different products from
various suppliers so that quality products can be provided to the customers. The suppliers can
have a substantial impact on the marketing operations of retailers. Retail managers in the
industry are required to observe the price trends of their key inputs. In addition to this, they are
also concerned with the supply availability. The retail industry is affected by the supply shortage
and other events as they are obstacles in the fulfilling the delivery promises. Due to the supply
shortage, the company may lose sales in the short run which can damage the customer's goodwill
in long run. Various companies in the retail industry prefer to buy products from various sources
of suppliers as they do not want to depend on one supplier. Further, retail purchasing agents also
try to maintain long-term relationships in the key suppliers in the industry. In the case of a supply
shortage, the agents find out the preferential suppliers so that the demands of the suppliers can be
fulfilled.
Customers- In the retail industry, the companies connect with suppliers and middlemen so that
the needs and demands of the customers can be fulfilled. By maintaining relationships with the
suppliers, appropriate products and services can be provided to the target market.
Competitors- In the retail sector, retailers are always focused on providing quality products to
the targeted customers. The marketing system of retailers is always affected by the competitors
available in the industry. In order to operate the business successfully, it is important for
companies to identify, and monitor the customers in the industry so that customer loyalty can be
maintained.
Intermediaries- In the retail industry, intermediaries are the firms which are helpful for the
companies in promoting, selling and distributing the products to the end users. Large companies
or business organizations sometimes hire the agents to sell the products and pay commission to
5

those agents on the basis of their success. Further, physical distribution firms are helpful for the
retailers in the industry in stocking and moving the products from their initial destination to the
final location. In terms of intermediaries, warehousing firms are also included which store and
protect the products before providing them to the customers. In addition to this, the retailers in
the industry have to decide how much storage space is required to store the products. There are
various marketing service agencies like advertising agencies, media firms, marketing research
firms and consulting firms which assist retailers in promoting and selling the products to the
targeted customers. Retailers are required to review the product sold periodically and replace
those products that are not in demand among the customers. Apart from this, there are some
financial intermediaries i.e. credit companies, banks, insurance, and other companies. These
financial intermediaries are helpful for retail companies in financial transactions while buying or
selling the products. Most of the retailers and customers in the industry depend upon the
financial intermediaries for their financial transactions.
Macro-environmental factors
In the retail industry, macro environmental factors affect the industry. These factors lie outside
the small companies and their competitors. Basically, companies have less control over the
external factors. The macro environmental factors include economy, governmental influence,
consumer characteristics, and technology. By adapting the macro environmental factors,
companies are able to differentiate themselves and achieve success in the industry.
Consumer factors- In the retail industry, consumer factors include norms, cultures,
demographics, lifestyle, population changes and demographics. These factors affect the business
operations of the retail industry in a different manner. For instance, the retail clothing
manufacturer needs to create various styles that appeal to various cultures that represent large
enough segments of the markets. The aging population may increase the demand for various
clothing products.
6

Technological factors- In the retail industry, technological factors affect the business operations
in terms of availability of resources, demand, and production. For instance, scarcity of some
materials like leather may force wholesale and retail clothing companies to sale other substitute
products to the customers. In addition to this, retailers may also enhance the prices of cotton
clothing as they have to pay more to the manufacturers. Due to the introduction of new clothing
styles by the competitors, the customers can also shift towards those products. So, it is essential
for the companies in the retail sector to introduce new product lines so that the needs and
demands of the customers can be met. More advanced equipment need to be implemented for
successful business operations.
Legal and political factors- There are the number of political and legal factors impact the
companies in the retail industry. This industry is continuously affected by some issues i.e. child
labour and workers' right. Union workers in the industry may strike against the employers if their
medical benefits and wages are not favourable as compared to other workers in other industries.
The strikes of workers affect the business operations of companies in retail industries. This can
lead to delays for the retailers to provide the products on time. In addition to this, activities can
also strike against the retailers in the industry who buy clothes from the countries. This negative
brand image may affect the sales and profits of the clothing industry. Trade restriction against the
import of another country can force retailers to find different suppliers in the industry (Cotula,
2012).
Economic factors- In the retail industry, the economic factors may have both positive as well as
negative impact on the business operations. During the economic boom in a specific country,
customers may have more disposable incomes. So, they purchase more products and increase the
sales of the retailers within the industry. On the other hand, the economic recession has a
negative impact on the retail industry as the sales for various products may be significantly
lower. Sometimes, retailers may be trapped with a large amount of inventory and in such
condition; they have to sell the products at the lower prices. This affects the profitability of the
7

company for the future. The retailers within the industry are also required to sell the products at
lower rates so that they can compete with the generic brands. Consumers having less disposable
income sometimes shop cheaper brands in the industry (Wetherly, & Otter, 2014).
Market recommendations
In the case of Next Plc, the company wants business expansion in the international market. The
goal of the company is to improve delivery and international expansion to enhance the high-
profitable online sales in the upcoming year. In this manner, the company needs to select two
international markets where the chances of growth and profits are high. There are two market
recommendations in which the company can expand the business in the future i.e. Japan and
China. Both the countries are selected because the company does not have a presence in these
markets. Due to growth in the retail sector in these countries, it is expected that the company
would get success and profit in the selected markets.
Evaluation of market potential
Before entering any market, it is important for the company to analyze the market potential. The
evaluation of market potential is essential for the company so that proper decisions can be taken
for the business expansion. For the business expansion of Next Plc in the international market,
two international markets Japan and China are selected. Analysis of market potential is the
significant step which is helpful for the company the data related to consumer’s needs and
requirements can be collected. Market potential is the total demand of the product within the
specific market. There are five elements which must be included in the process of analyzing
market potential i.e. market size, market growth, competition, profitability and consumer and
product type. The analysis of the market potential of China and Japan is given below:
Figure 1: Market Potential Factors
8

(Source: Wetherly, & Otter, 2014)
China
Market Size- This is the first and most crucial factor to consider while analyzing the market
potential of any specific market. Market size basically includes the total market sales potential of
all the companies. The retail market size of China is growing continuously. China has become
the second largest retail and consumer market after the US. The retail sales of consumer goods
have increased by 9.6% in 2017. New forms of business collaboration and partnership in the
retail sector of China have ensured the growth of the industry.
Market growth- At the macro level, the retail market in China is expected to grow at the
compound annual growth rate of 9% between 2012 and 2021. There are significant growth
opportunities for new companies in the China market. Due to a large population, the demand for
the retail products is increasing continuously. The retailers are focused on enhancing the
9

customer value to enhance the sales. The emergence of new retail in China is affecting retail at a
global level.
Competition- The retail market of China is a highly competitive market for the new entrants.
There are various retail companies in the country which have targeted a large base of customers
by providing quality products. The companies are using various innovative strategies to target
the customers and retain them in an effective manner. This creates a strong competition for the
new companies in the industry. Some of the top brands of clothing retail in China are Ochirly,
Belle, Anta, Tata, and Semir that have large market share in the industry. So, it can be said that
there is strong competition in the China retail market.
Profitability- It is clear that China is the country of the large population. The consumers in the
market are focused on purchasing the quality products at the low prices. In terms of profitability,
it is expected that China would be the second largest retail market in 2022 behind the US in
terms of value. The retail industry in China would be an exciting market in terms of significant
size and rapid growth. In the country, the concept of ‘New Retail’ is introduced to enhance the
sales and create the value for the customers.
Consumer and product type- The retail clothing industry includes all types of customers
including high-class, middle and lower class. For the clothing products, companies target the
customers of all age groups. The retail industry also targets the price-sensitive customers so that
the sale of the products can be increased. In the case of products, all the clothing products along
with footwear and accessories are included.
So, it is clear that the Chinese retail industry has growth potential. Although, there is strong
competition in the China market and it would not be easy for the company to enter the market
but there is the opportunity to achieve success and growth for Plc.
Japan
Market Size- The retail industry of Japan is considered as the sophisticated market and 3rd
largest market of clothing after China and US. The retail sector of the country is experiencing
10

moderate growth. Currently, there are 52,417 convenience stores, 240 departmental stores and
3,124 shopping malls all over Japan. In the country, shopping mall, street shops, and
supermarkets are the major driving force to increase the sales of fashion products.
Market growth- In Japan retail industry, the supermarket shopping of the customers is
increasing day by day and this would also increase in the future. The clothing, apparel, and
goods are sold more and more and this enhances the growth possibilities of the companies in the
future. In the country, various new shopping mall projects are announced which has created the
expectations for more stock to hit the market in the future. There are some factors that ensure the
growth of the retail industry in Japan i.e. increase in Japanese consumer confidence and an
increase in retail sales in the future (Craig, 2018).
Competition- The retail industry of Japan is moderate competitive for the new companies. In the
country, the retail industry is highly fragmented with a large number of similar retailers in every
segment. Still, there is the scope for new players in the industry. The fashion is fast-paced
industry due to which new players can get a room in the industry. One company cannot get the
position of another retailer. Overall, it can be said that competition in the Japanese retail industry
is moderate.
Profitability- Japanese retail industry is considered as the growth engine and profit generator for
new companies. The upward trend of the country has opened the world of opportunities and
possibilities for the companies in the retail industry. In addition to this, the retail market of Japan
is expected to maintain positive growth. It is expected that the retail market of the country would
grow on a moderate rate of 3% to 4% each year.
Consumer and product type- Japanese clothing retail industry is totally different now. The
customers in the country are now spending around 3.6 trillion yen each year on the clothing
products. Based on this fact, it is clear that the purchasing power of the customers is high in the
country. Japanese consumers are highly diverse in terms of interests and tastes and they always
value brand information delivery, service quality, advertising, and packaging. For the clothing
11

products, the companies are required to advertise the products ineffective manner as the
consumers are always willing to pay premium price related to high-quality products.
Thus, it is clear that there is moderate competition in the Japanese market for the new companies.
In the case of Next Plc, the company can enter the market and achieve profitability due to
moderate competition.
The justification for market selection
In the case of business expansion for Next Plc, two of the international markets i.e. China and
Japan are selected. Based on the above discussion, it is clear that both the markets are suitable
for business expansion. In both the countries, there is the possibility of growth and success as the
clothing, apparel and goods are sold more and more and this enhances the growth possibilities of
the companies in the future. For the justification of the market, the process of market screening is
required. In terms of market screening, there are some six steps which must be considered by
Next plc in case of China and Japan. Those steps include:
 Basic need potential and foreign trade and investment,
 Economic and financial forces,
 Political and legal forces,
 Socio-cultural forces, and
 Competitive forces,
Figure 2: Market screening Process
12