Business Organisations and Environments: Primark's Global Expansion

This report provides an analysis of Primark's potential business expansion into Portugal, examining the internal and external business environments. It utilizes Porter's Five Forces to assess the competitive landscape, highlighting the low power of suppliers, high power of customers, medium threat of substitutes, and low threat of new entrants. The PESTEL analysis evaluates political, economic, social, technological, environmental, and legal factors influencing Primark's operations in Portugal, noting the country's economic growth, social factors, and political stability. The report also touches upon Portugal's economy, trade activities, and Foreign Direct Investment (FDI) rates, providing a comprehensive overview to inform Primark's strategic decisions regarding international expansion. Desklib provides a platform for students to access similar solved assignments and past papers.

Business Organisations and Environments in a Global Context
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Executive Summary
Business expansion or internationalisation has become one of the major strategic pillars for
the business organizations. The report discusses about the retail clothing company called
Primark and its plan to expand operation in Portugal. Using several analytical tools, the
potential threats and opportunities of the Portuguese market have been analysed which can
facilitate Primark to take an important decision like international business expansion. This
market research is essential for such a globally operating company as they have business
interests in various markets and aim to reach customers on a global basis. Hence, with the
help of this report, one can understand about the various aspects of business environment and
its importance in the operations of the organizations.
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Table of Contents
Introduction................................................................................................................................4
Background to Business Organisation.......................................................................................5
Background to Business Environment.......................................................................................6
Discussion about Business Environment...................................................................................8
Conclusion................................................................................................................................13
Reference List..........................................................................................................................14
Appendix..................................................................................................................................15
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Introduction
In today’s global business environment, establishing business operations in international
markets has become vital for all size of business organizations. Expanding business
internationally provides several opportunities, which includes diversification and market
growth. Such business expansion requires the companies to develop effective strategies that
can deal with the risks, uncertainties and other such hindrances. Business organizations can
face political, legal, economic, cultural and other such barriers while conducting its
operations in an entirely new market. It is highly essential for the organizations to be flexible
with the constantly changing business environment and adapt those changes in order to
perform effectively at a global level.
Before operating in a foreign market, it is essential for organizations to analyse all the
possible scenarios and get an idea about how their business would fare. In this report, the
discussion about how one of the famous retail organizations like Primark would expand its
business in Portugal will be done. In order to evaluate the internal and external business
environment and to support the Foreign Direct Investment decision, different analytical
framework would be used. The facts, figures and the analysis would provide an
understanding about how Primark can expand its business in a highly competitive retail
market like Portugal.
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Background to Business Organisation
Founded by Arthur Ryan, Primark is an Irish accessory and clothing company, belongs to the
group of Associated British Foods. Primark is one of the most well-established and adored
fashion brands, which has been able to offer people the latest fashion products to the
customers. Primark was established in the year 1969 in Dublin as ‘Penneys’. However, the
company could not continue with the name ‘Penneys’ outside Ireland because an organization
was registered with the same name. The company started expanding in the UK after 1973 and
it currently has more than 350 stores across the globe (primark.com 2018). With such a
strong market presence, Primark looks forward to expand its operations in the Portuguese
market and gain competitive advantage over other existing fashion retail companies.
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Background to Business Environment
The city of Portugal retained democracy in 1976 and collaborated with the European Union
(EU) in 1986. It is a service-based economy, which is currently struggling to recuperate from
the European crisis, due to the Brexit impact. Among the industries prevailing in the country,
the most successful among them are the telecommunications, financial sector and the
flourishing industry of tourism. After exiting from EU in 2014, the rate of unemployment
has decreased to some extent, though the rates are still high. Trade activities in Portugal are
significantly high, with the total value of exports and imports contributing 79% of the Gross
Domestic Product (GDP). The average tariff rate applicable on the businesses is 1.6%. The
inflow of Foreign Direct Investment (FDI) in the country accounted to $6.1 million and the
GDP accounted to $298.7 billion, reflecting a growth of 1.5%. The economic freedom score
of the nation is 63.4, thereby being termed as the 72nd freest economy across the world and
35th regionally out of 44 European nations. As per the results, Portugal has a moderately free
economy (heritage.org 2018).
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Figure 1- Economy of Portugal
(Source: heritage.org 2018)
As per the findings of the “United Nations World Conference on Trade and Development
(UNCTAD)” in their “World Investment Report 2017”, the rate of FDI in Portugal had fallen
in 2016 in comparison to the inflows of 2015; USD 6.93 billion in 2015 whereas USD 6.07
billion in 2016 (United Nations Publication 2017). According to “World Banks 2018 Doing
Business” report, Portuguese holds the 29th position among 190 nations, displaying healthy
and reliable business environment (doingbusiness.org 2018). The country is emphasizing on
the use of renewable energies, particularly the wave energy and solar energy. The Golden
Visa programme of the country offers advantage to the non-EU investors for acquiring
citizenship for six years. An investment of EUR 350, 000 needs to be incurred in Portuguese
companies or EUR 250,000 for revitalisation of companies.
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Figure 2- DTF on conducting business in Portugal
(Source: doingbusiness.org 2018)
The above figure represents the distance to frontier ratio for establishing a new business in
Portugal. It includes the various steps to be performed by the foreign organisations who are
planning to expand their business operations in Portugal.
Figure 3- rate of GDP growth in Portugal from 2012-2022
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(Source: statista.com 2018)
The graph presented above shows the rate of growth in the real GDP of the country from the
span of 2012-2016 and future projections till 2022. In comparison to its previous year,
Portugal showed an increase of 1.4 % in its real GDP value. As per the findings of
International Monetary Fund (IMF), Portugal has shown moderate growth in the recent two
decades, the average GDP growth rate being 1.2 percent, from 1996 to 2016 (International
Monetary Fund 2017). In 2016, the GDP of the nation amounted to USD 204.65, showing a
growth of USD 5.47, as compared to 2015 (statista.com 2018).
Discussion about Business Environment
In order to establish a new store at Portugal, Primark needs to analyse it business
environment, both internally and externally. For the internal analysis of the business
environment, Porter’s Five Forces has been used and PESTEL Analysis has been used for
analysing the external business environment.
Analysis of the Internal Business Environment- Porter’s Five Forces
With the help of the Porter’s Five Forces analysis, Primark will be able to comprehend the
level of competition prevailing in the business environment of Portugal as well as gain an
understanding of the potential of the company to incur profits in the business environment.
 Power of suppliers (Low) - The power of the suppliers is low as Primark is itself a
manufacturing organisation. In addition to this, the raw materials, resources, machinery,
labour services, required by it for its business operations are available in mass number (E.
Dobbs, 2014). Hence, there is no big supplier, resulting in low bargaining power of the
suppliers. Power of customers (High)- The buying power of the customers in the Portugal clothing
retail industry is high due to high availability of alternative options and existence of
brands like H&M, Benetton, Zara, to name a few. Due to high bargaining power of the
customers, Primark has to take initiatives to satisfy the needs of its target customers. It
will have to monitor the fashion trends prevailing in Portugal, maintain its quality of
product and services offered and track the pricing strategy of the competitors to ensure
that the customers do not switch to other brands.
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 Threat of substitute goods (Medium) - The threat of substitute goods is moderate, due to
two reasons. The first reason being the availability of retailers offering similar products at
low prices, but taking the quality and service factor into consideration, these cannot be
termed as proper substitutes (E. Dobbs, 2014). The second factor being the presence of
mass number of competitive brands like H&M, Zara, Benetton, Chicco, Mango, Pepe
Jeans, Accessorize, to name a few, who clothing and accessories of similar quality or
even superior quality, hence offering closely-related substitutes. However, if the
customers start appreciating products available at lower prices, then Primark might be at a
disadvantage. Threat of new entrants (Low) - The threat of new entrants in the clothing retail industry
of Portugal is low, due to the large investment involved and the existence of large number
of competitors. The current business expansion idea will help it to increase the number of
stores only. In addition, having a well established business at Portugal and high brand
recognition value, Primark will does not face any threat from new entrants. In addition,
the new entrants would have to incur high investment on advertisement as well as offer
high quality products at low prices, which will not be viable. Hence, low threats from the
entry of new firms. Threat of competitors (Medium) - The level of threat of competitors in the clothing retail
industry of Portugal is moderate for Primark. Portugal has a few clothing retailers who
offer vast variety of products at lower rates, creating a small disadvantage for Primark for
customers who focus only on price and not on quality or brand value. The organisation
will face stiff competition from rival firms like Benetton, H&M, Chicco, Mango,
Accessorize, to name a few and will sustain the competition through marketing strategies
and offering target customers products as per their demands. Due to high loyalty of its
customers, the presence of competitors will not pose much risk to Primark.
Analysis of the External Business Environment- PESTEL Analysis
With the help of PESTEL analysis tool, Primark will be able to evaluate and analyse the
impact of macro environmental factors on their business operations. A PESTEL framework
helps identify strengths and weaknesses, business opportunities prevailing in Portugal (Team,
2013). The threats to the business activities of Primark can be mitigated effectively by using
this framework.
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 Political- The official name of the country is Portuguese Republic and follows
parliamentary democracy. A semi-presidential regime is established by the constitution.
The executive power of the country lies in the hands of the President and Prime Minister,
who have the authority to implement the laws of the nation. The legislative power is
unicameral in nature. The Portuguese Parliament comprises of three core parties, namely
“Social Democratic Party (PSD)”, “Socialist Party (PS)” and “Popular Party”. Portugal
has enduring relations with Africa and EU for military, trading and political purposes.
The country abides by the laws of the International Labour Law regarding laws related to
working hours, special hours, holidays and other laws related to employment. The
country is associated with various international associations like North Atlantic Treaty
Organisation (NATO), International Monetary Fund (IMF), World Bank, to name a few.
The political organisations like International Finance Corporation (IFC) offer assistance
to the government in managing political risks associated with the country like decision-
making, natural disasters, expropriation, confiscation and others. Economic- The economy of Portugal has shown a growth of 2.7% in 2017, generating
revenue of EUR 179.2 billion, due to the increase in the demand for domestic products
and high level of investment in exports. Additionally, the contribution of tourism in the
GDP of the country also increased in 2017 in comparison to 2016, by 21%. The rate of
employment of opportunities has also increased and by the end of 2017, the country
showed a decrease in the unemployment rate by 8.5%. As per the 2017 budget, the
government intends to reduce the deficit by 2% of GDP. Based on the GDP, agriculture
sector contributes 2.6%, industrial sector contributes 22.6% and trade and services
contribute 74.8%. The per capita income accounted to USD 28,933 (heritage.org 2018).
The rate of inflation is 2017 was 1.6%. Social- The population of the country accounted to 10.3 million as per the 2018 Index of
Economic Freedom (heritage.org 2018). Among these, majority of the population belongs
to the elderly group. The population of the country have shown resistance towards
purchase of national goods, thereby encouraging foreign direct investment activities in
their country, by preferring international brands over domestic brands. The culture of the
country is Romanian, reflected through cave paintings, temples and others. There is high
rate of literacy and the citizens abide by the customs like wearing national dress at the
weddings, and festivals. The traditional garments are red and green in colour and black is
considered as a colour for mourning by the citizens. While deciding their collection,
Primark should keep these factors in mind.
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 Technological- Portugal is a technologically advanced nation as the schools have taken
initiatives to incorporate school laptop program. Mode of communication in the country
is through television, telephones and there is availability of high-speed broad band.
Approximately, 12.312 billion people are cell users in the nation. For the purpose of
transportation, the country offers 65 airports, railways covering a distance of 2876 km
and roadways covering an area of 82900 km. The number of internet users accounted to
5.168 individuals. The country has made significant advancements in the field of
navigation. Environmental- Due to the fact that the nation is undergoing structural change in its
economy, the main public policy challenge faced by it is to introduce effective, low
carbon, and eco-friendly flexible economy. The government has developed “Commitment
for Green Growth”, as per which the country aims to become the foremost leader in green
growth, encourage effective uses of the resources, create carbon free environment and
generate employment through establishment of sustainable industries (European
Environment Agency. 2018). Legal- As per the laws of the country, private property rights are highly respected and
implemented. The procedure of registration is easy and can be conducted through online
procedure. The government has given importance to judiciary independence, despite
having deficiency of staff and inefficient employees. Few of the citizens have blamed the
judicial system to be ineffective, resulting in high level of corruption and fraud activities.
The effectiveness of the government has shown an increase, the index value accounting to
70.l (heritage.org 2018).
PESTLE analysis has helped in understanding Portugal’s business environment along with
the positive and negative factors that can affect the performance of Primark after expanding
in the country. The Ansoff Growth Matrix will be used for understanding the best possible
growth strategy that the retail organisation can use in Portugal. There are four quadrants
present in the Ansoff Growth Matrix, which include market development, diversification,
market penetration and product development (Simmonds, 2015). While the latter two
strategies are ideal for existing markets, the former two strategies are suitable for new
markets. Out of all the strategies present in the matrix, the Market Development strategy will
be optimal for Primark’s expansion in Portugal.
Currently Primark has been performing well in the UK retail sector, and from the Porter’s and
PESTLE analysis, it has been identified that if Primark expands in the Portuguese retail
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