Sainsbury's and Asda Merger: Strategic Evaluation and Analysis

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Applied Corporate Strategy
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Table of Contents
Introduction......................................................................................................................................2
Q1. Strategic Issues (external analysis)...........................................................................................3
Q2. Internal analysis (strategic capability)......................................................................................7
Q3. Evaluation...............................................................................................................................10
Conclusion.....................................................................................................................................13
Reference List................................................................................................................................14
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Introduction
Corporate strategy is defined as the direction taken by an organisation in order to achieve the
long-term business objectives and ensure sustainable growth in business. These strategies enable
the organisations to adapt the changes in the business environment and gain a competitive edge
in the industry. The study is going to consider Sainsbury as the organisation and merger case of
Sainsbury and Asda as the corporate strategy. Sainsbury and Asda incorporated in the United
Kingdom belong to the retail industry. The macro and microenvironment analysis can help the
organisations to anticipate and resolve the challenges involved in the business. Both the
organisations provide a wide range of services to the customers globally. They are planning to
merge their business in order to gain a competitive advantage in the retail industry and provide
quality services to the customers. The study is going to evaluate the strategy developed by the
organisation and its impacts on the business environment and the stakeholders as well.
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Q1. Strategic Issues (external analysis)
In this context, the case study of Sainsbury has been taken under consideration. It is a UK based
organisation engaged in the retail industry. It offers a comprehensive range of retail commodities
and services to its customers globally.
Industry definition
The retail industry in the UK has contributed significantly towards the economy of the Country.
In the year 2016, the UK retail industry had generated £358billion value of the retail sales. It is
regarded as the biggest employer in the private sector with around 290,315 retail outlets across
the country (Prospects.ac.uk, 2019). A large number of the organisation are currently operating
their business activities and gaining immense profits in the concerned industry. Some of the most
successful retail organisations in the UK are Sainsbury, Marks and Spencer, Morrisons and so
forth.
Far environment (PESTLE)
It is very necessary for the organisation to identify adapt to the changes in the market in order to
improve the business activities, face challenges, enhance revenue and gain a competitive edge in
the market. It can help the organisation to anticipate a potential threat to business, adopt effective
strategies for operating business successfully and enhance market share in the industry.
Political factors
The UK is considered as one of the most famous destinations for the foreign direct investment. It
is because the country has a strong financial strength and investors from different countries
prefer to invest large capital for gaining profits and making a significant contribution to the
country’s economy. Additionally, political stability is deemed as a big strength of the nation.
This has encouraged the retail industry to operate a business successfully contribute towards
economic development of UK. However, Brexit can impede the political stability of the country
and can hamper the productivity of the independently owned retail organisations. Changes in tax
legislations will affect the profit margin of the organisation.
Economic factors
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The economic recession in 2008 negatively affected the retail industry in the UK. Additionally,
Brexit is another issue, which can adversely influence the operations of the retail industry
(Colantone and Stanig, 2018). Price rise due to Brexit can reduce the purchasing power of the
UK citizens, which can hamper the sales growth of the retail industry. It is very important for
Sainsbury to apply the effective corporate strategy in order to deal with the changes and their
impact on the growth of business (Sainsburys.co.uk, 2019).
Social factors
The United Kingdom possesses a large consumer market. It can help the industry in identifying
and catering to the customer and demands and ensure growth in sales turnover and profits.
However, the UK population has turned out to be very conscious towards the quality of products
and services consumed by them. This acts as a challenge for the retail organisation in the
industry to improve the product and service quality.
Technological factors
Technological improvements in the UK have provided immense opportunities to the retail
industries to implement the suitable technologies and provide enhance the quality of their
business performance. It can help the organisations to enhance their business process, satisfy the
customers to the maximum level and increase annual revenue. However, implementation of
digital technologies require high amount of capital and time investments, which can disrupt the
business process of the organisation. Therefore, organisations are required to make effective
plans for adopting technologies to growth business further.
Legal factors
UK government has established certain legislations related to the protection of significant data in
business, employment as well as health and safety laws. These laws are required to be strictly
complied by the retail organisations for attaining long-term objectives and sustaining its business
in the long run. Sainsbury is required to maintain the data considering the legislations of data
protection in order to avoid risks of data theft and misinterpretation. Additionally, the
organisation is required to comply with every relevant employment laws for ensuring the
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security of its workforce and satisfying their other needs to retain them successfully to the
business.
Environmental factors
The government of UK has developed certain legislations for protecting the environment from
the harmful results of the retail industry such as, greenhouse effect and carbon emission.
Stakeholders related to the retail industry are also becoming very active towards the impact of
business activities on the environment. This has compelled the organisations to operate its
business concerning environmental sustainability (Iacovidou et al., 2017). Sainsbury is required
to adopt effective measures for reducing carbon emissions from business activities.
Near environment (Five forces)
Porter five forces can help Sainsbury to evaluate its business position in the retail market. With
the help of five important areas involved in porter five forces, the organisation can identify the
level of risks it faces in different aspects of the business.
Bargaining power of suppliers
The suppliers’ bargaining power stands at a high position. As retail organisations purchase goods
and services from a large number of suppliers, they can dominate the organisations significantly.
This acts as a risk, which can create a negative impact on the profit margin and market share of
Sainsbury. High bargaining power of supplier can create certain hindrances towards sustainable
growth of Sainsbury’s business.
Bargaining power of buyers
Buyers’ bargaining power stands at a high position. As a large number of organisations are
operating in the retail industry of UK, providing substitute products and at a reasonable rate, it
becomes easier for the customers to switch over to the other brands, which provide better quality
and cheaper commodities. This reduces the influence of suppliers over customers.
The threat from substitute products
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Threat from substitute goods and services is high. As various retail organisations provide slightly
differentiated commodities and services and at a reasonable rate. Availability of a large number
of substitute products creates heavy competition for the organisation and can create an adverse
impact on the sales turnover and profitability of the organisation (Roberts, 2018).
Threats from competitive rivalry
Threat from competitive rivalry is standing at a high position. There are a large number of
organisations capturing significant market share in the industry, Sainsbury is facing intense
competition with other retail organisations such as, Marks and Spencer, Aldi and others. These
organisations provide a broad variety of innovative goods and services to the customers and are
gaining a large customers base as well as profits.
The threat from new entrants
The threat from new entrants is standing in a low position. Sainsbury is having a low risk of
entry of new firms in the retail industry, as there are already a large number of organisations such
as Asda, Morrison’s, Marks and Spencer existing in the market and exercising significant control
in UK retail market. Additionally, entry in the retail market requires a huge investment of capital,
which is not affordable by small-scale firms.
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Q2. Internal analysis (strategic capability)
CSFs?
Critical success factors (CSFs) is defined as the elements, which is important for the organisation
for the achievement of vision and mission and strategic objectives. It is concerned with the
specified activities, areas or procedures, on which a business organisations rely for ensuring the
continued survival of business operations. The critical success factors of a merger are explained
as follows:
Strategy
For ensuring successful integration and merger, organisations are required to articulate the
merger objectives and rationale and then perform the management activities and for achieving
the objectives (Hassan et al., 2018).
Leadership
Effective leadership is considered as one of the most important factors of merger and acquisition.
Both the senior executive of both the organisations are required to perform effective leadership
and activities supervise whether the activities are performed within the stipulated period. This
will encourage the merging organisations to ensure successful integration of business and timely
attainment of long-term objectives.
Governance
Proper governance of merger activities will help the management of the organisations to avoid
the occurrence of any kind of material error, which can lead to failure of the merger. It will help
the organisation to resolve issues associated with merger and ensure successful integration of
business.
Value
While performing the merger activities, it is very important for the organisations to preserve the
worth of their fixed and current assets. It will help the companies to avoid the financial risks,
which arise after the merger.
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Culture and people
The merger brings complete changes in the activities performed by the organisation as well as
the organisational structure. Therefore, it is very important for an organisation to adapt with the
changes effectively. For achieving the objectives related to the merger, it is necessary for the
organisations to manage needs and interest of the stakeholders. Organisations should initiate
merger activities only after communicating with the stakeholders and gaining their consent for
the activity.
Rigor
For attaining success in the business merger, it is important for the organisation to ensure the
quick formation of decisions, emphasise on time and discipline in accomplishing the tasks. It will
help the organisation to accomplish the targeted business objectives successfully.
Balance
It is important for organisations to put equal emphasis on carrying out their current business
activities individually while performing carrying out merger operations. It will help the
organisations maintain a balance between the daily business as well as merger operations.
Unique Resources
Sainsbury has generated annual profits of £ 309 million, which was much higher than the profit
gained past financial year (About.sainsburys.co.uk, 2019). The organisation possesses a large
amount of current and fixed assets. It is a significant amount of cash reserves, which can help the
organisation to and incur expenses for carrying out merger activities. In the year 2018, Sainsbury
had an increased amount of current assets involving cash, inventories, debtors and others.
Sainsbury has made further investments in the joint ventures, which has yield a large amount of
revenue. In comparison to the inventory value and the taxable profits of Sainsbury, Asda
acquires a lower amount. As Asda is a subsidiary of Walmart, this merger will help the
organisation to improve its presence globally and strengthen its financial power for ensuring
sustainable growth of business (Asda.com, 2019).
Unique Capabilities
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By merging their business both the organisation can be able to carry out their business activities
and in an effective manner, enter into new market and expand their business activities. It will
help the organisations to and gain a large base of customers. By merging business activities, the
organisations can be able to reduce their costs and enhance their profits (Barney and Turk, 2016).
It will help the companies to make a significant contribution to the country’s development and
ensure the sustainability of their business.
Links to Advantage
By considering the key success factors Sainsbury, can able to improve the develop objectives of
the merger. Their decision is going to provide immense benefits to the country and to their
business as well. Integration of their business will result in economies of scale. Effective
leadership during the merger will help the organisation to carry out the activities in an effective
manner. While carrying out the merger activities, organisations often avoid small mistakes,
which can have a cumulative impact on business activities. The factors will help the organisation
to improve their activities and avoid commitments of mistakes. By the help of these factors, the
organisations can be able to satisfy the needs of stakeholders and ensure a successful merger.
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Q3. Evaluation
What strategy will be evaluated?
Sainsbury is adopting the corporate strategy to merge its business with that of Asda. Both the
organisations are holding a dominant position in UK retail market. Therefore, this merger and
will help the organisations to transform their business activities respond effectively towards the
significant changes and maximise customers’ satisfaction. It will help the organisation to
strengthen their position in the market and generate immense profits. It will help the
organisations to develop innovative products to be sold to the customers, ensure penetration of a
new market and enhance the financial strength of the business. For ensuring a successful merger
both, the organisations are going to close around 460 local street stores (Butler, 2018). The
strategy adopted by the organisations will provide benefits to the companies, the retail industry
and the country as well. At present, Asda and Sainsbury stand at the third and second position of
in the Retail industry of UK. Additionally, the corporate strategy adopted by the organisation
will enhance their position in the market and enable them to obtain significant market share. This
strategy will act as strength for the organisations and a considerable threat for the competitors
such as, Amazon.
Evaluation - Suitable
The strategy adopted by the organisation is suitable to the business environment in the UK.
Integration of business operations of Sainsbury and Asda is going to provide opportunities to the
organisation for facing the challenges of Brexit and its impact on the growth of business
activities. By transforming their organisational structure, they will be able to comply with all the
important legislations for ensuring sustainability in their business. According to Sainsbury, after
the merger, the prices of products and services are going to decrease by ten percent. It will
enhance the demand of customers along with sales and profitability of the business. The external
environment analysis reflects that tastes and preferences of customers are frequently changing.
By merging their business, organisations will ensure improvement in the quality of products and
services; produce innovative commodities and services for satisfying their wants and gain a large
customers base.
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Evaluation-Acceptable
The strategy of Asda and Sainsbury’ is going to makea significant contribution to the economy
of UK. However, it is also creating a threat for Amazon, a considerable competitor of the
organisations. Being a stakeholder of Asda and Sainsbury, Amazon is not accepting the merger
organisations. It is because their merger will strengthen their business position in the retail
market enable the organisation to resolve the changes in the market. The merger of Sainsbury
will hamper business growth and position of Amazon in the market. On the other hand, political
parties, investment firms as well as the trade bodies are positively reacting to the decision taken
by Sainsbury and Asda to merge their business.
It is anticipated that the merged business of both the organisations is likely to generate an annual
income of £51 billion (Merger and Scully, 2018). Increased financial performance
will help the organisation to pay more taxes to the UK government resulting
in the economic development in the nation. By merging business, operations
both the organisations are going to create a large pool of employment
opportunities to the people, which will lead to economic development in the
country. By employing skilled and efficient staff, Sainsbury and Asda will be
able to operate their business in a systematic manner (Brueller et al., 2018). It
will help the companies to satisfy the needs and requirements of customers
by providing them with a broad range of innovative and excellent quality
products services and at a reasonable rate. It will help the organisation to
create a niche of their goods and services in the competitive market.
Evaluation-Feasible
The corporate strategy adopted by Asda and Sainsbury of merging their business operations
possible for them. As they belong to the same industry, sell slightly differentiated products and
services; they will not have to face huge difficulties in merging their business. Both the
organisation have attained a significant position in the UK retail sector, possesses strong
financial power, which will help them to incur the expenses of the merger successfully. Most of
the stakeholders associated with the organisation have provided positive reaction towards the
strategic decision formed by Sainsbury. It is because their decision is going to provide immense
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