Internationalization Challenges: Sainsbury's Expansion in Asia

This report analyzes the challenges faced by Sainsbury's, a major UK supermarket chain, during its international expansion, specifically focusing on its entry into the Asian market, particularly Hong Kong. The report explores both the positive aspects of internationalization, such as business growth and increased customer base, and the negative aspects, including financial investment and political instability. It delves into the role of globalization in facilitating business expansion and emphasizes the importance of understanding the local market. The report discusses various challenges using PEST and SWOT analysis, including financial regulations, currency convertibility, social and cultural issues, technological changes, environmental concerns, and legal systems. The report highlights the significance of adapting to the local environment, managing business values, and navigating political and economic risks for successful internationalization. The report also explores the role of globalization and the importance of considering various factors before entering a new market.

Managing Across Borders

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Contents
Executive summary.....................................................................................................................................2
Introduction.................................................................................................................................................3
Main body...................................................................................................................................................5
Conclusion.................................................................................................................................................12
References.................................................................................................................................................13
Appendix 1................................................................................................................................................16
Appendix 2:...............................................................................................................................................17
Appendix 3:...............................................................................................................................................18
Appendix 4................................................................................................................................................19
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Executive summary
The report is written with intent to analyze the challenges faced by the companies while
expanding the business across the borders. The whole essay revolves round the process of
internationalization. The company chosen for this report is Sainsbury which is the largest retail
supermarket that expanding its business in Asia. Sainsbury faced many challenges during the
expansion of the business. In this essay, both positive as well as negative impact of the
internationalization or business expansion has been illustrated with the help of the selected
company. The positive points that have been observed in this essay are related to the business
growth for long term, increasing the customer base, and increase the profits for the company. It
is a great opportunity for the Sainsbury Company offer its services and products to the large
number of customers and attracts them to increase the profits of the company. On the other hand,
the negative points are that company needs a huge amount of money in order to establish the
business in the new market. The risk of political instability and the terrorism is high in the
business expansion in the developing countries like Pakistan, Iran, India and Iraq. This essay
also emphasizes on the role of the globalization in the expansion of the business. The reason
behind the internationalization or business expansion is that every company wants to stay
competitive in this technological world and competition is the biggest threat while establishing a
business in a new market.
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Introduction
Internationalization is the process of promoting brand and the products in the multiple countries
in such a way that it meets the needs of the customers as well as easily adopted by the countries.
The companies are taking steps to increase its business sales and customer base by tapping the
global or international markets. Because of the globalization, there are many opportunities
available for the countries to expand the business across the borders and contributes towards the
economic development. There are many companies who are going global for gaining the profits
as well as the competitive position. The company that chosen for this report is Sainsbury and it
expanded its business in Hong Kong Country of the Asian Market. There are many challenges
and risks are involved while establishing the business in the market of Asia such as political,
legal, social and technological risks (Citigroup, 2008).
Working in a global environment has various merits and demerits. Deciding on whether to invest
money on the expansion is the common decision. Business expansion has positive as well as
negative impact on the performance and productivity of the business. The positive points that
have been observed in this essay are related to the business growth for long term, increasing the
customer base, and increase the profits for the company. The decision making is also playing a
vital role in deciding whether to invest money in on the business expansion or not. It is a great
opportunity for the Sainsbury Company offer its services and products to the large number of
customers and attracts them to increase the profits of the company. One more positive point of
the business expansion is that by doing this, companies can also spread the risks. On the other
hand, the negative points are that company needs a huge amount of money in order to establish
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the business in the new market. The risk of political instability and the terrorism is high in the
business expansion in the developing countries like Pakistan, Iran, India and Iraq.
Sainsbury is a very famous brand of the supermarket and it deals with the various grocery, food
and non-food items. This company is UK based company and because of its successful
operations this company is the largest supermarket in UK. This supermarket is established in the
year 1869 by John James and is wife Mary. The main objectives of the company are to offer
products and services as per the needs of the customers in relation to the food, clothing and
grocery products. According to the financial statements for the year 2017, profit earned by the
company for the financial year is of £377 million and retail sales including VAT is around
£28,705 million. (See appendix 1). Also, people that are working at Sainsbury are around
150,000 in the 950 stores across UK (Gladding, 2017).
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Main body
Global business environment is the environment in which the company operates and it involves
range of factors that can influence the business such as politics, technology, culture and
geographic location in the country. Globalization plays a very intense role in the expansion of the
business in the international markets as globalization opens the door for companies across the
borders. There are numerous challenges that can be faced by the companies while expanding in
the Asian markets. Therefore, it is very important to analyze the business market internally and
externally with the help of PEST analysis and SWOT analysis. PEST analysis includes all the
factors such as political, economic, social, technological and legal that affects the business and
performance of the company. SWOT analysis can be used to analyze the internal business
environment.
However, it is also not an easy to expand the business in Asian Market as there are many UK
organizations have failed to gain the competitive advantages because of many reasons. Different
organizations are trying to enter into the Asian market because 40% of the global economic
activity is occurring in Asia and it is expected that in the next decade, Asia will lead the world.
Half of the current population also lives in Asian Countries and there is a wide scope for
companies to increase its customer base and earn attractive profits. It has been observed by the
researcher that Asia will not be just the producer of the goods and services; it will also be the
biggest global consumer (Gibson, 2004).
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With so many opportunities for the companies across Asia, the companies can receive great
benefits, but some of the challenges faced by the Sainsbury while expanding its business in Hong
Kong are going to be discussed in this section. First challenge faced by the company is related to
the limited financial regulation and enforcement in Asia that presents corruption risks and legal
compliance issues for company. Because of these issues, company found it very difficult to
operate under compliance controls in this corrupted climate and there are fewer chances for the
companies to gain the competitive advantages. The change in the political environment is the
biggest challenges for the companies and it increases the level of risk to expand the business.
Moreover, political risks in Asia involve the government restrictions on the trading business and
on the business expansion in the international market. The policies of Hong Kong Government
were also playing an effective role at that time of the establishment of the Sainsbury. For
example, government is lowering down the jobs in government sector with a purpose to increase
the growth of the private sector. These factors, however, should be considered while working in
the era of the globalization. However, Sainsbury need to understand the laws of Hong Kong
before the business expansion in global business environment. Moving to the second challenge
faced by Sainsbury is the currency convertibility issues and economic manipulation in Hong
Kong. The currency rates in the Asian countries are low because of the no single regulator as
well as the diverse trading centers (Bradford, 2014). The enterprises from different nations do
not operate under the provincial regulations or national regulations. Moreover, the economic
factors have the great influence on the business of Sainsbury as these factors are affecting the
buying behavior of the customers. It is observed that the spending power of the customers is not
static as it depends upon the financial condition of the customers. Therefore, uncertain financial
risks are the challenge for the Sainsbury Company. Social and cultural issues are another
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challenges faced by the company as it involves the tastes and preferences of customers, business
values and analysis of the cultural values. Before expanding the business in any new market, it is
very important to understand their culture, languages and the needs of the customers in order to
attract the maximum people of Hong Kong. To add more, it is identified that the companies need
to invest heavily on their own corporate culture and infrastructure and people in order to match
the consumer demands in Asia. The culture of the Hong Kong gives importance to the quality as
well as the brand value of the product (Tyler, 2014). Also, Sainsbury needs to manage its
business values and strict to these values in order to gain the competitive advantage and to hold
the leadership position in that country. The business model that depicts the values and services of
Sainsbury has been shown in the (appendix 2).
Technological factors are the most important factors that influence the business growth to a great
extent. Change in the technology is other challenge for the company in Asian countries. In the
business of supermarket, technology is used to improve the supply chain, operations and the
process of the retailers. Because of the globalization, the influence of the information technology
is growing day by day. Nowadays, people are busy in their personal and professional lives, so
they do not have the time to visit to the supermarkets or retail stores to buy the products, so they
prefer to buy the products through online stores. However, online stores of Sainsbury are running
more successfully and it covers the 92% of the customers in the UK economy. It is quite difficult
for the companies to cope up with the changing technologies which is the another issue (RU,
2018).
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Environmental issues include the business operations that affect the society and the environment.
With the expansion of the business, the level of production activities also increases and this will
lead to affect the environment of the country. The company has the responsibilities towards the
society as well as towards the environment so it is recommended for the companies seeking to
expand the business should focus on the eco- friendly environment as well as the make use of the
reusable bags that reduces the cost of the company also. Moving further, the legal system of
every nation is different such as there are strict laws on the operations of foreign companies in
China and Malaysia. Taking an example of the intellectual property protection laws is highly
limited because of technology theft and counterfeiting products are common in some of the areas
and accepted by the higher authorities. Also, according to the repot of the international IP theft,
the US companies suffered from the loss of $300 billion in a year on the exports to Asia. There
are many questions arises about the impartiality of the judiciary in the different nations. It is also
analyzed that the American enterprises are not protected under the local legal system. The
policies of Hong Kong Government were also playing an effective role at that time of the
establishment of the Sainsbury (Group, 2014).
Moving ahead, the role of the globalization in the expansion of the business is very important as
it opens the door for the companies. There are 80% of business executives agree with the fact
that the US companies expand their business in the international markets for the long term
business growth. It is identified through the records that there are more opportunities for the
growth of the companies today in comparison to the previous times. However, when entering
into the new markets, there are numerous factors that need to be focused by the companies.
According to the survey, there was 89% of the US corporations focus on the political stability of
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the international market. Other factors that need to consider before going global are
infrastructures (82%), trade regulations, enforcement of contracts (80%), trading across borders
(80%). Some more factors include the availability of the skilled labor force, favorable tax
regulations, labor costs and laws and the access to credit. (The results of this survey shows in the
appendix 3 and 4)
Global competition is another threat for the companies like Sainsbury expanding their business
in the Asian market. The competition is increasing day by day because of the globalization.
Hong Kong, China, Malaysia is the countries having high potential of growth. High competition
and the changing tastes and preferences of the customers are the biggest threat for the company.
It is a well-known fact that the tastes, needs, demands and preferences of the customers cannot
be static in nature. Because of the static nature of consumers, it lowers the demand of the
company’s products. The strong place of the competitors across the world also threatens
leadership position of Sainsbury. The biggest competitors for the Sainsbury are Wal-Mart,
Tesco, Morrison and Aldi. These companies are still giving the strong competition to Sainsbury.
Therefore, it is very essential to develop and implement some strategies to handle the threat of
competition as well as to tackle the other problems. The strategy will also help one to ignore the
exaggerating and misunderstanding your specific market, introducing a badly designed product
or services, or products or services that doesn't fulfill the demands of the customers, wrongly
setting the price of products, investing resources and showing your business to higher risks and
threats from unpredictable competition (Homer, 2013).
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Furthermore, in order to navigate the challenges, there are various things that businesses need to
consider while expanding the business in the Asian Market. First and most important thing is to
consider the local country infrastructure as well as the different capabilities and consider local
regulation. Each country has different rights from country to country and it is important to
understand all the rights to deal with the challenges. Also, Sainsbury should consider the cloud
infrastructure platform that took care if the data storage as well as the data safety. It is essential
to examine every factor carefully and find out the solutions. Another important thing is to
understand the local markets in order to navigate the risks. For example, according to many
business corporations, Asia is single market entity but the real fact is that within Asia there is
much different type of markets which can be considered for doing the business (Limited, 2017).
However, to excel in the Asian markets, it is necessary to have the technological expertise of the
region. To overcome the risks and challenges associated with the business expansion in Asian
markets, the companies need to be flexible enough to deal any unexpected change occur in the
market. Moving ahead, the Sainsbury Company should make sue about the government policies
and political stability of the country and then understand the needs of people to expand the
business in the global environment. The challenges and risks can be overcome by making
changes in the communication management and environmental practices. There is also a need for
the collaboration between the offices across the globe to maintain the productivity levels. This
means the companies like Sainsbury can quickly grab the opportunities to expand business as
well as to increase the profitability levels of the company. In order to make sure expansion into
Asia is a profitable venture, companies should look for advice and expertise from technology
partners that have the experience in the market and knowledge to guide them (Chilton, 2013). At
the end, after the analysis of the global business environment, it is important that company
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should formulate the strategy to achieve the high amount of profits. Therefore, companies are
taking steps to increase its business sales and customer base by tapping the global or
international markets. Because of the globalization, there are many opportunities available for
the countries to expand the business across the borders and contributes towards the economic
development. There are many companies who are going global for gaining the profits as well as
the competitive position. The company that chosen for this report is Sainsbury and it expanded
its business in Hong Kong Country of the Asian Market. There are many challenges and risks are
involved while establishing the business in the market of Asia such as political, legal, social and
technological risks (Hitachi, 2015).
From above, we have analyzed that business expansion has positive as well as negative impact
on the performance and productivity of the business. The positive points that have been observed
in this essay are related to the business growth for long term, increasing the customer base, and
increase the profits for the company. The decision making is also playing a vital role in deciding
whether to invest money in on the business expansion or not. It is a great opportunity for the
Sainsbury Company offer its services and products to the large number of customers and attracts
them to increase the profits of the company. One more positive point of the business expansion is
that by doing this, companies can also spread the risks. On the other hand, the negative points are
that company needs a huge amount of money in order to establish the business in the new
market. The risk of political instability and the terrorism is high in the business expansion in the
developing countries like Pakistan, Iran, India and Iraq (Twarowska & Kąkol, 2013).
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