Softcat: International Business Expansion Strategies for IT Company

This report provides a comprehensive analysis of Softcat, an ICT company specializing in digital infrastructure solutions, and its potential for international expansion. The report begins with an executive summary and an introduction to globalization and international expansion, highlighting their importance for business growth. The main body of the report delves into Softcat's background and financial performance, demonstrating its readiness for international ventures. A comparative market analysis is conducted, focusing on the IT industries of Canada and Japan, using PESTLE analysis and Porter's 5 forces model to assess the business environments of both countries. Further analysis involves the application of Porter's generic strategies and Ansoff matrix to determine the optimal international market for Softcat, with Japan emerging as the preferred choice. The report then suggests franchising as the most suitable mode of entry into Japan, followed by a discussion of potential challenges and proposed solutions. The report concludes with strategic recommendations for Softcat to successfully establish and operate its business in Japan. The report emphasizes the significance of global trade, the impact of globalization, and the importance of international expansion for business growth, along with the use of strategic management tools to assess market opportunities and make informed decisions.

601 MAN
International Business
and Globalisation

EXECUTIVE SUMMARY
The main aim of this report was to analyse the business operations of an ICT company
known as Softcat which is a provider of client centric and customized digital infrastructure
solutions such as cloud integration and Ecat point to point purchase control systems. The
operations of the company were listed in detail and major statistics were provided to prove that
the company is ready for international expansion. Two major international markets were chosen
for the business to expand into which were Canada and Japan and the IT industry of both
countries were compared and contrasted using tools of strategic management such as PESTLE
analysis and Porter’s 5 forces model. The market of both countries was also analysed using
Porter’s generic strategies and Ansoff matrix and it was concluded that Japan is the best market
to enter for Softcat. The report then included the major mode of entry suggested for Softcat to
enter Japan which was Franchising and problems and apparent solutions were also discussed.
The report was concluded with some recommendations for Softcat to conduct their business in
Japan.

Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Section 1A...................................................................................................................................1
Importance and Impact of Global Trade & Globalisation.......................................................1
Section 1B....................................................................................................................................3
Company Background.............................................................................................................3
Section 2......................................................................................................................................6
PESTLE Analysis....................................................................................................................6
Porter’s 5 forces model..........................................................................................................11
Section 3....................................................................................................................................13
Internationalisation................................................................................................................13
Ansoff matrix.........................................................................................................................14
Porter’s generic strategies......................................................................................................15
Drivers of internationalisation...............................................................................................16
Section 4....................................................................................................................................18
Major findings.......................................................................................................................18
Proposed strategy...................................................................................................................18
Practical issues and solutions.................................................................................................19
RECOMMENDATIONS...............................................................................................................19
CONCLUSION..............................................................................................................................20
REFERENCES..............................................................................................................................21

INTRODUCTION
Globalisation can be defined as a process of expanding social and economic contracts to
various different nations. It is the term which is used for defining rising interdependence on
different culture, custom and norms all around the globe. In general terms international
expansion refers to the process of expanding business from local markets to divergent
international markets all around the globe. International expansion is important for business as it
allows growth of the business with prospective increase in market share. Expansion of business
to the new markets provides several opportunities to the business and it also grant new consumer
base to the organisation. It also allows business to diversify itself and it also help in improving
the reputation of the company which provide competitive advantage to the firm over others in the
marketplace (Pattnaik, Singh and Gaur, 2021). The main reasons that support international
expansion for companies is increased revenue and profits along with the chance of increasing the
reach of their innovative products and services. This report will critically analyse Softcat, which
is a London based technological solutions provider specializing in offering advanced IT
infrastructure to a variety of clients. This report will undertake a critical market analysis of 2
foreign locations and recommend the best possible methods for Softcat to undertake international
expansion.
MAIN BODY
Section 1A
Importance and Impact of Global Trade & Globalisation
Global trade helps in expanding the connections from national and local economies to all
around the globe. It plays an important role in growth and development of a business.
Globalisation helps the business to operate from various perspectives, views, aspects etc. It not
only enhances the efficiency of the country but also provide opportunities to several different
countries for foreign investment which leads to faster growth, higher standard of living and
various economic opportunities. It also helps in improvement of inter cultural communication
and it also improve transportation among different countries. It also enhances technological
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advancement in several sectors as well as countries. It also helps the business in adaptation of
new strategies and practices (Gulanowski, Papadopoulos, and Plante,2018).
Globalisation has both positive and negative impacts and some of the positive impacts of
Globalisation are with the rising influence of global trade the cost of manufacturing is reduced
which helps the businesses to sell goods at lower and reasonable price to the customer. It also
provides new trading opportunities to the businesses across the world. It also aids developed
countries in investing more amount in developing countries. With the rising globalisation the
communication and relationships between different countries becomes easier. The negative
impacts of Globalisation are that sometimes global trade creates adverse influence on the culture
and custom of different countries, Higher demand for goods and services also lead to inflation in
the economy and it also leads to rise in inequality among wealth and income. There are several
benefits that are linked to Global trade and Globalisation. These benefits have been highlighted
below.
 Higher standards of Living - Globalisation helps in development of various countries
which result in improved standard of living of the individuals.
 Entrance in New market - Global trade has resulted in increased connectivity among
various different markets all around the globe.
 Access to New Culture – Globalisation has improved the diversification and adaptation
of different culture, norms and beliefs which include foreign art, music, food etc.
There are also various challenges which are associated with global trade and taking the business
on an international level, a few of which have been listed herein.
 Loss of Cultural Identity - As globalisation helps in adaptation of various new and
different cultures which leads in loss of own cultural identity in many countries.
 International recruiting – With the immense rise of globalisation it becomes necessary
for the companies to hire personnel from various different countries to understand the
norms and culture of different nations (Namba, 2022)
 Cultural barriers – Companies which open multiple offices in different foreign
locations often find it difficult to adapt to local traditions and culture and struggle to
control the local workforce properly
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 Currency issues – The rate at which the currency flows can have adverse impact on the
economic growth, GDP and overall level of inflation in the host countries which might
make business difficult for any company entering that market
Section 1B
Company Background
Founded originally as Wardswift, Softcat was founded by Peter Kelly on 30th March, 1993
in High Wycombe under its original business name which was “Software Catalogue”. The
company has made decent progress when it comes to undergoing domestic expansion as it has
offices all over UK in places such as Bristol, London, Manchester, Leeds, Marlow, Southampton
and Birmingham. The company has also taken advantage of its positive growth prospects and
innovative solution oriented products and services to expand outside of UK marginally by
opening offices in Glasgow and an Irish office in Dublin (All Solutions, 2022).
The company primarily functions as a provider of high quality and market relevant
advanced IT solutions ranging from point to point technology guidance and implementation for
all sorts of businesses. The solutions offered by the company ranges from cloud services plan
and implementation, data security, supply chain operations, data centre and connectivity along
with financial solutions and modern management. The company can benefit a lot from
undergoing major digital expansions in expansive foreign locations due to the following reasons.
 In the aftermath of the COVID-19 pandemic, it has basically become the norm for
businesses to undergo a digital transformation and companies like Softcat which
specialize in IT and cloud infrastructure are in major global demand
 Softcat provides a comprehensive range of solutions ranging from cloud implementation
to supply chain streamlining which can help in accumulating a wider audience globally
 Softcat became a public limited company as of 2015 and it has decent financial resources
to undergo international expansion in at least one major foreign location as part of an
experimentation and growth oriented market strategy
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The current financial situation of the company is promising as the post pandemic financial
recovery has been positive and this is reflected in some of the company’s basic financial
statistics listed herein.
Figure 1 Softcat company financials
Source – Softcat PLC Interim report, 2022
Figure 2 Softcat Profit and Loss year ending 2021
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Source – Softcat PLC Annual report, 2021
Figure 3 Softcat Annual Growth and revenue
Source - Softcat PLC Annual report, 2021
It can be analysed from the above statistics that the company is prime for growth via
international expansion as it has grown steadily even in the face of the pandemic in 2021. The
gross profit of the company rose by 17.2% and the overall revenue growth registered as of 2021
was 7.2% which is quite positive for a firm in the field of IT technology driven business (Softcat
plc Annual Report and Accounts 2021, 2021).
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Section 2
For the purpose of undertaking international expansion, there are two major international
markets which have been selected for Softcat which are Canada’s IT industry and Japan’s IT
industry which are both exhibiting positive growth prospects along with supporting relative ease
of conducting business. The international IT markets of both the countries have been contrasted
herein with the help of a PESTLE analysis and Porter’s 5 forces model (Grygoryeva, 2020).
PESTLE Analysis
A PESTLE analysis refers to a strategic model which divides the external business layer
into multiple segments for analysis of external business factors and this model has been applied
herein in context of both Canada and Japan.
Figure 4 PESTLE Analysis
 Political – The way in which the government runs the domestic and international affairs
of a given location can have major impact on businesses expanding in that country. When
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it comes to Canada, Softcat can expect an extremely stable working environment as the
same government has been in power for a long time. The firm can also benefit from
Canadas having close trade ties with two major markets in USA and Mexico through
USMCA which was earlier known as NAFTA. Japan on the other hand has been through
constant shifts and has had 3 different prime ministers in the last 3 years which has
resulted in a disruptive environment which can cause trouble for Softcat. However, the
company can benefit from the Japanese government providing heavy incentives and tax
reliefs to foreign firms, especially smaller companies with an investment of 10 million
yen or more are allowed to deduct the 25% value of their investments from their taxable
income (Innis, 2018).
Figure 5 Japan Corporate Tax Rate and Structure from 2012 to 2022
Source – National Tax Agency
 Economical – The robustness of the economy and the financial prospects are also very
important expansion considerations for companies like Softcat. Japan is one of the
strongest economies in the world and the financial prospects of the country are also very
strong with an increase of $1.7 Billion as of January, 2022. Canada on the other hand is
also one of world’s top 50 economies with an annual growth rate of 6.7% which is quite
robust but Softcat must keep in mind that the company is projected to undergo negative
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growth in this year according to market projections (IT industry in Japan - statistics and
facts, 2022). When it comes to the comparison between the IT markets of both the
countries, Japan appears as a clear winner as the IT industry valuation of the country is at
$449.4 Billion as of 2021 compared to Canada’s $242 Billion (Nishioka and Takeuchi,
2018).
Figure 6 Contribution of IT industry in Canada's GDP
Source – Statista
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Figure 7 Contribution of IT services industry in Japan's GDP
Source – Data originating from the Office of Internal Affairs and Communication
 Social – Social factors also have major impact on businesses expanding in a foreign
location. Both Canada and Japan boast literacy rates higher than 99% which results in
heavy demand for IT services and solutions which Softcat specializes in. Softcat can cater
to a much bigger market in Japan as the population of Japan (125,598,560) is much
higher than of Canada (38,493,036). However, Canada might be better socially for IT
firms to expand into as the country has a higher proportion of private consumption at 54.6
% and the trend of working from home is not much prevalent in Japan and people have
the mentality of “spending time to save money” rather than “spending money to save
time” (Sasaki, Sato and Palvia, 2020).
 Technological – The investment made by Japan’s government in the field of advanced
ICT technologies at 19.51 Billion yen is much higher than that of Canada. The IT
industry of Japan is quite advanced with all businesses from retail to travel are utilizing
digital infrastructure solutions which Softcat specializes in. Growth in the IT technology
sector in Canada is forecasted to be at 5.3% as of 2022 compared to Japan whose IT and
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