Extent of Internationalisation in Grocery Retailing and Civil Aerospace Manufacturing Essay
Centuries ago it was a question for companies to operate worldwide but the costs to act global had been too high and the lack of knowledge about other countries, their culture, language and foreign demands caused serious impediment to internationalisation. However, a few decades ago, companies started to run for globalisation which is seen as a process of internationalisation (Margardt, 2007). Today, in almost all major economies of the world, the significance of domestic and/or foreign-based transnational corporations is increasing.The main aim of this literature is to find out the reasons why companies choose to go international, especially in grocery retailing and the civil aerospace manufacturing business. Internationalisation has been defined as developing networks of business relationships in numerous countries by ways of extension, penetration and integration.
Internationalisation is a process of increasing involvement in cross national operations, which requires the commitment of resources and the adaptation to international markets, changing the attitude of the firm and influencing the decisions on further internationalisation.Often the main aim of internationalisation is stated as the need of the companies to be able to stay competitive in their respective environment (Ebner, 2001). This literature reviews the various drivers of internationalisation along with the importance of alliances and joint ventures in today’s world. Drivers of Internationalisation There are several drivers of internationalisation and several researchers have propounded separate theories to explain what drives a company to go global. While a variety of factors drive retail internationalisation, profit growth is the most important factor that drives internationalisation in the retail sector.In the post-1945 environment, US retailing did achieve a particularly high profile internationally, as retailers from both Japan and Europe looked to the US for inspiration and example.
In Europe, for instance, Sainsbury’s was instrumental in introducing the supermarket to post-war Britain in the early 1950s (Akehurst & Alexander, 1996). Internationalisation is one of the most important trends in retailing today and it has accelerated vehemently in the last two decades (Zentes et al 2007).It was less than 30 years ago that almost all of the world’s retail firms were pure national firms with a negligible share in foreign markets. That scenario has changed dramatically. A look at the top 200 global retailers reveals that almost all players except those in the US operate in different countries to establish their business growth (Deloitte, 2006). A decade ago, the literature on international retailing was limited in quantity. The publication of Kacker’s study in 1885 heralded the increasing interest in this issue.
From the mid-1980s there was a rise in the number of international retail actions. In this period it was not only the US and European retailers who began to emerge in greater numbers but also Japanese retailers. Nevertheless, the 1980s were the decade of European internationalisation. The development of formalised marketing functions within major UK retail operations in the last twenty years (Piercy & Alexander, 1988) has provided UK retailers with a far more sophisticated planning and procedure than was previously evident within international retail marketing strategies.It has been revealed that today the main impediment to foreign expansion is the domestic market conditions and the regulatory environment. According to the eclectic (OLI) paradigm model (Dunning 1980, 1981, 1988) internationalization of businesses is drive by three types of advantages which are known as ownership (firm specific) and the location of the business (country specific). The ownership advantages are asset specific that is they are related to assets such as financial capital or specific brand name.Transaction specific advantages that drive internationalisation are the low transaction costs (Dunning 1981, 1988).
Overall, it can be said that the non location bound firm and imperfect markets are the specific drivers of internationalisation. With respect to the civil aerospace manufacturing business internationalisation has played a critical role in the advancement of this business. Today, civil aerospace is an international industry. The market for its products is global and increasingly the development and production of civil aero engines is based on international collaboration.
The internationalisation of production and distribution in civil aerospace is largely based on nationally based firms linked either through licensing, sub contracting or through full risk sharing partnerships (Segell, 1998). Since 1945 aerospace has also become a major employer, especially of highly qualified personnel. As a case study we can view the civil aerospace market in China. As China’s economy continues to grow rapidly, demand for air travel in China is projected to grow more rapidly.At present, entry into the Chinese market is closely controlled by the central government, and foreign manufacturers of commercial aircraft face significant demands for direct and indirect offsets. However, if Chinese negotiators are able to meet the provisions of the WTO agreement then demands for offsets will remain intense in the coming two decades. Thus, we can see that internationalisation plays a significant role in the Chinese aerospace industry. Now, let us look at the challenges faced by the grocery retailing industry in China by putting the different theories in place.
The Challenges of Grocery Retailing In China Today, the global retail market is facing serious constraints since the economic recession hit the markets in 2008. Retailers are finding it very difficult to adjust to the widespread changes occurring at various economies throughout the world. To escape the crisis, the emerging markets of China and India have begun a rebalancing of the global economy that will have a huge impact on the global retail market (Pradhan, 2009).Over the last ten years, Chinese grocery retail industry has experienced explosive growth and this has resulted in internationalization as the world’s leading retailers have established business in China to capitalize the domestic market. Domestic Chinese players such as Liqun in Shandong, and Suguo and Times in Jiangsu have established business at strategic spots and most foreign retail firms such as Wal-Mart and Carrefour have also set their eyes on these spots. However, the Chinese grocery retailing industry continues to face several challenges.The first main challenge affecting the Chinese grocery retailing industry is saturation. In a study of a random sample of 1,200 consumers in the six largest cities in China, Goldman and Vanhonacker (2006) found that the modern retailers already have a retail market share of 94 percent in nonfood goods, 79 percent in packaged and processed goods, 55 percent in baked goods, 46 percent in meat, 37 percent in fruit, 35 percent in poultry, 33 percent in fish and 22 percent in vegetables (Gulati, 2008).
Most cities in China such as Tier 1 cities Beijing and Shanghai have become over populated with stores.Tianjin and Chengdu too have become saturated. Several supermarkets, hypermarkets and convenience stores have crept up at these locations forcing well established foreign giants such as Carrefour, Wal-Mart and Tesco to look beyond these places. Even local retail giants such as Vanguard and Lianhua are looking to move farther afield. It is evident that the new way to control this growth of retail stores is look forward to Tier 2 and Tier 3 cities so that the companies can reach out to a larger base of people. Another challenge affecting the Chinese grocery retailing industry is format replication.
There are vast regional differences when it comes to consumer perception of value, rising importance of convenience and seasonal variations in food. Standard retail formats that thrive in US and Europe would fail in China so it is pertinent that the companies have different store formats for Tier 1, Tier 2 and Tier 3 cities. Another challenge facing the Chinese grocery retailing industry is operations. Due to China’s vast heterogeneity, it often gets very difficult to maintain infrastructure that maintains a common operating system.
Modern retail in China comprises roughly 10 percent of the national retail and 30 percent of urban food markets. China had no supermarkets in 1989, and food retail was nearly completely controlled by the government. Today, the market has reached annual sales of roughly $100 billion. This clearly shows that the Chinese grocery retailing industry is clearly developing at a rapid stage (Gulati, 2008). Tesco’s Objectives and Strategy In the year of 2009/10 UK retailers had an overall increase of 4. 7% and recorded total of ?90. 2 billion.
Tesco, Asda, Sainsbury and Morrisons were the top four UK retailers with a total market share of 76%. Tesco and Asda had efficiently utilised their IT resources to built its customer loyalty, the service is not rare and it can be imitated however Asda and Tesco can competently exploit their IT resources to generate the maximum competitive advantage for their brand names (Fahy & Hooley, 2002). It is difficult to imitate the rewarding system of Tesco as the organisation as already built a strong customer base through this business strategy and it will be tough for other competitors to break this strong customer base (Benady, 006). Tesco is also proficiently organised in all of its operations and has great capacity for further exploiting its resources to maintain its existing competitive advantage and gain some more in future. Tesco was the one of the retailers to adopt the lean concept in its supply chain therefore it has made the most of this strategy over the years as compared to its competitors and has gained an upper hand in the competitive advantage.Customer focused approach of Tesco, Asda, Morrisons and Sainsbury does not greatly differ from one another, all of them promise to offer high quality products at affordable prices however the use of IT resources by Tesco and Asda has helped them to gain efficient consumer access over its competitors. Tesco provides its consumers with the most rewarding club card facility and on the other hand Asda claims to be the cheapest grocery retailers. Both of them have stepped up in the market with their own unique services which has supported them to attract most of the consumers.
These are the objectives and strategy followed by Tesco. Alliances and Joint Ventures The main drivers of civil aerospace manufacturing are economic upswing, concentration of population, industries and liberalisation. The hike in air passenger traffic is largely triggered by the emergence of low-cost carriers in the domestic sector. The growth potential in this sector is ignited by the alliances and joint ventures that airlines get into to maximise profits.Some of the reasons behind alliances and joint ventures in the civil aerospace manufacturing business are – Capital intensity, service orientation, limited manufacturers, high level of regulation, low margins and tendency to consolidate and outsource. Today, the modern jet aircraft is produced after intensive research and commercial application and therefore airlines are harping on high level of on-time performance, wide network that offers better connectivity, better in-flight services and other superior facilities to attract passengers and provide them excellent services.
Strategic alliances allow airlines to participate in the intense competition of recent years. The main objective of these alliances is to create competitive advantage for the partners by enabling them to complement each other’s services and achieve substantial economies of scale, particularly in marketing and maintenance costs and largely retailing and corporate independence. Inter-airline alliances lead to many competitive advantages such as merging of commercial activities in terms of sale and passenger service (Moss, 1994).It also creates pooling of intercontinental routes and linking domestic routes. Further, alliances also provide high quality services and allow joint ground handling and maintenance at airports.
The main reason behind alliances remain capturing market share, joint investments and operating expenditure agreements, merging of reservation systems, joint fare policy, code sharing, risk sharing and to generate new opportunities and economies. Rolls-Royce Group is the leading company in the global civil aerospace, defence aerospace, marine and energy markets.The company has offices and manufacturing bases in 50 countries around the world. Today, Rolls Royce enters into alliances with several business concerns because it helps them sustain the innovation process that it began in the mid-1960s.
It has been stated that the dynamic capabilities of a firm to integrate, build, and reconfigure internal and external competences to face rapidly changing environments that come up in the civil aerospace manufacturing business (Teece etal. , 1997).Rolls-Royce is driven by strategic control and innovation that is made possible due to its excellent engineering capabilities. After privatization senior managers felt more under public scrutiny by the investment community and private shareholders that forced them to take proper precautions to maintain excellence (Verchere, 1992). Rolls-Royce surpassed Pratt & Whitney as the number 2 aircraft engine company in early 2000 and since then they have understood that strategic alliances and joint ventures was the only way forward to maintain growth and excellence.
Conclusion From the above discussion it is clearly evident internationalisation is the only way forward for both the grocery retailing industry as well as for the civil aerospace industry. Today, mergers and acquisitions (M&A) in China’s retail grocery sector is picking up rapidly and in 2009 there were 10 deals that successfully took place amounting to RMB 5. 9 billion.
Over the last decade the average value of a grocery store in China has been RMB 2 billion.Challenges to complete major mergers and acquisitions in China remain to be tackled. Some of the problems faces include limited capability in screening deals, inexperience in executing them and difficulties with post-merger integration. However, strategic alliances and joint ventures have clearly shown that consolidation of sourcing and supplier management across different regions and formats for development of private labels across different banners would definitely boost the industry in China.
The civil aerospace manufacturing business can also develop more with strategic alliances and joint ventures. This literature clearly shows that grocery retailing industry and civil aerospace manufacturing business has several aspects that are similar to each other. However, the main difference in the internationalisation of firms remains in their strategy and not in their functions so one has to analyze several existing theories to actually understand the behavior of a particular industry.