Morrisons Supermarket PLC International Investing

Question: Discuss about the Morrisons Supermarket PLC for International Investing. Answer: Introduction Globalization is the key to achieve greater success in todays dynamic business world and Morrisons Supermarket Plc. a major British supermarket chain has inculcated the said strategic goal of expanding its business globally in its long term goals. The company was established in the year 1899 and is successfully listed in the London Stock Exchange since 1967. It has done many successful acquisitions within UK and has also expanded its retail chain within the country and in Gibraltar as well. However its recent strategy of expansion in USA is one of its first and the same should be ventured only after due deliberations. I as a consultant would suggest that before investing any amount in the market of USA, the probable risks and business opportunities should be analysed in detail. Analysis of Potential Risks In Usa Before any amount is invested in USA, its political, economical, cultural as well as ethical risks should be analysed in detail as it is very different from that of United Kingdom. Thus the mannerism of performance and expansion strategy will be extremely different. Strategies can be formulated only after due calibrations and analytical analysis of these important factors of risk. Political and Economic Risk United States of America (USA) is one such country in the world which poses a very steady and conventional environment for business investment. It has a system of constitutional republic and representative democracy in which the majority rule is tempered by minority rights which is sheltered by law. However under the current presidents rule, democracy is prevalent which led to pull the country out of the global financial crisis of 2008. Presently due to elections the policy making of the government is not as effective as it used to be. Off late it has even noticed that the government and the corporate houses are in line with the common goals of each other. However the upcoming elections have posed an environment of uncertainty between the country and the various business houses. The political risk of transfer, expropriation and war is the least in USA (United States Department of Commerce, 2016). Thus it is understood that Morrison can invest in USA considering the country to have a more stable political scenario which is the main crux for survival in conducting international business in any country. On analysing the political risks that the country faces it seems to be a very ripe market for investment but the present scenario in US lacks direction in forming a sound foreign and security policies (Borg, 2015). Source: Economics and Statistics Administration Analysis Using Data From ONDD Transfer Risk: It is The Inability of Private Agents to Transfre Funds Abroad Due to Government Risks The chart above clearly shows that USA and Germany are two such countries which have the lowest transfer, expropriation and war risk. The expropriation risk in USA is least which means that the country is a democratic one and does not confiscate a companys products and services for the benefit of the nation as a whole. Secondly, the biggest risk that any company doing international business may face is that o transfer risk of converting the US$ to own countrys currency which is also least in USA. Last is the war risk which is high but USA is a well equipped country and hence the risk of uncertainties during war is minimal. History has seen a free market economy in USA but the present state is different that of a mixed economy. There has been intervention from the government in the economic policies and the affairs of the country thus enabling more and more influence or control in the public sector. Before Morrison invests a single penny in the market of USA it should study the probable economic risks which it may have to face. The dominance of consumers is so large that at times the US economy is named as consumer economy (Hermes, 2016). Its economy is of a mixed nature as the government as well as private enterprises both play a very important role. The economic risk is low in USA as the private individuals are also made a party while choosing the officials for their country who would be responsible for formulating economic policies. The government intervenes in placing certain guidelines about regulation with regards the kind of products being produced, the working conditions and environmental factor s. All these are the basic economic risks which are very basic for any country to spell out for conducting business internationally (Conklin, 2002). Further to this the commercial banks have tightened their lending policies in wake of a tighter monetary policy spelt out by the Federal Reserve in USA due to which there is a high risk of running into insolvency. The current presidential elections have developed an environment of uncertainty to the extent that the consumption level of daily products will slow down significantly. These contribute further to increase in the economic risk pertaining to investment in USA (Perry, 2008). The political and economic conditions prevailing in the USA stated above clearly proves that Morrison can look ahead to investing in the country although should wait till the new government is appointed so that the atmosphere of uncertainty is wade off. Cultural and Ethical Risks Investing in any country is not easy as there lies varying cultural and ethical differences too which pose to be one of the risk factors to be considered before investment is done. Similarly there are many cultural differences between USA and UK which also poses a threat for Morrison Supermarket Plc thus the same should be analysed before it decides to enter the market. On exploring the US culture from the 6-D Model a better overview of the culture is attained. Within every country regional cultural differences exists and it is not a necessity that people have to undergo a cultural briefing session before moving out of a particular place. Geert Hofstede has developed a cross cultural dimensional theory which deals with the differences in communication due to cultural stances. The dimensions described by Hofstede with regards USA which is very important from the view point of Morrisons Supermarket Plc are described as under: Power Distance: As per this dimension it states that all the people of a society come from varying cultural backgrounds have varying ethical standards and thus are said to be unequal. It clearly states that the society is influenced by the leaders but is equally influenced by the followers in USA. Therefore Morrisons should understand this inequality in the culture and try to establish more followers than leaders so as to succeed in opening up of a supermarket chain in USA. Individualism: American culture does not believe in individualism contrary to what is n vogue in the UK. Here hierarchy is set for ease in communication but people at all levels are easily approachable. The American Culture demands for hard work and good results which is a clear scenario of promotion on the basis of merit and not recommendations unlike UK. This is highly contrary and Morrisons Supermarket Plc. may face problems in dealing with the same situation. Masculinity: The masculinity high score shows how the society would encourage people who are successful. US has a score of 62. This score indicates that the USA culture is similar to that of UK in this respect. But the difference which Morrisons Supermarket Plc. has to understand is that in USA work is done basis targets set in the job. Americans are workaholic and they are very much concerned about the kind of lifestyle they lead. Uncertainty Avoidance: It is a true that future can never be predicted but still countries should deal with such uncertainties in an optimistic manner. America is one such country which welcomes changes, new business ideas and products whole heartedly As compared to the market of UK, USA is a more tolerant country. This gives an upper edge to Morrisons Supermarket Plc. to rethink about investing in USA. Long Term Orientation: This dimension basically deals with how a country links its past with its present and future. USA is one such country which welcomes change but very cautiously and hence has a very low score of 26. Morrisons Supermarket Plc. has to take this dimension as a deterrent to investing in the country. Here people measure business outcomes per quarter and expect promotions and rewards accordingly. This expectation and method of rewarding turns out to be very expensive. Indulgence: USA has a moderate score of 68 in this dimension which clearly states that around 60% of the population is more impulsive and the rest is more restrained in their performances. They believe that to get something and enjoy one has to earn it by working hard. Thus Morrisons has to consider this fact that the labour here would be skilled and hard working unlike that in UK (ITIM, 2016) . United States of America Geert Hofstedes 6-D Model Business Opportunities in USA Although conducting business in USA entails a lot of risks yet there are very bright opportunities that lure one to invest in the said country. The opportunities would be analysed in various sections which would enable ease in deciding the same. The demographic statistics clearly show that the median age of USA presently is 37 and with the increasing diversity there soon will be many minorities but no majority. As the country people are growing old, the younger generation are becoming more diverse in the sense that a majority of it belong to racial or ethnic minority group. Therefore it is a very good opportunity for the supermarket chain Morrison Supermarket Plc as the demographics of USA is wide and diverse and this is what any supermarket chain business looks for. There exists income inequality in USA. The middles class is shrinking and thus this is not good for the economy of the country. The upper class is pulling the middle class down and the lower classes are falling further. Thus for Morrison Supermarket Plc. the same should not affect the business as it intends to sell the basic household commodities and grocery which is required by all classes. Further to this the racial and ethnic diversities also prompts the company to look at the market as a good prospect since it has the option of keeping goods of wide nature serving the wide demography as well as income levels. The consumer habits also pose a big opportunity for the company. Although the same differs from that of UK. Presently, both the countries are although facing economical turbulence yet it is seen that the Americans have a positive outlook towards the same. There spending capacities are divided into various age groups (International Trade Administration, 2016). Morrison Supermarket Plc. biggest competitor would be Wal-Mart, the largest supermarket chain in the world. It is dominated by four major chains namely Wal-Mart, The Kroger Co., Safeway and Publix Super market. These have emerged as big players due to increased consolidations, mergers and internal restructures in the mid 1990s. Thus the market of USA with regards the supermarket chain is that of an oligopoly and Ellickson has presented an Endogenous Sunk Cost (ESC) model of retail competitors based on John Suttons model. It clearly says that an increase in the sunk cost investment is the main reason why the super market chains are so limited in the USA. As per the model stated by Ellickson, it is the quality that determines the kind of market structure that would prevail. Thus a growth in the market will definitely affect the costs that the firms have to bear which leads to wiping off of the smaller firms (Ellickson, 2004). The supermarket industry of USA had three main innovations which led to oligopolistic market structure of the same. Firstly was the sudden rise in the grocery chain in the year 1990, then was the introduction of the supermarket style and finally was the introduction of the programmed distribution and procurement system. Thus as per this model, the number of firms that form a part of this retail segment are not dependent upon the market share and secondly to sustain in the oligopoly market, investments in the quality of the products have to be made so as to sustain in this market. Thus Morrisons Supermarket Plc. should follow this theory to succeed and become a part of the market structure prevalent. In the wake of globalization, USA has always welcomed foreign products in its markets. Americans are seen using cars made in Germany or Japan. They use luxurious products which are made in Europe. Even in the grocery chain they welcome services of another player whole heartedly and buy products from them as well if the price is competitive enough. People have become more prone to buying organic, environment friendly products and thus if the new comers give these to them, then the supermarket owners see a warm welcome gesture. The government of United States of America has always welcomed the foreign investment by providing them a stable environment. The legal system is very simple as well as transparent without any ambiguity, the taxes are low, the infrastructural facilities are excellent and it provides easy entrance to explore the worlds most profitable consumer market. The government views the investment by other countries as a means of raising their GDP ratio. It is also noticed that investment in US yielded more profits after tax as compared to the non-US investments (Kilachand, 2012). The long term consequences of investing in USA is much more lucrative as compared to investment in any other country such as the availability of highly skilled labour whose productivity is much more than that of any other countrys labour. The image above clearly shows that the GDP growth rate has not been very ecstatic in nature yet the country has been successful in maintaining its growth after the great economic recession of 2008. Thus Morrisons Supermarket should view this as a big opportunity to invest in USA as the countrys ability to pay off its debt is stable on a year on year basis. Expansion of UK Companies in USA There are various business houses of UK who had tried to expand their businesses in USA. The biggest example is the failure of Tesco in USA, who finally decided to come out of the American market after five long years when it finally failed to attract the American Consumers. It failed to understand what Americans want from the service sector and the kind of services they offered turned the Americans away from the stores of Tesco. It used shrink-wrap for packing food, un-catchy name and self service option (Walker, 2012). These were totally against the culture of USA. They prefer personalized service which was missing in these stores. It also ignored the tastes of the Americans and thought that whatever was readily accepted by the people of UK would be acceptable by the Americans too. Similar to Tesco, MS and Sainsbury have also faced deaths while operating in USA. Thus it clearly shows that the supermarket chain of USA is very consumer sensitive and not understanding the same will le ad to demise of any foreign supermarket store. Further its timing to open the store was also very precarious to the global recession of 2008 (Seale, 2015). The above example clearly makes us understand that how important it is to understand the cultural differences to succeed. Also ethics, the political and the economical scenario of a country play a vital role to attract such consumer sensitive market is very evident from such failures. Well not all companies have failed to succeed their expansion plans in the USA. The example of Alliance Boots is one such retailer who has succeeded where the others have failed. It is a pharmaceutical company which sells beauty products as well. To sustain and survive in the US market, Stefano Pessina has decided to merge with Walgreens of US. He has understood that in order to succeed in the most difficult market of the world USA alliance formation is the most sought after strategy. Its merger strategy was basically to take advantage from the Walgreens superior pharmacy IT along with ensuring that it exports its own products to these stores as well. Thus this alliance was one of the most strategic moves of Alliance Boots in order to enter the toughest market successfully (Sunderland, 2014). The second example clearly states that strategizing of entry into the USA market is the best way to succeed. Roots Model Morrisons Supermarket Plc. should plan a foreign market entry which is very well defined by Roots. He states that three factors dominate the entry mode that a company should decide upon. They are the extent of the control that it is looking for, the risk appetite of the company and the time the company has to devote in that country. Therefore as per this eminent economist it is the method of entering a market that is the most critical decision that an MNC has to take after it decides upon the country it wishes to enter.. The model proposed by Root in the year 1994 is known as Decision Making Process Model which clearly states that the entry mode for any MNC in another country is a multi level decision. On analysing the same with regards Morrisons viewpoint the objective of the company is globalization and expansion of its business outside UK. USA is one such country with a strong economy and political stance which inclines the company towards this country. The second level s per Root s Model is an emphasis on the existing environment and presently the state of USA is not very stable due to elections (Root, 1994). Policies are not being made as appropriate as it should be and Morrisons should wait for the new President to be elected as this would have a great impact on the political and the economic scenario of the country as a whole. Morrisons will not be able to get a control of the market if established on a standalone basis. Further it is an oligopolistic market structure thus to break in such a structure is difficult because of existence of bigger players only. Thus it should look in for controlling over a specific market and not the entire USA. Secondly this is not the right time to invest due to uncertain political and economic conditions. Thirdly the risk appetite to invest in such a big country with so much of diversities is very low . Further, Root has stated three kinds of entry modes i.e. Export entry mode, Contractual entry mode and Investment entry mode and on viewing the past history of the various MNCs in USA, the last entry mode is the most apt for Morrisons as well i,e, investing in the form of a joint venture (Durmaz, Tasdemir, 2014). Thus if at all Morrisons Supermarket Plc. wants to enter the American market it should first try to find a suitable American company like AP Supermarkets, or Pathmark or Food Basics which are working at a regional level who would like to enter into a joint venture with it. This would give it an American touch which people out there look out for. Further New Jersey and New York City are one of the populous cities of USA, which the company should try to venture into. Conclusion Therefore on a concluding note I would like to suggest Morrisons Supermarket Inc. that the past has shown failures of all the retail supermarket chains from UK who have invested in USA leading to huge losses and wiping off the top line of the company. I as a consultant would strongly recommend that first investment as a part to globalize in USA is not a very good idea. The company should try to expand to other easier markets first. Secondly it should also first evaluate and study the entire market before investing. The market of USA is not the same in its entirety. Different states have varying tastes and requirements and most importantly even though the language is same of the two countries but the behavioural patterns are contrasting in nature. Further the risks are more as compared to the opportunities. It is a myth that Americans welcome change. They welcome new entrants but not change in their lifestyle. Further the present economic condition also makes the said proposition unviable. Tesco failed due to wrong timing. Thus Morrisons Supermarket Plc. should not repeat the same mistake. These issues may seem to be minor but are very crucial as it is a consumers market and they are the ones who dominate and ensure the success or failure of any firm. 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