Rupa Marks Spencer Case Study

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Submission date: 16th

January 2013

HYD - ITM BATCH 4 , Rupa Nambiar

MARKS & SPENCER: A CASE STUDY IN INTERNATIONAL

RETAILING

Entrepreneur Sir Michael Marks & Thomas Spencer

Company Marks & Spencer

Business type General Merchandise, Foods, Financial services.

Founded 1984

Employees 81,223 (2012)

Head office City of Westminster, London,England

Q1: What are the factors, which lead M&S to internationalize?

Company had worked upon the two factors to be in international

Internal factors & external factors.

1-Company moved to the international market due to the prevailing saturation in the domesticmarket. Hence company decided to move to the overseas market for further expansion

2-The labour party suggestion is also one of the reason for the M&S to move internationally

3-In order to meet the need for diversification company also moved to global market

4-In order to meet the franchising relationship in the global market, since franchising wasallowing the company to achieve the global presence with minimal economic and political risks

5-In order to acquire the global customers along with domestic customer in to meet the

expansion of the M&S.

6-In order to target the customers at global level so that the company can also move to the global

market all together in order to widen the scope of the M&S.

7-The internationalization of M&S is also due to the explanations of service firm

internationalization


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Q2-What is the sequence of country entry & why was that sequence selected ?

M&S entered the countries through acquisitions and franchising but the company did that in

sequence, M&S saw Canada as a good country to invest in because of its high incomes, solidinfrastructure, large middle class, low political risk, and use of English language but that did not

last for long, than came after the entry into Europe (France) exactly after two years from the

entry into Canada and entered after the lot of market research adapt the store French life stylesand from there after went to Belgium than after the company entered into the USA in1988 using

a similar strategy it used in Canada through acquisitions than after the company entered in the

market of the far east through the purchase of brooks brothers (1988), which co owned inaffiliates in Japan.

.Q3- What are the modes of entry used in the various countries and why?

ANS- The internationalisation of M&S resembles the theoretical explanations of service Firminternationalisation . These theories suggest that service firm become increasingly international

as they gain experience, willing to commit more company resource and take additional risks.

Retailers used relatively less risky modes of entry, such as exporting and Franchising, in marketswhere market and political risk are high, Retailers shared Ownership where sole ownership was

prohibited or restricted. In markets, such as the US and the EU, with significant purchasing

power, large population and developed infrastructure, retailers enter through high-control high-

risk modes of Entry, such as sole-ownership and acquisition. The company believed in openingits own stores and expanding through acquisitions in major economies. On the other hand, M&S

expanded through franchise agreements into countries where a partners local expertise is viewedas beneficial (M&S Annual Report 1998). The company owns stores in Belgium, Canada,France, German, Hong-Kong, Ireland, Spain and Netherlands; and franchises in the rest of the

countries including the Bahamas, Bermuda, Canary Islands, Cyprus, The Czech Republic,

Gibraltar, and Israel (De Nardi-Cole 1998). Whitehead (1991) proposed .That the company had

used franchising in countries that have relatively small population size or low per capitaincomes, but sufficiently large to support a small number of stores


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Q4-Which host country factors M&S seems to value and which do they don t?

When entering into a market the M&S sees following factors as favourable ones:

1.High income

2.Low political risk

3.Culture affinity

4.Large middle class population

5.Investment friendly policies

The unfavorable conditions are:

1.High political unrest

2.Low income

3.Low investment friendly policies

4.Less culure affinity

5.Less presence of organized retailers

Q5- Describe and explain the adaptations to M&S business model in different

countries?

The first major round of acquisitions M&S made was in 1973 of Canadian Peoples DepartmentStores and Walkers store, Since they perceived little cultural distance, they transferred their

business formula almost unchanged from the United Kingdom to Canada. They quickly found

that even Canada requires some modifications. The Canadian stores required customization tolocal needs including the use of Canadian merchandise, enlargement of food departments,

restructuring of inner city store, and opening of suburban stores much of which the company had

little experience with. M&S entered the European market in 1975. This was two years after the

less than successful Canadian acquisition. France was chosen as the gateway country, and Paristhe gateway city, to the rest of Europe. The Europe report of M&S includes Eastern and Western

Europe including some states in the Middle-East. The company hoped to have 60 stores in

Continental Europe by year 2000, It was taken as increase customization to local and nationaltastes by establishing additional brand names to the already successful St. Michael brand. Stillabout about 80% of the stock sold in continental Europe was the same as the UK home market,

while the other 20% reflects differences in culture, size, climate and local preferences, M&Sentered the US in 1988 using a similar strategy it used in Canada, trough acquisitions. It boughtBrooks Brothers. To market its clothes and Kings Supermarket to sell its food line. Unlike M&S

,which bought its supplies, these companies owned manufacturing facilities. Brooks Brothers and

Kings Supermarkets are similar in format to M&S two store formats. The entry into the Far East


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was twofold. M&S first exposure to business in the Far East occurred indirectly through the

purchase of Brooks Brothers (1988), which co owned affiliates in Japan. In recent years, Brooks

Brothers Japan was adversely affected by recessionary conditions in the economy the 1997 Asiancrisis has seriously stalled retail sales in the region, and M&S stores were not an exception. Both

franchised and non-franchised outlets have been adversely affected by the crisis. The companys

expansion coupled with the adverse conditions created by the Asian crisis have hampered salesand profitability in Asia therefore, no new development is planned in the near future

Q6 .Is M&S multinational or global retailer? Explain and defend your answer.

M&S is a multinational company as it is customizing its merchandise as per the need of thecountry in which they enter. For example it enters into Canada transferred their business formula

almost unchanged from the United Kingdom to Canada and then they quickly recognize that

even Canada requires some modification. The Canadian stores required customization to local

needs including the use of Canadian merchandise where as global retailers have theirstandardized merchandise all over the globe.

7 Where is M&S on the internationalization life cycle? Explain how you formed

your answer?

M&S is in the growth stage on the internationalization life cycle. As we can see that in this case

study M&S has its evolution from Britain and going abroad to be multinational with customizing

its merchandise according to the country it is entering. As the company is entering in the markets

of different countries, it is finding that how it can retain in the market and satisfies the needs andwants of the customers of that particular country.

Q8 Should the company standardize more of their international operations?

Compare Europe and Asia

No , the company should not be standardized, it should be multinational. As we can see thatM&S entered the European market in 1975. This was 2 years after the less than successful

Canadian acquisition. France was chosen as the gateway country, and Paris the gateway city, to

the rest of the European.

M&S believes that Asia will be a major market for Brooks Brothers because of the regions

receptiveness to US culture and brands aspirational value.


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Q9. What should be the future strategy of the firm?

The company should adapt the multi nationalization because in multi nationalization the

company should customize its merchandise according to the need of the customers of the country

in which the company is entering. If the company will adapt globalization then it should have to

adapt the standardization all along the globe which is difficult for the company as compared tothe multi nationalization.

Q10. Evaluate top managements response to crisis?

M&S was reorganized into three profit centers:

(1)UK retailing.

(2) overseas retailing,

(3) financial services.

Stores were reclassified from geographical division to four store types:

(1)Department stores,

(2)Regional centers,

(3)High street,

(4)Small stores.

This the firm hopes will help it

(1) Develop specific management skill associated with different store types,

(2) Tailor merchandise more accurately,

(3) Reduce administration,

(4) Improve staffing and training. The total cost of restructuring is estimated at about L40million,leading to a L40 million cost savings associated with redundancies starting fiscal Year 2000-

2001

A new marketing department was set up to help create improved

(1) Competitive Analysis

(2) Information gathering,


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(3) Proactive communication,

(4) Advertising Clarity,

(5) Customer targeting .

The department will increase marketing research, develop a coherent brand strategy, and increase

The level of advertising. Its marketing thrust will be to cut prices, put more staff on The shopfloor and improve visual merchandising . The company will Attempt to develop a more balanced

sourcing policy to its domestic and International outlets and will review global logistics to

streamline distribution and Lower costs .The company will continue to develop their e-commerce web site. A property Division has been set up to assess use of real estate. Market cost

of assets will be Charged to individual stores to better assess performance. Accountability has

Increased as each profit center is judged individually against its cost of capital, And resources

will be allocated to increase shareholders equity value.

Q11:Evaluate M&S CROSS-CULTURAL Skills.

The M&S do not master in cross cultural skills but they have shown on various occasions that

they have got the cross cultural skills for example: They effectively used the experience ofBrooks Brother with their entry in Asia. As we have read the Brooks Brother had 19 years of

business experience with Japan Secondly as we can see in every market which they enter, they

try n find an experience retailer by which they are able to gain foothold in the market, we can

easily see this by seeing the example of Australia, China and India. Thirdly they maintain a goodquality of their product worldwide , due to this they are able to make good image and goodwill

among the customer. But in part of working they lack cross cultural skills as:

1.They have prevalent European culture

2.They do not go by local manufacturing method

3.Due to their top down hierarchy they are less able to get the exact ground situation of the realtime customer

4.Due to their dependence on European market they are resistant to the other markets for theirneeds which leads their goods to be higher priced.

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Rupa Marks Spencer Case Study