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Mergers and acquisitions have long been an established form of corporate development to increase the strength of a business in an array of areas. The logic behind the Daimler and Chrysler merger was obvious, with Neubauer et al (2000) elaborating that it would potentially make the company an automobile powerhouse internationally and not just in mainland Europe. Furthermore, both companies felt that they were individually too small to challenge on a global scale in the long term. Chrysler were in agreement and believed the merger would generate enhanced prosperity. In 1998 Daimler paid $38 billion to takeover Chrysler in a horizontal merger (The Economist, 2000). The advantages of such a formidable merger are massive, with Gaughan (2007) believing that the primary benefits of a merger are synergy, value creation and competitive advantage. The merger of Disney and Pixar has symbolised these benefits with Barnes (2008) indicating that since 2006 Disney’s stock rose by 28% in 2008 and revenue streams have continued to increase substantially. The two firm’s adopted a united approach, utilizing their expertise to increase the quality of their products. With Daimler ranked 17th and Chrysler 25th globally in 1988, the amalgamation would undoubtedly boost the value of the combined company, whilst also exploiting economies of scale which would allow the company to maximise profits, increasing share value. The sum of the whole was anticipated to be greater than the two parts. The merger was claimed to be a ‘merger of equals’ where the expertise and knowledge of the two companies would be combined to forge high quality marketable products.

In reality this was not the case with Daimler thrusting their authority over Chrysler by installing German executives into senior positions within Chrysler. The scale of the failure of the DaimlerChrysler merger was illustrated when Daimler sold Chrysler to Cerberus for $7.8 billion in 2007, an astounding loss on what they had invested for Chrysler. Jensen and Ruback (1983. P.43) stated that “on average target shares increase in price from 16% to 30% around the date of the tender offer”. This does offer reasoning for why Daimler incurred such a loss. However, the issues are much more complex than this simple explanation. Jensen and Ruback (1983) believed such direct action was critical for corporate control. Sudarsanam and Mahate’s (2006) research would support this claim as they identified that hostile takeovers in nature tended to produce higher returns than a friendly takeover. From this aspect such a strong action was recommendable to achieve control. Johnson and Scholes (2000) believed a SWOT analysis was an effective method isolating the opportunities gained from a merger. Indeed such an analysis portrayed that the merger would allow massive market power growth, value creation and competitive advantage. A SWOT analysis in regards to the merger has been created below to illustrate the strengths, weaknesses, opportunities and threats of the merger.

Daimler and Chrysler Merger SWOT Analysis

Strengths

Savings through economies of scale
Large corporate brands
Increased capital strength
Competitive advantage through size

Weaknesses

Difficult to control and direct such a large organisation
Two diverse cultures (European & American) to infuse
Different customer bases

Opportunities

Entry into new markets (Particularly Asia) and market expansion
Innovation through combined expertise
Potential to become a dominant market leader

Threats

Such a large merger can be high risk to the existence of both companies
Newly formed DaimlerChrysler lacks any corporate identity, customers may not align with it
Cultural Differences

Matsumoto (1996, p.16) defined culture by stating that “culture is the set of attitudes, values, beliefs and behaviours shared by a group of people, but different for each individual, communicated from one generation to the next”. In contrast to the thought of Jensen and Ruback (1983) the ousting of management violated the long established culture within Chrysler, which in turn was the catalyst for the cataclysmic failure that was the DaimlerChrysler merger (Neubauer et al, 2000). Employees resisted the European style which caused great conflict and tension between the two organisations. Incidentally, this compromised the communication process, resulting in poor products and disappointing sales in relation to the size of the merger. Pritchett (1997, p.7) identified “a failure rate of 61% in acquisition programs, with failure defined as not earning a significant return”. This was very much the case for DaimlerChrysler, with the BBC (2000) reporting a record low share price of $42.79 from a high of $108 in 2000 for the company. Just two years into the merger performance was plummeting. The BBC (2000) also revealed that in contrast the ‘merger of equals’ the Daimler chairman, Jurgen Schrempp actually viewed Chrysler as a division of Daimler and not as a partnership. As eluded to above, Schrempp directed Chrysler as a European company by replacing Jim Holden, the Chrysler president with Dieter Zetsche. Forcing this European style programme of change was greatly contested and fuelled disengagement from staff at Chrysler. Through Schein’s (2010) theory of ‘The Organisational Iceberg’ it is clear to isolate culture as an area which can be one of the most challenging barriers to introducing change. Schein (2010) attributed culture as part of the informal organisation which influences values, beliefs and conflict. If this is not confronted then attempt to integrate change will become extremely difficult (Senior and Swailes, 2000). Gertsen et al (1998) proposed that this fierce resistance to change was due to the fact that employees emphasise cultural differences to demonstrate their distinctiveness and social identity.

Hofstede’s (2002) ‘Cultural Dimensions Theory’ found that culture within different organisations was influenced by which country they resided in. He developed the dimensions of national cultures which consisted of the power distance index, individualism versus collectivism, uncertainty avoidance index, masculinity vs femininity, long term orientation versus short term orientation and indulgence versus restraint. Hofstede (2002) found that these dimensions all varied in organisations depending on what their national identity was. From this it is clear to appreciate the huge problem of attempting to amalgamate a European and an American culture as there are so many variables. Daimler was very rigid and bureaucratic with Chrysler in contrast being much more informal. Daimler and Chrysler by their very cultures were incompatible, stressing the need for an effective change management programme. Haslam and Ellemers (2005) believed that there was positive correlation between the level of employee’s social identification towards the organisation and performance. It is apparent that a key reason for DaimlerChrysler’s drop in share price in 2000 was due to many of Chrysler’s employees seeing little association with themselves and their counterparts of Daimler. The companies in isolation varied in so many ways. For instance Daimler had a brand image of being a high end luxury brand while Chrysler was a low end cars and trucks manufacturer. These contrasts meant defining the very identity of the merger was plagued by paradox’s which meant both employees and customers failed to connect to DaimlerChrysler. Daimler had instilled a great emphasis on the operational and business synergies of the merger, seemingly ignoring the implications of culture.

Human Resource Management

The investment decision is one that is integral to any success of the allocation of capital by a company. Pike et al (2012) stated that the “investment decision is the decision to commit the firm’s financial and other resources to a particular course of action”. With culture being the predominant factor of the DaimlerChrysler merger’s demise, the HRM policies of the chairman at any given time were equally responsible. Daimler had envisioned lucrative rises in profit yet they failed to invest in a strategic human resource management process which would introduce the desired change in an effective manner (Gaughan, 2005). Schuler and Jackson (2001, p.239) attributed the importance of HRM to the interpretation that “companies today need to be fast growing, efficient, profitable, flexible, adaptable, future ready and have a dominant market position”. HRM is critical to implementing these factors which the DaimlerChrysler merger had lacked greatly, providing evidence as to why in the 21st century specifically that they crumbled. The transition of management and integration must be done in a systematic and people orientated approach (Schuler and Jackson, 2001). The HR issues associated with mergers can be categorised into two unique phases;

Pre-Merger: Involves an analysis of the cultural differences and other issues such as the impact on employee morale. This stage reinforces the need for human resource planning as such an analysis would demonstrate major challenge. Solutions to such difficulties would be to modify the recruitment and development process whilst introducing specific appraisal systems. The protracted difficulties would be allocated an effective change management plan by the HRM department. However, Daimler critically undervalued this crucial aspect of a potential merger, which would have long term effects as explained.

Post-Merger: The reality of the impact of the merger on HR related areas is revealed at this stage. The diverse HRM practices can unsettle staff, with Chrysler’s staff resenting the European style of management, resulting in high levels of intransigence. Such emotional reaction diverts staff focus away from productivity, contributing heavily to laboured performance. The workshops devised by Daimler were not extensive enough to combat the massive cultural gap.

It is imperative that strategic HRM is implemented to adjust a company’s HRM strategy to that of the business strategy. For example Cisco has a culture constructed around risk taking and ambition. If they find that a protracted merger does not embody these values then they will refuse to force their culture on to a company, abandoning the prospect of the merger, such is the scale of problems which culture can present. There was also serious contemplation of separate headquarters such was the dismal level of communication between the two firms. Directions need to be from a centralised power source who is respected with Handy (1993) suggesting that this was the ideal way to assume control and maintain effective decision making. Chrysler’s flat structure when compared to Daimler’s hierarchical structure made it extremely difficult to initiate any HRM directives as both companies had different ways of doing so. The post-merger stage caused unprecedented difficulties for the merger as a result of little pre-merger analysis being undertaken. The cross-cultural differences were allowed to manifest into a massive concern with both Schrempp and Zetsche underperforming in their roles as chairmen of the merger. They distinctly did not commit their resources to developing training programmes which would have aided the alignment of Chrysler’s staff to that of the overall vision of Daimler. Tannenbaum and Yukl (1992) firmly contested that staff training was an area which should be reviewed regularly to ensure staff are being trained in accordance with the strategy of this business. Daimler did initiate HRM policies, but there was a lacking in depth. Regular staff appraisals and cross cultural learning days would have been methods of narrowing the gap between culture (Tannenbaum and Yukl, 1992).

Conclusion

From analysing the development and subsequent failure of the DaimlerChrysler merger it is abundantly clear that HRM’s involvement in the change management process is integral. To overcome cultural issues, a tailored strategic HRM policy must be implemented such is the formidability of cultural factors. Daimler failed to realise just how potent the resistance of change can be and that as explained, originates from the informal structure of a company. It is undeniable that the Daimler and Chrysler merger had the potential to dominate the automobile industry due to their individually established size and profit margins. However, it was a mammoth failing as the two companies in reality were never able to amalgamate into a single corporate identity. AOL and Time Warner was a similar failing with the $164 billion deal eventually resulting in Warner’s stock diving by 80% (Bewkes, 2010). AOL’s problem was that they did not anticipate that wireless internet and other relevant technology would revolutionise the broadband industry. They failed just like Daimler to analyse their threats and assess whether such a merger was of value. The Daimler and Chrysler merger was only a failure because Daimler underestimated the power that culture can forge. Strictly speaking, the merger for both companies was disastrous due to the stark culture gap, but equally so, this challenge was not managed effectively by the relevant departments. Perhaps the collapse of this huge merger can be embodied by Daimler’s chief of passenger cars, Juergen Hubbert who is quoted as saying “we have a clear understanding: one company, one vision, one chairman, two cultures” (The Economist, 2000).

Reference List

Barnes, B. (2008) Disney and Pixar: The power of the prenup. The New York Times. [Online] Available from: http://www.nytimes.com/2008/06/01/business/media/01pixar.html?pagewanted=all&_r=0

BBC. (2000) DaimlerChrysler shares hit new low. [Online] Available from: http://news.bbc.co.uk/1/hi/business/1090975.stm

Bewkes, J. (2010) ‘AOL merger was the biggest mistake in corporate history’, believes Time Warner chief Jeff Bewkes. Telegraph. [Online] Available from: http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/media/8031227/AOL-merger-was-the-biggest-mistake-in-corporate-history-believes-Time-Warner-chief-Jeff-Bewkes.html

Gaughan, P.A. (2005) Mergers: What can go wrong and how to prevent it. New Jersey: John Wiley & Sons, Inc.

Gaughan, P.A. (2007) Mergers, acquisitions and corporate restructurings. 4th ed. New Jersey: John Wiley & Sons, Inc.

Gertsen, M.C., Soderberg, A.M. and Torp, J.E. (1998) Cultural dimensions of international mergers and acquisitions. Berlin: De Gruyter.

Handy, C. (1993) Understanding organizations. 4th ed. England: Penguin Books.

Haslam, S.A. and Ellemers, N. (2005) Social identity in industrial and organizational psychology: Concepts, controversies and contributions. International review of industrial and organizational psychology, 20 (1), pp.39-118.

Hofstede, G. (2002) Cultures consequences: Company values, behaviours, institutions and organizations across nations. 2nd ed. Great Britain: SAGE Publications, Inc.

Jensen, M. and Ruback, R.S. (1983) The market for corporate control: The scientific evidence. Journal of Financial Economics, 11 (4), pp.5-50.

Johnson, G. and Scholes, K. (2000) Exploring corporate strategy. Harlow: Pearson education.

Matsumoto, D. (1996) Culture and psychology. CA: Brooke/Cole.

Neubauer, F., Steger, U. and Radler, G. (2000) The Daimler/Chrysler merger: The involvement of the boards. Corporate Governance: An International Review, 8 (4), pp.375-387.

Pike, R., Neale, B. and Linsley, P.M. (2012) Corporate finance and investment: decisions and strategies. 7th ed. Great Britain: Pearson Education

Pritchett, P. (1997) After the merger: The authoritative guide for integration success. Texas: Pritchett and Associates, Inc.

Schein, E.H. (2010) Organizational culture and leadership. 4th ed. San Francisco: Jossey-Bass.

Schuler, R and Jackson, S. (2001) HR issues and activities in mergers and acquisitions. European Management Journal, 19 (3), pp. 239-253.

Senior, B. and Swailes, S. (2000) Organizational Change. 4th ed. Edinburgh: Pearson Education Limited.

Sudarsanam, S. and Mahate, A.A. (2006) Are friendly acquisitions too bad for shareholders and managers? Long term value creation and top management turnover in hostile and friendly acquirers. British Journal of Management, 17 (1), pp.10-17.

Tannenbaum, S and Yukl, G. (1992) Training and development in work organizations. Annual Review of Psychology, 43 (2), pp.339-441.

The Economist. (2000) The DaimlerChrysler emulsion. [Online] Available from: http://www.economist.com/node/341352

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Introduction

The globalisation process that has been occurring and indeed accelerating in recent times has been due to various factors; changes in information technology have given the impression of reduced physical distance, and so have the advances in communication technology. Also, the (economic) rise of developing nations has added new actors to the global stage. All this has been greatly aided by the adoption of various forms of international trade agreements including the establishment of economic areas such as the European Union, just to mention the most prominent example.

Whatever the causes and nature of the globalisation process, in this context the internationalisation of an individual firm has gained more and more importance as firms now have the need, and at the same time the incentive, to enter new countries and markets quickly and effectively, in order to exploit the opportunities that the global stage offers, and to avoid being left behind by their rivals.

There are different motives that can lead to a firm’s internationalisation decision, and different choices that the firm’s management has to make as to the mode of entry into the international market. The aim of this essay is to outline and critique some of the various theories that have been presented by academics, which try to describe how and why the internationalisation process occurs.

The UPPSALA Model

The Uppsala model describes the internationalisation process by a firm as a gradual and incremental phenomenon whereby the expansion into a new country, and therefore into a new market, happens in subsequent progressive steps, starting from exports into the new markets and aiming to the establishment of operations in that country/market (Johanson and Vahlne, 1977). The key to this process is the experiential learning or knowledge gained by the individuals who work in the firm as they proceed with the expansion. Each step in the process is thus a platform for the next step, and the firm can then expand into other countries and markets. Also, this model postulates that the expanding firm will try to enter markets and countries to which it feels closer to, and with which the psychic distance is smaller, subsequently progressing to countries and markets which are further away (not merely geographically but from a psychic distance point of view) and more different. It is a stages-based approach which has a sequential take on the internationalisation process (Whitelock, 2002).

The model has been criticised for its simplicity and perhaps excessive generalisation. Forsgren (2001) for example, addresses the scope and nature of the organisational learning that the model assumes, which only really considers the experiential learning by the organisation’s management, while in practice there may be other ways in which the learning occurs. For instance, firms can learn through imitation of their competitors, by altogether taking a radically different approach from the existing one, or even by simply acquiring other firms that already operate in the new market and thus possess the relevant knowledge and/or skills.

Another criticism is the one-dimensioned approach of this model, whereby the internationalisation process occurs through exports via a third party middleman first, then via a sales subsidiary, and finally through the establishment of production facilities in the new market. This process may not be so straightforward in practice and firms may use other, even mixed approaches, depending on the individual markets they are considering. In this respect, Buckley et al (1987) analyse the case of European firms in Japan, which mostly favour the joint-venture route as a means of entry into the market.

Firms can even have a different goal from the establishment of production facilities abroad. For example, licensing may be the strategy of choice for high-technology companies (Root, 1998).

A similar model to the Uppsala model is the Innovation model as developed by Cavusgil in 1980 with its subsequent refinements, however, these “explicitly or implicitly build on Johanson and Vahlne’s contribution” (Andersen, 1993: p.212), and therefore they are not discussed in this essay.

The Eclectic Paradigm

The eclectic paradigm as formulated by Dunning (1988) seeks to explain the internationalisation process by underlining the importance of three main conditions that influence the firm’s decision to internationalise its operations. Firstly, the company has to enjoy ownership advantages relative to its indigenous rivals (for example trademark rights, returns to scale, certain entrepreneurial skills etc.). Secondly, the market to be entered must be attractive in terms of the resources and factor endowments it enjoys (e.g. lower wages, certain natural resources etc.). Thirdly, there must be an advantage for the firm in internalising its production, that is to say in producing the goods or providing the services itself rather than offering them through contractual arrangements with a third party. Thus, the internationalisation process is viewed as a rational one, based on the evaluation of its benefits as compared to its costs.

This approach may be too simplistic, particularly in the light of the risk diversification theory expressed by Rugman (1979). This author points out that the same set of circumstances in relation to a certain investment opportunity in a foreign country may be assessed differently by different firms, according to their perception of, and attitude towards risk, among other things. Firms will often seek to diversify their risk and distribute their portfolio of activities accordingly. Therefore, with reference to the eclectic paradigm, different firms may act differently in relation to the same set of ownership, locational, and internalisation advantages, and the model will be deficient to the extent that it cannot take into account the firm-specific circumstances and factors that ultimately influence the internationalisation decision.

Industrial Networks and the Interaction Approach

The above theories and models, while making some certainly valid if somewhat disputed points, run the risk of being uni-dimensional inasmuch as they only really consider the viewpoint of the individual organisation that takes the decision to internationalise. However, organisations do not exist in a time-space vacuum: they interact with the world around them, which is made up of a network of other agents, and this in turn influences their decisions as to whether, and how to internationalise their operations.

This is known as the Interaction Approach, developed by the International Marketing and Purchasing (IMP) Group, which departs from other theories on four levels. Firstly, it challenges the view and consideration of a “single discreet purchase”. Secondly it challenges the assumption of a “generalised and by implication passive market”. Thirdly, it challenges the “atomistic” and perfectly fluid view of the market “with ease and speed of change between different supplier for each buyer”, and very low or no barriers to entry and exit from the market for those suppliers. Fourthly, it challenges the separation in the analysis of the buying and selling processes as if they were totally distinct and not influenced by one another (Hakansson, 1982: 1).

This approach identifies four sets of factors or variables as being key to the establishment and maintenance of fruitful relationships between the various agents (most notably buyers and sellers), and therefore to the internationalisation decision: the interaction process itself and its structure, the atmosphere in which the interaction takes place, the parties involved in the interaction process, and the environment in which this occurs (Woo and Ennew, 2004).

A criticism that has been levelled to this approach is that, while it goes in the right direction, it perhaps does not go far enough in the analysis of the interaction network that the expanding firm is involved in, and other, more detailed and specific dimensions of the phenomenon should be considered (Fletcher, 2008).

Born Globals

The so-called ‘born global’ firm has been defined as “a business organization that, from inception, seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries” (Oviatt and McDougal, 1994: p.49). Thus, this view of the internationalisation phenomenon differs from the theories outlined above in that, while the latter adopt a sequential and progressive view of the firm’s expansion into new countries/markets whereby domestic success is considered an antecedent to international expansion, the born global definition implies that said expansion can even occur simultaneously to the domestic phase of the firm’s growth, or at least soon after, in an accelerated manner.

A review of the extant literature on the born global phenomenon was conducted by Sultan and Wong (2011), and this highlighted that various theoretical approaches have been used to explain and describe the born global phenomenon, spanning from studies emphasising the importance of foundational resources (particularly knowledge) within the firm, to models that focus on the importance of networks, or which stress in an evolutionary sense that some firms are simply better than others at exploiting their resources and creating new knowledge, thus achieving better performance.

These authors however, also highlight that the born global approach as it stands presents some gaps, more specifically with regards to the antecedents of the born global phenomenon in terms of managerial behaviour and preferences, and with regards to the outcomes in terms of the born global’s strategic (as opposed to purely financial) performance. This critique is corroborated by Zahra et al. (2005), who point towards the internationalising management’s motivations as well as cognitive abilities as key determinants of the internationalisation decisions and processes. As for the performance of the born global firm, Cavusgil and Zou (1994) argue that exporting firms have multiple goals in their sights, not just financial but also strategic (e.g. establishing a presence in a strategically important market, or simply ensuring their product is known outside of the existing markets). Thus the born global approach needs to address these gaps in order to become a more comprehensive framework that can explain the internationalisation phenomenon.

Business Strategy Approach

The business strategy approach to the process of firms’ internationalisation revolves around the concept of businesses making strategic choices as to whether to expand in new countries and markets, based on the practical reality of certain specific variables that they may face during the process itself . Reid (1983), as referenced by Whitelock (2002), states that these variables include the type of market the organisation faces and its opportunities, the attitudes, preferences and behaviour of the individuals who work for the company, and the firm’s endowment of resources.

ore specifically with regards to the market the firm is trying to enter, other authors identified three factors which are key to the choice of market the expanding firm might make. These are the new market’s “accessibility, attractiveness and psychic distance” (Turnbull and Ellwood, 1986: 188). On the other hand, these authors suggest that for the purposes of deciding upon the organisational structure to adopt, more internal variables and factors may play a key role, such as the management’s preferences, technological resources and the organisation’s history (Turnbull and Ellwood, 1986).

Although this approach tries to take a more empirical and practical view of the internationalisation phenomenon, its limitation may lie precisely in the fact that in practice too many factors or variables may be considered relevant or even key to the internationalisation process, depending on each specific instance of an internationalising firm, and therefore it may not be easy to draw universally valid conclusions.

Conclusion

The various theories on internationalisation expressed above address different aspects of the firm’s internationalisation decision, and they all have their merits. The Uppsala model is more concerned with experience and the knowledge derived from it as a key influential factor in the internationalisation decision. The eclectic paradigm focuses on the cost of the transaction leading to the firm’s presence in the new market. The born global approach departs from the stages-based, gradual and sequential approaches to address the simultaneous or at least accelerated expansion of certain firms, while the Interaction approach takes into account a number of different actors and the environment which the internationalising firm tries to enter as being key to the decision. Finally, the business strategy theory states that the firm’s decision will depend on the managerial philosophy as well as the kind of opportunity the market is presenting and the resources available to the firm. None of these theories and models can be said to be comprehensive or exhaustive, so perhaps a different approach is needed, one that manages to select and condense the key components and factors of each, so as to cover most if not all of the relevant angles

References

Andersen, O., (1993) On the Internationalisation Process of Firms: A Critical Analysis. Journal of International Business Studies, 24(2), pp.209-231

Buckley, P.J., Mirza, H., Sparkes, J.R., (1987) Direct Foreign Investment in Japan as a Means of Market Entry: The Case of European Firms. Journal of Marketing Management, 2(3), pp.241-258

Cavusgil, S.T. and Zou, S. (1994) Marketing Strategy-Performance Relationship: An Investigation of the Empirical Link in Export Market Ventures, Journal of Marketing, 58(1), pp.1-21

Dunning, J.H., (1988) The Eclectic Paradigm of International Production: a Restatement and Some Possible Extensions. Journal of International Business Studies, Spring, pp.1-31

Fletcher, R., (2008) The internationalisation from a network perspective: A longitudinal study. Industrial Marketing Management, 37, pp.953-964

Forsgren, M., (2001) The Concept of Learning in the Uppsala Internationalization Process

Model: A Critical Review, Occasional Paper Series. Uppsala University: Eva Wallerstedt.

Hakansson, H. (Ed.) (1982) International Marketing and Purchasing of Industrial Goods: An Interaction approach. Chichester: John Wiley

Johanson, J., Vahlne, J-E., (1977) The Internationalization Process of the Firm-A Model of Knowledge Development and Increasing Foreign Market Commitments. Journal of International Business Studies Vol. 8, (1), pp. 23-32

Oviatt, B.M. and McDougal, P. (1994) Toward a Theory of International New Ventures. Journal of International Business Studies, 25(1), pp.45-64

Reid, S., (1983) Firm Internationalization, Transaction Costs and Strategic Choice. International Marketing Review, Winter, pp.44-56

Root, F.R., (1998) Entry Strategies for International Markets. 2nd Edition. San Francisco: Jossey-Bass Publishers

Rugman, A.M., (1979) International Diversification and the Multinational Enterprise. Farnborough: Lexington

Sultan, P and Wong, H.Y., (2011) The Success of Born Global Firms: A Conceptual Model. Journal for Global Business Advancement, 4(3), pp.224-241

Turnbull, P.W. and Ellwood, S., (1986) Internationalisation in the Information Technology Industry, in Turnbull, P.W. and Paliwoda, S.J. (Eds.) (2013) Research in International Marketing. London: Croom Helm.

Whitelock, J., (2002) Theories of Internationalisation and Impact on Market Entry. International Marketing Review, 19(4), pp.342-347

Woo, K., Ennew, C.T., (2004) Business-to-Business Relationship Quality. An IMP Interaction-Based Conceptualisation and Measurement. European Journal of Marketing, 38(9/10), pp.1252-1271

Zahra, S., Korri, J. and Yu, J. (2005) Cognition and International Entrepreneurship: Implications for Research on International Opportunity Recognition and Exploitation. International Business Review, 14, pp.129-146

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Executive Summary

The executive summary of the business plan should summarise in such a way that the sections hang together all that has been included in the ensuing chapters. It should be a distillation of the plan itself – following the same order and pattern of the plan itself so that the reader may easily refer to a chapter for more detail if need be (Jenkin 2014). Depending on where the business currently stands – perhaps a start up or an established business looking to expand, the executive summary should highlight where the business is, where it needs to go, why it needs to go there, what it needs to get there and what can be expected to happen when the business does achieve its startup goals or expansion goals (SBA, 2015).

The Business

If the business is an established business, this section should detail the current position of the business. This should include the product mix offering, the customer segments or groups to which it is offered, the current financial position of the business, the current goals and objectives of the business (which should be Specific, Measurable, Attainable, Relevant and Time-limited), the current strategy of the business (i.e. the competitive advantage of the business) and finally how it currently utilises its resources (Evans, 2010).

Where the business plan is for a start up – this section should set out what the goals and objectives of the business would be again making sure that they are specific, measurable, attainable, relevant and time-limited. Furthermore this chapter should summarise the proposed product mix to be offered and the proposed customer segment or groups to whom it would be offered. The product mix must be presented in terms of its benefit to the proposed customer segments (Evans, 2010).

Market Demand

This chapter essentially details the results of the market audit or market research that should be carried out. The result of the market research presents the platform in which the markets can be defined; that is divided into segments, the target market is identified and the product offering is positioned (Barnett, 1988).

The first step thus is researching the market and business environment (Barnett, 1988). One way of determining market size is by adding the turnover of potential competitors (Evans, 2010). This can be done using a PESTLE analysis. A PESTLE analysis gives an overview of how key drivers such as the population, economic, socio-economic, technological, legal and environmental factors affect the market size and capability (Kotler and Keller, 2012)).

For example, if a start-up plans to begin the manufacturing and sales of a new smart phone in the UK, the population and the percentage of the population that uses a smart phone gives an estimate of the market size of smartphones. The population can be further broken down into age and sex segments to further narrow down the target in terms of the age brackets and sex of the market – this will inform the positioning of the product and the identification of the target market (Hooley et al, 2012). As can be expected a larger market size would be preferred (Kotler and Keller, 2012). The economic and socio-economic factors of the business environment or the market gives insight into the purchasing power of the market – again this should inform the target market and the positioning of the product. For example, if the economy is generally bad, consumers may not be willing to make high end purchases. Similarly, if the gross domestic product of a country is low, high-end products may not be suitable for the market. The technological, legal and environmental factors also affect the capability of the market to make a purchase or how the market now makes a purchase. In the smartphone example, perhaps it has become a trend that consumers now prefer “greener” phones, or the government has passed a law limiting the number of mobile phones one person can have or technological advancements now influence the kind of smartphones consumers want or the methods in which they purchase these smartphones – perhaps they now make more purchases online than they do in brick and mortar shops.

The information required to carry out this analysis can be found via the internet on sites such as Office for National Statistics UK which provides statistics on the population, the ratio of men to women across different ages and how much per household is earned in the UK amongst other relevant information. Alternatively or in addition, a customer survey using questionnaires may prove quite useful in determining the preferences of the market.

Having identified the market size, the next step would be to segment the market and identify the market in order to shape the product and value offering. The market can be segmented by geography, demography and behavior (Kotler and Keller, 2012). Having segmented the market thus, one of these segments or all of the segments could be identified as the target market. It is however worthy to note that a larger market segment with an equally attractive purchasing power may be the obvious preference but a niche may sometimes be found in a smaller or sometimes larger market with a low purchasing power. An example of this is insurance companies India, selling policies for as low as a pound because the population of India is quite large making it’s a large market albeit one with a low purchasing power (Kotler and Keller, 2012). It is recommended that a diagrammatic representation of the relevant information sourced for this section is included in this chapter of the business plan to make for easy reference of facts and figures.

Competition and Strategy

This chapter of the business plan should detail the industry attractiveness and the business strategy for competing in that industry. The attractiveness of an industry may be analysed and discovered by carrying out a Porter’s 5 forces analysis which essentially determines the profitability of the industry as determined by the 5 sources of competitive pressure (Grant, 2015), Porters’ 5 forces is diagrammatically represented below in Fig 1.

Threat of substitute products or services – The price customers are willing to pay for a product depends in part on the availability of substitute products (Gran, 2015). In other words, if there are no substitutes of the product or service one offer, customers may be inclined to pay a little more e.g cigarettes and gasoline. In addition the extent to which substitutes depress prices and profits depends on the likelihood of the buyer to switch between alternative products or services (Grant, 2015). For example, if customers are likely to switch from sugar to honey, then the prices and profits of sugar will fall in order to attract more customers.

Threat of Entry – If an industry earns a capital in excess of its cost of capital, it will act as a magnet to firms outside the business (Grant 2015). Put simply, if there are no restrictions on new entrants into the industry the rate of profit will fall towards the competitive level (Grant, 2015). In other words the more competitive the industry, the less profitable it is. Thus it will be worthy to check if there are barriers to entry in that industry such as high capital requirements, product differentiation, economies of scale, governmental and legal barriers etc. The more of these there are the less competitive and the more profitable the industry would be.

Bargaining powers of suppliers and buyers – This refers to whether the buyers are price sensitive or not and these would depend on a number of factors (Grant, 2015). For example in the car manufacturing and sales industry, it importance of a car usually outweighs its cost. Some cars are differentiated as luxury cars thus they are sold at a premium e.g Jaguar Land Rover’s Land Rover. Car manufacturers may have to be insensitive to price in a bid to get the important car parts they require in the manufacturing process, finally car manufacturers today are in intense competition with each other thus they put pressure on their suppliers to reduce prices. The same is the case for supplier bargaining power, except the roles are reversed and the firms in the industry are the buyers and the producers of their inputs are the suppliers.

Rivalry between firms would depend on the number and size of the rivals and whether they are relatively similar (Grant, 2015). If they are similar they may avoid price wars in favor of collusive pricing strategies. Also the extent to which the products are differentiated determines the intensity of competition – more differentiation means less competition and price cuts whilst the opposite is the case (Grant, 2015).

Fig.1 (Porter, 2008)

Having identified the intensity of competition in the industry and the target, the next step would be to identify a suitable strategy of value offering to the customers. In simple terms this could be either through product differentiation or price differentiation (Grant, 2015). Product differentiation strategy offers the consumers a product which benefits the consumer in a way no other product does whilst differentiation or cost leadership offers a price value which is below that offered by other suppliers or producers in the market (Grant, 2015). An example of a company with a cost leadership strategy is Primark.

Financials and Forecasts

There are a number of financial forecasts that could be created for the purposes of a business plan however the most suitable financial forecast for a start-up is a market driven sales forecast as it does not require the detail that a full financial forecast would require. A full financial forecast is more suitable for an already established business as historical financials of that business would be readily available.

It is worthy to note that a market driven sales forecast for a start-up will involve some general estimates which must be justifiable and realistic. A market driven forecast can be presented as shown below

Business Segment or Customer SegmentMarket SizeMarket Demand Growth %/yearForecast Market size(?000) in 3 yearsCompany competitive position on a scale of 0-5Likely market share Likely revenues
ANote 1Note 2Note 3Note 4Note 5Note 6
B
C
Total

Notes
Note 1 – Assuming that the business has chosen segments that already exist in the market – the market size would be readily available by adding the turnover of potential competitors with the same segment. Otherwise a simple multiplication of the proposed price of the product by the size of the market (number of customers in the market) would suffice in estimating a market size.
Note 2 – If it is an existing market, the information as to the growth trends of the market would be available on the internet (it is important to use a reliable source such Financial Times or Bloomberg). The average rate growth rate can then be used to predict the market growth rate for the next 3 years for each segment. Assuming that the growth rate remains constant makes it easier.
Note 3 – To determine the forecast market size in the next three years, the, the growth rate of the market size over the last three years could be examined to arrive at an average figure which can then be used to forecast the market size in the next three years.
Note 4 – The competitive position of the company in the next three years on a scale of 0 -5 (5 being the highest) may be determined by figuring out how much market share the company can realistically acquire in each year. For example if the company is starting up the fourth mobile phone network in a country that already has three, it is unlikely that the company would have a 25% market share in three years, rather it may have between 8-10% following an intensive marketing campaign (Evans, 2010).
Note 5 – as explained in note 4.
Note 6 Likely revenue should be informed by the market size divided by the market share and then multiplied by the price per unit of the product. The revenue forecast in 3 years’ time should be determined by the growth rate of the market and the market share of the company.
Control

Control involves a system of controlling an organisation’s expenditure over a period of time such as budgeting, variance analysis, and internal and external auditing (Evans 2010). However where a start-up is concerned, budgeting may be more suitable for controlling the expenditure of the company after its first year in business.

Funding

The following are the most popular and relevant sources of funding for a startup; self-funding, friends and family, small business grants, loans or line of credit, start-up incubator, angel investor, venture capital and partnership (Zwilling, 2010).

References

Barnett, W. (1988). Four Steps to Forecast Total Market Demand. Harvard Business Review. Retrieved 9 June 2015, from https://hbr.org/1988/07/four-steps-to-forecast-total-market-demand

Evans, V. (2011). The Financial times essential guide to writing a business plan. Harlow, England: Financial Times/Prentice Hall.

Grant, R. (2015). Contemporary Strategy Analysis (8th ed.). West Sussexx: Wiley and Sons.

Hooley, G., Piercy, N., & Nicoulaud, B. (2012). Marketing strategy & competitive positioning. Harlow: Financial Times Prentice Hall.

Jenkin, M. (2014). Small business tips: how to write a business plan executive summary. the Guardian. Retrieved 9 June 2015, from http://www.theguardian.com/small-business-network/2013/aug/22/small-business-tips-write-business-plan-executive-summary

Kotler, P., & Keller, K. (2012). Marketing management. Upper Saddle River, N.J.: Prentice Hall.

Porter, M. (2008). The Five Competitive Forces That Shape Strategy. Havard Business Review, 86(1), 78-93.

Sba.gov,. (2015). Business Plan Executive Summary | The U.S. Small Business Administration | SBA.gov. Retrieved 9 June 2015, from https://www.sba.gov/content/business-plan-executive-summary

Zwilling, M. (2010). Top 10 Sources Of Funding For Start-ups. Forbes. Retrieved 9 June 2015, from http://www.forbes.com/2010/02/12/funding-for-startups-entrepreneurs-finance-zwilling.html

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Critically discuss Corporate Social Responsibility (CSR), what are the implications for a firm that does not conduct CSR

Corporate Social Responsibility (CSR) is often mistaken for a 21st century buzz phrase when in fact it has been part of the business lexicon for decades. While some argue that the concept dates back to the Industrial Revolution, the first substantive work was written by Peter Drucker in his 1954 book The Practice of Management. Despite the passage of time, there is still no universal definition of CSR. Corporate Social Responsibility, what it is and how it is implemented, is different depending upon the country a business operates within, the regulatory system they are answerable to and even the industry within which they work. These complications aside, it is necessary to fix on well-rounded definition of CSR in order to critically discuss the concept in this paper. The definition offered by the International Organization for Standardization will be used, as it is general in nature and applicable to most businesses, regardless their country of operation:

“Social responsibility is the responsibility of an organisation for the impacts of its decisions and activities on society and the environment, through transparent and ethical behaviour that:

contributes to sustainable development, including the health and the welfare of society

takes into account the expectations of stakeholders

is in compliance with applicable law and consistent with international norms of behaviour; and

Is integrated throughout the organization and practised in its relationships.” (International Organization for Standardization, 2010)

The one weakness in this definition is the proposition that CSR is about compliance with applicable law. In Dahlsrud’s (2008) analysis of 37 CSR definitions, he identified five critical dimensions. The first dimension is the environment and its consideration in business operations and the second is the social dimension which covers businesses taking into account their impact on society. Both of these dimensions are central to our working definition. The third dimension identified is the economic dimension which looks for a commitment to integrating CSR into business operations is also present as is the fourth dimension which related to how businesses should manage all stakeholder groups in a socially responsible manner (Dahlsrud, 2008). The final dimension, voluntariness, is what is missing from the ISO definition. Dahlsrud (2008) defines voluntariness as businesses making decisions and undertaking activities that are above what is legally required whereas the ISO definition (International Organization for Standardization, 2010) states that mere compliance is acceptable. It is argued that merely complying with the law is better described as good corporate governance and not of itself an act of corporate social responsibility (Ashley and Crowther, 2012; Benabou and Tirole, 2010).

Central to the CSR debate is the notion of how society defines the role of business, and the resulting responsibilities. The classic roles and responsibilities assigned to business are to harness capital and other resources in production, to provide employment and meaningful jobs, to conduct research, development and innovation, to provide goods and services for sale, to create wealth for shareholders, employees, customers and society at large. (Fitzgerald and Cormack, 2011) These core, growth and profit motivated responsibilities do touch on some dimensions of CSR, but comparing these to the responsibilities endowed by CSR shows the amount of change necessary to move towards a socially responsible business model.

One extreme of the CSR debate, often referred to as the neo-classical or traditional conflict approach (Redman, 2005), argues that the only social responsibility of business is to increase profits (Friedman, 1970). The other end of the spectrum is what Redman terms the “true believers” (2005, 78) approach to CSR. This is where a firm has environmental and social commitments in place that are not profit motivated. However, true corporate altruism is rare with evidence suggesting that organisations are more likely to adopt an ‘enlightened self-interest’ approach to CSR (Porter and Kramer, 2006). This is an approach that ties socially responsible activities to profit making activities (Redman, 2005).

Enlightened self-interest has been one of the driving forces behind corporate responsibility in relation to the environment and utilization of scare resources. Inputs to production, from raw products to fossil fuels, are becoming scare and businesses have needed to adapt to these changes or risk extinction (Ashley and Crowther, 2012). So while environmental impacts are now of greater concern to business, it could be argued that this is more the survival of the business than a deliberately socially responsible endeavor (Ashley and Crowther, 2012).

At the same time, society now holds greater expectations of the business community (Scherer and Palazzo, 2011). With higher levels of education (for the most part) and thus knowledge, there is less of a tendency to believe the rhetoric of business. Ashley and Crowther argue that customers are not looking for perfection of business practices, but “the do expect honesty and transparency” (2012, pg.3).

The rise and rise of social media has also created a fast and ubiquitous means for people to call businesses to account for (perceived) socially irresponsible acts (Fitzgerald and Cormack, 2011). The media also has the ability to provide focus and extensive coverage on businesses who have engaged in dubious practices (Fitzgerald and Cormack, 2011). Companies who use third world (often slave) labour are being named and shamed, and forced to reassess their supply chain practices (Ashley and Crowther, 2012).

Despite these inroads, the last decade has seen examples where self-regulation and responsible corporate behaviour have failed spectacularly (Lynch-Wood et al, 2009), causing such events as the Global Financial Crisis. Few, if any, parts of society remain unaffected by these events. The response by policy makers and legislators has been swift and punitive. The net result being greater compliance and reporting requirements across most organisations and industries. Now there exists little distinction between what would have been considered a CSR organisation and one that practices good corporate governance (Money and Scheper, 2007; Mason and Simmonds, 2014).

It would be disingenuous to deny that the CSR movement has not had a positive impact on the business community. However, the overwhelming amount of progress in socially responsible action has been sparked by the depletion of natural resources and the need for businesses to diversify operations, changes in society and societal expectations of business and government legislative response to corporate failings. Being socially responsible is now just good business, an essential component of operational and strategic decision making (Porter and Kramer, 2006). Whichever way it is has been achieved, there are consequences that still exist for organisation that do not conduct CSR.

Both the perception and reality of company performance can be enhanced by adopting CSR. Some pundits argue the payoff is long term, others argue that there is no payoff at all (McWilliams et al, 2006). Above profitability, there are a number of risks organisations face if they do not engage in CSR behaviour. It should be noted that the following is not an exhaustive list, merely the ones with the greatest potential impact.

Reputational damage has always been a key outcome of socially irresponsible business activities (Walker and Dyck, 2014). Reputation can be defined as the aggregate perception of an organisations internal and external stakeholders (Walker and Dyck, 2014) and represents a firm’s single greatest intangible asset. Once reputation is lost, or at least impacted significantly, it is difficult to get back. Changes to the speed with which reputation damaging information can spread is also of concern to socially irresponsible organisations as it is much more difficult to hide or deny wrong doing (Ashley and Crowther, 2012).Further to this, Walker and Dyck’s (2014) research showed a positive correlation between a firm’s reputation and those with corporate social responsibility.

Employee engagement and attracting talent appears to go hand in hand with socially responsible corporate practices (Bhattacharya et al., 2008). The global economy has been described as a ‘knowledge economy’ (Fitzgerald and Cormack, 2011), with the greatest corporate assets residing in the intellectual endeavor of staff. Bhattacharya et al. (2008) also argue that CSR is a way for a firm to show their values in practice and thereby emotionally engaging employees to achieve all of the organisation’s goals.

Engaged staff, at all levels of the business, are crucial to complete in a market place that is increasingly saturated by products and services. Differentiating the offering of one business from another (Servaes and Tamayo 2013) is becoming more difficult to achieve, but CSR related activities provide a point of product differentiation. Environmentally sounds goods (such as recyclable plastics) and Fairtrade food stuffs (such as coffee) are two examples of familiar products that have been differentiated by organisations acting in a more socially responsible manner. Firms who fail to innovate in this way will become followers instead of leaders, and potentially impact their profitability (Blowfield and Murray, 2008).

Smarter product and service development needs to start with managers and leaders thinking outside their traditional product and service offerings (Blowfield and Murray, 2008). The move to a more socially responsible business imperative has opened up new markets and opportunities within which an organisation can expand and prosper (Porter and Kramer, 2006). Those organisations closed to CSR will miss these opportunities and run the risk of being left behind. Even if opportunities are identified, access to capital may become increasingly difficult for non-CSR firms.

With the rise of Socially Responsible Investment, organisations that do not engage in CSR can limit their access to capital and hence, their growth potential (Porter and Kramer, 2006). Furthermore, organisations run the risk of greater regulatory intervention if they do not change to more socially responsible ways.

The recent trend towards regulation of business activities has highlighted the fact that if governments and policy makers identify failures in self-regulation, they are more than willing to step in and regulate business behaviour (Lynch-Wood et al, 2009). Legislation changes and compliance requirements are both restrictive and costly to organisations. If organisations fail to go above and beyond the current compliance requirements, they risk more being imposed on their activities (Benabou and Tirole, 2010).

These risks all have the potential to significantly impact an organisations profitability and in extreme cases, long-term survival. These considerations also should be cause enough for businesses to reconsider their default position on CSR initiatives. Whatever the short-comings of the CSR movement, and the ideologically motivated debates about definition, society and the global economy are radically changed. Being socially responsible is now the only way to do business.

Corporate Social Responsibility is a sound business concept, but long fought debates around its definition have reduced the impact that it may have had on the business community. The fact remains that even if organisations conduct themselves in a socially responsible manner, there is some level of profit-motivated self-interest underpinning these decisions. The greatest headway in moving (forcing?) organisations to be more socially responsible has been societal and environmental changes external to the firm. Global industry and populations have led to the degradation of raw materials and fossil fuels which has made it necessary for many industries to reconsider how they do business. Sustainable development has become core to business operations in most sectors and is now more a case of good business practice than falling under the CSR banner. Society has also seen the impact that business has on their natural environment and communities in general, and is now willing and capable of calling organisations into account for irresponsible, unethical behaviour. In summary, forces external to the organisation have had a greater influence in moving organisations towards the CSR ideal than the CSR movement itself. Regardless of how more socially responsible business practices are achieved, the change is positive and widespread. Substantial risk still remains for those businesses who do not adopt CSR practices. The implications include reputational risk, the inability to attract and retain staff and the possibility of increased regulation. Failing to embrace CSR also has the potential to impact the long-term suitability of an organisation, reducing access to capital, missing opportunities for growth and the failure to differentiate your brand from the rest of the pack. The conclusion being that being socially responsible is no longer optional, it is simply the way good business is done.

References

Ashley, P. and Crowther, D. (2012), Territories of social responsibility. 1st ed. Farnham, Surrey, England: Gower.

Benabou, R. and Tirole, J. (2010), Individual and Corporate Social Responsibility. Economica, 77: 1–19.

Bhattacharya, C.B., Sankar, S., Korschun, D., (2008), “Using Corporate Social Responsibility to Win the War for Talent”, MIT Sloan Management Review, (http://sloanreview.mit.edu/article/using-corporate-social-responsibility-to-win-the-war-for-talent/)

Blowfield, M. and Murray, A. (2008), Corporate Responsibility: a critical introduction, OUP.

Dahlsrud, A. (2008), “How Corporate Social Responsibility is Defined: an Analysis of 37 Definitions”, Corporate Social Responsibility and Environmental Management, 15 (1), pp 1-13.

Drucker, P. (1954), The Practice of Management, Allied Partners, New York.

Fitzgerald, N. and Cormack, M. (2011), The Role of Business in Society. An Agenda for Action, Joint Initiative by the Conference Board, Harvard University CSR Initiative and the International Business Leaders Forum on behalf of the Clinton Initiative. ( http://www.hks.harvard.edu/m-rcbg/CSRI/publications/report_12_CGI%20Role%20of%20Business%20in%20Society%20Report%20FINAL%2010-03-06.pdf )

Friedman, M. (1970), “The Social Responsibility of Business is to Increase its Profits”, The New York Times Magazine, September 13, 1970, pp 122-126.

International Organisation for Standardization 2010, Guidance Standard on Social Responsibility (ISO 26000).

Lynch-Wood, G., Williamson, D. and Jenkins, W. (2009), “The over-reliance on self-regulation in CSR policy”, Business Ethics: A European Review, 18 (1), pp 52-65.

Mason, C., and Simmons, J. (2014), “Embedding Corporate Social Responsibility in Corporate Governance: A Stakeholder Systems Approach”, Journal of Business Ethics, 119, pp 77-86.

McWilliams, A., Siegel, D.S., and Wright, P.M. (2006), “Corporate Social Responsibility: Strategic Implications”, Journal of Management Studies, 43 (1), pp 1-18.

Money, K. and Schepers, H. (2007), “Are CSR and Corporate Governance Converging?” Journal of General Management, 33 (2).

Porter, M.E., and Kramer, M.R.(2006), “Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility”, Harvard Business Review, December 2006, pp 78-93.

Servaes, H. and Tamayo, A. (2013), “The Impact of Corporate Social Responsibility on Firm Value: The Role of Customer Awareness”, Management Science,59,(5), pp. 1045–1061.

Redman, E., (2005), “Understanding the Corporate Social Responsibility Continuum”,

LBJ Journal of Public Affairs , 18, pp 72-84.

Walker, K. and Dyck, B. (2014), “The Primary Importance of Corporate Social Responsibility and Ethicality in Corporate Reputation: An Empirical Study”, Business and Society Review,119 (1), pp 147–174.

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Introduction

This report outlines some of the key concerns of the Cooperative Groups employees regarding the overall ethical direction of the Group. The Group prides itself on its commitment to ethical business, be it in the fairtrade, environmental or locally sourced areas, and yet it is employees concerns that such standards are inconsistent throughout the Group and are therefore undermining the good reputation of the organisation. This report is particularly critical of the ongoing decision of the group to sell non fairtrade products alongside the groups own fairtrade products, specifically the promotion of these on a national level. In addition, the report emphasises the need to create much stronger links with local communities both as a means of engaging more with the communities in which the group operates, but also to create a more flexible supply structure based on the availability of local products.

Fair trade and non-fair trade

It is the employees considered opinion that the issue of fair trade and non-fairtrade is a key problem within the group’s grocery stores at present. The ethical stance taken by the group in sourcing all of its own brand products from sustainable farms and fair trade networks is certainly to be commended, however, the wider decision which has been taken to still stock products such as Nescafe and Galaxy and Mars chocolate continues to undermine this decision. The ethics of this situation are clear – either one is for fair trade and the wider benefits which this brings, or one is against it and believes that the free market will provide for all. By stocking and thereby profiting from products which do not take this stance the group undermines its commitment to these causes , particularly given the fact that the groups own products in this area are high sellers and are particularly competitive. A stronger commitment here would do much to boost the ethical background of the group.

It is also the employee’s belief that this could be tied in strongly with the Cooperative Banks commitment to development projects in developing nations. It seems ridiculous to be giving with one hand and taking with the other and therefore the employees would like to see a more explicit and concrete commitment on this level which could be taken across the Group as a whole. Much of the key development literature on the problem of poverty in Sub Saharan Africa focuses on the problem of creating sustained investment and providing important markets for export for products. The Cooperative Group is in a unique position as the owner of a large bank and a grocery outlet to provide this support and could be a real leader in this field. The public relations benefits of such an approach do not need to be laboured but more importantly there is a real opportunity to use the organisation for good in the world. With the growth of ethical consumerism and the notion of green marketing there is a real opportunity to make a difference in this sector.

Becoming truly local

It is the experience of many of the Group’s employees that many customers who come to the Groups grocery stores feel somewhat let down by the failure to push forward with stocking local produce. Many of these have highlighted the fact that larger retailers such as Morrison’s and Tesco have made strong headway on dealing with this issue. This issue is a key one in the sense that it engages with several of the key ethical considerations of the Group, as laid out on the Group’s website. These include the environmental considerations of moving products great distances. There is an important issue here with central distribution centres and the way in which these operate. It is often the case that products will be produced in one area of the country, moved to another hundreds of miles away and then returned via a wagon to a point two villages away. This undermines the credibility of the organisation on an environmental level but also on a local level.

Whilst employees appreciate the fact that such operations are often cheaper and are part of keeping the cost down, it is important to acknowledge the good public relations which could be created through enhancing the Group’s commitment to local job creation. A more dynamic supply network would certainly create this as it would require a significant step up in administration for it to be successful. However, the employees of the Group believe that this would be a significant PR coup and would therefore win the Group significant support, particularly in more rural areas. It would combine to create jobs, reduce the carbon footprint of the Group and also help the Group provide a real service to local people. Most people agree that the fresher the produce, the better.

Moving the organisation forward

Whilst this report is critical of the Group on several levels it must be acknowledged that the Group is to be significantly commended, particularly when one considers the current situation with many of its major competitors in the Grocery market. However, in a constantly changing world it is vital for such organisations as the Cooperative Group to continue to show the lead on issues such as local produce, carbon reduction programmes and ethical consumerism. To that end the organisation needs to examine fully what it believes the next level to be. This report embodies some of the views which should be seen as coming from the ‘shop floor’. They are based on the direct experience and views of the man on the street and from those who work in the Group’s outlets. Doubtless there are greater ethical considerations to be made and doubtless there are significant economic and financial aspects to be taken into account. However, for the Group to continue to pride itself on its ethical commitment it does need to take the next step forward.

This report suggests that looking to make radical changes in the sourcing of produce could provide a significant amount of jobs in the country (through the necessary management and administration structures which would be created), could reduce the organisations carbon footprint and would provide fresher and therefore better produce to all of its customers. This would represents a public relations coup and would fall directly in line with the Groups ethical commitments.

A further step which the organisation would like to see is through the role of the Bank. Once again, this is certainly deserving of significant support and plaudits for the work which it has done but the employees once again feel that a more concrete set of explicit principles could further improve both the reputation of the Bank as well as its ethical standing. These principles would also include a commitment to employees of the organisation but would also include the promise of support to small businesses which would be set up in support of the wider Cooperative Group operations. One example here would be of a small firm of delivery drivers which would be operating in support of rural farms in Northern Scotland. These would directly support the work of the Group in the sense of attempting to make the Group more local through sourcing food more locally and would therefore be supported by the Group knowing that there would be strong business there as the structure of the organisation changed.

The current economic climate and the Group

In making these critical comments of the Cooperative Group the employees would like to stress their knowledge and acceptance of the problems currently associated with the economic crisis within Europe and the wider world. However, it remains their belief that the Cooperative Group can become a beacon of what ethical business operations can do for the communities in which they operate. The employees believe that much of the current economic crisis was caused fundamentally by greed, be it the greed of investment bankers who made investments that they knew would not pay off, or invested in projects which they knew were unethical and which would result in damaged livelihoods. The Cooperative Group can stand opposed to these problems by creating a clear charter that it will not pay Directors hundreds of thousands of pounds in bonuses but will reinvest this money in local communities, supporting local farmers and local transport networks, supporting developing nations and the farmers who work there, helping to build links between the nations. It is the belief of the employees that if the Cooperative Group were to move forward and take on this more advanced ethical stance that it would be financially costly in the first instance as infrastructures would need implementing and there would doubtless be problems associated with this. However, it is also the belief of the employees that many people would support such businesses, particularly where they knew that it was directly affecting local business. It is certainly true that for many consumers the major consideration would remain price. However, the employees firmly belief that with hard work and the commitment of the wider Group, these ethical changes can be implemented in a successful manner.

Conclusion and Recommendations

• A stronger more direct commitment to moving the organisation forward in a sustainable and truly ethical manner.
• The Groups stance on issues such as Fair Trade is commendable and has been an important step in raising the profile of products such as chocolate and coffee and the issues surrounding the sourcing of the key commodities which these require.
• However, the Group must now acknowledge that the stance which it is taking on this issue is hypocritical – on the one hand advertising its own advocation of ethical sourcing and the importance of a fair price for growers whilst on the other hand continuing to directly profit from products which do not meet these standards.
• The Group would therefore benefit from a much more clear cut and well defined ethical approach in which its Grocery stores were operated on principles similar if not identical to those of the Food Wholesaler SUMA.
• The Group should oppose the sale of non-fair trade products under any circumstances and should work to source as many products as it can locally in order to support local industries, provide fresher produce to its customers and to provide greater local involvement.
• This process will encourage a greater involvement with local communities and will help the Group in becoming a dynamic and ethical supplier to local communities which becomes a part of these communities rather than being another huge chain which rips the soul out of local values and towns.
• To create an ethical pledge and commitment which will encompass all aspects of the Groups current ethical policies in a much more explicit and coherent way. One key example of this which the employees would particularly like to see is the following – The Group will not only commit itself to sourcing its own brand chocolate from fair trade farms it will actively support such farms with financial assistance from the bank and will undermine the market for non-fair trade products by refusing outright to stock such products.

References and Bibliography

Bevins, Vincent. “Guardian survey reveals shoppers’ green concerns.” The Guardian London: The Guardian, 2010.

Cooperative Group. “Ethical Trading and Fairtrade.” Manchester: Cooperative Group, 2010.

Cooperative Group. “Food Ethics.” Manchester: Cooperative Group, 2010.

Cooperative Group. “Food and Drink.” Manchester: Cooperative Group, 2010.

Klein, Naomi. “No Logo.” London: Fourth Estate, 2010.

Lang et al. “Food wars: the global battle for mouths, minds and markets.” London: Earthscan, 2003.

Moshirian, Fariborz. “Globalisation, growth and institutions.” Journal of Banking and Finance 32.4 (2008): 472-479.

Sachs, Jeffrey. “The End of Poverty: How We Can Make It Happen in Our Lifetime.” London: Penguin, 2005.

Stiglitz, Joseph. “Globalisation and its Discontents.” London: Penguin, 2002.

Stiglitz, Joseph. Sen, Amartya and Fitoussi, Jean-Paul. “Report by the Commission on the Measurement of Economic Performance and Social Progress.” 2009.

Weis, Tony. “The global food economy: the battle for the future of farming.” London: Zed Books, 2007.

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Introduction

Changing business needs and industry trends affect all businesses. Some businesses prosper, whiles others barely survive, and many still, close their doors forever. Competitive and adaptive advantages are tools that organisation teams must master to increase their chances of survival. Comprehensive needs analysis increases both competitive and adaptive advantages. Strategic planning is a complex process, especially, when data collection is necessary for success. External data collection adds another layer of complexity to the planning process. There are no guarantees that the data will yield positive results for the decision making process. However, taking precautionary measures, organisations can increase the potential for collecting valuable data. Comprehensive data collection and analysis provides a tool whereby the information collection adds value for the organisation. Surveys, interviews, group discussions, task analysis, performance appraisals, observations, incidental procedures, performance analysis, and external scans each tell a story of the information collected via those mediums. Hence, it is imperative for the experts conducting data collection and comprehensive needs analysis be well versed in their craft if they are to improve existing business conditions. The research conducted herein presents a comprehensive needs analysis for the The-Second-Greatest-Company Corporation.

Comprehensive Needs Assessment (CNA)

Education and employee development is imperative to any organisation. The planning of education and training does not apply to new hires alone, managers and supervisors are equally valued within the organisation. Organisations must ensure that the training and development process is not just a matter of training, but rather to enhance productivity, improve interactive communications, and increase overall return on investments for stakeholders. Hence, all education and training plans must begin with the goals and objectives of the organisation at the forefront of employee development initiatives.

Company Background

This document represents a comprehensive needs analysis conducted on behalf of The-Second-Greatest-Company Inc. (a fictional organisation modeled after a real one; additionally, relevant industry information is factual). The-Second-Greatest-Company is a women owned interior design business started by three college students. The students became friends after taking an art course together. They envisioned an online interior design business that suggested design layouts for college dorms.

The-Second-Greatest-Company Inc. receives orders for interior designs via the internet, as well as, their artwork. Interior designs are reasonably priced beginning at ninety-nine dollars for a single dorm. Prices increase with the space size. The business blossomed enough to catch the attention of venture capitalists (this information from the real company, 2015).

Current Literature

Cekada (2010) discusses an example of an employee who accidentally trips over a bucket. The management team immediately suggests more training. But Cekada (2010) questions that motion. Is it actually necessary to conduct training or could other precautions have been taken to avoid slips and trips? Cekada (2010) suggests that not all issues are training related and cautions against using training where none is necessary.

Rothwell and Kazanas (2003) discuss the different levels of CNA. The first level is conducted for strategic planning purposes. The second relates to coordinative purposes. The third concerns operational needs. Hence, they stress importance in identifying where the needs exist at the different levels.

According to Bresciani (2010), data informs the planning process. The information can be converged with environmental information and forecasts for resource planning and policy creations. Bresciani (2010) asserts that the data collection process is not a decision replacement process. It is the data that drives the decision making processes (Bresciani, 2010).

Karkkainen, Piippo, Puumalainen, and Tuominen (2001) recommend that companies maintain a vision to the future to meet client demands. They believe that companies should continuously plan to exceed client’s expectations with better services and life enhancing products. They posit further that companies must remain proactive in seeking hidden opportunities early in business initiatives. Karkkainen, Piippo, Puumalainen, and Tuominen (2001) suggest that CNA processes must include assessment tools and strategies that highlight unrecognized customer needs.

Karkkainen, Piippo, Puumalainen, and Tuominen (2001) conducted their study with the “new customer” (p. 393) in mind. They wanted to demonstrate that contrary to popular belief, customers do not have the foresight to know what their future needs are. Karkkainen, Piippo, Puumalainen, and Tuominen (2001) found that the clarification experience for determining new customer needs benefitted the participants (various organisation, different industries) by approximately eighty-five percent. As a result, Karkkainen, Piippo, Puumalainen, and Tuominen (2001) also found that the companies felt the needs assessment tools helped them increase new customer awareness by forty percent.

Purpose of CNA

The purpose of this comprehensive needs analysis (CNA) was to collect relevant information with the intent of providing recommendations for business improvement. Included herein is an environmental scan (ES) that serves a dual purpose. The first purpose intends to provide interior design industry awareness. The second purpose is to gather information on business competencies. Finally, training and development recommendations are provided.

Rothwell and Kazanas (2003) discuss CNA as an investigative process necessary to determine where business deficiencies and competency weaknesses exist, and thereafter, devise a plan for corrective action. Cekada (2011) discusses training assessments from a capital and resource return on investments perspective. He considers that properly allocated resources will yield returns and vice versa. Shipley and Golden (2013) recommend using the CNA’s to identify gaps and resolve them with appropriate training initiatives. Muller and Roberts (2010) recommend looking at impending issues and deficiencies from multiple perspectives with the intent to identify problems which can be resolved without training and development initiatives.

Data Collection

Data collection is about information value that translates into desired changes (Rothwell & Kazanas, 2003). The information value comes from evaluating ways to apply different methodologies for desired changes. The collection process should bring to light the knowledge or skills necessary to implement changes. Rothwell and Kazanas (2003) recommend using multiple data collection methodologies.

Lundberg, Elderman, Ferrell, and Harper (2010) advise caution when collecting data because no process can be one hundred percent correct. They argue that people respond with assumptions when they do not have an appropriate answer. Lundberg, Elderman, Ferrell, and Harper (2010) emphasize further that the potential for data redundancy remains ever-present. Bresciani (2010) advises discretion to ensure the process enhances strategic planning process not eliminate activities in it.

Data collection methods used:

Interviews provided insight into the client base, services offered, sales process lifecycle, design process, and what the ownership team expected from freelance designs, as well as, what they offered potential freelancers to join their team.
Interviews with the management team identified management relevant requests concerning their learning and talent development needs.
Surveys from clients identified service gaps, client levels of satisfaction with the services rendered, client opinions on the quality of service provided, and other services clients would like to have in the future.
Surveys taken from college students (major clientele) provided their opinions on the future of the interior design industry, number of times they used interior design services in a full year, their thoughts on carefree interior design services.
Surveys were taken to identify demographic information that will further advance the growth of the company.
Observations provided information on the status of the interior design industry.
Task analysis identified the actual interior design and sales process lifecycle, as well as the actions required to complete a sale.
Task analysis was conducted to examine the freelance design process.
Advisory Committee formed includes four employees, one senior manager, and consultants to gather ongoing talent development information.
Performance documents assessed individual and team production.
Industry Scan provided information on competitors. Two competitors have inferior websites (Decorator, 2015; Homeblue, 2015), hence, giving The-Second-Greatest-Company a higher ranking website. Ibisworld (2015) suggests that the industry is expected to grow at approximately four percent within the coming year. Ibisworld (2015) also predicts positive upward growth for the industry.
Analysis

During the year 2014, the interior design industry experienced downtime as a result of the recession, economy anomalies, and financial instabilities (Ibisworld, 2015). Current business trends indicate that business will blossom in the next five years. Data analysis indicates that the company is interested in expansion opportunities. Survey analysis indicates that clients are satisfied with the services provided, however, they are interested in follow-up services.

Data collection indicates that the ownership team will benefit from leadership development. The team lacks extensive industry and business expansion knowledge. Task analysis shows that freelancers will benefit from sales development skills. The-Second-Greatest-Company team (owners & freelancers) could benefit from networking skills to grow their businesses and take advantage of the predicted industry boom.

Data collection also indicated that confusion existed with current freelancers who were not sure that sales were something they needed to engage in. The freelancers feel that they are artists and designers. As a result, they cannot see how gaining sales training will benefit them. It is suggested that business development workshops are conducted to help the freelance designers understand how they can see themselves as sales people who enhance the lives of their clients.

Summary of Results
The-Second-Greatest-Company Corporation desires to become an industry leader within ten years. Crossley, Cooper, and Wernsing (2013) suggest becoming and remaining proactive in the achievement of leadership goals. Crossley, Cooper, and Wernsing (2013) affirm the complexity of remaining in leadership positions for long. They recommend devising plans that coordinate and direct activities towards achieving leadership goals.
The The-Second-Greatest-Company organisation could benefit from interpersonal communication skills. Perry and Losman (2012) stress the importance of effective communication skills for information exchange. As this company continues to evolve the communication process will greatly enhance their understanding of the industry, their customers, and amongst themselves. Perry and Losman (2012) assert there is great value in improving communication skills because the potential for miscommunication decreases and productivity increases.
The ownership team will benefit from team and leadership development. Grenny, Patterson, Maxfield, McMillan, and Switzler (2013) discuss the inevitably of relying upon others to transact business. They assert that no one can work alone and that opportunities must be present to allow for the development of abilities in working as a team. Grenny, Patterson, Maxfield, McMillan, and Switzler (2013) posit further the organisation success depends upon experts working in concert with one another to complete projects.
Industry is following a positive upward growth at approximately four percent per year. Silber and Kearny (2010) use the recession of 2009 to demonstrate that organisations cannot operate in a vacuum. They posit that economic crisis are not the only reason to remain industry aware, but also because competitors will always look for ways to put you out of business. Silber and Kearny (2010) state that the only industry that appears to do well at the worst recessions, “is the alcohol industry, where year-to-date-sales in 2009 were almost double those of previous years” (p. 41).
The freelance team shows a gap in sales skills. They lack the ability to close sales faster. The lack of sales knowledge interferes with freelancer ability increase sales quotas. Stein (2011) suggest that sales alone will not get the sale, but the ability to use a combination of interpersonal and communicative skills for success. He suggests that clients are high tech and navigate the internet to compare products, services, and prices. Thereby, making the sales process significantly complex.
The Advisory Committee is expected to meet once weekly to develop the training plans and continue scanning the environment for changes. Rothwell and Kazanas (2003) advise that advisory committees work similar to strategic committees because they serve the same purpose of identifying weaknesses and strengths in the education and development plans. Advisory committees can compare current plans to future expectations and set relevant priorities. The advisory committee role in the development process can never be overstated (Rothwell and Kazanas, 2003).
Implications for The-Second-Greatest-Company Management Action

The Above Examples Might Suggest the Following Implications:

The-Second-Greatest-Company management’s team must meet to discuss budget factors that influence the training process further.
The-Second-Greatest-Company management’s team, Advisory Committee, and Consultants must agree upon the talent development specifics and a time line of delivery.
References

Bresciani, M. J. (2010). Data-driven planning: Using assessment in strategic planning. New Directions for Student Services, (132), pp.39-50.

Cekada, T. L. (2010). Training needs assessments: Understanding what employees need to know. Professional Safety. pp. 28-33.

Cekada, T. L. (2011). Need training?: Conducting an effective needs assessment. Professional Safety, pp. 28-34.

Crossley, C. D., Cooper, C. D., & Wernsing, T. S. (2013). Making things happen through challenging goals: Leader proactivity, trust, and business-unit performance. Journal Of Applied Psychology, 98(3), 540-549. doi:10.1037/a0031807

Decorator (2015). Decorator designer guide. Retrieved from http://www.decoratordesignerguide.com/interview40089

Grenny, J., Patterson, K., Maxfield, D., McMillan, R., & Switzler, A. (2013). Influencer: The new science of leading change. McGraw Hill, NYC, NY.

Homeblue (2015). Get matched. Retrieved from http://interior-decorators.homeblue.com/pros/interior-decorators.aspx?gclid=CJXF-t2n9ccCFQoRHwod_1MGyw.

Ibisworld (2015). Interior designers in the U.S.: Market research report. Retrieved from http://www.ibisworld.com/industry/default.aspx?indid=1410

Karkkainen, H., Piippo, P., Puumalainen, K., & Tuominen, M. (2001). Assessment of hidden and future customer needs in Finnish business-to-business companies. R&D Management, 31(4), 391.

Lundberg, C., Elderman, J. L., Ferrell, P., & Harper, L. (2010). Data gathering and analysis for needs assessment: A case study. Performance Improvement, 49(8), pp.27-34.

Muller, N. & Roberts, V. (2010). Seven cures to skipping the needs assessment. Training and Development, pp. 32-34.

Perry, M., & Losman, E. (2012). Themed monthly evaluations: a focus on individual competencies. Medical Education, 46(5), 517. doi:10.1111/j.1365-2923.2012.04247.x

Rothwell, W. & Kazanas H. (2003). The Strategic Development of Talent. MA:HRD Press.

Shipley, F. & Golden, P. (2013). How to analyze and address your organization’s learning needs. Training & Development, pp. 29-31.

Silber, K. H. & Kearny, L. (2010). Organizational intelligence: A guide to understanding the business of your organization for HR, training, and performance consulting. Pfeiffer, San Franscisco, CA.

Stein, D. (2011). Developing Winning Sales Teams. T+D, 65(6), 62.

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1. Introduction

The globalization of the economy, internationalization of businesses and emergence of new markets are all key themes in contemporary business. Whereas international business may once have been the province of organisations with sufficient scale and reach, these types of companies – typically multi-national corporations – no longer have a monopoly on this kind of business. Increasing numbers of firms, of varying scale, are confronted with compelling reasons for expanding their activities across multiple national boundaries. In some cases, such motivation includes the knowledge that success in international markets is a pre-requisite for survival; if competitor organisations succeed in international markets, they may achieve the scale and liquidity which affords them sustainable competitive advantage. However, scrutiny of the empirical experience of international expansion suggests that the apparent potential is by no means straightforward to achieve in practice. This raises questions about whether or not it is realistic to envisage a ‘best practice’ in terms of international expansion strategy. Can the latter be conceived of as a specific and transferable management skill, or is it instead reliant upon expertise in a particular sector of business, a market, or a national culture? After all, if proven strategists are found wanting, where can the organisation go in terms of its future practice?

Large, successful and sophisticated businesses have often found that international ventures do not fulfil their promise. Moreover, these failures do not feature in only one sector of the economy; retailers, manufacturers, transport and energy companies have all found that expansion in contemporary markets is easier to plan than to achieve. The relevant strategies were often developed by otherwise successful managers and executives, appointed because of proven track records in similar or parallel enterprises. The retail sector alone furnishes numerous examples of this problem. The previously ascendant US Wal – Mart group eventually abandoned its expansion into the buoyant German consumer market, selling up to domestic rivals Metro (Felsted and Jopson 2011). Sir Terry Leahy of the UK’s Tesco PLC saw his flagship Fresh n’ Easy store venture in the United States rapidly turn into a loss making enterprise (Felsted 2011). The point here is that these large, well-resourced businesses have been in the vanguard of market research techniques which employ benchmark digital data capture to measure consumer behaviour – yet they still failed. It may be that, as the statistics obtained by as Guler and Guillen show, (Appendix Three), firms prefer to target what they perceive as legally secure, politically stable hosts (2005, p.2) A number of empirical questions are raised by these developments. For example, how best can organisations secure and maintain the right kind of strategy formation capacity within their capabilities? Should strategic planning ever be thought of as a continuing capability, or should it instead be seen as a reflexive capacity, more likely to be brought into being by the specific conjunction of factors, i.e. a one-off development?

2. Purpose

The purpose of the proposed study will be to ascertain answers to the following types of question, i.e.

Is there a ‘best practice’ of international business strategy formation which is transferable between business sectors?

Are some elements of strategy formation indispensable?

If so, what are the indispensable elements of strategy formation?

Do the business models of particular sectors render them more or less scaleable in terms of international expansion?

What constitutes the best practice in the development of business strategy for international markets? Such a question will obviously be subject to enormous variables across different sectors of the economy, or types and sizes of business. However, it may be argued that there will be a continued demand for this kind of business expertise, both in terms of strategy development and knowledge management.

3. Conceptual and Theoretical Foundations.

As Czinkota et al indicate, strategy formation should not be conceived as a generic activity or process, since it will to a certain extent be informed by the specific stimulus for the expansion itself, i.e. whether the perceived competitive advantage is based on technological or other kind of advantage (2009, p.228) This is an important consideration, since each organisation has its own motivation for wanting to expand into international markets, as well as varying levels of capability, resources, and preparedness. De Burca, Fletcher and Brown argue, there are numerous reasons for pursuing international expansion, the first of which lays in orthodox competitive strategy, i.e. ‘…in many industries, competitors can access customers almost anywhere…many customers that are going global want their key suppliers to be there to service them. Secondly, technology evolves at different speeds in different countries…if a business is located close to leading-edge technology development, it is likely to be closer to the early adopters phase of new markets…Third, economies of doing business are changing in terms of cost of funds, cost of labour, availability of specialised skills and opportunities for specialisation.’ (2004: p.560).

Some strategic factors are generic, in as much as no firm can realistically overlook them in international expansion. These consist of considerations such as control of the value chain, control of personnel resources, the securing of the necessary financial resources, and a realistic assessment of the associated risks (Muhlbacher et al 2006, p.405). Other factors will arise from the nature of the target markets themselves: emerging economies, for example, will not necessarily feature the ’embeddedness’ of mature Western markets (Doole and Lowe 2008, p.4). As Muhlbacher et al point out, ‘…many international marketing efforts fail not because research was not conducted, but because the issue of comparability was not adequately addressed in defining the marketing research problem…’ (2006, p.123). It is also important to consider the ‘…unconscious reference to our own cultural values when defining the problem we are attempting to research in international markets…’ (2006, p.123). For example, many studies of global expansion have as their focus the strategies of Western multinationals; however, given the flow of globalization, there is no logical reason why they should be restricted to this area. If anything, the strategies of Chinese, Middle Eastern and other corporations may become even more relevant. As Berger argues, globalization may be deemed the single greatest factor in contemporary business, and yet virtually all the assumptions made about it come ‘…either from opinions…or…general economic theories. Analyses based on hard evidence from the experience of societies dealing with these pressures are few and far between.’ (Berger 2006: p.7).

4. Methodology
i. Research Design and Research Strategy.

As Marshall and Rossman argue, a research design should be able to ‘….generate data appropriate and adequate for responding to the research questions and will conform to ethical standards.’ (2011, p.56). In this instance there are several levels of design options to be acknowledged in the overall form of the research. In paradigmatic terms, this is a predominantly qualitative study, which nevertheless acknowledges the points made by Collis and Hussey regarding the relationship between the phenomenological and the positivist positions. As they point out, the distinction between them can rarely be maintained in the context of practical research processes (Collis and Hussey 2003, p.48). This is a point also made by Jupp, who concedes that research paradigms may need to be reconsidered during the process itself (2006, p.213).

At the preparatory stage, it is obviously important to demonstrate that there is a justification for this research, i.e. a ‘gap’ in the relevant knowledge as presented in the relevant secondary literature (Longnecker 2009, p.134). An exhaustive survey of all the relevant secondary literature may be an ambitious objective given the resources available to this study; however, this must be pursued until it becomes clear that the same or similar points are constantly being re-discovered. As Winkler and Metherell point out, the cautious researcher should see a ‘…consensus of opinion among experts that can be used to judge the reputation of an author or source.’ (2011, p.62). By this means, as Patzer points out, a viable context for the study may be established (1995, p.6). It is anticipated that the gaps in the literature will mostly be those arising from new developments in the dynamic of globalization; as Stevens et al argue, ‘old’ information ‘…is not necessarily bad information; however, in many dynamic markets, up-to-date information is an absolute necessity.’ (2006, p.98). As Saunders et al (2009) acknowledge, any generalization based on secondary data should acknowledge that it has been influenced by the culture, predisposition and ideals of those who originally compiled it (p.272).

The study will take account of the major theorists in the relevant areas of scholarship, such as Porter on competitive advantage and national competitive advantage, and Mintzberg et al on strategy. Work such as that of Jones in Multinationals and Global Capitalism: From the Nineteenth to the Twenty-first Century (2005) will be consulted in order to orientate the study empirically. Detailed studies of niche areas such as De Burca et al’s work on SME strategy (2004), and Phan et al (2008) on entrepreneurship in emerging economies will also be important. It will also acknowledge anti-globalisation theorists such as Lynn, through the arguments he presented in his End of the Line, the Rise and Coming Fall of the Global Corporation, (2005).

Conducted on a qualitative basis, this will be an inductive rather than deductive study, since it cannot realistically proceed on highly defined questions or areas of enquiry. Rather, its purpose is to make the initial foray into a new and under-research area which will inform a more deductive approach in the future. Consequently, the questioning will be exploratory rather than descriptive in nature, allowing participants the maximum scope to relay their reflections. As Rubin et al (2010) point out, when engaged in descriptive research, ‘…we try to identify or describe events or conditions…When doing explanatory research, we look for underlying causes and explanations of events. Exploratory research encompasses what is referred to as interpretative research, as a way of making sense of events.’ (198).

Strategy formation, whatever its focus, represents an important aspect of competitive practice in commercial markets. For this reason, there may be finite limits to the extent to which contemporary practice will be meaningfully discussed or shared for the purposes of an academic study. However, participants may be more likely to share worthwhile observations where past practice is concerned, or where they are no longer involved with the business or organisation in question. Participation will be sought from twenty individuals in relevant organisations, and the interviews will be conducted by e-communication as far as is possible due to the budgetary limit of ?1500 (excluding labour). The survey(s) themselves will be conducted within a two week period as far as is possible, to retain the cross-sectional format. It is anticipated that some of this budget will be absorbed by travel and associated expenses where online research is not possible.

ii. Sampling

The representative nature of any research depends to a significant degree on the sampling methods on which it was based. As McGivern points out, the most representative samples are those based on random or probability sampling, in which all elements of a particular population have an equal or proportionate chance of being included (2006, p.277). However, this approach has obvious implications in terms of both resources and outcomes. A genuinely random sample would involve a wide initial recruitment process and a lengthy period of filtering, during which the most relevant participants could be identified. This in itself would require significant resources and time, and would not necessarily produce the most suitable cohort for a specialist research project. The value of focused business research must be linked to the insights provided by the participants, and only those with the requisite experience and knowledge can provide this. Consequently, a non-probability or purposive sampling approach was deemed most appropriate, with practitioners from both past and present international businesses invited to participate.

The responses obtained will most likely involve insights from past as well as present strategy, so that the study may be said to have a wide chronological focus. However, this study should be seen as a cross-sectional rather than a longitudinal one, since its resources do not permit a longer research process. It may be, however, that further study is possible later, is the research objectives and questions are refined. As Yin cautions, despite the care taken to ensure that a sample is representative of some larger group, the number in a qualitative study ‘….will likely be too small to warrant any statistical generalisation….’. However, the findings may be sufficiently replicated in similar situations, allowing them to be ‘…generalized to other similar situations.’ (2010, 226).

The questions will be ordered into three sections, i.e. a binary or closed question Yes/No section, a Likert-scale multiple choice section, and an ‘open’ section of discursive enquiries. Each section in the sequence will be developmental and complimentary, allowing the juxtaposition of positivist and phenomenological findings, as in Appendices One and Two.

iii. Data Analysis

As Wolcott (2001) has argued, ‘…good qualitative research ought to confound issues, revealing them in their complexity rather than reducing them to simple explanation.’ (p.36). Whilst it is not envisaged that this limited research will uncover any conceptually original points, it is planned that a balance of positivist and phenomenological data will reveal contextual clues in the contemporary environment which may contribute to further investigation. This will be pursued according to the schema of analysis set out in Appendices One and Two.

5. Ethical Considerations

There are two levels of ethical responsibility involved in this proposal, i.e. that owed to the respondents, and that inherent in the conduct and evaluation of the work itself.
This research will be conducted on the basis that the participants themselves should have the maximum control over the conduct and outcome of the research process. This implies that they should be informed, prior to participation, of the possible uses and availability of the published research results (Tracy and Millar 2009, p.102).

This proposal also acknowledges the ethical responsibilities which arise from the interpretation of the research results themselves. As Gill et al point out, the researcher, ‘…through developing his/her research design, is usually trying to test hypotheses generated from a theory, through data collection, in order to see whether or not the theory survives those attempts at falsifying or disproving it.’ (2010, p.72) As an inductive study, this research will not be aiming to prove or disprove a particular idea. It will, however, rely for its value upon the originality or otherwise of the information uncovered. Responsible assessment of this should avoid inflating its significance or originality when drawing up the conclusions; where similar findings have appeared earlier or elsewhere, this will be drawn to the attention of the reader. The research findings should be closely linked to the evidence which supports them, and where some of this does not support the argument, this should also be acknowledged (Gray 2009, p.192).

6. Conclusion

Overall, the background issue may be said to fall into two areas; firstly, what kinds of expertise are necessary to assure the development of successful international strategy, and secondly, how may this be effectively researched? As Gravetter and Forzano have cautioned, it is all but impossible for a single research study to eliminate all threats to validity, therefore, ‘…each researcher must decide which threats are most important for the specific study.’ (2011, p.171). The single greatest problem in this research is the choice between a study which looks at the issue as it occurs across all sectors, or one which concentrates on a single business sector. As will be discussed further, this dilemma also has to be solved in a manner which takes account of the resources available for the work itself. As Patton advises, ‘…deductive hypothesis testing or outcome measurement aimed at confirming and/or generalizing exploratory findings, then back again to inductive analysis to look for rival hypotheses and unanticipated or unmeasured factors.’ (2002, p.57).

References

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Appendix One: Questioning Sequence.

Section One: Binary/Closed Question.

It is possible to identify a ‘best practice’ model of international business strategy formation, which is transferable between business sectors. Yes/No/Neutral.

Section Two: Likert Scale Question.

It is possible to identify a ‘best practice’ model of international business strategy formation, which is transferable between business sectors. Strongly Agree/Agree/Neutral/

Section Three: ‘Open’ Question.

How would you identify a generic ‘best practice’ model of international business strategy formation, i.e. one which is transferable between business sectors? Please explain in your own words.

Appendix Two: Data Integration in sequence.
Appendix Three: Foreign Capital Investments by U.S. Firms by Host Country, 1991-2002.
CountryNumber of Ventures

United Kingdom

183

Canada

135

Israel

109

Japan

91

France

55

Germany

54

China

43

India

35

Ireland

31

Netherlands

30

Singapore

25

Source: Guler, I., and Guillen, M. F., ‘Knowledge Institutions and Foreign Entry: the internationalisation of U.S. venture capital firms’, [online], available at http://www-management.wharton.upenn.edu/guillen/NewFolder/IntVC18.pdf , [Accessed 17th March 2012]., p.46.

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Introduction

This study examines the complex strategic dilemma faced by Portsmouth City Council, in its popular bid to save its two landmark Grade II listed theatres. This complex journey continues to involve a diverse range of stakeholders, the majority of which are highly attached to Portsmouth’s theatre heritage. The ‘Two Theatres for Portsmouth Project’ was clearly hugely challenging from the outset and was hampered by lack of effective strategic planning, limited funding, changing consumer trends and its ever developing, successful competitors. The project has taken the council into conflict with stakeholders as well as into significant debt and the future of Portsmouth’s beloved theatres is arguably no more certain than when the dilemma began in 1999.

Strategy Overview

In 1999, due to changing consumer behaviour trends and increased competition for Portsmouth’s live theatre industry, Portsmouth Council developed its ‘Two Theatres in Portsmouth Strategy’. The project budget was to be stretched across two different theatres, offering quite different entertainment products and targeted at different audiences. Originally this strategy aimed to fill an ambitious 2,000 seats per week, all year round.

Strategy elements:

Kings Theatre – 1,500 seating capacity
Focus on major popular entertainment products including for example musicals and major UK touring productions.
Set up as a non-profit theatre trust in 2001, this theatre was managed by the company ‘Kings Theatre Southsea Limited’ until its bankruptcy in 2003

The New Theatre Royal – 500 seat capacity
Focus on smaller commercial productions such as experimental drama.
Theatre also managed by ‘Kings Theatre Southsea Limited’

Funding for the project was a seriously contentious issue from the outset. It focused on possible grants from The Heritage Lottery Fund and The Arts Council of England. Although worth millions, these grants would not cover the further estimated ?4 million required for essentials such as putting disabled access in place and installing new lighting systems. These significant costs would need to be met by Portsmouth City Council. It is important to note that although The Arts Council did agree to provide grants amounting to several million pounds for this stage of the project, no money was actually released.

From the case study evidence, it seems unlikely that Portsmouth Council would ever have been able to meet its financial commitments to the two theatres project. For example, its leisure budget was already under heavy pressure from existing approved projects including a new swimming pool and the City museum. These initiatives represented an expenditure of ?13 million over five years. Ultimately such financial pressures would put the two theatres project in danger.

Little consideration seems to have been given to how the two ailing theatres were going to attract sufficient audiences in order to secure viability. For example, no specific market audiences were targeted; instead hopes were pinned on Portsmouth’s existing core group of loyal theatre goers. From the outset, key players in the project recognised this group was insufficient to fulfil commercial needs or to enable the two theatre strategy to become sustainable and profitable. Nevertheless, the problem was not tackled.

The initial two theatres strategy positioned The King’s Theatre as Portsmouth’s main commercial theatre, which would attract major touring companies and bring in the most revenue possible. This aim was unrealistic as the theatre was unable to cater for such touring companies as its facilities were so out of date and insufficient – it was therefore unable to fulfil its basic purpose. Furthermore, two of The King’s Theatre’s nearby competitors (Mayflower in Southampton, Festival Theatre in Chichester) were already able to attract such artists with vastly superior facilities, which did not need heavy investment. It can therefore be argued that even a renovated, updated King’s Theatre would be unable to compete with key local rivals.

It was doubtful that the Portsmouth strategic plan was ever going to break even with the city subsidy of only ?135,000 per year. It is important to note that a quarter of this annual subsidy could be risked in one week alone, through the practice of offering guaranteed revenues to attract large scale productions to The King’s Theatre. Although officially no direct explication was given, the offering of such risky guarantees was one of the most likely factors behind the bankruptcy suffered by the limited operating company in March 2003. Other additional factors included the consistent inability to reach the audience capacity target of 70% as well as management’s lack of financial control of the project.

Eventually the Council was forced to consider making a complete U-turn and pull away from its original two theatres strategy altogether, with its new plan to sell off The King’s Theatre and direct its limited funds towards The New Theatre Royal. This plan would commit the Council to a more manageable annual subsidy of ?130,000 per year to be backed up with ‘other’ significant funding which remained to be confirmed. However, ultimately this plan was rejected and the Council voted to keep both theatres going under subsidy, for a further three years.

2008 Situation

After major interior restoration work, funded by the Council and a separate restoration appeal, The King’s Theatre reopened and enjoyed a well-supported programme of live theatre. The New Theatre Royal is also doing relatively well although it has suffered staffing issues.

The Portsmouth Theatre Dilemma in detail
Pestle Analysis
Political factors

Portsmouth’s theatres are run by the local city Council but are operated within limits and guidelines as defined by national government

The Council is run by Councillors, who are elected local politicians. The Council has some element of choice in managing its arts provision including how it allocates its limited budget for such activities

The threat of closure for The King’s theatre became a major political pressure for the city Council

The Council was hung and there was little enthusiasm from councillors, to take locally unpopular decisions to, for example, close the King’s Theatre

Economic factors

Portsmouth City Council has an annual budget of ?200 million from which to draw funds for supporting its arts activities such as the theatres

Insufficient restrictive funding for the modernisation of the two theatres was provided by for example, The Heritage Lottery Fund. Portsmouth Council and its citizens were also required to raise a further ?4 million, in order to top up grants

Portsmouth is a major tourist venue supported by major employers including IBM and its European HQ

In the past, arts activities including live theatre, have been underfunded in Portsmouth

Sociological factors

The total population of Portsmouth is over 170,000

In line with general UK trends, the public are consistently turning away from live theatre in favour of more ‘fun’ entertainment options including nightclubbing

The spread of mass car ownership opened up the competition to include other theatres and rival venues from outside Portsmouth

Technological factors

To become competitive, significant investment in updated operational technology is needed by both theatres

The New Theatre Royal was partly destroyed by fire and so has extremely limited operational facilities. For example, the theatre is unable to accommodate even basic large scale scenery.

Legal factors

Both theatres remain at least partly un-modernised and out of date and could therefore arguably fall short of legal requirements such as current health and safety measures etc.

Bankruptcy of the theatres management company in 2001, threw doubt on the entire viability of the two theatres project

Environmental factors

The King’s Theatre is particularly poorly situated in Portsmouth

Porter’s Five Forces
Degree of rivalry

According to The Arts Council for England, Portsmouth’s two major theatres did not appeal to the specialist niche markets which it needed to reach, in order to become viable. Key rival theatres and other venues within reach of the city were far better positioned to fulfil the needs of these markets.

Portsmouth city itself provides fierce competition for its theatres, these rivals include numerous comedy and night clubs, sporting venues and The Guildhall Concert Hall

Supplier power

The Arts Council for England, a major funder of the arts provision in Portsmouth, did not agree with the ‘Two theatres for Portsmouth’ strategy from the outset. Funding and support for the project was therefore difficult to obtain

Threat of substitutes

The Arts Council for England warned Portsmouth Council that there was insufficient consumer demand for two major theatres in the city. This would suggest that there was a significant flaw in this strategy from the beginning.

Buyer power

With the advent of mass car ownership and the trend towards more accessible ‘fun’ pastimes, live theatre still finds it challenging to compete and attract audiences. Customers now have far more choice as to how, where and when to spend their money on live entertainment.

Barriers to entry

Funding for the two theatres project was stretched from the outset and so it can be argued that the project was always going to be financially fragile

On top of initial investments on acquisition of the theatres, Portsmouth Council also initially needed to raise around ?4 million to top up possible funding grants for its project

Experts in the field of arts development such as The Arts Council for England predicted that the theatre market would be particularly tough for Portsmouth and that niche target marketing would be needed for strategic success. This advice seems to have been ignored by the theatre management in Portsmouth.

SWOT Analysis
Strengths

Although much diminished since its heyday n the 1950’s, Portsmouth still has a devoted live theatre audience

Both theatres are historically much loved, Grade II listed arts venues

Weaknesses

The King’s Theatre was re-launched in 2001 but its subsidiary commercial operating company was unsuccessful and became bankrupt only 2 years later

Portsmouth’s loyal live theatre audience still exists but is much diminished and is not sufficient to fill the 2,000 seats needed each week, for the ‘Two Theatres for Portsmouth’ strategy to be financially viable and sustainable

The flagship King’s Theatre, although an impressive Grade II listed building is poorly located, away from the city centre, with inadequate parking facilities

Portsmouth’s two theatres were unable to compete on ticket price with key rival theatres. For example, King’s tickets sold for up to ?10 each with Southampton and Chichester theatres averaging a ticket price of up to ?14.

The Portsmouth population’s interest in live theatre has clearly dwindled over time. For example in 1950, the city boasted four live theatres which were so popular that they were full every performance night. By the end of 1990’s only two major theatres remained plus a smaller arts theatre which was relocated in 2003 due to lack of funding.

Opportunities

Portsmouth’s ‘ two theatres strategy’ has the public’s backing

Leading decision makers such as former Council leader Frank Worley, publicly recognised that Portsmouth is a city with cultural ambitions and thus a desire to support cultural activities (such as live theatre)

Threats

Both theatres require substantial investment in order to modernise them and to enable them to compete with successful rivals such as The Mayflower Theatre in nearby Southampton. For example, The King’s Theatre initially required an investment of up to ?13 million and The New Theatre Royal required ?5 million.

Key competitors include the large, modern and well located city centre theatres based in nearby Southampton and Chichester as well as popular local town venues and numerous Portsmouth based rival live entertainment venues

The development of mass car ownership has enabled once faithful Portsmouth theatre goers, to travel to competing theatres

Other forms of entertainment have become more fashionable than live theatre – these include television as well as nightclubbing. The trend for more ‘serious’ entertainment as offered by live theatre, including opera, drama and ballet, are on a continual downward spiral.

Following bankruptcy in 2003, The King’s Theatre still carried over ?200,000 of debt

Councillors are elected politicians which can arguably be swayed by vote winning policies rather than by purely altruistic objectives, such as keeping theatre alive in Portsmouth

An Arts Council for England study argued against the two theatre policy from the outset, claiming that there was simply not enough customer demand to support two theatres in the town. The Arts Council wanted Portsmouth to focus its resources on the smaller New Theatre Royal which was in a stronger city centre location.

Ultimately lack of funds could force the sale of the well-loved King’s Theatre, to a brewery chain

Conclusion

Portsmouth Council’s two theatre strategy seems to have been doomed from the start. It is clear from the case study evidence that the strategy was financially unsound with wholly insufficient funding. Expert advice was ignored by the theatre’s management and obvious strategic measures, such as targeting niche audience markets and putting together a strategy to compete effectively with stiff growing competition, were left un-tackled. The strategic mismanagement of the project forced Portsmouth City Council to make two entire strategic U-turns in the space of only four years. Although both theatres are currently operating, it is clear that they still face an uncertain future.

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Introduction

The aim of this report is to analyse the current situation of McDonalds as an organisation in the UK market and to evaluate their current sales decline. The primary focus is to provide a detailed analysis of the organisation and its position in the UK market, developing a link between declining sales and the overall shift in consumer behaviour. The report initially provides an overview of McDonalds as an organisation. This is followed by a detailed evaluation of the firm’s current position in the market which links back to why sales are declining for the firm and what are the root causes for this in the business. This is followed by a recommendations section which develops a ground up strategy for the organisation to improve its performance in the UK market.

McDonald’s Overview

McDonald’s UK is part of the larger group called McDonald’s, which operates in over 100 countries. The organisation reported a revenue of $33 billion in 2014 and has over 400,000 employees worldwide (McDonald’s Annual Report, 2014). As an organisation the firm operates over 36,000 outlets which is more than any other retailer across the globe. Before moving on, it needs to be highlighted that while McDonald’s operates with a global ‘menu’, the organisation also develops bespoke products for some of the markets based on demand in the region (BBC, 2014).

McDonald’s in the UK

McDonald’s is a well-known fast-food brand in the UK. It operates at over 3000 locations and has seen growth over the past 10 year (McDonald’s Annual Report, 2014). However, recently, McDonald’s across the globe and in the UK highlighted a consistent decline in sales. Millington (2014) states that McDonald’s has reported a drop in sales by 4% in the UK, which highlight that the firm is not on the same growth path as it used to be. Similar article was published by Bold (2015) where the author highlighted that the growth pattern of McDonald’s has stopped and the firm, for the first time in 45 years, is re-structuring due to a rapid decline in sales. This is critical for a firm that operates at a global scale, a 4% drop is effectively billions of dollars that the firm is unable to convert. Neilan (2014) states that from an earnings point of view the overall decline is GBP 3.8billion which is a significant number.

The Cause of this Decline

While the previous section clearly highlights a downward trend in McDonald’s market share in the UK, it is important to examine the overall cause of why this is happening. Doyle and Stern (2006) state that the UK market is one of the most rapidly declining fast food industries in Europe. This indicates that there is a change in trend within the market that is impacting the fast food business the market.

Research conducted by Long et al (2014) states that one of the major reasons as to why there is a sharp decline in fast food consumption is obesity. The core notion here is that over the past 8 years more cases of obesity have been reported by the NHS than that in over 50 years (Pieterman, 2015). This is critical as health services often term ‘junk’ food as a cause of the obese society in the UK. McDonald’s being one of the main suppliers of fast food is directly impacted by this change and stance by the NHS. The UK government has highlighted obesity as a high risk to individual’s health this was backed by the NHS (Nutrition and Food Science, 2012). This is one of the major factors that has impacted the McDonald’s market share and declining sales.

Another important aspect linked with the loss in revenue and sales is associated with the fact that there is a shift in consumer behaviour towards fast food. Bernhardt et al (2012) state that an average UK individual is now 4 times more conscious of what they are eating from a health point of view. This clearly highlights that users now tend to look for healthy food options, which has a direct impact on the sales and revenue of McDonald’s. Hence consumer behaviour plays a vitally important role in the current position of McDonald’s in the market. There is also a consumer shift that is focused away to healthier fast food chains. Bloomberg (2015) highlights that 4 out of 10 individuals that skip McDonald’s move on to buy a Subway meal as they consider it a healthy alternate to McDonald’s.

Another important aspect that is linked with the lack of sales is the inability of the firm to innovate and diversify. McDonald UK’s menu has not changed over the past 50 years, and this has a direct impact on the buyers and how they perceive a firm from an innovation as well as a development point of view. While McDonald’s strategy has worked over a period of time, it is clearly showing signs of its limitations with rapid decline in overall business revenue.

Finally, another important aspect linked with the decline of McDonald’s is negative promotions through social media. Kotler and Keller (2012) highlight that the advent of social media means free information flow across the market. Regardless of the authenticity of the data, information on social media has a direct impact on business sales. McDonald’s is often termed as the fast food chain that only cares about revenue and not about consumer health, and social media has spread this aspect on a large scale. (Neilan, 2014) This therefore impacts the consumer buying behaviour and negatively impacts the sales of McDonald’s in the UK market.

All in all it is clear that the decline of the organisation in the UK is linked to the change in market conditions, consumer behaviour and a shift towards healthy living. It is also evident that McDonald’s is highlighted as an organisation that is only working for its own good and hence its inability to innovate is clearly visible in the process.

Recommendations, McDonald’s

The previous section of the report clearly highlighted multiple elements that need to be considered by McDonald’s in order to improve its current situation in the UK market. Keeping the discussion in context, it is critical that viable recommendations for the business are developed in order to improve the sales performance of the organisation. In order to develop a new model and to improve the overall position of the organisation in the market, it is recommended that McDonald’s launches a new product line called ‘McDonald’s Health!’ as discussed below.

McDonalds Health: healthy Fast Food for the Masses!

One of the primary reasons linked with the rapid decline in sales for the business is the perception and the overall type of food served by the business. This food is classified as ‘unhealthy’ by various individuals and organisations. Keeping this in context, it is recommended that McDonald’s starts a new product which is under the umbrella of the current organisation. The idea here would be to develop a unique product line focused on the healthy aspect of the market. Keeping this new product line a focused segmentation, targeting and positioning strategy is discussed in the table below.

SegmentationMcDonald’s health will be segmented through the current geographical positions of McDonald fast food chains. The idea would be to start with the areas where sales have declined the most and launch the product line focused on geography as well as behavioural segmentation in order to target the most ‘health conscious’ areas of the country.
TargetingThe target market for this new product line will be individuals that are health centric. The main driving force here would be behavioural targeting which impact the consumer buying behaviour significantly. The idea would be to develop a viable path to brand awareness through a focused target market consisting of individuals that look for healthy food.
PositioningAs it stands McDonald’s is positioned at the affordable end of the market. This is often highlighted as one of the major USPs of the firm. However, McDonalds Health will be targeted at the mid-tier end of the market, which would effectively mean that the brand will be considered a ‘premium’ option as opposed to McDonald’s current offering.

The STP analysis highlights that McDonald’s health will effectively be a premium, health version of the current brand, with a menu that is based around the concept of having healthy fast food.

After highlighting the STP strategy it is now important to define the overall promotional strategy of the new product line. Hooley et al (2012) state that promotion forms one of the most important components of developing a viable business footprint in the market. Two key aspects will be used to promote the new brand:

Traditional awareness market campaigns will be launched to enhance the overall visibility of the brand in the market. The idea would be to move into different malls in the form of kiosks, which would offer free tasters and highlight key features. This, along with a collaboration with various health agencies to certify the product as healthy will be used to promote the product line across the country.
The second core aspect that needs to be highlighted here is linked with the development of a social media marketing approach which builds around healthy living. The idea here would not be to promote the product line or the sub-brand, but to link with real world scenarios and push it on social media as a story. The call out for this campaign will be #mchealth which is linked directly with the newly launched product line.

This approach would allow the organisation to develop a viable path to promote the firm offering and therefore enhance the overall standing of the organisation in the market. Keeping this in context, it is now important to develop the marketing mix for the business (product line) as shown in the table below:

ProductPlace
The new product line will include a menu consisting of heath centric options. The idea would be to have a product line that is not only effective but also has a positive impact on the brand itself.The pricing structure of the product line will be different from the current approach. This product line will be placed at the mid-tier end of the market, hence falling in the semi-premium range.
PlacePromotion
The product line will be sold through normal McDonald locations. The idea would be to start off with a few locations and build a hype around this, before moving towards a wider audience.Promotionally the core aspects are promotions through both traditional and non-traditional means. This would mean the focus would be on social media as well as creating awareness through traditional means.

The end goal of this re-launch, or upgrade to the brand, is to effectively provide consumers with an option. The first step towards the development of a sales enhancement model is about making sure that the consumer perception and the buying process is enabled for the new product lined. With a health centric approach the idea is to provide a viable path for the development of a shift in the consumer thought process towards McDonald’s.

Conclusion

Overall the report provides and in-depth analysis of why McDonald’s as a firm is witnessing a decline in its current market share. This highlights that the organisation due to its inability to cope with the changes in the market is unable to react to the changing consumer behaviour towards fast food chains. It is also clear from the analysis that the organisation needs to re-vamp its current position in the market in order to develop a viable footprint. To do this it is recommended that a health centric product line is launched which would allow the organisation to focus on the shifting trends in the market. Coupled with effective marketing, McDonald’s UK should be able to steer its sales back to the required position.

References

BBC (2015) McDonald’s global sales continue to decline, Available from:

Bernhardt,M. Mays,D. and Hall,A (2012) “Social marketing at the right place and right time with new media”, Journal of Social Marketing, Vol. 2 Iss: 2, pp.130 – 137

Bloomberg (2015) McDonald’s US to shrink for the first time in 45 years, Available from: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11797531/McDonalds-US-to-shrink-for-the-first-time-in-45-years.html

Bold, V. (2015) McDonald’s reports falling global sales, with performance partly buoyed by UK, Available from: http://www.marketingmagazine.co.uk/article/1330795/mcdonalds-reports-falling-global-sales-performance-partly-buoyed-uk

Clive Long , Arleen Rowell , Anita Gayton , Elizabeth Hodgson , Olga Dolley , (2014) “Tackling obesity and its complications in secure settings”, Mental Health Review Journal, Vol. 19 Iss: 1, pp.37 – 46

Doyle,P. & Stern,P. (2006), Marketing Management and Strategy, Harlow: Prentice Hall,

Hooley,G. Piercy,N.F. & Nicoulaud,B. (2012) Marketing Strategy and Competitive Positioning, Harlow: FT Prentice-Hall

Kotler,P. & Keller K. L. (2012), Marketing Management,14th Edn London: Prentice Hall

McDonald’s Annualreport (2014) Available from: http://www.aboutmcdonalds.com/content/dam/AboutMcDonalds/Investors/McDonald’s%202014%20Annual%20Report.PDF

Millington, A. (2014) McDonald’s looks to pared-back UK menu to arrest global sales decline, Available from: https://www.marketingweek.com/2014/12/11/mcdonalds-looks-to-pared-back-uk-menu-to-arrest-global-sales-decline/

Neilan, C. (2014) McDonald’s to restructure after “significant decline” in sales, Available from: http://www.cityam.com/1413895152/mcdonalds-review-and-restructure-after-significant-decline-sales

Nurtrition and Food Science (2012) “Accelerating Progress in Obesity Prevention”, Nutrition & Food Science, Vol. 42 Iss: 6, pp.458 – 458

Roel Pieterman (2015), Obesity as Disease and Deviance: Risk and Morality in Early 21st Century, Emerald Group Publishing Limited, Vol.44 Iss:1, pp.117 – 138

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Does the Company Educate its Consumers or Does it Serve a Unique Market Segment?
ABSTRACT

In the current retailing market, Hennes and Mauritz AB (H&M) remains a unique phenomenon in part due to the observable difference in the behavior of the company’s customers. This study evaluates two theories attempting to explain the deviation in H&M customers’ behaviour-patterns. The first theory suggests that the customers’ behaviour is attitude-bound and learned-taught through the customer-company interaction. The second theory argues that H&M customers belong to a genuinely unique market segment. The researcher surveyed 160 shoppers at H&M and one of the department stores and used a grounded-theory approach to analyse the data. The results substantiated the first theory claiming that shopping behaviours were taught and learned. The study had an important practical value. However, its results were subject to l reliability and validity threats; thus, further research would be required to confirm the findings.

I. INTRODUCTION

The issues of consumer relationships have been the focus of marketing research inquiries for at least a century. In the last decade, with the discovery of organizational core competences, relationship knowledge experienced a new wave of research interest and was named among the leading “strategic powers” of an organization (Hamel & Prahalad 1994, pp. 3-5; Bergenhenegouwen et al. 1986, p. 29). Hennes and Mauritz AB (H&M) stands out in its respective market largely because of the company’s unique and innovative approach to serving its customers. Moreover, the company is frequently cited for its ability to create customer needs rather than address the existing market requests (Kumar 1997, p. 834).

As an intangible attribute of the company’s market activities, the company’s relationship knowledge is invisible to the observer; therefore, H&M customer relations cannot be analysed directly (Petts 1997, p. 551). However, it is possible to explore this attribute indirectly through its effect on H&M consumers. Thus, the goal of this study was to investigate H&M consumers’ shopping-behaviour patterns and to compare them to the behaviour of department-store shoppers. The outcomes of the comparison were expected to explain the foundation of H&M’s consumer-relationship strategy as aimed at changing their consumers’ behaviour or at serving a pre-defined market segment.

To introduce the reader to the topic, the second chapter of this paper offers an overview of the company as well as a summary of the relevant theories. The third chapter describes the methodology utilized in the study. Chapters IV and V present and discuss the findings while the conclusion overviews the process to evaluate the practical and theoretical utility of the presented research.

II. LITERATURE REVIEW
Company overview

H&M is a clothing retailer with its operations primarily set in Europe, North America, and Asia (Datamonitor 2006, p. 4). The company is headquartered in Stockholm, Sweden and employs 68,000 workers in more than 1,500 outlets worldwide (Datamonitor 2006, p. 4). H&M’s strategic approach is to offer designer clothes to general population at affordable prices; the company works with such brand names as Stella McCartney, Karl Lagerfeld, and Roberto Cavalli (Capell & Beucke 2005, p. 16; Kroll 2004, p. 71; Zimmerman 2009, p. D1).

H&M builds its strengths by operating through complementary retail channels – stores, Internet, and catalogues – in several geographic locations and by offering a balanced product mix, which appeals to a number of customer audiences (Datamonitor 2006, p. 5). However, currently, the company faces the threat of decreasing retail sales in Eurozone amplified by strong competition from Target and Wal-Mart (Datamonitor 2006, pp. 6-7).

H&M Consumer Relations

According to Kumar, the new age of retailing is characterized by the changing relationships between retailers and their customers (1997, pp. 834-835). More specifically, H&M belongs to a group of retailers, which learned how to drive the market by driving the consumers’ behaviours instead of being driven by them (Kumar 1997, p. 834). Kumar argues that by adopting EDLP (everyday low pricing) strategy, H&M teaches fashion buyers to not wait for department-store sales but rather buy H&M low-price brand-name products (1997, p. 834).

Raugust expands the discussion to claim that, in addition to the prices, H&M changes customers’ behaviour by creating a thrilling shopping experience (2004, p. S10). The company renews its store inventory daily; therefore, even the customers who come to the store every day can expect to discover new deals on each shopping trip (Raugust 2004, p. S10). Thus, H&M manages to keep their stores intriguing for its customers and to make them return more often than they would otherwise.

Both media and empirical research observe behaviourist differences in H&M consumers. However, potentially, there are two explanations for the mentioned deviation. First, as suggested by Kumar, H&M strategy might persuade the consumers to adopt new behaviours. Second, H&M customers might belong to a different consumer segment characterized by unique behaviours; they choose H&M because it is a better fit for their needs. Currently, there is no research that reliably supports one or the other hypothesis.

Shopping-Behaviour Theories

According to Smith and Lux, “current knowledge of how consumers behave in the market place predominantly consists of unrelated still photos depicting consumers at isolated times and places” (1993, p. 607). Bass and Talarzyk argue that there are strong causal relationships between attitudes, brand preference, and purchasing behaviour (1972, p. 93). Therefore, the attitudinal trends might serve as the link between the consumers’ past, present, and forecasted behaviours and be the key to explaining these behaviours. Moreover, if attitude modification is proven to affect the behaviour then H&M is, in fact, able to transform its consumers’ behaviours by altering their attitudes toward shopping.

In contrast with Bass and Talarzyk, Bower and Christensen claim that by offering new “disruptive” approach to shopping, companies like H&M create value proposition for a different and less-demanding group of consumers (1995, p. 43). These consumers feel over-served by the traditional department store; they cannot adopt mainstream shopping behaviours and, thus, prefer not to shop at all (Christensen & Raynor 2003, pp. 10-12). By creating the environment in which shopping is simpler but more exciting, H&M bring these unique group of consumers back to the market (Christensen & Raynor 2003, pp. 10-12).

There is one key difference between the attitude-bounded behaviour theory and the disruptive-technology theory. The former claims that consumers change their behaviour as related to one area of their activities – e.g. apparel shopping – while adhering to mainstream behaviours in other areas: e.g. grocery or house-ware shopping (Kumar 1997, p. 834). Contrary to that, the disruptive-technology theory argues that consumers attracted by H&M belong to a genially different segment and display the same behaviourist patterns regardless of the product/service, for which they shop (Christensen & Raynor 2003, pp. 10-12). The empirical support of one or the other claim will establish the validity of the respective theory.

Study Problem Statement

The problem addressed in this study is the lack of theoretical consensus on the deviations in the behaviour of H&M customers. The researcher believes that this study has significant implications in the field of management as it investigates the validity of Kumar’s argument (1997, p. 834). The study explores whether H&M teaches its customers to adopt new attitudes and behaviours or whether Kumar’s observation is a market illusion and H&M is attracting consumers characterized by existing shopping-behaviour patterns. If proven right, either of the hypotheses would influence both the theory and practice of strategic marketing in the retail sector.

III. METHOD
Purpose Statement

The purpose of this study was to explore if the shopping behaviour of H&M customers is different from the behaviour of department store customers when shopping for goods other than clothes.

Research Questions

1. Does the shopping behaviour of H&M customers differ from the behaviour of department-store consumers when shopping for beauty products?

2. Does the shopping behaviour of H&M customers differ from the behaviour of department-store consumers when shopping for home decor and house-wear?

3. Does the shopping behaviour of H&M customers differ from the behaviour of department-store consumers when shopping for clothes?

4. Does the shopping behaviour of H&M customers differ from the behaviour of department-store consumers when shopping for grocery and food?

Study Design, Procedures, and Timelines

The data collection for this study was performed with a help of a paper-based survey. The researcher approached potential respondents while they were shopping at H&M and a selected department store and invited them to participate in the survey. Those who agreed were given the survey, a pen, and the necessary instructions. While attempting to increase the likelihood of the respondents taking the survey, the researcher used an attractive design for the questionnaire (Robson 1993, pp. 5-15). The data collection stage of the study lasted for one week: March 9-15, 2009. It was followed by two weeks of data coding and four more weeks of data analysis.

The choice in favour of a paper-based face-to-face survey was dictated by two factors. First, the populations were physically available for a face-to-face survey while the access to the populations’ contact information would be restricted (Alreck & Settle 2004, pp. 15-22). Second, this method was highly effective in terms of the outcome for the monetary and time inputs (Miles & Huberman 1994, p. 28).

Population and Sample

The population under study was all the consumers, who shopped at H&M regardless of the frequency of their shopping trips or the amount spent on purchases. The population was inclusive of both genders and all age groups. The shoppers at one selected department store served as a control population for the purposes of comparative analysis of the studied population’s behaviour patterns.

This study was categorized as marketing rather than empirical; therefore, the size of the sample was estimated at 160 participants. This number allowed the researcher to expect a liberal degree of confidence at 80% and a relatively large sampling error of 10% (Birchall, http://www.marketresearchworld.net/index.php?option=com_content&task=view&id=23&Itemid=1).

The researcher chose a convenience sampling technique: the participants of the study were recruited among the volunteers, who shopped at H&M and the department store during the week of March 9-15 and who agreed to take the survey (Miles & Huberman 1994, p. 28). By selecting the research sites – H&M and the department store – the researcher attempted to ensure that the participants had the experience relevant to the study: they had shopped at both stores at least once (Creswell 2007, p. 128).

Data Collection Instrument

All the participants of the study were offered to take the same questionnaire regardless of their shopping destination. The questionnaire consisted of two parts: theme questions and demographic questions. There were four themes: shopping for cloth, beauty products, grocery, and housekeeping products. The instrument had two identical questions for each theme: 1) how often do you shop for a theme product during an average month and 2) on average, what amount do you spend on a shopping trip. The answers to the first question were measured on a four-point Likert-type scale: 1 (once or twice a month), 2 (once a week), 3 (two-three times a week), 4 (every day). The second question was open-ended.

The group of demographic questions inquired on the respondents’ gender, age, employment status, and combined household income. The respondents’ gender was defined as male or female. The questions about age and household income were open-ended. The employment-status question had six possible answers: employed part-time, employed full-time, unemployed, retired, student, and housekeeper.

Study Limitations

Despite of the researcher’s desire to conduct an extensive investigation, the study had to remain within a realistic framework established by its purposes as well as external forces. The problem of access to the population affected the study’s data collection activities by limiting the variability of research sites (Homan 2001, p. 329). The data was collected at one H&M outlet and one department store, which permitted the surveying of their customers (Wanat 2008, p. 195).

In addition, the research was limited by internal boundaries set by the researcher (Counelis 2000, p. 58). Considering the resources assigned to this study, the researcher limited the geographic location of the research populations to one specific city and the period of data collection to one week.

Ethical Concerns

Several ethical concerns had to be addressed as the study progressed. First, the author had to ensure the anonymity of the participants (American Psychologist 1992, p. 1598). Any unfavourable remarks might have resulted in the disruption of the customer’s relationships with H&M or the participating department store. Therefore, the researcher restrained from collecting any identifiable information and reported the data in aggregate (American Psychologist 1992, p. 1598).

Next, the author had to preserve the confidentiality of the participating department store to prevent the negative effect of the consumers’ statements and the findings of the study on the store’s business reputation (American Psychologist 1992, pp. 1599-1600). The author omitted the name of the store throughout the study report

The next ethical area was the voluntary participation in the study (American Psychologist 1992, pp. 1599-1600). To ensure the participants’ voluntarism, prior to giving the respondents the questionnaire, the researcher explained to them their right to refuse to answer any question or to exit the study at any point (American Psychologist 1992, pp. 1599-1600).

Finally, the study was based on the assumption that H&M was a successful retailer and the goal of the researcher was to confirm that assumption. Nevertheless, the researcher strived to provide unbiased data, which could be reliably applied in the field of marketing and management (Onwuegbuzie 2000, p.21).

IV. FINDINGS

The goal of the study was to contribute to reducing the theoretical gap in understanding consumer behaviour. The aims and expected outcomes of the study justified the researcher’s choice to analyse the data from the grounded theory perspective (Creswell 2007, p. 10). This approach is used to explore large groups of people and to develop an abstract framework, which can be expanded into a theory (Creswell 2007, p. 10).

The data analysis was performed as a series of t-tests comparing H&M and department store shoppers in each theme question separately (Field 2005, p. 125). The relationships between the respondents’ demographics and their shopping behaviour were analysed through three types of correlations: for both respondents groups together, H&M consumers separately, and department store consumers separately (Field 2005, p. 107).

There were no statistically significant difference between H&M and department store consumers on their behaviour related to shopping for grocery/food and home decor. However, the behaviour of these two groups was statistically significantly different when they shopped for clothes and beauty products (p<0.5). H&M consumers were shopping almost twice more often than the department store customers; moreover, the former spend more per each shopping trip than the latter.

There were no statistically significant correlation between the respondents’ demographics and their shopping behaviour for any of the groups. Therefore, it is reasonable to conclude that the difference in shopping behaviour was not due to demographic differences within the groups of respondents.

Overall, H&M customers had proven to deviate from the mainstream shopping behaviours when they shop for clothes and beauty products but they continue to adhere to the traditional behaviours when shopping for other types of goods. Considering similar roles of beauty products and clothes in peoples’ life, the findings support Kumar’s theory that shopping behaviour can be taught to the consumers by their retailers.

V. DISCUSSION

This research is subject to several threats to reliability and validity. First, by choosing to study a convenience sample and by limiting the number/location of sites, the researcher introduced a selection bias (Onwuegbuzie 2000, p.17). This threat is induced by convenience and volunteer samples, which members might not be representative of the overall populations (Onwuegbuzie 2000, p.17).

Related to the selection bias, the convenience sample causes low generalizability of the findings (Onwuegbuzie 2000, p.30). This threat is common to most of the studies and is often a trade-off for the freedom from researcher bias (Onwuegbuzie 2000, p.30).

Next, the results might be affected by the matching bias (Onwuegbuzie 2000, p.22). The researcher chose the study and control populations based on the assumption of existing similarities between the two. However, this assumption might be wrong; and the populations could be genuinely different.

Finally, the study could be a subject to temporal validity in a case if the consumers’ preference of H&M was due to the effect of economic downturn (Onwuegbuzie 2000, p.31). To evaluate this threat, the researcher would need to replicate the study after the current recession is over.

Despite the threats listed above, this study has a practical utility because it contributes to bridging the theoretical gap in understanding the deviations of H&M consumers’ behaviour (Kumar 1997, p. 834). However, to “result in an actual addition to the field of knowledge”, the study has to be replicated on a different (random) sample and in a more favourable economic context (Gordon & Brown 2004, p. 3).

VI. CONCLUSION

In conclusion, effective relationships with the customers are a strong competitive advantage of a retailer because they allow a company to obtain first-hand information about the changes in the consumers’ needs. They help the company modify its offer in a timely manner and more successfully than its uninformed competitors. The outcomes of this study confirm the theory suggesting that the company could be an active agent in its relationships with the customers. Moreover, it can educate its customers and induce their behaviour-change instead of passively reacting to the change that happens naturally. This is a revolutionary thought, which can transform the balance of powers in retailing and lead to dramatic changes in the field of strategic marketing. However, even though this study confirms the hypothesis, suggested by the theory, the research findings are subject to several threats challenging their validity. Therefore, there is a need to conduct a longitudinal study and replicate the survey several times with several different populations. If this series of surveys produces positive outcomes, the theory can be transformed into practical models applicable to strategic marketing.

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