First of all, about this portfolio, the extent of globalization in global retailing and civil aero engine manufacturing is main discussion statement. The PESTEL, CAGE distances and Yip’s driver theories also would be applied to support this discussion. Moreover, different firms of these two industries would be used to illustrate above concept. Wal-Mart, Carrefour and Tesco will be used to demonstrate global retailing. Then, another industry, civil aero engine manufacturing, Pratt & Whitney and GE Aviation will be used to exemplify.
When the companies want to keep their development within the competitive economic environment, they should have a plan. This plan is not only integrate the condition that means the competence of company, with the outside opportunities. And also guide the internal resources management to operate in coordination with different management action. The purpose is to seek customers’ value, choose a right business strategy, also to enhance the enterprise competitive advantage and make the advantage be sustainable.
It is corporate strategy, which is about the long term view for the top managers to make strategic decisions for taking action to change firm’s position (Oliver, 2001). Moreover, strategic management is a way to “catch” the opportunities within the complicate environment, avoid the risk to face threats in the external environment, enhance strength, and hide the weakness. Besides these, then, implement strategies and review the performance (Jones, 2008). Finally, make the company to gain profit and have sustainable competitive advantage, expand market share lastingly in the market. 2. Strategic groups of global retailing industry
Wal-Mart, Carrefour and Tesco have been chosen to explain how they global in the global retailing market. These three are the “big three” at the top 250 retailers of 2010 (Deloitte. com, 2012). The reason to choose these three is because their scope is largest. Not just the quantity of store, moreover, different store size of their market segment also is bigger scale than other local grocery retailers. And have an integrated grocery wholesaling function that they buy the product from the suppliers directly (Competition Commission, 2008). Besides, they also have hypermarket, which is a big store that include groceries and merchandise product.
Tesco, it is a brand operated in England near hundred years. Now it becomes the third largest grocery retailer over the world. At 1992, it began to develop stores at France, then, it also expands its brand to other countries of Europe, Ireland and East- Asia between 1990s. Around 14 nations that Tesco has business at there. This company has over 30% market share in United Kingdom, besides, its business has been developed at Asia, Europe and North America. (Tesco. com, 2012) Carrefour is a retailer who has business at 29 nations and 11,000 stores under its brand. (Carrefour. com, 2012) It comes from France, established at 1959.
The main competitors are Tesco and Wal-Mart, because it also is the biggest scale grocery retailer nowadays. It has most successful market in China, Spain and Brazil, since it has developed business in United Kingdom at 1973. On the other hand, this firm has business at Asia, Europe, Africa and America, however, no business at United Stated. Wal-Mart, an American brand, this firm has operated in 50 states of United Stated, and become the biggest retailer of this nation at 1990. Nowadays, it has been the number one global grocery retailer in the world. It has labor over 2 billion people, and has about 8,500 store over 15 nations. Walmart. com, 2012)About globalization, it left the local market at 1991. Mexico is the first path to develop. Over 20 year. This brand can be found at many countries in Europe, Asia, of course America. Besides local market, this company gets most successful in England, South America and China (They launch first store in china at 1996, now, there are over 280 stores at there! ). After the induction of these three top brands, it is easy to find that the scope of them is near. About 20-30 years ago, they also seek for more marketplaces from their local countries to other nations.
Wherever they come from United Stated or United Kingdom, their brand can be found at Asia, even Africa. All of them have different store types to separate business in suitable market segment. As discussed above, all of them are the large grocery retailers. They have hypermarket which is biggest scale in the grocery market in their scope. Tesco has 230, Carrefour has 1395 and Wal-Mart has 2767 hypermarkets. Besides, they also have convenience store, discount store, supermarket and warehouse club. Depend on the geographic region to launch suitable store.
Furthermore, the store brand might be different with original brand, but also like the subsidiary. For example, Wal-Mart has 55 brand names in the world. This is an evidence to show how worldwide they are. Therefore, Wal-Mart, Carrefour and Tesco are stand in same strategic group. Even Metro AG and The Kroger Co. also be the top 5 of global retailers, however, the scope and resources of them is not enough to compare with top 3. There are different criteria (e. g. the size of firms, extent of geographical region, product diversity and the extent of branding) of these three firms are close with each other.
When 3 brands stand in same strategic group, they become direct competitor. As mentioned before, they all compete at Europe, America and Asia. Even they are the brand came from western nation, they also found the market in Asia. China, as an emerging market, they have developed business here between last twenty years. The first one came to China is Wal-Mart, has 370 stores here since 1996. Next one is Carrefour, came to China at middle of 1990s. At 2005, it made adjustment with firm’s structure of China’s part, improve business plan, until now, it has over 200 stores to operate .
The last one, Tesco, begin to join the mainland market at 2004, total 105 stores today. Therefore, it is no doubt to see 3 brands compete in China today, also in coming future. About the drivers that may affect the brand which plan to develop in new places would be discussed later. Now turn to another industry, civil aero-engine manufacturer, to see how global they are. 3. How globalize of aero-engine manufacturing industry GE Aviation, a brand under General Electric Company, is a manufacturer company in aero engine industry. It comes from United Stated and operates over 100 years.
It had supplied engine for US military after World War 2. Because of well reputation, it started to turn to civil from military in 1960s. Civilian model CF6 began be a famous model for airlines. The flight manufacturer firm, Boeing and Airbus, also be the biggest customer of GE. It made GE Aviation become leading suppliers of large commercial engine, and have customers around the world. Nowadays, GE Aviation has 450 customers over 160 countries (Geaviation. com, 2012). Its engine also selected by Boeing new flight 787 and 747-8. And GE also has market in China.
Besides, at 2008, Persian Gulf Government agree GE to expand their engine operation at their. It becomes a new marketplace for GE aviation to distribute their business. (Trefis. com, 2011) GE aviation’s main competitors are Pratt & Whitney and Rolls-Royce. Pratt & Whitney also is the US brand and have business between 180 countries. They also provide global service in terms of aero engine in civil and military. At 1950s, when GE and Rolls-Royce began to develop engine market with commercial flight, Pratt & Whitney decide to follow competitors’ path, then, launched a model J57 into the market.
It was successful and help Pratt & Whitney have similar market share to compete with those two firms. Certainly, like GE’s way, follow the flight manufacturer customer’s marketplace, they also need to give service to customers in different countries. Different with global retailer industry, civil-aero engine manufacturer is not clear to separate in different strategic group. It is because their customers are the flight manufacturer, even the airlines. They also are globalized to have market in the world, rather than just one local country.
It helps aero engine suppliers bring products to international side because of following customers’ path. Therefore, the scope of those suppliers is similar (GE and Pratt & Whitney also began business with military side, then turn to civil and become international brand). Although customers become the most important issue to decide where the market is in this industry, there are barriers for them to have business at new places. At the first part of this portfolio, “avoid the risk to face threats in the external environment” is one point to define corporate strategy.
Therefore, about the external environment, there are different factors that will cause the challenges and opportunities to the firm. These factors are social, economic, political and business environment, they are the issues of PESTEL theory. 4. PESTEL theory for both industries In the aircraft engine industry, environment factor is most important to affect, because every manufacturer should follow the standard of the International Civil Aviation Organization (ICAO). This organization was established by the United Nations to ensure the equality of international air transport service.
And set the standard and procedures for aero engines. It becomes the standard rule for commercial aero engine suppliers to follow since 1940s (Epa. gov, 1997). Moreover, the public awareness is rising because of the effect to the environment from aero industry. Therefore, engine design becomes more important to effect environment than aircraft design. It pushes engine suppliers to improve fuel efficiency with their product. For example, Pratt & Whitney and GE also develop new turbofan engine, PW1000G and GEnx, since 2010 (Deloitte, 2010). On the other hand, the technological factor also be important at present and next few years.
For example, GE aviation has business in China. And they have won the opportunities to cooperate with the Commercial Aircraft Corporation of China, which become a major important business partner with Airbus, and Aviation Industry Corp of China (AVIC), to supply engines for new plane ARJ21 (Geaviation. com, 2012) which can give GE gain more than four billion revenues each year. Besides these, economic factor also might bring challenges to the firm from present to the future. For example, the financial crisis would cause the global GDP be growing in long term to recover.
And the passenger traffic growth also be related with GDP growth. It is because the passenger air travel will increase the demand in air travel wherever in developed countries and developing countries (Deloitte, 2010). The long term growth affects the airline revenues. Airlines take action to deal with increase in cost, the demand for the larger capacity aircraft for high traffic routes will rise, then, the demand of the engines for long-range aircraft also be raised. In contrast, about the global retail industry, the sociocultural factors become the most important at the present and coming future.
Nowadays, customers’ expectation of shopping experience is rising. Spend a day in Hypermarket become a journey rather than just a traction at the store. Besides inter layout of store, consumer also put more focus on the pre-purchase, purchase and post-purchase process (Deloitte. com, 2012). Therefore, the service and product are both important to give customers a satisfied shopping experience. The firms which just concentrate at mass product and neglect the importance of service will be eliminate through competition.
Furthermore, when the retailers want to develop in new market, it is necessarily for them to empower the region manager to know the culture of new market well, and the needs of local consumer. Set a plan to choose best sales channel to sell products into new market. On the other hand, when the value of shopping experience is increasing, the communicate method also be innovated in new technologic age. Mobile phone, a smartphones that people can communicate with others through internet and get the information immediately. It changes the format between the retailers and consumers.
Customers do not need to come to store to contact staff for ordering products. They can use mobile devices to get information about the products on time. Even the delivery process, some brands provide a channel on internet, let the customers know where the products are. About the challenges, organizations need to know the importance of store become less than the old days. Even the small brand, they can use the internet to sell products out of town, not restrict in local places. They also become the new competitors of the traditional retailers.
Therefore, the technological factors also be important of these two industries in this era. 5. The CAGE distance framework for both industries The CAGE distance framework helps the organization to define difficulties of developing market in new places. It is no doubt to say that these four distances (cultural, administrative, geographic and economic) have different level of impact to the firm. The cultural distance is both important to affect civil aero engine manufacturer industry and global retailer industry. China is a good example to explain. There are many different races in china.
The residents use different language from different states. It causes the dialects distances for the foreigners to speak. Whatever Wal-Mart, Carrefour, Tesco, GE and Pratt & Whitney, they all come from western nation. Therefore, it is obviously the first problem for those international brands to face. On the other hand, there is a hard operating environment in China, because of high taxes, customs and high restriction in the accessibility of market. Therefore, the impact of administrative distance to global retailers is higher than civil aero engine suppliers.
It is because the aviation industry of China is open to develop over the couple of years. The aero engine suppliers become the partners with commercial corporations of China. Therefore, aero engine suppliers are encouraged to develop or provide joint venture service to the local airlines. For example, at the Middle East, GE is approved by government to provide service with engine maintenance, repair and overhaul with airlines, such as Emirate Airline. (Trefis. com, 2011) About the geographic distance is comparative less influence to aero engine suppliers, rather than retailers, especially the grocery retailers.
Because when those organization of store in the new marketplaces, the food source become a necessarily consider issue, which depend on the transportation of countries. For example, the fruits are perishable in transit. At the economic side, the labor cost of developing countries is generally lower than developed countries. It is no doubt to shorten the distance when the companies decide to expand in emerging market, such as India and China. In contrast, lack of experience and knowledge will raise the difficulties for the technical firm to keep product quality.
Civil aero engine suppliers cannot rely on local labor, it may affect the quality unity or spend further cost to educate. At the emerging market, the income of consumer also be great different with other developed countries. It influences the organization to plan another specific strategic selling plan to get sales profit, rather than rely on the price of products. In addition, despite China’s economy has high and sustainable growth in Asia-pacific market from present to expectable future (Deloitte, 2010), the global brands are not easy to achieve in this emerging market.
Why? It is because “relationship” is important when the companies do business, as well the resident purchase the product would base on “home brand”. It is different with the firms which come from Western. They do business depend on transaction, purchase with anyone if they can offer a higher benefit. However, the personal relationship has top priority in Chinese’s mind. The business man who come from outside is hard to expect the result if they do business in china. This culture also cause corruption problem.
It is not just a cultural distance, also is economic distance. The foreign brands like to be rejected outside the door when the Chinese players build up the circle at domestic side. 6. The drivers of globalizing for both industries After understanding the barriers that organization may need to face when developing in new marketplaces, now turn to discuss the factors that prompt the firms developing in other countries. When companies decide to globalize, avoid being over or under globalizing, there are four drivers (market, cost, government and competitive driver).
There are different sequence of importance between civil aero engine manufacturing industry and global retailing industry. As mentioned before, the customers of aero engine suppliers are aircraft manufacturer or airlines. When the customers in different countries need the engine models and technical skill of manufacturing engine, it helps these suppliers to bring their product and repairing service to new marketplaces. In addition, the brand name would be stimulated, then, easier to achieve the goal to globalize in the world. Therefore, market is the most important driver.
Then, competitor is another force to prompt in new market. When the competitors’ successes to raise the market share at other counties, it is attractive for others to join. For example, after China become open market, the government needs foreign firms’ technical skill to develop their aviation industry. Before the Commercial Aircraft Corporation of China (COMACC) has agreed to develop new aircraft with GE, Pratt & Whitney also come to contest this chance (Chinadaily. com, 2011). Consequently, the competitive driver and government driver following market is much important.
About the cost driver, it depends on the scope of the firm in single market. It may also be influence to the civil aero engine industry, however, it might be the most important driver for global retailing industry. As mentioned before, lots of organizations decide to globalize because their local market is too narrow to develop, especially in Western countries. On the other hand, the global retailers also be tend to follow the competitors, because it can help to increase market participation in major market (Yip, George S, 1989).
After the first one has developed in new market successfully, it seems to be a new potential market for the second one to join and reduce the acceptance barriers from the consumers of new market. Besides the cost driver, the customers may focus on the leading countries of the global brand. It seems be a good quality label for them, such as Japan and United State. It is attractive to the consumers of the countries in Asia. There is perception in their mind. In addition, then the brands have globalized. The brand name would be stimulated to be international brand.
The value of brand also be increased and help to develop in more dimension. Then, about the government driver, the approval of permit for operation and taxes are the basic considerable factors to prompt in this country. For example, China becomes an open market. It is convenience in certainly. However, some government limit the quantity of stores to avoid monopolizes the market also be a force to push them to seek for other marketplaces. 7. Conclusion When the firms have strategic plan to develop their market, “globalize” becomes a way for them to go.
Firms make this decision because of different reasons, but mainly, the local market’s restrict may cause those firm to look for markets at other places. For example, the local market is too small for them to gain profit. It is not difficult to see at Europe’s counties because of geographical restriction. From the top 250 global retailers 2010(Deloitte. com, 2012), the top ten successful firms, besides United States, all come from Europe. Another reason is there are too many competitor within same market, it make both of them cannot rise the benefit. The local market becomes less attractively.
If one firm begins to globalize, develop new market in other countries, it also be force to drive other competitors to expand in foreign market. From above analysis and comparison, the result is that varied drivers’ influence in these two industries is different. However, the weight of each driver would be changed because of the change of economic environment. For example, the financial crisis, the restricted distribution of government in developed market, even the change of direction of competitors, also be factors to affect firms. Therefore, the appropriate global strategies need to be flexible and sustainable to deal with a contingency.