essay writing

MARK5054

DEVELOPING A SUITABLE MARKET ENTRY MODE FOR PRIMARK

P17XXXXX

Word count:2839

1

Executive Summary When a company becomes confident in their success in their home market they

often aim to expand to a new market, this is a risky procedure but if successful can

be very beneficial to a business as profits will be increased, however, this isn’t

always a successful process and there is a high percentage of risk for businesses

hoping to expand into new markets. As a result, business needs to evaluate the risks

and understand there is a great chance of failing. When companies decide to enter a

new market there are key factors to be considered which would greatly impact the

decision of what type of market entry mode a business should use. The purpose of

this paper is to analyse a new market for a chosen company and develop a suitable

market entry mode.

2

Table of content Introduction 3 Assessing the level of attractiveness 3 and risk of target market Proposed internationalisation theory 5 Proposed international marketing framework 6 Justification of a Proposed Market 9 Entry Mode and Type Summary of Report 9 References 11 Appendices 13

3

Introduction

This report aims to decipher why Primark should seek a new market to enter, the

objective of this report is to highlight whether Australia would be a suitable market for

Primark to enter and assess how successful Primark would be. The objectives shall

be achieved through the application of a systematic market entry analysis.

The way in which this report shall be laid out is to first identify and justify the choice

behind the targeted country, secondly will be assessing the level of attractiveness

and the risk behind the target marker this will be done through a PESTLE analysis

and the analysis of a micro factor, following this shall be the proposed

internationalisation within this section an internationalisation theory will be chosen

while justifying the company market entry. Next will be focusing on the marketing

framework in this section an analysis of market entry frameworks, lastly is the

justification of a proposed market entry mode and type followed by a summary.

The target country chosen for Primark to enter is Australia, this is because when

compared to the UK with countries such as Brazil, India and China using Hofstede

insights (appendix A) it seems the most compatible with the UK market and so the

most likely market for Primark to succeed in, some of the similarities include a low

power distance which means that the superiors of society are accessible and

managers and employee rely on each of for a successful business Australia also has

a high indulgence like UK which means that Australians desire to enjoy life and

having fun so are more likely to spend money as they wish (Insights, 2020).

Assessing the level of attractiveness and risk of target market

To assess the level of attractiveness and risk of Australia a PESTLE analysis will be

used, PEST stands for political, economic, social and technology. The political

factors that affect Australia are the fact it’s a constitutional monarchy with Queen

Elizabeth as head of state however the head of Australia being the Prime minster.

The UN has criticised Australia for its failures in areas such as the protection of

human rights, Indigenous rights, and the treatment of refugees (Cody & Nawaz,

2017). Australia’s regulations can vary between the states and territories (Gov,

4

2019). The economic factors which affect Australia are firstly their 53,320.3 GDP this

is per capita values for the gross domestic product (GDP) expressed in current

international dollars converted by purchasing power parity (PPP) conversion factor

(Bank, 2019). Australia has a relatively low tax burden compared to other developed

countries with the federal government raising around 81% of total tax revenue

(Government, n.d.). Lastly, in August 2019 Australia have exported around 33,865

million dollars worth of goods which include mineral fuels, gems and precious

metals, meat and pharmaceuticals around the globe, this reflects a 42.5% increase

since 2015 and a 7.3% from 2018 (Statistics, 2020). A few social aspects for

Australia are the fact that in 2020 Australia has a population of 25,630,499

(Worldometer, 2020). The life expectancy in 2018 was an overall average of 83, 80.9

for males and 85.0 for females (Statistics, 2020). Australia doesn’t have one national

culture because the country is made up of so many different cultures due to

migration a few cultures include hundreds of Indigenous groups such as the

aboriginal, early British and Irish settlers and immigrants from World War 2 (Smith,

2018). Lastly is technology, the factors which affect Australia are the fact that

Australia is one of the top 15 most technologically advanced countries in 2020

(Getzoff, 2020). Australia is known for implementing new technologies at a faster

rate than most other countries, in fact, Australia has sixteen Nobel Prize recipients.

A micro factor will be used to determine the level of demand in Australia and find the

level of attractiveness associated with Australia. The chosen micro factor will be

SWOT, A SWOT analysis is an evaluation of a company’s strengths, weaknesses,

opportunities and threats shown in appendix B. The strengths of Australia includes

the fact that Australia’s GDP is at 53,320.3 GDP per capita values for the gross

domestic product (Bank, 2019), another strength is Australia is one of the top 15

most technologically advanced countries in 2020 (Getzoff, 2020). The weaknesses

are firstly is that Australia is the third most expensive country in the world (Prema &

Harwood, 2020). Also, females working full-time are paid an average of $253.60 less

per week than their male colleagues (Barraclough, 2020). The opportunities are

Australia has exported around 33,865 million in August 2019 (Statistics, 2020).

Another point is that in 2019 Australia had an average of 8.6 million tourists visit the

country this is a positive for retail and hospitality companies (Hinton, 2020).

5

A few threats are that many competitors that create a challenge for Australia in

different fields such as the USA and the BRIC countries (Brazil, Russia, India and

China) this is due to the fact that China is a major purchaser when it comes to

Australia’s exports also there is competition from international retailers from these

countries using online retailing.

Proposed Internationalisation theory

The most appropriate internationalisation theory for Primark to use when attempting

to enter Australia is the Uppsala Internationalisation Model. The Uppsala theory is a

theory established by Swedish researchers established in the 1970s it suggests that

internationalisation is best carried out through a series of incremental decisions

(Dow, et al., 2018), the Swedish researchers also distinguished 4 different modes of

entry for international markets which are no regular export activities, export via an

independent agent, implementing foreign sales subsidiaries and foreign production

(Tarek, et al., 2017). The benefits of this theory are the fact it’s a slow and well-

considered approach, less risky, it’s also a typical internationalisation theory for

small-medium enterprises (SME). The slow and well considerate approach is

beneficial to businesses because it allows a business to assess the market and

avoid mistakes that could be detrimental to the business as well as negatives it

allows companies to understand what works for their competitors in the new market

as well as what is absent in the market providing a unique selling point for them. It is

a typical internationalisation theory for small-medium enterprises because it reduces

some of the disadvantages that SME encounter when trying to internationalise which

is important as SME’s tend to lack knowledge on foreign markets as they are usually

local businesses with less than 250 employees (Day, 2020). Some drawbacks of this

theory are that it’s difficult to measure in relation to services and it’s not effective for

interdependences of countries such as the EU (Hollensen, 2019). This is suitable for

Primark when entering Australia because they can enter with a slow and well-

considered approach which makes it less risky for Primark while gaining knowledge

of the foreign markets. The reason as to why it’s difficult to measure is firstly

because as time progresses trends and demands change this means that a business

cannot use the same plan for every country, they enter also it means they cannot do

exactly as competitors already operating in the new market are doing. Primark has

6

seemed to have started to use this method as they have opened stored around

Europe which is close to their headquarters in Dublin.

Proposed international marketing framework

The (Hollensen, 2020, p. 318) market framework will be used to best assess how

each factor influences the decision in choosing an entry mode. The internal factors of

this framework link to the adjustable aspects within Primark’s control this includes

firm size, international experience, product complexity and product differentiation.

Primark have 360 stores in 13 countries such as the USA, UK, Spain and Poland

(Primark, n.d.) they have around 700,000 Employees altogether (Primark, n.d.). this would lead to Primark having more choice in entry modes as they can better sustain

more hierarchical modes due to their size. Primark has an intermediate level of

understanding when it comes to international experience, this is because of the fact

they operate in various countries in Europe and the USA. Primark having

international experience also indicates that they are more likely to reduce the costs

of market entry as they would choose the entry mode, they are most familiar with

they would also reduce the level of risk when starting up in a new market as it isn’t

their first time. Since Primark have knowledge of more than one type of market and

as a result would be able to better handle more hierarchical modes of entry because

it’s not a new process for them. For product complexity and product differentiation

advantage, Primark offers a range of products including men, women and child wear,

accessories, sportswear and home wear which allows them to appeal to a variety of

customers as there seems to be something for everyone, it also differentiates them

from many of their competitors who don’t offer some of these different products,

Primark’s unique selling point is that they offer low priced goods. Primark having

product complexity means they are more likely to choose a more hierarchical entry

mode to avoid adding costs to the business which would affect their ability to keep

their pricing low. These internal factors stated above all increase the level

internationalisation from export modes influencing Primark to take a more

hierarchical internationalisation approach.

The external factors of the market framework are influenced by the factors outside of

the business, this covers factors such as market size and growth, the sociocultural

7

distance between home and host country and direct and indirect trade barriers

(Hollensen, 2016, p. 354). Foreign markets are very risky for Primark to enter as the

market is usually much different to the home market and therefore operates much

different. From the PEST analysis, the understanding is that Australia has a low level

of political risk although they do have a few human rights issues this suggests that

Primark should choose an entry market which doesn’t completely expose them to

this risk but still provides flexibility. Australia has exported around 33,865 million

dollars worth of goods to many countries such as China which means they aren’t

affected negatively by trading barriers. Trade regulations can affect Primark as it can

either encourage export modes of entry through the use of local companies which

can produce information on Australia’s market as well as contacts such as cheaper

suppliers or it can cause Primark to inherit more cost through trading taxes and

legislations. Australia has a large retail market as in contributed to 2019, total retail

turnover in the country was approximately 329.6 billion Australian dollars (Hughes,

2020) as mentioned in appendix B. Also, the fact that Australia doesn’t have one

national culture because the country is made up of so many different cultures makes

it easier to appeal to their market, this is beneficial to Primark as it indicates that

Australia’s market is very similar to the UK and therefore suggests that Primark is

more likely to be successful in entering Australia’s market, the distance between

Primark’s home country which is Ireland and Australia means that Primark would

benefit from not using direct investment as it means less risk until they are

acclimatised to Australia’s market.

The desired mode characteristics correlate with the risk attitude of Primark, this

section is made up of risk-averse, control and flexibility. Primark is fairly risk-averse

as they don’t generally take risks most if there in most of their decisions, however,

they have taken risks in order to open the stores in the 13 countries which they

currently operate in also, they took a risk in choosing not to advertise the business.

Control is related to the level of resource commitment. If Primark were to use a mode

of entry which has minimal resources commitment would mean little to no control

over the circumstances of how their products are marketed overseas, an example of

this is joint ventures which would limit the management control Primark has over its

international operations, however, if Primark decides to use wholly-owned

subsidiaries it would provide them with the most control over managing their

8

international operations but it would also give Primark a significant commitment of

resources. Flexibility is associated with given modes of entry, the more flexibility the

lower the internationalisation which would guide businesses more towards export

modes than hierarchical modes. Primark needs to also consider the fact that the

amount of flexibility they retain as a business depends on which entry mode they

choose; the more hierarchical modes are more costly and give Primark the least

amount of flexibility. Export modes would offer Primark higher flexibility as they can

terminate things such as licensing and franchising contracts in a shorter time span

than a wholly owned subsidiary and only have to compensate for the loss of

commission (Hollensen, 2016, p. 357).

Transaction-specific factors refer to the ease of transferring skills and knowledge of

product development and utility to potential partners and customers, this section

consists of tactic nature of know-how, opportunistic behaviour and transaction costs.

Tacit nature of Know-how is intricate knowledge that is very difficult share

(Hollensen, 2016, p. 357). This does not relate to Primark as the retail market does

not have intricate information and so would not affect the choice of entry mode

Primark chooses to enter Australia. There are three different types of opportunistic

behaviour shirking, free riding and hold up. Shirking regards to avoiding contractual

duties or prioritising short term revenue over important tasks, Freeriding is

essentially waiting for other parties to make arrangements and then gaining from

them, lastly is hold up which is a strategic approach based on exploiting partner

dependency (Griffioen, 2020). Primark could be affected by opportunistic behaviour

when entering Australia because as a foreign business they may not know the

standard precautions of how businesses in Australia functions which could make the

process of entering a new market riskier or lengthier amount of time through

spending time on tasks which don’t contribute to the success of the business they

could also choose a partnering company which shirks responsibility or free rides

Primark’s arrangements which would cost Primark in the long run. This would

influence Primark to choose a more hierarchical entry mode, so they have more

control over their business allowing them to avoid such problems.

9

Justification of a Proposed Market Entry Mode and Type

From the research and analysis in the sections, 2,3 and 4 to a more beneficial

method for entering the Australian market is an internalise mode. The benefits of

choosing an internalise market entry mode is that Primark is able to retain a

substantial amount of control of the company which allows them to operate the store

the way they wish without having to compromise the drawbacks of internalise market

entry method are that it would cause aa higher chance of risk for Primark the if they

were to choose a contractual or externalised method of market entry also it means

low flexibility for Primark. The chosen internalise method of entry is wholly-owned

subsidiaries greenfield investment which is a foreign direct investment where a

company establishes a subsidiary in foreign countries (Chen, 2020). Greenfield

investment is market entry mostly used for the highest level of control over its foreign

activities this means that Primark will be able to control the business operations as

well as brand image it also means that they can bypass certain trade restrictions.

The disadvantages of Primark using this entry mode is that there is a high market

entry cost and a high fixed cost when establishing a location for greenfield

investment (Institute, 2020). The reason why Acquisition was not chosen is that

although it offers a speedy foundation of a local presence for Primark, it could also

cause them to receive a poor-quality partner which could be more costly in the long

run.

Summary of Report

To summarise this report, Primark has a significant internationalisation experience to

successfully enter the market through their previous market entries to countries such

as the US and other European countries which they seem to have entered through

internalise market entry which is what was recommended in the previous section

enabling full control of their business. Australia is a good market for Primark to enter

as it has a similar market to the UK which means that they would have a smoother

and more successful chance of entry also Australians enjoy indulging but, Australia

is a fairly expensive place to live so Primark’s unique selling point would provide a

way to indulge while saving to maintain living costs. Due to the current Coronavirus

pandemic, it is not recommended that they choose now to enter the Australian

10

market as factors such as lockdowns and new regulations to maintain a low volume

of infected people require businesses to operate differently with many employees

being placed of furlough which then impacts how customers are able to shop for

non-essentials such as Primark products, the best time for Primark to launch itself in

Australia is once businesses start to return to their usual operations and retail

turnover begins to start increasing.

11

References Bank, W., 2019. The World Bank. [Online] Available at: https://data.worldbank.org/indicator/NY.GDP.PCAP.PP.CD [Accessed 4 December 2020]. Barraclough, E. C., 2020. News AU. [Online] Available at: https://www.news.com.au/finance/work/at-work/equal-pay-day-wage-crisis-is- catastrophic-for-australian-women/news-story/5d786b72412e66a967b5c3fc62caf456 [Accessed 7 December 2020]. Chen, J., 2020. Investopedia. [Online] Available at: https://www.investopedia.com/terms/g/greenfield.asp [Accessed 12 December 2020]. Cody, A. & Nawaz, M., 2017. The Conversation. [Online] Available at: https://theconversation.com/un-slams-australias-human-rights-record-87169 [Accessed 4 December 2020]. Day, J., 2020. Simply Business. [Online] Available at: https://www.simplybusiness.co.uk/knowledge/articles/2020/05/what-is-an-sme/ [Accessed 7 December 2020]. Dow, D., Liesch, P. & Welch, L., 2018. Inertia and Managerial Intentionality: Extending the Uppsala Model. Management International Review, 58(3), p. 468. Getzoff, M., 2020. Global Finance. [Online] Available at: https://www.gfmag.com/global-data/non-economic-data/best-tech-countries [Accessed 5 December 2020]. Government, A., n.d. The Treasury. [Online] Available at: https://treasury.gov.au/review/tax-white-paper/at-a-glance [Accessed 4 December 2020]. Griffioen, A., 2020. Alliances experts. [Online] Available at: https://www.allianceexperts.com/en/knowledge/exports/opportunistic- behaviour-in-partnerships/ [Accessed 11 December 2020]. Hinton, T., 2020. Statista. [Online] Available at: https://www.statista.com/statistics/620187/australia-number-of-international- visitors/ [Accessed 5 December 2020]. Hollensen, S., 2016. Global Markwting. 7th ed. s.l.:Pearson Education . Hollensen, S., 2019. Global Marketing. 8th ed. Harlow: Pearson Education Limited. Hollensen, S., 2020. Global Marketing. 8th ed. Harlow: Pearson Education Limited. Hughes, C., 2020. Statista. [Online] Available at: https://www.statista.com/statistics/653638/australia-annual-retail- turnover/#:~:text=In%202019%2C%20total%20retail%20turnover,dollars%20from%20the% 20previous%20year. [Accessed 8 December 2020]. Institute, C. f., 2020. Corporate finance Institute. [Online] Available at: https://corporatefinanceinstitute.com/resources/knowledge/strategy/greenfield- investment/ [Accessed 12 December 2020]. Prema, S. & Harwood, A., 2020. Daily Mail. [Online] Available at: https://www.dailymail.co.uk/news/article-8552109/Australia-one-expensive- countries-world-one-best-raise-family.html [Accessed 3 December 2020].

12

Primark, n.d. Primark. [Online] Available at: https://careers.primark.com/about-us [Accessed 8 December 2020]. Primark, n.d. Primark. [Online] Available at: https://www.primark.com/en/aboutus [Accessed 7 December 2020]. Smith, T., 2018. Culture Trip. [Online] Available at: https://theculturetrip.com/pacific/australia/articles/11-things-you-should-know- about-australian-culture/ [Accessed 5 December 2020]. Statistics, A. B. o., 2020. Australian Bureau of Statistics. [Online] Available at: https://www.abs.gov.au/statistics/people/population/life-tables/2017-2019 [Accessed 5 December 2020]. Statistics, A. B. o., 2020. Australian Bureau of Statistics. [Online] Available at: https://www.abs.gov.au/statistics/economy/international-trade/international- merchandise-trade-preliminary-australia/latest-release [Accessed 4 Demeber 2020]. Tarek, B. H., Zouhayer, M. & Adel., G., 2017. Entrepreneurial Competitive Intelligence Between Uppsala Model and Born Global Theories in the Case of North African SMEs. Journal of the Knowledge Economy, 10(2), pp. 734-755. Worldometer, 2020. Worldometer. [Online] Available at: https://www.worldometers.info/world-population/australia-population/ [Accessed 5 December 2020].

13

Appendices Appendix A

14

Appendix B

Strength • Australia’s GDP is at 53,320.3 GDP

per capita values for gross domestic product (Bank, 2019),

• Australia is one of the top 15 most technologically advanced countries in 2020 (Getzoff, 2020)

Weakness • Australia is the third most expensive

country in the world (Prema & Harwood, 2020)

• Females working full-time are paid an of average $253.60 less per week than their male colleagues (Barraclough, 2020)

Opportunity • Australia have exported around

33,865 million in August 2019 (Statistics, 2020)

• In 2019 Australia had an average of 8.6 million tourist visit the country this is a positive for retail and hospitality companies (Hinton, 2020)..

• In 2019, total retail turnover in the country was approximately 329.6 billion Australian dollars (Hughes, 2020)

Threat • Competition from BRIC countries • Future technology could affect the

security of Australia