Micro And Macro Factor In Increasing The Attractiveness Of A Country

Introduction

 

In today’s business world, organizations are expanding their operations internationally. This trend is rapidly increased in past few decades and it is also expected that businesses will expand their operations more rapidly all across the world in future (Collins, 2010). Businesses are becoming international from the last half of the 20th century because there is a liberalization in trade and investment legislations like General Agreement on Tariffs and Trade (GATT) in doing business internationally. As there is rapid trend of operating business in emerging markets (Bunn and Ellis, 2012) so this report analyzes the macro and micro environmental factors for evaluating the overall attractiveness of a country and its industry structure that also enhance its attractiveness for capturing foreign investments. For this report, the selected company is “Waitrose” and the country selected for evaluation is “China”.

Waitrose is one of the biggest chains of food retail in British supermarkets. Currently Waitrose his dealing with 344 branches in United Kingdom and it includes 30 “Little Waitrose Stores”. In UK grocery retail markets, Waitrose is able to acquire sixth position with 5.1% market share.

2. Attractiveness of China

 

China is a unique country which is located in continent Asia in its eastern part. Capital of china is Beijing that is considered as seat of power in terms of economic growth. According to land area, China is the third biggest country of the world. China is a country which has a lot of positive attributes that support businesses no matter which stage of growth they are in. That’s why it is considered that China is the next best place where investors can open business. In recent years China successfully engraved niche for itself and it enable itself for attracting entrepreneurs and managers globally that are thriving their businesses in China. China is best known place for having largest population of the world, this country has more than 1.35 billion people. These 1.35 billion people has unique demand of food and other consumable products, they have individual taste and preferences regarding any product that also enables the country to acquire such an significant and outstanding position to draw the attention of foreign investors in view of Cui and Liu (2000).

China attains the position of the second largest and fastest growing economy of the world and it is the biggest exporter and importer of goods all over the world. Other features that contributes in building China as a best place to invest is it’s cheap and reliable technology as well as its cheap labor force, its geographic expansion and more over China also has second highest purchasing power as compare to the world (Cui and Liu, 2000).

China is playing as a major player role in the world’s economy. It is currently leading economies from all over the world with a very good GDP growth rate. In recent years, the GDP growth rate has been greater than 9% (Zhou, Chao, and Huang, 2009) and as mentioned by Cui and Liu (2000), it is considered the third largest economy of the world in terms of purchasing power parity. According to forecasts, till 2020, it will be competing with Japan with GDP and purchasing power parity and till 2050 it will be the leading economy of the world (Tang, Wang and Zhang, 2007). This remarkable economic recovery has created many opportunities for firms from all over the world (Samiee, Yip and Luk, 2004). According to
Cao and Pederzoli (2013), four hundred firms from fortune 500 are operating in China. Interestingly, in 2005, in one week China attracted more than $1 billion investment from all over the world. Firms are doing investment in China for purpose of acquisition of resources and supplies, low cost of factors and diversified supply of sources. At the same time increasing income of local population is also making China an opportunity for all firms (Chung, Huang, Jin, and Sternquist, 2011;  Siebers, 2012)

3. Macro and Micro Environmental Analysis

 

As this report is focused on China, the chosen company is Waitrose so for macro analysis first industry analysis carries great significance. In 2011, China has second largest retail market of the world and it is only behind to United States according to Ministry of Commerce (MOFCOM) and these retail sales are anticipated to be grow with the rate of 15% annually. Although China is recently facing highly severe and vicious international as well as local competition in its domestic market but there are remarkable opportunities for many European countries to enter in retail market of China as the disposable income of individual is high (Liu, 2007).

Retail market of China reveals the facts that China is a strong importer of the world and it also has a largest retail market in 2011, it is world’s fourth largest imports of retail merchandize after US, EU and Japan. The following graph clearly shows the strong position of China retail market.

Figure: Top 15 Importers of Food, 2011

Source: World Trade Organisation International Trade Statistics 2012

China is the fourth largest importers of retail merchandize in 2011 and United States is the prevalent food exporter to China closely followed by Canada, Malaysia, Brazil and Argentina. This reveals that there is demand and supply unbalancing situation in China due to which country need to import goods from other countries. In due course this situation depict that there is a demand for new retail stores in China in order to meet unbalancing situation in China and it provides a solid reason to Waitrose to operate in China.

In 2012 net retail sales of in China is 20.7 trillion yuan, previously in 2008 it was about 10.8 trillion yuan. The shows that retail sales in China are doubled merely in four years and it eventually reveals that there is a great potential in retail sector of China for the investors like Waitrose Company to invest their investments in China.

 

 

 

 

 

Figure: Total retail sales of consumer goods, 2008-2012

 

One of the micro environmental factors that also play an important role in evaluating China for operating retail business is individual disposable income. It encompasses both rural and urban household income. Below graph depicted that there is sharp increase in rural as well as urban household income from 2008 to 2012 but urban household income is 3 times more than rural household income and urbanites plays an important contributors in total national retail sales (Yu and Ramanathan, 2012).

 

 

 

 

 

 

 

 

 

Figure: Urban and rural incomes, 2008-2012

 

Macro environmental analysis encompasses Cultural distances as well as Geographical distances which also plays an important role in evaluation of China. Cultural distances include language barriers, diverse ethnicities and lack of social networks. China has world’s largest population, country has more than 1.35 million population and it has its unique heritage which follows generation after generation in view of  (Elg, Ghauri and Tarnovskaya, 2008). As Waitrose is British organization which has its own style to operate its business. By keeping cultural differences, language barriers and diverse ethnicities into consideration it is realized that Chinese people use their own language and few of them are familiar with English language and huge population uses Chinese as their mode of communication. Chinese people are reserve in nature neither frank nor forthcoming, these culture differences should be taken into consideration while going for globalization by organizations.

Other macro factor that contributes towards the attractiveness of China is its Geographical distance from home country. China is located in East Asian landmass; it is world’s third largest country in terms of land area slightly smaller than US, Canada and Russia and shares its boundaries with 14 countries in its north, south and west.  Country has huge network of subways and strong communication system that ensure tremendous mobility of whole country. China is surrounded by East China Sea, Bohai Sea, Yellow Sea, Korea Bay, and South China Sea and the country has enormous physical diversity that gives it’s a competitive edge over other countries to invest foreign investments (SternquistHuang and  Chen, 2010).

4. Decision Matrix

 

Factor

Weighting

(Importance)

China Performance

(1=Bad, 5= Good)

Score

China

ABC Performance

(1=Bad, 5= Good)

Score

ABC

Cultural Similarities

0.1

2

.7

3

1.5

Geographic Distance

0.2

4

1.3

2

0.8

Retail Industry Analysis

0.4

4

1.5

1

0.5

Rural and Urban Household Income

0.1

3

1.2

2

0.5

Technological and Labor Incentive

0.2

4

1.5

1

0.9

Total

1.0

 

6.2

 

4.2

             

 

5. Recommendation

 

  • There is a great market opportunity for retail business to operate its function in China but one factor that can also require consideration is competition. In China retail industry shows perfect competition where there are large number of sellers and buyers and market is highly saturated before entering into such kind of market organization always require unique selling point or economies of scales.
  • Determining optimal price level is also another important strategy that organization should adopt in order to remain competitive in the market as well as gain better market share. In China as, the labor and technology is cheap so prudent business strategy is to determine less price than domestic player.

6. Conclusion

 

From the above discussion it is concluded that from the past two decades China has made tremendous achievements in economic developments and becomes second largest as well as fastest growing economy of the world more over it is world’s biggest exporter and importer of merchandize goods from all over the world which has second largest purchasing power in view of (Hingley, Lindgreen and Chen, 2009). In addition to these characteristic China has second largest retail industry after US and it is expected that it is 15% annually grow. Its macro ad micro analysis also reveals the results that country has great potential for foreign investors to operate in such country.

 

 

References

 

Bunn, P and Ellis, C., 2012. Examining the behaviour of individual UK consumer prices. The Economic Journal, 122(558), F35-F55.

Cao, L. and Pederzoli, D., 2013. International retailers' strategic responses to institutional environment of emerging market: Multiple case studies in China. International Journal of Retail & Distribution Management, 41(4), pp.289 – 310

Chung, J.E., Huang, Y., Jin, B. and Sternquist, B., 2011. The impact of market orientation on Chinese retailers' channel relationships. Journal of Business & Industrial Marketing, 26(1), pp.14 – 25

Collins, R., 2010. A graphical method for exploring the business environment.  Oxford University Working Paper, p 956.

Cui, G. and Liu, Q., 2000. Regional market segments of China: opportunities and barriers in a big emerging market. Journal of Consumer Marketing, 17(1), pp.55 – 72

Elg, U., Ghauri, P.N. and Tarnovskaya, V., 2008. The role of networks and matching in market entry to emerging retail markets.  International Marketing Review, 25(6), pp. 674 – 699

Hingley, M.,  Lindgreen, A. and Chen, L., 2009. Development of the grocery retail market in China: A qualitative study of how foreign and domestic retailers seek to increase market share, British Food Journal, 111(1), pp.44 – 55

Liu, K., 2007. Unfolding the post?transition era: the landscape and mindscape of China's retail industry after 2004. Asia Pacific Journal of Marketing and Logistics, 19(4), pp.398 – 412

Samiee, S.,Yip, L.S.C and Luk, T.K., 2004. International marketing in Southeast Asia: Retailing trends and opportunities in China. International Marketing Review, 21(3), pp.247 – 254

Siebers, L.Q., 2012. Foreign retailers in China: the first ten years.  Journal of Business Strategy, 33(1), pp. 27 - 38


Sternquist, B., Huang, Y.and  Chen, Z., 2010. Predicting market orientation: Chinese retailers in a transitional economy. International Journal of Retail & Distribution Management, 38(5), pp.360 – 378

Tang, Y., Wang, P. and Zhang, Y., 2007. Marketing and business performance of construction SMEs in China, Journal of Business & Industrial Marketing, 22(2), pp.118 – 125

Yu, W. and Ramanathan, R., 2012. Effects of business environment on international retail operations: case study evidence from China. International Journal of Retail & Distribution Management, 40(3), pp. 218 – 234

Zhou, Y., Chao, P. and Huang, G., 2009. Modeling market orientation and organizational antecedents in a social marketing context: Evidence from China. International Marketing Review,26(3), pp. 256 - 274



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