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IBM501 International Business Assignment Help
Business expansion of a local business organisation to global market can be tricky, for such business organisation to expand itself into international market; they need to consider many factors. Primark originally established itself in Ireland named as Penneys however; presently they function largely at United Kingdom along with many other countries like Belgium, France, and Germany. Despite its considerable expansion in international market, the Australian market is still unexplored by them. This report explores Primark’s opportunities to expand itself in Australian market. All the factors that need to be considered while expansion is elaborately discussed in this report along with PESTEL and SWOT analysis of the Australian market along with the company. Again as Australia has good political relations with UK it will be easier for a UK based company to expand its business law in Australia. The report presents a literature review with supporting evidence against all the theories discussed in favour of expanding a clothing business in Australia. In addition, the report also presents PESTEL and SWOT analysis of the company for expanding business in Australia. Lastly the report talks about the product mix of the company and presents a firm conclusion and recommendations regarding the proposal.
International business is a broad subject and deals with business expansions in international market. Primark is an international clothing brand and is well known all over the world. It operates in many other countries although it was first established in Ireland. The report here analyses the UK market for Primark and proposes a business expansion plan for Primark in a country where the brand is not yet established. Australia is chosen as a proposed market for business expansion. Micro environment analysis of both the countries has been done to understand the current situation of market.
1. Company overview
Primark is a UK based international clothing brand. It first established in Ireland, Dublin where it is branded as Penneys. In addition to Ireland, it has several stores in other countries of United Kingdom. A total of 179 stores are there in UK along with 44 stores in Spain, 37 in Ireland, 22 in Germany, 16 in Netherlands, 10 in France, 9 in Portugal, 7 in united states, 5 in Austria, 5 in Belgium and 5 in Italy. Primark established a firm footing in the clothing industry and offers a diverse range of products to its customers. Its business has grown internationally over the years with the opening of its first in Mary Street, Dublin, under the name Penneys store in June 1969 by Arthur Rayan. They used the name Primark to operate outside Ireland as the name Penneys could not be used outside Ireland (Primark.com 2017).
Primark has a huge range of product with in the clothing industry. The brand is well known for its cheap price and product range. The product mix involves gender customised clothing line, nightwear collection, special section for babies. The product line also involves skin care products. The GDP of UK has risen by only 0.5% over the last three months as Britain has been battling with recession. The VAT has risen by 20%. As discussed earlier the company functions in many countries other than UK and Ireland and still planning for further expansion in unexplored market. Australia having a diverse group of community and a strong clothing sector is proposed as a possible choice for expansion.
The objective of this report is to propose Australia as a possible international market for business expansion of Primark.
3. Research statement
The project here investigates the opportunities of business expansion of Primark in Australia. As mentioned earlier that Primark already has a firm footing in several other countries like Germany, France, Italy, and Belgium outside of UK. Nevertheless for the continuous growth of the brand, further business expansion is required and Australian market is proposed market for the current purpose. There are many opportunities for a UK brand to expand its wings in Australia as Australia Is a multicultural society. In the following portion of the report, these opportunities along with risk factors will be discussed elaborately with supporting evidences.
4. Outline of investigation method
The report will consist of PESTEL analysis of current business expansion of Primark in Australia Along with a SWOT analysis of the same. A review of supported literature will also be done in the current context. The report will provide evidencesand opportunities of expanding business in the Australian market along with possible threats the market may present. Through a critical discussion, the researcher will be able to estimate the overall output by referring to the available resources for the proposed market.2.20.
1.Reasons for choosing Australia as a proposed market
Australia is deemed as the world’s sixth largest country with a population of over 23 million as per 2013 census. Australia has six states namely Northern Territory, Queensland, South Australia, Tasmania, Victoria, Western Australia and two national territories namely the Australian capital territory and New South Wales (Twarowska and K?kol 2013, p.1006). This provides any business organization with endless opportunities in terms of area and people to expand its market.
2. Lifestyle of Australian population
Presently Australia offers the best lifestyle for people residing in the nation with average life expectancy of about 84.2 years for males and 79.7 years for females. With low costs of living and housing expenses, many people are choosing Australia as their home and that provides a greater cultural diversity with the exposure to varieties in terms of business opportunity. With differentiating taste in clothing for diverse people, Primark will have a firm ground for establishing its fashion statement in the grater Australian community. In addition, with low real estate prices acquiring stores in Australia in lower budget will help establishing business in relatively low cost than many other countries (pwc Australia 2017, p.4).
Australia being an industrial continent is blessed with an abundance of minerals and raw materials (Wei et al. 2017, p.84). It is important to consider various factors while establishing business in foreign country. For Primark to open its business along with manufacturing units it must consider the factors of raw materials that they can acquire locally to reduce manufacturing costs for greater profit margins. Australia is an excellent choice for this purpose as it already has a firm clothing industry that can provide with all the raw materials for establishing manufacturing units.
Economy of a country determines its wealth. Therefore it is important to understand Australian economy and consider its wealth while starting up a business in Australia. Australia is one of the largest economies of World with a strong footing and competitive edge. The standard of living for the majority of the Australian Population has surpassed that of France, Italy, Germany, Japan Russia and UK. This presents with endless opportunities for huge margin profits in business. Australia being one of the largest economies in Asia Pacific region second to Japan is undoubtedly a great choice for expanding business (Manaloet al. 2015, p.56)
Australia is a multicultural as well as multilingual nation with immigrants coming from all over the world with their diversity in knowledge and lifestyle experiences. The multicultural nation provides highly educated as well as a huge workforce, therefore outsourcing talent is not needed. The skilled computer literate labour will help in the smooth establishment of business in the country. Even with huge diversity in language, 15% of the Australian population speaks English (D'Nettoet al. 2014, p.1247. This gives the competitive advantage, a UK brand needs for selling its clothes in a foreign market.
6. Foreign investment
The Australian government always welcomes foreign investments that are consistent with community interests. As of now UK does more business with Australia than it does with China or India; therefore Australian government must provide some exemptions in trade related expenses as they provide to US. With more interested UK investors it is possible that UK establishes good political relations with Australia making them an overly welcoming country for business establishment. In addition, UK and Australia are linked both politically and economically. International relations have close partnership with them. Both countries share common legal and education system that makes it ideal for surpassing any legal restrictions that might be presented with while setting up their business. In addition, the government of Australia offers a number of incentives ranging from taxable grants to tax relief to foreign investors. This opportunity makes Australia an ideal destination for starting up business in a foreign location (Whittonet al. 2016, p.6).
3.Microenvironment analysis of Primark
Britain voted to leave EU in June 2016 which caused turmoil in political and economic environment in UK. When British Prime Minister David Cameron resigned, it caused a political Upheaval. In addition Scottish Prime Minister Nicola Sturgeon called for a second Scottish independence which shook the entire political balance of UK(Douglas and Gross 2016, p.1).
The Brexit saga caused major uncertainty for business giants such as Primark. Primark operates in UK majorly with its 179 stores across the nation. In the past Primark has benefitted from the falling Exchange rates of Pounds against Euro and Dollar; however the parent company of Primark ABF have taken the decision of leaving EU and that caused uncertainty in business project environment as well as financial market (McGregor 2016, p.1).
2. Economic factors
The rates of pound and sterling have depleted after the Brexit turmoil. This has caused rising pressure on London as a financial hub of Europe. This caused Primark to decide to pull its assets from UK (Toplenskyet al. 2016, p.1).
Despite allfactors, Associated British Foods indicated potential benefits of falling rates of starlings. With the continuation of current exchange rates Primark will be at a translational benefit for the remaining financial year (McGregor 2016, p.1).
3. Social factors
1.Growth in plus size fashion
UK is called the fat man of Europe because of the growing population size of obese people. For that reason retail fashion brands are at a need of introducing plus size section in their brands. Brands like Zara do not offer plus size fashion which gives Primark its competitive advantage with having its own range of plus size fashion. Statistically 7 out of 10 people in UK are obese which gives a huge market for oversize fashion clothing. Australia in this context also presents a huge market as it has diversity in its population(NHS 2015, p.1).
2. Aging UK population
Statics suggest that UK has a growing population of people aged in the range 54 to 65. Research suggests that pension holder falls under the higher income group with full time employment and larger pay bands due to higher experiences(ONS 2015, p.1). With the possibility of online shopping, aging community presents greater business opportunity in different business areas including fashion and clothing industry. Australia being a diverse community presents a significant opportunity of business in this context and can be considered for business expansion similar to UK.
4. Technological factors
With the advent of science and technology people are presented with the opportunity of online shopping and ecommerce sites. With new ecommerce sites emerging every year, fashion industry has a huge opportunity of expanding its business in many foreign countries. Along with retailoutlets Primark can consider Australia for opening its own customised website for online shopping and delivery opportunities in major cities of Australia(Mintel 2015, p.1). Presently Primark does not operate via ecommerce sites but for business development and expansion purposes it must consider this as an alternative while expanding its business in Australia.
5. Environmental factors
While setting up a business, every business organization needs to consider the environmental factors. With the growing awareness in world population regarding waste disposal and ethical manufacturing it is important to choose a location that supports the cause. Retailers like H&M already launched environment friendly paper packaging and Primark needs to consider it as well. Again, setting up its business in Australia Primark will have an advantage of waste disposal in sea as the major cities are located facing sea. In addition, Australia has a well educated population understanding the needs of sustainable environment; therefore Primark can operate with ease if they introduce environment friendly practice of manufacturing and packaging.
The recent employment regulations of UK states new workplace regulations regarding pensions. It states that it is compulsory for all companies to contribute 3% for all employees’ with pensions for all eligible British workers (Department for Business, Innovation and Skills 2016, p.1). Therefore Primark is expected to pay pensions to its employees. Australia has no such legislation regarding pensions, hence such expenses will be exempted during expansion.
4.SWOT analysis of Primark
Primark’s major strength is its low prices or cheap fashion and it enabled them to surpass Arcadia and become UK’s third largest clothing and footwear retail brand (Steenkamp2017, p.247). The low budget prices for fashion attracts young customers like college students. Australia having the growing population of young people has a larger market for low cost clothing industry with a brand value. One more strength is the Product line as Primark offers a huge range of clothing and footwear collection to consumers (Hjelmelandet al. 2016, p.11).
The major weakness of Primark is the customer perception of being a basic brand and not being upbeat (Narula 2016, p.7). That may present as a risk factor while establishing business overseas. Primark also relies too much on the UK market for profit and revenue. Therefore establishing a firm business in new country has become a necessity. As mentioned earlier, Primark lacks ecommerce presence. While all major fashion brands is entering into ecommerce sites, Primark is at risk of losing business as online shopping has become a convenient trends for this generation(Butler 2014).
Primark has a huge range of products and its own plus size fashion option, with growing obese population around the world, Primark is presented with a great opportunity of growth in UK and Australia(Barrie 2015). In addition, there is a further opportunity of expanding business through online shopping sites (Economics 2016, p.1).
Brexit saga has posed a huge threat to all business organisations operating in UK. If Britain leaves EU then ABF will leave EU. This will undoubtedly call for major loses in profit margins. This calls for a need for business expansion in foreign countries and Australia present itself as a good contender(WEINSWIG 2016, p.48).
5.Primark’s product analysis
Primark offers a wide range of products and fashion accessories to consumers. Starting from women and men clothing they have kids wear foot wear fashion accessories, home decor and undergarments sections. They have different segments for women and men’s clothing with the option of casual semi formal and formal wear along with seasonal options like winter and summer collection. They also have beauty products for women of varying ages and preferences.
The product line of Primark provides the customer with various choices of opting for multiple options. The kids wear and maternity section is an absolute delight for parents while shopping for their children and expecting babies. The kids section presents options for boy clothing, girl’s clothing, and baby wear for different genders. Along with these the kids wear section is customised according to different age groups.
The home decor section provides choices for bedroom, bathroom, kitchen lifestyle, curtains, and decor for living room. The variety comes with customised seasonal options. The beauty section presents shopping opportunities for both men and women in terms of makeup, skincare, grooming, toiletries, fragrance and accessories(Primark.com 2017).
The men’s collection is huge compared to many trending brands with options for shirts, pants, t-shirts, coats, jackets, leisurewear, footwear, underwear, ties, suits, nightwear and sportswear. Such a huge product mix has made the brand hugely popular in UK and other countries that they are currently operating. Expanding business in Australia will be easier with this huge product mix and the customer range that Australia will provide for business with its ethnic diversity of different cultural groups.
6.Porters Diamond analysis
1.Home Demand Conditions
The clothing industry involves high bargaining power for buyers. Several factors such as price increase or customer preference for non UK brands pose substantial threat to the industry. Therefore, Primark is also no exception for that rule. While Primark does not put emphasis on customer oriented approach, several other competing brand do so thereby increasing the risk. While considering Australia as potential market it should be noted that Australia involves diverse community and people there have differentiating taste. Therefore they must consider customer oriented approach for that market.
2. Related and supporting Industries
Primark has low strength in this sector. There are many suppliers in competition as most retailers prefer to outsource raw materials. There is also substantial possibility of backward integration present.Global suppliers offer much lower prices hence they face low strength in this sector.
3. Threats to new entrants
The clothing retail sector faces low threat in terms of new entries due to high capital investment required to enter new market, strong brand presence in the market and market maturity. Primark in this context face low threat as it already has a strong market presence. While entering into new market, they may face high threat as there will be competition present in that market. However, due to larger market size such threat can be compensated substantially.
4. Factor Conditions
The retail market for clothing industry is constantly in need of innovation and upgrading design. Primark faces low strength in this sector as copying designs has become very easier for other brands. No other brands can offer similar style in much less cost thereby decreasing sales. While entering the Australian market Primark will need to consider innovation and updated styling to be upbeat n the market.
5. Strategy, Structure and Rivalry
Primark faces low strength as the UK clothing sector has many renowned brands in the market that offers innovative designs in affordable prices. Similar challenges can be faced in the Australian market as they will bethe new brand not so well known competing with an already established clothing market with prominent brands. Substantial market share by Gorge has posed considerable threat in the UK market. Similar scenario can be expected in the Australian market.
The above project report on the business proposal clearly provides all the necessary supporting evidence that will help in determining Australia as a choice of international market for expanding business overseas for a major clothing and fashion retail brand like Primark. The Australian market is still unexplored for Primark and Primark is at a need of further business expansion for growth and various other reasons discussed above. Primark is a business giant in UK fashion industry and currently expanding its business in various countries. Australia is a welcoming nation for foreign investors and presents with a wealthy community that provides greater business possibilities. Hence, it can be concluded that Primark must consider Australia as the next stop for business expansion.
Some recommendations can be drawn from the above report. While expanding business Primark must consider collaborating with Ecommerce sites that operates in Australia as online shopping has become an emerging trend today. Furthermore, current market analysis for fashion trends must be done for providing consumers with what they need. Primark must include a range of Indian ethnic and fusion wear section for Australian market as Indian immigrants are increasing with each passing year. With these recommendations it is safe to say a booming clothing business is possible if Primark chooses to expand its business in Australia.
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