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1505

  1. 1. Global marketing opportunity analysis for Sainsbury in Malaysian Market
  2. 2. 2 | P a g e 1.0. Introduction…………………………………………………………………………………...4 2.0. Macro Analysis of Malaysia.....................................................................................................4 2.1.PEST Analysis of Malaysia…………………………………………………………...5 2.1.1. Political Analysis………………………………………………………….5 2.1.2. Socio Economic…………………………………………………………...6 2.1.3. Economic Analysis………………………………………………………..7 2.1.4. Technological Analysis…………………………………………………...7 3.0.Market Entry Modes………………………………………………………………………….8 3.1.Exporting……………………………………………………………………………...8 3.2.Foreign Direct Investment…………………………………………………………….8 3.3.Licensing………………………………………………………………………………8 3.4.Strategic Alliances…………………………………………………………………….9 3.5. Joint Venture………………………………………………………………………….9 4.0.Market Entry Mode adopted by Sainsbury…………………………………………………..10 4.1.Best Market Entry mode for Sainsbury……………………………………………...10 4.2.Justification…………………………………………………………………………..10
  3. 3. 3 | P a g e Executive Summary This study is focussing on the marketing opportunity in Malaysia for the foreign investors. PEST analysis has been done to know the economic, political, socio economic conditions prevailing in Malaysia. The analysis helps to analyse the situation in the country that whether it is favourable for the foreign investment or not. PEST analysis of Malaysia indicates that it has stable economic conditions and has a potential for the for foreign investors. The culture of the country is rich as people across the globe form different countries are living in Malaysia and this makes it more attractive for the foreign investors. Sainsbury is UK based company and is successfully operating in UK. Its Grocery stores have always served the British people with diversity. Malaysian Market is an ideal market for Sainsbury, and Direct Foreign Investment strategy would be best strategy to enter in Malaysian Market.
  4. 4. 4 | P a g e 1.0. Introduction: In 1869 John James Sainsbury and Mary Ann Sainsbury in London initiated Sainsbury. And later on it became one the leading retailers of UK. The company has its own strong values and are committed to provide excellence to the customers. They have five areas of focus such as Growing space and enhancing the value, complimentary services, food and developing new businesses, As having multiple business in the UK and having a large set up in UK, company is now focussing towards International expansion and specifically in Asia. In Asia, most appealing market for the company is Malaysia. As it becomes a commercial hub and trade terms are also encouraging for the new entrants. Malaysia has one of the most emerging economies in the region of South Asia. The country has Made a tremendous growth since its independence in 1957, and has made a substantial success in reducing poverty rate. The country has successfully maintained democratic system since its independence. It is predicted that Malayan Economy will attain GDP of $34 billion by the year 2017, as it is experiencing 7% rate of growth annually. There are many factors, which have a bad effect on the growth of Malayan economy, for instance, its low spending on Research and Development, corruption and crime rate, poverty rate and ethnic groups in the country. One of the driving factors of Malayan Economy is its skilled workers and export of diversified nature. Malaysia has an aim to be the one of the high-income nation until the year 2020. In order to achieve this there are several factors on which economy need to focus such as spending more on
  5. 5. 5 | P a g e the Research and Development sectors and effective and efficient use of its Human Resource (Nations, 2011). 2.0.Macro Analysis of Malaysia: In order to invest and make strategic decisions about foreign investment in a country it is essential to analyse it Political, environmental, social and technological conditions. This analysis helps in making decisions about the investment in the country and helps to take better decision. It is provided as a guide for the investors, distributors, suppliers and multinational companies that might operate in the country. 2.1.PEST Analysis of Malaysia 2.1.1. Political Analysis: Multi party system exists in Malaysia and it is parliamentary monarchy. Prime Minister of the country is the head of the state. There is a constitutional system in the country and constitution describes the rules, laws, regulations on which country runs. Political system of the country runs on the constitutional basis. Political system of Malaysia is modelled more like British colonial system. The cabinet has the executive powers and Prime minister leads it. The legislative branch of Malaysia consists of Parliament on bicameral type. The powers of legislation are divided into federal and state legislation. The laws of Malaysia are more like Indian Law. Base of the legal system is English law. Major part of government is from the taxes. However there is an incentive for the local companies and they have an exemption of tax on income earned from abroad. The government regarding different industries such as agricultural, tourism and communication has introduced multiple initiatives (Hashim, 2011).  Effect of Political system on Sainsbury Retailer’s: Political conditions and environment in Malaysia is reasonable for investment. Laws are more like English Common Law adopted from English Law. This will aid the business activities as
  6. 6. 6 | P a g e law would be similar to UK’s law. There are multiple initiatives from government in different Industries and it help Sainsbury to establish a business. 2.1.2. Economic Analysis: To understand the economic advancement and conditions in Malaysia , it is important to consider the 22 year rule of Dr Mahatir Muhammad. As during his rule, a major shift in direction of the economy was brought from Agriculture to Industrial. The GDP of the country remained constant at 6% annually during the 16 years. His era made a substantial change in the prosperity of the country. Inflation rate remains low despite of the global increase in petroleum prices (Anon., 2011). Domestic sector expanded and became a driving force of the economy. Important initiatives were taken such as promotion of foreign investment and relaxation of visas for the foreigners. These steps increased demand of rental property and competition also increased due to its Cost of living is low in Malaysia as compared to the western countries. There has been tremendous growth in the real estate business of government and this is being done to promote foreign investment. It is considered the best time for the foreign investors to enter into the market of Malaysia. Availing the opportunities many foreign companies have invested in Malaysia and have opened new ventures in the country. Due to the efforts of the government, there is a competitive environment in the country. That promotes the economic competitiveness at the national level. This environment is beneficial for the operation of the business of the foreign companies. Increase in the Real Estate enhances the investments. Inflation is low in Malaysia and Government make efforts to keep it low (Rashid, 2011).  Effect of Economic system on Sainsbury Retailer’s: Economic conditions of Malaysia would be favourable for Sainsbury Retailers because the economy is in stable condition. And above analysis is clearly showing the Government of Malaysia welcomes the foreign Investment. There are opportunities available and investment from foreign companies is appreciated. Inflation is also considerably low in the country. All these conditions are favourable for the company to operate in Malaysia.
  7. 7. 7 | P a g e 2.1.3. Socio Economic Analysis of Malaysia: Malaysia is a multicultural country and is composed of two regions. West Malaysia and East Malaysia. It has approximately 24 million populations and which is growing at the rate of 1.9% annually. There is a great diversity of cultures in Malaysia. The population consists of multiethnic groups. There is a mix culture and people all around the world live in Malaysia. Due to many ethnic groups living in the country multiple languages are spoken in the country. However, the official language of the country is Malay. 58% of the different nationalities of people live in Malaysia. Chinese are the second largest ethnic group and consist of 24% of the population. They have an active participation in the business. A third largest ethnic group in Malaysia are Hindus. The literacy rate is high in Malaysia as it is 88.9%in females and 92.4 % in male. There is a strong concept of women equality in region and Government has introduced laws movement to ensure active participation of women in the region (Ilyas, 2011).  Effect of Socio Economic Conditions on Sainsbury Retailer’s: As Malaysia is a country with different ethnic groups living in the country. In addition, there are people from all over the world living in the country, this makes the country culturally rich. People have different choices and taste so Sainsbury will have many people to sell its business and people with different tastes. This makes the investment easy, diversified and less risky in a freight country. 2.1.4. Technology and telecommunication analysis of Malaysia Malaysia has a strong technological infrastructure in the country. The government is making policies in the country to ensure stronger infrastructure of IT in the country (La & Su-Fei, 2011). The old analog system has been replaced by new fibre optic wire system and has improved the telecommunication service in the country. Wireless phone market of the country has improved a lot, is growing at the rate of 30%, and will reach about 2.3 % in coming years (Sala-i-Martin, 2011-2012).
  8. 8. 8 | P a g e  Effect of Technological Conditions on Sainsbury Retailer’s: Malaysia is a country with strong infrastructure of telecommunication and networking is operating. Old analog has been replaced by the fibre optic and all over the world, there is an efficient telecommunication services available. This will help foreign investors like Sainsbury to operate its functional activities successfully. 3.0. Market Entry Modes: The most difficult question for the companies while entering the foreign Market is the choice of right Entry mode in the foreign market. Entry mode is a term used to the way adopted by the company, firm or organization to enter into a market. Firms choose those entry modes, which have risk involve in it but also promising return on the investment. Foreign market entry modes are Franchising, Joint Venture, Exporting, Licensing and Foreign Direct investment These foreign market entry modes are elaborated below: 3.1.Exporting Exporting is a way of entering into foreign market when companies enter without investing in large scale. Agarwal and Ramaswami (1992) said that exporting can be called as a low risk entry mode and there is low sources commitment associated with it. Profit is also low in this mode of entry. There are two approaches of exporting; Direct and Indirect. The difference between the two approaches is that firms make the commitment to the foreign countries, itself in Direct exporting whereas in the Indirect Exporting there is an agency in the homeland involved , handling all the process of exporting (Chung and Enderwick 2001).
  9. 9. 9 | P a g e 3.2.Foreign Direct Investment This market entry mode allows the company or organization to control its activities by itself with no involvement of any agency. Advantage of foreign direct investment is that there is more profit in this entry mode compared to exporting. But there is more risk involved in it and it has a complex structure of management (Chung and Enderwick 2001). 3.3.Licensing When rights of production are given to the individual or organization through legal agreement or contract it is known as licensing. A basic requirement of licensing is the fee or royalty paid to the licensor (Business & Management Dictionary 2007). There are more market entry modes linked with the licensing such as Turnkey Contracts, Franchising and Contract Manufacturing. Turnkey contracts can be explained as when you hand over the plants and there are less skill available but in this kind of contract plant once cannot be taken by the company for instance in Adapazzri there is a Toyota car plant. In franchising company gives its management, expertise, concepts etc. And there are many examples of it such as KFC, McDonald’s and Domino Pizza. Licensing is an entry mode when a firm receives a commission, fee or royalty for providing its production rights to the company or organisation in the foreign land. 3.4. Strategic Alliances Al Khattab A.S. (2012) state strategic alliances are not just formed to achieve goals collectively but are more than that. Strategic Alliances these days are aimed to pursue big project, which cannot be accomplished, on a smaller scale. Most positive aspects of the strategic Alliance is that organization has authority and is independent. There are certain types of relationship formed when firms opt for the Strategic Alliance such as marketing agreements between them, arrangements of Research and Development, shared manufacturing and allowances made for distribution. 3.5.Joint Ventures According to Miguel (2012) joint ventures are formed on an equity basis and as the name indicates it when a company is established and another company has a partnership in it. Agarwal and Ramaswami (1990) and Miguel (2012) have suggested that there are various factors which
  10. 10. 10 | P a g e have an impact on the choice of market entry mode. These are grouped into categories such as: advantages of integrating transaction, advantage of Ownership to the firm and advantages of Market location. 4.0. Market Entry Mode Adopted by Sainsbury: Market entry Mode that should be adopted by the Sainsbury is Direct foreign Investment and Strategic Alliance. These two methods will be very useful and appropriate for the Company as it suits the economic and social condition of the company. 4.1.Best Market Entry Mode for the Company: Out of these two Foreign Direct Investment is the most appropriate strategy for the company and it is the best Market entry model for the company. 4.2.Justifications: There are various justifications involved behind this decision such as  The company would be free in taking its decision; though risk in involved in it but ethnic groups existing in the Malaysia would help it to stabilize its operation in the beginning.  The laws of both the countries are similar to each other this will help the company to have eased at the time of adjustment.  In Malaysia, there is a competitive environment and foreign investment is appreciated. There are no barriers to trade in the country. It is an easy market opportunity for foreign investors.  Moreover there are easy terms for the rental property at commercial area for the foreign investors. It would not be easy for the Sainsbury to acquire land.  Due to a multicultural population, Malaysia offers a land of the attractive business market. They would easily accept Sainsbury grocery and clothing items.
  11. 11. 11 | P a g e Economy of Malaysia has remained stable even during the times of crisis all over the world and has maintained its GDP. People have better purchasing power and the inflation rate is also less in the country. All these factors indicate that there is low risk associated with this investment therefore among two Market entry Modes suggested to the company. Foreign Direct Investment is the best Market Entry Mode for the country. Conclusion It can be concluded from the above study that Malaysia has a string economy and trade friendly environment and for Sainsbury it will be a good opportunity conduct its business by using Direct Foreign Investment approach.
  12. 12. 12 | P a g e References: 1. Agarwal S. and Ramaswami N.S. (1990)” Choice of foreign market entry mode :Impact of ownership , location and Internationalization factors.” 2. Al Khattab A.S. (2012).”Marketing Strategic Alliances: The Hotel Sector in Jordan.”International Journal of Business and Management.Vol. 7, No. 9. 3. Business & Management Dictionary (2007) Bloomsbury Business Library.Pp. 4361-4361. 4. Chung E.L H. and Enderwick P. ( 2001).” An Investigation of Market Entry Strategy Selection: Exporting vs Foreign Direct Investment Modes—A Home-host Country Scenario.”Journal of Management.Vol. 18, pp. 443–460 5. Miguel A. M. (2012).” Competitividad&Gobernabilidad.” Vol. 6 , No. 1, pp. 23-35. 6. Anon., 2011. Malaysian Economy. Ministry Of Finance. 7. Hashim, T.S.A., 2011. Malaysian Productivity Report. Malaysian Productivity Report. 8. Ilyas, N.Z., 2011. Economic Research. Malaysian Rating Corporation Berhad. 9. La, M.-C. & Su-Fei, Y., 2011. Technology Development In MALAYSIA and The Newly Industraized Economy. Asia-Pacific Development Journal, 11(2), pp.53-80. 10. Nations, U., 2011. Millenium Development Goals at 2010. United Nations. 11. Rashid, M.A.A., 2011. 2011 Malaysian Economic Outlook:Growth Assured Amid Headwinds. Malaysian Rating Corporation Berhad. 12. Sala-i-Martin, X., 2011-2012. The Global Competitiveness Report. World Economic Forum.
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