Comparative PESTEL Analysis for Czech Republic, Lithuania and Ireland
Instructions;-
Using Sainsbury’s (http://www.j-sainsbury.co.uk/) as a case company: 1. Identify a potentially attractive target market for the company’s future international expansion strategy. You will be provided with 3 specific countries below to choose from. In order to identify which of these 3 countries represents a potentially attractive target market, you are required to undertake a comparative PESTEL analysis of the macro-environmental factors of the 3 countries.
– Worth 30% of the overall mark; not included in the word count.
This background analysis must be included as an appendix and must be no more than 5 pages in length.
2. Discuss your rationale for the selection of your chosen market. Your rationale should be justified with a more detailed discussion of your PESTEL analysis of the macro-environmental factors of your chosen market which you have presented in the appendix.
– Worth 15% of the overall mark; 700 words.
This task must be presented in the first section of the main body of your report.
3. Critically analyse the opportunities and threats in the firm’s industrial environment in your chosen market. Application of a relevant model or framework such as the 5-Forces analysis is required – a SWOT analysis is not acceptable.
– Worth 20% of the overall mark; 950 words.
This task must be presented in the second section of the main body of your report.
4. Critically analyse the strengths and weaknesses in the firm’s internal environment which may support or challenge the firm’s expansion into your chosen market. Application of a relevant model or framework such as a VRIO analysis is required – a SWOT analysis is not acceptable. –
Worth 15% of the overall mark; 700 words.
This task must be presented in the third section of the main body of your report.
5. Evaluate the various modes of entry available to the firm and recommend – with justification based on the findings of your analyses in Tasks 2, 3 & 4 above – the most suitable mode of entry that will enable this strategic international expansion to be a success for the firm.
– Worth 20% of the overall mark; 950 words.
This task must be presented in the fourth and final section of the main body of your report. You are strongly advised to structure your report in the same order as the assignment tasks set out above. Remember to include a list of references used at the end of the report (presented Harvard style).
You are required to undertake a comparative analysis of the macro-environmental factors of the following 3 countries in order to identify a potentially attractive target market for your case company (Task 1):
- Czech Republic
- Ireland
- Lithuania
Solution
Comparative PESTEL Analysis for Czech Republic, Lithuania and Ireland
Political Factors
The country within which Sainsbury expands its business should have high political stability. Lithuania is a country that is well known for its democratic views and the high level of political freedom (GOV UK, 2017). Czech Republic as well has high political stability levels (GOV UK, 2017). Ireland, on the other hand, although democratic, currently has uncertain political stability as the current government coalition is expected to fail any moment (McDonald, 2017).
Economic Factors
The economy of the country that Sainsbury expands into should be conducive for business. Lithuania’s economy has recorded growth over the past years and is predicted to keep growing in the coming years (GOV UK, 2017). The economy of Czech Republic as well is conducive for business and is expected to remain that way in the coming years (GOV UK, 2017). Ireland’s economy in contrast is dependent on Britain’s economy. With the decision of Britain to exit the EU, Ireland’s economy is unpredictable (Taylor, 2016).
Social Factors
The official language in Ireland is English. However, the language that is used mostly in the country is Gaelic. The religion that is mostly followed in the country is Christianity, Roman Catholic to be precise. In Czech Republic as well, the highest number of people are Christians with the highest being Roman Catholics. The dominant language in the country on the other hand is Czech. In Lithuania, the most dominant religion is Christianity with Roman Catholicism dominating, while the dominating language is Lithuanian.
Technological Factors
The retailers, government and the customers in Czech support the use of technology in businesses. Therefore, the existing businesses incorporate technology in their operations. This position is similar to that of the people in Lithuania and Ireland who as well support the use of technology in business operations.
Environmental Factors
Th environmental requirements of the businesses that operate in Czech Republic are based on the environmental laws that the country’s constitution has (Dimireva, 2012). Neglecting any of these laws leads to the business being fined. In Ireland as well, the government seeks to ensure that all the companies running in the country are environmentally friendly. There are therefore laws meant to govern business and ensure that they preserve the environment. Similarly, the government in Lithuania has over the years enacted and modified Acts meant to govern operations of companies regarding environmental preservation (Dimireva, 2012).
Legal Factors
The legal requirements of setting up a business in Ireland differs depending on the nationality of the business person. The EEA and Swiss nationals are privileged as they don’t require to get business permits (Citizens Information, 2016). The legal requirements in Czech Republic on the other hand are many and the government requires everyone regardless of their nationality (The World Bank, 2017). Most of them are however free and do not take long to process. The processes required to be accomplished in Lithuania on the other hand are fewer and take a short time to process (The World Bank, 2017).
The best country within which Sainsbury could expand into is Lithuania. It has favourable economic factors, political factors, legal requirements, social factors, technological factors and environmental factors. It will be easier and cheaper for the company to venture into this market than it will be in the other two countries.
Justification for choosing Lithuania (PESTEL Analysis)
Political Factors
Lithuania has a stable government and is predicted to stay that way since it exercises democratic elections (GOV UK, 2017). This will be suitable for Sainsbury since the stability will help ensure that the business has time to grow and gain market share from its competitors. Political instability acts as opposition to businesses and economy thereby leading to failure of companies.
Economic Factors
The economy of Lithuania has been growing in the past years. The GDP per capita of the country is currently at 75% and is expected to keep increasing (GOV UK, 2017). The continued growth will seek to ensure that the citizens purchasing power grows over the years. This will increase the chances of Sainsbury succeeding in the new market.
Social Factors
The Lithuanians do not tolerate corruption and bribery. The country’s CPI index has been increasing over the years, which is an indication that setting Sainsbury in the country would not require the company to engage in unethical acts (GOV UK, 2017). The country further has a high population density. This increases the number of people in the target market thereby increasing the chances of Sainsbury thriving in the country.
Technological Factors
The competitors in Lithuania rely on the use of technology in their operations. The customers in the country do not oppose the introduction of new technology in the stores but rather flow along with the changes made. This will make it easy for Sainsbury to thrive in the country as it does not have to worry about using the latest technologies in its operations.
Environmental Factors
Lithuania has many environmental laws meant to help preserve the country by keeping it clean and fit for humans living in. These environmental laws are in line with the company’s practices. The company’s policies seek to preserve the environment. Thus, the laws will not be a problem to the company.
Legal Factors
The laws set to govern businesses in Lithuania aim to ascertain that the employers do not oppress their employees but rather work in line with the human rights (GOV UK, 2017). Sainsbury protects its workers from rights violation, thus, they will easily meet this requirement. The legal requirements for setting up a new business are easy to fulfil as they are completed fast and do not require a lot of money to complete.
Threats and Opportunities in the Industry (Porter’s 5 Forces Analysis)
Threat of Substitutes
The services offered by supermarkets in Lithuania have a low risk of replacement. This is evident from the efforts of small retail stores trying without success to replace the large supermarkets in the country (Euromonitor, 2016). This will be an advantage to Sainsbury when it thrives in the market.
Bargaining Power of Suppliers
The suppliers in Lithuania have a low bargaining power. They thereby sell their products to the supermarkets at low prices. This helps the supermarkets increase their profit margins if they opt to sell their products at high or normal prices.
Bargaining Power of Buyers
The consumers in Lithuania have a low bargaining power. They buy the products from the supermarkets without bargaining. This is evident from their decision to boycott the services from supermarkets awhile back so that the prices can be reduced failed (Euromonitor, 2016). The low bargaining power will be an advantage to Sainsbury.
Industry Rivalry
The Lithuanian market experiences intense competition with just a few of the supermarkets dominating the market. The leading four supermarkets have 70% of the market share. The leading company, Maxima, has a total of approximately 40% of the market share. This may make it difficult for Sainsbury to venture into the market (Euromonitor, 2016).
Threat of New Entrants
The industry has a high level of threat of new entrants. It is easy for companies or individuals interested in venturing into the industry to start up their venture in Lithuania. This may be a threat to Sainsbury as it will risk losing part of its market share when a new venture joins the industry.
Strengths and Weaknesses of Sainsbury (VRIO Analysis)
Value
One of the valuable features that Sainsbury has is its reputation across Europe and other parts of the world as a good and reliable supermarket. This will help it attract customers in Lithuania. They will be interested on testing if the reputation is true and when they find out that it is, they will be permanent customers.
Rareness
One of the rare feature that Sainsbury has is its brand. The name of the supermarket is known across Europe and other parts of the world. This will be an advantage to the company as it will be easy for it to win customers from the competitors. The target market will be willing to check out the supermarket and later become permanent customers.
Imitability
The company has a strength of managing its business well. The leaders in the company have experience at working in international markets since the company is already an international company. This will work to the advantage of the company. However, the competitors can imitate these leadership strategies, which would lead to Sainsbury losing its competitive advantage.
Organization
The company has a clearly defined organization structure. Therefore, everyone knows to whom they should report to as well as their responsibilities and duties. This makes it easy to run operations in the firm and thereby achieve the set goals. This will favour the company when it ventures into the new market.
Modes of Entry in the Market
One mode of entry that Sainsbury could use is direct strategy (Vaidya, 2006, p88). This would involve the company entering the market under its name and without the collaboration of other competitors in the market. The consumers would thereby know that it is a foreign company. Alternatively, the company could use the indirect entry strategy (Vaidya, 2006, p88). This strategy would involve the company relying on strategies such as franchising or joint ventures. It would require the management of Sainsbury to cooperate with one of the existing companies in Lithuania to penetrate the new market.
The
most appropriate mode of entry for Sainsbury is the direct entry strategy. This
is because the strategy will enable the company to utilize the rareness and
value that its reputation and brand name gives it and thereby have a
competitive advantage. The legal factors in the country further make it
conducive for the company to enter the market through direct strategy, as there
are no extra charges or requirement for a foreign company to meet when
venturing into the market. Entering the market using the direct strategy is
also favoured by the fact that the industry has intense competition. Joining
the competition early will increase the opportunities for the company to gain
market shares and thereby be able to expand into other parts of the country in
the future.
Bibliography
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