Introduction
The current report analyses the strategic marketing issues of market entry in developed and developing countries, England and Saudi Arabia, respectively, discussing macro-and micro-environments to propose business implications and entry modes for 7-Eleven. First of all, the organizational background of the 7-Eleven corporation is presented, outlining the company characteristics and its current position in the global market.
After that, the evaluation of the company’s macro-environment is conducted in regard to the market of England and Saudi Arabia, highlighting the major features of each economy. Following this step, 7-Eleven’s micro-environment is also assessed, taking into consideration the brand’s possible competition and demand. Potential implications for the business are also examined in these two sections. Finally, an appropriate entry mode for each country is suggested based on the retrieved information and scholarly opinions of the subject.
Organizational Background
The company discussed in this report is 7-Eleven, an international convenience store established in the United States. Currently, 7-Eleven has opened numerous locations throughout the USA and continues to expand its business worldwide, has entered the markets of several developed and developing states (About Us – 7-Eleven Corporate, no date). The corporation provides its customers with a range of convenience products, from food to electric appliances and clothes, making everyday purchases easier for various populations.
Situational Analysis
Macro and Microenvironment
Macro-Environment Analysis for 7-Eleven
Political Atmosphere
The political component of the PESTEL framework is directly linked to the government’s impact on business operations. This element includes the laws and regulations that allow a country’s authorities to intervene in the economic processes, thus introducing and managing the policies establishing how corporate entities can conduct their activities (Feys, 2015). These factors are crucial to consider prior to entering the country’s market, as there are significant distinctions between the regulations sustained by various developed and developing states.
United Kingdom
As a country with a developed economy, the UK can be a beneficial entry option for various businesses. The taxation system in the UK is considered advantageous, as both UK resident and non-resident firms are required to pay the same tax percentages based on their income and gains (Edrich, 2020). Nevertheless, being a non-resident company, 7-Eleven will be forced to calculate its own corporation tax liability, reporting corporation tax returns on its own.
In addition to choosing the corporate structure of the UK branch and complying with the tax rates, 7-Eleven will be required to amend the approach to labor law. In the UK, the concept of employment-at-will, which is widespread in the US, is non-existent; therefore, employment dismissal and hiring procedures can be more difficult to perform without legal repercussions (Edrich, 2020). Furthermore, the company must follow the regulations that specify the national minimum wage and maximum working hours (Edrich, 2020). These requirements might significantly affect 7-Eleven’s business operations, compelling the company to adapt to the UK employment demands.
Saudi Arabia
The political considerations when entering the Saudi Arabian (SA) market mostly pertain to the laws regulating foreign business activities in this country. Heavily investing in the growth of the country’s infrastructure, the government creates a lucrative entry opportunity for companies that employ the convenience store model (Institute of Export and International Trade, 2019).
However, the law system in SA is drastically different from the Western approaches and must be carefully examined prior to entering the market. For instance, a united civil code or common law system is not present, only with Shari’ah being the most fundamental regulation (Institute of Export and International Trade, 2019). Furthermore, foreign investments and organizations are typically heavily regulated, meaning that 7-Eleven would be forced to be highly attentive to such regulations while entering the market.
In addition to the mentioned complications, several requirements regarding employment and taxation are vital to consider when planning SA market entry. The governmental efforts in SA are significantly directed toward Saudisation, the initiative which ensures that more SA citizens are provided with credible occupations (Institute of Export and International Trade, 2019). Following the quotas is imperative for all organizations operating in the country, and 7-Eleven would be required to enforce this policy during hiring. As for the taxation system, foreign-based companies must pay a 20% income tax and a 5% withholding tax.
Economic Considerations
The economic factor of the PESTEL tool is critical for assessing the economic condition of the external environment. This element is connected to the country’s economic performance rates, namely inflation, gross domestic product growth, and unemployment (Feys, 2015). Based on these characteristics, it is possible to project how productive the organization might be after entering the market and what additional measures will be needed to ensure the required efficiency.
United Kingdom
Given that the UK has a developed economy, the conditions for entering the national market are currently quite favorable. The overall economic characteristics are quite positive, with the inflation rate remaining low in the last ten years (United Nations [UN], 2021). After that, the GDP trends also remain rather high, with the country outperforming its segment’s representatives (UN, 2021). Overall, decreased inflation and positive GDP growth are good indicators that large-scale businesses from developed countries can easily enter the market without adjusting considerably to the local economy.
Saudi Arabia
Currently, the SA economy appears to be experiencing significant diversification and growth. There is a distinct focus on reducing the existing reliance on oil and gas, which is a remarkable indicator of the ongoing diversification and the government’s involvement in advancing the country’s economy (Institute of Export and International Trade, 2019). Promoted by the SA government, this process is highly beneficial for foreign companies interested in entering this market, as a more varied structure of production and trade is gradually emerging. In the long term, this event might lead to an increase in the country’s total income and an improvement in the market conditions, which create a positive environment for 7-Eleven’s entry.
Another factor essential to consider from the economic perspective is the country’s growth in the past decade. SA continues to develop its outputs and economic conditions, improving its GDP and occupying a large portion of the Gulf region’s market (UN, 2021). Partially, this achievement is attributed to SA’s population size, which is the biggest in the Gulf region.
Although still considered to have an economy in transition, SA continuously enhances its market’s growth and advances the previously ignored sectors, suggesting that positive economic development is an ongoing process (Institute of Export and International Trade, 2019). These characteristics are remarkably advantageous in terms of market entry; even though SA does not have a developed economy, the current trends propose that the overall environment for establishing the business a highly favorable.
Social Environment
The social factor in the PESTEL model can be especially helpful for enterprise executives. The given population’s attitudes towards purchasing constitute a substantial part of the social atmosphere and should be included in the macro-environment analysis to better understand the individuals’ predispositions (Feys, 2015). Therefore, the social element allows for assessing the social environment of the state where the enterprise is planning to introduce its products.
United Kingdom
As such, UK buyers appear to be more drawn to small-scale magazines, which differ drastically from the convenience store model of 7-Eleven. In regard to convenience stores, consumers seem to positively perceive local brands to which they are loyal due to their long-term presence in the country and a unique approach to the UK culture and preferences (Ramanathan et al., 2017). From this perspective, 7-Eleven will be required to establish the necessary level of loyalty through promotions and buying incentives, building the customers’ trust to overcome the competition from local brands.
Saudi Arabia
The social environment of SA appears to be especially distinct from the Western cultures, given the country’s location and history. Adherence to the nation’s cultural aspects is crucial for retail stores, as it remarkably improves the perceptions of the service’s quality (Rizvi and Sabir, 2018). In addition, physical aspects and personal interaction are highly valuable for SA customers, who rely on these elements when assessing the shop’s reliability (Rizvi and Sabir, 2018). Thus, it will be vital for 7-Eleven to adjust its approach to customer behavior, integrating the buyers’ preferences into the framework used.
Environmental Concerns: United Kingdom
Of particular importance is the environmental factor of the PESTEL approach, which includes a variety of aspects related to the country’s ecology. In the modern age, the preservation of the planet’s nature has become a crucial issue for many governments, meaning that enterprises must comply with the expectations regarding leading a sustainable business (Feys, 2015). Thus, the country’s climate, location, and governmental policies toward environmental protection can drastically impact the organization’s processes.
In the UK, there is a specific focus on fulfilling sustainable business obligations. The state’s officials actively endorse legal initiatives aimed at decreasing the large-scale company’s influence on the environment. As such, all the corporations conducting business in the UK must assess their environmental impact and diminish the risks connected to their organizational activities (Department for Environment, Food & Rural Affairs, 2019).
In this regard, 7-Eleven executives will be expected to demonstrate that the use of water, raw materials, energy, and other ecologic resources will not negatively affect nature (Department for Environment, Food & Rural Affairs, 2019). Legally, failing to comply with these regulations might cause drastic consequences for 7-Eleven, resulting in sustainability lawsuits and decreased chance of successfully establishing a UK branch.
Legal Considerations: Saudi Arabia
Given the major differences between the SA and American law systems, the legal environment of SA might become a challenge for the 7-Eleven executives. The existing laws and regulations are highly distinct and are not unified into one framework, meaning that the understanding of the relevant legislation can become difficult to achieve. Although all rules comply with the Shari’ah, they can become highly diverse based on the subject, SA region, and targeted entities (Institute of Export and International Trade, 2019).
Furthermore, being a Muslim country, SA strictly enforces Islamic law, and all corporations conducting business practices in the country must follow these prescriptions. Contrastingly, the US mostly relies on the Constitution and employs the federal court system that does not incorporate any religious elements. Therefore, considering the American origin of 7-Eleven and the apparent contrast between the legal environment of the USA and SA, it will be critical for 7-Eleven leaders to adapt their practices according to Muslim requirements.
Micro-Analysis
Competition
The competitive environment is of particular concern for businesses aiming to enter a new market. This component refers to the notion of fighting for the consumers’ predisposition, securing positive attitudes, and higher loyalty towards the company’s brand in contrast with the competitors (Khurram, 2020). The convenience store industry in the UK is a highly developed sector that can become highly competitive for new entrants (Ramanathan et al., 2017).
Given the positive attitudes to local shops and small-scale businesses, large convenience stores are often perceived as less favorable for everyday purchases (Ramanathan et al., 2017). Therefore, for 7-Eleven to succeed in the UK market, it will be necessary to battle the competitors’ influence, improving the consumers’ interest in shopping in a novel large convenience store.
The competitive factor in the convenience store industry of SA is highly distinct from the UK’s aspect. As such, this sphere is not rivaled by multiple influential opponents, given that SA remained a secluded country for an extended period of time (Institute of Export and International Trade, 2019). In this regard, the SA market is highly more favorable for entry, allowing the entering organization to establish a prominent position easily. However, it might be strenuous for 7-Eleven to gain the consumers’ approval due to the local competitors’ knowledge of the major customs.
The Threat of New Entrants
Another element that must be considered when entering the UK market is the possibility of other non-resident corporations opening their branches in the country. As a highly developed country, economic affluence and structure are beneficial for development, the UK can be highly attractive for various enterprises that are not yet present in the state. However, such a tendency can prove to be a disadvantage, as the presence of multiple competitors incredibly diminishes the chance of successful entry (Khurram, 2020). However, less internationally popular brands are more likely to suffer from such limitations (Khurram, 2020). In this regard, 7-Eleven has a higher potential in the UK market, as it is well-known around the globe and it already has several branches in other countries.
In comparison with the UK convenience store sector, the SA sphere is less likely to be targeted by other entrants. The differences between Western and SA culture, the distinct environment of the Gulf region, and the focus on Islamic law typically avert other businesses from opening new branches in SA (Institute of Export and International Trade, 2019). Therefore, it is possible that 7-Eleven might not encounter a considerable threat from other international companies aiming for the SA market.
Possible Substitutes
Alternative products and services are also essential characteristics of a micro-environment analysis. Such entities as resellers or substitutes that can replace the given product and provide the customer with a different means of attaining the necessary items can be highly dangerous for a new organization in the local market (Khurram, 2020). While some substitutes might be more affordable, others might adhere to the nation’s culture or particular demands, meaning that the services of the company that just entered the industry might be ignored (Khurram, 2020).
The presence of small businesses that act as an alternative to convenience stores may negatively impact 7-Eleven’s success in the market, hindering the development of the UK branch. In light of this information, 7-Eleven’s executives will be forced to gain the consumers’ interest by distinguishing the enterprise from other entities that have a different approach to selling everyday items.
The dangers of substitutes become especially evident upon the examination of the SA market. Although rather famous, convenience stores and retail shops have alternatives like local bazaars and markets having distinct qualities that cannot be substituted by large-scale supermarkets (Rizvi and Sabir, 2018). In addition, consumers report that large-scale convenience stores often lack the necessary appearance and customer-personnel communication, which decreases the chances of establishing a proper connection to the vendor (Rizvi and Sabir, 2018). As such, 7-Eleven will be compelled to account for such differences.
Supplier Power
Retail stores are highly dependent on high-quality suppliers who offer the necessary resources for conducting business practices. However, suppliers can be understood as entities that provide physical materials and as parties that distribute labor or ready products (Khurram, 2020). The UK possesses a developed economy that is highly favorable for securing different types of physical resources, from energy to construction materials and merchandise for selling (Edrich, 2020). Gaining access to labor is also rather easy given the positive labor force trends, suggesting that 7-Eleven might not encounter substantial difficulties in this area.
To efficiently manage the new branch in SA, 7-Eleven must rely on credible vendors to supply the necessary resources. The overall distribution of energy and physical materials in SA is rather efficient, meaning corporations do not usually experience complications when acquiring necessary resources (Institute of Export and International Trade, 2019). However, given the geographical and cultural differences, 7-Eleven will be forced to account for the contrasts between the materials typically supplied by Western vendors, as particular items might be inaccessible.
Demand
Finally, the demand element must be properly examined to ascertain the buyers’ interest in the given product. Being one of the numerous convenience stores in the UK, 7-Eleven remains one of the various corporations that offer similar services. From this perspective, it will be crucial to demonstrate the enterprise’s uniqueness, positively impacting the customers’ perceptions of the brand (Khurram, 2020). Considering that switching to a different vendor is a long process that demands significant effort from the enterprise, 7-Eleven will be required to adjust its entry strategy accordingly.
Given the aforementioned presence of convenience stores’ substitutes in SA, the demand for 7-Eleven’s products might be lowered. Local shops and markets that replace large-scale supermarkets might be the factors that compel Saudi Arabians to decrease the demand for big retail shops (Rizvi and Sabir, 2018). However, given the growing diversification of the economy and the ongoing infrastructure developments, it is possible that the interest in hypermarkets will increase steadily (Institute of Export and International Trade, 2019). Therefore, 7-Eleven might be able to establish a strong presence in SA; nevertheless, it will still be essential to consider that the Saudi Arabian population will be interested in different products compared to Western consumers.
Entry Mode Selection
United Kingdom: Establishing a Subsidiary
The UK law endorses the creation of subsidiaries or UK establishments for international companies aiming to begin their operations in the country. Subsidiaries are often chosen as the most effective pathway as this structure constitutes an independent legal entity (Edrich, 2020). In comparison to the UK establishment option, which forces the parent company to take full responsibility for any profits and losses, the subsidiary is regarded as an independent body and is thus easier to maintain for an international business (Edrich, 2020). From this perspective, it is recommended that 7-Eleven to establish a subsidiary to enter the UK market, retaining control over the branch but simultaneously ensuring that legal ramifications are not attributed to the parent company.
Saudi Arabia: Creating a Partnership
However, for the SA market, it would be more beneficial to employ the partnering and strategic alliance entry mode, which focuses on the establishment of a business connection between a local enterprise and 7-Eleven. Given that the SA economy and market are highly distinct from those of a developed country, securing the aid of a local organization would allow sharing of necessary costs and reducing the entry risk (Burton, 2016). However, it would be crucial to consider integration problems, ensuring that corporate cultures’ integration problems are addressed.
Conclusion
To conclude, a thorough analysis of the macro-and micro-environment for the 7-Eleven corporation was presented in this report, highlighting the business implications that follow the entry into the markets of the United Kingdom and Saudi Arabia. To properly adapt to the state’s economy and efficiently introduce the company’s products, the 7-Eleven executives should carefully consider the numerous aspects connected to launching a new corporate branch in different market environments.
The features of the UK economy appear to be highly advantageous for entry, although additional considerations are needed when examining competition and demand factors. In contrast, the SA environment is unique, including multiple legal and social aspects to be addressed during entry. In this regard, it is suggested that establishing a subsidiary in the UK is the effective approach, while, in the SA, it is possible to start a partnership with a local company to improve 7-Eleven’s entry’s success.
Reference List
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Burton, E. (2016) Business and entrepreneurship in Saudi Arabia: opportunities for partnering and investing in emerging businesses. New York: John Wiley & Sons.
Department for Environment, Food & Rural Affairs (2019) Measuring and reporting environmental impacts: guidance for businesses. Web.
Edrich, S. (2020) Doing business in the UK. London: Austin Macauley.
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Institute of Export and International Trade (2019) Doing Bussiness in Saudi Arabia. Web.
Khurram, A. (2020) ‘Revisiting Porter Five Forces Model: Influence of non-governmental organizations on competitive rivalry in various economic sectors, Pakistan Social Sciences Review, 4(1), pp. 1–15.
Ramanathan, U. et al. (2017) ‘Impact of customer loyalty and service operations on customer behavior and firm performance: empirical evidence from UK retail sector’, Production Planning & Control [Preprint]. Web.
Rizvi, D. and Sabir, A. (2018) ‘The relationship between customer satisfaction and service quality with special reference to the hypermarkets in Saudi Arabia’, Research in Economics and Management, 3, pp. 160–165.
UN (2021) World economic situation and prospects. Web.