Introduction
For any company that wants to expand its operations globally, conducting a market analysis is essential. This process will provide an opportunity to get a complete picture of the conditions there and the potential risks of starting a business in them. The British supermarket chain Morrisons is considering investing overseas.
The primary long-term goal of the organization is global expansion to achieve competitiveness and increase the customer base. Japan was chosen as the country for this initiative. Within the framework of this work, opportunities and risks presented by the chosen location will be reviewed and evaluated, and recommendations on investing in the Japanese market will be provided.
Overview of the Company
Before proceeding to the analysis, it is necessary to understand a company that wants to expand its activities. Hence, Morrisons is a British supermarket chain that sells food and groceries. The company’s website emphasizes that the primary purpose of the company is “to make and provide food we’re all proud of, where everyone’s effort is worthwhile, so more and more people can afford to enjoy eating well”(“Company history,” n.d., para. 1).
At the moment, the organization is the fourth in the United Kingdom to sell these products and sets strategic goals to improve its position in the industry. It is noted that the company showed an increase in total sales, which rose 3.1% to 3.7 billion pounds ($4.7 billion) over the past six months (“UK supermarket Morrisons sales up 1%,” 2023, para. 4). Therefore, Morrisons shows positive growth of the company and its operations, which can be increased by global expansion into the global market.
The country that was chosen to enter the British company is Japan. This choice was made because of the many opportunities it offers to foreign organizations. In addition, it is configured to interact with the foreign market and attract more investment from abroad. A more detailed consideration of other factors influencing entry into the Japanese market will be provided further in the paper.
Environment in the Country
The first step in analyzing and evaluating the country Morrisons is considering for potential expansion is to assess political, economic, cultural, legal, and ethical risks. This process will provide a more complete understanding of what problems a seller may face when entering the market with new conditions. Furthermore, this aspect will positively influence the strategy for this global expansion, as the most important and valuable factors will be taken into account.
Political Risks
One critical aspect is paying attention to the target country’s political landscape. In Japan, several features distinguish its political regime from that in the United Kingdom, which has similar features. Regarding the political situation, Japan currently has a constitutional monarchy, in which the emperor serves as head of state on diplomatic occasions (“Overseas business risk: Japan,” 2023). In addition, the leading advantage of this market is the country’s overall high level of stability. In other words, when entering, foreign organizations should consult government policies regarding the introduction of foreign sellers to mitigate the risk of violating the political regime.
Economic Risks
The next aspect is paying attention to the economic risks for foreign companies in Japan. This aspect implies gaining a general overview, as well as awareness of possible periods of economic stagnation and recession, currency fluctuations, and industry-wide competition that pose significant risks. A positive feature is that Japan is dependent on imports, especially food products, which can be helpful for a British company. Economic risks may also be caused by the complex tax system in Japan, which “corporate tax system can soak up approximately 130 hours of management time, with 19 payments required annually” (“Challenges of doing business in Japan,” n.d., para. 13). Thus, this bureaucratic procedure requires significant time resources and attention from companies.
Legal Risks
In this context, Japan is a favorable country for doing business, but it still poses several risks that can threaten a foreign company when entering its market. Hence, for example, despite the absence of restrictions on real estate purchases, organizations should carefully review the Foreign Exchange and Foreign Trade Act (“Understanding business laws in Japan,” n.d.). One risk is the implementation of complex social insurance and labor insurance systems. This aspect implies compliance with the requirements for insurance of production and workers; failure to comply can lead to legal issues. In the context of legal risks, the importance of intellectual property is also worth noting. To limit this threat, it is critically important to study trademark, patent, and copyright law in Japan.
Cultural Risk
In Japan, culture is an integral part of people’s activities. It is valued and maintained at the state and relational levels, which is critically important for companies to consider when entering this market. For the British company Morrisons, it is necessary to adapt not only the culture at its points of sale but also the culture at the workplace. This aspect should help limit problems such as discrimination and bias, and encourage diversity and respect for representatives from different backgrounds.
The value in this context lies in the Hofstede model, which shows that Japanese culture is indirect and relies heavily on non-verbal cues (“Country comparison tool,” n.d.). In addition, risks may arise due to an incorrect attitude toward hierarchy. Thus, in Japan, unlike the United Kingdom, the hierarchical position of individuals is highly valued, and respect for authority is often clearly shown. To limit the threats associated with building a workplace and its climate, it is also necessary to foster long-term relationships with clients and stakeholders.
Ethical Risks
To mitigate potential ethical risks, foreign companies must comply with the country’s human rights regulations. Violating this rule can lead to significant legal and reputational issues that can affect the organization. Ethical risks can also violate Japanese anti-corruption laws, leading to lengthy court proceedings and a ban on conducting activities in this country. It is also worth noting factors such as child labor, unfair wages, environmental concerns, non-compliance, and non-accounting, which jeopardize the company’s productive activities in Japan.
Business Opportunities
Having considered the potential risks that Morrisons may face when entering a foreign market, the next step is to identify business opportunities. This process will provide an opportunity to understand the steps to take at the preparatory stage to achieve the greatest number of benefits. In addition, highlighting potential opportunities will help build a more effective, productive strategy that enables Morrisons to achieve the most significant benefits for the company under investigation.
To get the clearest picture of how foreign companies can most smoothly and successfully enter the Japanese market, it is crucial to analyze those that have already made this transition. One of these organizations is Starbucks, which has a global presence in almost every country. A large, loyal customer base and a productive strategy enabled her to gradually expand her operations globally.
The first Starbucks outlet opened in the Ginza district of Tokyo in 1996, and the organization now has at least 1637 stores (Nocos, 2023). The key to the seller’s success is its “ability to cater to Japanese preferences by introducing innovative offers like a clear coffee beverage, which has garnered attention and excitement among consumers” (Nocos, 2023, para. 4). In addition, Starbucks paid special attention to the incorporation of the country’s culture into its products through the inclusion of more traditional Japanese drinks. This approach allowed the company to secure commitment from the target audience.
Another organization that has expanded its activities into the Japanese market and successfully gained a foothold in it is the British Travelex. This company provides services in the domestic and international foreign exchange market and established its Japanese subsidiary in 2003 (“Success stories,” n.d.). Travelex pays special attention to creating opportunities and offers that will be based on the needs and preferences of its consumers. This approach to doing business in a foreign market contributed to the organization’s rapid growth and to the most fruitful outcomes from its expansion. Among the company’s capabilities, the fact stands out that “in Japan the target customers for both inbound and outbound markets are individuals and corporate customers account for less than 20% of overall business” (“Success stories,” n.d., para. 5). Thus, the company gets the opportunity to attract not only consumers but also other organizations to increase their activities.
Further, for Morrisons, expanding and investing in the Japanese market may have several critical opportunities that will bring significant benefits to the company. Because the company sells food and groceries, one way to address the high demand is to offer high-quality, fresh produce. In other words, an organization can adopt a strategy to offer products that align with market trends, such as healthy, nutritious food. In this context, it is worth noting that the sale of local English products can also benefit. This offer will cater to both Japanese customers who want to try new options and English-speaking customers living in Japan who want to buy traditional products. Thus, Morrisons will be able to attract additional customers and increase its profits, thereby strengthening its position.
Another opportunity is to offer high-quality, fresh Ready-to-Eat Options. In Japanese culture, this approach to meals is prevalent. The research emphasized that “the sales of ready-to-eat food/meals is growing and, in 2017, they exceeded JPY 10 trillion and the expected increase in the number of elderly people and the results of women’s empowerment in Japan should favor this sector of the food industry” (Sakata et al., 2020, p. 27). This opportunity can also significantly increase audience influx and loyalty by offering both traditional and unique food options. The central target buyers in this context are busy professionals with limited time to prepare and consume food.
Interaction and collaboration with local Japanese companies are also seen as opportunities for Morrisons’ successful expansion. This aspect implies the conclusion of partnership agreements for the sale of local products or the creation of initiatives to introduce auction goods. In addition, companies can engage in joint promotions and shared marketing initiatives, which will help in spreading awareness among customers about a brand new to them. In addition, collaboration with Japanese organizations can provide valuable insights into the risks and nuances of entering a new market for the seller. This implies gaining an understanding of legal and economic factors, as well as a greater awareness of industry trends.
Of particular importance in considering opportunities for Morrisons is the emphasis on consumer health and well-being. Research indicated that “Japanese consumers are a group that is highly concerned about health, which causes the food market to focus on functional, healthy, and nutritious products constantly” (Konar et al., 2022, p. 58). This circumstance has led the industry to gradually become a diverse, high-volume market compared to the rest of the world. When entering the Japanese market, the company should focus on the health-conscious consumer base and offer products and options that meet their needs. Therefore, it will be able to achieve audience growth and profit by investing in line with societal trends.
Conclusion and Recommendation
Based on the analysis in this paper, it can be concluded that the British company Morrisons should invest in the Japanese market. This step will provide an opportunity to gain several strategic advantages and build a business that will bring not only profit but also a large base of loyal customers. First of all, the Japanese market is a favorable place to branch out, as it offers a well-established, stable economy. Under these conditions, there is a reduced risk for a foreign organization to face economic problems if the requirements are met. The same can be said of the country’s political and legal landscape. Despite some nuances and details, with proper compliance with laws and regulations, a company can enter the country and implement its business there most effectively.
Investing in the Japanese market is also facilitated by the growing demand for high-quality, fresh produce. Therefore, Morrisons can provide consumers with the products they need and close this request using its services. Moreover, the organization can offer a diverse range of British goods that may interest a foreign audience and Englishmen living in Japan. Of particular value in this context is the fact that the population of the selected country pays close attention to health, which may be an opportunity for Morrisons.
Investing in the Japanese market and focusing on offering high-quality, healthy products can help gradually build the company’s customer base. Awareness of the potential risks at the entrance to another country’s market will contribute to greater organizational preparedness, helping minimize them as much as possible, and knowledge of the opportunities that global expansion will offer for shaping the company’s strategy.
When researching various aspects of Morrisons’ global expansion into foreign markets, the study gathered information to help identify the most appropriate approach. The allocation of the market entry strategy is critical because it provides the company with the opportunity to carefully prepare for an important step and determine the main actions it should take. Thus, the main recommendation for Morrisons is to invest in the Japanese market through a strategy such as franchising.
It is important to emphasize that Root’s model was used to determine this approach. It is a framework that provides a more complete understanding of the processes involved in entering a foreign market and the aspects companies should consider. It is pointed out that “as firms become more experienced, they will choose entry modes which provide greater control over foreign market operations” (Blackburne & Buckley, 2019, p. 5). Thus, for managers, the main task is to choose the approach that best matches the organization’s capabilities.
Thus, opening a franchise can be an effective way to expand within the framework of the foreign market entry strategy. It is defined as a “business model where the franchisor extends business know-how, intellectual rights and the right to operate in the name of a brand for consideration (usually in the form of fees and royalties) to the franchisee” (Alon et al., 2020, p. 43). This approach has several advantages that can help Morrisons develop in the foreign market.
One of them is the opportunity to reduce investment and operational costs. This aspect will help preserve financial resources for other areas or for addressing emerging problems during expansion. Another advantage of franchising is the faster formation and opening of businesses in the country, with local entrepreneurs taking the lead. In other words, the company receives significant help from local executives who are better versed in the market.
On the other hand, such a strategy for entering a foreign market through franchising has some disadvantages. One of them is maintaining standards and ensuring compliance with all necessary regulations. To do this, the company will need to monitor these indicators closely to avoid potential risks and threats. Another difficulty is the high degree of dependence on franchisees. This indicator implies the need to verify that the branch can match the activity and maintain it.
References
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