Executive Summary
With its base in Australia, Harvey Norman is a sizable multinational retailer of furniture, bedding, electronics, telephones, and home appliances. In the face of further expansion, Harvey Norman can gain more benefits in France, which has a stable economy that has recently recovered and needs additional economic activity. In this sense, South Korea might be perceived as a competitive market for small and mid-size companies. Furthermore, trade agreements between Australia and France have lowered import taxes. As for the best business structure, a joint venture will save costs while enabling Harvey Norman to share resources and risks with its partner. Consequently, a partnership in France could be more profitable. However, there are implications, such as incomplete information on current transit prices.
Introduction
Harvey Norman is a significant international retailer of furnishings, bedding, electronics, telecommunications, and home appliances, with its headquarters in Australia. The business primarily works as a franchise, with Harvey Norman Holdings Limited owning the primary brand as well as all corporation facilities. Considering previous expansions of Harvey Norman, this research paper’s purpose is to give an overview of the next potential desirable country with more opportunities and possibilities. In this sense, it is assumed that France, a country of the European Union, will be the most appropriate choice for Harvey Norman, given the competitive advantage of the business and growing IT retailing industry in France. However, the limitation of the study is the lack of precise data on French markets in IT retailing. The paper will first analyze France and South Korea in terms of expansion hubs, then the most appropriate strategy will be identified, and lastly, subsidiaries and other forms of appropriate operations will be discussed.
Most Advantageous Country for Expansion: France VS. South Korea
Harvey Norman’s success is mainly dependent on the scale economies that arise from the company’s marketing and buying operations. The company’s unique retail franchising strategies help it maintain a competitive edge in the marketplace. In this method of operation, a particular Harvey Norman outlet may have a furnishings franchisee, a franchisee for software items, in addition to a franchisee for electronic items. Such a setup allows for the proper concentration of the sales personnel, providing the usual motivational advantages that come from business-minded franchisees.
When it comes to the best country for expansion, South Korea might be less appropriate due to its high level of competitiveness and market that is rich in IT retailing services. Regardless of the Asian and the United States economic collapse in previous decades, South Korea has consistently demonstrated its competitive edge with product lines, such as chemical compounds, machinery and transport, and electronic equipment (Heo et al., 2022). Numerous emerging economies were significant trading collaborators.
Indeed, the growth of IT startups and enterprises is seen by many in the nation as essential to creating a robust technology environment. In order to aid in the development of new enterprises in South Korea, a variety of government bodies have developed IT-focused startup incubator programs (Heo et al., 2022). Additionally, the nation’s flourishing VC environment drives the growth of the firms. Presently, there are over 400 startups based in South Korea (Heo et al., 2022). There are a growing number of companies that provide either retail or technology services in the nation. According to Korean reports, in 2021, over 100 new firms were established (Heo et al., 2022). However, for Harvey Norman, IT and retail giants like Samsung Electronics can be an impediment in the expansion process. Among other well-known companies are Livart, Emons, and iloom.
On the other hand, France can be the most suitable expansion location for Harvey Norman. In this sense, it can be ration to use Michael Porter’s Diamond Model, which is a paradigm in the form of a diamond that aims to clarify why some sectors inside a given country may be competitive globally while others may not (Fang et al., 2018). According to the model, South Korea is among the leading Asian countries in IT (Fang et al., 2018). Yet, France only ranks in the center of wealthy nations in terms of technical competitiveness, much like China does (Fang et al., 2018). Therefore, an unexplored and not as competitive market of France might be appropriate.
Most Appropriate Expansion Strategy
Harvey Norman is an Australian retail company, and the most probable competitive pressures it will face during expansion are cost reduction and local responsiveness pressures. As for the cost-reduction measures, it must be recognized that international companies are under increasing pressure to make their prices more appealing (Arcidiacono et al., 2022). To attempt to attain position and skill curve economies, a business must mass produce quality products at the ideal region in the world in order to reduce the expenses of value creation. In sectors that produce staple goods, such as Harvey Norman, where substantial distinction on non-price characteristics is challenging, and the price is the primary competitive tool, demands for cost cuts can be especially strong. However, there are additionally local responsiveness challenges. There are a variety of factors that put pressure on regional reactivity, such as variations in consumer interests and preferences (Arcidiacono et al., 2022). There are additionally variations in infrastructures and traditional approaches, variations in distribution networks, and host nation requirements.
In France, there are reduced trade barriers and transportation costs, and economic instability due to agreements with Australia. France participates in the Eurozone’s unified trading system, and the Eurozone Taxation and Customs Union regulates imports and exports. Australia is one of the nations subject to the Common External Tariff (Department of Foreign Affairs and Trade, n.d.). The EU developed the Binding system as a mechanism for determining the proper tariff classifications for items intended for importing or exporting (Department of Foreign Affairs and Trade, n.d.). Between Australia and France, there are extensive commercial and business ties (Department of Foreign Affairs and Trade, n.d.). France was among Australia’s most significant trading partners, with a two-way value of almost $10 billion in products and services, which is higher than with Italy or Germany (Department of Foreign Affairs and Trade, n.d.). Consequently, a collaboration between Australia and France is beneficial for both sides.
As for the economic position of France, it is quite robust and might provide opportunities. France’s economic expansion during the five years fell from 2017 to 2019, became negative in 2020, and then recovered again in 2021 (Hao et al., 2018). Economic freedom has been trending marginally higher for the past five years. In this sense, with an economic rebound, it is necessary to use such opportunities. Regarding South Korea, it likewise has a trade system that benefits Australia. For example, KAFTA removes or lowers restrictions on the flow of products between Australia and South Korea (Kang et al., 2022). This helps Australian companies who wish to buy Korean merchandise for sale in Australia or sell Australian products to Korea.
The Bartlett & Ghoshal Model identifies the strategic possibilities for companies. The theory helps firms seeking to control their worldwide operations and utilize opportunities, which includes local responsiveness and global integration (Djodat & zu Knyphausen-Aufseß, 2017). In this sense, Harvey Norman might adapt its goods to French markets and culture with the help of mentioned theory. Therefore, global expansion is vital since, in this situation, the company will employ a strategic vision to respond to local demands in preference for concentrating on reduced costs and increased productivity.
A global strategy emphasizes the need to acquire low prices and economies of scale by delivering basically the same items or services within every area, notwithstanding the possibility of some small product and service variations in different areas. Moreover, organizations may take advantage of new possibilities through global profitability, which also improves growth, generates more income, and builds brand recognition (Kumar et al., 2017). Lastly, a business’ strategic positioning will show the decisions it takes on the type of value it will provide and how it will produce that value in a unique way from competitors (Kumar et al., 2017). Harvey Norman’s strategic positioning must result in lower expenses for the business at this point. Among the implications of such an approach might be lower profitability of the business. However, with more brand awareness and incorporation of the joint venture, such an implication will be tackled.
Subsidiary Through the FDI
Lastly, regarding the best forms of business operations in expansion, a subsidiary through the FDI is the least effective method, which will not be suitable for Harvey Norman. First, subsidiaries will require additional taxes on the holding firm (Tien & Ngoc, 2019). As more tariffs are imposed on businesses with subsidiaries, the holding company’s taxation may rise. Moreover, there will be voluminous paperwork since having a wholly-owned subsidiary involves a lot of documentation and legal requirements, which will raise the original firm’s pricing structure (Cuervo-Cazurra & Li, 2021). Finally, expenses will increase for the parent firm since the holding company will have to spend the budget for the firm’s profits (Tien & Ngoc, 2019). This will be almost impossible if the prospective parent company is a small or mid-sized business with few resources. As a result, subsidiaries in a foreign market will entail immense expenditures, which can become a burden for a company.
Instead, Harvey Norman will have a joint venture in France, enabling it to cut costs and immerse itself in the culture. The most significant benefits of joint ventures are that they may accelerate the company’s growth and boost productivity and profitability. Joint ventures might offer access to emerging markets and supply chains. With a partnering company’s help, there will be access to additional information and skills, including specialized employees and better resources, such as software and funding (Tien & Ngoc, 2019). Moreover, both companies will share risks and expenses, which will make it possible to expand without taking loans or looking for external sponsors (Tien & Ngoc, 2019). To retrieve maximum advantage, Harvey Norman will be able to utilize the consumer database of the joint-venture partner to advertise the goods and combine resources for development, buying, and research. In this sense, the adaptability of a joint venture is an immense benefit.
Conclusion
Hence, given the competitive market of South Korea, France would be the appropriate expansion location for Harvey Norman since it has a stable economy that has recently rebounded and requires more economic activity. Moreover, Australia and France have trade agreements that lower import tariffs. As for the most appropriate form of business, a joint venture will lower the expenditures and allow Harvey Norman to share risks and resources with its partner. Therefore, a joint venture in France might be more lucrative. However, there are implications, such as inadequate data on current transportation costs.
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