Introduction
The Target Company has been in operation for over a century. It was incorporated in 1902. The firm focuses on offering customers everyday essential and fashionable consumer products at discounted prices. The Target Company has established 1,805 retail outlets in the United States.
Its past success has arisen from its commitment in implementing best practices in strategic management. This has arisen from recognition of the value of effective strategic management in attaining the strategic goals and objectives and hence the competitive advantage. Target Company is committed on ensuring that the firm delivers the preferred shopping experience. The firm has developed an efficient supply chain and technology infrastructure.
The firm has ingrained innovation as a vital strategic aspect in attaining future growth. Target Company has incorporated international market expansion as one of the strategic moves in attaining growth. The firm identified Canada as one of the potential international markets to enter. Its decision to enter the Canadian market was motivated by the need to generate high sales revenue and hence profitability.
Strategic issue/Problem identification
The firm failed in its attempt to enter the Canadian market because of ineffective strategy application. It was forced to close 133 of its retail store that it had established within two years of its operation in Canada. The market entry failure might adversely affect the firm’s capacity to develop sustainable competitive advantage.
Rationale of the strategic analysis
Achieving sustainable competitive advantage is an essential strategic aspect that managers of profit-oriented firms should pursue. The significance of developing sustainable competitive advantage emanates from the dynamism associated with the contemporary business environment.
Chekwa, Martin, and Wells (2015) support this view by positing, “Sustainable competitive advantage is achieved when a firm is able to consistently create more economic value than the rival firms” (p.61). Therefore, firms that have attained sustainable competitive advantage are more dominant compared to their competitors. Subsequently, they are able to sustain their profitability.
Most markets in developed countries such as the US are becoming saturated. Therefore, the profit-oriented entities must consider developing strong market position. International market penetration into either the emerging or established markets constitutes one of the fundamental approaches that firm’s can adopt in their quest to entrench their market position.
Firms’ success in international market depends on the firm’s strategic agility. Hitt, Ireland, and Hoskisson (2008) emphasize that strategic agility enables firms to overcome the context-specific circumstances encountered in the international market. Thus, Target Company failure highlights lack of strategic agility in its international market expansion.
Research objectives
The purpose of this study is to undertake an extensive analysis of the business strategy adopted by Target Company. The report is based on the following objectives.
- To examine the best case, likely case, and worst-case scenarios if the strategic issue facing Target Company is not addressed.
- Evaluation of the alternative courses of actions that the firm should consider pursuing in resolving the strategic issue
- To provide recommendations on the most appropriate course of action that Target Company should integrate.
- To propose and discuss the implementation or action plan that the firm should pursue in achieving the recommended course action
Research methodology
The goal of this research study is to examine the strategic issue faced by Target Company. The outcome of the analysis is to propose the most appropriate course of action that the firm’s Board of Management should pursue in strengthening the company’s competitive advantage. The study’s goal is achieved by employing the qualitative research design. The rationale of incorporating this design is to ensure that an extensive exploration of the research problem is undertaken.
The descriptive research design is enhanced by adoption of the case study approach. Subsequently, the study has primarily focused on Target Corporation. The justification for this research design is to ensure that the data collected is relevant in assisting Target Corporation resolve the strategic issue. Based on the research design, different methodological approaches have been integrated as explained herein.
Data collection and analysis
The data used in conducting the study is sourced from secondary sources such as the company’s annual report. It is ensured that the data is collected from credible sources such as SEC filing [Form 10K]. Subsequently, the reliability of the data as the basis of making recommendations on how Target Corporation can improve its performance is improved.
The data collected is analyzed using qualitative and quantitative techniques. Integration of the two techniques is intended at developing an extensive understanding on the impact of the strategic issue under examination on the company’s strategic management practices.
Analysis of findings
According to the company’s Chief Executive Officer, the entry into Canada was intended to prepare Target for its future market expansion. However, Target Company subsequent failure to penetrate the Canadian retail market illustrates poor implementation of international market expansion strategies. Dahlhoff (2015) asserts, “The market entry seemed rushed and oversized, with over 124 retail stores established in 10 months” (par.4).
In its international market penetration, Target adopted the concept of acquisition by taking over Zellers, a Canadian discount chain. The takeover presented a perfect opportunity for Target to establish a remarkable footprint in Canada.
One of the issues that would have contributed to the company’s efficient market entry is that the firm would have leveraged on Zeller’s supply chain. Thus, the firm would have succeeded in marketing its products to a wide range of customers. Nevertheless, the company did not successfully leverage on Zellers distribution chain.
Amongst the factors that contributed to the firm’s market entry failure entail supply chain issues, poor inventory management, and increased customer complaints over high product prices. Dahlhoff (2015) asserts that the new stores that the company established encountered challenges in distribution challenges.
Subsequently, the company constantly experienced stock out. The existence of cases of stock-out and poor replenishment made it challenging for the company to attract and retain new customers due to low rate of customer loyalty. The takeover of some of Zellers retail stores illustrate that the company was mainly concerned on establishing physical stores. Target stores in Canada were not strategically located compared to the US domestic market (Dahlhoff, 2015).
This limited the firm’s capacity to generate sales revenue hence increasing the company’s cost of operation based on the low cost model. To tap the prevailing market potential, Target should have considered employing e-commerce. The integration of e-commerce would have further improved the firm’s ability to minimize the cost of operation by establishing physical store. Thus, the firm would have gained an edge in coping with the complex Canadian market.
The firm’s failure to tap the Canadian market arose from its lack of economic moat. Target has adopted the low pricing model in its international market entry. However, the market presence of other large discount retail firms such as Amazon and Wal-Mart in Canada limited the efficacy of Target’s discount pricing strategy in gaining a competitive edge. Similar to Target, Wal-Mart has integrated the low pricing model. Thus, Target customers can switch to Wal-Mart without incurring significant switching cost.
The decision to enter the Canadian market was necessitated the need to increase sales revenue from international market operation. Canada was not adversely affected by the economic recession hence increasing its attractiveness to corporate and individual investors (Dahlhoff, 2015).
Additionally, Canada’s strategic location to English speaking countries and the fact that Target was conversant with the Canadian culture improved its attractiveness for Target’s international market expansion efforts. Within the two years of its operation in Canada, Target had developed a remarkable brand recognition and fan base.
Irrespective of Target Company recognition of the Canada’s attractiveness, the firm did not succeed in entering the market due to different aspects. First, the firm did not understand that the Canadian discount market segment is very complex.
Secondly, the company failed to leverage on economies of scale arising from its size due to the presence of other discount retailers such as Giant Tiger, Costco, Sears and Wal-Mart (Dahlhoff, 2015). Despite the competition faced, Target Company was focused on attaining an optimal market position. However, the firm’s international market operation was based on a standardized product provision strategy.
Under this approach, a company’s international product strategy is similar to that of the domestic market. Product standardization may adversely affect a firm’s capacity to penetrate the international market. This arises from a company’s failure to appreciate the prevailing cultural differences.
Bhatia (2008) asserts, “Integrating the various parts of the international business and integrating the domestic business with international business is a major area of difficulty for the international retailers” (p.78). Combining international and domestic market operation increases the management complexity faced by managers (Bhatia, 2008).
By adopting the product standardization strategy, Target Company underestimated the effect of cross border cultural differences on international market operations. The company had to ensure that its operations are effectively differentiated from that of the local and international competitors. Moreover, the company was forced to focus on two main customer categories that include the Canadians familiar with its operation and the new customers. The company’s effort to localize its product strategy was flawed (Dahlhoff, 2015).
The gaps in the firm’s strategic management practices are further underlined by its decision to announce that it would not consider entering the international market in the near future. On the contrary, Target Company announced that it would focus on reviving its performance in the domestic market.
However, this move would significantly reduce the company’s future growth because of the sluggish US retail sector. The poor performance in the domestic market would further arise from the cyber security breach that the company encountered in the US. The security breach compromised over 40 million debit and credit card accounts (Ziobro & Trichur, 2015).
The decision to liquidate its operations in Canada despite the prevailing market potential illustrates existence of gaps in the firm’s strategic management approach. Due to liquidation of its Canadian operation, Target incurred a $7 billion loss.
The company’s Board of Management considered this move to be appropriate in curbing the continued loss trend that the firm had incurred in Canada. However, Target’s exit from the Canadian market made most investors doubt the company’s capacity to grow sustainable returns. This highlights that Target lacks economic moat.
Cannivet and Teufel (2009) identify the development of economic moat as a critical aspect in developing sustainable competitive advantage. Economic moat will improve the company’s efficiency in coping with competition.
Therefore, development of economic moat will improve the firm’s capacity to undertake international market expansion hence improving its competitive position in the retail market segment. The lack of economic moat and the subsequent exit from the Canadian market will lead to significant reduction in the company’s capacity to counter the competition from large entities such as Wal-Mart.
Critical Analysis of the company’s current strategy
Target Company has developed remarkable competitive strength. The company’s source of competitive strength relates to adoption of the integrated cost leadership/ differentiation strategy. The firm’s integrated low cost leadership/differentiation strategy is underlined by integration of the brand promise, ‘Expect More, Pay Less’.
Lodato (2014) affirms that cost leadership stresses on the need for developing organizational efficiency in producing and distributing products and services at a lower price compared to competitors. Based on this strategy, Target has enhanced its capacity to personalize the customers’ shopping experience. The firm is committed on offering customers new and convenient retail shopping.
The integrated cost/differentiation strategy is aimed at improving a company’s capacity to produce and offer differentiated products more cost efficiently. Hitt et al. (2008) affirm, “Efficient production is a source of maintaining low cost while differentiation is the source of unique value” (p.117).
However, effective application of integrated cost leadership/differentiation strategy requires business entities to be responsive to external market changes such as technological changes. Furthermore, the application of integration cost leadership/differentiation enable organizations to develop an efficient network of activities to facilitate the execution of different support and primary activities. The firm must be competent in undertaking the various support and primary activities (Boroto, Abudulla, & Wan, 2012).
In its application of the cost leadership/differentiation strategy, Target is committed on ensuring consistency and coordination in all its activities. Thus, the firm has succeeded in establishing a strong and distinctive brand. The company’s ability to apply the integrated cost leadership/differentiation strategy in offering different product portfolio is influenced by the relationship with other stakeholders (Fourne, Jansen, & Mom, 2014).
Some of the core business partners include Mossimo in apparels, Sonia Kashuk in cosmetics, and Eddie Bauer in outdoor and camping products. Effective application of multiple dimensions of competitive advantage can contribute to remarkable improvement in an organizations competitive advantage.
However, a firm must establish a balance between the respective dimensions. The importance of balance arises from the complexity associated with application of multiple sources of competitive advantage. Hitt, Ireland, and Hoskisson (2009) stipulate that firm’s experience difficulty in optimizing two sources of competitive advantage.
One of the most effective approaches that an organization can successfully leverage on the cost leadership strategy involves developing economies of scale and reducing administrative costs (Pulaj, Kume, & Cipi, 2015). Target’s entry into Canada through the acquisition Zellers presented a perfect opportunity for the firm to improve its economies of scale. Nevertheless, the company did not succeed in leveraging on the economies of scale arising from the takeover. Subsequently, the company did not benefit from the economies of scale.
The organization’s inability to entrench economies of scale in the international market might negatively influence the firm’s capacity to develop sustainable competitive advantage. Therefore, its competitive edge both in the domestic and international market might be negatively affected (Kazmi, 2007).
Internal and external factor evaluation matrices
Based on the low integrated cost leadership and differentiation business strategy, Target has been able to achieve an effective market position in the domestic market. However, the firm has failed in successfully deploying the strategy in the international market.
Therefore, the Board of Management must appreciate the importance of improving the firm’s capacity in coping with the prevailing market conditions. This goal can be achieved by employing the external and internal evaluation matrices. This will improve the Board of Management capacity in visualizing and prioritizing the prevailing threats and opportunities in the retail sector. Table 1 and 1 below illustrate the company’s IFE and EFE matrices.
External factor matrix
Table 1 show that Target has developed substantial capability with reference to its capacity to respond to external factors. The total EFE weighted score of 2.53 illustrates this aspect, which is relatively above the 2.5 industry average.
Internal factor Matrix
The company has further developed remarkable internal capability as indicated by the internal factor evaluation matrix.
The IFE matrix shows that Target has developed remarkable internal capability that it should consider in improving its market position. Furthermore, the firm should consider turning its weaknesses into strengths.
TOWS matrix
Based on SWOT matrix, Target Company should consider exploiting its incumbent strengths in addition to enhancing its weaknesses. This aspect will improve the firm’s capacity to serve the market. The company’s Board of Management should take into account the following strategic options in improving its competitive edge.
Recommended scenarios
The case findings indicate existence of gaps in Target Company effort to undertake international market expansion. The company’s international market expansion in Canada was based on foreign direct investment. The international market expansion was based on two main approaches that entail establishment of Target owned retail stores and takeover of some of Zellers retail stores.
The high market potential in the Canadian market should have motivated Target Company Board of Management to ensure that the firm successfully enters the new market. To improve its market entry, Target Company should have considered the following alternative scenarios.
- Establishment of joint venture; Target Company should consider integrating the joint venture market entry strategy.
- Effective implementation of mergers and acquisition; the firm’s board of management should have considered improving its approach in managing joint ventures. Targets failure in Canada can partly be associated with ineffective management of mergers and acquisition. Therefore, the firm should consider improving its knowledge, skills and competence in undertaking mergers and acquisitions. The rationale for developing such skills will improve the company’s future market entry efforts. Developing skills in formation and management of mergers and acquisitions will contribute to remarkable improvement in the company’s capacity to overcome challenges associated with cross border and organizational differences such as cultural differences (Beamish & Ashford, 2012).
Recommendation on strategic choice-Formation of joint venture
In its international market expansion strategy, Target Company should appreciate the importance of adopting the formation of joint venture with Zellers rather than takeover. Despite the fact that Target Company has developed remarkable financial performance, the firm has failed in entering the Canadian market based on establishing wholly owned retail stores.
Subsequently, the firm has failed to successfully apply the integrated cost leadership/differentiation strategy. To overcome this challenge, the firm should consider forming joint ventures. The choice of strategic partner should be based on the following criteria.
- Effectiveness in application of retail management
- Degree of market penetration in the target domestic market
Discussion
Establishment of joint venture will improve the firm’s ability to establish market operations in complex retail markets such as Canada. One of the sources of complexity relates to intense competition. The adoption of the joint venture strategy will provide Target Company an opportunity to share business and market risk with the strategic partner. Target Company entry in Canada was aggressive but poorly planned. The company’s establishment of over 133 stores within a period of 10 months illustrates this aspect.
Gillespie and Hennessey (2011) contend that ‘if a firm is trying to enter many foreign markets quickly, joint ventures may help leverage scarce capital and managerial resource ‘. Thus, joint venture would have enabled Target Company to efficiently establish operations in the Canadian market. This aspect emanates from the fact that Target Company would have relied on Zellers distribution channels. In this light, the firm would have not incurred high financial cost in establishing operations from scratch.
The choice of joint venture over the establishment of mergers and acquisition is based on the notion that successful formation of mergers and acquisition is challenging. One of the notable challenges relates to poor integration of mergers and acquisition. Thus, the failure of most mergers and acquisitions emanates from poor integration practices.
Furthermore, poorly conducted mergers and acquisition may lead to destruction of organizational value as is in Target Company takeover of Zellers. Therefore, a firm might not attain the intended synergy.
Target’s core goal in establishing joint venture should be to improve its distribution and inventory management capacity in the international market. Pursuing these goals will enhance the firm’s competitive capacity in Canada. The firm should ensure that the joint venture agreement is successfully established within a period of one year. Establishing the joint venture within a short duration will enable the firm to optimize its ability to generate sales revenue from international market operations.
Implementation/action plan
To establish a joint venture relationship with Zellers, Target Company should consider the following implementation/action plan.
Conclusion
The above analysis illustrates Target Company failure in its quest to penetrate the international market. The company’s failure arose from poor application of the internationalization strategy. By basing its international market entry strategy on establishment of wholly owned subsidiary firms, Target’s capacity to incorporate the integrated low cost leadership/differentiation strategy was adversely affected.
Its limitation arose from the fact that the firm incurred high cost of operation in the establishment of the physical retail stores. Moreover, overreliance on the physical retail stores adversely affected the company’s efficiency in attaining competitiveness in the discount retail market segment.
To overcome this challenge, Target should have considered integrating the concept of joint venture with Zellers. This approach will have contributed to significant reduction in the cost of entry and improved operational efficiency. However, prior to integration of the joint venture strategy, Target should consider taking into account the issues outlined in the proposed implementation or action plan. This will ensure that the merger and acquisition is valuable to the company’s competitive advantage.
To improve the efficiency of the joint venture in improving the firm’s competitive advantage, Target and Zellers should consider improving the skills and expertise of its workforce on different retail management aspects such as distribution and inventory management. In addition to establishment of joint venture, the company should focus on offering clients unique experience by integrating the concept of e-commerce.
E-commerce will enable the firm to align with market changes such as increased adoption of online shopping especially amongst the young generation. Moreover, e-commerce will improve the company’s efficiency in deploying the low cost leadership strategy.
The company should further appreciate the importance of relying on market intelligence. This goal can be achieved by investing in continuous market research. Relying on credible market intelligence will enable Target Company to develop an effective product portfolio hence increasing the level of customer satisfaction.
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