Argos’s Strategic Plan to Venture into Kenya
Contents
2.7.2 Related and supporting industry. 9
2.7.4 Strategy and rivalry of the company. 9
3.0 Internal impact of 10
5.1 Porter’s generic strategy model 12
5.3 The Bartlett and Ghoshal’s international growth model 14
Figures
Figure 1- PEST analysis
Figure 2- Porter’s Five Forces
Figure 3- Porter’s Diamond Model
Figure 4- Porter’s Generic Strategy Model
Figure 5- The Ansoff Strategy
Figure 6- The Bartlett and Ghoshal’s International Growth Model
1.0 Introduction
Argos is one of the global leaders in retail. Founded in 1973, it currently sells about 18,000 products every week and has over 2 million customers. In the UK, it has 7000 physical stores and over 50,000 workers. The company has two categories- Argos and home base. It retails in toys, appliances, sports furniture, and leisure tools. It also retails in gardening products and home development products. Globally, it is one of the largest in the world and is known for its innovativeness the products have a wide range of prices and is considerate to customers from all walks of life. It reported sales of 32.4 billion pounds in the last year, and if it goes global, the number will be higher (Rodrigo, 2012). Don't use plagiarised sources.Get your custom essay just from $11/page
Argos wants to break into the east African market and aims to set up shop in Kenya. The East African nation has a population of approximately 40 million people and is the most vibrant economy in east and central Africa. The country has a dynamic business sector, and a leader in technology, especially mobile banking. Argos wants to venture into the country to get new customers, reduce business risk and lower cost, to increase its output.
2.0External Audit
2.1 PEST analysis
It is an analysis of the political, economic, social, and technological influences on the external environment of a company.
Figure 1
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Figure 2 specialist information
The high cost of initial investment
Price sensitivity
A high number of customers
A large number of orders
Number of suppliers
Uniqueness of service
Ability to substitute
price sensitivity
a lot of products
2.3 Porter’s diamond model
Figure 3
2. 5 PEST analysis
2.5.1 Political
The BREXIT vote was finalized in February 2020, and that has a lot of implications for Argos. Before the election, the company has predicted there would be pressure on cists as the value of the pound would be uncertain. Ideally, it has reported a drop in sales in its supermarkets. Currently, it faces higher costs of importation as the pound performs dismally against the dollar since the referendum was passed in June 2016 (Kollewe, 2017). The result is that the prices of some products have gone up. The inflation n of food prices also doubled ever since the referendum was passed, which means that the cost of staple foods such as butter has gone up too. Before 2016, Argos had experienced a rise in supermarket sales. However, there was a drop of 0.5%. All products experienced a decline in total sales except fuel.
2.5.2 Economic factors
There is a financial crisis in the UK, mostly due to wakening global markets, and political factors, such as BREXIT. Thus, there are high commodity prices globally. The unemployment rate is currently at 5.8% and expected to continue rising over the next few years. Inflation in the UK is now at 1.4% is 0.75% as of 15th February (Kollewe, 2017). Banks are presently extracting cash from the reserves they lend out, even though reports indicate the lending rate has gone down.
Speculations of hard times ahead economically are making citizens spend less money on goods. Other consumers suspend their purchases and extract money via premiumization (Kollewe, 2017). These patterns have been witnessed in recessions before, as consumers hope commodity prices will drop soon. Postponing spending, added on top of inflation, is dangerous, as it can worsen the economic recession.
2.5.3 Social factors
Loss of jobs, loss of the advantages the EU provided the UK, and the dismal performance of the pound leads to a phenomenon called cocooning. It is whereby more people stay home because they cannot afford to travel outside the country for vacation, of purchase commodities (Vizard, 2014). It leads to an increased demand for electronic devices such as smarty televisions and sound systems.
2.5.4 Tech factors
Technology is a dynamic and highly competitive sector. In 2012, the government changed from analog to digital transmission (Kollewe, 2017). It forced some goods out of the market, such as flat screens. Currently, some developments threaten to make televisions obsolete.
2.6 Porter’s five forces
The power of suppliers was discovered to be weak because of the pressure put on suppliers, several price cut appeals from retailers, and the long waiting time that is common In the UK retail sector. These factors all make the power of suppliers to be weak because they cannot be efficient if there is a long waiting time, yet retailers always put pressure on them. Long waiting time could mean the consumers get impatient and leave the premise without purchasing their products. The formation of an e-commerce sector could solve this problem.
The power of buyers was discovered to be healthy, as they enjoy high discount prices presented by retailers. Online shopping has also increased the power of buyers, as it provides convenience and high discount prices.
The rivalry of companies in the same sector is intense, as the company deals mostly with technological products. There is a lot of competition which has made enterprises developed measures to attain more customers. For instance, some promotions give massive discounts, especially on holidays or special occasions.
The threat of new entrants is weak due to the nature of the industry. Technology makes it hard for new entrants to get a competitive advantage due to the initial high cost of investment, and the time required to carve a niche. The market that supports Argos takes time to mature, which means that new entrants will have to take a long time before they can be established.
Threats of new substitutes are active because of the high competition brought by online retailers. Physical and online stores are in a strict game, with online retailers winning because they offer convenience. Argos has well-known competitors throughout the world. However, in Europe, it is a leader in the retail sector, which gives it a competitive edge. A large number of substitute goods could mean that Argos records a low number of sales. These products are from companies like Tesco, Amazon, and eBay. Argos has carved its niche, which makes it able to record high transactions, even in the wake of a high number of substitute goods.
2.7 Porters diamond model
It denotes that some organizations can be more productive at some locations
2.7.1 Factor condition
Argos’s factor conditions involve digitalization, skilled personnel, strong financial arms, and its position as a leader in the EU. The economy is digitalized, which means most business transactions are done online. It affects Argos because the company retails electronic products. The company also has highly skilled personnel, who ensure the sales of the company are high. The staff is also motivated at all times, which drives the innovation experienced in the company. The company has been around for a while, which means that it has a robust financial arm. Its influence is, therefore, unprecedented, and it can invest in new technologies without feeling the burden (Rodrigo, 2012). Its position as a market leader ensures it has the data, and loyal following it has commanded over the years.
2.7.2 Related and supporting industry
eBay, Parcelforce, and Vanquis Bank back the company. It also works with mobile communication companies such as Vendors Technology, which offers the company mobile applications. Chi & Partners does advertising for the company (Rodrigo, 2012).
2.7.3 Demand conditions
More consumers opt for convenience, which means that they opt for online shopping. This trend could have a positive effect on the company. Current market data by the company indicates that most buyers choose for online retail, and the products of the company are accessible on online sites. Thus, there is a chance the company will make a big bank in the future.
2.7.4 Strategy and rivalry of the company
The partnership with eBay was strategic, as it improves its innovative capacity. The company has ensured it is highly creative, to stay relevant in the sector.
3.0 Internal impact
Argos is a company based in the UK, and venturing into an east African market comes with its risk. Internally, the effect will be felt in human resources, foreign exchange, and supply chain. Kenya might have inexperienced staff when it comes to dealing with international business. Therefore, human resources might have to be procured in Kenya to train the local employees. Thus, the company will have to send some of its staff to the country. Foreign exchange will also be affected and can affect the earnings of the country. Going global means that the UK pound has to perform well for the returns to be good. Inflation is bound to be an issue, especially if there are events in the new country that affect trade. Such events can be political, economic, or cultural (Edwards, 2014). There is also a risk of substitute products, which can make the sales below. Thus, Argos has to find a way to maximize sales, and that means localizing services and human resources. Internally, the way services are offered will change, because the new market might have other demands. Argos has to carve a niche for itself in the country, and that means the company has to change its operations to meet the new standards. The supply chain will be affected, too, as shipping will be done to another country. Thus, laws will be adhered to, and shipping times will change. The company has a supply chain and partners they use for logistics. However, the East African country will need local partners that will help with the supply chain. Thus, internal operations will change to support the new supply chain model. On online deliveries, stocking might be done differently, and another warehouse will have to be constructed in the country, to make it easy for quick deliveries.
4.0 Evaluation
Argos wants to go global because of access to new customers. European markets provide a good customer base for the business, but African markets are mostly untapped. Being home to the second largest population on earth, entry in Kenya can offer an excellent gateway for entry into the continent. Another reason is to lower costs and gain the advantages that come with lowered costs. The development of international businesses makes the company purchase supplies from different companies. In return, the risk is reduced and provides an organization with a higher capacity to negotiate its rates with suppliers. The third reason is diversification of risk. BREXIT presents many risk factors for businesses based in the UK because the country will no longer enjoy the benefits it had by being part of the EU. Thus, venturing into other countries ensures the business manages to stay afloat because it will not be dependent on one country alone.
5.0 Recommendation
According to porter’s five forces, the best way for Argos to grow in another market is to capitalize on e-commerce. An increasing number of consumers value convenience, which means they are willing to pay more for the deliveries. The threat for new entrants is not high, especially in an African country where initial capital is high to achieve. Therefore, there is a possibility the company can monopolize the sector. Due to online shopping, substitute products can easily find themselves in Nairobi, which means that it will be a threat to the company. Hence, Argos should plan to offer the best prices for the products.
The Ansoff matrix is used by organizations to plan for growth. It has four strategies, which are penetration of the market, development of a product, development of a market, and diversification. Market penetration looks into how a company can raise the sales of its product in a new market (CFI, 2015). For Argos, it will be done through specialization to fit the needs of the modern market. Electronic devices have connections that are different in different regions. Therefore, the electric connections should be made in consideration of the new market. Market development deals with the introduction of a new market with products that already exist. In Nairobi, some retailers sell the same products, Argos retails. Mainly, electronics are sourced from Asia, because they are cheaper, and meet the needs of the population. Therefore, Argos will need to find a way to introduce its products. It can be done by finding a niche and capitalizing on it. For instance, the company can benefit from fast deliveries, as the country lags in delivery times. The prices should also be pocket-friendly, as data from the WHO indicates that most Kenyans live below the poverty line (UNDP, 2018). Thus, products should be within their purchasing power. Product development is introducing new products in a market that already exists. Kenya has a vibrant tech sector. It is one of the best in the world. It means the country is ahead of its peers when it comes to electronics and other products retailed by Argos. Therefore, the company has to carve out a niche for itself. Diversification is whereby a new market is introduced to new products.
The growth options Argos has is to develop a new market and carve out a niche for itself. The model that best explains the strategy is porter’s generic strategy model. Individually, differentiation will work best for the company, as it is entering a new market outside the United Kingdom.
Figure 4
5.1 Porter’s generic strategy model
| Target/ market scope | Advantage | |
| Low cost | Product/ service uniqueness | |
| Broad ( industry-wide) | Cost leadership strategy | Differentiation strategy |
| Narrow ( market segment) | Focus strategy | Focus strategy (differentiation |
Differentiation makes the products from a company unique and gives them a competitive edge. It depends on the nature of an industry and the products being retailed. Argos needs to conduct proper market research on its new market, the character of the consumers, and the laws of the country. It also needs to look at issues such as political stability and foreign exchange rates (Edwards, 2014). Argos will need to examine the pace of innovation in Nairobi so that they can formulate their differentiation strategy. Products need to be high end, and of quality. If products are of low quality, the company risks creating a lousy rapport, and consumers will avoid it. Therefore, the Argos needs to deliver quality products. Sales and marketing strategies need to be localized. Marketing strategies that work in the UK will not work in Kenya because of cultural differences. Therefore the sales and marketing should be practical, to gather new customers. The market needs to understand why the new entrant is the best, and why they need to stay loyal to Argos. Agility is paramount, especially with big companies. Lack of readiness can make its competition attack a company via focus differentiation methods in specific market sectors.
5.2 The Ansoff strategy
Figure 5
| Existing products | New markets | ||
| Existing markets | Market penetration | Product development | |
| New markets | Market development | Diversification | |
The Ansoff matrix can also be used as a strategy to break into a new market. Correctly, market development should be utilized because the expansion is in a new country, outside of the EU. It is best for Argos because it has products and data that can be used to leverage the modern market. Furthermore, an increasing number of people in Kenya are using electronics, which means that the new market is profitable. Consumer behavior in Kenya is the same as that of European markets, as more buyers in Kenya prefer to shop online rather than visit retail stores.
The risks Argos faces when expanding internationally into the east African market are cultural differences (Edwards, 2014). The Kenyan culture is different from the UK culture, as Kenyans are more reserved. The spending habits of Kenyans also differ, as most Kenyans have a lower purchasing power than people from the UK. Mitigation for this challenge would be to price items relative to the substitute products in the area. This way, the price range will be competitive, and the company will get more buyers. Expensive premium products can be shipped to customers on order from the UK. Another challenge would be inexperienced staff, as there has never been an Argos store in the country. Therefore, the store will have to train the local team on the working requirements of the store. International monetary laws might pose another challenge, as the east African nation’s official currency is the Kenyan shilling, which is different from the euro. Therefore, profits and sales will be affected by the pound’s performance against the US dollar, which might be harmful in case the pound performs dismally.
5.3 Bartlett and Ghoshal’s international growth model
Present predictions indicate that in a few years, the total amount of money traded across borders will be more than all the money in all the countries if consolidated. However, there are challenges faced when a company aims to take on a new market, especially an African market. The first challenge would be a political risk, whereby a government engages in activity that poses a threat to returns of the business. Kenya has experienced calm, but there have been select political unrest, especially in the wake of elections. The irony is that unrest is experienced in countries that have the most emerging economies. Economic risk refers to the policies in a state that can affect a company’s operations. They can be related to property laws, taxation, exchange rates, and laws. Economies are not predictable, which poses a significant risk for business owners who want to venture globally. Cultural risk is the possibility of a company’s operations being impeded because of differences in customers, language, and preferences (Edwards, 2014). The origin-country of Argos has a different culture from Kenya. However, the communication will not be a problem because both countries use English as the official language.
Bartlett and Ghoshal have a strategy that aims to maximize outputs and minimize inputs for global companies. The factors are grouped into two: global incorporation and local receptiveness. The two factors generate four strategies that companies aiming to go global can follow. They are multidomestic, global, transnational, and international plans (B2U, 2017).
Figure 6
| Low | High | |
| High | Global strategy | Transnational strategy |
| low | International strategy | Multi domestic strategy |
The best approach is the multidomestic strategy because it aims for deep integration and high responsiveness (B2U, 2017). I prefer this strategy because it seeks to meet the needs of the local people in the new country. Thus, services and products will be modified to meet the needs of the people. It will properly handle the differences in culture, challenges in the supply chain, political issues, and economic risks. The management system is decentralized, which means that the new country can form its own management needs of the local people. As a result, the decision making processes, especially on issues like marketing, will be done to suit the local market.
6.0 References
B2U. (2017, Jan 27). International Business Strategy. Retrieved from Business to you: https://www.business-to-you.com/international-business-strategy/( Feb 16, 2020)
CFI. (2015). What is the Ansoff Matrix? Retrieved from Corporate Finance Institute: https://corporatefinanceinstitute.com/resources/knowledge/strategy/ansoff-matrix/( Feb 16, 2020)
Edwards, J. (2014). Mastering Strategic Management – 1st Canadian Edition. BC: B.C. Open Textbook project.
Jurevicius, O. (2013, Feb 13). PEST & PESTEL Analysis. Retrieved from Strategic Management Insight: https://strategicmanagementinsight.com/tools/pest-pestel-analysis.html(Feb 16, 2020)
Kollewe, J. (2017, Mar 16). Sainsbury’s warns over ‘uncertain’ impact of pound’s Brexit slide. Retrieved from The Guardian: https://www.theguardian.com/business/2017/mar/16/sainsburys-pound-brexit-argos-growth(Feb 16, 2020)
Rodrigo. (2012). Strategic Analysis of Argos UK Retail Company. The WritePass Journal, https://writepass.com/journal/2012/11/strategic-analysis-of-argos-uk-retail-company/.
UNDP. (2018). UNDP Kenya Annual Report 2018 . Nairobi: UNDP.
Vizard, S. (2014, Oct 22). Argo’s sales growth accelerates as it targets more affluent customers. Retrieved from Marketing Week: https://www.marketingweek.com/argos-sales-growth-accelerates-as-it-targets-more-affluent-customers/ (Feb 16, 2020)