Marks and Spencer Case Study

1. Discuss the driving factors for the initial internationalization decision of M&S. Trace the evolution of M&S’s internationalization using the Stages of Development model.

Marks and Spencer (M&S) is a British based company that focuses producing good-quality products under a well-known brand at affordable prices. They are a broad retailer offering clothing for all genders and ages, houseware items, food, and other items under various brands. Although it’s roots are as a U.K. retailer, they are currently relying on the international markets to reduce their dependency on the U.K. economic cycle. This process started almost 70 years ago when they first ventured into international markets.

Before tracing the evolution of M&S using the stage of development model it is important to recognize that this model is a general guideline. There is no global standard practice that applies to all companies. The factors that play into internationalization continue to change as socio, economic, political, cultural, technological, and other factors continue to evolve. Looking at the evolution of M&S internationalization and comparing it to a newer firm beginning to internationalize, would most likely produce two very different stories.

Typically, a firm develops begins by operating within in its domestic market. As it continues to grow it moves into international markets, eventually becoming a multinational corporation. Soon it becomes a global corporation and finally a transnational corporation. When looking at the history of M&S, they have generally followed this model, while experiencing a few hiccups along their path. Like all firms, M&S started out by conquering their domestic market. The firm started as a small store in Leeds in 1884. They had an ethnocentric view, meaning any thought of internationalization was secondary to their domestic operations. By 1901, the firm had grown through partnership to 35 outlets across Britain and was well on its way to looking at extending markets. They believed the British market had become saturated and that by expanding overseas they could grow their business and diversify. This diversification was also a way to avoid the risk of Nationalization. By the early 1990’s, M&S were in operating in 14 countries including several nations with ties to the common wealth. As M&S continued to expand it experienced many different successes and failures, and slowly shifted from an ethnocentric view to a polycentric view which indicates that had become a multinational corporation through its internationalization efforts. They changed their modes of entry and began to look at each host country as being unique. For example, when they entered the French market to reach the rest of Europe, M&S had to tailor their stores to match French conditions. Clothing options were snugger and they offered French wines instead of their typical British ones.

Currently, M&S is a Global organization, with global markets and resources. Their view of the world is trending toward a geocentric one as they develop into a transnational corporation. Their business is operating around the Middle East, Asia, and Europe as they look to become a full blown international multichannel retailer with over 1 billion dollars in international sales.

1. Using the framework of ownership, risk, and control, explain the evolution of M&S’ modes-of-entry choices for its international markets. What were the advantages or disadvantages of the different entry mode choices used since their initial internationalization?

Over the years, M&S has used several different modes of entry as they look to become a transitional corporation. Companies look at numerous criteria before making their decision on a mode of entry including the political risk, market access, factor costs and conditions, infrastructure, and foreign exchange. The three primary methods that have plaid a major role in the M&S international development are franchising, join ventures, and acquisitions.

One of the earliest methods M&S used for internationalization was franchising. This method was primarily used in the company’s earlier years when the St. Michael brand was still a part of the company’s portfolio. M&S had already established a solid reputation and franchise arrangement due to its earlier exporting activities. This allowed them to sell their business format including store layout and operating procedures. This method gave them a mid-level amount of control and risk but gave them little to no ownership. One of the areas of risk this model specifically lower was the political risk. At this stage in their development this method was advantageous to them because it allowed M&S to operate in over 14 countries and develop an international presence without large monetary investments. The primary disadvantage to this method for M&S was that it would only work in countries where it’s brand was already established limiting the company’s options for expansion.

To enter markets that franchising may not work for, M&S began to look at other expansion options such as joint ventures. This method gives a mid-level amount of ownership, control, and risk. This is because the partners share the profits, risk, and control. This is contrary to acquisitions where they wouldn’t face the ongoing issues of control, authority, and strategic direction faced by join ventures. This form of entry often requires a form of equity investment between the two companies in creation of the parent company. This is exactly the approach M&S took when entering India. They established a joint venture with Reliance because government regulations capped the amount of equity foreign retailers were allowed making it so that a wholly owned enterprise wasn’t an option.

The final method that M&S has used during the international expansion is acquisitions which provide M&S with a very high level of control but also a very high level of risk. This was more likely to be used in markets that had large populations, high purchasing power, and developed infrastructure. This method also requires the largest amount of capital and managerial effort. However, this method also allows for the largest amount of market participation for M&S. Just like join ventures this method has several advantageous for M&S including avoidance of tariff and quota barriers. The primary difference is 100% of both the risk and reward goes to the owner.

1. Analyze M&S’ entry into the Chinese market from the perspective of economic, political, and regulatory environmental factors. What key factors in the economic environment were instrumental in the entry decision?

M&S entered the Chinese market with their modern strategy of a flagship store followed by controlled expansion. This limited their risk and allowed to test the market before expanding. This allowed them to pull out of a market that appears wouldn’t work for them, like in the case of their Taiwan expansion efforts. The decision to enter the Chinese market required M&S to consider the economic, political and regulatory environmental factors.

China is unique because it is really a collection of different countries. Shanghai, where M&S has had success, is not the same environment as Beijing. Recognizing this is what has driven M&S slow expansion strategy within the overall Chinese landscape. The company must ask itself several economic based questions before entering each market. The primary three economic factors it must recognize are the land, labor, and capital. For example, from a labor standpoint, Shanghai had an average wage of 3,869 but a minimum wage of 1,280 a month. Who would become M&S’s labor force could not afford their own product. These are the sorts of economic factors that M&S had to consider for each individual Chinese market. When looking at the country in its entirety, there are different economic factors to consider. M&S operates on appealing to the middle-class consumer. In a country like China the middle class is practically non-existent. With such a huge divide between the upper and lower class, competition amongst retailers for the middle class is fierce.