International business assignment on Sainsbury expansion into Spain using direct investment strategy

Question

Task: Sainsbury’s Board of Management has requested you to compile aninternational business assignmentreport regarding the investing overseas as global expansion in diverse markets including Singapore and Spain.

Answer

Introduction
The business expansion is a part of every organisation’s business plan. Once an organisation attains success in the home market, it plans for internationalisation and expansion. As per Kurochkinaet al (2019), the business expansion is a phase in the organisation’s business life cycle where the business attains a point for development and growth. The organisations seeks out for additional opportunities for generating higher revenue and profits. It has been observed in the international business assignmentthat every successful start-up or business across the globe have ultimately opted for business expansion and internationalisation. However, international business expansion is not an easy process. There are several challenges which organisations need to face while entering and expanding into a new market. This international business assignmentwill assess the business expansion decision of Sainsbury’s Supermarket Plc. into the market of Spain.

Discussion of the Organisation in the international business assignment
The organisation taken under consideration here is Sainsbury’s Supermarket Plc. This is a company which is of British origin. Sainsbury’s Supermarket Plc. is popularly known as Sainsbury’s. The company considered for the international business assignmentis a supermarket chain which is engaged in the business of grocery and other related retail items. The company is operating in three different segments. These segments include financial services, retailing and property investments. The company operates in the supermarkets and convenience stores which offer non-food as well as food items and services that are in the market under the brand name of Sainsbury’s. This company was founded in the year 1869 by the co-founders Mary Ann Sainsbury and John James Sainsbury. Sainsbury’s has its headquarters in UK at London (Xiao, Chen & Yu, 2021).

Assessment of Business Expansionin the international business assignment
Due to the corona virus pandemic, the business of Sainsbury’s like any other company had been disturbed and negatively impacted. Now to make up for the two years of poor business, the company is considering expanding into overseas market. From the perspective of a business consultant, Sainsbury’s would be recommended from the international business assignmentto expand globally for long term growth and attainment of strategic goals. Sainsbury’s is seeking for an opportunity to explore the diverse market of Spain. To expand into Spanish market with its retail segment, the company needs a complete in and out assessment of the business environment of Spain, the growth opportunities, etc. so that the right mode of entry could be planned.

Analysis of External Business Environment in the international business assignment
Political: For Sainsbury’s to enter the market of Spain, the political factors need to favour the business. The political stability of Spain would help the business of Sainsbury’s to prosper. During the pandemic, as per the international business assignmentit would be difficult to operate in Spain due to the restrictions imposed by the government. However, now the restrictions have been relaxed and Sainsbury’s can easily enter the retail market of Spain. One advantage of Sainsbury’s would be that Spain and UK, both are European countries and share certain common background (Rissanen et al, 2020). This would facilitate the business to prosper. In theSpanish Basque Country region of Spain, there are certain factors causing political tensions which would hamper the business of Sainsbury’s. Economic: Like many other countries, Spain has been affected by the pandemic. The country has experienced recession since 2020. Today the economic condition is resuming its normalcy. However, the economic factors like inflation, recession, rates of interest in Spanish banks, employment and unemployment rates, household rate of savings, etc. are likely to impact the business of Sainsbury’s in Spain. As a supermarket chain, it is found in the international business assignment that Sainsbury’s would have to compete with the leading supermarkets of Spain. These supermarkets include Lidl, Carrefour and Mercadona (Cuñado, Colvin-Díez&Enríquez Román, 2019). These top three supermarkets in Spain occupy forty one percent market share. Thus, Sainsbury’s would have to overcome the economic challenges and sustain the intense competition in the Spanish supermarket industry. The other economic factors which would impact the business of Sainsbury’s include the fuel cost, the salary of the people in Spain, infrastructure, etc.

Cultural: The culture of the people is very important in determining the future of a business in a foreign land. Sainsbury’s is a company originating in the United Kingdom. Now as the company is planning to enter the market of Spain, it has to understand the culture of the people in Spain. The tastes, preferences, consumer behaviour, etc. are all dependent on the culture of the Spanish customers. Thus, to grow in the market as per the international business assignmentthe culture has to be adapted. The response of the consumers to the inflation is now gradually being offset as the economy has retained its normalcy post pandemic. The consumers are also responding well to the supermarket shopping. The out of home consumption has resumed as the pandemic has subsided (Burgos & Ivanov, 2021). This is an opportunity for Sainsbury’s to grow in the Spanish market. The culture of the people of Spain and England are quite different. To suit the needs of the Spanish customers, Sainsbury’s needs to include their preferable items in their convenience stores or supermarkets in Spain.

Legal: No organisation can operate without abiding by the laws of a region. It is found in the international business assignment that if Sainsbury’s has to operate in Spain, it has to follow the legal structure of the country. The legal obligations which would impact the business of Sainsbury’s in Spain include the new regulations, legal measures and international standards (Frolova et al, 2018). The company also has to abide by the accounting standards of Spain while it operates in the region. The laws which are of paramount significance and specifically impact the retail and supermarkets sector, should be followed by Sainsbury’s. The company also has to abide by the environmental laws prevailing in the region.

Ethical Risks: Every business is expected to work within the ethical boundaries. There are certain ethical risks which Sainsbury’s has to overcome if it wants to sustain in the market of Spain. The ethical risks which the retail based supermarket chain of Sainsbury’s would have to consider while operating in the Spanish market include the deceptive promotions, misleading advertisements, bait-and-switch, misrepresentation, treatment of customers, diversity of employees, honouring warranties, loyalty and treatment of employees, discrimination, employment of disabled persons, bribes to secure contracts, working conditions, business practices of supply firms, outsourcing labour issues including child labour, etc. (Ferrell & Fraedrich, 2021).This is a list of common ethical issues mentioned in the international business assignment, which might further increase which changing times.

Business Opportunities
There is huge opportunity for Sainsbury’s to grow their business in the market of Spain. After the end of the corona virus pandemic in Spain, the retail sector has revived its dynamism. The supermarkets and retails are nudging the Spanish market to eventually return to their stability. The total out home and in home consumption of fast moving consumer goods by the end of the month of August increased by five percent as compared to the year 2021 (O'Connell, De Paula & Smith, 2021). It is found in the international business assignment that the growth of consumption has spurred after the recovery of the economy post pandemic. The increase in consumption of consumer goods will open gateways for Sainsbury’s to expand its business in Spain. The Spanish retail market reports suggest that the volume of consumption of consumer goods at home has started increasing to soon reach the pre-Covid-19 levels. The year 2020 and 2021 were similar with least consumer activity in the supermarkets sector. The year 2022 is however turbulent as the economy is gradually on the verge of recovery. The consumer behaviour is being triggered by different factors which is influencing their purchase patterns. Thus, as per the international business assignmentthe retailers need to plan their strategy accordingly. The business of the three existing supermarket chains in Spain, i.e., Mercadona,Lidl and Carrefour, is improving in the retail market of Spain (Vallet Bellmunt, Fuertes Fuertes & Flor, 2022). One major advantage which Sainsbury’s can reap is that the household spending has not deteriorated due to the post pandemic inflation. Not only the direct customers but due to the relaxation of the post pandemic restrictions and the revival of the restaurant sector, the restaurants are also purchasing bulk quantity from the supermarkets and retail stores (Khan & Hashim, 2020). This is another area for development of Sainsbury’s. The supermarket chain can get good sales and profits, even at high prices of items. However, as Sainsbury’s is stepping into a new market in a foreign land, the objective would be to offer affordable prices. It is found in the international business assignment that the existing supermarkets in Spain, Carrefour, Mercadona and Lidl have already increased their profit and market share by almost three points compared to the previous year. This makes the sector quite lucrative for Sainsbury’s to enter and flourish. The company Sainsbury’s though newly entering the market of Spain is already an established organisation. Thus, as a large scale distributor would maintain its growth in the post pandemic situation. As per Al-Qudahet al(2022), the online shopping had made a great growth during the two years of pandemic between 2020 and 2022. However, currently the online channel is losing its significance. Therefore, this signifies good growth prospect for Sainsbury’s. as per the international business assignment the new customers’ accrual for online shopping has reduced to around twenty eight percent. The customers have started going to supermarkets for in-person shopping. Mercadona,Lidl and Carrefour already account for almost forty one percent of the total FMCG market in Spain (Keller, Dekimpe&Geyskens, 2022). The shoppers in Spain as well as the repeat purchasers are increasing with time in the post pandemic era. This is a good news for Sainsbury’s as it is planning to set its foot in the Spanish supermarket and retail industry. The company once it enters the market in Spain has to concentrate on effective marketing to promote their point of sale among the customers. As per the international business assignment findings the market has growth potential and Sainsbury’s has a good chance of setting its strong footing in the market if it analyses the historical data for retail and groceries shopping in the Spanish market.

Recommendations
The economy of Spain started its retrieval several years ago that made the country more attractive for foreign investors. As per the international business assignmentanalysis, Sainsbury’s is highly recommended to invest in Spain for the following reasons:

• With each passing days, Spain has been able to develop its legislation that has been related to foreign direct investment.
• As a result, the country has turned out to be the second largest recipient for foreign direct investment.
• Spain is also regarded as a competitive economy that represents the top economy in the EU.
• Madrid in Spain is regarded as the global business decision centre and is the business capital of Spain. Sainsbury’s is assumed to set their business in Madrid that is situated near decision centres of foreign clients.
• Spain is also regarded as a gateway to several other markets. Being a member state of the European Union (EU), it is found in the international business assignmentthat it will become easier for investors to get access to the European market.
• The two strongest points regarding why a company should invest in the country includes flexibility as well as adaptability.
• Moreover, any foreign client looking forward to setup a business in Spain do not have to witness any restrictions.
• Additionally, the companies looking forward to invest in Spain will also receive support from the government in the form of several incentives.
The market entry strategy that will be highly recommended in the international business assignmentfor Sainsbury’s will be direct investment that is known to provide capital financial support in exchange for an equity interest. In Spain, FDI by Sainsbury’s will be regarded as a valuable option that will help the company to become the owner in the country. The reasons why direct investment will be recommended are mentioned in the international business assignment:

• Direct investment may comprise a company in one country opening its individual business procedures in a different country.
• Direct investment will involve manufacturing goods in Spain thus avoiding import duties as well as other taxes. The requirement for permission of imports will also be prohibited.
• Sainsbury’s will be able to create a production site in Spain as well as produce their goods locally.
• It will also become easier for Sainsbury’s to attain the services of capable employees in the target market.
• It will also help Sainsbury’s to become more efficient as well as competitive. In other words, it is found in the international business assignmentthat direct investment is likely to boost a competitive position as well as counter the movement of competitors.
• This market entry is also recommended as it will help the company to establish its presence in Spain.
• Since Sainsbury’s is already an existing company, direct investment will help the company to add a distinct business operation in Spain.
• Direct investment is majorly differentiated from portfolio investment.
• The resolution of direct investment is to accomplish an equity interest adequate to deal with the company.
• The direct investment will involve accomplishing a mainstream interest in Sainsbury’s or a minority interest. But the interest attained provides the investing party effectual control.
• In case of Sainsbury’s, horizontal direct investment will be a highly recommended.
• This type of direct investment takes place when a business that has been already operating in a country tries to establish itself in a different foreign country.
• Selecting direct investment will provide the benefits related to human capital.
• Several goods produced through FDI possess international markets, not merely domestic consumption. As per the international business assignmentthe formation of 100 percent export focused on units support to back up FDI investors in improving exports from other countries.
• It will also help in improved capital flow that will prove to be advantageous for countries with restricted domestic resources.
• The domestic monopoly will also be disrupted through FDI that will help to create a competitive environment for the company.

Conclusion
It could be concluded from the international business assignmentthat Sainsbury’s is looking for a prospect to discover the miscellaneous market of Spain. It has to opt for direct investment in order to gain a proper market share in Spain. It could be inferred that most companies make investment in foreign countries in order to get access with limited trade barriers. It could be concluded from the international business assignmentthat Sainsbury’s would have to deal with the economic challenges and endure the penetrating competition in the Spanish supermarket industry. The entry mode that will prove beneficial for Sainsbury’s will be direct investment that will make the company more competitive. It could also be concluded from the international business assignmentthat although Sainsbury’s has been newly entering the market of Spain, it is already a well-known organisation. Since the customers are acting well in response to the supermarket shopping in Spain, it might be a profitable venture for Sainsbury’s. But due to high competition in the Spanish supermarket industry, it is found in the international business assignment that Sainsbury’s would have to overcome the economic challenges and withstand the strong competition in a proper way.

References
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