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Introduction - International Strategic Management And Innovation
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The International Strategic Management is referred as the implementation of objective; purpose etc by formulating the initiatives on behalf of the stakeholders and under the guidance of upper management for international expansion. Alongside, the word innovation refers to creation of something new on a continuous basis to add any new feature or product value. This report is based on understanding these two concepts in the clothing sector. The report is based on Primark Company, which is a subsidiary of Associated British Foods (ABF) and British food processing. It is one of the major retail groups having its operations in United States, Europe as well. It was founded in 1969 and this report is going to reflect upon the go over its businesses and innovation strategies before and after pandemic. It is going to reflect upon the macro environmental analysis and micro environmental analysis of the clothing industry. Further to this, it is also including a description on business model, business strategy and innovation strategy of this company. Lastly few recommendations will be included.
Analysis of the macro-environment
Clothing industries is one of the most potent industries across the globe. The ever-changing demand of clothing is driven by various factors including weather, demography, and fashion industry. The introduction of internet driven platforms has made it ever so dynamic and competent. In 2020, fashion clothing had a major presence in world economy with a mammoth figure of $1.5-3 trillion. Global CAGR projection of 2.5-5 % per year shows the true potential of the industry. This is the reason Textile industry is of first choice for the developing countries. Due to its global supply and demand the GDP of many developing countries is driven by it.
In order to maintain an uninterrupted supply and demand of the products globally, free trade agreement helps to develop an ecosystem for access to most of developed markets globally. This gives retailers an extra advantage to choose from ample choices for different stages of production. Due to geographical and economic conditions some countries have low cost raw material, some have low cost man power and some provide advanced technology like Hong Kong. They can choose special skills and material from different countries to produce best quality garment at the least cost (MacCarthy and Jayarathne, 2013). This puts several international retailers and brands at an advantage.
Retailers in global markets compete to provide the best quality products at lowest investment and at certain frame. Any deviation from the above three factors can risk the product line, especially when one has to be done at the cost of other. Some global factors such as 2020 COVID-19 pandemic can cause severe disruption. To mitigate the overall risk factor, Retailers have been opting for a dual source option. Turkey has emerged as a second option for retailers after china supply chain was largely affected due to 2020 pandemic.
In developing countries the working conditions and work ethics can be of concern and affect consumers adversely. The Rana Plaza disaster of 2013 was a wakeup call to improve the conditions. The sustainable apparel coalition formed in 2010 addresses the issues to provide better work place environment and monitoring.
Retail philosophy and strategy is driven by selling high volume of product at low margin. And with ever changing and growing fashion demands, the retail philosophy has an adverse effect on environment (Boström and Micheletti, 2016). Many brands has come forward to address the issue by utilizing recycled materials and recycled waste as commodities for their garment. One of prominent global brands, Puma launched its product line with recycled plastic waste in 2020. Whereas ,Uniqlo has gained popularity for its use of recycled material. Other brands and firms such as Ralph Lauren in London have taken initiative to make second hand apparel as part of their retail space.
Technology has played a big role in recent years for both manufacturing and marketing of garments. In Paris Autumn show 2015, 3D printing mechanism was explored and exhibited by an international brand named Chanel. Even with some technical challenges it holds promising future. Retail brands and firms can take sustainable route using advanced technology and incorporating recycled materials to control the environmental impact and to maintain profit margin.
Analysis of the micro-environment and of competitive success factors
Retail markets have shown a promising growth in past and will continue the trend. Study done by one of leading retailer in UK, Primark has shown4.2 % growth and operating profit of 8.3 % on Year on year basis for 2018-2019. It is a good example for new industries opting for low cost and quality goods as marketing strategy to transform into largest retailer in UK. The firm is also third largest in Europe and since 2015 it has started building its place in USA. Its business strategy largely relies on low cost to attract large section of consumers. This has proved successful as shown by profit margin of 12 % and return on capital employed of over 27% for the year 2019.
Since the suppliers are common for most competitors, low cost can reflect on the turnover. Its reported turnover was 40 % of its global competitors such as Nike, H&M ETC. With innovative shopping experience for its customers, Primark has shown multifold sales figures than its competitors such as H&M &Inditex in Europe. The Comprehensive approach by the firm has proved effective in making place in market, adding new consumers and expanding across regions at the same time keeping a check on competition.
One of the highlights of Primark strategy has been its product line in the market. In the retail market women’s fashion is considered the most crucial product line. Primark always kept in that competition while also maintaining men’s, women’s and children essential wears. It gradually started competing with big fashion brands by providing quality and trending product line at value for money price (Schilling and Shankar, 2019). It has provided a more sensible alternative for its customers. By incorporating the demands of fashion industry it has now been reputed as trendsetter in UK. Be it Daily mail in 2014, or the over view of retail analysts; all has applauded the approach of Primark as the new first choice for customers.
While Primark has made top place for itself in UK, it has also started establishing in US. It has continued its strategy of low pricing to tame the competition. In order to maintain supply and also to meet the ever changing fashion trends, Primark largely relies on micro environment. Unlike most of big brands that owns factories for assembling; it uses a more dynamic approach to meet the demands. It extensively depends on buyers and merchandisers internationally to identify and establish the product line for each region. With in-house team of designers along with a network of 1033 factories in over 30 countries,it caters the demands internationally. To accommodate the low prices it depends on advanced technology and a strong distribution system. Procuring cloths from near sources, Bulk orders and running factories in off season enables them to keep the prices attractive.
The business in Primark is driven by customer demand. The role of customer is not only that of a buyer but also the inspiration for product development. The product to be stocked and sold for each region is driven by the fashion sense of local consumers (Bocken and et.al., 2017). The evolving nature of fashion industry is also a potential opportunity for retail industry. Primark gradually tapped into fashion sensible customers by competing with the likes of ZARA and TopShop by introducing trendsetting product line. To make the product line appealing, the firm has used social media and influencers to reach out to diverse consumers. Primark has developed its stores to give its customers innovative shopping experience. Their stores are designed to give rich experience to buyers which also act as attraction for others. In Bermingham UK, Primark store is valued at £70m and this store attracts shoppers from as far as Scotland. This innovation helped them to convert browsers to potential buyer. Seeing the success, the firm plans to renovate its stores in four more cities to provide customers a good shopping experience.
Fashion product lines have to always go through the test of trends. Being a dynamic market there is always the threat of substitute products from competition taking over the market share. To tackle this Primark has heavily invested to fortify its distribution centers. It emphasizes on innovation at core of its strategy to counter any competition. The same was reflected in 2020 advertisement for new business development manager. Many competing firms have been investing in developing new materials like Uniqlo and Puma. Primark has developed a reliable product supply chain and it plans hold onto its strength for near future. Low cost, quality product, strong supply chain along with innovating ideas to attract potential shoppers, Primark has recorded highest sales per store in Europe.
Analysis of the business model and business strategy
This section is going to discuss about many models that help in maintaining the businesses and staying the customers. The quality standards and overall services shown by the employees of a company must be handled ethically without compromising the professional context. There are models such as Value proposition theory, Differentiation theory or the business model canvas
Value proposition theory
It is a holistic approach that values the customers and organization to make the right decisions for the overall success. The agenda is to make use of the allocated resources and flourish the skills, deliverables and other motivators. Here there could be three components such as the customer’s requirements or needs; company’s management services and the value addition to the product or market on the whole. It actually helps the company to be creative an articulate the value of brand and leads to customers engagement. There is a need to build a potential value of a brand and its products in a segment of customers. Moreover, it lays the foundation to make the brand know about its strengths, competitors’, revenues and other sections. The theory quantifies the products and addresses the pain points of a brand to solve them for their loyal clients (Yang, Evans, Vladimirova and Rana, 2017). Further it helps in assessing the processes, helps in optimizing it with respect to resources available and leads to forecasting as per demand-supply.
In regard to Primark, they know exactly the market dynamics and also the latest trends to suit their target customers all around the world. This theory has assisted in optimization of its resources including the distribution and supply chain processes. Nevertheless it led to a declarative phase that the true value of selling a product can be only experienced and not felt or seen. This strategic value proposition helped Primark to overpower their rival companies and make a difference in the market routes. It gradually made its stores reputed and award worthy that helped in gaining the right attention and generated business. This led to growth, possibilities, opportunities and developmental works for this company. The design team smartly made the replicas of the stuffs that were available in the market with its own spin. Such a move played in favour of them and the customers were calling them as trendsetting company.
Differentiation strategy
It is a theoretical strategy to make an approach to make the business successful and provide the services or products better than their competitors’. It has made the filtering process more wholesome and helped in differentiating wither the markets or products whichever is more feasible. It makes a heterogeneous execution of ideas or tactics to build the brand’s name valuable and profitable as well. It acts as a study of middle powers and makes assumptions in differentiating from the great powers and smaller powers (Brécard, 2014). Here the power could mean the actual authority in conducting a task on a big platform.
The Primark has been always known for its low pricing strategic decision. It comes under the differentiation strategy and helps in creating stores at different locations. The prime agenda was to build a loyalty and make a benchmark on its brand value. The fashion industry is changing every decade and the cycle of trends etc come in rotation. It played the triggering element for the buyers when taking a purchasing decision. Moreover, the brand and its stores keep reinventing that gives a fair chance to their clients as well. During pandemic, the shops etc were closed down that made the customers move to online, yet after lifting lockdown, the customers rushed to Primark stores and cover their losses. It is a suitable example to this strategy and helped in making a profit.
The business model canvas
The Business Model Canvas is an integrated framework used for strategic alliance and knowing about the strategies including 9 elements. It must be analysed thoroughly in order to assess the business environment of a company. The following 9 elements are explained as follows-
- Key activities are the actions to be conducted in order to fulfil the requirements’ of the customers and achieve the objectives. There are major three categories such as production, problem-solving and platform or network, which helps in making the organizational value propositions.
- Key resources include the possessions, funds, capitals and assets of a company. Mainly it consists of people, company’s management; finance like cash or credit line; intellectual resources including copyright, patents, IPR and tangible resources such as office block, equipment etc.
- Partner network are considered as the external agencies to assist, conduct and support in completing an activity or task. These could be a buyer- vendor relation or a joint venture, or cooperation, or strategic alliance.
- Value proposition reflects as the business’s building block for executing an idea at an organizational level. It leads the entire ideation into execution part by defining the elements and everything
- Customer segments are the division to categorically find the target audience for a specific product or service. It helps in making the product or service more visible to the marketer (Zott and Amit, 2013). Moreover, it is divided into demographics, geographic, social class, personalities and others. Such an analysis increases the chances of customers’ retention rate and also provides the services opportunities’.
- Channels are the communication platforms to market a product or convince a client or negotiate with a supplier. It is about making the customers more about the products, company’s success or the entire services they might be providing. Herein email marketing, cold calling or website or any other online medium to interact with the external elements.
- Customer relationships infer the client servicing that is a continuous process during the pre-sales, post sales until the delivery part. It is a complex procedure and could be personal based or community related or even elf service. Additionally it is transaction in nature for the overall development and growth of the company.
- Cost structures are the well defined numbers about the ongoing processes and daily activities of a company. The income statement can be one of the examples that assist in maintaining the expenditures on daily basis. This also includes labour costs, other maintenance expenses etc.
- Revenue streams are defined as the approximate sum that required for setting up the business or any company. It helps in laying a canvas to divined, check and analyse the complete expenditure and re-align the finance in flourishing the markets or business tactics.
In addition to the above, the strategic resources and capabilities, to analyse Primark’s strategy could be that their distribution facilities are compact and very resourceful. The employees know their jobs and help in easy execution of operational activities. The inventory management has always been one of its prime strong aspects that help in stocking and achieve the target revenues. Moreover, their ideology of selling as a low budgeted brand is fine until they want to be online. Their strong point is non dependency on one supplier and this is how they command over their margins. If a supplier is not competitive enough then they can go to some other supplier to maintain the low costs or targeted pricing. Nonetheless, the upper management is clear. Convinced and in sync with the motives and thus, when they still do not want to go online made some shareholders agitate. However, their confidence in their brand is making it unique and has a simplified structure. Its adoption of lean production and minimal advertising are another two features that helped in rise of this brand. The low margins were returned through high sales volume that easily made it profitable business segment.
Analysis of Innovation Strategy
The differentiated strategy has always proved in favour to the Primark’s innovation and marketing as well. The Associated British Foods (ABF) has published a report on this company’s business model and well-established its agenda of ‘quality, up-to-the-minute fashion at value-for-money prices’. After the year 2014, it has become a front runner in the retail sector as a trendsetter and is found to be cheaper than its rival companies like H&M and Forever 21. Their female clients are referring it as ‘Primani’ and have also expanded the products range including menswear, kids, footwear, lingerie, accessories and others. One of the key aspects of its products offering is the steady pricing, despite any fluctuations in the markets or rate of currency exchange. It has played an important role in attracting the right audience in the other markets as well, especially the United States. Its store openings in the US market made it clear that they were disrupting it on the basis of price when compared with brands like Target, H&M, Gap, Zara and many others. It has opened up the largest retail space in the Birmingham city in 2019 and simultaneously started the stores refurbishments. It made their sales enhanced as the layouts were made in such a way that the buyers end up buying unplanned stuffs and leaving the stores by overspending and casual purchasing.
One of the most innovative features was developed and termed as ‘snap and share’ where the customers could click pictures in any of the clothing by this retail company along with their music choice in the background. It is made possible by understanding the value proposition of this company, which can be easily applied using the business model canvas. It has assisted in making their followers on different social medial platforms such as instagram, pinterest, twitter etc. (Arriaga, Domingo and Silvente, 2017). Although they do not let their merchandise to be sold online but it is observed that some clothes were sold on e-bay. Moreover, the management has always focused on encouraging their roots of Irish background and helped in connecting with their clients. For this, one of their Boston Massachuetts store was nominated for the Retail Week’s Award in 2015. Despite huge investments in their store spacing, their uniqueness lies in making it look as a classic store as well as giving keen choices to make their customers look stylish.
In regard to sources of innovation for Primark, then it would be the use of social media platforms, the design layouts of its stores and the program for promoting the sustainable cotton are few of the sources to be considered. The major agenda is in seeking to these so that its fostering can be done. After the lockdown due to the global pandemic, the management of this company is now focusing on new areas of activities such as vending, third party operations and also quantifying the customisation with experiential leanings (Wigley and et.al., 2012). For this, they have been consistently trying in bringing something unique to the high end fashion street into something more common and easy to use in daily lives. The company stands as a retail company which is in love with fashion and passionately serving their customers. Their target audience are mostly twenty somethings and it helped them grow amongst the rival companies who were known for high pricing and more durability. Although it was clear that Primark is now looking forward to collaborations in the fashion industry. Similarly, they made an association with ASOS but could not convert it due to incompatibility, late shipping schedules, return or exchange policy etc.
Further to the above pointers, their website has always been engaging and smells of innovation that made the customers feel excited and eager to purchase the merchandising. The variety and wide range of portfolios help in fetching the right attention. Their detailed sections on the complete products list and their pricing with images have also caught the attention of the prospective buyers. After pandemic, the company is focusing on adding sustainability based aspects to gain more attention such as use of recyclable materials and plastic waste as well. Their survival is because of unique combined efforts shown at both external and internal levels. The stores are in sync with the purchasing, logistics and inventory departments that help in keeping a track and maintain the numbers. The competencies that Primark have shown in selling the goods and other relatable accessories are very innovative and engaging as well. The customers can buy high street and affordable fashion clothes and later still can buy stuffs that are not easy tp buy when going to any other retail cpmpany in the United Kingdom, pr any established market like US or Belgium.
Appraisal of organisation’s strategic situation
A structured comparison between Primark’s business strategy and the industry success factors
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Therefore the clothing sector and Primark might have different agendas but sustainability is the common goal to attain and flourish their businesses. Despite many claims, the clothing sector is reviving itself from time to time and similarly Primark have become a trendsetter by giving designs at low pricing. That has become its USP and made the clients believe in fast fashion and easy purchasing.
A VRIN analysis of the key resources and capabilities that have been identified within business model canvas
The VRIN analysis has a firm sustained competitive advantage in Primark. The key resources and capabilities are almost similar when compared with other retail companies all around the world. Before understanding that, the VRIN stands for value, rareness, imitation and substitution risks and non substitutable. Here the Primark has successfully justified the N by making their brand as one way stop. Their rival companies are unable to match Primark’s competencies in the form of differentiation strategy and making its stores as one of its kind. In addition, they were unable to find solutions in order to have any competitive advantages or alterative solutions (Ortega and Okechukwu, 2017). Likewise, the sentiments that were associated with this label had changed amongst the customers of United Kingdom and now it is regarded as one of the significant brands that are now on the fashion pages.
Furthermore, the nine elements of the business model canvas is a more comprehensive model and the value propositions that are identified here are the channels and customer segments. Primark never is going to be online and especially after pandemic, their reluctance is till saying a lot about their perspectives in attaining the sustainability. The value retiling of this company is well established and have successfully opened many stores in many other major cities of Europe. The agility that it has exhibited is remarkable and helped in overcoming the challenges of the market environment. Customer segmentation is also well defined at Primark that claims that it is now a trendsetter and soon after lockdown restrictions were uplifted, the brand has easily received the losses they faced during 2020. The middle class women were the prime targets that helped in getting Primark in the lines with Zara or H&M. their designs, affordability and stylish clothing made it as one of the products to ascertain with.
An appraisal of Primark’s innovation strategy and the extent to which it fits with the firm’s strategic needs
Primark is always known for its low strategy in pricing and giving stylish alternatives that resemble to the high street fashion of the UK. Their operations included computer based customs clearance that is very appealing for importing and also have defined facilities for distribution and storage purposes. The innovation strategy that is laid after 2020 is presenting a business plans for leveraging on relevant pop-up opportunities. Their focus is on taking ownership in making some changes and giving solution to problems concerning the business. Here there is an extensive network of partners and key influencers, which could make their presence more prominent and gain the upcoming prospective clients (Duff, 2017). Primarily the aim is to establish partnerships and put some focus in customers’ engagement for longer run.
In regard to innovation, Primark has brought improvisations in almost all the sections of their operations management. This is how they rapidly expanded and reached approximately ore than thousand stores now in all the prime cities of the world. The relationship building is crucial for the management to sustain both the existing and new relations. The revenue streams were optimising and whatever losses they incurred due to corona virus, they managed to recover during Christmas 2020. Overall, the operational standards, quality services, financial performance and robust customer services are helping them to be considered among the top players and regain the customers’ credibility. The innovation here is to be the original fast fashion in house and manage the profits with the same amount of productivity without any compromises. Additionally, it is seen as an ability to demonstrate a sound knowledge of wider business factors for better chances of success and profitability in the markets.
Recommendations and justifications for Primark to achieve sustainable advantage after Covid
It is important for the management to make some changes and help the company to become more environmental friendly. They can easily associate themselves with many other companies who are providing the right materials, or fibres in manufacturing breathable clothes. Its legacy has helped it to easily regain the losses that they incurred while following the lockdown. The loyal customers flooded its stores and thus, they must leverage this fact and make its products more appealing. It could be easily achieve by collaborating with small businesses to generate revenues and also fulfil the corporate social responsibility.
Moreover, the management’s firm decision of not going online has led to many complaints but it has made this brand to be more aware in achieving the attention through use of social media platforms (Aileni, Chiriac, Surdu and Radulescu, 2020). The company can easily make their customers know about their plans and ask them to donate or raise funds. Such an activity would lead in helping the society and the surroundings on the whole. Another suggestion could be to join hands with some non-profit organizations working in the clothing industry. It would help them source the raw materials quicker than expected. With pandemic many companies are now trying to bring clothes that are germ free and infection prone. The design team at this retail company can make use of it and try to incorporate it in their next fashion segment.
Conclusion
It is summed up that the clothing industry is going to flourish for many decades and now the focus is shifted to be more sustainable and environmental friendly. There are many examples in the recent times that showed that brands are re-focusing on recycling materials or use of natural fibres and plastic waste as well. In addition to these, Primark’s strategies have been vividly discussed its strategies, market dynamics and the tactics that were adopted despite the pandemic and losses when the lockdown was enforced. There are few recommendations and majorly, it has focused on knowing the factors that helped in surviving the cut throat competition thrown at this company’s face. It shed light that it is important to know that clothes are commodities that make the clients happy, self worthy and valuable. Therefore the innovation at this company is also directing to cotton usage and making the stores more contemporary for good make feel emotion intact. Thus, Primark has successfully marked its presence on all he levels including local, national and international levels.
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