Asda Strategic Management Essay

I.Introduction Asda was first formed in 1965 by a group of Yorkshire farmers and originally sold only grocery products. However in 1990 Asda sold its first range of clothing under the name ‘George’ and was soon in most of their stores. In 1999 Wal-Martbought Asda and has since moved into other retail areas such as electronics, home appliances and home, travel and motor insurance, as well as setting up an order and delivery service (Saunders, 2011). Now Asda is the third-biggest supermarket in the UK with over 500 stores across the UK and provide around 35,000 products to customer. The following report will illustrate business-strategy level of Asda by using some strategic analysis model like PEST, SWOT, Porter’s Five Force and Porter’s Generic Strategies.  This report also gives to Asda some advices for future development strategy. II.Content 1.The wider environment in the UK. PEST analysis is a simple tool, useful and widely used.It will help to capture the â€Å"overview† of political, economic, cultural – social and technological environment in the UK Political The political environment is ideal for business with a stable friendly government. The political environment in the UK is considered to be relatively stable. The UK is a nation under a constitutional monarchy. Head of state is the king, but the king only symbolic role. Executive power is exercised on behalf of the king, but in the hands of actual government. The head of government is the Prime Minister. The Prime Minister is the leader of the majority party in the House of Representatives seat (Williams, 1998). Generally the British political system little changed. Even the legal system of the State policy also does not change much Biggest concern of businesses is the continuity of the rules and principles of conduct whether any of the parties are in power. A change in government, whether by election or coup not always mean changing the level of political risk. Contrary to the fundamental change in policy could create major instability. A sudden change in unpredictable government policies can also hinder business activities of the enterprise, regardless of the changing cause.Soï ¼Å'for political factor, in the future years and current, Britain basic political situation is stable. This situation is good for British supermarket industry to grow in strength. Read more:  ASDA Jobs Economic In the early 20th century, the global economy has made profound changes due to the volatility of the political situation in the world. The world economy achieved high growth rates in the 2000s and began to decline sharply after terrorism of 9/11 in America (Colin Grahame Bamford, 2002). The volatile world economy has profoundly affected European countries such as the U.S., Japan †¦ but the UK economy remains sustainable. UK also is an attractive market for foreign investors because the UK has many advantages, such as the financial centre of the world currency, infrastructure development, and tax is lower than the EU other, skilled workforce with relatively low labour  costs compared with developed countries. Currently, the UK is attracting foreign investment (FDI) in most EU regions. In 2008, the UK accounted for 30 % FDI in the EU, accounting for 9.3 % of world FDI. As predicted, in 10 localities FDI only leading the world in 2001-2005, England was ranked 2nd after receiving the U.S. with an average amount of FDI per year is estimated at 82.5 billion dollars. UK is also investing abroad largest EU. In 1998-2005, an annual average of UK investment abroad amounted to U.S. $ 119.4 billion, private investment in 2008 totalled nearly $ 250 billion (ONS, 2012) . The more important is the UK is The UK is the fifth largest economy country in the world, the second largest exporter and the third largest importer of commercial services, eighth largest exporter and fifth largest importer of merchandise. Social In 2007, the UK population was reached 61 million.UK is one of most densely populated countries. Growing of UK population isabout nearly 400,000 one year. Population growth tended to influence retail trade. More and more potential customers will be faced by ASDA in the future. The increasing population can give ASDA good opportunity for making more profit. Technology Science and technology is developed in the UK now.By 2008 in the UK,there is about 16 million households use the internet for buying food. This was UK households 65%. (Na 2008) 2.The competitive environment within the UK. Analysis of the Porter’s five forces for the purpose of establishing the position of a company in that industry. The factors in the model of Porter is: The five forces are threat of substitute products, bargaining power of buyers, bargaining power of sellers, competitor rivalry and threat of new entrants Future developments in the industry and the ability of the company to respond. The threat of substitute products The threat of substitute products is very low for ASDA. It is the product convenient hiding in the corner or the license can be considered as the replacement product. However, because the less of the product at the corner store so customers will still have to go to the supermarket to meet their shopping needs Bargaining power of buyers ASDA is the largest distributor of influence throughout the UK, the system of the ASDA distribution can affect many industries such as food, electronic goods, commodities and consumer goods daily. ASDA has enough power to negotiate with other companies on price, product quality and marketing policies to put products into your system. Threat of new entrants It can be said pressure of ASDA from competitors is very low. Because open a create a new supermarket or start to run a new business to enter the market you have to reach two conditions, which are invest a huge amount of capital and huge supply system to compete with ASDA. Bargaining power of suppliers The provider can afford to have bargaining power pay the price in a few cases when only a few suppliers. Bargaining power of suppliers is very low for ASDA when they supply goods under the terms were drafted. ASDA had concerns about branding and enhance the reputation, such as set up ASDA Foundation in 1988 to assist any charity in the UK, and it is benefit for brand construct and is to be a leader that enhances customer loyalty. And more and more buyers want to go shopping at ASDA so the supplier power will increase in this situation. Finally, ASDA’s productions are more and more competitive advantages. Existing rivalry between competitors The competition between existing competitors is very high because the supermarket industry in the UK is saturation. Therefore the competition within the industry appears to be intense. ASDA is affronting many internal and external competitors such as TESCO, SAINSBURY,MORRISON and AHOLD of the Holland. TESCO is the largest retailer in the UK. It can contend for markets with ASDA by its large number stores and attractive price. SAINSSBURY is the second one in UK, its productions famous for high quality. While AHOLD is the largest supermarket in Holland, therefore it has the absolute strategies. All of these have a high degree to share market with ASDA. 3.Asda’s strategic position within the UK. SWOT analysis will be the useful tool to point out the strategic position of Asda within the UK industry Strength Strengths of ASDA Group is a system consisting of many stores spread across the UK. Chain stores have proven to be an ASDA strong brand. Now, the corporations in approximately 136 company retail stores. ASDA pursue low pricing strategy. It aims to offer a shopping basket which is 10—15% lower than the chief competitors. ASDA considered the method that can use the Consistent low prices rather than advertisement to give the confidence to customer. It is that does not need to buy some products in other supermarket for pursue the value price. In addition, growing market share is strength, ASDA is the second largest food retailer in the UK, ASDA has outperformed the rest of the retail sector in terms of growth rate and continues to gain market share as shoppers respond to its reputation for low prices. Weakness Since this is a target retailers with cheap so some time in the company sold inferior quality products and this significantly affected the reputation of the company. The main weakness of ASDA is its lack of small and midsize supermarkets and small convenience stores in the UK, it is clearly that many European countries like France and Germany has places hard restrictions on construction of big stores in suburb and rural areas. Although most ASDA supermarkets fall into big style, but ASDA’s biggest rival has two-third of outlets are small or midsize supermarkets. (Matlack, 2005) states that â€Å"Even if ASDA big supermarkets are doing well, it is difficult to expand with that format.† Opportunities Also for large scale so the management and coordination of management activities is very difficult. There are many opportunities that can be exploited ASDA, which is expanding its market to potential markets such as the EU. In addition the company can exploit some other business sectors such as tourism, insurance. ASDA have many opportunities in many fields. Firstly, with the process of economic globalization, many emerging markets are growing fast, like the turnover of China retail industry is increasing about 30% for every year. ASDA can access to the new market in the future.  Secondly, it can grow organic food market. Rising health awareness among consumers led to a higher demand for low calorie organic foods around the world. Customers are becoming aware of the risks associated with obesity and poor dietary habits. ASDA has taken many initiatives to cater to the health-conscious consumer. Threats Supermarket business is highly profitable industry, many investors want to invest. Currently in the UK there are several large supermarkets are competing with Tesco and Morrison’s ASDA. Initially, the UK retail industry is highly consolidated with Tesco and Sainsbury. Tesco is key competitor of ASDA. It operates through the multiple store formats, including Extra, Superstore, Metro, Express and hypermarkets. Besides in the UK, Tesco also operates in other European countries and Asia. Furthermore, the labour wages go up in the UK, according to the Department of Business Enterprise and Regulatory Reform, labour costs are raising in the UK. It would adversely influence ASDA’s margins. 4.The competitive strategy of Asda. For a big retailer as Asda, a sustainable competitive advantage is the key to get success. A sustainable competitive advantage is about performing different activities or performing similar activities in different ways. That means, Asda must be capable of producing value for the consumer that is recognized as being superior to that of its competitors. The best ways to achieve this goal is that Asda should follow one of three generic competitive strategies which developed by Porter. Figure 1: Porter’s Generic Strategies The first strategy is overall cost leadership, this strategy requires Asda provide lowest-cost products to their consumers without reduce quality of products. Overall cost leadership allows Asada to outperform rivals within the industry because it can charge lower price and its lowest-cost base still allows them to earn profit. The second strategy is differentiation, if Asda use this strategy, Asda must provide different goods and services which  satisfy the needs of their customers. Differentiation requires Asda spend more cost to create and keep their competitive advantage. However, this cost can be offset in case Asda can increase revenue. The third strategy is focus, Asda can focus on cost leadership or differentiation in a narrow market. Asda can become the cost leader but only within a specific market or Asda can offer special products, service with high value within a segment of market. In pursue focus strategy, Asda could develop their brand loyalty which help Asda decrease threat of new entry. One of dangerous problem in applying Porter’s Generic Strategy is that some organizations try to do all three and become stuck in the middle. However, in case of Asda it not appropriate, right from the first days of establishment, the company has put out a formula for their business is cost reduction to always discount sales. That means Asda choose cost leadership strategy to achieve competitive advantage in the supermarket industry in UK. To following this strategy, Asda always guarantee give to their customer 10% cheaper than their competitor (Asda, 2014). Besides that, Asda also try to minimize their staff’s number by using shopping online and self-service check out to reduce cost. Online shopping will reduce retailer costs because less staffs are needed in shops to serve the customer. The annual report in 2009 show that self-service checkouts are becoming more favoured in Asda store and the wage costs was saved  £10 million. In addition, Asda also try to increase their economics of scale to reduce production cost in long term. In 2010, Asda paid  £778 million to take over the Netto – this is an aggressive bid to close the gap with market leader Tesco’ (The Guardian 2010). This action is evidence shows that Asda using economics of scale pursue cost leadership strategy. Another action shows the cost leadership strategy of Asda pay a large cost for their own machines and the result is that in the long term production of their own brands will be cheaper than other. Another measure of Asda in reducing costs is hard bargaining strategy with their suppliers. It means that they decrease power of suppliers, if their current suppliers do not meet their requirement they can simply move to another supplier that will meet their demands. More and more Asda is choosing to use suppliers from abroad because they are often cheaper than suppliers in Britain and regulation is less strict meaning they are able to achieve their cost leadership strategy. (The Guardian) 5.Future development strategy of Asda. Asda level strategy Asda has many stores around UK, but the company not expand around the world. The firm must develop and try to stay in the top of sales in the UK and try to compete with international companies. Asda now is the second largest retails in the UK by market share. Strategy of Asda, Asda will base on two strategies. First one internal growth and the second one is acquisition. First direction is internal growth, This direction will help the company to develop the products by using internal resources. Asda will open new electronic firm called Asda electronic, and this firm will produce some home appliances. This will help Asda to have more profit and to become the first largest retails in the UK by market share. This means the company will pay a lot of money in the beginning to build the new firm, and in the research but after that the revenue will rise. Second direction is alliances, It’s so important for any firms to extend to another country, but in the same time it’s difficult. The strategy for Asda is to alliances of another company like Aldi. Aldi is German company and has over 8,000 stores worldwide, the company opened in 18 countries around the world. And that’s very important for Asda to become multinational firm. This alliancewill help the firm to make more profit. Ansoff matrix, Figure 2: Ansoff matrix Asda will development new products to the market in the UK. And the firm will produce home appliances like cooker and microwave and all the home machine. New market, Asda plan to expand in different countries by alliances with Aldi. That will raise the revenue, and help the firm to become multinational. Criteria suggested Suitability The strategies suitable for Asda, these strategies will move Asda from local company to multinational company. Because the firm will alliances another company Aldi. This means the number of customers will increase, and the profit will also rise. Feasibility Now is the best time to do these strategies, Asda make huge profit in the last few years. This makes it easy to Asda to build the electronic firm and to acquisitions. Acceptability The strategies are acceptable to the stakeholders of the business, because it will raise the profit of the company. And in the same time they will not do loss money. III.Recommendation Based on strategy of view of us, Asda should choose market development like a future strategy. In more specific, Asda should do alliance with Aldi because of two reasons. Firstly, the market for supermarket in the UK does not have lot space to develop, so expand to international will give to Asda more profit. Secondly, Aldi is giant company with wide range of store on the word; alliance with Aldi not only helps Asda expand to Germany but also helpsthe firm will come multinational. All that will make the firm become bigger and have change to get stronger in the UK and capture the market share in other countries. In addition the firm will receive a huge profit as boost the revenue, build anextremelystrong brand image. IV.Reference 1.Na, 2008 People Prices Planet [online] Available at: http://www.about-asda.com/inside-asda/people-prices-planet.asp (Accessed 20/03/2014) 2.TRAVIS, LAN (2008) Boom in births brings UK population to almost 61m [online] Available at http://www.theguardian.com/world/2008/aug/22/population.immigrationandpublicservices (Accessed 10/04/2014) 3.Carol Matlack 2005 Wal-Mart’s Overseas Stumbles [online] Available at: http://www.businessweek.com/bwdaily/dnflash/jul2005/nf20050727_3355_db016.htm (Accessed 05/04/2014) 4.The Guardian (2009), Zoe Wood. 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