River Islands Internationalization Strategies Economics Essay

In a universe of increasing planetary competition, companies aim to capitalise on internationalisation through enlargement across boundary lines and around the Earth. The chief aim here is for companies to run successful concerns internationally and this is made possible through an effectual mix of internationalized schemes based on nucleus internationalisation competences ( Dicken, 2010 ) . This essay will analyze the possible entry manners and schemes that a UK high street manner trade name called ‘River Island ‘ could utilize, to get down operations in India and Australia. The greater portion of this essay will concentrate on the influences that each state ‘s local economic environment will hold on the schemes that River Island implements. Get downing with the Indian market and so traveling to the Australian market, comparings will be made on how these schemes would differ and a treatment of the relevant results will be provided excessively. Therefore, in order to expect future benefits and hazards towards the concern, it is of import to cognize how the economic environment of the two possible states will impact River Island ‘s entry manners.

2. Main Body

2.1 Company background

Operating in the Retail Industry, River Island was chosen due to its immense planetary portfolio of over 300 shops in the UK, Russia and Singapore, etc ( River Island, 2012 ) . This Multinational Enterprise ( MNE ) is head-quartered in UK and though it has a immense figure of mercantile establishments in its place state, it operates a planetary supply concatenation web, sourcing and fabricating its merchandises throughout the universe. River Island has opened up its ain shops in states and has besides opted for a turning figure of international franchise shops throughout the Far East, Europe and Middle East with experient manner retail companies ( River Island, 2012 ) and in-house manner interior decorators.

More late, Ben Lewis, exclusive proprietor of the high street manner trade name, initiated and launched an International Shipping strategy in an effort to increase trade name consciousness in new markets worldwide ( Internet Retailing, 2011 ) . Though River Island undergoes international trade and delivers its vesture every bit far as Australia, India and South America, this will non be considered as an already bing internationalisation scheme, as the company has had no old operational mercantile establishments in these states.

2.2 Difference between chosen states – Australia vs. India

A cardinal ground for taking these states as the host states is because Australia, being a First universe state is developed, contrasting to India which is still a underdeveloped state. Despite the fact that both Australia and India were British settlements and are presently both Commonwealth Members, the differences that arise among them are legion. Australia scored 83.1 in the 2012 Index of Economic Freedom doing it the 3rd freest state in the universe, whereas India scored 54.6, ranking as the 123rd freest state in the universe ( Heritage Foundation, 2012 ) . This itself is a contrasting factor and calling a few others, Australia has a GDP per capita of US $ 39,699 with a population of 22.2 million, whereas India has a GDP per capita of US $ 3,339 with 1.2 billion people ( Heritage Foundation, 2012 ) , about 5 times the population of Australia.

However, though India seems to be on a lower ranking to most of the comparatives mentioned above, it has a much higher GDP of US $ 1,704 billion as compared to Australia with a GDP of US $ 1,448 billion, released by the International Monetary Fund in 2011. Therefore, both these states have been chosen as host states because the possible benefits that arise from trading at that place, outweigh the costs of making so, which is outlined in item in subdivisions 2.4 and 2.6.

2.3 Entry manner into India

The most appropriate scheme that River Island could utilize to internationalise in India would be to make a Joint Venture with an Indian local manner retail merchant. A Joint Venture ( JV ) is an understanding between the place and host states to portion activities, hazards, expertness and net incomes raised in the host state, normally on a 50:50 partnership footing ( Nagar and Enderwick, 2009 ) . Since the JV can take advantage of India ‘s low cost place production, this will take the demand for River Island to import its vesture from its planetary supply concatenation. However, if demand in India seems to be less, exporting from India would besides be a good scheme to internationalise. However, this will non be considered to a immense extent in the essay, as India being an tremendous turning market will potentially hold a monolithic demand for River Island ‘s stylish vesture.

The spouse company would be Globus Stores Pvt. Ltd, the local vesture retail merchant with shops in more than 22 metropoliss across India ( India Retailing, 2012 ) . Globus has already developed coactions with foreign houses through its franchising, if non through JV ‘s. This linkage makes Globus an disposed JV mark since it has the much needed experience of working with a London house ( Pepe Jeans London ) every bit good as the technological competences in gross revenues, selling and human resources ( Globus, 2012 ) . Therefore, the entry manner is advantageous to River Island, as the JV can manage any regional diverseness deductions and ease smooth entry into the untapped Indian market, acquiring rid of cultural barriers. This can be done rapidly and will take down costs in the long tally, in comparing to International Shipping, with export quotas from states potentially increasing the JV ‘s costs.

2.4 Critical rating of the entry manner

2.4.1 India ‘s economic connexions with the remainder of the universe through international trade and FDI:

The Export-Import Bank of India ( 2012 ) shows a steady addition in both inward and outward FDI. India ‘s International Trade has besides increased from US $ 252 billion in Fiscal Year ( FY ) 2006 to US $ 794 billion in FY 2012. Though this portrays India to be a good host state, an addition in inward FDI besides means increased competition for the JV. However, since Globus has been runing in the Indian industry for about three decennaries now ( Globus, 2012 ) , the JV will be most benefitted through Globus ‘s competitory advantage ( Porter, 1990 ) over new-market entrants, particularly when it comes to competition against new retail houses and sourcing out a inexpensive and dependable supply concatenation.

Similarly, India ‘s 2nd major trading spouse in footings of Top Export markets is the USA ( EX-IM Bank of India, 2012 ) followed by China and Singapore. Since River Island already has operational bases in the USA and Singapore, this would profit River Island, as it could so potentially export cheaper manufactured vesture from India to the USA and Singapore, utilizing its freshly formed JV. The death of the Multi-Fibre Arrangement in 2005 ( Dicken, 2010 ) , where quota governments were abolished, besides provides a great chance for India to work the huge unutilised potency of its fabrics and vesture sectors. However, the geographical propinquity of River Island ‘s European supply concatenation would countervail lower production costs in India ( Dicken, 2010 ) , once more showcasing exporting as the 2nd best internationalisation scheme.

2.4.2. The function of India ‘s authorities:

The Indian regulative model is hardly efficient and has yet to get the better of jobs posed by corruptness, inordinate bureaucratism and hapless substructure. The World Bank reported that it takes 29 yearss to get down a concern in India as compared to 13 yearss in UK ( 2012 ) . So organizing a JV in comparing to exporting through cyberspace retailing, would merely increase the legal force per unit areas on River Island, being a disadvantage. The trade weighted mean tariff rate is reasonably high at 7.9 % in India ( Heritage Foundation, 2012 ) as compared to UK, doing India a less unfastened market. Thus India ‘s clogging investing government creates an unfavorable environment for new investing, doing it peculiarly hard for the authorities to accept River Island ‘s JV in India. However, the inclusion of a reputed retail company such as Globus Stores Pvt. Ltd would be given to do this procedure quicker and hassle-free.

The Indian authorities ‘s financial policy includes a corporate revenue enhancement rate of 33.22 % which is much higher compared to rate in River Island ‘s place state, UK of 26 % ( Heritage Foundation, 2012 ) . This would intend that a greater per centum of the JV ‘s net incomes in India would hold to be given to the authorities in the signifier of revenue enhancements. This drawback could nevertheless be neutralised through the higher net incomes that would be earned in India as a consequence of lower labor costs and sourcing cheaper providers.

2.4.3 The fight of relevant local industries:

First, the fact that the market size in India is immense and still turning will turn out highly advantageous to River Island. India offers an tremendous market, where the prognosiss based on current growing rates suggest that by 2025, India will hold the universe ‘s 5th largest consumer market ( Nagar and Enderwick, 2009 ) . Second, India has a comparative advantage ( Ricardo, 1817 ) in bring forthing fabrics, a labor-intensive procedure, because it is good endowed with unskilled labor ( Nagar and Enderwick, 2009 ) . River Island scores an added advantage once more, as India can fabricate vesture at a much cheaper labour-wage rate than UK or the USA. India can besides so be used as the supply-chain land, from where the readymade garments can so be exported.

Third, India ‘s quickly turning fabricating sector every bit good as its strong IT sector will supply extra beginnings of specializer accomplishments, augmenting the capablenesss of the JV with Globus. Therefore, turning fight of the local fabrication industry in India benefits this internationalisation scheme, as low cost labor in India would increase net incomes in the JV. However, since it is difficult to happen highly-skilled labor in India can be a immense disadvantage when it comes to fiscal record maintaining, gross revenues and selling for the JV.

2.4.4 India ‘s economic dealingss with the regional economic system

Duties remain high by international criterions in India though there are ongoing EU-India negotiations which aim to cut down Indian import duties, seting India on a more equal terms with China ( Santander, 2012 ) . In any instance this would non impact River Island. Sing demand in India turns out to be low, the apparels produced can so be exported to foreign states, where exports quotas have been removed after the GATT ( General Agreement on Tariffs and Trade ) Uruguay Round ( Dicken, 2010 ) . Globus would nevertheless, guarantee that demand in India is at its upper limit as it would cognize how to market and advance the JV ‘s manner trade names. River Island would instead export from India and benefit from inexpensive labor, than import stuffs from the EU, as it is non a member-country and would accordingly free out from the high exchange rate difference.

Sing the fact that both UK and India are portion of the WTO, this does supply Free Trade Area ( FTA ) benefits to a future export-based scheme, but does non assist the JV needfully. Since the JV would utilize a local maker in India itself, it would non necessitate to see importing garments to retail. Alternatively, River Island could concentrate on utilizing the Indian supply concatenation to export to UK, doing it a much easier undertaking as export quotas are hardly outstanding ( GATT Uruguay unit of ammunition ) . The fact that India formed a bilateral understanding with ASEAN and its 10 member provinces would intend that exporting from the supply concatenation in India, would once more incur minimum costs due to the FTA ( ASEAN, 2003 ) .

2.5 Entry manner into Australia

The internationalisation scheme here would be to put up a Franchise understanding with a Retail Franchise house in Australia. Franchising is a specialised signifier of licensing, where a formal right is offered to a house in the host state to utilize a place state house ‘s trade name, engineering and direction know-how ( Andexer, 2008 ) . Basically, River Island would be the Franchisor, who would let the franchisee, to utilize River Island ‘s hallmark and administer its manner vesture. In return, the Franchisee pays River Island a royalty, and this is how River Island would construct its trade name consciousness overseas and profit from increased international operations, without giving control to foreigners ( through a JV ) or incurring high labor costs ( through a entirely owned subordinate ) in Australia. The Franchisee would be set up with the Australian house, EmbroideMe ( AFOX, 2012 ) , the state ‘s largest embellishment web, branding uniforms and promo points across the state.

2.6 Critically evaluate the entry manner

2.6.1 Australia ‘s economic connexions with the remainder of the universe through international trade and FDI:

Australia is the 3rd freest state in the universe where it takes merely 2 yearss to open a concern ( The World Bank, 2012 ) , doing it one of the universe most unfastened markets, after Hong Kong and Singapore. Therefore, this accordingly means that FDI in Australia is rather high due to the low trade weighted mean tariff rate of 1.9 % when compared to 7.9 % in India. FDI inflows in Australia went from US $ 34 billion to US $ 65.6 billion in 2011, being 4.3 % ( OECD, 2012 ) of the one-year GDP, whereas UK merely saw FDI to be 2.3 % of GDP.

The manner in which the pictured openness of the Australian market could impact River Island ‘s Franchise, is through greater industry degree competition and valuable technological progresss. Though the increased competition might turn out troublesome for River Island, it besides consequences in more efficient retailing with broad consumer pick, so both parties benefit. Australia ‘s promotion in engineering and the handiness of extremely skilled labor will be of most benefit to River Island ‘s franchisee, as this would intend that Point-of-sale systems are much more advanced in the EmbroideMe mercantile establishments, increasing efficiency and concern profitableness. Even the fabrication processes for providers will be made easier and quicker. This once more has been made possible through the immense sums of FDI, make fulling in the technological spread.

2.6.2 The function of Australia ‘s authorities:

Australia ‘s regulative environment is one of the most dependable, crystalline, and efficient in the universe, contrasting to that of India. It offers a high grade of certainty for concern planning but the lone job River Island would hold to confront would ensue from the demand to follow the Australian Franchising Code of Conduct. It is now made compulsory for franchisors to unwrap to their franchisees, since the remotion of the individual foreign franchisor freedom in 2008 ( International Franchise Association, 2008 ) . Therefore, although there are conformity costs, it is arguable that this creates a barrier to entry to River Island ‘s franchise, EmbroideMe.

Under the financial policy, corporate revenue enhancement rate is a level 30 % , which is once more somewhat higher to UK ‘s 26 % but lower to India ‘s 33.22 % . Australia ‘s higher exchange rate of 1.54 AUD to 1 GBP as compared to India ‘s exchange rate of 88.15 INR to 1 GBP ( XE, 2012 ) would besides do a immense difference in River Island ‘s profitableness, when net incomes are sent over to the place state, UK. However, if gross revenues stand high in both states, so all else is good. Australia ‘s judicial system operates independently and impartially, with consistent application of Torahs ( Heritage Foundation, 2012 ) . Therefore, if an statement arose between River Island and EmbroideMe, the authorities would first mention back to the Franchise Agreement. This can be both good every bit good as harmful, based on how conservative the understanding contract is.

2.6.3 The fight of relevant local industries:

The retail industry in Australia has met many competitory challenges in the yesteryear. Though the intensified competition is good for consumers, it will be disputing for the Franchise, EmbroideMe to derive its market portion. However, the fact that River Island is a well-known trade name overseas and has experienced franchising elsewhere around the universe, will give EmbroideMe the border and therefore assist it harvest high net incomes.

River Island will command everything ; from how the trade name is to be marketed and how direction is run in the Australian franchise. Merely the finance and existent execution of these necessities will be carried out by the franchisee, being EmbroideMe. Thus, the fact that Australia is so similar to UK in its historical links, linguistic communication, concern and legal practices? will do it easier for River Island to set up itself in Australia, under the EmbroideMe Franchise. Australia has a minimal pay rate of & A ; lb ; 6.29 per hr which is higher than the UK minimal pay rate of & A ; lb ; 5.80 ( National Minimum Wage, 2010 ) , picturing the fact that franchising in Australia instead than opening up a entirely owned subordinate or a JV is much better, as this would cut down on concern costs to a immense extent.

2.6.4 Australia ‘s economic dealingss with the regional economic system

As Australia is portion of the Asia-Pacific Economic Cooperation ( APEC ) , importing manner vesture supplies from within the Asia-Pacific part would be tariff free and hence incur nothing costs for River Island ‘s Franchise. Thus EmbroideMe would profit from importing its garments and fashion-wear from states such as the US, Singapore and Russia, instead than India, which is non yet a member state of APEC ( APEC, 2012. ) . However, since UK is non portion of APEC, it would non profit any minutess that River Island ‘s franchise had with its place state, UK.

On the contrary, both the being of the Australia-United States Free Trade Agreement ( AUSFTA ) and the Singapore-Australia Free Trade Agreement ( SAFTA ) make Australia ‘s trade between these states go farther than the WTO itself ( Australian Trade Commission, 2012 ) , with greater decreases in duties. This would once more hold a favorable consequence on River Island ‘s franchise, as EmbroideMe would be able to import its garments for retailing from either USA or Singapore, at lower costs.

3. Decision

To sum up, though the OLI-framework ( Dunning, 2008 ) of FDI is non to the full satisfied through the two chosen internationalisation schemes, it is still reflected to a sensible sum. The local economic environment in India depicts a just figure of benefits and drawbacks of internationalising utilizing a Joint Venture ; reduced uncertainness, lower costs, and enhanced grosss for the MNE, River Island, seems favorable plenty. Considering Australia, its economic liberalism, its stableness and judicial system transparence, combined with strong economic growing of more than 15 old ages, make up for the narrowness of its market and its geographical isolation, therefore doing it a desirable finish for a franchise. Therefore, maintaining in head that all schemes have a set of pros and cons, the chosen schemes are comparably the most appropriate 1s for River Island ‘s host states, as the benefits so outweigh the drawbacks when the local economic environment is considered.