Thailands Boots Internalization Process - Case Study Example

In a venture to expand supply markets for its brands, Boots was in favor with Thailand since it seemed like a prestigious place to invest in. initially, Boots was hesitant about the idea of venturing in international markets alone owing to its experience, which had resulted to closure of most of its stores. Therefore, the company was for the idea of partnership in such ventures in the market. The Minor group in Thailand seemed a prospective suitable partner. It had investments across the board with public quotations. These companies ventured in hotel management, fashion marketing, cosmetics, food manufacturing, retailing, and property retail. These services and products were identical to what Boot was doing at home in UK. Minor Group was therefore a ready partner with the convenience of having a niche in the market and better understanding of customers’ wants. Thailand’s Boots internalization process was influenced by a combination of opposing factors. They include retail structure, political, cultural, and economic factor. a.) Political Factor Local government network relationship is helpful because they give information during the establishment and expansion of the local market. These networks are useful, not only for mutually benefiting from the relationship but also for access to licenses for authorization of selling pharmaceutics. Boots cultivate for good relationship the office of local government by selling erectile dysfunction drugs only to clients with a doctor’s prescription. This will help the government curb cases of unauthorized selling of these drugs. Standard for new employment wage has been announced with the election campaigns. They have proposed minimum 300 baht and 15000 baht for Bachelor Degree holders. These rises in both cost of materials and rises in wages have negative effects on the margin of profit for most companies and retails. If these proposals are passed, product prices in retaliation will go higher, and this may reduce number of customers buying the goods. Such political decision in Thailand can ultimately lead to inflation problems. This leads to investors being hesitant to invest and therefore hospitality and tourism sectors suffer quite a blow. b.) Economic factor Thailand has enjoyed a blissful economy since 2002 with an exponential increase in the number of new foreign and domestic investment. However, global financial crisis and political uncertainty has led to Thailand’s weakening of its economic growth by decreasing international and local demand for goods and services such as tourism. In 2011, there is an estimated 3.2% growth in retail sales volumes, which is slightly lower than what had been predicted earlier, 4.2%, which had been based on strong economic recovery in 2010. Annual growth in retail sales have been estimated to rise by 5.2%, 5.9% and 5.8% in 2012, 2013 and 2015 respectively. Consumer market in Thailand remains the most important South-East Asia market. The market is estimated in 2015 to make US$165.96 billion. Vietnam by contrast has a more promising potential rate in growth in future since Vietnam remains an emerging highly attractive market in 2011 through 2015. Retail sales volumes will however grow by 2.2% only, which is considerably lower than the foreshadowed 10.6%. After 2011, forecast estimates an average of 8.5 % increase in retail sales volume until 2015. Again, many business sectors in Thailand economy greatly depend on foreign corporations by foreign companies especially the retail industry; the likes of Tesco Lotus, Big C, Seven-Eleven and Carrefour have entered the retailing industry of Thailand with rapid growth. Huge companies have posed fierce competition for local stores and led to their bankruptcy because of rapid foreign company’s retail growth. In addition, Bangkok claims 50% of GDP. This is the main reason why Bangkok’s retailing industry has modernized and developed with the rest of the country lags behind which is reflected in Boots turnover in Thailand. Civil unrest in in 2010 between the months of March and May adversely affected trade, which was worsened by Bangkok flooding case in 2012. Companies were however able to maintain a level of profits by utilizing cost-efficient and marginal growth. c.) Cultural and social factors Social factors and the retail industry affect the retailing industry should be considered. There are crucial factors that any retailer should be aware of when looking for a place their businesses. Social factors, which include health consciousness, cultural aspects, age distribution, rate of population growth, lifestyle and income margin are among these factors. Unlike in U.K. Thai people opt for physical family visit to the shopping Mall instead of online shopping. Thai people take their appearance and health issues seriously and Boot takes advantage of this chain of demand. However, language barrier remains a challenge for Boot. Customer loyalty scheme is among the strategies Boot is using. They have special treatment for these customers and even award them gifts to maintain contact. Their good products also ensure goo market for Boot products After its establishment in 1996, Boots Thailand has shown an impressive domination in the retail market among the Alliance Boots foreign plants. Their urge and great consistency in the investment in Thailand did emanate from several motivational factors. Such factors build up over time making them among the best in the industry. They gained popularity and fame from all regions in Thailand. Thailand had immense potential in their marketability. From 1991 to 1996, Thailand Gross Domestic Product grew at an assuring rate of 8% annually. The United Kingdom markets were oversaturated with the products; hence, marketing in such a place was quite difficult. It did call for the efforts and ideologies of the marketing team to expand the market to Thailand. They did expand their business there, hence a great compensation point. In a bid to attract the consumers of the boots as they paved their way to Thailand, the marketing team had to ensure that they would adopt strategies that would make the target market have a great like for their products. They had to perform a comprehensive study of Thailand’s market and it potentiality. The region did act as a geographic strategic base that would facilitate the establishment of the markets in other regions such as Hong Kong, China and India. Therefore, initial establishment of their capital-marketing base in Thailand would prove beneficial to their future business operations. Formation of a joint venture was critical in the initial penetration in Thailand. As time went by, they did gain control of the market in Thailand and stabilized in their performance and growth. They decide to change their business model of operations. They created an inclusive slot where a local partner was allowed to join them in trade. This was quite detrimental in that it enabled the community within their areas of reach to accept them. They did target the local market through conduction of regular study on the target populations. They had to assess the needs of the population and detect any gap that may be existing in them. Later they would hatch a solution to cover up the need. This was the best way to enable them cope easily in the new environment thorough research made them come up with a loyalty program known as the boots advantage card. The program was a great innovation aimed to attract more Thai customers. They did try to localize their products and the management teams. Thai staffs in all aspects of the business processes, while other foreign companies in Boots allowed their roles only in assembling components. Boots helped develop the skills of the local labor force in various business functions and advanced them to higher positions. The firm-specific or location specific advantage became a critical variable in its operations as they further penetrated the market. The firm was not an internationally renowned company at that time. Therefore, they did form a JV as they penetrated in the Thailand market. Few years after penetration, they did establish their venture, an idea that was a great success in their market and overall penetration in the market. At that moment, the firm was quite determined to undertake globalization of their business to the next level, secondary to the saturation of the products in the United Kingdom. Additionally, Thailand market was quite reassuring and attractive in terms of country-specific advantages. They were assured of expansion and flourishing in different regions of the country. Intensive study of the Thailand market saw them commence the loyalty program. They had to make rapid response decisions so that the firm could expand within a short duration. Therefore, the idea to change the firm from WOS to JV was quite a brilliant idea that worked out for them well. They had to make a review of the decisions make where necessary. The analysis of the models utilized by the Boots firm does reveal several important ideologies. Their decisions to choose between the JV and WOS models were quite detrimental. It was a classic idea that developed and contributed to the establishment of the firm in the Thai Industry. The country specific factors and firm-specific factors were critical in determining the success of the Boots Company. They were successful in the Thai market despite their late entrant in the market. Essentially, their success can be attributed to the superior performance in terms of brand creation and impressive performance in management and marketing. Read More