Elements of Global Strategic Management That Is Apparent In MHI's Initial Expansion into Australia - Case Study Example

Michael Hill International-Case Study 2 Student’s Name Institutional Affiliation Course Name Date of Submission Michael Hill International-Case Study Introduction Globalization is a great thing that has happened in the recent past. The greatest impact of globalization has particularly been felt in the business environment, where it has opened up numerous opportunities for big businesses. Today, as the business environment increasingly becomes competitive, no any single firm can survive without recognizing and appreciating the global markets. Nevertheless, even though most companies understand the benefits that come with the global markets, expanding beyond the domestic market still pose a huge challenge to most businesses because of the issues associated with doing business in an overseas market. Therefore, to succeed, a firm needs to have study the international strategic management .Michael Hill International (MHI) is one of the companies that have taken advantages of the opportunities offered by globalization by expanding its business beyond its domestic market. The New Zealand jewellery retailer currently operates many stores in North America and Oceania and is currently considering opening additional stores in Canada, Australia and the United States through controlled expansion in order to achieve sustainable growth (Grant et al. 2014, p. 450). However, MHI’s management reveals that expanding business into the international market, such as the U.S. was very difficult as the company encountered many challenges, including global financial meltdown and economic recession of 2007/2008. This case study will begin by analyzing the elements of global strategic management that were manifested by MHI in its initial expansion into the Australian market and proceed to analyze MHI’s diversification into the shoes market. The document will also compare and contrast the entry models used by MHI into Australia, Canada and the U.S., and highlight the factors that MHI included considered when moving overseas. Lastly, the paper will make recommendations on what a company like MHI should do to compete effectively in a fragmented industry. Elements of Global Strategic Management That Is Apparent In MHI's Initial Expansion into Australia Bonn and Fisher (2011, p. 5) note that strategic management is key to business success. Strategic management involves planning, setting targets and analyzing the goals to ensure success. Strategic management has, particularly become very critical for global businesses. This is because businesses that operate in the international market usually face a number of challenges, such as external forces. As can be seen in the case study, MHI faced many challenges in its bid to expand and establish a position in the overseas markets, such as Australia. Therefore, to succeed in Australian market, certain elements of global strategic management became apparent. The firs element of global strategic management (GSM) that became apparent during MHI’s initial expansion into the Australian market had to do with result-oriented strategic management. It can be seen in the case that MHI’s expansion model was based mainly on result-oriented aspect of strategic management. The business owner, Michael Hill demonstrated high level of consciousness when coming up with a new strategic plan for expansion into the Australian jewellery market. Hill states that the company has always consciously kept the stiff competition in mind when expanding its business into an overseas market (Grant et al. 2014, p. 450). Therefore, to ensure success, the company do not rush, but expand into one city after the other, notes Grant et al. (2014, p. 450). The growth model employed by the company proved beneficial as it enabled MHI to be able to analyze the market it intended to expand to systematically. Accordingly, this enabled MHI come up with a sustainable growth strategy and implementing accordingly. In fact, Hill states that, instead of the company pursuing the maximum growth model that most multinational firms do adopt, it opted to pursue a model that it believed was ideal for the company so that the business do not just experience slow growth such that it cannot compete effectively with its rivals or grow too fast to the extent that creates over expansion (Grant et al. 2014, p. 451). Instead, the growth model pursued by the firm ensured that MHI achieved moderate growth that enabled it compete effectively with its rivals in the market. From the case study, it becomes apparent that the strategy that MHI employed of opening stores one at a time before relocating to a different area not only clustered expansion, but also decentralized the company’s management (Porter, Magretta and Kramer 2014, p. 16). MHI pursued this strategy believing that operating a standalone store would ensure the establishment of an efficient and profitable business despite stiff competition from rivals in the market. The other element of GSM that became apparent during MHI’s initial expansion into the Australian jewellery market had to do with the selection of a strategic business location. The location of a business usually determines whether or not a company will be successful in the long run (Fitzroy and Hulbert 2005, p. 12). Therefore, to ensure success, companies are usually very keep when choosing the location of the business, by ensuring that any location chosen is strategic enough to ensure easy accessibility by customers. According to the case, the strategic management of MHI wanted to get a strategic location for the business. To make this a reality, the company attempted to secure Myer Center, which is a busy shopping center frequented by shoppers, considering that it is located within a shopping mall (Grant et al. 2014, p. 451). The company’s strategic management team even agreed to pay more just to ensure that the company secures this prime site that it believed was a strategic and suited the nature of its business (Fleischer and Benoussan 2003, p. 42). The company’s strategic management team also considered the value of international marketing plan as a critical aspect of MHI’s expansion into the Australian jewellery market. For instance, it can be seen in the case study that the company has focused heavily on television as an advertising tool. Investment in television as a promotional tool proved beneficial to the company as it helped in developing MHI’s brand image in most parts of Australia. From the case, it can be seen that this approach was quiet different from the strategic marketing plans that other jewellery firms in Australian market have adopted (Grant et al. 2014, p. 452). According to the case, unlike MHI that has opted to promote its brand through TV, the majority of the jewellery firms in Australia use print advertising model, such as newspapers, and catalogue advertising. As such, the use of a unique marketing element of advertising proved beneficial to MHI by enabling the company to create value for the business. It is, however, important to note that, For instance, as much as the use of TV to advertize the company’s products, such as Diamond and Sapphire resulted in losses, the use of TV was a tactical approach that enabled MHI gain strong profile in the Australian market. Nevertheless, this competitive edge did not last long as other rivals in the Australian jewellery market started replicating the strategy by starting to promote their products through TV adverts. Based on the above analysis, MHI’s global strategic management elements that were apparent in its initial entry into the Australian market can be summarized as integration, differentiation, strategic location, pacing and economic logic. Analyses of MHI's Diversification into Shoes Bonn and Fisher (2011, p. 27) observe that diversification is one of the strategies commonly used by companies in today’s competitive business environment as a means of spreading risk. MHI is a classical example of a multinational company that has adopted diversification as a means of spreading risk and exploring new market opportunities. The company that is synonymous with jewellery has diversified its product portfolio by venturing in the shoe market. According to the case, MHI ventured into the footwear industry in 1992by adopting the strategic approaches it has been using in the jewellery industry. For instance, the case shows that MHI chose similar lines of business as jewellery division. According to the case, MHI’s strategic management team decided to adopt similar lines of business for shoes as that of jewellery because the company believed that its current business infrastructure would help support the shoe division (Grant et al. 2014, p. 452). Nevertheless, it becomes clear from the case that MHI’s strategic management team failed to consider the risks associated with an interdependencies between different business divisions. According to a study by Sudi (2003, p. 31), interdependencies between different business units is a risky approach since such a strategy is associated with certain business and management cost that might prove detrimental to the business. For instance, the authors noted that such interdependence might make the top level managers lose focus on the business, hinder innovation, loss of flexibility, as well as increase coordination cost. Accordingly, this might affect the business performing by lowering profitability, thereby putting the business into financial difficulties. For instance, the lack of coordination that was triggered by the interdependence between the two business units resulted in the loss of NZ%1.11 million during the second year of business operation (Grant et al. 2014, p. 452). Accordingly, this implies that it was not a good move for MHI to use the same line of business for both the shoes and jewellery if it were to succeed. The case also shows a serious mistake that multinational company when diversifying their product portfolio. From the case, it become clear that MHI’s strategic management team failed to follow same line of footwear and shoes as was being operated by John Craig when purchasing high-end shoes from him in Christchurch, which was a serious mistake. Instead, the strategic management decided to rename and relocate the whole shoe unit by increasing the size of mid-range shoes in the market (Grant et al. 2014, p. 452). To make matters worse, even before MHI could gain enough experience in the footwear market, it moved ahead and opened six additional shops in New Zealand. This was a blunder because there was no way the company could succeed in the footwear market before familiarizing with the market through research. In fact, it can be seen that the move to locate the shoe stores close to the jewellery shops even made things worse for the company as it resulted in increased transactional cost and complexity of the business. To succeed, the company ought to have focused its diversification efforts at company and business level. This way, MHI could have succeeded in its diversification efforts into the footwear market and gained a competitive advantage over its rivals. MHI diversification into the footwear industry also highlights the challenges that companies faces in their diversification effort. Key among the challenges highlighted in MHI case has to do with the distraction of the top management from their main responsibility immediately after the entry into the shoe market. For instance, immediately after MHI diversified into the shoe market, the senior management of the company lost focus on the jewellery business by concentrating only on the shoe division (Grant et al. 2014, p. 453). Accordingly, this resulted in the loss of opportunity to promote the growth of the jewellery business. Unfortunately, even after focusing much attention on the footwear division, the case indicates that the strategic management team made a serious blander by failing to align the shoe business with the company’s supply chain structure. Consequently, this resulted in operational inefficiently that impacted negatively on the performance of the shoe business (Grant et al. 2014, p. 453). In fact, contrary to the jewellery division, MHI opened the footwear shops very fast all over the country. Quick expansion to different parts of the country proved counterproductive as it did not give the company time to understand the business environment, where it expanded. Comparison of the Entry Modes Used By MHI When Entering Australia, Canada and the United States Wagner (2009, p. 44) notes that there are a variety of market entry modes that a company can adopt. According to the case, the company adopts an entry mode after conducting a thorough study on a country’s institutional infrastructures and business arrangements to ensure success. Some of the entry modes that MHI has been suing in entering different countries include export, licensing, strategic alliances, franchising and foreign direct investment (Wagner, T 2009, p. 34). According to the case, MHI used direct entry strategy when entering Canada. It did this by opening up shops in different parts of Canada. For instance, MHI opened its subsidiaries in Canada through FDI (Grant et al. 2014, p. 453). MHI used a similar approach when entering Australia at the initial state of its expansion into the country. For instance, MHI used FDI to enter Australia, where it opened two large jewellery shops, namely Mappins and People’s (Grant et al. 2014, p. 455). However, MHI used a different entry mode to enter the U.S. market. According to the strategic management, the fact that the U.S. market is very complex and competitive, to succeed in entering the market, it became necessary that MHI receive support from the existing domestic players Therefore, contrary to Canada and Australia, where MHI used direct entry, it opted to enter the U.S. market through acquisitions (Grant et al. 2014, p. 457). For MHI to compete effectively with American jewellery giants, such as Tiffany, Zale and Sterling jeweler, MHI decided to purchase 17 shops worth NZ$7 million. The purchase was from Whitehall Jeweller Holdings, which happens to be amongst the largest jewellery companies in the U.S. The move to purchase the company at a time it had filed a bankruptcy was a bold step on the part of MHI, as it helped the firm enter the U.S. market easily and test the model. However, the acquisitions did not succeed due to the global financial meltdown and recession of 2009 that forced MHI to close down all of its acquired 17 stores. From all the entry modes used by MHI in entering different markets, it becomes clear that opening subsidiaries in Australia was a good move in comparison to the other entry strategies that the company used in entering Canada and the United States. This is attributed to the fact that MHI strategic management team failed to consider the other strategy aspects, such as transaction cost, competitors, market feasibility and infrastructural facilities. Factors that MHI included into the Feasibility Analysis to Expand From the case study, it becomes clear that Michael Hill took various factors into consideration when conducting feasibility analysis. Among the factors that he might have considered include competitor analysis, industry analysis, cultural analysis, consumer need analysis, market entry strategies and the international environment analysis (Lengen 2012, p. 14). Nevertheless, the dismal performance shown by the company in the international markets signifies that the strategic management failed to focus or research these factors thoroughly. This is because, despite the strategic management having been aware of the fragmentation of the American market, and high competition in American jewellery retail market, MHI still proceeded to purchase 17 of Whitehall Jeweller Holding’s shops in the name of testing the entry model (Grant et al. 2014, p. 457). Moreover, analysis of the macro-environment was very critical to ensure that the right decisions are made before moving to the U.S. market (Johnson, Whittington and Scholes 2011, p. 102). However, this appears not to have been the case as MHI decided to enter the American market at a time when most companies in America were struggling due to the impact of the recession and financial crisis that formed many companies to file for bankruptcy. Accordingly, this demonstrates the extent to which the MHI’s strategic management undermined macro-environmental factors. Nevertheless, from the case study, it can be seen that Hill considered only its business vision and goals to allow it to align them with the needs of diverse overseas markets. Characteristics of Fragmented Industries and Recommendations on How to Compete in such an Industry Business gurus stresses on the importance of understanding the nature of a market, whether fragmented or not before entering such a market. A fragmented market is that industry that has many small companies dealing with a single product or products that are closely related (Lutsenko 2012, p. 3). The markets served by such firms may be limited within a geographical region or can be a niche market. Businesses operating in a fragmented industry can be start-ups or mature businesses. With regards to the case study, it becomes clear that the North American market where MHI operate is fragmented in the sense that it had many small stores and autonomous jewelers, including Costa Wholesale Group, Tiffany & Co, as well as JC Penny just to name but a few. Fragmentation was also witnessed in the U.S. which had many small distribution points. Therefore, in order for a company like MHI to succeed in operating in a fragmented market, it is important for a company to consider entering into contractual agreements with the local markets and the clientele. Additionally, a company like MHI should consider entering a fragmented market through direct investment instead of acquisitions. Additionally, to operate successfully in a fragmented market, a company should ensure that transaction costs are kept down as possible. To deal with competition in a fragmented market, a company like MHI should ensure that it becomes as innovative as possible and provide quality products and services. Conclusion Based on the above analysis, it can be conclude that MHI’s strategic management was unable to maintain its initial successful management approach. After succeeding in expanding into the Australian market by pursuing a controlled expansion, it was not proper for MHI to acquire American retailer that had filed a bankruptcy. Additionally, the company failed to diversify to the shoe market properly because of the interdependence of the shoe and jewellery business segments as this created problems, such as distraction of the management focus. Moreover, the cost of expanding the business into foreign countries far outweighed the benefits. However, to succeed in a fragmented market, MHI must ensure that it understands the characteristics of a fragmented market and approach it appropriately. 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