Challenges of Expansion to a Foreign Location | Online Assignment Help

Expansion to foreign locations is a lucrative trade strategy which many growing Multinational Corporations such as Walmart take but the exercise has inherent challenges. This includes evaluation of the current global economic conditions and their anticipated impacts on the macroeconomic yardsticks of the chosen location of expansion. It implies forecasting population growth, sales growth, GDP growth, GDP per capita growth, and Export growth. Additionally, forecasting population growth plays a vital role to the final decision of expanding into the new market/country because population growth represents a possible increase in the demand of the produced goods. Competitors in the foreign location pose an important challenge because they represent a significant portion of the market which Walmart has to compete to gain a strategic position. Therefore, competitors influence foreign market strategic entry decisions because the final market positioning requires investment into market analysis. Nevertheless, competitors evaluating rivals alone do not solve the foreign location expansion challenge but sales forecasting is vital too. Just as success in the foreign market depends on the overcoming of the sales forecast as a challenge, categorizing the type of economy which identifies the foreign country plays a pivotal role to the entry decision. The economic type of the new location compliments other challenge factors like supply chain management, the role the country’s central bank to the economy, and the chosen country’s current credit market dynamics, particularly interest rates and their overall effect on the demand of Walmart’s goods and services. Therefore, the chosen country of analysis for this research is Greece. Consequently, analysis of Greece will form the basis of evaluation of challenges throughout the essay.

Global Economic Conditions

Greece is still recovering from the negative impacts of the world economic crisis since 2007-2008 which caused insurmountable instability in world financial markets. Economists agree collectively that the 2007 economic crisis just exacerbated an economic situation which was already facing Greece. However, the economy of Greece experienced the negative impacts of the global financial crisis which led to a shrinking GDP, especially after the onset of the crisis since 2007. By 2007, Greece had a GDP annual growth rate of 3.3% and valued at $ 318 billion despite the prevailing economic hardships then. The GDP had shrunk to a growth rate of -9.1% in 2011, representing the country’s all-time low since the global economic crisis of 2007. The graph below shows trends in Greece’s GDP from 2007 to 2017 (Product, 2018).

Comparatively, the table below shows the percentage growth in the GDP from 2002 to 2017.

Statistics show that the GDP showed signs of recovery in 2017, but the figure 1.4% is less than half what Greece had before the global economic crisis. However, unemployment rates rose, from 8.4% in 2007, with the start of the global economic crisis to reach a high of 27.5% in 2013 before dropping to 23.1% in 2017 albeit at a very sluggish rate. The chart below shows the unemployment rates in Greece from 2007 to 2017.

Source: Statista (Statista, 2018)

Inflation statistics show that the Greek economy is recovering after long years of recession and stagnation following the global financial crisis. The figure below shows Greece’s inflation rates represented by consumer prices indicator (CPI).

The year 2014 witnessed the lowest inflation rates in Greece while 2017 saw the rebounding inflation rates which recorded 1.14% but dropping to 0.7% in 2018. Currently, the Greek economy is in the recovery cycle after many years of contraction because of the effects of the economic crisis which saw Greece stay in recession longer than most European countries. The chart below shows the overall business cycles and where Greece is currently in its economic recovery journey.

Greece’s recovery stage

Source, (Miani, Sufi, & Verner, 2017)

Investment activities are highest both for private and banks in Greece at the recovery stage. Despite the trends in the business cycles, Greece has been receiving substantial bailout funds from the Eurozone members in an attempt to recover from its debt crisis which has plagued its recovery economically.

Forecasts: GDP, Per Capita, Population, and Sales Growths

Forecasting is an important tool in the analysis of Foreign Location for expansion purposes. Population growth, sales growth, GDP growth, and per Capita growth are all indicators against which a company develops an entry strategy into the new market. The Greek GDP is forecast to grow at a fairly steady rate to achieve attain an annual growth rate of 2.1% by 2020 from its current lower rates of 1.4%. This should be a good indication to Walmart for establishing a business line in Greece because increase in GDP is practically proportional to the purchasing power of an economy. Besides, the projected growth in the Greek GDP, the per Capita GDP is also projected to grow, from the current GDP per Capita of $ 22,736.46 through the first quarter of 2018, to 2020, peaking at $ 25,500. This projection is good because it signifies the anticipated productivity in the Greek economy. While Greece is a fairly smaller country, and its current population is significantly important for companies already established in business or aspiring to start businesses. The current population of Greece is 10.73 million citizens by 2022. Although, small, this population is projected to grow at a shrinking rate for most part of the future, with the current population projected to reduce to 10.53million people. The size of any given population is important to an enterprise because it represents the real demand for goods and services produced in a given country. However, growth in GDP, per Capita GDP, or population would not be significant without the growth is projected sales in the foreign market of expansion. Therefore, compared through year-over-year, the Greek sales have had a relatively stable sales pattern over a period of three years, showing increases and decreases for the considered months. For instance, the sales grew by 1.7% in January of 2017 but dropped by 0.2% percent to the same period in 2018 to record a sales volume of 1.5%. These projections are expected to take the same trend over the next three years through 2022, as Greece recovers from its long economic struggles to a fully productive economy. This sales forecast is expected to match the 2.1% economic growth projected for expansion by the year 2022.

Competitor Production in Greece

The potential Greek competitors to Walmart can be analyzed in three perspectives. Firstly, retailing in Greece is divided into Supermarkets, Hypermarkets, and Cash-and-Carry stores. The Supermarkets holds the largest segment of retailing sector in Greece, being composed of more than 2,919 supermarket stores. Proton supermarket controls over 21% of the Greek Supermarket market share with 617 independently owned stores under its control. However, Sklavenitis Group controls over 40% of the Greek retailing market by owning more than four supermarkets under different names. Carrefour Express and Carrefour Marinopoulos are the two main retailing supermarkets owned by Sklavenitis, with each supermarket owning more than 320 stores nationally. Secondly, the Greek retailing market is dominated by the Hypermarket section which has a relatively smaller number of market leaders by store numbers. Marinopoulos Group owns more stores than the Sklavenitis Group but all hypermarket leaders have 51 stores countrywide. However, Marinopoulos Group commands over 50% of the hypermarket market share. Lastly, the retail market is also composed of the cash-and-carry segment which is composed of 106 stores collectively. The Metro Group commands about 45% of the cash and carry segment of the Greek retail market but Sklavenitis has presence in this market segment too. Many Retail stores on the Greek market are the main barrier to the market entry because they provide a very stiff competition to newcomers. Besides, the changing tax environment is another barrier which many multinational corporations have to face during their entry to the Greek retailing market. Additionally, the Greek market is less liquid, thus reducing consumption of goods and services provided both established and aspiring market entrants. The liquidity situation has been improving since 2015 but the pace is inappreciably slow. Additionally, the Greek business environment is highly regulated, meaning that newcomers to the market have to face unnecessarily many legal barriers before breaking to the market. The firms on this market are typically oligopolistic in nature and they assume the following graph.

Source: www.economicshelp.org

The major assumption of this type of market is that firms are profit maximizers, and if one firm does a price-cut, all other firms will follow the same trend.

Forecast Sales

The retail sector in Greece is still struggling with revenue generation because of low demand for most products produced locally or imported from overseas manufacturers. Unemployment is one of the key factors which led to low purchasing power from the Greeks following the global economic downturn which led to mass laying off of employees in many sectors. Currently, the consumer confidence index is very low despite improvements from -75.5 a year ago to the current -48.8. Statistically, revenue from the retailing sector of Greece shows declining trends considering an 8-year period from 2008 to 2015. For instance, the sale of food, beverages, and tobacco generated over $ 7.2 billion in 2008 but deterriorated by half in 2015 to $3.17billion. Despite the improvements in consumer confidence, this trends imply a declining trend in the revenue generation power of the Greek retailing sector. The chart below shows the revenue generation trends from the Greek retailing Market.

Source: (Statista, 2018)

These trends are significant to newcomers like Walmart because the decision to enter the Greek retailing market will be based solely on the revenue generation capacity of this market. Most importantly, the trends show significance declining trend in revenues from the retail sector.

Types of Economy

Greece falls under the mixed type economy because of the following reasons. Firstly, the country has tried capitalism as a form of economy for several years and has not considered falling the pressure of either socialism or communism. Consequently, “mixed capitalist” best describes the economy of Greece. A mixed economy has the following characteristics. Firstly, the prices of commodities and services are determined by the forces of demand supply on the market. Secondly, entrepreneurs are able to set up businesses and make profits on the Greek market. Thirdly, there is significant ownership of businesses by the private enterprise. The three characteristics define the free market portion of the mixed economy. However, governments intervene in some areas of the economy by providing key services like health, education and waste-management. Furthermore, the government intervenes in the businesses by provision of legal regulation and imposition of different taxes on goods and services provided by the private sector. Overall, a mixed economy such as Greece is characterized by a free market and some intervention by the government to restore equality.

Differences in the Types of Economy

A closed economy is characterized by the provision of goods and services to domestic consumers without creating a surplus for export or accepting surpluses from other countries in the form imports. Conversely, free economies export surpluses and accept imports from other countries. A mixed economy is part a private enterprise and part a government monopoly in services like defense, health, and infrastructure.

Credit Market Conditions and Central Bank’s influence in Greece

Greece has been facing one of the worst economic crises in the Euro Zone since the global economic crisis of 2007-2008. The economy has been surviving on bailouts to help the country come out of the terrible economic recession for nearly 10 years, leading to a stagnation in its credit markets. The Three main lenders, the Alpha Bank, the National Bank, and the Piraeus Bank (the largest by market share) collective carry about 103 billion euros in bad loans and the have been under pressure from the Central Bank to reduce the bad loans to 38 billion euros by 2019. Consequently, most banks have not been lending in part as a regulatory move from the government, and in part because of low interest rates following the financial crisis. Greek banks have struggled since 2010 following the skyrocketing unemployment which caused many people to fail to service their loans. Currently, unemployment stands at 24.1%, meaning that a sizable population cannot access credit facilities from major lenders. Additionally, most lenders are under not to lend because of the non-performing loans. Therefore, production or sale of goods in Greece may not meet the projected sales.

Education and Job Skills in Greece

Education achievement for both in Greece has achieved appreciable milestones since 1980s but the economic crisis had a negative impact on the country’s job market since 2010. Averagely, education achievement levels for Greece are below most OECD member countries. For example, 7.9% of people aged 18-24 years were identified in 2017 as early leavers from education and training. However, the figure is lower than the EU average of 11.0%. Additionally, 40% of Greeks aged between 30 and 34 years have a tertiary educational attainment against and EU average of 38.7%. These figures are relatively better than EU averages, but they lower for consideration on the job market because the high unemployment rates of 24.1% especially for the youth denies potential employers like Walmart of skilled labor with a hands-on experience. Furthermore, the high competition on the Greek retail market implies that there is scarcity of the skilled labor to work for Walmart.

Challenges of Production in Greece

Politically, Greece is stable does not pose any immediate threat in the light of terrorism and violent overthrows. However, Greek’s Political Stability and Absence of Violence/Terrorism Index was scored negative since 2009 by the World Bank following demonstrations against the government for a failing economy. Additionally, the negative index originates from the social unrests resulting anti-immigrations sentiments from Greek citizens. Furthermore, the Greek government has been relying on bailouts from EU members to finance its economy. This implies that there is little-to-no incentives to the business environment at the moment. Conversely, the Greek economy is recovering, albeit at a slow rate, from the economic crisis which was exacerbated by the effects of the global economic crunch. Capital controls has been one of the major threats to the Greek business environment, but the Government loosened its control measures by further raising the withdrawal limit for the banks. However, the controls will be in place until the end of 2018. Additionally, the exchange rates are not a big concern because the Euro is the main currency of exchange. Therefore, investing Greece is unlikely to expose Walmart to Currency fluctuations.

Supply Chain Challenges

Supply Chain challenges are inevitable in any business environment but they are managing then requires a holistic approach because of an increasingly interconnected and globalized business environment. The supply chain challenges originate from the Greece’s endless debt crisis which puts exporting and importing facilitators in uncertainty. Supply chain management is important to Corporations like Walmart because they may become a rather painful expense may lead to damages especially where perishable goods are involved in the export or import process. The main supply chain challenge has been the threat of Greece’s withdrawal from the Euro membership. Nevertheless the Greek legal system involved in the clearing and forwarding has been questioned for its inefficiency, especially in the recent past but there are signs of improvement. As the supply chains become globalized in countries like Greece, information gathering for customer satisfaction become more and more complex because large companies such as Walmart would need to handle large volumes of data to make their supply chain more efficient. Lastly, the supply Chain in Greece pose a greater risk because of imminent uprisings like the ones which plagued the country in the wake of 2010 to 2015. The possibility of such political situations could lead to port closures affecting the customer satisfaction process and/or costing Walmart millions of dollars in losses especially if the business model is based on retailing products. Unfortunately, supply the World Bank ranks Greece with a negative Political Stability and Absence of Violence/Terrorism, implying that the country is relatively stable, but its stability is uncertain too. However, producing to sell within Greece may be the most immediate option but it limits Walmart to a smaller market for its goods and services.

Conclusions and Recommendations

Walmart can enter the Greek retail market with both pricing and non-pricing Strategies, but the corporation’s market entry strategy is based on enabling customers to save money through buying standard, but relatively cheaper prices. Walmart retails at 14% lower prices in discounts than any of its global competitors, making it not only the leading retailer in the US but also globally in its spheres of influence. Walmart is facing an oligopolistic market characterized by smaller branches of supermarkets owned by fewer parent Companies but it has a pricing advantage over competitors because its price policy of 14% lower than the industry has worked in the US, South America, India, Africa, and Japan. However, Walmart should watch for any signs of price wars from competitors. Second, an oligopoly is characterized by either a perfect or imperfect market structure. This implies that prices in a market environment such as Greece are more elastic than in a simple monopoly. Walmart can enter the Greek market by a limiting pricing strategy so that other competitors would eventually feel the pressure of competition and fall out the market. Price limiting can be used in conjunction with other pricing strategies like colluding with other oligopolies on the Greek market. In a country struggling economically and where people are struggling to save, Walmart can use extended guarantees and quality improvement to win loyal clients in the lone run.

Recommendations

1. Based on the GDP growth level, Walmart has an opportunity to grow the Greek market by pricing its goods at a lower value than the current market leaders. This strategy would not force the competitors to reduce prices but some competitors may exit the market because of increased operation overheads and other operation expenses.

2. Walmart should use its financial might to invest in research and development to stay ahead of competitors and finally gaining leading market position which will push some players out of the market.

3. Demand for goods and services is limited on the Greek market because of low purchasing power and high unemployment. However, this can be an opportunity for Walmart to use its low pricing strategy to build demand for its goods and services through developing with the country’s recovering business cycle stage. Additionally, the government environment will improve with increase in the economic recovery, making the credit market more attractive for lending and borrowing.

4. Walmart will be a cost-leader on the market because it is able to enjoy economies of scale through its sustained lower pricing policy. Therefore, I recommend that Walmart considers entry to the Greek market because it will soon recover from its debt crisis.

References

Economicsonline.co.uk. (2018). Oligopoly. Retrieved from http://www.economicsonline.co.uk/Business_economics/Oligopoly.html [Accessed 21 May 2018].

Mian, A., Sufi, A., & Verner, E. (2017). Household debt and business cycles worldwide. The Quarterly Journal of Economics, 132(4), 1755-1817.

Product, G. (2018). Greece GDP – Gross Domestic Product 2017. Retrieved from https://countryeconomy.com/gdp/greece.

Statista. (2018). Statista – The Statistics Portal. Retrieved from https://www.statista.com/search/?q=unemployment+rate+in+greece+2018

Inflation Rates in Greece 2012 to 2018

2012 2013 2014 2015 2016 2017 2018 1.04 -0.85 -1.39 -1.0900000000000001 0.01 1.1399999999999999 0.7Year of Comparison

% Inflation

Greece GDP Growth from 2007-2017

2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 200 193 196 237 240 246 288 300 330 356 319 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 1.4E-2 -2E-3 -3.0000000000000001E-3 7.0000000000000001E-3 -3.2000000000000001E-2 -7.2999999999999995E-2 -9.0999999999999998E-2 -5.5E-2 -4.2999999999999997E-2 -3.0000000000000001E-3 3.3000000000000002E-2Growth Year

GDP ($ Billion)