Understanding International Business Operations

Introduction

The study of international business fosters cross-border commerce as well as other business transactions that occur between companies and governments. The framework of international business calls for the understanding of significant legal requirements and trade regulations in different countries. Operators around the world should comprehend the global competitive landscape as well as the political climate. Such operators should also be in a position to asses most of the global market opportunities and gaps while making the most promising attempts of developing effective strategies said o address cultural differences. The notable example of such operators, in this context, includes River Island Limited, which is also an affordable everyday luxury fashion brand. It currently appears in the Big 25 companies that one can work for in the United Kingdom. With 347 stores across the world, the company seems to have a global presence thereby creating a market in different countries. The exceptional performance of the company in high street fashion retailing makes it viable for further expansion. Based on this, the report will first look at the attractiveness of the UK market for business growth. Secondly, the report will pick on the appropriate entry strategy that will see the company expand into the Australian market.

Part 1

The attractiveness of the UK market for further growth and benefits from the worldwide expansion

The tendency of putting up a good performance in the fashion industry by River Island partly depends on the business environment in the UK. Harrison (2013) and Worthington & Britton (2009) described the business environment as the trends in the industry and opportunities available for the company. Both the STEEPLE (Socio-cultural, Technological, Economic, Environmental, Political, Legal and Ethical) factors and Porter's five forces can help in understanding the market dynamics, the potential of expansion, trade barriers and the level of political stability as well as the availability of infrastructure (Kew, & Stredwick, 2017; Reffold, 2012).

STEEPLE Analysis

STEEPLE analysis focuses on the socio-cultural, technological, economic, environmental, political, and ethical factors that describe the business environment. While focusing on the UK fashion industry, the following details explore the situation in the market.

Socio-Cultural factors

The section focuses on the social forces that impact people's opinions, interests and attitudes that influence the purchase and consumption behaviour (Belniak, 2015; Thornton et al., 2011). The United Kingdom is the fourth populous country in the European Union, preceded by Russia, German, and France (Europe Population., 2017). The population stood at 63.7 million people in 2013 and still showed good performance in terms of the standards of living, healthcare, and education (Office of National Statistics, ONS, 2017). As reported by Espinoza (2015), this has attracted extreme rates of immigration with major cities carrying a population that speaks 300 languages. Despite being a multicultural society, people in the UK have a strong national pride bearing a history of consumer preferences. People show confidence in domestic products as witnessed in the fashion industry where the English style is highly upheld (Bailey, 2018; Statista, 2014). River Island can take advantage of this trend and this explains the reason as to why the company managed to open more shops in the past.

Technological factors

The United Kingdom is regarded as one of the highly industrialized countries in the world with the history shaped around the industrial revolution (Bolton, 2016; Duarte et al., 2017). This implies that the textile industry stands as the oldest industry in the economy. However, the notable milestone can be attributed to the communicational infrastructure with a significant percentage of the population owning a cell phone, as well as accessing Radio and Television (Schwab, 2017; Bolton, 2016). With over 70% internet access by most of the households as of 2009, it is evident that the retail sector can conduct most of the marketing activities through social media platforms, social networking sites, company websites, and blogs (ONS, 2017; Gough, 2017). Rivers Island Limited stands a chance of expanding the sales channels enabled through internet access. This can enable the company to withstand the competitive forces both from with and without the country.

Economic factors

The economic structure of United Kingdom is essentially based on capitalism, which came after Anglo-Saxon model, characterized by low taxation, regulation, and market liberalization (Hyman, 2008; Martin et al., 2014). The growth of the economy can be credited to the eurozone, which was later hammered by the credit crisis as well as global economic slowdown that started hitting the country in the mid-2007 before ending in a recession in 2008 (Checherita & Rother, 2012; Nölke, 2016). This had a detrimental impact on the growth of the fashion industry with consumers focusing on cheaper and smaller products. With time, the trend kept changing with most of the British consumers spending more on fashion and clothing (Underhill, 2016). According to Anagboso & McLaren (2009) and Crossley et al. (2018), the expenditure could be approximated at 5% of the total disposable income in 2008. Since the recession, the government has been working on several initiatives that would stabilize the market (Jimenez, 2013). Such initiatives include the stimulation package comprised of a job plan and two business packages (ibid). This has led to significant changes in the perception of consumers within fashion consumption hitting the climax during the holidays, which is a positive outcome for the retail sector and players like Rivers Island Limited.

Environmental factors

In 2008, the UK government introduced the green initiative meant to boost environmental awareness (Doppelt, 2017; Norum, 2013). This has led to increased demands for sustainable brands. Some of the players like Topshop worked on a collection made from the discarded or dumped textiles. With attention channelled towards "The Sustainable Clothing Action" in place, most of the players in the industry are more focused on production offcuts (Goworek et al., 2013; Saicheua et al., 2012). Rivers Island Limited should pay more attention to producing, selling, and disposing of waste without causing any harm to the environment.

Political Factors

The long history of political stability has seen the country grow into an economic hub in entire Europe (Heclo, 2010; Lux et al., 2011). This is followed by a historical monarchy system that is never or rarely influenced by political dynamics. Such stability is quite promising as far as the growth of the fashion industry is put into consideration (Lavery, 2017; Heclo, 2010). Although recent Brexit might have magnified business risk associated to political dynamics, UK is ranked as one country with the lowest risk, which is a factor that facilitates the most desirable and stable environment for businesses such as Rivers Island Limited (Cumming, & Zahra, 2016; Dhingra et al., 2016). This is also accompanied by the fact that the UK imposes low state income taxes compared to other countries like Sweden (Carter, 2014; Collinson, 2017). However, as asserted by (Cumming, & Zahra, 2016; Dhingra et al., 2016), the recent Brexit seems to have slightly changed the political landscape with other European countries showing the tendency of developing different perceptions regarding the UK.

Legal Factors

The United Kingdom has a legal requirement that calls for labelling the textiles. The label provides the description regarding the fibre content. According to Koszewska (2011) and Hartlieb & Jones (2009), this is likely to restrict the growth of the black market. The UK also treats free competition as the most principal and fundamental rule. Originally, goods from the European Union could circulate freely. However, with the Brexit incident in place, such freedom is partly restricted, which makes it hard for retailers to cruise across the European market (Cumming, & Zahra, 2016).

Ethical factors

This part describes the duties, integrity, behaviour, and morality. UK is one country whose values are strongly channelled towards the Corporate Social Responsibility (CSR) (De Klerk, et al., 2015; Kinderman, 2011). In the scope of CSR, Moodle (2015) and Grayson & Hodges (2017), UK largely fosters human rights, work-life balance, employment, community contribution, as well as environment. This means that all stakeholders have a key role in contributing towards CSR as a pillar to societal growth. On the other hand, the business dress code is highly observed in the UK with business persons expected to put on the classical conservative attire as part of the British culture (Fox, 2014). For any business to survive, ethical values should be given a priority because they provide the most preliminary interactive platform.

Porter’s five forces

The Porter's five forces comprise of three forces form the horizontal competition and these include the threat of established rivals, the threat of substitute products and the threat of new entrants (Dobbs, 2014). The remaining two comprise of the vertical competition including the bargaining power of both the suppliers and customers. In relation to the company (Ibid), Porter's five forces look into the attractiveness of River Island in relation to the market demand in the following areas.

The threat of substitute products or services

Because of River Island being an apparel website, the threat realized from customers having substitute products or services is likely. This is because most of the competitors in the market like Topshop have a lot of similar styles and products. However, River Island owns a brand, which means that customers may not enjoy the same quality from any other fashion outlet. The idea of other clothing shops having a similar line equally does not help in terms of the threat of substitutes (McCann, 2011).

The threat of entry of new competitors

This is also referred to as barriers to entry. Given the fact that clothing is always popular, this posits a high risk to River Island as new competitors easily find their way in the market. For River Island to compete with new entries, the company should constantly add new products for meeting new expectations of their clients. If the threat escalates, River Island is likely to reap low profits from the market.

The intensity of the competitive rivalry

The intensity of rivalry in the UK market is relatively high because clothing is more popular and can easily be started by any willing investor. This means that River Island is likely to experience rivalry and if the case becomes fiercer, competitors will manipulate every loophole in their favour. Most of the competitors will aggressively target markets serviced by River Island through such strategies like pricing (Campaniaris, et al., 2011; Bhardwaj, and Fairhurst, 2010). Therefore, international expansion becomes an option for the company.

The bargaining power of buyers

The bargaining power of buyers in the UK market is high, which means that River Island is forced to facilitate high-quality goods and better customer service at relatively lower prices. Given the factor that River Island is a popular store, customers would constantly compel the company to lower the prices (Goworek et al., 2012).

The bargaining power of suppliers

Due to multiple suppliers in the fashion industry, their bargaining power is relatively low, which means that River Island stands a better chance of commanding on issues such as prices, quality of the fabric and prices on the supplies. This means that supplies should be of the best standards in the market, which would not have been the case when suppliers in the market were few (Bruce, and Daly, 2011).

Q2: The possibility of expansion of River Island into the Australian market

The choice of Australia as the entry market is best on the fact that River Island has never established any stores in the country, and this would be the treasures opportunity for the company. The rationale for picking on this country for international expansion is as noted in the following analysis:

Country of Choice: Australia

The STEEPLE Analysis

Socio-Cultural factors

Australia becomes one of the best countries to live in as a result of health, education, wealth and even the quality of life. It is currently one of the multiracial and multicultural countries across the world due to immigration that was witnessed in the earlier years (Ellis 2018). This means that it is currently more diverse with no official religion dominating the country. Roman Catholics and Anglicans share 26% each while other Christians constitute 24.3%. Australians are more educated today with the population adopting the British Australian Tradition and British systems. This means that River Island can ride on the British background in relaying the fashion taste in the market (Pandey 2017).

Technological factors

Australia has one of the fast expanding technological platforms across the world. Notably, from 2010 to 2011, the Gross expenditure on research and development was estimated at $30 billion. With several grants as well as funding programs in place, most of the Australian businesses are likely to develop as well as commercialize the IP (Barahona 2015). The permanent internet access is the profound promise to River Island that investment in e-commerce in line with fashion is likely to bear more fruits in the near future. In 2007, the country realized over 4.33 million broadband subscribers, which is a good indicator for internet or online marketing.

Economic factors

Most of the economic factors would affect businesses in terms of consumer confidence, employment, inflation, and even the interest rates. In the case of Australia, the country is among the largest capitalist economies across the world. It is largely dominated by the service sector. The choice of Australia as the next market for River Island is based on a number of factors (Pandey 2017). Australia presents the easiness of doing business with an index ranking it in the 10th position. Secondly, the country is experiencing continued economic growth with low unemployment. In addition, the country has a stable financial system as well as an open market that has minimal restrictions. This means that River Island can easily cruise through the fashion market even before hitting the right target without encountering economic ripples (Vorobyova 2017).

Environmental factors

The government and other stakeholders are more concerned with the Australian environment following water shortages and interests in renewable energy. This means that the government is ready enough to invite key players that would have expressed interests in addressing water shortages (Vorobyova 2017). Another area of concern is the climatic change where Australia is embracing policies that would curb global warming. This means that even the fashion retails should observe emission rates and even waste management. Such practices are not different from the ones experienced in the United Kingdom, which would be easier for River Island to cope up (Sun et al. 2014).

Political factors

Political factors manifest in terms of trade agreements and tax policies among other related factors. Australia enjoys a liberal-capitalistic democracy (Lewis et al. 2008). This means that parliament has a key role in protecting the national economy as well as the environmental protection laws. With favourable political conditions in place, Australian businesses enjoy competitive business costs, reliable financial capital, favourable tax system as well as the excellent infrastructure and communications, which can work in favour of River Island.

Legal factors

The Australian regulatory obligations are important in defining fair competition, integrity, and sufficient protection. The Australian business law is more flexible and simple procedures need to be observed when opening a new business (Choi et al. 2011). As one of the members of the world trade organization means that the country cannot raise the tariff beyond the agreeable limit.

Ethics

Business ethics in Australia, slightly different from the ones in the United Kingdom, fosters respect for individuality as well as privacy. The ethical structure also embraces integrity, honest communication, as well as negotiations while shaping business behaviour (Rizea 2015). Same to the United Kingdom, Australia pays attention to equality and corporate structure, which can also be convenient for River Island.

Porter’s five forces

Bargaining power of suppliers

Suppliers in the Australian fashion industry have low bargaining powers. This is the same trend witnessed in the UK where River Island commands the best standards, market share, pricing and quality of the supplies (Aage and Belussi 2008). In Australia, the trend is encouraged by many suppliers and few retail outlets that need to be convinced before considering the design and fabric.

Bargaining power of buyers

Australia has a large number of customers but still pays attention to the quality of the fashion available in the market. Because of few players in the industry, buyers only enjoy average bargaining powers (Deng et al. 2009). Dominant players like Premier Pty Ltd enjoy significant market shares across the country. However, the entry of River Island in the Australian market will change the dynamics that will enhance buyers’ position in the fashion industry.

Threat of substitutes

The threat of substitutes is relatively high because of the Chinese vendors and other fashion companies that provide trendy as well as fashionable clothes. Given that, River Island has also been encountering similar threats in the UK market; the company understands the challenges and strategies to contain them.

The threat of new entrants

Australia, as part of the world trade organization, sets simple regulations and restrictions that attract firms in the market. New fashion retailers enter the market with innovations, new value propositions and even strategies that challenge the position of the incumbents (Deng et al. 2009). As such, River Island needs to a similar approach for it to secure a significant market share.

Rivalry

Rivalry among the prevailing players is intense and firms are forced to either work on their prices or quality. This is fuelled by the open economy that sets no or easier and simpler restrictions for the new entrants in the market (Aliouche, and Schlentrich, 2011). This means that River Island should work on sustainable differentiation, scale and collaborate with the competitors for the purposes of increasing the market size.

The optimal rate of International expansion

The most recommendable optimal rate of international expansion for River Island Limited is small scale. Regardless of the company's financial standoff, small-scale expansion is more profitable and advantageous in different ways. The small-scale expansion means lesser risks for the company in case of an unlikely or unpredictable event (Aliouche and Schlentrich 2011). This means that the company would incur fewer losses compared to when it adopts the large-scale expansion. Secondly, small-scale expansion enables the company to learn more about the market trends, dynamics, and the business environment in totality (Hill 2008). This means that the business will be provided with an opportunity of exploring the market compared to the large-scale expansion where it would be forced to focus more on the business. However, small-scale expansion limits the attention of the company on the performance of the business.

Suitable Entry strategy and entry mode

River Island already has a global presence given that it has other fashion outlets in a number of countries. This means that the company already has the financial capability and resources that enable it to explore other markets. However, the recommendable small-scale expansion of the company operates in Australian market works conveniently with the joint venture, which serves as the entry mode and partnership as the entry strategy (Meyer et al. 2009). A Joint venture is simply a cooperation of two independent companies that can start a new business. The company chooses a partner that already exists in the market, especially local firms that have the local knowledge, which sets a platform of understanding the competitive forces, political systems, culture, and even language (Killing 2013). With partnerships in place, River Island is likely to enjoy the smooth entry as the company learns the dynamics in the Australian market from the business partner. Joint ventures, served with the partnership as the strategy, are advantageous in terms of reducing the investment costs based on cost sharing.

Conclusion

International expansion is one of the most interesting areas. The discussion took a vast look at the performance of River Island Limited and its ability to expand its operations globally. First, the discussion focused on the STEEPLE analysis of the UK business environment and Porter's five forces that describe the attractiveness of River Island Limited. Secondly, the discussion focused on the position of the company to expand on the Australian market. It could be noted that River Island can conveniently make use of joint ventures, as an entry mode, in making its way in the Australian market.

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