Myer Stores’ Entry into the Saudi Arabian Market

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Executive summary

Myer has operated successfully in the Australian market for years. The company sells clothing, footwear, electrical materials, and other products that have attracted a huge number of customers in Australia. Nevertheless, Myer should think about several of its flaws such as unsteadiness of the top executive post (CEO). The CEO post at Myer has been regularly changing and thus somehow contributed unconstructively to the yield and prosperity inclinations of Myer stores. Myer is expanding into the Saudi Arabian market that boasts of a sturdy and developing economy with a huge number of inhabitants. Myer can make use of this chance to penetrate the Saudi Arabian market assertively and control a big share of the new market. On the other hand, Myer will encounter competition from numerous competitors in the Saudi Arabian market like City Max, Debenhams, and Centerpoint. The three competitors are represented as the major ones for Myer since they have conquered a large extent of the Saudi Arabian market through the selling of first-class fashion outfits. Myer must think about the strong points of its competitors and employ its key capabilities like hiring expert designers of outfits. Myer can take up three possible modes of entry modes to venture into the Saudi Arabian market. The three possible modes of entry include Acquisition, Joint Venture, and Franchising. Nonetheless, amid the three, the most suitable for Myer is franchising as it represents the highest growing type of entry for Myer to increase its operations globally. In addition, this mode of entry has the least extent of costs, threats, and liabilities. Myer should augment its spending in study and development to attain an enhanced comprehension of the requirements of the Saudi Arabian market.

Introduction

Myer is an Australian series of department stores operating all through Australia. Myer was begun by an immigrant from Russia, Sidney Myer, in the year1899 with extremely little funds and a slight understanding of the English language. Together with his brother Elcon Myer, they established the initial Myer store in Victoria in the year 1900. Currently, Myer is the biggest series of department stores in Australia. Myer retails a wide variety of products encompassing women, men, and children’s clothes, shoes, and other appurtenances. Myer as well as retails cosmetics and perfumes, furniture, stationery, electrical, bedclothes, foodstuff, and travelling stuffs (Butler 2007). At present, Myer carries out its business only in Australia. This paper will weigh up various likelihoods for Myer to venture into the Saudi Arabian Market. The management of Myer has to undertake an OLI (Ownership, Location, and Internalisation) study. The OLI study will be used in assisting Myer stores to establish an excellent entry mode in Saudi Arabia.

Ownership

Following the dying of Sidney Myer in the year 1934, “the headship of Myer was left under the hands of Elcon Myer, and with the dying of Elcon Myer in the year 1938, the headship of the company changed hands to their nephew whose name was Norman Myer” (Barber 2008, p.86). Norman Myer took headship of the Myer Company up to his passing away in the year 1956 (Greenblat 2009). The Myer Company expanded with the advancement of its stores (turning out to be among the key property possessors and growers in Australia) and gaining more department stores, comprising Barry and Roberts, and Western stores in the year 1961, Grace Brothers in the year 1983, and Boans in Western Australia in the year 1984.

In the year 1968, Myer Company gained Lindsay’s stores and changed the name of the business objective subsequent to the procurement of logo and name from Target Company in the United States, and placed it as a deduction department store series. Grace Bros. Company acquired Myer stores located at the New South Wales in the year 1983, and later in the same year, Myer bought Grace Bros. Company. The following year Myer gained hold of Boans Company and undertook extensive efforts to renovate its stores (Greenblat 2009). In the year 1985, Myer joined hands with GJ Coles and Coy Company forming Coles Myer. After going through reduced revenues and transactions, the then Chief Executive Officer of Coles Myer in the year 2000, Dennis Eck, decided to decrease levels of service and augment quantities of stock before bringing in merchandise pleasant to teenage clients. This resulted in decreased clients and lesser units for every transaction. In the year 2001, Coles Myer started relocating its stores to please the lost clients and win them back. In the year 2003, Myer got Dawn Robertson as its new Managing Director.

In the year 2004, Myer Company reopened the New South Wales stores that substituted the stores closed in the year 2002 (Greenblat 2009). The new stores came with new lineaments like polished tiles on the floors, intensive application of glass, and classic models. Under the headship of Robertson, Myer Company started aiming more powerfully at the Sydney market with the intention of challenging David Jones, its greatest competitor, especially in women fashion. In the year 2004, Myer Company opened its fashion display in Sydney a day before David Jones did the same. Later in the course of the year 2004, Myer Company undertook yet another fashion display in Martin Place. The second fashion display achieved widespread attention and coincidentally, it was as well held a day prior to David Jones holding theirs (David Jones 2012).

Divestment

In the year 2006, Coles Myer publicised that it would vend Myer to an organisation managed by a private equity organisation of the United States called Newbridge Capital. Newbridge Capital is a section of Texas Pacific Group. The syndicate also involved the Myer family. The Myer family seized a five per cent stake. The fresh possessors specified that they could not drastically transform the company in the short-run (Greenblat 2009).

New owners

Prior to the divestment, Bill Wavish and Bernie Brookes became the Chairman and CEO respectively. In the year 2006, Myer made a massive clearance sale to clear superfluous stock considered as either not liked or unsuccessful in the market. The clearance sale resulted to decreased records from $1.5 billion down to around $750 million. In this regard, every store-explicit warehouse was shut. In 2007, “Jennifer Hawkins, once Miss Universe, agreed a $4 million contract to be the “look” of Myer Company for a period of four years” (Barber 2008, p.88). Earlier in 2007, Myer declared first half income of $123 million before tax, a rise of eighty-four per cent from the preceding year representing a return margin of seven per cent in relation to four per cent in the preceding matching period. In the year 2009, Myer pointed out that it would float the company at an investigative share value of between $3.90 and $4.90, offering it a market capitalisation ranging from $2.3 billion to $2.8 billion. The ultimate issue worth was $4.10, although by the close of year 2011, the stock had fallen to as little as $2.09 (Central Department of Statistics and Information 2012). The financial report of the year 2011 linked the cause of the decrease to price deflation brought about by the Australian dollar.

Resources

Myer boasts excellent tangible and intangible resources. In addition, the store locations of the company are outstanding and it has an admirable availability of its raw materials via home manufacturing as well as use of technology to collect varied information regarding intended clients (Greenblat 2009). Some of its resources include:

Clothing: – Typically highly featured in every store and often the leading department. Myer has a vast number of dispensation stores that vend clothes for women, men, and children.
Perfumes and cosmetics: – This takes the highest disbursement on workforce as the majority of counters need their own workers and they are typically positioned close to the main store doorway.
Fashion appurtenances: – This entails handbags for women, watches, scarves, jewellery, and sunglasses just to mention a few.
Electrical: – This comprises of two departments namely Home Amusement and Small Applications. The Home Amusement section comprises of computers, televisions, cameras, and many other audiovisual paraphernalia. The section of Small Applications contains kitchen domestic devices, washing appliances, and other domestic electrical merchandise.
Home wares– These include cookware, tabletop (for instance, cutlery), and as well the Gift Registry.

Some of the intangible resources of Myer include the following.

The reputation of Myer Company is outstanding and this aspect has brought about increase in its sales in addition to cementing a sturdy situation in the department store sector in comparison with that of its competitors.

The human resources of Myer Company are well guided and knowledgeable even if a number of the company Chief Executive Officers have not handled certain business situations well.

Client services coupled with the promotion of a well-built client rapport are excellent in Myer Company thus giving rise to the loyalty of customers.

The products of Myer are exceptional particularly for Australians of high income (Greenblat 2009).

Core competences

The core competencies of Myer Company have given rise to its victory in its line of business. Myer Company has numerous products that position it in a sturdy and triumphant rank in the department store business. The excellent products of Myer draw an extensive scope of clients in Australia (Greenblat 2009). Expert clothing designers like Witchery have special deals with Myer to help in designing fashion wear and clothing thus improving and maintaining the outstanding brand of Myer Company.

Location

Saudi Arabia is largely identified as an appealing investment location. Nevertheless, Myer Company will have to take into account the push of business and functioning risks. Overall, Saudi Arabia boasts of a well-built and rising economy. Saudi Arabia is the leading Arab country with regard to territory region of the Middle East. In accordance with the Saudi Central Department of Statistics and Information (SCDSI) (2012), the population of Saudi Arabia is approximately 28 million with a majority of youths who make thirty-eight per cent of the inhabitants and are below fourteen years of age. The presence of this majority population offers Myer an opportunity of successfully investing in teens’ clothing. The three key cities in Saudi Arabia are Riyadh (the capital city), Dammam, and Jeddah. The population of Riyadh is roughly 6 million people, while both Jeddah and Dammam have 3 million inhabitants each. The high population in the three key cities permits Myer the chance to develop their trade in the region (Central Department of Statistics and Information 2012).

Saudi Arabia boasts eighteen per cent of the confirmed petroleum reserves internationally. It takes the position of one of the chief exporters of petroleum in the world. Oil riches have improved the living standards of most inhabitants of Saudi Arabia. The wealth of consumers is therefore beneficial as it equates the excellent value of products offered by Myer. As a way of the Saudi government’s endeavour to draw foreign investment and broaden the economy, it complied with the World Trade Organisation (WTO) in 2005 after several years of discussions. This element as well offers an exceptional opportunity for Myer because all the trade affairs for venturing into the Saudi Arabian market are controlled in accordance with the WTO regulations.

In accordance with the Ministry of Economy and Planning, actual GDP in the year 2010 attained a height of 871.6 billion in terms of Saudi Arabian Riyals (SR). This figure is a representation of 4.1 per cent growth from the year 2009. The high rank of GDP and its high altitude of growth show the affluence and steadiness of the Saudi Arabian economy (Central Department of Statistics and Information 2012). Furthermore, the money worth of imports of Saudi Arabia has improved significantly, the value reached the highs of 338 billion Riyals in the year 2007 in relation to 261 billion Riyals (SR) in the year 2006.

Customers

In Saudi Arabia, customers have a tendency of having high attention in the clothing sector since the Saudi community is a brand attentive community. The people of Saudi Arabia find shopping irresistible and expend a large quantity of their money on purchasing clothes. Big shopping centres are widely spread all through the country. In particular, when the temperature levels get to highs of 50 degrees Celsius in summer, individuals have a tendency of spending their leisure time at the air-conditioned shops thus offering business opportunity for companies like Myer a chance to boost their sales. The standard monthly spending of a Saudi family unit on attire, fabric, and footwear is approximately SR 910 (Kohler 2003). The monthly expenditure as well represents SR 925 for women and SR 518 for men. The aforementioned high degree of monthly spending per person in Saudi Arabia on attire, fabric, and footwear products in addition to the high number of inhabitants endows Myer Company with the chance to function productively in Saudi Arabia.

Political Stability

The eruption of the Arab Spring, which began earlier in the year 2011, distressed the political stability of Arab region. Nevertheless, Saudi Arabia just faced some slight occurrences of protests in comparison to other Arab nations like Yemen, Egypt, Syria, and Tunisia where the political state is yet to stabilise. As a result, Saudi Arabia has a steady political setting that is essential for the success of any company (Dekmejian 2003).

Government policy

The government of Saudi Arabia does not enforce tax on the transaction of merchandise and services. The people of Saudi Arabia as well take pleasure in tax-free salaries. In addition, most merchandise imported to Saudi Arabia has an imposed tariff of five per cent. The previously mentioned low rate of tariff in addition to the tax-free incomes is perfect for any company to run its businesses in Saudi Arabia (Dekmejian 2003).

Wage rate

The government of Saudi Arabia has not imposed the least amount of wage rate on workers (Dekmejian 2003). Nonetheless, in recent times the government has set the least amount of wage for individuals employed in the government sector at a monthly pay of SR 3000.

Exchange rate

The present exchange rate for the Saudi Arabian Riyal (SR) for Australian Dollar (AUD) is 3.70 SR for every AUD (Central Department of Statistics and Information 2012). The strong Australian currency can be an opportunity for the extension endeavour of Myer stores as it applies to exports and not Foreign Direct Investment (FDI).

Assessment of Competitors

The Saudi Arabian department store business has incorporated numerous department store dealers. Nevertheless, the majority of leading department store vendors in the Saudi Arabian market comprise of Debenhams, City Max, and Centerpoint. The aforementioned department store retailers in Saudi Arabia will challenge Myer stores since they have begun numerous competitive fashion outfits with still a commanding situation in the Saudi Arabian retailer sector.

Debenhams

Debenhams department store boasts of a great reputation in Saudi Arabia. Debenhams possesses lesser stores in Saudi Arabia as compared to City Max and Centerpoint. Nevertheless, Debenhams has the perception of customers as being a first rank department store over City Max and Centerpoint (Debenhams 2012).

City Max

Among its rivals, City Max is the most recent department store. The history of City Max began in the year 2004 when it started its initial department store (City Max 2012). Over the years, City Max has thrived fast and currently owns more than sixty stores across Saudi Arabia.

Centerpoint

In Saudi Arabia, Centerpoint is indubitably among the leading department stores. The company started its foremost department store in the year 1995 at a place called Dammam. At present, Centerpoint owns more than 43 outlets across Saudi Arabia (Centerpoint 2012). The company draws above eight million clients throughout its diverse branches in various cities across Saudi Arabia.

Threats

The competitors of Myer stores have launched a precious brand name in the Saudi Arabian market and extended their businesses to numerous cities. Myer will face a challenge of creating its brand name on its entry in the Saudi market (Mahan 2004). Consequently, selecting the suitable mode of entry is a critical aspect for Myer stores in a bid to institute its brand name.

Opportunities

Firstly, the wealthy and constant Saudi economy is a terrific opportunity for Myer stores as customers are ready and capable of paying for first-class products (Mahan 2004). The high population acts as an additional opportunity for Myer stores to boost its sales.

Modes of Entry

Myer Company can choose from Joint venture, acquisition, or franchising amid many other different modes of entry. Every one of the modes of entry has its merits and demerits. Myer stores have to gauge all the applicable modes of entry to decide the finest mode.

Joint Venture

This signifies a form of FDI. Joint venture arises when companies resolve to operate jointly and generate an equally possessed separate company to encourage their shared concerns (Fisher, Hughes, Griffin, & Pustay 2006). The merits of this mode of entry comprise the effortlessness of a company to venture into a market while the colleague in the joint venture assists in the needed managerial efforts to start the company. An additional merit is the partaking of risks and accountabilities by partners.

Conversely, a joint venture has a number of disadvantages. First, the foreign business gets less command on the new company and consequently a smaller amount profit. Additionally, every company undertakes a dissimilar business policy giving likelihoods of conflict involving the local and alien businesses in the joint attempt.

Therefore, joint venture is not the most applicable entry mode for Myer. Joint venture will automatically mean that Myer has less command of the company as the other party gets direct control. Since Myer wants to create its brand name in the new market, with less command on the company, Myer might not manage to realise its objective of creating its brand name in the market.

Acquisition

Acquisition is a different type of FDI, which is a more intricate approach than joint venture (Fisher, Hughes, Griffin, & Pustay 2006). This mode of entry has the merit of gaining command in the brand names, workers, factories, expertise, and circulation systems of the acquired company. However, acquisition has disadvantages that include the accountability of the acquiring firm for every responsibility of the obtained business like unpaid salaries, unsupported pension responsibilities, and every other kind of liability (Fisher, Hughes, Griffin, & Pustay 2006).

Acquisition is as well not the most feasible mode of entry for Myer since it necessitates a huge sum of capital and knowledge that are not accessible to Myer. In addition, acquisition is more unsafe as Myer will be answerable for every liability of the started company like unpaid salaries (different from the Greenfield FDI policy where the acquiring company does not handle existing liabilities).

Franchising

This model is a type of licensing mode of entry. Global franchising signifies one of the swiftest rising types of global trade action in contemporary times (Fisher, Hughes, Griffin, & Pustay 2006). The concurrence in the franchising mode of entry permits the functioning of units (known as franchisees) in trade using brand name of a different unit (known as franchisor) after paying certain needed charges. The franchisor gives the franchisee brand name, functioning structure, and a brilliant brand status (Fisher, Hughes, Griffin, & Pustay 2006).

Taking franchising as the mode of entry for Myer carries several benefits. First, the business will enlarge its functions swiftly in the Saudi Arabian market with comparatively little extent of threats, charges, and accountabilities as compared to the joint venture and acquisition entry modes. Another benefit is that Myer would acquire a great command via employing the specified model. Accordingly, Myer can acquire greater command of the acquired business as compared to the aforementioned modes of entry.

The disadvantages associated with franchising include its lower net profit than the other modes of entry. Secondly, Myer should have the necessary resources to run the franchisees. Myer should thus wait up to when it get a suitable franchisee for maximum benefit from this mode of entry.

Conclusion

Myer is an Australian series of department stores operating successfully all through Australia, but it plans to extend its operations to Saudi Arabia. The Saudi Arabian market boasts of a sturdy and rising economy having a huge number of inhabitants. In this market, Myer has to encounter competition in Saudi Arabian market like City Max, Centerpoint, and Debenhams. The three competitors are represented as the major ones for Myer since they have conquered a large extent of the Saudi Arabian market through selling of first-class fashion outfits. Joint venture, acquisition, and franchising are the three feasible entry modes, which Myer could employ in entering in the new Saudi Arabian market. Nevertheless, amid the aforementioned modes of entry, the finest is franchising as it signifies the highest rising form of entry mode that could help Myer to enlarge its business worldwide. In addition, franchising has the least extent of threats, charges, and accountabilities as compared to the joint venture and acquisition modes of entry (Fisher, Hughes, Griffin, & Pustay 2006). In recommendation, Myer should augment its spending in study and development to attain an enhanced comprehension of the requirements of Saudi Arabian market.

Recommendations

After creating a trade name in Saudi Arabian market via franchising, Myer ought to benefit by changing its function mode to a different entry mode like acquisition because Myer will have acquired the necessary experience in Saudi Arabian market for the acquisition method.
Myer should boost expenses in studies and development in bid to achieve an enhanced comprehension of the needs of Saudi Arabian market. Understanding this market is a necessary step for victorious function.
In addition, Myer ought to modify its brands to please its Saudi Arabian clients anchored in the study and development outcomes, which the company has earlier carried out.

Reference List

Barber, S 2008, Your Store Myer: The Story of Australia’s Leading Department Store, Focus, New South Wales.

Butler, B 2007, ‘Family ties bind at Myer’, Herald Sun, p.71.

Centerpoint. 2012. Web.

Central Department of Statistics and Information. 2012. Web.

City Max. 2012. Web.

David Jones. 2012. Web.

Debenhams. 2012. Web.

Dekmejian R 2003, ‘The Liberal Impulse in Saudi Arabia,’ Middle East Journal, vol. 57 no. 3, pp. 400-414.

Fisher, G, Hughes, R, Griffin, R & Pustay, M 2006, International business: Managing in the Asia Pacific, 3rd ed, Pearson Education Australia, New South Wales.

Greenblat, E 2009, ‘Prospectus out: Myer prices shares’, Sydney Morning Herald, p. 49.

Kohler, A 2003, ‘General Electric gets the sparks flying’, The Age, p.62.

Mahan A 2004, ‘Accessing [sic] the Present and Future Threat in Saudi Arabia: An Interview with Saad al-Faqih,’ Terrorism Monitor, vol. 2 no. 9, pp. 27-45.

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