The Uppsaala Model and Marks & Spencer

Leeds University Business School


The Uppsala Modeland Marks & Spencer

Davide D’Aleo 200904489, Yuvraj Rattan Nangpal 200900397, Mayank Beria 200894390, Yalan Ao 200838738, Haibin Jiang 200828505

Group 35 Group ID: I3


Uppsala Model - Assumptions

• The model’s assumption are:– That lack of knowledge in relation to foreign markets

and operations is a major hurdle for firms wanting to internationalise.

– That the this form of knowledge is primarily gained from certain operations abroad.

• Since International operations can be risky it is believed that the move towards internationalisation should be done so gradually to mitigate the risk.– Thus, the model dictates a “series of incremental

decisions”.• N.B. This model is based on empirical findings of

Swedish Firms.

Source: J. Johanson and J. Vahlne, “The Internationalization Process of the Firm – A model of Knowledge Development and Increasing Foreign Market Commitments”, Journal of International Business Studies, Vol. 8, No.1 (spring-summer, 1977), pp 23-32.


Uppsala Model – Psychic distance

• The different stages of the model are related closely to a concept referred to as “psychic distance”.– “Psychic distance” is defined by Johanson and

Vahlne (1977, p 24) as “the sum of factors preventing the flow of information from and to the market.”• E.g. Language, education, culture, business

practices• “Psychic distance” relates to asymmetry of

information between firm and foreign market

Source: J. Johanson and J. Vahlne, “The Internationalization Process of the Firm – A model of Knowledge Development and Increasing Foreign Market Commitments”, Journal of International Business Studies, Vol. 8, No.1 (spring-summer, 1977), pp 23-32.


Uppsala Model - Stages

• There are four main stages (Johanson and Wiedersheim-Paul, 1975):– No regular export activities;– Export via independent representatives (agent);– Sales Subsidiary;– Production/manufacturing.

Source: J. Johanson and F. Wiedersheim-Paul, “The internationalization of the Firm – Four Swedish Cases”, Journal of Management Studies, Vol 12. Issue 3, (October, 1975) pp 305-323; see also: (Johanson and Vahlne, 1977).


Uppsala Model - Revaluation

• Johanson and Vahlne address these issues and expanding on the model (re-modernising it).– They acknowledge the importance of business

networks. • Within networks there are two aspects:

– Insidership• Entry into market via networks and

relationships with other firms– Outsidership

• Lack of trust; liability of foreignness; barriers to entry

Source: J. Johanson and J. Vahlne, “The Uppsala Internationalization Process Model Revisited: From Liability of Foreignness to Liability of Outsidership”, Journal of International Business Studies 40 (2009) pp 1411 -1431.


Uppsala Model – Revaluation

• In modern times, knowledge doesn’t flow into the firm just by its activities but also via it relationships with other countries and this provides an advantage in terms of tacit knowledge.

• Lack of market knowledge in a foreign country can be overcome by a trustful relationship with other foreign firms. (Arenius, 2005; mentioned in Johanson and Vahlne, 2009)

• ‘Psychic distance’ is not as relevant now as it was in 1970s

Source: (Johanson and Vahlne, 2009); P. Arneius, “The Psychic Distance Postulate Revised: From Market Selection to Speed of Market Penetration”, Journal of International Entreprenurship 3(2) (2005), pp 115-131.



Marks & Spencer


Introduction

• About a century ago, M&S started its business from a single store to become an international chain retailer.

• Operate in 54 countries• Employ about 86000 people• UK business is split between food and

merchandise. • 798 stores in UK• 455 international stores• 10.3 billion pound sterling global revenue


Timeline

• Founded in 1884.• It was a penny bazaar stall in Leeds Kirkgate

market. • Opened 20 shops soon in partnership with Tom

Spencer• 1926 – became a public limited company• 1931 – it started with food department• 1934 – first retailer to open their own scientific

research laboratory to develop and test new fabrics.

• 1986 – introduced furniture• Also went international having a flagship store in

Hong Kong.


• 1986 – acquired Brooks Brothers• In the 21st century, they catered customers with

branded clothing range like Blue Harbour, Autograph, Per Una

• 2007- it launched Plan A. (5 year ethical campaign)


Why Asian Market ?

• China and India contain a large part of the population.

• There is a rise in the middle class in both the countries.

• People are seeking to adapt to the western heritage and taste.

• Also, these two are a fastest growing economies in the world.


(Economist Intelligence Unit ,2013, cited in blog.royaleinternational.com )



INDIA


Why it went to Indian Sub-continent ?

• Population size of over 1 billion therefore long term potential.

• India’s retail industry is around 200 pound sterling.• Indian middle class is growing especially in urban

areas• One of the fastest growing economies. • Asia Pacific’s retail growth volume would be around

5 % in 2016.• India is 4th in Asia in terms of growth in retail sector. • Consumers transforming to international taste in

retail area.


How they started ?

• Came into franchising agreement with Planet retail in 2001.

• 2007 : exited the franchisee agreement and came into a joint venture with Reliance Retail.

• Proper stores for Lingerie and Beauty products in Mumbai

• Initially had 14 stores with franchising and with JV they went upto 40 stores.

• Opened stores in tier 2 cities like Kanpur, Kochi and Surat.

• 64% products are locally sourced.


Reasons for Failure in India

• Not too many stores when it franchised• Over priced clothes (due to import duty)• Promotion of the brand was a failure• Tend to have problem with the size of the clothes• Import duty was high• Aggressive expansion of other retailers


Future in India

• Having 100 stores in India by 2016• Plans to increase the local souring to 70%• Plans to invest 750 pound sterling million



First M&S Store in China 玛莎

• 2008• Shanghai• West Nanjing Road• Flagship Store in Asia (was)

Source: Marks & Spencer annual report 2008


M&S in China (2014) 玛莎

• 16 stores in 8 cities • 7 stores in Shanghai• Online retail on Taobao.com and JD.com



Reasons to Enter China 玛莎

• Opportunity for future growth• Rapid GDP Growth• An increasing middle class



Strategies in China 玛莎

Source: Marks & Spencer annual report 2008,2014

• Wholly-owned subsidiaries• Local Partner (planning)


Performance in China 玛莎

• Marks & Spencer admits mistakes in Shanghai.

Source: Financial Times

—— Sir Stuart RoseChairman of Marks & Spencer (2004-2010)

“We need to get the A to Z of sizing right and we need better market research,”

“We had a screw-up,”



• Sales in China were 30% lower than internal target. (2013)

Source: The Telegraph



• Possible failure in second-tier cities.

Source: Financial Times, Marks & Spencer annual report 2014

M&S will move stores from second-tier cities to metropolises.

“They are basically conceding defeat but they can’t say that.”


Problems 玛莎

•High Price

Marks & Spencer’s: 292RMB/500g=30Pound/500g

Local middle range brand: 120RMB/500g=12Pound/500g

Source: Marks & Spencer online China store


Problems 玛莎

•Lack of high-end image

Source: China Daily


Problems 玛莎

•Design

Chinese customers think productions in M&S China are too English.

However, British customers think productions in M&S China are localized too much.

Old fashioned.

Source: Financial Times

Size.


Problems 玛莎

•High rent costs

Rent expense of the flagship store on West Nanjing Road (2013):

100,000,000 RMB/1Year = 10,000,000 Pound/1Year

Source: TopSpring



The Future of M&S


Plan A because there is no plan b

• Plan A had started in 2007 focused mainly on climate change and waste but Plan A 2020 is a business plan with its focus on customer, employee supplier engagement.

• Aim: to become the “world’s most sustainable major retailer”.

• There are four main principles of Plan A– Inspiration– Intouch– Integrity – Innovation

Source: Marks and Spencer Plan A Report 2014 <http://planareport.marksandspencer.com/downloads/M&S-PlanA-2014.pdf> Accessed on 27/11/2014.


Plan A – Performance summary and achievements

because there is no plan b

• Progress Summary:– Number of commitments: 100– Number of commitments achieved: 9– Number of commitments not started/behind plan: 12– Number of commitments on plan: 79

• Examples of some commitments achieved:– Meet your producer website– Nutritional labelling– Supply chain training– Products with Plan A qualities– Textile recovery R&D– Carbon Neutral Operations– Reduce business flights



Plan A – Aimsbecause there is no plan b

• Some aims:– M&S intend to conduct further research to obtain more information

on the needs of different stakeholders– No waste to landfill – operations

• M&S certified as the first retailer to hold all three standards to the Carbon Trust’s Waste Standard.

• In 2013/14 recycled 100% of the waste generated in UK and Rol stores, offices and warehouses.

– Promoting Healthy food• Work with key external stakeholders to help define the best

practice on promoting and marketing healthy foods.– Plan A Marketing

• Run a continuous programme of Plan A marketing to encourage customers to take action.

• Various Plan A communications campaigns were ran throughout the year.




Recommendations and Conclusion


Recommendations

• Change certain styles of products to better fit Chinese market. (E.g. Chinese cultural elements)

• Introducing new series for young people.• Investing factories in China to produce products in

China to lower costs (JV)


SWOT Analysis

Strengths Weakness• Strong Brand Image• Strong domestic presence• Diverse Business Portfolio• International chain

• Weak Public Relation across borders.

• Certain material is imported so high cost.

• Frequent Change in management• Weak logistic

Opportunity Threats

• Asian Market is booming • E-commerce

• Local and International Competitions

• Change in political and legal system in countries.


BCG Matrix

Relative Market Share

STAR

QUESTION MARK

CASH COWS DOGS

Relative Market Growth

High Low

High

Low

M&S


Ansoff’s Matrix

MARKET PENETRATION MARKET DEVELOPMENT

PRODUCT DEVELOPMENT DIVERSIFICATION

Existing Market New Market

Existing Product

New Product


Conclusion

• M&S started on the wrong foot and these are some of the reasons why it failed:– Didn’t follow Uppsala model– Lack of adaption to local needs– Lack of projection of brand image– Personal rather than business decisions e.g. in

Canada.– Didn’t take full advantage of existing networks with

other companies


Conclusion

• What it needs to change– Better promotion and projection of brand

image.– Communication with different stakeholders– Improved logistics and supply chain

management– Adaption to local markets


Conclusion

• M&S Simple Success

References

Felsted, A. and Waldmeir, P. 2014. Marks and Spencer shifts focus in key Chinese market. Financial Times. [Online]. 9 April. [Accessed 28 November 2014]. Available from: http://www.ft.com/cms/s/0/a3e90366-bfd2-11e3-b6e8-00144feabdc0.html#axzz3KPM2hnRY

Ruddick, G. 2013. Marks & Spencer missing Chinese sales targets. The Telegraph. [Online]. 28 January. [Accessed 28 November 2014]. Available from: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9832782/Marks-and-Spencer-missing-Chinese-sales-targets.html

J. Johanson and J. Vahlne, “The Internationalization Process of the Firm – A model of Knowledge Development and Increasing Foreign Market Commitments”, Journal of International Business Studies, Vol. 8, No.1 (spring-summer, 1977), pp 23-32.

J. Johanson and F. Wiedersheim-Paul, “The internationalization of the Firm – Four Swedish Cases”, Journal of Management Studies, vol 12. Issue 3, (October, 1975) pp 305-323.

Marks & Spencer, 2008. Annual Report and Financial Statements 2008. [Online]. Marks & Spencer. [Accessed 27 November 2014]. Available from: http://corporate.marksandspencer.com/investors/69358ce4ad7f4a1c9c56f0cd87954b82

Marks & Spencer, 2014. Marks & Spencer Plan A Report 2014. [Online]. Marks & Spencer. [Accessed 27 November 2014]. Available from: http://planareport.marksandspencer.com/downloads/MS_AR2014_Annual_Report.pdf

TOPSPRING, 2013. Financial Report. [Online]. TOPSPRING. [Accessed 28 November 2014]. Available from: http://www.topspring.com/p9_3.php

Waldmeir, P. 2009. M&S finds little support for China debut. Financial Times. [Online]. 17 January. [Accessed 28 November 2014]. Available from: http://www.ft.com/cms/s/0/4ae78dd0-e438-11dd-8274-0000779fd2ac.html#axzz3KPM2hnRY

http://www.ft.com/cms/s/0/a3e90366-bfd2-11e3-b6e8-00144feabdc0.html%23axzz3KPM2hnRY

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9832782/Marks-and-Spencer-missing-Chinese-sales-targets.html

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9832782/Marks-and-Spencer-missing-Chinese-sales-targets.html

http://corporate.marksandspencer.com/investors/69358ce4ad7f4a1c9c56f0cd87954b82

http://planareport.marksandspencer.com/downloads/MS_AR2014_Annual_Report.pdf

http://www.topspring.com/p9_3.php

http://www.ft.com/cms/s/0/4ae78dd0-e438-11dd-8274-0000779fd2ac.html%23axzz3KPM2hnRY

References

Waldmeir, P. 2009. M&S admits Shanghai errors. Financial Times. [Online]. 9 February. [Accessed 28 November 2014]. Available from: www.ft.com/cms/s/0/2bac61ae-f6e2-11dd-8a1f-0000779fd2ac.html#axzz3KPM2hnRY

Wang, ZQ. 2014. Marks & Spencer fashions new sales strategy in China. China Daily. [Online]. 9 April. [Accessed 28 November 2014]. Available from: http://usa.chinadaily.com.cn/business/2014-04/09/content_17419263_2.htm

Yu, C. (2013). retail-consumer-industry-sector. 1st ed. [ebook] pwc. Available at: http://www.pwc.co.nz/KenticoFiles/5d/5dff81f2-7242-43e0-87ff-941e1d02e8df.pdf [Accessed 29 Nov. 2014].

Uk.reuters.com, (2014). Marks & Spencer looks to India to stem fall in clothing sales. [online] Available at: http://uk.reuters.com/article/2013/11/11/uk-marksspencer-india-idUKBRE9AA0MA20131111 [Accessed 29 Nov. 2014].

Outlookbusiness.com, (2014). business.outlookindia.com | Changing Partners. [online] Available at: http://www.outlookbusiness.com/printarticle.aspx?283945 [Accessed 28 Nov. 2014].

Corporate.marksandspencer.com, (2014). MARKS & SPENCER TO BUILD A LEADERSHIP POSITION IN INDIA. [online] Available at: http://corporate.marksandspencer.com/media/press-releases/2013/marks-and-spencer-to-build-a-leadership-position-in-india [Accessed 30 Nov. 2014].

Surendar, S. (2010). Marks & Spencer's Retail Rethink. [online] Forbes. Available at: http://www.forbes.com/2010/10/05/forbes-india-marks-and-spencer-repositioning-in-india.html [Accessed 30 Nov. 2014].

Corporate.marksandspencer.com, (2014). Key Facts. [online] Available at: http://corporate.marksandspencer.com/aboutus/key-facts [Accessed 30 Nov. 2014].

the Guardian, (2008). The history of Marks and Spencer: In pictures. [online] Available at: http://www.theguardian.com/business/gallery/2008/jul/09/marksandspencer.history [Accessed 30 Nov. 2014].

Green Retail Decision, (2012). [image] Available at: http://www.greenretaildecisions.com/upload/images/news_images/Marks__Spencer/ms_store.jpg [Accessed 30 Nov. 2014].

IBNLive, (2014). India to be largest overseas market by 2016: Marks & Spencer. [online] Available at: http://ibnlive.in.com/news/india-to-be-largest-overseas-market-by-2016-marks--spencer/433580-7.html [Accessed 30 Nov. 2014].

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http://usa.chinadaily.com.cn/business/2014-04/09/content_17419263_2.htm