1.0 Introduction and company background
The
process of internationalisation is one that must be undertaken strategically in
order to yield the desired results. Due caution must be taken to manage the
associated risks; especially when it comes to understanding the target markets
and the appropriate managerial and operational approaches that must be taken to
guarantee success (Kerry, 2010). This calls for the adoption of an appropriate
internationalisation model with most companies opting for a model that allows
for gradual integration into the foreign markets. Uppsala internationalisation
model provides an insight on how internationalisation is carried out gradually
and incrementally (Alexander and Myers, 2000). The main variables to be
considered are the level of commitment in the market and the amount of
knowledge on the intrigues in such markets.
Sodexo
Remote Sites Scotland Ltd is a UK based company that deals with the provision
of quality of life management services (Experian ltd, 2012). This company
mainly dwells on providing solutions for companies and employees based in
remote areas and it provides food, laundry and other leisure solutions hence
enabling them to live in comfort in while in such areas (Experian ltd, 2012).
This approach helps clients to keep a healthy, relaxed and well motivated
employees and this in turn improves the performance of their organisations. The
main clients served are players in the construction, mining and gas industries.
Sodexo is the leading provider of remote leisure services in the world and is
expected to continue an international expansion strategy over the next few
years (Datamonitor, 2011). This paper evaluates the internal and external
environments of Sodexo Remote Sites Scotland Ltd with an aim to form an opinion
on whether the company should pursue internationalisation. Appropriate
internationalisation theory shall also be highlighted to enable clear
understanding of the factors to be considered.
2.0
Internationalisation process concepts and rationale
Uppsala
model was developed after a case study had been conducted on a number of
international companies in 1977 (Johanson and Vahlne, 2009). This model
identifies two main variables in the approach to internationalisation: the
level of market commitment and the amount of knowledge that the organisation
has about a given market (Johanson and Vahlne, 2009). It is presumed that as
the level of knowledge increases, organisations get more confident in
increasing their level of commitment of resources. In other words,
organisations will tend to settle for business models that require fewer
resources before making heavier investments after sufficient exposure,
knowledge and trust have been acquired (Kogut and Zander, 1993). The businesses
studied tended to go through a series of four steps which started from
irregular export activities. This would advance further to an establishment of
contracts with independent sales representatives to facilitate further exports.
With increased market knowledge, organisations subsequently set up sales
subsidiaries before embarking on the establishment fully operating foreign
subsidiaries (Johanson and Vahlne, 2009). The model therefore emphasises the
possession of knowledge about a market as crucial to the decision making
process on whether or not to expand into a given foreign market.
The
Uppsala model helps business executives to focus on the market research and
internal analysis. It directs their attention towards the matching of their
internal competencies with the features of the external environment with a view
of making reliable business decisions (Rodriguez, Barcos and Alvarez, 2010).
Several changes have emerged since the first model of Uppsala was created.
Market research has become more reliable as information becomes more accessible
(Rodriguez, Barcos and Alvarez, 2010). This has meant that the element of
market knowledge is achievable without having to endure years of engagement.
Managers should therefore be in a position to make reliable decisions based on
market research and matching the market characteristics to their competencies. The
vision, mission and growth objectives of organisations also play a major role
in influencing their internationalisation strategies. For instance, the UK
Restaurant and Leisure market is characterised by high levels of competition
and modest rates of economic growth (Datamonitor, 2011). These factors make it
less likely that growth can be achieved by operating in the domestic markets
alone hence the need to pursue internationalisation.
3.0
Sodexo’s vision and internal analysis
Internal
analysis allows organisations to focus on the unique capabilities and map out
strategies to exploit such capabilities and advance their goals (Blythe, 2010).
Accurate evaluation is crucial to the decision making process. Organisations
should be able to analyse their strengths, weaknesses and carry out an audit of
the capabilities that can help them gain a competitive advantage in the market
(Blythe, 2010). The resource based view model and the swot analysis model are
the most reliable frameworks for analysing the internal environment of an
organisation (Barney, 2000; Barney, 2010). The swot analysis focuses on
strengths and weaknesses arising from the internal environment and the threats
and opportunities arising from the external environment (Mullins, 2010). The
main purpose of conducting a swot analysis is to match the strengths to the
opportunities arising, identify and rectify weaknesses, and identify threats
and derive a strategy to either convert them into opportunities or limit the
level of harm caused (Mullins, 2010). Sodexo Remote Sites Scotland Ltd
specialises in the provision of restaurant and luxury services to clients
operating in remote regions. Sodexo has the vision to be the premier global
outsourcing expert in quality life services (BIFM, 2012). This implies that
their vision can only be considered to have been achieved when the company
becomes truly global. The company currently operates predominantly in the UK
with a firm focus on international markets.
3.1
Strengths
Sodexo
is a subsidiary of the Sodexo Alliance, a group of companies in the restaurant
and leisure industry whose operations span across over 80 countries around the
world (Experian Ltd, 2012). This gives the company vast amounts of knowledge on
cultural contexts and products that clients from different parts of the world
are likely to demand for. Their depth of knowledge on consumer preferences
around the world forms one of the main sources of strengths for Sodexo
(Lenazun, 2009). The company also boasts of a highly motivated workforce that
is keen to deliver premium services to the clients served. This could be used
to boost the levels of satisfaction in the market and establish the company and
aid in the achievement of its vision. The
3.2
Weaknesses
Sodexo’s
parent company has been plagued with controversies in its operational
approaches and this is expected to affect it. Claims of haphazard systems of
promotion and cases of racial discrimination put them in bad light (Lenazun,
2009). This weakness becomes pronounced when it is considered that the UK is
increasingly sensitive to cases of discrimination of sections of the society.
3.3
Threats
The
level of competition is rife in the UK is on a steady increase. Being players
in the restaurant and hospitality industry, the company faces growing levels of
competition from the numerous restaurants and leisure companies in the UK
(Datamonitor, 2010). This threat is heightened by the fact that the rate of
economic growth is modest at best.
3.4
Opportunities
The
welfare of employees is becoming an area of focus for most organisations
operating in remote locations. In today’s market environment, it is becoming
increasingly acknowledged that employees are very effective sources of
strategic advantage (Sodexo, 2012). This has had companies evaluate ways of
motivating and maintaining a happy workforce. Providers of leisure and
restaurant services in remote areas such as Sodexo are therefore likely to
benefit from this trend.
4.0
External analysis
The
external environment refers to forces outside the organisation and which are
beyond the control of the organisation. It may be the industry or the macro
environment. The analysis of the external environment enables the application
of strategies that can yield a competitive advantage to businesses (Mullins,
2010). Two models have been found to be very useful for the purposes of
external analysis: the porter’s five forces model and the PESTEL model with the
former analysing the industry and the latter addressing the macro environment
(Clow, 2010).
4.1
Industry analysis: competitor analysis
The
main buyers in this industry are companies that outsource their restaurant,
laundry and entertainment responsibilities (Datamonitor, 2010). The suppliers
on the other hand are food distributors, sellers of machines and other
equipment and providers of consultancy services (Datamonitor, 2010). Sodexo is
predominantly a restaurant and is therefore faces highest competition from
providers of food services. Companies such as Compass Group, Aramark
Corporation, Baxter Storey and McDonalds are among the strongest competitors to
Sodexo (Datamonitor, 2010). Food services are generally similar across
industries and this heightens market rivalry. However, Sodexo has managed to
cut a niche for itself by diversifying into other leisure services hence
getting an edge over the competition. Diversification is one of the strategies
that organisations use to survive in a highly competitive environment and it
entails the introduction of extra products and services to enable the capturing
and retention of a larger market share. The supplier power, buyer power threat
of substitutes, and the threat of entry can all be said to be moderate (Grant,
2007). With a moderate level of rivalry in the industry, Sodexo can only manage
modest growth and may have to look to emerging markets to bridge the gap.
The
knowledge of competitors is crucial in the decision making process. Among the
factors that one must consider is the competitor prices, the quality of
products supplied by the competitor and the product range (Homburg, 2009).
Where these characteristics are similar to the products being offered, then the
resultant level of rivalry is high. The specification of the target markets
should also be considered with differences in the target market lowering the
level of rivalry (Blythe, 2010). The concentration in the number of competitors
in a market should also be considered. Where competitors are numerous, the
level of rivalry is higher than when they are few. The UK market is full of
players in the restaurant industry and this makes it difficult for any single
company to realise superior growth rates by operating in the UK alone. When
conducting a competitor analysis for the purposes of evaluating
internationalisation options, it is also important to conduct a similar study
on the markets being considered (Hill, Jones and Galvin, 2004). This allows for
a comparative analysis and helps in ensuring that the right decisions are made.
4.2
Macro environment analysis
Macro
environment describes factors that affect entire economies. They include from
the political stability, legislations and customer preferences among others.
Under the PESTEL model, factors affecting the macro environment have been
classified under Political, Economic, Social, Technological, Environmental and
Legal factors (Porter, 1996). Political factors refer to issues to do with
political stability and the predisposition of the political class towards
private enterprise. Under this factor, risks of nationalisation should be
considered with many foreign investors opting to go into partnerships with
local investors in order to minimise the chances of such levels of political
interference (Hubbard, Rice and Beamish, 2008). In the UK, political factors
pose little risk to businesses. However, the situation may be different in
other countries that Sodexo may want to operate in and may therefore have an
impact on the decision on whether to enter such markets. Economic factors could
refer to economic growth rates, the income levels in a country and others
(Hubbard, Rice and Beamish, 2008). These affect the operation costs as well as
ability of clients to pay for the products and services on offer. The rate of
economic growth in the UK and other developed markets is lower than the growth
rates in the emerging economies. This implies that organisations intending to
achieve superior rates of growth should consider expanding into international
markets. However, these growth rates should be contrasted with the level of per
capita income with an aim to determine the purchasing power in the markets.
Social
factors refer to the preferences of customers for certain products.
Organisations must understand the unique needs of the target market and come up
with a strategy to have such needs met (Hubbard, Rice and Beamish, 2008).
Constant research is necessary due to the fact that such preferences change
from time to time and organisations could easily lose market share if they fail
to keep up with the trends. Sodexo is affiliated to a multinational with
operations in over 80 countries and this makes them better equipped to
understand the social preferences in different regions (Experian Ltd, 2010).
However, research should still be conducted to verify the accuracy of the
information held. Technological factors affect the type of products that can be
offered. For instance, in countries where online transactions are ably backed
by the right technological infrastructure, Sodexo can introduce services such
as online shopping and delivery for their clients. Legal factors encompass
taxation, health issues, labour relations and others and must be considered for
organisations to operate legitimately (Clow, 2010). Where the legal factors are
not favourable, the executives should be reluctant to invest in it.
5.0
Reflections on the decision making process
The
first step involves the identification of the problem. In many cases, the
problem will be how to achieve the growth objectives set in view of the fact
that such levels of growth may not be achieved in the domestic market. An
evaluation of the market forces in the domestic market need to have been done
in order to determine whether the problem exists in the first place. For
companies such as Sodexo, the vision is to be the premier producer of quality
life services in the world and this puts the organisation firmly on the
internationalisation plan (Sodexo, 2012).
Once
the need to internationalise has been established, it is necessary to do market
research and know which alternative markets have the potential to deliver on
the growth objectives (Alexander and Myers, 2000). The process of research
needs to be done with care to ensure that all the relevant information is
captured.
After
the viable alternatives have been identified, they are evaluated based on the
set criteria. Evaluation can be done by weighting the factors identified in
consistency with what the organisation considers to be most important to them
(Hill, Jones and Galvin, 2004). The use of a decision matrix can be very useful
in this regard. An alternative approach would be to adopt the swot analysis
model and compare market characteristics in order to determine which market is
most attractive. Once an evaluation is done, the decision on the market to
expand into is made. The decision must be consistent with the match between the
market characteristics and the internal capabilities of the firm (Hill, Jones
and Galvin, 2004). Markets that present the best chances of success for the
organisation should be the one to be picked.
The
implementation stage marks the beginning of yet another process. It is at this
stage that the organisation must make a decision on the suitable modes of entry
in consistency with the market characteristics. This is where the Uppsala model
becomes most relevant. Sodexo’s parent company has been consistent in its
choice of franchising as an entry mode to international markets (Lenazun, 2009).
This is one of the approaches that Sodexo could adopt in the initial stages. By
virtue of the fact that the company predominantly offers services, it may be
difficult to follow the option of exports and this leaves franchising and
licensing as among the cheaper alternatives. It is after the company has gained
sufficient exposure into the markets in question that more expensive options
such as setting up fully functional subsidiaries should be considered.
6.0
Recommendations on internationalisation process
The
UK market is quite congested with the level of market rivalry being moderate
and heading towards being high. It is characterised by low rates of economic
growth and a rapidly intensifying level of market rivalry. This makes it
difficult for Sodexo to realise ambitious growth rates by operating in the
market alone. On this platform alone, it would be advisable for Sodexo to
consider expanding into international markets. This decision would also be
enhanced by the nature of their vision. They intend to be the global leaders in
their field and this implies the need to expand into other countries and
capture more of the global market share.
In
consistency with the Uppsala model, Sodexo should consider settling for entry
modes that require fewer resources to enter a market. Prudence demands that
lower levels of risk are taken with additional risks taken when the investor
becomes more knowledgeable and is more confident of their chances of success.
Having conducted a thorough internal and external analysis, and having decided
to internationalise; Sodexo would be well advised to avoid plunging into the
foreign markets with fully functional subsidiaries. Cheaper models such as
licensing and franchising should be adopted with additional levels of
commitment done as customers become more trusting.
7.0
Conclusion
The
internationalisation process outlines the steps that firms should take when
pursuing an international expansion agenda. It outlines the importance of
considering the level of exposure and knowledge in a market as the yardstick to
determine the level of commitment to be made in terms of resources. The Uppsala
model therefore names the four steps as the conduct of occasional exports,
engagement with independent sales representatives, establishment of sales
outlets, and the establishment of fully functional subsidiaries. In the service
sector such as Sodexo’s the Uppsala model would be modified to prioritise
licensing, franchising and joint venture options before the establishment of
fully owned subsidiaries.
The
decision making processes that lead to the determination of whether or not to
internationalise are also very important. This process starts with an internal
evaluation where the organisation evaluates its internal capabilities. The
strengths and weaknesses are identified and taken note of. The external
environment is subsequently analysed with a view to establish how the firm’s
capabilities can be exploited to yield a competitive advantage. The decision on
which markets to target is then made before decisions are made on the entry
modes to be used in consistency with the internationalisation models. This paper
finds that Sodexo should pursue internationalisation in consistency with their
vision and mission and proposes franchising as one of the most appropriate
entry methods to be considered when doing so.
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