International Business Assignment: Business Opportunity for Sainsbury’s in Canada
Coursework Brief –
Sainsbury’s Supermarket Plc a major British supermarket chain has appointed you as a consultant. Once the current coronavirus pandemic is over, the company is considering investing overseas as global expansion is perceived at this time to be a potentially important element of the company’s long-term strategic goals. In particular Sainsbury’s have been looking closely for some time at a number of diverse markets including Canada and Brazil. In order to help with their decision marking, Sainsbury’s Board of Management has requested you to compile a report regarding the attractiveness of ONE of these locations based on potential return of investment.
For your international business assignment, you must evaluate the opportunities and risks presented by the given location of your choice. Based on your analysis, what would you recommend i.e. to invest or look for other options? Please ensure that you give reasons for your recommendation.
Sainsbury’s, taken in this report on international business assignment, is the second-largest supermarket chain in the United Kingdom. The Company holds 16% of the market share of the supermarket. After the Corona Virus pandemic is over, Sainsbury’s wants to invest in the overseas market to expand their business globally. Global expansion is the most important element of the long-term strategic goal of Sainsbury’s. Canada is the selected country where Sainsbury’s can invest in the supermarket of Canada in the respect of their global expansion of the business. Currently, the company is employed 189K employees worldwide (About.sainsburys.co.uk. 2021). The Company focuses on creating a positive impact on the health of people and the planet as well. The current annual revenue of the company is 431 million euros. The total income of the company is 341 million Euro and the operating profit of the company is 730 million Euro (About.sainsburys.co.uk. 2021). The outbreak of Covid-19 hugely created an impact on the financial services of the company.
The report analysed the political risks, economic risks, and cultural risks, legal and ethical risks in Canada. It also identified and evaluated business opportunities for Sainsbury’s to expand their business in Canada. It all includes GDP Growth, Inflation rate, unemployment rate and exchange rate issues, competitive landscape, income levels of people, buying habits of Canadian people, etc. The report also supported the entire explanation with the help of successful stories of other companies in the Canadian market. The last section suggested some recommendations and proposed appropriate market entry strategy for Sainsbury’s to enter into Canadian Market.
Analysis of political, economic, cultural, legal and ethical risks in the country selected
Political Risks: Canada is considered as a very stable democratic nation. The Economists considered Canada as the Third most democratic nation in the respect of their Democratic index. In the view of Root model political risks, Canada is also considered as the second most politically stable country. Canada maintains a good relationship with the USA, United Kingdom, France and other powerful countries (Reynolds, 2019). The transfer and convertibility risks mean the risks of converting the local currency into the foreign exchange and transferring goods and products outside of the host country is low (TheGlobalEconomy.com. 2021).
It means in Canada, there are approximately low risks to converting the local currency into the currency of another nation (Core.ac.uk. 2014). The expropriation risks in Canada is also low. It means the risks of loss of investment due to any discriminatory acts by the Canadian Government to reduce or eliminate the control and ownership rights of the investor is low (TheGlobalEconomy.com. 2021).
However, the risks of terrorism are moderate in Canada. In the terrorism index by trading economies, Canada Scored 3.17 in 2019 (Tradingeconomics.com. 2021). It means the risks of operating losses of the company due to politically motivated violent acts by the group of non-state people can hamper the operating activities of Sainsbury’s(Terrill & Boutilier, 2019). The low risk of Political violence and good contingency plan in Canada is the opportunity for Sainsbury’s to invest in the Canadian Market (Malik, 2020).
Canada also has a well-enforced anti-corruption legal framework. Currently, corruption has been an increasingly main and large problem in the Canadian Government (Apollon, 2017). It can be a threat for Sainsbury’s. Canada’s Criminal code criminalises passive and active bribery, prohibiting influence extortion and peddling and facilitating payment to protect foreign investors (obsi.ca 2021). It can be an opportunity for Sainsbury’s to expand their business in Canada.
Economic Risks: Canada follows the free market economy policy and economic freedom is the main element to prosperity and growth. Canada is one of the 10th largest economies in the world (Global Finance Magazine. 2021). Canada has the membership in World Trade Organisation, OECD and Commonwealth of Nations and the G20. Canada UK Trade Continuity Agreement between UK and Canada ensures the continued trade in products and goods without any tariff and quotas (PF Collins. 2021). It minimises the trade disruptions between the UK and Canada applied from 1st April of 2021. It is an opportunity for Sainsbury’s. The Canadian economy is also a highly developed mixed economy. The GDP growth rate of Canada is 5.69% (Statista. 2021-a).
Fig 1: GDP Growth rate in Canada
Source: (Statista. 2021-a)
However, the world-class infrastructure, entrepreneurial and diverse people and strong and dynamic economy and also an effective banking system of Canada is opportunity for foreign investors across the world (Oecd.org. 2021).
Cultural Risks: Canada is considered to be a very diverse country. Canada is to be considered as a country of newcomers. The biggest challenge of Canada is a big shortage of skilled and knowledgeable workers in the professional sectors. Canada also encourages immigration and developing a flexible immigration system for people with effective skills, knowledge and experience. In the UK, the right of freedom and belief is protected by the human rights Act 1998 (Citizensadvice.org.uk. 2021). People have the right to hold religious and non-religious beliefs. In Canada, the freedom of religion is a constitutionally protected right. Canada has a mixed history of tolerance (Almutairi, Adlan, & Nasim, 2017). The culture of Canada is the most multicultural, dynamic and tolerant place for the majority number of immigrants. The living standard in Canada is also high and the majority number of Canadians prefer high-quality products and effective after-sale services for customers (Fang & Huang, 2020). Freedom of expression in the Country is also highly protected as the “fundamental freedom”. These are the opportunities for Sainsbury’s to expand their business in Canada (obsi.ca 2021). However, the growing economic inequalities in the country can be a threat for Sainsbury’s. It can reduce the power of purchasing products by the lower economic background people.
Legal Risks: The legal system of Canada is protected by Civil law and common law. Certain employee rights are all protected by Canadian law. Local and international organisations are responsible for maintaining the minimum standards for providing benefits to employees. It includes “minimum hours of work”, “minimum standard of wage”, vacation, sick days, dismissal and many more. The strict regulation and rules of the Canadian Human Rights Act prohibit local and international organisations to minimise discrimination against people based on race, gender, age, ethnicity and other grounds (Ohsguide.worksafenb.ca. 2021). It can increase the special restrictions on the working environment of Sainsbury and enforce them to fully follow the Human rights act of Canada efficiently.
Ethical Risks: In the view of the Corruption Perception Index, Canada scored 77 (Cohen & Cohen, 2021). United Kingdom also scored 77. However, the corruption and bribery issue has been increasing damaging the social image of both countries Canada and United Kingdom. Foreign bribery and the issue of money laundering or snow washing is a significant issue in Canada. It can also create a negative impact on the operating activities of Canada. However, Canada is now focusing on a well-developed legal anti-corruption framework and Corruption of Foreign Public Official Act to minimise the passive and active bribery, peddling and extortion within the country. Sainsbury’s should be aware of this act to protect them from any legal threat (Trautman & Kimbell, 2018). Oppression of minorities is high in Canada and a majority number of people experienced discrimination due to their race, skin colour, age, physical appearance, culture and ethnicity and sexual orientation. It can reduce the productivity of the company and increase conflict between local and international employees. The Canadian Government also developed an Occupational Health and Safety Act for their employees to provide them with the right to raise their voice against health and safety matters and participate in the decision-making process regarding health and safety matters (Yanar, Kosny & Smith, 2018). Moreover, as per the Canadian rule, employees can leave the workplace if the workplace does not maintain a limited amount of health and safety guidelines and healthy working conditions in the workplace. Currently, the climate changing issue hugely created negative impacts on Canada. Air Pollution is also a major concern in Canada. However, now, the Canadian Government focuses on implementing the Canadian Environmental Protection Act 1999 to protect the environment and the health and wellbeing of Canadians (Chemicalsubstanceschimiques.gc.ca. 2021). It can increase the challenges for Sainsbury’s and raise the operating cost of the company in the Canadian market.
Identification and evaluation of business opportunities
Key economic/market indicators: In the view of the statistical report, the current GDP growth rate is 5.69% in Canada and it is expected to reach 4.89% in 2022. Higher GDP growth leads to the economic growth of the country. It increases the governmental funding on healthcare services, public services and it also improves the living standard of people. Moreover, it increases the chance of a lower unemployment rate, higher the average income of the people. It declines the poverty rate in the country and increases the investment in the research and development segment. It is the biggest opportunity for Sainsbury’s to expand their business in the Canadian market. It will increase the demand for the products of a supermarket chain in Canada. Canadian GDP per capita reached 48001.382 USD in June 2021 in comparison to the 43822.566 USD in June 2020 (Ceicdata.com. 2021). The ultimate GDP per capita of Canada indicates the economic stability and strength of Canada. It increases the income value of customers in terms of their profit and employee wages.
Fig 2: GDP per capita in Canada
Source: (Ceicdata.com. 2021)
The unemployment rate is decreased from 8.8% in January 2021 to 6% in October 2021 (Tradingeconomics.com. 2021).
Fig 3: unemployment rate in Canada
Source: (Tradingeconomics.com. 2021)
After recovering from the outbreak of Covid-19, employment opportunity is now increasing in the country. As a result, it increases the leisure income and the spending ability of the people. It is the business opportunity for Sainsbury’s to expand their business and easily grab the attention of potential target markets in Canada.
Fig 4: Inflation rate in Canada
Source: (Statista. 2021-b)
Currently, the inflation rate of Canada is also high 3.15% compared to other previous years (Statista. 2021-b). It can increase the uncertainty and confusing situation for foreign investors. It often leads to less economic stability and lower economic growth. It can be a threat for Sainsbury’s to expand their business in Canada. However, the stable inflation growth rate increases the financial capability of people and increases the sale of the business. It is the opportunity for business.
Level of competition: The Domestic and International levels of competition can increase the force on Sainsbury’s. The major competitors of Sainsbury’s in Canada are Loblaw Companies, Metro, Safeway, Walmart, Sobeys, Real Canadian Superstore, etc. Loblaw Companies Ltd. is the largest food distributor in Canada. The company always focuses on offering the highest quality services to its customers. The revenue of the company was $52714 million in 2020. It indicates the revenue of the company grew by 9.7% in comparison to 2019. The operating income of the company is also $2365 million in 2020 (Loblaw.ca. 2021). The company also maintains a long-term employee benefit plan to increase the health and well-being of employees within the company.
Metro is an online grocery supermarket chain in Canada. Metro pursue its growth through merger, acquisitions and innovations. Metro also focuses on the high quality of their products and offer their products at an affordable cost (Statista. 2021-c). The mission of the metro is to earn the long-term loyalty of the customers by meeting their expectation level. The company is also now employed 9000 people to entirely manage their business operations. The revenue of the Company was 18 billion Canadian dollars in 2020 (Corpo.metro.ca. 2021).
Walmart Canada is also a potential competitor of Sainsbury’s and it is a subsidiary of the Walmart supermarket chain. The mission of Walmart is to offer quality goods at the most discounted prices to help the Canadian people live better. The estimated annual revenue of Walmart Canada is $2147.5 million per year (walmart.com 2021). It evaluated that the level of competition is high in Canada.
Evaluation of incoming level:
The graph shows the total income distribution in Canada by people’s income level. It shows that more than 270970 people in Canada had an income of 250000 Canadian dollars (rich elites). Approximately, 4900000 people had an income of 50000 to 74999 Canadian Dollars, 4600000 people had an income of 35000 to 49999 (middle-class people). Approximately, 1800000 people in Canada had an income under 5000 Canadian Dollars (Poor class people) (Statista. 2021-d). It is the opportunity for Sainsbury to efficiently evaluate the income level of target people to develop the appropriate marketing and pricing strategies to expand their business in the Canadian Market.
The current population in Canada is 38205144 people (around 37.74 million people) (worldpopulationreview.com 2021). In view of the total population in Canada, 49.6% of the people are male and 50.4% of the people are Female (worldpopulationreview.com 2021). Moreover, 92% of Canadians are also educated, person. The education system in Canada is also highly value-driven, well-funded and strong. The highly valued and strong education system increases the self-confidence level of individual people. It improves the personal and professional skills of people (McGregor, 2018). It will increase the opportunity for Sainsbury’s to recruit a knowledgeable and skilled workforce on their company and in-store business activities to improve the productivity level of the company.
Consumer Buying Habits and demand for foreign products in Canada: In Canada, 84% of internet users of the total population purchase the products and goods online. International products highly influence the purchasing behaviour of Canadian consumers. Moreover, imported products from international countries are still considered as attractive in Canada. However, the demand for the local products “made in Canada” products is still now in the development stage. Canadians people mostly prefer custom made solutions to meet their specific needs. It is estimated that approximately 75% of total people prefer customised and personalised products and services (santandertrade.com 2021). Health concern is also a growing trend in Canada. It increases health awareness among Canadian customers. 70% of people prefer organic products and 49% people prefers the sustainable packaging system of products. Canadian people always prefer to pay a high price for the superior quality of goods.
The free market economy policy of Canada helps in increasing the well-being and wealth of the Canadian People. It increases the opportunities for foreign companies to invest in the market and produce more favourable outcomes to face any calamities. The economic freedom score of Canada is 78.2 (Global Finance Magazine. 2021). In Canada, Foreign direct investment inflows reached 48 billion USD in 2019. Canada is referred to as the 13th largest destination for FDI across the world in 2020. The main investing countries are the US (49.9%), UK(6.1%), Japan (4.6%), Germany (3.3%) etc. and main investing sectors are management companies, manufacturing sector, mining and hydrocarbon, wholesale trade and insurance and finance sector (santandertrade.com 2021).
Use of companies’ examples to support arguments
Walmart is the greatest corporate example of successful business in Canada. Walmart is referred to be as one of the largest employers in Canada. To maintain good communication with Government, Walmart Canada company is working with more than 2200 Canadian suppliers to contribute to the Canadian economy (walmartcanada.ca 2021). The company is also creating hundreds of jobs and opportunities for Canadian people of all backgrounds to strengthen their community across Canada. Walmart Canada was established in 1994 through the acquisition of 122 Canadian leases of Woolco (Subsidiary of Woolworth Canada) by the Walmart company. However, Walmart also faced some bribery issues due to offers bribes to the public officials to smoothly run their business. The company is committed to offering quality products at low prices to Canadian people. However, it increases the demand for products offered by Walmart.
Safeway Canada is also a renowned supermarket chain in Canada. It is the subsidiary of American supermarket chain Safeway Inc. Safeway has been considered as the community leader for Canada for over 90 years. The company also encouraged the local employees to be a part of the company. The company also offers an in-store pharmacy department and in house floral departments. The company also started offering organic and natural products and sustainable choices for their customers to increase the demand for their products. The estimated annual revenue of the company is $182.5 million per year (Safeway. 2021). However, in 2013, the entire assets of Safeway Canada were acquired by the Canadian Company Sobeys Inc. The assets of Safeway Canada are fully operated and owned by Sobeys Inc.
Conclusion, recommendations and market entry strategy:
Sainsbury’s can enter into the Canadian Market by using the Strategic alliance strategy to expand their business in the Canadian market. It will help to develop a successful strategic alliance partnership with local retailers to easily expand their business in the Canadian Market. It is also a less complex and less binding market entry strategy than the Joint venture market entry strategy (Sadegh, Shah Hosseini & Heidari, 2020). It is an affordable alternative to mergers and acquisitions. It will help Sainsbury’s to utilise the local knowledge regarding customers’ preferences, customers’ choices and needs to easily develop their marketing and pricing strategy for their target customers. The Company aims to offer delicious and great quality food at affordable and competitive prices. Moreover, delighting and inspiring with the tasty foods and convenient shopping facility in in-store and online platforms is the main priority of Sainsbury’s. It will help in reducing the risks of market failure while operating the business in Canada (Shijaku, Larraza-Kintana & Urtasun-Alonso, 2020). After that, Sainsbury can also operate their business with wholly-owned subsidiaries to expand its business in Canada. As an example, Walmart Company was started their business in Canada by using the Strategic alliance and successfully used its strategy to expand its business in Canada. The Company has more than 400 stores in Canada. 2.4 million customers shop at Walmart through in-store outlets and online daily. The company is also donated $500 million to Canadian charities and organisations as per their needs.
Based on the overall analysis, the company should invest in Canada. Canada is always focusing on international peacekeeping. It is also referred to as one of the safest countries in the world. Low crime rates and effective and trustworthy political services are the best opportunities for international companies to expand their business in Canada. The economic stability, diverse cultural environment and highly structured anti-corruption framework are the biggest opportunities for Sainsbury’s to successfully expand their business in Canada.
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