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This report is mainly concerned with the Competitive advantage for METRO Cash & Carry which is situated in Pakistan . In this report I have discussed that on what grounds the METRO has divided its market into different segments,. I have surveyed the market and identify the factors which are affecting the output of the Company. And after this process I identified some areas where there is a need of changes in METRO store.
Moreover, this report shows the competitive advantage of METRO and we check it out whether this advantage is actually working efficiently. Analysis of external (task and macro environment) or PEST analysis, s.w.o.t analysis and Porter's five forces model is included in this report.
After assessing all these things we identify that in which sector the problem arises and after analyzing we suggests certain recommendations to the company to become more efficient and profitable company and satisfy their retail customers.
METRO Cash & Carry is a leading international company in self-service wholesale and operates more than 600 outlets in 29 countries. It is 3rd largest trader in world, 2nd largest in Europe and the Largest in Germany with a turnover of â‚¬59.9 billion in 2006. METRO is operating around 2,378 locations in 29 countries, with employees numbering over 263,000
At the operational level, the group's five sales divisions conduct business independently in their respective markets. With over 100,000 employees worldwide, the company achieved sales of â‚¬ 31.7 billion in 2007. By generating almost 50 percent of the total sales, METRO Cash & Carry is the top-selling sales brand of the METRO Group. Assortment and service of METRO Cash & Carry's unique business-to-business model are targeted only towards professional customers such as hotels and restaurants as well as small and mid-sized retailers or institutions. The company offers these special groups a high level of mixture capability both in food and nonfood as well as attractive wholesale prices. An efficient and internationally conferrable concept ensures success in entering new markets.
Following is the structure of METRO Group:
METRO cash and carry business lies in the Monopolistic Competition. There are few sellers and each has its own specialization and it charge the prices according to the product quality and characteristics. There is no entry or exit barrier in this market. Even five more cash and carry businesses are allowed by government to open their branches in Pakistan.
The competitive advantage on which compete in the market is the low Prices with high level of Quality at a same place with convenience. METRO provides each and every thing of household use like food items, electronics, automobile parts and much more at the same place and the major factor is the low prices and they maintain the high quality level. And for this purpose they directly deal with the companies for the supply of their products so that the competitive advantage can be enhanced more.
Process Analysis Models.
The following are the factors regarding the Pakistani government which influences the workings of METRO Cash and Carry.
The political instability is the major factor of low foreign investment in the Pakistan. Same is the case with METRO. The management always keep in mind the threat of change in government. They analyzed several times before entering this country and before doing further expansion in this market.
Inauguration of Lahore branch was conducted by former Prime Minister Shaukat Aziz and the new government can create certain problems for METRO.
The tax rebates and certain other favors given by the previous government can be set a side by the change in the government.
The ineffective control of every government regarding the prices of products and inflation creates certain problems because customers' demands product at the same and low price while in such conditions prices changes rapidly.
Any political activity regarding labor and political matters strikes creates hurdles in the way of the METRO's success.
Economical changes of Pakistan effects METRO Cash and Carry in such a way that the interest rates charged by banks can not only restrict the spending power of customers but also in the fund raising for the company. Interest Rate is about 14.5% on deposits and 17% on loans.
The rapid growth in inflation rate is the major factor influencing the spending power of buyer. Inflation rate in Pakistan is about 9.3% yarely while inflation rate of 3rd quarter was 21.5% approximately.
Devaluation of money and increasing exchange rate discouraging the investors to invest in Pakistan's market.
Policies of state bank can be influenced by the existing political party and government and every person either business or a separate citizen entity holder has to follow these rules govern by the State bank.
Switching cost matters a lot in the buying decision behavior of customer. The switching cost can be higher in terms of time and the distance competitively the other specialized whole sale markets.
Unfair distribution of wealth is the key factor of purchasing and also the major characteristic of third world countries. A person's spending only shifts from necessaries to luxuries with the increase in money it does not increase his spending.
First of all society and the culture of Pakistan and its markets is not as much adapting to change. They do not easily accept the new arrivals in any field of the product or services. So METRO Cash and Carry for cash kind of product still there is not a huge market. Although departmental store concept is already good here but it will take time to understand and develop the kind of shopping culture.
The habit of Pakistanis is to buy goods from the nearest market on the day to day basis and needs. They do not purchase the whole month grocery and other things. Secondly they prefer to buy on credit. And to pay in installments.
METRO Cash and Carry, a huge departmental store chain more than in 29 countries is already using the up date and high tech mechanism for the shifting of products and for other purposes. They have not too much threat of any technological changes. Customer's card is already in use along with the entry with that card, precautionary measures like cameras are installed for safety reasons.
They have not any proper or main manufacturing which requires machines so their use of machines is just the cranes and folk lifters and such that machineries.
Porter's Five Forces Model
We discussed the factors of five forces model of Porter in perspective of METRO cash and carry. We analyze that how these factors invoke on the workings of METRO.
Bargaining Power of Buyer
As far as the bargaining power of METRO buyer's is concerned, METRO is not in a strong position. They have low power against the customers because customer influence in pricing and shifts towards other sellers if he/she is not satisfied with the quality or price of the manufactured goods or services.
Bargaining Power of the Supplier
METRO has many options to buy products from any supplier. So suppliers try to make possible their products at their store. So we can say that METRO has high bargaining power with respect to the suppliers.
Threats of Substitutes
METRO has the close substitute like Makro in Lahore and other substitutes the specialized whole sale markets are the great threat to the organization. If the customer is not satisfied with any factor they can easily switch to the other because he/she has the almost exact or the same kind of substitutes.
Threats of New Entrants
Government is allowing certain new investors to invest in the cash and carry business. Although initial investment for this industry is much high but for such kind of chains like Wal - Mart and others have no problem in that. So METRO also has a high threat of new entrants.
Rivalry among Existing Competitors
Presently, the existing competitor of METRO is only the Makro in the same capacity and also the whole sale markets of every product. But the specialized whole sale market dealers cannot run any customers' concerning marketing campaign so in this regard METRO has to face a stiff competition with Makro. Makro is almost the same services and it is also the foreign investment. METRO should focus on customer's satisfaction to compete the Makro.
Customer Buying Decision Behavior
The main customers of METRO are the retailers and the hotels, restaurants and other professionals who do not buy goods for their own use but to serve their further own customers.
METRO is expecting the Variety Seeking/ and convenience shopping behavior from their customers. Because it is such kind of product that the customer can change its mind just on a factor of pricing and shift on the other exactly direct competitors Makro and also has the option of specialized wholesale markets. Customer has full knowledge along with the choices.
The political instability of Pakistan cannot be overcome by this single firm they can only minimize the effect of political changes in the country. They should develop such strong relation with every party and influence group in politics so that they will not be affected by their policies.
File up the agreements that continuous whatever the government is regarding the tax rebates and certain other favors given by the last government. METRO is a huge group so it has to contact with the parties that can influence in the policy making regarding their market.
Try to have certain policies to stop more big giants in cash and carry business in order to eliminate the competition.
Control over economical environmental factor can provide opportunities to METRO to enhance the profit level up. Proper calculation of money exchange and currency rates can give the arbitrage profit to the METRO. They should keep their money in the form of Euros. Because it is a European based organization and second thing is that the value of euro is increasing on daily basis.
The culture of Pakistan is at this time not too much favorable to the cash and carry business sot they have to come up with the certain marketing awareness campaigns to force the retailers to think about the monthly purchases for the store with the convenience and economies at a same place.
METRO has the basic strength of low prices with high quality.
Serving the customers with the wide variety of products.
Covering all business solutions under one roof named METRO.
Having the strong cash and carry business background.
Best location for such kind of big store and also covering many areas.
Efficiently using the place and excellent layout.
Sufficient parking and safety and security measures ensure the quality in every sector.
Friendly and co-operative staff.
Computerized data base system which helps both customer and METRO.
Cafeteria in the building for the refreshment of customers.
Less awareness in Pakistan regarding cash and carry business.
Although location for a big store is suitable but outside the city and not suit for all customers.
No proper transportation for customers to carry their products far away.
Limit of 3 persons on a single membership card
Restriction of shopping minimum Rs 2000
Membership or subscription fees for cards.
Shopping from METRO is much time consuming because the traveling and in store visiting time.
Growing market of cash and carry
Expansion in major cities.
Online shopping is much better option to save time
Contracting with major hotels and restaurants.
Proper METRO owned convene facilities.
Up coming stores like Wal mart and many others
Poor law and order situation of Pakistan
High inflation rate in Pakistan
Instability of the country
Changes and implementation
In this present era of competition where every company wants to be at the top position, the main factor which cannot be ignored is the technology that company is using. Same is the case with metro, though metro is doing good business in present time but it need to focus on its technology. To obtain maximum output from the resources that Metro have it requires technological change. The term technological change will give it increased competitive advantage and in future it will be able to come in frontline of business, Technological capabilities are a core competence. Now the question arises is what sort of technological changes do Metro require and how these can be implemented?
Since the Metro start it's business in Pakistan it is using the same technology but now the time has come when it should bring some changes in it's technology because if it doesn't focus on its technology factor it will no longer be able in future to sustain its position in market. As compare to other companies Metro is still far behind in technology, although it will be a big task for Metro to bring technological change but it is the demand of time.
Now coming to the technological changes that Metro requires are as following:
In Pakistan Metro is still not using self-service equipment which results in long ques due to which customers have to face hazels. So, now if Metro introduces self-service system in Pakistan it will become the first company to introduce this technology. Obviously it will bring revolution in development of this company in Pakistan.
The Metro cash & carry should upgrade its IT sector to improve the cost efficiency and environmental performance. The IT system software will facilitate the organization to improve planning and make better use of the possessions and reduce the number of deliveries to its Metro Express shops. The IT system will also help them voice communications.
The METRO Cash & Carry needed to initiate the wireless technology that they can instantly update and check prices of the market. They should install electronic display to allow it to update any form of rich text content, such as graphics, logos, promotional offers and price changes instantly. The electronic labeling is simpler for staff to update, and very useful to decrease the time occupied in checking prices.
Software Up gradation:
METRO Cash & Carry can cut customer waiting times at its fresh food counters by 60 per cent if it redesign the software that runs its scales systems. The software will connect into Metro IT infrastructure and feeds back supply and waste information into the sales system via a Windows 2000 server.
METRO Cash & Carry should improve its security system so that no disaster could happen. They should install new CCTV cammra system that could give better quality images. In METRO Cash & Carry there should be a proper monitoring in the store that will give improved customers satisfaction.
Change in Strategy of Human Resource Management:
A human resource system that is tailored to the business strategy is concerned with the competitive advantage of an organization. HRM is very important factor for the improvement as well as development of any organization.
Currently Metro is using hard approach of HRM in Pakistan. According to this approach the company wants profit at any cost, employees are not facilitated and their job satisfaction has no consideration. This is why Metro in Pakistan is facing a problem where employees are no more willing to work in the organization.
This approach should be implemented in Metro if it is not dealing with big business then it would have be able afford this problem. This problem arises when employees were not motivated for their performance instead of rewarding them they are only expected to do what management wants from them at lowest possible cost and also Metro has adopted the hiring and firing rule. So all these factors are not in favor of employees and that is why they are not giving loyalty towards Metro.
This is not a big problem; HR director of Metro can easily sort out this problem by changing the strategy. Instead of using hard approach he should implement soft approach.
Soft approach considers the following factors:
Employees should be motivated for their performance so that they could put more efforts in their work.
Job satisfaction is major factor of soft approach, employees should be provided with job satisfaction.
Reward system should be introduced in Metro, this is the best way to motivate employees and to confined them in organization.
Advantages of Soft Approach:
By implementing soft approach in Metro, it will be succeed to win the trust of employees as well as their loyalty. Metro will be more concerned towards the competitive advantage.
The structural change can be defined as deep reaching change that alters the way authority, capital, information and responsibility flows in an organization. By examine the different components or elements that make up Metro, it can be discover that for its interrelationships and relative importance in the realization of its goals or purpose, structural change is required.
A company's profitability depends in part on the structure of the industry in which it competes. Industry structure resides in five basic forces of competing, the force of rivalry in the existing competitors in market; there is a threat of new access; the threat of substitute products or services; the bargaining power of suppliers; and the bargaining power of buyers. The Industry structure is fairly stable, but the industries are sometimes altered by changes in buyer needs, regulation, or technology. METRO Cash & Carry can shape industry structure rather than inertly react to it. The structural change can be started by policy decisions or permanent changes in resources, population or the society. To improving and implementing new structure METRO Cash & Carry should consider the following steps.
METRO Cash & Carry should design its structure in such manner in which the load bearing (structural) members of a physical framework support each other in sharing the load (stress).
METRO Cash & Carry's new structure should not be difficult of mechanism or members necessary for the constancy of structure. Secondly the members should not be considered as part of the structural frame.
METRO Cash & Carry should consider structural inflation as significant factor due to the fact that inflation not caused just by the increase of demand over supply but build into an economy due to the government's monetar policy.
METRO Cash & Carry structural system should be like all the members of structure considered as one included unit, for the betterment of organization.
Metro needs to improve its structural management in such a way that management should seeks to maintain a desired balance between two or more different but complementary components or elements, such as debt and equity in financial management.
The concept of organizational change is in regard to organization-wide change, as opposed to smaller changes such as adding up a new person, modifying a program, etc. Examples of organization-wide change might include a change in mission, restructuring operations (e.g., restructuring to self-managed teams, layoffs, etc.), new technologies, mergers, major collaborations, "rightsizing", new programs such as Total Quality Management, re-engineering, etc.
There is no need to make changes for the sake of change -- it's a policy to attain some overall goal. usually organizational change is forced by some major outside powerful force, e.g., considerable cuts in funding, address major new markets/clients, need for striking increases in productivity, etc
A change agent role is usually liable to translate the vision to a realistic plan and carry out the plan. The hange is usually best passed out as a team-wide effort. The members of organization should discus about the changes frequently. To carry on change, the organizational structure itself should be customized, including strategic plans, policies and procedures. This change in the structures of the organization normally involves an unfreezing, change and re-freezing process.
Basic Dimensions in Organization:
These are some of the basic scope that should be kept in mind while making a change in an organization.
Extent to which functions are separate in the organization, either in terms of integration with other functions or in nature.
About the level of policies and the measures in the organization
Regarding the quantity and configuration of all the levels in the structure of organization
It concern about the extent that organizational processes are reliable
the activities are cultured to the extent.
The organization should give training to its members to extent with knowledge and the skills to do their roles.
By the values and beliefs shared by all (note that culture is often discerned by examining norms or observable behaviors in the workplace)
The nature of external influences and activities in the political, technical, social and economic arenas
the organization should givespecial overall priorities and ideal end-states
The number of people and possessions and their span in the organization
There is often need of unique activities to reach organizational goals.
Summarizing on the whole we have analyze maximum points which might be the resultants of failures and we have suggested the methods to rectify them in order to be efficient in every manner and hold its situation and be the market leader of the cash and carry business in Pakistan.