In todays world international business have become easier because of the globalization. International business now has grown over the years because of the benefits it has offered to the world. In this report I will be focussing on the International strategies of the brand NEXT which has business. Next is one of the main fashion labels s and it is certainly one of the biggest Multi-national these days. This report will also focus on micro and macro factors that affect the company. Then I will be considering the globalization and localization factors that affect NEXT. Key environmental variables and core competence with relation to its international strategy. In the end recommendations would be made for the development of the company’s international operations.
Next was established in 1864 in Leeds as J Hepworth & Son, Gentleman’s Tailors. The company started with women wear store in 1982 and then gradually upgraded to men, children and interiors. The company was named NEXT in 1986. Now NEXT is a retailer based in UK. It offers its customers stylish and good quality products in different sectors like clothes, footwear and also home products. NEXT distributes its products to the customers by three main channels. These channels are the NEXT Retail, a chain of 500stores in the UK; and the Next Directory, which is a direct mail catalogue and transactional website with more than 2million customers and Next International, with more than 170 stores overseas. (www.nextplc.co.uk, 2009).
According to Rugman & Hodgetts (2002) International Business is defined as “different forms of business transaction taking place across national borders for the purpose of satisfying the needs of individuals and organisations”. International business has become more common in past few decades and it has helped many poor countries to grow and has allowed some developing countries to grow more. Across the border transactions have allowed the multi-national companies to reduce their production cost by going to the less developed countries where wage rate is lesser than their own countries. According to Griffin and Pustay (2006), International business consists of the business transactions which are made between two or more countries. For example NEXT buy material from a country and ship it to Srilanka or Bangladesh for stitching and then it goes to different countries to the retail stores of NEXT.
Next’s mission is to be the first choice of its customers in the UK and overseas for people who want quality, style and affordable prices. In today’s world fashion is changing very frequently so the retailers like Next have to offer its customers with the new products. They just want their customer satisfaction by providing them with the better quality and design with compared to their competitors. Next strategy is to target different group of customers who not only look for good quality but also the better prices. It offers its customers of different classes with affordable prices.
According to Gerald Tellis (1989), price is a very important variable in forming a strategy for a business. The public policy makers’ main focus is to check if they customers are getting reasonable prices for the products they are buying or if they are getting value for money. Another point that he mentions about what the economists look at, if the higher-price products are of good quality or the retailers are charging their customers more than the product worth. Next’s strategy is, they always look for their customer satisfaction by providing them with the affordable prices and the modern style, so that they don’t get disappointed.
According to Antony Dnes (1995), franchising is a better way to expand your business. Better understanding of franchising could result in successful revival of a business. Franchising authority awards different franchises to the producers by offering them the lowest prices for specific quantity and quality. Next have 170 franchise stores in different countries and have different price ranges for different countries.
According to Next’s Annual report of 2009 (ir3.quartalflife.com), their main strategy is to achieve their financial objective which is the delivery of sustainable long term growth in their shareholders value. In 2009 their EPS have gone down, so it is very hard for them to cover up quickly so it is a bit challenging for Next. But they are confident that their long term objectives can be achieved by the strategies they have made after 2009. The board needs to manage its strategic risks to deliver the long term benefits to its stake holders. This strategy has just been planned on normal basis to know how to achieve their goals, but Next is facing challenges from its competitors for example Marks & Spencer have opened a eco-factory in Srilanka which would help them reducing their cost, as the plant in that factory is solar so it would use less electricity. So Next has to come up with something special to cut down its cost of production and be able to achieve its financial objectives. Their main focus is to improve and develop their range of products in different parts of the world and keep its customers with in the fashion world. They have given their stores a demanding financial criteria and those stores must meet those figures before other investments are made. They are also trying to increase their customers who are shopping by using their Next Directory. They have also considered increasing their gross and net margins by better sourcing and controlling the cost of their products.
According to Jobber D, (2007) macro environment consists of environmental issues that may affect business performances. This analysis takes into account those factors such as political, economic, social, technological, legal and environmental changes. For successful marketing strategy the company has to focus on these changes, bearing in mind that all these factors are interlinked with each other.
The current economic condition faced by the world economy has forced the UK government to take serious notes on their legislations. For instance the recent decrease in VAT was a strategy to increase consumer spending, which was a positive implementation for the current economic condition, however, it did not affected a lot as the government failed to raise consumer lending by financial institutions. This failure of government approach affected NEXT as the peak season (Christmas Sale) went without high sales. Mr Wolfson (CEO) of Next plc has also mentioned the same situation in one of his interviews regarding government policy to tackle the economic conditions. (www.ft.com, 2009).
The government latest intervention to kick start the economy was to cut down its interest rate to its all time low last month. The company can benefit from it as it has the opportunity to borrow the money at a very less interest rate. Moreover, NEXT has also got opportunity to attract more investment through share in the stock exchange, as savers will be more willing to invest their money instead of saving it on such a low rate.
Since the end of the year 2007 and early start 2008 the world economy was struck by reverse economic condition since 1990. With less consumer spending and global financial institutions collapsing it has resulted in Next share prices plunging. Current affairs show that Next need to survive the economic turbulence instead of its growth. However, company’s branding and well established customer loyalty will help the company to survive in this downturn.
Speaking of the socio-cultural future it should be mentioned that people retire earlier these days, as well as working shorter hours. Average working hours per week have decreased over the last 20 years. As a result many people have more spare time. This means they have time to compare prices in the High Street and the quality of goods and services from retailers. But as a result, they spend more time in the shops.
Another issue these days is the “Child Labour”. Due to efficient media consumer are well informed and therefore this awareness challenges them to care. They don’t want to buy just a product but they look beyond into the production process, labour used, etc. That leads to the issue of child labour in the clothing retail sector. There are companies who rely on it in order to be competitive in the domestic market. For example Marks & Spencer had been accused of using child labour in Indonesia in 1999. Once the customers become aware of such practices, companies get into real trouble if they do not respond immediately. Consumers do look for best price but not at the cost of their ethics. NEXT has taken a good care of this and is never found involved in this. (www.hausarbeiten.com, 2009).
After looking at the current position and the threats from the different green organizations regarding global warming NEXT has taken many environmental friendly steps. Firstly its 98 stores recycle cardboard and plastic. Annually 11,935 tonnes of cardboard and polythene is recycled that is reused in making 12 million hangers. It has also decreased 7.1% carbon dioxide emission per 1000 parcel delivered/collected. (www.nextplc.co.uk, 2009)
Next is equipped with the latest technology in order to compete with their competitors. They have a team of 100 technologists to ensure that they sell safe products. Their technologists have developed specific manuals for the suppliers to ensure they comply with the law and safety and performance standards. (www.nextplc.co.uk, 2009)
According to Jobber (2007), “micro-environment consists of the actors in the firm’s immediate environment that affects its capabilities to operate effectively in the chosen market”. The main factors are customers, suppliers and competitors.
According to Jobber (2007), customers are at the centre of the marketing philosophy and effort”. So it is very important to satisfy your customers and understand their actual needs. In 2003, the main customer for NEXT were aged 25-44, but in 2008 that has changed to 20-34-years-old (www.nextplc.co.uk). Therefore, it seems to be that the NEXT is now attracting more young customers. The next always had good quality, good reputation and excellent customer service. The other is that they have also varied their product and introduced more style into it. Its online service is also becoming popular.
Suppliers and Distributors:
According to Jobber (2007), business is really influenced by the suppliers of a company. Next wants its suppliers to work with them closely, and they are committed to provide their customers with the products which are made in tidy and safe environment. Their main aims are to communicate their moral standards to the suppliers, and to promote good work places in the countries where their suppliers are, and to build capacity with the international chain of suppliers. Next by itself is a retailer so it reaches its customers by franchises and online web orders. It has also the Online Web directory, from where its customers can buy the products they want and also they have broachers and catalogues to sell their products to the end customers.
Next has two main competitors Debenhams and Marks and Spencer Group. Due to the recession many multi-nationals’ sales and their profit has gone down, and now they are making strategies to achieve their objectives. Because of the recession company’s were unable to achieve their planned growth and targets. Because of economic downturn many companies have fallen to make cuts in their aspects of business. This could be a good short-term solution but it could cause problems for providing the customers with the quality and efficiency they want in the products.
M&S’s net profit has gone down in 2009 if compared to 2008’s figures. In 2008, its Net profit was £821m which was recorded as £506m and their earning per share has also dropped by 35.7p per share, as it was 43.6p in 2008 where as in 2009 it was recorded as 28.0p. But they are now trying to cover up their net profit of last year by eco-factory in Srilanka which would help them save their costs of production as it uses the solar power so it would use less electricity. They have planned,(Plan A) to response to the challenges and has set sustainability targets for 2012, and the commitments to achieve their goals. They have now started online international delivery to 80 countries, which could help them gain more customers all over the world as people would not have to visit the store or if they do not have any store nearby they can still get the M&S products online (corporate.marksandspencer.com).
Debenhams Annual report for 2009 shows that its net profit and EPS have grown as compared to 2008. Net profit was recorded as £95.1m in 2009, whereas in 2008 it was £77.1m and their EPS was noted as 10.0p in 2009 and in 2008 it was 9.0p per share. Their main strategy to boost up their business in the future is to have more space for their stores, have multi-channel expansion and balance sheet optimisation, which would help them. In this era of recession Debenhams have managed to make more profit then the previous year by their strategies. According to their report of 2009, “market shares gains have been achieved on a regular basis for some two years”. This shows that they have been planning for their business very well so that they can overcome any hurdle. (www.investis.com)
If we see the financial report of Next for 2009, it is a bit disappointing for them as its Net Profit has gone down from £353.9m to £302.3 in 2008 to 2009 respectively. And the EPS has dropped by 12.7p per share as it was 168.7p in 2008 and in 2009 it decreased to 156.0p per share. (ir3.quartalflife.com)
Globalization & Localisation drivers:
According to Ricky and Putsay (2006), international business has grown very quickly in the past ten years that many experts believe this era to be the era of globalization. According to him “Globalization can be defined as the inexorable integration of markets, nation-states, and technologies. Globalization has now enabled the people to reach around the world more quickly and cheaply than ever before. The world is getting closer day-by-day in terms of business, now it is normal that a company would do business with companies in other countries. It has now led to the escalation of international trade in the economies of the world. Next has been very benefited by the globalization as it has been able to get the products stitched at very cheap price from the Asian countries. Globalization drivers Next understands the needs of its customers from different areas of the world and offer them with affordable prices. Next have very effective marketing channels like accessing the customers via internet, fashion magazines, TV etc. According to Simpson and Thorpe (1999), understanding differences between customers and difference in terms of product and service expectation is very important for international expansion. Next understands the need of its customers and provides its customers with the up-to-date fashion and it keeps them with the rapidly changing style with affordable prices.
According to Ricky and Putsay (2006), importance of the foreign direct investment is also increasing because of globalization. It was just 2.4% in 1980 but by 2004 FDI equalled almost 22% of year’s GDP. It can help the business to grow internationally and earn more profit for the company. FDI can help the business in different ways. For example if Next goes to do business in Pakistan, the currency fluctuation would help Next, as in when it invest in Pakistan it would invest in Pakistani rupees and after getting the product and selling here in UK in pounds would definitely help to boost their sales profits. They would get cheap labour in Pakistan so they would save their production cost. As Pakistan is still a developing country so it would want multi-nationals to invest there, and they may provide Next with Tax Subsidiary for some time.
According to Ricky and Putsay (2006), “a core competence is a distinctive strength or advantage that is central to a firm’s operation”. The company’s main strength would be its core competence over its competitors. The company needs to identify the things they do well. Next’s core competence over its customers is it targets a wide range of people from different classes by offering the products and style they want with affordable prices. They also have been focussing on expanding their business in different parts of the world through franchising. It has also created its brand image overseas, which is very important for a company. According to Keller (1993), brand image is “perception about a brand as reflected by the brand associations held in customer memory”. Next’s brand image helps the business to grow much faster for example if a person has a good perception of Next in his mind, he would tell his friends and the people he knows to buy its products, which is a very efficient way of marketing.
Next has an edge over its competitors that it is targeting the market which comprises of mainly the youngsters. As youngsters are more into fashion then anyone so it helps Next to get more customers then its competitors. As mentioned earlier, Next strategy is to provide its customers with the quality and style they want with affordable prices whereas if we look at the prices of its competitors, they target higher class.
Next should try to bring more innovation in cloth manufacturing because by doing this they could attract more and more young customers to buy their products and also concentrate on the changing trends in the fashion world. Because of the economic crisis all over the world people do not want to spend more, so Next should do price cutting in their products and have promotional offers in the store to attract more people. Next needs to follow its competitors, as it is the era of global warming, so they should work on making the world eco-friendly by building plants like M&S did, it would also reduce the production cost for them. To promote its brand Next could also target the markets where they have suppliers and the neighbouring countries for example if they are manufacturing there products in Bangladesh, they could target the neighbouring countries as there are a lot of emerging economies so it would help them grow their business in those economies. And if they promote their business in countries like Pakistan where they would not have a lot of competition as Next has a well-known brand name and the competitors would not be able to compete with their strategies and they could make much profit from these types of markets.
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