The Superdrug Going to India Article of Your Dreams!!!

The superdrug going to India


                                         EXECUTIVE SUMMARY

The report critically evaluates the internalization of Superdrug into India, using Ansoff matrix and Porters diamond, the  reasons for choosing the new geographical region and strategic choices available for the parent company was justified, it is recommended that a full entry mode (Acquisition) should be used by the company to enter the foreign market using the Resource based view model as guide. Possible problems associated with the subsidiary was evaluated with solutio

INTRODUCTION

Superdrug which joined the AS Watson group in October 2002 was founded in 1964. The Goldstein family grew the business from just a store before selling the business to Kingfisher in 1987.
One of the earliest and major expansion experienced was in 1988 when the Tip Top chain was acquired. As at 1989, the company’s stores have increased to over 650 with the acquisition of Medicare chain. Superdrug was bought by Kruidvat Beheer- a Dutch health and beauty chain in July 2001 and later its retail interest was sold to AS Watson. Since its inception in 1964 by Ronald and Peter Goldstein as ‘Leading Supermarkets Limited’, the company has experienced expansion in the UK through acquisitions, mergers, accelerated store growth, stock market listing, working trade formula, promotional initiative, diversification and new product development (Superdrug, 2014). By entering India, Superdrug aims to substantially acquire a substantial market share in the Indian beauty and health market, while remaining the total control of the headquarters that is located in the UK
The Superdrug going to India
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REASONS FOR INTERNATIONAL EXPANSION OF AS WATSON GROUP

A quote from the media center of A.S Watson Group says ; "As a major listed company with a global reach, our work is often innovative and ground-breaking and our performance is often newsworthy" (Wong, 2011). The acquisition of Superdrug in 2002 makes AS Watson its parent company. A.S Watson is a renowned multinational company; is the largest international health & beauty retailer in Asia and Europe with stores across 25 markets. The company started in China in 1828 as Canton Dispensary. It was then as at 1832 one of the earliest firms in the world to produce soda-water, expansion was early as operations extended to Hong Kong as early as 1841 where it was named Hong Kong Dispensary was traded under the name A.S. Watson & Company and factory located in Honk Kong. AS Watson group increased their global presence and in turn revenues through acquisitions, mergers and expansion.

The historical performance of the company has been appreciable having established a strong presence in Asia and gradually expanding its presence in Europe with its strong brand name. Before 1941; its 100 years of existence, the company in 1883 had expanded markets to foreign markets like the Philippines and China and established a pharmacy and a soft drink factory (1884) in Manila; diversified into about 300 dispensary, toiletry and perfumery lines in 1895 and the production of safe and drinkable water in 1903. The A.S Watson Group became a fully-owned subsidiary of Hutchison Whampoa Group in 1981. Badrinath (2011) reports that; A.S Watson group is the Hong Kong-based international retail and consumer division of Hutchison. Expansion of water operations into Europe in 1998,through acquisitions marks the beginning of market entry into Europe, wine businesses also extended to Europe, Savers health & beauty retail chain in UK was acquired and Superdrug was acquired through the Kruidvat group in 2002.

The parent company has a huge market share and high competitive position in the global health and retail beauty industry with over 10,000 stores in 33 markets in the world, and is one of the top three market leaders in 25 of them (Wong, 2011). Lawson (2014) reports that the Superdrug owner already operating in 33 countries is loaded with global growth prospects, a strong brand and a resilient model.

POSSIBLE STRATEGIC CHOICES AVAILABLE TO A.S WATSON

The possible strategic choices are evaluated using the Ansoff Matrix, the ansoff growth matrix is a tool that helps businesses decides their product and market growth strategy.  This  model suggests that Watson's attempt to grow depends on whether it markets new or existing products in new or existing market.

Market Penetration

Through aggressive promotional campaigns, competitors like Alliance Boots GmbH Europe's leading drug wholesaler, serving more than 170,000 pharmacies, hospitals, and clinics in about 20 countries in Europe (as well as Asia and the Middle East). A.S Watson has penetrated deeply into Asia through its loyalty programs, its   card membership was reaching 15 million mark in Asia.

Market Development

This is more risky than penetration as products are introduced into relatively new markets. For A.S Watson, many existing markets especially in Asia have been fully exploited and can extend into markets like India where presence is not felt through exporting and e-commerce considering the fact that there is strong opposition to opening the retail sector for overseas players in the country as reported in Badrinath  (2011) and Monga (2007).

Product Development

Introducing new products is not new to the group, an example is when its subsidiary Superdrug launched its skincare & makeup collection B in 2013 and was ranked as a leading seller in the market. Product development is achievable as  one of the group’s marketing strategies is to get closer to customers, listen to their needs through proper communications and feedback channels, as well as regular customer research.

Diversification

Diversification is the most risky strategy of the four, A.S Watson diversifies majorly through acquisitions of divisions businesses with potential in new and developing markets where risk may be higher, but growth potential is greater. A typical example is Superdrug labelled a leading health and beauty company in the UK.

JUSTIFYING  THE CHOICE OF LOCATION (INDIAN MARKET)

With a GDP of $752 billion, India is recorded as the world's 10th largest economy . Economic liberalization of India began in 1991 and continues at a slow pace gradually integrating with global markets. Since the 1990s, the middle class has grown and poverty levels have fallen. Its GDP growth has fallen only slightly to 6.4% (2000-2005) from 6.7% (1994-1999).
India has the second largest network of paved highways and its rated second largest community of software developers. After the U.S., India is the world's largest producer of milk, and among the top five producers of sugar, cotton, tea, coffee, spices, rubber, silk, and fish. 100 of the Fortune 500 companies have R&D facilities in India.

According to two way U.S, was $10 billion in 1997 and tops $25 billion a year. India's GDP grew at an impressive 7.8% during 2005-2006. India is one of only three countries that makes supercomputers (the US and Japan are the other two). Eight Indian companies are listed on the NYSE; three on the NASDAQ. By volume of pills produced, the Indian pharmaceutical industry is the world's second largest after China.

In addition, it's no news that India have recorded success in various fields such as:  IT, pharmaceutical & biotech, telecom, science and technology skills and  manufacturing. the change in economic due to the country's expanding market have reduced Challenges initially faced in India , for instance poverty level as being reduced, accelerated pace of reform, reduced fiscal deficit, upgraded infrastructure.

PORTER'S DIAMOND

Using the porters diamond, the advantages of the  Indian  market to Watsons (Superdrug) is analysed. Michael porter described the diamond as the reasons why some industries or nations are more competitive than others on a global scale.


Factor conditions
Are resources such as Physical resources, human resources, knowledge resources capital and infrastructure etc. These resources can be found in India and her important to the subsidiary especially for Superdrug competitiveness.
Demand conditions
In the UK Superdrug can help create a competitive advantage, when sophisticated home market buyers pressure firms to innovate better and quality  to create more advanced products than those of competitors.
Related and supporting industries
Production of  inputs which are important for innovation and internationalisation. Indian market provide cost-effective inputs, and participate in the upgrading process, thus stimulating companies like Superdrug to innovate.
Firm strategy, structure and rivalry
This factor constitutes the fourth determinant of competitiveness, it evaluates the way companies are created, set goals and are managed in order to achieve their goals. The presence of intense rivalry in the UK market created pressure on Watson group to upgrade its competitiveness and consider the subsidiary as Superdrug faces strong competition from boots in the UK .

MARKET MODE OF ENTRY CHOICE FOR SUPERDRUG.
In this section, a suitable model is recommended for the company's entry mode, this is achieved by considering the various models that have been developed to give a better understanding of multinational companies'  market entry models (Decker & Zhao ,2004).

THE RESOURCE-BASED VIEW MODEL(RBV)

RBV is an important model in strategic management. The model proposes that a company is viewed from the perspective of it being a package consisting of unique tangible and intangible (Musso & Francioni, 2012). Here Superdrug unique resources will be  used in the India markets as a source of competitive advantage . for an MNC market entry mode Experience is one of resources that should be utilised (Cannabal & White, 2008). Superdrug posses certain Intangible resources, that are indicators of competitive advantage and are difficult to imitate such as like intellect, expertise and  competencies .
CHOSEN ENTRY MODE AND ITS COMPLICATION
Based on the model above, the appropriate entry mode for Superdrug will be the direct investment entry mode otherwise known as the wholly owned subsidiary
DIRECT INVESTMENT (WHOLLY OWNED SUBSIDIARY)
In this case Superdrug will directly invest in the new market. this approach gives it (Superdrug) a great level of commitment and full ownership. According to Hill.et al, (2014), wholly owned subsidiary gives the parent company the whole stock. Foreign facilities can be acquired by acquisition in the India or the company builds its own facilities from the scratch.
COMPLICATIONS
However, not all countries permits full ownership to foreign organisations, they would rather have them operate through joint venturing or licensing (Lambin, 2007). also Acquisition is an expensive entry mode because an acquisition premium is usually paid ,which could lead to a reduction in Superdrug stock price margin and an increase in that of the  acquiring company. More so, acquisitions do not always create the expected value of a subsidiary, and can even destroy the acquiring company’s competencies in terms of innovation.
Acquisition is an expensive mode of entry , however Superdrug can still adopt this it because its parents company is financially buoyant with large stock market valuation.
ANALYSES OF  POTENTIAL PROBLEMS ASSOCIATED WITH SUBSIDARIES
Organizational and managerial complications are the major problems companies encounter during internalization,  Superdrug  moving into India is no exception . India as a completely different organizational culture, Burberry (2012), described the business culture of a country to be strictly linked to its national culture an example of such business culture is the Aditya Birla group , though a globalized company but still operates under its culture. below is a list of potential problems Superdrug might experience in the new market
Organizational structure
Superdrug has to determine the organizational structure for its subsidiary in India , as a retailer, this subsidiary is expected to have a number of stores across India. The organizational structure for these stores need to be determined so as to ensure proper performance and control over all these stores. A critical point to consider would be whether the organizational structure should be established in the way of the British headquarters or follow the structural patterns of local Indian company. Considering the substantial difference between the organizational structures of these two countries, related issues should be resolved. For instance, the difference in the power of the labour union in companies of the two countries has to be evaluated.
Another potential complication would be the control of this subsidiary, such as whether this subsidiary should be run by local India employees and managers. In setting up subsidiaries, too much control would substantially discourage local employees and managers by the company’s effort to limit the local employees to the lower level of management positions. This would have potential negative impact on the morale of the company’s Indian subsidiary. This would also potentially influence the relationship between the company and the Indian government. However, hiring too many local employees and assigning top management roles to local Indians over the new subsidiary’s management would mean the weakness of control over the management of the new subsidiary, and this could result in a dent in the company’s strategic implementation for long-term.
Marketing challenges
Although India has the world’s second biggest population, majority of Indian people are poor, and the difference between India’s rich and poor is large. Thus, Superdrug has to determine its marketing segmentation, targeting and positioning for its subsidiary in India. In specific, Marketing Mix is the common tool used by marketers to determine the product, price, place and promotion of the marketing strategy (Zikmund and Babin, 2012).
More so, India has a rich pool of medical and health-care products thanks to its fine traditions.  

Should this subsidiary sell western products or local products, will it be marketable?
Therefore, the product mix of this subsidiary should be determined to attract and retain India customers. If it sells local products, what is its competitiveness over local India retailers? if it sells local products it faces the challenge of losing control over the product line that have been followed by the company’s operations elsewhere.
However, if it sells western products, customers would be concerned as to whether these products meet the demands of India customers and their expectation. Under such circumstance, Superdrug would be able to maintain its consistency in terms of product category and product line. The brand features would not be threatened to be tarnished. But  lack of localization within the products and the operations in India would face certain challenges like  rejection by Indian local customers, who may have little knowledge and experience in using products that are popular for UK customers.
In addition, pricing and promotion problems should be considered. Should the subsidiary adopt high pricing to target premium markets or low pricing to attract mass customers?  and how the subsidiary could  build a fast brand awareness among India customers?  considering the pricing strategy and  acceptance of Indian customers as well as the brand positioning.
The Superdrug going to India

Political factor (Relations with local governments)
Developing a good relationship with local India government is a challenge for Superdrug’s in India.
The India government has been known for its low efficiency and corruption (IBRD/WB, 2013), and it has a tendency to protect local small businesses, Superdrug products would face a long time to be allowed to enter the local market. If Superdrug aims to start a new factory, it may witness problems in terms of examination and approval by this local departments of Indian government.
Furthermore, as a drug retailer chain, Superdrug may create negative impacts to local individual retailers, who may protest to government over the presence of Superdrug. The position of Indian government may be influenced by such protests. As a result, the political influence will be a negative impact for Superdrug’s expansion in India.
Cross-cultural management
According to the Culture Dimension Model ,developed by Hofstede, the national culture of a country can be categorized into six dimensions respectively (Soares, Farhangmehr and Shoham, 2007).These six dimensions are power distance, individualism, masculinity, uncertainty avoidance, pragmatism, and indulgence.
The national cultures of the UK and India are quite different from each other. As a result, Superdrug doing business in India will confronted with cross-cultural management problems. India has a different national culture from the home country of Superdrug, which is the UK. For instance, in India, power distance is a strong feature of interpersonal relationship. This has been comprehensively manifested in the organizational culture of Indian organizations.


Superdrug has to hire Indian employees or work with them in the process of establishing the new subsidiary. As a result, certain conflict in terms of the national culture between the two countries cannot be ignored. Cross-cultural management has to be integrated into both the establishment and operations strategy of the subsidiary programme.
RECOMMENDATIONS
This section presents possible recommendations to the problems listed above. this practical recommendations are being  proposed for the new subsidiary :
Organizational structure
Superdrug’s  should adopt a strategy that makes it  have control over its stores across India. The top management positions should be appointed to British employees and managers in order to ensure the absolute control of the parent company in India., in working and cooperating with local staff, clients, and government officials, it is recommended the British staff have the final say in decision-making process.
However, considering the representation of local work force in the organizational structure, certain mid-level management positions can be assigned to local Indian talents. and more employees among local Indians can be hired to fit into low-end positions. By establishing this kind of organizational structure, the control of the parent company over the new subsidiary can be ensured and enhance its operations in the future.

Localization
Localization is recommended as the solution to problems that will arise from marketing. In terms of the marketing mix, product design should take into considerations the preference of the Indian public. Indian designers can be contracted in order to integrate local features into Superdrug products. Also, regarding services, the group can improve the training of employees in terms of the service manners that are appreciated and welcomed by Indian customers.
Public relations
So as to avoid  local protests, Superdrug should make efforts to set up a positive local image, which will help win supports from local customers. To  enhance marketing,  Superdrug can invite some Indian citizens as lucky customers, they will given the privilege tom use the  products of the new subsidiary , Some of these lucky customers could be invited, as honored guests, to test the new products, this strategy will help enhance marketing .
Also, the new subsidiary can operate in a transparent manner by increasing the knowledge of the opening of the new stores of Superdrug in India. Asking the public for suggestions  in terms of the production process, raw material procurement and product design is also a good option  to create a positive image .
Cross-cultural trainings


Superdrug should offer practical and sufficient trainings to its expatriates in India. As has been mentioned above, top management roles of the new subsidiary and some mid-level management positions will be offered to British expatriates. They will be responsible for certain decision making in the establishment.  Sufficient training should be offered to these expatriates to improve their success in the expatriation into India. For instance, the difference in body gesture should be taught because  in Indian body language, nodding means No and shaking one’s head means Yes, which is completely opposite to its British counter
CONCLUSION
The Ansoff analysis provides strategic position of the company , with the help of figure 1, a conclusion to venture into India is appropriate. In terms of company specificity, asset specificity is high, financial capability is high since it is a large sized company. Country risk is medium-low, as per government restriction and the  Cultural distance is high. Market potential is high and market competition is also high. Thus, level of control has to be high, and entry mode choice should be that of full ownership.






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