International Business: Expansion of M&S into Russia

INTERNATIONAL BUSINESS

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EXECUTIVE SUMMARY

The report analyses by offering a strategic evaluation of the opportunities for M&S to expand into a new country, which is Russia- BRICS nation and recommends choosing a joint venture market entry mode with a Russian partner. The reason for the selection is the potential cultural, regulatory and logistical risks are comparatively less as it uses the partners’ experience in the market and resources. This report then presents a significant strategy to M&S which will overcome various issues, which will enable M&S to understand and deal with the Russian legal framework, as well as adapt to the market and offer products that would be popular among Russian customers. The reports in the further section demonstrate possible barriers that M&S would face during their internationalisation process. Furthermore, the understanding of some of the local products, particularly within the food sector, may even fit within the company's sustainability strategy in Russia. The report at the end recommends that M&S pursue a systematic and successful phased market entry strategy, it will be possible to extend the company’s activity, minimize the potential threats and ensure the stable company’s position in the Russian sector of retail trade.

INTRODUCTION

Marks & Spencer (M&S) Company Limited is one of the UK's biggest retailers selling quality apparel, homewares as well as quality foods. M&S has been operating for more than a century and has developed a well-established and respected reputation within the domestic market. It focuses on the key values of the company including sustainability, customer service and innovation (Marks & Spencer, 2024).

M&S have an excellent chance to expand into the global markets of Russia, a BRICS nation that will enable the company from the escalating British economy by diversifying the business. The size and growth in the population, as well as the emerging enlarged middle-class consumers of Russia, are eager to purchase high-quality products from Britain which imparts opportunities for M&S to conquer the business market in Russia. By considering the current economic distress of the UK and the constant increase in the interest rates, as reported in the BBC news, the expansion into international markets could provide M&S with the potential for growth and diversification of the revenue sources, thus overcoming the struggle within the domestic market. Geopolitical turmoil in the Russian Federation is unlikely to deter Russia’s domestic consumption with M&S focusing on branded food and clothing that has appeal among increasingly health-conscious Russian consumers (Asongu et al., 2018).

To manage threats, M&S should use strategic entry modes such as joint venture or franchising to start expansion in some key cities of Russia. This would allow the brand to grow organically and adapt to relevant jurisdictions' rules and values through partnerships.

The rationale behind recommending M&S to enter the Russian market exists in the strategic perspective of the current economic environment, potential growth and long-term goals. As one of the key economies of the BRICS, Russia offers a tremendous number of entry opportunities because of its emerging and fast-growing middle class, urbanization and the Russians' propensity to consume high-quality Western goods. These factors are favourable for M&S since it is a British retailer dealing in food and clothing products and can satisfy the Russian consumers’ desire to have quality products (Vasin et al., 2018).

EXPANSION OF M&S IN RUSSIA WITH ITS RATIONALE

In current business dynamics, the UK economy seems to be slow, and the BBC report has also pointed out the fact regarding this situation is the higher interest rates which have been impacting consumer spending and slowing down the economic growth. This puts local companies in a very tight situation especially M&S, which relied so much on the domestic market for its sales. With the absence of consumer confidence in the UK and inflation affecting their spending power within the country, M&S has no option but to consider their international business growth by seeking new markets at the international level, especially in emerging economies like Russia. It is the potential platform of revenue diversification for M&S so that it is not fully dependent on the domestic market and can have some form of insurance against the fluctuations in the domestic economy.

Russia possesses a complicated geopolitical and legal environment but at the same time, Russia offers economic benefits that can contribute to M&S success. Presently, Russia has become one of the largest markets for accessories with a huge amount of people over 140 million and the middle class is willing to pay for the product with good quality. The situation of the retail sector where brands from foreign countries are welcomed more and more, especially to bigger cities like Moscow and St. Petersburg; foreign goods, produced in the West, are considered to be better and have higher status. From critical success factor analysis above, indicates that M&S will be well-fitted in the market through the trust, quality and sustainability that define the M&S brand (Chernova et al., 2019).

Market Analysis: M&S has also established itself as a brand that sells quality products with a main focus on sourcing from sustainable mode, especially in the food and fashion business vertical. Premium food products have experienced a constant demand increase in Russia, this is evident in urban areas where consumers’ purchasing power has increased. Moreover, Russian customers have a preference for foreign products especially because those products are widely regarded as better in quality as compared to domestic items. This is especially the case with the food and clothing industry in which M&S has a competitive advantage. For example, the ‘Food Hall’ which entails the sale of select gourmet, organic and convenience foods which are likely to appeal to the affluent Russian customer owing to their status symbolization and global orientation.

Also, Russia’s food market is not the only sector M&S needs to enter, but its focus on capturing the fashion market would prove profitable after the expansion. Most recently, Russian consumers especially middle-income earners and those from the urban centres have been embracing the purchase of clothes from international brands especially those that are trendy and relatively cheap clothing materials. A range of apparel offered by M&S, most of which is comfortable but trendy, will fit the Russian market that is in search of quality clothing but at considerably low prices compared to luxury brands. Moreover, M&S's reputation in sustainability and ethical sourcing could be a competitive advantage relative to other brands in Russia especially when consumers become aware and more sensitive to the surrounding environment and social concerns (Shults and Bit-Savva, 2019).

M&S has already stated its plan to penetrate more international markets and entering into any of the BRICS countries is strategic in achieving this vision. Russia fits M&S because the country possesses scale wherein it has a large population which has appeal for the retailer and demand for high-quality items that the company sells. In fact, M&S can penetrate its strategic plan by entering the Russian market in order to diversify its growth through geographical expansion and thus decrease vulnerabilities of economic cycles in the UK market.

Moreover, the decision to enter Russia helps M&S to capitalise on the advantages in the market that is less saturated as compared to other BRICS nations such as China or India. Despite the various challenges that characterize the geopolitical environment in Russia, these are manageable provided that M&S adopts the right entry strategies such as joint venture or franchise since the latter would be in a better position to deal with the regulatory environment that is present in Russia (Gereffi, 2019).

MODE OF ENTRY INTO THE INTERNATIONAL MARKET

The Russian market is known for its contingencies, both in terms of the regulatory environment and political risks, it can advise to be systematic while implementing the intended changes at M&S. These risks can however be managed if M&S enters the Russian market through joint venture or franchising so as to enjoy the local market knowledge. For instance, the use of franchising will allow M&S to expand the market coverage of the brand without investing in property and infrastructure; this will help the brand minimize financial risks while building global recognition of the brand (Hamilton and Webster, 2018).

The chance of a joint venture can be considered the best possible option, especially in the food sector where local distributors and retailer partners could be sourced to assist M&S with the legal bottlenecks and logistical challenges present in the country. If M&S can tie up with a Russian local partner, it would provide a better understanding of local consumers, their propensity to purchase, and other market specifics which will ease its entry strategies. It would also let the company adapt the products it offers to the Russian market taste yet still uphold the brand image of the company (Martín et al., 2022).

Addressing Geopolitical Risks: It is crucial to remember the geopolitical exposures of operating in the Russian market which has its benefits. This means that there could be various risks that would affect Marks and Spencer some of which include Economic sanction and political instability, regulatory and legal risks. Thus, the foregoing risks can be mitigated by planning and through outcompeting market entry risk management strategies. Thus, M&S should note that while entering the Russian market might be risky, it does not necessarily have to be as risky as one might think as the firm can opt to use franchising or joint ventures.

Moreover, sustainability and ethical principles of M&S's business can be considered as a key aspect to reduce the number of regulatory and reputational threats, which may appear when the company decides to operate in Russia. By focusing on such aspects of its activity as sustainable sourcing and ethical business, M&S could construct a favourable brand reputation in the market, attract those consumers who are aware of public issues and are ready to pay attention to them and occupy a niche that would make the company stand out from the rest of the market (Collinson et al., 2020).

BARRIERS TO BUSINESS EXPANSION IN THE INTERNATIONAL MARKET

During the process of international expansion, prospective global firms like Marks & Spencer (M&S) may encounter some primary challenges that require mutual commitment for proper market entry and healthy growth. They include issues of Economic, Cultural, Regulatory and Operational Nature of the Business across different countries. The following are the usual barriers, which M&S may face as it seeks to venture into other markets for diversification as exemplified by the Russian market.

Economic Barriers and Currency Fluctuations: Fluctuations in the economy are another challenge that organisations come across when operating in different nations. For instance, Russia has faced some financial instability which has been realized with instances such as instabilities in prices of oil, inflation and sanctions of other countries. This is because the economic conditions can affect consumers purchasing power and overall demand for such products, thus making it hard for M&S to get optimal market access.

Another important problem can be the instability of the currency exchange rates. In the case of M&S, the goods are marketed with reference to the Russian context meaning that any fluctuations in Ruble against the pound will impact profitability. For example, if Ruble decreases in value and UK goods imports increase, Russian consumers would be able to afford fewer of the UK's goods. The matter is that M&S would have to look for ways of insulating itself from exchange rate fluctuations by finding ways of managing currency risks or considering local sourcing (Rahman et al., 2020).

Regulatory and Legal Barriers: Every country has its own laws and the rules and regulations that must be followed while entering and operating in it are often cited as one of the biggest difficulties of going international. For M&S to establish itself in Russia the company would have to adhere to the legal systems of Russia that govern business operations such as retail sales, food hygiene, consumer expectations and employment standards. Some challenges may be in the form of legal and regulatory such as getting licenses, the labour laws of the country, safety and the environment among others. Further, there are challenges in regard to compliance with the advertisements and marketing laws that may be quite distinct from those within the UK.

Other factors which increase the cost or complications of international expansion include trade regulations and tariffs. Russia like other countries may have its own trade policies such as import taxes that it may set on imported products, especially foods and this may have an impact on M&S food prices and consequently the company's profitability. These trade barriers and making sure that the goods to be sold in the newly targeted market will be priced right are important factors to the success of the expansion.

Sometimes, political and economic restrictions may also influence the business enactment in certain territories. In the recent past, Russia has been on the receiving end of international sanctions, and this might present some limitations as to how M&S can do its business or source raw materials. This could seriously restrain the choice of products that M&S can provide in the Russian market or make the business model much more complicated and expensive (Eduardsen and Marinova., 2020).

Limitations concerning Operations and Human Resource Management: The establishment of business in a different country involves employing people from that country which is a challenge since there are differences in labour laws, etiquette and management styles of workers from that country. In this case, for M&S this could entail the need to make changes in its HR practice to match the Russian benchmarks and legislation. When entering in a new place of operation, the need to hire appropriate local human capital to provide the company's services at the right standards in terms of customer care and handling of products will be crucial. Similarly, managing an international staff has its own unique complexities because of the presence of language difficulties, concern with different corporate cultures, and diversity in the expectations of employees with regard to performance incentives and remunerations. Some investment by M&S becomes compulsory for improving their cross-cultural dynamics among the employees in the UK as well as the Russian employees in order to manage and run effectively (Daniels et al., 2019).

Supply Chain and Logistics Barriers: it is crucial factor while venturing into new markets to have an efficient supply chain that is capable of distributing the products from the manufacturing end all the way to the shop or the consumer. In the period under consideration, M&S highlighted the issues of sustainability and quality control of the products, so when expanding to Russia, the company would have to maintain the established criteria for supply chains. But extending the supply chains beyond national boundaries has its challenges in areas concerning transportation, storing and handling of inventories (International Trade Administration, 2022).

Another factor that acts as a barrier for Russia is the sheer size of this country's territory and the nature of its transportation system, which does not allow it to cover vast territories quickly, as well as to deliver goods and transportation to rather densely populated regions and small cities in rural areas. Transportation of merchandise over long distances may entail high transport costs and also prolong the time required to make deliveries. In addition, issues in the supply chain might affect the company's operations, including customs clearance, shipping complications, or local transportation challenges, all of which could cause the timely delivery of products and inventory. On the other hand, identifying the right suppliers, which fulfil the aspects of sustainability and quality requirements of M&S may be a challenge that warrants time for research and evaluation (Nechaev and Schupletsov, 2021).

Cultural Barriers: This is one of the leading issues that might hinder the expansion of a business into a foreign market due to different cultures between the and the foreign country. Potentially, these differences can significantly affect consumers' behaviours and choices, marketing communication and brand perception. For instance, the values, shopping behaviour and preferences of consumers in Russia may be a lot different from those of consumers in the UK. There is a unique cultural preference that Russian consumers usually follow, they may have a preference for specific product categories or even different approaches to customer care that are all important to M&S.

Lack of knowledge or poor perception of culture may lead to wrong marketing strategies, poor product adaptation and inadequate interaction with the clients. With time, certain products may gain a lot of appeal among consumers in a given country, while the same products fail to find the same appeal among consumers of another country mainly because of cultural factors which include beliefs and values (Beugelsdijk et al., 2018)

Competition and Market Saturation: When entering a new market, the competitors that will be prevailing include both local and foreign retailing firms. In Russia, M&S would have to compete with the Russian players who are accustomed to the Russian business environment and, thus, have a stronger customer base and price advantage over the new entrant. Local competitors can also exploit the fact that they can source the materials and products locally in a bid to provide cheaper prices or quicker delivery services. Besides, local rivals, M&S would compete with other international players already in the country, when entered Russia. These brands may have already started adopting to the local people’s tastes and preferences with their products and/or services hence they may have an edge over other new entrants like M&S. Thus, M&S would have to seek some niche against both domestic and global rivals based on the kinds of ranges, shops, and communication it provides or upon which aspect of its business it focuses on in the consumer’s eye (Hill and Hult, 2018).

IMPLEMENTATION APPROACH FOR THE INTERNATIONALISATION PROCESS

The measures of the available strategy must be carefully evaluated in order to make the best implementation approach for Marks & Spencer (M&S) to expand into Russia. This calls for an approach that would reduce the risks involved while at the same time trying to grasp the available opportunities in the Russian market for M&S. With respect to the barriers mentioned earlier, the suggested course of action for internationalisation into Russia is the joint venture approach which involves a Russian retail business. In this critical evaluation, it will be seen why a joint venture is the most appropriate strategy, and the operation, culture, regulation, and competition considerations that M&S must take into account to get it done right.

Some of the reasons why the joint venture approach is considered the most feasible in international marketing can be discussed that during a joint venture, one firm in the home country combines its resources with a firm of the target country and the two bear the risks as well as attains the benefits together. This strategy is especially pertinent in countries such as Russia; the structure of the market is complex due to regulations or completely different market conditions challenging for a foreign company. As a result, the adaptation of the supplier of M&S to the local market, supply channels, legal requirements, and customers will be another advantage. Also, it decreases the financial and operational risks for M&S involved in the expansion into a new country because the costs incurred are shared by M&S and the local partner. It is in the middle of fully owning an interest in a foreign business directly and having very minimal control or influence such as exporting or franchising. A joint venture also has the advantage of keeping the company’s brand, product quality, and customer experience in its own control while incorporating local factors with the help of the partner company (Daniels et al., 2019).

Cultural and Consumer Behaviour Differences Management

As mentioned in the earlier discussion, there are often vast differences in cultural factors which define the acceptance of products and the positioning of brands in the Russian market. Further, consumer preferences of a Russian consumer may significantly vary from those of a UK consumer Regarding products of local or regional origin, fashion, and food. These cultural factors can be managed effectively by the local partner who has the understanding of operating in the country by enlightening M&S on the various aspects. It can help translate the features of products and the ways it is promoted to match the culture and language of Russians, as well as develop advertising appeals that would be compelling to Russians (Shavitt and Barnes, 2020).

Gradual Market Entry and Risk Management: The benefit of using a joint venture is that the issue of market entry can be solved gradually. An obvious advantage of this approach is that M&S can gradually enter the Russian market without significant preliminary investment and adapt its strategies according to the consumers' reactions and preferences. This lowers general risk, especially in a turbulent country like Russia as the economic and political environment may drastically change at one point in time. This means that through a joint venture, M&S have an opportunity to enter the market slowly whereby they can initially introduce a small range of products or open a small number of stores in the beginning. By evaluating the results of the first year, the company can choose to expand, change products or redefine strategies. This flexibility has the capacity to enable M&S to control risks that may be present while at the same time embracing the growth risks.

Navigating Regulatory Complexities: Any foreign investment in a new market along with the lack of a favourable investment climate is another factor that aspiring investors must consider on the Russian market. One of the biggest struggles that can be faced by M&S during joint venturing into the Russian market is finding their way through an enormously intricate regulatory regime. Russia has also strict laws in relation to foreign investment, imports and labour standards. Another advantage of a joint venture is the ability to gain from expertise that the partner has in operating with the local laws and avoid being involved in some of the worst forms of non-compliance and delays in entry into the market. There is always the local partner's influence, and understanding of the local bureaucracy, politics, and structure which helps in the acquisition of permits, licenses, and customs clearance of imported goods. Also, M&S can benefit from having a local partner to tackle the political risks that may prevail in the country, for example, arising from the sanctions any trade restrictions or any changes to government policies in a certain country.

Addressing Supply Chain and Logistics Challenges: The local partner may already have links with prominent warehouses, distribution channels and transportation services which would be convenient for M&S when it comes to stock management and distribution. This would be particularly useful in addressing the issue of getting delivery quickly or the fashion retailing stocking up the goods within time. Also, by partnering with a local firm, M&S is able to acquire locally manufactured products and avoid the relativity high costs of importing goods the particular currency affect. Besides tangible benefits, purchasing the products from the partner while at the same time using local suppliers or manufacturers can be aligned with M&S's main agenda of sustainability. This is the reason M&S has made a stand on being environmentally conscious and practising or sourcing sustainable products (Fernie and Sparks, 2018).

CONCLUSION AND RECOMMENDATIONS

The most feasible approach in the current context to Marks & Spencer (M&S), which is expanding its business to enter the Russian market is through a Joint Venture. This approach is therefore consistent with risk control of outsourced operations and leverage of local market characteristics through the use of the partner's understanding, infrastructure and legal compliance. This joint venture will solve the challenges of localizing products, observing the strict regulatory environment and cultural as well as logistic issues in Russia for M&S. In this manner, because of the phased market entry strategy, the company can increase the degrees of operational efficiency gradually, evaluate the outcomes of its penetration into a new market, and optimize its activities by minimizing overall financial and operational risks (Paul, 2020). Furthermore, M&S should look for ways of procuring locally so as to work towards sustainability and to address the Russian consumers’ preference for local products mainly in the food category. The venture also needs to incorporate cross-cultural training for the UK as well as Russian employees to boost collaboration and operations.

Altogether, using the joint venture entry mode during international expansion, M&S can enter the new country, Russia, a BRICS nation which is appropriate for the company's development. It enables M&S to leverage a local partner, avoid regulatory and cultural pitfalls, develop a market base and at the same time, keep operating costs under check. In joining the Russian market, M&S can establish first with the limited venture, feel the market adjust accordingly to the industry standard and launch towards having long-term prospects in the Russian market. This strategy also supports one of M&S's sustainability goals of providing quality products to customers in other countries to overcome issues of internationalisation.

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