International Market Expansion for Bicker AG

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Richa Jaiswal's picture
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INTRODUCTION

Bicker AG, a European grocery retail chain is experiencing slowing growth amidst Eurozone slowdown and increased competition.

The evaluation for new markets for Bicker AG recognized the need to spread the risk. Therefore, we focused on BOTH Latin America and Asia to find out the three best options for expansion.

Our approach comprised of the following steps:

  • Risk room data analysis
  • Application of the CAGE distance framework

Figure 1: CAGE Distance Framework (Adapted from Ghemawat)

  • Evaluation of Retail Business Viability AND
  • Population

Our analysis suggests India, Brazil and Chile as the three best options

We now present our findings from the risk room:

Risk Room Analysis

 

Zurich Risk Room provided the measure of 20 risk factors across Political, Business and Social domains. However, after studying the reports from industry experts, we re-classified the risk based on its perceived impact on the Retail business (Figure 1).

Figure 2: Risk Classification and Weighting

While making our choices, the countries with lower political risks were given priority based on assessment of Bicker AG’s current market. Following this approach, we re-computed the 5 years risk scores, for all the countries in Latin America and Asia.

Figure 3: 5 Year Risk Computation Table & Graph

Venezuela and Argentina were identified as High Risk countries close to the Armageddon Point on Global Risk Map. Further analysis identified Chile, Uruguay, Mexico and Brazil as the countries with least risk.

Figure 4: Low Risk Latin American Countries

Similarly Singapore, Hong Kong, Japan and India were identified as the Asian countries with the lowest risk.

Figure 5: Low Risk Asian Countries

Figure 6: Risk Comparison of selected Latin American & Asian Countries

Comparing the Risk score of identified countries made it clear that Asian countries had lower risk profile than the Latin American countries. We then broadened our research by doing the CAGE Analysis.

CAGE Analysis

We compare home country Netherlands to selected countries. While the Cultural, Administrative and Geographic factors are equally important, we focus primarily on the Economic factors. Furthermore, we focus specifically on GDP Growth rate because we consider it a critical factor, considering Bicker AG’s strategic growth objective.

Figure 7: GDP Growth Rate (Country Comparison)

Looking at the chart of GDP Growth Rate, the laggards were clearly Mexico and Japan in the Latin America and the Asia regions respectively. Consequently they were eliminated. Therefore, the list of the remaining viable country options is as shown.

Retail Business Viability

The next consideration was to study the retail business viability based on three factors that were then weighted against the population.

Market Attractiveness

Market Attractiveness was ascertained on the basis of the Retail sales per capita, Personal Disposable Income and other Indices.

Figure 8: Retail Sales Analysis-2011 (Source: Euromonitor Report on Retail Data)

Figure 9: Personal Disposable Income Comparison

Figure 10: Global Competitveness Index

Figure 11: Foreign Direct Investment Confidence Index

(Source: AT Kearney FDI Confidence Index)

Market saturation

Market saturation factors placed each country on the window of opportunity where we found that the recent expansions of Bicker AG were in completely saturated markets.

Figure 12: Market Saturation

Time Pressure

Analysis of the Available data on Time pressure indicated the markets with long-term opportunities.

Figure 13: Time Pressure

Population

Finally, Population was the key decision criteria as it drives the demand. But China was eliminated, due to frequently changing tastes of Chinese customers

 

Prioritisation matrix

WE THEN developed a prioritization matrix, TO evaluate the retail business viability relative to population thereby identifying India, Brazil and Chile as the 3 best options.

Figure 14: Prioritisation Matrix

RISK MITIGATION STRATEGIES

Although the selected countries were attractive relative to pairs, in terms of business viability and population, there were some high-risk areas. In view of this, mitigation strategies were articulated.

  1. Poor Electricity supply can be mitigated by alternate power generation.
  2. Crime can be mitigated by deploying robust security at all stores.
  3. Income Inequality can be used to our advantage by opening low income stores for the low income consumers on one hand and high-end grocery stores for the high income consumer on the other hand.
  4. Rising food price can be mitigated by making more long term orders at a fixed price to even out costs.
  5. Burden of government regulation can be mitigated by investments in government relations capability.
  6. Burden of customs procedures can be mitigated by conducting self assessment

AREAS FOR FURTHER DUE DILIGENCE

Bicker AG must conduct further due diligence to substantiate the recommended options.

  1. The rising cost of real estate and its impact on the capital cost of entering a country must be evaluated.
  2. The presence of strategic partners to establish a cost effective and reliable supply chain must be assessed.
  3. To leverage its management expertise, the willingness of its managers to relocate should be taken into account.
  4. The impact of unorganized sector should be gauged as diligently as impact of international competitors.
  5. It must understand the demographic needs of its customers and the bureaucratic hurdles that would vary with each country

CONCLUSION

Following the risk comparison and retail business viability of existing markets with the recommended options, we conclude that focus of Bicker AG should be on building a portfolio of countries with different levels of maturity  and with distinct demographic profiles to spread the risk. This will also create a balance of short term and long term opportunities. Hence, Brazil, Chile and India were chosen to be the best three options for expansion of Bicker AG.

References: 

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