Building a business in Europe

Over recent years, the changing political, social and economic environment has created a different type of competitive situation for European companies. The pace of change has created many new challenges for nearly every business organisation. The net result has been an increasing interest in Europe and the marketing opportunities it represents. Europe has become one of the most important trading areas of the world, accounting for over 40% of world trade.

Organisations cannot ignore the potential opportunities offered through such developments in Europe. They must monitor their competitors’ actions constantly and be aware of changes in demographics and buying patterns. Europe now has great strategic importance. The challenge is to develop an understanding of the key axes of development and the changing competitive patterns and include this data into the organisation’s corporate strategies.

Unlike many other organisations, growth for Marks & Spencer has been largely organic rather than through acquisition. This means that, rather than increase market share quickly by buying other businesses, Marks & Spencer has developed internally, capitalising on core competencies to provide a ‘fit’ with its activities and the positioning of the organisation. For a company committed to high standards, this has become a critical element of its business strategy.

Strategists at Marks and Spencer have been aware of the potential of the European Market for some time. Many thousands of European visitors have associated shopping at Marks & Spencer as one of the main ingredients of visiting the UK. In 1975, Marks & Spencer first entered continental Europe in Paris, where it now has 10 of its 20 French stores. Today, it has stores and activities in many other countries within the European Union.

This case study focuses on one of Marks & Spencer’s current business objectives – to accelerate the growth of its international business. It examines how Marks & Spencer has increased the momentum of its European expansion and focuses on the opening of the first store in Germany.

Turning points in Europe

By the mid-1970s, as the European Community developed and some trading barriers started to disappear, a new framework was created for relationships between businesses in member countries. Marks & Spencer was able to learn about European markets through its suppliers in foods, clothing and raw materials. Increased international competition forced Marks & Spencer strategists to look to the future – in terms of trade, the world was getting smaller and many markets were becoming global. National trading policies would no longer suffice. At the same time, many overseas trading opportunities emerged for Marks & Spencer, with clear scope to develop the business further.

In any industry, superior performance depends upon an organisation’s ability to deploy its resources to develop competencies. Successful strategies rely upon an organisation’s strategic capability to undertake demanding activities at a high level. Marks & Spencer had a fast-developing technological base and a well developed organisational infrastructure which dealt cost-efficiently with large-scale logistical activities. European markets were within reach, providing the company with opportunities for market development and to gain economies of scale e.g. from increased buying power.

Marks & Spencer has many unique qualities which enable it to outperform competitors. For example, Marks & Spencer is a brand house with a single brand name – St. Michael. This helps to create perceptions which appeal to a particular market niche and also helps to develop a global business. The cornerstones of Marks & Spencer are quality, value and service. Experience has shown that these qualities are universally transportable to other markets where they can be adapted for local needs and requirements.

Customer focus

The key to market development is market-orientation. Few organisations operate in a static environment. In a global marketplace, tastes, demographics and purchasing power are just a few of the constantly changing factors which influence the goods and services required. In the past, goods were relatively similar and there was an unsatisfied thirst for niche products. Successful organisations today have to monitor customer needs constantly.

Marks & Spencer operates in markets in which many retailers provide a wide variety of offerings for customers. As Marks & Spencer moved into these different marketplaces, the need to develop high-quality customer relationships similar to those in the UK soon became apparent. It was vital to place the customer at the centre of developmental activities, ensuring that Marks & Spencer not only responded to different competitors and business conditions but also remained focused on customers’ current and future needs.

Strategy

Marks & Spencer’s entry into the German market had been carefully considered for some time. With reunification, the population of Germany expanded from 65 million to more than 80 million and, as the world’s second largest exporter following the USA, Germany is a highly industrialised country with a strong service sector and high population density. Germany is also the world’s largest import market. Timing is a key element in any strategy. In 1990, an entry strategy was considered but high property costs and intense competition between retailers suggested it would be prudent to wait and monitor the market. A period of recession for the German economy then followed.

The recession saw a change in the structure of German retailing with the merger of a number of major department store chains. There was also an apparent lack of differentiation between many of the retailers. By the mid 1990s, however, prospects looked much more attractive – market and entry costs were falling and the ‘new Germany’ was gradually reborn. Marks & Spencer’s good value and consistently high quality products, combined with clarity of display and customer service package would provide a clear market position.

Opportunities in the German market

Gross Domestic Product, GDP, is a measure of national wealth. Germany’s GDP is a staggering £1,500 billion, nearly three times that of the UK economy. German consumer expenditure is 50% more than the UK and 22% higher than France. With economic indices such as inflation under 2% and retail sales in Germany of £331 billion, even a very small share of such a vast market represented a sizeable opportunity for Marks & Spencer.

Germany has more major towns and cities than any other European country (16 with a population of over 400,000). Following re-unification, a large proportion of goods that would have been exported were diverted to the former East Germany. There was also a strong rise in imports from elsewhere in the European Economic Community.

Germany is the largest clothing and food market in Europe. Research showed that:

• German consumers have a clear appreciation of consistently high quality. Marks & Spencer products would be very good value if products were sold at competitive prices.
• As well as Marks & Spencer’s known market strength in Lingerie, there was considerable potential in a wider range of clothing, such as men and women’s tailoring and natural fibre knitwear. There was also added value through technical innovation of clothing and raw materials e.g. tactel, tencel, cotton, teflon finishes, fibres and stretch.
• Marks & Spencer’s ‘added value’ approach to Foods would be quite unique and offer a prime differentiation factor. For example, Marks & Spencer’s ‘chilled offer’ was far more than local retailers could offer and standards of quality, freshness and hygiene would stand out against the lower standards in supermarkets and discount stores.
• Marks & Spencer had examined customer requirements and catered for the preferences of the German market.
• There was a huge snack lunch market with good potential.
• Layout and presentation techniques, shop keeping standards, customer service package, IT based ordering systems and product information would all compare favourably against the established stores.