Section 1: Introduction
The term business environment refers to all external and internal factors that are likely to affect the operations of an organization (Wetherly and Otter, 2014). Some of the external factors capable of affecting business performance include social, political, technological, economic, and legal issues. Internal environments, on the other hand, are mainly comprised of customers, employees, and employers, community, suppliers, and distributors. Once again, organizational performance is dependent on the relationship between these stakeholders. Understanding the business environment is essential because it enables stakeholders to identify and invest in different opportunities (Hillson and Murray-Webster, 2017). For instance, investors may realize that there is a particular gap in the marketplace and thus exploit it. Secondly, knowing the business environment allows stakeholders to tap useful resources. This can help in boosting the competitive advantage of the venture. Thirdly, understanding business environment assists in planning and eliminating risks. As a result, organizations can achieve their objectives within a short time. Change is an integral part of any business. Firms that refuse to embrace change usually end up collapsing or suffer massive losses. Change is vital because it allows organizations to review their services and products to satisfy the needs and wants of more customers. In other words, embracing change is the only way to survive in most industries.
The report seeks to analyse the micro and macro environment of the Superdry Company through the use of Porter’s five forces and PEST approaches. Porter’s five forces analysis assists in understanding the nature of an industry. It focuses majorly on buyer power, supplier power, competitive rivalry, the threat of new entrants, as well as that of substitutes. The PEST analysis, on the other hand, focuses on the political, economic, technological, and social factors that are likely to impact business operations. In most cases, external factors are usually beyond the control of the business. Nevertheless, proper planning can allow them to anticipate such issues and take the appropriate action before the situation escalates. At the end of the paper, the numerous internal and external factors affecting the operations of Superdry Company will become evident. For instance, buyer power is high due to the presence of too many retail stores. Nevertheless, the political environment in the UK is calm and thus conducive for business operations. However, the leading economic concern emerges from the effects of the BREXIT deal.
Section 2: Business Description
The primary focus of this report is the Superdry Company. This is a UK clothing firm which also owns the Superdry Label. The organization was founded in 1985 by Julian Dunkerton and Ian Hibbs in Cheltenham. During this period, Superdry mainly dealt with cult clothing. In the 1990s, the company went through a rapid period of expansion. More stores were opened in different cities and towns including Cambridge, Edinburgh, as well as Oxford. The brand name ‘Superdry’ was acquired in 2003 when a new partner joined the firm. In March 2010, Superdry was enlisted in the London Stock Exchange. The financial valuation of the company during this period was estimated to be £180 million. In 2017, Superdry generated revenues worth £752 million.
The Superdry Company is found in the retail store industry. Some of its biggest competitors include Tesco and Walmart. Fortunately, the retail store industry attracts a lot of customers because it mainly deals with basic products such as foods and clothes. Superdry’s markets are mainly based in the UK. As stated before, the company has a number of brick and mortar stores located in numerous locations across the UK. Some of its products include polo shirts, jackets, dresses, jeans, t-shirts, and hoodies. The business also has an e-commerce website where it receives and processes customers’ orders. This is a huge shift from its traditional model where its services were mainly offered in its stores. Over the years, Superdry has experienced massive changes in its leadership. For instance, the company’s co-founder, Julian Dunkerton, announced that he was stepping down from his management role. The leadership change has allowed the company to benefit from the ideas, experiences, and knowledge of other individuals. Furthermore, the commitment and high morale of its employees has also enabled it to grow rapidly.
Section 3: Analysis of the Business Micro-Environment
Business microenvironment refers to all those internal elements that can be controlled by the organization (Belniak, 2015). It also includes stakeholders such as suppliers, customers, competitors, market intermediaries, distributors, nearby communities, and employees. For a better competitive edge, organizations need to maintain strong relationships with these internal stakeholders. Understanding the microenvironment is important because it allows businesses to make good decisions. Furthermore, they can anticipate different risks and use resources efficiently. One of the popular tools used to analyse the internal environment of an industry is Porter’s Five Forces Analysis. This tools can be used to evaluate factors such as competitive rivalry, buyer power, supplier power, the threat of new entrants, as well as the threat of substitutes. Porter’s Five Forces analysis has numerous benefits. Firstly, the model is quite effective in determining the attractiveness of an industry (Moutinho and Phillips, 2018). It, therefore, simplifies the decision-making process for investors. Secondly, the tool allows businesses to understand the numerous barriers of entry, as well as the level of competition they are likely to face. However, Porter’s model only provides a broad picture of an industry. It may, therefore, fail to identify certain internal and external factors that are capable of impacting business operations. The model also fails to analyse institutional issues which usually affect industry development. Nevertheless, the model is still effective in analysing the retail industry in the UK
Section 3.1.1: Analysis of Competitive Rivalry
The competitive rivalry in the retail industry is quite high. Many competitors offer the same products and services as Superdry. Some of these firms include Nike, Zara, Walmart, Gap, Tesco, Marks & Spencer, and Aldi. There is very little differentiation between the products that these institutions offer. The only way for organizations to grow is by stealing customers from other competitors. Nevertheless, significant growth has been recorded in the retail industry recently. The introduction of e-commerce platforms has allowed organizations to reach out to a broad audience, as well as to save massive costs (Laudon and Traver, 2016). Therefore, this opportunity has allowed Superdry to earn some profits. However, this area is also set to become concentrated. For Huveane Capital Ltd to survive in this industry, it should consider adopting a diverse strategy. Investing in different ideas can help it attract customers from numerous areas.
Section 3.1.2: Analysis of Supplier Power
In most cases, the supplier power in the retail industry is low. This is because they are many vendors that deal with similar products. Furthermore, there are many substitutes that retail stores can sell. The switching costs from one supplier to another is quite low. This means that retail firms can easily change from one vendor to another. However, when the clothing sector that Superdry operates is analysed in greater details, it becomes evident that supplier’s still hold significant power. Some of these vendors deal with raw materials that are quite important to the producers. Furthermore, clothes have no close substitutes. Therefore, investing in a wide area rather than clothing stores only is the best option for Huveane Capital Ltd.
Section 3.1.3: Analysis of Threat of Entry
The threat of new entrants in the retail industry in the UK is limited. A lot of investment is required to establish stores that can compete at the same level as the existing firms. For instance, companies such as Walmart and Tesco have numerous stores located across the U.K. The supply networks in the retail industry are also highly developed. New firms will require extensive resources and connections to maintain their relationships with these stakeholders. The differentiation tactics that have been adopted by companies such as Tesco and the huge economies of scale are likely to discourage new entrants. The level of loyalty in the retail industry is also quite high. Customers prefer to shop in specific shops over others. It is, therefore, difficult to convince them to shift to other sellers. Nevertheless, e-commerce can still allow small firms to enter into the retail industry. However, they will experience a difficult time competing with already established brick and mortar stores.
Section 3.1.4: Analysis of Buyer Power
The buyer power in the retail industry is low. This is because there is a huge number of buyers. Furthermore, most retail stores deal with essential products. Therefore, customers have no option but to purchase them. The price of most products in this industry is usually homogenous. Many customers also make small purchases. This causes them to lose their bargaining leverage. Nevertheless, customers are still price sensitive. Any unjustified increase in price will force them to consider other alternatives. The low buyer power in the retail industry means that it is still attractive. However, investors should choose their pricing strategy carefully to stand out from other competitors.
Section 3.1.5 Analysis of Threat of Substitution
The threat of substitutes in the retail industry is quite high. Customers can quickly change from one product to another to match their tastes, fashion, and other preferences. The switching costs are also quite low. Most retail stores offer a variety of products to consumers. This encourages customers to shift their attention to substitutes quickly. One of the significant factors that can affect the consumer’s purchasing decision is the price. A sudden increase in price without any change in the quality or quantity of the product can force clients to shift to other items.
Section 4: Analysis of the Macro environment
The term macro-environment refers to all external factors or forces that are beyond the control of the business (Indris and Primiana, 2015). This includes elements such as technology, economy, demography, culture, politics, and other natural forces. A PESTLE analysis is vital for any business because it allows investors to have a clear picture of the external factors that are likely to impact their ventures. One huge advantage of the PEST analysis is that it is cost effective and still provides valuable information crucial in decision-making. This approach also assists in the identification of opportunities, as well as planning. However, the huge disadvantage of PEST analysis is that it is too general. In some cases, it may fail to identify specific issues that can impact business performance.
Section 4.1: Analysis of the Political Environment
The UK has one of the most stable political systems in the world. The two major parties in Britain are the Labour Party and the Conservatives. The calm environment in the UK allows business operations to proceed with minimal interruptions. A parliamentary or Westminster system governs Britain. This system controls the distribution of power between the judiciary, legislature, and the executive branch which is headed by a prime minister. According to the World Bank (2018), Britain is among the most prosperous countries when it comes to the control of corruption, application of the rule of law, regulatory quality, as well as the effectiveness of the government. The UK also holds a strong position in global politics. For instance, it is a permanent member of the United Nations Security Council. Other organizations in which the UK is a member include NATO and G8 (Moran, 2018). Also, the British government has a massive influence in international institutions such as the World Bank and the International Monetary Fund. As a result, it has managed to secure funding to boost its economic growth. However, the continued Brexit talks seem to be creating a political divide. This is because there are some politicians supports the UK’s decision to exit the European Union while other individuals are against this move. Therefore, debates as regards to this issue are likely to divert the attention of the government from key issues. In addition, Brexit is also set to affect the relationship that the UK has with other nations, especially those in the European Union. By exiting this organization, Britain will lose numerous opportunities and privileges that it was accessing before. Another challenge for the UK is its complex governance which can easily slow down decision-making processes. Lastly, Britain is facing significant terrorism threats due to its involvement in peace-keeping missions in certain Islamic nations.
Section 4.2: Analysis of the Economic Environment
Britain offers one of the best investment environments in the world. The nation has a high GDP which indicates its consistent economic growth. There is also little government interference in business operations. This means that organizations can focus their attention on areas that matter. Furthermore, the huge support that they receive from the government helps businesses to grow. The World Bank ranks the UK among the top ten best countries to invest in. However, the country’s debt level has risen drastically over the years. Soon, it may become difficult for the government to service the loans. This can lead to an increase in taxes which will eventually affect business operations (Barba et al., 2016). The issue of Brexit is also set to have a significant economic impact on the UK. By moving out of the European Union, the UK is set to lose access to some of its key markets. It will, therefore, become more expensive for companies to export products or acquire raw materials to and from these markets respectively. The UK’s Prime Minister needs to ensure that the country gets the best Brexit deal to avoid the negative consequences that may arise from their exit. In the recent past, Mrs. Theresa May, UK’s Prime Minister, has negotiated with top EU officials about the Brexit deal. Nevertheless, Britain can still establish better trade ties with other nations such as the U.S and China which also have huge markets.
Section 4.3: Analysis of the Social Environment
Once again, the UK has one of the most educated population in the world. Majority of the individuals in this country can read and write. The strong education system in Britain has also attracted students from different nations around the globe. The primary language spoken in the UK is English. Since it is also an international language, it is quite easy for companies to advertise themselves without fearing that they will offset specific cultural values. The British government has also invested significantly in its health care system. Individuals in the UK also have access to quality and affordable services.Furthermore, the UK is among the most densely populated nations in the European Union. For instance, more than 8 million individuals live in Birmingham and London alone. Therefore, businesses can tap into these ready markets. Another fact about Britain is that it is a multicultural country. Each year, a huge number of immigrants from Africa, China, India, and other nations enter the UK in search of employment. These individuals belong to different cultures, race, and religion. Despite these differences, they tend to co-exist peacefully. However, the recent terror attacks in London may have led to some minor social tensions.
Section 4.4: Analysis of the Technological Environment.
The UK is among the highly industrialized countries in Europe and in the world in general. Majority of the industries in the UK including those in the retail sector depend largely on technology. The country also has a well-developed infrastructural network that is capable of supporting marketing and distribution activities. The numerous airports spread across the UK also facilitate international trade. In the recent past, the UK government has invested significantly in research and development. Furthermore, there are numerous laws in place that protect intellectual property.
Communicational infrastructure in the UK is also highly advanced. A huge part of the population has access to mobile phones and own both radio and TV. As of 2009, more than 70% of the households in the UK had access to a stable internet connection(Barba et al., 2016). This has since increased, especially due to the introduction of more efficient and cheaper communication devices. Purchases made over the internet have also grown significantly. Today, many people in the UK prefer to shop online as compared to going to brick and mortar stores. This is because goods can be delivered to their homes within a short time. The technological infrastructure in the UK allows retail companies to advertise themselves to millions of customers across the UK quickly. The developed e-commerce platforms also mean that companies can deal with customers living in remote areas.
Section 5: Report Conclusion (approximately 300 words)
As shown above, the retail industry in the UK is attractive but full of challenges. The results from Porter’s Five Forces analysis show that the supplier and buyer power are low. There are too many suppliers in this industry. Similarly, the retail store receives a huge number of customers since they mainly deal with basic products. However, the demand for fashion product such as those that Superdry deals with may vary depending on the tastes and preferences of the consumers. It is also evident that the threat of new entrants is low. The huge economies of scale and capital requirements tend to discourage new entrants. In addition, it is quite difficult to develop a strong supply network. However, the competitive rivalry is high due to the high number of sellers dealing with similar products. Furthermore, the threat of substitutes is high since most retailers deal with different products. Customers can easily compare prices and settle for the cheaper option.The PEST analysis has also shown that the UK’s political environment is stable and capable of supporting business operations. The huge population in Britain also acts as a ready market. Since most people are educated, it is quite easy to engage in marketing. Businesses can also adopt numerous technologies and incorporate them into their businesses. Huveane Capital Ltd should, therefore, move forward and invest in the retail industry. Despite the few challenges, there are still several unexploited opportunities. The development infrastructure in the UK will be a huge boost to its distribution and marketing activities. Adopting a diverse strategy will allow the organization to attract a huge audience, as well as adapt to different situations. Nevertheless, Huveane Capital Ltd should be ready to deal with the negative consequences that may arise from the Brexit deal. For instance, it needs to reduce its reliance on foreign suppliers. Partnering with other institutions will also allow the company to resolve challenges and expand to other unexploited regions in the UK.
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