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Strategic Management Assignment 1 2
1. Introduction 2
2. PESTEL analysis 2
2.1 Political factors 2
2.2 Economic factors 3
2.3 Social factors 4
2.4 Technological factors 4
2.5 Ecological factors 4
2.6 Legal factors 4
3. Conclusion 4
Strategic Management Assignment 1
– Case study on JUSCO China
JUSCO (ジャスコ, Jasuko) is short for the term of “Japan United Stores Company”, the JUSCO is a chain of “general merchandise stores” which is also known as hypermarket (Hitt, Ireland & Hoskisson 2009). Its parent company, Aeon, is a comprehensive group comprising competitive companies and business with the highest operating revenue in Japan’s retail industry in the 2011 financial year (aeon.info 2012). As one of the major retail giants in Asia, JUSCO is targeting at the study we will perform a PESTEL analysis in respect of the retail industry and general business environment in China and focus would be given also on the environmental impacts over the forming of the JUSCO business strategies.
2. PESTEL analysis
PESTEL stands for political, economic, social and cultural, technological, environmental/ecological and legal elements that shape the business environment in which a business operates (Pettinger, Nelson & Economy 2011).
2.1 Political factors
Political factors involve the political systems, political forces and also the local government as well as their relevant activities, and such activities could have in-depth impacts over the business activities and performance. With the continual adherence to the policy of focusing on overall stability in the political and social life, the Chinese government in the past two decades has built up a FDI (foreign direct investment) friendly political and business environment. But as for Japanese companies, the historical special relationship between China and Japan has created complex political environment for any Japanese business operating in main land of China. Therefore in respect of the political considerations, as a Japanese business, JUSCO China has been facing challenges for long as it is one of the most mentioned Japanese brands that people would recall. For example, in the most recent Diaoyu Island dispute between Japan and China, there had been severe anti Japan protest as well as violation against the Japanese goods and companies. It was reported that on 15th September a massive crowd (pictured up top) smashed their way into the local Jusco, and similar situations also happened in other cities (tealeafnation.com 2012). As a matter of fact, when the anti Japan wave seemed to come to a peak in the last few days, many Japanese firms chose to close their doors to avoid possible violence. And therefore JUSCO China’s business strategy is affected by the political relationship between Japan and China. For example, it is recommended that JUSCO China focuses more on building up its image as a localized retailer rather than a typical Japanese company as in the impression of the Chinese people.
2.2 Economic factors
Chart 1 Annual GDP growth rate of China since 2000
Economic factors could also shape the business environment for any business as they directly affect the demand and supply sides. As for China, its economy has been developed in a rapid speed which envies the world for the past decade as the growth seems to be sustainable and also it is rather strong. From the above chart showing the annual GDP growth rate of China since 2000, we can see the fact that China has kept a rapid increase in its economic size which is certainly a piece of good news to the retail industry as people would have more purchasing power with the growth of the economic size. Another good economic effect that could contribute to a better business environment for the majority of the retailers in China is the rapid urbanization in China. As a matter of fact China’s urbanization rate had reached 51.3 percent by the end of 2011, according to a report released by the China Association of Mayors (CAM) (chinadaily.com.cn 2012). As known to us, large retailers are designed to serve communities and cities that are developed to some extent, therefore the rapid urbanization in China would almost definitely lead to a better business environment for the large retailers like JUSCO.
2.3 Social factors
Social factors are elements that affect or direct our life style including the way of purchasing which is important to the companies operating in the retail industry. And usually we could use the term cultural system to differentiate different groups of people in various nations with different social custom and traditions. Professor Geert Hofstede carried out one of the most influential researches of how values in the workplace are influenced by culture based on which he proposed the famous national cultural dimensions (geert-hofstede.com 2011). The dimensions are Power Distance, Uncertainty Avoidance, Long Term Orientation, Masculinity versus Femininity and Individualism versus Collectivism. And it is believed and repeatedly approved that people sharing the specific combination of cultural dimensions tend to exhibit similar consumer buying behaviors in term of decision making for example.
Chart 2 China in cultural dimensions
Source: geert-hofstede.com 2011
As we can see from the above chart, China has its special combination of cultural dimensions. In term of Individualism (IDV), China’s score in this dimension is only 20 out of the 120 full score, this means that people when doing shopping would usually prefer to shop on behalf of the whole family and therefore family life is a key consideration when making promotion strategy for example. And in term of Uncertainty Avoidance Index (UAI), it is also in a low level (30 out of 120). This means that people in China are actually comfortable with ambiguity and uncertainty and they would not in a rush to eliminate facts and behaviors that they can not control or apprehend fully. This dimension could also have its influence over the retail industry and companies. For instance, in term of marketing communication, JUSCO China could apply an indirect way of communication to transmit complex information that could be accepted by the Chinese customers. And another obvious feature of the Chinese national culture is in the dimension of Long Term Orientation. The score in this dimension is 118 out of the full score of 120. This would mean a lot to the retailers that provide daily consuming goods to the Chinese people: first of all, in term of product features, durability of products would be considered as a critical and basic product feature that these goods should have. Secondly, because the Chinese people tend to have plan on the further arrangements in term of what goods to be selected, impulsive buying could be less than in other markets. And obviously, marketing and business strategies could be tailored to fit in the buyers who tend not to be impulsive buyers. Also preference of long term benefits and utility would also impact the decision making on some specific items such durable goods such as TVs and air conditioners because they tend to be used for a longer period of time in the Chinese family.
2.4 Technological factors
Technological factors refer to influences that have an impact on how an organization operates that is related to the equipment, technologies, and skills (businessdictionary.com 2011). The technologies seem to play an even bigger role in the retail industry with Chinese local retailers’ preference to embrace more advanced technologies. According to an earlier survey done last year, out of the 135 large retail chains, more than 90% of the local respondents agreed that IT a dominant force in shaping consumer behavior and expect it would influence 20- to 40-year-olds (chinadaily.com.cn 2011). And therefore under such circumstances, JUSCO would face more competition which comes from the high penetration of advance technologies in the retail industry. As a result, it is recommended that JUSCO watches closely on the technological development in the retail industry in China and adapts its detailed operation strategies accordingly.
2.5 Ecological factors
Traditional environmental check would not involve the checking of environmental issues, but with the increased and enhanced environmental protection and awareness throughout the world, such checking become important and even critical to some business. And according to an earlier survey, namely EAP 2007 Environmental Survey, it demonstrates that the environmental protection efforts in China have raised the environmental awareness obviously as a result of the government’s plan to stop the environment from being damaged further (chinaceap.org 2008). Therefore we can see that the public awareness of environment protection seems to raise though the level right now is not as high as than in most developed nations, it does keep advancing and worth attention from the producers as well as the retailers. There are several implications that we might think of for the JUSCO China with the raising environment awareness in the public and in particular among the end customers: first of all, energy consumption and waste dumping relevant with the retail business and daily management; secondly, the company should release periodic (say quarterly) reports over the company’s environment and ecological performance to build up an image of good social member among the customers; thirdly, the company should retail those goods that are more environmentally friendly rather than others. For example, some goods that are priced low but could lead to pollution to the natural environment should be removed from the supermarket and this would help the consumers to form the thinking that the consumption goods brought in JUSCO China would be green and the buying of them could contribute to the sustainable economy and environment. Fourthly, the company of JUSCO China could adopt and promote the CSR (corporate social responsibilities) strategy and built up the first mover advantage by adopting such strategy as a leader compared to other local companies which may not have sufficient understanding about the necessity to adopt a CSR strategy.
2.6 Legal factors
As for the legal factors, China has its specific legal system which is subject to rapid changes and development with the fast changing economic and social life. Therefore, there are two major advices given to JUSCO China: first of all, the company should keep a close eye on the changes happening in the legal system of China and evaluate the relevant influences over its business; secondly, the company could also hire the local legal consultant for legal consultancy service to help the company to avoid some unnecessary troubles that could be caused because of the negligence of the local laws and regulations.
From the analysis above we can see that as for JUSCO in the Chinese market, it faces both challenges as well as changes. On the positive side, the market of China in the retail sector is undergoing rapid growth together with the fast urbanization and economic growth; on the negative side, the company’s business could be seriously affected by the development of the Sino-Japan political relationship. And in summary, it is suggested that the company should promote some changes to avoid the negative and promote the positive and advantages.
Aeon.info 2012. About Aeon. Accessed on 2nd Oct 2012 [online] available: http://www.aeon.info/en/aboutaeon/
businessdictionary.com 2011. Technological factors. Accessed on 2nd Oct 2012 [online] available: http://www.businessdictionary.com/definition/technological-factors.html
Chinaceap.org 2008. CEAP 2007 Environmental Survey released in Beijing. Accessed on 2nd Oct 2012 [online] available: http://www.chinaceap.org/news/viewen.asp?id=187
Chinadaily.com.cn 2012. China urbanization rate exceeds 50%. Accessed on 2nd Oct 2012 [online] available: http://www.chinadaily.com.cn/business/2012-05/30/content_15421183.htm
chinadaily.com.cn 2011. Digital revolution drives China’s retail, survey finds Accessed on 2nd Oct 2012 [online] available: http://www.chinadaily.com.cn/business/2011-06/14/content_12691191.htm
Geert-hofstede.com 2011. National cultural dimensions. Accessed on 2nd Oct 2012 [online] available: http://geert-hofstede.com/national-culture.html
Hitt, M. A., Ireland, D. & Hoskisson, R. E. 2009. Strategic Management: Competitiveness and Globalization : Cases. Mason: South-Western, Cengage Learning.
Pettinger, R., Nelson, B. & Economy, P. 2011. Management for dummies. New Jersey: John Wiley & Sons.
tealeafnation.com 2012. Anti-Japan Protests in China Turn Violent, Cooler Heads Prevail Online. Accessed on 2nd Oct 2012 [online] available: http://tealeafnation.com/2012/09/anti-japan-protests-in-china-turn-violent-cooler-heads-prevail-online/