ASDA is the fast rising retailers in UK. The report is divided into two parts. Firstly, this report will discuss the methods employed by ASDA for growth and expansion. The reasons of using both organic and acquisition for growth are outlined. Then, PESTLE analysis will be conducted to understand external factors affecting the business in the current business landscape. Lastly, conclusion and recommendations will be provided to ASDA to chart sustainable growth in the future, after considering various changes and trends in the external environment.
Currently, the world had just recovered from a severe financial crises and recession. After intensive expansionary monetary policies implemented by the governments around the world (Creel et. al., 2009), many companies has been able to regain profitability. However, the recovery process remain fragile, and there are talks that United States may be entering into a double dip recessions (Farmer, 2010). Then, there are serious unsolved sovereign debt issues in the Euro regions – particularly on the PIIGS countries. Besides, there are even talks that the economy of China is heading towards a hard landing, and if that is true, the world economy will be adversely affected. The property market in China; and in certain other emerging market is facing threats of property market bubble, due to the heavy inflows of capital from the developed markets to the emerging market (Astley et. al., 2009). Not only is that, inflationary pressures are serious around the world, ad prices of commodity has been rising tremendously (Cardarelli et. al., 2010). All these negative factors are likely to impact the economy of United Kingdom negatively. In United Kingdom, unemployment rate remain high. And the economy is growing at a slow pace. Besides, the possibility of austerity programs implemented by countries in Europe will put downward pressures to firms in the region (Schmidt-Hebbel et. al., 2010).
Generally, companies may growth in two methods, either organically or via external expansion (primarily through mergers and acquisition). ASDA employed both methods simultaneously. Started from its humble beginning in 1920s, ASDA has been grown from a small dairies business to one of the leading retailers in UK. Originally, the company has been relying on organic growth. Later, the firm get listed, to access to more financing from the capital market. Besides, the company has also been relying on acquisition for growth. In 1970s, ASDA acquired Allied Retailers and some Gateway stores for expansion purposes (to reach larger market). In the recent years, ASDA had been acquired by Wal-Mart for further growth. It is expected that by having back-up from Wal-Mart, the company can have stronger financial back-up, adoption of Wal-Mart’s success formulas, getting assistance from Wal-Mart management and achieving larger economies of scale (http://retail-development.asda.com/).
The company has been growing primarily through low cost leadership strategy. The company is aiming to provide lowest price to customers. This is essentially the typical ‘everyday low price’ strategy of Wal-Mart (Arnold et. al., 2002). This is a sensible strategy as ASDA would surely like to reach the largest market segment of the mass – for sales volume and economies of scale (Kumar, 2005). Price leadership is also rational because successful companies such as Wal-Mart have been gaining their competitive advantage through such strategy. Besides, to growth through ‘consolidation strategy’ is also one of the strategies of ASDA. Firstly, the firm will try to beat the smaller size retailer in smaller town, and once their position in a particular community is strengthened, the firm will remove the stores from a couple of small town to a bigger town. Not only is that, ASDA is also growing by expanding the choices of merchandized offered to consumers. By expanding the product portfolio offered to customers, the company able to grow fast (www.asdamediacentre.com).
PESTLE analysis is useful to understand the various relevant forces possibly affecting ASDA in the macro environment. In the following section, the current position of the company under the various dimensions of PESTLE will be discussed.
ASDA is operating primarily in UK. Currently, the political environment in UK is generally stable. Stability is good for businesses. However, there are talks that the government debt in United Kingdom is too high. If the trend of increasing government debt persists, there are possibilities that UK may face serious sovereign debt issues as in the case of the PIIGS countries. There are talks on UK government to reduce subsidies and implementation of financial austerity programs in the country (Schmidt-Hebbel et. al., 2010). Although that may be good for the economy in the long run, that may affect consumer spending adversely in UK in the short term. This may be unfavorable to ASDA.
As discussed above, the economy is on a weak recovery from the financial crises in 2009. The unemployment rate in UK remains high; and the outlook of the consumers spending remain uncertain (Aaronson et. al., 2010). Thus, under such an economically uncertain times, dampen consumer spending can be expected in the short term, and this will put negative pressures to ASDA profitability in the near future. However, as ASA has a wide product portfolio, and is delivering cheaply priced goods to the market, the revenue of ASDA should remains resilient. Another factor that may affect ASDA is the inflationary pressures around the world. As commodity prices keep increasing, the profit margin of ASDA will be hurt. It can be challenging for ASDA to pass down the prices increases to consumers in the near term.
The rising standard of living of people is having huge impacts to the UK social structure. Firstly, higher proportion of women has been found to be joining the employment rank. Besides, as the consumers enjoy higher standard of living, they are also becoming more demanding. It is harder to fulfill the higher expectations and demands from consumers in today business environment. Quality is being emphasized. There are also talks that businesses have to connect to the consumers emotionally. For ASDA, that means it has to rise to higher standards, and to provide better quality of goods and services to ensure customer satisfaction.
One of the technological changes that have serious impacts to business environment is the rise of internet and digital marketing (Cheng, 2009). Consumers apparently are becoming more comfortable to purchase things online. E-commerce has bright prospects as it can not only enhance the cost structure of businesses, but also to reach wider consumers at an economically manner (Siddiqui et. al., 2003). ASDA can have alternative ways to reach the consumers. Online market channels can be further developed to further connect, communicate and promote ASDA and its products to end users. Currently the company is having good website at http://www.asda.com/.
Overall, ASDA is a legal business. However, some of the observers commented that ASDA is using misleading advertising, using suppliers with illegal employment practices, and lacking environmental serious policies. All these are issues to be concerned by management, and unable to fulfill the legal requirements may cause ASDA to face contingent liabilities in the future (Enderle, 2010).
Today, people are becoming more environmentally conscious, as it is witnessed that the irresponsible and short term oriented attitudes of corporations have been causing great harm to the environment. Global warming is a topic concerned by consumers, and green movement has been successfully persuading more and more people to buy only those products from environmentally friendly consumers (Enderle, 2010). People are also found to be used to recycle materials and favor the products from companies exercising Corporate Social Responsibilities (that is perceived to contribute to the environment and the community) (Albino et. al., 2009). Sustainability development is already becoming important direction and philosophy to be employed by companies. ASDA is relatively weak from fulfilling its corporate citizenship. It is important for ASDA to change accordingly to fit the consumers and public expectations and to growth in sustainable and responsible manners for long term profitability and better brand name in the marketplace.
Overall, it can be seen that ASDA has been able to growth from organically, or through acquisition. The company has also been acquired by Wal-Mart, which further enhances the growth prospect of the company. Overall, from the PESTLE analysis, it can be observed external factors may bring powerful impacts to the company. In the near term, the company shall be able to remain profitable, but the growth opportunities may be limited by gloomy economic outlook. Then, ASDA should also more attentive to the changes in the market environment, such as the more demanding consumers, the higher expectations from the public on companies to act in socially responsible manner, the rise of internet marketing and e-commerce, as well as the need to growth sustainably in the future. All of these factors should be incorporated in management decision making process for charting expansion for the business.
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Figure 1: Websites of ASDA