Business Environment Essay
Mother care PLC is retailer that sells maternity clothing, clothes for babies and young children, toys and home equipment. As of 2005, the company had 231 stores in the United Kingdom and 220 locations in Europe, Middle East and Asia. The group has two iconic brands of Mothercare and Early Learning Centre. The brands of the group function through three distinct channels: UK store, direct and international channels. In the direct channel, there is the in-home and the in-store internet based business and there is catalogue based order whereas in international, the group franchises retail operations in the overseas markets.
The group has global strategy and reach so as to anticipate the growing trends within the customers and their changing requirements. The key office of the group is in UK but hefty supply chain operations have been performed through Shanghai, Hong Kong, Bangalore, Singapore and UAE. This has been done so as to understand the customer needs even better. The buying and resourcing team collaborates with the manufacturers and the supply chain partners allow the group to deliver their products from the warehouses to the store all over the globe.
And finally, the customers are delivered their products at efficient retail stores
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Hence, nowadays, expenditure per child has increased. The nursery furniture and baby transport market has also improved and has shown an increase between 2003 and 2007. this can be allocated to the reason that the companies such as Mother care PLC and Graco, have redefined themselves and have grown with the demographic and social trends. Moreover, products like feeding products and safety equipment demand also increased because of an increase in working mothers who have to leave their children in the day-care or with babysitters at home and hence, all these products are used.
Many parents even keep an entirely different set of equipment for children if they are sending them to the day-care facility. Moreover, due to increase awareness about the safety of children, products like safety locks and stair-gates have gained momentum in their demand. This has led to a better market for the companies and parents are now more aware and hence concerned of the dangers their babies might be exposed to from all the things around them. There is more consumerism and the standards or people have increased when it comes to lifestyles.
Moreover, there has been increased inclination towards the healthy lifestyle with quality products that have no toxic effects. Needless to say, disposable nappies have maintained their value and an essential product and with heavy discounting, promotional activities by the companies and the changing attitudes of parents towards and comfort and ease for the baby, their demand have continued to increase. However, the market is price-led for the disposable nappies because of the impact of disposable nappies on the environment and much criticism has to be faced by the manufacturers from the governments and the environmentalists.
Today, comfort is being given utmost importance. New perception of style as being comfortable has led to an increase in the demand of maternity clothing as well and different sub-divisions and multiple products for expecting mothers have been developed. Hence, due to research and development and product innovation, the companies have been able to bank off from this sector too and fare well in their products’ demand. Technological environment: For organizations like Mother care, it has become a competitive point to be upgraded technology wise.
As we know, much of the sales by the company are done online. Internet plays an overwhelming role and websites have to launched and updated so as to keep up with the competitors and the customers’ needs. In 2006, Mother care group launched with Amazon Enterprise Solutions, a state-of-the-art multichannel e-commerce platform. The new website branded as “Mother care” was launched and it sells and promotes the Mother care range of products. The Amazon Enterprise Solutions has provided not just website support but in-store and call-centre applications.
The new system provides improved functionality, reliability and speed and is in accordance with the growth ambitions of Mother care. The online system of Mother care entitled Direct business comprises of the web in home, telephone cataloguing and web in-store ordering system and at ? 40 million, it has grown over 26 percent in the year. Communications have been improved due to advanced technologies and there has been substantial increase in the bandwidth every year i. e. the increased capacity to move larger volumes of data quickly.
Computer technologies have increased the power and capacity to access information dramatically. This speed has given the consumers the control over the goods, services and activities and the barriers such as time and distance are things of past. More research and development can be done in this industry due to the technology and there are more opportunities and ideas for product improvement and innovation. Now there are databases available that keep track of the customer preferences over time and allow the companies to personalize the products and services.
Hence, over all it has been a positive move for the child care products industry however this all comes at a high price and investment. Legal and regulatory environment: The retailers can now give their own legal advice through their own law company as stated under the White Paper. It has been entitled as the Tesco Law and gives encouragement to the one shop stop approach. Now for Mothercare group, these on e shop stop businesses are the main competitors.
Since they have now been encouraged by laws and the strategies are being devised by them to provide greater benefits, the group has to take actions and initiatives to cope up. In fact, Mother care group is now very active through its online sales and product descriptions and marketing. As per the concept of corporate social responsibility, it is widely known that companies are pressurized to not focus on the capitalist thinking of increasing the shareholders wealth and instead focus on the wellbeing of the society as a whole.
In 2003, Lynch countered that if a company does not make a clear statement about its ethics does not mean that it does its businesses unethically. Today, retailers of the group are pressurized to ensure that they are not charged with the poor practices with regards to the developing countries. There has also been anti-globalization movement which might hinder the expansion of the group’s activities in the global markets. It would cause the group to alter their strategies. Mother care PLC ensures the product impact on the environment.
The products are checked, tested, sorted and eventually transported to the stores through the warehouses. Mother care has recently launched a green shop on their website which provides customers with environmental friendly options and purchases they can request. The group has also set up a Sustainable Product Working Group to extend their range of recycled materials. In the current year there is a likelihood of the implementation of The Shareholder Rights Directive under which the meetings have to be called on 21 days notice unless the shareholders agree on shorter notice.
Political and economic environment: Mother care group is highly based in the international markets as well and the international operations are susceptible to political restrictions on remittance of funds to the UK or many times, the refusal to enforce the brand’s relevant image as the intellectual property against the infringers. The group is also highly vulnerable to the exchange rates adverse movements because it pays for a large volume of its goods in foreign exchange, i. e. US dollar.
There can never be enough guarantees that the transactions would be enough to cover all the possible exposure. The current economic situation is likely to present uncertainty over the group’s trading position and also the demand of the products by the group. Hence to accommodate such drastic effects, the group has conducted their latest forecasts and projections incorporated with adverse variations and they still allow Mother care group to operate within the terms of their current borrowing facility and covenants for the future.
Moreover, the failure to respond to tehe changes in the economic environment can lead to confidence issues on behalf of the consumers and the core customers would be affected in the UK as well as global market. Things like reduction in the real income, expected future increases in personal and direct taxation, interest rates changes and the provision of consumer credit can has huge impacts on the sales and demand of the products. The Competitive Environment: Porter’s Five Forces:
• Competitive rivalry within the industry: The childrenswear industry has not been immune to the recession. In 2009, EU expenditure tumbled by 3. 5 percent. However, compared to other clothing categories, the sales have shown resilience. There is intense competition within the sector and the emerging players and competitors include: ID group, Mothercare, Orchestra, OVS industry, Tesco, Asda, Marks and Spencer, and Zara Kids. Competition from superstores and supermarkets has also increased as they add to their ranges of non-food items these product categories.
Hence, it can be said that there is high competition in the industry with each company trying their luck with new facilities such as store cards and credit option and green product options as well. • Threat of new entrants: Currently there are many competitors offering full range of products for the child care and the maternity industry. These are big names with global reach in not just UK and EU but also in the developing countries. This leads us to believe that the threat of new entrants is low. This is also because heavy investment is required to start off a business in such a direction.
Marketing has to be done and the entire supply chain has to be ensured of any faults and mishaps. The companies which already exist in the market are operating since years and have undergone a lot of mergers and acquisitions and also upgrading in all contexts. Moreover with the current unstable economic condition comprising of the recession, there is very tough chance that financial facilities of such tremendous amounts would be made available to the new entrants. Finance would require credibility which so far the new entrants cannot gain.
However, the scenario changes once of the existing retailers decide to enter in the same products and with their existing image it is not tough for them to make some space on their shelves. These are also foreign companies that gain foothold in the UK through acquisitions such as Wal-Mart, H&M and Claire’s. • Bargaining power of suppliers: The bargaining of the suppliers has become less with the evolution of e-commerce and this has happened because there is vast increase in the access of information between the suppliers and buyers and the pricing strategy is now the only way to secure the market share in such an industry.
More use of internet is expected and customization has also entered the industry when the products are designed according to the tastes of the customers. Now there has also been the practice of reverse auction where the retailers specify their wants and the competing suppliers have to bid out each other over a website and the prices are instead lowered as compared to the traditional auctioning practices of increasing the prices.
Recently, there has been major publicity towards the retailers who set up their own demands and insisting on prices reductions and even thought the suppliers then operate at a loss. • Bargaining power of customers: Since there is so much competition, the customers have the advantage now over the brands. Now we can observe that there are just no longer season driven sales but throughout the year there are permanent opportunities and deals for the customers.
The aggressiveness of marketing had to be increased and they sum up to a lot of costs. Now the customers are used to the new offers. This even puts the retailers to a disadvantage because they have now lost the edge over the targeted marketing promotions. The retailers have to focus on the path of competitive pricing. • Threat of substitute products: The substitute can be the unbranded products and there is a major threat of the customers showing interest in them because of the current decrease in the real income of the people.
If customers are exposed to such uncertainties in the economic environment, there is a very likely chance that they would stop buying the brands and instead go for unbranded products available at superstores and supermarkets. Hence, the own brands of these superstores seem acceptable substitutions of these products. The Market Forces: In 2009, Mother care group, the baby products retailers, announced the creation of 400 jobs so as to open 33 new parents’ centers.
During the recession and the economic meltdown, the multi channel UK business showed resilience and it was further strengthened by the successful direct operations. Moreover, the international businesses have been going for strength to strength with strong franchises and many new store openings and even the first store in China has been opened. The group has also been striving to improve the company’s property portfolio. The group has seen its profits increase 10-fold after its takeover of Early Learning Center which delivered benefits beyond expectations.
The children’s wear market and baby products have monopolistic competition. This is because there are many firms and there are competing producers that sell products with differentiated aspects. The products are all substitutes of each other and differences are such as branding and retailing. Consumers are able to perceive the non-price differences amongst the competitors’ products and the producers have much control over the process as well and can use it to change their strategies. The children’s wear market has underperformed in the recent years because of a number of reasons.
Firstly, the birthrate has been slower and hence fewer babies to clothe. Moreover, the retailers have been getting more value. The UK childrenswear market is very retail-driven, with retailer brands accounting for the greatest share of sales. Major players include Adams Kids, Mother care, Marks & Spencer, Debenhams, ASDA, Tesco and Primark. The economic downturn, and the recession that began in the UK in 2008, sharpened the retailers’ focus on price; however, despite the difficult economic climate, retailers have continued to invest in their brands across all price points.
With the child population continuing to rise, the outlook for the children’s clothing market is positive. Key Note expects that price influences will dampen growth in 2009 and 2010, before the market begins to show better growth between 2011 and 2013. Design elements, ethical developments and brand investment will drive future growth in the industry. References: Kurtz, D. L, MacKenzie, H. F & Snow, K (2010) Contemporary Marketing second edition, Canada, Nelson Education Ltd