Marks and Spencers Environment Analysis: Five Forces, PESTEL and SWOT

Introduction

The report is compiled to understand the environment in which Marks & Spencer (M & S) operates and detailed objectives of the report can be explained as follows. Objective one of the report is to identify the external environment factors that impacts M & S’s performance in a broader sense where a PESTEL analysis will be used to explain factors. Objective two of the report is to identify the industry environment in which M & S operates and to evaluate the industry environment Micheal Porter’s Five Forces analysis will be used. Objective three of the report is to come up with a SWOT analysis for M & S in order to identify the strengths, weaknesses, opportunities and threats. In the final section of the report, it aims at providing an overall conclusion about the strategic position of M & S which can be used to develop future strategies for the organization.

M & S is a large conglomerate listed in London Stock Exchange and it has operations in more than 40 countries around the world even though the core business is focused on UK. (M & S Corporate Website, 2012) The business portfolio of M & S is diversified to an extent because it has ventured into businesses ranging from clothing, furniture, home appliances, food and financial services. (M & S Corporate Website, 2012) With a large business portfolio in hand, M & S considered as a one of the strongest brands in UK and due to the recent turmoil in the business environment, they are faced with a challenging situation. Therefore, the report identifies the factors that seriously affect the performance of M & S where findings of this report can be used to take business decisions in the future.

PESTEL Analysis

PESTEL Analysis is a tool that is developed to identify the external factors that affect the strategy of the organization and through the PEST analysis; decision maker can identify the macro level factors which would give rise to opportunities or threats to M & S. (Lorat, 2005) The PESTEL analysis for M & S can be presented as follows:

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(P)olitical Factors

Since M & S is company with presence in more than 40 countries the global political situation and the political climate of each and every country in which they have operations affects the bottom line of M & S. With that thought in mind, laws created by the European Parliament affects M & S as it has presence in many European counties such as Spain and Green who are bound by the law of European Union. (European Commission, 2011a) However, core business location of M & S- UK is not severely affected by law making of EU as UK has the option to decide whether to adhere to the law or not. (HM Revenue and Customs, n.d) Considering the political climate of UK, there are many reports that suggests that political climate of UK is positive with law political risk involved as the present government operates in a stable manner. Even though the political climate in UK is identified to be positive, the global political climate is recognized as a negative force threatening M & S due to the global political unrests. The political situation in Middle Eastern countries involves high risk as there are war breakouts in gulf region and Africa. The war in Iraq and Libya has a severe impact on M & S as they have their presence in many Middle Eastern countries including Libya. There are many business reports suggesting that M & S has made significant losses at its Libyan business unit due to the war breakout. (Owen and Chester, 2012) Further, there are sanctions imposed on certain countries in Middle East such as Iran and Syria limiting trading with those countries which is considered to be a negative factor for M & S as it limits the business opportunities of M & S trade with those counties. (Saul, 2012)

The trade policy of the government is developed based on the motive that UK businesses should transform to multinational companies venturing into emerging economies into around the world. It allows UK provides subsidies for UK companies to make investments outside UK and transfer the profits back to UK without charging any income tax or capital gains tax on it. (The Economic Times, 2007) This policy is an opportunity for M & S to transform into multinational and transfer profit back to its headquarters with no tax. Further, trade policy of UK aims at helping developing countries in Africa to by developing business relationship with them and UK companies are provided subsidies for engaging in business with selected African countries. M & S utilize this opportunity to venture into untapped African markets which would facilitate the growth process. Further, trade policy of European Union has made a provision for developing countries through Generalized System of Preference (GSP plus) where the selected developing countries are allowed to trade with EU countries at low or no tariff on imports. (European Commission, 2011a) This has provided significant opportunity for M & S to build their supplier base in chosen countries and they have entered into strategic partnership with those chosen supplier. However, the poor diplomatic relationships and other political pressures such as human rights claims have resulted in abolishing GSP plus concession for certain countries such as Sri Lanka who were major suppliers for clothing division of M & S. (Gunathilake, 2012) This has situation has forced M & S to look for alternative suppliers as the prices of imports from their major sourcing countries have become less competitive. (Gunathilake, 2012) Trade policies of other countries in which M & S also affect the strategy of M & S.

(E)conomic Factors

Currently many of the European countries are faced with a financial crisis which is called the Euro crisis and it has led to poor performance of economies such as Spain and Greece. (Lowrey, 2012) Due to the crisis situation in Ireland, Spain and Greece which is caused by the defaults of debt, the economic activities have slowed down leading to low performance by M & S as the revenue level of those business units have fallen. (Lowrey, 2012) To cover up the poor performing European businesses, there has been a significant economic growth in emerging Asian countries such as China and India where China has accounted for 40% of the world economic growth and India has accounted for 15% of the world economic growth giving a combined figure of 55% of the total world economic growth arising from Asia. (The Indian Express, 2012) Hence, this can be identified as an opportunity to further expand business operations in India and China while making more money from the existing business units in those countries.

Being in the consumer goods business, M & S is significantly affected by the income level of its potential customer. The consumer income level in UK has been dropping significantly during past few years as a result of the recent financial crisis where the disposable income growth in UK has fallen from 3.2% in 2001-2002 to 0.3% in 2008-2010 time periods indicating that the purchasing power of consumers has been stagnant during the last few years. (Jin et al, 2011) (Refer Appendix A for a detailed breakdown of income growth in UK) M & S product range is a luxurious product range where consumer’s disposable income is a factor that determines the purchase choice. When the consumer income’s disposable income falls, the consumer’s consumption also falls as the money that is available for consumption is limited. When there is limited money available for consumption, consumers tend to avoid luxurious goods rather they purchase substitutes products that are available for cheaper prices. This situation could heavily affect M & S leading to fall in income as its entire clothing line and the food sector is catering to up market with premium prices.

Being a global company exchange rate also has an impact on performance of M & S. Considering the exchange rate for British Pound, it is apparent that currency is not stable in the market where there are heavy fluctuations and during past 120 days the exchange rate for USD has it highest point in 0.65 and the lowest point in 0.61. (X Rates, 2012) (Please refer Appending B for more details) These fluctuations impact global business operation of M & S as the money earned in other countries have to be transferred back to UK. Further, M & S is also in to the currency converting business via M & S Money and severe fluctuations in exchange rate significantly impact the margins of business as they they are unable to predict future exchange rates.

(S)ocial and Cultural Factors

In the modern world the the free time of consumers have been reducing over the time where the consumers have been loaded with work at their workplace and personal commitments. Therefore, the modern trade requires new methods to save time such as no lengthy queues at the cashier, home delivery and extended versions of the online store of M & S to increase sales by leveraging on busy life styles of people.

The clothing preference of people depends on the cultural and religious values where the strategy of M & S needs to be adapted to suit the cultural and religious values of the people. As an example, the clothing fashions in Middle East is based on Islamic traditions where the women are required cover their full body this would limit the opportunity for M & S to trade the traditional set of items in middle east. Further, clothing traditions in India are shaped by Hindu religious values and Indian culture which is identified completely different to the UK clothing fashions resulting in a challenge for M & S to market its standardized product range at India.

Not only the clothing preferences, the food preferences of customers also depend on the culture and religious values where the food preferences of customers change from country to country depending on the local cuisine too. As an example, due to the influence of Hinduism, in India the food sellers operate without beef in their cuisine as majority in India who believe in Hinduism does not consume beef. Similarly, Islamic nations such as Saudi Arabia, Oman and Middle Eastern Countries require a food to prepared according to halal approved manner using only halal certified ingredients as customers who believe in Islamic religious value consume food that are prepared according to halal standards and operating under halal standards require removing pork related items from restaurants. Therefore, the cultural and religious values of consumers have a big impact on the M & S food division and customization to the standardized products are required to meet the demands in locales based cultural and religious values.

(T)echnological Factors

As a multinational company looking forward to excel in its strategy, M & S is significantly impacted by the changes in the technological environment which changes at a rapid pace in current business environment. There has been a significant increase in the mobile payment methods during the recent past where the online payments are expected to hit USD 740 Billion in 2010 to USD 2700 in 2015. (Vertical Edge Limited, 2011) The increase in online payments are caused by increased usage in credit cards/debit cards and change in the perception about online transaction security where the customers have recently developed trust on online merchants and online payment verification systems such as Paypal to enter their credit card credentials. (Vertical Edge Limited, 2011) This change provides a significant opportunity for M & S Money to increase sales for their credit card divisions and the M & S online store to expand its online sales targeting a larger segment of customers. In additional to the online payments methods, mobile payment methods also emerge in the market allowing a greater flexibility for customers to make their purchases via mobile phones simply by disclosing credentials to the merchant on mobile phone and simply order the goods. (Skoczkowski, nd) The growth projected in the mobile money field has been significant where it was expected to have 2.7 transactions in 2007 37 Billion transactions by 2011. (Skoczkowski, nd) Similar to the credit card payments, running a mobile payment platform requires a supporting bank to provide payment gateways and since M & S money can facilitate the banking process it gives a strategic advantage for M & S to venture in to the mobile payment methods for its clothing, gifts and food sectors.

(E)nvironment Factors

During the recent past, there has been significant trend in companies going green due to external pressures as well as businesses understanding the importance of sustainability. (Wood, 2011) With the green initiatives, companies have adapted strategies to minimize waste, save energy, create green manufacturing and encourage suppliers to go green making it a trendy approach to position the business as a socially responsible entity. (Woods, 2011) Therefore, it provides an opportunity for M & S to improve their green initiatives and position themselves as a green organization in customer’s mind which could impact the buying decisions of customers on ethical grounds.

The climate change and the seasonal changes caused by the natural environment have a great impact on the clothing preferences of the customers. When the winter arrives in UK and other European countries demand for winter clothes are expected to grow whereas during the summer demand for summer clothes are expected to grow. (Peacock, 2011) Further, clothing preference significantly varies from countries with warm climates such as Saudi Arabia to countries with a cool climate such as UK. This gives the opportunity for M & S to produce clothes to suit the requirement of season and climate conditions of countries and meet the demand.

In the recent past, the world was exposed to many natural disasters such as earthquakes, Tsunami, floods and cyclones and the recent reports suggests that natural disasters could increase in the future leading to an uncertain future. (CBC News, 2011) Recent earthquake/Tsunami situations in Indonesia and flood in Thailand have negatively affected M & S business operations in those countries and there is a significant threat identified as a result of predicted increase in natural disaster in the future.

(L)egal Factors

Operating in a global environment requires companies to be in line with the global legal system as well as the local legal systems of countries in which they have operations. As an example, as M & S venture in to China, labour policies adapted in China should be within the labour regulations of Chinese government and also it needs to comply with the standards of International Labour Organization. Similarly, since M & S operates in the food and beverages industry, the process in which the food business is carried out should be in line with the food product standards that are enforced at local levels. Apart from the labour and food product regulations, the companies starting businesses in other countries also should comply with the companies law of those countries where the entity needs to be duly incorporated in those countries according to respective laws while ensuring that the reporting occurs as an when required.

Micheal Porter’s Five Forces Analysis

Porter’s Five forces analysis is a tool that is developed to identify the threats and opportunities resulting from the task environment of the business which is comprised of the forces that business closely interact with. (Henry, 2008) Five forces analysis for M & S can be conducted as follows:

Buyer Power                                  

The buyer power of M & S consumers is identified to be low as the customers are unable to influence the prices. Prices are set high as the target audience is high income earners seeking for luxurious life style. Further, since there are a large number of buyers in the market, the power of individual buyer is very low and as the revenue contribution by individual buyers is a very low, the bargaining power of individual buyers is concluded to be low. Due to above mentioned reasons; the low bargaining power of the customer is identified as a opportunity for M & S as they can decide on the selling price.

Supplier Power

M & S is a large scale buyer who is in a position to bargain and decide on the price and therefore the supplier power is considered to be low. Due to the large quantities purchased, M & S receive bulk discount and due to the established the brand name it is easy for M & S to bargain with suppliers to build business relationships. Further, suppliers are given other additional benefits such as technology transfers by M & S, suppliers are under obligations to give priority to produce goods for M & S reducing the bargaining power of suppliers. Therefore, M & S has significant control over its supplier base and it can be identified as a positive environment factor.

Threat of Substitutes

M & S operates in the high street segment and there are ample substitutes available for up market products where goods of similar nature are sold at reasonable prices in normal shops. For example, substitute for luxurious food items can be found at regular fast food restaurants such as KFC and McDonalds indicating that there is a significant threat from substitute products.

Threat of New Entrants

Except for the banking industry, other industries in which M & S operates does not have major entry barriers or major exit barriers. Entering into a restaurant business or clothing business does not require major capital investments and they are identified to have high level of margins making it attractive for new entrants to enter the market. Therefore, M & S is faced with significant threat from the new entrants to the market.

Rivalry among Existing Competitors

The number of players in the up market clothing and food industry is large and they compete with each other to increase/retain their market share. However, each store tries to differentiate themselves from the competitors where they concentrate on product value and brand values rather than price war. Since each competitor reflects unique values of their brand, customers become loyal to those stores reducing the cut throat competitions to somehow grab the customer. This indicates an opportunity for M & S differentiate themselves using their unique brand values.

SWOT Analysis

SWOT analysis is carried out to identify the strategic position of the organization where it provides insights from the internal organizations by means of strengths and weaknesses where external organization is evaluated as opportunities and threats. (Dealtry, 1992)

(S)trengths of M & S

• Global Operations

M & S has presence in more than 40 countries giving it the opportunity to cater to a larget customer segment and earn revenue. (M & S Corporate Website, 2012)

• Talented workforce

M & S employs 78,000 people in their business process and these employees are well talented and given training to enhance their skills to perform their tasks. (M & S Corporate Website, 2012)  

• Strong supplier base

M & S has a large supplier base of 2000 suppliers around the world providing best quality products at lower prices due to the strategic partnerships. (M & S Corporate Website, 2012)

(W)eaknesses of M & S

• Concentration on UK

M & S’s policy is to concentrate more on its UK business rather than expanding its operations in other countries. Having its concentration in a market which is affected by a financial crisis can be seen a weakness as the market could collapse. (M & S Corporate Website, 2012)

• High Prices

The reports suggests that Marks and Spence has high prices when compared to competitors who are operating in the similar market and it has led them lose the market share in the recent past. (Felsted, 2012)

(O)pportunities of M & S

• Mobile Money

As explained in the technology analysis the mobile money industry is growing at a rapid pace and M & S could capitalize on it and launch mobile stores.

• Expansion opportunities

As explained in the economic analysis, Asian countries such as India and China have reported high economic growth where M & S could expand its operations in those countries to generate better results.

• Cheap Sourcing due to trade policy

The trade policy of EU and UK allows subsidies for developing business relationship with developing countries and M & S has opportunity to utilize it to obtain cheaper supplies.

(T)hreat of M & S

• Reduction in consumer income

Induction in consumer income has forced customers to look for cheap substitutes leading to drop in sales for M & S.

• Fluctuation in exchange rates

Significant fluctuations in the exchange rate give rise to exchange rate losses when operating in global business environment.

• Global politics

Political unrest in Middle East and African countries increases the global political risk where the operations in Middle East region as well as global operations are at a risk of economies getting slowed down.

Conclusion

An in depth analysis of the environment in which M & S operates was conducted and based on the PESTEL analysis it was identified that economic environment gives rise to significant threats due to fall in consumer income. Technological environment has given rise opportunities where M & S could capitalize on. The Porter’s five forces analysis indicated positive signals except for threat of substitutes. Based on the environment analysis and the internal analysis, a SWOT analysis was compiled as the final section of the report which can be used for business decision making.

References

• CBC News. (2011). Natural disasters will increase: British report. Available: http://www.cbc.ca/news/world/story/2011/03/28/disasters-paddy-ashdown-britain.html. Last accessed 20th June 2012.
• Dealtry R (1992). Dynamic Swot Analysis: Developer’s Guide. Birmingham : DSA Publications . p14.
• European Commission . (2011a). What is EU law?. Available: http://ec.europa.eu/eu_law/introduction/treaty_en.htm. Last accessed 21st June 2012.
• European Commission . (2011b). Generalised System of Preferences (GSP). Available: http://ec.europa.eu/trade/wider-agenda/development/generalised-system-of-preferences/. Last accessed 20th June 2012.
• Felsted A. (2012). Marks and Spencer loses Price to rival. Available: http://www.ft.com/intl/cms/s/0/5f21a30a-bc50-11e1-a836-00144feabdc0.html#axzz1yfTiwomx. Last accessed 20th June 2012.
• Gunatilleke M. (2010). Garment workers torn apart as GSP Plus is withdrawn. Available: http://sundaytimes.lk/100815/News/nws_44.html. Last accessed 20th June 2012.
• Henry A (2008). Understanding Strategic Management. New York: Oxford University Press. p68-69.
• HM Revenue and Customs . (n.d.). PE1100 – Partial exemption basics and the standard method: EU law. Available: http://www.hmrc.gov.uk/manuals/pemanual/pe1100.htm. Last accessed 20th June 2012.
• Jin et Al. (2011). Poverty and Inequality in the UK: 2011. Available: http://www.ifs.org.uk/comms/comm118.pdf. Last accessed 20th June 2012.
• Lorat N (2005). Market Audit and Analysis. Germany : Druck and Bindung. p6.
• LOWREY A. (2012). World Bank Warns Euro Fears May Slow Global Growth. Available: http://www.nytimes.com/2012/06/13/business/global/world-bank-warns-euro-fears-may-slow-global-growth.html?_r=1. Last accessed 20th June 2012.
• M & S corporate website . (2012). Company Overview. Available: http://corporate.marksandspencer.com/aboutus/company_overview. Last accessed 20th June 2012.
• OWEN J and LAURA C. (2011). British firms stand to lose millions in revolt. Available: http://www.independent.co.uk/news/business/news/british-firms-stand-to-lose-millions-in-revolt-2226895.html. Last accessed 20th June 2012.
• Peacock L . (2011). Cyber Monday to boost retailers as shoppers flock online. Available: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8920183/Cyber-Monday-to-boost-retailers-as-shoppers-flock-online.html. Last accessed 20th June 2012.
• Saul J. (2012). Iran’s sanction-beating grain trade seen ready to help Syria. Available: http://www.reuters.com/article/2012/06/01/us-syria-iran-grain-idUSBRE8500JU20120601. Last accessed 20th June 2012.
• Skoczkowski L. (n.d.). Mobile Money: Transforming The Wireless Paradigm. Available: http://www.billingoss.com/articles/mobile_money_a_global_opportunity_redknee.htm. Last accessed 20th June 2012.
• The Economic Times . (2007). UK-based MNCs may get to repatriate profits tax-free. Available: http://articles.economictimes.indiatimes.com/2007-04-12/news/28473863_1_mncs-consultation-paper-tax. Last accessed 20th June 2012.
• The Indian Express. (2012). India, China deliver half of world economic growth: report. Available: http://www.indianexpress.com/news/india-china-deliver-half-of-world-economic-growth-report/898480/. Last accessed 20th June 2012.
• Vertical Edge Limited. (2011). The Future of Online and Mobile Payments. Available: http://www.companiesandmarkets.com/Market/Information-Technology/Market-Research/The-Future-of-Online-and-Mobile-Payments/RPT858359. Last accessed 20th June 2012.
• Woods J. (2012). Adapting business for the green era. Available: http://www.telegraph.co.uk/sponsored/earth/the-age-of-energy/8876251/Adapting-business-for-the-green-era.html. Last accessed 20th June 2012.
• X Rates. (2012). Exchange Rate Graph . Available: http://www.x-rates.com/d/GBP/USD/graph120.html. Last accessed 20th June 2012.

Appendix A

Measures of Income Growth in UK

Source: Jin et al, (2011)

Appendix B

Exchange Rate Fluctuations

Source: X Rate, (2012)

Introduction

The report is compiled to understand the environment in which Marks & Spencer (M & S) operates and detailed objectives of the report can be explained as follows. Objective one of the report is to identify the external environment factors that impacts M & S’s performance in a broader sense where a PESTEL analysis will be used to explain factors. Objective two of the report is to identify the industry environment in which M & S operates and to evaluate the industry environment Micheal Porter’s Five Forces analysis will be used. Objective three of the report is to come up with a SWOT analysis for M & S in order to identify the strengths, weaknesses, opportunities and threats. In the final section of the report, it aims at providing an overall conclusion about the strategic position of M & S which can be used to develop future strategies for the organization.

M & S is a large conglomerate listed in London Stock Exchange and it has operations in more than 40 countries around the world even though the core business is focused on UK. (M & S Corporate Website, 2012) The business portfolio of M & S is diversified to an extent because it has ventured into businesses ranging from clothing, furniture, home appliances, food and financial services. (M & S Corporate Website, 2012) With a large business portfolio in hand, M & S considered as a one of the strongest brands in UK and due to the recent turmoil in the business environment, they are faced with a challenging situation. Therefore, the report identifies the factors that seriously affect the performance of M & S where findings of this report can be used to take business decisions in the future.

PESTEL Analysis

PESTEL Analysis is a tool that is developed to identify the external factors that affect the strategy of the organization and through the PEST analysis; decision maker can identify the macro level factors which would give rise to opportunities or threats to M & S. (Lorat, 2005) The PESTEL analysis for M & S can be presented as follows:

Political Factors

Since M & S is company with presence in more than 40 countries the global political situation and the political climate of each and every country in which they have operations affects the bottom line of M & S. With that thought in mind, laws created by the European Parliament affects M & S as it has presence in many European counties such as Spain and Green who are bound by the law of European Union. (European Commission, 2011a) However, core business location of M & S- UK is not severely affected by law making of EU as UK has the option to decide whether to adhere to the law or not. (HM Revenue and Customs, n.d) Considering the political climate of UK, there are many reports that suggests that political climate of UK is positive with law political risk involved as the present government operates in a stable manner. Even though the political climate in UK is identified to be positive, the global political climate is recognized as a negative force threatening M & S due to the global political unrests. The political situation in Middle Eastern countries involves high risk as there are war breakouts in gulf region and Africa. The war in Iraq and Libya has a severe impact on M & S as they have their presence in many Middle Eastern countries including Libya. There are many business reports suggesting that M & S has made significant losses at its Libyan business unit due to the war breakout. (Owen and Chester, 2012) Further, there are sanctions imposed on certain countries in Middle East such as Iran and Syria limiting trading with those countries which is considered to be a negative factor for M & S as it limits the business opportunities of M & S trade with those counties. (Saul, 2012)

The trade policy of the government is developed based on the motive that UK businesses should transform to multinational companies venturing into emerging economies into around the world. It allows UK provides subsidies for UK companies to make investments outside UK and transfer the profits back to UK without charging any income tax or capital gains tax on it. (The Economic Times, 2007) This policy is an opportunity for M & S to transform into multinational and transfer profit back to its headquarters with no tax. Further, trade policy of UK aims at helping developing countries in Africa to by developing business relationship with them and UK companies are provided subsidies for engaging in business with selected African countries. M & S utilize this opportunity to venture into untapped African markets which would facilitate the growth process. Further, trade policy of European Union has made a provision for developing countries through Generalized System of Preference (GSP plus) where the selected developing countries are allowed to trade with EU countries at low or no tariff on imports. (European Commission, 2011a) This has provided significant opportunity for M & S to build their supplier base in chosen countries and they have entered into strategic partnership with those chosen supplier. However, the poor diplomatic relationships and other political pressures such as human rights claims have resulted in abolishing GSP plus concession for certain countries such as Sri Lanka who were major suppliers for clothing division of M & S. (Gunathilake, 2012) This has situation has forced M & S to look for alternative suppliers as the prices of imports from their major sourcing countries have become less competitive. (Gunathilake, 2012) Trade policies of other countries in which M & S also affect the strategy of M & S.

Economic Factors

Currently many of the European countries are faced with a financial crisis which is called the Euro crisis and it has led to poor performance of economies such as Spain and Greece. (Lowrey, 2012) Due to the crisis situation in Ireland, Spain and Greece which is caused by the defaults of debt, the economic activities have slowed down leading to low performance by M & S as the revenue level of those business units have fallen. (Lowrey, 2012) To cover up the poor performing European businesses, there has been a significant economic growth in emerging Asian countries such as China and India where China has accounted for 40% of the world economic growth and India has accounted for 15% of the world economic growth giving a combined figure of 55% of the total world economic growth arising from Asia. (The Indian Express, 2012) Hence, this can be identified as an opportunity to further expand business operations in India and China while making more money from the existing business units in those countries.

Being in the consumer goods business, M & S is significantly affected by the income level of its potential customer. The consumer income level in UK has been dropping significantly during past few years as a result of the recent financial crisis where the disposable income growth in UK has fallen from 3.2% in 2001-2002 to 0.3% in 2008-2010 time periods indicating that the purchasing power of consumers has been stagnant during the last few years. (Jin et al, 2011) (Refer Appendix A for a detailed breakdown of income growth in UK) M & S product range is a luxurious product range where consumer’s disposable income is a factor that determines the purchase choice. When the consumer income’s disposable income falls, the consumer’s consumption also falls as the money that is available for consumption is limited. When there is limited money available for consumption, consumers tend to avoid luxurious goods rather they purchase substitutes products that are available for cheaper prices. This situation could heavily affect M & S leading to fall in income as its entire clothing line and the food sector is catering to up market with premium prices.

Being a global company exchange rate also has an impact on performance of M & S. Considering the exchange rate for British Pound, it is apparent that currency is not stable in the market where there are heavy fluctuations and during past 120 days the exchange rate for USD has it highest point in 0.65 and the lowest point in 0.61. (X Rates, 2012) (Please refer Appending B for more details) These fluctuations impact global business operation of M & S as the money earned in other countries have to be transferred back to UK. Further, M & S is also in to the currency converting business via M & S Money and severe fluctuations in exchange rate significantly impact the margins of business as they they are unable to predict future exchange rates.

Social and Cultural Factors

In the modern world the the free time of consumers have been reducing over the time where the consumers have been loaded with work at their workplace and personal commitments. Therefore, the modern trade requires new methods to save time such as no lengthy queues at the cashier, home delivery and extended versions of the online store of M & S to increase sales by leveraging on busy life styles of people.

The clothing preference of people depends on the cultural and religious values where the strategy of M & S needs to be adapted to suit the cultural and religious values of the people. As an example, the clothing fashions in Middle East is based on Islamic traditions where the women are required cover their full body this would limit the opportunity for M & S to trade the traditional set of items in middle east. Further, clothing traditions in India are shaped by Hindu religious values and Indian culture which is identified completely different to the UK clothing fashions resulting in a challenge for M & S to market its standardized product range at India.

Not only the clothing preferences, the food preferences of customers also depend on the culture and religious values where the food preferences of customers change from country to country depending on the local cuisine too. As an example, due to the influence of Hinduism, in India the food sellers operate without beef in their cuisine as majority in India who believe in Hinduism does not consume beef. Similarly, Islamic nations such as Saudi Arabia, Oman and Middle Eastern Countries require a food to prepared according to halal approved manner using only halal certified ingredients as customers who believe in Islamic religious value consume food that are prepared according to halal standards and operating under halal standards require removing pork related items from restaurants. Therefore, the cultural and religious values of consumers have a big impact on the M & S food division and customization to the standardized products are required to meet the demands in locales based cultural and religious values.

Technological Factors

As a multinational company looking forward to excel in its strategy, M & S is significantly impacted by the changes in the technological environment which changes at a rapid pace in current business environment. There has been a significant increase in the mobile payment methods during the recent past where the online payments are expected to hit USD 740 Billion in 2010 to USD 2700 in 2015. (Vertical Edge Limited, 2011) The increase in online payments are caused by increased usage in credit cards/debit cards and change in the perception about online transaction security where the customers have recently developed trust on online merchants and online payment verification systems such as Paypal to enter their credit card credentials. (Vertical Edge Limited, 2011) This change provides a significant opportunity for M & S Money to increase sales for their credit card divisions and the M & S online store to expand its online sales targeting a larger segment of customers. In additional to the online payments methods, mobile payment methods also emerge in the market allowing a greater flexibility for customers to make their purchases via mobile phones simply by disclosing credentials to the merchant on mobile phone and simply order the goods. (Skoczkowski, nd) The growth projected in the mobile money field has been significant where it was expected to have 2.7 transactions in 2007 37 Billion transactions by 2011. (Skoczkowski, nd) Similar to the credit card payments, running a mobile payment platform requires a supporting bank to provide payment gateways and since M & S money can facilitate the banking process it gives a strategic advantage for M & S to venture in to the mobile payment methods for its clothing, gifts and food sectors.

Environment Factors

During the recent past, there has been significant trend in companies going green due to external pressures as well as businesses understanding the importance of sustainability. (Wood, 2011) With the green initiatives, companies have adapted strategies to minimize waste, save energy, create green manufacturing and encourage suppliers to go green making it a trendy approach to position the business as a socially responsible entity. (Woods, 2011) Therefore, it provides an opportunity for M & S to improve their green initiatives and position themselves as a green organization in customer’s mind which could impact the buying decisions of customers on ethical grounds.

The climate change and the seasonal changes caused by the natural environment have a great impact on the clothing preferences of the customers. When the winter arrives in UK and other European countries demand for winter clothes are expected to grow whereas during the summer demand for summer clothes are expected to grow. (Peacock, 2011) Further, clothing preference significantly varies from countries with warm climates such as Saudi Arabia to countries with a cool climate such as UK. This gives the opportunity for M & S to produce clothes to suit the requirement of season and climate conditions of countries and meet the demand.

In the recent past, the world was exposed to many natural disasters such as earthquakes, Tsunami, floods and cyclones and the recent reports suggests that natural disasters could increase in the future leading to an uncertain future. (CBC News, 2011) Recent earthquake/Tsunami situations in Indonesia and flood in Thailand have negatively affected M & S business operations in those countries and there is a significant threat identified as a result of predicted increase in natural disaster in the future.

Legal Factors

Operating in a global environment requires companies to be in line with the global legal system as well as the local legal systems of countries in which they have operations. As an example, as M & S venture in to China, labour policies adapted in China should be within the labour regulations of Chinese government and also it needs to comply with the standards of International Labour Organization. Similarly, since M & S operates in the food and beverages industry, the process in which the food business is carried out should be in line with the food product standards that are enforced at local levels. Apart from the labour and food product regulations, the companies starting businesses in other countries also should comply with the companies law of those countries where the entity needs to be duly incorporated in those countries according to respective laws while ensuring that the reporting occurs as an when required.

Micheal Porter’s Five Forces Analysis

Porter’s Five forces analysis is a tool that is developed to identify the threats and opportunities resulting from the task environment of the business which is comprised of the forces that business closely interact with. (Henry, 2008) Five forces analysis for M & S can be conducted as follows:

Buyer Power                                  

The buyer power of M & S consumers is identified to be low as the customers are unable to influence the prices. Prices are set high as the target audience is high income earners seeking for luxurious life style. Further, since there are a large number of buyers in the market, the power of individual buyer is very low and as the revenue contribution by individual buyers is a very low, the bargaining power of individual buyers is concluded to be low. Due to above mentioned reasons; the low bargaining power of the customer is identified as a opportunity for M & S as they can decide on the selling price.

Supplier Power

M & S is a large scale buyer who is in a position to bargain and decide on the price and therefore the supplier power is considered to be low. Due to the large quantities purchased, M & S receive bulk discount and due to the established the brand name it is easy for M & S to bargain with suppliers to build business relationships. Further, suppliers are given other additional benefits such as technology transfers by M & S, suppliers are under obligations to give priority to produce goods for M & S reducing the bargaining power of suppliers. Therefore, M & S has significant control over its supplier base and it can be identified as a positive environment factor.

Threat of Substitutes

M & S operates in the high street segment and there are ample substitutes available for up market products where goods of similar nature are sold at reasonable prices in normal shops. For example, substitute for luxurious food items can be found at regular fast food restaurants such as KFC and McDonalds indicating that there is a significant threat from substitute products.

Threat of New Entrants

Except for the banking industry, other industries in which M & S operates does not have major entry barriers or major exit barriers. Entering into a restaurant business or clothing business does not require major capital investments and they are identified to have high level of margins making it attractive for new entrants to enter the market. Therefore, M & S is faced with significant threat from the new entrants to the market.

Rivalry among Existing Competitors

The number of players in the up market clothing and food industry is large and they compete with each other to increase/retain their market share. However, each store tries to differentiate themselves from the competitors where they concentrate on product value and brand values rather than price war. Since each competitor reflects unique values of their brand, customers become loyal to those stores reducing the cut throat competitions to somehow grab the customer. This indicates an opportunity for M & S differentiate themselves using their unique brand values.

SWOT Analysis

SWOT analysis is carried out to identify the strategic position of the organization where it provides insights from the internal organizations by means of strengths and weaknesses where external organization is evaluated as opportunities and threats. (Dealtry, 1992)

Strengths of M & S

• Global Operations-

M & S has presence in more than 40 countries giving it the opportunity to cater to a larget customer segment and earn revenue. (M & S Corporate Website, 2012)

• Talented workforce-

M & S employs 78,000 people in their business process and these employees are well talented and given training to enhance their skills to perform their tasks. (M & S Corporate Website, 2012)  

• Strong supplier base

M & S has a large supplier base of 2000 suppliers around the world providing best quality products at lower prices due to the strategic partnerships. (M & S Corporate Website, 2012)

Weaknesses of M & S

• Concentration on UK

M & S’s policy is to concentrate more on its UK business rather than expanding its operations in other countries. Having its concentration in a market which is affected by a financial crisis can be seen a weakness as the market could collapse. (M & S Corporate Website, 2012)

• High Prices

The reports suggests that Marks and Spence has high prices when compared to competitors who are operating in the similar market and it has led them lose the market share in the recent past. (Felsted, 2012)

Opportunities of M & S

• Mobile Money

As explained in the technology analysis the mobile money industry is growing at a rapid pace and M & S could capitalize on it and launch mobile stores.

• Expansion opportunities

As explained in the economic analysis, Asian countries such as India and China have reported high economic growth where M & S could expand its operations in those countries to generate better results.

• Cheap Sourcing due to trade policy

The trade policy of EU and UK allows subsidies for developing business relationship with developing countries and M & S has opportunity to utilize it to obtain cheaper supplies.

Threat of M & S

• Reduction in consumer income

Induction in consumer income has forced customers to look for cheap substitutes leading to drop in sales for M & S.

• Fluctuation in exchange rates

Significant fluctuations in the exchange rate give rise to exchange rate losses when operating in global business environment.

• Global politics

Political unrest in Middle East and African countries increases the global political risk where the operations in Middle East region as well as global operations are at a risk of economies getting slowed down.

Conclusion

An in depth analysis of the environment in which M & S operates was conducted and based on the PESTEL analysis it was identified that economic environment gives rise to significant threats due to fall in consumer income. Technological environment has given rise opportunities where M & S could capitalize on. The Porter’s five forces analysis indicated positive signals except for threat of substitutes. Based on the environment analysis and the internal analysis, a SWOT analysis was compiled as the final section of the report which can be used for business decision making.

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Appendix A

Measures of Income Growth in UK

Appendix B

Exchange Rate Fluctuations