Opportunities and Threats of the retail industry with the enlargement of the European Union

Introduction

In Europe, there is a predominant objective, which drives the economic and political integration. This objective is “keep peace among nations” ( Suder ,2008 p.2). The aim to establish Europe Union (EU) is to promote it. After EU was established, it was enlarged many times. Many new members joined it. The enlargement of EU has significant implications on many industries. In this essay, the effects of enlargement of EU on the retail industry will be studied. Both the effects on multinational enterprises (MNE) and small and medium-sized Enterprise (SME) are analyzed. For MNE, a UK-based company Tesco is selected to have a detailed discussion. Both the opportunities and threats are analyzed. The rest of the essay is organized as follows. First, a brief reviews will be made in the retail industry in EU. In this section, the biggest ones are ranked. In the biggest ones, a UK-based company Tesco is selected to have a detailed introduction. It will also be used as a typical case to discuss the influence of enlargement of EU on MNE in the rest of the essay. Following that, both the opportunities and threats of enlargement of EU to the retail industry will be analyzed. In the analysis, the influence on SME and MNE is discussed respectively. Finally, the conclusion will be made. In the conclusion, an overall evaluation will be made.  The evaluation is based on the contents of the essay and in the light of development on a European level.

Brief reviews in the retail industry in EU

Compared with the USA, the retailing in Europe is not weaker. In Europe, the top five retailers are Wal-Mart, Carrefour (French), Metro AG (Germany), Tesco (UK), Schwarz Untemehmens Treuhand KG (Germany) (Barbara, 2011). They are all typical examples of MNEs. Among them, Tesco, a UK-based enterprise will be given a detailed introduction. Tesco is a global general merchandise retailer. It is headquartered in UK. In UK, it is the second largest one following Wal-Mart measured by profits (Reuters, 2011). It has stores in the 14 countries. Its business covers Europe and North America, and Asia (A global business, 2011). The MNEs in the retail industry play a central role in the European market. Except them, there are also a great many SMEs in Europe. The enlargement of EU has significant implications on both of the two kinds of enterprises in the retail industry.

Following this section, the opportunities in retail industry will be analyzed respectively.

Opportunities in retail industry

There are many business opportunities triggered by the enlargement of EU. The common regulations for free movement of goods, services, capitals and people give make the business opportunities larger (Suder,2008, p.5) After the goods, services, capitals and people are free to flow in the member countries in EU, more business activities can be done freely. MNEs can make direct investment in the member countries. When there are more countries in EU, the countries that can be made direct investment will be more. After the EU is enlarged with 25 members, the capital, goods and services are free to move. This is a major and attraction for foreign direct investment flow inside EU and outside EU (Kálmán, 2006). Compared with SMEs in the retail industrie, this is more attractive to MNEs in the retail industry, because the major players of foreign direct investment are them. They can choose goods, services, capitals and people freely to minimize the costs, maximize benefits, and enhance efficiency and qualities of service. To SMEs, this is also a good opportunity. They are also a vital part in the value chains of many businesses. They also benefit from foreign direct investment indirectly, though they seldom make foreign investment directly.

Many industries benefits from the enlargement. The retail industry is no exception. The retail industry benefits significantly from the EU enlargement. The purchasing power in the accession countries is rising (Severine, 2006). With the purchasing power rising, the business in the retail industry will be booming. This is an opportunity for both MNEs and SMEs in the retail industry. With the enlargement of EU, to MNEs, they can manage their companies in a uniform way, because many key factors in business are free to flow and the local policies concerning their business are similar. They can replicate their successful practices to another country with little changes. Little changes are needed to make to develop the market in a new country. But, little changes do not mean no changes. Any countries have their specific local situation, if no changes are made, the practice may fail.

There are many methods for MNEs to develop market in a new country. They can find a joint venture. They can also acquire some other companies in the local place. In the practice Tesco, the method to make a joint venture was not successful. Tesco failed to enter the French market through a joint venture (Severine, 2006). It learned from its failure and succeeded entering Czech through the strategy of acquisition and its success also lied in the creation of an “effective distribution network and localized products” (Severine, 2006, p.13). The facts show that to develop a new market, it is advisable to acquire local companies, compare with the method of doing it with a joint venture.  The reason may be as follows. Since the EU is enlarged, it is easy and effective to acquire local companies. This makes the advantages of doing it with a joint venture become smaller. In addition, since the EU is enlarged, many MNEs will develop their foreign markets, the competition will be harsh. If the control for the local companies is weak, the competitiveness will be weak. The facts also show another conclusion. An effective distribution network and localized products are vital factors for MNEs to develop new markets in new countries. With the MNEs developing new markets in new countries, SMEs can also benefits from it. They can seek the opportunities with new MNEs to reach a win-win solution. They can design localized products for MNEs. In addition, the distribution network is a vital part in the retail industry. The distribution network built by MNEs can be utilized by the local SMEs.

With the enlargement of EU, there is also an opportunity for SMEs to seek cooperation with other SMEs in another country.  Many local SMEs have their edge in the local places. But they are weak in the areas outside their local places.They can utilize the each other’s resources to achieve mutual benefits. This is also an opportunity for SMEs to grow into a MNE. After cooperation with other local SMEs, one dominant SME can choose suitable local SME to acquire. After that, it can grow into a MNE. Another opportunity should not be ignored. When competing with MNEs, SMEs are in a weak position. To have a relatively equal role in negotiation and collaboration with MNEs or to compete with them, alliance among SMEs is a good choice. With the enlargement of EU, the alliance among SME in difference countries is easy to build.

The retail industry is closely related to many other industries. They are responsible for selling products for almost all industries to the end users. The supply chain also plays a critical role in the retail industry. With the enlargement of EU, the industry will have more supply chains to choose. Also, the supply chain can be integrated more efficiently and effectively with the enlargement of EU. This is because with the enlargement of EU, the major policies in the member countries are similar. This makes it easier for the cooperation between the different parts of supply chains in different countries. This integration will not only reduce the costs for the retail industry, the high efficiency in supply chain makes them sell new products earlier. What are more, many more products and suppliers can be selected. Many more supply chains can be selected. In this situation, to the enterprises in the retail market, they can make their decision more flexibly. To the entire retail industry in EU, the enlargement of EU gives the enterprises far more bargaining power to the enterprises outside EU.

There are not just positive aspects in the enlargement of EU. There are mixed feeling for the fifth expansion of EU (Laurance, 2004).There is weakness in the enlargement policy of EU. The weakness in enlargement policy of EU are exposed some conflicts. For example, EU claims that enlargement can help solve the dispute about territories. But the territorial problems in Cyprus posed some doubt on the claim (Toby, 2011). This is an indicator the claim from the enlargement policy may not absolutely reliable. The following part, the threats in the retail industry will be discussed.

Threats in retail industry

There are many threats in the retail industry in the enlargement of EU. There are both internal challenges and external challenges for SME.  To external challenges for SMEs, the challenges are as follows. First, there are challenges to resist the internationalization of market and the impacts of globalization. Second, there are challenges for them to adapt to the tendency of large companies. Third, there are challenges in the access of financial markets and the insurance of long-term financial management (Suder, 2008 p.51). The internal challenges are as follows.  First, there are challenges to reach critical size. Second, there are challenges to transform the opportunities in development and diversification. Third, there are challenges for the development and implement of innovation strategies. Fourth, there are challenges to recruit specific competencies (Suder, 2008 p.51). To the SMEs in the retail industry, they are faced with similar challenges. If the challenges are not met, their survival and development will be threatened. 

SMEs are faced with the new MNE entrants in their local market. Compared with SMEs, MNEs have many more advantages. They have cutting-edge technologies. They have advanced managerial model. They have a massive amount of capital. They can employ economy of scale to reduce the costs. Since the EU is enlarged and many MNEs seek opportunities in the markets in new countries, to SMEs in the retail industry, they will face more and more competition with them.  To MNEs, they are also faced with the competition with other MNEs. Some MNEs play a top role in the market of one country and they may rank second or third in the market of other countries. Many MNEs will enter each other’s dominant markets. They will compete with each other harshly.

Based on Porter’s five forces model, there are threats of bargaining power of suppliers with the enlargement of EU. To both SMEs and MNEs in the retail industry, they are both faced with the threats from the suppliers. Since the goods are free to flow, some big alliance of suppliers will have more bargaining power. Based on Porter’s five forces model, there are threats of bargaining power of buyers with the enlargement of EU. After many MNEs seek opportunities in the markets in new countries, customers have more retailers to choose from. Based on Porter’s five forces model, there are threats of substitutes with the enlargement of EU. Many retailers can be the substitutes to each other. To this issue, another fact with the emerging technologies in the Internet should not be ignored. The online shop is a substitute to the traditional physical retail store. After the enlargement of EU, the online shop can serve more customers without making significant changes. They just need to set suitable cooperators in the new countries. But to the traditional physical retail store, it is not true. So in this situation, the traditional physical retail stores are faced with threats from the online shop. Many big stores have both the traditional physical shops and online shops. This is a threat to the retail store that does not. Another threat in terms of substitute lies in the fact that a great many individuals sell product online. Based on Porter’s five forces model, there are threats of new entrants with the enlargement of EU. Many enterprises running supply chain business can enter the retail market. For many enterprises, there are many barriers to construct a physical retail shop. But the barriers to start an online shop are low. The enlargement of EU brings more businesses opportunities for such online shops. This makes it more beneficial for the new entrants to start online business. 

There are also threats from new business models and technologies. The enterprises mastering better business models and technologies will threats other enterprises. The new business models and technologies will be employed much faster covering more areas in Europe with the enlargement of EU.  Perhaps a short period time of training and the arrangements of several technicians is enough to transfer the businesses models and technologies from one area to another area. With the enlargement of EU, money, people are free to move, this is easier to be one. In addition, the advantages from it will cover broad geographical areas, which make the average costs of developing new technologies lower. After a new technology is developed, if it is just employed in ten places, the profits from the ten places will share the costs for developing the new technology; If the technologies are employed in one hundred places, the profits from the one hundred places will share the cost to develop the new technology.

Conclusion

In inclusion, development of the retail industry on a European level is generally bright.  There are many opportunities including , developing new markets in new countries, direct investment in new countries, the choices to choose goods, employees and capital, the advantages of supply chain integration, the rising purchasing power in the new members joining EU, higher the bargaining powers of the retail enterprises within EU with the enterprises outside EU. So, with the enlargement of EU, the opportunities for the retail industries are generally good.  There are also many threats for the industries, including the threats between SMEs and MNEs, the threats among MNEs, essay代写the threats of new entrants, the threat of the high bargaining power of suppliers, the threats of the bargaining power from customers, the threats between online retail shops in EU and the traditional physical retail shops, and the threats from new businesses models and technologies. With the development and application of the Internet technologies, more online forms of retails shops will be developed and they will account for larger and larger market shares.  Many acquisitions and mergers within the industry in EU will take place. With the harsh competition, the overall quality of service in this industry will rise. More attention will be paid to the development of technologies and new businesses models, because it is fast to transfer them and the advantages based on them will be higher. And the costs for developing new technologies will be relatively lower due to more applications of the technologies.