Global Engineering: Theory and Practice

Joint Venture is one of the best modes of international entry available to Costco as joint ventures involve two or more separate companies which enter into a combination oriented agreement which features them working on an enterprise or project together with otherwise their legal status and identity staying separate. Costco as a retailer has access to robust financial resources and can gain many benefits from entering new markets through joint ventures such as increased operational reach and efficiency, getting better access to specialized local supplier networks, access to better technologies along with sharing and diversifying its associated risk portfolio. Costco has already displayed the merits of this mode of international entry as it entered Mexico and United Kingdom using a joint venture agreement where it enjoys considerable retail presence in present time (Jangles, 2019).

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Licensing is also quite popular and is beneficial for companies like Costco which enjoy a great public reputation and a robust brand image which makes other businesses want to stock their products and enter into business deals with them across countries. Licensing refers to a formal business agreement in which a company grants another business concern, the legal permission to either manufacture or sell a specified catalogue of its product lines for a pre-determined cost structure. This mode of entry can help Costco break into new international territories without wasting a lot of financial resources and has added benefits such as lowering the firm's capital requirement while increasing market share and global rate of interest (ROI) at the same time. An example of this can be seen by analysing Costco's operations in South Korea, a market which it initially entered by licensing Shinsegae departmental store to open a warehouse club in the country.

When it comes to entering into new international markets, acquisition is also a great method which is available for Costco to undertake future global operations, acquisition refers to the process in which a financially stronger entity takes over the business concern of a business entity which is financially weaker in comparison for more than 50% share in the business. This mode of international entry has great benefits which can be exploited by Costco such as increased capacity to undertake complex business operations and taking decisions without the approval of the newly acquired businesses' shareholders. Costco is also familiar with this method which can be seen in the market of Mexico where it purchased the majority stake of Controladora Comercial Mexicana SAB de CV which allowed it to establish a stable presence in that market (Jberg and McColl, 2021). Get Assignment Help from expert writer Now!

Breaking into new international markets is a not an easy process to undertake even for an established retailer like Costco which is why some complex modes of entry are also viable such as greenfield ventures. This mode of entry revolves around a new form of foreign direct investment (FDI) in which a company opens a wholly new subsidiary in another country and builds all of its signature market operations from the ground up. This method of international entry can be quite beneficial for Costco as it helps the company establish intense standards of quality control over its operations and allows it to uphold and build a positive and strong brand image in front of the audiences in the new country. Costco has also displayed some past competency in this regard as it entered the markets of Japan and Spain in the city of Hisayama and Seville using wholly owned subsidiaries and this significant investment has proved quite fruitful for the company.

Question 2: Critically reflect on the four (4) key success factors contributing to Costco's superior performance.

Answer to question 2: Costco is one of the most popular retailers in the world owing to the various products it sells at a cheap price compared to its rivals along with the promise of quality it upholds in its business operations. Over the years, the company has managed to move into the global retail sector by a considerable margin and has also performed decently in the domestic market due to a myriad of different factors which have helped the company not only conquer new global markets but do so with due consideration towards its extensive workforce. 

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One of the first factors which should be critically reflected upon is the way in which Costco has focused on membership retention and recruitment with the help of its club membership programme which makes up for a large portion of its eventual sales and profits over the last few decades. Simply providing the customers with a membership scheme option is not guaranteed to pay dividends in the modern retails sector as the competition is quite stiff and people are always charmed by more value being provided to them. Costco understood this market behaviour and exploited this to their advantage by making sure that their membership service was better than their competition. Costco managed to do so by removing any sort of artificial financial cap on the cashbacks offered through their membership adoption by customers compared to rivals such as Walmart's Sam club capping their cashbacks at 500$ per customer annually. Costco also provided its customers with the utility of cancellation of membership along with free reimbursement upon cancellation which helped it retain a lot of members globally (Jbhatnagar, 2019).

The next factor which has allowed Costco to deliver superior performance over the last few decades is the way it uses its signature Kirkland brand to its advantages in both global and domestic markets. One of the major reasons why many premium and expensive product ranges from retailers flop in the market globally is due to the higher rates they charge but Costco used its signature brand to provide high quality product lines at a 10-20% margin compared to other retailers which helped gain a lot of goodwill in the global markets. The company has also used the Kirkland brand for promotional purposes by introducing new product lines constantly and is currently expanding the brand using Omni channel retailing by focusing on online and digital integrations.

Another major reason behind the company's superior performance compared to many of its competitors despite sheer difference of size such as Tesco is the way in which Costco limits its product lines and stocked options to achieve better operational performance. Compared to most other traditional retailers, the amount of products which Costco introduces and keeps stocked on the shelves of its warehouses are quite limited which has many benefits. Some of these advantages which help the firm in sustaining its performance is maximizing employee productivity through expansive warehouses spaces, having better quality control on retail operations and also helps Costco negotiate and save a lot of money through limited supplier need and interactions (JIbriga, 2021).

The final reason due to which Costco has been able to register its superior performance in both global and is due to the company's emphasis on subjecting its workforce to good human resource practices and taking care of their wellbeing. This is evident by the fact that compared to its competitors, Costco enjoys a much lower rate of turnover at 17% which is a major achievement as retail sector is known for its mistreatment of employs. The superior performance of the company is closely tied to the amount of motivation and loyalty its workers have towards the company which is a result of great facilities and wages. Costco paid average hourly wage of 17.00$ in 2006 to its employees which was much higher than ones provided by other heavyweight retailers such as Tesco and Walmart and it also ensured that most of its employee shave access to healthcare and retirement benefits which plays a major role in employee wellbeing and superior performance a s result.

Question 3: Should Costco enter India and China? Assess the pros and cons for both markets.

Answer to question 3: International business has bloomed over the past few decades due to the advent of globalization along with the way in which nations have agreed into many trade related agreement which has facilitated the growth of global economy such as NAFTA trade agreement between Mexico, America and Canada. Despite being successful in expand its retail operations to 8 distinct locations globally, the future of Costco is quite uncertain as the company is yet to expand into truly lucrative markets such as India which ranks second on the 2021 GRDI list and is a bustling retail market which remains unoccupied by the company (Jain, 2021).

This also rings true for China which despite having the Costco presence is close to inaccessible for the company as it has failed to make any major splash in the market. In order to decide between one particular market to expand in, it is necessary to critically analyse the process of conducting business in both countries.

When it comes to retail business opportunities, India is one of the most major world markets due to the huge population which resides in the country which has led to major rise in demand for retail products which companies like Costco specializes in. There are many benefits of conducting business operations in the Indian retail market such as the advantage of having a robustly growing economic market when it comes to the retail sector. The retail market of India is one of the strongest retail markets in the world as despite growing at a slow pace of 9%, it has been projected to reach figures crossing US $1.8 trillion by 2030. Other major advantages of conducting business in India includes is the existence of a massive consumer market which is thoroughly interested in buying innovative and value focused products and the government of India has also brought reasonable reforms to entice companies to expand such as tax cuts, grants and high levels of subsidies. However, there are also cons such as constant political unrest in the country along with constantly changing retail tastes which Costco must consider before expanding (Jeong, 2021).

China just like India has a major retail market which ranks number one on the GRDI list which makes the market red hot for global expansion for companies like Costco. There are many advantages to doing retail business in China such as favourable governmental outlook on foreign businesses and the stability which businesses get to enjoy in terms of economic robustness, access to skilled and highly cheap labour and political climate. However, the retail landscape is very competitive and companies have to either align with Alibaba or Tencent to conduct business in an effective manner and conducting retail business via warehouse can be tough due to problematic government interruptions and troubling customer outlook (JPattanayak, 2020).

On the basis of the above conducted analysis, it can be said that instead of expanding into both Indian and Chinese market, the company should focus on entering the Indian market first as there are many advantages for the company there compared to China. The Indian government is more favourable to big multinational companies compared to China, the retail market of India is more settled and the biggest advantage Costco can find in the Indian market is that the company's cost effective cheap pricing strategies can find many buyers in India as Indian customers gravitate towards cheap prices on valuable foods in large numbers.

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REFERENCES 

Books and Journals

• Amazon, A., Costco, U.K. and Argos, B., 2020. Floss in the shower Conservative restorations that are made to last. British Dental Journal, 229(10).
• Angles, V., 2019. Doing business in China: Challenges and opportunities. Global Business and Organizational Excellence, 38(2), pp.54-63.
• Berg, A. and McColl, K.A., 2021. No projected global drylands expansion under greenhouse warming. Nature Climate Change, 11(4), pp.331-337.
• Bhatnagar, S., 2019. Doing business in India: Lessons from New Zealand. Asian Journal of Multidimensional Research (AJMR), 8(1), pp.20-35.
• Ibriga, S.H.M.B., 2021. Estimation and Uncertainty Quantification in Tensor Completion with Side Information (Doctoral dissertation, Purdue University Graduate School).
• Jain, P., 2021. The Unique Indian Market: Doing Business in India. Notion Press.
• Jeong, Y.K., 2021. Factor Analysis for Global Expansion of Korean Cultural Industry: Case Study of Squid Game.
• Pattanayak, B., 2020. Human resource management. PHI Learning Pvt. Ltd..

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