Introduction

This assignment is a research and a learning experience as well as identifying the Environment Forces that is influencing a gigantic multinational Retail Store where I am working today. It is a fruitful assignment and compilation of research that has broaden and opened my mind to be alert of all Michael Potters environmental forces which have been opined and quoted also by different writers which I have academically relayed in this assignment. In this assignment I am referring to a leading Retail Store, which I would name as Leader Store in short LS. LS carries a wide range of local products form grocery clothes, household product and entertainment to life seafood and fresh food. On the other hand they also made space to cater for men who like to buy DIY (Do it yourself) products and a wide range of furniture as well as lightings, curtain and carpets for the women. Not leaving behind the children too get to choose from various brands of toys and children clothes and last but not least the Working Women office clothes. LS has spread world wide and to quite a huge percentage to the worlds market share for retail, and now positioning itself towards Malaysia. It is also famous for its home products like biscuits, grocery items, toilet tissues, Tit-Bits and camera films to name just a few. However big the organization or empire it could have built, the Micro and Macro environment factors have always been the major reason for change, growth and decline of an organization.

How successful any organization is today, depends on how well equipped and proactive an organization is against the forces; market/ public, competitors, suppliers, distribution/ dealers and Advertising and PR agency and how sensitive the organization is towards the forces.

Diagram below is my own illustration of the Micro and Macro Environmental Forces.

Legal Technology Political

Organisation and the 4 Ms Social/ Cultural

Ecology/ Nature

Economical

Demographic

2 Way Forces - Controllable 1 Way Forces Incontrollable

The macro Environment

Legal

There are legal developments that will affect our marketing strategy and tactics, nationally and internationally. Government agencies are increasing regulation on Freeze hyper market. Changing the enforcement. Making new rules. Government bodies locally, national and international, which should be monitored, are the Kastam Dan Eksais, Bomba, Kementrian Kesihatan, Bank Negara, AFTA and the International Trade Union.

Jabatan Bomba is very strict on its regulations for Fire protection efforts. They monitor all areas of Fire & safety closely. Kementerian Kesihatan is going strong on businesses related to food and strict regulations on waste and pollution control. Majlis Perbandaran is making it difficult to get licenses to operate the store.

Another aspect is the Ministry of Trade would implement regulations such as GUI (General Unit Identification. (Which is being applied in Taiwan) and PDI (Product Identification) in Thailand. The Kementerian Keselamatan would implement and improve safety measures, the Ministry of Consumer would have new regulation on product liability, labeling, packaging, advertising and pricing control, and last but not least the Ministry of Labour with its new salary schemes, training budgets (HRDF) labor and employment legislation.

It is now compulsory for some organizations to keep record for the past 5 7 years. It has not yet been implemented on retail business but in time to come we have to look into that. We will have to upgrade our storage system; companies like Recall (core business is to

store and retrieve long term information) will do well at that time. We may look into engaging external professional companies to handle that part of our administration. And that cost money.

1. What changes are likely in the levels of direct and indirect taxation?

Political

2. The relations with other countries, regimes and trading blocs likely to develop and the implications will probably affect the marketing. Largely the key impacts for L. Store will be in the change of way we can buy products for retailing, as this will change the values and the offer we can provide to our customers. The two main examples of this are the changes to the ASEAN group of countries which will significantly reduce the cost of the products that we can buy for the Malaysian market by being able to import product at cheaper prices with the removal of duties. This issue also goes both ways as we are beginning to get better at using existing suppliers in countries where we operate e.g. Thailand. We are importing their product, but we will also be able to export product from Malaysia to Thailand, which strengthens our role as part of the trading environment for the country itself. We are already doing this on a few lines, notably rubber glove plus textiles.

It is also indicated that small cap stocks will have strong market niche, high earnings visibility, strong cash flows and balance sheet. On the other hand, the big cap market, L.Store for instance is looking at long-term gains.

In the near term, the global markets will remain jittery because of the poor guidance in the technology and telecommunication sectors as well as the accounting irregularities that is plaguing the US corporate scene. (OSK-OUB Unit Trust Mgmt Bhd)

Policies regarding nationalization or privatization are changing. Government is enforcing encouragement to privatize the government bodies. So far Malaysia has privatized many areas e.g the Telecommunication business, the Hospitals, National Electricity and many more. This step has increased the value served to customers and lessens the monopoly business by the entrance of many new competitors.

Economical

In the short, medium and long term, the levels of inflation, unemployment and the availability of credit and savings will see the huge improvement to the country. In 1998 we managed to see inflation of about 3% from 0% inflation that the government predicted.

The Malaysian government has indicated, in year 2005, AFTA (Asia Free Trade Association) will allow the South East Asian countries (ASEAN) to trade without tax

amongst themselves. Also Malaysian government will continue to ease restrictions on foreign direct investment. Rules on foreign equity in property and other asset acquisitions are to be liberalized. Local firms in every market will lobby their governments hard for increased protection. This means trading will now be only one body and not a few countries. This will allow pricing to be stable. For instance retail market will be so competitive and affordable by the public.

But this will benefit more for some organizations and less for some. For organizations that produce its own product or manufacture its own will benefit the most. This instance is relative to L.Store whereby we manufacture and trade goods from one country to another as mentioned earlier.

Interest rates will drop, level of inflation will decrease and employment level per capita will increase. This means we are looking at Long-term prospects for the GDP (gross domestic profit) per capita.

Malaysias GDP growth set to surpass 3.5pc officials forecast.

Please refer attached copy. (Business Times, Tuesday, July 23 2002)

On the outside, Asia has been anticipating a mild geopolitical realignment under the new Bush. Korea is having major cabinet restructuring; Taiwan is threatened by the improvements in cross-straits relation. In general Asia is triggered by a prolonged negative reaction.

As for the growth of modernization, look at the multinational companies today, spreading and growing like mushrooms in Asia. These are nothing more than the reason of modernization and growth rate of Asian countries today. The world is looking at Asia as a resource for cheap labor. More graduates are infesting the market and this is dragging them into lower level executives or junior executives with minimal wages. Uncertainty of US and Europe residential security, more graduates are determined to come back to their home country for employment. The Economic growth rates and lower income levels are definitely the forecast both for the organizations existing and potential markets. Eventually, high labor market, low in salary and successful in business, will allow the company to have credit and savings and space for expansion. On the other side, to my opinion, the medium and long-term inflation level would be low as market will grow, unemployment level would decrease.

The Government is encouraging foreign business to fulfill its concern that is the unemployment rate. New opening of any of our store will accommodate about 500 locals (graduates and non graduates).

Talk about the minister of education in Summit hotel.

EIU, HSBC GDP/ Inflation / Hyper inflation as market matures. 8th Malaysian plan

The Executives Digest/ March 1996 has mentioned that the major shift is taking place in Asia and one of it is; Western Influence the Asian way.

This very much applies to L.Store here whereby the foreign experience and intelligence are brought into the country here in Malaysia but is run and operated to suite the Asian The Asian Lifestyle pattern. e.g Halal and Non-Halal food is sold in separated areas to show concern and sensitivity to the community. Medium level lifestyle products to suite the simple Malaysian style but all of these in a foreign standard hypermarket.

Another angle that L.Store has maneuvered is towards the open doors market in Asia. The buying power is influence by the lifestyle of Asian. Willingness to try or even copy the high level lifestyle, multiracial and very trend conscious environment.

The edge of intense Globalization today is forcing the country like Malaysia to adapt to economical change and what we can see today is modernization, infrastructure and advancement in Technology. It is rather a flow of necessity change than, that of luxury.

Demographic

Changes to the size, structure and regional distribution of population are likely to occur if we study the demographic growth.

The total population growth rate of Malaysia is 2.6% over the year of 1991- 2000 and the highest growth rate is in Selangor and Johor respectively. This makes these states having

the highest population distribution. Among them the lowest growth rate is in Perak followed by Perlis and Kelantan.

(Refer to attached census summary). Basing on these census we can see business opportunities and buying power is the highest in Selangor.

Business growth is centered in the urban states where population has increased to 62% in 2000 from 50% in 1991. Kuala Lumpur having 100% propositions of Urbanization followed by Selangor of 87%. Conversely, the states with lowest urbanization are Kelantan and Perlis 34% each and Kedah 39%.

This summarizes my opinion that the business for retail in Malaysia, more in urban areas is huge. The growing population, decrease in price, decrease unemployment, open market for foreigners adding the AFTA plan. Huge retail businesses will take over the small ones; branded retailers will replace family businesses, mini markets, petrol stores, and kiosks etc.

Social / Cultural

1. The changes in consumer lifestyles and values are taking place. It becomes more complicated as Malaysia is very different in different areas. If we focus purely on KL we would expect shopping patterns to continue to change with a shift towards more regular shopping at the modern trade outlets. This will be driven by a number of factors not least of which are the very young population mix of Malaysia. That will see the younger generation moving more and more towards convenient shopping patterns

where they will expect new, innovative products that provide them with more convenience.

The modern trade will be far better suited to delivering this need which will become more convenient as people switch from spending so much time shopping into other leisure activities. Cash rich and time poor consumers will move away from local stores to using modern facilities that cater for all their needs in one shopping trip. The role for the convenience store will remain for top ups and it is more likely that the supermarkets and mid sized stores without the range and services will be the ones that get squeezed in terms of market share. The ethnic composition of Malaysian citizen is bumiputra 65%, Chinese 26% and Indians 8%. Which implies that the dominant race is bumiputra and religion is Islam. But Chinese controls the major market/ business share. Therefore, it is difficult to suite the business in different ethnic groups. The strategy could be based on the area and the ethnic group in that area. The aim is to get their trust, loyalty and confidence towards foreign business and simultaneously the business to adapt to their social and culture pattern.

2. Attitudinal changes of society towards business and the products/ services produced by the organizational are occurring. Currently businesses fail to meet the needs of their customers in terms of products and services, however, as companies get more professional at meeting these needs and satisfaction is increased customers will start to trust certain brands more and more as they more often deliver what they say they will. The key to this is as customers get more particular, informed and demand higher

products and services those failing to deliver will be hard hit whilst those meeting the needs of customers will thrive.

In most cases I think if the public becomes better informed they will trust civil organizations more and press less and less. In the UK e.g it is noticeable that government areas such as politicians, police and other such groups are trusted less than service providers such as shops and professional companies who deliver what they say they will.

Technological
Technoloby being vital and major driven by globalization, helps speed the hypermarkets operation. Inventory control and bar coding of all items sold in the store. It helps to bring product to the consumers house by Internet shopping. Distribution through Internet. IT helps to communicate with consumers by radio and television, electronic billboards, and electronic paying system in Food Court which L.Store is using to serve customers better and provide the best and the most convenient service.

The likely technological forces here are the ever changing and entrance to new upgraded versions of technology. One example is the inventory sytem, which is one of the major software system that controls the entire operations. Fast moving and evolution of technology is forcing the organization to upgrade the system and this cost

money, time and resources. Another example is the cash card system. Recently, many fast food restaurants and food courts were using pay first and then collect food system. In a short matter of time, this system has become obsolete and the latest now is cash cards. Not long before we realize, there will be some other new product entrance. This means short technology life cycle. To be in the same pace with others, we will have to invest in the new technology.

Microsoft is now moving into getting big organization to sign up for its window 2003 upgrading next year and companies like ours are really not ready for that. Being part of the international retail company, we are facing conflict with our counter part, as we locally dont feel its necessary to upgrade our system as its still very premature stage. We would rather let the opinion leaders to judge and advice of upgrading from window 1998 to windows 2003. The forces from the external are strong as Microsoft is giving a very encouraging offer. On the other hand, some competitors who are big but still using version 486 or even wind 1995 would really benefit from this offers. This will then make them more advance than us is technology.

However, L.Store is very well placed and established to cope with the technological changes that may take place in the near future.

Ecological/ Nature

It has resulted in new laws some countries that apply a cost to using natural resources. This should be very much led by world opinion.. Good companies improve their

practices to ensure that they use less resource and become good citizens. The other benefit being that it actually costs them less in the long run both in terms of the resource and potential taxes for their use, however, this is dependent on public and then government action.

Should there be any shortage of nature resources, in a market environment everything is passed back to the customer and increases in electrical costs due to shortages for example would only result in increased prices for customers.

Due to more developed market; we will foresee the shortage of greenery if there is no contingency plans to overcome this situation. Nature is being sacrificed for development. The world is encouraging for less use of nature or restore nature. L.Store for this instance, and also it is a practice in Malaysia that if you clear one portion of nature to build building, you should give nature back in another area as perhaps landscaping or Community Park. This will then be very much appreciated by the community as well as by the government.

Ecologically too, I would say that, businesses should look into the planning of it. Business is influenced by ecological factor very much nowadays. Malaysia traffic jams in cities, location of business site, transportation convenience. The business success lies in the markets power of and how convenient is it for the market to buy. This is where some counties established the Internet shopping and it works. But for other like Malaysia, the market is not that acceptive to this idea, as they prefer to see and feel the product before they buy.

The Microenvironment
Markets

1. What is happening to the size, growth rate and geographical distribution of the organizations markets? We are growing rapidly in each of the 10 markets that we operate through organic growth. 2. Which major market segments exist? How are they likely to grow and which offer the greatest opportunities? Our major growth is coming through the hypermarket sector , however, we do develop other formats which include smaller store right down to local convenience and petrol forecourt stores. 3. Are new markets segments emerging? No comment 4. Are new or different market priorities emerging? There are amazing synergies in the markets as to the key criteria for customers in terms of range, price, offer, convenience, etc.. 5. What scope exists for further market development? New countries remain a significant opportunity, however, if we are talking of within Malaysia then there are clearly new product formats within food particularly that will develop largely in terms of convenience for customers Other development would be diversification. 6. What changes in usage patterns can be identified or are likely? As above 7. Are terms and conditions of sale changing? No

Competitors

1. What changes are likely to take place in the structure, bases and intensity of competition? Competition will increase amongst the major players, however, within that we are already seeing the signs of consolidation through acquistion and merger with the retail sector, which is likely to continue. 2. Who are the major competitors currently and what ways might they change? Are there any likely new entrants to the market? If so, what capabilities and objectives will they have and what are the probable implications for the competition? The key competitors for ourselves are Giant and Carrefour, whilst Makro remain left to one side. There is likely to new entrants as the top 10 international retailers still have not entered large parts of Asia as such, however, this does not rule out consolidation amongst any . 3. What are the major strengths and weakness of each competitor? 4. What are the objectives, strategies and levels of profitability of each competitor? 5. What trends can be identified in the patterns of future competition and substitutes for the organizations product/ service? 6. What patterns of product and market development can be identifies among competitors? 7. Are any major changes likely to take place in patterns of market share? Does any competitor appear likely to pursue and aggressive share gaining strategy? If so, how well equipped to do this would they be, what are the implications for the bases of competition and what is the probability of success? 8. What is the extent of the diversification among each competitor? What international links does each have?

9. What are the patterns of ownership among competitors and what level of resources can each call upon?

Distribution and Dealers

1. 2. 3. 4.

What changes are taking place in the structure of the distribution network? What are the efficiency levels and growth potentials of each channel? Which channels are currently under-exploited? What is the cost and availability outlook for warehousing and transportation facilities?

Suppliers

1. What changes are taking place in the supplier network and wath effect will this have upon balances of power? Buyer supplier 2. What new sources of supply are emerging? 3. What are the objectives and strategies of the major suppliers? 4. What changes are taking place in suppliers pattern of selling?

Advertising an PR Agencies

1. How effective are the efforts of the organizations advertising and public relations agencies? 2. What trends in agency practice are emerging?