Alejandro Afonso - Managing Relationships and Networks

1Managing Relationships and Networks. Afonso, A.

Introduction

The following essay aims to analyse and evaluate the British retailer Marks & Spencer (M&S) regarding to the resource-based view focusing in its tangible and intangible resources as well as organizational capabilities to get competitive advantage. The essay will also analyse the M&S overall business network, including the relationships and collaboration in both supply-side and demand-side.

In addition, the essay will explore the Brazilian apparel industry sector, considering the Brazilian position in Latin America (LA), analysing Brazilian supply and distribution networks as well as identifying the Brazilian consumer behaviour and attitudes towards the apparel market, and, finally, analysing the cultural issues that might affect B2B negotiations in Brazil.


I.1. The central topic of the resource-based view of the firm is that the bundling of tangible and intangible resources in unique combinations creates and sustains competitive advantages (Dess et al 2004).

The following table describes the M&S’ resources and their evaluation using the four criteria for assessing sustainability of resources and capabilities (see Appendix 1):

Tangible Resources EvaluationFinancial Total Revenue (2010) £9,536.6M

(+3.2%)o UK £8,567.9M (+2.9%)o International £968.7M

(+2.7%) Market Share (UK) 11.2% in general

merchandise

Difficult to imitate

Physical Number of storeso 690 in UKo 320 international

4 International Hubs in Sri Lanka, Singapore, Hong Kong and Istanbul

Warehouses across UK Neat and good looking stores

Rare

Technological Point of Sale System SAP Retail

Valuable

Organizational Customer service in store is continually measured

International delivery up to 80 countries

Valuable

Intangible ResourcesHuman Acknowledgeable top management

team due to previous experiences when M&S has failed (Mellahi et al 2002)


Innovation and creativity

New clothing design processes Valuable

Reputation High quality reputation strongly embedded in British society


Organizational CapabilitiesOutstanding customer service

M&S is aware of the impact of customer service, therefore it is continuously measured and monitored

Rare

Innovativeness of products and services

“Shop your way” Rare


Ability to hire, motivate, and retain human capital

Low turnover rate compared to the industry average

Rare

Flexibility in the supply chain

• Having a wide range of suppliers and looking after the relationship with them

Difficult to substitute

Distribution network efficiency

Supports all of the shopping channels to fulfill customer orders efficiently


I.2. According to the M&S Annual Report (2010), M&S has relationships with several groups that belong to their business network, as illustrated by the following graph:

M&S Overall Business Network. Source: Author’s design and execution.

Suppliers:o Large British suppliers: Dewhirst, Courtaulds Textiles and Coats Viyela

(although their production process is carried on overseas) (Harrison 2001).

o Smaller direct and third party suppliers. Independent distributors:

o DHL. Investors:

o Fiba. Partner in Ukraine, Turkey and Russia.o Al-Futtaim. Partner in the Gulf region.o Franchisers. Most of them in the Channel Islands.

Landlords. Even if M&S prefers ownership over leasing, they still have to reach agreements and build relationships for their retailer stores location:


o Shopping centre’s owners (or administration team). The main distribution channel for M&S is still their physical store located in well-known shopping-centres.

Mail order companies. International delivery to 80 countries, hence the relationship with these companies is fundamental to keep developing this distribution channel.

o Parcel Force.o Royal Mail.

It has also been reached a sustainability agreement between companies such as M&S, Levis Strauss, H&M, among others (Kaye 2011), which is a source of competitive advantage and attracts the right people to the business (Mullins 2010).

I.3. From the M&S Annual Report (2010) is possible to gather the following information:

Facts and figures

Over 2000 suppliersMainly based in Bangladesh, Sri Lanka, India, Mauritius, Cambodia and China.Around 500,000 workers in the suppliers’ factories.

Relationship

Encourage dialogue to identify any issues early on and ensure good working relationships.Promoting ‘living’ wage debate by determining a fair wage to suppliers’ workers.Provide education programmes that include basic healthcare and workers’ rights.

Monitoring

Financial monitoring and flexible payment terms for suppliers.Review the supply base to reduce reliance on key suppliers.Manage currency pressures in the supply chain and deliver tighter stock control.

After M&S crisis by late twentieth century, they had to take strategic decisions for the supply-side (Zsidisin and Ritchie 2009). The following table summarize these strategies and their consequences:

Strategy Consequences

Direct sourcing

The raw material suppliers are also responsible for manufacturing. Reduces product development time.Reduces costs compared to buying via a garment supplier which also reinforces the relationship with real suppliers.Mitigated the risk of miss-communication with suppliers.

Central procurement

Identify new manufacturers (possible suppliers) in the most cost effective manner.Manage the risk by using selected suppliers for specific


products.Sourcing and procuring goods from around the world. Increase flexibility and reduce risk.

Internalising the design process

The design process of product development is controlled through a large design studio and specialist design skills.Product introduction is postponed and the products are launched into the market as late as possible (demand driven) to avoid holding too much inventory.

I.4. The relationship between M&S and its customers is created through the following seamless and consistent channels (Marks & Spencer 2010):

Shop your way. Help smaller stores to offer a broader catalogue by letting people place orders through the channel they want and collect the products in the store they prefer with no extra charge.

Online. Since the Internet usage has become wider worldwide (even higher in middle and high class people, which are part of M&S target markets). Both website and mobile site were developed in collaboration with Amazon. Through this channel, customers might rate or review the products they have bought.

Home catalogue. Reaches over 1.6 million customers promoting M&S products.

Stores. Still represents the most important channel for M&S and it is trying to deliver a bright and contemporary shopping environment.

International Delivery. Deliver to 80 countries in Europe, North America and Africa.

TV. Helps promote merchandise as well as offers different options by which products can be delivered.

As part of collaboration, M&S implemented the loyalty cards scheme, through which a consumer can get price reductions whereas M&S gets a significant amount of information through the IT systems to help the firm understand the market behaviour and predict market trends.

II.1. According to the FTSE Index (2010), Brazil falls into the “Advanced emerging markets” category, to which Mexico also belongs to. Other LA countries such as Chile, Colombia and Peru will follow in the secondary emerging markets category.

The following table represents key data to analyse and compare Brazilian and Mexican apparel retail industries:


Country Revenue (2009)

CAGR (2005-2009)

CAGR (2009-2014)

Value Forecast (2014)

Brazil $34,635.3 m. 6.9% 5.7% $45,590.9 m.Mexico $5,091.9 m. 3% 3% $5,901 m.

CAGR = Compound annual growth rate.Source: Author’s creation with information from “Apparel Retail in Brazil” and “Apparel Retail in Mexico”.

Even if both countries are considered advanced emerging markets, there is a remarked difference between them in terms of both previous industry performance and its forecast. Despite the fact that the Brazilian CAGR is expected to decelerate, it will be still on the rise whereas Mexican industry will remain stable. For more information about the about Brazil and Mexico apparel industries, see the Appendixes 2 and 3 respectively.

II.2. The textile industry in Brazil includes cotton growing, synthetic raw materials, textile fibers, among other production processes. In 2009, the revenue in the textile sector in Brazil reached $47 billion and exports went over $1.8 billion (Rupp 2010).

“Distribution of clothing in Brazil is concentrated to non-grocery retailers, where clothing and footwear specialist retailers represent the leading channel and have managed to gain shares over the review period,” taking advantage of the rising income level and availability of credit (Euromonitor 2009).

Sales of Clothing by Distribution Format: % Analysis 2003-2008

Source: Clothing – Brazil (Euromonitor 2009)

One of the barriers to trade and investment in Latin America is related to the problems of transportation costs and quality (even if they can be offset, to a certain extent, by relatively cheaper oil costs), which makes difficult for firms to integrate the region more effectively. These problems are related to high mountains and wide jungles, which separate population centres. Therefore, developments remain on the coasts by air or by boat (Rugman and Brewer 2001).


In terms of cultural factors, the informal economy plays an important role in Brazil since it inhibits productivity, discourages business investments and reduces the potential for growth as well as avoids paying taxes. The size of informal economy in Brazil is 39.8% of gross national income (Capp et al 2005).

II.3. Artigas and Calicchio (2007) provided results of their research, from where they reached the following conclusions about Brazilian consumer:

Are extremely fond of shopping for clothes since they are conscious of fashion, which is shaped by local celebrities. Such fashion is normally found in local retailers.

Buy in informal “mom-and-pop” stores and large single-format retailers, which represents around 60% of the country’s apparel sales.

81% of Brazilians shoppers trust local brands. Only 11% agreed that foreign brands are higher quality than local brands.

Are open to using credit. 60% agreed that it is perfectly all right to shop for products on credit, and 65% had bought something on credit during the last 6 months. Therefore, apparel retailers in Brazil choose to offer credit through instalment payments.

Similarly, another research done by Leng and Botelho (2010) investigates the relationship between national culture and consumer decision-making styles in the purchase of cell phones, which to a certain extent, might help explain consumer behaviour in the retail apparel market. The followings are the hypothesis supported by this research:

Collectivistic or large power distance cultures (Brazilian) are more brand- loyal than individualistic or small power distance cultures.

Individualistic cultures are more brand-conscious than collectivistic cultures (Brazilian).

Individualistic cultures are more quality conscious than collectivistic cultures.

Individualistic and masculine cultures are more innovative than collectivistic and feminine cultures (Brazilian).

II.4. “Cultural differences cause four kind of problems in international business negotiations at the levels of language, nonverbal behaviours, values, and thinking and decision-making processes” (Rugman and Brewer 2001, p. 514).

The difference between Brazilian culture and American or British ones is not about “what” is said during negotiations (content) but about “how” things are said (structural aspects of language and nonverbal behaviours). Taking these variables into account, Brazilian businesspeople are seen as “aggressive” when comparing to other countries like United States or United Kingdom (2001 Rugman and Brewer). See Appendixes 4 and 5 for more details.

“Three values: objectivity, competitiveness, and punctuality, which are held strongly and deeply by most Americans seem to frequently cause


misunderstandings and bad feelings in international business negotiations” (Rugman and Brewer 2001, p. 521). In terms of ‘objectivity’, Americans make decision based on profit and facts and Fisher et al (1991) point out that Americans tend to separate the people from the problem. However, in Hispanic cultures not only will take things personally but will also be affected by negotiation outcomes and business relationship in general since businesses are under tight family control (Redding 1993). In addition, collectivistic cultures (Brazilians) prefer to negotiate in terms of collaboration and mutually beneficial long-term relationships whereas individualistic ones (American or British) prefer terms like competition where each side take care of itself (Rugman and Brewer 2001).

Finally, corruption also plays an important role in Brazilian culture that might affect to some extent the negotiation process since Brazil is considered to be in the 69th position out of 178 countries (UK is ranked 20th) (Transparency International 2010). For more cultural differences between Brazil and UK, see Appendix 6.


Conclusion

The main findings of this article considers that the main resources of M&S are its recent financial performance, their top management team knowledge in terms of past experiences (failure), M&S reputation of high quality products, its flexibility in the supply chain and its overall distribution network. In addition, it seems that M&S is aware that its business success relies on the quality of their relationships with the supply-side and demand-side networks; therefore M&S is always seeking for new suppliers to avoid dependency and increase flexibility whilst minimizing risks as well as assuring that M&S customers are satisfied.

In terms of the Brazilian apparel industry, there is an important market (the biggest in LA), with relatively useful actors in the supply and distribution areas of the business. On the other hand, Brazilians are fashion-conscious, where local celebrities create “fashion”.


References

Artigas, M. and Calicchio, N., 2007. How half the world shops: Apparel in Brazil, China and India. McKinsey Quarterly.

Capp, J. Jones, B. Elstrod, H. and Jones Jr., W. B., 2005. Reining in Brazil’s informal economy. McKinsey Quarterly. Issue 1, p. 18-21.

Datamonitor, 2010. Apparel Retail in Brazil. Available from: http://ehis.ebscohost.com/eds/pdfviewer/pdfviewer?hid=114&sid=ada25678-3cb1-411c-8928-3c90b89b9a29%40sessionmgr112&vid=3 [Accessed 18 March 2011]

Datamonitor, 2010. Apparel Retail in Mexico. Available from: http://ehis.ebscohost.com/eds/pdfviewer/pdfviewer?hid=114&sid=ada25678-3cb1-411c-8928-3c90b89b9a29%40sessionmgr112&vid=3 [Accessed 18 March 2011]

Dess, G. G. Lumpkin, G. T. and Taylor, M. L., 2004. Strategic Management. Text & Cases. United States: Mc Graw Hill.

Euromonitor, 2009. Clothing – Brazil. Euromonitor International: Country sector briefing. Available from: http://www.portal.euromonitor.com/Portal/DocumentView.aspx [Accessed 21 March 2011]

Fisher, R. Ury, W. and Patton, B., 1991. Getting to Yes. 2nd ed. United States: Houghton Mifflin.

FTSE Index, 2010. FTSE The Index Company. Available from: http://www.ftse.com/Indices/Country_Classification/Downloads/Sept%202010/FTSE_Country_Matrix_Sept_2010__Post_2009_CC_Changes_x.pdf [Accessed 23 March 2011]

Harrison, D., 2001. Network Effects Following Multiple Relationship Dissolution. Norway.

Kaye, L., 2001. Clothing industry giants lunch sustainable apparel coalition. The Guardian. Available from: http://www.guardian.co.uk/sustainable-business/clothing-industry-supply-chain-coalition [Accessed 24 March 2011]

Leng, C. Y. and Botelho, D., 2010. How does national culture impact on consumers’ decision-making styles? A cross cultural study in Brazil, the United States and Japan. Brazilian Administration Review. Brazil.

Marks & Spencer, 2010. Annual Report and financial statements 2010. Available from: http://annualreport.marksandspencer.com/downloads/M&S_AR10.pdf [Accessed 15 March 11]


Mellahi, K. Jackson, P. and Sparks, L., 2002. An Exploratory Study into Failure in Successful Organizations: The Case of Marks & Spencer. British Journal of Management. Vol. 13, 15-29.

Mullins, L., 2010. Management and Organisational Behaviour. 9th ed. United Kingdom: Prentice Hall.

Redding, S. G., 1993. The Spirit of Chinese Capitalism. Germany: de Gruyter.

Rugman, A. M. and Brewer, T. L., 2001. Oxford Handbook of International Business. United States: Oxford University Press.

Rupp, J., 2010. Brazil and Its Textile Industry. Textile World. Available from: http://ehis.ebscohost.com/eds/pdfviewer/pdfviewer?hid=114&sid=a41780d0-63dd-47f1-959f-ebfede958aae%40sessionmgr114&vid=3 [Accessed 22 March 2011]

Transparency International, 2010. Available from: http://www.transparency.org/policy_research/surveys_indices/cpi/2010/results [Accessed 20 March 2011]

Zsidisin, G. A. and Ritchie, B., 2009. Supply chain risk: a handbook of assessment, management and performance. United Kingdom: Springer.


Appendix 1

Four Criteria for Assessing Sustainability of Resources and Capabilities

Is the resource or capability… ImplicationValuable. Lead to competitive parity Neutralize threats and exploit

opportunitiesRare. Lead to temporary competitive advantage

Not many firms possess.

Difficult to imitate. Might lead to sustainable competitive advantage

Physically uniquePath dependency (how accumulated over time)Causal ambiguity (difficult to disentangle what it is or how it could be recreated)Social complexity (trust, interpersonal relationships, culture, reputation)

Difficult to substitute. Lead to sustainable competitive advantage

No equivalent strategic resources or capabilities

Adapted from Dess, Lumpkin and Taylor 2004, p. 81.


Appendix 2

Brazil apparel retail industry growth and value

Brazil apparel retail industry growth and value forecast

Source: Brazil – Apparel Retail. Datamonitor. May 2010


Appendix 3

Mexico apparel retail industry growth and value

Mexico apparel retail industry growth and value forecast

Source: Mexico – Apparel Retail. Datamonitor. May 2010


Appendix 4

Verbal negotiation tactics (the ‘what’ of communications)Bargaining behaviours UK BRZPromise. A statement in which the source indicated its intentions to provide the target with a reinforcing consequence, which source anticipates target will evaluate as pleasant, positive, or rewarding.

11* 3

Threat. Same as promise, except that the reinforcing consequences are thought to be noxious, unpleasant or punishing.

3 2

Recommendation. A statement in which the source predicts that a pleasant environmental consequence will occur to the target. Its occurrence is not under source’s control.

6 5

Warning. Same as recommendation, except that the consequences are thought to be unpleasant.

1 1

Reward. A statement by the source that is thought to create pleasant consequences for the target.

5 2

Punishment. Same as reward, except that the consequences are thought to be unpleasant.

0 3

Positive normative appeal. A statement in which the source indicates that the target’s past, present or future behaviour was or will be in conformity with social norms.

0 0

Negative normative appeal. Same as positive normative appeal except that the target’s behaviour is in violation of social norms.

1 1

Commitment. A statement by the source to the effect that its future bids will not go below or above a certain level.

13 8

Self-disclosure. A statement in which the source reveals information about itself.

39 39

Question. A statement in which the source asks the target to reveal information about itself.

15 22

Command. A statement in which the source suggests that the target perform a certain behaviour.

9 14

Read ‘11% of the statements made by British negotiators were promises’. Sample = 6 negotiators. Source: Adapted from Oxford Handbook of International Business (p. 516).


Appendix 5

Structural aspects of language and nonverbal behaviours (‘how’ things are said)Bargaining behaviours UK BRZStructural aspects‘No’s.’ The number of times the word ‘no’ was used by each negotiator.

5.4 41.9

‘You’s.’ The number of times the word ‘you’ was used by each negotiator.

54.8 90.4

Nonverbal behavioursSilent periods. The number of conversational gaps of 10 seconds or longer.

2.5 0

Conversational overlaps. Number of interruptions. 5.3 14.3Facial glazing. Number of minutes negotiators spent looking at opponent’s face.

9.0 15.6

Touching. Incidents of bargainers touching one another (not including handshacking).

0 4.7

Sample = 6 negotiators in a 30 min negotiation.Source: Adapted from Oxford Handbook of International Business (p. 518).


Appendix 6

Several Dimension of Culture

Country IND PDI UAI TICPI 2010 Df EngGreat Britain

89 35 35 7.6 0

Brazil 38 69 76 3.7 3Columns = 1. (IND) Individualism Index (Hofstede 1991); 2. (PDI) Power Distance Index (Hofstede 1991); 3. (UAI) Uncertainty Avoidance Index (Hofstede 1991); 4. (TICPI) Transparency International, 10 = least corrupt, 0 = most corrupt; 5. (Df Eng) Distance from English (index provided by Globe Project). Source: Adapted from Oxford Handbook of International.

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Alejandro Afonso - Managing Relationships and Networks