Costco Wholesale Corporation: Market Expansion and Global Strategy
Costco Wholesale Corporation: Market Expansion and Global Strategy illustrates how Costco Wholesale Corporation is developing in terms of new international markets yet meets specific problems when it comes to opening stores internationally. The strategic level problem that the corporation meets when entering the international arena is a lack of policies for competing with established rivals or meeting consumers’ preferred method of shopping. The international operations turned out to be less effective in terms of revenue compared to the success in the US and Canada. Such issues are related to frequent changes of regulations worldwide, different consumer demands, and high competition with brands that had been established long before Costco entered the market.
Analysis of the Environment
Analyzing the environment is essential for further implications and strategies that can potentially minimize the effects of the strategic problem and create a more favorable environment for future investments. To examine Costco’s current situation, both internal and external environments will be scrutinized using multiple methods. For the external one, PEST analysis will be performed alongside Porter’s five theories to identify potential issues regarding the external environment. The internal structure will be examined through the SWOT analysis.
The external environment of the Costco Wholesale Corporation consists of a multitude of outside triggers that influence how the business operates, succeeds, and develops.
To examine such external influences, it is essential to use the PEST analysis. According to researchers, this method allows for a more in-depth examination of certain macro environmental concepts that impact a company of different levels (Vazquez et al., 2018). Based on this concept, the political, economic, social, and technological factors have to be examined as the main factors affecting a company.
Different political arenas certainly cause changes in how Costco performs. An example is Korea, a country that prioritized small family-owned businesses instead of supporting big retailers. The laws provide less beneficial conditions for significant international companies, which imposes certain financial risks for every brand willing to enter the market, including Costco. In terms of the economy, Costco opened stores in countries with solid and flourishing economies such as Japan, South Korea, Taiwan, Canada, etc. However, Spain was still recovering from the crisis when Costco entered the market, which negatively influenced the company’s potential.
The social aspects have been challenging due to particular cultural preferences. For example, Japanese consumers often choose to make purchases in convenient stores rather than in big supermarkets. Moreover, consumers tend to appreciate quality over quantity, which is a problem for Costco’s model of selling affordable products in bulk. As mentioned before, the technological factor also affects the outcomes of the company. Since South Korea is a country with a high density of people who use smartphones and prioritize online shopping, a lack of an online presence in this country drastically minimizes possible monetary outcomes for Costco. The analysis provided the following information:
- Political environments in countries that prioritize small businesses or regulate certain products are unfavorable for the brand (South Korea, Australia)
- Economic factors influence the brand if a population is not financially capable of engaging in in-bulk purchases (Spain)
- Social and cultural differences affect how people choose to shop, which may be an inconvenience for the specialized in-bulk practices Costco is known for (Japan)
- Technological advancement has to be taken into consideration in regards to highly advanced countries (South Korea).
Porter’s Five forces is another method used to examine the external environment. Researchers mention those forces as rivalry, bargaining of buyers and suppliers, new entrants, and substitutes (Bruijl, 2018). This model examines competition, which is one of the problems Costco has encountered.
- Japan’s high competition with convenient stores minimized the outcomes for Costco.
- China’s growing market brought multiple international retailers, highlighted by many new entrants, which caused increased competition on the market.
- The market in Mexico was saturated with possible substitutes, which affected the potential of growth for Costco.
The findings highlight how Costco met rivalry in a foreign setting and how high competitiveness minimized possible revenue, development, and positive outcomes.
While external factors definitely influence a business in regards to overall revenue and competitiveness, it is essential to analyze certain internal aspects that may also affect the company. The internal environment of Costco includes such organizational aspects as the overall atmosphere in the company, relationships among coworkers, culture, policies, and missions. A SWOT analysis will be used to assess Costco’s strengths, weaknesses, opportunities, and threats (risks) (Gurel, 2017). Examining these points will allow for a clear understanding of the internal structural impacts that affect how the business operates. Moreover, it will give an insight into Costco’s policies that can either maximize or minimize corporate outcomes.
The significant strength that improves the organizational structure is how the company treats the employees. Not only do they receive salaries higher than the standard wages within retailing businesses, but employees also enjoy certain bonuses. For example, the majority of Costco employees benefit from insurance programs and retirement plans. In this case, Costco creates a positive environment that prevents high turnover rates, job dissatisfaction, and adverse productivity. Due to such implementations, team members’ job satisfaction directly influences customer service, with is another positive outcome for the consumer’s perception of the retailer.
It is also vital to mention that Costco’s strengths include low prices for its products. Since the company buys directly from suppliers without any additional agents, the prices can be lower. Moreover, in-bulk goods are typically less pricey, which allows Costco to minimize customers’ expenses. Another strength is having a return policy that is beneficial for customers. Costco allows consumers to return products with no questions asked, which creates the reputation of a reliable retailer that wants to satisfy and takes responsibility for the sold goods.
In terms of weaknesses, the membership program may be an inconvenience for specific customers, especially internationally, where consumers are not used to such retail policies. The membership may be considered a downside for buyers, potentially influencing them to choose another retailer that does not require such measures. Based on the financial analysis, while the US and Canada membership renewal rates are high, the system can be nuanced for populations used to convenience stores or online shopping.
While setting in bulk allows Costco to sell items at lower prices compared to their competitors, this can also be a negative factor. Specific consumers may not be satisfied with such methods due to the inconvenience or other socio-economical factors that do not allow them to purchase so many items at one time. An example is Japan, where houses are typically smaller than in the US, and buyers do not have the same storage capacity (Park et al., 2019). This may influence consumers to choose a store where they can buy fewer products instead of the more affordable yet less comfortable in-bulk method. For example, a financial analysis highlights Walmart as the primary international retailer. This may be caused by the fact that Walmart has more options that can be purchased separately. The opportunities and threats analyzed within the SWOT systems examine external factors, which is why they will not be highlights. The findings show that the strengths are:
- Low employee turnover.
- Low prices.
- Efficient return policies.
However, specific weaknesses that are linked to Costco’s inefficiency in the international arena are:
- In-bulk systems.
Since the issue lies in the ineffective entering of the global market, Costco can benefit from changing the strategy when it comes to opening stores in foreign countries. An example is the lack of online shopping experiences for customers in South Korea, a country that relies on such technological options. Moreover, customers in Japan are less likely to buy in bulk, which is why Costco should consider offering other options for countries that rely on convenient stores and single purchases. Having a more flexible approach will allow the brand to receive worldwide recognition and satisfy customers regardless of the country.
The company already offers affordable products that allow for more efficient competition with other brands within the same domain. However, competitiveness seems less effective in some countries. Having a more aggressive approach in terms of investing in new stores in China, Mexico, and South Korea can result in better outcomes. It is crucial to choose regions where the market is exponentially growing and has been developing over the few years. This will ensure an inevitable brand development within that area because more people will be able to spend more money on shopping.
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Park, C., Viswanathan, V., Gopinath, R., Parveen, S., & Furey, M. (2019). Costco Wholesale Corporation. Market expansion and global strategy. Ivey Publishing, 1–15.
Salvatierra, J. A., & Baryolo, O. G. (2018). A framework for PEST analysis based on fuzzy decision maps. Revista Espacios, 39(16), 3.