Ocado Foreign Direct Investment in Japan and South Africa
Date
Introduction……………………………………………………………………………………4
South Africa as an emerging Economy………………………………………………… ….…4
Advantages of investing in South Africa………………………………………………………5
Disadvantages of investing in South Africa……………………………………………………6
Advantages of investing in Japan…………………………………………………….………..8
Disadvantages of investing in Japan………………………………………………….….…….8
The best country for Ocado Limited to invest in……………………………………….………9
Nature of investment with regard to the legal system in place…………………………………9
Specific risk for the investment…………………………………………………………………9
Strategic choice……………………………………………………………………………………………10
Final Recommendations………………………………………………….……………………..14
References……………………………………………………………………………………….16
Appendix…………………………………………………………………………………………18
Executive Summary
Investors should always make wise decisions when it comes to investment. This is because the better the decisions the higher the chances of getting the maximum benefits. Foreign direct investment is one of the things that investors are looking at nowadays. This is because there are very many benefits and incentives involved. For an individual to make such an investment, it is important to analyze emerging as well as developed economies. This is because the analysis will be useful in giving the investor an opportunity to know the appropriate country for investment. To be able to succeed in the investment, it is important to come up with strategic choices that are capable of pushing the investment project to success. The risk involved in the investment should also be considered. This should be done together with the analysis of the barriers involved in foreign investment.
Introduction
Foreign direct investment refers to the investment in production or business into a country by a company or person from another country (Froot 2008). Foreign direct investment may be through purchase of a company in the country being invested in or expanding operations of an already existing company to that country.
Nowadays, many investors have been able to go for foreign investment options. This is because there are a lot of good things that come with this form of investment. The investors feel that they should not let the opportunity to enjoy the benefits slip away. The incentives enjoyed by foreign investors include reduced corporate as well as income tax for individuals, tax holidays, reduced tariffs, Export processing zones, specific subsidies, special loan arrangements and incentives related to infrastructure among others (Moosa 2002). Most of these incentives are usually set up by a country to foreign investors so as to encourage investment. This is because most of the investments are usually quite beneficial to the host countries. The barriers to foreign direct investment will definitely come on the way of Ocado’s plan. The barriers to foreign direct investment are usually brought about by many things among them unfavorable policies by the foreign country (Aharoni 2011).
Ocado Limited is an online supermarket retailing groceries. This is the leader in online supermarkets in the United Kingdom. The head office of this firm is in Hatfield, outside the city of London. This company was founded in the year 2002 during the month of January. The founders of Ocado Limited were Jonathan Faiman, Jason Gissing and Tim Steiner. The company was listed by the London Stock exchange in the year 2010. To be able to define a proper foreign direct investment for Ocado limited, there is need to evaluate an emerging and a developed economy for the purpose of investment. Among the emerging economies, South Africa is the one selected for evaluation while Japan is selected for evaluation in the developed categories.
South Africa as an emerging Economy
Reliable research has shown that South Africa is one of the best emerging markets in the world as per the Emerging Markets Opportunity Index. The economy of this country has been ranked 15th in the emerging markets worldwide. In Africa, this is the leading emerging economy. The best thing about this economy is the economic size, size of population,, growth potential and the level of development. These attributes make this economy an attractive one for foreign direct Investment. These findings about the best thing about the economy in South Africa are as per the indicators from Grant Thornton’s International Business Report, the International Monetary Fund and United Nations Human Development Report. The economic growth in South Africa is expected to be 4.1% between 2013 and 2017. This is a good rate for an economy to grow at.
Regarding foreign direct investment in South Africa, the rate has been dropping over the recent time. For example, in the year 2012, the foreign direct investment in South Africa went down by 44%. This means that there has not been saturation by foreign investors in the economy. This means that if a foreign investor keeps his eyes on South Africa, it is possible to experience good return on investment. The most important thing to do so as to succeed is to make sure that the things which have been making the investment by foreign investors in South Africa drop are analyzed and solution found. This would be able to pave way for a smooth and beneficial investment experience in South Africa.
The other important thing to note about the economy in South Africa is that it has a standard stock exchange. This means that prospects of the economy growing at a better rate are high. This means that making an investment in the South African economy is not a mistake.
The worst thing about the South African economy is the prevailing inflation in the economy. This is not a good thing for an investor wishing to go for the economy.
Advantages of investing in South Africa
One benefit of Investing in South Africa is the sophisticated financial systems. The purpose of getting into business is money. This means if the systems which safeguard the finances of investors are sophisticated the country is good for investment purposes. This means that the financial functions of the companies and other institutions will be taken care of properly.
South Africa is known to have a world class stock exchange. The countries stock exchange has been identified as one of the best in the world. This means that the support that comes from the stock exchange in South Africa is able to boost the economy.
The other benefit of investing in South Africa is the low saturation of foreign direct investment in the country. This means that any foreign investor who goes to the country will be given the necessary attention. The incentives given will be very beneficial to the foreign investors.
An additional benefit of investing in South Africa is the fact that South Africa is the leading emerging economy in South Africa. This means that the country’s economy is the focus in the continent. This gives the country an upper hand in the process of negotiating on economic platforms. This means that investing in such an economy is a wise decision.
Additionally, the research and development policy in South Africa makes the country a good place for investment. South Africa is known to have an ambitious research and development policy. This means that an investor in the country will definitely benefit from the research and development efforts made in the country.
South Africa has a modern and wide infrastructural development. This means that investors in the country are able to enjoy the benefits obtained from proper developed and managed infrastructural systems.
Disadvantages of investing in South Africa
One disadvantage of investing in South Africa is the persistent instability in the mining sector of the country. This means that when the labor force is not settled, the market for the products of a company is affected. This is because the spending power of the people will be lowered to the disadvantage of an investor.
The second disadvantage is that foreign direct investment inflow in the country has been declining. The surety that the new foreign investment will survive is not there. This means that the investor does not need to be a risk averse.
Japan as a developed economy
Japan is one of the well developed economies in the world. The growth of the economy is catalyzed by the presence of well developed systems together with infrastructural development. It is worth noting that the country’s economy is ranked third among the world’s economies. The other important thing regarding this economy is that it is the number one creditor in the world. This makes the business environment in the country attractive. This means that the investors who put their money in the economy are able to benefit more. The economic activities of this country are usually supported by a high level of creativity and innovation. This means that every aspect of business in the country is supported by proper technological systems which increase the level of efficiency.
Advantages of investing in Japan
One advantage of investing in Japan is the infrastructural development in the country. Japan is one of the countries whose infrastructural systems are well developed. This means that a company will be able to have smooth operations after setting base in Japan.
The second advantage of investing In Japan is the presence of good technological environment. Japan is known to have a well developed technological environment (Sakano 2004). This means that a company will be able to share in the benefits of having proper technological systems in place.
According to Yoshitomi and Graham (1996), in Japan is there is presence of a high level of creativity and trend setting. This means that an investor in the country’s economy will be able to enjoy from the benefits of having a high level of creativity and innovation. This means that a company’s possibility of improving on products and systems is high.
The consumers in Japan have a high spending power and interesting tastes. This means that the probability of getting a wide client base is high for an investor opting for investment in Japan. Additionally, the GDP of Japan I high. This means that the there is a possibility of experiencing more growth in the economy of the country.
Other advantages of investing in Japan include good infrastructure, mature investment platform, good investment policy, large population and gateway to Asian market among others.
Disadvantages of investing in Japan
One disadvantage of investing in Japan is the high competition in the country. According to Flath ( 2005), there is a high level of competition in the country. This means that an investor will have to spend a lot to beat competition.
The other disadvantage of investing in Japan is that large and well established companies are expanding into the Japanese market thus making the country saturated with foreign countries. This means that chances of being ignored are high.
The best country for Ocado Limited to invest in
From the evaluation of the two economies, the advantages and disadvantages of investing in each one of them, Ocado Limited should do Foreign Direct Investment in Japan. The company’s business operations will be well supported in Japan.
Nature of investment with regard to the legal system in place
Ocado limited should look for a business in Japan and acquire it. This will be able to give Ocado Limited a step ahead in terms of its operations. This will also be agreeable according to the legal system in Japan regarding foreign direct investment. Japan allows investors to go for the acquisition option in investment in the country (Sauvant 2008). Ocado Limited should ensure that the benefits of getting into foreign direct investment through an acquisition are obtained.
Specific risk for the investment
One thing that has been troubling the economy in Japan is lack of proper policy on foreign investment. Japan has not been able to put foreign direct investment as an economic priority. This means that the foreign direct investment environment in Japan may not be favorable.
Another risk involved is that Ocado Limited may fail to satisfy the social-cultural needs of the Japanese market. It is worth noting that a company that fails to reach the standards set by people in a country in terms of socially and culturally accepted things does not succeed. This is because the people in the market may not want to co-operate with a company that does not respect their social and cultural preferences.
Strategic choice
All investors should be able to come up with the appropriate strategies for their businesses (Thompson, Strickland & Gamble 2010). To be able to come up with a proper investment programme, Ocado Limited has to develop the appropriate strategic plan. So as to achieve certain set objectives, it is important for investors to develop the appropriate strategies. According to Analoui and Karami (2003), strategies usually help in defining the best way possible which would attain the set goals in the most efficient way possible. Ocado limited should be able to choose strategies in each function of the business so as to be able to succeed in the new market. These strategies should be related to marketing, pricing, distribution, products and distribution among others.
In the marketing strategies, Ocado limited should consider relationship marketing- Relationship marketing refers to a method whereby the marketer usually aims at creating a strong bond with the customer (David 2011). The firm using this form of marketing usually aims at making the relationship with the consumers a lasting one. For Ocado Limited to be able to get rooted in the selected country, it is important to ensure that the consumers of the grocery products are attracted in a big way to the organization. This will make them feel appreciated. After seeing that they are being appreciated, the customers will definitely want to improve on their level of loyalty. This will lead to more consumption of the products of Ocado Limited.
Additionally, in the marketing strategies, Ocado limited should consider the use of alliance marketing. Alliance marketing refers to the promotion of products by a group of players in an industry. This form of marketing benefits a firm together with the whole industry ((Jones & Hill 2009). This enables an organization to benefit from the effort delivered by the other companies in the industry.
So as to make the process of investment less costly, the company should be able to come up with strategic ways that ensure the cost is cut. In the marketing aspect, the company should be able to utilize ambush marketing. This form of marketing is usually done through the company associating itself with events that do not involve sponsorship fee. This will enable the company to get its name to the market without incurring high costs. This form of marketing will make the target people get to know about the products and services of the company without paying sponsorship fee. It is important for Ocado Limited to ensure that the events chosen are able t bring on board people who are likely going to get attracted to what the company does.
Technology has emerged as one of the best tools for uplifting the status of businesses (Johnson, Whittington & Scholes 2011). As a result Ocado limited should be able to use the power in technology so as to push its name in the selected countries market. The management of Ocado Limited should be able to strategically apply the call to action (CTA) marketing. This form of marketing will enable Ocado limited to use the internet for making its presence in the new market get noticed. This would be through the creation of banners and graphics on various websites. This will be able to tell various people in the market that there is a company referred to as Ocado Limited in the market.
Acquisition strategy should be considered by Ocado Limited. Acquisition strategy is usually concerned with a company obtaining capital to acquire an ongoing company or business (Wetherly & Otter 2008). Therefore, Ocado Limited should be able to look around for companies or businesses in the groceries industry and suggest intention to acquire it. This would be important in ensuring that Ocado Limited gets its roots in the new country easily. This would be through getting into business systems which have already been set up and a name created.
It would also be important for the company to go for the best distribution strategies. It is important for the company to ensure that there is proper distribution communication for the company’s products. The distribution strategy taken by the Ocado limited should be able to create a high level of effectiveness. The fact that Ocado limited has been able to create a good distribution strategy in the United Kingdom is a good assurance that it would be able to come up with the best strategies for its products. Firstly, it should be able to create stores in most of the countries cities. This will be able to give the customers deliveries in the shortest time possible. This will be able to create a high level of satisfaction within the customers’ fraternity. To make the chosen distribution strategy successful, it is important for Ocado Limited to understand the market’s distribution needs. This will be able to make the company come up and improve on the best distribution strategy. This should be supported by creation of several distribution channels as well as creativity in distribution strategy management. It is also important to ensure that the opinion of the customers with regard to the distribution is considered. The customers are usually very useful when making certain investment decisions for the company (Devinney 2011). The customers should be requested to suggest on the best way that they feel would be best to distribute products to them. This would be able to give the customers in the market deliveries through their most preferred channels. According to Campbell, Edgar & Stonehouse (2011), considering the opinions of customers in the decisions of an organization creates a positive impact. This is because it makes it possible to tailor make the services as per the customers’ needs.
It is also important for Ocado Limited to go for growth strategies. The aspect of growth that is required would be in terms of the products and services offered. This would be important so as to cover the preferences of customers in the new market. In the selected country, people have some different preferences from those of people in the United Kingdom. This would be necessary so as to catch a wide customer base within the market.
Product differentiation would be another strategic choice for Ocado Limited. Product differentiation refers to the act of having unique and identifiable products from those of competitors. With Ocado Limited coming up with proper product differentiation, it would be able to make customers confident towards the products of the company. This would be able to increase the level of loyalty and in the process making the revenue of the company go higher.
Pricing strategy is the other strategic choice for the company. It is worth noting that the way a company prices its products and services determines the attractiveness it receives from customers. Ocado Limited should be able to take considerable time in coming up with te best prices for its products and services. The prices set by the company should be able to give the company a good name in the market. The set prices should be able to make the customers feel that the products and services of the company are affordable compared to those of the other players in the market. Ocado Limited should be able to consider competitive pricing, cost based pricing and value based pricing among others.
Final Recommendations
So as to be able to make a beneficial investment in the selected economy, it is important to ensure that certain issues are dealt with. These are important since they will be able to open the doors for a smooth investment time in the selected country.
It would be advisable for Ocado Limited to hire competent experts in the foreign direct investment to oversee the whole process. When working with specialists in a given area, a company is usually confident that it will get most of the things right. This is because the experts are usually experienced enough to know the needs of the clients. This would make them give the most suitable advice regarding various aspect of the foreign direct investment. Therefore, Ocado Limited should put some amount in the budget that would be used in covering the costs involved on engaging an expert.
Before making the investment, it is important for the company to carry out proper risk analysis. This would be able to make the company identify the risk involved that may put the success of Ocado Limited’s investment in jeopardy. It is usually not wise for any investor to make a decision without evaluating the possible risk in a given area. Bouchet, Clark and Groslambert (2003) say that lack of risk analysis would make an investor go into an area that might disappoint upon putting the investment money in it. As a result, Ocado limited should be able to carry out a thorough analysis of the market in the new country and make a conclusion regarding the risk involved in the industry. If the risk is found to be manageable, then the company should go ahead with the investment. Upon investment, the slight risk involved should be well management. This would be through the company coming up with a proper risk management program.
Ocado Limited should come up with proper plans on how to go about handling the barriers to foreign investment. This is because the barriers have to come on the way towards achieving the objectives of the company in the foreign investment. The company should be able to appoint a team that would be responsible for tackling the barriers to smooth foreign investment. Each barrier to foreign direct investment should be handled in the best way possible to ensure that the company sails through successfully.
References
Aharoni, Y 2011, Behavioral Elements in Foreign Direct Investment Decisions. Emerald Group Publishing.
Analoui, F & Karami, A 2003, Strategic Management in Small and Medium Enterprises. London: Thomson Learning.
Bouchet, MH, Clark, E, Groslambert, B 2003, Country Risk Assesment: A guide to Global Investment Strategy. John Wiley & Sons.
Campbell, D, Edgar, D. & Stonehouse, G 2011, Business Strategy an Introduction. 3rd ed. Basingstoke: Palgrave. Macmillan.
David, FR 2011, Strategic management: concepts and cases. 13th Ed. New Jersey: Pearson Prentice Hall.
Devinney, TM 2011, Bringing managers’ decision models into FDI research. Emerald Group Publishing.
Flath, D 2005, The Japanese Economy. Oxford University Press.
Froot, KA 2008, Foreign Direct Investment. University of Chicago Press.
Johnson, G, Whittington, R & Scholes, K 2011, Exploring corporate strategy, 9th ed., Harlow: Pearson Education Limited.
Jones, GR & Hill, CW 2009, Strategic Management Essentials. 2nd ed. Southwestern: Cengage Learning.
Moosa IM 2002, Foreign Direct Investment: Theory, Evidence and Practice. Palgrave Macmillan.
Sakano, R 2004, Financial Market Conditions and income distribution in Japan, Emerald Publishing Group.
Sauvant, KP 2008, The Regulatory Framework for Investment: Where are we Headed? Emerald Group Publishing.
Thompson, AA, Strickland, AJ. & Gamble, JE 2010, Crafting and executing strategy: the quest for competitive advantage – concepts and cases. London: McGraw-Hill.
Wetherly, P. & Otter, D. (2008), The business environment. Oxford: Oxford University Press.
Yoshitomi, M & Graham EM 1996, Foreign Direct Investment in Japan. Edward Elgar Publishing.
Appendix
Appendix 1: List of top 50 countries according to their economy (Japan is ranked third)
| Rank | Country/Region | GDP (Millions of $US) |
| World | 72,689,734 | |
| 1 | United States | 16,244,600 |
| 2 | China | 8,358,400 |
| 3 | Japan | 5,960,180 |
| 4 | Germany | 3,425,956 |
| 5 | France | 2,611,221 |
| 6 | United Kingdom | 2,417,600 |
| 7 | India | 2,254,109 |
| 8 | Russia | 2,029,812 |
| 9 | Italy | 2,013,392 |
| 10 | Brazil | 1,875,213 |
| 11 | Canada | 1,821,445 |
| 12 | Australia | 1,564,419 |
| 13 | Spain | 1,322,126 |
| 14 | Mexico | 1,183,655 |
| 15 | South Korea | 1,129,598 |
| 16 | Indonesia | 878,043 |
| 17 | Turkey | 788,299 |
| 18 | Netherlands | 770,067 |
| 19 | Saudi Arabia | 711,050 |
| 20 | Switzerland | 631,183 |
| 21 | Iran | 551,588 |
| 22 | Sweden | 523,804 |
| 23 | Norway | 499,667 |
| 24 | Poland | 489,852 |
| 25 | Belgium | 483,402 |
| 26 | Argentina | 477,028 |
| 27 | Austria | 394,458 |
| 28 | Thailand | 385,694 |
| 29 | South Africa | 384,313 |
| 30 | United Arab Emirates | 383,799 |
| 31 | Venezuela | 382,424 |
| 32 | Colombia | 369,813 |
| 33 | Denmark | 314,889 |
| 34 | Malaysia | 304,726 |
| 35 | Singapore | 276,520 |
| 36 | Chile | 268,314 |
| Hong Kong | 263,259 | |
| 37 | Nigeria | 262,545 |
| 38 | Egypt | 254,671 |
| 39 | Philippines | 250,182 |
| 40 | Greece | 248,941 |
| 41 | Finland | 247,389 |
| 42 | Israel | 241,069 |
| 43 | Pakistan | 215,117 |
| 44 | Portugal | 212,139 |
| 45 | Ireland | 210,638 |
| 46 | Algeria | 207,021 |
| 47 | Peru | 204,681 |
| 48 | Kazakhstan | 202,656 |
| 49 | Czech Republic | 196,446 |
| 50 | Qatar | 192,402 |
Use the order calculator below and get started! Contact our live support team for any assistance or inquiry.
[order_calculator]