Internationalisation process: Sodexo Remote Sites Scotland Ltd

1.0 Introduction and company background

The process of internationalisation is one that must be undertaken strategically in order to yield the desired results. Due caution must be taken to manage the associated risks; especially when it comes to understanding the target markets and the appropriate managerial and operational approaches that must be taken to guarantee success (Kerry, 2010). This calls for the adoption of an appropriate internationalisation model with most companies opting for a model that allows for gradual integration into the foreign markets. Uppsala internationalisation model provides an insight on how internationalisation is carried out gradually and incrementally (Alexander and Myers, 2000). The main variables to be considered are the level of commitment in the market and the amount of knowledge on the intrigues in such markets.

Sodexo Remote Sites Scotland Ltd is a UK based company that deals with the provision of quality of life management services (Experian ltd, 2012). This company mainly dwells on providing solutions for companies and employees based in remote areas and it provides food, laundry and other leisure solutions hence enabling them to live in comfort in while in such areas (Experian ltd, 2012). This approach helps clients to keep a healthy, relaxed and well motivated employees and this in turn improves the performance of their organisations. The main clients served are players in the construction, mining and gas industries. Sodexo is the leading provider of remote leisure services in the world and is expected to continue an international expansion strategy over the next few years (Datamonitor, 2011). This paper evaluates the internal and external environments of Sodexo Remote Sites Scotland Ltd with an aim to form an opinion on whether the company should pursue internationalisation. Appropriate internationalisation theory shall also be highlighted to enable clear understanding of the factors to be considered.

2.0 Internationalisation process concepts and rationale

Uppsala model was developed after a case study had been conducted on a number of international companies in 1977 (Johanson and Vahlne, 2009). This model identifies two main variables in the approach to internationalisation: the level of market commitment and the amount of knowledge that the organisation has about a given market (Johanson and Vahlne, 2009). It is presumed that as the level of knowledge increases, organisations get more confident in increasing their level of commitment of resources. In other words, organisations will tend to settle for business models that require fewer resources before making heavier investments after sufficient exposure, knowledge and trust have been acquired (Kogut and Zander, 1993). The businesses studied tended to go through a series of four steps which started from irregular export activities. This would advance further to an establishment of contracts with independent sales representatives to facilitate further exports. With increased market knowledge, organisations subsequently set up sales subsidiaries before embarking on the establishment fully operating foreign subsidiaries (Johanson and Vahlne, 2009). The model therefore emphasises the possession of knowledge about a market as crucial to the decision making process on whether or not to expand into a given foreign market.

The Uppsala model helps business executives to focus on the market research and internal analysis. It directs their attention towards the matching of their internal competencies with the features of the external environment with a view of making reliable business decisions (Rodriguez, Barcos and Alvarez, 2010). Several changes have emerged since the first model of Uppsala was created. Market research has become more reliable as information becomes more accessible (Rodriguez, Barcos and Alvarez, 2010). This has meant that the element of market knowledge is achievable without having to endure years of engagement. Managers should therefore be in a position to make reliable decisions based on market research and matching the market characteristics to their competencies. The vision, mission and growth objectives of organisations also play a major role in influencing their internationalisation strategies. For instance, the UK Restaurant and Leisure market is characterised by high levels of competition and modest rates of economic growth (Datamonitor, 2011). These factors make it less likely that growth can be achieved by operating in the domestic markets alone hence the need to pursue internationalisation.

3.0 Sodexo’s vision and internal analysis

Internal analysis allows organisations to focus on the unique capabilities and map out strategies to exploit such capabilities and advance their goals (Blythe, 2010). Accurate evaluation is crucial to the decision making process. Organisations should be able to analyse their strengths, weaknesses and carry out an audit of the capabilities that can help them gain a competitive advantage in the market (Blythe, 2010). The resource based view model and the swot analysis model are the most reliable frameworks for analysing the internal environment of an organisation (Barney, 2000; Barney, 2010). The swot analysis focuses on strengths and weaknesses arising from the internal environment and the threats and opportunities arising from the external environment (Mullins, 2010). The main purpose of conducting a swot analysis is to match the strengths to the opportunities arising, identify and rectify weaknesses, and identify threats and derive a strategy to either convert them into opportunities or limit the level of harm caused (Mullins, 2010). Sodexo Remote Sites Scotland Ltd specialises in the provision of restaurant and luxury services to clients operating in remote regions. Sodexo has the vision to be the premier global outsourcing expert in quality life services (BIFM, 2012). This implies that their vision can only be considered to have been achieved when the company becomes truly global. The company currently operates predominantly in the UK with a firm focus on international markets.

3.1 Strengths

Sodexo is a subsidiary of the Sodexo Alliance, a group of companies in the restaurant and leisure industry whose operations span across over 80 countries around the world (Experian Ltd, 2012). This gives the company vast amounts of knowledge on cultural contexts and products that clients from different parts of the world are likely to demand for. Their depth of knowledge on consumer preferences around the world forms one of the main sources of strengths for Sodexo (Lenazun, 2009). The company also boasts of a highly motivated workforce that is keen to deliver premium services to the clients served. This could be used to boost the levels of satisfaction in the market and establish the company and aid in the achievement of its vision. The

3.2 Weaknesses

Sodexo’s parent company has been plagued with controversies in its operational approaches and this is expected to affect it. Claims of haphazard systems of promotion and cases of racial discrimination put them in bad light (Lenazun, 2009). This weakness becomes pronounced when it is considered that the UK is increasingly sensitive to cases of discrimination of sections of the society.

3.3 Threats

The level of competition is rife in the UK is on a steady increase. Being players in the restaurant and hospitality industry, the company faces growing levels of competition from the numerous restaurants and leisure companies in the UK (Datamonitor, 2010). This threat is heightened by the fact that the rate of economic growth is modest at best.

3.4 Opportunities

The welfare of employees is becoming an area of focus for most organisations operating in remote locations. In today’s market environment, it is becoming increasingly acknowledged that employees are very effective sources of strategic advantage (Sodexo, 2012). This has had companies evaluate ways of motivating and maintaining a happy workforce. Providers of leisure and restaurant services in remote areas such as Sodexo are therefore likely to benefit from this trend.

4.0 External analysis

The external environment refers to forces outside the organisation and which are beyond the control of the organisation. It may be the industry or the macro environment. The analysis of the external environment enables the application of strategies that can yield a competitive advantage to businesses (Mullins, 2010). Two models have been found to be very useful for the purposes of external analysis: the porter’s five forces model and the PESTEL model with the former analysing the industry and the latter addressing the macro environment (Clow, 2010).

4.1 Industry analysis: competitor analysis

The main buyers in this industry are companies that outsource their restaurant, laundry and entertainment responsibilities (Datamonitor, 2010). The suppliers on the other hand are food distributors, sellers of machines and other equipment and providers of consultancy services (Datamonitor, 2010). Sodexo is predominantly a restaurant and is therefore faces highest competition from providers of food services. Companies such as Compass Group, Aramark Corporation, Baxter Storey and McDonalds are among the strongest competitors to Sodexo (Datamonitor, 2010). Food services are generally similar across industries and this heightens market rivalry. However, Sodexo has managed to cut a niche for itself by diversifying into other leisure services hence getting an edge over the competition. Diversification is one of the strategies that organisations use to survive in a highly competitive environment and it entails the introduction of extra products and services to enable the capturing and retention of a larger market share. The supplier power, buyer power threat of substitutes, and the threat of entry can all be said to be moderate (Grant, 2007). With a moderate level of rivalry in the industry, Sodexo can only manage modest growth and may have to look to emerging markets to bridge the gap.

The knowledge of competitors is crucial in the decision making process. Among the factors that one must consider is the competitor prices, the quality of products supplied by the competitor and the product range (Homburg, 2009). Where these characteristics are similar to the products being offered, then the resultant level of rivalry is high. The specification of the target markets should also be considered with differences in the target market lowering the level of rivalry (Blythe, 2010). The concentration in the number of competitors in a market should also be considered. Where competitors are numerous, the level of rivalry is higher than when they are few. The UK market is full of players in the restaurant industry and this makes it difficult for any single company to realise superior growth rates by operating in the UK alone. When conducting a competitor analysis for the purposes of evaluating internationalisation options, it is also important to conduct a similar study on the markets being considered (Hill, Jones and Galvin, 2004). This allows for a comparative analysis and helps in ensuring that the right decisions are made.

4.2 Macro environment analysis

Macro environment describes factors that affect entire economies. They include from the political stability, legislations and customer preferences among others. Under the PESTEL model, factors affecting the macro environment have been classified under Political, Economic, Social, Technological, Environmental and Legal factors (Porter, 1996). Political factors refer to issues to do with political stability and the predisposition of the political class towards private enterprise. Under this factor, risks of nationalisation should be considered with many foreign investors opting to go into partnerships with local investors in order to minimise the chances of such levels of political interference (Hubbard, Rice and Beamish, 2008). In the UK, political factors pose little risk to businesses. However, the situation may be different in other countries that Sodexo may want to operate in and may therefore have an impact on the decision on whether to enter such markets. Economic factors could refer to economic growth rates, the income levels in a country and others (Hubbard, Rice and Beamish, 2008). These affect the operation costs as well as ability of clients to pay for the products and services on offer. The rate of economic growth in the UK and other developed markets is lower than the growth rates in the emerging economies. This implies that organisations intending to achieve superior rates of growth should consider expanding into international markets.

Social factors refer to the preferences of customers for certain products. Organisations must understand the unique needs of the target market and come up with a strategy to have such needs met (Hubbard, Rice and Beamish, 2008). Constant research is necessary due to the fact that such preferences change from time to time and organisations could easily lose market share if they fail to keep up with the trends. Sodexo is affiliated to a multinational with operations in over 80 countries and this makes them better equipped to understand the social preferences in different regions (Experian Ltd, 2010). However, research should still be conducted to verify the accuracy of the information held. Technological factors affect the type of products that can be offered. For instance, in countries where online transactions are ably backed by the right technological infrastructure, Sodexo can introduce services such as online shopping and delivery for their clients.  

4.3 External analysis: potential international markets 

As opposed to the UK which has modest economic growth rates, emerging markets tend to have higher rates of growth with countries such as China, India and Brazil being among the most promising markets for FDI in the world. The cost of labour is also low and this implies that the cost of operation is likely to be low (Goyal, 2011). China and India have in the recent past been close rivals for FDI and this rivalry has been characterised by average economic growths that are close to 10% per country between 2000 and 2010 (Bosworth, 2010). Statistics however indicate that the Chinese economy enjoys a much higher level of per capita income and this makes it a little more attractive.

China is an expansive country with plenty of industry players in the agricultural and extraction industries operating in remote locations (Wei, 2010). This implies that demand for luxury services may be high. The Chinese who have traditionally been thrifty in their spending habits are also warming up to the culture of enjoying luxury (Wei, 2005). This implies that demand for remote comfort services are likely to be demanded more and more. The market in this sub-industry is largely underdeveloped in view of the fact that the Chinese workers have traditionally not been privy to the proposed levels of luxury. Sodexo therefore stands a good chance of thriving in the Chinese market.

5.0 Reflections on the decision making process

The first step involves the identification of the problem. The problem could be the achievement of organisational goals in a challenging environment. For instance, Sodexo has a vision to be the premier producer of quality life services in the world and this constitutes the main problem (Sodexo, 2012).

Once the need to internationalise has been established, it is necessary to do market research and know which alternative markets have the potential to deliver on the growth objectives (Alexander and Myers, 2000). The process of research needs to be done with care to ensure that all the relevant information is captured.

After the viable alternatives have been identified, they are evaluated based on the set criteria. Evaluation can be done by weighting the factors identified in consistency with what the organisation considers to be most important to them (Hill, Jones and Galvin, 2004). The use of a decision matrix can be very useful in this regard. An alternative approach would be to adopt the swot analysis model and compare market characteristics in order to determine which market is most attractive.

The implementation stage marks the beginning of yet another process. It is at this stage that the organisation must make a decision on the suitable modes of entry in consistency with the market characteristics. This is where the Uppsala model becomes most relevant with lower commitment levels emphasised before the requisite levels of exposure are acquired (Experian, 2012).

6.0 Recommendations on whether to pursue internationalisation  

The UK market is quite congested with the level of market rivalry being moderate and heading towards being high. It is characterised by low rates of economic growth and a rapidly intensifying level of market rivalry. This makes it difficult for Sodexo to realise ambitious growth rates by operating in the market alone. On this platform alone, it would be advisable for Sodexo to consider expanding into international markets. This decision would also be enhanced by the nature of their vision. They intend to be the global leaders in their field and this implies the need to expand into other countries and capture more of the global market share.

The Chinese market provides an opportunity for higher rates of growth than can be found in the domestic market. Being a relatively underdeveloped service, industry players providing remote comfort solutions are relatively few and this gives Sodexo the opportunity to capture a significant share of the untapped market. Extraction and agricultural industries operating in remote regions are on the increase in China and this translates into growing demand. Sodexo Remote Sites Scotland Ltd should therefore consider pursuing internationalisation more seriously with China as the initial target.

7.0 Conclusion

The internationalisation process outlines the steps that firms should take when pursuing an international expansion agenda. It outlines the importance of considering the level of exposure and knowledge in a market as the yardstick to determine the level of commitment to be made in terms of resources. The Uppsala model therefore names the four steps as the conduct of occasional exports, engagement with independent sales representatives, establishment of sales outlets, and the establishment of fully functional subsidiaries.

The decision making processes that lead to the determination of whether or not to internationalise are also very important. The procedure that begins with the identification of problems, evaluation of internal and external environments and the making of the final decision is one that organisations must engage in whenever any major decision is to be made. The UK market is characterised by heightened rivalry among industry players with growth prospects limited further by the fact that the economic growth rates in the UK are modest at best. The Chinese market on the other hand is characterised by comparatively lower levels of competition and a rapidly growing economy. These factors make the Chinese market a very attractive destination for Sodexo. This paper finds that Sodexo should pursue internationalisation in consistency with their vision and mission and enter the Chinese market in order to realise its growth objectives

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