Primark is one of UK’s largest clothing retail stores with a reported revenues of £4,273 million, the store was first established in Ireland in 1969. Over the past ten years Primark has become extremely successful with its expansions into the United Kingdom where 165 stores are now available and more than 250 stores around Europe (Wood 2014).
Earlier this year, Primark’s parent company announced its intention to enter the US market with a first store opening in Boston MA in 2015, the opening will be shortly followed by another ten new stores across the country (smith 2014). This can be a risky strategy as the shift towards a more globalised market means companies who have been successful in their home market (such as Primark) will find themselves competing with foreign businesses which are much bigger and more successful. However, International expansion offers businesses the opportunity to become recognised on a global scale, for example, companies such as Coco Cola, McDonalds and Microsoft could not have achieved global leadership within their industry without expanding abroad, therefore International expansion offers international reputation which is necessary when wanting to become a leader.
Internationalization Theory
The Uppsala model (a.k.a the Stage Model) is an important theory that explains how firms expand abroad, under this model, internationalization is seen as an incremental process whereby firms increase their international involvement in a stepwise manner (Bhardwaj et al 2011). The Uppsala model is based on two assumptions: (i) the resource-based theory and (ii) the incremental process (Forsgren 2002).
Under the resource-based theory, Anderson and Kheam (1996) explain that for some firms, their lack of knowledge of foreign markets constitutes a major hurdle to their expansion plans and adds to their “market uncertainty”. To reduce this uncertainty, many firms opt to acquire experiential knowledge, i.e., by first managing modest operations abroad. Once the experiential knowledge is gained, then the firm can expand further by opening and managing larger scale operations. Forsgren (2002) explains that in this incremental manner, the Uppsala model lays down the foundations for a firm’s internationalization process – i.e., to start by investing in just one or a few neighbouring countries before entering new markets with greater “psychic distance” and more market uncertainty.
The Uppsala model fits well with Primark’s international expansion strategy. Primark first set up locally, i.e., in Ireland. Then it proceeded to the UK, which is essentially similar to Ireland. Once the UK is fully understood and exploited, Primark then expanded across Europe in the late 2000s, the majority of the regulations, trading prices and standards apply throughout the EU countries (HM 2012), now it is exploiting the US market.
To better comprehend how firms venture abroad, one should also consider Dunning’s (1977) OLI model. A firm’s competitive advantages lie in Ownership (O), Location (L) and Internalization (I) (Dunning (1988) and Anderson 1997)). Ownership refers to strengths that are specific to the nature and nationality of the owner. Firms that operate in big domestic markets and/or favourable regulatory and business environments tend to benefit from locational advantages (Zhao and Decker (2004)).
Internalization advantages will affect the way a firm approaches international markets. For instance, a firm will trade off the investments in a wholly owned foreign subsidiary against other forms of doing businesses, for instance, exporting, licensing, and joint venture.
Thus, the way a firm ventures abroad depends on where its competitive advantage lies in the OLI model. A firm that ventures in a market that its owners know very well is maximizing on its Ownership strength, US companies that are trying to relocate to Ireland to take advantage of the country’s low taxes are using Location strength. Call centres are relocating abroad as they can deliver their services using the high quality fibre optic internet cables laid across the world are trying to maximize their Internalization strengths.
Bhardwaj et al. (2011) studied the internationalization of the Spanish fashion brand Zara. Consistent with the OLI model, the authors argue that the firm took advantage of its well-heeled vertically integrated supply chain to move abroad. According to Lopez and Fan (2009), Zara also adopted elements of the Uppsala model as it expanded to neighbouring European countries first before moving on to the Asian markets. In 2005 it was reported that Zara’s International sales had accounted for 69% of its total turnover (TMC NEWS 2007).
PESTLE and SWOT ANALYSIS
The decision to expand abroad can be largely affected by the conditions in the country concerned. The USA has one of the largest economies of the world, it is often referred to as the world’s superpower, it is one of the top twenty countries containing low levels of corruption as well as being listed in the top twenty best countries to do business in (Adelman.2013). Thus, it is only natural for Primark to take advantage of the opportunities presented by such a huge and wealthy marketplace. The similarity in the language and culture between the home nation of Primark and the USA means there is potential opportunities but it is also important to evaluate the risk.
Primark has chosen to enter the US through a direct investment with an initial capital injection of £200 million. Primark will need to evaluate whether the amount of money invested will be enough to set its goals on the US especially when previous British stores such as M&S, HMV and Tesco have tried and failed. When you evaluate the brief history into British expansion, you will notice that Marks and Spencer left the US and sold the brooks brothers, the brooks brothers was originally brought for £440million however got sold for a fraction of its original price, whilst Tesco had a loss with its fresh and easy food chain (BBC 2011). Timing is an important aspect, Tesco’s fresh and easy was introduced to the US in 2007 just as the country began to head towards economic downturn, this had a huge impact on the success of Tesco in America (BBC 2011). Nevertheless, in recent years the US income per capita is among the highest with a sustained economic growth and credit expansion, in the most recent quarter of the year it has been reported that the US economy has grown at 4% this could be a hopeful sign for businesses (Gauardian2014). Primark’s investment of £200 million is a high capital cost and will be a major loss should Primark’s expansion fail; Primark needs to consider not just the opening cost of the store but also how much marketing will be needed as the majority of the US public are not familiar with the brand. It will be ideal for Primark to locate itself inside busy shopping malls due to the lack of name recognition instead of it trying to stand alone.
The legal system is very strong in the USA Nonetheless, litigations from customers are quite common and hefty in the USA, and Primark may need to hire a US-based legal team to oversee its interests.
It is important to look into world events when wanting to expand abroad, it has been reported in recent news that president Obama is planning to strengthen the relations between Cuba and America (Yuhas 2014). This could be a positive opportunity for future expansions into other neighbouring countries. Cuba is just 90miles from American boarder; in most cases, early entry into an emerging economy can often bring by the possibility of market domination before other rivals have the chance to establish themselves. A company such as Tesco has been able to achieve this advantages in some of the former communist countries of eastern and Central Europe.
It is quite remarkable how Primark has been able to build a network of reliable suppliers from the developing world, this has allowed the company to continue to supply quality clothing at competitive prices. Replicating the same for the US market should improve the company’s margin further. Primark uses low-cost suppliers from china, Primark will need to factor shipping and custom costs, it would be more cost effective to find suppliers from the Latin American countries to benefit from the trade packs between them and the USA and also to minimise the shipping costs (BBC 2008). For many years It has been an assumption that no other country can offer prices as cheap as china, this may have been true a decade ago however recent research conducted on the manufacturing cost of twenty five countries shows that when you take in account of the labour costs, as well as the currency exchange, energy expenses, exchange rate, productivity growth, Mexico is considered to be cheaper than china (bcg 2014). Primark will also need to centrally place its warehouse to supply the other stores that it will be opening across the USA.
Primark must study its competition when choosing to expand abroad. Primark is largely known for its cheap price tag, however there are similar existing retail businesses that offer the US the same price tag, therefore profitability will be largely dependent on competitiveness. The US has already established stores such as JC Penny and Target which are well known, there has also been a push by president Obama to encourage consumers to buy “Made of America” products to help the country economically; these are threats that may hurt Primark’s sales in the USA. Primark will need something other than its price tag to make it “different” as it will be competing with the likes of Walmart, further research will need to be conducted into the benchmarking of prices against their competitors.
Despite a common language and consumers with similar shopping behaviours, the US and the UK are still very singular marketplaces in their own way. When comparing the UK with the USA there is a major difference not only in the size of the countries but also in the huge gap between the rich and the poor. Recent reports shows high levels of income inequality in America and it is still on a rise (Boak 2014). The US is known to have one of the highest rate of income inequality compared to other developed countries. Primark will have to think carefully about the location of its store, if it is placed in a high end area with wealthy individuals Primark will have to compete against Designer labels in an area where private labels are often seen as second rate (Carter 2013).
The USA is an early adopter to technology, In this digital era, Primark lacks an online store unlike many of its competitors. Given how advanced the USA is in adopting technology, Primark should seriously consider whether running a parallel online store would help the company to ward off future competitive threats. But despite Primark’s non-technological ways, the company has still proven to be successful within Europe without the use of online shopping.
People are concerned about the harmful effects that the fashion industry has on the environment (Jackson and Shaw, 2009). In the USA, companies need to comply with strict environmental laws and can expect hefty fines if they fail to do so. Primark’s environmental record is tainted by the building collapse at one of its key suppliers in Bangladesh causing more than 1,000 deaths in 2013 (BBC 2013). The US regulators may exercise greater caution on Primark’s supplies to avoid a repeat. Consumer’s perceptions has a huge impact on sales, For example, if we take a look at the fur industry you will notice a decline in sales within the 1990’s, this was during a time when people became more concerned about the killing of animals in order to preserve fur. By volume Primark is now the second largest clothing retailer in the UK. Thus, in terms of size it is already a major player and its presence in a market like the USA will be noticeable. Primark’s move to the USA is a natural step in its internationalization process. Following a stepwise model, Primark first expanded out of Ireland in the UK, then across Europe and now in the USA. The USA is an economic superpower with plenty of wealth and high income per capita. Primark is in a position to leverage its well-heeled global supplier network to take advantage of the opportunities presented in the USA. There are a few hurdles nonetheless. For once, it may need to source more supplies from Latin America to save on transportation costs and take advantage of trade agreements. But I expect Primark to do well over there. (2068 words)

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