Costco is Seeking to Expand its Operations Internationally

Costco is Seeking to Expand its Operations Internationally
Executive Summary
Costco is seeking to expand its operations internationally, with potential destinations being Ireland, France, India, and China. The company's international expansion history has shown mixed outcomes, success in countries in the Western Sphere and paltry success or total failure in the Eastern sphere. At the same time, there is a need to increase revenues from international sales. Thus, the primary problem in the current study is the need to choose an ideal market and a mode of entry that promises positive business outcomes. Solving this problem should also address the primary issues of under-reliance on digital media and multi-channel retailing in increasingly tech-savvy consumer bases, paltry revenue from international operations, and overreliance on the North American market.
Solutions to the current primary and secondary problems depend on the expansion destination alternatives based on the report on countries with growing retail sectors. These alternatives include:
* Entry into Ireland through wholly owning a subsidiary,
* Entry into France through licensing, and
* Entry into India through a joint venture
Alternative promises to be the most ideal of the three proposals. This is because India's large population promises to significantly impact Costco's international revenue, which is currently worrying. The Indian culture involves large households, which favor the organization's models of low prices & high-quality products, localization, no-hustle return, and club membership. Here, with its impressive schemes for employees and a keen eye on the carbon footprint through media campaigns and community participation, Costco can compete against other competitors. The major challenge in this market was the potential regulatory frameworks that could work against Costco's prospects. A joint venture solves this problem, especially if an established and experienced local partner can be identified.
Introduction
According to Park et al. (2019, p. 1), as of 2013, "Costco became the world's second-largest global retailer." By 2016, it had expanded into eight different countries across the world. The critical challenge of this expansion was selecting an appropriate entry mode that would see the company become successful in new markets. The company managed to grow and expand despite the turbulent economic conditions and managed to position itself as a market leader by breaking stereotypes and applying unconventional business strategies. With the intensification of competition in the retail industry amidst changing economic conditions in international markets, global retailers face increased challenges in operating and expanding. Despite this observation, Costco, in 2017, earmarked France, Iceland, China, and India as future countries of interest-based market reports that these were among the countries with the growing retail markets (Coppola, 2022). However, based on the selection of these countries, the differences in cultures compared to the United States (parent country for Costco), and unique operational constraints, Costco is facing both primary and secondary problems. Therefore, the purpose of the current paper is to rely on the information from the case study to establish the best solution for Costco's current expansion challenges.
Primary Problem
While expanding internationally is the main alternative for the company to compete with other players like Carrefour and re-establish its international presence, the modes of entry and global business strategies are not necessarily the same for each country that Costco intends to invest in. A method of access is a structured agreement that allows a firm to operate in an international market. According to Holtgrave and Onay (2017), a method of access can determine an organization's success or failure in a new market because. Today, traditional methods of access include importing, exporting, licensing arrangements, partnerships (strategic alliances), the establishment of new, wholly-owned subsidiaries (greenfield ventures), and acquisitions. Costco utilized some of these entry modes in its expansion into the eight countries and sometimes utilized a dual approach using two of the methods simultaneously. Thus, the current primary problem for Costco is the determination of the ideal entry modes into Ireland, France, India, and China because of the existing cultural barriers and operational constraints.
Secondary Problem(s)
However, as the case shows, this is not Costco's only problem. In other words, the company has other (secondary) problems that, if not addressed, will impede its successful expansions into the mentioned countries.
* Despite the company's international success, sales from international markets remain insignificant. In 2014, for instance, only 29% of its revenue came from its international operations. In contrast, competitors like Carrefour had most of their sales on the international market, where up to 65% of revenue came. Thus, the first secondary problem is the need to increase sales on the international market and reduce reliance on the North American market.
* The company's failure in China due to stiff competition is an indication that international expansion is not a guarantee of success. Thus, the second secondary problem the company is facing is finding, entering, and expanding into markets with the aim of diversifying risk.
* The third secondary problem is that Costco has traditionally not relied on intense advertising and promotional activities. However, in the era of the internet, smartphone penetration, e-commerce, and tech-savvy and convenience-inclined consumers, the company is facing the problem of not having an established omnichannel or multi-channel retailing compared to its competitors like Walmart. According to Verhoef (2021), this form of retailing allows customers the convenience of shopping via a variety of channels.
Implications of Problems
These primary or secondary problems have considerable implications for different dimensions of the organization: the organization itself, the personnel, and the environment in which the organization is operating.
On the Organization
The key implication of not having determined the appropriate entry modes into the new mentioned markets is that the organization is increasingly losing out to its competitors. The company currently relies solely on the North American region for a greater share of its revenues. In 2014, for instance, Park et al. (2019) showed that while its international operations resulted in a paltry 29% of revenue, a majority of it (16%) came from Canada. This means that the company does not realize significant revenue in other jurisdictions like Mexico and Britain. Even within the North American region, competition from other players like Walmart is a threat to the 16% revenue of 2014. Thus, the key implication is that Costco will lose its status as a global leader without expansion while competitors like Carrefour and Walmart surge ahead. Consumers are more likely to find alternative shopping experiences consistent with modern trends that Costco may not feature when this happens. Thus, without international expansion, the organization has little growth prospects given the increasing competition from the retail sector with the influence of technological solutions like e-retailing.
On Personnel
One key area in which Costco was successful compared to competitors is its retention of employees. The company's leadership did this by offering a minimum wage that was 72% above that of competitors, covering up to 82% of employees with health insurance and ensuring up to 91% of employees had retirement plans. According to Park et al. (2019), "the company's contributions to these benefits were typically higher than rivals." As a result, the employees were more engaged in work which explains the low turnover rates compared to the overall figure in the sector. However, since the company seems to be stuck on its expansion plans amidst rising costs of living, new technologies development, a need for new employees, and increasing competition, the company might be forced to review these benefits and salaries to remain competitive revenue-wise. Thus, on the part of personnel, the key implication is that the organization might not be able to meet the current overheads if expansion is not realized. This is because expansion is supposed to increase revenue to sustain the current attractive human resource strategies through economies of scale.
On the Environment
Today, environmental sustainability is among the most significant barriers faced by international expansion of business efforts. Governments are increasingly tightening regulations on business operations to curb world environmental crises of climate change and global warming. The retail sector is a significant contributor to environmental deterioration. In Canada, for instance, the sector is responsible for an estimated 10.5% of greenhouse gases emitted into the atmosphere (Sarra, 2022). Research indicates that the retail sector affects the environment in five key ways (Ruiz-Real et al., 2018). These include natural resources in the supply chain, the environmental impact of products (and subsequent packaging), energy consumption, chemical and toxins, and waste handling. These are the critical environmental problems that the company is bound to face when attempting to solve the primary problem of entry modes. More importantly, the current expansion and status of the organization, especially in Canada, means that the organization makes up a significant share of 10.5% of emissions coming from the retail sector because of its operations in the country.
Alternative Solutions
Based on the established problems of the company, there are several approaches borrowed from the company's history of expansion that the company should consider. In this view, the alternatives consist of four different countries in which the organization's leadership seeks to establish the company's operations: Ireland, France, India, and China.
Alternative 1: French & Irish Markets
As already mentioned, by 2016, Costco had expanded its operations in eight different countries. Among them, two were European countries: the United Kingdom and Spain. The company operates in four jurisdictions within the Western hemisphere, which is primarily described as a region with Western Culture. France and Ireland's markets fall within this culture which partially makes it an ideal destination for Costco, as demonstrated by its global strategy and entry modes into Canada and the two European countries.
In Canada, Costco's mode of entry was through a greenfield venture. The organization established a wholly...