Target's Overseas Strategy: Direct Investment Approach?

Foreign direct investment (FDI) is a substantial, lasting investment made by a company or government in a foreign entity. FDI is a key element of international economic integration, creating stable and long-lasting links between economies. FDI can be made in several ways, including opening a subsidiary or associate company in a foreign country, acquiring a controlling interest in an existing foreign company, or merging with a foreign company.

Target Corporation, the American big-box retailer, has yet to establish a significant presence outside of the United States. However, it has considered international expansion to increase sales and supplement growth. In 2013, Target entered the Canadian market by acquiring lease interests in 220 stores from Zellers, but this venture failed due to rapid expansion. Target has also launched an international version of its website, accessible to shoppers in over 200 countries, although it seems this may no longer be operational. While Target does not currently have retail stores abroad, it does support global shipping and has a global capabilities center in Bengaluru, India, and over a dozen sourcing offices globally.

Target's expansion into Canada

There were several reasons for Target's unsuccessful expansion into Canada. Firstly, the company acquired more than 120 Zellers stores from the Canadian department store chain Hudson's Bay Co., and many of these stores were in less desirable locations. The stores were smaller than Target's typical US formats and required more money than expected to expand and convert to the signature red-and-white layout. This rapid expansion, with 124 stores opened in just 10 months, was criticised as overly ambitious.

Secondly, Canadian customers complained about higher prices compared to Target stores in the US, making cross-border shopping or online purchasing more attractive. Additionally, Target struggled with supply chain issues, resulting in disorganised and empty shelves in Canadian stores.

Thirdly, Target faced intense competition from Walmart, which had established its presence in Canada two decades earlier. Walmart's earlier entry and investment in pricing gave it a significant advantage over Target.

Furthermore, Target encountered software and training issues during its expansion. The company's existing software was not compatible with the Canadian market, requiring them to purchase a new system that typically took years to implement. This, coupled with inadequate training for new Canadian employees, led to inaccurate data entry, shipment delays, and other logistical problems.

Overall, Target's expansion into Canada faced challenges due to poor location choices, pricing discrepancies, supply chain issues, competitive pressures, and software and training shortcomings. These factors ultimately contributed to the company's decision to withdraw from the Canadian market.

Foreign direct investment (FDI)

FDI can be made in several ways, including:

• Greenfield investing: building the operation from scratch.
• Acquisition: purchasing an existing operation.
• Joint venture: partnering with another firm for mutual benefit.

FDI is a significant aspect of international economic integration, fostering stable and long-lasting links between economies. It also promotes the transfer of technology and expertise, enhances international trade, and supports economic development. FDI inflows and outflows are substantial, with approximately $1.28 trillion in foreign direct investments made globally in 2022. The United States, China, Brazil, Australia, and Canada were the top five destinations for FDI that year.

FDI can be categorised as horizontal, vertical, or conglomerate. Horizontal FDI occurs when a company duplicates its domestic business operation in a foreign country. Vertical FDI involves acquiring a complementary business in another country, such as a supplier or distributor. Conglomerate FDI is when a company invests in a foreign business unrelated to its core operations, often through a joint venture.

International marketing

Firstly, it is essential to understand the motivations behind Target's potential international expansion. The primary reason for any business to venture into international markets is to increase sales and grow the company. This is especially true for a company like Target, which, as the second-largest retailer in the United States, may have saturated its domestic market and is now seeking new opportunities for growth.

One of the critical decisions Target needs to make is choosing the appropriate mode of entry into the international market. Common modes include exporting, licensing, contract manufacturing, and foreign direct investment (FDI). FDI, which involves making direct investments in equipment, structures, and organisations in a foreign country to obtain significant management control, seems to be the preferred mode for Target, as evidenced by its previous attempt to enter the Canadian market in 2013.

FDI can be done through three main methods: Greenfield investing, acquisition, or joint venture. Greenfield investing refers to building the operation from scratch in the target country. Acquisition involves purchasing an existing operation, which gives immediate control over distribution and supply networks, technology, brand names, and labour. A joint venture is when two or more firms work together for mutual benefit. In the case of Target, the acquisition method was chosen for their Canadian expansion, as they acquired lease interests in 220 stores from the existing Canadian merchandiser, Zellers.

However, Target's rapid expansion into Canada was criticised, and the venture ultimately failed. This highlights the importance of a measured approach to international expansion. Instead of rushing to open multiple stores simultaneously, a more gradual expansion strategy may have been more successful. This could involve opening small retail outlets in select international locations, allowing Target to establish its brand and gain a better understanding of the local market dynamics before committing to a more significant presence.

Another critical aspect of international marketing is tailoring the company's website and e-commerce strategy to the needs of international consumers. Establishing distribution centres in key countries can help reduce shipping costs and import duties for international customers, making the shopping experience more affordable and convenient. Additionally, localising the website for each regional market and only displaying products available to those customers can enhance the user experience and ensure that online shelves are always stocked.

In conclusion, for Target to successfully expand its business internationally, it must learn from its past mistakes and take a cautious, well-planned approach. This includes choosing the right mode of entry, such as FDI, selecting the most suitable method of FDI, and ensuring that its website and distribution strategies are optimised for international markets. By doing so, Target can increase its chances of establishing a strong international presence and gaining a competitive edge in the global retail market.

Temporary physical locations

Target's plan for physical expansion involves working with department stores or pop-up stores in shopping centres. The key is not to open as many stores as possible, as quickly as possible, but to focus on maintaining the company's reputation and gaining brand recognition.

A small roving store in the UK, for example, could introduce Target and its brands to the population. People already familiar with Target would likely flock to the temporary store to buy what they could in person, while those new to the brand would have the opportunity to see the products and shop online.

By slowly providing good service and ensuring shelves are stocked, demand for Target products can increase. This increased popularity would be enough to have the retailer think about expanding further and opening permanent locations.

Online shopping

The launch of an international version of its website, accessible in over 200 countries, was a significant step towards targeting overseas markets. However, the website faced challenges, as international consumers expected more from a major US retailer. To truly succeed in the international market, Target needs to establish distribution centres in key countries to reduce shipping costs and times for overseas customers. This strategy, combined with tailored regional websites displaying only available products, could significantly enhance Target's online presence globally.

While Target's international website may no longer be operational, certain products on Target.com offer international shipping, although the selection is limited. This approach allows Target to dip its toes into the global market without fully committing to physical stores overseas.

Target's focus on online shopping and e-commerce is a strategic move to supplement its growth and gain a larger market share. By investing in its online presence, Target can increase its sales and brand recognition without the costly expansion of physical stores. This strategy allows Target to compete with other major retailers, such as Walmart and Amazon, by offering convenient and accessible shopping options to customers worldwide.

In conclusion, Target's approach to online shopping and direct investment demonstrates a cautious yet strategic expansion plan. By investing in its e-commerce platform and international shipping capabilities, Target is slowly building its global presence while learning from past mistakes, such as its rapid expansion into Canada. This measured approach allows Target to increase its sales and brand recognition while carefully navigating the challenges of international markets.

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