What Gives Marks and Spencer the Competitive Advantage in the Retail Industry, Analyzed with the Aid of Case Study Using Porter Five Forces?

Introduction:

In our current global economic environment, very few industries have had the capability and capacity of achieving high growth rates in the past ten year. Among these industries is the retail industry. Various companies from developed countries, related to the retail industry, have managed to achieve outstanding success all over the world. Amidst the giants of the retailing industry of Great Britain is Marks and Spence

r. Marks and Spencer was incorporated in 1884 as a grocery and general trade store (BBC, 2008). According to Data Monitor, Marks and Spencer is one of the leading retailers of clothing, foods and home ware in the UK. It operates in over 41 countries worldwide with UK as its primary market. (Data Monitor, 2011).

Marks and Spencer is one of the most well known brands in the retail industry from all over the world. M&S being a British firm made its reputation in the early 20th century through a policy that they will only be selling products that are made in Britain, eventually in 2002 this policy was discontinued as M&S was facing huge losses. Despite being the first British retail company to achieve profits over £1 billion, Marks and Spencer underwent instability, which held out for quite a number of years (BBC, 1998). In such a predicament the crucial question arose as to how Marks and Spencer would recover from this situation and henceforth gain superiority over its competitors. This report is intended to examine the past performance of Marks and Spencer and demonstrate how it managed to gain a higher return on its investments as compared to its competitors. Furthermore, it furnishes an examination of how outside forces affect the planning and selection of processes of M&S. The human resource management is the hardest thing to imitate of an organization compared to technology, manufacturing processes, strategy and products (Dr. Gill). Therefore, to gain a competitive advantage a firm must exercise its human resources effectively and efficiently. Lastly, understanding and analyzing the current position of M&S will accommodate an understanding of its future financial expectations in the retail industry. To do so Porters Five Forces model (HBR, 2008) will be applied to Marks and Spencer PLC (figure 1).

Figure 1: Fathoming Porters Five Forces Model (2005)

Literature Review:

The main purpose of this research paper is to understand how Marks and Spencer can gain competitive advantage through the use of Porters' five forces model. Therefore, a review of Porters' five forces must be done along with its history, functionalities, amendments and finally its drawbacks.

Porters' five forces is a model for strategic development and industrial analysis made by Micheal E Porter of Harvard Business School in 1979. (HBR 2008). According to the journal on competitive advantage by Micheal E Porter, The five forces model allows a firm to assess both the attractiveness of its industry and its competitive position within that industry through an evaluation of the strength of the threat of new entrants to the industry; the threat of substitute products; the power of buyers or customers; the power of suppliers (to firms in the industry); and the degree and nature of rivalry among businesses in the industry. (Porter, 1980). According to an article by (Nohea, 2011), the first three of the forces are external forces namely, competition, new entrants and buyers. While the last two are internal factors i.e. suppliers and substitutes. All of these factors can affect an organization.

G.D Karagiannopoulos who is a professor at TREK Consulting SA, Athens, published an article on Fathoming Porter's five forces Model in 2005. (Karagiannopoulos, 2005) he said that Porter's five forces framework had broadened the supply-demand analysis of individual markets in a lot of ways. Firstly, it diverted attention from what he calls a two-stage horizontal chain, consisting of the supplier and buyer, to a three-stage chain made up of suppliers, rivals and buyers. Secondly, on another spectrum it described the idea of potential entrants, substitutes as well as direct rivals. Despite the fact that the ''five forces'' framework focuses on business concerns rather than public policy, it also emphasizes extended competition for value rather than just competition among existing rivals, and the simpleness of its application inspired numerous companies as well as business schools to adopt its use (Wheelen and Hunger, 1998).

According to Pearce and Robinson, Porters' five forces model provides a very simple way of breaking down the industry sector. It helps in identifying the level of attraction of an industry and the roots of competition. The collective strength of the five forces determines the ultimate profit potential of an industry (Pearce and Robinson, 2002). Using this, an organization can gain a complete insight of the profitability of the industry and decide whether it wants to enter or not. Furthermore, not only can a company deduce the impact of competitive forces on itself, but also its competitors. However, competitors may have very different options to react to changes in competitive forces from their different resources and competence. (Pearce and Robinson, 2002). As per (Jhonson and Scholes 2003) Porter's forces model is a very good tool to develop strategic alternatives for organizations that require particular care in terms of strategy; thereby improving their comparative functionality and performance.

According to Porter, competitive advantage comes from the ability to gain profit through investment in an industry gaining higher than average return. (Porter, 1980). However according to Hunt, no company which can achieve the advantage over its competitors according to all commercial characteristic features of a product, as well as means of its promoting in a market. Every organization needs to choose its priorities and to elaborate the most suitable company's strategy (Hunt, 2007).

According to Porter, the potential for a firm to be profitable in an industry is negatively associated with increased competition, lower barriers to entry, a large number of substitutes, and increased bargaining power of customers and suppliers. On the basis of analysis of these forces, Porter argues that an organization can develop a generic competitive strategy of differentiation or cost leadership, capable of delivering superior performance through an appropriate configuration and coordination of its value chain activities (Porter, 1985a).

However, there are a few criticisms of Porter's model for five forces. According to Knights, who argues that if every company adopts differentiation and cost cutting

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