Market Penetration Strategy
Sephora is a multinational business entity that operates beauty and personal care shops in various regions across the world. The firm is based in Paris. Whereas the company has a presence in many countries, it is yet to penetrate into the United Kingdom market. Hence, the firm needs a suitable strategy to penetrate into the British market. The following paper will purport that the root of Greenfield Foreign Direct Investment (FDI) is the most suitable for Sephora to venture into the UK market as the firm has a solid capital base. The UK is a mature market that requires considerable investment to gain market share.
Analysis of FDI in the U.K
FDI can be described as a global investment by a company with the intention of securing its future through creating lasting relationships with consumer segments across diverse regions. In the present world, companies are adopting different investments techniques to increase their growth. The spread of multinational companies (MNCs) across the world and foreign direct investment (FDI) plays a crucial role in ensuring global economic growth (Fallon & Cook, 2014). The FDI is capable of realizing great development in different countries. Consequently, FDI has gained preference in various countries since, in most cases, investment decisions affect them financially. Greenfield FDI is the most suitable means to venture into the UK market as the country is seeking economic growth in its attempt to exit the European Union. A Greenfield FDI is whereby an organization develops its operations in a foreign country from scratch (Fallon & Cook, 2014). By making this type of investment, it means that Sephora will have to construct new facilities, offices, and distribution hubs in the U.K
The United Kingdom is one of the most financially developed countries in the world. Notably, the country’s major economic sectors are operating efficiently thus stimulating economic growth. Foreign Direct Investment has contributed to the country’s high GDP ratio, which economists applaud since the economic structure is working well (Fallon & Cook, 2014). Notably, the U.K remains the main recipient of FDI globally in the recent years. For example, FDI in the U.K has attracted 27% of the value-added production, 4.1% of the revenue from national tax, and foreign investment 58% (Dhingra et al., 2018). As noted by U. K’s foreign investment office, more than 190 countries have invested in the country, and consequently, the U.K domestic market is well-served.
According to Dhingra et al. (2016), the benefits of Greenfield FDI in England include immense growth of England’s economy whereby the companies have become market-oriented following the establishment of business ventures so that the local market is well-served. Therefore, the goal is to serve the unexploited market. England, therefore, is a country with great opportunity for growth. Secondly, resource availability as well as low cost of labour amount to direct gains by the investors. Third, massive foreign direct investment in the country provides more employment opportunities for the local citizens thus reducing the U. K’s rate of unemployment caused by a high population growth (Dhingra et al., 2016). Further, Greenfield FDI stimulates the country’s infrastructural development. Besides, more foreign investors have been attracted to the U.K. Finally, Greenfield FDI has enabled the country to remain open for international trade thus creating access to international markets.
Besides the country’s vast natural resources, the U.K also records a high number of well-educated and proficient professionals. To steer economic growth, the U.K government welcomes foreign investment. Notably, the country’s growth prospects are realizable. To achieve such opportunities, the government should make it possible for the investors to access the diverse sectors of its economy. The U. K’s strong domestic manufacturing base and significant energy reserves boost the country’s economic performance (Dhingra et al., 2018). Various sectors of the country’s industries present growth opportunities for the foreign direct investors (Dhingra et al., 2018). Greenfield FDI, therefore, outlines that the businesspersons invest their income in a given country, thereby stimulating the growth and development of recipient countries, thereby increasing economic growth.
Since the emerging market economies have the potential to change the balance of global and economic systems, developed economies such as the U. K are aggressively seeking Greenfield FDI to steer economic growth. The growth of these economies is determined by various factors such as financial development and productivity output. Financial development is further determined by the level of efficiency in the market, as well as strict standards in securities’ regulation and accounting whereas the total productivity output is illustrated by the real GDP of a nation (Dhingra et al., 2018). Greenfield FDI plays a crucial role to the increase of total productivity output in emerging economies. Based on this analysis, it is evident that Sephora should use Greenfield FDI to penetrate the U.K market. The investment channel will enable the company to take part in U. K’s economic growth thus making its presence in the country sustainable.
The root of Greenfield Foreign Direct Investment (FDI) is the most suitable for Sephora to venture into the U.K market as the firm has a solid capital base. Also, the UK is a mature market that requires considerable investment to gain market share. Besides the investment channel enabling the country to be considered favorably by the government, the firm will be able to take part in U. K’s economic growth thus making its presence in the country sustainable.
Dhingra, S., Ottaviano, G., Rappoport, V., Sampson, T., & Thomas, C. (2018). UK trade and FDI: A post‐Brexit perspective. Papers in Regional Science, 97(1), 9-24.
Dhingra, S., Ottaviano, G., Sampson, T., & Van Reenen, J. (2016). The impact of Brexit on foreign investment in the UK. BREXIT 2016, 24.
Fallon, G., & Cook, M. (2014). Explaining Manufacturing and Non‐Manufacturing Inbound FDI Location in Five UK Regions. Tijdschriftvooreconomischeensocialegeografie, 105(3), 331-348.