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Porters National Competitive Advantage

Paper Type: Free Essay Subject: Marketing
Wordcount: 5454 words Published: 27th Apr 2017

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A model of an organisation in its environment, PEST analysis is used to analyse how the broad environment forces have or will have an effect upon the achievement of AEON’s objectives and missions which operate in Malaysia.

The competitive strategy of Porter’s Five Forces that relate the company to its environment is used to identify the key structural of AEON that determine the strength of the competitive forces and hence industry operations, profitability and cash flow.

Michael Porter’s Demand theory for the competitive advantage of nations is helped in understanding the comparative position of where AEON operates in with its global competition.

In order to establish its condition prior to the preparation of long term plan, a critical assessment of corporate appraisal, SWOT is used to assess the strengths, weaknesses, opportunities and threats in relation to the internal and external factors affecting AEON.

A portfolio matrix, BCG matrix (Growth-Share Matrix) is use to evaluate the attractiveness of AEON’s different business portfolios. An analysis into balanced scorecard is done to evaluate the efficiency and effectiveness in the utilization of the liabilities in funding the related assets of AEON’s business portfolio. Both financial and non-financial performance indicators are taking into consideration for control purpose.

Recommendations is given in this report to enhance portfolio performance and hence the profitability of AEON CO. to enhance shareholder value maximization, both in terms of capital appreciation and dividend flow.

AEON CO. (M) BHD. is a leading retailer in Malaysia which was incorporated on 15 September 1984. AEON CO. (M) BHD. was set up in response to the Malaysian Government’s invitation to AEON Japan to help modernise the retailing industries in Malaysia. The AEON group of companies is an integrated Japanese retailer and is active not only in Japan but also throughout Southeast Asia and China. (AEON’s annual report, pg 16)

AEON’s stores are catering to Malaysia’s vast middle income group and are mostly situated in suburban residential areas. Its economic entity has two main reportable segments namely retailing and property management services.

AEON’s fundamental principle is its ‘Customer Centered Approach’. AEON’s mission is and always will be to contribute to the customers. (Appendix)

AEON follows two strategies for continuous growth that are Organic Growth and Company Tie-ups.

AEON’s goal is to operate as an “international-scale retailing group and are dedicated to the idea of “quality management” to further enhance their capabilities.

Malaysia has seen tremendous growth in the retail industry since 1980s. There are around 400 retail outlets has been established. Retail is the sale of goods and services from manufacturers directly or through a wholesaler, and then sells smaller quantities to the consumer for a profit.

In recent decades, Malaysia retailing industry has attracted foreign retailers to come in and share the profit pie. The foreign-owned hypermarkets are fast gaining popularity in local and have been expanding rapidly. Their one-stop and all-under-one roof concepts are successfully to expand their market share.

As reported by Malaysia Retailers Association, retail sales growth rate for the year 2011 is projected to grow by 8.1 per cent.

The industry faces stiff competition between hypermarkets. Giant, Carrefour (lately have been taken over by AEON) and Aeon are the biggest parties to compete in the industry. This report will explore further regarding the AEON groups.

Giant Hypermarket

Giant have been familiar with everyday low prices, big variety and great value. This showed that Giant was perceived by the consumers as the cheapest, in local, for everyday groceries. Giant holds second biggest share market in retail industry in Malaysia for the year of 2010.


Aeon has operated its own shopping mall to have variety tenant mix. Consumers will be willing to spend endless hours to shop not just that, they also spend time with their family to dine in the restaurant. Aeon holds 29% of market shares after Tesco.


Carrefour has been acquired by the AEON but it still remains its significant of market share in retail industry for the year of 2011.


Tesco has two types of retail stores which are Tesco hypermarket and Tesco extra hypermarket. Tesco holds the biggest market share 34 per cent in the industry.

Retail space increased continuously during the year under review with more new shopping centers emerged in the market striving to promote their differentiation and targeting different customer segments with their attractions, creating more choices and convenience for the consumers. At the same time, tenant retailers also have more choices to select for their outlet’s investment.

Today, business operates in a more dynamic environment as compared to past due to various factors such as technology advancement, competition, globalization trend. Hence the future remains uncertain to a larger extent due to the complexity and dynamism in the environment. Critical to success is making value by highlight alert to the change in environment.

Environmental scanning is the collection and evaluation of internal and external data to serve as a basis in assessing current company performance and to forecast future performance. It is then used as an early warning system for the entity in developing and implementing its business strategies based on the findings of the scans.

There will be many factors in the macro-environment that could affect the decisions of the strategic management. Thus, the PEST analysis was conducted on the ground of those factors.

Government plays an important role which could affect the growth of the entities within the industry. The emergence of AEON in Malaysia was initially due to the invitation by Malaysia’s government for the purpose of modernizing the retailing industry in Malaysia.

In year 2011, in line with the 1Malaysia concept, the Prime Minister YAB Dato’ Sri Najib Tun Razak has initiated Kedai Rakyat 1 Malaysia (KR1M) throughout the country whose aim is to provide necessities at a low price in urban locations to the low income citizen living in urban areas. (1)

It was announced in the Budget 2012 that the employers’ statutory contribution to Employees Provident Fund (EPF) for workers with salary less than RM5,000 per month will be revised to 13% from 12% with effective from January 2012. This will benefit 5.3 million working Malaysians which constitute of 92% of the EPF’s active members. (2)

On 30th April 2012, the Prime Minister announced the national minimum wage rate as RM900 for workers in Peninsular Malaysia. (3) It might raise the cost of salary for the business but undeniable that it will also boost the household income and thus increase the spending power of the low income group.

The Senkaku / Diaoyu Island dispute between Japan and China has resulted in the loss of major Japanese Company which includes AEON. (4)

The effects on the achievement of the company’s missions and objectives:

The government program may affect the retail industry in the market. The emergence of Kedai Rakyat 1Malaysia which offer a much lower price than market would intensify the competition among the retail industry. The increase in EPF contribution will increase the burden of the employer especially in this labor-intensive retail industry. Both the increase in EPF contribution and minimum wage rate proposal might lead to higher cost of business. AEON must take proper measures to monitor the cost of business to minimize the impact on the price of goods and services.

However, the transfer of burden to consumers might lead to customer’s dissatisfaction which is in conflict with the company goal to be a customer-centric organization.

The island dispute incident which is uncontrollable by the business entities will result in the conflict with the AEON’s goal to operate as an “international-scale retailing group” as the China’s consumer might boycott AEON’s products for a significant period if this issue remains unsolved.

The financial condition within which AEON operates could impact on how the business operate and make decision. Some of the economic factors are the unemployment rate, inflation rate and interest rate.

The unemployment rate (5) in Malaysia has dropped from 3.5 in year 2010 to 3.1 in year 2011. Furthermore, the Deputy Finance Minister Datuk Donald Lim Siang Chai said that the unemployment rate for the first five months in year 2012 has improved to 2.9. (6) Our country’s employment rate has outperformed other countries such as United States and Europe which have a high unemployment rate of 9% and 11% respectively. This could be explained by the foreign investors have relatively high confidence with Malaysia’s business climate.

The inflation rate in Malaysia in the month of September 2012 was 1.30% in accordance to the statistic performed by the Department of Statistics Malaysia.(7) It has dropped gradually as compared to January 2012 which is 3.00%.

Negara Malaysia (BNM) has kept the benchmark interest rate unchanged at 3% since May 2011. (8) FMT News published that the BNM governor, Zeti Akhtar Aziz has mentioned the interest rate will not be cut unless the export rate declines significantly. In the European countries, most of them cut back on the interest rate in order to boost the country economy due to the global financial crisis.

The effects on the achievement of the company’s missions and objectives:

AEON needs to understand the economic environment and analyse the impact on its performance so that it will be able to continue with its strategies to continuously grow its business.

As unemployment rate decrease, customers will be willing to spend more, the disposable income of customers increase and hence will indirectly affect company’s revenue and could help in achieve its financial objective.

The current financial crisis affects almost every company’s revenue. The business cycles are a norm and something that each company will have to go through. By understanding the business cycles, the company can cushion the impacts before it reaches the recession stage so that it will be able to recover from the crisis and thus the company can still its operations and continue its mission to expand its company. However, due to the Global Financial Crisis, many countries cut back on the interest rate in order to promote consumption to increase the GDP. This would help in achieve company’s financial objectives.

The inflation rate could demonstrate the purchasing power of the citizen. From it, AEON could adjust its pricing strategy to best meet the customer’s requirements and their purchasing power.

The stability of interest rate would enhance the company’s cash flow prediction. The lower of interest rate, more people are willing to take borrowing and do business, will lead to the enhancement of the property management service occupancy rates. However, a fluctuating or increasing interest rate will raise the company’s cost of debt and discourage the company for debt finance. Inadequate finance will deter the expansion of entity however the lower of interest rate will reduce gearing. This will have impact on company’s financial goal.

The trends in social influence will affect the demand for the company’s products. Thus, the company needs to alter its management strategy to cope with the social trends.

According to the World Bank report, the Malaysia population has increased from 28.50 million in December 2010 to 28.86 million in December 2011. (9)

According to Retail Group Malaysia (RGM)’s managing director, Tan Hai Hsin said that the consumers had switched to cheaper grocery shopping due to the weaken economy, job uncertainty and rising food prices. (10) They are demanding products and services with good quality at low price. The price they paid for the products must be value for money.

The effects on the achievement of the company’s missions and objectives:

The increase in Malaysia population would probably mean that the target customers for retailing industry have grown. The market segment involves a wide range of customers as their products are mostly household products which suits for both children and adult. There is an opportunity for growth, for AEON to expand its business. This will help in achieve company’s mission, open opportunity for AEON to contribute to customers.

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With customers’ lifestyle changes could means the trends would have also changed. This would require the company to carry out research on customers’ preferences to meet customers’ demand and needs. AEON will have to come up with higher quality products so that consumers aware that the company’s goal of quality management is aligned with their demand, that is to have quality products. In addition, this would also have impact on company’s goal on achieving customer satisfaction. On the other hand, AEON’s tenant retailers would also have more choice and of higher quality to select for their new investment of outlets.

The technological environment consists of change and developments in science and technology which could affects company’s cost, product’s quality and could lead to innovation.

The use of EDI in supply chain of retailing industry has becomes an essential tool to ease the transmission of data between organizations without human intervention. It is the transfer of documents between computer systems of company with trading partners.

This system will ensure proper replenishment of goods and reduce possibility of goods shortage or over-stocking. Thus, the retailer could avoid the loss of revenue due to goods shortage and minimize the warehouse cost that is used to store unnecessary over-stocking. Sufficient inventory level will provide a ‘quick response’ to meet the customers’ demand.

The emergence of e-commerce has open opportunities for online shopping which could be another distribution channel that would cause threat to the physical retail stores. E-commerce is more convenient and the cost of operating an online website is much lower to run a shopping center. (11) By reference to the statistics done by IDC Malaysia, it shows that number of internet buyers and internet users has increased steadily from year 2008 to year 2012. (12) It is an upward trend which indicates the potential of online business.

The effects on the achievement of the company’s missions and objectives:

AEON which practicing EDI in its supply chain management will gain competitive advantage over its competitors who did not apply this technology. By offering EDI, AEON could serve its customers better and gain the customers loyalty. This is in line with the company’s principle that is to be a customer-centered organization.

It also provide cost competitiveness and speedy response and to enhance the customer service. It also reduces the use of paper which results in green ecology (13) and this is in line with AEON’s practice of good corporate social responsibility- Go Green.

AEON need to adapt with the fast changing environment by upgrading themselves to exploit the opportunities to expand their sales through online trading but not only through direct trading. AEON will need to upgrade themselves as to achieve their goal of operate as an “international-scale retailing group”. However, the performance of property management service would be affected due to the trend of online trading and worsened the tenant mix. This would affect AEON’s goal where customers’ satisfaction level would decrease and hence lead to less competitive in global level.

This model is used to identify the strengths and weaknesses of the business which are considered as internal factors that retailer can control over; and also external factors of opportunities and threats, which are positive and negative situations that retailers continuously face.

Aeon has been in Malaysia for 28 years and successfully established a strong trusted brand. Aeon has positioned itself as a benchmark in excellent customer service such as high worker’s discipline and maintain a high standard level of hygiene in their food as well environment.

Besides, the Member card system that Aeon implemented has become strength over its competitors. These discount cards are a source of customer profile and a useful database to track its customer spending behavior. It also provides a way for businesses to build customer loyalty and promoting their organization. The loyalty card could also help to attract the shoppers and enhanced tenants businesses.

Aeon has provided a wide range and variety of products from food to clothing to furniture and etc. Their all-under-one roof concepts allow their customers to spend more hours to shop in the mall and hence boost up theirs sales by encouraging more customer spending. Also, Aeon able to offers a wide range of Japanese style goods on its products shelf at a competitive price as compared to others small Japanese goods retailer shop. This could satisfy shoppers various preference and keep the shopping centre up to trend.

Apart from its retailing business, Aeon also diversifies into property management of shopping center that is consistently profitable. This could further improve its financial performance that is favorable to shareholder wealth maximization.

(!)Recently news also reported that Aeon has successfully acquired Carrefour as part of their operation. By doing so, Aeon could expand its market share as well as catching Carrefour current customers.

Aeon has lost its location strategic to its main competitors such as Tesco which have wider geographic coverage than Aeon. By the year 2011, Tesco has a total of 38 outlets store in Peninsular Malaysia while Aeon has only 29 outlets store. Meanwhile, Aeon has no proliferation of its retails store in East Malaysia but its competitor, Giants do expands into these states.

Aeon has always set it average sales price premium than other competitors such as Giant which is become synonymous with everyday low prices. Consumers are more prices sensitive in retail industry because they have wide range of substitute products. Thus, it becomes a weakness that Aeon unable to offer its products at cheaper price.

Exploiting and implementation of the new technologies in the supply chain has increase efficiency in stock management as well enhanced the relationship with the supplier. The establishing of communication network with supplier such as EDI indirectly has reduced the operating cost so to be performed better than the competitors if the competitors do not implemented the information system.

The growing internet shopping trends could become an opportunities for Aeon if the management has realize the important movement of the trends and hence expanding its distribution channel via the e-commerce. However, this opportunity could be turn into threat if the management has no response to this trend because online market could be the substitute of physical retail stores and the property service business will be affected too.

There are several major supermarket chains, such as Tesco, The Store and Giant competing alongside with Aeon. This would intensify the competition within the industry. It could be challenging for Aeon in order to ensure its sustainability in the market as well outperform than its competitors.

The rapid changing in customers’ tastes and preferences could significantly affect the revenue. Nowadays customer has more requirements on the products they purchased. Understanding of customer’s preferences before they buy becomes more challenging but it allows Aeon to create an added value to its product.

In summary, Aeon will have to match its strengths to overcome its weaknesses. Also, the threat factors would require further attention as the problems may hinder Aeon from its sustainability issue. The opportunities must be explore to move the company into better performance.

From the analysis of macro-environment and industry level as well as national, we have well understanding on AEON strengths, weakness, opportunities and threats. As identified earlier, the majors’ drivers of competitive success in Aeon are branding and reputation, customer loyalty, differentiation in wide product range and diversification.

Porter’s National Competitive Advantage (Diamond)

Following the global financial crisis, the global economic outlook has become signi¬cantly more subdued since the second half of 2011 and the global consumer spending remained prudent. However, the outlook on the Malaysian economy in 2012 with the government’s various economic transformation initiatives is expected to remain stable even though there are lingering concerns over the Europe sovereign debt crisis and ¬scal sustainability in the US. With quite a number of both international and domestic players expanding their operations, a strong local performance has encouraged steady growth in Malaysian retail. In addition, Malaysia has a 6% real GDP growth for the year, in spite of economic fluctuation. The increased urbanisation resulted in strong domestic demand as more locals are enjoying higher purchasing power. The experience AEON gets from supplying domestics consumers will give it an information advantage in global markets. (

Consumer critical demand in terms of taste and preferences in the products and services continued to rise in 2011. The trend of locals adopting urban lifestyles has exposed more rural consumers to current retail fashion and marketing campaigns, thus, affecting their purchasing behaviour. This was proved in the retail landscape, with companies introducing abundant new advertising campaigns, products and services to better cater for their increasingly sophisticated consumers while managing their business at world-class level of standard.

From the forecast period, the consumer sector will bene¬t from the various government measures to boost disposable incomes and this in turn will help to support demand for consumer products in the event the external economic conditions deteriorates. Growth prospects in retailing are expected to be caused by the increase in consumers’ purchasing power which improves their ability trading up to more expensive products. Hence, AEON will be exploring ways to persuade consumers to trade up. In addition, AEON will also be investing on creative advertising campaigns in order to raise their brand awareness with more retail companies are emerging. This enables AEON to capture market shares so as to obtain the economies of scale.

In line with AEON Group of Japan’s global identity and to further establish a clear brand identity in Malaysia, on 8 March 2012, the company launched a branding exercise to adopt the global brand name AEON to replace the current brand name JUSCO at all its stores and shopping centres. With the new brand name for its stores and shopping centres, AEON practice its new tagline “AEON Enriching Your Lifestyle” in line with its philosophy of Customer First. The company believes that its position as well as performance will be improved with the new brand name and tagline. The company is utilizing this opportunity by enhancing its customer service in order to provide great shopping moment to its customers.

Grocery retailers take opportunity of value growth rates of more than twice that of non-grocery retailers. This was largely driven by the strong performance of hypermarkets such as Giant and Tesco have been expanding their network of outlets progressively. Furthermore, they also started to offer more non-grocery products. This has greatly enhanced their brand name as a one-stop shop. AEON remains positive on its prospects and believes that consumer sentiments will also remain favourable and resilient on the back of the government’s efforts to manage the economy in the face of the external challenges.

Many domestic players are facing increasing pressure as foreign companies are entering the Malaysian retail landscape. Traditional grocery retailers and stationers are decreasing in sales as consumers preferred foreign rivals encouraging a more modern environment or even the internet. Even traditional local powerhouses such as The Store Corp Bhd experienced steadily decrease in sales over the review period, facing the strong competition from foreign counterparts. The intense competition forces AEON Co. (M) Bhd to stress on innovation and the subsequent upgrade of competitive advantage. The company will actively seeking for ways to add values to its business and customer. The company believes that it will be able to leverage on its recently launched branding exercise to grow its business together with its competitive strengths. Growth would come organically and through new store expansions.

On 29 March 2012, the company further bring new level of shopping experience to Ipoh with the opening of its three-level regional shopping centre called AEON Ipoh Station 18 Shopping Centre which is its 25th store and also 20th shopping centre in Malaysia. The company is also targeted to open a two-level community shopping centre in Sri Manjung, Perak by end of 2012. AEON remains committed to its mid-term strategy plan to open new stores in strategic locations and make AEON accessible to more Malaysians. As part of its long-term growth planning, the company had recently made announcements to further open new shopping centres in the main growth corridors of Sungai Petani, Bukit Mertajam and Kulai in due course. (AEON annual report 2011 pg27)

Retail industry remains very competitive and AEON’s expansion strategy aimed to captured market share to increase customer base while outstand itself in order to be leader in the retail industry.

AEON Co. (M) Bhd adopts the world’s most advanced management expertise, which is originated by JUSCO Co. Ltd, Japan, in managing their business.Through AEON’s general merchandise stores (GMS), the company gains competitive advantages by creating conducive shopping environment in the shopping centres through excellent tenant mix, good promotion events and well maintained malls. AEON achieves favourable results in both its core businesses of retailing and property management services. The company achieved total revenue of RM2.985 billion for the year under review which represented a growth of 3.1% over its previous year’s performance. Retailing business contributed RM2.609 billion and property management services contributed RM375.5 million.

The demand for halal foods by Malaysian consumers has increased over the years with a Muslim population of 60%. The expectation of halal standard in food products have extended from meat and meat products to non meat-based products such as snacks, confectionery, dairy, bakery, etc. Halal, therefore, has been recognized as a new benchmark for quality, hygiene and safety. The presence of halal certificates for food products and ingredients has become relatively important as it provides additional marketing value in Malaysia. Hence, most retailers are inclined to obtain halal certificates for non-meat based food products and ingredients. Since the Malaysia Government has given emphasis to promote Malaysia as an international halal hub, the halal food industry has good promising prospects. The close relationship between Malaysia and the Organization of Islamic Conference (OIC) countries also enhance the Malaysian Halal Standard as the benchmark for international standard for halal products. This results in further improvement to the acceptance of Malaysia’s halal food products globally and the likelihood to successfully acquire the halal certificates will be increased.

Malaysia’s food industry is rich in terms of tropical and agricultural resources as a result of the diverse cultures in Malaysian society. Malaysia is the third largest producer of poultry meat in the Asia Pacific region is self-sufficient in poultry, pork and eggs. Besides, Malaysia is also the world’s fifth largest cocoa producer and is currently the largest cocoa processor in Asia. As for spice, Malaysia is the world’s sixth largest exporter of pepper and pepper-related products.

The competition among large retailers has become increasingly intensive with large international retailers like Tesco and Giant frequently engaging in price wars to establish their existence as major players in the market. With ample tropical and agricultural resources in the food industry, retailers need not to import those related goods. Hence, this gives an incentive for retailers to cut down prices of those goods as their costs are relatively low. AEON has successfully launched the price cuts strategy for about 1,200 products in their stores. Meanwhile, Giant is reported to reduce profits in order to maintain the low-price leader status. Local retailers such as The Store is having pressure to maintain competitive prices and provide wide range of products in order to sustain its business with the international players.

In 1984, the then Prime Minister Tun Dr Mahathir Mohammad sought to modernise the retail industry in Malaysia as modernisation of the retail industry was significant for the country’s economic growth. Since then, the government has been putting in efforts in modernising and upgrading the retail outlets to encourage their companies to raise their aspirations and enhance competitive performance. Retailers that fail to modernise quickly may find themselves being eliminated out of the market. Regarding to this urge, AEON aggressively expand into suburban and rural areas in order to increase market share as well as to provide shopping convenience to people in these areas.

Boston Consulting Group (BCG) is an approach based on the approach that used in financial strategy and its intended to provide guidance to the organization on where to invest extra funds. (CIMA’s official learning system, Management Accounting- Business Strategy by Neil Botton, published by Elsevier). It is a comparative portfolio analytical tool which assists the organization in evaluating or analyzing their business or product portfolio regarded to its relative market share and industry growth rates. Hence, it improved the company’s resources allocation decision. BCG is a four quadrants matrix which includes Stars, Question Marks, Cash Cows and Dogs. Each strategic business units (SBU) will be placed at different quadrant to represent it high or low market share and industry growth rate. BCG matrix provides a framework for AEON to determine the position of their diversified business within the market and assisted in the company’s portfolio management.

Continuing growth would enhance the attractiveness of the market. Besides, the annual market growth rate occasionally used to determine the profitability of the industry and enable the organization to make decision regarding to entry or exit the industry. Malaysia Retailers Association reported that the retail sales growth was 8.1% in the year 2011 which is higher than the forecast 6.1%. Since AEON CO, (M) bhd was operated retail business, thus the annual market growth for their retailing business is 8.1%.

The calculation at the appendix show that the industry of property investment was grown at 5.6% annually. The 5.6% was calculated by adding up the different of year 2011 and year 2010 revenue of AEON and its larger competitor (IGB Corporation Bhd) and divided by the sum of year 2010 revenue of both company.

Relative market share was indicate a percentage of market that accounted for by the com


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