Managing Relationships and Networks.

Afonso,
1 A.

Introduction

The following essay aims to analyse and evaluate the British retailer
Marks & Spencer (M&S) regarding to the resource-based view focusing in its
tangible and intangible resources as well as organizational capabilities to get
competitive advantage. The essay will also analyse the M&S overall business
network, including the relationships and collaboration in both supply-side and
demand-side.

In addition, the essay will explore the Brazilian apparel industry sector,
considering the Brazilian position in Latin America (LA), analysing Brazilian
supply and distribution networks as well as identifying the Brazilian consumer
behaviour and attitudes towards the apparel market, and, finally, analysing the
cultural issues that might affect B2B negotiations in Brazil.
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I.1. The central topic of the resource-based view of the firm is that the bundling
of tangible and intangible resources in unique combinations creates and sustains
competitive advantages (Dess et al 2004).

The following table describes the M&S’ resources and their evaluation
using the four criteria for assessing sustainability of resources and capabilities
(see Appendix 1):

Tangible Resources Evaluation

Financial  Total Revenue (2010) £9,536.6M Difficult to
(+3.2%) imitate
o UK £8,567.9M (+2.9%)
o International £968.7M
(+2.7%)
 Market Share (UK) 11.2% in general
merchandise
Physical  Number of stores Rare
o 690 in UK
o 320 international
 4 International Hubs in Sri Lanka,
Singapore, Hong Kong and Istanbul
 Warehouses across UK
 Neat and good looking stores
Technological  Point of Sale System Valuable
 SAP Retail
Organizational  Customer service in store is Valuable
continually measured
 International delivery up to 80
countries

Intangible Resources
Human  Acknowledgeable top management Difficult to
team due to previous experiences imitate
when M&S has failed (Mellahi et al
2002)
Innovation and  New clothing design processes Valuable
creativity
Reputation  High quality reputation strongly Difficult to
embedded in British society imitate

Organizational Capabilities
Outstanding  M&S is aware of the impact of Rare
customer service customer service, therefore it is
continuously measured and
monitored
Innovativeness of  “Shop your way” Rare
products and
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services
Ability to hire,  Low turnover rate compared to the Rare
motivate, and retain industry average
human capital
Flexibility in the • Having a wide range of suppliers and Difficult to
supply chain looking after the relationship with substitute
them
Distribution  Supports all of the shopping Difficult to
network efficiency channels to fulfill customer orders imitate
efficiently

I.2. According to the M&S Annual Report (2010), M&S has relationships with several
groups that belong to their business network, as illustrated by the following graph:

M&S Overall Business Network. Source: Author’s design and execution.

 Suppliers:
o Large British suppliers: Dewhirst, Courtaulds Textiles and Coats Viyela
(although their production process is carried on overseas) (Harrison
2001).
o Smaller direct and third party suppliers.
 Independent distributors:
o DHL.
 Investors:
o Fiba. Partner in Ukraine, Turkey and Russia.
o Al-Futtaim. Partner in the Gulf region.
o Franchisers. Most of them in the Channel Islands.
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 Landlords. Even if M&S prefers ownership over leasing, they still have to
reach agreements and build relationships for their retailer stores location:
o Shopping centre’s owners (or administration team). The main
distribution channel for M&S is still their physical store located in
well-known shopping-centres.
 Mail order companies. International delivery to 80 countries, hence the
relationship with these companies is fundamental to keep developing this
distribution channel.
o Parcel Force.
o Royal Mail.

It has also been reached a sustainability agreement between companies such

as M&S, Levis Strauss, H&M, among others (Kaye 2011), which is a source of
competitive advantage and attracts the right people to the business (Mullins 2010).

I.3. From the M&S Annual Report (2010) is possible to gather the following
information:

Over 2000 suppliers

Mainly based in Bangladesh, Sri Lanka, India, Mauritius,
Facts and figures Cambodia and China.
Around 500,000 workers in the suppliers’ factories.
Encourage dialogue to identify any issues early on and
ensure good working relationships.
Promoting ‘living’ wage debate by determining a fair wage
Relationship to suppliers’ workers.
Provide education programmes that include basic
healthcare and workers’ rights.
Financial monitoring and flexible payment terms for
suppliers.
Review the supply base to reduce reliance on key suppliers.
Monitoring
Manage currency pressures in the supply chain and deliver
tighter stock control.

After M&S crisis by late twentieth century, they had to take strategic
decisions for the supply-side (Zsidisin and Ritchie 2009). The following table
summarize these strategies and their consequences:

Strategy Consequences
The raw material suppliers are also responsible for
manufacturing. Reduces product development time.
Direct sourcing Reduces costs compared to buying via a garment supplier
which also reinforces the relationship with real suppliers.
Mitigated the risk of miss-communication with suppliers.
Central Identify new manufacturers (possible suppliers) in the most
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cost effective manner.

Manage the risk by using selected suppliers for specific
procurement products.
Sourcing and procuring goods from around the world. Increase
flexibility and reduce risk.
The design process of product development is controlled
through a large design studio and specialist design skills.
Internalising the
Product introduction is postponed and the products are
design process
launched into the market as late as possible (demand driven)
to avoid holding too much inventory.

I.4. The relationship between M&S and its customers is created through the
following seamless and consistent channels (Marks & Spencer 2010):

 Shop your way. Help smaller stores to offer a broader catalogue by

letting people place orders through the channel they want and collect the
products in the store they prefer with no extra charge.
 Online. Since the Internet usage has become wider worldwide (even
higher in middle and high class people, which are part of M&S target
markets). Both website and mobile site were developed in collaboration
with Amazon. Through this channel, customers might rate or review the
products they have bought.
 Home catalogue. Reaches over 1.6 million customers promoting M&S
products.
 Stores. Still represents the most important channel for M&S and it is
trying to deliver a bright and contemporary shopping environment.
 International Delivery. Deliver to 80 countries in Europe, North America
and Africa.
 TV. Helps promote merchandise as well as offers different options by
which products can be delivered.

As part of collaboration, M&S implemented the loyalty cards scheme,

through which a consumer can get price reductions whereas M&S gets a
significant amount of information through the IT systems to help the firm
understand the market behaviour and predict market trends.

II.1. According to the FTSE Index (2010), Brazil falls into the “Advanced
emerging markets” category, to which Mexico also belongs to. Other LA countries
such as Chile, Colombia and Peru will follow in the secondary emerging markets
category.

The following table represents key data to analyse and compare Brazilian
and Mexican apparel retail industries:
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Country Revenue CAGR (2005- CAGR (2009- Value

(2009) 2009) 2014) Forecast
(2014)
Brazil $34,635.3 m. 6.9% 5.7% $45,590.9 m.
Mexico $5,091.9 m. 3% 3% $5,901 m.
CAGR = Compound annual growth rate.
Source: Author’s creation with information from “Apparel Retail in Brazil” and
“Apparel Retail in Mexico”.

Even if both countries are considered advanced emerging markets, there

is a remarked difference between them in terms of both previous industry
performance and its forecast. Despite the fact that the Brazilian CAGR is expected
to decelerate, it will be still on the rise whereas Mexican industry will remain
stable. For more information about the about Brazil and Mexico apparel
industries, see the Appendixes 2 and 3 respectively.

II.2. The textile industry in Brazil includes cotton growing, synthetic raw
materials, textile fibers, among other production processes. In 2009, the revenue
in the textile sector in Brazil reached $47 billion and exports went over $1.8
billion (Rupp 2010).

“Distribution of clothing in Brazil is concentrated to non-grocery retailers,

where clothing and footwear specialist retailers represent the leading channel and
have managed to gain shares over the review period,” taking advantage of the rising
income level and availability of credit (Euromonitor 2009).

Sales of Clothing by Distribution Format: % Analysis 2003-2008

Source: Clothing – Brazil (Euromonitor 2009)

One of the barriers to trade and investment in Latin America is related to

the problems of transportation costs and quality (even if they can be offset, to a
certain extent, by relatively cheaper oil costs), which makes difficult for firms to
integrate the region more effectively. These problems are related to high
mountains and wide jungles, which separate population centres. Therefore,
developments remain on the coasts by air or by boat (Rugman and Brewer
2001).
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7 A.

In terms of cultural factors, the informal economy plays an important role

in Brazil since it inhibits productivity, discourages business investments and
reduces the potential for growth as well as avoids paying taxes. The size of
informal economy in Brazil is 39.8% of gross national income (Capp et al 2005).

II.3. Artigas and Calicchio (2007) provided results of their research, from where
they reached the following conclusions about Brazilian consumer:

 Are extremely fond of shopping for clothes since they are conscious of
fashion, which is shaped by local celebrities. Such fashion is normally
found in local retailers.
 Buy in informal “mom-and-pop” stores and large single-format retailers,
which represents around 60% of the country’s apparel sales.
 81% of Brazilians shoppers trust local brands. Only 11% agreed that
foreign brands are higher quality than local brands.
 Are open to using credit. 60% agreed that it is perfectly all right to shop
for products on credit, and 65% had bought something on credit during
the last 6 months. Therefore, apparel retailers in Brazil choose to offer
credit through instalment payments.

Similarly, another research done by Leng and Botelho (2010) investigates

the relationship between national culture and consumer decision-making styles
in the purchase of cell phones, which to a certain extent, might help explain
consumer behaviour in the retail apparel market. The followings are the
hypothesis supported by this research:

 Collectivistic or large power distance cultures (Brazilian) are more brand-

loyal than individualistic or small power distance cultures.
 Individualistic cultures are more brand-conscious than collectivistic
cultures (Brazilian).
 Individualistic cultures are more quality conscious than collectivistic
cultures.
 Individualistic and masculine cultures are more innovative than
collectivistic and feminine cultures (Brazilian).

II.4. “Cultural differences cause four kind of problems in international business

negotiations at the levels of language, nonverbal behaviours, values, and thinking
and decision-making processes” (Rugman and Brewer 2001, p. 514).

The difference between Brazilian culture and American or British ones is

not about “what” is said during negotiations (content) but about “how” things are
said (structural aspects of language and nonverbal behaviours). Taking these
variables into account, Brazilian businesspeople are seen as “aggressive” when
comparing to other countries like United States or United Kingdom (2001
Rugman and Brewer). See Appendixes 4 and 5 for more details.

“Three values: objectivity, competitiveness, and punctuality, which are

held strongly and deeply by most Americans seem to frequently cause
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misunderstandings and bad feelings in international business negotiations”

(Rugman and Brewer 2001, p. 521). In terms of ‘objectivity’, Americans make
decision based on profit and facts and Fisher et al (1991) point out that
Americans tend to separate the people from the problem. However, in Hispanic
cultures not only will take things personally but will also be affected by
negotiation outcomes and business relationship in general since businesses are
under tight family control (Redding 1993). In addition, collectivistic cultures
(Brazilians) prefer to negotiate in terms of collaboration and mutually beneficial
long-term relationships whereas individualistic ones (American or British)
prefer terms like competition where each side take care of itself (Rugman and
Brewer 2001).

Finally, corruption also plays an important role in Brazilian culture that

might affect to some extent the negotiation process since Brazil is considered to
be in the 69th position out of 178 countries (UK is ranked 20th) (Transparency
International 2010). For more cultural differences between Brazil and UK, see
Appendix 6.
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Conclusion

The main findings of this article considers that the main resources of M&S
are its recent financial performance, their top management team knowledge in
terms of past experiences (failure), M&S reputation of high quality products, its
flexibility in the supply chain and its overall distribution network. In addition, it
seems that M&S is aware that its business success relies on the quality of their
relationships with the supply-side and demand-side networks; therefore M&S is
always seeking for new suppliers to avoid dependency and increase flexibility
whilst minimizing risks as well as assuring that M&S customers are satisfied.

In terms of the Brazilian apparel industry, there is an important market

(the biggest in LA), with relatively useful actors in the supply and distribution
areas of the business. On the other hand, Brazilians are fashion-conscious, where
local celebrities create “fashion”.
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References

Artigas, M. and Calicchio, N., 2007. How half the world shops: Apparel in Brazil,
China and India. McKinsey Quarterly.

Capp, J. Jones, B. Elstrod, H. and Jones Jr., W. B., 2005. Reining in Brazil’s informal
economy. McKinsey Quarterly. Issue 1, p. 18-21.

Datamonitor, 2010. Apparel Retail in Brazil. Available from:

http://ehis.ebscohost.com/eds/pdfviewer/pdfviewer?hid=114&sid=ada25678-3cb1-
411c-8928-3c90b89b9a29%40sessionmgr112&vid=3 [Accessed 18 March 2011]

Datamonitor, 2010. Apparel Retail in Mexico. Available from:

http://ehis.ebscohost.com/eds/pdfviewer/pdfviewer?hid=114&sid=ada25678-3cb1-
411c-8928-3c90b89b9a29%40sessionmgr112&vid=3 [Accessed 18 March 2011]

Dess, G. G. Lumpkin, G. T. and Taylor, M. L., 2004. Strategic Management. Text &
Cases. United States: Mc Graw Hill.

Euromonitor, 2009. Clothing – Brazil. Euromonitor International: Country sector

briefing. Available from:
http://www.portal.euromonitor.com/Portal/DocumentView.aspx [Accessed 21
March 2011]

Fisher, R. Ury, W. and Patton, B., 1991. Getting to Yes. 2nd ed. United States:
Houghton Mifflin.

FTSE Index, 2010. FTSE The Index Company. Available from:

http://www.ftse.com/Indices/Country_Classification/Downloads/Sept
%202010/FTSE_Country_Matrix_Sept_2010__Post_2009_CC_Changes_x.pdf
[Accessed 23 March 2011]

Harrison, D., 2001. Network Effects Following Multiple Relationship Dissolution.

Norway.

Kaye, L., 2001. Clothing industry giants lunch sustainable apparel coalition. The
Guardian. Available from: http://www.guardian.co.uk/sustainable-
business/clothing-industry-supply-chain-coalition [Accessed 24 March 2011]

Leng, C. Y. and Botelho, D., 2010. How does national culture impact on
consumers’ decision-making styles? A cross cultural study in Brazil, the United
States and Japan. Brazilian Administration Review. Brazil.

Marks & Spencer, 2010. Annual Report and financial statements 2010. Available
from: http://annualreport.marksandspencer.com/downloads/M&S_AR10.pdf
[Accessed 15 March 11]
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Mellahi, K. Jackson, P. and Sparks, L., 2002. An Exploratory Study into Failure in
Successful Organizations: The Case of Marks & Spencer. British Journal of
Management. Vol. 13, 15-29.

Mullins, L., 2010. Management and Organisational Behaviour. 9th ed. United
Kingdom: Prentice Hall.

Redding, S. G., 1993. The Spirit of Chinese Capitalism. Germany: de Gruyter.

Rugman, A. M. and Brewer, T. L., 2001. Oxford Handbook of International Business.

United States: Oxford University Press.

Rupp, J., 2010. Brazil and Its Textile Industry. Textile World. Available from:
http://ehis.ebscohost.com/eds/pdfviewer/pdfviewer?hid=114&sid=a41780d0-
63dd-47f1-959f-ebfede958aae%40sessionmgr114&vid=3 [Accessed 22 March
2011]

Transparency International, 2010. Available from:

http://www.transparency.org/policy_research/surveys_indices/cpi/2010/resul
ts [Accessed 20 March 2011]

Zsidisin, G. A. and Ritchie, B., 2009. Supply chain risk: a handbook of assessment,
management and performance. United Kingdom: Springer.
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Appendix 1

Four Criteria for Assessing Sustainability of Resources and Capabilities

Is the resource or capability… Implication

Valuable. Lead to competitive parity
Rare. Lead to temporary competitive
advantage
Difficult to imitate. Might lead to
sustainable competitive advantage
Difficult to substitute. Lead to
sustainable competitive advantage
Adapted from Dess, Lumpkin and Taylor 2004, p. 81.
Neutralize threats and exploit
opportunities
Not many firms possess.
Physically unique
Path dependency (how accumulated
over time)
Causal ambiguity (difficult to
disentangle what it is or how it could
be recreated)
Social complexity (trust, interpersonal
relationships, culture, reputation)
No equivalent strategic resources or
capabilities
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Appendix 2

Brazil apparel retail industry growth and value

Brazil apparel retail industry growth and value forecast

Source: Brazil – Apparel Retail. Datamonitor. May 2010

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Appendix 3

Mexico apparel retail industry growth and value

Mexico apparel retail industry growth and value forecast

Source: Mexico – Apparel Retail. Datamonitor. May 2010

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Appendix 4

Verbal negotiation tactics (the ‘what’ of communications)

Bargaining behaviours UK BRZ
Promise. A statement in which the source indicated its 11* 3
intentions to provide the target with a reinforcing
consequence, which source anticipates target will evaluate as
pleasant, positive, or rewarding.
Threat. Same as promise, except that the reinforcing 3 2
consequences are thought to be noxious, unpleasant or
punishing.
Recommendation. A statement in which the source predicts 6 5
that a pleasant environmental consequence will occur to the
target. Its occurrence is not under source’s control.
Warning. Same as recommendation, except that the 1 1
consequences are thought to be unpleasant.
Reward. A statement by the source that is thought to create 5 2
pleasant consequences for the target.
Punishment. Same as reward, except that the consequences 0 3
are thought to be unpleasant.
Positive normative appeal. A statement in which the source 0 0
indicates that the target’s past, present or future behaviour
was or will be in conformity with social norms.
Negative normative appeal. Same as positive normative 1 1
appeal except that the target’s behaviour is in violation of
social norms.
Commitment. A statement by the source to the effect that its 13 8
future bids will not go below or above a certain level.
Self-disclosure. A statement in which the source reveals 39 39
information about itself.
Question. A statement in which the source asks the target to 15 22
reveal information about itself.
Command. A statement in which the source suggests that the 9 14
target perform a certain behaviour.
Read ‘11% of the statements made by British negotiators were promises’.
Sample = 6 negotiators. Source: Adapted from Oxford Handbook of International
Business (p. 516).
 Managing Relationships and Networks. Afonso,
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Appendix 5

Structural aspects of language and nonverbal behaviours (‘how’ things are said)
Bargaining behaviours UK BRZ
Structural aspects
‘No’s.’ The number of times the word ‘no’ was used by each 5.4 41.9
negotiator.
‘You’s.’ The number of times the word ‘you’ was used by each 54.8 90.4
negotiator.
Nonverbal behaviours
Silent periods. The number of conversational gaps of 10 seconds 2.5 0
or longer.
Conversational overlaps. Number of interruptions. 5.3 14.3
Facial glazing. Number of minutes negotiators spent looking at 9.0 15.6
opponent’s face.
Touching. Incidents of bargainers touching one another (not 0 4.7
including handshacking).
Sample = 6 negotiators in a 30 min negotiation.
Source: Adapted from Oxford Handbook of International Business (p. 518).
 Managing Relationships and Networks. Afonso,
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Appendix 6

Several Dimension of Culture

Country IND PDI UAI TICPI 2010 Df Eng

Great 89 35 35 7.6 0
Britain
Brazil 38 69 76 3.7 3
Columns = 1. (IND) Individualism Index (Hofstede 1991); 2. (PDI) Power
Distance Index (Hofstede 1991); 3. (UAI) Uncertainty Avoidance Index (Hofstede
1991); 4. (TICPI) Transparency International, 10 = least corrupt, 0 = most
corrupt; 5. (Df Eng) Distance from English (index provided by Globe Project).
Source: Adapted from Oxford Handbook of International.