Question

JCPenney has recognized numerous opportunities to expand in foreign countries and has assessed many foreign markets, including Brazil, Greece, Mexico, Portugal, Singapore, and Thailand. It has opened new stores in Europe, Asia, and Latin America. In each case, the firm was aware that it did not have sufficient understanding of the culture of each country that it had targeted. Consequently, it engaged in joint ventures with local partners who knew the preference of the local customers.

a). What comparative advantage does JCPenney have when establishing a store in a foreign country, relative to an independent variety store?

b). Why might the overall risk of JCPenney decrease or increase as a result of its recent global expansion?

c). JCPenney has been more cautious about entering China. Explain the potential obstacles associated with entering China.

Answer 1

solution:

a) JCPenney has name recognition, which could result in customer belief and trust, and consequently a stronger demand for its products and also the customers in foreign country are conscious of J.C. Penny and so the company would not find it tough and difficult to attract customers to its stores. It also has marketing expertise that it applies to each store which it can use in running its store. It also has economies of scale, because it could buy its products in bulk or large quantities and distribute the products to the stores that want those products.

b) Its risk may reduce because it has an approach and strategy that allows it to utilize its expertise, while relying on foreign skill and expertise for part of the business that requires knowledge about foreign cultures. Also, it has created more international diversification by spreading its store throughout more foreign markets, so that its overall performance is not as heavily influenced by U.S. economic conditions.
Its risk could have enlarged if it selected local partners in the foreign countries that do not properly apply their knowledge of the local culture when making decisions about the kinds of products that the store must carry.

c) Difficulties and obstacles include high inflation in China, problems in converting foreign currency, problems and difficulty in efficiently distributing products across stores, and the lack of disposable income for many China residents.