Description
This paper explain the site selection strategies of enterprises.
INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT STUDIES
Vol 6, No 2, 2014 ISSN: 1309-8047 (Online)
18
THE SITE SELECTION STRATEGIES OF ENTERPRISES
Katalin Medvene Szabad Dr. Ph.D.
Vice Rector, Associate Professor, Budapest Business School College of
Commerce, Catering and Tourism
H-1149 Budapest, Buzogány u. 11.-13., Hungary,
[email protected]
Tamás Kozák Dr.
Assistant Professor, Budapest Business School College of Commerce, Catering
and Tourism
H-1149 Budapest, Buzogány u. 11.-13., Hungary,
[email protected]
? Abstract ?
In trade the market is shifting among the store types in such a degree that
significantly changes the market positions of the actors in the sector. This
competition is not simply about store types but ownership structures and network
relationships as well. In this contest no trader can maintain a position without
reviewing his or her business strategy. On macro-level the increase in
consumption stopped, and economic policy (can) affect the directions of the
following years' business development by the so-called plaza stop. Although the
macro-level environment trends favor no ramp up in the retail sale, the plans for
development and store openings did not decrease in numbers. For the
entrepreneurs it has never been more important to have professional plans – so-
called site selection strategies – than now. In my article I present a method based
on the complex examination of the planned operating environment. There is
abundant literature on both the mapping and the methodology presentation of
company resources and macro-level strategic factors, so my analysis is more
about the so-called meso-level, i. e. regional and locational economic factors
INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT STUDIES
Vol 6, No 2, 2014 ISSN: 1309-8047 (Online)
19
affecting site selection. There are only a few areas of economy where the impacts
and reactions between the entrepreneur and his/her immediate environment can be
tracked in such extent as in trade. The economic examination of the trade
enterprises' decisions about site-choosing got its place in regional economics only
in the 20th century. In practice, the scientific methods did not come into general
use, and there are only a few methods used widely in business life too. In my
analysis I would like to assist with the development of such a method.
Keywords: trade, demand, strategy, site, location, catchment area
JEL Classification: F 10
1. TRADE IN LOCATION THEORY
Location theories typically cover the operational and spatial analysis of
agricultural or industrial units. Economic operators are trying to find an optimal
location by business calculations, and the recognition and conscious examination
of thereof was a great step in the development of location theories. The circle of
measurable (calculable) economic factors gradually broadened, and the
unmeasurable characteristics came into prominence as well, but trade appeared in
the development stages of location theories as no independent economic area for a
long time. The spatial dimensions of the goods-producing economy
(specialization, division of labor), the mass transportation of raw materials and
finished products (transport infrastructure, transportation equipments), and the
free movement of capital and workforce are all general requirements of economic
activities (Rechnitzer et al., 1999). The agricultural location theories (first third of
the 19th century) covered explanations on the spatial localization of the
agricultural production, the sites, and the related connections; while the industrial
location theories (first decades of the 20th century) covered explanations on the
installation locations of industrial plants. The analysis of trade opportunities
appeared first in examinations performed between the two World Wars (e.g.
Lösch), and out of the factors for selecting a site they put the maximization of
income into prominence, and instead of production they took the characteristics of
consumption into account. By the optimization of informatics-based, i. e.
INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT STUDIES
Vol 6, No 2, 2014 ISSN: 1309-8047 (Online)
20
mathematical models (e.g. Isard) – formed by considering all the factors needed
for the determination of installation location – developed in the second half of the
20th century such functions in trade were supported as, for example, the territory
management. Today location theories take such non-economic motivations and
non-measurable factors (e.g. the influence of individual experience) into
consideration that can be utilized by trade enterprises in their decisions about
selecting a site.
2. COMPETITIVENESS RELATIONSHIP BETWEEN THE TRADE
ENTERPRISE AND THE OPERATING LOCATION
In the traditional approach company advantages are determined by the macro-
economic conditions on the one hand, and the effectiveness of company operation
accompanied by the refinement of the company's strategy on the other hand. The
experience of the past years shed light on the fact that – especially in the case of
trade enterprises – on the long term, the quality of the local business environment,
and the level of regional and local economy development determine the
competitive advantages of the enterprise and the operating environment. I present
the sources of the competitive advantages of trade enterprises, namely the
identification of site selection factors by Porter's diamond model. Porter named
four interrelated determinants (Lengyel, 2010).
2.1. Factor (Input) Conditions
Production factors can be separated into two groups:
(a) Resources: natural resources, human resources, financial resources
(b) Infrastructure: Technical infrastructure, administrative infrastructure,
information technology infrastructure, scientific and technological infrastructure
In decisions connected to the trade enterprise the development state of
transportation network in a region or settlement may be critical because of the
scantiness of input conditions. If we take the divisional characteristics, the
specificities into consideration, then the development strategy of the trader is
INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT STUDIES
Vol 6, No 2, 2014 ISSN: 1309-8047 (Online)
21
determined by, for example, the local administrative infrastructure (e.g. the
regional construction specifications).
Sustainability and environment protection are special but highly prioritized
criteria in trade. Today, in the evaluation process of building permissions it is
acutely investigated if the investor fulfills the professional requirements.
Sustainable trade means that such environmental impacts as the expected
emission, the degree of noise pollution, and the waste management plans are
examined for the authorization for the installation of a new store. The
commitment of the trader in the installation and operation of a sustainable
commercial establishment that operates with responsibility towards the
environment is often proved by an ISO certification. According to the experience
the noise and air pollution from traffic can be significantly reduced by developing
the transportation network and building new roads in connection with the
installation of a new store. The realization of the spatial plans' specifications can
mean significant development in the infrastructure of the area in line with the
construction of the store. The safety and modernity of the energy supply networks
(gas and electricity) may advance, and most of the time the investor takes
professional care of green spaces by forming and regularly attending them. If the
local resources are scarce, these could have been realized in long term or not at
all. Of course, the local government's regulations and requirements for these
developments are also important aspects of site selection.
The building permission for a commercial building with total floor area above 300
m2 requires an exemption request to be submitted, and in the case of commercial
buildings with total floor area above 5000 m2 an impact study is also needed, for
which the content elements are determined in the appendix of the Government
Regulation No. 367/2011. (XII. 30.). In the impact study the entrepreneur has to
find answers for questions about, for example, the demographic indices of the
catchment area, the planned retail traffic of the store, the expected changes in
purchasing power, and the expectations of the commercial building's impacts on
rural development, environment protection, and economy.
INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT STUDIES
Vol 6, No 2, 2014 ISSN: 1309-8047 (Online)
22
2.2. Demand Conditions
The analysis of trade factors gives essential information for determining and
planning the purchase power of the operational region. The purchase power of the
settlement and the catchment area depends on the population's size and disposable
income per unit. Besides the level of the local demand, its composition and the
segmentation of its structure are also important factors in examining and
forecasting consumer needs. It is important to recognize what economical,
technological and social factors the change and measure of increase in demand
depends on. Through their purchases consumers from other regions (e.g. abroad)
may directly contribute to the economic development of the region by the so-
called multiplier effect. The income spent this way increases the profit of the
trader, which means more tax revenue and maybe an increase in the level of
employment.
The basis of calculations of a new store's expected sales is the estimation of
expected purchase power, which requires the determination of the catchment area.
Determining the operational region is one of the most complex dimensions of
business development, because besides even the most sophisticated mathematical
and statistical methods the experiences of leaders and experts are not negligible,
so these subjective elements are incorporated into the decision-making process.
For example, the borders of market zones are determined by travel time, and
besides divisional standards the trader's experience and local knowledge is also
required for the identification of primary, secondary and tertiary zones based on
the consideration of travel times in minutes as well as for the calculations of the
number of consumers per zone. The catchment area is often determined by more
than one methods used concurrently. One of the most common methods is the
control or additional calculations based on Reilly's gravity model. This is a
geographical model that describes the flow of people between two settlements,
and based on geographical location it can be examined that which of the
competing stores will be preferred by the consumer. The model considers both the
population of the examined settlements and the distance between them, and so the
designation of several settlements makes it possible to outline the theoretical
borders of the catchment area.
INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT STUDIES
Vol 6, No 2, 2014 ISSN: 1309-8047 (Online)
23
It should be kept in mind that the mathematical method used for the estimation of
purchase power in the catchment area can be sophisticated as it is, in the decision-
making process no correctional factors like the store type, the selection of goods,
the traffic and the competitors' location should be ignored. The decision about the
spatial position has aspects like how centrally the store is located, and how much
the cost of the property or the rental fee will be. Choosing an appropriate property
development strategy is influenced by the store type too, because it is not the
same if the trader opens a “lonely shop” or a shop in a planned trade zone. So the
property and business development strategies are influenced on middle and long
term by how elaborated the local urban development conceptions are.
2.3. Related and Supporting Industries
The saying “never manage alone” prevails markedly in trade, because in this
sector it is especially true that networks and strategic partnerships are competing
each other instead of “lonely” companies. The success of the trader depends on
the quality of his or her relationship with the suppliers, and because the suppliers
are parts of the supply chain system, the prices and quality of goods depend on the
level and reliability of the partnership. The operators in related industries are not
competitors, but they may be useful, for example the logistics providers have
influence upon the transaction costs of the distribution channel, and consequently
on the competitiveness of the trader as well.
Many a time a multinational corporation appearing in the region formulates the
sustainability expectations determining the supply chain too. The system of IKEA
IWAY is a good example of this. The chain store defined such requirements for
its suppliers that may affect the site selection; for example IKEA defines
standards on environment protection and working conditions. The former contains
aspects like conditions on the safe handling of chemicals and other materials
dangerous for the environment; the latter system of conditions contains such
typical instructions as compliance with the human rights, and the creation of work
conditions that are safe and unharmful to health. The performance of the supplier
INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT STUDIES
Vol 6, No 2, 2014 ISSN: 1309-8047 (Online)
24
is measured by the IWAY sustainability index, and the minimal expectations are
predefined.
A new store's effect on the local market opportunities is important because in
favor of decreasing the logistics costs suppliers tend to offer the cheap products of
local growers and manufacturers, and so they ensure a market for goods produced
locally. If the local suppliers represent considerable weight in the supply of goods,
then that has a benevolent effect on the region's GDP changes through the activity
of the local economy. In the related, non-competitor cooperation a new operator's
provider function may cover both an introduction of and a demand for the work of
various local small enterprises, thus it creates market for the local provider SME
sector. The level of supplier partnerships is also a factor in site selection, so it is
important for the quality and cost-benefit ratio of goods in the supply chain to
ensure a competitive service.
2.4. Firm Strategy, Structure and Rivalry
The strategies of commercial companies differ from each other in characteristics
like the capitalization of the owners, their local or cross-border activity, and the
sale of daily or durable consumer goods. I summarize the characteristics of the
retail trade sector's typical strategic options in Table 1. Strategic options are
chosen in the following framework:
Strategy resulting in integration, capital transfer or strategic partnership –
This strategic direction is observable mainly in the case of small shops'
organized networks, and may be in relation to intensive regional
expansion. Positioning has a key role; a good example for this strategy is
the Coop network's exceptionally conscious expansion basically in small
and medium settlements.
Product (service) centered or diversification strategies – Based on market
position and capital resources, hypermarket development is especially
strong in this strategy, supported by intensive marketing. Think about the
so-called mass retailer business policy and expansion strategy of Tesco.
INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT STUDIES
Vol 6, No 2, 2014 ISSN: 1309-8047 (Online)
25
The so-called “turnaround” strategies serve to slow down and stop the
decline and ground loss of the enterprise – The independent small shops
can survive by keeping the cost level low or developing a product portfolio
of narrower but deeper selection. One of the conditions of survival for an
independent shop selling daily goods may be a segmentation business
policy that satisfies the needs of the targeted consumers on high level.
Table-2: Main trade strategies
Strategy Types Main Characteristics Goals
“Mass Retailer” The same marketing mix for
everyone
Biggest market share
Diversification “We are different, but we talk to
everyone”
To be different from the
competitors
Segmentation Consumer needs are in focus Serving a few selected
segments
Positioning Market position is compared to
the competitors
Exploring uncovered markets
“Nicher”
or “niche-seeker”
Well defined market segment Special, high quality service
Category Killer Quick adaptation to the market,
flexible service
Trade strategies
Source: Samli; 1998
One of the most typical dimensions of the competition between the Hungarian
retailers is the rivalry between the store types. Regarding the daily consumer
goods sale the change in the market share values shows a very definite trend. In
the early 2000s the share value of hypermarkets and supermarkets was 29-30%,
and it is 41-43% now, but in two or three years this share value may reach 45%.
From this, the current market share of hypermarkets is 24-26%, but their
expansion significantly slowed down in the recent years (GFK, 2011). Only the
organized networks of small shops reached a greater degree of expansion; their
share value doubled, and currently it is 16%. During this change in the market
structure independent small shops suffered the greatest casualties, and their
market share value decreased to 11-12% from 28% measured in 2000. If this trend
INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT STUDIES
Vol 6, No 2, 2014 ISSN: 1309-8047 (Online)
26
continues, they will reach the ten percent threshold in three years. So far, it is hard
to estimate where the so-called Plaza Stop Act will divert the market share
changes. MNEs sensibly held their investments back, and regarding the daily
consumer goods retail trade both the expansion of Hungarian owned franchise
networks and a speed-up of this expansion are expected. The big question of the
following years is if the expansion of retailers specialized in operating shops with
small floor space would compensate for the decrease in the investment hunger of
foreign owned companies, and for the related multiplier effect (e.g. the
performance drop of the building industry).
Site selection is basically influenced by what store type the entrepreneur would
like to open his or her shop in. Hypermarkets, supermarkets and shopping centrals
are typically built in agglomeration areas and on properties nearby cities – the
basic reason is the cost of operation and property development, but in the same
time building up an infrastructure (e.g. roads and public utilities) may mean
additional burden that should be considered. Opening a new store with big floor
space in downtown may be profitable if trade gets priority in the local
government's region development policy. In this context a most terrible example
is the several decades long withering of trade life on the Grand Boulevard of
Budapest. It seems unique that all the countless concepts on revitalizing the
downtown and the city central(s) failed. There are only a few capitals in Europe
where the quality of trade services declined so much in the city central – the result
is a cityscape that cannot be called even “Balkanian”.
Besides the issues detailed above the opening of a new shop brings the need for an
examination of the market position of the already operating enterprises in the
region or settlement. Although the consumer goods retail trade is one of the
industries showing the economically cleanest market competition situation, the
economic policy always aims to bring one or the other store type into better
position by “more or less delicate methods”. The real professional considerations
are often lost in the communication campaigns. We know the “big fish eats little
fish” type of messages well enough, and objective observations rarely come out of
the workshops. It would be interesting to examine how the audit methods tested
on other areas of economy would work in the case of this trade industry. The
INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT STUDIES
Vol 6, No 2, 2014 ISSN: 1309-8047 (Online)
27
Herfindahl-Hirschman Index (HHI) would be a useful method as the indicator of
the market concentration in the region. The HHI is commonly used by oversight
bodies of the state (for example, in communications and logistics) to find if the
market situation is in danger. With Huff's Gravity Model the expected distribution
of purchase is determined by the floor space of the market centrals and the travel
times it takes to reach them. By this we can model the degrees of market presence.
In the case of opening a new shop the proper estimation of changes in the market
share values can be critical in forecasting the changes in the sales of the region
(Levy-Weitz, 2009).
3. CONCLUSION
Regarding site selection the consideration of strategic factors presented in the
article may help in a more complex professional grounding for the corporate
planning on the one hand, and in the transparent communication of the
administrative decisions (e.g. the processes of “plaza stop” -like decisions) on the
other hand. This latter may have evaluation aspects by which both the
entrepreneurs and the representatives of the government (the Committees) can get
clear methodological guidelines about how the opening of a new shop can
contribute in the development of a settlement, and what impact it has on the
realization of the investor's business goals. These can be examined only together,
because their multiplier effect is produced by their mutual effects on each other.
BIBLIOGRAPHY
[1] Rechnitzer J. (1999): Fejezetek a regionális gazdaságtan tanulmányozásához,
MTA Regionális Kutatások Központja, Gy?r – Pécs, pp. 36-68.
[2] Lengyel I. (2012): Regionális gazdaságfejlesztés, Akadémia Kiadó, pp. 69-86.
[3] Samli, A.C. (1998): Strategic Marketing for Success In Retailing, Quorum
Books,
[4] Westport, Connecticut, pp. 198-200.
[5] Kozák Á. (2011) GfK ConsumerScan: Kereskedelmi trendek 2011, Gfk
Hungaria, p 4.
INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT STUDIES
Vol 6, No 2, 2014 ISSN: 1309-8047 (Online)
28
[6] Levy, M. – Weitz, B. (2009): Retailing management, McGraw – Hill, pp. 235
– 237.
doc_274842825.pdf
This paper explain the site selection strategies of enterprises.
INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT STUDIES
Vol 6, No 2, 2014 ISSN: 1309-8047 (Online)
18
THE SITE SELECTION STRATEGIES OF ENTERPRISES
Katalin Medvene Szabad Dr. Ph.D.
Vice Rector, Associate Professor, Budapest Business School College of
Commerce, Catering and Tourism
H-1149 Budapest, Buzogány u. 11.-13., Hungary,
[email protected]
Tamás Kozák Dr.
Assistant Professor, Budapest Business School College of Commerce, Catering
and Tourism
H-1149 Budapest, Buzogány u. 11.-13., Hungary,
[email protected]
? Abstract ?
In trade the market is shifting among the store types in such a degree that
significantly changes the market positions of the actors in the sector. This
competition is not simply about store types but ownership structures and network
relationships as well. In this contest no trader can maintain a position without
reviewing his or her business strategy. On macro-level the increase in
consumption stopped, and economic policy (can) affect the directions of the
following years' business development by the so-called plaza stop. Although the
macro-level environment trends favor no ramp up in the retail sale, the plans for
development and store openings did not decrease in numbers. For the
entrepreneurs it has never been more important to have professional plans – so-
called site selection strategies – than now. In my article I present a method based
on the complex examination of the planned operating environment. There is
abundant literature on both the mapping and the methodology presentation of
company resources and macro-level strategic factors, so my analysis is more
about the so-called meso-level, i. e. regional and locational economic factors
INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT STUDIES
Vol 6, No 2, 2014 ISSN: 1309-8047 (Online)
19
affecting site selection. There are only a few areas of economy where the impacts
and reactions between the entrepreneur and his/her immediate environment can be
tracked in such extent as in trade. The economic examination of the trade
enterprises' decisions about site-choosing got its place in regional economics only
in the 20th century. In practice, the scientific methods did not come into general
use, and there are only a few methods used widely in business life too. In my
analysis I would like to assist with the development of such a method.
Keywords: trade, demand, strategy, site, location, catchment area
JEL Classification: F 10
1. TRADE IN LOCATION THEORY
Location theories typically cover the operational and spatial analysis of
agricultural or industrial units. Economic operators are trying to find an optimal
location by business calculations, and the recognition and conscious examination
of thereof was a great step in the development of location theories. The circle of
measurable (calculable) economic factors gradually broadened, and the
unmeasurable characteristics came into prominence as well, but trade appeared in
the development stages of location theories as no independent economic area for a
long time. The spatial dimensions of the goods-producing economy
(specialization, division of labor), the mass transportation of raw materials and
finished products (transport infrastructure, transportation equipments), and the
free movement of capital and workforce are all general requirements of economic
activities (Rechnitzer et al., 1999). The agricultural location theories (first third of
the 19th century) covered explanations on the spatial localization of the
agricultural production, the sites, and the related connections; while the industrial
location theories (first decades of the 20th century) covered explanations on the
installation locations of industrial plants. The analysis of trade opportunities
appeared first in examinations performed between the two World Wars (e.g.
Lösch), and out of the factors for selecting a site they put the maximization of
income into prominence, and instead of production they took the characteristics of
consumption into account. By the optimization of informatics-based, i. e.
INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT STUDIES
Vol 6, No 2, 2014 ISSN: 1309-8047 (Online)
20
mathematical models (e.g. Isard) – formed by considering all the factors needed
for the determination of installation location – developed in the second half of the
20th century such functions in trade were supported as, for example, the territory
management. Today location theories take such non-economic motivations and
non-measurable factors (e.g. the influence of individual experience) into
consideration that can be utilized by trade enterprises in their decisions about
selecting a site.
2. COMPETITIVENESS RELATIONSHIP BETWEEN THE TRADE
ENTERPRISE AND THE OPERATING LOCATION
In the traditional approach company advantages are determined by the macro-
economic conditions on the one hand, and the effectiveness of company operation
accompanied by the refinement of the company's strategy on the other hand. The
experience of the past years shed light on the fact that – especially in the case of
trade enterprises – on the long term, the quality of the local business environment,
and the level of regional and local economy development determine the
competitive advantages of the enterprise and the operating environment. I present
the sources of the competitive advantages of trade enterprises, namely the
identification of site selection factors by Porter's diamond model. Porter named
four interrelated determinants (Lengyel, 2010).
2.1. Factor (Input) Conditions
Production factors can be separated into two groups:
(a) Resources: natural resources, human resources, financial resources
(b) Infrastructure: Technical infrastructure, administrative infrastructure,
information technology infrastructure, scientific and technological infrastructure
In decisions connected to the trade enterprise the development state of
transportation network in a region or settlement may be critical because of the
scantiness of input conditions. If we take the divisional characteristics, the
specificities into consideration, then the development strategy of the trader is
INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT STUDIES
Vol 6, No 2, 2014 ISSN: 1309-8047 (Online)
21
determined by, for example, the local administrative infrastructure (e.g. the
regional construction specifications).
Sustainability and environment protection are special but highly prioritized
criteria in trade. Today, in the evaluation process of building permissions it is
acutely investigated if the investor fulfills the professional requirements.
Sustainable trade means that such environmental impacts as the expected
emission, the degree of noise pollution, and the waste management plans are
examined for the authorization for the installation of a new store. The
commitment of the trader in the installation and operation of a sustainable
commercial establishment that operates with responsibility towards the
environment is often proved by an ISO certification. According to the experience
the noise and air pollution from traffic can be significantly reduced by developing
the transportation network and building new roads in connection with the
installation of a new store. The realization of the spatial plans' specifications can
mean significant development in the infrastructure of the area in line with the
construction of the store. The safety and modernity of the energy supply networks
(gas and electricity) may advance, and most of the time the investor takes
professional care of green spaces by forming and regularly attending them. If the
local resources are scarce, these could have been realized in long term or not at
all. Of course, the local government's regulations and requirements for these
developments are also important aspects of site selection.
The building permission for a commercial building with total floor area above 300
m2 requires an exemption request to be submitted, and in the case of commercial
buildings with total floor area above 5000 m2 an impact study is also needed, for
which the content elements are determined in the appendix of the Government
Regulation No. 367/2011. (XII. 30.). In the impact study the entrepreneur has to
find answers for questions about, for example, the demographic indices of the
catchment area, the planned retail traffic of the store, the expected changes in
purchasing power, and the expectations of the commercial building's impacts on
rural development, environment protection, and economy.
INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT STUDIES
Vol 6, No 2, 2014 ISSN: 1309-8047 (Online)
22
2.2. Demand Conditions
The analysis of trade factors gives essential information for determining and
planning the purchase power of the operational region. The purchase power of the
settlement and the catchment area depends on the population's size and disposable
income per unit. Besides the level of the local demand, its composition and the
segmentation of its structure are also important factors in examining and
forecasting consumer needs. It is important to recognize what economical,
technological and social factors the change and measure of increase in demand
depends on. Through their purchases consumers from other regions (e.g. abroad)
may directly contribute to the economic development of the region by the so-
called multiplier effect. The income spent this way increases the profit of the
trader, which means more tax revenue and maybe an increase in the level of
employment.
The basis of calculations of a new store's expected sales is the estimation of
expected purchase power, which requires the determination of the catchment area.
Determining the operational region is one of the most complex dimensions of
business development, because besides even the most sophisticated mathematical
and statistical methods the experiences of leaders and experts are not negligible,
so these subjective elements are incorporated into the decision-making process.
For example, the borders of market zones are determined by travel time, and
besides divisional standards the trader's experience and local knowledge is also
required for the identification of primary, secondary and tertiary zones based on
the consideration of travel times in minutes as well as for the calculations of the
number of consumers per zone. The catchment area is often determined by more
than one methods used concurrently. One of the most common methods is the
control or additional calculations based on Reilly's gravity model. This is a
geographical model that describes the flow of people between two settlements,
and based on geographical location it can be examined that which of the
competing stores will be preferred by the consumer. The model considers both the
population of the examined settlements and the distance between them, and so the
designation of several settlements makes it possible to outline the theoretical
borders of the catchment area.
INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT STUDIES
Vol 6, No 2, 2014 ISSN: 1309-8047 (Online)
23
It should be kept in mind that the mathematical method used for the estimation of
purchase power in the catchment area can be sophisticated as it is, in the decision-
making process no correctional factors like the store type, the selection of goods,
the traffic and the competitors' location should be ignored. The decision about the
spatial position has aspects like how centrally the store is located, and how much
the cost of the property or the rental fee will be. Choosing an appropriate property
development strategy is influenced by the store type too, because it is not the
same if the trader opens a “lonely shop” or a shop in a planned trade zone. So the
property and business development strategies are influenced on middle and long
term by how elaborated the local urban development conceptions are.
2.3. Related and Supporting Industries
The saying “never manage alone” prevails markedly in trade, because in this
sector it is especially true that networks and strategic partnerships are competing
each other instead of “lonely” companies. The success of the trader depends on
the quality of his or her relationship with the suppliers, and because the suppliers
are parts of the supply chain system, the prices and quality of goods depend on the
level and reliability of the partnership. The operators in related industries are not
competitors, but they may be useful, for example the logistics providers have
influence upon the transaction costs of the distribution channel, and consequently
on the competitiveness of the trader as well.
Many a time a multinational corporation appearing in the region formulates the
sustainability expectations determining the supply chain too. The system of IKEA
IWAY is a good example of this. The chain store defined such requirements for
its suppliers that may affect the site selection; for example IKEA defines
standards on environment protection and working conditions. The former contains
aspects like conditions on the safe handling of chemicals and other materials
dangerous for the environment; the latter system of conditions contains such
typical instructions as compliance with the human rights, and the creation of work
conditions that are safe and unharmful to health. The performance of the supplier
INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT STUDIES
Vol 6, No 2, 2014 ISSN: 1309-8047 (Online)
24
is measured by the IWAY sustainability index, and the minimal expectations are
predefined.
A new store's effect on the local market opportunities is important because in
favor of decreasing the logistics costs suppliers tend to offer the cheap products of
local growers and manufacturers, and so they ensure a market for goods produced
locally. If the local suppliers represent considerable weight in the supply of goods,
then that has a benevolent effect on the region's GDP changes through the activity
of the local economy. In the related, non-competitor cooperation a new operator's
provider function may cover both an introduction of and a demand for the work of
various local small enterprises, thus it creates market for the local provider SME
sector. The level of supplier partnerships is also a factor in site selection, so it is
important for the quality and cost-benefit ratio of goods in the supply chain to
ensure a competitive service.
2.4. Firm Strategy, Structure and Rivalry
The strategies of commercial companies differ from each other in characteristics
like the capitalization of the owners, their local or cross-border activity, and the
sale of daily or durable consumer goods. I summarize the characteristics of the
retail trade sector's typical strategic options in Table 1. Strategic options are
chosen in the following framework:
Strategy resulting in integration, capital transfer or strategic partnership –
This strategic direction is observable mainly in the case of small shops'
organized networks, and may be in relation to intensive regional
expansion. Positioning has a key role; a good example for this strategy is
the Coop network's exceptionally conscious expansion basically in small
and medium settlements.
Product (service) centered or diversification strategies – Based on market
position and capital resources, hypermarket development is especially
strong in this strategy, supported by intensive marketing. Think about the
so-called mass retailer business policy and expansion strategy of Tesco.
INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT STUDIES
Vol 6, No 2, 2014 ISSN: 1309-8047 (Online)
25
The so-called “turnaround” strategies serve to slow down and stop the
decline and ground loss of the enterprise – The independent small shops
can survive by keeping the cost level low or developing a product portfolio
of narrower but deeper selection. One of the conditions of survival for an
independent shop selling daily goods may be a segmentation business
policy that satisfies the needs of the targeted consumers on high level.
Table-2: Main trade strategies
Strategy Types Main Characteristics Goals
“Mass Retailer” The same marketing mix for
everyone
Biggest market share
Diversification “We are different, but we talk to
everyone”
To be different from the
competitors
Segmentation Consumer needs are in focus Serving a few selected
segments
Positioning Market position is compared to
the competitors
Exploring uncovered markets
“Nicher”
or “niche-seeker”
Well defined market segment Special, high quality service
Category Killer Quick adaptation to the market,
flexible service
Trade strategies
Source: Samli; 1998
One of the most typical dimensions of the competition between the Hungarian
retailers is the rivalry between the store types. Regarding the daily consumer
goods sale the change in the market share values shows a very definite trend. In
the early 2000s the share value of hypermarkets and supermarkets was 29-30%,
and it is 41-43% now, but in two or three years this share value may reach 45%.
From this, the current market share of hypermarkets is 24-26%, but their
expansion significantly slowed down in the recent years (GFK, 2011). Only the
organized networks of small shops reached a greater degree of expansion; their
share value doubled, and currently it is 16%. During this change in the market
structure independent small shops suffered the greatest casualties, and their
market share value decreased to 11-12% from 28% measured in 2000. If this trend
INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT STUDIES
Vol 6, No 2, 2014 ISSN: 1309-8047 (Online)
26
continues, they will reach the ten percent threshold in three years. So far, it is hard
to estimate where the so-called Plaza Stop Act will divert the market share
changes. MNEs sensibly held their investments back, and regarding the daily
consumer goods retail trade both the expansion of Hungarian owned franchise
networks and a speed-up of this expansion are expected. The big question of the
following years is if the expansion of retailers specialized in operating shops with
small floor space would compensate for the decrease in the investment hunger of
foreign owned companies, and for the related multiplier effect (e.g. the
performance drop of the building industry).
Site selection is basically influenced by what store type the entrepreneur would
like to open his or her shop in. Hypermarkets, supermarkets and shopping centrals
are typically built in agglomeration areas and on properties nearby cities – the
basic reason is the cost of operation and property development, but in the same
time building up an infrastructure (e.g. roads and public utilities) may mean
additional burden that should be considered. Opening a new store with big floor
space in downtown may be profitable if trade gets priority in the local
government's region development policy. In this context a most terrible example
is the several decades long withering of trade life on the Grand Boulevard of
Budapest. It seems unique that all the countless concepts on revitalizing the
downtown and the city central(s) failed. There are only a few capitals in Europe
where the quality of trade services declined so much in the city central – the result
is a cityscape that cannot be called even “Balkanian”.
Besides the issues detailed above the opening of a new shop brings the need for an
examination of the market position of the already operating enterprises in the
region or settlement. Although the consumer goods retail trade is one of the
industries showing the economically cleanest market competition situation, the
economic policy always aims to bring one or the other store type into better
position by “more or less delicate methods”. The real professional considerations
are often lost in the communication campaigns. We know the “big fish eats little
fish” type of messages well enough, and objective observations rarely come out of
the workshops. It would be interesting to examine how the audit methods tested
on other areas of economy would work in the case of this trade industry. The
INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT STUDIES
Vol 6, No 2, 2014 ISSN: 1309-8047 (Online)
27
Herfindahl-Hirschman Index (HHI) would be a useful method as the indicator of
the market concentration in the region. The HHI is commonly used by oversight
bodies of the state (for example, in communications and logistics) to find if the
market situation is in danger. With Huff's Gravity Model the expected distribution
of purchase is determined by the floor space of the market centrals and the travel
times it takes to reach them. By this we can model the degrees of market presence.
In the case of opening a new shop the proper estimation of changes in the market
share values can be critical in forecasting the changes in the sales of the region
(Levy-Weitz, 2009).
3. CONCLUSION
Regarding site selection the consideration of strategic factors presented in the
article may help in a more complex professional grounding for the corporate
planning on the one hand, and in the transparent communication of the
administrative decisions (e.g. the processes of “plaza stop” -like decisions) on the
other hand. This latter may have evaluation aspects by which both the
entrepreneurs and the representatives of the government (the Committees) can get
clear methodological guidelines about how the opening of a new shop can
contribute in the development of a settlement, and what impact it has on the
realization of the investor's business goals. These can be examined only together,
because their multiplier effect is produced by their mutual effects on each other.
BIBLIOGRAPHY
[1] Rechnitzer J. (1999): Fejezetek a regionális gazdaságtan tanulmányozásához,
MTA Regionális Kutatások Központja, Gy?r – Pécs, pp. 36-68.
[2] Lengyel I. (2012): Regionális gazdaságfejlesztés, Akadémia Kiadó, pp. 69-86.
[3] Samli, A.C. (1998): Strategic Marketing for Success In Retailing, Quorum
Books,
[4] Westport, Connecticut, pp. 198-200.
[5] Kozák Á. (2011) GfK ConsumerScan: Kereskedelmi trendek 2011, Gfk
Hungaria, p 4.
INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT STUDIES
Vol 6, No 2, 2014 ISSN: 1309-8047 (Online)
28
[6] Levy, M. – Weitz, B. (2009): Retailing management, McGraw – Hill, pp. 235
– 237.
doc_274842825.pdf