Burt et al M&S Failure irrdcr 2002.pdf

8/17/2019 Burt et al M&S Failure irrdcr 2002.pdf

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Retail internationalization and

retail failure: issues from thecase of Marks and Spencer

S.L. Burt, K. Mellahi, T.P. Jackson and L. Sparks

Abstract

Retail internationalization has attracted much attention in recent years as the scale andnature of the activity has changed. Most analysis of retail internationalization howeveris based on market entry and mainly successful businesses. Here, the internationaliza-tion strategy of Marks and Spencer over 30 years is examined. Its recent large-scalewithdrawal from such activity is considered in the light of theories about inter-nationalization and business failure. The complexity of market exit in retailing isemphasized. It is suggested that market exit and failure are important under-

researched dimensions of retail internationalization. More detailed and careful workon market entry and withdrawal (failure?) is needed to adequately conceptualize thesubject area.

Keywords

Failure, internationalization, market entry, Marks and Spencer, retail, with-drawal

International expansion has been the graveyard of many prominent UKretailers, and none more so than Marks and Spencer. Now it must extricateitself from the businesses around the world that have never fullled itshopes.(Urry, M. ‘Overseas expansion has been retailer’s graveyard’, 30 March 2001,

ft.com)

Introduction

On 29 March 2001, Marks and Spencer (M&S) announced that it was to sell itsBrooks Brothers clothing chain (USA and Japan) and Kings supermarkets(USA) businesses, and turn its company-owned stores in Hong Kong into afranchise. In addition, it was going to close most of its company-owned

S.L. Burt, L. Sparks, Institute for Retail Studies, University of Stirling, Stirling, FK94LA, UK; e-mail: [email protected]. K. Mellahi, Loughborough University,Loughborough, UK. T.P. Jackson, Coventry University, Coventry, UK.

The International Review of Retail, Distribution and Consumer Research

ISSN 0959-3969 print/ISSN 1466-4402 online © 2002 Taylor & Francis Ltd

http://www.tandf.co.uk/journals

DOI: 10.1080/09593960210127727

Int. Rev. of Retail, Distribution and Consumer Research 12:2 April 2002 191–219

http://www.tandf.co.uk/journals


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continental European stores, viewing them as ‘distractions’ in its quest to restoreits fortunes (which have seen sales stagnate since 1998, prots (after exceptionalitems) fall by over £1bn in three years and its share price collapse from a highof £6.60 on 3 October 1997 to a low of £1.70 on 20 October 2000). A wave of

protests across continental Europe about the closures and job losses was theresult. This ‘managerial giant of the western world’ (Drucker 1974) and ‘one of the best managed companies in the world’ (Tse 1985) found its closureannouncement condemned by the French Prime Minister, Lionel Jospin, as‘particularly unacceptable . . . (they) should be punished’. Other French minis-ters weighed in with comments on the ‘scandal’ and ‘exceptionally brutalbehaviour’ of the company. In early April 2001 a French court ned M&S forbreaking the law through a lack of consultation with its workers (they claimedthey were effectively sacked by e-mail) and its ‘manifestly illegal trouble-

making’, suspended the store closures and threatened prosecutions of individualM&S managers. Demonstrations and protests continued in the summer of 2001,including a rally and march in London organized by the global skills andservices union UNI. Rather ironically, one analyst report (Dresdner KleinwortWasserstein 2001) described the announced restructuring as the ‘easy bit’ of turning M&S around!

Whilst much attention has rightly focused on the rights of employers to act asthey see t and employees to be consulted and informed properly, the announce-

ment by Marks and Spencer was signicant for another reason. It signalled anend to the international ambitions of successive M&S chairmen and Boards of Directors. Whilst some international store activity will remain, mainly in theform of franchised shops, most company-owned activities will be sold off, closeddown or franchised. So ends over 30 years of direct retail international activityand ambition. M&S’s internationalization could perhaps be viewed as aninglorious failure. Given the current level and scale of international retaileractivity (e.g. Ahold, Delhaize), and takeovers at the international level by leadingretailers (e.g. Wal-Mart/Asda and Carrefour/Promodès), Marks and Spencer

can no longer be considered a candidate for the ‘global retail elite’. Rather, it isghting for its independent life in its British heartland. Whitehead’s (1992: 41)challenge (‘to become the major international retailer with . . . products whichsell worldwide’) has not been met.

The phenomenon of previously successful companies facing a survival crisis isnot new (Miller 1990; Lawler and Galbraith 1994; Anheier 1999). The corporatelandscape is littered with the bones of bankrupt, but previously successful,corporations. Several popular books describe collapses of successful companies

(e.g. Ross and Kami 1973; Ricks 1983, 1999; Miller 1990; Sobel 1999).Notwithstanding the commercial importance of organizational failures, both atthe corporate and business start-up levels, the topic however is not a centraltheme of management research (Cameron et al . 1988; Whetten 1988; Sheppard1994). Pauchant and Douville (1993) argue that whilst excellence is well-established within the literature on strategy (and indeed M&S have beenincluded themselves in a number of ‘excellence’ collections), the study of failureor market withdrawal is generally less common (though for a recent retailexample see Meyer-Ohle 2002).

If organizational failure is not a central theme in management research, thenthe idea of failure in retail internationalization research hardly registers at all.

192 The International Review of Retail, Distribution and Consumer Research


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Recent years have seen a torrent of research publications on internationalization.There are, for example, the edited or collected volumes of Brown and Burt(1992), McGoldrick and Davies (1995), Akehurst and Alexander (1996) andAlexander and Doherty (2000), and the books of Sternquist and Kacker (1994),

Alexander (1997) and Sternquist (1998). Reading these works however, bring upconcerns with the way in which internationalization theory has been developedand outlined in the literature (see Alexander 1997 for a sound run-through of theory development). The literature is replete with metaphors about growth ininternationalization, whether it be stages or development theory, waves of internationalization, retailers being cautious or ambitious over activity, emphaseson competences or critical activities such as in Dunning’s eclectic paradigm orconcepts such as psychic distance. If failure in retail internationalization hasbeen considered at all, it is under the guise of cross cultural factors such as

adaptability, entry mode and locational disadvantage. Whilst it would be unfair toclaim that risk in retail internationalization has been ignored totally, the myriadof failures in retail internationalization practice seem curiously at odds with themainly positive statements suggested by the academic literature.

This lack of consideration of failure in retail international activity may beattributed to a number of elements. First, what is seen ‘on the ground’ today isthe positive outcome of the international activity. It is possible to either forget orfail to record activities that close down. Godley and Fletcher (2001) demonstrate

the historical volume of internationalization into the British retail sector, buttellingly comment that one reason why this has been ignored is because so manyof these developments failed or were taken over. Second, retailers themselveswipe failed activities from their record books or public memory. For example youwill nd little mention of Tesco’s rst foray into Ireland (see Lord et al . 1988) inany of that company’s briengs on company history, its web pages or in the booksproduced recently by those involved (MacLaurin 1999). Yet lessons were learntfrom this problematic venture, which have subsequently informed the company’sinternationalization approach and return to Ireland. This corporate amnesia

probably reects the fact that failure is not such an attractive construct assuccess. There are many such examples, involving both high prole and lesser-known companies. For example Wal-Mart’s struggles in the 1990s in HongKong, Indonesia and China or Lane Crawford’s disastrous move into Singaporeare seemingly forgotten or ignored by retailers and academics. Finally, research-ing failure is generally more difcult than researching success, partly for thereasons above and partly because personnel change more rapidly after failure andneither they, nor the artifacts remain to inform us.

However, it is believed that a combination of failure and internationalizationcan provide insights into both constructs and theory development. Why docompanies ‘fail’ in the international market? Why are decisions in retrospect,disastrous? How can businesses extricate themselves from problems? What arethe roles of other stakeholders? The aim of this paper is to use M&S as a caseillustration to probe these issues. Its international activity is long-term anddiverse. It has been a hugely respected business, though currently it can notseem to put a ‘foot right’. It is believed that an analysis of its failure ininternational arenas is both long overdue and may well prove insightful.

The research presented here is part of a larger piece of work on organizationalfailure in M&S (Mellahi et al . 2002). The overall research design focused on

Burt et al.: Retail internalization and retail failure 193


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using a range of sources, to enable breadth of data capture, augmented bydetailed depth research processes, with cross-checking and validation of data,opinions and sources. Here, the focus is only on the international activity of thebusiness, though the same data sources have been used as in the wider

research.First, the media and stockmarket analyst coverage of M&S has been enor-mous, because of their high prole, previous success and the depth of theunfolding crisis. For example the Dresdner Kleinwort Wasserstein (2001) reportcited earlier is one amongst many analyst’s reports on the company. Secondarymaterial is thus extensive.

Second, M&S corporate publications such as annual reports are readilyavailable. These have been considered together with other public statements byM&S managers and directors available through the press or made for example at

the Annual General Meeting (which has been attended regularly by one of theresearch team).

Third, for the overall project, 12 formal interviews were conducted over aperiod of six months in 2000, with a sample of managers, executives andDirectors (see Mellahi et al . 2002 for full details). Whilst the interviews focusedon general issues of crisis development and management at M&S, commentsabout internationalization were made.

Finally, since 1998, one of the authors, a former executive at M&S and

personally involved in aspects of M&S internationalization, has conductedinformal interviews and discussions with M&S management about M&S activ-ities, utilizing his past contacts and colleagues. Most of these informal discus-sions have been by telephone and have sought to cross-check information as itemerged from the research.

The paper is structured into ve sections. First, the literature on retailinternationalization research is presented, followed secondly by examination of the concepts of failure or market exit. A description and then discussion of Marks and Spencer’s international activity follow this. Finally, conclusions are

drawn, both about Marks and Spencer and the lessons from the case for ourunderstanding of failure and internationalization.

Retail internationalization

International activity is inevitable . . . the subject area is concerned withexplaining . . . the directional or motivational issues associated with that

process. (Alexander and Myers 2000: 340)

Retail internationalization, as noted earlier, has become the subject of muchacademic study. Our understanding of the issues involved has undoubtedlydeveloped in the last decade, but questions remain. Alexander and Myers (2000)criticize those working in the subject for being overly concerned with processand insufciently worried about the pre-conditions for internationalization.Taking a broader but similar position, Wrigley (2000b) questions the ability of

existing theorizing to sufciently include the factors that are important in thecorporate landscape and the ways in which these vary over time. These broad,



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linkage-type issues can themselves be set within a framework of concern aboutretail internationalization research, which has perhaps four dimensions (Dawson1993, 1994; Pellegrini 1994).

First, there is an over-concern on describing what happens in retail inter-

nationalization. Research has become very adept at describing the opening of stores and the countries that any company has penetrated. Listings of countriesare then somehow related to degrees of internationalization. Alexander andMyers (2000) argue that this descriptive work, whilst of interest and necessary asa basis, is insufciently grounded in the pre-conditions of markets in thecountries concerned. Wrigley (2000a) states that the descriptions are notsufciently cognizant of the corporate and nancial realities of rm and globalcapital. Both points have merit, in that the description of store openings per sedoes not tell us the full story about internationalization, but is probably thenecessary starting point.

This paper however, wishes to make a different point about this work. Byfocusing on stores opened and countries entered, it is argued that the research ismissing an essential component of the internationalization process, namelyfailure. Adding up countries entered tells us something about a company’sinternational ‘reach’. Focusing as well on the relationships between countriesand locations (stores) that have been exited, and the reasons behind closures orwithdrawals, may however tell us more about the activity, process, company

realities and the pre-conditions in target markets for retail internationalization.Second, there has been a debate about the very scope of retail inter-

nationalization. Dawson’s (1993, 1994) framework lays out a very broad range of activities in which a retailer may engage, all of which may have internationaldimensions. Sternquist (1997) has challenged this approach, suggesting thatstore operations alone should be the prime focus for international retailingresearch. This debate continues (see Alexander and Doherty 2000 for anexample). At its extreme, Dawson’s suggestion helps us to situate the retail

business in the activities it undertakes, similar in a way to Wrigley’s (2000a) callto understand the nancial dimension to retail internationalization. However,

adding product sourcing, nancing, management movements and the like, doesexpand the dimensions to be considered and perhaps limits our ability toproceed other than on a detailed case by case basis (Sparks 1995, 2000). It alsohighlights the important and obvious (but sometimes ignored) point that retailinternationalization is multi-faceted and complex.

Third, the literature is full of references to aspects of theories that have beenborrowed from other sectors. This debate again has been joined by Dawson

(1993, 1994) and Sternquist (1997) and commented upon by others (e.g.Alexander and Doherty 2000). In essence, Dawson cautioned about borrowingtheories unthinkingly from research in other sectors, when retailing is such adifferent activity to those other sectors. The nature of retailing and the practice,importance and meaning of its internationalization are for example vastlydifferent to an oil producer or a water company. But the retail literature isreplete with such borrowings, particularly from manufacturing research and

generally focused on aspects of growth of internationalization (see Alexander

1997; Sternquist 1998 for good run-throughs of this work). The reasons forinternationalization and the reasons behind entry and withdrawal are it can be



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argued fundamentally different in retailing and need to be considered in thisdifferent light.

It is also generally the case that such broad theory development emphasizesestablishment over all other factors. It may become more concerned somewhat

with pre-conditions for entry, but it is still market entry that appears to be thecritical dimension. As may be expected, it is argued that considering failure (ormarket exit) in retail internationalization might also be important. For example,research has covered Kmart’s entry into Eastern Europe, as it has the morerecent entry of Tesco. However, the exit of Kmart, which provided opportunitiesfor Tesco, tends to be neglected. What were the motivating factors for this exitand what can the comparative actions of these companies tell us? Such issues areneglected in the literature, although Dawson (2001) has begun to questionwhether retail internationalization is the outcome of a clear cut, rationale,

strategic planning process or rather an ‘opportunistic’ event (see Lord et al .1988).

Fourth, the vast majority of academic research on retail internationalization isgrounded in the present. There are few studies that present a longitudinalanalysis of events, or consider the historical context. Those that do examine theprocess of retail internationalization over time – either with respect to specicretail sectors (Burt 1991, 1993; Godley and Fletcher 2000a, 2000b) or individualcompanies (for example, Laulajainen 1991, 1992; Treadgold 1991) – again tend

to focus on entry methods, patterns of investment, market entry and growth.This context also tends to focus on discussion of past actions with current (andpossibly uninvolved) decision makers, even when exploring motives for previousinternationalization (Alexander 1990; Williams 1992). Discussion of futureintentions (Myers 1995) also tends to focus on current plans for expansion,rather than any retrenchment.

There has been a considerable expansion of academic work and literature onretail internationalization. This work is however problematic in a number of ways. In particular, and in the context of this study, the literature tends to

underplay the merits of taking a longitudinal, case based approach, grounded inthe business and corporate realities of the time. It also has little to say aboutmarket exit or failure in international retailing, despite the multitude of examplesavailable from practice. This case study aims to explore these issues to help beginbuilding a broader understanding of retail internationalization. The paper nowturns to the literature on failure and market exit.

Failure and market exit: a review

It has to be recognized at the outset that the terminology in this area is inexact.A number of terms or phrases are used in the literature, but rarely are theydened. How they relate to each other is also often unconsidered. Thus forexample, failure, closure, exit, divestment or disinvestment could be examined.There is internationalization, so why not de-internationalization? Closure of abusiness by one company can mean the opportunity to move in to a market foranother. Hinfelaar and Kasper (2001) note: ‘the failed internationalization

strategy of one retailer becomes the vehicle for market consolidation foranother’. There are clearly issues to be resolved in our basic denitional



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apparatus. The terms, closure, failure or exit will be used interchangeably in thepresent exploratory research, although it is recognized that there will have to betheoretical debates about these. In this exploratory work, it is believed that thisbroad approach is the most useful to allow investigation of the subject.

There is also an issue over what is being studied and at what level. There isa long history of research on macro changes in the retail shop stock at variousscales (Converse 1932; Burd 1941; Kirby and Law 1981). Research also coversthe idea of market entry and exit at the macro-economic level (see Carree andThurik 1996; Nijkamp et al . 2001 for discussion of this). Debates about businessformation are plentiful and indeed some countries have focused their economicpolicies on ensuring a conveyor belt of new concepts, ideas and businesses.These business start-ups of course succeed, or more likely fail. This raises thequestion of predicting business failure and attempts have been made to improve

predictive accuracy, including for retail failures (McGurr and DeVanay 1998).More pertinent in the current context however, is the work at the corporate

level, although as seen above, these do not normally cover concepts of failure. Anexception to this can be found in some of the case study work, particularly thaton methods of market entry (Quinn 1996) or on structural change (Sparks1996a, b). Such case study specic work has on occasions considered in passingsituations where withdrawal from an international market has occurred (Sparks1995). Recently, Alexander and Quinn (2001) have used three brief company

examples to examine what they term divestment in retailing.There is also a question of what exactly is the focus of any such study. Thediscussion above focuses on the rm as the object of study. As noted earlier,some would argue that internationalization is about more than opening shops inanother country. It is necessary to decide whether the focus of study of failure isat the rm, outlet or activity level (or all of these?). In retailing for example, highprole international management moves that have been failures can be pointedto, for example, the sequence of Americans brought in to ‘rescue’ Laura Ashley.Failures of supply systems or withdrawal of sourcing from countries is another

example, as are international nance movements and their implications for thefunding (or not) of international activity. It is necessary to be clear whendiscussing failure or exit, that it may be highly complex and inter-related andextend beyond ideas of shop opening or closing.

It is possible to relate our study of retail international failure to the broaderliterature on business failures (see Mellahi et al . 2002 for a longer discussion).Causes of organizational failure have been examined from at least two differentperspectives. The Industrial Organization (IO) perspective locates the causes of

failure in the external environment (Lippman and Rumlet 1982; Frank 1988; Jovanovic and Lach 1989). This perspective emphasizes external constraints andimplies that forces of circumstances leave senior mangers with very little roomfor maneuver. Managers have little strategic choice but to withdraw frominternational activities because of events beyond their control, or for rationaleconomic reasons. Put differently, senior management of failing rms are theunfortunate victims of external circumstances, and that failure does not implymanagement ineffectiveness or inefciency. This deterministic role of theenvironment implies that the management role can therefore be ignored when

examining strategic decisions such as international withdrawal. The IO literaturesuggests instead a range of primary causes of crisis and decline. These include



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turbulent demand structure due to brand switching, changes in consumer tastes,or cyclical decline in demand, strategic competition due to rivalry amongexisting competitors or new entrants (Lippman and Rumlet 1982; Frank 1988; Jovanovic and Lach 1989; Baum and Singh 1994; Sheppard 1995), density of

organizations and the natural selection process (Aldrich 1979; Aldrich andPfeffer 1976; Campbell 1969; Hannan and Freeman 1978; Aldrich 1979; Ambur-gey and Rao 1996), strong unexpected environment jolts (Meyer 1982), andtechnological uncertainty due to product innovations and process innovations(Slater and Narver 1994).

It can be argued that organizational failure is a natural and objectivephenomenon (Balderston 1972), inherent to the efcient operation of markets.Life cycle theory (LCT) argues that organizations follow the path of:

Inexorable and irreversible movement toward the equilibrium of death.Individuals, family, rm, nation, and civilization all follow the same grim law,and the history of any organism is strikingly reminiscent of the rise and fall of populations on the road to extinction.(Boulding 1950: 38, see also Downs 1967, and in the retail context, Davidson

et al . 1976, among others)

This cycle of development and vulnerability is also at the heart of the wheel of retailing (Hollander 1960), which is based on the notion that organizationscommence as low cost/low price businesses, but that as the business develops soit ‘trades up’ and adds services, ambience and other more expensive attributes. Ittherefore becomes vulnerable to leaner, newer entrants, which offer shoppers thelower prices they seek. Inherent in the wheel of retailing are concepts of changeoccurring in the environment (external), but also concepts of managementseparation from consumer realities, leading to an inability to respond to threatsto the business. Whilst not universally accepted, the concept of cyclical trends or

tendencies that need to be managed or overcome is an attractive one. This leavesopen however, the question of whether failure is due to these external factors orto management failure.

On the other hand, Organizational Studies (OS) literature takes a voluntaristicperspective and places more emphasis on internal factors associated with failure(Cameron et al . 1988). Accordingly, and in sharp contrast to the IO literatureexamined above, this approach assumes that management does inuence thestrategic path of organizations, including market withdrawal and failure. Ad-

vocates of internal causes criticize IO literature on failure as being too rational,arguing that it presumes objectivity by ignoring the effects of internal factorsand the misperception of organizational members in responding to externalchanges. According to OS literature, failure is a result of management’s lack of vision and the lack of will and ability to respond effectively and make necessaryadjustments to reverse the downward spiral of decline triggered by externalfactors. The literature cites as the main internal causes of a crisis, escalatingcommitment by management to pre-existing strategies and routines (Staw 1981;Bateman and Zeithaml 1988), blinded perception by management to their

weaknesses and strengths, customers’ demands and competitors (Zajac andBazerman 1991), management malfunctioning (Argenti 1976), strategic paralysis



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(D’Aveni 1989b, 1990), threat rigidity effects (Staw et al . 1981) and structuralinertia (Hannan and Freeman 1984).

The discussion above suggests that both IO and OS orientations need to beincorporated in any consideration of retail ‘de-internationalization’. A number of

previous attempts have been made to integrate the two approaches (Levine 1978;Witteloostuijn 1998). These however have not tended to be developed in thecontext of either retailing or internationalization.

A further strand in the wider literature on ‘failure’ is the work on divestmentand particularly the divestment of activities in an international context. Benito(1997) shows that divestment of foreign manufacturing operations is common,and is related to the economic growth in the host country, the mode of organization (subsidiary or greeneld) and the closeness of the operation to thecore business activity. This is reinforced by Chang and Singh (1999), who

conclude that whilst the entry and exit mode decisions are dependent ondifferent factors, the mode of exit is strongly related to the original mode of entry. Clark and Wrigley (1997) produce a typology of exit decisions, deningthree main types: strategic reallocation, restructuring and changed corporateform and structure; and moving from the simple to the complex. As Baroncelliand Manoresi (1997) show in a retail context however, there are complications,which make simple typologies problematic. They point to a retail divestment of company stores into a franchise, commenting that this is classically an asset-

shrinking exercise, but in this case is undertaken for enhanced speed of growthreasons.The literature reviews of retail internationalization and failure and exit

suggest therefore that both are somewhat complex and problematic areas of study. There are denitional, conceptual and level of analysis difculties thatneed to be claried and resolved. Any research at this stage is thereforenecessarily exploratory in nature. One way of approaching this is by utilizing acase study to examine some of these issues and to suggest from this, aspects of retail internationalization ‘failure’ that could be more fully analysed and re-

searched, and thus help in theoretical development.

M&S: internationalization

Prior to its current decline, M&S had been one of the most successful Britishretailing companies. Figure 1 takes the simple measures of sales and prot toillustrate the commercial success of the company and the scale of the current

reverse. There is no point in repeating here the well-known history of thedevelopment of M&S from its family, market bazaar, xed price origins. Anumber of erudite texts by outside observers (Briggs 1984; Tse 1985; Rees 1989),company leaders (Sieff 1970, 1986, 1990) and internal ofcers (Bookbinder 1989,1993; Goldenberg 1989) provide more than enough detail. In addition there aredetailed (Bird and Witherick 1986) and more supercial (Davies 1999) academicattempts at exploring aspects of the company’s development. Others havefocused on specic strengths or presumed characteristics of M&S (Tse 1989;Kumar 1997; Turnbull and Wass 1998) and how other sectors of the economy

could learn from their business practices (Howells 1981; Chesterman 1984). Therecent decline of M&S has also attracted wide media comment (Retail Week



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2001) and the rst journalist authored book on the decline has already beenpublished (Bevan 2001).

Such was its domestic image and success, that M&S’s moves abroad hadbecome of interest to academics searching to understand the role of image in

retailer internationalization (McGoldrick and Ho 1992; McGoldrick and Blair1995; McGoldrick 1998; Burt and Carralero-Encinas 2000). One particularaspect of its approach to internationalization, franchising, has also been the focusof study (Whitehead 1991, 1992). M&S’s iconic status within the UK maysometimes have puzzled those from outside the country. However, by 1998 thebusiness had retail sales of almost £8bn, traded from almost 500 M&S stores inover 30 countries and owned Brooks Brothers and King’s Supermarkets in theUS. It possessed a renowned private label/retailer brand in St Michael, anenviable UK nancial services operation and made over £1.15bn prot before

tax. By any measure, this was a successful business. Two years later however this‘empire’ was in nancial and prestige terms, and for a number of reasons, ingreat difculties (Goodman 2000; Bevan 2001; Mellahi et al . 2002). By 2000,

Figure 1 Marks and Spencer recent business performance



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international activities represented 25 percent of the company’s retail oorspace,17.2 percent of its retail (i.e. not nancial services) turnover, but less than 1.25%of the pre-tax prots. Even in its most protable year (1997), this pre-tax protpercentage was only 8.3 percent. Thirty years of international retail store activity

has not produced the returns anticipated.There are a number of ways in which M&S’s internationalization can beconsidered, as it has varied over time. Dimensions of entry method, time,destination and format all are important. The discussion below provides a basechronology for the international activity, before considering details of format,entry and subsequently exit. Table 1 supports this discussion by outliningmeasures of M&S’s internationalization at ve yearly intervals. It shows clearlythe development of the company both within the UK, but also in terms of itsinternationalization. Table 2 provides details of where and how the company

currently (September 2001) operates.Marks and Spencer for a long time had an established export business that

exported product around the world to ‘appropriate’ retail partners, and on veoccasions, the company was the recipient of a Queen’s Award for Export for this

Table 1 Marks and Spencer Business Development 1975–2000a

1975 1980 1985 1990 1995 2000

Turnover (£m – current prices)UK 687b 1543 2900 4765 5596 6483Europe 9b 28 80 120 360 556US/Canada 70 175 579 544 691Rest of Worldc 26b 26 38 63 171 101Financial services 19 81 136 364Total 721 1667 3213 5608 6807 8195

Floorspace (000 sq ft)UK 5712 6374 7216 9225e 11000 12265Europe 53 154 266 325 N/a 1517US/Canada 1881 2304 3895f N/a 1421Rest of World 223Franchises 959Total 5765 8409 9786 13445h 13794h 16485StoresUK 252 251 265 292e 283 296Europe 2 5 9 11 29 40US/Canada 190 227 376g 320 328

Hong Kong 7 10Franchises N/a N/a N/a N/a 73 115Total 254d 446d 501d 679d 712 779

Notes(a) The data reported by the company changed often in the reporting period, andterminology is somewhat loose in their reports. It is best to treat the table as estimatesand tendencies therefore; (b) Estimated; (c) Initial years reect the export business, lateryears Hong Kong plus franchises; (d) Franchise store numbers excluded as unknown; (e)Includes Republic of Ireland stores and oorspace; (f) Includes stores in the Rest of World; (g) Includes Hong Kong stores as well; and (h) Excludes franchise storeoorspace.Source: Constructed from company Annual Reports and Accounts



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(and its franchising) activity. Rees (1969) comments that even in the 1960s, thisexport business involved sending products to over 50 countries. The expatriateand military (NAAFI) markets were the focus of this business, but other

countries were involved. This business grew substantially in volume over the1970s, but was always subject to the vagaries of import bans and international

Table 2 Marks and Spencer group locations (at 30 September 2001)

Marks and Spencer Marks and Spencer franchisesNumber of stores Number of outlets

United Kingdom:

310 includes 8 outlet centres Bahrain 1Bermuda 1

Belgium 4 Canary Islands (5)France 18 Gran Canaria 3Luxembourg 1 Tenerife 2Netherlands 2 Channel Islands (4)Portugal 2 Guernsey 1Republic of Ireland 4 Jersey 3Spain 9 Croatia 1Hong Kong 10 Cyprus 8TOTAL 353 Czech Republic 3

Finland 6Gibraltar 1

Marks and Spencer Direct 1 Greece 28Hungary 4Indonesia 9Israel 6Kuwait 1Malaysia 3

Malta 3Philippines 9Poland 1

UK Regional Stores Qatar 1England 268 Romania 1N. Ireland 7 Singapore 6Scotland 22 South Korea 5Wales 13 Thailand 10

Turkey 11UAE 2

TOTAL 130Brooks Brothers Brooks Brothers franchisesNumber of stores Number of storesBrooks Brothers USA: 155 US Airports: 4incl. 79 retail stores, 75 outlets, 1 clearance Hong Kong 5Brooks Brothers Japan 65 Taiwan 2TOTAL 220 China 1

TOTAL 10

Kings Supermarkets Group Worldwide Locations

Number of storesUSA 27 TOTAL 750

Source: http://www2.marksandspencer.com/thecompany/downloads/store_information/index.

shtml (downloaded 12th November 2001)


http://www2.marksandspencer.com/thecompany/downloads/store_information/index.shtmlhttp://www2.marksandspencer.com/thecompany/downloads/store_information/index.shtml


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trade ‘wars’. Export sales outside the group (Table 3) had reached £35 millionby 1978, before trade embargoes, various wars e.g. Nigeria, the Iranian Revolu-tion, and exchange rate problems pegged back growth. Nonetheless, it would bewrong to characterize the pre-1970s M&S as a wholly UK business, as manypreviously have. Indeed, as Table 3 shows, this export business provided not onlyimportant sales opportunities but also valuable pointers towards areas of businessopportunity. Some of the partners were transformed formally into franchisees asinternationalization activity strengthened (see below). As Finlan (1992: 58) notes:

‘Export of goods enabled the business to establish a series of good personal andbusiness relationships’.This export business took a variety of forms and depth of agreement. For

example, M&S had an agreement with Isetan to sell products in Japan between1970 and 1978, after which Daiei became the partner in a wider agreementinvolving managerial know-how and technology transfer. It is not known to uswhy one partnership ended and another began. For other countries, there was inessence a wholesale operation targeting retailers and trying to expand sales.Some relationships were simply entrepreneurial in the export context e.g. an

Indonesian entrepreneur buying $1.5m of goods in 1990, for resale in Jakarta. Asa consequence he became the Indonesian franchisee a couple of years later. Some

Table 3 Export sales (£m – current prices)

Year Total exportsDirect exportsoutside group Of which

Europe America Africa Far East

1977 40.4 24.31978 53.2 35.11979 44.0 25.51980 46.7 26.31981 47.6 22.31982 58.0 26.5 14.0 2.2 5.9 4.41983 67.9 27.6 15.6 3.1 3.2 5.71984 84.0 33.2 18.3 2.2 5.2 6.51985 92.7 38.2 19.5 4.8 7.6 6.31986 106.3 44.8 25.6 6.4 4.8 8.01987 115.1 45.0 27.8 6.0 2.4 8.81988 126.1 46.5 34.0 5.0 2.5 5.01989 125.4 45.8 37.0 3.4 1.8 3.61990 136.0 49.3 39.6 3.2 1.3 5.21991 164.0 59.0 47.3 2.9 1.3 7.51992 N/a 62.7 50.0 12.7(a)1993 232.2 73.3 57.6 15.71994 280.8 87.2 66.8 20.41995 339.8 99.8 69.4 30.4

1996 381.6 114.8 81.6 33.21997 458.5 (b)1998 469.61999 440.2

Notes(a): From 1992 direct export sales reported as Europe and Rest of the World; (b): From1997 direct exports incorporated into new geographical reporting structureSource: constructed from company Annual Reports and Accounts



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deals were made for locations e.g. Panama that served as a staging post for othercountries e.g. elsewhere in South America. The full details of all this activity arenot in the public domain, but as Finlan (1992) points out, it was not allbenecial, except in total sales terms. There was no control, no contracts in some

cases, variable standards and inconsistent brand presentation. Across the world,M&S product was sold in a variety of guises and situations, not all reectingpositively on the company.

This export activity, to a considerable extent, held little developmentalattraction. Export sales have declined in importance as this business haswithered or been converted (Table 3). Some of the better opportunities fordevelopment were formalized in franchise agreements, as for example in Greeceor in island communities such as Jersey, Malta and Cyprus, or elsewhere as inPortugal. Other markets were left to their own devices. Long-standing partners

sometimes transferred to franchises as with Rustans in the Philippines. Otherssuch as Dodwells (Inchcape) in Hong Kong, saw their export agreementterminated in 1987 as M&S decided to open its own stores there.

The rst formal store-based internationalization occurred in 1972, when astakeholding was purchased in three Canadian clothing retailers. The minoritystakeholding was bought out and full ownership assumed when Canadianlegislation changed in 1978. These three chains, D’Allairds, People’s andWalkers (the last of which were re-branded as M&S stores) operated as the main

international activity of the business for some years. However, this was not a veryprotable venture and its fortunes uctuated dramatically (Figures 2 and 3).Despite growing to 275 stores in Canada (an increase of almost 50 percent frompurchase), and even starting a brief D’Alliards excursion into New York State inthe late 1980s, M&S never made Canada succeed. The store numbers were cutsharply in the 1990s, D’Alliards was sold off in 1996, at a loss on disposal of £25m, and subsequently (1999) the entire Canadian operation was closed, at acost of £25m plus £24m goodwill write-off. Market exit in Canada took anumber of forms over time (stores closed and/or relocated, stores sold-off and

eventually chain closure), but all were basically related to a poor economicperformance of the business.

Marks and Spencer entered the US in 1988 through purchases of the up-market clothing chain, Brooks Brothers (which also had stores in Japan) andKings Supermarkets, a 16 store New Jersey chain. As with Canada, thisacquisition has never really produced the results expected (Figures 2, 3), despitestore expansion of both chains. As part of the March 2001 restructuring, bothchains are up for sale, though in reality bids for the companies have been

encouraged (though have not been forthcoming) for the last two years. Thisproposed market exit would seem to be different to Canada, as here thebusinesses are protable and broadly successful. Exit reects perhaps the entryprice paid and thus a failure to meet performance expectations and morerecently a perceived lack of ‘business t’.

In the 1970s, M&S also began an organic market entry strategy in parts of continental Europe (Table 4). The rst store to open (subsequently expandedand at the heart of the 2001 restructuring crisis) was in 1975 at BoulevardHaussmann in Central Paris. This was soon joined by a store in Brussels,

Belgium. In France, Belgium and Ireland store numbers grew slowly over the1980s, until another wave of expansion in the early 1990s when Spain and the



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Netherlands were added to this company owned operation. This was followed bya long-awaited entry to Germany in 1996. This corporate store business was

never dramatically large, as the store numbers show, or particularly fast-growing,but growth did continue and the business seemed to be solid, particularly inFrance and Ireland (another country where the export deal – with Dunnes – wasterminated in favour of store development). In the late 1990s however, storenumbers in Germany and France were cut as problems continued in thebusiness. Exit here was therefore initially at the store level, rather than thecountry level. Europe was not the only part of the international expansion to betotally under central control. Perhaps surprisingly, Hong Kong stores opened

under corporate ownership in 1988 and expanded rapidly until the economiccrisis in the region in the late 1990s, although this expansion was not without itsproblems (Jackson 1998).

The nal strand of the international activity has been franchise stores (Table5). The franchise route has been used in a variety of markets over time. Itevolved in the late 1980s, largely growing out of a formalization of the existingexport business, and driven by a desire to control and manage standards of presentation and the wider M&S brand in selected export markets (Finlan 1992).‘St Michael’ franchise stores and shop in shop outlets were present in 16

countries by the start of the 1990s, and in Annual Reports were publiclyrecognized as a means of expansion in markets not deemed suitable for company

Figure 2 Sales by business component (£m)NoteSales here are as reported in the Annual Accounts i.e. at the prevailing exchange rateseach year.



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Figure 3 Prots and losses by business component (£m)NoteSales here are as reported in the Annual Accounts i.e. at the prevailing exchange rateseach year.

Table 4 Company owned Marks and Spencer store developments: Europe and Asia

Year of Number of storesCountry entry 1980 1985 1990 1995 2001

France 1975 3 6 8 16 18Belgium 1975 1 2 2 3 4Ireland 1979 1 1 3 3 4Spaina 1990 – – 1 5 10Netherlands 1991 – – – 2 2

Germany 1996 – – – – 2Luxembourg ? – – – – 1Portugalb 2000 – – – – 2

Hong Kong 1988 – – 3 7 12

Total 5 9 17 36 55

Notes(a): The Spanish operation appears to have begun as a franchise, but was then convertedinto a joint venture with Corteel (80 percent M&S), who were themselves bought outby M&S in April 1999 for £6.2m. (b): Portugal was a franchise operation but this wasclosed in 1999, with a smaller number of company owned stores opening in 2000.Source: Annual Reports and Accounts



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owned stores in the mid 1990s (effectively non-core Western Europe). The storesare typically much smaller than the UK stores and the ‘colonial’ base of some of the export business is easy to identify. Some stores have been branded M&S,others St Michael. As with all franchise arrangements, this venture was

supposedly geared at utilizing local expertize. There have been outright suc-cesses (e.g. Greece) and failures (e.g. Austria), but in many countries this is nota large operation, nor one with huge growth potential (Table 5). In line withexisting academic thought, it might be argued that franchising has been used forthe more remote (from the UK) parts of the world (e.g. Indonesia andThailand). However, as Hong Kong was set up as a company operation and therehave been European franchises, the strategic reality is more mixed.

It is also clear that the choice of partner in each country and the ambitionlevels of, and for, each partner are mixed. There have been problems in a number

of countries, necessitating closure of stores or even temporary or permanentmarket exit. The Portuguese franchise agreement was terminated in 1999 after arange of problems, including nancing and standards of the stores. Israel andTurkey are other countries where the partner has changed. Austria has closedcompletely. Choice of partner and maintenance of standards are key franchisingissues. Some partners have multiple countries to run e.g. Al-Futtaim Sons in theMiddle East and Robinsons in Singapore and Malaysia. Other agreements arejoint ventures set up to manage a franchise. Hungary is run by an Austrian/

Hungarian partnership, whilst Romania is operated by a partnership of theexisting Greek and Turkish M&S franchisees.The details of the franchise agreements are not revealed in Table 5, but

obviously affect performance and thus market exit. The number of franchisesthat have changed hands or failed to grow is quite striking. This could be due toproblems in the franchise partner’s business generally, their ability as a retailerto understand the local market and to select appropriate M&S product ranges,the use of varying formats within countries or other essentially internal country-based reasons. On the other hand, questions could be raised as to the contract

from M&S in terms of length of time (and thus rate of return), pricing of products at supply and thus consumer levels, availability of supply and otherrestrictions on activities. Problems in these areas together make it very difcultto develop franchises protability and thus have led directly to store closures andmarket withdrawals. It is perhaps signicant in this regard that the mostsuccessful M&S franchise, Marinopoulos, seems to have disregarded many of thestandard M&S franchise restrictions. A full consideration of such operationaland control issues is beyond the scope of this paper. It is sufcient here to note

the impact such issues have on entry, performance and withdrawal (Quinn andDoherty 2000).Table 6 summarizes the exit strategies followed by M&S. The table shows that

there have been a range of both entry and exit strategies used, and that there arerelationships between them, in that an exit decision can lead to a new entrymode. The table also suggests that there are issues about the level of exit e.g.store or country. It is also suggested that there are different reasons behind thedifferent exit strategies reported here, and that whilst some of them areeconomic in nature, not all of them can be seen in this way. It would seem that

there are linkages between modes of entry and entry decisions and subsequentexit decisions, but it is not believed that one is simply a mirror image of the



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Table 5 Franchise store operations

Country Partner Entry Exit Number of stores

1994 1997 2001 Note

Abu-Dhabi

(UAE)

Al-Futtaim Sons 1998 – – 1

Austria Thomas Feldmanthen (1998)Al-Wazzan

1994 2000 2 3 – (a)

Bahamas Archie Brown 5 5 1 (b)Bahrain Al-Futtaim Sons 1998 – – 1Bermuda Tess Ltd 1992 1 1 1Canary Islands Galloway Ltd

(Tenerife) and

Confecciones Martel(GC)

by 1988 3 3 5 (c)

ChannelIslands

Le Riche (J) andCreaseys (G)

by 1988 7 4 4 (c)

Croatia Al-Wazzan then(2000) Marinopoulos

2000 – – 1

Cyprus Voice la Mode andSymeonides FashionHouse Ltd

by 1988 9 8 8 (c)

Czech

Republic

COMS 1996 – 1 3

Dubai (UAE) Al-Futtaim Sons 1998 – – 1Finland OY Stockmann AB by 1992 – 5 6Gibraltar York Ltd by 1988 1 1 1Greece Marinopoulos by 1988 7 9 14 (d)Hungary JV between Demexco

(Vienna) and S.Modell (Hungary)

1988 2 2 4

Indonesia PT Maikelindo 1992 5 5 8Israel MSIF (Blue Square)

then (1996/1999)Golf Kitan

by 1991 8 7 7

Kuwait Al-Futtaim Sons 1998 – – 1Malaysia Robinsons 1996 2 2 3Malta Supermarkets (1960)

Ltdby 1988 3 2 3

Norway Brynild Salg AS 1988 1996 1 – – Philippines Rustans (Stores

Specialists Inc.)6 7 9

Poland MSF Polska 1999 – – 1Portugal CRB 1988 1999 4 6 – (e)Qatar Al-Futtaim Sons 1998 – – 1Romania JV between

Marinopoulos andFIBA

2000 – – 1

Singapore Robinsons 1992? 7 7 6South Korea D&S Ltd (Dae

Sung)1997 – – 5

Spain Corteel 1988 1990 – – – (f)

Thailand Central Group(Suvimol)

1993 2 6 10



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other, or that our understanding of internationalization entry can simply transferover to internationalization exit.

M&S: understanding internationalization and de-internationalization

The discussion above has described the components of international activity(entry and exit). This section attempts to understand this described process byexamining themes in this internationalization.

One of the key themes in retail internationalization is the motivation of

businesses and the direction of retail activity. The motivation for the purchase of the Canadian chains has primarily been ascribed to a set of circumstances andfactors in Britain at the time (see Whitehead 1992). To understand the expansioninto Canada, the political and economic situation of the time, as well as theinterests of the Marks and Spencer founding families has to be considered. Fromprior to 1939, much of the family fortune was invested within the UK, but alsoin South Africa in the Woolworths (SA) organization run by the Sussman family(grandchildren of Michael Marks). Indeed, from 1947 there has been a formalagreement between the two companies on matters of management know-how

and technological transfer, as well as an agreement not to trade against eachother in Africa and the Middle East (Gerdis 1999). Because of the growing

Table 5 Continued

Country Partner Entry Exit Number of stores

1994 1997 2001 Note

Turkey Turk PetrolHoldings, then FIBA(1999)

1995 – 2 12

Total franchisestores

76 85 118

Total countries 18 20 27 (g)

Note(a): Austria did have four stores in 2000, but trading difculties saw them close; (b):Bahamas are not included in the company list as at June 2001 so could be closed; (c): In

each of these ‘countries’ there are two partners with separate spatial agreements; (d): Thecompany list of June 2001 claims 28 franchise outlets in Greece. We believe this isachieved by adding in-store operations; (e): The 5 stores of the Portuguese franchise(CRB) were closed in 1999 when M&S severed the relationship. M&S subsequentlyreopened two stores as company stores; (f): Spanish franchise became a joint venturewith Corteel; (g): Other countries have often appeared in the media as possible targetsor even with agreed deals for Marks and Spencer franchises e.g. Russia, Japan. Howeverthe truth behind these reports is hard to ascertain and they appear to be incorrect. In theAnnual Reports for the late 1980s, the company mentions franchises in Denmark andSweden, but it is understood that this was not an accurate description of the activity.

More accurately, a deal for a franchise in Australia was concluded with Just Jeans in 1997,but was ‘delayed indenitely’ in 1998. Most recently, franchises have been announced forIndia (with the Hong Kong owned Planet Sports 08/2001) and Saudi Arabia (Al Farida09/2001).Source: Annual Reports and Accounts (all years), company web site (2001), reportsobtained via Lexis-Nexis, interviews and personal communications.



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condemnation of the Apartheid regime in South Africa, many businesses werewithdrawing their funds. At the same time, the UK Labour government of the1960s had made noises about extending nationalization into retailing. Chainssuch as M&S viewed themselves as possible targets in the future. These twoissues resulted in investment in Canada, where the Chair and CEO of Walkers,Abraham Gold, was well known to the M&S families. Entry therefore may nothave been for the most positive of reasons.

Unfortunately however, Canada was not a successful retail venture (Figures 2and 3). Supply chain problems were never properly addressed, nor were the

Table 6 Marks and Spencer internationalization exit

Mode of international activity Exit methods Example Possible reason for exit

Export business(undated origins)

Allowed to decline NAAFI Declining market

Crisis withdrawal Nigeria Risk evaluationTransformed intofranchises

Philippines Market opportunity

Transformed intocompany stores

Hong Kong Market opportunity

Corporatepurchases (1972,1988)

Partial sell-off Canada Business restructuring toattempt turn-around

Close down Canada Failure to make returns of investment

Total sell-off USA Failure to make sufcientreturns, business t, raisemoney

Franchises (1987onwards)

Agreements notrenewed

Israel Franchise performance

Trading declineleading to partial

closure

Singapore Economic view of storeperformance

Trading declineleading to fullclosure

Austria Franchisee withdrew dueto losses

Converted to jointventure

Spain Market opportunity, toimprove corporate returns

Converted tocompany stores

Portugal Franchisee performanceunacceptable

Company stores(1975 onwards)

Closure of selectedstores

Germany Economic view of storeperformance

Sold-off France Stores not protable,buyer available

Converted tofranchise

Hong Kong To save corporatemanagement effort

Closed down Belgium No buyer for storesdeemed to be unprotable

Joint ventures(1990 onwards)

Converted tocompany stores

Spain To maximize returnscentrally

Sources: Annual Reports and Accounts, foreign newspaper reports obtained through

Lexis-Nexis



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fundamental differences between the Canadian and the UK clothing require-ments. It would also appear that Canadians never ‘got’ M&S. Its positioning inthe UK market was replicated for Canada, but in a different competitiveenvironment, its position was not seen as distinctive nor unique and the brand

lacked meaning (Burt and Sparks 2002). Certainly, its merchandise did notwarrant its price premium. The business model did not transfer (Evans and Cox1997).

Investment was poured into the Canadian operation throughout the 1970s and1980s but without any real impression on the problems. Indeed, it could beargued that a reckless expansion of a bad business took place. When Lord Rayner(the rst non-family member to chair the company since the turn of the century)took over, he wished to establish the business as a true international player. Thefocus thus switched to the USA and resulted in the purchase of Brooks

Brothers. In retrospect, this was seen as a poor buy for M&S in that the pricepaid was too high and the costs of turning an exclusive chain into a moregenerally available operation outweighed the benets. Returns were never as highas anticipated (Figures 2 and 3). One of the main parts of the deal, space forM&S stores in Campeau’s malls in the USA, was never taken up. M&S inessence never were able to run and fully develop these very different chains.

Whilst it could be argued that Canada and then the USA represent culturallysimilar situations to the UK, in fact the peculiarities of M&S (see later) made

them very different. The exit strategy adopted has been to sell off assets inCanada and eventually to close down the remaining operations. In the USA, theexit is being managed through an offer to sell. Sell-off as a strategy is possiblebecause of the ‘distance’ between the chains and M&S core business.

Second, the multi-dimensional approach to store internationalization does notappear to be that coherent. In essence, the business became a collection of activities with little synergy and mix. Canada had been problematic for years.There was no direction in the United States purchases and no synergy. Thefranchise operations were a mix of the small, colonial, developing markets and

random other countries. There was seemingly no rationale in the choice of countries, or strategy in where to move next. At various times reports of M&Sfranchises opening in Russia, Australia, Taiwan, Japan and China amongst othershave appeared in the press. The choice of franchisees seems almost haphazard,and it is unclear if the details of the franchise deal helped or hindered. In somecases it would seem that international expansion initiative has been directedmore by franchisees than by M&S. Company-owned stores abroad were develop-ing slowly, with interest shifted from Europe to Hong Kong. Further, a range of

branding approaches was being used. In North America the bulk of theoperation did not trade as M&S, unlike in Europe. The franchises were mainlybranded as ‘St Michael’. At home, the operation was struggling with recession(see Figure 1) and a switch in locational and format emphases, encompassingmore off-centre and out-of-town stores and stand-alone formats. In short, thecompany was a collection of operations with little apparent overall strategy, otherthan a belief in their own business model and power. This belief was, in terms of the home market, apparently well founded until the late 1990s. However, theconsequences of this ‘pick and mix’ approach to the international business were

all too predictable. No one element of the international business obtained theattention and direction it needed and potential synergies were not recognized



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and achieved. The brand potential was never fully leveraged internationally.Purchase or entry alone seemed to be the driving factors, rather than a desire todevelop the businesses. Store closures, franchise withdrawals and market exitswere the all too obvious consequences.

Third, M&S have always held to a belief in their way of doing things above allelse. For example the well known ‘Buy British’ policy, the lack of advertising andmarketing, a refusal to take credit cards and a long time resistance to out-of-towndevelopments all marked the company out as different. Mellahi et al . (2002)show how this belief created a cycle of misunderstanding of the marketplace inthe UK, which reinforced the decline, once crisis hit in 1998 (see also Bevan2001). The same holds true for the international operations. The peculiarities of the operation, as for example the long standing aversion to changing rooms andcredit cards in the UK, were problems for the international operation to

overcome. The reliance on the St Michael brand to hold meaning internationallycreated another problem. It worked in the UK, so why would it not workanywhere else? Product sourcing that was heavily based in the UK, particularlypost-1996, and to a far greater extent than in competitors, damaged the companynancially through the price positions adopted and the currency uctuationscaused by the steady appreciation of Sterling. At the same time, the internationaloperations were not insulated from market property prices as in the UK, whichhid the problems in Britain for some time, yet at the same time made overseas

businesses look comparatively under-performing. To a considerable extent, whatwere perceived as strengths at home, were weaknesses abroad. In turn of course,these have now become institutional weaknesses at home as well.

Finally, we can consider the current restructuring plan. Canada has alreadybeen closed, after two decades of problems and weak performance. The USchains are up for sale. The Hong Kong store business is to be converted into afranchise. With the exception of Ireland, the company stores in Europe are to beclosed or sold-off as assets (there were also seven previous store closures inGermany and France a year before). This restructuring is to allow concentration

on the problems of the British core chain, where modernization and marketpositioning are fundamental to any restructuring. Yet it is pertinent to ask justhow much core management time and effort was involved in these internationaloperations, as the evidence indicates that it was relatively little. Many of theprevious idiosyncrasies of the business are to be eliminated. However, the waysin which the closure announcements were made remain the subject of Frenchlegal cases, one of which M&S recently (September 2001) won, although othersremain to be decided. Whilst these legal cases have now forced M&S to sell the

stores rather than close them (thus protecting jobs to some extent), they couldnot reverse the fundamental decision. This is not really the issue however. Theclosures in France illustrates one aspect of a number of issues in the process of market withdrawal.

The French position is that businesses have moral and social as well as legalobligations to their employees and to the countries in which they operate.Companies who wish to cease operations have to negotiate this with theworkforce, provide alternatives and pay appropriate compensation. There arethus legal ties on market exit, just as there are in some cases on market entry. In

many ways, these issues are similar to many of those raised by Davies (1995) inhis analysis of the effect of Trade-Related Investment Measures (TRIMs) on



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retail internationalization. The M&S affair shows not only that the ‘playing eld’in this regard is not level within Europe, but also that such considerations affectboth market entry and market exit. For international businesses, some countriesoffer an easier entry and exit route than others, and thus may be favoured for

investment. Compare for example the furore over M&S, with the decision in2000 by C&A to close its entire 108 store chain in Great Britain. There was nooutcry, yet the job loss total was approximately the same. The closure announce-ments may have been handled differently internally by the two companies, butthe overall effect remains. Far from a British or Anglo-American disregard for‘rights’, the comparative events show that the country of origin of the retailermay be irrelevant. What are important are the legal requirements in the countryof operation. This raises interesting questions about harmonization of labour andcommercial laws and their applicability to international retail operations, includ-

ing affecting decisions on entry and exit.

Conclusions

Our experience illustrates that to succeed internationally when enteringmature markets, you must adapt your store formats to the competitive realitiesof these markets.

(M&S Annual Report 2001: 1–2)

Why did the internationalization activity of M&S fail? With hindsight, it mightbe said that there are a number of inter-connecting reasons. First, there has beenno overall internationalization strategy. Some of the activities have been seren-dipitous; some were probably misguided. But the range of activities and theincoherence amongst them, tends to point to a lack of direction over a longperiod. This is a management failure. There were global ambitions for thebusiness, as evidenced in the ‘Quality, Value, Service, worldwide’ promotional

line of the mid 1990s, but no real commitment to converting these ambitionsinto something concrete. Second, many of the elements that made M&Ssuccessful in the UK, did not apply in the global arena. The long-sustained buy-British policy, the peculiarities of the retail operation, the emphasis on a Britishbrand alone and the lack of clear retail positioning and design, all presentedproblems in the global situation. This suggests that in addition to entry, thereshould be concern with activities after establishment. Third, despite the lengthof time in international activities, there was no experience of decentralized

control of businesses and the systems needed to develop these businesses. Valuesin the companies taken over were not enhanced. Arguably M&S never reallyunderstood what they had bought, as it was so different to their own operation.When the crisis hit at home, the reaction was quickly to distance themselvesfrom this global operation. If it had really worked, then this internationaldimension could have been a source of strength in times of crisis. In short, thefailure of the international operation falls at the feet of successive M&Smanagement teams.

This study lends more credence to the OS perspective discussed earlier than

to the IO perspective. The international failure of M&S was not a product of external constraints alone. M&S management often had a genuine choice to



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enter and exit international markets. Management had the ability to choosewhere, when and how to enter international markets and when, where and howto exit from them. The argument that rms withdraw for rational economicobjectives alone provides only a crude indication to why rms fail internationally.

It is suggested that the issue of who makes such choices needs to be examinedin more detail when studying international failure.So, what else does this case say about the literature on failure and inter-

nationalization? Four key issues can be suggested here. First, it would seem thatthere may be differences between crisis and failure at home and abroad. Marksand Spencer had crises abroad over a long period of time, but whilst theyaffected in some way the parent operation, they could not be said to be businessthreatening. This suggests that in companies that are multi-national in theiractivities, crises differ in their degree and their importance. Whilst self-evident

to some extent, it does argue that failure needs to be looked at in businesses atvarious scales, including both organizational and spatial scales. Internationalfailure may be caused by failure at home rather than operational failure in theoverseas market. It might be argued that if M&S had not suffered such a crisisat home, then their poor international performance would have been less visibleor problematic. However, in this more global retail market place and withcontinuous analysis of companies, it is more likely that their continued problemsabroad would have impacted on the market view of the potential for the business

in due course.This paper would also argue that the case demonstrates clearly that models of internationalization focusing on growth patterns and development alone areinadequate. Whilst there are some links to concepts of expertize in internationalactivity, this failure case shows that it is necessary to understand how and whyfailures in internationalization occur in order to fully conceptualize the changingretail internationalization world. Studying only the market entry of Marks andSpencer is simply inadequate. Internationalization studies need to considermarket entry failure or withdrawal in terms of issues of corporate management,

market issues themselves and business method issues. Also it might be useful toadd to these issues which have not been covered in detail here, such as theclosure of other non-shop based activities such as buying ofces, and themovement of stores at locational levels within countries e.g. the urban hierarchyand micro-locations. At the moment, retail internationalization theory wouldseem to be covering only one part of the internationalization story.

Third, the case also raises the issue of what is meant by failure in inter-nationalization. M&S have changed and altered their international activities,

swapping modes of operation and indeed withdrawing from some activities,locations and countries. Franchise partners have failed, but the internationalactivity has continued. There are elements of closure, failure, exit and divest-ment as well as complicated activity switching. Our lexicon to describe,understand and conceptualize this is insufciently developed.

Finally, there is a specic issue raised by the M&S case in this regard. Marksand Spencer have announced a radical restructuring plan as detailed earlier. Thisplan abandons much of the international activity to concentrate on the UK. Partof this plan provides for a major dividend reimbursement to shareholders on

completion of property and closure activities. Leaving aside questions of whichstores in continental Europe may or may not make prots (as the data are not



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really available), it does seem that much of this plan is driven by the need tosatisfy institutional shareholders and the London Stock Exchange, who saw theirinvestments in the company decline massively in value. Financial imperativesmay be dictating the scope of the restructuring of the international activity (they

seem to have succeeded to date in this regard as the share price has risen sharplysince the depth of the crisis, though it remains at a level half its peak some yearsago).

The case study of M&S’s internationalization experiences has demonstratedthat any account of retailing development has to include issues of inter-nationalization and failure. Their story is one that is relatively common, yetunder-reported and under-researched in the literature. Perhaps this case studycan be the start of a fuller study of these issues and begin the process of conceptualizing all international retail activities.

Acknowledgements

The authors thank the referees for their useful and helpful comments, as well as otherswho read some or all of the manuscript and gave advice generally or on points of detail.Helpful information about commercial aspects of the franchise relationships was alsoreceived from a number of individuals who must remain anonymous.

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