Costco Strategy for Entering Denmark Market

Costco operates a global chain of membership warehouses designed to sustain medium and small-sized businesses to buy resale at low costs. In 2015, Costco (Costco Wholesale Corporation) was rated as one of the largest retail companies globally, second only to the US giant Walmart on based sales revenue. The company had expanded its operations into eight international markets, including Japan, Canada, the United Kingdom, Australia, Mexico, and South Korea, successfully penetrating the markets despite the turbulent economic situations prevalent in some countries. Costco defied the stereotypes and implemented an unconventional business approach to position itself as the leading multinational retailer (Sullivan & Gouldson, 2016). This essay explores Costco’s strategy to enter, compete, and grow in Denmark retail market. The strategy recommendations will cover strategies for entry and growth, organizational architecture, control systems, processes for building capabilities, innovations, and people motivation approaches.

Costco Entry, Competing, and Growth Strategy

            Entry and growth in the global markets are never exclusively because of grand design, but they cannot result from random and opportunistic moves or ad hoc. The best strategy should involve a set of “directed opportunism,” a strategy that maintains flexibility and opportunism with an extensive direction as a systematic framework (Watson et al. 2018).  For Demark’s market entry, competition and growth, Costco should begin with a joint venture strategy and then adopt a takeover/acquisition and direct foreign investment (DFI) strategy once it has acquired enough knowledge of the market.

Joint Venture Strategy

            With a joint venture strategy, Costco can work with other local retail companies that have established and made a mark for their brand in the Denmark market and choose a joint venture model that works for both parties. Costco will leverage the local partner market presence and brand reputation, while the native firm can expand its product portfolio and business operation using Costco’s brand name. Joint venture offers lots of advantages to Costco in the foreign market than outright direct foreign investment or acquisition. Costco will leverage the local partner’s established local customer-based and distribution capabilities and local employee base while gaining experience and knowledge of the new market. The company will also leverage the local partner’s brand name to gain market credibility (Watson et al. 2018), competing on a level footing with other local competitors.

            A joint venture is also less risky compared to direct foreign investment or outright acquisition. The capital investment is more petite and provides flexibility if the local market condition is unfavorable because the joint venture interest or shares can be sold back to the partners. It is less costly to sell back shares than to shut down the entire operation/office or write off an acquisition. Foreign companies can also take advantage of taxes, particularly in jurisdictions where foreign firms are charged higher (Watson et al., 2018). Costco can make more investments when the local market proves attractive grow market share through outright acquisition and FDI.

Takeover/Acquisition and DFI Strategies

            Once Costco has established market credibility and assessed the favorability of the Denmark retail market, it can embark on the acquisition and direct foreign investments to expand its market share and grow the brand and local presence. Costco can buy out local retail companies with the acquisition model and gain immediate and instant access to the customer base and sales networks (Watson et al., 2018). The strategy allows Costco to takeover already operating businesses and transfer controls and operational processes easily. The company can also make a direct foreign investment, establishing new shops from scratch in different parts of the foreign country to expand its business (Watson et al., 2018). With DFI, a company decides to open shops in attractive market points to get a first-hand feel of the market while growing the business. Outright acquisition and opening of a new store from scratch require a lot of capital investments (Watson et al., 2018). Hence, the strategies should only be options where the firm has knowledge and experience about the local market and is clear about its strategic moves.

Costco Organizational Architecture for Denmark Market

            Organizational architecture or structure is the configuration adopted to connect different company components to address the corporate needs. Organizational architecture varies depending on the corporate culture in the country of interest. In the United States, where Costco has its roots, the most common organizational architecture is a functional structure for large organizations such as Costco and a divisional structure for smaller enterprises. A functional corporate architecture groups the workforce by specialty, roles, or skills-based on hierarchy, including departments directed by a designated leader. However, Costco will have to shift to a flat organizational structure for the Danish market, most common in Denmark. A flat organization architecture has fewer or no middle-level management between the executive and staff. Danish corporations have very flat hierarchical structures. Individuals interact and relate to each other as equals irrespective of the formal formation or job titles. Staff and management/executives address one another by first names (Maskell, 2004). Company decisions are also deliberated in forums, with every employee having an equal say.

Understanding the organization and business culture of the foreign market is vital for the success of multinational companies. Understanding and implementing the culture of the foreign market gives an organization a competitive edge. Naturally, people love to work for organizations with good reputations. An organization with a positive organizational culture that resonates with the market will attract positive talents. The workforce is willing to make the organization a home instead of a temporary half (Adekola & Sergi, 2016). Hence, Costco should strive to adopt an organizational structure that resonates with Denmark’s corporate culture,

Control Systems for Costco in Denmark

An organizational control system allows the management to track its performance, establish areas of concern, and take appropriate actions to prevent them. Costco’s basic control systems in the Denmark market include output control, behavioral control, and clan control. Output control systems focus on measurable outcomes within the company and are critical in assessing a new need. Output control systems that Costco must have include profit objectives, sales quotas, and levels of customer satisfaction. In each case, Costco executives must establish the desired performance level, communicate the expectations across the organization, and track if the performance meets the expectations and necessary changes needed. Costco must also implement behavioral control systems, focusing on actions and behaviors that produce the desired results. Consumer or shopper behavior is critical to success (Stehnei et al., 2017). Shopper behaviors are buyers’ emotional behavior and actions during the shopping process.

Costco must observe the products that draw customers’ attention in physical shopping, the product or store layout that confuse customers, how the clients navigate the store, customers’ preferred shopping time, noticeable demographic patterns, such as working age, and the emotional response throughout the shopping experience. Costco should also ensure that its online transactions are easy and secure, products delivered on time to create consumer trust when ordering online.  Perceived security and ease of transaction coupled with on-time delivery correlate with confidence for shoppers who believe they have unlimited control over where to shop. Customer experiences are essential for determining the type of products to stock, store layout, and how to treat customers in the foreign market. Consumers must believe that the retailer is efficient, trustworthy, and not cheating on them. Consumers who do not trust shoppers often cancel the online buying process and may not visit the physical store (Sembada & Koay, 2021). Hence, Costco’s control systems must focus on building and sustaining consumer trust. 

Processes for Building Capabilities, Innovating and Motivating People

Costco must have a systematic approach to exploring and enhancing core capabilities, innovation, and workforce motivation to create and sustain a competitive advantage. The most straightforward approach for the company to gain an edge in the foreign market is by first exploring the capabilities and innovations developed at home. Costco can leverage its concept of a low-cost model to attract price-sensitive consumers. Several companies, including Walmart, have successfully transferred the idea of a low-cost strategy to foreign markets. Because Costco is taking a joint venture as the entry strategy, it can implement some of its homegrown strategies to build capabilities as it studies the market. Costco executives should give workforces a sense of freedom to express themselves and ideas to enhance innovation and motivation. Companies that impose strict rules suffocate employees’ creativity (Ukko et al., 2016). The employees feel demotivated and reluctant to think outside the box.

Overall, this essay examines Costco’s strategy to enter, compete, and grow in Denmark retail market. The paper has extensively explored strategy for market entry and growth, organizational architecture, control systems, processes for building capabilities, innovations, and motivating the workforce to be creative and motivated to work.