Introduction
Costco is an international retailer which began in 1983 with its headquarters located in Washington in the United States. The retailer has several branches worldwide and an online platform whereby the major items sold are electronics, computers, jewelry, furniture, and other home and office appliances. Costco is ranked fifth in the category of the largest retailers in the world. This organization is categorized as the world’s largest retailer of beef, wine, chicken, and organic foods (Loftsdóttir & Mixa, 2017). It has experienced tremendous growth, which has seen it expand to a large corporation that competes with other retailers such as Ikea, Walmart, Amazon, and Tesco. Costco’s development can be attributed to both external and internal factors (Edmonds, 2017). In this paper, the external factors affecting Costco are discussed. This includes environmental, political, economic, legal, and technological factors. Costco’s growth and development depend on the above factors as they influence the business environment.
Political Factors
Political factors influence business activities and can present a possible risk that could lead the company to lose money or threaten its cash flows. Thus, these issues are critical in ensuring the long-term profitability and sustainability of Costco. The entity operates in different countries that have diverse political environments. These political environments are dynamic, and Costco must develop strategies to cope with the risks (Loftsdóttir & Mixa, 2017). Several political factors influence the planning and development and are discussed below.
Political Stability
Costco’s growth and development depend on the political stability of the host country. A politically stable country provides Costco with a proper business environment whereby their business operations can be done easily without fear of destruction. Political stability boosts Costco’s shareholders’ trust into investing more in the business and also increases the buying power of the customers as there are no fears of war or crashes (Edmonds, 2017). Costco needs to research the political situation in their potential market to reduce the risks associated with instability which may lead to losses.
Taxation and Trade Restrictions
Different countries have distinct tax regimes, which affects Costco’s profits. High taxation hinders international trade as the price of exports increases. Costco needs to invest in countries where the tax tariffs favor business development in gaining high profits. Costco should also study the country’s taxation policies to understand the government’s priorities and interests. This is important in making investment decisions whereby Costco can invest in industries the host government has prioritized. Trade restrictions complicate the business environment as they hinder international trade (Edmonds, 2017). This negatively affects the relationships of foreign trade partners and the organization. Trade restrictions also discourage foreign investors as they complicate the movement of goods across the host country’s borders. Costco needs to research the trade regulations of the host country before starting its business.
Bureaucracy and Corruption
Corruption and bureaucracy hurt the business environment. Prevalence of corruption and weal laws cause business instability whereby there is a lack of trust between Costco, the local authorities, and the public. This negatively affects the economic structure and demoralizes foreign investors (Edmonds, 2017). Corruption influences several business operations such as licensing, contracts, and substandard goods. Costco’s business growth and development goals are influenced by the level of corruption in the host nation. When there is a high level of corruption in a country, the cost of running a business increases dramatically due to extortions which reduce revenue.
Economic Factors
Economic factors are essential for Costco as they indicate the general economic environment. These factors include inflation, savings, interest, exchange rates, and labor market conditions, among others. Analysis of these influences enables Costco company to determine the growth curve of the economy as well as develop a matching business strategy. Gudlaugsson, 2018). These economic aspects affect the growth and development of Costco’s business in a host country.
Interest, Inflation, and Exchange Rates
Interest rates influence the ability of a business to borrow and thus influencing investment potential. Availability of high-interest rates encourages investments, thus increasing the pool of opportunities for Costco to explore. The gross domestic product (GDP) of a country influences citizens’ spending power (Gudlaugsson, 2018). Higher GDP indicates increased spending abilities; therefore, Costco can leverage the availability of the market. Costco’s long-term growth strategies are influenced by the growth of GDP in the host country. The exchange rates influence the profits accrued by Costco and international trade. Depreciation of the local currency raises concern as it influences the wellbeing of Costco.
Social Factors
Business culture has to follow the host society’s values, norms, and trends. Costco needs to analyze the host country’s culture to ensure that its business appeals to the consumers. This analysis helps the organization make informed decisions on the products to offer and the marketing strategies used to reach the target market (Kim, 2019). Researching the culture also enables Costco to adapt to the host country. Social factors that influence Costco include demographics, gender, and societal norms.
Demographic trends such as the working population and migration trends are important for businesses like Costco. Studying these trends enables Costco to choose the correct target market with the highest returns and decide on the marketing strategies. Gender roles influence the marketing and communication strategies for Costco (Gudlaugsson, 2018). Costco needs to study the gender roles in the host country for them to form a proper human resource strategy.
Technological Factors
Technology plays a key role in Costco’s business efficiency. Increased development and uptake of technology worldwide have made it crucial for organizations to conduct studies before entering new markets. Studying technological trends enables Costco to keep up with other competitors. Costco has invested in technology to enhance the efficiency of its business operations that has increased its profits (Loftsdóttir & Mixa, 2017). Costco has invested in various technological factors to enhance the performance of its businesses around the globe.
Social Media Marketing
The advancement of communication technologies has led to new marketing methods. Social media usage has increased in recent years, making it a very important media for marketing by Costco (Kim, 2019). Costco has been able to increase its consumer base through advertisements in social media such as Facebook, Instagram, and Twitter. Costco uses influencers who have a huge following to reach potential customers in these social spaces. Social media marketing has revolutionized marketing by enhancing reach to potential customers.
Technological Innovations
Costco has to ensure that they are involved in the development of new technologies to keep the business future-proof and maintain its position in the competition. Research on the application of new technologies in Costco’s business model should be done. The new technologies are crucial in increasing Costco’s potential by enhancing its efficiency speed and expanding its market (Loftsdóttir & Mixa, 2017). Investment in user-friendly e-commerce platforms will expand their customer base. Costco’s business efficiency and market reach will benefit from the use of artificial intelligence to track and predict consumer trends.
Technological Challenges
The use of foreign technology is subject to the local country’s copyright laws and culture. Laws governing the use of technology are different in every country, which delays Costco’s business. For the technology to be used in a host country, it should be adapted to the country’s laws. Implementing the changes to the technology require funds and delays the organization’s growth. (Lee, 2019). The creation of these technologies requires a huge amount of capital that delays the organization’s growth.
Future Prospects and Risks
Costco needs to invest in new technologies that will disrupt the retail market. The development of new supply chain technology to reduce delays in product distribution and labor costs could revolutionize Costco’s business capability. The development of robots to sort products and pack will enhance the returns of the business (Kim, 2019). Increased use of technology poses a great risk to Costco’s future. Moving services to the cloud would make it easier for external hacks, leading to leakage of confidential business and consumer information. This may cause a loss of confidence by investors and consumers, and also legal action may be taken against them.
Environmental Factors
Environmental protection has been a major topic, recently calling for big organizations to participate in sustainable practices that protect the environment. Governments have made laws that seek to protect the environment due to the recent climate change observed. Costco has to conduct an environmental analysis before starting a business in a foreign country (Park, 2021). This analysis enables Costco to run an environmentally friendly business. This involves maintaining a low carbon footprint, minimizing energy wastage, enhancing recycling, and creating waste management systems. Investing in sustainability creates a good reputation for Costco and thus increases the profits.
Legal Factors
Legal factors play a crucial role in the success of a business in the 21st century. Laws have been set to protect workers and consumers. Brands have a mandate to comply with the set laws and conduct their businesses ethically. Costco has to be compliant with the labor and consumer laws in all countries (Park, 2021). Costco has maintained a good image whereby their customer service and human resource have maintained high standards. However, threats such as debauched publicity still exist; therefore, Costco has to improve its service delivery as legal action damages a company’s reputation and loss of funds.
Conclusion
In conclusion. Costco’s existence is influenced by these factors as they provide the operating environment for their business activities. Comprehensive PESTLE research enables Costco to establish the potential markets to explore. Each factor is important in the development of the different business strategies and the decision-making process and thus influences the overall existence of Costco. Costco has realized growth due to the stable external factors in their countries. Despite other organizations in these markets, Costco has been a leading retailer due to proper strategies as a result of conducting proper research on their markets to establish a business tailored to the market requirements.
Costco is expected to expand in the future due to its business models, which are tailored to meet specific market requirements. Despite the COVID-19 pandemic disrupting Costco’s business, they have been able to record profits that have been earned due to the development of new strategies to increase their efficiency. This includes the use of online markets and the use of robots in their warehouses to reduce overcrowding in their stores.
However, in the future, Costco’s growth may experience challenges due to political instability in their host countries. Terrorism has increased recently, which targets large establishments such as Costco. Reliance on technology also poses the organization to hacks that could cause loss of funds and consumers. The world has shifted to online shopping; therefore, Costco needs to develop its online stores to give its customers the best experience.
References
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Gudlaugsson, T. (2018). The image of Costco in Iceland and its impact on the grocery store market. Journal of Academy of Business and Economics, 18(3), 93-103. Web.
Kim, J. (2019). The entry and growth strategy of multinational retail warehouse in Korea market: The case of Costco wholesale. International Business Review, 23(1), 53-79. Web.
Lee, J. (2019). A Study on the consumer purchasing behavior according to the determinants of purchasing of luxury brand. Korean Academy of International Commerce, 34(1), 217-233. Web.
Loftsdóttir, K., & Mixa, M. (2017). The opening of Costco in Iceland: Unexpected meanings of globalized phenomenon. Veftímaritið Stjórnmál Og Stjórnsýsla, 13(2), 189. Web.
Park, M. (2021). Corporate real estate strategies for localization of transnational corporation: Focus on Costco and TESCO. Korea Real Estate Society, 39(3), 189-209. Web.