The modern age of globalization has caused companies in varied countries to reconsider the underpinnings of their businesses in terms of size and economies of scale across differing borders. Successful domestic operations are increasing disappearing from the national landscapes as huge multi-nationals move into new markets either by expansion or by buying into markets through acquisition. The reality of the preceding has seen the initial wave of bigger is better mergers in the United States as well as on a global scale as large corporations seek to level the playing field with huge conglomerates.
The Boots Group PLC and A.S. Watson & Company Limited represent classic examples of the foregoing, and while some aspects of their businesses are similar these two firms are distinctly different. While both companies started life as pharmacies in the 18th century, one initially grew as a family run operation expanding to 560 stores throughout England, Scotland and Wales by 1913 (Boots, 2005), while the other grew as a result of professional management through a series of acquisitions (hutchison-whampoa, 2005). From those beginning both companies have followed similar paths as the Boots Group PLC (Boots, 2005), and A.S. Watson Group (hutchison-whampoa, 2005) have expanded into health and beauty products and assuming the manufacture of their own lines in addition to carrying the products of other companies through extensive retail store outlets. As international operations with outlets in multiple countries, these two companies represent an interesting source for examination of comparable businesses with differing strategic approaches.
Shortly after starting out as a small dispensary enterprise in the Chinese town of Guanghou in 1828, the company took on the name A.S. Watson and moved operations to Hong Kong in 1841 under the new company name of HK Dispensary, which was later changed back to A.S. Watson. The major development that changed the future course for the company occurs in 1877 when Briton John Duflon Hutchison takes over the company (hutchison-whampoa, 2005). A.S. Watson’s growth from this period through the 1960’s remained relatively quiet with the biggest development being the establishment of Watson Water in 1903 to provide pure and healthy water to the residents of Hong Kong as well as main land China.
On the other side of the globe, Englishman John Boot founded his herbalist based apothecary business in the town of Nottingham, which gained local fame for its effective remedies that John and his wife Mary prepared (Boots, 2005). The untimely death of John Boots in 1860 left the shop in the hands of his wife and ten year old son who took over the reins at age 21 using a discount pricing strategy that lead to the opening of 23 stores by 1877 (Boots, 2005). More importantly, Jesse Boot invested in the manufacturing of remedies to cut costs further and establish a self-contained operation that enabled him to control quality as well as prices.
The strategy enabled Jess Boot to grow to 250 outlets by the 1900’s and 560 outlets in 1913. The First World War effectively halted expansion and development of the chain, and after the cessation of hostilities he sold the company to the American United Drug Company in 1920. The Great Depression of 1929 forced United Drug into bankruptcy and Jesse Boot’s son John was installed as chairman and managing director after it was re-purchased by a group of British financiers.
John Boot embraced the same self-contained manufacturing and price conscious approach as his father, and as a result the company experienced rapid growth and expansion during the 1930’s through 1960’s in store outlets as well as manufacturing capacity (Boots, 2005).
Today, the A.S. Watson Group has over 1,200 outlets serving millions of customers every week in eleven countries, offering in excess of 25,000 products ranging from medicines, health and beauty items (cosmetics and toiletries) to fashion articles, toys, cards and confectionery products (hutchison-whampoa, 2005). In sharp contrast to the growth and expansion path of the Boots Group PLC, A.S. Watson in the early 1980’s had only nine stores, all located in Hong Kong. During the mid 80’s, a change in company strategy as well as a significant investment in expansion resulted in A.S. Watson opening 130 new stores a year. Presently the company has locations in Hong Kong, China, Macao, Singapore, Thailand, Taiwan, Korea, Estonia, Turkey and the Philippines. From its humble beginnings as a pharmacy, A.S. Watson is now also known as the leading company in Asia in health and beauty products as well as its providing counseling programs in health, beauty and baby care.
A.S. Watson, through Nuance-Watson, also operates duty-free outlets in 34 locations selling perfumes, watches, jewelry, pharmacy items, health and beauty care, as well as electronic equipment, souvenirs and packaged foods. A.S. Watson’s Kruidwat subsidiary is the market leader in the Netherlands and is one of the best-known health and beauty outlets in Belgium as well with in excess of 100 stores in these markets. Kruidwat’s acquisition of Trekpleister in 1998 has helped A.S. Watson add an additional 200 outlets in these markets further solidifying its penetration. The company’s strategy of buying into foreign markets includes Rossmann, which operates over 1,500 outlets in Germany, Hungary, the Czech Republic and Poland. The company’s expansion into Europe has been continued with the acquisition of Drogas, which operates in the Baltic States and has outlets in Latvia, Lithuania, and expansion plans for Scandinavia, Estonia, Russia.
The Boots Group growth path utilized an internal expansion methodology, resulting in the company having 1,450 outlets in the United Kingdom, Wales, Ireland and Scotland, as well as operations in 12 foreign markets. The company’s market strategy in the United States has it operating in partnership with the large Target brand as well as CVS stores representing a total of 138 outlets between the two companies. As the number one name in health, beauty and pharmaceuticals in the United Kingdom for most of the company’s existence Boots is known for quality, innovation and excellence.
The company still remains true to its core foundations regarding herbal products with its own line of cosmetics, bath and body products, hair care, aromatherapy and skincare lines called Botanics. The highly competitive nature of the health and beauty care industry has also seen Boots take the same approach as A.S. Watson in offering consultations and specialized service in skin and beauty care through its Time Dimensions products, Sleep line, as well as Eastern line which is its Oriental inspired beauty care products.
The challenge facing all firms in today’s era of global competition is basically expand or be acquired. A.S Watson has and is utilizing this methodology to expand its operations worldwide, with particular emphasis on Europe. To respond to these types of market developments the Boots Group PLC installed a new management team during 2003 and 2004 as well as reduced the company’s administrative workforce by almost one third to instill new strategies and cut overhead costs respectively (Boots Group PLC, 2004). The company’s new Chairman, Sir Nigel Rudd, reported that Boots sales increased 4.7% over the year end close of 2003, and that the healthcare segment continues to be the “… cornerstone…” of the business (Boots Group PLC, 2004).
The company’s Annual Report indicates that the re-focused core business strategy revolves around concentration on stores and the opening of new outlets as well as the funding of new ventures. The relatively average growth performance, in terms of sales, also saw management stating that it is re-focusing its efforts on improving customer satisfaction through longer store operating hours for convenience, and improved check out procedures utilizing advanced touch screen technology.
In a direct response to increased competitive pressures, the Boots Group PLC and Alliance UniChem PLC agreed to merge on October 4, 2005 (Associated Press, 2005) which should be finalized sometime either prior to the end of 2005, or during the first month of 2006. The 7 billion pound merger will create a new company that will be called Alliance Boots with combined sales of 13 billion pounds, a store count of 2,600 in the United Kingdom, and 300 outlets on continental Europe. The preceding merger creates a company that will control 17% of the UK market and a market mix of residential, high street and shopping mall coverage enable more effective location proximity which respect to a consumer coverage reaching all segments of the population.
The preceding merger is not only a result of international expansion pressures, as posed by A.S. Watson, but increased competition in the United Kingdom from supermarket chains such as ASDA Wal-Mart and Tesco which offer pharmaceuticals and health and beauty care products in their supermarket settings (MarketWatch, 2005). The resulting merger will create the leading retail pharmacy business in Europe with a market presence in eleven European markets along with economies of scale (Boots Group PLC, 2005).
The fight for market share as well as dominance in any industry sector in today’s global market environment is a function of size, reach and financial clout. A.S. Watson is an international manufacturing and retail operation in 34 global markets with 6,800 stores selling cosmetics, food, pharmaceuticals, health and beauty care products, wine and electronics (A.S. Watson, 2005). As a subsidiary of the huge Hutchison Wharmpoa Limited telecommunications, hotel, real estate, energy and retail conglomerate that operates in 52 countries, A.S.
Watson has the financial clout and backing to successfully enter any market and pose a serious threat to established players. A.S. Watson’s similarities to the Boots Group PLC encompasses product lines as well as the self contained manufacturing capabilities whereby both companies produce their own branded lines of health and beauty care items as well as pharmaceuticals. A.S. Watson’s market presence in Europe represents a real threat to the Boots Group PLC which is a factor behind the merger with Alliance UniChem.
The similarities in history, as well as other aspects marks the foundation for an interesting study in where each company will go from here as they will apparently battle it out on the European landscape.
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