Taiget Inteinational

Expansion
Analysis of Canauian Expansion

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Table oI Contents
lnLroducLlon 4
Why Lxpand? 4
1argeL's LxlsLlng lnLernaLlonal Lxperlence 3
Canada A counLry 1o Lxpand lnLo 6
Lxpand lnLo 1oronLo Area llrsL 7
Canadlan 8eLall SecLor 7
Canadlan LLhos 7
Consumers Shopplng uemands and references 7
CompeLlLors Already lnLernaLlonallzed 8
lnLernaLlonal Learnlng Lxperlence 9
Lconomles of Scale 9
lorelgn lnvesLmenL CllmaLe ln Canada 9
Canadlan lul 8reakup 10
Canadlan Lconomy's lul ALLracLlveness 10
CLher ALLracLlve lacLors of Canadlan Lconomy 11
8eLall LnvlronmenL ln Canada 13
8eLall MarkeL SLrucLure 13
CompeLlLors 13
lnfrasLrucLure 17
Workforce 17
SelecLlng an LnLry Mode 18
Acqulre Zellers 19
ollLlcal 8lsk 20
8uslness 8lsk 22
8lsk ManagemenL 24
lmplemenLaLlon 26
non llnanclal lnvesLmenLs 27
llnanclal lnvesLmenLs 28


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ConLrol Mechanlsms MllesLones 29
erformance MeLrlcs 30
LxlL SLraLegy 30
8eferences 333
Appendlx 34
LxhlblL 1 1argeL SLores ln uS (Creen 8ecLangles showlng areas closer Lo Canada) 34
LxhlblL 2 1argeL key llnanclal llgures CrowLh 8aLe Change 37
LxhlblL 3 1argeL key llnanclal llgures CrowLh 8aLes 33
LxhlblL 4 1argeL key llnanclals 38
LxhlblL 3 1argeL Sales CrowLh 8elaLlve Lo SLore Slze CrowLh 36
LxhlblL 6 CounLry orLfollo Analysls Ad[usLed for ulsLance for lasLlood 8esLauranLs'' 37
LxhlblL 7 lncreaslngly More CorporaLe roflLs are comlng lnLernaLlonally ' 37
LxhlblL 8 LxpecLed 1argeL Canada's key llnanclal llgures CrowLh 8aLes 38
LxhlblL 9 LxpecLed 1argeL Canada CrowLh CharL 38
LxhlblL 10 SLaLe of lorelgn ulrecL lnvesLmenL ln Canada' 39
LxhlblL 11 Sources of lorelgn ulrecL lnvesLmenL ln Canada' 39
LxhlblL 12 lorelgn ulrecL lnvesLmenL 8reakup ln Canada by Ma[or lndusLry' 40
LxhlblL 13 lorelgn ulrecL lnvesLmenL 8reakup ln Canada by SelecLed lndusLry' 40
LxhlblL 14 uS and Canada key lndlces Comparlson 41
LxhlblL 13 Canadlan 8eLall SecLor SnapshoL (2009) 41
LxhlblL 16 Some ComponenLs of Canadlan CulLure 42
LxhlblL 17 Comparlson of Canadlan Lconomy CrowLh vs lLs eers 42
LxhlblL 17 Canada Cu CrowLh 8aLes vs CLher C7 CounLrles 43
LxhlblL 18 CorporaLe 1axes ln Canada compared Lo CLher C7 counLrles 43
LxhlblL 19 Zellers (Pudson 8ay) llnanclals Small Snap ShoL 44
LxhlblL 20 Zellers (Pudson 8ay) llnanclals CharL 44
LxhlblL 21 8eLall SecLor ?ear Cver ?ear CrowLh44
LxhlblL 22 8eLall SecLor CperaLlng roflLs 44
LxhlblL 23 Canada's WorklngAge eople by MoLher 1ongue 43
LxhlblL 24 lrankel and 8oss Measurlng Lhe lmpacL of ulsLance 46


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Introduction
Target is one oI the major retailers in U.S. It started in 1902 as Dayton Dry Goods Company and
opened its Iirst Target store in 1962 in Minneapolis area. Since then it has opened 1740 stores (Exhibit 1);
at a record pace oI 21 per annum. It has become the second largest retailer in U.S. with annual sales oI
$63 billion dollars (Exhibit 4). Target is a discount merchandiser and Iollows a best cost strategy to
compete with retail giant Wal-Mart whose annual revenues exceed $300 billion dollars. Wal-Mart is a
low cost leader and it is impossible to compete against Wal-Mart just on the basis oI low prices. Hence
Target oIIers slightly higher niche products than Wal-Mart at the best cost. Best cost strategies are most
diIIicult to implement with Target being one oI the successIul exceptions.
Why Expand?

One oI the signiIicant Iacts we noticed about Target`s past 5 year Iinancials is that the growth
rates Ior revenues, proIits, net proIit, gross proIit and revenues per square Ioot has been slowing down.
The growth is still there but it has been slower in recent years (Exhibit 2 & 3). The retail saturation in
American retail segment and the inIamous recession oI 2008 have been the major Iactors Ior the slow
down. There is a high probability that Target has reached to a saturation point in terms oI Iuture growth in
America and new growth in U.S. will be increasingly diIIicult in challenging economic environments.
The evidence oI saturation is suggested by the Iact that the growth rate oI new square Iootage has gone
down Irom 8 to 4. As per Raymond Vernon`s Product LiIe-Cycle`s theory' the wealth and size oI
U.S. market gave Target strong incentive to develop unique upbeat charming retailing concept. As
Target`s retailing concept has matured and Target Iinds harder to grow in U.S., it is right time Ior Target
to look outside Ior Iuture growth where it can apply its distinctive competency to win share in
international markets.


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The other key Iactor with Target is that its growth depends on how Iast it is able to add new
stores. Its revenue growth Ior period 2004 to 2009 has been 6.89, and correspondingly Target has
grown its retail Iootprint at the rate oI 7.05 (Exhibit 4 and 5). This is very clear Irom the Iact that the
average sales per store have grown only by 0.96 in past Iive years. Target is a discount chain and it
works at low margin oI 3.5 to 5. The relatively low margin Iorces Target to keep increasing volume
oI sales as each dollar earned bring in Iew more pennies. Even iI the value chain is made incrementally
more eIIicient, Target is not going to increase its net proIits much. And the Iact oI the matter is that since
Target is venturing into selling more groceries and perishables, it is Iorced to increase diIIerent types oI
distribution centers. The average number oI stores per store has been decreasing Irom 52.32 to 45.89,
which only shows increasing overhead, and one oI the causes Ior net proIits not to keep pace with revenue
growth.
The only avenue to increase proIits is to expand at same rate oI 8 to have a steady growth rate
oI 6 to 7. And we have earlier seen since U.S. retail market is saturating, it requires Target to look
outside oI U.S. Ior expansion. The stock market has rewarded Target richly Ior its growth, and Target has
commitment to continue with its growth rate because it owes Iiduciary duty to its shareholders to succeed
beyond their expectations.
%arget`s Existing International Experience

At this point, we want to assert that Target is not new to international trade. It already sources the
products it sells Irom diIIerent countries Irom its subsidiary Target Sourcing Services (TSS). TSS is
responsible Ior importing the right quality merchandise at the right prices Ior Target stores, and has staII
all over the world. Since 2005, Target has been running back oIIice operations in India, to lower its oIIice
support costs. Target India`s sole task is to assist Target to run its value-chain eIIiciently, and develop
new and eIIicient merchandising concepts. Thus Target is not new to running international business, and
to the challenges international operations poses.


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Canada: A country To Expand Into
We have Iound Canada to be an excellent expansion destination, and to be very attractive Ior
variety oI reasons. When we looked at the country portIolio analysis just Ior Iast Iood restaurants our eyes
were startled. The biggest circle on the portIolio analysis diagram belongs to Canada (Exhibit 6) and it
indicated that Canada was closest to US in many ways ''. This analysis made adjustments Ior cultural
similarity, geographically closeness (Exhibit 1) and trade agreement participation. Indeed this is the case.
Both U.S. and Canada are biggest trade partners in the world, share big portion oI their borders and
signatories to NAFTA. And in Iact many Target stores are close to Canadian border and Irequently visited
by Canadian shoppers.
Economically Canada and U.S. are similar. Both are categorized as developed countries and have
around 80 oI population living in urban centers with at least 75 working in service sectors. The
income levels do not diIIer that much. U.S.`s per capita annual income oI $43,730 is little higher than
Canada`s $ 39,010 (Exhibit 14). The prosperity levels indicated by penetration oI telephone, computers,
and televisions all indicate that the residents oI both countries have a very high standard oI liIe. Many oI
the cultural traits such as Thanksgiving dinner, Success through hard work, Santa Claus and Easter Bunny
are cultural norms Iound in both countries (Exhibit 16) . Geographically Canada and U.S. are very close
and share same weather elements. It is easy to see that in both countries consumers have similar tastes and
demands because oI geography, economics and culture. Hence it becomes very easy Ior Target to extend
into Canada. II Target chooses to open Iew stores in Toronto and Vancouver metropolitan areas it can do
it easy, since these regions are close to its existing distribution centers in New York and Washington
states (Exhibit 1). And merchandise as we saw will not be problem because the consumers in these Iour
areas share same tastes and have same demands. Moreover the consumers across both countries watch
same sports, movies, and television shows. Thus Target can use almost same amount oI the advertising
dollars to run marketing campaigns in both countries.


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Expand into %oronto Area First:

Toronto and its suburbs is one oI the largest concentrations oI population in Canada. Within 1-
day drive or 1 hour Ilight time oI Toronto 22 million people with an economic value oI $550 billion
reside '. This area is the IiIth largest market in North America and twelIth largest in the world. A
company like Target will ill aIIord to ignore one oI the largest consumer markets.
Canadian Retail Sector

Canada`s annual revenues in retail sector are $403 billion in Canadian dollars. 46 oI these
revenues come Irom chain stores and 30 oI Canadian GDP comes Irom retail sector (Exhibit 15). Retail
sector employees 11.2 oI Canadians, and uses 227,200 locations to push its wares to its customers.
There is a strong retail environment in Canada and Target does not need to educate its potential
consumers about its oIIerings. Consumer education is big issue in many countries oI the world and
international companies spend time and money to educate and train consumers about the products which
these consumers do not know about.
Canadian Ethos

Canada is well known across the world Ior its social welIare programs and Canadians take
immense pride in it. And Target`s policy oI donating 5 oI proIits Ior social causes matches beautiIully
with Canadian ethos. Such policy will resonate with Canadian consumers and will make Target a likable
place to shop Ior these consumers.
Consumers Shopping Demands and Preferences

Consumers in Canada covet U.S. shopping experience. Target, with its racks oI dirt-cheap
designer duds, has big Iollowing among border-hopping Canadian customers. Their experiences is well
summarized by Maureen Atkinson, a senior partner at J.C. Williams Group, a Toronto-based retail


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consulting Iirm, "II someone goes to Target and then comes back to Canada and shops at Zellers or Wal-
Mart they aren't as happy, They become more demanding, less satisIied.". There is a window oI
opportunity Ior Target to Iill the gap in the Canadian retail market and to cash retail envy Canadian
Consumers Ieel.
In a recent survey it was Iound that both U.S. and Canadian consumers had similar Iinancial
perceptions but Canadian consumers were less reactionary. 29 oI Canadians did not cut back versus
19 oI U.S. shoppers. It was also discovered that Canadians are more avid shoppers, and visit variety oI
shopping venues at higher Irequency than U.S. consumers; a trend which will beneIit Target. Canadian
consumers also report higher participation in loyalty programs; 64 versus 51 Ior US. Target`s new 5
discount program on purchases made on Target credit card will surely attract majority oI Canadian
consumers.
Competitors Already Internationalized

Majority oI U.S. Iirms are having more share oI their revenues Irom international markets
(Exhibit 7). One oI the Target`s online retail competitors Amazon.com has 48 oI its revenues coming
Irom outside oI U.S. '. Knickerbocker`s theory' tells us that a competitor Iirm who enters internationally
Iirst might use proIits Irom overseas to subsidize prices in home country to wean way business Irom its
existing competitors. Secondly, Ior Target`s chieI competitor Wal-Mart Canada is its sixth largest market.
Wal-Mart Canada`s annual sales are approximately $15 billion which happens to be 4 oI Wal-Mart`s
total global sales. Wal-Mart derives its $15 billion oI revenues Irom 317 Canadian stores including 89
Supercentres. Thus it is imperative Ior Target not to overlook its competitors and Iall Iar behind in
penetrating international markets.





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International Learning Experience

We saw that how Canada being close to U.S. gives an excellent chance to Target to start
internationally. Since it can start with Iew stores close to its existing distribution centers, Canada opens a
low risk door Ior international expansion and wonderIul opportunity to learn and master global trade
practices and challenges global trade creates.
Economies of Scale

We saw that Target works with low margins it makes necessary Ior Target to constantly ramp its
sales volume. Thus going international will open bigger markets Ior Target and economies oI scale' will
work to help lower costs. Target is also big in private label and economies oI scale will beneIit more in
Target`s very lucrative private label products.
Foreign Investment Climate in Canada
Canada has been very attractive destination Ior international Ioreign direct investment (FDI). We
have learned that historically most FDI has been directed to the developed nations oI the world as Iirms
based in advanced countries invested in each other`s market'. And FDI in Canada proves same. Among
all G-7 countries Canada ranks on top in FDI as percentage oI GDP, which happens to be 30 in 2006 Ior
Canada (Exhibit 10)'. The FDI as percentage oI GDP has been climbing in Canada showing Canada as
remarkable attractive FDI destination. Among all the countries who invest in Canada, U.S. is in the top
with $288 billion dollars oI FDI. U.S. contributes 57.6 oI total Ioreign investments in Canada (Exhibit
11) '.




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Canadian FDI Breakup

In Canada 41.1 oI all FDI is invested in Finance, Insurance and Energy sectors (Exhibit 12)'.
Canada is bestowed with lot oI natural resources. Its principle export is energy in Iorm oI gas and oil, and
it makes up 20 oI $389 Billion dollars oI total Canadian exports. We saw earlier that service sector is
68.6 oI Canadian economy. And service sector needs strong presence oI Iinancial and insurance
institutions. Looking at these Iactors makes it clear why most oI the FDI in Canada has been in these three
sectors. And when we look at the Ioreign ownership in Canada by selected industry we observe that in
retail industry 20.9 ownership is through FDI (Exhibit 13)' and on average across all industries FDI`s
share in investments is 21.1. The current amount oI Ioreign investment demonstrates that Canada is an
attractive investment destination. The amount oI FDI ownership in retail sector should take away
nervousness Irom Target as others have already demonstrated FDI in retail.
Canadian Economy`s FDI Attractiveness

Honorable Peter Van Loan the Canadian Minister oI International Trade`s own words makes
clear the stance Canadian government has taken with regards to FDI in Canada. 'We oIIer one oI the
most attractive and low-risk business destinations in the world. Our rich diversity, spirit oI innovation and
excellent business conditions are key drivers oI our economy. The advantages and opportunities that
Canada oIIers are countless:
O Lowest taxes on new business investment in the G7
O Lowest debt-to-GDP ratio in the G7
O Fastest economic growth in the G7 Ior 2011, according to the International Monetary Fund
O World`s soundest banking system, according to the World Economic Forum


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O A 'tariII-Iree zone Ior manuIacturers by 2015
O The highest proportion oI post-secondary graduates in the OECD
O High quality oI liIe
O A commitment to the rule oI law and a strong justice system"
Attributes, such as lowest taxes, Iastest G-7 economic growth, stable polity, lowest G-7 debt-to-
GDP ratio, high quality oI liIe, and strong law enIorcement, make Canada a strong candidate Ior any FDI
considerations. These are the very qualities corporations are looking in Ioreign countries to make
commitments Ior FDI investments. Moreover in 2009, Canada became Iirst country in the G20 to become
tariII-Iree zone Ior manuIactures aIter elimination oI over 1,500 tariIIs on manuIacturing inputs and
machinery and equipment. The Ioreign investors compliment Canadian government well Ior Canada`s
high skilled workIorce and enviable quality oI liIe which makes Canada a place to do business and
succeed. Canada`s economy has been one oI the most resilient globally during the recent downturn.
Canada`s GDP, is world`s 11
th
largest, and Ior the decade 2000-2010 its GDP has averaged growth oI
1.7 well above the U.S., the U.K., France, Germany and Italy (Exhibit 17). As per IMF, Canadian
economy is Iorecasted to grow at the rate oI 2.6 Ior 2010 and 3.6 Ior 2011, well above the other G-7
countries` growth rates (Exhibit 18). 'For Ioreign investors, thereIore, Canada oIIers a large and growing
market with high-growth sectors oI activity at a time when most other advanced economies are looking at
uncertainty over the short-to-medium term.
ther Attractive Factors of Canadian Economy

There are Iew other commendable things about Canadian economy which makes it the destination
Ior FDI. Canada has the lowest payroll taxes among all G-7 countries and by 2012 the Canada`s Iederal
corporate income tax will Iall Irom 18 in 2010 to 15. The new rate will be less than halI oI the top


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U.S. Iederal marginal corporate income tax rate and lowest in the G-7 countries. Canada also allows Iaster
depreciation Ior assets, an attractive proposition Ior capital investment.
Recent years have been marked by world-wide bank Iailures and collapses. But no Canadian bank
or insurer has gone bankrupt. Four oI the Canadian banks are among North America`s top 10 banks,
measured by assets. The Canadian government runs budget surplus which stands Ior something when
other G-7 countries are running multi-billion dollar deIicits. A stable banking system and budget surplus
indicates that the Canadian consumer`s shopping power will stay intact and will not Iluctuate, a quality
deemed by those selling consumer goods.
As per World Bank in 2010 Canada has the lowest number oI procedures required to establish
new business among G-7 and OECD countries. Among real estate process all over the world Canadian
real estate prices are most competitive. Canada allows Iull repatriation oI investment earnings and with
balance oI trade with U.S. in Canada`s Iavor repatriation oI earnings back to U.S. will not be a problem.
The latest Competitive Alternatives 2010, KPMG`s guide to international business costs, Iound
that Canada leads the G7 in low business costs, with an overall cost advantage oI 5.0 over the U.S.
Among the countries in KPMG`s study, Canada has:
O The lowest R&D costs in the G7, with a 12.9 advantage over the U.S.;
O The second-lowest labor costs (aIter Mexico);
O The third-lowest Iacility lease costs (aIter Mexico and the U.S.);
O The lowest electricity costs; and
O The second-lowest tax costs (aIter the Netherlands).


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Thus it becomes a no brainer Ior Target to invest in Canada. The economy oI Canada is doing excellent
and is most stable. Canada has least barriers on Ilow oI goods and money across the border. It citizenry
makes attractive potential customers Ior Target.


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Retull Fnvlronment ln CunuJu

Canada's economlc sLrengLh lles ln Lhe dlverslLy and vlLallLy of lLs naLuralresource lndusLrles
LhaL supply Lhe world wlLh ore oll and gas lumber and oLher commodlLles 1he reLall secLor ls a vlLal
parL of Canadas economy and socleLy 1he Canadlan reLall lndusLry ls prlmarlly engaged ls selllng
consumer goods and relaLed servlces Lhrough sLores Lo Lhe general publlc Large reLall flrms also Lend Lo
operaLe Lhelr own warehouse faclllLles and ln some lnsLances have manufacLurlng operaLlons for Lhe
producLlon of prlvaLelabel goods
Retail Market structure

1he reLall markeL sLrucLure has changed conslderably ln recenL years A number of large non
Canadlan reLallers (malnly from Lhe unlLed SLaLes) have esLabllshed a slgnlflcanL presence ln Canada
brlnglng wlLh Lhem new approaches Lo dolng buslness such as use of Lhe blg box" reLall formaL
everyday low prlclng and advanced loglsLlc sysLems Several Canadlan reLallers are Lransformlng
Lhemselves Lo compeLe successfully wlLh Lhese large newcomers whlle ln some secLors local
lndependenL reLallers have dlsappeared alLogeLher ln Lhe shorL Lerm Canadlan consumers have
beneflLed from Lhe lower prlces and added convenlence assoclaLed wlLh Lhe changed reLall markeL
sLrucLure buL aL Lhe same Llme Lhe reLall envlronmenL has become more homogenous and
concenLraLed

1he Canadlan reLall markeL has been evolvlng rapldly slnce Lhe lasL decade 1he mosL slgnlflcanL
developmenL of Lhe lasL decade has been Lhe emergence of blg box sLores ln Lhe flrsL sLudy on Lhls lssue
by SLaLlsLlcs Canada CenesLLaplanLe ldenLlfled Lhree unlque caLegorles of blg box sLores ln Canada and
quanLlfled Lhe growLh(ln markeL share) of Lhese new formaLs 1he flrsL caLegory ls supermarkeLs wlLh


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grocerles as Lhe maln producLs and a mlnlmum sLore slze of 30 000 sq fL Second are speclalLy sLores
reLallers focuslng on speclflc Lypes of consumer goods such as sporLlng goods elecLronlcs Loys drugs
and cloLhlng wlLh a mlnlmum slze of beLween 3000 and 20 000 sq fL (dependlng on Lhe Lype of goods
sold) llnally Lhere are general merchandlse sLores wlLh a mlnlmum of 90 000 sq fL Slnce 1989 Lhese
Lhree caLegorles have sLeadlly Laken a greaLer share of Canadlan consumer sales ln Lhelr respecLlve
markeLs

1he dlrecL conLrlbuLlon of reLall Lrade Lo Lhe economy was $7428 ln 2009 represenLlng 62
percenL of Canadas gross domesLlc producL (Cu) 1he raLe of Canadas reLall secLor Cu growLh was 34
percenL fasLer Lhan Lhe uS reLall secLor and 96 percenL greaLer Lhan Lhe Canadlan economy beLween
2004 and 20083 8eLall employmenL grew 24 percenL per year from 2002 Lo 2009 whlle employlng 20
mllllon people or 119 percenL of Lhe LoLal worklng populaLlon ln 2009 1hrough lLs lnvesLmenLs ln
lnformaLlon and communlcaLlon Lechnologles (lC1) commerclal lnfrasLrucLure and loglsLlcs and
LransporLaLlon servlces Lhe reLall secLor has slgnlflcanLly affecLed oLher secLors of Lhe economy

AfLer a prolonged perlod of growLh Canadlan reLall secLor sales decreased ln Lhe lasL quarLer of
2008 and Lhrough Lhe flrsL Lhree quarLers of 2009 (LxhlblL 21) 1he lmpacL of Lhe economlc downLurn on
sales of Lhe Canadlan reLall secLor varled more among Lhe economlc reglons of Lhe counLry Lhan on a
producL llne basls 1he AlberLa and 8rlLlsh Columbla reLall secLors had Lhe largesL percenLage sales
decllne amongsL Lhe Canadlan provlnces durlng Lhe economlc downLurn



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1he economlc downLurn affecLed Lhe sales of each reLall Lrade group dlfferenLly Pome
furnlshlng sLores furnlLure sLores home elecLronlcs and appllance sLores and home cenLers and
hardware sLores experlenced some of Lhe largesL yearoveryear sales decreases Lhrough Lhe flrsL Lhree
quarLers of 2009 Meanwhlle Lhe sales growLh of supermarkeLs pharmacles and personal care sLores
and deparLmenL sLores and general merchandlse sLores remalned poslLlve LhroughouL Lhe downLurn on
a yearoveryear basls

AlLhough reLall sales have decreased durlng Lhe economlc downLurn Lhe secLor has remalned
conslsLenLly proflLable (LxhlblL 22) ln parL due Lo beLLer conLrol of global sourclng acLlvlLles and
responslveness Lo changes ln consumer demand Also reLallers are movlng beyond operaLlonal
lmprovemenLs based solely on measurlng averages Managlng and conLrolllng Lhe varlablllLy ln Lhelr
operaLlons especlally regardlng Lhelr supply chaln ls drlvlng Lhelr proflL margln

AlLhough Lhe Canadlan reLall secLor experlenced negaLlve annual growLh over four quarLers due
Lo Lhe economlc downLurn lLs growLh has conslsLenLly ouLpaced Lhe uS reLall secLor over Lhe pasL
several years ln addlLlon Lhe sales of Lhe Canadlan reLall secLor were less affecLed by Lhe global
economlc crlsls Lhan LhaL of Lhe uS reLall secLor

Competitors
1he Canadlan reLall markeL ls domlnaLed by forelgn reLallers A number of reLallers (8esL 8uy
Cld navy Pome uepoL WalMarL and SLaples) from unlLed SLaLes have esLabllshed a slgnlflcanL
presence ln Canada brlnglng wlLh Lhem new approaches Lo dolng buslness such as use of Lhe blg box"


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reLall formaL everyday low prlclng and advanced loglsLlc sysLems Several Canadlan reLallers are
Lransformlng Lhemselves Lo compeLe successfully wlLh Lhese large newcomers whlle ln some secLors
local lndependenL reLallers have dlsappeared alLogeLher

1he bulk of LoLal forelgn reLall sales ln Canada (approxlmaLely 73 percenL) are aLLrlbuLable Lo
flrms based ln Lhe uS wlLh mosL of Lhe resL comlng from flrms ln Lhe unlLed klngdom (Slmmons and
kamlklhara) ln facL Lhe umber of uS reLall chalns operaLlng ln Canada lncreased from 10 ln 1983 Lo
183 ln 2003 As of early 2009 11 of Lhe Lop 20 reLallers ln Canada (measured ln Lerms of reLall sales)
were uSowned

WalMarL enLered Canada ln 1994 wlLh Lhe acqulslLlon of 122 Woolco sLores and ln elghL shorL
years lL has easlly surpassed Lhe Pudson 8ay Coand lLs Zellers chaln Lo become Canadas number one
reLaller WalMarL effecLlvely conLrols 38 percenL of Lhe Canadlan deparLmenL sLore markeL 8efore Wal
MarLs arrlval Canadas reLallers malnly operaLed accordlng Lo a varlable hlgh low" prlclng model uslng
weekly fllers loss leaders and speclals Lo aLLracL consumers Powever Lo compeLe agalnsL WalMarL and
one anoLher Canadlan dlscounL and LradlLlonal deparLmenL sLores are borrowlng some of Lhe uS
glanLs LacLlcs lncludlng everyday low prlclng lor example lL was reporLed ln 2003 LhaL approxlmaLely
33 percenL of Sears Canadas sales are based on everyday low prlclng a subsLanLlal deparLure from lLs
hlsLorlcal meLhod of uslng frequenL markdowns Lo aLLracL cusLomers 1he same source reporLed LhaL
Zellers has responded by movlng a larger share of lLs lnvenLory Lo an everyday low prlclng sysLem 1he
end resulL ls LhaL lL appears Canadlan consumers are beneflLlng from conslsLenLly lower prlces due Lo
Lhe lnLroducLlon and wldespread use of everyday low prlclng ln Lhe reLall markeLplace


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Infrastructural Facilities

Canada's lnfrasLrucLural faclllLles are one of Lhe besL ln Lhe world Canada offers Lhoroughly
modern LransporLaLlon (Alr/8all/8oad/Sea) and LelecommunlcaLlon lnfrasLrucLures and easy access Lo
global supply neLworks whlch makes Canada's buslness cllmaLe second Lo none Canada has a Lrue
lnLegraLed rall neLwork runnlng coasL Lo coasL whlch ls run by Lwo naLlonal rallroads allowlng for Lhe
seamless movemenL of goods across Lhe counLry wlLhouL swlLchlng carrlers Canadlan naLlonal's
acqulslLlon of Lhe llllnols CenLral rallroad back ln 1998 resulLed ln Lhe only Lruly conLlnenLal rallroad
one LhaL sLreLches from Pallfax ln Lhe easL Lo rlnce 8uperL ln Lhe WesL and from new Crleans ln Lhe
SouLh Lo Canada's norLhwesL 1errlLorles Canada's ma[or clLles are well connecLed Lhrough lLs sLaLe of
Lhe arL naLlonal Plghway's and alr

Canadas Lechnology lnfrasLrucLure ls very advanced and ranks second only behlnd Lhe uS of
all C7 counLrles and conLlnue Lo rank above or very close Lo Lhe uS ln Lerms of Lhe number of lnLerneL
users and lnLerneL hosLs per 1000 lnhablLanLs 1he Canadlan CovernmenL ls commlLLed Lo make Canada
Lhe mosL connecLed CovernmenL Lo lLs clLlzens and make avallable hlghspeed broadband access Lo
Canadlans ln all communlLles 1he economlc pollcles of Lhe Canadlan CovernmenL are focused on
maklng Canada a world leader ln Lhe new global economy
Workforce

Canada has a skllled and moLlvaLed work force and conLlnues Lo aLLracL some of Lhe brlghLesL
mlnds from around Lhe world Lhanks Lo lLs buslnessfrlendly lmmlgraLlon pollcy for quallfled
lmmlgranLs Accordlng Lo Lhe CrganlzaLlon for Lconomlc CooperaLlon and uevelopmenL (CLCu) Canada
leads hlgher educaLlon achlevemenL Canada ranks fourLh among member counLrles of CLCu for lLs hlgh


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school compleLlon raLes Canada ranks flrsL ln Lhe CLCu for lLs college compleLlon raLes and ranks
sevenLh for lLs unlverslLy compleLlon raLes More Lhan half of all Canadlans beLween Lhe ages of 23 and
33 have recelved posLsecondary educaLlon elLher aL Lhe unlverslLy college or Lechnlcal level lLs
englneerlng buslness and managemenL schools also rank hlghly

Canada ls a mulLlculLural counLry and lLs workforce ls reflecLlve of LhaL Cne ln every flve
Canadlan's has a moLher Longue oLher Lhan Lngllsh or lrench 1haL ls close Lo 63 mllllon people 8oLh
Aslan and Luropean languages are spoken exLenslvely ln Canada (See LxhlblL 23) 1hls dlverslLy ls an
asseL Lo forelgn lnvesLors 8uslness looklng for global skllleLs wlll flnd Canada's eLhnlcally dlverse
workforce very famlllar wlLh dlfferenL buslness culLures

electlng un Fntry MoJe

1he preferable enLry mode for 1argeL ls Lo esLabllsh wholly owned subsldlary by acqulrlng an
exlsLlng enLerprlse ln Canadlan markeL 8y acqulrlng an esLabllshed enLerprlse 1argeL can rapldly bulld
lLs presence ln Lhe Canadlan markeL AcqulslLlon helps 1argeL Lo preempL Lhe compeLlLlon AcqulslLlon ls
usually less rlsky Lhan greenfleld venLure When a flrm makes an acqulslLlon lL buys a seL of asseLs LhaL
are produclng a known revenue and proflL scream ln conLrasL Lhe revenue and proflL sLream LhaL a
greenflled venLure mlghL generaLe ls uncerLaln because lL does noL yeL exlsL When a flrm makes an
acqulslLlon ln Canadlan markeL ls also glves 1argeL noL only acqulres a seL of Langlble asseLs such as real
esLaLe loglsLlc sysLems cusLomer servlce sysLems and so on buL lL also acqulres valuable lnLanglble
asseLs lncludlng lmmedlaLe access Lo markeLs and managers local knowledge of Lhe buslness
envlronmenL ln Canada


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Acquire Zeller`s

Zellers lnc ls Canadas secondlargesL chaln of mass merchandlse dlscounL sLores sLarLed ln
1931 by WalLer Zeller Lhe company dlscounL deparLmenL sLore chaln wlLh abouL 280 sLores across
Canada Zellers sLores carry a varleLy of lLems from apparel Lo grocerles and furnlLure Zellers ls
headquarLered ln Lhe clLy of 8rampLon CnLarlo near 1oronLo and ls a subsldlary of Pudsons 8ay
Company (P8C) ln recenL years Zellers has been movlng slowly away from Lhe dlscounL deparLmenL
sLore model and has lnLroduced beLLer quallLy merchandlse and dlfferenL cusLomer servlce concepLs
new and remodeled Zellers sLores are ofLen compared Lo Lhose of 1argeL CorporaLlon ln Lhe unlLed
SLaLes

Zellers operaLes sLores from SL !ohns newfoundland and Labrador Lo rlnce 8uperL 8rlLlsh
Columbla and employs over 33000 people 1he average sLore slze ls 94000 square feeL Zellers SelecL
sLores are deslgned for smaller markeLs wlLh populaLlons under 23000 wlLh sLores averaglng 43000
square feeL

AlmosL every Zellers locaLlon ln Lhe Lngllshspeaklng provlnces feaLures a pharmacy and an lnsLore
resLauranL Lhe 1930s Lhemed Zellers lamlly ulner 1he chaln has been busy renovaLlng and expandlng
lLs sLores Lo lLs new larger formaL (Lyplcally 100000 square feeL) Lo beLLer compeLe wlLh supercenLers
operaLed by rlval WalMarL Canada 1hese sLores Lyplcally feaLure a halr salon refrlgeraLed grocerles
ma[or appllances maLLresses and expanded elecLronlcs and cosmeLlcs deparLmenLs



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ln Lhe pasL several years Zellers has made a noLable push Lo drlve sales Lhrough use of
excluslve prlvaLe label merchandlse ln a sLraLegy slmllar Lo 1argeLs Zellers sells 8lg SLar Cherokee
SporLek SLuff by uuff PomesLyles PunL Club MldLown nesL by Pouse Pome Wabasso ueslgn
ldeas Alfred Sung Pome 1ruly MarkeLSquare 8eaumark Pome SLudlo and many oLher labels LhaL
can only be found ln Lhelr sLores ln Canada rlvaLe brands now represenL over 30 of Zellers sales

8y acqulrlng Zellers provldes 1argeL rlghL Lools Lo compeLe wlLh rlval WalMarL Canada 1hls
acqulslLlon wlll provlde 1argeL wlLh a revenue sLream of $3 Lo $6 bllllon Canadlan dollars a year (See
LxhlblL 19 and 20) AL Lhe same Llme lL wlll also face challenges ln changlng Lhe culLure of Lhe
organlzaLlon and may experlence hlgh employee Lurnover

Political Risk
Relative to Target`s decision to expand via Foreign Direct Investment in Canada; we need to
review the issues oI political risk. By deIinition, Political risk is comprised oI any political Iorce
that imparts dramatic changes in a country`s environment whereby impacting proIit and other
metrics oI success Ior businesses. Such political Iorces can be doled out in countries where there
is evidence oI social unrest as in the example Sub-Saharan AIrica or where Ianatical, political
regimes are at work as in the examples oI Pol Pot, Idi Amin and Hugo Chavez.
As Target moves to increase market share, they must pay particular attention to an FDI path oI
least resistance. Over the past decade, the spread oI democracy has improved the Iertile
landscape Ior FDI ventures but as Ior the political distance between the US and Canada.it`s
hard to beat. First oII, retail consumer goods are less sensitive to such distance where as


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products like precious metals, electricity and other various commodities (ie sugar, Textiles,
coIIee) are highly sensitive to preIerential trade agreements. The Iollowing is an excerpt Irom
the US State Department website:
'Canada is a constitutional monarchy with a Iederal system, a parliamentary government, and a
democratic tradition dating Irom the late 18th century. The Charter oI Rights and Freedoms,
enacted in 1982, guarantees basic individual and group rights (US Dept oI State 2010) . It is
clear to see that Canada doesn`t run the same Two Party political system as Iound in the US;
however, the tradition oI democracy is clearly a commonality which Iosters a positive
atmosphere Ior commerce and also reduces many oI the necessary controls that would need to be
implemented when entering a Totalitarian/command style environment. Target should consider
a guarded approach to entering the province oI Quebec however. Quebec`s national sovereignty
has waned in the past decade; however, culture and identity still make up the centerpiece oI the
province`s politics. Many Quebecers wish Ior secession Irom Canada however they enjoy the
beneIits oI conIederation.

'The relationship between the United States and Canada is the closest and most extensive in the
world. It is reIlected in the staggering volume oI bilateral trade--the equivalent oI $1.6 billion a
day in goods--as well as in people-to-people contact. About 300,000 people cross the border
every day.(US Dept oI State 2010) Based on CAGE Theory, Frankel and Rose predict
exponential changes to international trade due to many oI the current conditions Iound between
the US and Canada (Polity, Regional Trading Bloc, Common Language, Common Border,
Access to Ocean) See Exhibit 24.


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An important Iactor to note concerning NAFTA is that trade between the US and Canada has
grown over 265 since 1994. This can be interpreted as a positive aspect shared by both
countries whereby Iurther solidiIying their relationship

Historically speaking, the US and Canada comprise one oI the largest investment relationships in
the world. It comes as no surprise that Canada`s largest Ioreign investor is the US. 'Statistics
Canada reports that at the end oI 2007, the stock oI U.S. Ioreign direct investment in Canada was
$289 billion or about 59 oI total Ioreign direct investment in Canada. (USDS 2010) Based on
this evidence, Target`s decision to operate in Canada carries little political risk while oIIering a
nurturing environment in which to thrive.
Concerning the laws oI Canada, Criminal law, and Civil Law are based on the common law
system oI England which is the underpinning Ior the United States legal system. Conversely,
Quebec utilizes a civil code that is derived Irom the French legal system. This evidence clearly
illustrates yet again there are many commonalities between the US and Canada with exception oI
Quebec.
Business Risk
The deIinition oI business risk is as Iollows: 'Probability oI loss inherent in a Iirm's operations
and environment (such as competition and adverse economic conditions) that may impair its
ability to provide returns on investment. Business risk plus the Iinancial risk arising Irom use oI
debt (borrowed capital and/or trade credit) equal total corporate risk.(Business Dictionary.com)
As with any Foreign Direct Investment you will carry business risk mainly in the Iorm oI
investment Iailure based on a collapsed FDI venture. Corporations must tie up capital when


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embarking on FDI no matter iI it`s a joint venture oI a Iull-blown GreenIield approach.
Mitigating all risk is not possible; however steps may be taken to reduce certain risks.
In comparison to FDI expansion overseas, growth in Canada costs Iar less and carries Iewer
logistical risks. Yet, some oI the signiIicant challenges that Iace Canadian FDI are the, vast
distances between major Canadian cities and other aspects oI bilingual labeling and marketing.
Target has looked at a variety oI FDI approaches relative to expansion in Canada. Initially, they
planned a launch oI 5-6 stores across select provinces in Canada. They have worked with real
estate developers to determine locations Ior maximum impact as in the example oI the Greater
Toronto Area which is home to 22 million people. The Iollowing excerpt is Irom Target CEO,
Doug SteinhaIel: "As we approach each oI these growth opportunities, Target will apply the
same rigorous Iinancial discipline that we have applied historically, ensuring a returns-based
approach and the prudent use oI capital"(Target.com, 2010).
The strategic behavior oI competing Iirms can Iorce one another to Iind the same resources. The
eased barriers to entry due to NAFTA compounds the competitive climate whereby increasing
the likelihood that others will join Target in a Iight Ior market share. As Target grapples Ior
greater market share in the retail consumer goods sector, they will cross paths an old rival, Wal-
Mart who, with 317 stores across Canada, has been servicing Canadians Ior more than 15 years.
Other related competition native to Canada is Hudson's Bay Co(HBC). Their substantial
presence is delivered under the Zellers and The Bay chains. Relative to Wal-Mart, Target is
not a 'First Mover by expanding into Canada. Wal-Mart being the Iirst mover has now sold its
brand to Canadians Ior over 15 years and has created a brand loyalty. Wal-Mart also carries the
distinct advantage oI running the most eIIicient and technologically enhanced distribution


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centers in North America. These ingredients can pose a daunting risk as Target will initially be
utilizing its distribution centers in the US to Ieed Canadian stores. One concern is that the layout
oI Super Target and Target Greatland stores accommodates the sale oI groceries. Distribution
centers located in the United States are ill-equipped to service Iresh produce, seaIood as well as
various meats and dairy Ior the Canadian market. There are also legal and governmental issues
that obstruct Target`s ability to import certain Iood groups into Canada. For example, Meats,
Dairy, and poultry must be approved by the Canadian Food Inspection Agency. This said, the
expansion eIIort will need to increase to include the building oI distribution centers in Canada
that are sourcing Iood stuIIs locally to Canada. Said eIIorts increase scale oI entry and tie up
greater capital, thereIore, greater exposure iI the venture doesn`t tender a return on investment.
Lastly, exchange rate Iluctuation can have an impact on the FDI process. Target`s plan is to roll
out its halI dozen stores mid decade is a long enough timeline to see a great deal oI Ilux in the
US/Canadian dollar exchange. Budgeting has to take into account a possible weakening oI the
US dollar otherwise the project might not be suIIiciently Iunded come time oI launch.
Risk Mitigation
Target has elected to avoid FDI in such countries that exempliIy the ideals oI totalitarian or
collective rule and command economies. China, as an example, may oIIer inexpensive Iactory
labor however; they lack the inIrastructure to transport retail goods around the country. By
choosing Canada, Target has opted Ior democracy and a market economy. According to
Ghemawat`s statement about Wal-Mart in Canada; Target in Canada will virtually be a carbon
copy oI Target in the United States. (Ghemawat, 2001)


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As Ior the mitigation oI business risk; Target could look to acquire Zeller`s stores to reduce the
time involved in launching a Iull scale GreenIield FDI. Zeller`s inIrastructure is in place Ior
seamless operational startup. A polycentric staIIing policy could help reduce cultural myopia as
well as reduce the costs oI value creation. Although, aIter an incubation period, a more
preIerable geocentric staIIing approach would Ioster greater growth Ior host and home country
managers. One oI the possible downsides to this acquisition is the reduced square Iootage oI
retail space in Zeller`s stores. Lack oI Iootprint may present an operational problem when
reIormatting the stores to match the space hungry, Target motiI. The acquisition oI Zeller`s
however, would come with distribution centers that could Ieed the grocery sector oI Target.
Additionally, given the opportunity, Target may want to enter into a joint venture with
HBC/Zeller`s as many mergers and acquisitions Iail due to overpayment, The Hubris hypothesis,
where top managers overestimate they`re ability to generate value to the Iirm. Risk can also be
mitigated via proper screening and auditing.
The choice oI strategy should Iall between a Global Standardization and Transnational Strategy.
To clariIy this, many oI the goods sold at Target stores within the United States would easily be
salable in Canada under the standardization approach, however, products requiring French
labeling or metrics would need to be localized. There is also a signiIicantly larger Indian
population in Canada that would respond to greater localization oI products, hence there will be a
mix oI standard and local products. Concerning the pressures Ior cost reduction, the retail
consumer goods market is lead by the largest corporation in the world. As a competitor oI Wal-
Mart, Target must look to expand in eIIorts to create a greater bargaining Iorce with is suppliers.
The domino eIIect would then lead to more robust order volumes where suppliers could take
Iurther advantage oI Economies oI Scale and drive prices lower. Within this notion is


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Knickerbocker`s theory oI Multipoint competition. Target is Iollowing one oI its largest
competitors to Canada in order to stave oII Wal-Mart capturing an insurmountable market share.

Implementation
Dominic Barton, Principle Director oI McKinsey and Co. states 'Opportunities come up when
available. Prepare your board on the basics. (McKinsey, 2010) Relative to Target, this
statement is quite apropos. The initial plan Ior Target`s FDI was to launch Iive to six stores
across Canada, mid Decade. As it turns out, HBC is in season to divest itselI oI their consumer
retail business unit, Zeller`s. 'Zellers Inc. is Canada's second-largest chain oI mass merchandise
dlscounL sLores, with 276 locations in communities across Canada. (hbccom) Rumors within
the past Iew years pointed to a possible takeover oI Zeller`s. Jerry Zucker had purchased
Zeller`s taking that option oII oI the table, however, aIter his untimely death in 2008, the retailer
was spun oII to NRDC Equity partners in July oI 2008. The economic downturn has weighed
heavily on NRDC as they also own the retailer Lord and Taylor. This said, Zeller`s is right Ior
acquisition yet again. Target has alluded to the Iact that it may be another three years beIore
they are positioned to enter Canada so during the interim they will be Iocused on improving the
stores in the United States. 'Target plans to invest $1 billion (U.S.) renovating 340 stores,
adding more groceries to its general merchandise as hard-pressed consumers continue to buy
staple goods.(Flavelle, 2010) As Target bides their time, playing a wait and see approach, they
will be Iocused on building 10 new stores in existing U.S. markets during 2010. This is a stark
decrease Irom the 58 stores built in 2009 and 91 stores in 2008. Plans are also in the works Ior
opening smaller store Iormats within the next 2 years.


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Looking at the current retail landscape in Canada, Wal-Mart, with its 317 stores across Canada
generates $15 billion and NRDC Equity(Zeller`s) generates roughly $6 Billion annually. This
said, the entire retail market is $400 Billion and leaves enough room Ior Target to penetrate and
draw discerning customers away Irom the likes oI Wal-Mart.
Based on this opportunity Target must Iirst gain approval by way oI The Foreign Investment
Review oI 1973. The law deals with acquisitions oI control oI Canadian businesses. 'The
review was necessary Ior all acquisitions and Ior every establishment oI a new business in
Canada by Ioreign-controlled entities above a certain size. (Business Highbeam.com) The
initial FDI plan by Target was oI an incremental approach, requiring a capital investment
considerably less than the magnitude oI a near 300 store takeover complete with distribution
centers. Target would undoubtedly Iinance FDI expansion with a combination oI debt and
equity.
on Financial Investments
Concerning Non Financial investments, Target has certainly reviewed the overall climate
conditions oI Canada and with the possible acquisition oI Zeller`s, many oI the stores will need
to be upgraded to perIorm as LEAD certiIied buildings. Said green activities will result in
environmental preservation which on the outset isn`t a Iinancially sound project, however,
should add to show corporate social responsibility. Target will also generate non Iinancial
investments by way oI government regulations. As stated earlier, review boards will be
assembled to review and generate proposals Ior the Foreign Investment Review Board.
Customer satisIaction is another key area oI non investment due to the Iollowing reasons:
'Canada has long had a love/hate relationship with Ioreign direct investment (FDI). FDI brings


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economic activity and jobs but conjures up Iears oI Ioreign takeovers, especially by the United
States. Foreign Iirms operating in Canada are more innovative and productive than their
Canadian counterparts, and they pay higher wages. (business.highbeam.com ) Lastly, employee
motivation is a non-investment to ponder. Target has a rich tradition oI creating a team
atmosphere. That said, with any acquisition and especially one in another country, corporations
must invest money into team-building programs to Ioster the proper spirit and work to reshape
the culture oI those acquired.

Financial Investments
Naturally the monetary investment in this particular FDI relates to any costs oI GreenIield,
acquisition or joint venture, but also the Iront end research to support the decision to initiate FDI.
Given the likelihood that Target would implement a Geocentric staIIing approach, the costs to
transIer managers to and Irom Canada would greatly increase expenses over Polycentric
approach. The beneIits would be realized by way oI solid cross cultural literacy. Marketing
campaigns geared speciIically Ior the Canadian audience as well as Iunding the peripheral
expenses in logistics, supply chain management and other related operating soItware integration
will be a source oI additional Iinancial investment.


Control Mechanisms


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Based on the buying psyche oI Canadian shoppers, the concern arises that strong loyalty
programs are used by retailers. The aIIect oI these programs usually creates higher switching
costs Ior customers to change their patronage preIerences. Target currently implements controls
to measure the perIormance oI all aspects oI their retail oIIering. From a customer aspect, data
mining through reward cards and the Target Visa help Iorecast demand as well as create loyalty
via switching costs. From the operational side, incentives will be paid to managers oI the FDI
subsidiaries based on perIormance metrics. Certainly, ethical behavior on the part oI expatriate
managers has to be strictly monitored thereIore the appointment oI an ethics oIIicer and the
adoption oI a code oI ethics are the mainstays oI principled business in this era. Incentivizing
moral courage and ethical behavior and sanctioning immoral conduct is routine practice Ior
many multinational enterprises. Finally, Target Canada will need to enIorce strict guidelines
relative to the dissemination oI prescription drugs as they cannot be shipped to customers in the
United States. Federal regulations prohibit the sale oI prescription drugs to US residents Irom
outside the country; however, these laws are broken on a routine basis.
Milestones
We need to develop two criteria based on either a smaller scale GreenIield launch or the capital
intensive acquisition with Zeller`s stores. With the initial plan oI launching 5-6 stores through
GreenIield FDI by mid decade, we would expect a 3 year plan to Iully integrate the Target
culture via geocentric staIIing policies. Based on this smaller scale approach, reserve monies
would be available to inject into Iurther expansion stores aIter a suIIicient break-in period. This
break-in period oI 3-5 years would indicate whether or not to continue Iurther expansion in
Canada. The acquisition oI Zeller`s would accelerate the penetration oI the Canadian market
immediately. As Target would be acquiring the culture oI Zeller`s they would implement a 90


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day milestone to make Iast broad changes to the Zeller`s business. Implementation oI TQM
methods such as Lean and Six Sigma would help reduce waste, capture Voice oI the Customer
and increase operational eIIiciencies. AIter 18 months we implement an alignment program to
start the integration oI Target`s culture, however, we would anticipate a time Irame oI 5 years to
Iully integrate the culture. Once again a geocentric staIIing policy would assist in these eIIorts
and combat against the eIIects oI an ethnocentric, Phillips - 'Dutch MaIia staIIing policy. In
the span oI 10 years we look to Target to surpass $8 Billion Canadian in sales
Performance Metrics
We base our metrics on calculating per capita earnings and population rates. In the United
States, the Population is 301 million people. The per capita income is $43,730. Target sales are
$63 Billion, thereIore, per capita income oI $43,730 generates Target sales oI $209.30 in the US.
We can then apply this metric to Canada. Canadian per capita income is $39010 which can then
be divided by the US per capita income $43,730 to generate $186.71. The resulting per capita
income, divided by the Canadian population oI 32.6 million people will net $6.08 Billion in
projected revenues. II the spend increased by 50 the Target stores in Canada could generate
roughly $9 Billion. To generate even the original projection oI $6 billion, Target would need to
operate approximately 200 stores at $25 million each. II the Zeller`s opportunity is presented,
Target will be best suited to strike a deal in order to meet the above perIormance metrics.
Exit Strategy
Having the Ioresight to arrange Ior a possible exit to your FDI plan is prudent. As stated earlier,
the Iinancial risk is based on the inability to achieve the return on investment. Target will
endorse plans to exit based on the Iollowing criteria:


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O InsuIIicient demand
O Political and Economic instability
O Fixed costs outweighing sales revenue
The initial stopgap measures to shore up the balance sheet would be to scale back stores through
divestment and re-concentrate same store sales, whereby eliminating capital exposure where
possible. II eIIorts to strengthen the Iinancial position aren`t assisting, or the political and
economic climates become insurmountable, Target must Iurther liquidate more assets such as
distribution centers and more stores until exit is complete. No Iirm is immune to adverse market
or political conditions.



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2701
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http://www.thestar.com/article/754191


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22 hLLp//buslnesshlghbeamcom/603/arLlcle1C137797032/lmpacLgovernmenLpollcles
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Appendix
Exhibit 1: %arget Stores in U.S. (Green Rectangles showing areas closer to Canada).






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Exhibit 2: %arget Key Financial Figures Growth Rate Change


Exhibit 3: %arget Key Financial Figures Growth Rates




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Exhibit 4: %arget Key Financials




Exhibit 5: %arget Sales Growth Relative to Store Size Growth



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Exhibit 6: Country Portfolio Analysis Adjusted for Distance for Fast-Food Restaurants''


Exhibit 7: Increasingly More Corporate Profits are coming internationally '



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Exhibit 8: Expected %arget Canada`s Key Financial Figures Growth Rates



Exhibit 9: Expected %arget Canada Growth Chart








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Exhibit 10: State of Foreign Direct Investment in Canada



Exhibit 11: Sources of Foreign Direct Investment in Canada




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Exhibit 12: Foreign Direct Investment Breakup in Canada by Major Industry


Exhibit 13: Foreign Direct Investment Breakup in Canada by Selected Industry







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Exhibit 14: US and Canada Key Indices Comparison



Exhibit 15: Canadian Retail Sector Snapshot (2009)




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Exhibit 16: Some Components of Canadian Culture


Exhibit 17: Comparison of Canadian Economy Growth vs. its Peers




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Exhibit 17: Canada GDP Growth Rates vs. ther G-7 Countries


Exhibit 18: Corporate %axes in Canada compared to ther G-7 countries





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Exhibit 19: Zellers (Hudson Bay) Financials Small Snap Shot


Exhibit 20: Zellers (Hudson Bay) Financials Chart


Exbibit : Retail sector year-over-year growtb




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Exbibit : Retail Sector Uperating Profits


Exbibit : Canada's Working-Age People by Motber Tongue







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Exbibit : Frankel and Ross - Measuring tbe Impact of Distance

Distance Attribute Change in International Trade()
Income level(1) 0.7
Economic Size(1) 0.8
Physical Distance(1) -1.1
Physical Size(1) -0.2
Access to Ocean 50
Common Border 80
Common Language 200
Trade Agreement 330
Colony-Colonizer 900
Common Colonizer 190
Common Polity 300
Common Currency 340
Exhibit 24
(Ghemawat 2001)