A New Challange - Starting Business in Foreign Country - Case Study Example

A New Challenge Overview Global development is important for every business organisation to gain more profitability and sustainability in the market. Growth is important to meet the market competition and get competitive advantage over others. In this case, as a Business Development Strategist of a fashionable clothing company, an effort has been made to provide a thorough analysis of the business strategy of expansion of the business from Korea, the base country to the global environment. The company is the manufacturer, designer and retailer of men and women’s garments which are of new style. It is planning to open its first store in Kuala Lumpur which is the capital city of Malaysia. It is the most commercially successful and lively place of the country. The company is planning to base its store for the first time in the Southeast Asian market. The reason for such expansion is that the organisation is trying to create its brand image outside Korea and be the market leader. It is important to analyse the market and foreign policies before starting the business in another foreign country. Thus, the company aims to seek advice from the Business Development Strategist regarding the various factors which are to be considered before the global expansion is conducted. The company is required to analyse the business strategy and investigate the prospects of the business in Malaysia. Analysis of the Trends in the External Environment It is important to analyse the trend of the country and its external environment before beginning the business in a new country. The analysis of the external environment is important to get a proper view of the various factors which enhance the success of a business during global expansion. Then, the framework of PESTLE analysis can be termed to be sensible in order to get proper view of the current trends in Malaysia. Political Factors: Malaysia is a democratic country with multiple parties. The Barisan national party is ruling the country for several years which is helping the nation to have stability. Stability to a high degree is of importance to increase the business opportunities. A foreign business enterprise might face challenges as corruption exists in the country. This can create an additional cost for the new firms. According to the corruption index, Malaysia has a high rank even though the political stability is high for the business (Slide Share, 2013). Economic Factors: The economy of Malaysia is the main reason for it being the centre of attraction for the business. The Gross Domestic Product (GDP) of Malaysia was USD 303.53 million in the year 2012 which was the highest for the country in its history. The impact on the world economy was 0.49 per cent. This implies that the purchasing power of the people is more and hence business expansion in this country will be effective (Trading Economics, 2013).The growing economy has increased the demand of the consumers along with their income which is attractive for the retailers. Moreover, the location of Malaysia in the Southeast Asia makes it the centre of attraction for the business and the people. Social Factors: The demographic factors related to Malaysia are strong and is mix of cultures involving three major groups which include Malay, Chinese and Indian communities. The country has a lively mix of cultures and harmony which is important for the business sustainability. The nation is not rigid with religion; every individual is free to follow their own religion. The people are trendy and have a high lifestyle wherein they prefer to wear fashionable attires by a considerable extent. Huge number of festivals is celebrated in the country increasing the scope for clothing business (Slide Share, 2013). Technological Factors: The people of Malaysia requires being more technically knowledgeable in order to contest with the competitive market internationally. However, the technical support from the country helps in attracting more business (Slide Share, 2013). Legal Factors: The legal system of Malaysia is similar to the British common law which is useful for the British business organisations. The penalty is high for the people not following the legal norms in business (Slide Share, 2013). Environmental Factors: The environmental cost is high in Malaysia suggesting the negative impact. Thus, a new business organisation always needs to confirm that it stands by the environmental norms of the land so that any unnecessary cost is avoided. Therefore, as per the overall analysis, it can be stated that opening a store in Kuala Lumpur, Malaysia might be quite effective and profitable for the Korean based fashion and clothing company especially due to the rising trend of stylish products and advanced lifestyle of people (Slide Share, 2013). Risk Evaluation for the Business In the global business world, companies expand their business to create opportunity and improve the brand image. In this regard, the sensible target of Korean fashionable clothing company is to expand the business into new markets, amid new consumers and buyers along with enhancing the brand awareness. However, this kind of intention to expand the business can create a high amount of risk which is at times more than the other international expansion factors. The risks can be of various types which include political, social and economic uncertainty. Furthermore, the risk can be demonstrated in terms of international risk, exchange rate risk and industry risk. Hence, it is of importance to explore the business risks associated with global expansion. In order to mitigate the risks associated with the business of opening a store in Kuala Lumpur, it is important to analyse the external environment in the very beginning. The risks can be mitigated through the experience of the management as their existing knowledge can help to deal with international operations during the entry of the business. In accordance with the evaluation derived from PESTLE analysis, it can be reflected that the risk for the business is moderate as compared to the growing advantages it possesses for the business. The political environment is stable, creating a high scope for the business with high purchasing power of buyers (Slide Share, 2013). The venture as per the analysis is not very risky due to the stable environment. The only issue faced by the company can be the risk due to the high corruption rate in Malaysia. The business is more helpful than risky as reflected by analysing the external environment. With the past experience of the management and the global expansion criteria strategies, the company will be able to mitigate the risks. The failure of the venture can affect the operational cost of the company. It can have an impact on the global brand name of the clothing company as there might arise a lack of trust among the participants of other following nations where the company might desire to expand its operations. Thus, the failure of the venture can hamper the process of global expansion and the stability of the business. However, if the project of global expansion of the company is not started then the loss of operating in a highly prospective country can become quite high, leading to a financial loss for the company. In keeping with the present day business context, Malaysia is considered as a potential market for business expansion therefore if the business is not followed it will result in the loss of a potentially valuable market. Suggested Business Strategy The clothing industry of Malaysia is very competitive in nature due to the existence of a large set of companies operating in it. This feature will make the environment competitive and challenging for the Korean clothing company when it enters the Malaysian market. Thus, it will require using strong strategies for the business to be effective in the new market. Differentiation in the offered fashionable clothing from the other competitors will make it competitive. The differentiation of the products can be done by offering the consumers well designed trendy clothes different from that of the rival offerings. The differentiation can be done through the implementation of well-designed packaging and labelling as well. Proper customer service is required to be initiated by the company which includes after-sales service. The suggested differentiating strategy for the Korean clothing company can be at first product differentiation. The offered products can be differentiated by making them more attractive to the market through the use of advertising campaigns, sales promotion and by providing functional benefits through the clothing which include best quality with proper pricing. The aspect of differentiation is important as it would make the product unique and hence can help in attracting the customers. Moreover, the company in order to get competitive advantage is suggested to offer service differentiation, by providing fashionable design and attractive clothing. This approach of differentiation can be created by providing the ease to order the products, delivering the goods at the door-step and by customer discussion. The aspect of channel differentiation can also be done by the company in order to have a strong position in the market through the use of the retailers (Orlovic, 2003). Moreover, online shopping can be promoted for the users to get the delivery on time by logging into the company website. Internet shopping will also be an effective approach for the business as a strategy to have competitive advantage. The company in order to create differentiation can make use of the internet by promoting its offered high-class goods through the mode of fashion blogs where the company can highlight the current fashion trend by promoting its clothes (Baykal & Delagarde, 2011). Besides, the company can use the low cost pricing strategy in order to gain market position with the help of cost leadership strategy. Similarly, the company can use the competitive pricing strategy which refers that the costs of the products will reply on the product design and also on the competitors’ price of their products. The company will provide high quality products with lower price to provide benefit to the consumers in the global environment. This would help the company to create a strong brand image which is a vital aspect for the business to gain strong market share in Malaysia (Ferrell & Hartline, 2010). Promotional strategy can include the use of proper advertisements, hoardings and the use of social media to get a wider and positive response. This will help the company to ensure its strong presence in the minds of the people. In this regard, it can be reflected that Zara, one of the leading fashion industry based players has used these differentiation strategies in order to gain competitive advantages (Baykal & Delagarde, 2011) In order to expand the business internationally into a new market such as Malaysia, the entry mode strategy is required to be implemented. In this case, the Korea based company in order to open its first store in Malaysia can use the strategic alliance strategy to enter the market with less amount of risk generated through external factors in relation to the environment (Twarowska & Kakol, 2013). Strategic alliance is identified as a partnership with the other operating businesses for mutual benefit as well as to get strong competitive advantage. The approach of strategic alliance is of benefit as it provides the ease of entry into the new market. The company can get the benefit of economies of scale and can reduce the threats from the government policies. It will help to have the power to deal with the competition and to get a strong position of its own. Moreover, the strategic alliance will help in meeting the protectionist obstacle as the control on import and commercial penetration will be made easier (Isoraite, 2009; Cojohari, n.d.). The access to the geographical market will be more as the alliance will help to reduce the gap. The alliance can also be effective through the implementation of the structured alliance process. The diagram below represents the process which is highly valuable for the alliance to be successful. Figure 1: Structured Alliance Process Source: (Cojohari, n.d.) The approach of strategic alliance is effective and successful which can be showed by stating the prosperous example of SIA, Air New Zealand and Ansett alliance between the South East Asia and Australasia (Goel, 2003). Organisational Structure It is important to have a strong organisational structure for the business of Korean clothing company to succeed and strengthen its position in the new global multi-business model. The matrix organisational structure can be followed by the company which will be effective in order to have a strong workforce and competitive advantage. The structure would provide the benefit of both the functional and divisional aspects through one organisation. It is the best of both the structures however the structure is complex but effective. The structure will be effective as every supervisor will be taking the charge of their expertise area. Specialisation in the area as per the division will also make the structure effective and of value for the people. The communication amid the management and the employees can become strong and fast due to the coordination among the functional areas (Kuprenas, 2003). The aspect of teamwork is of advantage for the organisation as it can help in meeting the changing customer demands and challenges faced by the organisation in the Malaysian market to a considerable extent. The aspect of human resource flexibility will be more in this structure due to sharing of the talented employees. The implementation of matrix structure is justified as it can provide benefits due to strong information processing and sharing of the resources. The structure enables to have a strong control over the clients because of the strong benefits it has over the organisation and the employees. Finally, it can be learnt that the decisions regarding market operations in Kuala Lumpur can be effectively handled with the help of matrix organisational structure (Kuprenas, 2003). References Baykal, J. & Delagarde, M. (2011). Differentiation strategies in the fashion industry. Business Administration, 6-59. Cojohari, N. (n.d.). The competitive advantage of strategic alliances. Conferences, 1-9. Ferrell, O.C. & Hartline, M. (2010). Marketing Strategy. United States: Cengage Learning. Goel, A. (2003). Strategic alliances in the global airline industry. Publication, 1-45. Isoraite, M. (2009). Importance of strategic alliances in company’s activity. Intellectual Economics, 1(5), 39-46. Kuprenas, J.A. (2003). Implementation and performance of a matrix organization structure. International Journal of Project Management, 21, 51–62. Orlovic, M. (2003). Strategies and Structure of the Luxury Clothing and Accessories Sector: A Critical Analysis based on Porters Five Forces Model. Hamburg: Diplomarbeiten Agentur. Slide Share. (2013). Pestle analysis on Malaysia. Retrieved from http://www.slideshare.net/aliceburavitskaya/pestle-analysis-on-malaysia Twarowska, K. & Kakol, M. (2013). International business strategy - reasons and forms of expansion into foreign markets. International Conference, 1006-1011. Trading Economics. (2013). Malaysia GDP. Retrieved from http://www.tradingeconomics.com/malaysia/gdp Read More