International business: H&B LLC Company case - Assignment Example

?International Business Introduction H&B LLC Company based in the United s was opened in 2001. The company deals with the sale and purchase of precious metals products most of which are made of gold, silver, gems, and ruby. The company is privately-owned and initially, it had only nine stores. Currently, the company boosts of over 50 stores within the United States. H&B LLC has tremendously grown since its inception and the company’s strong management team is credited for the remarkable growth. The company seeks to expand its customer base and to improve its brand image in overseas markets including the Kingdom of Saudi Arabia (KSA). Choice of the Overseas Market It is evident that Saudi Arabia is changing both socially and economically. In 2000, Saudi Arabia launched the Saudi Arabian General Investment Authority (SAGIA). Since then, the procedure for making direct investment into the Saudi Arabian market has dramatically changed. For instance, in 2006, over 10 insurance companies were licensed under the approval of the Saudi Arabian cabinet to be listed on the stock market of Saudi Arabia. These insurance companies have international backing. Saudi Arabia is an attractive potential market to Western businesses. The nation has a GDP of $622 billion, the GDP per capita is $24,200, and the annual growth of the GDP stands at 3.7 percent (Bureau of Near Eastern Affairs par 4). This indicates that the Saudi Arabian market is still under-serviced and there is potential for development as noted by Waite (1). A foreign investor can access the Saudi Arabian market in several ways. KSA commercial agent appointment is one way in which a foreign firm can access the market without the need for creating a direct presence in the Kingdom of Saudi Arabia. Another way in which a foreign company can penetrate KSA is through foreign suppliers. The foreign supplier organizes product sales outside KSA and requires the purchasers in KSA to organize for the importation of the goods (Alarifi and Al-Bosaily 1). Market Analysis The economic situation in Saudi Arabia is relatively good. This means that the economic risk faced by businesses in the country is relatively low. Saudi Arabia is a strong member of OPEC and it is the world’s biggest exporter of petroleum. The oil export revenues account for approximately half of the country’s GDP and 90 percent of the export earnings. Credit conditions in the country are still relatively tight in Saudi Arabia and they will continue to limit growth predictions in the coming quarters. Government spending (in form of social payments) has considerably increased, this being due to the social unrest in the MENA (Middle East & North Africa) region (A.M. Best Company, Inc. 2). It is important to note that the government of Saudi Arabia wants to minimize its reliance on the oil sector through the diversification of its economic activities. The kingdom also possesses a banking and financial system which is stable and which provides numerous invaluable services to business organizations and individuals. (GlobalTrade.net 1). The political situation of Saudi Arabia as a Kingdom is also relatively good; this means that the political risks are moderate. Saudi Arabia is a member of GCC (Gulf Cooperation Council) and the objectives of GCC include creating consistent regulatory environments, establishing a common currency, and to enhance private sector cooperation. Political unrest in the MENA region, especially in Bahrain, remains a major concern for Saudi Arabia. There are expectations that King Abdullah will continue actualizing his reform agenda in the country in the next few years (A.M. Best Company, Inc. 2). The entire Arabia is a wide platform of ancient rocks. Recent geological time indicates the opening of a series of fissures. This resulted in the creation of a rift valley, which was later occupied by the Gulf of Aden and the Red Sea. Concerning the geographical structure, Saudi Arabia is divided into four major regions which include the Central, Western, Southern, and Eastern regions. It is worth noting that for administrative purposes, the Kingdom of Saudi Arabia is separated into 13 Administrative Regions. Demographically, the population of KSA in 2011 was 26.1 million; 55.3 percent of the Saudi national population was male and 44.6 percent was female. Urbanization has grown at a fast rate and in 2006, the population of Riyadh was 5.8 million (Bureau of Near Eastern Affairs par 2). The labor market is extensive which means that there are several sectors within the labor market The sectors include wholesale and retail trade, construction, and manufacturing, just to mention a few. The total number of civilian employment in 2006 in all the sectors of the economy was 5.5 million (SAMIRAD [Saudi Arabia Market Information Resource and Directory] 1). Market Entry Strategy Majority of the companies use export as a strategy to enter a foreign market. This is because not many nations provide a market large enough to justify local production. Exporting permits the company to manufacture its products for a number of markets centrally and therefore achieving economies of scale. When this happens, the company lowers its prices or realizes more profits, and at times it realizes both (low prices and more profits). In the past 25 years, government tariffs and transportation costs have fallen considerably and these conditions have made exporting to be more cost-effective. Thus, most of the companies are using exporting as a means to grow their businesses and at the same time limit risks without having to invest massively in uncertain business environments (Gillespie, Hennessey, and Jeannet 250). Two alternatives can be chosen by a company in regard to exporting and they include direct exporting or indirect exporting. Direct exporting entails the selling of products to an agent located in the foreign market. Indirect exporting entails the selling of a product to an agent located in the same domestic market (Blythe and Zimmerman 109). Agents are companies that assist in locating and selling to the consumers but they do not have the ownership of the product. On the other hand, merchants take the title, own the product and they have the ability to resell it. It is important to note that a manufacturing company choosing an agent has more control over the agent’s marketing practices that it will have over the merchant (Blythe and Zimmerman 110). Considering the above facts, the preferred market entry strategy to be used applied in venturing into the Saudi Arabian market is exporting. Conclusion The Kingdom of Saudi Arabia market has many opportunities for the expansion of the precious metals product business. The political and economic situation in the country is relatively good although there are some political risks. In order to make large investments while minimizing associated risks, exporting has been chosen as the market entry strategy. Works Cited A.M. Best Company, Inc. Saudi Arabia. AMB Country Risk Report, 28 Sep. 2011. Web. 7 Jan. 2012. Alarifi, Saud & Al-Bosaily, Abdulaziz. Commercial Agencies in the Kingdom of Saudi Arabia. Clyde & CO., 2012. Web. 7 Jan. 2012. Bureau of Near Eastern Affairs. Background Note: Saudi Arabia. 2011. Web. http://www.state.gov/r/pa/ei/bgn/3584.htm Blythe, Jim & Zimmerman, Alan. S. Business-to-business Marketing Management: A Global Perspective. Mason, OH: Cengage Learning EMEA, 2005. Print. Gillespie, K., Hennessey, D. & Jeannet, J. Global Marketing. Mason, OH: Cengage Learning, 2010. Print. GlobalTrade.net. International Trade in Saudi Arabia. GlobalTrade.net, 2011. Web. 7 Jan. 2012. SAMIRAD. Profile of Saudi Arabia. SAMIRAD, 2011. Web. 7 Jan. 2012. Waite, Bill. “Risk Advisory.” The Risk Advisory Group 14 (2006): 1-12. Print. Read More