Overseas Market Entry Actions of Blue Lagoon Cosmetics Company - Case Study Example

International Business: Overseas Market Entry Actions INTERNATIONAL BUSINESS: OVERSEAS MARKET ENTRY ACTIONS Introduction One of the major characteristic involved in the current economic development in the world involves the constant deepening of internationalization, which is part of the wider globalization phenomenon. According to McLean (2013: p22), the concept of internationalization is divided into passive and active concepts, of which the latter refers to expansion of companies in various forms, while the former is characterized by the entry of the company into economic ties sans relinquishing activities to these countries. Internationalization poses a substantial challenge for companies in Iceland, particularly due to the economic effects of the recession, which has hurt Icelandic companies. However, the cosmetics industry in Iceland has escaped most of the fallout resulting from financial market collapse in the country, which has opened up internationalization as a viable strategic objective. This paper will focus on Blue Lagoon Cosmetics Company and its potential entry into the Kuwaiti market, including the most viable international business strategy, its marketing actions, and appropriate organizational structure. In order to do this, the paper will use literature studies on international business strategy and apply theoretical models to the entry of Blue Lagoon into Kuwait. Blue Lagoon Company Profile Blue Lagoon was started in 1976 as a way to take advantage of a geothermal plant constructed in the Reykjanes-peninsula. The geothermal plant produces water rich in natural minerals that are also integrated into the white silica clay on land, which Blue Lagoon collects and sells as cosmetic products (Icelandnaturally.com, 2013: p1). Blue Lagoon Ltd. was established in 1992 due to the popularity of its warm spa water, after which bathing facilities were opened in 1999, which made it one of the most popular tourist destinations in Iceland with at least 70% of all tourists visiting Iceland also visiting the Blue Lagoon. The company has three state-of-the-art geothermal spa facilities, which host restaurants, conference rooms, an indoor pool, and modern changing and shower rooms. In addition, Silica mud is also part of the company’s assets, in which visitors can bathe. Blue Lagoon has dedicated its activities to developing the health of visitors, building on the presence of geothermal water that contains blue-green algae, silica, and salt (Icelandnaturally.com, 2013: p1). The company began producing skincare products as Blue Lagoon Iceland made of unique chemicals, which were first marketed in the late 90s. In the early part of the 2000s, they launched a new skin care, product line (Icelandicmarket.com, 2010: p1). The products are marketed as White Silica mud that exfoliates and cleans skin, while also revitalizing the skin. Products containing blue-green algae soften and nourish the skin. In addition, products containing the geothermal water salts relax the skin pores. In combination, the products are marketed as having positive effects on skin ailments like psoriasis with no side effects for the user. The company’s market share is of 35% in the Iceland skin care product sector and is ready for internationalization, particularly as the Blue Lagoon area is world-renowned for its therapeutic products (Icelandicmarket.com, 2010: p1). In fact, the company is already present in various European countries, as well as Asian countries like China, Japan, and Thailand. With these qualities, this company has been identified as having the potential to penetrate the Kuwaiti cosmetics market. International Business Strategy Blue Lagoon Ltd will seek to use a global strategy in its entry into the Kuwaiti cosmetics market. The global strategy, according to Cavusgil et al (2012: p43), stresses on efficiency due to the strong central control that is present from the organization’s headquarters. In the case of Blue Lagoon Ltd, this will be the best international strategy because the products can only come from Iceland’s geothermal water. Blue Lagoon’s economics will be gotten from manufacturing in Iceland and exporting the products to Kuwait, which will result in standard product design. In order to manage the internationalized company effectively and efficiently, Blue Lagoon will require an extensive control and communications system. A sound global business strategy must address various questions, including the extent of market presence in the market it is going into, how to create the required presence in this country, how to turn global presence into competitive advantage, and the optimal locations in the country or region for the value chain activities (Cavusgil et al, 2012: p44). Some of the forces perceived as being important in competition globalization are convergences in technological changes and economic systems, which require and facilitate the coordination of a firm’s world-wide strategy. The global business strategy will be appropriate for Blue Lagoon’s entry into the Kuwaiti market because, as an established company, it faces pressure to reduce costs, although pressure for local responsiveness is low (Stonehouse et al, 2010: p38). Thus, Blue Lagoon in Kuwait will be able sell its standardized products without much value addition in Kuwait. However, the company will still have to face substantial capital requirements. Nevertheless, they will also have the opportunity to take advantage of experience curve effects and scale economies advantage due to their ability to mass-produce their skin care products in Iceland and export them to Kuwait. Using global business strategy to enter the Kuwaiti market will require that Blue Lagoon tightly coordinates its pricing and product strategies with other locations in Europe and Asia, which will make it highly centralized in its Iceland headquarters. Global business strategy, according to Stonehouse et al (2010: p41), is closely related to an organization’s development and adoption of strategies that seek to meet both short term and long term goals and objectives. The short-term goal for Blue Lagoon Ltd will be related to the improvement of daily company operations in Kuwait, while their long-term goals will generally be geared towards the improvement of earnings, sales, and profits to establish stability and growth, as well as dominance, over its local and regional market in Iceland and Europe respectively. The factors of product diversification and differentiation are relevant with regards to both global and national business strategies for Blue Lagoon, especially with rising international and local market competition. The global business strategy has emerged because of internationalization and globalization of established local companies as they seek to increase their company’s value (Chaudhuri & Das, 2011: p49), which is what Blue Lagoon will be seeking to do. As noted, the global business strategy is grounded in product adaptation and product standardization, which, in recent years, have been increasingly in conflict. In this case, the conflict will arise with Blue Lagoon’s entry into Kuwait, especially in relation to the most profitable. Blue Lagoon Ltd will pursue product standardization over adapting the product to the Kuwaiti market, particularly because the products main selling point is its origin in Iceland’s glacier waters. Chaudhuri and Das (2011: p50) contends that product standardization is used by organizations engaged in international business strategy who sell the same product in the international market as they do in the national market, albeit with minor changes related to product attributes. Since the Kuwaiti cosmetics market is presumed to want the same thing as the Icelandic and European market, the product will essentially be the same for both markets. This concept product standardization emerged first in the mid-60s, resurfacing again in the early 80s, after which it was effectively adopted by European and Japanese firms. One of the most important benefits of the strategy is the enhanced levels of process and product innovations that offer competitive advantage to international companies in the global market (Nelson, 2009: p37). In addition, selling standard products in Kuwait will benefit Blue Lagoon in relation to economies of scale since it can produce its skin care products in large quantities for export through the same production technique. Moreover, product standardization as part of its global strategy will benefit Blue Lagoon by preserving its image because it allows it to minimize costs related to alterations, modifications, stocking, handling, or design and speeding up systems of delivery. Thus, numerous product lines with different formulations do not dilute their product (Nelson, 2009: p38). It will also help by saving managerial effort and time, especially during decision making regarding the manufacture of varied skin care products. Although product adaptation would allow Blue Lagoon to orient its product with the specific needs of the Kuwaiti cosmetics market, specifically because of religious and cultural factors, Blue Lagoon will seek to leverage the product’s exclusivity. Blue Lagoon’s Marketing Actions Blue Lagoon will seek to adopt product strategy related to quality differentiation strategy, which it has also adopted in other international markets. The product to be offered is superior in the Kuwaiti market because the geothermal springs and water in Iceland are unique to the location, especially with the combination of white Silica mud, blue-green algae, and geothermal mineral salts (Bennett & Blythe, k2012: p102). Therefore, Blue Lagoon will pursue a vertically differentiated product strategy, in which the company will seek to focus on the additional therapeutic features in its products. This differentiation of its products in the Kuwaiti market along its key features will also allow the company to avoid the levelling of price to bottom of the price spectrum. In addition, it will also prevent other companies from providing similar products to the Kuwaiti consumer. Launching this product in the Kuwaiti market, especially with its entirely new performances, will be a radical change that will alter market share since there are no substitute products for Icelandic geothermal skin care products. Bennett & Blythe (2012: p103) claims that as a strategy, differentiation seeks to adapt to the social groups within a moving environment. Blue Lagoon will take advantage of the increasing demand for natural skin care products with no chemical alterations in the Middle East, especially Kuwait. With regards to placement strategy for the product, the main criteria will be direct distribution, a high level of control, and distribution via the personal device. With Kuwait’s relatively modern transport and logistics environment, one advantage for Blue Lagoon will be the reduced time between the placement of orders by representatives in Kuwait and the delivery of products to the representative (Rogmans, 2012: p62). On the other hand, the promotion strategy will revolve around global image expansion, conduction of promotional activities, and using an offensive promotional activity. Image expansion will be adopted on the basis of knowledge across the world, including Kuwait, about the uniqueness of geothermal water products in Iceland and their therapeutic quality. Blue Lagoon can also provide free samples to customers to try out and observe the markets reaction. In addition, different media can be used to promote the products, including billboards, magazines, newspapers, and TV programs, as long as they are conspicuous enough to be noticed by potential clients (Rogmans, 2012: p64). Blue Lagoon Iceland will base its pricing strategy on price mobility, price diversification degree, and price levels. On the basis of each product’s category, such as white Silica mud and blue-green algae paste and in combination, the company will adopt varied prices with the combination cream being most expensive. Czinkota et al (2011: p55) states that when new products are being launched, their price should be set relative to similar products. However, because there is minimal competition with regards to geothermal water products in the Kuwaiti market, it is expected that the combined elements cream will not face much competition in the beginning. Thus, on launching the product in another country, the company should pursue an undifferentiated pricing policy together with promotional activities to inform consumers about the unique qualities of their products (Czinkota et al, 2011: p58). The price of the products will be inelastic in nature because the price will be fixed by Blue Lagoon. Therefore, there will be no negotiations between Blue Lagoon and the retail market. If Blue Lagoon were to pursue an elastic pricing strategy, this would be unfair for consumers buying the same quality product at different prices. Moreover, this could result in consumer doubt about the quality of the product, in addition to, its effectiveness (Jansson, 2011: p51). To create confidence in the product and its therapeutic ability to the Kuwaiti consumer, Blue Lagoon will set up a promotional discount in order to attract customers. By reducing prices temporarily and promoting the reputation of the Blue Lagoon region in Iceland, the consumer will be curious to try out the product. However, even with this promotional discount price, the price will remain fixed by Blue Lagoon without any discount given directly by the company. The price should remain inelastic with regards to the products because, if it becomes elastic, it will affect the company’s operations as the product’s prices may remain low in order to keep attracting consumers (Jansson, 2011: p51). The price of Blue Lagoon’s new products in the Kuwait market will be highly influenced by the societal trend towards natural cosmetics and the product quality attractiveness. Currently, the Middle East cosmetics market, including Kuwait, is concerned about the natural nature of products, as well as lack of chemical modifications for products, in order to protect their health and skin (Rogmans, 2012: p59). This is part of the wider “green revolution” in consumer markets across different sectors. While the product has no harmful chemicals as proven over the last forty years, the product also does not harm the environment. This is expected to result in curiosity amongst the Kuwaiti cosmetic market consumers, especially those looking for wholly-natural quality skin care products. This will attract the consumers to Blue Lagoon’s globally famous products and, with the need for its products potentially high in the market; the price range will be set in the range similar to other high quality natural products in the market. This will be essential to ensure that the product is competitive in the market. Therefore, the price range should be medium to high in order not to price out the middle-class market, while also maintaining the product’s perceived quality (Hollensen, 2013: p55). Proposed Organizational Structure and Control System Ashkenas (2012: p53) says that organizations pursuing global business strategy implement three varieties of structures; global functional division structure, global area divisional structure, and global product divisional structure. The most optimal for Blue Lagoon to implement with its Kuwait venture will be the global area divisional structure, which is the best fit for expanding companies. One of the reasons why this will be optimal includes the fact that the company is just leaving its European market base, which is highly enabled by EU economic integration policies, and inflowing the Middle East for the first time. This would benefit the company by allowing it to focus on the Kuwaiti market and tailoring the promotion and sales to the market. In addition, it will also allow the company to hire specialized managers who can market the product in Kuwait due to their understanding of the country’s economic, social, commercial, and cultural conditions. Moreover, this will allow the company to adapt other marketing strategies sans disruption of strategies already taken by company headquarters (Ashkenas, 2012: p54), which have been successful in Iceland and Europe for a long time. Moreover, the company should also consider its coordination needs, which means that they must link activities and functions across geographical locations and integrate them. Blue Lagoon will divide its operations according to geographical locations, which will mean that they will have a division in charge of Iceland operations, mainland Europe operations, and Kuwait operations. Adopting this organizational structure will allow the company to use distribution, marketing, among other strategies in a fashion that is responsive to Kuwaiti needs (Robbins, 2010: p22). Similarly, it will also seek to reap other benefits related to their offering of globally branded products. Using this mode, the company, will also avoid a duplication of effort among its functional personnel. The Kuwait branch will also have the ability to develop itself as an autonomous division. This form of structural orientation is mostly evidenced in European based companies, in which they modify the basic framework of geographical area division, making it more dynamic, responsive, and vibrant. With time, it is expected that Blue Lagoon in Kuwait will grow into a global matrix structure. The chain of command in such an organizational structure will be split between area managers and product managers (Robbins, 2010: p25). Product groups, in this case, will be combined with geographic units. Product managers will have control over global responsibility for the distribution, manufacturing, and development of their product line (Harris et al, 2012: p90). On the other hand, geographic managers will be responsible for the business’ success in the Kuwait market. Each of the two groups will have responsibility over international operations, while increasing interdependence between the two groups will lead to exchange of resources and information with one another. The product-group managers will compete among themselves in order to ensure that personnel in the R&D personnel responsible to various functional groups like production. The product managers will also ensure that managers at the geographic location division sufficiently emphasize their lines (Harris et al, 2012: p90). Not only will there be competition among product groups, similar competition will also be evidenced between geographical groups and functional groups to obtain resources within the matrix. Conclusion Blue Lagoon Iceland Ltd is a company that packages and sells skin care products made naturally in the geothermal springs of the Reykjanes Peninsula, which is a lava field. As a result, the products packaged by Blue Lagoon are unique, including white silica mud, blue-green algae, and volcanic mineral salts. This region is well known across the world and is the major tourist attraction in Iceland, which means that people know of the therapeutic quality of its products, either from visiting it, reading about it, or from third parties. Thus, Blue Lagoon will enter the Kuwaiti market with a reputation behind it for selling a unique product that cannot be replicated easily. Because the product can only be made in Iceland, they will use the global business strategy with product standardization, just as they have done in countries within the European market. By marketing the same product in Kuwait as they do in their local market, they will reduce costs and maintain the unique image of their product. With regards to marketing actions, the price of Blue Lagoon’s new products in the Kuwait market will be highly influenced by the societal trend towards natural cosmetics and the product quality attractiveness, which also informs the decision to use product quality differentiation. 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Stonehouse, G., Hamill, J., & Campbell, D. (2010). Global and Trans-national business: Strategy and management. Hoboken, N.J: Wiley. Read More