International Business of Polyester Staple Fibre - Research Paper Example

Global Venture: Polyester Staple Fibre Table of Contents Table of Contents 0 Executive Summary 0 Introduction: 1 Business Model: 2 Products: 4 Competitive Strategy: 5 Target Market: 6 Potential Risks: 7 Financial Implications: 9 Global Entry Strategy: 10 Conclusions: 11 Bibliography 13 Executive Summary The Polyester industry is one with high demands in countries like Europe and United Kingdom. The use of polyester staple fibre has increased a lot over the years. This report includes a plan for starting up a factory in the emerging markets of this sector of the market. Based on the research and on the demand of the product in the various countries, this report suggests the company to be set up in Romania. This country has been chosen due to various reasons, of which the cost of land and labour are a few. Romania is a very beneficial as the costs in the country are relatively much lower. The other financial implications and target markets have also been discussed within this report. Also a strategic plan to help the company move into the global market using the latest technologies and the Internet has been discussed. Recommendations for further growth of the company have been discussed within this report. Consultant’s Report Introduction: This report details a plan for setting up Polyester Staple Fibre units in Europe. This business will be am entry for the company into the market of Europe and it requires a physical presence in the country for its operations. This is simply because it would cost a lot for the company to manufacture in Saudi Arabia and export to the Europe. It is assumed that the permit to conduct business in the Europe can be easily obtained and there are no legal issues with the registration of the business. The business model will explain the basic business strategy and the mode of operation for the company, i.e. a strategic plan. The business model will focus on what the plans are for the business, which country the business can be set up in and also the setup and distribution plans. Business Model: The United Kingdom and Europe are two of the biggest importers of Polyester Staple Fibre. The consumption of the product is high however the production is very low within the countries. The business will aim at providing a solution for the increased imports and provide polyester in these markets. The business is already well set up in Saudi Arabia and this means that the individuals in the company have a good knowledge about the prices and the processed that are involved in the market. The country chosen for the set up of the business is Romania, Europe. This has been chosen the running costs in these areas are relatively cheaper than any other country. This also forms an easier mode for distribution among the countries in Europe as well as in the United Kingdom. The plan of this report is to firstly set up the business in Romania, and distribute among the other countries. The business has been chosen to be expanded in Europe due to the statistics that have been found in terms of the consumptions of the country. The table below provides a clear view of the consumption: Product   2006   2007 PP polymer 191.2 215.4 PP staple 175.7 184.5 Polyester polymer 74.8 87.9 Polyester staple 78.1 82.8 Table: EU Fibre / Polymer Consumption for nonwovens (1000 tones) The business model followed will be that of a ‘Direct Provider’, one of the 8 atomic business models proposed by Weill and Vitale (2001). The company will manufacture the products and supply the products directly to the consumers. The new venture will also have another channel for generating revenue. It will also supply the goods to the retailers and act as a wholesaler, so that it can cover more of the market and gain easy entry. Leading retailers in Romania will be contacted and the products will be offered with a high margin for retailers. This will bring more exposure to the brand name to the Romanian customers. Foreign direct investment in Romania is comparatively liberal and foreign investors can hold up to 100% stocks in a local domestic Romanian company. As a foreign company in Romania, the new business venture has to act according to the Roman legal framework (economic – financial and currency system, public order). The business has to open a current account in any of the Romanian banks and should deal with Romanian currency only. The taxation for the income declared is 25% as per the regulations in Romania. The company will be set up as per the regulations of Romania. These will be the initial plans of the business. Further which with an increase in demand over time the business can set up newer stores across the United Kingdom and Europe (YNFX, 2009). The company can also set up an e Commerce website which could deal with the selling the polyester to companies as well as customers across the various countries and also in other continents like America and also Australia. In short the major markets of focus for the global expansion will be in America, Africa and Australia. Products: The main product of the business is Polyester staple fibre which has emerged as one of the fastest growing fibre among all the various fibres that are manufactured. The uniqueness of the product is that it can be used along with other natural fibres like cotton and wool and also along with synthetic fibres like rayon. These combinations produce polyester blended yarns which can be used on the conventional cotton spinning machines (Bywater, et.al, 2007). The product that the company deals with is in its own an important element of every fabric manufacturing company. Most manufacturing companies require using polyester in the fabric to make a blend for apparel, household textiles. Apart from this the product can also be used alone for the purpose of sewing threads or other industrial textiles and also for manufacturing of wadding. The product range in polyester staple fibre also is useful in almost every application area and can be used in a wide range of uses like non woven garments, geo textiles, and spinning yarns. The yarns can also be used for dyed fabric and can be matched as per the needs of the customers (ICIS, 2008). The most beneficial part of this product is the fact that the purpose of use of this can be in a variety of items and choices. There have also been a number of newer applications that can be used for the yarns. Newer items like knitted and woven apparels are now being used. Also the yarns can be used for garments and home textiles (Jim Trade, 2009). Thus the product has a wide range of uses and can meet a number of different purposes. This thus meets the needs for both retail as well as wholesale. Competitive Strategy: The entry strategy for the company will be discussed in this section. The company will build a strong competitive strategy which will be the differentiation criteria of the business. Since the company faces so much competition from other business i.e. the import businesses, it is therefore very important that the company is able to differentiate itself from the others. This differentiation is based majorly on the technology used for the production and the entire process. Also the competitive strategy for the company will be based mainly on the quality and service that they provide (Jobber, 2004, Porter, 1998). The business as been discussed will be customer centric, i.e. it aims at meeting the needs of the customers at all levels. Also the service and quality for the customers is a very essential. Being a customer centric organisation, it will be essential to make sure that the pre sale as well as the after sale service for the customers is up to the mark. This can be done by using the most recent technology for the internal processes of the business. The competitive advantage of the business will mainly be the use of technology to produce better quality service which can include things like the invoicing systems, the customer service etc (Johnson, et.al., 2006). Also the company can use the concept of drop shipping. Here the company would need to get into contracts with other companies. The company would require being the wholesaler who would receive the orders, and shipping details of the customers from other retailers. This is a very beneficial contract for the company as it allows a better reach to a number of different customers without having to start of retail stores in every country or state. The competitive advantage that the company has over the others in the industry is the use of better technology which enables better and more accurate back end processes. Also with the use of better technology in the process of production, the company will be able to save on time and will also save on the expenses on the process (Kotler & Armstrong, 2007). The use of better technology does not only benefit the company but also benefits the customer by providing them with better quality products, with lesser defects and to a great extent with better quality control. Higher technology will be the key competitive edge of the company. With the use of latest machinery, along with two line machines will prove to be more productive and also cost effective for the company. The competitive advantage that the company can have is the use of technology to the maximum. This can be used to automate the process to the highest possible level. Also the company can ensure that there are long term relations that it keeps p to with the clients, suppliers and also the customers. This will benefit the company as it will increase customer loyalty and will also lead to having strong relations with the customers and clients over a long period of time. Target Market: As has already been discussed the product is one which meets the requirement of both the customers as well as the wholesalers. Thus the target market for this project will be a combination of both the groups (Sloman & Sutcliffe, 2004). This would move the business into both businesses to consumer (B2C) as well as business to business (B2B), thereby increasing the target market and market reach to a great extent. Considering the B2C part of the business, it is clear that the product is such that it can be sold to the customers directly. This can be in a number of different forms like the thread for sewing, or even complete 100 percent polyester cloth itself. The demand among the customers in the European countries is very high and thus this will prove to be very beneficial for the company. This will also to a great extent act as a step for the company to move into the retail business as well (Sloman & Sutcliffe, 2004). A business to customer is most beneficial for the business as it allows for the business to meet the needs of more number of people. This allows for the company to be well marketed as well as increase the brand image. The business can also cater to the needs of wholesalers. This would mean that the company can ship its goods to different wholesalers across the continent. This is a major part of the customers that the business requires to deal with as the wholesalers form a major part of the stores in these countries. Also being a major part of the market, these allow the products to be provided to more number of customers, who the business cannot easily reach out to, due to the limited spread across the country. Potential Risks: A common issue that every business does face while entering into something new is the factor of risk that is involved in the business. Considering the move of the business from Saudi to UK, the risks that are involved are quite high. In the case of this business there are a number of different potential risks that the business might face. Aspects like the government regulation can affect the company to a great extent. Take for instance the change in regulation like the introduction of the Anti Dumping Duty introduced by the European Commission, where the countries are required to pay as much as 20% on all the polyester fibre manufactured. This type of changes causes a potential risk for the company (Yarns & Fibers, 2009). As this leads to an increase in the running costs of the business and to an extent also can also lead to a possibility of discontinuation of the business. Also apart from this, it is also seen that the customer needs keep changing over time and this can to a great extent lead to reduced demand for the product, thereby reducing the profitability of the company. With a reduced demand the company will face issues as the revenues will also reduce. Thus just like any other company, this is one of the biggest and most difficult risk that the company might face. Further more other risks that the company might be faced with are the possibility of change in taste along with the change in the temperature. This is a relatively bigger than it might seem and to a great extent can cause a risk to the company. Also it can cause the risk in terms of production and also storage of the finished goods. Thus the risks are quite high yet the business to a great extent has more positives than the risks that it might face. Romania has been noted to have a low corporate tax of as much as just 16%. Also with the real estate taxes being as low as 0.25 – 1.5%, it makes the entry of companies much easier in the country. Also aspects like low average hourly labour costs, this country makes it a more positive reason for companies to move into the country and to use the resources to benefit not only for themselves but also allow the country to benefit from the same. The average hourly rate for employees in this country is 1.51 EUR. All these factors provide a strong reason for the company to enter into the market. Also, if the company would consider moving into another country like in the United Kingdom, the company would be faced with a lot more risks in terms of the finances. The simple reason being that these countries have relatively higher costs and this poses higher risks for the company both in terms of productivity as well as in terms of finances. Financial Implications: The financial implications for the company could prove to be a little high. Firstly the company requires setting up the factory in Romania. This would require a complete set up including the importing of machines from China, Korea, or Germany. Following this the other expenses that the company will face is that of the building cost for the factory. These form the fixed costs of the company, apart from which the company will require to spend on wages and other variable costs. Also the setting up of the website will cost the company however this will not be very high. Also the company will have to bear the costs for the shipping of the products to other cities and countries. Thus the overall costs as such are not very high except for the setting up costs that the company will have to bear at the start. The returns however, that the company would receive are much higher and the benefits that are reaped are in a number of ways higher than the investments that are made. Also the land and labour, in this area of operations is much lower hence this would prove to be a good option for the company. With the lower cost of land and labour, the company can save up a lot on the finances and thereby use these for advertising and also for other marketing activities. Also considering this area on terms of the taxes, it is clear that the country is relatively cheaper and thus it forms a much better option for the company to move into this market. Global Entry Strategy: Globally the company has many possible entry chances. The company has the chances to expand to a great extent. Firstly after the UK markets are set and the company has been able to stabilize itself in the market, the first step that the company might take is to develop a website. With the increases use of the internet and the e commerce websites, this has become to a great extent a necessity than a luxury. This is an important factor that the company will need to undertake to ensure that it survives the competition. This website can be used as a front face of the company to the areas of interest, i.e. United States of America, Europe and Australia. The company can use this website to display the various products that it deals with and then allow for online orders. This will allow for the company to reach out to newer markets. Also it opens up possibilities for the company to cater to other markets from the Saudi Arabian factory as well. This can be open for both retail as well as wholesale for the customers around the world. The company can firstly work on the online which would provide for a clear view of the retail markets in the other countries. Following this if the markets seem to be positive markets, and then they can move into the other markets by first slowly starting of stores. This will provide as a safety net as starting up a factory on its own is very expensive and is not useful unless the demand in the sector is high enough. If the demand in a particular country is high then the company can opt to start up another factory, however the use of stores would prove to be most beneficial financially. Countries in Europe, America and Australia have also been seen to use a high deal of polyester in imports. Hence targeting these markets will prove to be very beneficial for the company. Conclusions: Post the study of the market it is clear that the above mentioned strategy would prove to be very beneficial for the company. As a consultant, I have conducted a deep study of the markets. Based on this study I have come up with a few recommendations which I consider will be beneficial for the company. I would recommend the company to improve its website and include an e – Commerce facility. This would prove to be quite beneficial for the company as it will not only allow for the company to increase the sales, but would also provide the company with a solid form of marketing. The benefit for this however will be more than just an increase in the sales. It would prove to provide a good marketing for the company, and the company can also include its banners in other websites which would provide for as a strong advertisement. The benefit of the website is more of the non monetary along with the monetary benefits. There is a greater deal of advertisement and a good will which is created for the company. The return on investment is very fast as this would help the company save up on the monies it would otherwise need to spend for the advertisements and the transaction costs when it comes to the physical stores. This will also meet the growing use of the internet and the growing use of the e – Commerce websites. The only form of resistance that might occur is the extra work that the employees might need to put in to complete the orders and sending the ordered goods to the customers. This however can be overcome by ensuring that the work is spread out between all the employees and this will allow for all the work to be spread out across every employee and this will not cause a burden on any person. The above mentioned strategy will prove to be extremely beneficial for the company and this will not only increase the sales but will also provide for a strong penetration into the emerging markets of the polyester sector. 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