International Business Management of an Australian Enterprise - Case Study Example

Table of Contents Executive Summary 1. Introduction ………………………………………………………………. 2 2. The American Market ……………………………………………………. 3 3. The Mode of Entry ………………………………………………………. 4 4. Conclusion ………………………………………………………………. 6 5. Recommendation ……………………………………………………….. 7 References ……………………………………………………………………… 8 Executive Summary ABC Surfer has recently developed a new surf ski that can outperform all the existing skis and can be produced at a much lower cost. The surf skis unique design and shell material is protected by a number of patents. Surf skiing is an international adventure sport with surf skier all over the world. Hence, it is in ABC Surfers interest to expand into international markets to reach as many potential customers as possible. Surf skiing is comparatively a new sport but is gaining in popularity all over the world. Besides Australasia, the US is one of the major countries that hosts surf skiing events and has the biggest population of surf skiers. As such the US is not only one of the biggest market for surf skiing products, but also the fastest growing one. The country also has low barriers to entry, similar culture as Australia and a stable political and economic environment. As ABC Surfer looks to expand in international markets, the US comes across as an obvious choice. ABC Surfer must also carefully analyze and plan its mode of entry into the US market. Although the company has several options available, the need to protect its patented design means that it must discard licensing and joint ventures as possible options. Opening a wholly owned subsidiary or going for an acquisition is also not an available option at this time due to cost considerations. Keeping these factors in mind, the direct export mode of entry is best suited for ABC Surfers international plans. It is recommended that the company should open a branch in the US to take care of day to day issues and importing, promoting and sales of the surf ski. Selling the Revolutionary Surf Ski in International Markets 1. Introduction The ABC Surfers is a premium Australian manufacturing company involved in the production of surfing equipment. The company has recently developed a surf ski, a revolutionary product that outperforms all existing surf skis in the market. The surf ski is designed for professional surfers and with its high level of performance can help professional surfers outperform their competitors. As the benefits of the sew surf ski become widely known, its demand in the surfing community is likely to rise steadily. Since the surf ski has huge international potential, it is important to ensure that the surf ski is easily available to surfing enthusiasts all over the world. Given the international nature of surfing as a sport, expansion into international markets is necessary to ensure that surfers all over the world have access to our surf skis. However, all international expansions must be carefully planned because a poorly designed international strategy can misfire and lead to huge costs. This report shall look at the most suitable market for ABC Surfers international ventures and suggest the most suitable entry strategy. Surfing is a popular sport in many countries across Europe and Asia, but no country embraces the sport like the US. Hence, the US should be the obvious choice for ABC Surfers to make their international foray. As far as entry strategy is concerned, direct export is the best strategy at this time given the sensitivity of the technology related to the new surf ski as well as the cost considerations. 2. The American Market According to Westhead et al (2001), a number of factors must be qualitatively and quantitatively analyzed before deciding which market to enter. On the quantitative side, these factors include market size, market growth, level of competition and costs. On the qualitative side, social, political and economic environment is important. Analyzing the various countries, America is a perfect match with ABC Surfers business goals. America is the number one destination for surfers from all over the world since the US holds the most number surfing World Title Events. In 2012, as many as three of the total of 99 International events in surf skiing will be held in the US (Surfski Events). As world class surf skiers from all over the world routinely travel to the US, it makes sense to make the US a prime country to start the international expansion. Professional surfers travelling to the US to participate in one or more of these international events would be exposed to the benefits of ABC Surfers surf ski and be prompted to buy the product. Ensuring that the product is easily available in the US markets will maximize its sales. Surf Skiing is still a comparatively new sport. But as with any adventure sport, Americans have taken a liking to it and so the American markets are likely to grow at a much faster rate than any other market. This means that the higher demand for surf ski products will also lead to higher competition in the American markets. However, ABC Surfers has a superior product and should be able to compete with other surf ski products. Besides the huge potential market, the US has several other soft benefits over other countries as ABC Surfers expands into international markets. The US and Australia have similar cultures and language making it easier for an Australian business to adapt in the US. In this respect, the US has even more cultural affinity to Australia than Britain, another country with similar culture as Australias. Australian managers in Britain often face problems because of Britains higher power distance and uncertainty avoidance culture (Fenwick et al, 2003). However, the US has a much lower power distance and uncertainty avoidance which is similar culturally to Australia (Gouttefarde, 1996). These cultural similarities mean that Australia will not face any problems due to misunderstandings when carrying out business in America. Besides the cultural affinity, the US is also extremely open regarding international trade and has very few regulations in place, especially when compared to other countries. Politically, the US is one of the most stable countries in the world. And despite the recent economic downturn, the US continues to be in better economic health that many European countries. Given these benefits, the United States is the best place for ABC Surfers to start its international expansion. 3. Mode of Entry One of the biggest and most important decisions to be made when entering a new market is finalizing the mode of entry. Making a wrong decision regarding the mode of entry can lead to huge losses or even complete failure in the international venture. Hence, before venturing into international markets, it is important to look at all the available options, evaluate each one and then make an informed decision. According to Darling (1985), entry mode into the US market, or in any other market, can be broadly divided into exporting the final product or transferring technology, resources, human skills etc. Exporting can be either direct or indirect. Transferring of the resources can be done through contractual methods such as licensing and franchising or through investment either through acquisition, joint venture or establishing a wholly-owned subsidiary. Each one of these methods has their benefits and drawbacks, and the right entry strategy depends on a firms’ international ambitions, economic conditions and a number of other factors. Of these entry methods, Licensing is the least suitable for ABC Surfers since it would involve sharing the patented design of the companys surf ski with an outside firm. Despite contractual obligations, it could lead to a leak of companys proprietary information and can result in copy cat products, does eroding ABC Surfers competitive advantage. Also, any licensing would eventually expire, allowing the licensed firm to manufacture ABC Surfers product as its own and even try and improve upon it. Any of these is definitely not acceptable and so Licensing must be discarded as the mode of entry into the US market. A joint venture with an American firm must also be discarded due to similar reasons. The second option for the US entry is through acquisition or forming a wholly-owned subsidiary. Both these modes would require ABC Surfer to make substantial investment in the US market. An acquisition would provide the company with a readymade infrastructure however, the cost of the acquisition could be prohibitive. Forming a wholly-owned subsidiary would involve starting from scratch and would require ABC Surfer to buy or lease land, build a factory and hire most of the staff. The wholly owned subsidiary would provide a level of secrecy, but once again the costs of setting up a new factory can hit ABC Surfers bottom line. The huge costs of investments mean that it is not the right mode of entry for the company, at least for now. ABC Surfer can revisit the investment option at a later date. The third method of entering a foreign market is through exporting. There are two ways that ABC surfer can export to the US, either directly or indirectly. Direct export would involve either going through a distributor or agent or establishing a branch or subsidiary. Indirect export would mean delegating the US sales responsibility to a third party. Indirect export would leave ABC Surfer with little or no control of its US operations. It would involve exporting the product to the third party who would then sell it as and when they please. If the third party is also selling competing products, it may promote another companys product over ABC Surfers product. As a third party, it would also have little interest in advertising the product or its benefits, unless it makes a substantial profits through the sales. If ABC Surfer allows the third party to make substantial profits, it will hit the companys bottom line. Hence, the indirect export method must also be discarded as the possible mode of entry. The direct mode of entry through an agent or a distributor might run into similar problems. Hence, the best and most suitable mode of entry, considering the resources available to the company and its need for protecting its trade secrets is to go for direct export by establishing a branch in the US. The US branch would be responsible for importing the product, maintaining the inventory and promotions to ensure maximum sales. Such a branch can operate out of a single office and can have an expat managing the day to day affairs with a few local hires to help with negotiating local laws and customs. 4. Conclusion A careful analysis of the available options makes it obvious that as ABC Surfer looks at international markets to sell its newly developed state-of-the art product, the United States comes across as the most suitable market. The countrys overall openness to international trade, low level of regulations, economic and political stability and the fact that the country has more surf skiers and hosts more surf skiing events than any other country in the world make it the ideal country to expand into. As far as the mode of entry is concerned, ABC Surfer must take into account its need to safeguard its proprietary information as well as the available funds. Taking these into account, exporting is the most suitable way for ABC Surfer to enter international markets. 5. Recommendations After a thorough analysis of the companys situation and market conditions as discussed above, this report recommends that ABC Surfer should initially expand into the US market because it has the biggest market size and the maximum scope for growth. ABC Surfer should also establish a small branch in the US to take care of all the necessary requirements related to the export of the product and handle all promotional issues. The US based branch would act as the intermediary for export, help keep the costs down and ensure maximum sales. The company must also keep the option of establishing a wholly-owned subsidiary open and revisit it at a later date for further discussion. References Darling, J. R. (1985). Keys for Success in Exporting to the US Market. European Journal Of Marketing, 19(2), 17-30. Fenwick, M., Edwards, R. & Buckley, P.J. (2003). Is cultural similarity misleading? The experience of Australian manufacturers in Britain, International Business Review, 12(3), 297-309. Gouttefarde, C. (1996). American values in the French workplace. Business Horizons, 39(2), 60. Surfski Events. Surf Ski Sport. Surfskisport.com. Retrieved from http://www.surfskisport.com/events Westhead, P., Wright, M., Ucbasaran, D., Martin, F. (2001). International Market selecting strategies of manufacturing and service firms. Entrepreneurship and Regional Development, 13(1), 17-46. Read More