Global and International Business Context - Assignment Example

Running Head: International Business Context International Business Context Insert name: SM0269 Global & International Business Contexts Institution: Instructor: Date: 1. Using relevant frameworks, theory, models and concepts conduct a market analysis of an international or global market of your choice. Draw some clear conclusions useful to strategists considering entering the market [20 marks] Market Area: Kenya in East Africa. Here we are going to analyze the Kenyan market for processed food products using both PESTEL and Porters five forces analysis. To begin with a market is a place where willing and able buyers and sellers meet to exchange goods and services. For a comprehensive strategic analysis, an organisation has to take into consideration various factors in coming up with new products, renovating and re-inventing existing products and expanding into new potential markets (Abell, 1980). For this to happen in a systemic and more organised form they have to use various theory models and concepts to formulate and organise themselves well. This is where the PESTEL and Porter five forces analysis comes in. PESTEL stands for Political, Economic, Social, Technological, Environmental and Legal. All these constitute the framework factors that make up the PESTEL analysis. In relation to the Kenyan market we can make the following analysis from the point of view of the customers of the product who are the urban working class that consume the products. This class middle class upper and upwards form a lucrative base as customers because they have more disposable incomes, are educated and have a sense of style and class, plus they constitute about(Encarta 2008) 40 percent of the population which is roughly fourteen million people. Political: Currently the Kenyan government has opened up an open door policy of inviting potential investors to invest heavily in the country, even there is a great tendency of cooperation with Asian countries notably China and Japan considering the investment and grants and loans offered for roads development. The political climate is good as there is evidence of government efforts to curb corruption and give incentives to investors (Morris & Siegel, 2000). The government is also very committed to building infrastructure like roads, upgrading its medical and health services, improving the education standards by adopting and implementing the Universal Primary Education as a way to increase literacy levels to stimulate economic growth. In terms of business support the Government is controlling the lending rates of banks to help both local and foreign investor’s access funds for business growth and expansion. Also of notable concern is the advent of Kenya having a new constitution which may fundamentally alter the way of doing business and the political situation in the country. Economic: Interest rates have been lowered as a matter of government policy to spur borrowing and lending, tax has been lowered over the years especially the VAT, economic growth has been on the rise since 2002 with GDP standing at USD18.7b in 2005, inflation has been contained and exchange rates against the USD have been steady. The opening up the East African cooperation opens up new markets within the region with Kenya been particularly the high performing economic hub in the region, with the port of Mombasa being a key entry point for most international goods. Social: Changes in the social structure and nature of social relations in Kenya have changed to be favourable for businesses looking at investing in terms of cheaper labour and large urban market (Encarta 2008)2005 estimate: 40 % of the population live in urban areas. Health awareness has also increased demand for nutritional foods and medicines especially or herbal nature, for the young babies, teenagers and ageing adults. Stress and unemployment make people desperate for jobs thus providing cheaper and efficient labour force. There has also been an increase in demand for real estate development especially housing as young graduates and corporate look at buying houses and mortgaging. Majority of the population is under 50 years making a great market for fast moving consumer goods. And there has been a trend health wise of the population preferring fresh foods to processed foods. Technological: in terms of new technology, there is the M- pesa service where people can access financial services from the convenience of their mobile phone handsets increasing cash flow and money mobility for the local business guy. Also internet services have taken the economy by storm with the installation of the fibre optic cables that allow for high speed internet connection. Banks and other financial institutions are now offering online and mobile phone banking services which basically enhances faster transaction of services and efficiency. Environment: With the whole world going green at the moment the country is also trying to catch up with various conservation efforts being put in place notably the conservation of the Mau and Aberdare forest reserves. According to Morris and Siegel (2000), many companies have supported these efforts in order to take advantage of the media presence they receive as a result. This has had an impact in the business environment as young people innovate new technologies to aid in fundraising for environmental conservation efforts, i.e. Safaricom and UNEP sms service. This has also affected consumer spending habits with consumers spending on goods and services form organisations that seem to help in environmental conservation. Legal: The country at the moment is undergoing significant and fundamental reforms as it waits to have a new constitution in the near future. There have been various reforms from the government seeking to regulate various sectors like insurance and communications. The government red tape bureaucracy in registering business and investing have been reviewed and this process is now much simpler and faster compared to previous years. Considering the above factors and theoretical framework one can deduct that the below factors of porters five factors (Abell, 1980). This is in contrast as the PESTEL framework covers the macro-environment and the Porters five factor cover the micro-environment of the industry looking at the “attractiveness” of the industry. Basically this means how profitable will the business be if they move into the said market or they want to introduce a new product.\ Bargaining power of customers: with a (Encarta 2008) GDP per capita of USD 546 as at 2005, there is potential of purchasing power of potential consumers of the products. Threat of new entrants: currently there only potential threat is Unilever East Africa which has been in operation in the market for over 40 years but the diversity and brands of the Nestle name can outsmart this! Threat of substitute products: there are some products that could be substituted cheaply but they do not hold such strong brand names and quality. Relevantly as one considers entering this market, all factor look convincing as there is a potential market of close to fifteen million people as consumers of their products. 2. Using relevant frameworks, theory, models and concepts conduct an analysis of an international or global industry supplying the market in Part 1 [20 marks] Supply Market analysis. The industry we are going to look at here is the food processing and manufacturing. There are a great number of players in this industry but of notable mentions that have the greatest market share are Nestlé, Unilever East Africa and Cadbury Schweppes. The lead country in operations for Nestle organisation is Switzerland, Britain and the larger European markets. Though Nestlé at some point had issues on the use of it products in Africa it managed to solve them. Here we are going to look at the supply of Nestlé products in the Kenyan market. Nestlé is a company that was started in the year 1866 when Henri Nestlé a pharmacist came up with an infant’s milk food formula. Nestlé’s head quarters are located in Vevey Switzerland but they have factories in almost every country of the world. In 1998 Nestlé stated they had employed a total of 230 000 people with USD71.7b in sales. Moving forward to the year 2003, they had employed 253 000 employees with USD 88b in sales. In addition they have also diversified their products range. At Nestlé their business strategy is to encourage product growth through renovation and innovation. They invest heavily in research and innovation of its current products. They currently have a wide range of products which include baby foods, breakfast cereals, chocolates, bottled water, confectionery, pet care, dairy products, and beverages. Its key factor for success includes its ability to penetrate the market well and establish brand loyalty. Their main competitor in the Kenyan market is Unilever East Africa. Unilever has been in operations over the years since 1949 under different names. This has enabled it to establish its brand loyalty among the customers making a household name for its various brands, like KIMBO, OMO, ETC. 3. Using relevant frameworks, theory, models and concepts conduct a geopolitical / international relations analysis (at any or all levels) of a nation, country, region or trading bloc, drawing conclusions specifically in relation to the effect on the market and industry chosen for Parts 1 & 2 [20 marks]:  The country is strategically situated on the East Africa coast and serves as the main link between the inland central Africa and the Indian Ocean coast. The port at Mombasa is strategically situated and serves as a point of entry and exit for most manufactured goods. Economically, Kenya has one of the most industrialised economies in the region and is a member of various regional trading blocs like COMESA, PTA, NEPAD and the East Africa Community (Morris & Siegel, 2000). Nutritional issues have been affecting the country’s population especially infant babies due to food scarcity, unemployment, drought and famine, tribal clashes. As such the issues that might affect the Nestlé organisation operating in the country include human resource, market development, competence of suppliers, market penetration, diversification of products and consumer economic power. 4. Describe the international development of one organisation in your chosen industry and explain how they have operated in the chosen market / geographical area [20 marks]:  Here we are going to look at Nestlé. Nestle is the one of the worlds leading health, nutrition and wellness organisation. They achieve this through an increase in the nutritional value of their products while at the same time improving taste. They do this through their brands with initiatives like nutritional compass and 60/40+. Their basic business principles remain unchanged from the time of the origins of the company and reflect he ideas of honesty, fairness and a general concern for people. Some of their basic principals which apply to all the countries in which they operate in include: operate in a sustainable way to create value for shareholders, employees, consumers and partners, not to favour short term profit at the expense of long term business development, recognize consumers importance and trust in their brands, respect to laws of the land where they operate, belief in quality recruitment and on going training and staff development (Daniel and Peter, 1996). Present in over 80 countries globally, Nestle applies the regiocentric approach in managing its global network. They classify the country of operations in regions like Americas, Africa, Caribbean, Europe and Asia. Although they also use the geocentric approach when recruiting global talent to work with them. This has enabled it to get an ease in market penetrations and achieving a share in the markets where they operate. In Africa, Nestlé opened up shop in Nairobi Kenya. The Equatorial Africa regional head, a Mr. Pierre Trouihatt says the company’s choice for Nairobi was informed by its excellent communication and quality of service. He also cited the governments’ decision to reduce the complexities in doing business for investors also played part in their choice for Nairobi. Mr Pierre as the strategic thinker and manager believes that the opening up of the region is to ensure growth, opportunity and to better unlock the potential found within African countries. This was inline with Nestlé’s regional jurisdiction stretching from Kenya, Uganda, Congo, Angola, and Madagascar. And as usual the main competitors in the region are Unilever East Africa and Cadbury. The initial investment and running costs are estimated at Sh800 million annually. The entity will operate as Nestle Equatorial African Region EPZ, and will be run besides nestle Foods Kenya, which is a form of joint venture market entry strategy for the brands of nestle. The value chain strategy that they currently use most effectively is the markets. Nestlé’s current interactions with the consumer market in the Kenya market is through the price. Butt as they penetrate the market more, this global value chain governance mechanism is bound to change to relational value chain as nestle will try to win a more loyal customer brand with the consumers. References Abell, D.F. 1980. Defining the Business: The Starting Point of Strategic Planning, Prentice-Hall: Englewood Cliffs. Anderson, P. F., 1982. Marketing, Strategic Planning and the Theory of the Firm. Journal of Market­ing, 46 (2), 15-26. Daniel, M and Peter, N., 1996. Business-to-Business Marketing, New York: Palgrave Macmillan Drucker, F., 2006. Management Challenges for the 21st Century. New York: Harper Collins. Hart, C. W. & Johnson, M. D. (1999). Growing the trust relationship. Marketing Management, 14, pp.8-19. Kaysen M. & David, G., 2005. Social Corporate Responsibility: Western Countries Approach. London: Oxford University Press. Naughton, B., 1996. Growing out of Plan, Cambridge: Cambridge University Press. Perry, E. (2000), The Changing Chinese Work Place in historic and comparative Perspective, New York: Sharpe. Morris, K. M. & Siegel, A.M., 2000. The Guide to World Trade Organization. 5rd Ed. London: Simon and Schuster. Sheth, J. N. & Mittal, B. 2004. Customer Behaviour: A Managerial Perspective, 2e. South-Western Educational Publishing. Tsang, E.K., 1998. Foreign direct investment in China: a consideration of some Strategic options, Journal of General Management 24(1), autumn: 15-35. Warner, M., 1997. Economic Reforms and Industrial relation in the People’s Republic Of China: an overview, Industrial relation Journal 26(4): 16180. Read More