Kenya and Japan as Potential Expansion Choice Countries to Australia - Case Study Example

REPORT ON KENYA AND JAPAN AS POTENTIAL EXPANSION CHOICE COUNTRIES TO AUSTRALIA Report for ManTea Company Prepared by: August 2016. Introduction Background ManTea is one of the biggest tea companies in Australia and has been in the tea industry for over a decade. The company is headquartered in Sydney with various branches all over the various states in Australia. The company deals with the processing of tea from sourcing, drying, curing, packaging, and distribution among other processes. ManTea started as small entity that specialized in branding ready-made tea and later expanded to include sourcing its own tea and processing the product to the last stages before distribution. With a thriving tea culture in Australia, ManTea has been able to achieve rapid growth and as such, demand for their product has been on the increase. The company’s value chain has been sourcing their tea locally from tea farmers in Northern Australia. However, the rising demand and the rapidly growing tea industry have necessitated the company to seek expansion into the global tea industry to meet the demand and satisfy consumer need for quality and variety. Purpose ManTea in their efforts have commissioned Ventures & Markets to conduct a feasibility study and report on the suitability of sourcing tea from new global sources and establishing their presence into the global market. The countries with potential to be suitable need to have tea farmed in good conditions and a product of exceptionally quality in line with international standards. The export standards have to comply with Australian regulations in addition to portending benefits for the company. Scope The report by Ventures &Markets will present Kenya and Japan to be the potential new source locations for ManTea to consider. The report will examine the countries climatic conditions, environmental and suitability as tea sources. It will additionally highlight vital management aspects for the establishment of business in the selected countries. The conclusion after evaluation will present the most suitable option of the two for ManTea’s expansion in addition to giving recommendations on how to conduct the expansion. Environmental Conditions Geography, Climate and Demography Kenya Kenya is an East African country with diverse and expansive geographical features such as the great rift. The country also lies on the equator and covers 581, 310 square kilometers. The population of the country is estimated to be forty five million people. The climate of Kenya is warm and humid categorized as a tropical climate. The climatic conditions however vary with regions, as there are places that are warm and humid and others that are arid towards the northern part of the country. Kenya is known for its great agricultural climate and as such, produces diverse range of cash crops with tea being one of the top export crops for the country. The Kenyan highlands, which are divided by the Great Rift Valley, are the most fertile region of the country with a rich agricultural history (Gesimba et al., 2005). The climate in the country varies with a temperate climate as you move inwards and a tropical climate along the coast and arid and semi-arid climate towards the north of the country. The country has long and short rain seasons. The long rain season happens between March and April to May and June and the short rains typically happen between October and December. Japan Japan is an Asian country situated in the Pacific Ocean. The country is an island country lying on the Eastern side of the Sea of Japan. It is divided into 47 zones in 8 regions with a population estimated at 126 million. Japan is among the world’s countries with the biggest populations. Tokyo, which is the country’s capita city is among the top five leading cities globally and the largest metropolitan city in the world. Japan has over six thousand islands, which are collectively termed the Archipelago of Japan. The country’s forest cover is extensive with about 70% of the region covered in forest and mountains. These areas are unsuitable for habitation and agriculture and as such, the population is concentrated on the remaining habitable areas, which is why Japan holds a record among the most densely populated nations in the world. The climate is majorly temperate but the climate also varies across the various regions. The northern side of the country features continental and humid climatic conditions. The central part of the country is humid with varying climatic conditions at different times of the year. According to Guo-da Niu Xiao-jing & ZHANG (2007), tea is one of the country’s top agricultural produce and as such, the country is one of the largest global exporters of the crop. Analysis Both countries feature the ideal climate for the cultivation of tea and as notes, the countries agricultural practices include the farming of tea. Additionally, both Japan and Kenya are notes as large tea exporters in the global market, which means that the quality of tea produced is in line with international standards of quality. In this way, ManTea can benefit by accessing the quality tea produced by these two countries as they are of good quality and can be accessed in abundance. The risk of entering a market with minimal product is mitigated by the abundance of the crop in both countries which means that both Kenya and Japan can help the Australian company ManTea in their efforts to expand into the global tea industry. Political, Legal, and Economic Environment Kenya The country is a democratic republic with the president as the head of the state. Kenya is also a multi-party country with various political parties that are eligible to content during general elections. The government exercises executive powers and legislative power is conferred on the national assembly and the government. The country has an independent judiciary. However, the country is ranked low on the global corruption index and as such, there is a lot of corruption in the system. Despite the high levels of corruption in the country, efforts have continually been made to curb the crime and restore the country’s image in the world. The economy of Kenya is strong and as such, the most advanced and developed in the East African region. The Human Development Index of the country is placed at 0.519. The agricultural sector is the most central sector in the country’s economy. However, the sector is largely underdeveloped and inefficient. Kenya is typically categorized as an emerging market. Kinyili (2003) note that the conditions in the country make it attractive for foreign investments with some of the most reputable global industries already established in the market. Japan The country’s system is based on constitutional monarchy with an Emperor who has limited influence and more of a ceremonial figure. The Prime Minister holds most of the power including elected members. The people of Japan have sovereignty. The National Diet is the country’s legislative structure and constitutes elected representatives. The country’s emperor appoints the head of the government, the prime minister. The country’s legal system and judicial system are predominantly centered on Europe’s civil law. Japan’s economy is among the most established in the world and ranked as the third most developed and advanced economy in the world. Japan’s economic growth and progress has ensured it is one of the most vital economies in current global market. It also has established industries and export market and is a key player in the manufacturing industry of the world market. The agricultural sector constitutes 13% of the country’s economy (Huque, 2007). The rate of unemployment is low with most people employed in the various industries in the country. Analysis Looking at the two countries in terms of their political, legal, and economic environments enables an analysis of the suitability for the company’s expansion. Japan is an established country with a progressive and advanced industry and ranked among the top global economies in the world. The country also majors on exports. Kenya is still a developing economy ranked as an emerging market with great potential. The agricultural sector of the country is the most significant sector in contrast to Japan, which is diverse and has various advanced sectors. Kenya and Japan have different governing systems. Japan is more stable than Kenya, which still struggles with issues such as widespread corruption. In this way, Japan would be the ideal country if ManTea were seeking global expansion into an already established economy. However, it is important to note that the competition in Japan would be high compared to Kenya since Kenya is still developing. In this way, Kenya would be suitable for ManTea especially considering the fact that the country’s economy is the largest in East Africa. In addition to this, Kenya is attractive for foreign investors and ManTea may consider establishing a presence in the under tapped African market through Kenya. The Tea Industry Kenya According to Othieno (2009), the tea industry in Kenya operates under the umbrella of the country’s Ministry of Agriculture. The structure of the industry is progressive but not very efficient and is supported by state bodies like the Tea Research Foundation and Tea Board of Kenya (MacWilliam, 2001). Tea is one of the main exports of the country since the country is known as one of the leading global exporters of tea. The export product is of high quality and meets international standards. Japan Japan’s tea industry is lucrative and well established. Blowfield (2003) notes that in addition to exporting tea, Japan also imports tea from various locations adding to the country’s produce. Additionally, Japan’s tea industry features various tea products such as green tea, flavored tea and medicinally infused variations of tea among others (Tanaka, 2012). The industry is progressive and continues to experience growth annually. Analysis Kenya would be a suitable choice or the expansion efforts of the company in the sense that the industry is not as developed as the one in Japan. In addition to producing high quality tea that meets international standards, there is a gap in the industry that can be exploited by the entry of ManTea. Japan’s industry would be too competitive or ManTea as it is an industry already established. Expansion of the Business Entry strategies Licensing Based on the conditions highlighted in both countries, the licensing strategy would be the best strategy for entry into the Kenyan tea industry. Roberts & Berry (2004) observe that licensing as a strategy is a situation where a company in a country agree to let the new venture to use the already established processes of the licensor. In this way, ManTea would use the already instituted structures by the Kenya Tea companies to expand into the global market. This strategy poses little risk as it features very little expense on ManTea’s side and similarly little involvement. ManTea’s only cost would be agreement signing and governing the implementation of the agreement. The advantages that come with this strategy include lower risk, a connection between the Australian market and the Kenyan market, the fact that ManTea’s capital will not be tied up in Kenyan operations and the open option of buying into the Kenyan Tea market stocks (Zahraet al., 2000). Joint Venture The joint venture strategy is where an entity forms an enterprise owned by two or more players. In this way, the joint venture gives rise to a business that is controlled, regulated and shared by two partners. This form of strategy is extensive and requires full participation from both parties (Baten et al. 2010). The strategy would be suitable for entry into the Japan market since it is an already established market. This means that the industry is too competitive and may require a joint venture for success. In this way, ManTea will need to identify and established venture in the Japan tea industry and partner with them as a successful way of entering the market. This strategy would be beneficial for entry into the Japan market due to shared risk, a better financial strength that combines two ventures, and the possibility of a stronger brand (Buckley & Casson, 2008). Management Process Decision Making Decision making entails selection of the best possible outcome among alternatives (Zheng et al, 2010). The decision-making process would be most beneficial for the company if the process would be centralized. This is based on the weight of the decision to be made concerning the company’s expansion into the global market. Considering the effect expansion may potentially have on the company, it is vital for all the stakeholders of the company to be involved in the decision making process and weighing the suitability of both countries as potential expansion countries for ManTea. Control In monitoring and governing the implementation of the expansion effort into the global market, the entire management team of the company would be required to evaluate the various options and changes in addition to tailoring the expansion project to suit the company and still constibute positively to the bottom line (Zheng et al, 2010). In this way, the company can institute body within the management to perform performance reviews and issue reports both financial and performance in governing the implementation of the plan of expansion. Organizational Structure A centralized organization structure would be suitable for the expansion plan in the sense that it entails a new venture into a global market characterized by competition. A centralized structure would thus ensure that the organization’s management faction work cohesively and maintain control of every process of the plan as noted by Harper (2015). This would ensure proper and efficient coordination during the initial stages. However, decentralized approach would be later suitable after expansion as it would be more efficient in providing a faster decision-making process, better managerial effort and leadership among other aspects (Miles et al., 2007). Conclusion and Recommendations Both Kenya and Japan appear to have varying advantages and disadvantages for the company. However, the Kenyan market offers more potential owing to the developing nature of the region and the processes. On the other hand, the Japanese market features a high risk of competition due to the established nature of the market. In this way, Kenya is recommended as the most suitable option for ManTea. The company should therefore look into entering the Kenyan tea market by employing the licensing strategy as an entry strategy in order to take advantage of the established processes and also learn the international tea industry. The suitability of Kenya also portends numerous advantages to ManTea as the company can take advantage and explore the East African market and later the African market. The company should employ a centralized organizational structure for a smooth flow of processes and for better control and decision-making Later after establishment, a decentralized approach would be suitable for better management, leadership, and steering. References Baten, A., Kamil, A. A., & Haque, M. A. (2010). Productive efficiency of tea industry: A stochastic frontier approach. African journal of Biotechnology,9(25), 3808-3816. Blowfield, M. (2003). Ethical supply chains in the cocoa, coffee and tea industries. Greener Management International, (43), 15. Buckley, P. J., & Casson, M. C. (2008). Analyzing foreign market entry strategies: Extending the internalization approach. Journal of international business studies, 29(3), 539-561. Gesimba, R. M., Langat, M. C., Liu, G., & Wolukau, J. N. (2005). 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Research contributions to the development of the Kenya Tea Industry. In Proceedings of the International Conference on Drought, Desertification and Food Deficit in Africa, African Academy of Sciences, Nairobi, Kenya. Roberts, E. B., & Berry, C. A. (2004). Entering new businesses: selecting strategies for success. Tanaka, J. (2012). Japanese tea breeding history and the future perspective. In Global Tea Breeding (pp. 227-239). Springer Berlin Heidelberg. Zahra, S. A., Ireland, R. D., & Hitt, M. A. (2000). International expansion by new venture firms: International diversity, mode of market entry, technological learning, and performance. Academy of Management journal,43(5), 925-950. Zheng, W., Yang, B., & McLean, G. N. (2010). Linking organizational culture, structure, strategy, and organizational effectiveness: Mediating role of knowledge management. Journal of Business research, 63(7), 763-771. Read More