The Business Environment of Poland - Coursework Example

Challenges of Operating Business in a Foreign Environment Student’s Name: Instructor’s Name: Course Code: Date of Submission: 1.0 Introduction Despite the numerous challenges operating a business in the foreign country pose, more than ever before businesses have continued to expand their operations globally. This is because many are seeking opportunities that will help them grow their businesses in terms of market share and revenue generation. This trend however, has been accelerated with the liberalization of the global market and removal of trade barrier which in the past have hindered penetration into foreign markets (Tsang 2004). The purpose of this study is to take a critical analysis of the move by an Australia company into the Poland market. Poland is located in central Europe to the east of Germany at 52 00 N, 20 00 E. Tourism in the country is a major economic activity and contributes nearly a half of the country’s foreign exchange earning. The country’s per capita income is 18, 000 which is relatively as opposed to other EU members. The country’s employment policy is that foreign investors would only be allowed to operate in the country as long as they give opportunity first to the indigenous. Finally, Polish people are considered the most friendly and hospitable in the EU. On the other hand, most people in the country have the culture of not spending much on outside food with 5% of food expenditure as opposed to 37% of that of their American counterparts. Charcoal BBQ Chicken which operates a roast chicken restaurant chains in the country has over 300 stores throughout the country. After the fall of communism in Poland in 1999, the country has made very important strides towards reforming its economy in pursuit of liberalization and stabilization. Since the mid 1990s, the country has been the leader in Central Europe in terms of Foreign Direct Investment (FDI) with $ 73 billions generated into the economy being as result. About 78% comes from the EU, 11% from the United States and the remaining 11% from the rest of the world. Since the joining of NATO in 1999 and EU in 2004, the economic indexes of Poland have improved significantly, demand and supply measures reactivated and above all the capital and labor markets have been into operation (Fotios 2006). In general, what this means is that the business environment of Poland is very active and one of the most attractive in Central Europe for FDI. Poland has got high preferences in terms of unemployment rates and educated workforce (Brzeszczynski and Michael 2006). 2.0 Marketing attractiveness Market analysis is a tool that is used to determine the prevailing market conditions where the business is looking to venture into. Analysis in particular is important to understand if the industry in general and those forces that have influence on its performance in order determine its attractiveness for foreign business (Neuliep 2003). In trying to analyse the attractiveness of any given market, different tools can be applied and however, the most preferred is the Porter’s Five Forces Model. Attractiveness of the industry is determined by the ability to make profits in a given industry and market (Brzeszczynski and Michael 2006). In this case, the Model will be used to analyse the Poland market and ascertain its attractiveness for an Australian Firm that is specialized in preparing and selling roast chicken for the market. Porters Five Forces Model identifies five factors that are important in analyzing a given market and they include customer bargaining power, supplier bargaining power, threat of new entrants, threat of substitutes and competitive rivalry as shown in the framework below: Source: Michael E. Porter Framework, 1979 2.1 Bargaining power of the customers The customers in a given market are likely to experience the bargaining power more than the suppliers under various circumstances. First and foremost, the customer tend to be more powerful in the market if the supply of a given product or service is more than the demand and when the customers have numerous substitutes and alternatives for a give product or service (Porter 2008). In the case of Poland, the food industry is growing and at the same time the Poles are only used to roast chicken type which is actually prepared with different ingredients and then minted of the soup and roasted (Elaine 2005). What this means therefore is that the customer will have low bargaining power as they will be having very view alternatives to choose from. 2.2 Suppliers’ bargaining power The supplier has more bargaining power when there are view alternatives in the market, and where she is superior in terms of quality and product differentiation as opposed to the competitors (Porter 2008). The Charcoal BBQ Chicken is known to be advanced in serving take away foods and can serve relatively large market within a very short time. In Poland, the population is mainly composed of young people who are aged 39 years and below. Part of this population is school goers and working class. This people do not have all the time to sit in restaurants to be served there as used in the case of polish chicken. What this means therefore, is that the supplier who is Charcoal BBQ Chicken, has an upper hand in the market as will be able to meet the needs of this people who will always prefer to be served with takeaway foods. 2.3 Threat of new entrants The threat of new entrants is likely to come into play if the law governing a particular industry, allows for free entry and exit of companies (Porter 2008). Poland according to the 2011 World Bank Report on economic indexes, Poland is ranked the 68th globally in terms of flexibility in business. What this means is that as compared to other countries in Central Europe, flexibility in doing business is very low. To the investor this can both be a positive and negative. This will be a positive in that it will not be easy for new entrants to enter the industry and will be a negative if the business wishes to leave the industry (Hill 2005). 2.4 Competitive rivalry As a matter of fact, competitive rivalry in the market is still very low. This is because there is still very large market population that has not been reached. Competitive rivalry comes into existence when the industry has very view players and still there is large market to be reached (Kotler 1997). Since the countries laws have been recently reformed, more foreign companies are yet to invade the market. To the Charcoal BBQ Chicken, this will have numerous market opportunities to exploit. 2.5 Threat of substitutes The threat of substitutes in an industry occurs when there are other products and services that can be used as alternatives and when there are other companies that can offer similar products (Kotler 1997). The only substitute that is available for the Australian chicken is the tradition Polish chicken that is prepared with onions, garlic Cloves and Paprika (Elaine 2005). This is quite different from the Australian one which is purely roasted without any ingredients but can be served with spices such as mashed potato, peas, gravy and fries. This makes it very different from the Polish one and consequently making less substitutable (Hill 2005). 3.0 Market attractiveness Market attractiveness can be explained as the situation where the business is likely to make good profits and also manage to grow its market share as well as revenues. Whether a market is attractive or not rests upon a number of factors which are classified into two broad categories namely the micro and macroeconomic variables. The microeconomic variables or factors according to (Gärtner, 2006) refer to those factors that are very close to the business and can affect the company’s ability to deliver its services to the market and they include the company itself, the suppliers, customers and the competition in the industry. On the other hand, the macroeconomic factors or variables are those forces that affect the larger society and in one or the other may affect the microeconomic factors. These forces include demographic, natural forces, technology, and economy, political and cultural factors (Blanchard 2011). In order to try and determine whether the Poland Chicken market is attractive for the Australian Charcoal BBQ Chicken, the analysis will entail consideration of these factors. However, under the microenvironment, the PESTEL Model will be used to study how various forces in the society are likely to affect the business. 3.1Microenvironment variables First and foremost, Charcoal BBQ Chicken is a well established business with over 300 stores in Australia and that has long experience in the ‘roast chicken’ business and also good revenue base. The business also has expertise that is able to deliver quality services (Blanchard 2011). Further, with large business presence, the company has managed to develop their experience with regard to managing numerous stores and how to strategize in the market. This in the Poland market will be a plus in terms of launching the business and expanding into various parts of the country. Poland being one of the central European countries that much of the economy depends on agriculture is also likely to make a good source for chicken for the company. This is especially important in ensuring that continuous supply is assured and that service delivery is not compromised. In any case, if the supply is interrupted, still the company has the option of raring their own chicken. This is particularly important in reducing the cost of production (Blanchard 2011). The customer markets are also important part of the microeconomic factors that can be used to determine if a given market is attractive or not (Blanchard 2011). The Polish population currently stands at about 38 million people and is one of the biggest in Europe. What this implies therefore is that the population is likely to make big markets for the business. According to Ernest and Young 2010, the Polish people are very hospitable and have continued to make one of the leading tourist destinations in Europe. This is very significant for the business as it will only depend on the local market but also foreigners including Australians who come in as tourists (PIFIA 2012). As also identified earlier, the competition in the industry is still low. This is because the country so far has not had many foreign investors in the industry and at the same time the country is only known to tradition chicken which is minted and dried after some soup. This may be compromising on the taste and quality of the chicken and thus giving the Australian one an upper hand in the market (PIFIA 2012). 3.2 Macroeconomic variables The PESTEL Model would be used in this case to analyze the market’s attractiveness (Gärtner, 2006). The PESTEL Model identifies six major society forces which include political, economical, social, technological, environment and legal factors that can have influence on the company’s ability to deliver in then new market as shown in the framework below. Source: BusinessMate.org, Great Business Resources, 2012. 3.2.1 Political factors Poland for many years has remained a very calm country in Central Europe and has been centre of attraction for Foreign Direct Investment (FDI) (PIFIA 2012). For the business this implies, that security of one’s business and investment is guaranteed. 3.2.2 Economic factors Since the end of the communism regime in the country, the country has witnessed tremendous economic reforms. According to the Fitch Agency Rating report in 2008, Poland had experienced uninterrupted economic growth of 5% while maintaining its export level at 30% (PIFIA 2012). The economic reform has also seen tremendous growth in the agricultural sector. What this means to the business is that the quality of life is high and people have some disposable income to spend (Gärtner, 2006). 3.2.3 Social variables The attractiveness survey that was conducted by Ernest and Young in 2010, found out many foreign managers had indicated that Poland is one of the favorable countries in Europe in terms of investment as a result of high level of hospitality which is a factor of the Polish’s friendliness and hospitality. To the business, it will be easy to adapt to the culture of the people and will always have good relationships with the indigenous (Gärtner, 2006). 3.2.4 Technology variables With the advancement in technology globally, Poland has also made important strides in technology in infrastructure and communication in internet use. For example the fixed-line market has undergone significant transformation in opening up market-based competition since 2003. Use of mobile phones in Poland is at the most advanced stage with over 99.5% of the people owning them. In terms of internet use, Poland comes fourth in Europe with a market share of 29.9% (WARSAW 2011). This is significant growth from 10.1% in 2004 (PIFIA 2012). What this means for the business is that communication and more especially the use of internet is likely to affect how the consumers will be doing their purchases. It is expected that in the future, consumers may prefer use the internet to make transactions. 3.2.5 Environmental factors Poland is one of the industrialized world countries in the Europe and the world in general that are facing difficulties in protecting the environment (PKF 2012). This is because Poland heavily depends on coal as its source of energy. In order to help cut down carbon emissions, the government policy has been to encourage business to invent other sources of energy. This is to the business may be a cost since apart from coal the business also uses charcoal which is very destructive to the natural environment (WARSAW 2011). 3.2.6 Legislation The legislation that is likely to affect the business includes that which is applicable to EU members except on levies and taxes where the members pay different rates as opposed to non-members. The other legislation that is likely to affect the business is the one on employment. The Polish policy requires employment for the locals only (PKF 2012). This may limit the business in terms of skill and expertise incase there is shortage in the local market. 4.0 Operational Management Operations management is a very important aspect of any organization. This is because it is charged with the responsibility of creating and presenting products and services to the market. Different organizations small or large, profit or non-profit making, do engage in producing and offering different products and services to the market since they affect their overall performance (Snowdon and Howard 2005). This has come therefore caused many organizations to understand the importance of operations in improving production efficiency and customer service. Further, operational management entail the numerous actions that are taken by an orgnisation in order to adapt into the new environment. It with this regard, this analysis has sought to take detailed analysis of the operations management model that is being used by Charcoal BBQ Chicken of Australia, in its endeavor to expand its business to the Polish market. The operations management model according to (Nickel and Lewis 2010) is a supply chain in which the business relates with its key stakeholders and more especially the suppliers and the intermediaries before delivering the final service to the consumer. Currently, the Charcoal BBQ Chicken of Australia is characterized by its supply chain where the chicken is supplied to the farmers before it is roasted and made ready for consumption and then delivered to the market through its 300 retail stores operating in various parts of the country. The supply chain (Snowdon and Howard 2005)) is important in creating value chain through which the input undergoes before transformed into an output which is a final product for consumption by the consumer. As the supply chain seeks to deliver on customers both in terms of quality and reliability, it is also for the business in ensuring an interrupted supply and increase in efficiency (Nickel and Lewis 2010). The operations management model where the company buys chicken as raw materials from the farmers before roasting them and delivering them to the market has proved worth for the company that has been in operation for over twenty years. Despite the fact this model having worked very well for the company at home, it is not automatic that it will always work in all business environments especially in foreign markets. This is because different countries have different legislations that will always impact on the supply chain (Gärtner, 2006). Since, the company has little experience about the market in Poland the company may be forced to partner with local businesses in order to have the opportunity to learn more about the complexities in the market. Further, on the issue of sourcing for raw materials, since of the technicalities involved in importing into Poland from countries outside the EU it will be economical to buy chicken from the local farmers as opposed to Australia as this will help avoid extra costs that are related to levies on imports (PKF 2012). 5.0 Ownership strategy Ownership strategy is defined as the model of ownership of a given company or organization (Mishkin 2004). The ownership strategy can take various forms such as sole proprietorship, partnerships, companies and ventures and many more (Dwivedi 2001). In Poland, there are various forms of ownership that a company can use as its model and they include joint ventures, limited liability companies, unlimited liability companies, partnerships both general and limited, undisclosed partnerships, sole proprietorships, subsidiaries, branches and representative offices as well as trusts and other fiduciary entities (PKF 2012). Even though the registration of the company is allowed both to the foreigner and local investors, there as some factors may influence the kind of ownership model that the company will use and it will include the knowledge the investor has about the market, the requirement for registration and the cost associated for registration, tax levies, employment policies and regulations. Currently, the company is known to own numerous stores and franchises in Australia. This experience has helped the company to be very successful in the industry by reaching almost all markets in the country (WARSAW 2011). Further, the model is also possible with the level skills and competencies in the country. However, in Poland this is a very different scenario. For a foreign investor outside the EU the levies are different and at the same time employment is restricted only for the local (PKF 2012). In such circumstances partnering with the local companies in order to avoid heavy taxes and also to access skilled labor that is available. However, the risk associated with this model is the inability to shift to full ownership when well established because of the legal attachments (Warsh 2006). 6.0 Conclusion and recommendation This analysis of the Poland market where the Charcoal BBQ Chicken which is an Australian company wants to venture into provides both positive and negative analysis. First and foremost, in Poland the restaurant industry and more especially chicken roasting is not so far advanced and that the competition is still very low. This follows the recent economic reforms that are yet to see foreign investors flock into the country after the fall of the communism regime. With high level of tourism activities in Poland, first, it is expected that the market is likely to be sustainable and lucrative for relatively long time. Further, with competition in the industry still being slow, the company is faced with the opportunity of large and unreached market. However, even it is recommendable that venturing into Poland market is viable, the company has to deal with various hurdles such as penetration strategies, employment of skilled labor and establish of an effective supply chain given that that is a completely different market environment. References Blanchard, O. (2011). Macroeconomics Updated (5th ed.). Englewood Cliffs: Prentice Hall. 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Poland sparks controversy on EU Environmental policy, Business journal, accessed on 22nd June 2011, available at: http://www.wbj.pl/article-55093-poland-sparks- controversy-on-eu-environment-policy.html Read More