International Business - Essay Example

?Running Head: International Business International Business [Institute’s International Business Company: Confectionary Manufacturers Executive Summary The new businesses make use of certain strategies to best position themselves in the industry. Although the startups operate in different sections of the value chain, there are features common to the whole industry that have an effect on them and influence their strategies. Any single proposed theory cannot completely explain the strategies of the startups. They are the result of the industry formation, their personal resources and the expertise the products rely on. Even if the industrialists did not clearly utilize the suggested framework to develop strategies, they do take advantage of a few aspects of these theories to support their decision-making. Nonetheless, the suggested theories cannot justify all of their strategies. It was interesting how the industrialists made use of “fortune”, “opportunity” and “gut feeling” to explain how they came about starting their businesses and why the business models developed the way they did. A number of decisions did not have a strategic foundation and were comparatively extemporized. This reveals the approach of startups to function as opposed to transnational businesses, which generally have some set of rules to follow before executing any plans (Lymbersky, p. 83, 2008). A lot similar to the rest of the Middle East, the Egyptian market is creating a taste for foreign goods and newer generations are keen to try a rising range of these products. Introduction Once regarded as an improbable trade associate because of a fragmented retail sector as well as shortage of cold storage capability, the Middle East’s progress in both areas has led to better prospect for foreign confectionery providers. In addition, trade liberalization, better infrastructure in addition to distribution arrangements are aiding to smooth the progress of new product entry as well as brand development. In the present day, the Middle East (Lymbersky, p. 83, 2008) is among the most lucrative markets for confectionery around the globe. Demographically, the young people, rising number of emigrants, and mounting disposable income per capita should carry on creating demand for confectionery. Suppliers from all over the world are eager to meet this rising demand and are intensifying the competition for same reason. In a few of the smaller Middle Eastern nations such as Israel, the supermarkets as well as hypermarkets make up the major share of confectionery sales. There are two national supermarket chains in Israel that currently control the retail scenario. Convenience stores, naturally, still play a most important part in confectionery supply; however, the small self-regulating grocer has mostly washed out from the scene (Sekkat, p. 29, 2009). Background The report helps in better understanding of the opportunities and possible barriers to enter the confectionary market of Middle Eastern region. The report is made with a regional focus and the information has been collected from all individual markets of Middle East region including Egypt, Israel and Turkey. Objective The objective of this report is to identify different market entry strategies and select the one that is most suitable for the company. The areas covered in this report are strategic issues this company is required to fix on earlier than product launch, to guarantee successful market entry as well as their consequent survival. These consist of, but are not restricted to, the basis for entering that particular market segment, the types of promotion, their competitive advantages and methods to maintain these advantages. Reasons for Selecting Middle East Region There is developing awareness among international confectionery producers on the Middle East market. For many years, confectionery sales within the region have witnessed double-digit yearly growth, rising by almost 15 percent per annum between 2006 and 2009. There are quite a lot of bases for this growth in sweets utilization. Demographics surely play a key part. Confectionery dealers mention two particular demographic drifts that have an effect on their business. First is the rising influence of young customers. For the majority of nations in the region, the age bracket of 15 years to 24 years makes up 23 percent or more of the population. In addition, these young consumers usually have the financial support to buy impulsively and indulgent items such as confectionery as a result of the region’s oil based financial system, which have developed throughout the region by 35 percent since 2005, customer spending is at all time high (Sekkat, p. 56, 2009). Decline in tariffs have also played a part in developing confectionery product availability within the Middle East region. The business and investment situation has progressed radically nurturing regional growth by transnational confectionery companies specifically. Cadbury, which is the market share leader in the regional, Master Foods and Kraft have invested in manufacturing services within the region during recent years whereas, at the same time, acquiring brands they expect will bring even more customers. The presence of these competitors has compelled local manufacturers, for instance, Gandour and IFFCO, to develop as well as innovate in the similar way. (Sekkat, p. 40-58, 2009) The outcome is that the Middle East has become one of the most active and profitable confectionery markets around the globe. Current Situation of the Company - Why Company is Expanding The company is expanding internationally to maintain a competitive edge as well as to keep financial security. With this step, the company will be able to seize a stable profit margin in times of local market decline. As financial issues locally have an effect on the bottom line, positive financial situations existing in a foreign country can keep a business functional as well as lucrative. Market Entry Strategies The two important theories - Porter’s Five Forces theory and the resource-based view - are assessed, as they are two of the most well known theories employed to study the external and internal environment of a company. Resource-Based View The resource-based view (RBV) is a business management device employed to find out the strategic resources accessible to a business. The basic rule of the resource-based view is that the foundation for a competitive advantage of a business lies mainly in the use of the collection of valuable resources at the business’s disposal. To alter a short-run competitive benefit into a continued competitive benefit involves that these resources are diverse in nature and not entirely mobile. The resource-based view is an approach of analyzing the company and consecutively the approaching strategy. For all intents and purposes, the view conceptualizes the company as a collection of resources. It is these resources, and the technique combining these resources, that make companies different from each other and in turn let a company to distribute products and services in the market (Barney & Clarke, p. 56, 2007). Despite the fact that it might appear a bit obvious that companies are different for the reason that they are consisted of different resources, this point of view is a major departure from the long prevailing market based view. According to the resource-based view, following are the main features for a resource to be strategically significant: Valuable - There is absolutely no point in having a resource if it does not carry value to the company. Rare - Resources that a large number of companies have cannot give competitive advantage, as they cannot bring any exclusive strategy in comparison with competing companies. Matchless - Resources can only be bases of continued competitive advantage if companies that do not own these resources cannot acquire them. Non-substitutable - There must be no strategically corresponding valuable resources that are themselves neither exceptional nor unique. Despite the fact that the company can purchase resources, the usual argument is that to attain strategic gain, the resource must develop internally, as exploitation of such tradable assets does not lead to a sustainable competitive gain just for the reason that they are freely tradable. On the other hand, internal development of resources can take longer periods of time and is frequently uncertain how to carry on (Barney & Clarke, p. 56, 2007). In a sense, this ambiguity, opaqueness in addition to development period adds to the possible sustainability and value of the resource as it is developed. As it is significant to know that companies are different, and have different resources, this is not to state that the market is as well not important. The test is to find out opportunities in the market that are pertinent to the resource base of the company. On the other hand, resources need to match with their surroundings to bring competitive advantage. The most significant and exclusive company resource is usually the human capital. This takes account of associations the founders developed with partners, shareholders as well as consumers (Barney & Clarke, p. 56-60, 2007). The company identifies this fact and has capitalized on its resources completely by focusing its competencies. Most of the new entrants gathered first mover benefits from their rapport competencies. Porter’s Five Forces Theory Porter summarizes the core of creating a competitive strategy as linking a business to its setting. When a company wants to choose what strategies to implement when entering a market, it has to examine the industry first (Salehi-Isfahani, p. 228, 2002). The Five Forces outline by Porter has turn out to be an essential tool for this sort of analysis. Within this outline, an industry is a group of companies manufacturing products that are close replacements for one another. This theory is most suitable for the company as it comprehensively evaluates the following five factors - Porter’s five factors - that play the key role in formulating strategy for entering into a new market. Threat of New Entrants The already existing companies consider new entrants unfavorable as these new entrants could possibly gain market share at the expense of current players. For that reason, there are usually barriers raised to stop new players from penetrating the industry. This company would have to think about not only how to rise above these barriers but also how to raise further barriers to stop more companies from entering. Intensity of Competition between Existing Competitors This is a key force to think about while planning entry strategy, as the intensity of competition directly has an effect on productivity (Salehi-Isfahani, p. 228, 2002). Competition will probably wear away any gain companies have over competitors as the latter can act in response accordingly. Startups are in a particularly dire situation to face retribution from existing companies because of the lack of resources. To create a sturdy base for the company requires the majority of its resources rather than to struggle with already existing companies. Here, the company should adopt niche strategy to stay away from head-on competition with already existing companies and targets market segments ignored by the latter. Risk of Substitute Products The ease of use of substitutes will as well bring about restricted profits, as the consumers have a substitute source to rely on. The analysis draws this company’s awareness to the significance of recognizing products that can perform similar task as its own. Startups might as well want to develop the industry’s general position against substitutes by engaging in combined action with its competitors. This is a practical choice in the confectionary industry taking into consideration the continuing war on health standards (Fleisher & Bensoussan, p. 341, 2007). Bargaining Power of Consumers Since consumers are the ones who directly contribute to profits, the power they have over sellers impact the seller’s productivity. For that reason, a significant entry strategy of startups involves consumer selection (Salehi-Isfahani, p. 228, 2002). The company should segment the market and target consumers who have less power over them. This is a test for startups as very frequently, they are smaller as compared to their consumer groups. These consumer groups can apply considerable power over them for the reason that their purchases are a huge percentage of overall sales. Bargaining Power of Sellers The power of sellers is a vital force in deciding productivity of the industry as they can increase costs or decrease quality of the products, in that way disturbing the price composition of the companies. Startups are generally unable to get by without sellers as they are on a weak bargaining spot. Conclusion In view of the fact that customer’s inclinations are drifting in the direction of premium products, high-end confectionary will carry on to play a bigger part in the market opportunities accessible to suppliers. Apprehension over health is one topic that is driving segmentation. Customer awareness of the connection between sugar utilization and health issues, for instance, diabetes, heart disease, and tooth decay, is generating the demand for vitamin-enriched, sugar-free and other healthier substitutes to usual confectionery. Advancement will consequently be a most important aspect that verifies prospect for foreign suppliers within this region (Salehi-Isfahani, p. 228, 2002). From a competition point of view, transnational companies indeed control the market. However, local companies have shown the capability to compete and there are several examples of small local as well as foreign confectionery providers getting achievement in spite of the presence of the international businesses. References Barney, J. B. and Clark, D. N. 2007. Resource-Based Theory: Creating and Sustaining Competitive Advantage. OUP. Fleisher, C. S. and Bensoussan, B. E. 2007. Business and Competitive Analysis: Effective Application of New and Classic Methods. FT Press. Lymbersky, C. 2008. Market entry Strategies. Management Laboratory Press. Salehi-Isfahani, D. 2002. Labor and Human Capital in the Middle East: Studies of Markets and Household Behavior. Springer. Sekkat, K. 2009. Market Dynamics and Productivity in Developing Countries. Springer. Read More