International Finance - Saudis Cosmetic Co Ltd - Research Paper Example

Research Project Thesis ment. “The comparison between two multinational companies’ regarding their business model, modes of entry in the foreign market, the challenges that they are facing and how they operate especially in the Middle East and North Africa” Introduction. Saudis Cosmetic Co. Ltd is a Saudi Arabia Company that was established back in 1985, with an aim of selling cosmetic products categorised as skin care, beauty care, perfume, hair care, and sun block products as well as a wide variety of clinic series. In 1981, the company was awarded national as well as international awards in Geneva for demonstrating innovation in its products. Additionally, the company was ranked number two in manufacture of quality skincare products and was awarded Quality System Certification in 2002 by the Saudi Arabia government, making it one of the most renowned cosmetic companies in Middle East. Thus, this paper will delve into a marketing plan of Saudis Cosmetic Company as it tries to enter London, United Kingdom. Southwest Airlines is a service industry in Tunisia that aims at offering its customers with distinctive air transport services. The company started in 1969 in Tunis Tunisia, with an aim of providing its customers with air transport at a lower cost and an effective one for that matter. Eventually, the company adopted a strategy that seeks to provide its diverse customers with added value by making sure that the services exceed the price paid by the customer as well as what the customer expects to pay for the services. The company believes that creating value is one of the crucial activities the firm would take to attain a competitive edge. Even though the company started with purchasing products that were diesel powered, it has managed to replace its components and equipments with modern equipment, which are environmentally friendly, at a reduced cost. More so, it has managed to come up with more innovative products in the new airport lounges and the business class products. The company has also managed to come up with a number of trained personnel who take care of the children while their parents are in the “business class.” This new experience within the industry creates an added value for the customers. Mode of market entry. According to Li & Fung Research centre (2007), the emergence of foreign cosmetic firms in Saudi Arabia has led to a decrease of Saudis Cosmetic Company’s market share from 18.99% in 2001 to 9% in 2003. And even though the company targets middle and low-income earners, living in rural and lower-tier cities in 2006, its sales revenue dropped significantly to $ 43.7 million. As a result, Guangzhou Wuyi, a Chinese cosmetic company, purchased it in 2006, hoping that Saudis Cosmetic Company stands a good position in providing viable means for local market penetration through various distribution channels, as well as through brand equity. The Saudi cosmetic retail sales have been on an upward trend from 2006 to 2007, as evidenced by last year’s unprecedented sales reaching 1 million Dollars and growth of 16.0%. As a result, Saudi Arabia is considered as the fastest growing cosmetic market in the globe, eliciting foreign cosmetic investors in the market. The success of this company has been attributable to a number of factors, which include an increase in social-economic status, presence of women in cosmetic workforce, influence from western culture, and government’s promotion to local consumption in a bid to enhance the economy of the nation (Alon, 2003, p. 164). In today’s market, the Saudis Cosmetic Company faces stiff competition from a number of foreign companies investing in Saudi Arabia, which include Beijing Dabao Cosmetic Company, Estee Lauder, and Shiseido, among others. The Estee Lauder is on record for having made a sales growth of 40% in 2009, the same year that Saudis Cosmetic Company recorded a decrease in sales growth. It is, therefore, evident that Saudis Cosmetic Company is bound to face more competition from foreign firms, and therefore, this necessitates formulation of an international marketing plan in London, UK, that will help the company increase its market share and, consequently, attain substantial returns on investment. Service Innovation by South West Airlines. In the recent past, service innovation has been considered as one of the indispensable functions while creating value for customers. As such, the strategy is able to introduce customers with services that are beyond their expectation. Service innovation, however, cannot be achieved if the firm lacks a proper implementation of Customer Relationship Management (CRM). According to Kotler, Bowen, and Makens (2010, p. 413), the success rate of innovation in a vast majority of firms has been on a downward trend, especially in the hospitality industry. Thus, assessing service innovation for the Southwest Airlines entails taking into account its three key elements: customer focused, which tries to go beyond the customers’ expectations; processed focused, which tries to increase efficiency as well as productivity of the firm; and continuous improvement, which is a continuous process of providing innovative services to the customers(Lovelock & Wirz 2007, p. 237 ). It is imperative to mention that the Southwest Airlines operates its business operations by taking into account the dynamic technological trends happening across the globe. Based on findings on incorporating technology with the firm’s services, the Southwest Airlines has already launched a website with a good customer interface, which can be accessed quickly and easily. The product categories are clear, the product names are clear, and the site offers a good search for the services provided by the firm. Value creation through this strategy is enhanced by providing the customers with an opportunity to air their views, opinions, and comments concerning the services, as this acts as a customer service center (Knox et al. 2003, p. 123). Communicating through email and interactive social websites ,such as the Facebook and Twitter, create added value as it enhances interactivity between the company and its customers through comments and feedbacks of their comments (Bowie & Buttle 2008, p. 34). More so, the customers in the “business class” are entitled to free wireless internet, audiovisuals, and are provided with catering services that involve high-class technology. For case in point, the food and beverage services take into account the time taken by customers from ordering their food and/ or beverage to the time of service provision. Thus, the company has adopted a technique that limits this time. The customers are thus able to order foodstuffs using computer, which also makes sure that the nutritional value of the food is clearly displayed, thus providing customer value with respect to efficiency and knowledge. Generally it’s clear that both companies have employed the best ways to penetrate the market and attract their prospective customers without difficulty. Different companies have different ways of marketing themselves. This brings tight competition especially if it involves companies that produce almost the same product. That’s why competition is termed as healthy because each of the companies will employ the smartest ways to outdo the other/rest. (Green 1989) PEST Analysis for Saudis Cosmetic Co., Ltd Social The London population is characterized by international cultures that embrace modern thinking. The cosmetic market is characterized by a unique buying pattern. Quality cosmetic products are considered instrumental in enhancing the skin and protecting it from direct sunrays, hence creating a high demand for the anti-cellulite and anti-aging skin care products amongst the elderly population (Global Insight, 2007). The average life expectancy is 78.2 years for men and 82.3 years for women, while the average age of the entire population is about 36.4 years (BBC, 2011) - a population that is increasingly concerned about cosmetic products. Economical A closer look at economic data reveals that London is a viable market since it is characterised by a high and an upper-middle social status with an average household income over ?900 per week (London datastore, 2010). The Saudis Cosmetic Company is therefore bound to gain ground in the London market, given that the UK has a developed economy that is currently recording an expanding GDP and a low inflation rate of 2.5% from 5.2% in last year (BBC, 2012), making it a viable market for Saudis Cosmetic Company. Technological Cosmetic innovation, which is a product of technology, is highly embraced in the EU model. This is evidenced by the fact that, on average, approximately 25 % of cosmetic products are replaced with products that have added features (Global Insight, 2007). The innovation entails the use of high quality ingredients, presentation of the products, and delivery of the products, as well as extensive internet coverage that helps in providing more information regarding the quality of cosmetic products. Political Political atmosphere of the UK allows free trade for international cosmetic companies in the country, but these companies must adhere to a number of legal policies governed by the EU regulatory framework. This framework distinguishes between cosmetics, medicinal products, and drugs. The sunscreens and anti-acne lotion, which are not classified as cosmetics, necessitate approval or must adhere to ingredient recommended by the union. Additionally, they must be labelled as drugs, and not as cosmetics. These laws have affected the way cosmetic products are manufactured and packaged, as the cosmetic companies are forced to refrain from practices that are responsible for global warming, such as recycling and over consumption of nonrenewable resources. These legal regulations are different from China’s legal policies on cosmetic products (Salvador and Chisvert, 2007, p. 6). Challenges. The Saudis company faces issues of organisational structure with respect to decentralisation Lower profit margin, as compared to its rival companies in the UK, such as Ponds, Chrins, and Vasekine, Beijing Dabao in China. Discrepancy in corporate image the company presents to customers and potential customers High rate of competition in the London market, leading to a low profit margin Recession that has been experienced in London in the recent past may lead to low consumption of cosmetic products Changes in consumer behaviour in the UK with regards to cosmetic products However for South West Airlines, the only major challenges are the constant airstrikes by militia groups and Al shabaab. Security in airlines across the world has always been an issue since planes are directed to use certain laid route which, in most cases tends to pass through the militia prone countries. Tunisia being an Arabic country, there is a militia group called ‘lalao’ who pose a great threat to any aeroplane passing over their heads. Political intrusion into the management of airlines also is a major issue. Politicians are always on their case. They want to bring in their own staff who in most cases are deemed to be close friends and relatives thus conflict of interest. However once they manage the offered must in return makes sure that the politicians themselves get a handy therefore leading to mismanagement of funds. Customer relation decreases leading to the collapse of the airlines. Recently, there was a wave of political violence to ouster their long serving president. This was a major challenge since it led to instability in the country. Waiting area space is a major issue in the airlines. Due to influx of customers plying with the airlines, there is a major congestion in the waiting area. This problem has been attributed to increased flights to outside world. Partnerships have been made to increase the daily trips made and more destinations added thus many people use the airlines. At the end waiting area is a mess. How they operate. Strategy Development and Market Entry. The Saudis Cosmetic Company has always adopted a number of theories that will help in positioning itself as top on the varieties of cosmetic products in the Middle East, and not as Saudi Arabia cosmetic company. Using the innovation strategy, the Saudis Cosmetic Company has established means of identifying various channels through which new features in cosmetic industries will be effectively communicated. The product quality theory is used to assess the degree to which quality is positively correlated to pricing of the cosmetic products. This theory is usually premised on the fact that high quality products have the potential of diminishing the market share of low quality products (Bose, 2010, p. 221). Additionally, this strategy is based on the fact that market entry does not only call for first- mover strategy but also evaluating the mode of market entry that emphasises on developing a market entry capabilities through viable entry modes, which include acquisition, market transactions, and alliances(Ireland et al., 2011, p. 153). Acquisition, however, can be termed as an impediment to innovation strategy, for it puts firms in a position of expanding in the foreign markets without creating a good opportunity for internal development (Ireland et al., 2011, p. 161). And even though this strategy provides a company with an opportunity for a quick market entry, it is hazardous to the success of innovation strategy in a long-term basis. Similarly, using acquisition as a form of market strategy is expensive as it is also difficult for a new firm to evaluate the value of the new firm, in addition to the fact that it necessitates a high degree of time commitment (Ireland et al., 2011, p. 162). More so, it has not been substantiated on whether acquisitions provide multinational firms with their expected returns. The foreign Direct Investment (FDI), which involves combining resources of one firm with another, facilitates innovation as it puts the company in a new capability (Onkvisit and Shaw, 2009, p. 293). Unlike acquisition, FDI have been substantiated as viable means of acquiring capabilities more effectively in a foreign market. Additionally, it helps in sharing the company’s risks, as well as diminishing the business uncertainties in foreign market. This hybrid model helps firms ease bureaucratic cost that are normally related to hierarchical mode (Onkvisit and Shaw, 2009, p. 297). However, the strategy falls short of assessing the strength of a company since it is unfeasible to ensure adaptation of the company from a unilateral point of view. In a bid to attain a successful market entry, the theory of internationalisation, which points out the rationale for seeking low production cost that helps to establish increased volume of sales at a lower selling price in foreign markets, will be applied (Huizinga & Jonung 2005, p.78). However, despite the fact that World Trade Organisation (WTO) has provided foreign investors with free trade principle, this principle is still faced with limitations, given that EU countries impose high import tariffs on non-member countries importing cosmetic products, as they are classified as processed goods (Salvador and Chisvert, 2007, p. 7). And because of this, the Saudis Cosmetic Company will enter the UK market using Foreign Direct Investment (FDI) through a joint venture. This will help the company attain economies of scale through formation of credible relationship with the UK suppliers of raw materials, which will help reduce extra cost of importing cosmetic goods. Additionally, this strategy is critical because it will provide the Saudis Cosmetic Company with an opportunity for improving its image and attaining corporate identity through incorporating some of the English culture within its marketing strategy (Huizinga and Jonung, 2005, p.78). It is imperative to mention that the Southwest Airlines operates its business operations by taking into account the dynamic technological trends happening across the globe. Based on findings on incorporating technology with the firm’s services, the Southwest Airlines has already launched a website with a good customer interface, which can be accessed quickly and easily. The product categories are clear, the product names are clear, and the site offers a good search for the services provided by the firm (Southwest Airlines Co. n.d). Value creation through this strategy is enhanced by providing the customers with an opportunity to air their views, opinions, and comments concerning the services, as this acts as a customer service center (Knox et al. 2003, p. 123). Communicating through email and interactive social websites ,such as the Facebook and Twitter, create added value as it enhances interactivity between the company and its customers through comments and feedbacks of their comments (Bowie & Buttle 2008, p. 34). More so, the customers in the “business class” are entitled to free wireless internet, audiovisuals, and are provided with catering services that involve high-class technology (Southwest Airlines Co. n.d). For case in point, the food and beverage services take into account the time taken by customers from ordering their food and/ or beverage to the time of service provision. Thus, the company has adopted a technique that limits this time. The customers are thus able to order foodstuffs using computer, which also makes sure that the nutritional value of the food is clearly displayed, thus providing customer value with respect to efficiency and knowledge. Enhancing customer interaction through the social media depicts that the company is ‘customer focused’ and upholds ‘continuous improvement’ areas. Through this casual relationship, the company creates added value in terms of loyalty. ‘Continuous improvement’ is derived from the fact that websites call for a continuous upgrading in order to provide the customers with updated information. Providing the customers with services that are ordered via internet depicts that the company is “process focused,” and this creates added value in terms of convenience and time management. Conclusion. The effectiveness of this marketing plan can be evaluated through a number of factors. These include assessing whether the plan helps the Saudis Cosmetic Company to reach its desired goal and objectives, whether the company can utilise the marketing plan to acquire additional information for innovation purposes, and whether the company is able to convert a potential customer to frequent customer. The standardisation strategy to be adopted will contribute greatly to unproblematic planning and control of the business activities, as well as cost reduction measures through economies of scale, global uniformity and company’s image, as well as transferable experience (Vronis et al., 2009). The adaptation strategy, on the other hand, will contribute greatly towards developing the cosmetic market in the UK, creating differentiation, and eradicating barriers emanating from differences in economical factors, cultural factors, competition, technological factors, and sociological (Vronis et al., 2009). However, inasmuch as the innovation strategy is instrumental in portraying that a company is customer focused, its effectiveness is questionable because, instead of emphasising on essential benefits of products, it usually emphasises on novelty value of the products. This approach can be misleading, given that majority of customers seek for continuous improvement of products, as opposed to their novelty value such as excellent presentation and prompt delivery of the products. In addition to this, the correlation between high quality, differentiated products and low pricing for products during foreign market entry is questionable, given that the purpose of coming up with high quality, differentiated products is to offer a premium price that has a correlation with the product at hand. Thus, product differentiation does not always translate to adopting low or economy pricing, for this may affect the customers’ perception, prompting them to raise questions on product quality. Creating value for customers cannot be defined without assessing the benefit customers get after they deduct their expenses. The process can be achieved through adopting a viable framework(s) that is in line with the business operations. Using the services cape model, the Southwest Airline has managed to create value for its customers though a number of dimensions, including the ambient condition, signs and symbols, and engaging the staff as well as the customers in the process. Thus, the Southwest Airlines has been in a position of providing its customers with increased excitement, exclusive environment, as well as high quality values. The service innovation, on the other hand, has facilitated added value creation through innovative products that are in line with the current technological trends. In turn, this has created room for exclusive services, including wireless internet connection in the “business class,” which has helped to provide the customer with services that are beyond their expectations. Thus, the service innovation creates room for fun, luxurious experience, trust, and relaxation. And despite the challenges faced by the company, it is, indeed, true that it has managed to create added value for its customer through service innovation models as well as the services cape model, a value that is beyond their customers’ expectation. References Bowie, D & Buttle, F 2008, Customer Relationship Management: Concepts and Tools, Elsevier/Butterworth-Heinemann, Oxford. Bruhn, M & Georgi, D 2006, Services Marketing – Managing the Service Value Chain, Prentice Hall, Essex UK. Dougan, S. (2004) Marketing Planning and Implementation: How to Put Marketing Plans to Work, Pearson Higher Education FT Prentice Hall: Hemel Hempstead. Global Insight (2007) A study of European Cosmetic Industry. London datastore (2010) Focus on London- Income and Spending at Home [online].Available from: http://data.london.gov.uk/datastore/applications/focus-london-income-and-spending-home [Accessed: 25 October 2012]. Read More