Business Decision Making in Chabros International Group - Case Study Example

Introduction Chabros International Group is supplier of high quality wood in the Middle East Region supplying veneer and other wood products to markets like Dubai, Saudi Arabia, Qatar and other Arab countries. Based in Lebanon, the company started locally however, it started to supply high quality wood to the international market such as Dubai and other Arab countries. Though the primary sources of raw materials of the company is based upon countries outside the Region however, firm was able to procure high quality wood and supply it to its target market. This case analysis will discuss and explore as to how Chabros can actually expand into Morocco given the fact that sales from its major market i.e. Dubai is on the decline mostly due to tough economic conditions. Major Issues and Management Problems A closer analysis of the facts provided in the case study would suggest important management and strategic issues which firm needs to focus on. Two of the important management issues are mode of entry as well as the marketing strategy of the firm. When entering into international markets, firms have relatively diversified options to exercise. From exporting to the establishment of a Greenfield projects, firms can choose the right strategy based upon the overall situation and the resources available to the organization. However, in order to expand into any market, it is also critical to highlight and explore language and cultural differences as well as the institutional differences as these factors tend to have significant impact on the way a firm has to develop its marketing as well as HR strategy. The initial strategy adapted by the firm was to enter into joint ventures with the firms which were not located in the region. This therefore created strong cultural and interpersonal issues for partners who were not used to the overall culture and business norms of the region. As such the firm entered into the market without actually making an effort to understand the local dynamics and importance of having local partners. Since firm was entering into different markets for the first time it was therefore important for it to either start through the exporting or founding joint ventures with the local firms. However, the firm, actually opened wholly owned subsidiaries in those regions with 100% ownership therefore the necessary capital was tied up in establishing new facilities. Secondly, the firm focused on one market while continued to expand in other markets despite the fact that major chunk of its sales were coming from one single market i.e. Dubai. Rather than expanding into other markets, it failed to further penetrate into the existing markets and therefore was not able to achieve the required level of growth. Further, the marketing strategy seems to be non-existing as business 2 business marketing needs to be further diversified in order to achieve the required level of growth. Firm seems not to be participating in any major events to market itself to other potential customers. International Expansion One of the key motivations to enter into the international market was based upon the overall growth provided by such operations. The success of Dubai operations further motivated the firm to actually explore other markets in the region also and the firm systematically entered into all those markets. It is clear that in order to successfully enter into any market, firms need to focus upon finding the right mix of strategies to follow. In some markets, due to legal restrictions, firm may not be able to enter into the market without actually partnering with the local players. However, certain countries or markets only allow exporting as a method to enter into the market. As such the firm has to decide as to what are the factors which need to be taken into consideration before deciding as to how to enter the market. However, to enter the market factors such as political, legal, social, economic and technology also need to be taken into consideration. Initially, the strategy of the firm was international in nature i.e. it started with exporting to Dubai however, as the firm expanded, it shifted towards the multinational strategy wherein each subsidiary was operating on its own and selling in their respective regions. When a firm is operating a multinational strategy, it has invested into other countries however; the subsidiaries are more focused upon offering products and services which are tailored to the specific needs of their local markets. As such, all the subsidiaries operating within their own regions followed the strategy and offered products at the local level without actually operating under one particular brand image. Strategies to overcome financial crisis It is critical to understand that the major reliance of the firm in terms of revenue generation is based upon sales being generated from one region. In order to overcome the financial crisis and achieve the required level of growth, it is important for the firm to actually further penetrate the market and initiate the differentiation strategy. It is clear that the firm clearly lacks the brand image and also relies on one type of wood i.e. veneer to serve the market. Since the product has relatively limited level of market and may not be useful in other related markets. In order to overcome the financial crisis, firm needs to engage into market penetration strategies however, it also needs to focus on creating differentiation strategy with focus on consolidating its product base. One of the key competitive advantages available to the firm is the fact that it offers a diversified range of different grades of wood to the customers. Though this strategy may successful in terms of offering customers greater options however, it may not help the firm to find profitable niches to develop on. Rather than spending energies on offering a diversified range of grades, firm should focus on developing its niche and create a differentiating strategy within that niche. This will help the firm to properly direct its marketing efforts as well as focus on select few product markets to serve. This way firm can actually overcome the financial crisis being experienced in its major market as firm will be able to save and redirect and focus its energies on building one particular market to further penetrate. Market Development Growth Strategy Market development growth strategy is an important strategy to actually find new markets and market either the existing or newly developed markets. Such type of strategy is important in the sense that it not only offers an opportunity to diversify geographically but also reduce the risk and improves the overall growth prospects for the firm. Factor Country Iran Kuwait Morocco Market Size 71.956 2.728 31.606 Geographical distance 2,173 1,210 3991 Rule of Law 23 70.8 51.7 Future Growth Rates 2.7 1.8 2.2 The above table indicates that though Iran has relatively higher future economic growth rates however, its geographical distance is relatively large. Kuwait is another market which has relatively smaller geographical however, its market size is relatively low and growth rates are lower too. Morocco therefore offers important alternative for the firm to pursue because of the three most important indicators i.e. market size, future growth prospects as well as the rule of law. As compared to other two countries, Morocco is a better alternative because of the fact that it has relatively larger market, economic growth is relatively high and as such the overall law and order situation is good also. Since the firm offers flexible payment options therefore it is critical important that the legal system of the country must be efficient and impartial to allow international firm to actually pursue those borrowers who failed to pay to the firm. As such the overall combination of the factors suggests that Morocco is one of the better options to execute the market development growth strategy. Market Penetration Strategy Market penetration strategy is one of the key strategies adapted by the firms to actually further increase the market share of the existing product within the existing market or introduces the new products in the same market. Considering the overall facts and figures provided in the case study, it is clear that further penetration in Qatar’s market will be a suitable alternative for the firm to follow. The overall market share of the firm in the lumber market is approximately 20% whereas the market share in the veneer is approximately 50% suggesting that the Qatar is as good as a market for the firm as Dubai is. Since Dubai is also one of the leading global cities in the world therefore the overall impact of the international economics recession is relatively high on Dubai as compared to other countries in the region. This is also due to the fact that Qatar is rich in natural resources therefore its reliance on the international markets to continue to progress is relatively less as compared to Dubai. Market penetration will be a good strategy given the fact that firm has already established itself in those markets and is a well-known brand among its customers. Offering different price varieties, developing one good niche as well as effective marketing can actually help the firm to further penetrate into Qatar’s market and continue to expand on its competitive advantage in its existing market also. Expansion into Morocco One of the key strengths of the Morocco as a new country to expand is the fact that it has been able to implement best quality standards. This is apart from the fact that labor force available in the market has specialized know- how and market is relatively mature as compared to other countries. What is also important to note is the fact that there is relatively low or no competition at the local level thus making it easier for the firm to further penetrate into the market. The existing players are low in numbers in the veneer market therefore firm, which specializes in selling different varieties of veneer can easily cater to this market. Conclusion This case is important in the sense that it attempt to correlate different factors which can have significant influence on the business decision making. Right from the influence of the international economy to the culture and local business norms, this case study provides important insights in terms of how to deal with such factors when deciding about whether to enter into any international market or not. Local business norms, dynamics as well as the way businesses operate therefore can have a significant impact on the way international markets and demand being generated from such markets need to be dealt with. Best practices which can be identified from this case study includes learning how to operate in MENA region and how much geographical diversification is important for achieving sustainable growth rates for the firm. Read More