Analysis of Macadamia Nut Asian Market Expansion - Assignment Example

Analysis of Macadamia Nut Asian Market Expansion Letter of Transmittal Dear Mr. CEO, Please find the report on the two key markets in the Asia that is China and India. The report was commissioned to me on 1/04/2015. The report on the two key markets in the Asia region that is China and India has been completed by me. Your company can develop strategies based on the report to effectively develop a strategy to enter these markets. The key findings of the report are listed below. The demographics of the China is quite high The wealth of the middle class is increasing and this has caused an increase in the disposable income of the people of china. There is urbanization taking place in China and most of the population there is aging of population. After analyzing the two countries it is hereby recommended as a conclusion to the study that the company should first of all focus on the Chinese market for launching their product in the Asian market. I would like to thank the scholars in this field whose works I had to access in order to complete the report. The report was useful in honing my research skills which will surely come to my use in future research reports. Regards, Mr. Executive summary The report in the following pages tries to analyze the two market s of India and China to understand which the market that the company can use to step or mark its entry into the Asian market. After going through the detailed analysis it is found that China would be better to use as a stepping stone into the Asian market. This is because of the fact that china’s demographics and the market conditions would support the move. Recommendation is also put forward those bases on how to enter the Chinese market. Contents Introduction 5 Body 5 Selecting a Target Market: 5 Macro/Micro Environment: 6 Market Demand: 6 Industry trends 8 Demographics 8 PESTEL: 9 Competitors 9 SWOT analysis 10 Explanation of key factors from SWOT 12 Conclusion 12 Recommendations 12 Detailed Action Plan 14 References 16 Introduction The present report deals with a major export industry of Australia. The macadamia nut is the chosen industry for this particular project. The particular nut is a representative of the essence of Australia. The nut which represents the soil, climate and seasons of Australia has become a global success story. People all over the world adore this particular produce of Australia which is incomparable in taste, texture and the health benefits that this nut provides. Another thing that contributes to the success of the product is the commitment and dedication that is put into the production of the nut by the farmers or growers of Australia. The total trade value of the nut industry is expect6ed to touch the levels of $1 billion by the end of this year. The export earnings from the nut sales are expected to double over the next 10 years. In light of this fact the Suncoast Gold Macadamias (Aust) limited which is one of the largest producers of Macademia nuts and the seller of the nut and products that are derived from the nuts. The company wants to expand its business in the Asian market. The target countries that the company has chosen for the entry into the Asian market the two countries of India and Africa. Both of these countries offer huge potential to any of the companies in terms of expanding into. The major advantages of these countries are their demographic factors and huge customer base. In the course of the report these two countries are compared based on the macroeconomic and micro economic factors to finally arrive at the decision to choose one of the countries out of the two. Body Selecting a Target Market: For the purpose of the expansion strategy of the company the goal of the company is to expand into the Asian market. The two countries that can be the starting point for the companies wanting to expand into the Asian market are India and China. These two countries are chosen as they are the ones with the largest demographics. There is a huge population of educated middle class people who can be the ideal customers as they would be eager to buy and taste the new variety of food. Macro/Micro Environment: Market Demand: Key market segments China The market can be segmented on the basis of geographic segmentation as the people of different geographic area have different tastes and preferences. The geographic segments that have been identified are North, East west and south china (Baquero, Bessler, and Xu, 2013). India In India the market can be segmented on the basis of purchasing power as Affluent, aspiring and the ones that are striving (Singh, and Chandhok, 2010). Current Demand India If one analyzes the FMCG market of the country then it is found that the population of the country is 1 billion. This makes the country one of the largest in terms of consumer spending and purchase power. The FMCG sector is the fourth largest sector in the country. The growth witnessed is about 11% per year (AFS action, 2012.). China In 2009 the consumer expenditure in the food and beverage sector was about US $1.7 trillion. By 2015 the figure is expected to rise by 28% to reach US $ 2.2 trillion. Any Notable changes in demand India It was during the year 2012 that a negative trend in the volume growth of the FMCG market was witnessed. This was due to inflation, reduction in disposable income, and the slowing of economic growth. CHINA It was found that even during the times of recession the Food and beverage sector in China posted strong growth. However over the last two years the grown in the Chinese FMCG market has fallen. The fall has been from 15.8% to 5.6%. However healthy food and their market continued to grow (Yu, J., 2014). Substitute products Market size The Indian FMCG market has an estimated size of about 2 trillion. Major factors influence buying decision China As the disposable income of the Chinese has increased they have become more and more sophisticated. Now the people or rather the consumers of the country demand greater variety. They are becoming more and more sophisticated. As a result they are demanding better quality and that too at prices that are affordable. India In India the main factors that influence the consumer decision making process are the influences and suggestions of friends and family members. In India people tend to attach a lot of value to word of mouth promotion. Thus, if a new product attracts some customers in terms of taste and features then these people will surely spread it amongst others. Industry trends China The FMCG industry is poised for heavy growth in the coming years. The point of the growth would be the fact that the country presents a huge demographic potential. The people would become more and more health conscious and search for the healthy factor in the food item. India In India too, the growth of the FMCG sector is about to be 10% year on year. It is one of the 4 large sectors of the Indian economy. There has been slight slowdown in the recent years due to the slowing down of economy in general and rise of inflation which has curtailed the disposable income of people. Demographics China China is recognized as the most populous country in the world. In 2011 the population was 1.35 billion. The population density was 141.7 / sq. km. The most densely populated provinces in China are located in the east. The population of China is gradually ageing. One other pattern that is noted is the rapid urbanization and increase in wealth of the Chinese. India India is the second most populous country in the world. It is home to 1.27 billion people as of 2014. India has about 6th of the total world population. Most of the country’s population is young. By 2020 the average age on Indian will be 29 years far lower than China and Japan. PESTEL: India The country follows a democratic constitution with the government at the centre elected through democratic elections. The people of the country are very close knit to each other thus society has a good influence on the people and their decision making. The country has a very good GDP growth rate and its current GDP level is also high (Kotler, 2000). The legal system of the country is regulated and the highest court is Supreme Court. However the judiciary of the country is very slow in pronouncing judgement. Technology is being slowly embraced in every walk of life and is living a good mark. Another area that is receiving lot of priority is environment. China The political system in the China is autocratic. There is one party rule in China for a long time. The country makes development agenda through the formulation of 5 year plans which are then following the plan (Singh, 2010). The country’s GDP growth rate is very high and is experiencing exponential growth rate over the years. The country has its own social networking website through which the people of the country communicate with each other. Use of technology is also increasing in every sphere. Environment is one of the agenda that has been taken up in the 5 year plan. Competitors China In China the domestic players are engaged in providing high quality products at low prices. Thus it is no surprise that companies like Mongolia Yli and Inner Mongoilia Mengnui led the share of the packaged food sales in the year 2013 (Euromonitor international., 2015). Thus it can be said that the domestic companies are giving a tough competition to their foreign counterparts. India In India too the market for packaged food products is dominated by the list of local FMCG giants such as Dabur, ITC and Godrej. However it is the Hindustan Unilever limited a subsidiary of the Unilever group that holds the maximum share of the FMCG market. SWOT analysis India Strength Huge demographics and a youth population (Srinivasu, 2014) Easy to target the different segments with different strategies Weakness High levels of corruption Slow judiciary Opportunity Untapped rural market There is huge scope of investment and phenomenal growth Good future for healthy products Threat High level of inflation High cost of the inputs Depreciation of Rupee affecting margins Bottle necks in infrastructure China Strengths Huge demographics People have high disposable income Large variety and huge demographics Weakness Autocratic rule Ageing population Opportunity Good growth for the FMCG sector People value quality and healthy products Threat Cultural mismatch and non acceptability of the product Threat from the existing market players especially the domestic companies Explanation of key factors from SWOT In case of India it is found that the main advantage is the existence of huge population demographics and the presence of youth population however the major weakness is the existence of corruption and slow legal system (Till, Chew, and Joshua, 2008). In case of china the strong factors are again the demographics and the fact that the wealth of the middle class in increasing. The weakness relates to the fact that the ruling is autocratic, legal system is not well developed and also we are never sure whether product will be liked by the Chinese people. Conclusion After completion of the analysis it is suggested that the market that is chosen for entering into the Asian market is China. China is chosen for the entry market as it is seen that the country has huge demographics. The middle income levels are the ones which are getting wealthy and this has resulted in the fact that the people have the disposable income that they can afford to spend in acquiring the new packaged food. It is also found that the people are very conscious about the health products and it is quite likely that they will buy the new product for the taste and health benefits. Recommendations The company has to enter into the Asian market in order to increase the market share of the company globally. Amongst the two Asian countries that were chosen for deciding which one would be the best to enter into the Asian market? Amongst the two Asian countries that are studied namely China and India it is found that China is the more suitable and should be chosen as the entry point. This is due to the fact that the entry in china will be filled less hassle as there is a single party regime (Kirshner, 2006). So it will be easier to get trade license and easily overcome the entry barriers into the market. Before deciding on the mode of entry it is recommended that the company personnel should actually visit the site and conduct a ground survey of the location (Walby, 2009). The ground survey should also be done to analyze which of the mode of entry will be more perfect for entering into the new market. The survey should also focus to find out which the area which should be targeted at first and what is the flavour that is most liked by the Chinese people (Ballance and Forstner, 2004). After preliminary data on this primary statistics has been tabulated a decision can be taken on many factors that are the mode of entry, which city should be the first to be targeted. Regarding the choice of city there are several factors that needs to be considered. Some factors are for example the quite obvious one like whether the area is populated, whether the people of the area are affluent enough to be able to adopt and try the new product etc. Some of the other factors are for example the consideration about the requirement of licenses in that area to be able to set up the business. It is recommended that the business should be set up or the entry point for the business should be through a city that is posh and where there is a chance that more Australians are leaving. This is because the Australians would be already familiar with the product and they will be the one who will accept the idea at the first place (Wintzer, 2007). As the company will be entering the market as a new and fresh entrant it is required on the part of the company to tie up with a store or a brand that the inhabitants are already familiar with and it will be easier for the customers to associate with the brand if it is local. As part of the recommendations it is also recommended that at the first place the company should enter into contract manufacturing for manufacturing of the nuts. The company should enter into an OEM contract that is the company will be sending the nuts in huge shipments to the partner company in China. It will be the duty of the partner company or the company in the contract to package that product, do processing that is needful and finally sell it to the market using the logo of the original company (Perreault and MaCarthy, 2003). It is very necessary that the profit percentage should be shared and clearly agreed to in the terms of the contracts so that no conflicts ensures in the future. It is also required that the company identify the taste and preferences of the market and launch the product in the flavour that the customers actually want (Bennett, Wood, and Previte, 2013). It should be assumed that the flavour which works in Australia or any other country should be also accepted with the same welcome in this particular country that is china. The detailed action plan is given in the following figure. The first step would involve conducting pilot survey. The conduction of the pilot survey would take into account the initial survey of the location to determine what is the flavour that the customers want? What is the price tag that should be kept? Etc. After doing the test or the pilot survey the next important task is to do a test marketing where the product is test marketed to a selected customer base. After the test marketing part the reactions of the customers are analyzed and if there are any changes that needs to be made is done. Detailed Action Plan Time period Particulars M 1 M2 M3 M 4 M5 M 6 M7 M8 M9 M10 M11 M12 Indicative budget Conduct pilot survey $5000 Test marketing $10000 Selection of a particular city $1000 Dealing with the licensing and other requirements $15000 Signing in of contract with the OEM $1000 Advertisement $5000 Launching of the product in the market $1000 Test whether it is working $500 If it works spread it to other cities $10000 If it does not work change the strategy $5000 Total budget $48500 References AFS action., 2012. Research report: Indian FMCXG Industry. [Online].Available at < http://reports.dionglobal.in/Actionfinadmin/Reports/FDR0108201343.pdf > [accessed 6 May 2015]. Ballance, R., and Forstner, H., 2004. Competing in a global Economy. London: Psychology Press. Baquero, J. G. Bessler, J. and Xu, A., 2013. 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Germany: GRIN Verlag. Yu, J., 2014. FMCG sector slows by $8.3 billion as emerging markets cool. [Online]. Available at < http://www.kantarworldpanel.com/global/News/FMCG-sector-slows-by-83-billion-as-emerging-markets-cool > [accessed 6 May 2015]. Read More