Market Entry Analysis - Coursework Example

Executive Summary The communication and internet industry has been at the forefront of rapid innovation due to constant research and development in the field. From being a medium for communication, the internet has evolved into a complete package of content and transference of information and knowledge, and become a norm of everyday living. Internet service providers have had to invest significantly to keep up with the technological changes and cater to the needs and demands of the market and the consumer. The opening of the world markets has allowed many companies to expand past national borders in hope of attracting further consumers, especially in the developing world, and increasing revenue. Company & Product Background iiNet is Australia’s third-largest Internet Service Provider (ISP), having retained a significant market share across the country, despite competition from larger providers like Telstra BigPond and Optus, and smaller ones like Dodo Internet (iiNet Limited, 2010). It remains dominant in the internet consumer market by offering services that are ‘value for money’, as well technologically advanced to meet the demands the needs of the customers. Having been established in Australia over a decade ago, iiNet has managed to overcome various hurdles in offering a dependable and consistent internet service to home and business users (iiNet Limited, 2010). The technology has developed over time from the initial dial-up service over the phone lines, to the faster broadband service using fibre cabling. At each stage, iiNet has ensured that its product is able to offer consistent quality and service to the user, with back-up facilities in the event of any network downtime. Its early inception required it to offer competitive pricing in the market, but that was not the only selling point (iiNet Limited, 2010). For iiNet, quality and relationships with its users was more important. This required significant investment into customer services and processes that highlighted the company’s trust in its product and service, and the value it held for the users. As a large portion of the internet users are between the ages of 15 – 35, iiNet devised packages that were built around the needs of this consumer base. This includes unlimited downloading quotas, as well as cheaper packages for students. One of the key brand images for iiNet has been its freedom to allow users and unrestricted access to the internet, without applying any filters or tracking usage of the consumers (iiNet Limited, 2010). The one key factor for this has been the pressure from film groups for ISPs to share customer details about those users who may be using the internet to illegally download resources using various torrent systems. iiNet’s refusal to this act and subsequent legal victory has enhanced its image in the market as a trustworthy supplier of internet services. Furthermore, research and deployment of faster broadband services in line with those available across many countries of the world, has made iiNet gain further ground in capturing market share from its main competitors, and an effective customer service and support line has allowed it to retain its own position. Analysis of Potential Markets Greece Greece is one of the oldest civilizations of modern times, and one of the developed countries that is among the founding members of the European Union (EU). With a population of 11.3 million, as of 2009, the country has a very high human development index, as well as a growing economy primarily fuelled by the tourism industry, which accounts for 15% of the gross domestic product (GDP) and employs almost 16.5% of the almost 5 million workforce (Euromonitor International, 2010a). The consumer expenditure for 2009 was reported to be around 252,254 million US dollars, with expenditure on food alone accounting for 33,426 million US dollars (Euromonitor International, 2010a). With the introduction of the Euro and the swift expansion of the EU, Greece has seen dramatic expansion of its infrastructure and consumer services, to keep in line with the rest of the region. This has also been the feature for the telecommunications and internet sector, that has seen a large number of private companies enter the market to offer more value to the consumers. The recorded number of internet users in Greece, as of 2009, was 4 million (Euromonitor International, 2010a). The last five years has seen a double-digit increase in the users, and it is expected that over the next five years, the internet consumer market will continue to increase by 10% or more. This reflects the need of the country to remain in sync with the rest of the EU, as well as offer its citizens accessibility to the changes of the world. A large number of competitors exist in the Greek ISP market, and being part of the EU allows companies of other member states to easily enter the market, like Vodafone and T-Mobile (Xanthidis & Nicholas, 2004). However, the high average per capita income of $30,661, as reported for 2008, allows for more players in the market to gain ground initially, with the Greek consumer interested in trialling services, prior to becoming a more permanent customer. For ISPs, the emphasis remains on quality of service and value for money. This means that Greek consumers are willing to pay more should the product offer them something different or unique in comparison to competitors. The regulations for ISPs are controlled by the respective Greek ministry, but most rules are embodiment of the EU legislation that is decided by the EU parliament. The free market allows for fair and open competition, with strict guidelines and punishment for any corporation being involved in anti-competitive practices. With the bordering nations of Albania, Bulgaria and Republic of Macedonia, Greece offers an ideal location for foreign investment in light of significant growth opportunities within the nation, as well as the surrounding regions. Peru The Republic of Peru is a country in western South America that has experienced significant economic growth in the last two decades. Despite a past filled with conflicts and ever-growing inflation and external debt, Peru has emerged among the countries in the list of emerging markets; with a high human development index score (Montealegre, 1998). The country has made in-roads in implementing steps to enhance self-sustained growth, instead of depending on exports to cover cost of imports and debt. Reforms in the 1990s liberalised the market by ending state control of companies and restriction on foreign direct investment, allowing the country to experience a consistent level of economic growth since (Hoffman, 2004). According to 2009 estimates, the Peruvian population stood at 29.5 million, with over 80% residing in the urban areas. Almost 8 million people inhabit the capital city of Lima, making it the largest city in the country. The GDP for the country in 2009 was recorded at 252,254 million US dollars, with consumer expenditure accounting for 80,315 million US dollars. The sole expenditure on food has been 22,086 million US dollars, which portrays a 50% increase as compared to the 2006 estimates. The annual growth in GDP has remained steady in the high single digits, with 2008 recording a 9.84 percent increase (Euromointor International, 2010b). A key factor that has arisen from the improvement in the country’s economy has been the increase in consumer awareness towards new trends in the markets, and an adoption of more international goods and services to ensure the country keeps up with the pace of the rest of the emerging markets. With 53% of the workforce involved in the services sector, there has been a need to ensure the country’s infrastructure can accommodate foreign direct investment in the various industry sectors, especially communication and internet technologies (Hoffman, 2004). The 2009 recorded number of internet users in Peru was 7.8 million. This was a 20% increase in the figures for 2006, and the expectation remains that the number is likely to increase by double digits in the next year, as well as continue for the coming five years (Euromonitor International, 2010b). A large part of this massive take-up of new technology lies in the privatisation of the national telecommunication corporation resulting in significant foreign investment in the industry, as well as the educated majority of the population, which is employed and willing to stay abreast with the changing trends of the world. Decision Using the CAGE model, we can assess the cultural, administrative, geographical and economic distance to justify the decision in relation to which country iiNet should invest in; Greece or Peru (Ghemawat, 2007). In terms of culture, both countries offer a strong diversity as compared to the home country of Australia. Greece possesses the stronger community ties due to the large number of migrants that are resident in Australia, but come from Greek heritage. In fact, Australians with Greek heritage are among the top 10 nations that form the population of the country. In terms of multi-ethnicity, Peru is more common to Australia with a mix of Spanish, Africans and other nations forming the population. While language remains uncommon for both, the membership of the EU means that English is more in use as the language of international business; however; foreign institutions entering would be required to gather a strong understanding of the host nation’s language and culture. Looking at the administrative distance, there is a longer history of political stability in Greece as compared to Peru. This also is in connection with the strong Greek history as an empire of the region, while Peru has come out of several conflicts and authoritarian rule, to become a newer democratic nation. The established norms of Greece, especially with its membership of the EU means that it is easier for the international organizations to have an understanding of the regulations and rules that must be adhered to and abided by. While Peru has taken steps to liberalise the economy in the last decade, it is outlining the rules and hammering out trade agreements that will form the crux of the economic transactions. This opens a gap of uncertainty for international organizations entering the market. Geographically, both countries share certain similarities with the home country of Australia. Greece has one of the oldest established systems of ports in the world, while Peru relies on its main port in Lima for most nautical logistics. In terms of size, Greece is smaller and possesses a stronger transport network within the country, while also having an improving telecommunication and internet network. Peru’s infrastructure is rather recent and still under development, but offers high opportunity of a better establishment in terms of technology. In economic terms, there is greater disparity between the two international markets under consideration. Greece has a larger economy with a higher per capita income, and less than half the population than that of Peru. Recent financial turmoil has caused a downturn in the economy, with negative growth for the last two years, and a cautionary outlook for the coming couple of years. Peru, on the other hand, has been showing strong growth and continues to expand it exports and services, especially in the American region. Unemployment has increased in Greece due to the turmoil, but the backing of the EU member states, it remains in line to have the support to pull through eventually. For Peru, the signing of a free trade agreement with America is likely to open further avenues to growth and development. In respect of the above, Greece is the better option of international market for iiNet to move into. The current downturn would allow the company to make purchase of resources within the host country at lower costs, and seek to create a foundation for further expansion in the region. Recommended Strategy The strength of iiNet lies in its strong market presence and financial position in the home market of Australia (iiNet Limited, 2010). Having a loyal consumer base, and an established network, will allow iiNet to make quick in-roads into any new international market, without needing to undertake any unnecessary risks. However, the company’s primary weakness lies in not having ventured into any international market prior to this. So, this would make Greece a form of test-bed that iiNet would be involved in, especially in terms of investment and operations. The strength of an understanding of the ISP business and its experience in the liberal market of Australia provides the company with the opportunity to be able to transition the model to other markets, without too many changes to the primary resource requirements. However, stronger EU regulations and competitions from many fronts in the Greek market mean that iiNet will have to establish a brand name for itself rather quickly, in order to capture market share (Wilson, 2001). While the company is in a position to exercise a variety of options in terms of market entry into Greece, the two best paths would be buyout of a small provider in the host country or a metropolitan setup in Athens to begin with. The former option will allow iiNet to reduce its initial setup costs, as well as immediately give it market position, from where it could look at revamping the model to its desire. However, the latter allows the company to initiate its tried and tested style from scratch, and emerge as a new option for the local consumer. An amalgamation of the two options is also feasible, where iiNet could make a small purchase to give it a foundation to work off in Greece, before incorporating the local requirements into its business model to launch a revamped operation. References DFAT (2009a) Greece – Face Sheet, Australia: Department of Foreign Affairs and Trade, Available at: http://www.dfat.gov.au/GEO/fs/gree.pdf, Accessed on 26 March 2010 DFAT (2009b) Peru – Fact Sheet, Australia: Department of Foreign Affairs and Trade, Available at: http://www.dfat.gov.au/geo/fs/peru.pdf, Accessed on 26 March 2010 Euromonitor International (2010a) Greece Statistics, Available at http://www.euromonitor.com/factfile.aspx?country=GR, Accessed on 27 March 2010 Euromonitor International (2010b) Peru Statistics, Available at http://www.euromonitor.com/factfile.aspx?country=PU, Accessed on 27 March 2010 Ghemawat, P. (2007) Redefining Global Strategy: Crossing Borders in a World where Differences Still Matter, Harvard Business School Press, pp. 33 – 56 Hoffman, B. (2004) The politics of the Internet in Third World Development, Routledge, pp. 69 – 70 iiNet Limited (2010) Internet Services – Broadband – Phone Services – iiNet Australia, Available at http://www.iinet.net.au/index.html, Accessed on 25 March 2010 Montealegre, R. (1998) ‘Waves of change in adopting the Internet: Lessons from four Latin American countries’, Information Technology & People, Volume 11, Issue 3, pp. 225 – 260 Wilson, R. (2001) Planning you Internet Marketing Strategy, Wiley, pp. 61 – 65 Xanthidis, D. & Nicholas, D. (2004) ‘Evaluating internet usage and economic growth in Greece’, Aslib Proceedings, Volume 56, Issue 6, pp. 356 – 366 Read More