Emerging Markets Strategies - Case Study Example

EMERGING MARKETS STRATEGIES Module Tile: Module Number: Module Leader’s Table of Contents Introduction 2 Choice of emerging market 3 Market opportunities 3 Target segments 4 Institutional analysis 5 Economic conditions 5 Political conditions 5 Social environment 6 Challenges for Hardez 6 Entry strategies 7 Conclusion 8 Reference List 9 Appendices: Analysis Summary 10 Introduction Grupo Herdez SA de CV is one of the most famous packaged food companies of Mexico. The company also produces canned sea food, vegetables and fruits. The packaged food category includes sauces, purees, pasta, honey, seasonings and different varieties of spices and herbs. Herdez also manufactures packaged beverages of non-alcoholic category. Overall the company has been successful at producing over a 1000 different kinds of products and selling it across Mexico. Herdez owes its success to a strongly developed supply chain network combined with heavy investment in marketing and promotional activities. The company dedicates itself in constant promotional and developmental activities. Herdez believes that in order to meet the changing needs of consumers it is essential to invest in research and development activities (Euromonitor International, 2014). Grupo Herdez has joint ventures with five major international food companies. This has facilitated the company to export its products to other nations and increase its market base. The company had entered into business agreement with the brand McCormick, Hormel, Barilla and Grupo Desc for distributing its products across the nation and to attain a wider market reach. One of the important joint ventures of the company was with Barilla for distributing pasta products across Mexico. The new company formed was called Barilla Mexico. The company had also entered into an agreement with Ocean Spray International Inc. for distributing its packed cranberry drink. The famous slogan of the company, “Herdez amor que nutre” which means “Herdez the love that nourishes” was designed to convey the message that the company stands for health and wellbeing. The company takes care that its products are of high quality and has minimum negative impact upon the consumers. Herdez also extends its support towards different types of social activities. Over the years the company has remained successful at developing numerous distribution centres in Mexico by entering into agreements with various companies (Euromonitor International, 2014). Herdez at present has its business spread across Mexico, the U.S., Central America and Canada. Herdez is considering expanding its activities into other nations as well to broaden its market base. The company has strategically decided to expand into the emerging markets. The paper analyses the market strategies that the company is require to undertake while entering into an emerging nation. The administrators of the company have decided to launch its business in India. The paper will also analyze the different environmental conditions likely to be faced by the company in the emerging markets. Choice of emerging market India has been one of the most prospective emerging nations of the world in economic terms. The nation provides numerous opportunities to multinational companies. Many foreign multinational organizations from diverse backgrounds have set up their manufacturing and distribution centres in India. The GDP growth of the nation has also been steadily rising. The GDP rate for the fiscal year 2012-13 was 5.0% where as the rate for 2013-14 has been analysed to be approximately 5.7%. The overall rate f growth in the economy was seen to be close to 6% for the fiscal year 2013-14. The growth of the nation has been better than what was predicted by economists (Khanna and Palepu, 2000). Bulk foreign investments in different sectors and increase in outsourcing activities have caused the nation to develop its economy. Over the years the nation has been able to procure foreign investment in the fields of pharmaceuticals, telecommunications, service sector, housing and real estate, automobile, textile and power. The investment in the food and beverage sector has also been considerably high and had attracted almost $2.14 million foreign investments in the year 2013. The rate of investment in the food and beverage sector had risen by almost 5% from the previous year (Huang and Khanna, 2003). Market opportunities One of the primary aspects which attract many foreign investors into India is the availability of cheap labour. Foreign companies like Hardez can benefit from bulk production and thereby attaining economies of scale. Also India forms an important base for exporting products to other Asian nations. The exports of the country had risen by approximately 3.45% from the year 2012 to 13. The close proximity with some of the other emerging economies such as of China, Malaysia, Korea and Thailand also play an important role in setting up a well integrated supply chain network. Hardez can therefore benefit from setting up its production base in the India and reach out to the markets located at other nations of Asia. This reduces the overall cost of exports. The country was able to reduce the cost of exports in this manner by 2.68% (Hill and Jain, 2007). India has a large population with diversified tastes. India’s population in the year 2011 was 1.21 billion which had grew to 1.22 million in 2012. At present the country has a population of 1.27 billion making it the second most populous nation after China. The nation is passionate about different types of cuisine. The acceptance towards international food makes India one of the prime destinations for many food and beverage companies. The changing tastes of consumers and the innovative production, marketing and promotional strategies have made the food and beverage sector highly competitive. The sector has expanded quite rapidly over the last few years and generates contributes significantly towards the economy of the nation. The nation has a growing demand for branded products due to the increasing exposure towards western cultures and lifestyle (Douma, George and Kabir, 2006). Target segments The company targets to attract the young population of the nation who belong to the age group of 15 to 35. Individuals belonging to this age group are seen to spend heavily on food and beverage items. They are also enthusiastic about international cuisine and try out different styles of cuisine. In general individuals belonging to all age groups are seen to consume packaged food. Products such as sauces, jams, pasta, purees, honey and spices are commonly used by a large segment of the population. Indians have a great fascination towards spicy food. This makes Mexican food a popular choice for most individuals. Some of the Mexican sauces and spices are immensely popular in the nation and are used in cooking many types of food. Hardez also targets to supply its food items to a number of multi cuisine restaurants of India. Many restaurants and fast food chains in the country serve authentic Mexican food. This generates a huge demand for Mexican spices and sauces. Burritos are one of the favourite Mexican food items preferred by many youngsters of the country and are served in many restaurants of the urban cities. A large segment of Indians are seen to prefer vegetarian food. Since burritos are stuffed with vegetables and sauces of different kinds, it has become a popular choice for many Mexican food lovers in the country. Hardez primarily targets to attract the urban population who are used to consuming food items of different nations. Hence the company plans to set up its distribution channel in the major cities of the country. The semi urban and town areas of the country are primarily seen to consume Indian food (Dunning and Narula, 2003). Institutional analysis Economic conditions Indian economy is one of steadily growing and expanding economies of the world. The rate of expansion has been approximately 4 to 5 percent each fiscal year on an average. It has become a centre for setting up production and distribution facilities in Asia. The cheap locational and labour facilities have attracted many international companies to expand its operation in India. The rate of FDI in India during the fiscal year 2011 was 0.79. FDI inflows have been consistently rising at a marginal rate of 7 percent. The high population of the nation facilitates the easy availability of skilled and semi skilled labour. High taxes and inflation has been a common feature of this economy. The current rate of inflation of the nation is seen to be 7.31%. The figure previously was 8.28%. Service sector is one of the strongest domains of the nation and contributes majorly towards the growth of the economy. The strong growth of the service sector plays an important role in supporting the development of manufacturing concerns such as Hardez. Considering all these aspects, the company expects to benefit hugely from setting up its production and distribution facilities in India (Elango and Pattnaik, 2007). Political conditions The political environment of India plays an important role in the growth of its economy. The different governmental policies have an effect on the manner in which organizations function. In general the government of the country has been supportive towards foreign investment. The political and legal framework of the country provides adequate support for the growth and development of a number of multinational sectors. The government is seen to follow a liberal policy in terms of foreign trade. Foreign companies, who set up their production locations in India, contribute towards the net exports of the nation. Hardez expects to obtain adequate government support from the Indian government to expand its operations in the country. The nations also shares good relations with other nations of Asia such as China, Malaysia and Thailand. Trade relations with such countries have been strongly developed. This further facilitates the development of a well established supply chain and export strategy for Hardez (Kidron, 2001). Social environment Consumers in India are seen to be highly influenced by western food cultures. Chinese, American, Thai, French and Mexican food has emerged strongly in the country and is preferred by many young teenagers and middle aged people. India can be best described as a mix of both traditional and modern concepts of food. Consumers in the urban cities are seen to remain open minded in respect of trying different types of cuisines. This acts as an advantage for Hardez to gain popularity in the country. Since majority Indians prefers spicy food, Mexican food products are quite popular in the nation (Fisman and Khanna, 2004). Challenges for Hardez India is technologically not as strong as many of the western nations. Therefore if Hardez sets up its production location in the country, it needs to incur expenditure in respect of brining in technological know-how from its home nation or other countries. However the cost of procuring technology can be countered through cheap labour, raw material and locational advantages. The nation incurs approximately 20 percent of outflows in its balance of payments in importing advanced technology from foreign nations. Another major challenge that Hardez is likely to face is the high level of competition from other international food and beverage companies located in India such as Heinz, Nestle, Procter and Gamble and Unilever. These companies have been operating in the country for more than two decades. They have been successful at capturing more than 75% of the market. Therefore it is essential for Hardez to establish themselves using strong marketing strategies (Kinra, 2006). Entry strategies Indian consumers are seen to be highly price sensitive. High rates of inflation have increased the savings behaviour of consumers. The current rate of inflation of the nation is at a high of 7.31%. Almost 70% of the population belong to the middle income group and on an average spend lees upon purchasing packaged food. Moreover since foreign companies sell their products at a high price, most price sensitive consumers of the nation prefer buying products of Indian brands. In order to attract larger number of consumers and gain competitive advantage, Hardez has decided to enter the markets of using penetrative pricing policies whereby the company shall sell its products at a considerably lower price (Kapur and Ramamurti, 2001). Since Hardez plans to enter the market with its products at a low price, the company is required to strategically reduce its cost of manufacturing. If Hardez manufactures its products in its home nation and exports it to India, it may cause the products to be highly priced due to added import duties and cost of transportation. Instead the company may consider developing setting a production location in India by entering into joint ventures with Indian or multinational companies. The cost of setting up business in India can be easily be earned back by the company within four to five years of operation if the brand is successful at capturing the market. Indian consumers are sensitive towards obtaining value for the price paid them. They therefore prefer to obtain high quality products at cheaper prices. Hardez being a highly reputed brand will be providing high quality food products to the Indian consumers. Therefore the main strategy of the company would be to operate in India by providing high quality products at comparatively cheaper prices (Banga, 2006). Hardez will also be able to gain revenue by exporting its products manufactured in India to the nations of China, Hong Kong and others. The neighbouring nations of India also have considerable demand for Mexican food products (Ramamurti, 2004). Hardez is expected to face high completion in the markets of India as there is a number of packaged food producing brands in the market. The domestic brands of India also have a superior hold over the packaged food industry. It therefore becomes a challenging task for international brands such as Hardez to establish themselves in India. Hardez must therefore invest highly in marketing and promotional activities so as gain popularity (Guillen, 2000). The purchasing intentions of the consumers in India are seen to be highly influenced by promotional ventures. Therefore it is essential for Hardez to develop effective strategies for promoting its products. Indian consumers are in the recent times seen to be health conscious. Hardez’s range of healthy food products is therefore expected to gain high popularity in the markets of India. There was an increase of approximately 17.5% in the health food segment in the year 2013 as compared to the year 2102. Since the target consumers of the brand are the urban population, Hardez must therefore concentrate upon developing a well integrated supply chain network in the urban city regions of the nation (Bartlett and Ghoshal, 2000). Conclusion Hardez has been able to emerge as a successful brand in the markets of the west by establishing its operations in the nations of Mexico, the U.S., Central America and Canada. The company now has strategically decided to expand its operations to the emerging economies of the east. Western nations over the years have become saturated with a number of packaged food manufacturing companies. There are also a number of Mexican packaged food producers in the region. However in the east, there are fewer international packaged food producers. This provides Hardez with adequate competitive advantages. In nations such as India and China, the number of Mexican packaged food producers are also less. Promotional activities play an important role in capturing the markets while entering into a new nation. If Hardez is able to develop itself considerably well in India, it may consider expanding to other nations of Asia as well. Since the popularity of spicy food products is high, Hardez should focus upon marketing them largely. Hardez is expected to gain considerable amount of support from the market in India in terms of marketing and promotional activities. Cooperation from the existing enterprises of India would be essential for Hardez for establishing and expanding itself. Hardez has no prior experience of operating in the Asian market. Therefore by entering into contracts with other firms in India, Hardez would be able to acquire strategic guidance and expertise. Reference List Banga, R., 2006. The export-diversifying impact of Japanese and US foreign direct investments in the Indian manufacturing sector. Journal of International Business Studies, 37(4), pp. 558-568. Bartlett, C. A. and Ghoshal, S., 2000. Going global: lessons from late movers. Harvard business review, 78, pp. 3. Douma, S., George, R. and Kabir, R., 2006. Foreign and domestic ownership, business groups, and firm performance: evidence from a large emerging market.Strategic Management Journal, 27(7), pp. 637-657. Dunning, J. and Narula, R., 2003. Foreign direct investment and governments: catalysts for economic restructuring. London: Routledge. Elango, B. and Pattnaik, C., 2007. Building capabilities for international operations through networks: a study of Indian firms. Journal of international business studies, 38(4), pp. 541-555. Euromonitor International, 2014. Euromonitor International. [online] Available at: < http://www.euromonitor.com/> [Accessed 12 July 2014]. Fisman, R. and Khanna, T., 2004. Facilitating development: The role of business groups. World Development, 32(4), pp. 609-628. Guillen, M. F., 2000. Business groups in emerging economies: A resource-based view. Academy of Management Journal, 43(3), pp. 362-380. Hill, C. W. and Jain, A. K., 2007. International business: Competing in the global marketplace (Vol. 6). New York: McGraw-Hill/Irwin. Huang, Y. and Khanna, T., 2003. Can India overtake china? Foreign Policy, 137, pp. 74-81. Kapur, D. and Ramamurti, R., 2001. Indias emerging competitive advantage in services. The Academy of Management Executive, 15(2), pp. 20-32. Khanna, T. and Palepu, K., 2000. The future of business groups in emerging markets: Long-run evidence from Chile. Academy of Management journal, 43(3), pp. 268-285. Kidron, M., 2001. Foreign investments in India. London: Taylor & Francis. Kinra, N., 2006. The effect of country-of-origin on foreign brand names in the Indian market. Marketing Intelligence & Planning, 24(1), pp. 15-30. Ramamurti, R., 2004. Developing countries and MNEs: Extending and enriching the research agenda. Journal of International Business Studies, 35(4), pp. 277-283. Appendices: Analysis Summary Favourable Unfavourable Consumer profile  Locational advantages  Economic conditions  Political environment  Social environment  Market opportunities  Alternative market options: China, Malaysia. Read More