Dassan Ltds Market Environment Analysis - Term Paper Example

Market environment analysis (Name) (Institution) (Course name) (Course code) (Module) (Instructor’s Name) Date of submission Executive summary The consideration by the management at Dassan Ltd to expand into the Australian market has to be well informed. The management is relying on international business strategy theories to make an informed decision. Contextual and market issues such as the culture of the Australia people must also be considered. Porter’s five forces analysis is used to asses the industry dynamics while the Hofstede cultural dimensions are used to capture the socio-cultural issues that affect the operations of Dassan. This report uses these tools to assess the market and the implications on Dassan and also makes some recommendations. Among the recommendations is that Dassan should seek association n with Samsung by launching a promotion on entering the market where buyers of Dassan vehicles can win Samsung goodies. The report also recommends that Dassan should go ahead and enter the Australian market. Table of contents Executive summary 2 Table of contents 3 1.0 THREAT OF NEW ENTRANTS 4 1.1 Economies of scale 4 1.2 Brand Loyalty 4 1.3 Capital requirements 4 2.1 Switching costs 5 2.2 Buyer loyalty 5 3.0 BARGAINING POWER OF BUYERS 5 3.1 Number of customers in the market 5 3.2 Availability of substitutes 6 4.0 BARGAINING POWER OF SUPPLIERS 6 4.1 Degree of supplier concentration 6 4.2 Availability of substitute inputs 6 5.1 Industry growth rate 7 5.2 Demand for product 7 6.0 Recommendations 7 7.0 HOFSTEDE’S CULTURAL DIMENSIONS 7 7.2 Cultural Comparison between Australia and S. Korea and implications 8 7.3 Recommendations 9 1.0 THREAT OF NEW ENTRANTS 1.1 Economies of scale Strong financial resources by existing players such as Toyota Australia and Ford Motors Australia enable them to operate on large scale hence enjoys the economy of scale. Foreign based automakers use Australia as their regional hub where they have established manufacturing subsidiaries. These two players have a huge market share with high sales. The whole industry sold over one million units annually with the exports in the excess of $4.4 billion 2008-09 (Manufacturing skills Australia n.d.). 1.2 Brand Loyalty The Australian automotive industry is facing immense competition from Asian automakers. The dominant players in the market are gradually loosing their hold in the market. Players such as Ford Motors have cut down on their operations in the country as a result. In 2008, the industry manufactured 324 684 units with slightly over 50% (162 728) sold in the domestic market (Manufacturing skills Australia n.d). Ford Motors has been reporting falling sales in Australia in the last several years a clear indication of the poor brand loyalty. The acceptance of new brands in the market especially from China emanates from their fuel efficiency and economy at a time when fuel prices have sky rocketed (Ford motors 2009). 1.3 Capital requirements The cost of setting up a manufacturing plant is way high as compared to other means of operating in the market such as exporting. As a result, only four of the 34 brands available in the country, only four Mitsubishi, Holden, Toyota and Ford have established full manufacturing plants. Although no figures are available on the exact cost of setting up a manufacturing plant, the fact that many players opt fro exporting indicates that the cost is way high for small players (Manufacturing skills Australia n.d). 1.4 Analysis The current players in the market face high risk of new entrants from Asia and other emerging economies which export to Australia. Given that the industry is labour intensive, manufacturers have set base in emerging economies is Asia which then export to developed countries such as Australia. The assumed high cost if setting a plant in an automobile manufacturing plant in Australia limits domestic manufacturers while the low tariffs and an open market encourages new entrants into the market through exporting. 2.0 THREAT OF SUBSTITUTES The alternative means to travel by automobiles are by air, water, sea, walking and cycling are all substitutes to travel by car. 2.1 Switching costs The cost of switching to these substitutes is relatively high in the case of air and water due to the convenience and availability of water ways and airports. As such, the limited use and availability of airports and water ways discourages substitution due to the high substitution cost on part of the buyer. The emergence of health conscious society has encouraged walking and cycling as a healthy and greener alternative to use of automobiles. Walking and cycling have very low substitution cost hence they a direct threat to the automobile market. 2.2 Buyer loyalty Green living is turning out to be a lifestyle for many buyers especially in the developed world. The carbon print of brands has gained a stronger place in influencing buying decision and brand loyalty. 2.3 Analysis If Dassan is to succeed in the Australian market, it has to hinge its strategy on fuel efficiency and quality of the vehicles. The surge into green products especially in the automobile industry is primarily powered by two issues; fuel efficiency due to the escalating cost of gas and green living as shown by low carbon emissions from automobiles. The marketing message for the firm has to be based on these two issues; fuel efficiency and green aspects. This way, the brand will be better positioned to challenge existing players in the market and target the new breed of consumers who are not only interested in performance but how their actions resonate in the environment. 3.0 BARGAINING POWER OF BUYERS Given that Australia has a large number of mining and exploration industries, the market for huge tracks is very large. Although the automakers in Australia make large passengers vehicles, the domestic market is relatively small. The largest market comprises SUVs and saloon cars. In 2003, ABS reported that 62% of all vehicle registrations were done in state capital cities. This shows that the urban population constitutes a large segment of the market. By 2009, the country’s population stood at around 21.8 million people with 56% living either in New South Wales or Victoria. 3.1 Number of customers in the market The Australian market is relatively small going by global standards. The population stands at 21.8 million people. However, national per capita income indicates that this population has very strong purchasing power. This is supported by financial institutions that have tailor made automobile purchase financing programs. 3.2 Availability of substitutes In case Dassan establishes a manufacturing plant in Australia, the firm can export to the regional market thus substitute market. On the other hand, Dassan can enter the component manufacturing sub industry to serve the automobile industry. 3.3 Analysis majority of automobile consumers in Australia are individual buyers which denies them collective bargaining power. On the other hand, the availability of competing brands and a wide range of choice give them power to bargain. 4.0 BARGAINING POWER OF SUPPLIERS There are over 200 vehicle component suppliers based in Australia. Among them are Futuris (Elders Ltd) Automotive Interiors, Pacifica Group, Ltd and Berkelee Ltd. these players have formed umbrella bodies for collective bargaining purposes. However, competition among themselves limits the efficiency of such players. 4.1 Degree of supplier concentration There are over 200 hundred established vehicle component suppliers in Australia alone. With low tariffs on import, these suppliers face intense competition from foreign manufacturers. 4.2 Availability of substitute inputs Players in this industry have no substitutes for raw materials. This gives the suppliers immense power over the manufactures. To counter this power, vehicle makers tend to integrate forward or develop their own vehicle parts manufacturing units such as GM has done. 4.3 Analysis Suppliers of car parts wield low power to majority of the players in the Australian automobile industry. For one, majority of them such as GM tend to manufacture majority if their vehicle components or import fro their parent firms. 5.0 EXISTING RIVALRY The Australian automobile industry is relatively small by global standards owing to the low population in the country. A report by Ford indicates that there were 60 brands offering consumers over 350 models to choose from originating from 26 different with more expected to enter the industry. 5.1 Industry growth rate The auto manufacturing industry in Australia was highly restricted a few years back. Opening the industry and lowering of tariffs has allowed in numerous players. 5.2 Demand for product The demand for vehicle components is higher than the demand for vehicles. This is shown by the high number of component manufacturers in the country which currently stands at 200 as compared to four vehicle manufacturers. As more and more brands enter the market through exporting so is the number of component manufacturers. One of the industry leaders, GM, reported a 21% drop in sales in 2010 (Ford Motors 2009). 5.3 Analysis competition is high in the automobile market. Established players such as GM have had to shed their market to new comers such as Honda and Kia. These new comers in the market solely rely on exporting and importing to service the market. They have managed to keep their costs low by operating in other countries. 6.0 Recommendations Given that the threat of new entrants is high, the bargaining power of buyers is high, the bargaining power of suppliers is low, the threat of existing rivalry is high and the threat of substitutes are high, the recommended competitive strategy is for Dassan Ltd. is to strive for cost leadership. This strategy is not only recommended by scholars in international business strategy but is allows the firm to include other additives in their products without increasing the cost. Cost leadership will allow Dassan to compete effectively in the market and even wage price wars. Assuming the firm does not have the financial muscle and brand equity similar to Toyota or GM, it is appropriate to be a cost leader. In fact McLvor (2005) says that “firms with superior systems and structures as being more profitable not because they engage in strategic investments that may deter entry and raise prices, but because they have significantly lower costs, or offer higher quality or superior products” (53). Given the Australian society, Dassan should bank on its ability to develop superior products and keeps its costs low. 7.0 HOFSTEDE’S CULTURAL DIMENSIONS (i) Collectivism Vs Individualism Australia records the second highest ranking in individualism (90) compared to S. Korea’s 18. This high level of individualism gives a lot of emphasis on individual style, privacy and a search for a unique identity in social class, fashion and lifestyle. Any attempts to integrate or profile the society in various levels can be potentially met with a lot of negativity. (ii) Power Distance Australia has low power distance index at 36 compared to the global average of 55 and 64 in S. Korea. This implies that there is greater equality in the Australian market than a majority of other countries in the world. Such a community reinforces cooperative relations across power levels and creates a more stable cultural environment from which firms can base their strategy. (iii) Uncertainty avoidance Australia has an uncertainty avoidance index of 62 compared to S. Korea’s 94 and a global average of 64. Uncertainty avoidance is tied highly to religion. In Australia, 50% of the population is Christian which cements the high uncertainty avoidance in the belief of the ultimate truth. This implies that Australians as opposed to South Koreans are more willing gamble with situations, products or situations. Additionally, societies that score high on this dimension are sometimes considered loyal to one brand in which they have gained trust and are unwilling to change brands frequently. (iv) Time orientation Values linked with Long Term Orientation are thrift and perseverance while values linked Short Term Orientation are observing and preserving culture, accomplishing societal obligations and avoiding embarrassments. Australia scores 44 in this index as compare to a global average of 45. Australia is closer to the global average than South Korea which leans more towards short term orientation where culture and societal obligations are emphasised. (v) Quality vs. quantity of life This is highly connected with individualism vs collectivism. Given that Australians are mores interested in the self, then they are more likely to value quality as opposed to quality of life. 7.2 Cultural Comparison between Australia and S. Korea and implications This has its own implications on Dassan ltd. the firm will be forced to consider market segments differently. In order to address the market needs proficiently, a highly individualised society requires higher level market segmentation and a broader product offering in order to meet all the needs of the market. Again a highly individualised market is very sensitive to quality issues other than pricing. Such consumers are more sensitive to quality than pricing and often tend to associate high prices with high quality products. The marketing message and entry mode into the market has thus to emphasise on quality and not the price. Organisations operating or considering operating in such communities are best suited by horizontal organisational structures. For Dassan Ltd., this implies that the firm can operate well with empowering or forming a joint venture in case of entering the Australia market where hands on management will not be necessary again. Dassan has to be prepared to battle with existing brands which through quality products and associated services have won the loyalty of its clients. Dassan Ltd thus needs to create its own niche market by exploiting the high individualism index in the community that calls for unique individual style instead of competing for exiting market segments with established players. In societies with short term orientation, loyalty to a brand can be based on history of historical significance on the brand. However, in a society with a relatively long term orientation such as Australia, loyalty to brand will be judged on merit only. This means that if Dassan can compete effectively on quality, it can challenge well the established players. 7.3 Recommendations Given that Australia is a developed country with a relatively high purchasing power, Dassan should price its products at a premium. This will dispel the perception of products from Asia as being cheap and of low quality. Dassan should ride on the success of Samsung in the global market which is a flag bearer for South Korea. As such, Dassan should embark on a promotion in conjunction with Samsung whereby buyers of Dassan automobiles stand to win Samsung electronics. Samsung has succeeded well in Australia and association of Dassan automobiles with success will prove helpful. References Blythe, J. & Zimmerman, A. 2005. Business-to-business marketing management: a global perspective. London: Cengage Learning Decker, R. & Zhao, X. 2004. “SME’s Choice of Foreign Market Entry Mode: A Normative Approach.” International Journal of Business and Economics, Vol. 3, No. 3, 181-200 Doole, I. and Lowe, R. 2008. International marketing strategy: analysis, development and implementation. London: Cengage Learning Hill, C. 2008. International business. New York: Mcgraw Hill Hofstede, G. 2011. Geert Hofstede Cultural Dimensions; Australia http://www.geert-hofstede.com/hofstede_australia.shtml Jansson, H. 2008). International Business Strategy in Emerging Country Markets: The Institutional Network Approach. Sydney: El Publishing, Johnson, D. & Turner, C. 2008. International Business: Themes and Issues in the Modern Global Economy. Melbourne: Francis & Taylor  McLvor, R. 2010. Global services outsourcing. New York: Cambridge University Press, Peng, M., Wang, Y. & Jiang Y. “An Institution-Based View of International Business Strategy: A Focus on Emerging Economies.” Journal of International Business. 39 (5), 920-936. Schmidt,B. and Bjorn, S. 2010. The Dynamics of Mamp;A Strategy: Mastering the Outbound Mamp;A Wave of Chinese Banks. London: Peter Lang Sheth, J. n.d.. From international marketing to integrated marketing. Read More