Challenges in the Vermont Teddy Bear Company - Case Study Example

Management  Executive Summary As years go by, there are strong forces changing the markets and significantly transforming the ways of conducting business. The increased movements of goods, companies and people across the borders, have brought about the introduction of global market segments, as well as, the growth of the internationally integrated market. Developments in the technological systems of communications and information have shrunk distances, connecting markets via flows of ideas, images and information across the markets. However, these patterns enhance the operations’ management on a global scale and facilitate the need of dealing effectively with the global competition. Consequently, organizations should adapt and revise strategies in order to react to these global forces, giving direction for future growth, trying to realign operations in the event of the emerging competitor and market dynamics. This paper talks about the Vermont Teddy Bear company as an organization and its attempt to go global, whereby it discusses the processes that can be followed in the event of achieving that together with the challenges, as well as the future expectations. Introduction The Vermont Teddy Bear Inc. is one of the renowned and largest companies that produce teddy bears, as well as, the largest seller of the teddy bears through the internet and mail order. The firm handcrafts all of its teddy bears, and produces about five hundred thousand teddy bears every year. The firm was initially listed as ‘BEAR’ on the NASDAQ stock exchange; however, it was privatized by a private equity firm called The Mustang Group, which is based in Boston. This was done on the September 30, 2005, in part for the purpose of avoiding the Sarbanes-Oxley Act’s reporting requirements. The firm was founded y John Sortino in the year 1981. The founder started it by selling of handcrafted teddy bears in a Burlington’s open-air market. The idea of selling and packaging of the teddy bears through the Internet and mail originally came to Sortino when a certain tourist who had visited Burlington wanted a teddy bear to be mailed to her home. This concept was then dubbed the ‘Bear-Gram,’ featuring the modified teddy bear put in a box and stuffed with some other goodies. In the year 1995, the company shifted to its new headquarters in Champlain Valley in Vermont. The Vermont Teddy Bears Company has two firms; whereby one is found in Newport and another one in Shelburne. The one found in Shelburne is particularly a common tourist destination. It also served as a site for show or concert for the Vermont Mozart Festival that happens yearly. Moreover, the company has maintained two locations of retail in Vermont- the Shelburne and another on the main road between Stowe and Waterbury. In the year 2003, the company did acquisitions of Calyx & Corolla, which was an upscale flower firm with its headquarters in Vero Beach in Florida. Paradoxically, we find that one of the company’s marketing slogans alleged that a teddy bear is actually ‘an imaginative or artistic alternative to sending of flowers.’ In the year 2005, the firm introduced a new sister company known as the Gift Bag Boutique. This newly established company dealt in offering purses together with handbags along with several other make-up accessories. Some others included the PajamGram, which dealt in offering gift pajamas, and the TastyGram, which sold gourmet food gifts. However, the establishment of this sister company actually brought the total number of the firms that operated under the umbrella of Vermont Teddy Bear Company to five. The TastyGram and Gift Bag Boutique stopped taking orders in June 27, 2008. Challenges that the company would meet Each and every market usually has its own risks and advantages depending on its nature and the nature of the business. Some markets are always complicated and no one can easily predict while others are always easy to study and make appropriate estimations and moves. However, despite all the challenges and the risks that might be imminent in the markets, it is important for different businesses, before entering any markets to try and look at the bottom line which is making profits. As usual, in business one does not get what he or she deserves but what he or she negotiates. This means that it is important that the investors weigh between the benefits and advantages; if actually the disadvantages ought-weigh the benefits, then the business or market is a risky one and one should not consider going into it, but if it comes out that the benefits ought-weigh the disadvantages, then that kind of business or market is worth entering (Beauchamp & Bowie 1993, p.152). There are several challenges that the Vermont Teddy Bear company is likely to face in its attempt to move into the international markets. However, this depends with the country in which the business is to enter. One major challenge that the company might face is cultural difference. For instance, when we look at the Chinese market, we find that the Chinese culture is very different from that of Europe and America. It has been very difficult for other foreign companies to join or enter the Chinese market due to the rigidity of their culture. The Chinese culture appears to be very complicated and it can take one several years before eventually coming to understand. But when one finally comes to understand or familiarize with those values, it becomes easy to carry out business, even though it can take so long before finally coming to that (Jain 1989, p.73). Another problem that the company can meet is language barrier. Different countries speak different languages depending on their locations or even who colonized them. Even though English is the most spoken language worldwide, it is not obvious that business can only do well in those countries that speak the language; therefore, it means that the business is not likely to enter only the markets that speak English. The business has to look for markets where the products can go or where there is high demand. In addition, another barrier and perhaps the most significant one is government regulations. Each country has its own government policies that control or govern foreign investment or imports and exports. There are some governments that usually try to set some tough and rigid regulations and practices to discourage foreign companies from conducting business in their countries. Some of the governments make their regulations to be difficult for the foreign investors to be able to meet all the requirements for entry (Beauchamp & d Bowie 1993, p.152). Some make the processes to be too long that it takes a long period of time for one to be able to get cleared for entry, which forces some investors to withdraw their applications. Moreover, other countries involve in some unethical business behaviors such as devaluing their currency to discourage the foreign companies to enter their market so as to give chance to their own to flourish without facing competition. Market unpredictability is also one factor that the company should consider as it is most likely that it might affect it seriously. In joining any new market, the company would not be in a position of exactly predicting whether the venture would be successful or not. However, at times it depends on the kind of business being under taken. If the company doesn’t carry out adequate research, Another challenge that might affect the company’s attempt of going global is the political situation. The political relations between the mother country of the company and the country that it intends to invest are a major factor that can affects its entry into the country. If the political situation between the two countries is tense, then it is most likely that it would be difficult to gain entry, whereas is the situation is cordial, it becomes very easy to gain entry (Jain 1989, p.76). Choosing a country A very important starting point in taking a business global or in the selection or consideration of the location of any global direct investment is the taking of a wider view of the distance between the two countries, rather than just the distance from the mother country in terms of kilometers. For instance, it is important to measure the distance in terms of the following: Cultural distance; this can be measured in terms of language, religion and ethnicity, to determine whether they are favorable for the business. The two most favorable foreign countries for conducting business from the United States are Canada and Mexico. However, this being a social phenomenon, is it important to first examine or look at social laws or social practices that are allowed in those particular countries. But in these two countries, there are no rigid religions and ethnicity that can hamper the introduction of the product into their markets (Davis 2006, p.37). Administrative distance; There are no political hostilities within and between these countries, and their government policies are also favorable to the establishment of the business. In fact some of their political and administrative systems are similar and it would be easy to adapt. Geographic distance; Mexico is not very far from the United States, thus reducing transport costs. Some other important considerations that make the two countries favorable for the venture are their sizes and physical remoteness. Economic distance; cost differences and differences in consumer incomes. Deciding on a site or location According to American companies, the major factor that influences their decision on location is the size of the market in which they are to enter. Exposure to a wider ranger of small and large markets greatly increases geographical base for the generation of revenue. Some other reasons cited as essential to the decision on location include the following; Political stability; the selected country should have a good history of political stability and monetary and fiscal policy. Economic stability; the growth rates, interest rates and incomes should be steady, with low costs or production and inflation rates. There should also be adequate resources to cut down the costs of importation. Geographic borders; the population of the country should be big so as to provide a wider market for the products, and the climate should also be favorable for the production of the good. Business ethics; there should be no language barrier, and the culture and ethnicity should embrace the business venture. Infrastructure; the selected country should have a good road network for ease of communication and transport. This can greatly help in reducing time wastage, thus cutting costs. Competitors; it is very important to consider the availability and the potential of competitors as well as the industry structure. Labor costs; the chosen location should have sufficient availability of cheap and skilled labor. Tax; tariffs, tax policy together with other trade barriers should be considered in order to determine whether they are considerate. Other factors to be considered are the incentives that are provided by the government (Kaatz 2009, p.92). The business should also find out whether there are potential local partners in the country for any possible partnership There should also be availability of local suppliers to avoid wasting a lot of time in the distribution of the goods. Mexico Mexico is indisputably one of the best countries to invest by the American companies due to many reasons. The business of teddy bears and other related products can particularly do well in the country due to: The country is highly productive and there is also availability of skilled labor, thus no need of importing skilled workers from the United States or even some other countries. Geographic location; the country is strategically located, whereby it serves as a tourist destination and it is even easier to find more foreign clients. The country has a developed system of road network and communication. Thus moving of the goods from the site of production to the other parts of the nation is made easier and faster. Mexico is arguably one of the nations that have social, political and economic stability. Regulatory environment Government support; the government of Mexico supports the businesses by subsidizing some of their costs of production, reducing tax rates on the imported resources or goods, and some other incentives. The country is also strategically placed and it serves as one of the bases for sales to the other American markets. Canada Geographic location; the country is very close to the United States in terms of geographic distance. This makes it easy for the transportation of resources and even labor, thus reducing the costs of production. Businesses also enjoy a favorable tax climate and some other incentives from the government. Government support; the government of Canada supports the businesses by subsidizing some of their costs of production, reducing tax rates on the imported resources or goods, and some other incentives. In Canada labor is easily available and also at lower costs. Similar legal system; the legal system of Canada is similar to that of the United States; that is the legal process to be followed in order to enter the country is the same as that in the United States, thus does not require much that the new entrant is not well acquainted with (Bettis, and Michael 1995, p.7) Strategic location; the country is strategically located and is actually a good starting point for entering the American markets. The country has also been used as the preferred entry point into the American markets, hence the reverse is feasible. Market entry strategies There are several strategies that can be used by a business in entering a new market. Each of the strategies has different levels of legal obligation, risk, disadvantages and advantages (Kamaroff, 2008). For this venture to be successful, the following factors should be kept into consideration: Local office The exporter, which is the Vermont Teddy Bear business, under this foreign direct investment form should establish a local presence via a branch office or even a representative, rent office space and then hire staff (the staff could be just a single person). However, in doing this, there are some advantages and disadvantages that the company will have to experience (Kaatz 2009, p.36). Advantages By establishing a local office, the company will be in a good position of controlling marketing and distribution. It also gives the company a direct contact with the customers, since there will be a physical place or office where the management meets the clients and deal with them directly. The physical presence of the office also improves credibility in the market place with the customers as it gives them a place to air their views. It also helps in giving an access to the local venture capital. Disadvantages Although having a local office in the country or location is better and more sufficient than just having an agent, we find that the cost of establishing the office is higher than just using a distributor or an agent. In the establishment of a local office, we find that there is no local partner with contacts together with expertise as in the case of a joint venture. Strategic alliances If the company at some point wishes to go beyond the simple exportation of goods and services, then joint ventures, licensing together with offshore operations must be explored. Whereas direct exporting might be a beneficial way of entering the market for some businesses, we find that the licensing of manufacturing rights to the business or product to a foreign business or company or even setting up of a foreign manufacturing joint venture may be viable options. The strategic alliance partners are normally determined or identified via accountants, bankers, industry networks and associations, government contacts, and business consultants (Jackson 2007, p.142). Management issues with the market entry strategies Product’s uniqueness; the uniqueness of the product is one important factor that greatly helps in ensuring that it hits the market well. Being that Vermont Teddy Bear Company produces items that are very different from its competitors, this will definitely give it an edge in the market as it will easily establish a large customer base. It is also important for the management of the company to have international experience as well as knowledge of the cultural issues that might affect the entry and success of the product. Barriers to entry; the management should be aware of all the things that might affect the process of entry of the product into the market. This should be done in time in order to avoid taking too long in trying going through the process. The business strategists should also ensure that a good business model is designed to ensure its success. Before settling on how to carry out the business, it is essential for the management to carryout survey and determine the cheapest way of doing it. That is they should compare between producing the items locally overseas and producing them within the United States and then exporting then. But here, I think it will be easier to produce the gadgets locally overseas if the resources are available; however, if the resources are not available locally overseas, then it becomes easier to produce the goods in the United States, and then sending them to the target markets. The business should also determine whether it is better to license in order to infiltrate more markets faster. It is also important to establish whether the business has been insured against the non-payment. It is also essential to address the conflicts or legal issues with the partners, if any. The company should also ensure that it has a plan for an increase in the currency. Availability of distributors; the company should ensure that there are several reliable and flexible distributors in the country. Unlike the agents, we find that the distributors normally buy the goods and then resell them to the local customers that they know best. These people are important as they are usually close to the consumers and know where to fin them easily. According to Keegan (2006, p.82), they also serve as an important part to the company as they break the stock into smaller sections that can be consumed by the customers. They usually set the selling price which is convenient with the final consumers. They also offer buyer financing as well as looking after service and warranty needs. The distributors normally offer after-sales services on behalf of the company in the foreign market. Foreign Direct Investment The FDI (Foreign Direct Investment) refers to the direct ownership of facilities and equipment in the target market. I believe this is the best way for the company to go as it proves to be the most efficient. Being that the company establishes itself there with all its facilities, it would be easier for it to produce large volumes of the product to meet the demand. Direct foreign investment involves the transfer of resources, which include technology, personnel and capital (De 1995, p54). By establishing a base in the target country, it would be easier for the business to reach its customers as the company will look or appear more local than international; this would make the customers to feel more attached to it, rather than feeling like they are dealing with a foreign company or foreign products. This kind of investment can be done in two major ways, which are the acquisition of an already existing entity or even establishing a whole new enterprise. Direct ownership actually offers a high degree or level of control in the operations together with the ability of better knowing the consumers and the competitive environment (Foley 2006, p27). Nevertheless, it requires a high resource levels as well as a high level of commitment. Defense Strategies Being a business and also aware of the possible competition to be expected in the market, the company has every right to protect its product and position in the market. Even as the new entrants try to reshape and redefine the business or even formulate the niche strategies in order to attack the profitable industries together with market segments, the company can be able to fight back its competitive advantage. The three main strategies that the company can use include: Increasing the barriers for the late entrants, so that they can find it difficult to enter the market. Innovating faster than the late entrants, so that they can have nothing to brag about. Building a market flexible and responsive organization In many markets late comers and innovators operate with insufficient or incomplete information. As the inventor, the company can take advantage of this by the use of efficient signaling mechanisms as a restraint (De 1995, p. 47). For instance, the company can reduce price, to show the new entrants that it is a low-paying industry and thus, it will not be easy for them to survive. The company can also protect its market by trying to block the major distribution channels, which would make it difficult for the new comers to be able to access the market. The company can as well provide special kinds of enhanced customer services packages or even reward programs in order to make it difficult for the loyal customers to switch. Future Plans for the Future If this was my company, there are several things that I would do in order to maintain the bottom line, which is making a lot of profits. The first that I would do even before thinking of any other thing is to change the brand name from the current one to a more inclusive and accommodative one. When the company was started, it exclusively dealt in the production and selling of teddy bears only, however, as time went by and the company realized the need for growth, it slightly expanded and begun the selling of some other products such as pajamas. But since the company expanded and not only sold the teddy bears, the name still remained the same. This actually does not give it a wide look. By saying that I would change the name, I mean that I would give it a more general name that tends to include all the products that are being produced and sold, unlike the current one which only denotes the teddy bears. I would give it names such as ‘Vermont Special Gifts Company’ or ‘Vermont Precious Gifts Company.’ After changing the name of the company, another important step that should be taken is coining a good and striking slogan that would attract the attention of the potential customers. Some of the best slogans that would match with the kind of business that the company is operating in include; ‘The Best That You Deserve,’ ‘Always at Your Service,’ or even ‘Service at Your Doorstep.’ After doing that, it would be important to run commercials on all mediums in order to create awareness of the products and services as well as the change in brand (Monks & Minow 1995, p.28). But in so doing, it would be essential not to forget to remind the target audience that the company being marketed is the former ‘Vermont Teddy bear Company,’ as this will help in retaining the customer base as well as attracting more first timers to the company. The second thing that I would do even before considering entering the international market is to ensure that the American market is exhausted completely. That is I would ensure that many branches or factories are opened all over the United States. Currently the company only has two factories located in found in Newport and another one in Shelburne. This means that there are several regions in the country that still require the services. I believe that only these two factories are not sufficient to serve the whole nation. Establishing more factories would even make it to be known more as it will be a household name. I would also increase my staff in order to make work more efficient so as to give each and everyone a chance of working in a particular area that he or she has specialized well without having to get exhausted or overworked. In doing this, I would be assured that all the operations in the company will run smoothly. After all these are put in place, I would then consider going global, and would do that by first doing through research so as to find the best place or country to invest in. This would ensure growth and success of the company that anyone would imagine. List of References Basche, J 2005, Export Marketing Services and Costs, The Conference Board, New York. Beauchamp, T. L. & Bowie, N. E 1993, Ethical Theory and Business, Prentice-Hall, Inc., New Jersey, Bettis, A & Michael, A 1995, "The New Competitive Landscape," Strategic Management Journal, 16, 7-19. Bradley, P 1993, The Role of IT Networking in Sustaining Competitive Advantage, HBS Press, Boston, MA. Cunningham, M 2009, Strategies for International Industrial Marketing, Chicago University Press, Chicago. Davis, D 2006, How to Develop and Market Creative Business Ideas. Oasis Press/PSI Research, New York. De, G 1995, Competing with Integrity in International Business, Oxford University Press, New York. 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