Allsmiles Toothpaste Company - International Business Group Simulation Assessment - Case Study Example

INTERNATIONAL BUSINESS GROUP SIMULATION ASSESSMENT By (Name) Name of Class (Course) Professor (Tutor) Name of the Institution (University) City and State The Date International Business Group Simulation Assessment Companies that intend to expand beyond their national boundaries face the strategic decision on how to establish themselves abroad effectively. The choice of the strategies to enter foreign markets is the decision of which type of operation to use to get into foreign markets (Root, 1998). Researchers in the field of foreign market entry mode have studied a vast number of entry mode types and modes of success. These researchers include Anderson and Gatignon (1986) who listed seven modes, Meyer and Nguyen (2005), listed ten entry strategies, Brouthers and Hennert (2007) defined sixteen different entry modes while Burton (1999) defined eleven strategies. Besides having different views on the accurate number of types of foreign market entry strategies, the researchers also suggested different ways to classify entry mode types. To clearly understand and investigate these strategies and modes to success, a group simulation on country management was carried out to help in the clear understanding of the strategies and how a firm can become successful in a foreign market. The group simulation game’s potential markets included Argentina, Peru, Brazil and Mexico. The group then decided not to enter the Mexican and Peru markets. This paper aims to assess the outcomes of this simulation in relation to the real world international markets entry strategies. The business entered Argentina in the first period and built a new plant in the country. In the first period, the overall performance of the company was not good; the net regional contribution was less than 7.6 million dollars. This could have been as a result of the large expenses that were incurred for the building of the new plant and low brand awareness since the business was new to the country (Czinkota & Ronkainen, 1994) The company, however, still expanded into Brazil and Chile in the second period. Between the second and fifth period, the overall contributions after deductions kept decreasing steadily to 47.4 million dollars. A lot of money was spent on advertising and promotion in the first three periods in order to build brand awareness in the three new markets. This resulted in a steady and significant way from as little as 2.8-million-unit in the first period to over 200-million-unit in the third period as shown in figure 1. In the fourth period, the advertising and promotion expenditure was reduced since brand awareness was already established and there was a great need to cut down on costs. As a result of cutting down on promotions and advertisements, the unit sales considerably reduced to less than 105-million-unit in the fifth period. This called for the need to keep investing in advertisements and promotions in the next five periods. Furthermore, the sales forecast was inaccurate and the real sales unit was far from the expectation of the business. For example in the third period, the sales forecast was 55 million unit products but the actual sales were over 200 million unit products. There was then the need to ship more than 150 unit products from the original country leading to over 28 million dollars in tariffs and this significantly increased the expenses. The major issue in the first five periods were the high expenses and similarly high allowances set for the products. When compared with the average manufacturers proposed retail prices, the company’s product prices were very high in all the three countries. In addition, a ten percent allowance was maintained for each and every product. There were no changes on any data on allowance. These two major issues made the products of this business to be less attractive to the customers leading to negative mesh regional contribution. Despite these setbacks, the future prospects of the business is quite positive and promising. Since the future projections are encouraging, the business shareholders should keep investing in the company. There are a number of reasons that can motivate them into doing so and these include: One, the business made profits since the fifth period in the Latin American markets. The company has 19 percent market shares in Argentina, 13.2 percent market shares in Brazil and 11.1 percent market shares in Chile by the tenth period. This shows prospects of the company’s ability to gain more market shares. Secondly, the market entry strategies implemented in entering the Argentinian market in the first period and Chile and Brazil in period two proved successful and the same can be implemented in the future to guarantee the success of the business. Thirdly, the business has also formed a competitive advantage in toothpaste production when compared with other companies. Another reason for stakeholders to keep investing in the business is that the strategies used in dealing with the numerous kinds of unsure marketing conflicts were more and more advanced as the reasons why the company did not perform well in the previous stages were found. Through learning from failures and experiences, the company was able to clearly recognize their shortcomings and as such it can be able to change the confines into prospects and make progress in the future. The final reason to motivate shareholders is the collective efforts that have been made towards the management strategies and new marketing approaches. The shareholders would also be given the chance to participate in building the company’s brand image based on the success levels the business has reached in the Latin American countries. Solutions have been found in raising the sales in the countries where the business has gone into and it has also exploited new possible future markets. As such there is confidence that the company will make great progress in the future and success is guaranteed. Several aspects are taken into account when deciding which international market a business can join. These include internal analysis of the business, country selection according to prospects, external analysis of the business, decision on entry strategies and the marketing plan after entry (Anderson & Gatignon, 2002). The international market entry modes can be classified according to the level of control, resource commitment and the risk involved in joining the particular market (Davis, Desai and Francis, 2013). These were the considerations of Allsmiles Company before joining the new Latin American Markets. There are many types of market entry strategies available for firms aiming to enter the international markets. One of the many strategies includes distinguishing between the equity and non-equity modes where the equity modes involve the companies taking some level of ownership of the market organizations involved including subsidiaries and joint ventures that are owned as a whole. The non-equity modes do not involve ownership but include the exportation or some from agreements in contracts such as franchising or licensing (Agarwal and Ramaswami, 1992). The Allsmiles Company encountered some problems when joining the Latin American markets. These included competition from local companies which had lower priced products, large start-up costs which were mostly incurred by promotion and advertisements in order to create brand awareness, redundancy of sales force and mismatch between production capacity and the actual sales. Among these problems, the major issue that lead to high expenditure and reduced profits was marketing and creating brand awareness. The best way to success is offering products that customers have a need for. If the customer has a problem that needs to be solved, and the product offers a solution in an effective way it will definitely get customers for it (Erramilli and Rao, 1993). The Allsmiles Company discovered this need in the international market and decided to venture in it. The fact that there were already other toothpaste companies in existence led to the need of vigorous advertising and promotion strategies to create brand awareness. The company realised the importance of marketing and this led to its success in the first period of joining the new markets but then ignored this when they realised the product had gained popularity. They then reduced the promotions and advertisements to cut down on costs but this led to a decline in sales, leading to losses. Being aware of brand names does not necessarily mean that the customers will prefer it over competitor products. The process of gaining the trust of the consumers who are used to their own local products can be very expensive and tedious. As much as it is a long and expensive process, this business realised that it is the only way the company can achieve success in this foreign market. It then put its efforts and investment into advertising and promotion and this worked in the favour of the company as the business started making profits in the latter stages. According to Westhead (2009), since globalization, it has become crucial and inevitable for any business to get global recognition in an international market to ensure ultimate success and brand reputation. As much as it is an essential process, it is still a very complex process and a challenge for companies that are interested in doing it. The basic cause for this difficulty include the internal and external concerns regarding the business (Tallman & Yip, 2013). These internal factors include the kind and uniqueness of the product being offered by the company, the opportunity, the procurement or switching costs involved with the production methods, the need for trained or knowledge-intensive specialized workforce, psychological factors that may motivate or demotivate the managers and the required capacity to collect and assess valuable information from the target markets (Zekiri & Angelova, 2011). Kim and Hwang (1992) stated that the existing competitors in the new market should also be considered when joining a new market. The other external factors that should be considered include availability of marketing mediators, economic, cultural, political and geographical factors that serve as opportunities or threats during the expansion process. These motivations and obstacles do not only decide the shape of the expansion of the business internationally but also act on the business’ subsequent development within the selected economies or markets. As such, before entering new markets, it is important to make a careful and accurate investigation into the intended market. These factors were put into consideration by the Allsmiles Toothpaste Company before venturing into the new markets. This is the reason the stakeholders decided not to enter the Mexican and Peru markets since they realised that the business may not be successful in those markets due to some particular factors. The company sees the prospects of future increase in market shares, expansion into new markets when there is sufficient capital and experience in the countries it has already ventured in. The company also intends to stop expansion for the moment to give room to deal with more pressing internal factors and gain knowledge for the future ventures. With knowledge and experience, the business will be able to attract shareholders since the company has already formed a competitive advantage, there is the prospect of increasing market shares since it has already claimed its own, the company has also recognized its shortcomings and as such there is the ability and room for improvement and lastly the shareholders will now be able to take part in the exploitation of new international markets in the future (Cateora, & Graham, 2011). In conclusion, it is clear that just like The Allsmiles Toothpaste Company, all companies are interested in joining the markets where there is market demand and at the moment Toothpaste has a potential demand in developing countries as awareness on mouth and tooth hygiene is on the rise and spreading fast. In order to enter these markets, the companies prefer to get support from the government in form of good business infrastructure, customer demand for the products and better market opportunities. The prices of the products, cost of labour, market demands and potential business partners are the main strategic objectives that companies should focus on when planning to join new international markets. Joint venture is seen as the safest and most popular entry mode when companies join new markets. It is crucial to research on the intended market and know it as much as possible and also understand how the major players in the market conduct their businesses so that the new company can take the competitive advantages after joining the market. Market evaluation is vital for the company to comprehend the mistakes they did in order to correct them in the future. Reference list Agarwal, S. & Ramaswami, S., 1992. Choice of foreign market entry mode: Impact Of ownership, location and internationalization factors. Journal of International Business Studies, 23(1), pp. 1-27. Anderson, E., & Gatignon, H., 2002. Modes of foreign entry: a transaction cost analysis and propositions. Journal of International Business, 17(6), pp 69-88. Brouthers M. & Hennert V., 2007. International market entry strategies. (1st Edn). Ottawa: FITT Publishers. Burton, F., Chapman, M. & Cross, A., 1999. International business organization: subsidiary management, entry strategies, and emerging markets. (2nd Edn). New York: St. Martin's Press. Cateora, D. & Graham, B., 2011. International Marketing. (11th Edn), Pennsylvania: McGraw-Hill Publications. Czinkota, M. R., & Ronkainen, I. A., 1994. International marketing strategy: environmental assessment and entry strategies. [Online]. Available at: http://catalog.hathitrust.org/api/volumes/oclc/30011569.html. [Accessed 19 Mar 2017]. Davis, P., Desai, A. and Francis, J., 2013. Mode of International Entry: An Isomorphism Perspective. Journal of International Business Studies 31(2), pp. 239-258. Erramilli, M.K. & Rao, C. P., 1993. Service Firms' International Entry Mode Choice: A Modified Transaction- Cost Analysis Approach. Journal of Marketing 57 (4), pp 19- 38. Gatignon, H., & Anderson, E., 1986. The multinational corporation's degree of control over foreign subsidiaries: An empirical test of a transaction cost explanation. (1st Edn). Cambridge: Marketing Science Institute. Kim, W.C. & Hwang, P., 1992. Global Strategy and Multinationals' Entry Mode Choice. Journal of International Business Studies 4(1), pp. 29-53. Meyer, K. E., & Nguyen, H. V., 2005. Foreign Investment Strategies and Sub-national Institutions in Emerging Markets: Evidence from Vietnam. Journal of Management Studies, 42(7), pp. 63-93. Root, F. R., 1998. Entry strategies for international markets. (7th Edn). San Francisco: Jossey-Bass Publishers. Tallman, S., and Yip, G., 2013. Strategy and the Multinational Enterprise. Oxford Handbook of International Business, 42 (9), pp. 317-348. Westhead P., 2009. International market selection strategies of manufacturing and services firms. Entrepreneurship and Regional Development Journal, 13(5), pp. 17- 46. Zekiri & Angelova, 2011. Factors that Influence Entry Mode Choice in Foreign Markets. European Journal of Social Sciences, 22(4), pp. 570-574. Appendices Figure 1: Unit sales Figure 2: Production Costs Figure 3: Sales and Capacity for the 10 Periods Figure 4: Toothpaste Distribution Shares by Retail Channel Read More