Risks and Strategies - Arnott's Biscuits Holdings - Case Study Example

Running Head: MARKETING Marketing (Insert Name) (Insert Course) (Instructor’s Name) (Institution Name) 15th September 2011 Introduction The current stiff competition that has engulfed the business arena calls for adoption of effective strategic report in order for local and international companies to remain competitive. Various marketing and organizational aspects should be taken into account by organizations that aim at expanding their operations in new market in foreign countries. These aspects include strength, opportunities, weaknesses as well as threats which companies are likely to experience in other countries. This paper keenly analyze the risks as well as possible strategies which Arnott's Biscuits Holdings, an Australian based firm will emulate in its effort to enter Russia and Mexico countries. Threats One of the major obstacles which the company will face is lack adequate resources to undertake promotional strategies. Based on the fact that the company is likely to be unknown by Russian consumers, strong promotional and advertising strategies are essential in order to create a strong consumer awareness. This means that the company should increase its budget allocation to cater for advertising and other marketing strategies in Russia and Mexico. Due to the low purchasing power as a result of the recent economic downturn, Arnott's may lack enough financial resources to cater for such marketing activities especially in Russia where competition is very stiff (Makienko, 2008). Stiff competition in the Russian market Russia is one of the developed countries in terms of technology. This has led to the development of modern technology which is utilized by manufacturing companies in the country (Ionin, 2006). In this regard, the Australian company is threatened by the stiff competition from its rivals. United Bakers Group, a Russian based company is one of the major competitors which are likely to provide a cut-throat competition to the Australian company (Manturov, 2009). This is based on the fact that the company is already established and it enjoys a strong customer loyalty. Lack of customer awareness The Australian company is likely to be faced with low sales as a result of lack of consumer awareness. Since most consumers are aware of the products that are manufactured by Russian and Mexico firms, the initial sales of the Australian firm will be low leading to a longer period before the company reaches break-even point. Low purchasing power in Mexico market As compared to Russia, Mexico has a lower purchasing power which was caused by the economic crisis that was experienced in the country between 1994 and 1995. However, as a result of the intervention Zedillo and Fox, two former leaders the country poverty level reduced to 17% up from 24% in 2004 and 2000 respectively (Crandall, 2004). The reduction was experienced in rural areas. In urban areas the level remained at 12%. Such poverty will reduce the initial sales for the Australian company since most of the consumers will be diverting their low incomes to more basis products including food and houses. Income inequality and regional disparity Mexico is characterized by a regional disparity with the southern states having a low Human Development Index (HDI) as compared to the central states such as Campeche and Nuevo Leon. As a result of the disparity household income of the various regions varies significantly which makes difficult for some individual to access some products. The Australian company is therefore exposed to the risk of being established in areas with low rate of consumption of their products resulting to a reduction in the level of sales. Being a foreign company the government might prefer local company before considering the establishment of the company in Mexico (Weinstraub, 2004). High fuel prices The high price of fuel in the international market has jeopardized both the operations of the local and international firms. Even though the Australian company will enter the Russian market with low prices, the high cost of transport will reduce its profits drastically in the short term. Similarly, the company will experience the same economic obstacle in Mexico. As compared to Russia, Mexico strategies of managing its microeconomic policies were initially not effective. For instance, in 1982 an economic crisis occurred that resulted to devaluation of the currency, rising of interest rates and increased oil prices (Nadal, 2002). This lead to the level of inflation increasing at 159%. As a result, the level of profitability for both local and international companies drastically decreased. Most of local and foreign investors withdrew their investments from the country until the government started to initiate neoliberal reforms under the leadership of de la Madrid (Crandall et al, 2007). Methods of entry The profitability of any company highly depends with the effectives of the strategies emulated by the company. Since the Australian company aims at entering two new markets, it is paramount for the company to emulate 4Ps (price, promotion, product and place) in order to ensure that it remain competitive in the new market. Price The company should adopt penetrative pricing technique in order to attract the attention of the consumers who purchases their products from the competitors. However, it is essential for the company to produce quality products which meets the needs of its consumers (Rosenberg, 2007). This involves putting the prices at a lower position as compared to those of the competitors. In this way, the company will attract new customer who will then emulate inform other customers regarding the company prices and the quality of the products. Taking into consideration that some of the regions in Mexico have lower level of income as compared to others, penetrative pricing will be most appropriate especially in areas where poverty level is high. Place It is essential for the company to establish various branches where customers can easily access the products. With a total area of 17.1 million kilometer squared, Russia has a large number of locations where the company can establish its branches. For example the company can be established in St. Petersburg and in Moscow the two major cities. In order to ensure customers in rural areas can also access the products, various distribution centers should be opened in smaller towns. On the other hand the company should focus on opening most of its branches in central states of Mexico. This is as a result of the improved infrastructure in the central states as compared to the southern states. The improved infrastructure will be beneficial to the company in terms of transportation of the products to their consumers in such regions. Product Due to the high level of technology emulated by Russian manufacturers, their products are of high quality. It is therefore important for the Australian based firm to emulate similar technology in order to be competitive. Due to the high number of potential customers in Russia as well as in Mexico, the company needs to undertake a market research so as provide brand portfolio which meets the needs of its customers. Through product diversification the company will satisfy the high number of potential customers which stands at 112 million and 117 million in Mexico and Russia respectively. Promotion The usefulness of effective promotion of company products in the new markets cannot be underestimated. Since the company is focused on attaining a wide customer base, it is vital to utilize various promotional strategies. For example, the company can undertake road side shows where they inform the consumers on the benefit of its products. Likewise, the company should emulate competition. In this case, customers will get gifts once they purchase a certain brand or a stated quantity of products. In this way, customer awareness as well as loyalty will be enhanced thus increasing both the sales and the profits in the long run (Rogers and Sedghi, 2011). The company should emulate the improved technology in Russia to promote its products. For example, the company should adopt social marketing which entail use of social sites such as face book and twitter to promote its products. In this way, the company will be able to reach large number of Russian young consumers who are regular visitors of social sites. Based on the fact that Mestizo ethnic group forms 70% of the entire population of Mexico, it is appropriate for the company to target this group by providing them with brochures which are written in Indigenous American languages and Spanish. These are the national languages that are recognized in Mexico are therefore they are easily understood the majority of the consumers (Gereffi and Martínez, 2004). However, other ethnic groups including the white who forms 15% of the total population should not be overlooked during such promotion strategies. Recommendations Russia country has one of the developed economies in the world. Being the sixth largest country in terms of purchasing power parity the country has created a ready market for local and foreign firms. Having moved to a state of globally integrated economy from a central based economy, Russia has experienced remarkable growth since the end of Soviet Union. Lack of serious effects of the economic recession as compared to Mexico and other European countries, it is important for the Australian firm to enter Russia market. Moscow has the highest number of population in the world making it to have the highest potential consumers for the Australian company. In addition, the improved technology and the political stability experienced in Russia plays a vital role in ensuring that the company operations are streamlined as well as proper protection of its assets. Conclusion The entry of new markets is fundamental if a firm is aimed at increasing its profits. This calls for evaluation of potential risks that such a firm will face in the new market. Stiff completion, low purchasing power, lack of consumer awareness and political instability are some of the major obstacles that a local company may experience in new market. In order to offset such risks, it is vital that a company intending to go global emulate appropriate entry strategies including proper pricing, effective promotion and quality products. References Crandall, R; Paz, G; Roett, R. (2007) Mexico’s Democracy at Work: Political and Economic Dynamics. New York: Lynne Reiner Publishers. Crandall, R (2004). Mexico's Domestic Economy. New York: Lynne Reiner Publishers. Gereffi, G; Martínez, M (2004). Mexico's Economic Transformation under NAFTA. Washington: CSIS Press. Ionin, A. (2006). Russia’s Space Program in 2006: Some Progress but No Clear Direction". Moscow Defense Brief (Centre for Analysis of Strategies and Technologies). Moscow: Oxford University Press. Makienko, K. (2008). Successful Year for Aerospace Manufacturers. Russia & CIS Observer. Retrieved 15 September 2011. Manturov, D. (2009). Prospects for the Domestic Aircraft Industry. Moscow: Oxford University Press. Nadal, A. (2002). Zea Mays: Effects of Trade Liberalization of Mexico's Corn Cambridge: MIT Press. Rogers, S and Sedghi, A. (2011). How Fitch, Moody's and S&P rate each country's credit rating. The Guardian. Retrieved 15 September 2011. Rosenberg, M. (2007). Mexican sugar industry anxious ahead NAFTA opening SanDiego.Oxford University Press. Weinstraub, S. (2004). NAFTA's Impact on North America: The First Decade. Washington: CSIS Press. Read More