The Board of Directors of an English Company - Essay Example

The Board of Directors of an English company which embarks on direct investment in a foreign country must contend with the problems of introducing property Introduction In this report we decided to explore the possibility of introducing Simple liquid soap from United Kingdom (fifth largest exporter) to Thailand. Although, the general soap market in Thailand is declining but the liquid soap market is growing continuously. For example, the leader of soap market; P&G had a 15 percent decline in its bar soap due to the consumers switching to liquid soap. It is a new style of soap and Thai people seem to appreciate it. Also the weather in Thailand is hot so Thai people pay careful attention in selecting skincare products especially liquid soap. In addition, Thai people always feel excited in new kind of product and they always try to use it. Therefore, the liquid soap market seems to have a good fortune in Thailand due to the good number of Thai population, GDP growth, inflation rate and growth rate of soap in Thai market. The scopes of this report are potential of liquid soap in Thai's market, Product strengths and weakness, positioning issues, timing, and entry method and mix tactics. Company Background Accantia Health and Beauty Ltd. is a dynamic, "can do" company, which produces skincare and healthcare products. All head offices functions are based at Alum Rock, Birmingham. Accantia has subsidiaries in South Africa, Australia and New Zealand. The company formed as a result of a leveraged buys out of the consumer business from Smith and Nephew Plc. There are many skin care and skin care product under the Accantia Company, which is Lil-lets, Simple, Simple Skin Define, Cidal, Wrights and retail brands. The highly successful brand of the Accantia Company is Simple, Cidal and Wrights. Our report will emphasize on Simple liquid soap, which is a good quality product at a reasonable price. There are many product lines under Simple brand, which are skin care, oil control, sun care, toiletries, and soap skin defense. Country of choice The country which the company can expand the market would be Thailand. This part of report will be based on the factors below: -Economic factors -Demographic factors 1. Economic factors. 1.1 Gross Domestic Product (GDP) Source: http://www.drsohn.com/01publ/intlwarn/IEW/Thailand.pdf As the diagram illustrate above, Thailand GDP continued to increase in 2001-2003 from around $115 to $135, which demonstrates economic recovery in Thailand. Moreover, the goal of Prime Minister Taksin is developing the consumer finance to stimulate spending of the citizens by easy access to cheap credit and mortgage. Private consumption expanded 5.0 percent each year in the third quarter of 2002. In 2002, Thailand is one of the fastest growing economies in Asia, apart from Vietnam and China. The household debt stands at only 17 percent of GDP and 27 percent of disposal income, compare to household debt in South Korea of 69 percent of GDP and 105 percent of disposal income. Having a growing economy would be important for new products to be successful in Thailand. It means there will be a higher flow of money in the economy. 1.2 Inflation Rate Source: http://www.nso.go.th/eng/indicators/core_e.htm Inflation rate in Thailand was decreased between 1997 and 2001 from the highest 8.1% to 1.6%. However, it was estimated that the inflation rate would continue to decrease in year 2003, because it was decreased over 4 years. Furthermore, the forecast indicate that it would remain decreasing for a few years except Thailand is challenged with another economic crisis. Presently, the economy is recovering because of the government policy of keeping the inflation rate low to stimulate the customers' spending. 1.3 Growth in liquid soap market Procter & Gamble (Thailand) Ltd, the local unit of the US-based consumer-product maker, said yesterday that it plans to invest a further Bt5.9 billion to make Thailand its largest production centre in Asia. This company has seen growth in major product categories, including 10 percent growth in hair-care products, 5 percent growth in Whisper sanitary napkins, 15 percent growth in Pampers diapers, and 40 percent growth in Pringles potato crisps. However, the company has witnessed a 15 percent decline in its bar-soap business due to consumers switching to liquid soap. As sales of bar soap in Thai's market is declining due to consumers' switching to liquid alternative, there is increasing needs and demand for the product. Therefore, this is the great opportunity for Accantia Health & Beauty Ltd. to lunch the liquid soap in Thailand. 2. Demographic factors The demographic structure of a society describes its human population in terms of size, location, age, ethnic origin, occupation, income, sex and other statistical measures. For the benefit of the report, the variables that will be discussed here are age structure of the population, urbanization and Accantia Health & Beauty Ltd. 2.1 Age structure of the population. The age structure of Thailand (2001) is as follows: Percentage/ aged Age Percentage0-1516-6465+ 24706 Source: http://www.unescap.org/pop/data_sheet/2000_tab2.htm 2.2 Urbanization Bangkok5,662,499 Nakhon Ratchasima2,540,662 Ubon Ratchathani1,759,548 Khon Kaen1,747,730 Chiang Mai1,587,465 Udon Thani1,520,651 Chiang Rai1,265,091 Songklah1,223,833 Chon Buri1,059,756 Samut Prakan977,388 Population in major city of Thailand from: http://www.chula.ac.th/college/cps/thaidata/thailand_data.html Base on the table illustrated above, the percentage of urban population represents 31.61% of the total number of population in Thailand. Therefore, Thailand would be appropriate of Accantia Health & Beauty Ltd. to enter. Potential Market Size The potential market sizes for a product such the liquid soap in Thailand is the one that is difficult to quantify due to the lack of available current data. In order to assess the potential market size for this product, the chosen methods are the Chain Ratio Method and Analogy method. Chain Ratio Method Thailand Total Population 61,200,000(A) Population in major city of Thailand Bangkok5,662,499 Nakhon Ratchasima2,540,662 Ubon Ratchathani1,759,548 Khon Kaen1,747,730 Chiang Mai1,587,465 Udon Thani1,520,651 Chiang Rai1,265,091 Songklah1,223,833 Chon Buri1,059,756 Samut Prakan 977,38819,344,623(B) Urbanization RateC= B / A 31.61%(C) Percentage of people age between 15-6570%(D) Number of people age between 15-65E= A * D 42,840,000(E) Market Potential EstimateF= E * C13,541,724(F) Chain ratio method Population in major city of Thailand from:http://www.chula.ac.th/college/cps/thaidata/thailand_data.html Percentage of people age Between 15-65 from: http://www.unescap.org/pop/data_sheet/2000_tab3.htm Based on the Chain Ratio Method as illustrated above, the Potential Market Size estimate for Accantia Health & Beauty Ltd. is 13,541,724 people, which is 22.14% of the Thailand population. Analogy Method Analogy method = (Population in major city of Thailand) * (Per Capital Income of Thailand) (Total Population in UK) (Per Capital Income of UK) = (61,200,000) * (1,746) (59,020,000) (21,822) = 8.30% = 61,200,000 * 8.30% = 5,079,600 By using the Analogy method to estimate the potential market size and it represent 5,079,600 people. The factors that are used in analysing this method are population and per capital income of Thailand and United Kingdom (economic). As a result of using Chain ratio method and Analogy method, potential market size probably is the range between 5,000,000 to 13,500,000 people. Therefore, this is the huge market, which has high probability for the company to success in its business. Consumers' behavior Using David Luna, Susan Gupta Consumers' behavior/Culture Assumption framework to analyze the Thai's Consumers behavior Cultural assumptions and variables in international consumer behavior: Perceived Risk Involvement Trust Perception: Motivation: Cheaper price, Quality Loyalty: Values Brand Equity Various brands, Various choices, Learning: Frequency of Purchase/dissonance: Experiences Thai's lifestyle Resistance to change: Attitudes to complaining, Competence trust Consumers' attitudes experiences: Positive attitudes Impressive Perceived Risk Perception: Product and Brand's perception are important for making consumers' decisions. Their thinking processes concern about the specific characteristic especially the core component and the reputation of the company. However, Simple is one of the illustrious liquid soap companies in the United Kingdom, which presents an especial soap product. Therefore, it will not be hard to make Thai consumers acknowledge its product and brand. Learning: The knowledge of using liquid soap came from consumers' experiences in the past (Assael, 1998, p. 105). This affects consumers' decisions when they want to buy the product in the future. Nevertheless, Thailand imported liquid soap product from other countries in the last decade and Thai consumers had positive attitudes in these products. As a result, the process of consumers' learning is variable, which can make consumers recognize in the product and buy it. Resistance to change: Changing to the Simple liquid soap is not likely to face major resistance because the Simple is the well-known global brand that could be sold by itself. From this reason, the resistance to change of Simple liquid soap is low. Involvement Motivation: Company's motivation has an influence for consumers' behavior. The company use marketing strategy such pricing to attract its target market. Both low price and high quality of the product can persuade consumers to buy. Therefore, Accantia will adopt price strategy of low pricing with high quality. Frequency of Purchase/dissonance: For Thai people, liquid soap product is in accordance with their life styles. By providing the quality standard and consumable price which will give satisfaction to the customer and also create brand loyalty. Therefore, the frequency of purchase will be high. Attitudes to complaining, experiences: As Thailand is a country with high uncertainty avoidance; there is low tendency of rejecting the product. This means regardless of complaint or previous experience, the customer may still purchase the product. Trust Loyalty: Thai consumers have different behaviors, and decisions that they can change their mind for buying the product all the time. For consumer to be loyal, the company should focus on advertisement, which presents attractive sources and beliefs. In this point, consumers have a various choices to choose until they do not believe in term of the brand loyalty. Competence trust: The trustworthiness of the company can change consumers' attitudes. Most Thai people have positive viewpoint for the liquid soap because of its credibility. Diffusion of Innovation 1. Relative or conceptual advantage Liquid soap is an inexpensive consumers product that make them take easier decisions to buy the product. Also the Simple liquid soap has good quality with reasonable price. This product is well distributed and available at supermarkets, drugstores and shopping malls, which make it easy for consumer to buy. Simple liquid soap had fragrance smell which comes from the great combinations of flowers, herbs and fragrances. It foams well and good for all skins. It could be used for bath and shampoo. 2. Compatible with values Thai people have a very careful selection in body care and skin care products. The reason is that Thailand has a hot climate so Thai people will have a shower quite often. So good quality body care and skin care products play an important role in Thai people daily lives. 3. Low complexity Normally, the fast moving consumer goods (FMCG) are easy to use. Therefore, it is low complexity product. 4. Ease of testing and trial ability The product is well tested and proven through consumers since 1960. It is the first fragrance and color free soap. Ease of trial ability can be done by giving free example or provide discount coupon to the consumers for their next purchase. 5. Has observable benefits Simple liquid soap can be washed out easily. It contains good quality components, which create good smell and soften skin. Containing with rich moisture creates thick crme and it will stick on the palm whenever the consumers use it. Simple liquid soap can be used last longer than bar soap so consumers can get financial benefit by using it. International Marketing Strategy According to Greenley's framework of five components of marketing strategy, the international marketing strategy involves the combination of Prahalad Doz model and the components, which are marketing mix, market entry mechanism, product positioning, market positioning or segmentation and timing. Market Entry Strategy Choosing the mode of entry into Thailand is based on two classes of decision criteria, which could be external (environment specific) or internal (firm specific). External criteria Some of the major external criteria that may be considered in choosing mode of entry are: -Market size and Growth: In many instances, the key determinant of entry choice decisions is the size of the market. Large markets justify major resource commitments in the form of Joint Ventures or wholly owned subsidiaries. Thai's market is a large market with market potential between 5 million and 14 million approximately. -Risk: risk relates to the instability in the political and economic environment that may impact on the company's business prospects. Thailand is a democratic state with an emerging economy; hence, the risk of doing business in this country is low. -Government Regulations: No stringent trade barriers of any kind that will restrict the entry choice decision. -Competitive Environment: This is a highly competitive environment with major MNCs like P&G and products such as Lux and Palmolive. -Local Infrastructure: The local infrastructures like roads, water, electricity and telecommunication are available and in good state in the urban areas. The above factors determine the overall market attractiveness of Thailand. Internal criteria -Company objectives: The company is an ethnocentric company that has subsidiaries in South Africa, Australia and New Zealand, and would like to expand its scope to Asia with total or major control. -Need for control: control may be desirable for any element of the marketing-mix plan: positioning, pricing, advertising, product designing, branding etc. -Flexibility: To cope with the increasing changes in operating local environment, Accantia Health & Beauty ltd will apply some flexibility in its strategy. Entry Mode The proposed entry mode should be in form of Joint Venture. The company should agree to share equity and other resources with a company in Thailand. The equity stake should be in form of majority stake in which Accantia will hold more than 50% ownership. The partner must be a company has experience in fast moving consumer products (FMCG) and also has good and well-established distribution network. The reasons behind the decision of Joint Venture proposal are; 1. Simple liquid soap is not available in Thailand presently. 2. Very high competition on liquid soap market in Thailand. Several brands presently the leaders in the market. 3. The cultural barrier no previous experience of Thai's culture. Also language may be one of the problems. 4. Risk sharing possibility. 5. The investment will be less demanding. 6. There is potential of Synergies. Timing and Know-How The current trend in Thai market indicates the growing liquid soap market. This is an emerging market in the soap market. Since Simple liquid soap is an established product in the United Kingdom, going into liquid soap market will give Accantia a first mover advantage to capitalize on the growing stage. Also to transfer our technological competence in producing a color-free liquid soap since Accantia is the first producer of perfume and color-free soap. Marketing Segmentation Strategy We are using demographic factors to select our target market focusing on the population size and urbanization degree: -The market segment will be the people of the age between 15-65 years old. -Focus is on the urban population within the age bracket 15-65 years. -Focus will be on the innovative buyers, early adopted and early majority. This is because the product is relatively new to the Thai consumers. Reason: -Population of the people within 15-65 years in urban areas between 5-14 million people, which is approximately between 8-23 percents of the population. -The high and medium income earners populate urban areas. -These categories of people belong to the influencers' buyers and decision makers in consumers' behavior such as children, housewives, and husbands. Product Positioning Once the company has decided on which segment of the market to pursue, the next step is to decide on what positioning strategy to use to appeal to the chosen segments. The product positioning will be based on consumer culture. This strategy adopted is global consumer culture positioning (GCCP) - buying the brand reinforces the consumer's feeling of being part of a global segment. It also fosters the buyer's self-image of being cosmopolitan, modern, and knowledgeable. Thai consumers are classified as people that culturally value design, style and fashion above. In buying any product, people look for design, style and fashion. Based on the above, the strategy going to be adopted is the global consumer culture positioning, which fosters the buyers' self-image of being consumption, modern, and knowledgeable. And this is applicable in the urban areas in Thailand. The uncertainly avoidance is very high, which means that the prospect of Thai consumers accepting Simple liquid soap is very high. Also, Thailand is a feminine society. Marketing-Mix Product: (using global or universal positioning tactic) 1. Simple liquid soap must offer the same benefits and features as the other in the United Kingdom. 2. The quality should be standardized. 3. It is must culturally bound i.e. branding and packaging should be attractive. Dutta's Product Attribute Model Core ProductAugmentedSymbolic 1. Colour free1. Economical1. First perfume 2. Fruit/Flavored/2. Easy to use and color Fragrance free soap TANGIBLE3. Vitamins and3. In plastic2. Simple is well known PRODUCT natural plant container skin care brand name Extracts since 1960 4. Treat Foaming4. Three different Ability sizes 1. Long lasting1. Easy to find1. Made in UK Smell2. Reasonable 2. Allergy free Price2. High quality product 3. Smoothen and 3. Good INTANGEBLE remove rough distribution PRODUCT skin channels 4. Excellent Cleaning Effect 5. Mosturises skin 6. Lightweight 7. Freshness Price: Using the Price and Quality quadrant of price of different brands of liquid in Thailand. The survey showed that leading brands are within the high price and high quality quadrant, which Simple will be positioned. Price of liquid soap in Thai's market Price H H HP/LQHP/HQ * Dove * Shokobusu Quality LP/LQ LP/HQ * Lux * Simple * Parrot L L NB: Imperial leather is presently an exported product from United Kingdom to Thailand. HP/LQ = High price, Low quality LP/LQ = Low price, Low quality HP/HQ = High price, High quality LP/HQ = Low price, High quality Dove = B 69.00 Shokobusu = B 53.50 Lux = B 49.50 Simple = B 48.00 Parrot = B 36.00 B= Thai currency From an analysis of price survey liquid soap in Thai's market, it shows the relationship between price and product quality of the simple liquid soap compares with the other brands in Thailand. The company fixes the reasonable price, which is not quite expensive for buyers. Generally, Thai consumers consider price more than quality of the product. However, both pricing and quality of product are similarly important for consumers' decisions, if the company emphasizes in this point, it will increase the number of consumers' purchase as Lux, which is liquid soap leader. To achieve economics of scale, the price of Simple liquid soap has to be in this quadrant high quality and low price, more so that it is relatively new in the market. The product will mainly lunch in urban area such as Bangkok and other major areas. This will directly attract to the target market, which have more purchasing power that sub-urban. From the chart that illustrate above, normally fast moving consumer good must get the high degree of access to the customer. So, the manufacture should distribute the product to the wholesaler such as discount store or super market. Then from the wholesaler move to the local retailer or they can sell directly to the customer so, this will provide more reachable to customer. In addition, the company should emphasis on the high level of product available in the market to increase the brand awareness to the customer. Promotion: The strategy that will be use in advertising will be both push and pull strategy. The company should offer promotion to the wholesaler and retailer to stimulate them to bring the company product to their store. It can also increase the brand recognition as the customer observes the product more often. By this strategy, the wholesaler and retailer will attempt to persuade customer to buy the company product, as they will benefit from the promotion. Subsequently, pull strategy the company probably uses the advertisement to pull the customer to purchase the product. The advertisement will use female celebrity to motivate customer, as Thailand is the country that focus on woman. Moreover, Accantia should use sales promotion such as free trial or discount coupon to attractive customers, as this is a new brand for Thai customer. The sales promotion such as discount coupon will let customer repurchase and it can create brand awareness as well. By these two strategies, the company will stimulate both distributor and customer. Rogers two stage system of Diffusion He classified consumers into two broad groups: -Imitators -Innovators Early < majority U Early Late comers S adopters < A G EInnovative Buyers < laggards Mass communication Word of mouth TIME From the diffusion curve, it shows the category of Thai consumers in the liquid soap market. The company's target markets are innovative buyers, early adopters and early majority consumers, who would like to taste the new product in the market. In this case, the company use Mass communication such as advertisement to persuade its target. The most attractive medium is advertising on television because people can recognize in a picture of the product and a specific characteristic of the brand. Prahalad and Doz model The approach to internationalization requires a clear vision, permanently updated, of the environment in which each internationalizing company operates (Dunning & Kundu, 1995). It will obviously depend on the degree of globalisation of the company, which stems from its positioning between two axes (Porter et al. 1986, Prahalad & Doz, 1987). Conclusion There may be a problem in the Joint Venture if the level of trust is in doubt. If the credibility of their partners are in doubt, not offering the expected capabilities in cultural adaptability, and distribution channels. Accantia may decide to pull out of the venture. There may be other associated problems in Join Venture like risk of creating competitor and lack of control. Because of these likely problems, we suggest that Accantia should only try the Joint Venture for 3 years and decide on the next strategy depending on the outcome. * We will charge the fee of 6000 for the research, which comes from: Price =Working days * Hour per day * Consultant fee per hour * No. of consultant 6000 = 15 * 5 * 20 * 4 References Assael, H, 1998, Consumer Behaviour and Marketing Action, 6th ed, South-Western College Publishing, the United States of America. Kotabe, M, and Helsen, K, 2001, Global Marketing Management, 2nd ed, John Wiley & Sons, Inc., the United States of America. Dunning J.H., Kundu S.K., The Internationalization of the Hotel Industry, Journal of International Business, Management International Review, Gabler Verlag, Wiesbaden, 2/1995. Porter M.E., Competition in global industries, Harvard Business school Press, Boston, 1986, Prahalad, C.K., Doz, Y., The multinational Mission, Free Press, Macmillan, N.Y./London, 1987. Websites Company Background. From World Wide Web. Retrieved from: http://www.accantia.com Gross Domestic Product (GDP). From World Wide Web. Retrieved from: http://www.drsohn.com/01publ/intlwarn/IEW/Thailand.pdf Inflation Rate. From World Wide Web. Retrieved from: http://www.nso.go.th/eng/indicators/core_e.htm Age structure of the population. From World Wide Web. Retrieved from: http://www.unescap.org/pop/data_sheet/2000_tab2.htm Population in major city of Thailand: From World Wide Web. Retrieved from http://www.chula.ac.th/college/cps/thaidata/thailand_data.html Percentage of people age between 15-65: From World Wild Web. Retrieved from http://www.unescap.org/pop/data_sheet/2000_tab3.htm Read More