MBA COURSE WORK: INTERNATIONAL MARKETING Module Code : DR FERNANDO FASTOSO Module Leader : MAN4063M UB Number : 10019750 Date of Submission : June 08, 2011 I certify that this assignment is the result of my own work and does not exceed the word count noted below. Number of Words: 2500. (Excluding Table of Content/Appendices/References, the Title page, table data and graphs, figure captions, header and footer notes)
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
MBA COURSE WORK: INTERNATIONAL MARKETING
Module Code : DR FERNANDO FASTOSO
Module Leader : MAN4063M
UB Number : 10019750
Date of Submission : June 08, 2011
I certify that this assignment is the result of my own work and does not exceed
the word count noted below.
Number of Words: 2500.
(Excluding Table of Content/Appendices/References, the Title page, table data and graphs, figure captions, header and footer notes)
June 5, 2011
MBA Course Work: International Marketing UB: 10019750
1
Table of Contents Abbreviation ................................................................................................................................................. 3
Social Cultural Distance ......................................................................................................................... 6
Country Risk .......................................................................................................................................... 6
Market Size and Growth ....................................................................................................................... 7
Intensity of Comeptetion ...................................................................................................................... 7
Direct and Indirect Trade Barriers......................................................................................................... 8
Types of entry mode in International markets: ............................................................................................ 8
List of Tables Table 1: Market size ...................................................................................................................................... 7
June 5, 2011
MBA Course Work: International Marketing UB: 10019750
3
Abbreviation VAT : Value Added Tax
FMCG : Fast Moving Consumers Goods
U.S.A : United States of America
CAGR : Compound Annual gGrowth Rate
FDI : Forgein Direct Investment
JV : Joint Venture
ND : No Date
June 5, 2011
MBA Course Work: International Marketing UB: 10019750
4
Choosing an Entry Strategy in the International Market
Considering the Internal and External Factors affecting the choice
Introduction One of the reasons for organizations to go International is to satisfy the market needs, which transcend
national boundaries and exist in many countries. Cost, which is always in the focus of organizations, is
another driving force. Economies of scale deriving from sales from more than just domestic market can
significantly drive down research, design, production and operation costs (Burca et al, 2004).
Organizations could choose to go International to achieve economics of scales, if market regulators in
domestic country, such as in the U.K, restricts a cap on market share (Soloman, 2008). Therefore, going
international could sometimes be a deliberate or an emergent stratergies for organziations (Johnson et
al, 2008).
By having a well designed global market, a firm can achieve competative advantage through one or
more factors mentioned below. (Hollensen, 2007)
Efficiency:
o By achieving economics of scales
o Expoliting resources of other countries
o Extending product life cycle
Strategic:
o First movers advantage
o Exchange price profitibility
Brand recognition
Learning
This assignment is about chosing an entry strategy for Ella’s Kitchen ready to eat baby food product
named ‘Salmon Ristto’ into Chinese market. The assignment begins with a breif introduction stating why
firms go international, followed by the factors that influence the entry strategy. The internal and
June 5, 2011
MBA Course Work: International Marketing UB: 10019750
5
external factors are very concisely discussed with the focus on its effects on the entry strategy. This is
followed by short but critical introduction of entry strategy and its suitability for ‘Salmon Ristto’ based
on the Internal and external factors. Finally, one of the discussed strategy is recommended based on a
qualitative judgment.
Factors Influencing the Choise of Entry Mode A firms’ choice of its entry mode for a given product in a target country is an attribute of several factors.
These factors can be divided into two catogeries, Internal and external factors (Hollensen, 2007).
Internal Factors
Firms Size
Ella’s Kitchen is the fastest growing baby food brand in the U.K. The Business was started in 2006 and in
the year 2010, it has generated a turnover of £15.5 million. The aim is to achieve a turnover in the next
two years. (rhamar.com, 2010)
International Experience
Ella’s Kitchen has international operations in Norge, Sverige, United Kingdom and United States of
American. The company is also planning to introduce its product range in Canada. Ella’s Kitchen claims
that, it uses resources of only that country in which it is operating (as established firms, FDIs), hence the
product range differes between any two countries (Ella's Kitchen, 2011). This shows, Ella’s Kitchen
experience in building relation with its suppliers in the international market, and the growing sales in
each country is the evidence for Ella’s Kitchen’s flexibility to adapt culture.
Product Complexity and Differentiation Advantage
Ella’s Kitchen sophisticated meal ‘Salmon Ristto’ is first of its kind in the industry to produce organic
baby food, with a promise of great taste to infants. The sales of this product have doubled since 2009,
each year. Although the product is in the U.K market for an year, no compititor has launched similar kind
June 5, 2011
MBA Course Work: International Marketing UB: 10019750
6
of product yet. The ‘Ready-To-Eat’ type packing is also first of its it kind in the industry and proved
innovative, as it does not requires addition of milk or water.(Passport GMDI, 2011).
Other internal factors such as Risk Averse, control and flexibility are discussed within type respective
types of entry mode.
External Factors
Social Cultural Distance
Sociocultural differences between a firm’s home country and its host country can create internal
uncertainty for the firm, which influences the mode of entry desired by that firm (Hollensen, 2007).
The countries in which Ella’s Kitchen is currently operating has relatively similar life style and business
practise when compared with China. It is believed that Chinese do not prefere to do business with
companies that they don’t know, therefore, working through an intermediary is essential. In general,
Chinese are a collective society (collectivism) with a need for group affliation, be it in family or in
Business (China-Language, Culture, Customs and Etiquette, ND). On the other side, Ella’s Kitchen
operating countries are relatively Individualistic, which if not adapted, can be a serious concern for
suppliers-business relation, as well as for establishing distribution network. This implies that the pyschi
socio-cultural distance between the base country (Ella’s Eitchen) and China (host country) is very long.
Country Risk
Foreign investments have been a driving force in China’s rapid economic growth. The Chinese
government is expected to initiate measures to ensure that the country remains a favorable destination
for FDI. According to the Doing Business survey undertaken by the World Bank, the processes of doing
business in China have improved substantially, with the country seeing an overall improvement in the
rankings. The 2010 survey showed that the number of days required to start a business in China was 38,
compared to the East Asia and Pacific area’s average of 39 days. The government is intending to free the
June 5, 2011
MBA Course Work: International Marketing UB: 10019750
7
market further and streamline investment processes to make the foregin investment climate more
attractive. (Datamonitor, 2010).
Market Size and Growth
The Chinese baby food market generated total revenues of $109.3 million in 2009, representing a
compound annual growth rate (CAGR) of 7.1% for the period spanning 2005-2009. The performance of
the market is forecast to accelerate, with an anticipated CAGR of 7.2% for the five year period 2009-
2014, which is expected to drive the market to a value of $154.6 million by the end of 2014. The Chinese
baby food market grew by 2.7% in 2009 to reach a volume of 26.3 million kilograms. Baby cereals sales
proved the most lucrative for the Chinese baby food market in 2009, generating total revenues of $97
million, equivalent to 88.8% of the market's overall value. In comparison, sales of baby snacks generated
revenues of $8.5 million in 2009, equating to 7.8% of the market's aggregate revenues (Datamonitor,
2010).
Table 1: Market size (Source: Data Monitor)
China Baby Food Market Value: $ Million, 2005-2009
Year $ Million CNY million % Growth
2005 83.1 568.3 n/a
2006 88.9 607.9 7
2007 95.1 650.7 7
2008 101.9 697.1 7.1
2009 109.3 747.5 7.2
Intensity of Comeptetion
Nestle S.A. is the leading player in the Chinese baby food market, generating 45.9% share of the
market's value. H.J. Heinz Company accounts for a further 24.5% of the market. The Chinese baby food
industry is highly concentrated, with leading players such as Nestle, H.J. Heinz and Hangzhou Beingmate
Group. Supermarkets/hypermarkets form the most significant distribution channel in the market.
Industry players are reliant on suppliers for raw materials which must be of a certain quality to ensure
June 5, 2011
MBA Course Work: International Marketing UB: 10019750
8
consistency in products and therefore brand loyalty. The healthy growth in the baby food market serves
to entice new entrants and ease rivalry between players. (Datamonitor, 2010).
Direct and Indirect Trade Barriers
The impact of both direct and indirect trade barriers is likely to be a shift towards performing various
functions such as sourcing, production and developing marketing tactics in the local market (Hollensen,
2007). China imposes a direct tax of 130% custom duty on imported goods, making them 2.3 (product
price + 1.3 times product price) times costiler in host country than in the base country. In addition, an
indirect tax of 17% as Value Added Tax (VAT), is imposed on retail purchase (China Custom Duty on Baby
Food, ND).
Types of entry mode in International markets: Depending on the international experience, organization size and motivation, an organization can
choose one of the following ways to enter into International market.
Exporting
o Direct Exporting
o Indirect Exporting
46%
24%
11%
19%
Nestle S.A
H.J. Heinz Company
Hangzhou BeingmateGroup Co., Ltd
Others
June 5, 2011
MBA Course Work: International Marketing UB: 10019750