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The company is going to be involved in the automative market. The car company must be fictitious but doing very successfully in its domestic country, competing with all the other real car companies. The brand of the car is called Essence and its domestic Market is Dubai

Overview of Essence, it's product, it's target market and the nature of it's competitive advantage

Essence is one of the most successful car manufacturers in Dubai. Dubai has experienced the most rapid growth in the automobile market of any of the UAE, and now accounts for nearly 50% of the total vehicle stock. The four wheel drive sector is particularly strong: outside Australia, the UAE is the world's second largest per capita market for four wheel drive vehicles (UAE Business Forecast Report, 2005). However, the Emirates lacks a significant domestic automobile production capacity, instead traditionally relying on imported vehicles, mainly from Japan which has historically provided around two thirds of the vehicles sold in the country, with Europe providing a further 20 per cent and the USA around five per cent. However, Dubai is increasingly looking to develop its economy and domestic industries, making it a hub for businesses wanting to operate in the region. Subsequently it is the most proactive of the emirates in promoting local entrepreneurs to start up new business ventures (UAE Business Forecast Report, 2005).

As such, the founder of Essence saw an opportunity to enter the market in Dubai with a luxury four wheel drive range of cars targeting the richest section of Dubai society. Finance to construct a factory was raised with government backing, and Dubai's existing supply networks have been tapped to obtain raw materials. Initially, demand for the vehicles was low but, seeing this as an ideal opportunity to boost the internal economy and reduce the demand on imports, the UAE government ordered over 1,000 vehicles to serve the security, police and other services. This was a major boost to the company's image and, in the wake of anti Western sentiment over the 2003 invasion of Iraq, Essence was able to secure a 12% market share, mainly as the expense of the American and British based importers, but also from the Japanese. As such, Essence is now the third largest supplier to the UAE, after Nissan and Toyota.

The main competitive advantage possessed by Essence is the fact that it is an Arab manufacturer, and thus appeals to the local population. Also, around 60-70% of motor vehicles sold in the UAE are financed through installment schemes (UAE Business Forecast Report, 2005). Essence has used this to its advantage by partnering with the local banks in Dubai to ensure that it's schemes are both Sharia compliant and more competitive than that of its foreign rivals. The directors of Essence also successfully recruited some of the best local engineers, and thus have significant experience in designing cars to stand up to the pressures of operating in the harsh Middle Eastern climate. Indeed, the company markets itself as luxury designed to last: it's cars are as comfortable and well fitted out as any modern luxury saloon car, but are also designed to function well in all conditions. Finally, the company has the backing of the UAE government, and is seen as a flagship for independent Middle Eastern development.

The criteria which the firm should use for international market analysis and appraisal, together with rationale and identification of minimum / maximum / desired threshold level for each criterion in order for a country to be selected

Both the directors of Essence and the Dubai government have recognised that, in order to be truly recognised as a success, and to have a significant long term impact on the country's economy and prestige, Essence must expand abroad. However, as the brand is not well known or recognised outside Dubai and the UAE, this expansion must be handled carefully, to avoid damaging the reputation of the brand, both on a global level and in the Emirates themselves. As such, it is important to select the correct international markets to ensure that there is sufficient demand for the cars, and sufficient brand recognition and acceptance.

As the brand is a luxury brand, it is important to choose countries with a sufficient degree of affluence. Essence's cars cost between $30,000 and $60,000 each for the basic models, with several customisation options for discerning customers. As such, the company is best positioned to compete in markets with a higher than average GDP per capita, indicating a general level of affluence and the ability to spend money on both acquiring and running a car. As the cars are all four wheel drive models, they have higher running and maintenance costs than standard models, using more petrol and requiring more and frequent servicing. This is especially so when the cars are used in the desert, where they are designed to be used, where sand and corrosion are ever present problems, and can be expensive to repair. However, as the cars are luxury vehicles, and targeted at the top end of the market, GDP per capita may not be the most appropriate method for measuring the number of people who can afford the cars. Indeed, if the figures can be found, it would be more appropriate to base the decision on the number of people in affluent social classes, as Essence's market research has revealed that the people purchasing their vehicles are primarily in the AB social classes. Ideally the target market will have an average GDP per capita of over $20,000, and as high as possible a proportion of people in the AB social classes.

Four wheel drive off road vehicles tend to be more difficult to drive than conventional two wheel drive vehicles. If this factor is combined with the cost of the cars and the prestige factor, it appears clear that Essence must target an existing large and fairly well developed market, where a significant proportion of the population are familiar with cars, and many already own a car. This is because Essence is unlikely to create demand in any country where it does not already exist: Essence cars are seen as an upgrade to existing makes and models, and are generally too expensive for people looking for a car for functional purposes. As such, the number of cars per thousand people should be considered as an indicator of whether a country is ready for Essence to enter. The number should ideally be over 200 cars per thousand people, however this could be ignored if the number of cars in the country is expected to grow rapidly in the future, such as for developing nations like China and India.

Essence also has a proven track record of marketing its cars in the predominantly Arab UAE, as well as a strong cultural brand and wide appeal among Muslims, helped by the offer of Sharia finance schemes. This implies that the next market to target should be a predominantly Muslim nation, as this would give Essence an extra advantage over its competitors. Alternatively, a culturally diverse nation which tolerates a variety of religions would be a possible target, especially if that nation had a high proportion of immigrants from the Middle East and the surrounding regions. However, countering this, the brand's strong associations with Arab and Muslim culture means it is unlikely to succeed in a nation which has present or historical animosity towards the Arab states.

Essence's cars are marketed as being luxury vehicles, but able to withstand severe hardships and poor conditions. As such, they are best suited to use in countries where conditions are harsh, particularly where the roads are poor or there are significant stretches of desert which may need to be crossed. However, there is an increasing trend for many consumers in countries such as America to choose big, four wheel drive cars over smaller and more practical models (Hakim, 2002). As such, whilst Essence's cars have a natural appeal to countries in the Middle East and Africa, this appeal and tough image may make the car attractive to the 'muscle car' markets in other countries, particularly the affluent nations where Essence's target market is most prominent. As such, there are two considerations that Essence needs to examine. The first is the climate of the target market, including any hostile local conditions or rough terrain which may require robust vehicles. The second is the demand for four wheel drive vehicles, as this will increase the size of Essence's target market, although it may also make it more attractive to the company's competitors.

Use of criteria in section 2 to narrow candidate countries from 25 down to top 5 international markets chosen, in order of priority

The first step is to find the most affluent countries, defined as those with GDP per capita of above $20,000. The IMF (2007) reports that there are thirty such countries:

CountryGDP Per Capita ($)

However, of these countries, Essence is already operating in the United Arab Emirates. As such, the initial 25 countries will be the 25 countries with the top GDP per capita. These are:

Luxembourg, Norway, Qatar, Iceland, Switzerland, Denmark, Ireland, United States, Sweden, Netherlands, Finland, United Kingdom, Austria, Canada, Belgium, Australia, France, Germany, Japan, Italy, Kuwait, Brunei Darussalam, Singapore, Spain and Greece.

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With regards to the number of cars per thousand people, the World Bank (2007) figures indicate that the majority of countries with high GDP per capita are also those with a high number of cars per thousand people:

Country/Number of cars per thousand people

As such, from the overlap between these countries and the initial 25, the top 15 potential markets for future expansion are:

Norway, Denmark, United States, Sweden, Netherlands, Finland, United Kingdom, Austria, Canada, Belgium, Australia, France, Germany, Japan, Italy

Ireland has been excluded as it has the lowest number of cars per thousand people, and also a fairly low population: 4.1 million (Central Intelligence Agency, 2007) when compared to other low car owning countries such as Denmark with 5.5 million, the United Kingdom with 60.8 million and the Netherlands with 16.6 million (Central Intelligence Agency, 2007). This makes Ireland considerably less attractive as a market than the other nations.

The next consideration is the extent of the country's Muslim population, and the country's corresponding familiarity with Muslim culture. The CIA (2007) gives the following figures for the chosen 15:

Country/Number of Muslims

As such, given the lack of a Muslim community of any note in the last five countries, they should not be chosen as markets for entry. As a result, the top ten markets chosen are:

Norway, Denmark, United States, Netherlands,United Kingdom, Austria, Canada, Australia, France, Germany

To further narrow these candidates down into the top five countries, it was initially proposed that the countries' geographic and climate factors would be used. However, given that the top four countries in this study have such a large number of Muslims, they will be taken as part of the final five, regardless of geographic factors. This is because of the growth of four wheel drive and off road vehicles for standard usage in several western nations, including the US (Hakim, 2002). As such, geographic factors will only be used to distinguish between the Netherlands and Canada.

The Netherlands is described as a temperate, marine nation with cool summers and mild winters. It's terrain is characterised by coastal lowland, significant amounts of which is reclaimed, with some minor hills in the south east of the country. In contrast, the Canadian climate varies from temperate lands in south to subarctic and arctic tundra in the north. The terrain is mostly wide plains, with mountains in the west and lowlands in the south east. As such, the Canadian climate and terrain is much more suitable for four wheel drive users, and so the top five global markets for Essence to enter are:

1. The United States. The US has the largest Muslim population of any of the developed nations with high numbers of car users. It also has the largest economy in the world and a culture which tends to favour powerful, four wheel drive, 'muscle' cars.

2. Germany. Whilst Germany has fewer Muslims than France, it has a higher number of cars per thousand people and a larger population: 82.4 millions versus France's 60.9 million (Central Intelligence Agency, 2007). This makes Germany the third largest economy in the world, giving it a substantial luxury car market.

3. France. As mentioned above, France has a large Muslim community, almost as large as the US, and a very well off population. This makes it a large market, with substantial levels of car ownership.

4. The United Kingdom. The UK has the smallest number of cars per thousand people of the top five target nations, which is possibly due to its small size and high population density. However, the UK has the highest GDP per capita of any of the G8 nations aside from the US (IMF, 2007), making it a large and lucrative market.

5. Canada has the smallest number of Muslims of any of the top five nations. However, it's varying, and often harsh, climate, large size and affluent population make it a potential market for Essence to target.

Details of preferred market entry modes for each of the top five countries, together with rationale

The United States is currently pursuing increasingly protectionist policies with regards to foreign trade, attempting to defend US industries from foreign competition (Scheve and Slaughter, 2007). As such, any attempt to directly export cars to the United States would possibly be met with import tariffs and other measures aimed at safeguarding America's domestic car manufacturers. This implies that the best way to enter the American market would be via partnership with one of the major American manufacturers such as Ford or General Motors. This would also give Essence better access to capital in the United States, where it will lack the direct financing support from the Dubai government. Essence should thus consider a joint venture with one of the major manufacturers, looking to use existing distribution networks wherever possible. This will have the added bonus of allowing Essence to serve the entire United States, rather than having to concentrate marketing efforts in one specific area.

Germany in contrast is pushing to remove trade barriers between the EU as a whole and several global nations (The Hankyoreh, 2007), and would likely appreciate the chance to develop closer trade relations with the Middle East, given the current global concerns around energy and oil. As such, Essence could likely directly export its car directly to Germany, possibly shipping them up the Red Sea and Suez canal and into an Italian or Greek port, or via land through Turkey. This would have the benefit of enabling Essence to use its existing production facilities, which could be expanded using the financial support of the Dubai government. However, it implies significant transportation costs and time, with cars potentially taking several weeks to reach the German market, which could prove problematic for serving the demanding luxury goods market. As such, Essence could consider manufacturing the basic cars in Dubai and customising them to specification in Germany itself.

As France is so geographically close to Germany, and pursuing similar trading policies, the same approach can also be used for France. The United Kingdom may be slightly different, as the UK car industry is much smaller than that of France and Germany (Central Intelligence Agency, 2007) hence it will be harder to find a local partner to help with the customisation process. As such, Essence should consider targeting France and/or Germany first and, once the export operation is running smoothly, use the French or German facilities to customise the cars for the UK market.

Canada is a very large, sparsely populated country. As such, exporting will likely be difficult as the cars will need to be distributed over long distances within Canada. The smaller market also makes a joint venture less desirable: the lack of scale will make it difficult to argue for the construction of an entire new factory with a local partner. As such, Essence should license its design to a Canadian manufacturer who can then produce, market, sell and distribute the cars within Canada. This removes a lot of risk from Essence, but the company will need to manage the relationship with the Canadian manufacturer carefully to ensure that the brand is promoted consistently so as not to damage its fledgling global reputation.

References

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