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Chew Xin Rong
I have been a chosen by Joe Blogs the CEO of Dats Plc a company specialize in in selling formal attire and handbags to high income customers to conduct a market research because he would like to increase the revenue of the business through expanding. They currently have a production area which is located in Malaysia, Jaya Industrial Estate. In their current factory there are around 40 staff and 4 managers who each has 10 staff working under them. Annually Dats Plc earns a total of RM 8,000,000 with a net Profits of RM 400, 00. The Average of Price of goods are Rm 2000 with the cost of goods sold of RM 950.
Based on the PEST analysis where I use the Political, economic, social and technological factors to build an image of the forces of change that the company is exposed to. I therefore propose that Dats Plc should expand to Indonesia.
Indonesia is identified as a democratic country which indicates that Indonesia is a country that is ran by elected individuals which recently a very business oriented president was elected to office therefore it is expected that under his admiration both foreign and local business will flourish which will lead to a more stable Indonesia which is apparent in the increase of employment due to a more stimulated economy.
In Indonesia the rate of corporate tax is 25% which is the same back in Malaysia which is good considering that the revenue will remain RM 8,000,000 but unlike Malaysia social product like clothes cannot be subjected to GST therefore reducing the cost of the product.
With the election of President Joko Widodo the political climate of Indonesia had change where in the past the business relation between Indonesia and Malaysia is shaky at best but with President Joko Widodo in power he is strengthening business ties with Malaysia by inviting Malaysian businessman to invest in manufacturing, tourism and infrastructure which have been identified as three key areas of growth under his leadership.
In terms of corruption, Indonesia is ranked 174 out 177 country which makes the level of corruption relatively low. By doing business in a country that has low corruption ensures that the resources won’t be tempered and used irresponsibly so that the business can be ran as effective as possible.
Unfortunately, during this time Indonesia is going through the depression phase of the business cycle where a continuous decrease of output, income, employment, prices and profits were present due to the fall in volume of output and trade.
The economic globalization has impacted the country positively, with the trend of foreign production company moving to developing countries in South East Asia due to the abundances of natural resources.
In comparison to Malaysia, the minimum wage of Indonesia is $215 dollars per month which is $66 lower than the average minimum wage of Malaysia according to a report publish by the Wall Street Journal. Due to a lower employment cost the company can save money on hiring employees and increase profits.
The Population in Indonesia is considered the world 4th largest population with an estimated of 253,899,536. Considering of that 66.5 per cent of the population are between the ages of 15 and 64. It can be safety assumed that the there is an abundance of labor at competitive cost which will contribute to an competitive advantage for production
According to the chart above, it shows that Indonesia has a healthy population where the number of the population is expected to increase tremendously over one hundred years which will contribute to the a more completive work environment. In terms of education, Indonesia is ranked the worst in the world which will potentially indicate that there will be a surplus of uneducated workers which probably effect their pay which will increase profitability of the company.
Generally, Indonesians see work as a job rather than a career therefore some of them will not feel committed work. At worst, Indonesians tend to ignore work quality, are not punctual in their arrival but are in their departure and they are also not concerned in meeting the deadline so this are things that will affect the company’s efficiency therefore this need to take into account.
Indonesia has an effective and highly develop transport system with 139 airport, railways covering 8529 km and water ways covering 21579 km with major ports covering Banjarmasin, Belawan, Ciwandan, Kotabaru, Krueg Geukueh, Palembang, Panjang, SungaiPakning, Tanjung Perak, Tanjung Priok. With this DATS PLC can have the good transported with ease and with greater efficacy.
The communication system is also highly developed which is maintains the use of landline of 17.33 million people in addition to 83.3 million people that uses cellular mobiles. There are also domestic satellite communications system coverage which enhances the communication system this is very beneficial to a company like DATLS PLC where maintain communication with the main branch in Malaysia is important to report the situation in the potential branch in Indonesia.
After analyzing the country using the PEST I recommend that DATS PLC should open a new production faction in Indonesia mainly due to cheaper labor cost and a higher volume of workers. DATS PLC should also produce the high end product for developed in the South East Asia region such as Singapore and Brunei.
Growing a small company like DATS PLC will never be easy. Research suggest that only a tiny percentage of company in the world will reach an annual income of 250 million. In other words, most business that start small will stay small so to expand. There are two ways to expand, which is through Intensive growth and Integrative Growth.
Intensive Growth is a way where a company can get from point A to B. According to McFarland, an entrepreneur and former top 500 CEO said that “Growth strategies resemble a kind of ladder, where lower-level rungs present less risk but maybe less quick-growth impact.” So it is important for new company to develop a growth strategy. They are 5 types of strategy such as Market penetration, Market Development, Alternative Channels and Product Development
- Market Penetration
Market penetration is where new product is trying to penetrate to a new market through strategies such as bundling, advertising, lower prices and volume discounts.
- Market Development
Market Development is a business strategy whereby a business attempts to find a new group of buyers as potential customers for its existing products and services. This strategy is used to increase sales by expanding into untapped markets.
- Alternative Channels
This growth strategy involves pursuing customers in a different channels such as the use of e-commerce. For example by using the internet as a means for customers to access to buy your product or services in a new way.
- Product Development
Product development is a strategy which involves developing new products to sell to your existing customers as well as to new ones because selling product to your existing customer is far less risky.
The growth is gradual and it is easier to handle growth
Aggressive competitors will overtake your company
Profit of the firm can be reinvested for improving and expanding of product range
As your company expands, it will get more complicated therefore some of the direct control will be delegate to other people
Existing resources of the firm are fully utilized
Economies of large scale operations are achieved
Integrative growth strategies is in which a company increases its sales and profits through acquiring one or more of its suppliers to gain more control and generates more profits.
- Horizontal growth
This growth strategy of horizontal growth involve buying other business to add into the growth of your company. It also eliminates another barrier standing your way of your future growth.
- Backward Growth
A backward integrative growth involves of buying your suppliers as a way to better control your supply chain. By doing so can help you to develop new product faster and cheaper.
- Forward Growth
A forward growth strategy involves the acquisitions of component companies that are part of your distribution chain.
Eliminates your competitions
Develop new product faster and cheaper.
Helps companies to enter foreign market
Considering that DATS PLC is going into a foreign market, I suggest that they should use Integrative Growth Strategies because by buying local companies can give the company a much needed jump start so that it can compete with the other local companies. In addition by growing through acquiring other company DATS PLC could be dominate the market.
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