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In the following assignment I will be going over the case overview, issues, requirements, way of assessing and understanding unfamiliar markets, how to develop market entry strategy, basic market entry decision, methods of entering, barriers to market entry, how to build internal skills of company, training methods, management development, HR manager role, building single global strategy, regional strategy, why it is good to enter in Ukraine and Eastern Bloc, and finally the conclusion.
Overview of the Case
Based in east of England, Metricum which is a well established international SME manufactures materials handling equipment. It has a wholly owned subsidiary in Romania from which they source raw material and has manufacturing bases in Sweden and China. Till now company is exporting to over 40 countries and is doing well, but with the changing time market place is becoming competitive day by day. Therefore, to avoid this competitiveness Metricum shakes hand with their Chinese competitor. As a result, today about 25% of their production is based in China.
At the same time some privatized Romanian firm hit financial troubles and was taken back by the State to re-privatize. Will Hatton, the CEO of the Metricum thought this would be great opportunity to buy this firm which would then safeguard their supplies and protect their margins. And with the final Chairman's decision Metricum purchased 95% of the equity of the firm.
Currently turnover generated is divided 25% in each of four areas: UK, Sweden, China, and Romania. As of now China produces standard products, the UK and Sweden produce innovative products, and Romanian firm is just running 20% of capacity.
Case issue and requirement
With the changing time and mounting competition Will Hatton, the CEO, and his team are seeking the need to explore the other Eastern Bloc countries such as, Hungary, Poland, Ukraine, etc which are less developed but has good market place for their products. But they are not sure how to assess the market potential, the competition, and the best route to enter these markets.
Therefore, as per the need to improve their ability to scan these international markets, Metricum wish to work with and external consultant. So that they can help them to examine these markets, and give them good business strategy and advice on how to enter these markets keeping in mind the market entry options, barriers, and consequences of the venture in terms of capabilities and resources within the company.
Assessing and Understanding unfamiliar markets/ Market Intelligence Report: UKRAINE
Introduction of Ukraine
Ukraine is located in the middle of Eastern Europe and acquires an area of 603,700 sq km. It is the second largest country in Europe after Russia. Ukraine is a part of Eastern Bloc countries, which also include nations like; Poland, Hungary, Albania, Romania, etc.
Due to the previous legacy of the communist party, Ukraine's current Government structure is also very corrupt. Besides this because of low wages people don't do their job fairly and therefore engaging in crimes and illegal activities which disturbs the whole system. Therefore, due to this economic instability it's hard to keep up with good business environment and investment climate.(ref 1)
Ways to know about Ukraine market as per my view/opinion
Predictability and Stability of the Legal Framework
Due to lack of stable legal environment there is high risk in doing business in Ukraine.
Establishing a transparent, sustainable and fair national legal system is essential to attract
a stable flow of foreign investments to Ukraine. The deficiencies of the legal framework create obstacles to foreign companies which have already started their business in Ukraine and strongly discourage those willing to come.
The judiciary is a key element to ensure lawfulness in the country, in particular regarding protection of investors' rights provided by certain laws. Despite the enactment of the Ukrainian Law on Judiciary, the judicial power in Ukraine is still weak and lacks independence, remaining a major stumbling block in establishing a proper legislative framework. Another serious concern is the poor enforcement of court decisions.
One of the most important things for small and medium investors to set up and develop a business is an easy access to finances. At the current stage of development, bank credit is the most widespread source of firms' financing in Ukraine, but it cannot satisfy the existing needs for loanable funds, due to the high interest rates and short maturities of the disbursed loans. Other alternatives for raising capital, such as the issue of corporate bonds or public offerings, are rare due to the underdevelopment of the financial markets.
The imperfect land law is one of the greatest barriers to the attraction of foreign investment in
Ukraine. The majority of investors are restricted in land ownership in Ukraine. This results in a situation when new foreign investors, who would like to invest in the national or regional
economy in Ukraine, encounter artificially created obstacles in acquiring land property into their
ownership, and choose to invest in other countries.
Transparency of the Banking System
The Ukrainian banking system is known for its absence of transparency, especially in respect of
the beneficial owners of commercial banks in Ukraine. As of today, the National Bank of Ukraine (hereinafter - the NBU) does not possess reliable information about the beneficial owners of a significant number of Ukrainian commercial banks.
Ukrainian commercial banks with unknown owners can potentially become avenues for money laundering and non-transparent transactions and it will be impossible to hold the beneficial owners of such a commercial bank liable, because the beneficial owners of commercial banks are not known to the NBU. It can also be possible that such commercial banks can create fraudulent schemes for attracting funds from the public at large and cannot be held accountable for them.
Investors' perception of the Ukrainian tax system is an unpredictable. When tax reform is unpredictable for investors, they cannot make well-grounded decisions about
investments that means deferring or declining investment activity. Unfortunately, in the last five to seven years, Ukraine has gained a reputation as a country with an unpredictable tax system due to repeated (often retroactive) changes in legislation, failure to proceed with declared intentions and schedules for tax reform, and many cases of one-sided fiscal interpretation of the law by the tax authorities.
How to develop Market Entry Strategy
When a company makes the commitment to go international, it must choose an entry strategy. The choice of entry strategy depends on:
Market characteristics (such as potential sales, strategic importance, cultural differences, and country restrictions)
Company capabilities and characteristics, including the degree of near-market knowledge, marketing involvement
Finally, commitment that management is prepared to make after analyzing
Basic market entry decisions
Which markets to enter?
When to enter the markets?
What scale of entry?
Which Foreign Markets to Enter in Eastern Bloc Countries
Politically stable developed and developing nations.
Free market systems
No dramatic upsurge in inflation or private-sector debt.
Politically unstable developing nations with a mixed or command economy or where speculative financial bubbles have led to excess borrowing.
Timing of Entry
Advantages in early market entry:
Build sales volume
Move down experience curve and achieve cost advantage
Create switching costs
First mover disadvantage - pioneering costs
Changes in government policy (ref 3)
Types of Market Entry Strategy
There are four different modes of foreign market entry from which any company can select: (look in exhibit 11.2)
1) Exporting (Internet, Exporter, Importer, Distributor, Direct sales)
2) Contractual Agreement (Licensing and franchising)
3) Strategic Alliance
4) Ownership (Joint ventures and FDI)
4.5 My views on market entry strategy
According to me there are only two ways that company should enter in Ukrainian market and that is either by exporting or by having joint venture with some other local materials Handling Equipment Company who knows the market conditions well. So let me explain you both market entry strategies one by one and tell you why it is better for company to take these market entry strategies.
Exporting can be either direct or indirect
In direct exporting the company sells to a customer in another country
In contrast, indirect exporting usually means that the company sells to a buyer (importer or distributor) in the home country who in turn exports the product
The Internet is becoming increasingly important as a foreign market entry method http://www.scribd.com/doc/30971035/Entry-Strategies
According to me exporting is a good option for the company, and I can say this because of the following advantages that the company will have if they involve in direct exporting;
Avoids cost of establishing manufacturing operations
May help achieve experience curve and location economies
Minimizes political risk
Useful when market potential is hard to assess
Offers channel flexibility
Offers ease in market withdrawal
4.5.2 International Joint Ventures :
A joint venture is a partnership of two or more participating companies that have joined forces to create a separate legal entity
Four factors are associated with joint ventures:
JVs are established, separate, legal entities
they acknowledge intent by the partners to share in the management of the JV
they are partnerships between legally incorporated entities such as companies, chartered organizations, or governments, and not between individuals
equity positions are held by each of the partners
According to me it is one of the other good options for the company to start its business in Ukraine. I can say this because by doing this company will have many advantages which are as follows;
Benefit from local partner's knowledge
Shared costs/risks with partner
Reduced political risk
Higher rate of return and more control over the operations
Creation of synergy
Sharing of resources
Access to distribution network
Contact with local suppliers and government officials
Barriers and consequences of market entry
Intellectual patents and ownership of technology - but patents are needed to provide an incentive to invest
Expertise and reputation of the incumbent - intangibles
Licences are important such as professional qualifications
Inherent suspicion among consumers about new ideas - behavioural economics tells us that many people are quite happy with their default choices - it may take a while for any change in preferences to occur. http://www.tutor2u.net/blog/index.php/economics/comments/barriers-to-entry/
Regulations and legislation involving employing people
Instability of tax and country's regulatory policy
High interest rates
Corruption level is very high
It's customs and trade regulation
Process required to build internal skills and knowledge base of the company
According to me company already has all the skills needed for the organization to run successfully. That is why it's been doing good business from last 28 years and is well established in four major countries at present.
But with the changing time one has to change and especially when you are moving to new market place. With the new market place to enter one has to replace and come up with new skills, strategies, rules, training methods, learning, motivation, etc for their new or existing employees.
Besides this management development is also required which is basically an attempt to improve managerial performance by imparting knowledge, changing attitudes, or increasing skills by giving them on the job training, job rotation, coaching, etc.
At the end HR Manager should be appointed who should keep an eye on everybody's performance. Besides this HR Manager will also keep in mind that who has better adapted and overcame the resistance to change. Finally, looking the above factors he or she will decide that who goes and who stays.
There are many ways that can help company to build and improve its internal skills and knowledge. Few ways that I think is best suited for company are as follows:
Analyzing Training Needs
As we will be opening business in new market place it is certain that training methods has to be re-evaluated as per the customer and location needs. Therefore analyzing current employees training needs will be more complex. This could be because of the standards aren't clear or because person is not motivated.
Different Training Methods that can be used
By doing so you can help employees by providing them with step by step instructions on how they have to perform in new market place. Examples of training methods are as follows:
On the Job Training
It means that the person learn a job by actually doing it. Here, an experienced worker or the trainee's supervisor trains the employee.
Advantages of OJT
Trainees learn while producing
No need for expensive off-site facilities like; classroom
Trainees learn quick
It is a self learning method that consists of three parts:
Presenting questions, facts, or problems to the learner
Allowing the person to respond
Providing feedback on the accuracy of answers
Advantages of Programmed Learning
Reduces training time
Lets trainees learn at their own pace
Provide immediate feedback
Reduces learner's risk of error
Computer Based Training
It's when trainee uses interactive computer base system to increase his or her knowledge or skills. It integrates the use of text, video, graphics, photos, and sound to produce a complex training environment with which the trainee interacts.
Advantages of Computer Based Training
Interactive technologies reduce learning time by 50%
Instructional consistency (unlike human trainers, don't have good or bad days)
Increase trainee motivation by giving feedback
It's an attempt to improve managerial performance by imparting knowledge, changing attitudes, or increasing skills. There are two different ways of improving management development and they are as follows:
Managerial On the Job Training
Managerial on the job training methods include job rotation and coaching approach.
It's moving management trainees from department to department to broaden their understanding of all parts of the business.
Here trainee works directly with a senior manager or with the person he or she is to replace.
Managerial Off the Job Training
Managerial off the job training methods include the case study method and management games.
The Case Study Method
It is when a case study method presents a trainee with a written description of an organizational problem. The person then tries to analyze the problem and come up with solution.
It is when trainees divide into five or six person groups, each of which competes with the others in a simulated market place. This show their decision making skills and problem solving method.
6.4 HR Manager's Role
According to me an existing company's HR Manager should be appointed for the new market place accompanying by new HR Manager who understands Ukraine working conditions, working environment, language, culture, and most important the business environment.
The existing HR manager of company who is well known and experienced with the company's aspects such as, its strategy, culture, structure, technologies or attitudes and skills that employees should have while working in this company. And with the help of new HR manager he or she will get a better knowledge and understanding of the new working conditions and environment in Ukraine. Structural change may require performance reviews to decide who stay and who goes, as well as job analysis, personnel planning, and revised employee selection standards. Changing the employees' attitudes, skills, and behavior typically triggers a wide range of new human resource efforts due to which it is must to appoint a good HR manager. And this could only be done if both old and new HR Manager come together and work towards the best of the company.
Therefore keeping all these things in minds HR manager should pay special attention to the following techniques:
How to overcome resistance to change
How to organize and lead an organizational change, and
How to use a technique known as organizational development.
According to me these techniques can meet by keeping in mind the following new model for the organizational development and succeeding in new market place. The 3 techniques are as follows:
Unfreezing - by this I mean that reducing the forces that are striving to maintain the status quo, usually by presenting a provocative problem or event to get people to recognize the need for change and to search for new solutions.
Moving- it means developing new behaviors, values, and attitudes according to the currents needs and market place. The aim is to alter employees' behavior.
Refreezing- after getting adapt in their new behavior employees should be refreeze in this new equilibrium. Besides this a new compensation plans and appraisal process should be involved to keep employees motivated towards the change.
Building a Single Global Strategy/ Consequences / Other options(resources)
Globalization is the process of expanding a business or service outside of the country of
origin into international markets. Examples include eBay, and Sony among many others.
The benefits of globalization include the opening up of free trade among the countries
where new business will be established. With dwindling markets in a single country,
businesses are looking for global presence through alliances with foreign market industry
leaders. For example, the AOL marketshare in the United States has continued to dwindle and in order to survive AOL felt it had to expand outside the US. AOL has lobbied hard to gain
ground as a Internet telecommunications resource. It formed AOL Europe in the attempt
to get ahead of other U.S. telecommunication companies (Deresky, 2007).
Single Global Strategy
Some industries benefits from single global strategy than others industries. To create a successful global strategy, managers first must understand the nature of global industries and the dynamics of global competition. A well designed single global strategy can help firm to gain a competitive advantage.
According to me a single Global Strategy can only work if the following factors are present in all the geographical areas in which company is operating, such as;
Product is same in all countries
Effective when differences between countries are small
If company has an advantages: cost, coordinated activities, faster product development
Consequences of Single Global Strategy
People living in different countries have different tastes and requirements, due to difference in their language, culture, norms, society, background, etc. Therefore sticking to a single global strategy can create a lot of problems and issues for the company to succeed. Due to this company can face a lot of consequences, such as;
Losing customers- because what may be liked in one country doesn't mean that it will be liked in other countries as well.
Hurting its brand name- due to enforcing their same product everywhere, without thinking about customer needs.
Work force issues- different countries has different values and working environment. Therefore, forcing them to do things according to company's way could arise disputes between the labor and management.
Other Option- 'Regional Strategy'
With the changing time one has to change and therefore adapt to new ideas and options available in order to perform better. Therefore, I think that though single global strategy is good for a business but at the same time it cannot apply in every industry or company. This is because of the cultural, regional, governmental, ethnical differences the country has from one another.
Due to this fact I would like to advice Metricum that they should try to adapt to new Regional Strategy. I am saying this because focusing on a regional expansion is less cumbersome than a global front due to the reduced level of complexity. For example the multicultural barriers alone can be a challenge. As in the case of Wal-Mart attempting to move into Germany. Due to cultural differences such as packaging meats and having greeters were not acceptable behaviors in that area of the world. These and several other cultural and regional differences between the U.S. and Germany cost Wal-Mart millions of dollars as they had to pull out of thecountry (Deresky, 2007).
According to me regionalization strategy allows the locals within a foreign country to run the business locally within a multinational corporate strategy. In this way local suppliers,
management, and employees are able to bring input from their experience with the local
markets and customers to the success of the outside company attempting to enter. With all this it helps company to regain its profits and at the same time it wins over its customers trust. This builds a long term relationship with the customers, which is what the company wants for its ongoing profits and business.
Advantages of Regional Strategy
Product customized for each market
Decentralized control- local decision making
Effective when large differences exist between countries
Other advantages: product differentiation, minimize political and exchange rate risk
Is It Good to Enter Ukraine and other Eastern Bloc Countries and why?
Looking at the overall scenario I would like to recommend Metricum that they should enter Ukraine. I am saying this because in today's globalization era one should expand as much as they can to increase its market share and profits as well but keeping in mind that if their products is required in the market they wish to enter. Because if Metricum don't have its product necessity in the market, it's just wasting its time and money.
But in this case looking at the Ukrainian market one can easily make out that Ukraine has a lot of minerals, timber, etc for which there is a urgent and abundant need of materials handling equipment. On the other hand the country is still on a developing stage which shows that it is a good time to enter market, due to the need of the material handling products which is very much required by the country at current period. Therefore, the sooner the company will enter the better it is. It is because the company will get on the first mover advantage and can tap the market easily. Because till now there are only few local and international competitors who cannot compete on a large scale like, Metricum. It is because company has a manufacturing plant next door in Romania from where they can easily export. Due to this Metricum get a huge advantage in providing customers with the products very sooner than others.
On the other hand as I have said in the starting that Ukrainian market is not good to do business because of their poor instability in legal framework, judiciary, financial sector, banking sector, and corrupted tax system. But who doesn't have problems; all countries have one or the other problems. So it doesn't mean that one should not enter the market, and lose on its market share and business. This is the reason why I gave an option of Joint Venture in market entry strategy. By doing joint venture with some other local Material Handling Equipment company, Metricum will reduce its market entry barriers and would able to do better with the benefit from local partner's knowledge. This will help Metricum to establish itself in Ukraine and spread its business.
Finally, once they are well established in Ukraine, they should think about other Eastern Bloc countries. The reason I am saying this because first they have to look how they do in Ukraine, as it is the biggest country out of all the Eastern Bloc. If they do well in Ukraine, no doubt that they will be able to perform well in other Eastern Bloc countries as well.
At last I would like to say that if given a chance Metricum would do marvelous job in doing business and expanding itself in Ukraine and other Eastern Bloc countries. This will not only make Metricum globally well known, but would also increase its market share in this competitive globalization era.