Serha Ltd - Opportunities on the German Market for Olive Oil - Case Study Example

BUSINESS PLAN: SERHA LTD OLIVE OIL DISTRIBUTION TO GERMANY MARKET Prepared by (Name) Institutional Affiliation Table of Contents 1.0 Business Plan Goal………………………………………………………………………………………………………………..3 2.0 Incorporation & Business License………………………………………………………………………………………….3 3.0 Analysis of the Economic Status of Germany………………………………………………………………………..3 4.0 Product Analysis……………………………………………………………………………………………………………………4 4.1 Product Description.………………………………………………………………………………………………..4 4.2 Production Specifications…………………………………………………………………………………………4 5 Trends Offering Opportunities on German Market for Olive Oil……………………………………………5 5.1 Trade Channels & Market Segments in Germany………………………………………………………….6 6. Competitor Analysis………………………………………………………………………………………………………………7 7.0 Political & Legal Concerns in Germany………………………………………………………………………………….9 8.0 Banking & Finance Needs……………………………………………………………………………………………………10 9.0 Employment Relations in Germany……………………………………………………………………………………..11 References/Sources………………………………………………………………………………………………………………………...12 1.0 Business Plan Goal The fundamental goal of this business plan lies in the creation of a document that will be utilised by senior managers to focus on how the Jordanian Company; Serha Ltd can internationalise its operations into the Germany market. The plan covers a total of 5 years whereby the Serha will be engaged in soliciting for olive oil product from the local markets an especially the small-scale farmers and help them to distribute these products to the Germany market. Serha will be required to plan for this capacity in order to ensure that olive oil delivery process and collection systems from these small-scale traders in Jordan makes it certain that it will meet the aforementioned objective. It is important to note that the business plan is focused on being used by Serha Ltd as a reference guide to the overall operations of the company and thus, takes into consideration the operations and events that will likely happen for the next five or so years. Despite the fact that the business plan is entirely based on a five-year window, it will be a living document that will be subjected to review twice per every year. 2.0 Incorporation & Business License The company is set to be incorporated as a Limited Liability Company under the Jordanian Companies Law 22 of 1997 (PKF, 2016). The fundamental legal stipulations that are needed for the establishment of the incorporation framework is entirely detailed in the corporations laws of the Kingdom. The company is owned by the small-scale traders in Jordan through ownership of specific percentage of shares that is directly related to their capacity to generate and provide olive oil products for distribution to the market in Germany (PKF, 2016). Serha Ltd main activities will this involve such specific activities as collection of olive oil related products from small-scale traders, verifying their immediate degree of quality and whether these products meet the stipulations set out in the international markets; soliciting for direct market in Germany and thereafter, sell or rather distribute to the agencies linked to the company in Germany (PKF, 2016). 3.0 Analysis of the Economic Status of Germany Despite the fact that Germany is currently experiencing a low per capita consumption of olive oil related products in comparison to other Mediterranean countries, it can be safely noted that it enjoys a prospect for growing overall market for high-quality olive oils (PWC, 2016). Considering the fact that more and more of German consumers are now incorporating olive oil into their cooking habits, the basis on the quality and traceability is coming out to be providing imminent opportunities for professional producers and committed specialty exporters from such developing countries as Jordan. Serha Ltd has a higher level of opportunity of distributing these products into the German markets since as at now; only a restricted number of developing countries have fully taken the stride of supplying olive oil directly to the market (PWC, 2016). In this regard, successful market access into this economy requires imminent level of efforts need to accomplish the underlying market’s organoleptic profiles and thereby ascertain that only necessary product placements and marketing is executed at Serha Ltd. Numerous researches position Germany as being one of Europe’s largest markets for olive oil. The overall consumption is indeed high and stabilised. In addition to this, the overall Germany market provides perfect opportunities for organic olive oil, which Serha Ltd is determined to collect and sale to the market. In the period between 2010 and 2014, the production of olive oil from such EU-based countries like Spain and Greece dwindled due to poor harvests thereby providing a perfect opportunity for other countries to fill in the gap that the European suppliers had left on the German markets (PWC, 2016). Currently, Germany is engaged in the importation of small amounts of olive oil directly from developing countries and given the underlying unpredictability of olive oil harvests; there is an opportunity for Serha Ltd to exploit in covering for the import gaps generated thereafter. There has been a steady import of the product at annual rate of 3% in volume and 6% in overall value. Basically, Germany operates under a social market economy, which translates to the fact that it revolved around the spirit of free enterprise but altered with the control mechanisms and other notable administrative of legal frameworks that are formulated to prevent enormous economic participation (Lane & Bachmann, 1996). Pertinent laws against unfair levels of competition that also extends to the anti-trust provisions as well as the overall protection of the environment and employees all adhere to the stipulations. The economy is characterised by a robust and well-developed trade union movement that is indeed important in establishing possible bargaining processes. Following this line of reasoning, there are exceptional few cases of industrial unrests that are linked to demarcation disputes (Lane & Bachmann, 1996). Despite the fact that the state does not engage in directly promoting the formulation of specific industries as an intentional act of policy, it however; provides a great deal of subsidies and other forms of assistance like R&D that would result to new marketable products. The retail and consumer industry is one of the most developed within the market. It currently employs more than 3M people while 1.5M work in consumer branded consumer goods industry. Taking into consideration that the company is currently enjoying £140B in market volumes, it can be safely argued that Germany has the largest retail market within the entire EU region (Lane & Bachmann, 1996). Food-related shopping presently accounts for more than 50% of retail sales. The leading five German food retailers that Serha Ltd can explore to distribute its olive oil products include Schwarz Group, Aldi, Edeka, Rewe and Metro Group, all of which they account for 75% of the overall food retail sales. 4.0 Product Analysis 4.1 Product Description Olive oil is a vegetable oil that is found from the olive fruit, which is a traditional tree crop of Mediterranean Basin. It is generated by way of grinding the entire olives and thereafter, extracting oil by way of mechanical or even chemical means. 4.2 Production Specifications The minimum level of requirements for olive oil products to the immediate producers across the globe is entirely covered by the Codex Alimentarius Standard for Olive Oils and Olive Pomace Oils; CODEX STAN 33-1981. This standard is directly engaged in emphasising on the need for quality factors, labelling; sampling and food additives as well as the numerous types of olive oils (Lane & Bachmann, 1996). As an industry standard, olive oil is categorised and labelled under the grades determined by the International Olive Council (IOC) that is applicable to all members including Germany as well as notable olive-oil producing countries. Olive oil grades are based on such basic factors as the type of processing, acidic value as well as flavour. Some of the most popular olive oil products revered in Germany include; extra-virgin olive, virgin olive oil and lampante olive oil. 5 Trends Offering Opportunities on German Market for Olive Oil The underlying authenticity of olive oils is considered to be of great importance to European markets, which also affects Germany as a whole. This factor is directly linked to the aspect of product composition and origin. In relation to product composition, a great number of reports indicate that oils that are sold as extra virgin oils in Germany would more than often fail to involve the composition that corresponds to this claim (CBI, 2016). As indicated in product specification, the nature of olive oil composition and its overall labelling process is concisely defined by legislation and they are vehemently monitored by the existing customs authorities and purchasers. Until 2009, EU did not mandate that olive oil labels to clearly stipulate their country of origin of the olives used in the generation of oils. However, after numerous fraudulent claims, the EU law was amended to include a provision for ‘made in’ in the labels. Nonetheless, there are still most of the customs and authorities including Germany that do not strictly adhere to this stipulation hence concealing the possibility of traceability prospects (CBI, 2016). Consequently, there is an increasing overall demand for specialty olive oils market in Germany. This trend is specially widening the scope of selling opportunities to the market. Even though a substantial degree of conventional supermarkets like Rewe engage in the selling of specialty oils, they are indeed commonly marketed through delicatessen shops and e-tailers within the online trading platform. The trend relating to specialty products is summarily driven by the consumer needs for traceability and authenticity of olive oil products (CBI, 2016). In essence, the average German consumer has been increasingly demanding lots of information that relates to the quality and origin of olive oils. Despite the fact that the price mark-ups are substantially higher in this higher-end market segment, there is a continual need for availing proper quality and supporting documentations. To effectively ensure a future survival into the German olive oil market, Serha Ltdas a supplier, should focus on maintaining consistency in upholding sensor attributes of taste and smell of their products for purposes of selling them as consumer products in Europe as a whole. In line with the shift witnessed towards ethical marketing, fair trade certification will be another form of growing trend for olive oils in Germany. The trend provides a fundamental opportunity for such developing suppliers as Serha Ltd to effectively distinguish their original sources. Fair trade certification is attributed to a positive social impact on Jordan as an important producing company as well as a fair pricing system for the suppliers (CBI, 2016). Presently, a substantial amount of fair trade products in Germany that include; olive oils is being sold in more than 800 ‘One World Stores’, a popular retail chain that offers a great variety of products exclusively from developing markets. Even conventional stores are currently engaged in the provision of a wider range of products with fair trade certification. While it is important to note that Fair-trade International/ FLOCERT significantly accounts for the enormous share of German market for fair-trade certified goods there are also other fair trade certifiers that include Ecocert Fair Trade and Fair for Life (CBI, 2016). The current retail market in Germany is presently in need of new packaging solutions for Olive oil like increased utilisation of aerosol packaging. Despite the fact that most of olive oils are still being packaged in in bottles or cans, industry analysts have linked these rather normal forms of packaging with issues that relate to flavour and quality (Lane & Bachmann, 1996). This new trend that is directed towards new packaging is entirely driven by the popularity garnered in the Mediterranean diet lifestyles as well as the ever-increasing consumer interest in convenience product purity and value. This presents a clear and concise opportunity for Serha Ltd to invest in the production of innovative packaging that complies with the entire EU legislation. Another major interesting trade development that relates to olive oil product distribution and expansion into the German markets relates to the widening of package-free retailers that seeks to cater for a niche market segment. Package-free retailers offer numerous products that include olive oil and are sold in bulk form, which is done in an effort to prevent possible excessive utilisation of packaging/ waste materials. Specialised and well-known retailers avail a platform for provision of bulk solutions to customers thereby enabling them to dispense tailored amounts of olive from vacuum-sealed stainless steel packages. This also provides a perfect opportunity to Serha Ltd given that it will help in eliminating the overall need for re-packaging the olive oil collected from the small-scale traders in Jordan into consumer packaging need in Jordan. 5.2 Trade Channels & Market Segments in Germany Trade Channels Both virgin and refine olive oil products can be allowed entrance into the German markets through two fundamental primary channels that include; first, through the intermediary roles of traders, which in this case is the importers or brokers or even directly to olive oil mills and blenders positioned in different areas of the country as a whole. Both of these market channels avail a perfect opportunity for brokers to enter the Germany market while significantly smaller suppliers of olive oil that are relatively newer to the entire European market, can easily enter through traders that enjoy wide networks in the market as a whole (Berger & Udell, 2002). Exporters that are able to supply large volumes of perfect quality and attractively priced oil are encouraged to develop long-term trade relations with olive oil mills and blenders. Olive oil is also adopted by the food processing industry in Germany and the entire EU region to generate a good number of food products like salad sauces and canned fish. A great deal of olive oils that is exported from such a country of origin as Jordan, and as a final consumer products can be easily distributed in Europe through food distributors and specialised olive oil distributors. In the event that Serha Ltd has a direct level of contact and thus, communication with German retailers, the distributing organisation will also be owned partially by the retailer as well. Market Segments Most of the price-sensitive German potential customers are engaged in directing the market for olive oil for a relatively high-volume and low-priced conventional olive oils. Statistically, at least 75% of the overall olive oils are sold through discount retailers that include Aldi. Of particular interest to note, it can be successfully noted that the entire German market further provides pertinent opportunities for specialty oils (Berger & Udell, 2002). These oils can be sourced from those origins that are known to be producing high-quality oils or those that are known to possess organic plus certification. Price Developments The international-based prices for extra-virgin and specialty olive oil has improved sharply in the course of the year. This is specifically attributed to the poor harvest in European-based growers in the period between 2014 and 2016 (CBI, 2016). Despite the fact that the current market is marred with a high-volume and low-priced olive oils, which accounts for more than half of the overall German market, there is an increasing number of customers that are able and willing to offer more for high-quality and authentic oils that can be traced to single origins and particularly so, those with organic fair trade certifications. 6.0 Competitor Analysis Olive oil market in Germany faces stiff competition from two levels that include; product and supplier levels competition. In regards to product level, it is notably clear that olive oil is exposed to a great deal of competition from other vegetable oils in Germany. For instance, rapessed/canola oil is currently the top-sought oil in Germany with an overall market share of more than 37% (CBI, 2016). There is also sunflower oil that posits a great deal of competition as cooking oil in Germany with an overall market share of 31%. This is mainly attributed to the fact that sunflower oil is diverse in its usage as it is used in both cooking and food industry as a whole. At the suppler level, it can be noted that Italy is Germany’s largest supplier of olive oil accounting to 75% of its overall imports. Olive oil from this origin expands to include well-blended and relatively lower-quality oils to high oils from single origins. In the non-EU region, Turkey is perceived to be the small supplier that is currently exporting directly into the market (CBI, 2016). In a customer’s viewpoint, Italian olive oil is considered to be of high-quality and thus, they are more willing and able to pay a premium price. However, they cannot meet the developing market for specialty olive oils; a gap that Serha Ltd can sufficiently explore to secure a significant portion of this market. 7.0 Political & Legal Concerns in Germany In Germany, business-related income is subjected to two forms of taxes that include; trade taxes and thereafter, corporation or for some cases; income taxes. It is crucial to note that trade tax is levied under the national rules and regulations and at specifically fixed rates that are set by local authorities where the business at hand is located (CBI, 2016). The overall profits for an incorporated establishment are subjected to corporation tax. The most fundamental German transactions tax is solely VAT that is levied and harmonised under the EI system. Other forms of transaction taxes include; exercise taxes, insurance tax and transfer tax. Taxation in the country is based on acts of parliament. The act except VAT is thereby strengthened by distinctive set official stipulations that contain references related to numerous relevant case laws (CBI, 2016). The constitution is the sole reference of the Federal Republic of Germany. There are different forms of authority that include federation; province; district and local community. Most of the country’s governmental departments are situated within different German town and specifically Bonn (CBI, 2016). A great number of acts of parliament are originally proposed and debated through by Bundestag, which have specific rights to propose despite its primary functionality being to safeguard the underlying interests of the provinces against possible disapprovals. The ultimate source of law is entirely focused on the constitution or even basic statute. Acts of parliament or even the federal are considered to be null and void in the event that they are directly conflicting with the constitution or in when they are passed in an unconstitutional manner. The government, individualised ministries as well as other relevant authorities have all been given the mandate to issue frameworks and pronouncements affecting activities within the country. The German court system is decentralised so that at first cases are held in the local areas while appeals are directed towards a higher court that is deemed to be tasked with covering cases within a wider area. In regards to government policies, it can be noted that Germany encourages economic policies that encourage industry and commerce in order to formulate ways for which they can thrive but within a controlled operational environment. Considering the fact that the country is characterised by a higher level of standards as well as high level of costs of living; the protection of underlying workers against possible unfair dismal is ever-engaging in nature (CBI, 2016). For a long period now, the country’s government has been engaged in attempts of improving the overall flexibility of the system in order to eliminate the underlying gap that exists between expectations of employers and employees. 8.0 Banking & Finance Needs It is important to note that Germany does not have its own currency since it adopted the euro on 1999. The euro is overseen by the European Central Bank in Frankfurt. The country’s central bank Deutsche Bundesbank is tasked with the activities related to minting the German euro coins that are currently in circulation (CBI, 2016). The different forms of finance can be accessed from different platforms that include; Banking Systems; most of the banking services are provided to the underlying public to both business and private households using a set of different forms of financial institutions. Banks provide a comprehensive mode of services that extends to both retail and wholesale needs. Services are also offered in form of investment banking; corporate finance and other related set of consultancies (CBI, 2016). Banks are the conventional platform for which German businesses can access loan facilities and, also as a way for which individuals and businesses can invest in public’s stock exchange. German financial institutions and money markets are completely free from any possible exchange restrictions. In fact, lots of transactions within the Eurozone are availed for practicality reasons, which are similar to the local domestic-based transactions (CBI, 2016). The platform allows both local and foreign-based companies to either deposit or borrow funds on a free enterprise culture through the German banking system. Serha Ltd is fairly-positioned to choose a financing source of Germany origin from different set of competing offers from a different set of countries. The firm’s decision to engage in this form of sourcing for finance can be related to the benefits that results from taxation and other possible business stipulations. In matters related to money laundering, it can be noted that Germany has continued to protect its economy from possible money laundering activities by way of setting up rules and regulations that prevents the process of laundering (CBI, 2016). A great number of the rules and regulations are impositions on such fundamental service providers as banks, which are exposed to possible risks of being abused. The present import limitations in the country are solely based on those imposed by UN sanctions. Prohibited products in Germany that are imported cannot be cleared but rather re-exported (CBI, 2016). Given the fact that the EU member countries are made up of a single market, supplies that are made to and from Germany as well as other EU economies cannot qualify as being imports or even exports. Custom duties are the main types of duties that are imposed in Germany thereby increasing the price of foreign goods over that produced locally or within the EU markets. In this regards, Serha Ltd should focus on identifying a price strategy that can augur well with the local competitive prices. A perfect pricing strategy would be offering olive oil at discounted prices to retailers in order to cut down on possible sales competition with local suppliers. Goods are categorised for custom duty under a Harmonised System as well as a TARIC model (CBI, 2016). The immediate valuation processes related to importation adheres to globally-recognised customs code. The fundamental basis used in assessing these custom duties is solely linked to supplier’s invoice unless it is incorrect. The basis is subjected to intensive amendments due to additional charges as well as credits that can occur separately. Special processes are adhered to in respect to imports of agricultural nature. Agricultural-related imports are subjected to special EU levies and are assessed in terms of their net weights. Regular importers into Germany are encouraged to assume of the benefits that emanate from being an authorised economic operator. Authorisation is granted in the local platform however; it also extends to the entire EU region as a whole. Serha Ltd can benefit from this authorisation especially since it fosters custom simplifications and thereby, allows for security and safety features (CBI, 2016). The authorisation further allows a business to subject to lower levels of tests and examinations in respect to their annual transaction history. Local representation is not a necessary factor for foreign business to operate in Germany since; these businesses are allowed a platform to conduct free selling and ship goods to the country. The imports will be linked to the purchaser who will need to get customs clearances. Such foreign exporters as Serha Ltd that whose desire is to position their employees in Germany or even select their Germany representations will be subjected to the stipulations put forth under the permanent establishment taxation bracket (CBI, 2016). In fact, it is quite normal for foreign businesses to develop A German-based sales subsidiary or even branch to engage in a regular and systematic access to the underlying Germany market. 9.0 Employment Relations in Germany The underlying environment related to labour relations in the country can be noted as being favourable when compared to most of other EU countries. Industrial arrests are certainly fewer in the market since employees adhere to a culture of prioritising consensus over go-slows (CBI, 2016). The country’s employment relation is guided by an enormous wealth of statutory instruments, trade unions as well as individual-employees agreements that are reached upon during a consensus meeting. A great number of regulations and provisions are deemed to be highly specific and very detailed in nature. German-based labour laws are applied to all employment relationships despite there being exception to small-businesses operating within the country. Organised employees representation is made at two levels that include; workers council, which are allowed to any business with more than 5 people. There is also external employee representation that is conducted through trade unions. Unions are organised in respect to each and every industry in the economy. The average monthly gross earnings of full time employees are positioned at £3,449 while skilled workers have the opportunity of earning even more. Managers of most of smaller foreign subsidiaries receive in a range of between £ 7,500 and £ 9,000 (CBI, 2016). However, it should be noted that these figures vary extensively depending on a certain number of factors and cannot be treated as anything as a rough indication. Sources Berger, A.N. & Udell, G.F., 2002. Small business credit availability and relationship lending: The importance of bank organisational structure. The Economic Journal, 112(477), pp.F32-F53 CBI. 2016. CBI Product Factsheet: Olive in Germany. Market Intelligence. P.2-22. Accessed from https://www.cbi.eu/sites/default/files/market_information/researches/product-factsheet-germany-olive-oil-2016.pdf Lane, C. & Bachmann, R., 1996. The social constitution of trust: supplier relations in Britain and Germany. Organization studies, 17(3), pp.365-395 PKF. 2016. Doing business in Jordan. Accessed from http://www.pkf.com/media/608484/doing%20business%20in%20jordan.pdf PWC. 2016. Doing Business and investing in Germany. Retrieved from https://www.pwc.de/de/internationale-maerkte/assets/doing_business_in_germany_guide_2016.pdf Read More