Global Markets & Entry Strategies of Cow and Gate - Coursework Example

 Entry strategy into Chinese market report Section 1-Situational analysis Cow and Gate Company is based in the United Kingdom, and started in the year 1882. It has specialized in the production of dairy products for babies to enhance their health status. The products are diversified to meet the needs of different infant-age, nutritional requirement, and allergic requirement. The firm has a team of research and development team to enhance the quality of its products through innovations. Its products are only available in United Kingdom and Netherlands. In this paper, analysis is going to be done to explore any opportunity available to this firm in expanding its market share across the globe. The success of this firm can be reflected by the revenue of £ 460 million, it was able to generate in the year 2013. Company position and strategic formulation The existing market for every firm is the driving force for its production. Cow and Gate has focused on its existing market by providing the products that it has been producing that meets the needs of the existing market. However, for it expand its operations and sales altogether it has to think beyond its obvious goal and come up with a long term strategic plan. The expansion of its sales will mean moving into a new market that needs new products or tailored to their needs. Cow and Gate has diversified its product through a product development program that identifies needs for new markets. New markets and new products go hand-in-hand, because of diversity in culture, and other natural factors. Industry analysis The business of producing dairy products for infants has got its own features that influence its operations. Cow and Gate being in this business is not excluded, and it has to have a framework to address such challenges. 1. Technology-The consumer is still the controlling factor in this industry. Consumers expect the producers like Cow and Gate to fortify their dairy products to have a balanced nutritional value for proper infant development. It is upon Cow and Gates research and development team to come up with ideas for enhancing the quality of infant dairy products. 2. Health and safety- Since these products are going inside a belly of an infant; control protocol should be in place. The immune of an infant is not strong and, therefore, safety of the products should be guaranteed. 3. Global diversified birth rate-The birth rate in the developed nation is low as compared to that of developing Nations. Products produced by Cow and Gate are designed for infants and birth rate is a determining factor in the sales level. The best market for these products is therefore, in the developing Nations. SWOT analysis SWOT analysis seeks to identify the strength that Cow and Gates Company got to explore any opportunity that might be available. The strength should also counter any possible threat and minimize the weakness. Strength- Cow and Gate has a great reputation among its clients both in United Kingdom and Netherlands which has also been reflected in the financial performance. A team of research and development has continued enhance the quality of dairy infant products. The firm still enjoys a robust infrastructure and cordial business relationship with other players. Weakness-The Company has capability to expand its businesses to other regions, but it has chosen only to focus on United Kingdom market. It has been in existence for over a century and that is enough time for a firm to exploit market beyond territorial boundaries. Opportunities-The continuous growing birth rate in the developing countries present an opportunity for the company to explore and get a better return. Threats- Because of its confinement in the United Kingdom Market, Cow and Gate have little exposure on international business. However, it can engage the help of experts in the international trade to assist in formulation of strategies of entering a new market. Section 2: Global market screening The rationale for screening the market is to identify where a company’s product has an adequate market. Adequate market in the sense that sales generated within that location will be sufficient to meet the operation costs incurred. Also the potential for growth should be visualized. Cow and Gate Company cannot just enter all markets in the world, but that does not mean there are no demand in the countries it will set its branches. First the products are designed to enhance nutritional level for children; therefore, the clients for these products are children. The company has to consider Nations which have high birth rate and population altogether. Secondly the level of economy development should be brought into account. The cost of producing these products will determine the shelf price for different products. It is known that affordability of products is affected by the economic status of a given nation. Based on group finding several countries from different continents have proven to be a potential market for Cow and Gate Company. The countries include China, India, Brazil, South Africa, Philippine, and Indonesia. Though the purchasing power among those countries differs, the population and birth rate is promising for the viability of doing business. Macro-variables Gross Domestic Product per head (Per capita income) - This is the average annual income that citizens of a country gain. The higher the per capita income the higher the purchasing power and vice verse. A countries that have high per capita income like Brazil, China, and South Africa having $ 11, 604, $ 7, 598, and $ 6,482 respectively. These countries give the green light of potential buyers for Cow and Gate products because of strong economic status. Birth rate- since the product will be consumed by children, they are determining factor on the sales to be experienced within that country. Western Nations like Germany have experienced a negative population growth rate which means that sales for Cow and Gate products will be low as compared to the region where population growth rate is high. From the group analysis, Philippine, India, and South Africa lead in the birth rate with a rate of 2.4%, 2.0%, and 1.9% respectively. Therefore, the demand for Cow and Gates product is expected to be higher in Philippines if other factors are held at a constant. Market accessibility variables Urban population- Urban dwellers are believed to have a busy schedule trying to make end meet. This feature does not spare mothers who have just conceived, though labor Acts adopted by various countries demands employers to provide a maternal leave for a period of three months, still it is not enough. A country like Brazil which has 90.1 % of its population living in urban areas creates a market for Cow and Gate products. Families have been torn apart on the decision on whether to quit job and care for infants, but Cow and Gate provides a solution to those scenarios by providing supplements and substitutes. Cost of operating business- it is worthy to do business in a country where income and effort put commensurate. This being the case it is wise when internationalizing a company cost of doing business to take the center stage. If this case, the company might find itself doing charitable tasks as opposed to profit making. From the International Monetary Fund and World Bank report, South Africa has the highest cost of doing business among the countries chosen for setting up Cow and Gate Company. A high cost of doing business is mostly caused by poor taxation plan and economic status of a nation. Micro variables Population- Population simply refers to the total number of people living in a given area and, in this case, the area is a state. Population has an influence on market or demand for certain products, but it cannot be considered as a major variable. This is because a country can have a high population, but the purchasing power is low. This feature is common in most African Nations whose citizens believe that an increase in the number of children is economical in terms of manpower. Among the selected Nations Indonesia has a population of two hundred and fifty-five million citizens with per capita income of $ 3,533, but its per capita income is low compared to that of Brazil which is $ 11,604. However, in some variables Indonesia proves to have a potential market. The economic growth rate of 5.6% is a promising projection. Section 3- In-depth market analysis The five identified countries have a potential market for Cow and Gate Company’s products, but varies depending on various variable used in the analysis. In this section, a deep analysis of markets having the greatest incentives for investment will be identified. It is also important to understand that the process of internationalizing a company requires a test in different selected market. The essence of this is to prevent opening business in regions where the sales will be minimal thus resulting in massive loss. Certain criteria were used in determining the best market for the products of Cow and Gate products and they includes; market capacity and potential, ease of doing business, favorable conditions, sustainability, and financing. Market capacity and potential- the target market for Cow and Gate Company products are young parents who have not yet reached their menopause. Different countries identified ascertained the possibility of market, but it varied. As a group, China and India indicated the possibility of market capacity and potential. The population in those two countries is an indicator of a ready market. China has a population of 1,369 million citizens while India has 1,270 million citizens. As a business oriented person a population of this size provides an insight of potential business growth. In addition to that, the economic growth rate of China recently overtook that of United States. This clearly shows that, to set up a subsidiary firm in China will not be in vain. Ease of doing business- cost of doing business differs depending on the economic status of a country. It becomes hard to start a firm in a country where corruption and other unfavorable business conditions are in place. Cost of operating business in China and India is 80% and 66% respectively. These values are low as compared to doing business in South Africa which is 92%. Corruption is a vice that results in an unfair competition in doing business and normally have a negative impact to newly formed companies which end-up being shut down. Cases of corruption in those two countries are minimal. China is known for its harsh penalties for anyone found in corruption deal. The policy adopted by China has made it easy for new companies to be set and compete on a fair ground. Business sustainability- There is no point of opening a business and its future is still a puzzle. China and India market shows elements of Cow and Gate Company to remain sustainable in future in its process of fulfilling the demand of the clients. India has a promising birth rate of 2% percent, which means children the demand of those products will be increasing annually. Though China has a low birth rate of 1.2% its population is big enough, combined with its economic growth rate of 7.7% affordability of those products is realistic. Competitors Cow and Gate does not operate in space so it should expect to enter into a market that is “virgin.” Other players have already established their firms in both India and China, meaning they have a market share to depend on. In China, Dumex a multinational firm has already established itself and provides nutritional foods for infants and other products such as mineral water for the mother and infant. The company has also opened a venture into the market of India, which it has received a warm reception as far as sales is concerned. Target Market analysis To identify the best market for Cow and Gate to introduce its produce it is prudent to check on the following components; business environment, competition, and financial services. Business environment- In 1980, China opened opportunity for foreigners and privatization of public-owned firms. The idea led to the growth of economy of China that has attracted more and more investors. Comparing to India whose economy was reformed early 1990, much changes has not been witnessed until recently, this is the reason it economic growth rate is lower than that of China. Competition- possible competitors for Cow and Gates products in India are mainly domestic producers like Farex. However, in China there are several international brands providing infants food products lead by Dumex. In addition to that, there are also local brands. Having a competition with international brands and local brands makes it a competitive when it comes to pricing. Financial services- Banks and other money lending institutions are vital in the process of doing business. China has an extensive financial service that encourages investors to set their firms. India has a limited financial service that is growing. In analyzing these countries, it will be brilliant for Cow and Gate Company to its products in China as opposed to India. Distribution channel A clear structure for distributing products of a multinational firm is essential for market share growth. In India, the distribution is mainly done with small business or individuals while in China Tesco leads the distribution of infant food. Distribution channel comprises of multiple small players have much impact on the final prices of the product. The price difference of the products will be wide, thus making one product cheaper in one region and expensive in other regions. Tesco, a United Kingdom performing the task of distribution streamline the process of making products accessible to the consumers at a reasonable price. Variability of prices is minimized by use of single or several well-established distributors. All these factors in place, it would be wise if Cow and Gate Company opt to launch its products and services. This does not mean that it should shun its ambition of having its products in India. In future, the business environment in India will have changed and offer an opportunity for Cow and Gate to expand its operations. Section 4- -Entry Strategy and Market Plan The best entry strategy for Cow and Gate Company will be the use of Foreign Direct Investment (FDI). In this strategy, a firm can open a subsidiary company or merge with an existing foreign company to distribute or produce its products and services in the foreign country. Cow and Gate Company can use the available resource used by Danone, which is the mother company to distribute it products in China. Danone is well established in China and can take full control in the distribution process. Using direct export of its products will result to the quality of the products being compromised and reduction in income. Marketing strategy Cow and Gates Company needs to focus on the target market for its products. The target consumers for its products in China will be primarily children of two to six years with dairy requirement. Urban dwellers are considered to be the busy lot and, therefore, potential market for the products, mainly the middle and high-income earners. The use of the famous 4Ps (place, product, promotion and price) are key component in marketing strategy. Product-The products will be made in Britain for quality assurance. In addition to that, continuous innovation on the product quality will be a pillar to the company success. A flavor for Chinese babies will be included in the product, to make products become outstanding. Pricing- The mentality of low price, low quality will be eliminated by charging the products a premium price that will assure the consumers on the quality. Discount on the products will be awarded to loyal customers to retain them. Promotion- There are various means of promoting products of a firm ranging from print media, audio, and et cetera. Currently, an online platform is being used for creating awareness for its product. Cow and Gate can create a facebook page named “Mum and Babies” information regarding the products will be accessible to the possible clients. Place- The products need to easily available to the consumers and with technology in place it is of essence to make client be able to access products using both online and offline model. Busy parents are most likely to order these products using online platform. The use of Tesco in the offline model will make it easy for one store shopping. Forecast revenue Initial investment for Cow and Gate Company is expected to be £ 200, with anticipated revenue of £ 500 for the first quarter. The revenue is expected to increase by 30% per each quarter through the year. In the second year, the revenue is expected to increase by 20% through all quarters. After the first year, the company will have recouped all the set-up cost and will be running from the income generated. Section 5- Rationale for the specific internationalization modality The strategy taken by Cow and Gate Company should be in line with its overall goal thus important to review it export-import strategy. Quality of the dairy products it wants to sell to its loyal customer in China need to be the same to that produced and distributed in Britain or even higher. To ensure this is achieved, the firm opts to export the products directly from Britain and they be distributed in China. Documents required for the operation China as a nation has a legal framework that control business operation that involves import and exportation for both domestic and foreign investors. Cow and Gate Company needs to have the following document for it to enjoy a harmonious environment of doing business the in Peoples Republic of China; 1. Business related document 2. Product related document. Business related document will include; Local business registry, documentation for engaging the import and export activity, National insurance, Business Article and shareholder information, Tax registration, and Local banking and facilities. Product related Document include; Product of origin, Quality certificate, Manufacturer proof, Custom and duty payment, Bill of landing, and Customer invoices Tax and duty involved in the process Import tax- for shipping of dairy products into China Import VAT- Some countries exempted VAT on milk products especially for children, but it is not clear from the legislation of China if the VAT for infants’ dairy product is exempted. Corporate tax- For China to develop it will require all the companies and citizens to pay tax. Taxes are unavoidable obligation and if avoided one will have to face legal charges. Litigation between a foreign company and the state over taxes tarnish the company’s image. References Barrales-Molina, V., Martínez-López, F. 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