Australias Macro Environment - Term Paper Example

Table of Contents Executive Summary 2 Introduction 4 Country’s Market Analysis: Australia’s Macro Environment and Market Assessment on Beer Products 5 A. Background of the Beer Industry in Australia 5 B. The Australian Government and Political Factors 6 C. The Australian Economy 6 D. The Australian Culture 7 E. Other Factors 8 Analysis of Facts Gathered 9 Foreign Market Entry Modes Available to the Company 11 Exporting 12 Franchising 14 Licensing 15 Joint Venture 15 Contracting 16 Overseas Manufacturing 16 Recommendation with justifications 16 References 18 Executive Summary In the past, the manufacturers of Australia only concentrated on the local market, where they only sold their products within Australia. But after the turn-around of the sector, exporting to international and foreign markets has become the trend. Australia’s population has always had such a strong demand for cold beer. However, the consumer’s desires and preferences have changed over time and are still changing, and these changes are influenced by a number of factors. One of the greatest strengths of the Australian government is the kind of support it gives to its manufacturers. Manufacturers have very lenient policies put in place by the Australian government, and this favors their domestic and international business. The Australian government, again, has shown much uniqueness from other government by putting in place economic measures that have ensured that the Australia economy is insulated from the world economy. This beer company can make the most of this upward trend by ensuring that it adopts and implements the policies the government has put in place for economic growth. Also, Australian people have become more of conformists socially, culturally, and religiously. This can be of positive effect on the beer company if it can make the best out of this diversity and globalization. New inventions in the beer products should be done to cater for all the cultures, religions and social groups across Australia Beer brewers in France have stopped concentrating on making every batch or bottle of drink more unique than the other, but instead have gotten into mass production and duplication of beers. The company, here in Australia, can take advantage of the huge market available and try making beers that are not just mass produced but those that are made specially and with uniqueness. France just like any other country observes or is required to observe the purity law. This law’s origin can be traced back to before the year 1520. The purity law requires that beer be made from three main ingredients only; barley, water and hops. The purity rule may somewhat and slightly be a hindrance to the company, because the French population will always be keen on consuming beers that have kept the purity laws. The latest statistics show that there has been a major decline in alcohol consumption in France. Specialty beers account for the largest percentage of the beers that are loved. Specialty beers account for close to 40% of the total market share in the beer market of France. This Australian company can take advantage of this observation and use specialty beers as the main products sold to the French market. There are several practical modes of entry into a foreign market, but there are always one or two modes that are more suitable in different scenarios. The common entry modes are exporting, franchising, licensing, joint venture, contracting, and overseas manufacturing. Introduction Over the past two decades, there has been a major turn around in Australia’s manufacturing industry. In the past, the manufacturers of Australia only concentrated on the local market, where they only sold their products within Australia. But after the turn-around of the sector, exporting to international and foreign markets has become the trend. Most manufacturers in Australia are now putting more focus on dominating international markets than local ones. Also, the types of exports from Australia have changed dynamically; Australia is no longer a producer market (exporting only raw farm products and freshly mined products), but a market that exports ready and fully processed products (Australian Bureau of Statistics 2005). For this change to occur in the Australian market, many shifts in different areas took place significantly. It is known that Australian manufacturers had gotten used to depending on and being protected by the government. However, a major shift in culture occurred; the government no longer offered as much protection and covering for the manufacturers, and this made the old manufacturers to be left behind in the new wave. However, the mushrooming manufacturers took the new challenge upon themselves and they went ahead to market their own products in the local and international markets without the Australian government’s protection. This cultural shift has really made the manufacturing industry of Australia to be what it has become today internationally (Australian Bureau of Statistics 2005). Political changes in the macro environment of the Australian market also caused a huge transformation. Because of the tendency of politicians to want re-election by the citizens, a massive campaign for manufacturers to be given better conditions was done. As a result, tariffs were revised and many duties were eliminated and stringent conditions made more lenient. In the business environment, Australia’s market is more favorable to the manufacturing sector than to other sectors, and this has greatly contributed to the expansion of the sector internationally (Anderson 2009). This paper shall do a full market analysis and a macro environment analysis for an Australian company that produces beer products. These products include ales, stouts and bitters, low/no alcohol beers, premium lager, specialty beers and standard lager. This company has saturated the domestic market, and it wants to extend into the international market. The country mainly chosen for international marketing of its beer products is France. The entry modes to the international market will also be analyzed, and recommendations on the best entry modes will be given. Country’s Market Analysis: Australia’s Macro Environment and Market Assessment on Beer Products A. Background of the Beer Industry in Australia Australia’s population has always had such a strong demand for cold beer. However, the consumer’s desires and preferences have changed over time and are still changing, and these changes are influenced by a number of factors. Change in lifestyles is one of the major influencing factors. Other factors include the media, changes in the society, demographical factors, and government policies. Some of the changes affect the beer companies positively while other factors have negative effects (Simpson 2011). In 2004, Australia was ranked among the top five nations in the whole world that have the highest consumption of beer per year. When it comes to the alcoholic beverage preference in Australia, almost 50% is beer (mainly lager) while about 30% is wine. Spirits and other liquors account for the remaining portion. However, this was not so since the beginning; almost the whole population preferred rum to any other alcoholic drink. However, drunkenness became a “national disaster,” or so to say. The government started advocating for beer as a healthier and more acceptable alcoholic drink. Also, stringent policies and regulations for alcohol producers were put in place to control this issue. Slowly but steadily, the preference and consumption of beer over that of rum, other wines and spirits have been seen (Simpson 2011). B. The Australian Government and Political Factors The Australian government, just like any other, has several changes taking place within the system. However, one of the greatest strengths of the Australian government is the kind of support it gives to its manufacturers. Manufacturers have very lenient policies put in place by the Australian government, and this favors their domestic and international business. This is more so for the beer companies, and the government can play a really huge role in causing the beer industry to expand rapidly in both the domestic and international market. Politicians seeking popularity among the manufacturers and consumers will also help in passing policies that are favorable to the same. The Australian government can ensure that this beer manufacturing company is not more prone to losses and that unhealthy competition is cut off. Also, the government can pass policies that reduce or eliminate importation of beer from other markets, thus widening the domestic market. The government can also create a healthy atmosphere and market for the company in foreign countries, specifically France, by creating good relations with the country (Hitt 2009). C. The Australian Economy The Australian government, again, has shown much uniqueness from other government by putting in place economic measures that have ensured that the Australia economy is insulated from the world economy. This measure was put in place to ensure that wealth was equally or almost equally distributed among all groups of people and that growth in the country was even. This, however, failed at some point due to laxity in implementation. For a certain number of years, this caused Australia to have such a poor economy as compared to other nations of the same standard. However, as better leadership and administration was adopted, better results were seen (Hitt 2009). Though Australia has not fully risen economically, improvement is steady and significant every year. This trend can be of positive impact on the beer industry. This beer company can make the most of this upward trend by ensuring that it adopts and implements the policies the government has put in place for economic growth. An improving economy in Australia means that the living standards of the Australian population will improve and this directly translates to more sales of beer, taking note that it is a luxury consumer product and not a necessity (Anderson 2009). D. The Australian Culture After the colonial period in Australia, the people became more inclined to unity and uniformity. All over Australia, different groups in the society were creating their own identity and everybody in that society worked towards maintaining unity in the same direction (Bartett 2009). The people were very loyal to products produced in Australia, and imported products were somewhat rejected because the Australians were focused on loyalty, honesty, and national and cultural unity. However, with time, the foreign countries started having their way in corrupting the Australians on their goal. The modern Australia today is characterized by a total erosion of these cultural values, and the Australians, who were once proud of the Australian culture, have now abandoned it and have become ashamed of it. This is especially so because of globalization and internationalization, whereby Australians have been made to feel as if their culture is outdated and useless. Socially, culturally, and religiously, Australian people have become more of conformists. This can be of positive effect on the beer company if it can make the best out of this diversity and globalization. New inventions in the beer products should be done to cater for all the cultures, religions and social groups across Australia (Anderson 2009). E. Other Factors Legal alcohol limits in Australia are very stringent and much lower than the limits for other countries. The average limit for alcohol content for someone who is driving is 0.05, which makes it much lower than the limit for US and other countries in Europe. Most people are keen to keep the rules, especially because of the hard penalty drivers suffer when the alcohol level is higher than 0.05; they lose their drivers license. This factor greatly affects the beer market in Australia because the beer companies make lesser sales due to such legal requirements. Most people in Australia do not buy drinks and carry them home, and this makes it harder to make high sales because people only drink what is “legally okay” when they go to drinking joints (Simpson 2011). Also, Australians have the habit of drinking stubby beers. These are beers packed in short and broad bottles that have a much smaller capacity than most “normal-sized” beers. These beers do not bring as much profits to the beer company especially because of packaging. The cost of the bottle is usually the same as that of the normal-sized bottles, yet one empty shell (also made at the same cost as other shells or crates) holds lesser bottles because of the fact that they occupy a wider space due to their broad nature. This translates directly to more space for lesser beers and a higher transportation cost, thus leading to lesser profits (Anderson 2009). The Australian economy has grown significantly over the past years, and this has positively influenced beer companies. Also, a change in lifestyle, whereby Australians have adopted the tendency to willingly spend more money, has contributed to any increase in sales within the beer industry. Australians have also shown an increasing awareness and consciousness of occasions, and they prefer certain types of beers for specific types of occasions, hence providing a ready market for the wide variety of beers in the market (Hitt 2009). Analysis of Facts Gathered France is known for the food products it gives and the alcoholic beverages it produces. The beer industry in France underwent such a downfall during the 20th century. However, fortunately, France has slowly recovered from the damage that had occurred in its brewing industry. However, the major hindrance is that the beer market in France is controlled by specific companies. Also, diversification of the France beer market to the whole of Europe has made the population in need for supply higher. This has caused beer brewers in France to stop concentrating on making every batch or bottle of drink more unique than the other, but instead get into mass production and duplication of beers. Though France may have some of the world’s best beers, they are really not appreciated in France; the people there feel that beer is just another common drink (Kabundi & Simone 2007). The company, here in Australia, can take advantage of the huge market available and try making beers that are not just mass produced but those that are made specially and with uniqueness. It may take time before the population in France appreciates this, but once it is absorbed and accepted in the market it is going to be very profitable and rewarding to the company. The weakness in the France beer market sector is mass production and duplication of beers to satisfy the huge customer base. This company, therefore, can make the most out of this situation and cause the France population to appreciate specificity and uniqueness in beer manufacture. France just like any other country observes or is required to observe the purity law. This law’s origin can be traced back to before the year 1520. The purity law requires that beer be made from three main ingredients only; barley, water and hops. To date, the law still remains the same, save for few modifications that allow yeast to be used as a catalyst for fermentation, thus leaving the drink with significant traces of yeast. Companies in France keenly observe the purity rule, and this explains why French beer has such respect and demand from all people (Anderson 2009). The purity rule may somewhat and slightly be a hindrance to the company, because the French population will always be keen on consuming beers that have kept the purity laws. However, this should not be a major hindrance, since the aim is to penetrate the France market with the company’s beer products. Apart from keeping the rule to secure the best place in the market, this rule is a legislative requirement by the beer laws in France, and it therefore has to be followed to the letter. The latest statistics show that there has been a major decline in alcohol consumption in France. Specialty beers account for the largest percentage of the beers that are loved. Specialty beers account for close to 40% of the total market share in the beer market of France. All the other ordinary types of beer are facing a hard time penetrating the market as they ought to. Most companies are resorting to specializing in specialty beers as opposed to conventional ones. Conventional beers have dropped by over 6% revenue, though most individuals still prefer these beers. However, the total national beer consumption goes below average (Simpson 2011). This Australian company can take advantage of this observation and use specialty beers as the main products sold to the French market. A study of the French people likes and preferences will give the company the right ideas on the right specialty beer to celebrate with. However, conventional beers should not be ignored. Also, the company should ensure that alongside specialty beers, the other ordinary beer products sold have great uniqueness in safety. This way, the company would be able to create for itself a customer base, no matter how small it may be. Foreign Market Entry Modes Available to the Company At some point in business, a company may choose to go beyond its domestic market into the foreign and unknown markets. Before entering any foreign market, there should be a number of considerations made by the company about the country they wish to venture in. the cost of entering the market should be put into consideration, and this should go hand in hand with consideration of the speed with which the company wishes to enter the foreign market. Also, the risk factors in this new market should be assessed and considered carefully. The political environment of the foreign country is a great determinant of the level of risk therein. The rate at which the company is likely to start getting profits from its investment in the foreign market should be put into consideration also. This can only be known by doing comprehensive market research in the country. The company should also consider the ease with which it is possible to enter this foreign market. Finally, an exit strategy should be drawn, and the success of this strategy is greatly determined by the ease of leaving the market. This is because some markets have very strict policies that make it very hard to enter or impossible to leave (Bartett 2009). There are several practical modes of entry into a foreign market, but there are always one or two modes that are more suitable in different scenarios. The common entry modes are exporting, franchising, licensing, joint venture, contracting, and overseas manufacturing. Exporting In exporting, the company does its manufacturing in its original country (in this case, Australia) and sells some of its goods in the country of target. Exporting can either be direct or indirect. Direct exporting is more economical, because the company directly markets its exports in the foreign market on its own behalf that is without employing an exporting company to handle the exportation and marketing. This, however, does not mean that no representatives can be employed in direct exporting; it is possible to have sales representatives, who are usually based in the country or market targeted. These sales representative market the company’s products once they arrive into the foreign country, which is the sales representatives’ original country. And, of course, the sales representatives are given commissions depending on the type of agreement between the exporting company and the representative in the destination country. This form of exportation, however, is only suitable if there are no bulk exports being done (Reynolds 2003). Direct exporting can also be done when there are importing distributors in the destination country. These are distributors in the destination country who receive goods exported from another country and they purchase these goods on arrival. These goods, which are acquired and purchased in the distributor’s own right, are resold by the distributor into that country’s market to other middlemen in the supply chain until the product gets to the consumer (Salomon 2006). Direct exporting has its pros and cons. One advantage with direct exporting is that the company usually has the freedom to select the foreign market it pleases based on the consideration of various factor. The company is also able to conduct as much market research possible in the foreign market and get enough feedback to ensure that it is fully equipped with the right information. Direct exporting also has better guarantee on the protection of brand names and copyrights among other intangible rights the company may own. Also, research indicates that more sales are likely to be made when a company directly exports its own goods than when it does so indirectly. However, direct exporting has a very high cost of starting and maintaining. This form of exporting also carries more risks for the exporting company than when indirect exporting is done. For direct exporting to be successful, a lot of time, energy and money have to be employed to conduct a comprehensive market research on the target foreign market. In the same breath, just as direct exporting takes a long time to conduct research it also takes a long time to do marketing and to stabilize the sales (Reynolds 2003). Indirect exporting is exporting done via the go-betweens based in the foreign market into which the exporting is being done. This simply mans that the exporting company “loses” control over its exports immediately they are released for exporting. The party on the other end of the exporting line is based in the foreign target destination, and this party receives the exports (as imports into the country) in their own right and capacity and they take over the business of marketing and selling of the products in the domestic market. Therefore, the exporter makes profit by selling the goods in bulk to the intermediary, and the relationship between the two ends there as far as that particular deal is concerned. The intermediary then takes the full responsibility for the profits or losses they may incur as they market and sell the products in the market (Reynolds 2003). Indirect importing is advantageous in that the exporting company gets quicker entry and access into the targeted foreign market without having to undergo lengthy market research procedures and the cost of marketing the products in the foreign market. The exporting company also does its exporting without having to incur extra costs of commitment and liability that come with direct exporting. Be that a it may, however, indirect exporting carries more risks for the exporting company than with direct exporting. Also, the company becomes more of a distributor of the products to the intermediary than a manufacturer and exporter, and hence loses the control it should have over its products. This is because once the intermediary buys the goods from the exporting company, this company no longer controls how their products are handles or marketed and the prices at which they are sold. Also, this type of exporting leaves the company inexperienced in dealing with foreign markets (Salomon 2006). Franchising In franchising, the company evaluates its strong points and the products that strengthen the company in its domestic market of operation. These strong points and products are put together and franchised to investors in the foreign country of target. Unlike in indirect exporting, the company has full control over its products even when they are in the hand of the foreign investor (Lymbersky 2008). The company takes full responsibility of training the investor and of setting the regulations that should be followed during the handling of their product. Franchising poses lower risks to the company and the cost involved in starting a franchise business in a foreign country and maintaining it is also relatively low. Franchising also helps the company to freely extend into other foreign markets, since it is not tied to one market. However, the company faces the risk of facing competition from the franchisee it has in the foreign market. Also, the franchisee determines how the company reputation and the reputation of its products will be in the foreign market (Wagner 2009). Licensing This is yet another entry mode into the foreign market, whereby the company locates an organization in the foreign market and licenses it to produce the exact product. The licensing company benefits by receiving royalty payments. A good example of a company known to have used the licensing mode of entry into literary every country world wide is the Coca Cola company (Bartett 2009). This method is advantageous in that the licensing company benefits financially just because of licensing another organization. Also, the company is able to penetrate into international markets that it would otherwise have not if it purely relied on exporting. Licensing also makes it possible in future for the company to make other investments in the foreign country. However, this is the lowest paying entry mode. Also, the licensed organization can spoil the reputation of the licenser if it does not uphold the quality it should (Wagner 2009). Joint Venture In this mode of entry, the company joins another interested company and the two jointly operate in the foreign country as one. These companies share profits, losses, responsibilities, expertise, capital, et cetera as per their agreement. A company may choose to have a joint venture with another so as to obtain the expertise the other company possesses. Also, the company may choose to have a joint venture with a company in the target foreign country so that it will be easier for this company to enter the foreign market (Lymbersky 2008). Contracting In contracting, the company gives the contract of production to another company, probably in the foreign country. The contracted company produces goods for the contracting company, and since these goods are produced in the foreign market targeted, the contracting company is saved from the hassles of exporting from its local country to the target one (Lymbersky 2008). Overseas Manufacturing The company wishing to enter a certain foreign market may opt to establish its own processing plant in the foreign country targeted. The company buys or obtains premises in the foreign country, buys machinery (from the same country or from another country) and employs people from the foreign country as the labor force for the plant (Wagner 2009). The company may only bring in a few people from its country to manage the plant or to apply their expertise therein, but most of the human resource is from the foreign country in which the plant is located. Nivea, a globally renowned company, is the best example of companies that do overseas manufacturing (Lymbersky 2008). Recommendation with justifications For this beer producing company, the most practical and available entry mode options for entering the beer market in France are exporting, licensing, contracting, and overseas manufacturing. It is not practical for the company to have a joint venture or to franchise. Overseas manufacturing seems to be the most practical option for the entry mode into the France beer market. This is because of the fact that beer brewers in France have stopped concentrating on making every batch or bottle of drink more unique than the other, but instead have gotten into mass production and duplication of beers (Kabundi & Simone 2007). This company can therefore start its own plant and start manufacturing unique and tailor-made beers for various groups in the market. Almost similar to overseas manufacturing, the company (especially if finding huge capital for this option is a challenge) can enter the market by licensing another organization to produce its exact products. Contracting is also a similar option to licensing, and both have low capital investment requirement as a major similarity. Exporting is also a practical option, where the company can specialize in exporting specialty beers, which have become more popular in France as compared to other conventional beers. Adequate research in the France market should be done so that the right types of specialty beers should be exported to France (Kabundi & Simone 2007). Through proper strategy, the company can rise to great heights of success not only in the domestic market but also in the beer market in France. Also, there lie other opportunities of expansion into other foreign countries besides France. The Australian government can ensure that this beer manufacturing company is not more prone to losses and that unhealthy competition is cut off. The government can also create a healthy atmosphere and market for the company in foreign countries, specifically France, by creating good relations with the country. References Anderson, K. 2009. Australia’s Economy in its International Context: the Joseph Fisher Lectures I. Adelaide: The University of Adelaide. Australian Bureau of Statistics. 2005. Year Book, Australia: Issue 87. Sydney: Australian Bureau of Statistics. Bartett, C.A. 2009. Transnational Management: Text, Cases and Readings in Cross Border Management. London: McGraw-Hill. Hitt, A. 2009. Strategic Management Competitiveness and Globalization. London: Nelson Education Ltd. Kabundi, A., & Simone, F. 2007. France in the Global Economy: a structural approximate dynamic factor model analysis, Issues 2007-2129. New York: International Monetary Fund. Lymbersky, C. 2008. Market Entry Strategies: Text, Cases and Readings in Market Entry. London: Christoph Lymbersky. Reynolds, F. 2003. Managing Exports: navigating the complex rules, controls, barriers, and laws. New York: John Wiley & Sons. Salomon, R. 2006. Learning from Exporting: New Insights, New Perspectives. London: Edward Elgar Publishing Limited. Simpson, W. 2011. The Australian Beer Companion: your guide to Australia’s top breweries and microbreweries. New York: Explore Australia Publishing Pty, Ltd. Wagner, T. 2009. Foreign Market Entry and Culture. London: GRIN Verlag Publishers. Read More