A&C Food Processing Company - International Business - Case Study Example

Running Header: International Business Theory and Practice Student’s Name: Instructor’s Name: Course Code & Name: Date of Submission: Introduction A&C Food Processing Company is based in Australia and processes a variety of food products including vegetables, fruits, meat, poultry, eggs and marine products. The company aims to continuously increase its share holder’s value by providing them with high returns in relation to their investments. To do this, the company has undertaken various investment and expansion programs in order to enhance its profits. The company aims to expand its operations by investing in foreign countries. Investment Opportunity in India India has experienced rapid urbanization, increased income levels and relaxation in import regulations. Moreover, India is characterized by high population levels and new technologies. The country has also experienced growth in the services, manufacturing, agriculture and Software sectors of its economy (Economic Affairs 2012, p.5). Most of the companies that have invested in the Indian economy originate from the U.S with companies from Malaysia also holding a considerable investment in the Indian economy. Furthermore, India has established trade partnership with Australia and this lowers the trade barriers and creates more trading opportunities for the Country. According to IBEF (2011, p. 3) India has experienced a considerable growth in the demand for processed food due to the increased income levels. Moreover, the Indian government has established policy support for companies willing to invest in the food processing industry. Furthermore, the growth in specialty restaurants and the increased exposure to the global culture has increased the demand for processed food in India. The fact that A&C deals with food processing means that India presents it with a good opportunity to expand by investing in that country. In addition, the Indian agriculture sector has achieved notable success and this means that A&C will have ample supply of raw materials. The lack of better preservation, processing and storage technologies in India means that A&C can be able to offer quality services due the technology that that it posses. This business plan will analyze the Indian market, identify our company competencies and identify the entry strategies to utilize in order to enter the Indian market. The business plan will also identify the operating and the exit strategies. Analysis of the Indian Market McLoughlin and Aaker(2010, p. 61) states that a market can be analyzed using 7 dimensions. They include; market profitability, market growth rate, market trend, market size, the industry cost structure, distribution systems and the industry structure. These factors will be used to analyze the processed food market in India. Market Profitability According to Protor (2005, p. 94) the attractiveness of an industry or market can be measured by its long term return on investment of the average firm. This is in turn determined by the intensity of competition, the existence of potential competitors and the bargaining power of both the suppliers and the customers. Competitors refer to other businesses that a company competes with for customers (Harrison & John 2009, p. 160). According to the India Law Office (2012, p. 15) there are currently 15 major companies in the Indian food processing industry. Most of these companies are from foreign countries and they process specific food products unlike A&C which processes a range of food products. Hill and Jones (2012, p. 50) state that potential competitors are companies that are not currently competing in the industry but they have the capability to do so if they opt. Food processing companies like Welsh food, Ainsleys, B& G foods holdings corporation, Artia Group and Flowers food have the potential to enter the Indian market. The bargaining power of suppliers refers to the ability of the suppliers in an industry to increase the prices of the raw materials (Hill & Jones 2012, p. 53). Suppliers are powerful if they are able to push the prices of their products and thus reduce the industry profits. This occurs when the industry is characterized by few suppliers, high switching costs and when suppliers make insignificant profits from the industry. Most farmers in India are small scale farmers and this makes the country to be the second largest producer of agricultural products. This means that the large numbers of farmers have low bargaining power and thus they cannot increase their prices and reduce the industry profits. According to Hill and Jones (2012, p. 50) the bargaining power of buyers refers to the ability of buyers to bargain for lower prices in relation to the industry products. Powerful buyers can be able to lower the prices of the products thereby affecting the industry profits. An industry with powerful buyers is characterized by many firms and few buyers, large quantity buyers and low switching costs for buyers. Madras Consultancy Group (2009, p. 52) notes that processed food in India has a variety of customers ranging from individual buyers to hotels and institutional customers. The large number of buyers and low numbers of manufacturers means that the market has weak buyers hence the buyers have low bargaining powers. Therefore, the Indian market has a potential to offer A&C long term return on its investment due to low bargaining power of customers and suppliers as well as due to the low number of competitors. However, the market has many potential competitors but the fact that it is a large market means that it can offer our company good profits. Market Growth Rate Market growth rate refers to the rate at which sales grow in a market (Berkowitz 2011, p. 52). Market growth rate assists in determining the attractiveness of an industry. According to Bhuyan (2011, p.1) the Indian market for processed food is currently growing at a rate of 13.7 %. The Boston Consulting Group growth share matrix considers a market with growth rate of over 10% to be an attractive market to invest in (McDonald & Wilson 2011, p. 132). Market Trend According to Mcloughlin and Aaker (2010, p. 62) market trend refers to the downward and upward movements in the market over a period of time. It involves determining the changes in the market in relation to social, regulatory, political and economic factors. According to the India Law Office (2012, p. 9) income from the food processing industries increased from $ 6.98 in 2009 to $ 20.21 in 2010. The government has also developed flexible rules in order to encourage investors to invest in the industry. Moreover, the consumption of processed has been increasing at a rate of 40%. Market Size Market size refers to the number of buyers or potential buyers in a particular market (Rosenbloom 2011, p. 240). Madras Consultancy Group (2009, p. 14) note that the market for processed food in India stands at $82.6 Billion and this figure is expected to grow over time. The Industry Cost Structure According to Proctor (2005, p. 96) the cost structure allows a company to identify the strategy to use in order to compete more effectively and gain competitive advantage. It involves considering the supply chains, a company’s experience curve and anticipating changes in the market. The increased investment in the Supply chain in India as well as A&C experience in processing food products means that the company can be able to produce at low cost hence be able to compete more efficiently in the Indian market. The market for processed food in India is experiencing tremendous increase therefore, by becoming a low cost producer A&C will be able to attract more customers and gain competitive advantage. Distribution Systems A company must consider the various channels of distribution and predict the changing trends in distribution channels. Access to efficient and effective channels of distribution is vital towards the success of the company (Proctor 2005, p. 96). India has poor distribution structures hence A&C will be forced to establish its own distribution networks in order to reach retailers (Madras Consultancy Group 2009, p.9). Industry Structure Industry structure refers to the characteristics that give an industry its unique character (Hill & Jones 2012, p. 77). They include; the requirement for success, industry concentration, product differentiation, barriers to entry and economies of scale. To succeed in the Indian market A&C will be forced to have high-quality storage facilities in order to preserve its products before selling them to the final consumers. No single company dominates the Indian market hence the market has low industry concentration. The market has no barriers to entry, low economies of scale and low differentiation and this means that it will be easy for our company to enter the market (Madras Consultancy Group 2009, p.30). A & C Food Processing Company Competencies According to Pressad (2009, p. 120) competencies refer to the technical know-how linked with wide ranging technologies, resources and process aimed at producing goods and services. A& C has a huge capital base which can be used to undertake aggressive advertisement of its products. Moreover, the capital can assist the company in purchasing the best processing equipments and machineries so as to ensure that it produces quality products at least cost. This will enable the company to gain and build competitive advantage. The knowledge that A&C employees posses will make it possible for the company to come up with innovative and differentiated products. Porter (2008, p. 179) notes that companies achieve competitive advantage through innovation. Producing innovative products will enable the company to gain recognition in Indian market hence this will assist in building the company brand name. Moreover, by producing innovative products through our employee’s knowledge, A&C will be able to serve market segments in India that have been ignored by competitors. Increased brand recognition and ability to serve overlooked segments will allow the company to gain and build competitive advantage. A&C heavy investment in research and development will enable the company to obtain sufficient and timely information regarding the changing trends and needs of customers in the Indian market. This will enable the company to satisfy its customers’ needs hence gain competitive advantage. Moreover, the information will assist the company to identify the means of sustaining its competitive advantage through continuous improvement and development of its innovations (Porter 2008, p. 179). Furthermore, the company strong culture of quality, integrity, hard work and performance will ensure that it delivers customer needs in all dimensions. This will in turn make A & C to establish competitive advantage in Indian market for processed food products. Entry Strategy A&C Food Processing Company should enter the Indian market by establishing a foreign subsidiary. The subsidiary should be wholly owned by A&C. According to the Foreign Investment Theory firms expand across borders in order to search for opportunities so as to earn profits. A&C is willing to expand to the Indian market in order to seek for market opportunities for its processed food products and earn profits. Therefore, establishing a fully owned foreign subsidiary in India will enable the A&C to retain its control and this will ensure that all the subsidiary profits are directed to the Head quarters. A&C will thus be able to achievement its profit seeking goal in India. According to Ghahroudi (2009, p. 54) establishing a fully owned subsidiary in the foreign market enables the parent company to recover its investments with ease. Hill and Jones (2011, p. 270) argue that the ability of a company to build and maintain its competitive advantage is based on its control in relation to its technological competencies and the company knowledge and skills. By entering the Indian market through a wholly owned subsidiary, A&C will be able to maintain the subsidiary control hence this will enable it to effectively utilize its technological competencies and skills in order to create long term competitive advantage. Moreover, A&C will be able to integrate its processes in the subsidiary in a more efficient way hence ensure effective utilization of its competences and knowledge in the Indian market. Establishing joint ventures will require the company to lose some control in regard to the subsidiary and this will make it difficult for the company to implement strategies in order to deal with competitors. The location specific theory proposes that foreign investors invest in a given location based on certain factors that may put the investor at an advantage. These factors include low labour costs, lenient government policy, lack of trade barriers and favorable marketing factors. Madras Consultancy Group (2009, p. 30) notes that the liberalized government policies on foreign investment in India in the food sector offers a good opportunity for foreign investors to invest in the country. India is also characterized by low labour costs and the fact that the food processing industry has few competitors means low advertising cost. Moreover, India is the second largest producer of agriculture products. Setting a fully owned subsidiary in the country will enable the subsidiary to obtain agriculture products at a low cost hence reduce transport cost. Moreover, the subsidiary will be able to utilize the cheap labour in the country. A&C financial resources will ensure that the company establishes its subsidiary in India without the need to establish partnerships. Moreover, most food companies in India process single products unlike A&C which processes a portfolio of food products hence this may make it difficult for the company to establish joint ventures. The Indian food processing industry is not dominated by any manufacturer and this means that A&C should establish its brand name by establishing a subsidiary rather than acquiring another firm. Hill and Jones (2011, p. 270) notes that establishing a subsidiary enables the company to create its image unlike acquiring another firm where the company will be forced to adopt the market image of the acquired firm. Operating Strategies The subsidiary will utilize the Multidomestic operating strategy in order to fit its operations with the needs of the Indian market ( Kellor 2011, p. 9). This means that the subsidiary will operate using a model that is different from the one used by the parent company. This is due to the necessity for the subsidiary to meet customer preferences and needs more efficiently. Moreover, by using a unique operating model the subsidiary will be able to meet the regulatory requirements in India and it will also be able to create local brand recognition. The fact that India has a different culture and regulatory requirements as compared to Australia calls the need for the subsidiary to adopt an operating system that fits with Indian conditions To operate efficiently, the subsidiary will build networks with the society in order to gain trust and share information. This will be critical as it will make sure that the subsidiary excels. Further, the subsidiary will establish networks with distributors in order to ease the distribution of its products. The subsidiary will obtain its raw materials from India and subsequently process them in India so as to save on purchase cost and transport cost (Cherunilan. 2010, p. 324). Top managers will come from Australia while operating staff will be hired from India. Exit Strategies Exit strategy enables an international business to identify means of converting its investments into cash due to the uncertainty that exists in the foreign markets (Stallman 2009, p. 133). A&C can exit the Indian market by selling the subsidiary to a strategic buyer or listing the shares of the subsidiary in the Bombay stock exchange or in the international stock exchange markets. Moreover, the company can exit the Indian market by securitizing it cash flow streams and selling them to institutional buyers. The company can also build arrangements with investors in order to sell the subsidiary to them in case the need arises. Conclusion The Indian market has experienced rapid growth in the demand for processed food hence this presents A&C Food Processing Company with an opportunity to invest in the country. The Indian market for processed food is characterized by few processors and many buyers hence this means that the buyers have a low bargaining power. Moreover, the Indian market has poor distribution networks and a large market size due to the high population in the country. A&C competencies include large financial resources, strong culture and highly competent employees. The company should enter the Indian industry by establishing a fully owned subsidiary in India. The subsidiary will then hire its employees from India with the top managers coming from Australia. The exit strategies that A&C will have will include selling the subsidiary to an investor or listing the subsidiary shares in the stock exchange markets. References Berkowitz , E 2011, Essentials of Marketing, Jones & Bartlett Learning, London. Cherunilam, F 2010, International Business, PHI Learning, New Delhi. Harrison, J & John, C 2009, Foundations of Strategic Management, Cengage Learning, Mason. Hill, C & Jones, G 2012, Strategic Management Theory, Cengage Learning, Mason. India Law Office 2012, ‘Higher Standards Making a Difference for You’, In Indian Food Processing Industry, pp. 1-15. Keillor, B 2011, Winning the Global Market, ABC, California. Madras Consultancy Group 2009, ‘India’s Market Opportunities’, In Department of Agriculture and Food Products, pp. 1-92. McDonald, M & Wilson, H 2011, Marketing Plan, John Wiley & Sons, West Sussex. Mcloughlin, D & Aaker, D 2010, Strategic Marketing, John Wiley & Sons, West Sussex. Proctor, T 2005, Strategic Marketing, Routledge, Oxon. Prasad, K 2009, Strategic Management, PHI Learning , New Delhi. Porter, M 2008, Michael E. Porter On Competition, Harvard Business School Publishing Corporation, Massachusetts. Rosenbloom, B 2011, Marketing Channels, Cengage Learning, Mason. Stillman, R 2009, ‘Alternate Exit Strategies for International Private equity’, American University International Law Review, vol.13, no.1, pp. 133-136. Read More