Evaluating Internationalization Strategy - Essay Example

Evaluating Internationalization strategy Name Institution Course Date Executive Summary Internationalisation strategy involves operation of companies in foreign countries with an aim of expansion and growth. Boffi company has been in operation since 1934 and has grown to become a leader in furnishing market. Over the years, it has penetrated to foreign markets such as the United States, Asia and new Zealand. This has been done through partnership with other companies such as Porro and Living Divani and Fintini Company. There are other potential markets for Boffi Company such as Egypt and UAE that the company can take advantage of to raise its competitive advantage. This paper will detail out market analysis for Egypt and UAE as a potential markets for Boffi Company. It will evaluate the mode of entry in these two countries with regard to their suitability and feasibility. Examples of entry mode strategies that Boffi Company can use include franchising, partnership, joint venture, greenfield investments to name a few. Table of Contents Executive Summary 2 Table of Contents 3 Evaluating Internationalization Strategy 4 Introduction 4 Boffi Company 5 SWOT Analysis of Boffi Company 6 Strengths 6 Weaknesses 6 Opportunity 6 Threats 6 Internalisation 7 Motives for Internalisation 7 External Analysis and National Competitive advantage 8 UAE market analysis 8 Egypt market analysis 8 Evaluation of Modes of Entry 9 Modes of entry into Egypt 9 Modes of entry into UAE 10 Conclusion and recommendation 11 References 13 Evaluating Internationalization Strategy Introduction In today’s world, many barriers to international trade have declined and this has provided an opportunity for companies to pursue global strategies with an aim of gaining competitive advantage (Zou, 2002). Nevertheless, some companies tend to benefit more from globalisations than others and some countries and market have comparative advantages over others in specific industries. In order to expand into foreign markets, companies should understand a country’s global industries and its dynamic competition. The process of penetrating into the international market is a difficult task which many firms consider a good opportunity for their global capabilities. Entering a new nation-market is a start-up situation with no marketing infrastructure, little knowledge of the market, no sales etc. despite this; various firms treat this opportunity as an extension of their business and a source of incremental revenue and profits (Kale, 2009). Internationalisation is very different from local marketing as penetration into an international market is a zero-base process. Companies implement internalisation for a variety of reasons. However, the major reason for this is expansion and growth (Grant et al., 2004). Hiring international employees as a means of going international can assist in diversifying and expanding a business. This paper will highlight a detailed SWOT analysis of Boffi Company evaluating the internalisation process that the company can use in entering new markets: UAE and Egypt. It will detail out the company’s motive for internationalisation, evaluate the countries’ competitive advantages and will analyse the modes of entry to be used by Boffi Company. Boffi Company Boffi is one of the leaders in furnishing market. The company is known for its kitchens, bathrooms and revolutionary closet storage systems (Boffi, 2009). The company was founded by Piero Boffi in 1934 and in 1950s he passed it to the sons where it began to pave its way into interior design market. In 1994, the company opened its first store in Milan. With an aim of reaching the international markets, the company established 21 direct stores in more than 40 countries worldwide including in America, Asia, New Zealand, Europe to name a few. Boffi Company has implemented an integrated international market strategy that involves the company’s partnerships with well-known designers who are able to promote Boffi’s production excellence. For instance, in the 1950’s, Giulio Confalonieri was able to establish a new identity for Boffi company which represented its most exciting standards and made the company excel in the furnishing industry in an enduring and appealing way (Boffi, 2009). In addition, Boffi Company also utilised events and catalogues as a means of introducing new products and consolidated company policy with an aim of developing commercial international partnerships with major sector brands. The partnership strategy was further advanced in the 1990s when two individuals; Roberto Gavazzi and Piero Lissoni formed a partnership company (Boffi, 2009). Boffi Company was the first firm to exhibit its products at the Milan Furnishing Exhibition and in ‘unusual’ spaces like factories and churches. This marketing strategy created a trend that set out a well renowned cultural event. In 1998, the company opened the first brand direct store in Milan via Solferino which identified its new bathroom production line and its new distribution policy that enabled it to open more single-brand stores. In 2007, the company’s concept of commercial partnership led to the company collaborating with Porro and Living Divani. And in 2010, Boffi Company formed a partnership with Fintini Company, a leader in bathroom industry with an aim of expanding its market beyond the respective sectors (Boffi, 2009). SWOT Analysis of Boffi Company Strengths Boffi Company has an excellent staff that handle sales and marketing. It has a strong customer relationship and internal communication system. In addition, Boffi Company has a well-designed marketing strategies and a reputation of being innovative. The company invests heavily on advertising and new stores while paying attention to prices and quality control. This has led to the success of the company (Boffi, 2009). Weaknesses Boffi is relative minnows when compared to the competitors. This often limits its growth and drags on potential profitability. Also the company is faced with the challenge of getting their products in the hands of the consumers (Boffi, 2009). They do so by leaving their products in the hands of the brand-store networks which they often don’t have control of. Boffi also does not have strong presence in nations where demand is strong. Opportunity Boofi Company enjoys a wide range of loyal customers across the world making the demand high. In addition, the company offer products at fairly cheaper prices compared to the competitors. This has led to the growth of their sales in the mono-brand stores (Boffi, 2009). In addition, distinctiveness and uniqueness of the company constitute a success factor to the industry. Threats Boffi Company is affected by a downtown in economy in most countries and the less spending budget of people (Boffi, 2009). Boffi Company has many cometitors offering similar products. Some competitors include EFI, StarMark Cabinetry, FX Cabinets Warehouse, and Bulthaup to name a few. Internalisation Motives for Internalisation Just like any other company, Boffi aim to go international for growth and expansion (Jagersma, 2005). Overseas operations are very attractive to Boffi as it is a way of the company to reduce budget and increase profit. For example, internationalization of Boffi Company to countries with relatively deflated currencies enables the company cut on cost. It is also cheap for the company to employ workforce in such countries. Expanded markets motivate companies into going global. Going global allows Boffi Company reduce its reliance on local markets; the downturns in consumer demand at the local level are offset by upturns in demand in the international markets (Boffi, 2009). In addition, larger markets provide an opportunity for the company to earn more profits. Therefore, Boffi go international with an aim of seeking new opportunities and expand on the products and services they provide to the consumers. Change is an important concept that is targeted by every business organisation for development. Businesses for instance may transfer ownership, form partnership and reformulate the already available business structures. Companies may also hire external consultants who can be able to offer advisory services in times of financial crisis (Jagersma, 2005). Often, the fact that business organisations go global is attributed to flow of commerce. Majority of business organisations go international making global expansions with an aim of gaining competitive advantage. Competition may expand in potential regions that will make it unwise for ones company to do the same. By going international, Boffi company gain competitive advantage (Jagersma, 2005). External Analysis and National Competitive advantage UAE market analysis UAE is considered a number one country in terms of resorts and lodging options and for shopping destination (UAE Interact, 2008). It is number 10 for having high standard of living and advanced technology. It has about 4.8 million people and has been politically stable since 1971. UAE is also considered to being nationally competitive compared to other countries. Its diversified global strategies have made it a perfect region for trade and logistics. demographic analysis of UAE highlights opportunities since approximately 80% of the population is foreign. UAE is considered a luxury market with over 59,000 millionaires living in the country. In addition, it also attracts high net worth people with its luxury lifestyle and shopping festivals (Bahadir, Bharadwaj and Srivastava, 2007). One third of the global population can be accessed from UAE through a four hour flight. 16 billion customers with a potential of $1 trillion value in UAE can be accessed in the region. In addition, the country has minimal trade barriers that would make it easy for Boffi company to be able to expand comfortably (UAE Interact, 2008). Effectively resourced sponsorships boost UAE competitive advantage which leads to superior performance in product markets. Egypt market analysis Egypt is considered a challenging but rewarding market for luxury goods. Despite the available political turbulence in the country, Egypt market offers a great opportunity for future international investors (Campbell, 2001). The competitive advantage of Egypt relies heavily on the vast energy reserves, accessibility and rapidly growing population. However, political risk makes international investors stay away from this area or have limited franchising deals. Egypt is improving its business environment by introducing investor friendly legislations. The openness to foreign investors in the country is expected to continue in the future. In addition, trade and investment links between Egypt and other emerging markets such as Asia and Africa is rapidly growing making it a transit hub for businesses. Free trade agreements, improved infrastructure, development of regional media market have contributed to the country’s greater economic integration (Campbell, 2001). Egypt also has the advantage of having low taxes and low labour costs that makes it a potential market for international businesses. In entering Egypt market, Boffi would have to consider the impacts of their operations with regard to the country’s rapidly growing potential with high political risk. With regard to this, the company can determine the entry strategy to use in entering the market. Evaluation of Modes of Entry Modes of entry into Egypt Boffi can use franchising as a means of entering the Egypt market and then afterwards move to greater control levels when they acquire requisite local knowledge. Franchising can be a good potential entry strategy for Boffi company since it has strong brand recognition in Egypt (Boffi, 2009). Also, partnership is another way Boffi can enter the Egypt market. However, if it enters the market through partnership, it will be very difficult for the company to adapt to the set terms and agreements in light of differing and changing circumstances. For instance, the need to change business structure can arise as businesses discover that legislative changes give them an opportunity for greater ownership stake. In Egypt, legislative changes that reduce foreign ownership restrictions continue to be implemented offering new opportunities for foreign investors (Campbell, 2001). This may be disadvantageous to companies entering Egypt through partnership. Additionally, acquisitions offer greater entry speed than greenfield projects. To start with, finding acquisition targets can be very hard in Egypt as it has relatively small stock markets. With regard to valuation, owing to the relatively undeveloped market, there are unlikely similar transactions in which a valuation can be benchmarked. This requires the investors to analyse and evaluate what benefits an acquisition can bring. In addition, integration barrier may come up especially when acquiring a family owned business organisations which depends wholly on the founder or owner (Campbell, 2001). In general, one essential way to enter the Egypt market is to first start with a minority stake before agreeing up front the frameworks to be followed for a full acquisition in the future. Modes of entry into UAE Boffi can choose to enter UAE market through partnership with other well-known interior design companies such as Bold Bespoke design. Mergers are very beneficial in that they encourage and stimulate corporate governance and provide local knowledge (Dacko, 2002). However, partnership may be detrimental as it reduces competition. Partnership has the ability to improve brand value if the marketing capabilities of the two companies are high. Boffi can also choose to enter the UAE market through joint venture. This is a form of partnership where there is a creation of a third independently managed company. It involves two companies agreeing to work together by creating a third company that operate in a particular market. Risks and profits are thus shared among the two companies (Dacko, 2002). Joint ventures do not necessarily have to involve a large firm as it can be successfully achieved through collaboration with small-sized business organisation. In UAE, SMEs have a significant contribution to trade growth and offer products for niche markets. Many SMEs have a chance to partner with large companies using market, customer and innovation expertise (Duckett, 2008). In UAE, the government is focussed on improving entrepreneurship for companies who contribute 20% of population. This makes franchising a good option to enter into UAE. In the country, franchising is a popular strategy to going international. Another entry mode to UAE country is Greenfield investments where a company buys land and builds a facility where business operations will take place in a foreign country. It is very costly and has the highest task. According to a number of researches, of all the choices for entry into international market such as franchising, partnership etc., companies will be better off acquiring a high-technology firm and this is the case in UAE (UAE Interact, 2008). The country is safe from crime and violence and has added inducements of free trade zones. The country also allows a 100% foreign ownership in certain sectors found outside free trade zones. Conclusion and recommendation The reason why Boffi Company goes international is to grow and expand, reduce overhead, establish strong brand recognition, explore larger markets and overall acquire competitive advantage. The different options for Boffi going international differ in terms of the level of commitment to market, investment required, costs and involvement s and level of control offered. The available options for entering into Egypt and UAE by Boffi Company include franchising, partnership, joint venture, greenfield investments to name a few. The motive for going international should be for lasting reasons. The best mode of entry that can be utilised by Boffi Company is partnership. In practice, market knowledge and skills can be acquired without giving up large equity stake in the company. It can be done through use of consultants and hiring local staff. Typically, durable partnerships are founded upon a true connection of complementary capabilities that involves more than local expertise and contacts. Boffi will be able to provide the brand, the luxury product while the local operator will assist in securing access to space, quality workforce and efficient operations. Generally, mergers and partnership is the way to go for Boffi Company as it will combine the company’s creativity and technological know-how to successfully establish international distribution network that would boost its competitive advantage. Partnership is an entry approach that builds a business in a foreign country as quickly as possible but with some aspects of patience produced with a desire to minimize risk and uncertainties and to learn about an international country’s market from low level knowledge. References Bahadir, S.C.,Bharadwaj, S.G. and Srivastava, R 2007, “Financial Value of Brands in Mergers and Acquisitions: Is Value in the Eye of the Beholder?” Journal of Marketing, Vol. 72, No. 6, pp. 49-64. 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