Entrance in the UK Market of Kei Wah Bakery from Hong Kong - Term Paper Example

Kei Wah bakery (Hong Kong) – Entrance in the UK market Table of contents Introduction 3 2. Literature Review 4 2 Entrance in a new market – theories 5 2.2 Brand and culture 6 3. Discussion – Market entry strategy 8 3.1 UK Market analysis – SWOT analysis 8 3.2 Entrance in the UK market 10 3.2.1 Aims 10 3.2.2 Position towards the competitors 10 3.2.3 Brand strategy – entry mode chosen 11 3.2.4 Pricing 12 3.2.5 Technology employed 12 3.2.6 Advertising 13 4. Conclusion 14 5. Recommendations 15 Bibliography 16 1. Introduction The concept of brand equity, which was highly developed during the 1980s (Keller, Aperia and Georgson 2008), has highlighted the value of brand within the global market. However, brand marketing has been related to a series of challenges. Aligning the characteristics of a product/ services with the needs of a foreign market has been, traditionally, a challenging task, mostly because of the strong turbulences that characterize the international market. Indeed, products, which are quite successful in a specific market, may not be welcomed in another market, due to economic or cultural reasons (Keller, Aperia and Georgson 2008). In any case, branding is a key activity within the international market, securing the performance of firms, which face a strong competition, but also increasing the profitability of firms that are already well established in their market, as in the case of Kei Wah bakery, a well-known brand in the bakery industry of Hong Kong. On the other hand, culture can highly affect the performance of a product within a particular market. More specifically, products that are commonly consumed in the host country are more likely to be welcomed compared to products, which are in opposition with the local culture. In the last case, the entrance of these products in the host country is expected to face a strong resistance (Kumar 2009). Therefore, the cultural dimensions of a marketing project should be carefully reviewed before attempting the introduction of a product in a new market. The promotion of brands worldwide is often based on the following rule: the benefits expected from the foreign market need to overweigh the cost of the relevant project. Kei Wah bakery is a successful brand in the bakery industry of Hong Kong. The expansion of the brand in a new market is considered as a key solution for the stabilization of its performance: by increasing its customer base the brand could face the market turbulences and improve its position towards its rivals. The criteria under which the entrance of the brand in the UK market would be successful are reviewed in this paper. The plan involved is presented explaining the reasons for which specific strategies have been preferred for establishing the brand in the UK market. All aspects of the relevant project are presented, as possible, and evaluated taking into consideration the following fact: the prospects of the UK market in regard to products of this type, i.e. bakery products, are high; however, because of the high competition in the specific industry, as analyzed below, the plan used for promoting the brand in the particular market should be carefully reviewed as of its feasibility and its chances for success. The time required for the achievement of the targets set should be also checked, along with the resources necessary, ensuring that the expected benefits from such initiative are more than the costs involved. 2. Literature Review The development of marketing plans in the international market requires a series of resources. Information related to the target market should be precise, as possible, and adequate in order for effective marketing plans to be developed (Muhlbacher, Leihs and Dahringer 2006). A series of approaches and theories can be used for increasing the chances for success of a marketing plan related to the international market. However, in practice the risk of these plans is usually high, since the conditions in the global market cannot be standardized and cannot be predicted. The forms of marketing strategies used in the context of the international market can be highly differentiated in accordance with the needs of each organization, the resources available and the targets set (Hagele 2010). 2.1 Entrance in a new market - theories One of the key challenges for marketers who are interested in developing marketing plans in the international market is the identification of the criteria on which the relevant plans will be based. Various theories have been introduced for explaining the framework of such business initiatives. In accordance with Baker and Saren (2010) the marketing plans promoting products/ services in the global market need to address two key issues: conflict and co-operation. Conflict is a term used in order to show the potential resistance of the new market towards a specific product. Conflict does not necessarily refer to the refusal of consumers in the new market to accept the particular product but also to the competition that this product will face in the new market (Baker and Saren 2010). Moreover, co-operation, as an element of international marketing strategy, highlights the need of strategic alliances for promoting products and services in the global market. This trend is reflected, for example, in ‘brand alliances’ (Baker and Saren 2010, p.158) that aim to increase the chances for success of a brand within a new market. At the same time, certain sociological concepts, such as the concept of ‘co-optition, referring to the ways that actors simultaneously handle conflicting and mutual interests’ (Baker and Saren 2010, p.158) could be used in order to set the criteria on which the new – market – entrance strategy of a specific product could be based. In the context of the global market, delays in completing the entrance in a foreign market can lead to severe damages, resulting even to the failure of the whole project (Cavusgil 2008). For this reason, when such plans are developed they should be carefully monitored as of their alignment with specific timing requirements. On the other hand, there are certain conditions that make the entrance to a new market easier: a) the costs of developing the relevant process is low, b) the ‘existing distribution channels are open to use’ (Hooley, Saunders and Piercy 2004, p.120) and c) competition in the particular industry is low. In the case under examination the second requirement is met; however, problem seems to exist in regard to the first and the third requirements: the competition in the UK bakery industry is strong; new entrants should follow carefully designed plans in order to manage the pressure of the industry’s competitors. Also, the expenses in entering this industry could be characterized as rather high, compared to other markets globally. In accordance with Luther (2011) the entrance in certain market or certain industry may require high investment; these markets are known as ‘capital intensive markets or industries’ (Luther 2011, p.44). The entrance in these markets should be avoided, unless the expected benefits are significant, as in the case under examination. 2.2 Brand and culture In order to decide the potential success of a brand in a new market, there are certain issues that should be primarily reviewed. More specifically, there are three questions which should be answered positively in order to indicate that the entrance of the brand in the new market would be an important strategic decision: a) is the brand aligned with the ‘new product context’ (McLoughlin and Aaker 2010, p.218), b) would the brand be preferred in the new market (McLoughlin and Aaker 2010)? At this point, the advantages of the brand compared to similar brands in the host country should be reviewed and evaluated. Customers in the new market should be persuaded that the particular brand has a series of advantages and extra qualities compared to its rivals, c) Is the culture of the brand aligned with the culture of the local market? In other words, in order for a brand to be successful in a new market it should fit with the local cultural conditions, otherwise, its chances for success would be limited. Customers in the new market would not accept the new brand in case that this brand is in opposition with their culture. In accordance with Jain and Griffith (2012) the culture of consumers worldwide can be characterized as homogenous, ‘leading to a global consumer culture’ (Jain and Griffith 2012, p.324). On the other hand De Mooij (2010) notes that the culture of a market should be carefully reviewed before promoting a specific product/ service so that the following trend is identified: at what level consumers in the specific market are likely to be influenced by each other? Moreover, Baker and Saren (2010) note that culture can create severe barriers to a marketing plan, especially at the level that ‘marketer and other parties do not share the same culture’ (Baker and Sharen 2010, p.166). At the next level, the consumer culture theory is based on the rule that the buying decisions of each consumer are likely to be highly influenced by his culture, which has been developed gradually through his socialization within a particular social group (Belk 2007, p.11). However, the level at which each consumer while finally accept or reject a product under the influence of his culture cannot be standardized. In other words, culture, as ‘a heuristic device that we can use to talk about difference’ (Burton 2009, p.3) can highly affect the performance of products/ services in the international market and for this reason it should be taken into consideration when such projects are developed. From another point of view, Usunier and Lee (2009) note that in the context of the free trade doctrine, economic factors are more important than cultural factors. Thus, the economic conditions of a particular market should have an increased power on marketing decisions, compared to the cultural characteristics of the specific market. However, the above review cannot reduce the significance of culture for marketing decisions related to the international market, especially taking into consideration the fact that economic conditions globally tend to be similar, meaning the trend of consumers for choosing products of low cost, as possible. On the other hand, the characteristics of culture worldwide are different, and the chances for identical preferences of consumers in each market are quite limited. 3. Discussion – Market entry strategy 3.1 UK Market analysis – SWOT analysis The UK market is considered as appropriate for the promotion of bakery – related brands. Indeed, the performance of these brands in the particular market seem to be successful, meaning that there are chances for high growth of firms operating in the particular industry. In accordance with a report published by the Federation of Bakers (UK) ‘the UK Bakery market is worth £3.4 billion’ (Federation of Bakers 2011). The firm’s key competitors, for example, the CSM and the Baker Perkins have been highly developed, achieving a high level of profitability. Also, the UK bakery market has attracted competitors from other countries, as for example, the New York Bakery Co, which has proceeded to ‘£11.5m investment for entering the UK market’ (Prescott 2011). In 2007, the firm Canada Bread entered the UK bakery industry investing an amount of £18.75m (Willmer 2007). The potentials of Kei Wah bakery in the UK market can be identified through a SWOT analysis. In the context of such analysis, four different characteristics of the UK market will be examined: strengths, weaknesses, opportunities and threats. These characteristics would be analyzed as follows: a) Strengths: the status of UK economy can be considered as quite satisfactory; the turbulences in the European market cannot directly affect UK since the country has its own currency, meaning that its economy can be effectively protected in case of a severe crisis in the Euro-zone; also, the performance of bakery-related firms in the UK market can be characterized as encouraging. The specific sector reflects a significant part of the local market indicating that there are still chances for new entrants to succeed, b) Weaknesses: company regulation and taxation; the UK rules regarding the regulation and taxation of companies are differentiated from those in Hong Kong, a country with a different legal system. This means that the firm’s managers should try to choose an entry mode the requirements of which are not high in terms of the changes necessary on the brand’s existing culture; c) Opportunities; foreign firms that have entered the UK bakery industry have managed to achieve a high level of growth. Moreover, the prospects of the industry seem to be high for the future, meaning that the brand would have significant chances to achieve a stable growth in the UK market. On the other hand, the UK market is well positioned in the context of the international community; the development of the brand in the UK market would help the brand to further improve its position globally, meaning that more chances would exist for the brand to be welcomed in countries which are related to the UK market, due to common cultural and legal characteristics, such as the USA market or the Australian market; d) Threats; competition in the UK bakery industry is high. The industry’s key competitors are highly developed, in terms of brand name and resources employed in their operations. The brand would need a particular period of time in order to be welcomed by consumers in UK. At the same time, the turbulences developed in the global market are significant, influencing also the UK economy. The risk for a potential failure of the brand in the UK market cannot be avoided; however, if measures are taken for the limitation of this risk, see section 5 below, then the losses from a potential failure of the brand in the UK market would reduced. 3.2 Entrance in the UK market The entrance of the brand in the UK market should be based on a particular plan. The parts of the plan are presented below. Each part would require the successful completion of the terms of the previous part, meaning that these terms are feasible and are promoted in accordance with the time framework set in the particular plan. The plan should begin with the identification of the brand’s aims in the UK market. 3.2.1 Aims The aims of the brand should be set as follows: a) promotion of the brand’s culture in the UK market, without ignoring the local culture, b) emphasis should be given on the alignment with the industry’s ethics and standards, meaning that regulatory violations should be avoided in relation to the promotion and the operation of brand in the UK market, c) at a first level, an independent business unit should be established, aiming to keep the brand’s culture and ethics (Stone and Desmond 2007); however, in case of failures in the achievement of the targets set an alternative mode of entry should be established, d) cooperation with local businesses and authorities should be highly promoted in order to avoid critical failures in meeting the industry’s requirements and rules. 3.2.2 Position towards the competitors Competition in the UK bakery industry is high. This means that the new brand would have to face the pressure of its rivals in case it would attempt to enter the UK market. Gathering critical information in regard to the failures of brands in the UK market would help the marketers of the brand to have a view of the most common reasons for which consumers in UK tend to reject brands (Bogomolova and Romaniuk 2010). Such information would offer to the brand a competitive advantage towards its rivals. At this point, the following issue should be examined: are the products of the brand relevant to the UK market? The study of Backhaus, Steiner and Lugger (2011) revealed that ‘brand relevance generally is driven by three functions: image benefits as well as information cost and risk reductions’ (Backhaus, Steiner and Lugger 2011, p.1082). This fact should be taken into consideration when judging the potentials of the brand to succeed in the UK market. Indeed, in the above market there is a series of products of the same category (bakery products), meaning that consumers are familiar to the specific type of product. However, because of the differences in culture, country of origin information should be provided to the consumers, ensuring that no barriers are set in the promotion of the product in the UK market. 3.2.3 Brand strategy – entry mode chosen The entrance of the brand in the UK market should be based on a carefully designed plan. Certain issues need to be taken into consideration when developing this plan. Primarily, customers in any market are likely to prefer brands on which ‘country-of-origin’ information is available (Chen, Su and Lin 2011). Also, the entry mode of the brand should not be based only on market’s competition (Kornelis, Dekimpe and Leeflang 2008). The cooperation with an existing brand, already known in the UK market, would be a potential way for Kei Wah bakery to enter the UK market. In accordance with Besharat (2010, p.1240) ‘the presence of at least one high-equity brand in co-branding strategy suffices to leverage consumers evaluations of a new product’. However, the above mode of entry would have certain disadvantages, mainly the lack of control over the quality of the material used in the production process. The entry mode chosen is the ownership. The reason for preferring the specific entry mode is that it offers the advantage of control over the local business unit (Doole and Lowe 2008). This means that there are no other parties intervening in the financing needs or the manufacturing processes developed within the specific business unit (Wood 2007). Also, this mode of entry minimizes the risks related to potential violation of local regulations and standards as applied in the bakery industry of UK. 3.3.4 Pricing In terms of pricing, the prices of the brand’s products should be kept at a specific level, being aligned with the industry’s pricing trends. Moreover, for an initial period, of 6-12 months, prices could be kept a bit lower, as possible, from those of the competitors. Alternatively, if such strategy were not feasible, meaning the case that competitors develop concerns in relation to the fair competition rules, other similar strategies would be chosen. It should be noted that the study of Persson (2010) revealed that consumers are willing to pay more for acquiring a product of high quality, so that pricing would not be a problem for marketers. 3.3.5 Technology employed As noted above, competition in the UK bakery industry is high. The industry’s key competitors use advanced technology in all phases of the production process. This means that technology would be key factor in order for consumers in UK to welcome the brand. The technology chosen should be similar with that already used in UK baker industry, in order to avoid violation of the relevant standards and regulations. However, certain technological features used in the Honk Kong bakery industry would be also employed, at the level that they could offer to the firm a competitive advantage towards its rivals. 3.3.6 Advertising Advertising is a key part of a marketing strategy. The modes of advertising chosen for the promotion of a product/ service are differentiated, being depended on the characteristics of the product/ service involved but also on the structure and trends of the target market. In this context, the advertising of the product in the UK market should be based on the following rules: a) media should be preferred than other means of advertising, for instance the press; media seems to be the most preferable means for promoting brands in the international market (Winer 2009). The reason is that the effects of media in terms of advertising are direct and higher, meaning the number of the consumers who have access to the advertisement of a particular product; in the case of Kei Wah bakery, profits are seek in the short term, aiming to cover the investment made on the brand’s promotion in the UK market. For this reason, media should be primarily used for advertising the particular brand in UK, b) the culture of the brand is slightly differentiated from the local culture; however, the brand advertised refers to the food industry, the products of which have more chances to be welcomed in foreign markets. The promotion of the brand in the UK should be also based on interactive technologies, such as the Internet or the i-phones (Michaelidou, Siamagka and Cristodoulides 2011). In any case, the advertising plan would not focus on the cultural characteristics of the brand but rather its qualities and its alignment with the industry’s standards. 4. Conclusion The success of products in the global market is not guaranteed. Indeed, products or services, which are successful in a particular market, may fail to respond to the needs of a new market. The key characteristic of successful brands is their ability to be easily adapted to the market conditions of most countries internationally. On the other hand, there are products or services, which, by their nature, have more chances to be welcomed in a new market, for instance, the products of the food industry. The key challenge that marketers in the global market have to face is the following one: they should be able to promote a product/ service worldwide by keeping the balance between costs and profits. The use of marketing theories and concepts which have been successfully used in similar projects, could increase the chances for success of the marketing plans in the international market. However, in many cases, certain risks related to the specific initiatives may not be clear by the beginning. Reference is made, for example, in the case of hidden costs or in the case of unexpected events that lead to the increase of time required for the completion of the project, meaning that the total cost of the marketing plan is also increased (Stevens 2004). In the case under examination, Kei Wah bakery is a successful brand in the Hong Kong market, which is a dynamic market, as of its prospects for further growth. The entrance of the brand in a new market would lead to the following benefits: a) increase of the brand’s power towards its competitors in Hong Kong, b) increase of the potentials of the brand to face the global financial turbulences. More specifically, if the status of the Hong Kong is worsened, then the profits in the UK market could cover the relevant loss, and vice versa, c) the increase of the competitiveness of the brand in the global bakery industry; the brand would have more chances to accept proposals for strategic co-operations in the context of the international market. Under these terms, the entrance of the brand in the UK market can be characterized as a key strategic decision for the increase of the brand’s power, both locally and globally. The challenges related to this initiative, as analyzed earlier, could be effectively faced by using the relevant findings of the literature and the suggestions included in section 5 below. 5. Recommendations The entrance of the brand in the UK market is expected to face a series of challenges, in the context described above. Of course, the benefits expected are many and for this reason, the promotion of this brand in the UK market should proceed with no delay. However, in order to avoid delays or barriers when implementing one or more phases of the new entrance strategy, as analyzed in section 3 above, it would be necessary for certain measures to be taken in advance: a) the investment made on the particular project should be kept at an average level; the pay-back rate of the project should be reviewed before proceeding with the support of the project with additional funds, if such need appears, b) both local employees and expatriates should be engaged in the project, ensuring that all phases of the plan are appropriately monitored (Neves, Castro and Consoli 2010). On the other hand, the involvement of local employees would help towards the alignment of the brand’s culture with the local culture and ethics, and c) the progress of the project should be evaluated every 3 months; in case that the targets set are not achieved, or even if no indications exist for the successful incorporation of the brand in the UK market, then the change of the strategy used for the entrance of the product in the specific market should be reviewed. At a first level, the use of an alternative strategy would be employed for facing the problem; for instance, the co-operation with a major UK competitor in the bakery industry would be chosen. If this initiative would also fail, then the identification of another market would be the most appropriate strategy for avoiding major losses. Bibliography Backhaus, K., Steiner, M., and Lugger, K. 2011. To invest, or not to invest, in brands? Drivers of brand relevance in B2B markets. 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