Business Drivers Behind the Expansion
Learning outcomes covered by the Assessment
- LO1 Debate key contemporary issues relating to organisations involved in international business.
- LO3 Appraise alternative methods of entry into foreign markets.
- LO4 Explain why companies may decide to internationalise and alternative theories of internationalisation.
- LO6 Select analyse and evaluate data on country markets.
Overview of the company:
You have been appointed as an international Business consultant for an upcoming high profile UK SME based in London. One of their key objective for 2017-18 is to tap into the Chinese market for their “Kids Breakfast range (4-12 years)” especially in promoting two products (Oat Porridge and Oat Breakfast Biscuits). The business turnover has increased from £350K to over £1.4M in just two years, with a profit increase of 35%. Their estimated turnover for 2017 is £5.4M and £7.2M for 2018.
The company carefully selects new markets and focuses on areas that would benefit from their healthier generations approach. They aim to re-educate a population by showing them that there are alternative ways via their all-natural products. The falling value of the pound sterling has created the perfect storm for British companies, to take advantage of sales in dollar currency markets. The business fully intends to make use of the UK’s reputation as a land of quality, reliability, and transparency. British companies are renowned for offering excellent food and drink products, and this has facilitated the penetration of new territories.
The business and its products have won numerous awards to date, including The FSB Business Awards, The World Juice Awards, and The Loved By Parents Awards. With a global presence in 27+ countries across all the main continents, the company is well on its way to achieving its vision of being the number one choice of brands for Healthier Generations.
Pre-school aged children and upwards are the ideal age to be ambassadors for the products due to their comprehension of what they like and dislike. The business has the ambitions to make further ranges to suit an even broader spectrum of customers while using their logo as a beacon for parents who want to purchase something better for their family including healthy breakfast range.
Various drivers are behind the company’s expansion into China. China is one of the fastest growing economies in Asia. The company is also obligated to go international since there are various advantages to the enterprise. The first primary mover advantage of the company venturing into the Chinese market is to get into the market and gain all the benefits of being the first or among the first in the market (Laband et al.). The company understands that there are many advantages of being the first company to venture into the new market. One of the critical drivers behind the company’s expansion into China is the potential for growth. The Chinese market has immense potential since the number of industries that produce substitutes of the products manufactured are few. Therefore, it was essential that the company enters the market so as to bridge the gap that exists.
The other driver why the company expanded into the Chinese market is as a result of the need to diversify income and reduce competition. The company faces competition in the United Kingdom. The stiff competition has significantly reduced the earnings of the business. Additionally, the growth in the sales is also facing the threat that arises from the increase in firms operating in the United Kingdom market (Lopez). The company had to diversify the sources of income by increasing the market base. The domestic market is not typically enough for the enterprise. Chinese market promises huge returns to the company, and that would be a significant boost to the business’s earnings. Just in case that domestic market becomes sluggish, the foreign market will act as a shock absorber, improving the sustainability of the firm (Pehrsson 136).
Additionally, the company had the desire of discouraging local competition. Internalization of the business assists to widen the sources of revenues of the company and hence, the company can muscle out of the stiff local competition in the United Kingdom market. The company would also be able to overcome the competition that arises from the domestic market. The other key driver behind the company going international is as the result of the desire to increase the market of the products that get produced in the enterprise. Over the last few years, the scale of production in the company has improved, and hence more products are getting produced (Pehrsson 134). The Chinese market also assists in providing the ready market for the products.
Trade Protection The entry to the foreign market is punctuated with…