INDIVIDUAL STUDENT ESSAY
Module Code: MC5057
List of figures II
1 Introduction 5
2 Decision to Internationalise 7
2.1 Nine Strategic Windows 8
2.2 SWOT Analysis 9
3 Decision-Making for Entering a Foreign Market 13
3.1.1 Gross Domestic Product13
3.1.2 Restrictions for Saccharin14
3.3.1 Gross Domestic Product14
3.3.2 Restrictions for Saccharin15
3.3.3. Inflation Rate15
3.3.4 Political Stability15
3.3 United States of America16
3.3.1 Gross Domestic Product16
3.3.2 Restrictions for Saccharin16
3.3.3 Inflation Rate16
3.3.4 Political Stability16
3.4.1 Gross Domestic Product16
3.4.2 Restrictions for Saccharin16
3.4.3 Inflation Rate16
3.4.4 Political Stability17
3.5 North Korea17
3.5.1 Gross Domestic Product17
3.5.2 Restrictions for Saccharin17
3.5.3 Inflation Rate17
3.5.4 Political Stability17
4 PESTLE Analysis 19
5 Market Entry Strategies 25
6 Segmentation, Targeting, and Positioning 26
- List offigures
Figure 1: (Hollensen, 2008, p.10) The nine strategic windows.8
Figure 2: (IMF, 2014) Gross Domestic Product Canada from 2004 to 2014 14
Figure 3: (IMF, 2014) Gross Domestic Product Ukraine 2004 to 2014 15
Figure 4: (Consultants-on-line.com, no date) PESTLE Analysis 19
Figure 5: (conferenceboard.ca, no date) Income per Capita 201220
Figure 6: (tradingeconomics, 2014) Inflation Rate Canada..22
Figure 7: (Tradingeconomics, 2014) Core Customer Prices Canada23
Figure 8: (tradineconomics, 2014) Disposable Personal Income Canada.23
Figure 9: (tradingeconomics.com, 2014) GDP Canada24
The product which will serve as the primary focus of this essay is called “Nutri-Shake”, which is a shake that is specially formulated to serve as an effective substitute for real food or a meal replacement drink. It contains a wide array of the important macro- and micronutrients, as well as all essential amino-acids and minerals the human body needs. The mission of the Nutri-Shake company is: ‘To ensure perfect health of every costumer at any time by giving him or her every nutrition needed and save their time to enjoy their live in the best way possible.’
Traditionally, Nutri-Shake has been promoted as a high-quality and luxury product. Nutri-Shake is made in the United Kingdom by the company “Nutri-Health”. When producing its mainstay product, the company strives to use only the best all organic ingredients, which are mainly produced by local farmers. Some ingredients, however, must be procured from other countries, mainly from South America and from Japan, due to lack of availability and ensuring lower production costs. Importantly, Nutri-Shake represents the only product manufactured by the Nutri-Health Company, whereby the product is distributed and sold be a wide network of retailers (e.g. Sainsbury’s, Waitrose, Tesco).
Since Nutri-Shake is already a very popular product in the U.K. (market share 45%) the company has begun to explore the possibilities of expanding their business internationally. The vision for the next two years is made by using the SMART Objectives. Their vision is: ‘Establish our product in two foreign countries by the end of 2015 with a market share of 5 % each’.
Accordingly, this essay will firstly discuss the decision-making process that should be undertaken in determining whether or not to expand into international markets by using the ‘nine strategic windows’ and the ‘SWOT-Analysis’, as well as show how the company decides which markets they want to enter and how they want them to enter. In addition, this essay will outline and demonstrate the segmentation, targeting, and positioning that Nutri-Health should employ in its quest to expand into the newly chosen foreign market. Finally, the essay will conclude with a brief reiteration of the primary elements that should be taken away by the audience upon the complete reading of this work.
Decision to Internationalize
Perhaps one of the most critical places to begin as a firm seeking to expand into foreign markets is to ponder why the firm wants to go global, as in what does the firm expect to accomplish or achieve. As such, Nutri-Health should begin its decision-making process with one fundamental, yet critical question, “why should Nutri-Health become international?” This section will seek to provide a comprehensive answer to this question by utilizing a two pronged approach, which will be comprised of the nine strategic windows and a thorough SWOT analysis. Ultimately, the utilization of more than one analysis tool will enable Nutri-Health to gain a thorough picture of what it faces as it prepares to expand globally, while also keeping in mind the firm’s strategies, future goals, and objectives. Accordingly, this analysis will begin with an examination of the Nutri-Shake product as it is perceived though the application of the nine strategic windows, which is illustrated in Figure 1 below.
The nine strategic windows
Figure 1: (Sollberg, 1997 cited in Hollensen, 2008, p.10) The nine strategic windows
As stated previously, Nutri-Health has already been able to capture and maintain nearly one third market share in the U. K. where the popular Nutri-Shakes are sold by a myriad of major retail chains. As such, this indicates that this product should be viewed as mature within its domestic market (Hollensen, 2008, p.10). According to Sollbergs (1997) model the next step is therefore to consider a possible approach to internationalization by pursuing niches in foreign markets and argue possible expansions (Sollberg, 1997 cited in Hollensen, 2008, p.10). Importantly, although Nutri-Shake is categorized as a mature product, this is essentially limited to the local market, which indicates that further examination and scrutiny is needed to determine the product’s potential in the various international markets. Certainly Nutri-Health has been able to establish a strong foundation within its domestic market located in the U.K., which suggests that the firm is equipped with the needed stability and capital to embark on international expansion. Due to the fact that the firm does not currently have an international presence, it should be deduced that Nutri-Health needs to prepare its Nutri-Shake products for globalization.
The SWOT Analysis can be an incredibly valuable tool to organizational leaders, particularly as they engage in strategic decision-making. As a result, this emphasizes the value and merit of utilizing a SWOT analysis here to provide increased clarity and understanding of the various internal and external factors that would be faced by the firm if globalization was to be pursued. This SWOT analysis will be comprised of four main parts, which include strengths, weaknesses, opportunities, and threats.
Strengths: Nutri-Health’s most prominent strength is the firm’s sterling national reputation. Further, as stated previously, the firm has been able to capture and maintain a major portion of market share in the U. K. As a result, Nutri-Shake can therefore be seen as established and excepted by a broad national consumer base. Nutri-Shake’s final strengths involves its unique selling proposition as it of only contains organic, high quality ingredients, which effectively distinguishes the product from those of competitors from the U.K. who are not emphasizing the use of organic ingredients.
Weaknesses: A thorough examination of Nutri-Shake reveals one primary weakness, which involves the firm’s non-existent international presence or expertise. In particular, expanding a firm into new foreign markets requires tremendous business savvy, knowledge, and skills. Due to the fact that Nutri-Health has not had any past experience in international expansion, this would likely serve as a major learning experience for the firm that would be fraught with rooky mistakes, and a lot of trial and error.
Opportunities: As the world moves past the recent global economic crisis, economic growth has begun to gain momentum in a host of countries that are both developed and developing. Now would be an excellent time for Nutri-Shake to enter some of these emerging markets where economic growth is rigorous. It would enable the firm to gain early-entrant benefits and ride the wave of economic growth that is anticipated in economies throughout the world in the next decade. Another opportunity that Nutri-Shake should exploit is the potential for the product to offer meal replacements in a shelf stable form, which indicates easy shipping and storage that does not require temperature control or immediate use. Many consumers throughout the globe would benefit from Nutri-Shake, whether from a strictly nutrition based perspective, or for convenience and pursuit of a healthy diet. As a result, Nutri-Shake offers a wide array of consumers excellent meal solutions.
Threats: A firm will always face a number of threats, whether its sights are on maintaining domestic operations or are geared towards international expansion. Importantly, the number and intensity of threats greatly increases when the firm considers international expansion as a whole host of influences and factors come into play that were not relevant when the firm operated solely within its domestic market. These threats can include politics, legal and regulatory frameworks, procurement of raw materials, economic issues, and restricted capital or finance options. Political issues can carry major implications to a firm as the government of a nation can have tremendous authority or influence over the firm’s operations. In particular, the governments of some nations have the authority to expropriate all of the firm’s assets at will, many times without adequate compensation. This would represent a total loss to the firm, which would result in a negative return on investment. In addition, some nations have governments that are inherently corrupt as government officials demand bribes to do their jobs. The legal and regulatory framework can also present a major threat, particularly with regard to laws associated with intellectual property. Some nations have weak laws to protect against the theft and use of intellectual property between competing firms. Each of these threats must be examined within each foreign market that Nutri-Health considers for international expansion. The markets that indicate the lowest threat will likely indicate the better expansion opportunities for the firm to undertake.
Decision-making for entering a foreign market
In order to make a sound decision regarding Nutri-Health’s entrance into a new foreign market, an extensive evaluation will be conducted across four major categories, which will include gross domestic product (GDP), Saccharin restrictions, inflation rate, and political stability. Further, Nutri-Health will focus its examination of these categories as they relate to the following five potential foreign markets:
- North Korea
The gross domestic product will be analyzed because it is an indicator for the stability and growth of a market. Especially when there are information about the changes of many years.
As Saccharin is an essential artificial sweetener in Nutri-Shake and was considered to be dangerous some years ago the new market will be checked for any restrictions.
The inflation rate is another indicator for a stable economy as it shows how stable the currency of each country is.
Political riots can cause damages on the economy. Therefore Nutri-Health should only expand in politically stable countries.
Gross domestic product
Canada’s gross domestic product in 2013 was 1,904.81billion $, which is illustrated below in Figure 2 (Canada.gc.ca, 2014). When the 2013 GDP is compared with the previous 10 years, it can be observed that Canada has seen healthy and consistent growth during all years except 2009, when the global economic crisis reached its apex (IMF, 2014). As a result, from an economic perspective Canada can be described as a successfully growing market and would be a good choice to expand to. Ultimately, compared with the U.K.’s 2.422,92 billion $ Dollar GDP, Canada’s GDP may seem somewhat small, yet it is important to note that the U.K. has experienced recent GDP stagnation, while Canada continues to see rigorous growth (IMF, 2014).
Figure 2: (IMF, 2014) Gross Domestic Product Canada from 2004 to 2014 (in Billion U.S. Dollers)
Restrictions for Saccharin
One of the most fundamental ingredients in Nutri-Health’s Nutri-Shakes is Saccharin, which is a popular artificial sweetener that has been utilized in food and beverages for several decades. Unfortunately, Saccharin has been banned in Canada since 1977 (Tandel, 2011), which indicates that unless the firm is willing to drastically change its product formula to remove the Saccharin, Nutri-Shakes cannot be sold legally in Canada. As a result, there is no need to explore the possibility of expanding into the Canadian market any further.
Gross domestic product
The GDP of the Ukraine is 195.42 billion U.S. Dollars for the year 2014. That is less than 10 % of the GDP of the U.K. Nevertheless the Ukraine GDP increases constantly since 2009 and can therefore be described as a growing market.
Figure 3: (IMF, 2014) Gross Domestic Product Ukraine 2004 to 2014 (in billion U.S. Dollers)
Restrictions for Saccharin
There are no restrictions for Saccharin.
The inflation rate in 2014 is about 6.9 % (tradingeconomics.com, 2014). Comparing to the U.K. which has only an inflation rate of 1.8 % there rate is very high (tradingeconomics.com, 2014). Most developed countries have tried not to reach an inflation rate over 3 % to avoid high loss in value (Investopedia Staff, no date).
As there are currently a lot of political riots about the separation from parts of the Ukraine to Russia the Ukraine cannot be classified as a political stable country (bbc.co.uk, 2014). Therefore Nutri-Health should not expand to the Ukraine
Gross Domestic Product
The GDP of the USA is about 1568 billion U.S. Dollar. That is over seven times more than the U.K. (IMF, 2014).
Restrictions for Saccharin
Saccharin was banned since 1991. Since 2001 there have even not to exist any warning labels on products containing Saccharin (Tandel, 2011).
The current inflation rate of the USA is about 2 %.
The USA can be categorized as a high political stable country (quandl.com, 2014).
As there cannot be found negative indicators against an expand to the USA Nutri-Health should consider expansion.
Gross Domestic Product
Germany’s GDP is about 2,738 billion U.S. Dollars and has constantly increased during the last years (quandl.com, 2014).
Restrictions for Saccharin
There are no restrictions for Saccharin
The inflation rate is around 2,1 % and therefore similar to the USA und U.K. (quandl.com, 2014)
Germany can be considered as a high political stable country as the United Kingdom and the United States (quandl.com, 2014).
Germany should be apart from the USA and Canada be considered for a possible expansion
Gross Domestic Product
North Korea’s GDP was found to be $40 billion in 2012, which is fairly stagnant when compared to previous years that indicated GDP levels around this same amount.
Restrictions for Saccharin
There are currently no Saccharin restrictions in North Korea that would prevent the production or sale of Nutri-Shakes in this country.
Many would argue that this factor by far represents North Korea’s weakest as a potential foreign market in which to expand. Ultimately, since the middle of the 20th century, the Korean peninsula has remained embroiled in a war between communism and democracy. In particular, the Korean War is not over, but rather, is essentially at a ceasefire that has become particularly shaky on a number of occasions throughout the years. In recent years, however, political instability became even worse in North Korea as Kim Jong-un succeeded his father as the ruler of the nation. It has not taken very long for Kim Jong-un to amass substantial notoriety due to the brutal methods he uses to rule his nation. From a political stability standpoint, North Korea does not provide a welcome environment for Nutri-Shake to enter, particularly during its first attempt at international expansion.
As two of the five countries could be sorted out very quickly the remaining three: USA, Canada and Germany will be analyzed by using the PESTLE Analysis. Using PESTL we have the possibility to compare the countries by the categories: politics, economy, social, technology legal and environment (Hollensen, 2011).
Figure 4: (consultans-on-line.com, no date) PESTLE Analysis
Germany, USA and Canada can all be seen as political stable as mentioned in part 3 of this essay. USA and Canada make their decisions by their own. Germany’s politic is influenced by the EU and therefore they do not have the full control about their decision making.
As a company that starts business in Canada you have to pay corporative taxes ranging from 11 % to 26,5 % depending on the province and territory the company is based in Canada (pkf.com, 2013).
In the United States the corporative tax is ranging from 15 to 35 % (Jean Murray, 2014).
Looking at the economy from our three countries it is important to consider the inflation rate as it can have an impact on the purchasing power of their citizens in case that the income per capita is not raising at the same time in the same amount.
In this graphic can be seen that based on the year 2012 the United States would have the highest income per capita followed by Canada and Germany.
Figure 5: (conferenceboard.ca, no date) Income per Capita 2012
The inflation rate of Canada nearly stagnate during the last month
Figure 6: (tradingeconomics, 2014) Inflation Rate Canada
Furthermore the average consumer prices are currently on an all-time high. This increase cannot be the reason of only the inflation rate as the average consumer prices have grown much more in comparison with the inflation rate, the core consumer prices, the disposable income per capita and the development of the GDP.
Figure 7: (tradingeconomics, 2014) Core Consumer Prices Canada
But not only inflation rate and consumer prices increased. Also the disposable personal income reached an all-time high. Therefore we cannot say that there are negative economic effects in Canada but that their economy is growing.
Figure 8: (tradineconomics, 2014) Disposable Personal Income Canada
Looking at the development of the GDP of Canada, this impression becomes even more evident.
Figure9: (tradingeconomics.com, 2014) GDP Canada
The inflation rate of the USA is about 2 % and therefore nearly as high as the inflation rate of the United Kingdom. During the last month it increased.
Similar to Canada the core consumer price is constantly increasing but as the disposable personal income increased as well there is no issue about it.
Also the GDP is increasing but not as much as constant as the Canadian one.
Different to the USA and Canada whose inflation rate is stagnating or increasing Germany’s inflation rate is decreasing.
This can also be seen in the consumer price index which is nearly stagnating during the last months.
Similar to the United States and Canada the disposable income increased even though not very much.
The GDP of Germany is more or less stagnating on the level of 2008.
The population of Germany is receding. Most of the population (65.73 %) is between 15 and 64. Above 64 there are 21.10 %. Germany can therefore be considered as a country with a quite old population.
The fertility rate is 1.36 children per woman (quandl.com, 2014). Therefore the consequences of the demographic change can be seen very clearly in Germany.
Germany is with a market share of 20 % of the total European market for supplements the second largest market in Europe (Heller, 2008). Forecasts see a decline in the dietary supplement market by 2 % until 2017 (euromonitor.com, no date).
The population of the USA is slightly increasing. Like in Germany most of the population (66.74 %) is between 15 and 64 and 13.63 % above 64. But the fertility rate is a little higher (quandl.com, 2014). Nevertheless the effects of demographic change are obvious.
In the USA the trend for supplements is enormous. The forecasts consider sales up to $ 15.5 billion in 2017(nutraingredients-usa.com, 2012). As more and more people become parents when they are old and costs for healthcare are increasing the supplement industry in the USA is a fast growing market (euromonitor.com, 2013).
Canada’s population is slightly increasing as well. Here with 68.81 % are living even more people between 15 and 64 and the fertility rate is about 1.63 children per woman. The demographic change can therefore be seen as well.
The population over 64 increased to nearly 15 % (quandl.com, 2014). Studies show that the Canadians are getting more and more aware of their health. Therefore supplements become more and more popular. Dietary supplements grow about 2 % per anno (euromonitor.com, no date).
There are no big differences in the technology which would be needed for Nutri-Health
Considering the differences between the health care systems there are many differences between both countries. In the USA the health insurance voluntarily. Although the USA has the highest investments in the health system the majority of their population is not satisfied with their system. In Germany and Canada everybody is health insured. The health system of Germany is due to the demographic change not able to self-finance itself. In Canada the majority of the population is satisfied with the system (Ridic, 2012).
The environment of all three countries can be seen as very similar between each other and in comparison to the United Kingdom.
Canada and the USA can be seen as growing markets because of their increasing GDP. Germany’s GDP is more or less stagnating and has therefore to be considered as a little worse than the other two. There are no bad consequences because of an increased inflation rate as if occurred is balanced by an increased income.
Although Germany is the second largest market for dietary supplements in Europe its market is prognosticated to decline. Therefore Nutri-Health should better consider USA or Canada who are both increasing in the supplement sector.
After applying PESTLE Nutri-Health should expand to the USA and to Canada due to the growing markets. It could also be better to concentrate on sales in Europe by exporting from the United Kingdom. A direct sale should be done in Canada and the USA. Because both countries are geographical close Nutri-Health may also be able to use synergies by shipping the goods to both countries.
Market Entry Strategies
One of the most effective tools in developing and implementing a successful market entry strategy involves the determination of exactly how the firm will enter the new foreign market. In the case of Nutri-Shake, the two markets being considered are that of the United States and Germany as the other two markets were found to be unsuitable during the evaluation process conducted in the preceding section. Both the United States and Germany possess well-developed economies with healthy consumer markets that are based on free-trade and the rules of supply and demand. Further, a comprehensive competitive framework exists in nearly all industries within these nations, including that of meal replacement and nutrition based shakes. This indicates that Nutri-Health should pursue a proactive and aggressive market entry approach in order to build brand presence and awareness as quickly as possible while also drawing attention to its long standing stellar reputation in the United Kingdom. In order to accomplish this, Nutri-Health should enter these markets through the establishment of extensive distribution channels that deliver Nutri-Shakes to retailers, grocers, and big box stores throughout the U. S. and Germany. One major retail distributor of Nutri-Shakes with tremendous potential in both these national markets is Walmart. This will allow Nutri-Health to affect control by narrowing or widening product distribution as the firm sees fit. Further, by relying on retailers that are already well-established in the consumer market to distribute the products, Nutri-Health will be able to build brand awareness more rapidly while also building strong relationships with consumers.
Essentially, Nutri-Health has the opportunities to enter the USA and Canada through exporting, by building strategic alliances, acquisitions or direct investments.
They should consider the question about what level of control they want to have of the operation and how many resources they want to invest (Bradley, 2005).
As the market in Canada and the USA is currently increasing they should start expanding as soon as possible to ensure high profits. Therefore they should choose exporting as their way of market entry. Besides the shorter period of time they may even be able to produce their products much cheaper because of the fixed cost degression. Or if they have a surplus production they can sell it abroad instead of costly storing it. Exporting is also a low-risk option of market entry if investments are kept low (Bradley, 2005).
According to the export decision process from Welch (1982) the ‘direct export stimuli’ could be the aim for higher profits.
Segmentation, Targeting, and Positioning
An examination of Nutri-Health’s signature product will be instrumental in determining how the firm should approach segmentation, targeting, and positioning as it relates to Nutri-Shakes expanding into the U. S. and German consumer markets.
Segmentation: One of the first steps to consider when entering a new market is segmentation, which involves determining the specific market segment that can directly benefit or find use for Nutri-Shakes. In the U. S. and Germany, the market segments that should be focused upon are consumers hailing from a middle to upper socioeconomic class that reside in areas of more highly concentrated populations. Further, health conscious consumers and working professionals represent other potentially lucrative market segments for Nutri-Shakes.
Targeting: Targeting represents the foundation on which market segmentation is built. As such, there are three primary target markets relevant to Nutri-Shakes that would fall into this category in both countries, which include consumers that need meal replacement for convenience purposes, those that are health conscious and looking for a low calorie meal alternative, and those that prefer food products made from all organic ingredients.
Positioning: In order to ensure maximum interest and acceptance among the firm’s targeted consumers, Nutri-Health should place significant emphasis on positioning Nutri-Shakes as fully organic meal replacement shakes that are nutritious and low calorie. Essentially, these attributes reflect what consumers are looking for when they embrace a healthy lifestyle modelled around a healthy and nutritious diet. In recent years, organic food products have become synonymous with healthy living, which indicates that if positioned properly, Nutri-Shakes could exploit its all organic ingredients to maximize its appeal among its target markets.
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