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MPM735/935: International Business Management - Entry Strategy - Villiers’s- Report Assessment Answer

December 07, 2018
Author : Ashley Simons

Solution Code: 1GHJ

Question:International Business Management

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International Business Management Assignment

Assignment Task

Write a Reportpresenting a current (2016) scenario, plus a forecast based on this scenario for 4-5 years to 2021 for Villiers’s possible entry into South Korea. This assignment will build on material from Assignment 2 by covering issues relating to potential market, industry and competitor analysis, modes of entry and other relevant factors addressed in topics 7 to 11of the Unit and your wider research.

Assignment 3 must include a market analysis, industry analysis, competitor analysis and SWOT analysis relevant to the company and the country using the information provided in the Assessment Overview

This must be combined with the analysis of the environmental material in the Assignment 2 report to develop recommendations as to the mode of entry1 Villiers should use for entry into South Korea.

There should be recommendations as to the strategy and structurethe company should use in implementing its market entry decision.

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Solution:

Introduction

Villiers Chocolates Pty Ltd. is a chocolate manufacturing company that is indulged in manufacturing high end chocolates in Melbourne. The company has started its operations in the year 1948 and the major focus of the company is on the quality. This is because the customers of the company are the ones who are not concerned with the price but are willing to pay more money for the quality of the chocolates. The company presently has four outlets in Melbourne and thus the company is a small company. Except for this the company also serves other parts of Australia by receiving mail orders , it was difficult for the company to serve the customers in this manner because mail orders tend to deteriorate the shape and colour of the chocolates and due to that the company started with patented technology. In this manner the major strategies with which the company is working are focus on quality and superior presentation of the chocolates. With a successful journey in Australia the company is now willing to expand in Japan and China. But before that the company is willing to expand in South Korea to understand the international market. The expansion in South Korea will help the company to understand international markets like China and Japan.

The aim of this report is to draw on the factors of international expansion such as expansion strategy, international entry mode, international human resource management, international marketing, etc. after taking into consideration the aspects such as industry analysis, SWOT analysis of the Villiers. This analysis will ultimately help in drawing the inferences for the company to expand in South Korea. The methodology that will be used for this will be based on primary research as well as the secondary research. The report will be based on a few assumptions and this is why it will be limited in its scope of practical scenario.

Industry analysis

The industry refers to a group of various companies that are indulged in the same business and are competing with one another. The industry to which Villiers belongs is Confectionary industry. The confectionary industry in South Korea is currently facing a slow down due to a number of factors. In 2012, the chocolate confectionery industry recorded a growth of 2% and that is due to premiumistaion (Waal, 2014).The imported brands are very popular in South Korean market and it has also supported value growth. From the year 2011 to 2014 there has been a 6 % value growth in the confectionary industry but this growth slowed down in 2015 because of decline in sales even on special occasion like Valentine’s Day. This way the seasonal chocolate victimised a decline of 8%. In South Korean market Lotte confectionary is the leading bard with total market share of 29 % (Andrews & Kenneth, 2012). The confectionary industry also grew by 1 % CAGR. Boxed assortments and seasonal chocolates will face a decline in coming years. It has also been forecasted that the consumers will prefer normal chocolates over special package products. Bagged selfiness , tablets and softline are therefore. The experts have predicted that in the next five years the popularity of imported chocolates will also increase and it is expected that it will see a growth rate of 3-4 % (Schneider & Spieth, 2013).Almost all the confectionary companies are based in capital city of South Korea which is Seoul. This is because of the reason that resources are available in this region easily and it is also very easy to target customers from this location. The South Korean market for chocolate confectionary is segmented on the basis of normal chocolates, imported chocolates and special occasion chocolates. Normal chocolates are the ones that include tablets and softline. The special occasion chocolates are the ones that are sold only on special occasions such as Valentine’s Day and there are those customers who only prefer to buy imported chocolates. In this manner the South Korean confectionary industry is relatively medium sized and there is a huge scope of imported chocolates in this industry. A survey suggests that there are around 43% people who eat chocolate everyday and this suggest that the consumption of Chocolate in South Korean industry is very high (Armstrong, 2014).

How often people eat chocolate in South Korea

Market Analysis

The market conditions for confectionary companies are favourable in South Korea. The company is trying to reach out premium chocolates market in South Korea. The premium chocolate market in South Korea is at its developing stage. The consumers are fond of imported chocolates but fondness for premium chocolate is at its growth stage. The overall size of the market is valued at around $ 350 million in 2015(Morschett, Klein, & Zentes, 2015). Of this the share of imported chocolates is around 73 % and this 73% share includes the share of premium imported chocolates as well. The premium chocolates at present accounts for around 38% which is less but in next five years it will increase (Ault, Walton, & Childers, 2011).This depicts that Villiers Chocolates Pty Ltd. has chance to grow and establish in this market. The South Korean market is a bit price conscious but there are customers who are willing to pay even more for quality and premium chocolates. The market in Australia consists of 66 % population that is under the age of 18 years. This suggests that the consumers for chocolates are high in number in South Korean market.

 Customer age structure in South Korea

Competitor analysis

This section deals with the analysis of the competitors of Villiers. There are a number of brands already established in the South Korean market and the company will have to compete with them to denote its existence. The most significant competitors in South Korean market are Orion, Mars and Lotte(Morschett D. , 2015).Of all these three major players the most significant competitor of Villiers is Lotte. As discussed in above section Lotte Company has maximum market share in confectionery industry. A description of these competitors on the basis of their size, location, products, strategy, focus, opportunities and threats to the Villiers is given below in the table:

Villiers is given below in the table:

Orion

The above analysis and the information of market share of South Korea suggest that there is immense competition in the market. The Porter’s five forces analysis helps in ascertaining the competitive position of a company and this analysis suggest that the confectionary market in South Korea is highly competitive and there are no entry barriers in the market due to that many new companies are establishing in the industry and this is giving a tough time to the existing players in the industry(Best, 2014). Besides all that the market and industry have potential to attract a number of companies due to its increasing size as well as the demand. The prediction for next five years, from year 2016 – 2021 suggests that the chocolate industry will grow further and thus it will be beneficial for all the companies.

SWOT analysis

The SWOT analysis helps a company in identifying its internal strengths and weaknesses and at the same time it also helps in knowing the opportunities that are prevailing in the market while keeping in view the weaknesses as well(Keupp, Palmié, & Gassmann, 2012). The SWOT analysis for Villiers is given below:

SWOT analysis for Villiers

Threats

 

The SWOT analysis suggests that the company has potential to grow and establish its image in the market. The most significant asset of the company is its strategic management and the resources that it possesses. This is something that will provide competitive advantage to the company in the long- run. The company shall try to overcome its weakness that is high price module(Cutler, 2010). In South Korea there are many other chocolate companies and to compete with them it is necessary to keep the prices low. This will help in swift entry to the market and utilising the opportunities lying in the market. Thus, the SWOT analysis suggests that the company shall go for this while using its calibre and resources.

International strategy

As per the analysis of environmental data and market and competitor data, the most suitable strategy for Villiers to purse in South Korea is Multideomestic strategy. The SWOT analysis also suggests this strategy due to various reasons such as local market conditions and preferences of customers. This strategy will help the company to produce the products as per the needs of the local market but at the same time the mission and vision of the company will not be affected(Jacob, 2014). The environmental data of South Korea suggests that the consumers are fond of specific kinds of chocolates and the trends in South Korea are also changing. Due to huge competition and availability of numerous options it is very necessary

for Villiers to work exactly as per the choice of the consumers. The market data on South Korea reveals that there are a number of consumers who prefer to eat chocolate daily but these consumers prefer to eat normal chocolates. In case Villiers comes with its signature premium chocolate then there are chances that consumers may not buy it. Thus, the strategy shall be such that the products are crafted as per the choice and preferences of the customers(Hilton & Sohal, 2012). This is the reason why Multideomestic strategy will be used by the company. To achieve the goals the company will use a number of tactics. First of all the company will research and determine the type of chocolate that is mostly preferred by the consumers in South Korea. The environmental analysis suggests that softlines, tablets and selflines are mostly preferred by the consumers in South Korea and thus to achieve its goals the company shall focus on producing these chocolates using attractive designs and premium quality.

Mode of entry

There are a number of entry modes available to a company at the time of international expansion. Villiers also has a number of options such as exporting, licensing, franchising, turnkey projects, wholly owned subsidiary, joint venture and strategic alliance. The mode of entry that will be chosen by the company will be licensing. The reason behind choosing licensing is that the company will provide rights to manufacture chocolates to a locally based company for a specific period of time. The reason is that it will save resources and at the same time this mode of entry will compliment Multideomestic strategy as well(Ferreira, Fernandes, & Raposo, 2015). The company that will be manufacturing the chocolates under the name of Villiers will be aware of the local market and it can serve the customers efficiently. The other option such as export is not chosen because it is not possible to export the chocolates as they melt and also change their colours due to weather change. In case of franchising the profit of the business will be lesser than that of licensing. Turnkey projects are not suitable for this business.

This option will be very less risk and the risk of political interference will also be negligible. This will work in way that the licensee company will transfer knowledge and skills to the company in host country and then they will start producing chocolates in the way Villers want them to produce (Cutler, 2010).

In this way all the other options are either expensive or they are affecting the company’s operations. To implement this entry mode option following resources and timeframe are required:

International structure

International structure

The structure that the company will need to achieve its objectives in South Korea is a three tier structure with decision making powers at top level. The first tier (top level) of the structure will comprise of CEO who will control the operations from Australian head office (Parent country). Then there will be licensing firm on the level below the top level. This licensing firm will have the powers to take decisions and these powers will be given by the CEO of the company(Gobind, 2014). Then there will be a third level in this structure and this level will comprise of various departments under the licensee firm. These departments will be human resource department, finance department, marketing department, etc. Thus, the structure of the company will be vertical structure. The structure of the Villiers for international operations is given below:

 International structure of Villiers

Control

The control measures for the company for next five years of its operation are described below:

  • Quality control is the most significant control measure that company will have to employ in South Korea. The USP of company is its quality so it shall take care that no compromise is done on this aspect.
  • Control on decision making is very necessary for the company to enable the proper functioning and serving the best to the customers.
  • Finance and regulations is again a vital point because the licensee company may try to deceive the company by showing false transactions.
  • Supply and logistics has to be taken care properly to ensure that the finished products reach the customers on the right time and at the right place.

Functional Strategies

These strategies are directly linked to the entry mode of the company and on the basis of that the strategies are designed. Following is an explanation of the strategies:

International human resource management

It comprises of recruitment, selection, training and development of the employees in the new firm. The strategy that the company will adopt here is recruiting HCN (Host country nationals) this is due to the fact that mode of entry is licensing. It will enable better understanding among employees and they will be able to act as per the domestic market(Festing, Budhwar, Cascio, & Dowling, 2013). The expatriates will be given training as per the domestic market. This strategy will also be a cost saving strategy for the company.

International marketing

It comprises of the activities such as promotion, sales, marketing, product mix, consumer behaviour, etc. The company shall take into consideration the choices of customers by undertaking market research and make its marketing policies on the basis of that. The strategy that the company will employ here is region-centric strategy(Gallus & Frey, 2015). That implies that the focus will be on local markets and the company will act locally.

International finance and accounts

The international finance and accounts activity will be affected by licensing mode regulations in South Korea. The company will have to work as per the international accounting standards of South Korea and pay the taxes fixed up by the government (Gobind, 2014).

Forecast

For a starting level the strategy of licensing sounds good and the company can rely on this strategy but for a longer period of time the strategy will not be competitive as well as profitable. This is why it is necessary to forecast the strategy that the company might want to follow in the next five years. The most suitable and profitable strategy for a long period of time is establishment of a fully owned subsidiary (Best, 2014).Since it is the first international expansion of the company, licensing can be a safer option. For long term profitability establishment of subsidiary which will be owned by the company will be a good option.

Recommendations and conclusions

On the basis of the analysis of the report the a few recommendations can be provided to Villiers so as to improve its operations in the international market. Following are the recommendations for Villiers:

  • The company shall take care of all the activities of licensee firm very closely. There may be chances that the firm may become competitor of Villiers later on. It is very important for Villiers to observe a centralised structure wherein all the relevant decisions will be taken at headquarter by the CEO. It shall also implement a proper reporting mechanism so as to keep a check on all the activities.
  • It shall be noted that the fertility rate in South Korea is very less and aging population is increasing. Chocolates are usually consumed by youngsters whose number will decrease in next five years. It is very crucial to plan while keeping in consideration this fact.
  • The company shall also focus on making its business model sustainable by providing products on the price that customers in South Korea are willing to pay. Thus, it needs to work on its price mix.
  • The company shall make sure that the firm to which it gives license to manufacture chocolates under its name is quality conscious so as to comply with the quality standards of the company.

In this manner Villiers has potential to expand in international markets while ensuring that it uses the right strategies after analysing its current position in the market. The analysis also suggests that the current market and industry situations of South Korea are feasible for the Villiers. The company shall take advantages of all the opportunities by overcoming its weaknesses and utilising its strengths. It is also important for the company to adopt control measures efficiently and make sure that all the operations in the host country run as per the requirement of the company.

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