International and Global Marketing
Selection of the Group of Countries for Internationalization
Internationalization is a process whereby a company expands its research and development, production, selling, and other activities in business into the global markets. The XYZ Bulgarian Company needs to promote internationalization due to the development of competitiveness in the Bulgarian economy. Entering the international market would lead to an increase in the market share of the Bulgarian home furniture in the global economy. For the company to ensure that it achieves its profit expectation, it is vital to identify, assess, and choose the appropriate foreign market to enter. In selecting a foreign country, it is for the company to conduct research to determine the markets to pursue. Then, the company should obtain the primary information on the market status in the potential international markets. It is henceforth vital for the company to find a partner in the global market and establish strategic alliances or joint ventures which are economically feasible.
To ensure that the company selects the best foreign markets, XYZ should identify the market demand for home furniture in all the potential markets. The best criteria are to use the quantity or value of the furniture imported from Bulgaria to the foreign nation. The company would identify the accurate total market, determine the Bulgarian market share on whether it is declining or increasing, derive the level of receptivity and competition of the home furniture, and project the rate of growth. Determining the degree of competition makes it easier to choose and pursue a particular market. The process involves the realization of the pricing strategies, the quality of the products, the methods of distribution, the potential to provide services after purchases, and consumer loyalty. The smaller and growing markets that lack intense competition are more advantageous for the small and medium producers but may be unprofitable for large companies. It is essential to determine the performance of a country and determine the macro-economic trends and conditions of the selected company. The procedure involves the detailed derivation of the country’s population, the demographics of the consumers, and the income per capita. If the overall economic performance of a country has declined, it may consequently lead to an eventual fall in demand for the furniture. In contrast, an increase in the financial performance of a country prospects a long-term opportunity to increase the market for the furniture.
The identification of the trade barriers, both tariff and non-tariff, is essential. The process includes the determination of the standards, regulations, import licenses, and the necessary adaption is crucial in selecting the targeted market. Trade barriers may lead to barring of the home furniture from the market, and the appropriate adaptations mat need more considerable investment costs, which could be higher than the initial projection. It is crucial to determine the distribution accessibilities in the foreign country. There are countries whereby particular families or companies control the distribution channels of home furniture. Unavailability of the lucrative distribution channels would render the other favorable factors invalid. Understanding the culture of the people in the foreign nation is useful in determining their tastes and preferences. The creation of furniture designs that don’t suit the cultural preferences of the people may lead to its unacceptability.
From the analysis of choosing the best foreign market, XYZ Company should select a group of African countries (Angola, Nigeria, Ghana, Morocco, Kenya, and Egypt) to internationalize. The demand for home furniture in Africa has continually increased with the growth in its population. On a global scale, the African market has become a rapidly emerging market for home furniture. In 2018, the total furniture imported to Africa aggregated to the US $ 5 billion. The group of countries selected for internationalization is among the ten major African countries that import home furniture, each of them importing furniture totaling to over US $ 100 million. The population in the selected African countries is enormous and is expected to grow and expand rapidly. In the year 2050, the projected population growth is likely to occur in Africa hence making them more attractive markets for the expanding companies. The spending capacities in the African countries have risen, and there has been a development in the urban population. The economies of these countries have grown, making them more prospective in increasing the purchase of home furniture.
In Africa, especially the Sub Saharan regions, the urbanization process is projected to increase rapidly, and most of the urban areas in Africa will be economic growth frontiers. Thus, they will create a positive impact on the consumption of furniture. Kenya has been categorized as a dominant market in the East African region for furniture, with its imports aggregating to $89 million in 2018. Nigeria and Ghana are one of the largest furniture consume in West Africa. There are numerous urban centers in the African countries that provide companies with the potential to expand their furniture market regardless of inadequate levels of infrastructure and political instability. Vast direct investments have been made in these countries in significant sectors such as hospitality, real estate, entertainment and culture, and tourism, which have boosted the demand for furniture. Competition in the furniture sector in these countries is relatively low compare to developed countries such as the U.S. market. There is a vast availability of the raw materials required for home furniture in the African countries such as the locally sourced woods of mahogany, Elgon olive, ironwood, and mvule. Some of these woods provide the creation of durable and beautiful pieces of furniture.
Market Entry Mode Selection
There are various key market options for the company to make in entering the foreign markets, which include direct exportation, licensing and franchising, joint venture, strategic acquisitions, and foreign direct investment. The choice of entry mode into the international market has its disadvantages and advantages. Direct exportation is whereby a company exports its products to the overseas market directly. It is usually considered the fates mode of entry into the international market. Licensing and franchising involve the establishment of a retail presence by a firm in the foreign market and allows other people or businesses to assume risk rather than the expanding company itself. In licensing and franchise, the activity-based abroad pays the company commissions or royalties to use the brand of the company, product trademarks, the process of manufacturing, and the various intellectual properties. The franchisee or licensee takes all the business risks and assumes all the losses, although it shares a percentage of their profits and revenues with the internationalized company.
In the event of a joint venture, the partners of the business share both the risks and the rewards of the business. The companies share their brand, knowledge, expertise, costs, investments, profits, and losses at a proportion that is set during the bargain. The joint venture is a suitable entry mode in the countries that don’t allow foreign companies to have 100% ownership in particular industries. Strategic acquisitions involve the acquisition of an existing company in the international market. The company that is being acquired can directly or indirectly be involved in providing products that are similar to the expanding company. The acquiring company can retain the existing management to the newly created company to ensure that there is the retention of expertise, experience, and knowledge. Foreign direct investments (FDI) are whereby a business entering the international market makes an enormous investment in the country they wish to enter. FDI is best suitable if there is a considerable demand for the products, the size of the market is substantial, or the potential growth of the market is justifiable by the investment made.
The most suitable entry mode for the XYZ Company is through joint ventures. The creation of a joint venture generates a competitive advantage for the business over the other competitors in the market. A joint venture promotes the generation of economies of scale, which makes it competitively advantageous for both companies. Through the creation of a joint venture, the companies will develop synergies by extracting qualities from each other. Both the local and foreign companies possess advantages that one of them might lack, and entering into a joint venture generates synergies for better business transactions. A joint venture is flexible, especially in terms of the organizational requirements. The agreement provides the real scope in which both parties of the business perform. There are no separate entities or laws that govern or regulate the joint ventures business activities. The regulations make it favorable for the company to conduct business in the overseas market. Due to the political instability in the African countries, the involvement of a local partner reduces the political risks. The local partner knows the local market and the business environment.
Using the joint venture entry mode, XYZ Company can have access to the new markets quickly a well as the distribution networks. The development of a joint venture creates a vast market that is open for potential growth and expansion. If the XYZ Company enters into a joint venture into an organization based in Africa, the Bulgarian company has the advantage to access the sizeable African market with different capacities to pay and is most diversified. The African company will also have the ability to access the markets in Bulgaria, which has a developed furniture market without compromising the quality of the furniture. The use of joint ventures enhances the provision of competitive prices for the furniture. The cost of production when two or more companies are combined is significantly lowered. The joint venture will provide quality home furniture to the consumers with the most efficient price. Since the XYZ Company is already large and well-known, the joint ventures with African firms can utilize the goodwill of the Bulgarian company, which is already well established in the market. Thus, the organization achieves a competitive advantage over the other competitors in the market. The involvement of local partners provides the Bulgarian an immense opportunity due to their vast knowledge of the tastes and preferences of the African markets. The production of custom-made furniture that fit the culture of the Africans will ensure that the XYZ Company realizes the niche in the international market and hence make profits.
Market Segmentation, Targeting, and Positioning
The manufacture of furniture in Bulgaria is growing steadily and is primarily affected by the changes in the preferences of the consumers. The customers in Bulgaria have been observed to prefer the purchase of low and medium-priced furniture contrary to the premium furniture products. The demand for the wood-based panels has been higher in the market compared to the decrease in the demand sawn-wood. The cost of producing the demanded furniture is lower due to the ease of assembling and build the furniture of the panels created from wood. The Bulgarian market is filled with diverse regional and international producers. Although Bulgaria is considered one of the developed countries in the world, it is still not considered one of the rich countries. The market segmentation, targeting, and position of the XYZ Company are not expected to be more sophisticated in the selected group of African countries. The African countries have experienced significant economic growth and have emerged to provide politically stable economies.
Bulgaria has a significant and sustainable source of timber and has excellent potential for the growth of the sector in processing timber. The furniture sector is projected to grow in internal demand in Bulgaria. The market for home furniture is diversifying due to a large number of construction projects such as hotels and residential buildings. The furniture sector in Bulgaria is well developed and usually exports different types of furniture. Bulgaria mostly produces softwood furniture, although the worldwide demand usually prefers indigenous hardwood furniture, especially oak and beech. With the entry into the African markets, the company will have access to vast access to the hardwood trees in making the highly demanded furniture.
Similar to African countries, Bulgaria has a massive demand for furniture and quality designs. The price of the furniture in the nations is one of the significant determinants of the choice of furniture preferred by the consumers. Due to the reduced purchasing power of the consumers in Bulgaria and Africa, the competition for furniture is mainly based on the price rather than the quality of the products. However, both countries have experienced demand in new and expensive furniture by educated working people with social-economic status living in urban centers. African countries such as Ghana and Nigeria in the selected group have experienced an increase in income levels and recording a changing pattern in consumption behavior.
Market segmentation in the African countries is not projected to be complicated compared to Bulgaria since there are defined buyers of home furniture. Most Africans living in urban areas are subject to purchase home furniture as well as those moving from rural areas to the urban centers. The major trend in foreign countries is driven by specialization, where there is an increasing demand for custom-made furniture. African countries have experienced significant economic growth and stability. In Egypt, the economy is projected to grow by 5.8% by the end of the fiscal year 2020/21. The Growth Domestic Product (GDP) of the company in 2018/19 grew by 5.6%. In Ghana, the economy is projected to grow by 5.9% by the end of the year 2021. The economies of the selected African countries are attractive and make the environment conducive for business. The economic growth in these countries is quite similar to the Bulgarian economy, which grew in its GDP by an estimated 3.6%, 3.9%, and 3.6% in the years 2015, 2016, and 2017 respectively.
The selected African markets are projected to remain dominant furniture markets due to the growing urban populations, favorable growth prospects, and an increase in the purchasing power of the people. There are no significant developments in the manufacture of furniture locally and hence an expected increase in the consumption of imported products. However, with the establishment of a joint venture that produces customer-based furniture creates a unique opportunity for the XYZ Company. Yet, contrary to the Bulgarian market, the African countries have experienced political instabilities, which have negatively affected their GDP growth. Nevertheless, the economies such as Kenya have quickly stabilized after the 2009 political instability and have had an increase in the GDP per capita. In the selected group of African countries, the demand for more expensive and value-added products is expected to rise due to a higher number of affluent consumers.
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