Marketing research of whisky and market entry strategy - Marketing Essay Example

 

 

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Introduction

Whisky industry is one of the largest international selling drink, globally. Since its inception, it has grown leaps and bound and has acquired a name for producing quality Whisky industry though in the initial periods it had to face lot of difficulties to make an entry in the export sector. It has been more than 100 years, since this company was formed. Since then, slowly but steadily, it has gained a substantial amount of market share in the retailing services segment and has been the market leader in this category.

International Marketing Research Plan is concerned with the structuring of the relationship between a business and the global sector. The environment in which business operates has a greater influence on their successes or failures. There is a strong linkage between the changing circumstances, the strategic response of the business to such changes and the performance. It is therefore important to understand the forces of external environment the way they will influence this linkage. The external environment which is dynamic and changing holds both opportunities and threats for the organizations. The changes in the environment affect the risk levels of various investments to be made in the new situations.

The macro environments in which all firms operate broadly consist of the economic environment, the political and legal environment, the socio cultural aspects and the environment related issues. The technological temper and its progress has been the key driver behind the major changes witnessed in the external environment making it increasingly complex to enter in other countries.

Competitive Strategy: To have the widest range of variants on its regular production schedules as a differential advantage vis-à-vis its competitors.

 

Overall Marketing Objectives

The company needs to analyze the kind of impact the export may bring in their industry as the impacts are never same for all industries. The emerging demographic profile of any country will have very different consequences for businesses. The former will face an adverse effect, the latter will have a positive effect and this needs to be analyzed and integrated into strategic decision making.

Strategic Challenges and Problems to establish the Market Entry Strategy

Companies that compete globally generally face two types of competitive pressures: pressures for cost reductions and pressures to be locally responsive. International companies must cope with pressures for cost reductions. This is more so for industries producing items for exports for which price is the main competitive weapon. Pressures for cost reductions are also severe in industries in which the competitors are based in low-cost locations. Liberalization of the world trade environment is also expected to generally increase cost pressures because of greater international competition. Countering pressures for cost reductions requires that a company minimize its unit costs. To attain this goal, the company has to base its value creating activities at the most favorable low-cost location anywhere in the world and offer a standardized product globally in order to ride down the experience curve as quickly as possible.

In contrast, responding to pressures to be locally responsive requires that a company differentiate or customize its product offering and marketing strategy from country to country in an effort to cater to the different consumers’ tastes and preferences, business practices, distribution channels, competitive conditions, and governmental policies. Since differentiation across countries involve significant duplication and a lack of product standardization, it raises costs. Dealing with these conflicting and contradictory pressures is a difficult challenge for the company, mainly because being locally responsive tends to raise costs.

RESPONSIVENESS TO LOCAL NEEDS

Pressures for local responsiveness crop up due to differences in consumers’ tastes and preferences, differences in infrastructure, differences in distribution channels, and the demands of the host government. Consumers’ tastes and preferences differ significantly between countries due to historic or cultural reasons. Whisky industry faced similar problems and hence, the product and marketing messages had to be customized to appeal to the tastes and preferences of local consumers in such cases. This typically required entrusting the production and marketing decisions to local subsidiaries. Pressures for local responsiveness also cropped up due to differences in infrastructure and traditional practices among countries, creating a need to customize products suitably. This again required the delegation of manufacturing and production functions to local subsidiaries.

Functional Area Objectives for Strategic Decision Making

Differences in distribution channels among countries required adopting different strategies. This necessitated the delegation of marketing functions to national subsidiaries. Finally, economic and political demands imposed by host governments necessitated a degree of local responsiveness. Generally, threats of protectionism, economic nationalism, and local content rules all dictate that international businesses manufacture locally. Pressures for local responsiveness restrict a firm from realizing full benefits from experience-curve effects and location advantages. In addition, pressures for local responsiveness imply that it may not be possible to transfer from one nation to another the skills and products associated with a company’s distinctive competencies.

 

Main issues that confronted the management of the companies

NEED FOR GLOBAL EXPANSION

Expanding globally allows companies to increase their profitability which is not-possible to purely domestic enterprises. Companies that operate internationally : i) earn a greater return from their unique competencies; ii) realize location advantages by dispersing different value creation activities to those locations where they will be performed most efficiently; and iii) come down the experience curve faster than the competitors, thereby offering more competitive products to the consumers.

will be synergy. Long drawn planning boosts the prospects by providing energy.

UNIQUE COMPETENCIES

Unique competencies are the unique strengths that allow a company to achieve superior efficiency, quality, innovation, or customer responsiveness. Such strengths are typified by product offerings that other companies find difficult to match or imitate. Thus, unique competencies are vital for a company’s competitive advantage. They enable a company to lower costs and also differentiate its product offerings. Whisky industry with valuable distinctive competencies often realized huge returns by applying those competencies and the products they produced to foreign markets, where indigenous competitors lack similar competencies and products.

LOCATION ADVANTAGES

Location advantages are those that occur from performing a value creation activity in the most advantageous location for that activity- in whichever part of the world that might be.  Locating a value creation activity in the most favorable location for that activity have one of two effects. It : i) lowers the costs of value creation, helping the company achieve a low-cost position or ii) enable a company to differentiate its product offering and charge a premium price. Whisky industry realized location economies by dispersing each of its value creation activities to its optimal location and had a competitive advantage over other companies that concentrates all its activities at a single location. It was better able to differentiate its product offering and lower its cost structure than its single-location competitor. The basic assumption is that by dispersing its manufacturing and design activities, a firm will be able to establish a competitive advantage for itself in the global marketplace.

EXPERIENCE CURVE

Experience curve refers to the systematic decrease in production costs that occur over the life of a product. Learning effects and economies of scale lie behind the experience curve and moving down that curve allows a company to lower the costs. Whisky industry  that moved down the experience curve more quickly had a cost advantage over its competitors. Most of the sources of experience-based cost economies are generally found at the plant level. Dispersing the fixed costs of building productive capacity over a large output reduced the cost of producing a product. Hence the answer to riding down the experience curve as rapidly as possible is to increase the accumulated volume produced by a plant as quickly as possible. Global markets are larger than domestic markets and, therefore, Whisky industry that serve a global market from a single location was able to build up accumulated volume faster than companies that focused primarily on serving their home market or on serving multiple markets from multiple production locations.

Financial Opportunities Comparison Method

 

Business Strategies that that management implemented to turn around the company

Companies use four basic strategies to enter and compete in the international environment.  Each of these strategies has its advantages and disadvantages.

International Strategy

Whisky industry pursued an international strategy, created value by transferring valuable skills and products to foreign markets where local competitors lacked those skills and products. Most international companies have created value by transferring differentiated product offerings developed at home to new markets overseas. Consequently, they tend to centralize product development functions, in their home country. However, they also tend to establish manufacturing and marketing functions in each major country in which they do business. Although they may undertake some local customization of product offering and marketing strategy, this tends to be limited in scope

An international strategy makes sense if a company has valuable unique competencies that local competitors in foreign markets lack and if the company faces relatively weak pressures for local responsiveness and cost reductions. In such situations, an international strategy can be very profitable and Whisky industry tried to follow the same strategy. However, when pressures for local responsiveness are high, companies pursuing this strategy lose out to companies that place a greater emphasis on customizing the product offering and market strategy to local conditions. Furthermore, because of the duplication of manufacturing facilities, Whisky industry that pursued an international strategy had at times tend to incur high operating costs. Therefore, this strategy is often unsuitable for industries in which cost pressures are high.

Multidomestic Strategy

Whisky industry pursuing a multidomestic strategy orient themselves toward achieving maximum local responsiveness. As with companies pursuing an international strategy, they tend to transfer skills and products developed at home to foreign markets. However, unlike international companies, multidomestic companies like Whisky industry extensively customize both their product offering and their marketing strategy to different national environments, As a result, Whisky industry generally does not realize value from experience-curve effects and location advantages and, therefore, often have a high cost structure.

A multidomestic strategy makes most sense when there are high pressures for local responsiveness and low pressures for cost reductions. The high cost structure associated with the replication of production facilities makes this strategy inappropriate in industries in which cost pressures are intense. Another limitation of this strategy is that Whisky industry have developed into decentralized groupings in which each national subsidiary functions in a largely autonomous manner. As a result, after some time Whisky industry may begin to lose the ability to transfer the skills and products derived from distinctive competencies to its various national subsidiaries around the world.

Global Strategy

Whisky industry followed a global strategy, focused on increasing profitability by reaping the benefits of cost reductions that come from experience-curve effects and location economies. That is, the company is pursuing a low-cost strategy. Global companies do not tend to customize their product offering and marketing strategy to local conditions. This is because customization raises costs as it involves shorter production runs and the duplication of functions. Global companies like Whisky industry preferred to market a standardized product worldwide so that it can reap the maximum benefits from the economies of scale that lie behind the experience curve. This strategy makes sense in those cases in which there are strong pressures for cost reductions and where demands for local responsiveness are minimal. These conditions exist in many industries manufacturing industrial goods.

Transnational Strategy

Whisky industry whose operations are spread across several locations worldwide and are not confined to any country or a region and since pursue low cost and product differentiation at the same time are referred to as transnational companies. In essence, transnational companies operate on a global level while maintaining a high level of local responsiveness. A transnational strategy makes sense when a company faces high pressures for cost reductions and high pressures for local responsiveness. Whisky industry which pursues a transnational strategy, basically tries to achieve low-cost and differentiation advantages simultaneously. Although this strategy looks attractive, in practice it is a difficult strategy to pursue. Pressures for local responsiveness and cost reductions place conflicting demands on the company. Local responsiveness raises costs, which clearly makes cost reductions difficult to achieve. Although a transnational strategy apparently offers the most advantages, it should be remembered that implementing it raises difficult organizational issues. The appropriateness of each strategy depends on the relative strength of pressures for cost reductions and for local responsiveness.

Lessons that could be drawn from this strategic turnaround  for market Entry Strategy

Whisky industry is functioning in a very stable position presently and should seriously consider for international expansion more vigorously.

International expansion involves establishing significant market interests in new countries.  Additional foreign markets provide additional sales opportunities for the firm that may be constrained by the relatively smaller number of countries at present exporting. Firms expand globally to seek opportunity to earn a return on large investments such as plant and capital equipment or research and development, or enhance market share and achieve scale economies, and also to enjoy advantages of locations. Other motives for international expansion include extending the product life cycle, securing key resources and using low-cost labor. However, to mould their firms into truly global companies, Whisky industry must develop global mind-sets.

International expansion is fraught with various risks such as, political risks and economic risks. International expansions increases coordination and distribution costs and managing a global enterprise entails problems of overcoming trade barriers, logistics costs.

There are several methods for going international. Each method of entering an overseas market has its own advantages and disadvantages that must be carefully assessed It is common for a firm to begin with progress to licensing, then to franchising finally leading to direct investment. As the firm achieves success at each stage it moves to the next. If it experiences problems at any of these stages, it may not progress further. If adverse conditions prevail or if operations do not yield the desired returns in a reasonable time period, the firm may withdraw from the foreign market. Expansion into foreign markets can be achieved through:

• Licensing

• Joint Venture

• Direct Investment

Licensing: Licensing permits a company in the target country to use the property of the licensor. Such property usually is intangible, such as trademarks, patents, and production techniques. The licensee pays a fee in exchange for the rights to use the intangible property and possible for technical assistance. Licensing has the potential to provide a very large ROI since this mode of foreign entry also does require additional investments. However, since the licensee produces and markets the product, potential returns from manufacturing and marketing activities may be lost.

Joint Venture: There are five common objectives in a joint venture: market entry, risk/reward sharing, technology sharing and joint product development, and conforming to government regulations. Other benefits include political connections and distribution channel access that may depend on relationships.

Joint ventures are favored when:

• The partners’ strategic goals converge while their competitive goals diverge;

• The partners’ size, market power, and resources are small compared to the industry leaders;

• Partners’ are able to learn from one another while limiting access to their own proprietary skills.

The critical issues to consider in a joint venture are ownership, control, length of agreement, pricing, technology transfer, local firm capabilities and resources, and government intentions. Potential problems include, conflict over asymmetric investments, mistrust over proprietary knowledge, performance ambiguity — how to share the profits and losses, lack of parent firm support, cultural conflicts, and finally, when and how when to terminate the relationship.

Joint ventures have conflicting pressures to cooperate and compete:

• Strategic imperative: the partners want to maximize the advantage gained for the joint venture, but they also want to maximize their own competitive position.

• The joint venture attempts to develop shared resources, but each firm wants to develop and protect its own proprietary resources.

• The joint venture is controlled through negotiations and coordination processes, while each firm would like to have hierarchical control.

Direct Investment: Direct investment is the ownership of facilities in the target country. It involves the transfer of resources including capital, technology, and personnel. Direct investment may be made through the acquisition an existing entity or the establishment of a new enterprise. Direct ownership provides a high degree of control in the operations and the ability to better know the consumers and competitive environment it requires a high degree of commitment and substantial resources.

There are three major strategy options for international expansion:

Multidomestic: The organization decentralizes operational decisions and activities to each country in which it is operating and customizes its products and services to each market. Global: The organization offers standardized products and uses integrated operations. Transnational: The organization seeks the best of both the multidomestic and global strategies by globally integrating operations while tailoring products and services to the local market. In other words a company ‘thinks globally but acts locally’.  Global electronic communications and connectivity can help integrate operations while flexible manufacturing enables firms to produce multiple versions of products from the same assembly line, tailoring them to different markets. This gives more choice in locating facilities to take advantage of cheaper labor or to get the best of other factors of production

Managing Global Supply Chains to Enhance Competitiveness

Logistics capabilities make or mar global operations. Global operations involve highly coordinated international flow of goods, information, cash, and work processes. Setting up a global supply chain to support producing and selling products in many countries at the right cost and service levels is a difficult task. However the benefits of managing this difficult task has many benefits, which include rationalization of global operations by setting up right number of factories and distribution centers and integration of far-flung operations under a unified command to better manage inventory and order filling activities. Optimizing global supply chain operations can cut the delivery times and costs drastically and improve global competitiveness. Smart supply chain planning may result in locating facilities where they make the most logistical sense.

General Role of International Marketing

The first and foremost role is that it stimulates potential aggregate demand and thus enlarges the size of the market.  Further role which marketing plays is that it helps in the discovery of entrepreneurial talent and improving the sale of the product.

Future prospects

A large part of the process of international marketing seeks to explore the unknown dimensions of the future which emphasizes on what would happen in the near future.

For doing the international marketing, there can be the strategic advantage profile which provides for analysis of internal environment, and the organization capability profile as well. For analyzing the external environment, competitor’s threat and opportunity profile has been adopted.

Correlation and Regression Methods

These methods have been used to examine the relationship between past sales and one or more variables such as population, per capita income or gross national product, etc. The use of regression analysis is done in order to determine whether any relationship exists between the past sales, and changes in one or more economic, competitive or internal variables to a company. Typical forecasting applications of these methods are sales forecasts for industrial equipments.

SWOT and PESTEL Analysis

A SWOT analysis summarizes the key issues from the external environment and the internal capabilities of an organization those which become critical for strategy development. The aim through this is to identify the extent to which the strengths and weaknesses are relevant to and capable of dealing with changes in the business environment. It also reflects whether there are opportunities to exploit further the competencies of the organization.

A comprehensive internal analysis of Whisky industry strengths and weaknesses must however utilize all three types of comparison standards. For instance, an organization can study industry norms to assess where it stands in terms of number of complaints generated regarding defects during guarantee period of a product. Then it could benchmark the organization that is best at controlling the defects. Based on the benchmarking results it could implement major new programmes and track improvements in these programmes over time using, historical comparisons.

It also reflects whether there are opportunities to exploit further the competencies of the organization. A SWOT analysis summarizes the key issues from the external environment and the internal capabilities of an organization those which become critical for strategy development. The aim through this is to identify the extent to which the strengths and weaknesses are relevant to and capable of dealing with changes in the business environment. It also reflects whether there are opportunities to exploit further the competencies of the organization.

Then it could benchmark the organization that is best at controlling the defects. Based on the benchmarking results it could implement major new programmes and track improvements in these programmes over time using, historical comparisons.

Whisky industry is a system of consciously coordinated activities of two or more persons in order to achieve a common goal. It is a system of four major internal interacting components such as: task, people, technology and structure. Organizations are said to be open systems. A number of metaphors can be used to think and explain about the nature of organization. Morgan explores eight archetypical metaphors of organization: Machines, Organisms, Brains, Cultures, Political Systems, Psychic Prisons, Flux and Transformation, Instruments of Domination. However, there is no specific theory or metaphor that gives a general point of view. The 7Ss framework provides a useful framework for analyzing the strategic attributes of an organization. Of these 7Ss, strategy, structure and systems are considered as the hardware whilst style, staff, skills and shared values are considered as the software of success.

Unfreezing: As a practical matter, change does not occur in a vacuum of no prior perspective.  For most change which is significant, the unfreezing requires a loosening of emotional as well as intellectual forces.

Moving: In the moving or changing phase the individual is ready for new behavior and an opportunity to build by experimentation new patterns of behavior and new assumptions.

Refreezing: The final phase involves the establishment of a new perspective compatible with and leading to the new desirable behavior. In effect, the new part of ones total perspective is now established and integrated so that it fits the whole.

PESTEL FRAMEWORK

Careful analysis of the above factors will help in identifying major trends for different industries. The PESTEL framework which is most popularly used for such analysis or the external forces can be classified into six broad categories: Political, Economic, Social, Technological, Environmental and Legal Forces. Changes in these external forces affect the changes in consumer demand for both industrial and consumer products and services. These external forces affect the above two companies i.e. Google’s regarding the types of products produced, the nature of positioning them and market segmentation strategies, the types of services offered and choice of business. Therefore, it becomes important for the organizations to identify and evaluate external opportunities and threats so as to develop a clear mission, designing strategies to achieve long-term objectives and develop policies to achieve short-term goals. All the six forces individually are placed and then try to come to the conclusion regarding market environmental analysis.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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