EU integration
Further EU development would make the Eastern Europe a much more attractive option. Hungary and Poland are tipped to join the EU by 2002 and this would lower trade barriers, encouraging foreign investment develop the economy and encourage immigration inviting even larger numbers to the urban centres. This makes it an excellent opportunity to gain a market share before the possibility of a large influx of foreign competition.
OECD membership
The OECD is the Organisation for Economic Co-operation and Development. The OECD includes 29 member countries in an organisation that provides governments a framework within which to discuss and develop economic policy. Through the OECD international co-ordination is increased making it possible for bilateral and multilateral arrangements to run more smoothly. It is especially important for a countries such as Hungary, Poland and China who can benefit from the expertise of more experienced member countries.
Long-Term Growth prospect
As we can see from the statistics* Hungary’s economic growth has been steadily increasing since 1989 and is set to increase at an alarming rate in the future. It is also in a prim position for further expansion in Eastern Europe for Handwares.
Politically Stable
Hungary is fortunate to be the most politically stable country in eastern Europe and since the communist downfall of 1989 has developed a stable political system and economy and hopes to consolidate this with its planned EU integration.
Threats
Copyright
Although copyright is easily available in most foreign countries some of Handywares products are not innovative and copyright cannot be obtained for their design. Handywares must ensure a competitive advantage of some description as local undercutting could pose a problem.
High profile competitors and partnerships
Despite operating in different ways Tupperware is a competitor for Handywares and some sort of market or product differentiation will need to be designed. Betterware are also currently developing a partnership with Avon and this could lead to direct competition in the area. Avon already has a large market share in the cosmetics sector in Euope and their customer base could give Betterware a head start.
Company Objective
It is important for Handywares to state what they want to do, by when and how. These will need to be divided into financial and marketing objectives. To do this we will need to take into account our company resources.
Marketing objectives
Short Term goals
Achieve a respectable market share in door to door homeware. No matter what market we enter whether it be a small region of Germany or a major section of China we will need to have developed a respectable market share by the end of the first year. This is true for two reasons. Firstly we are a large company and have the resources to be ambitious. Secondly, the market that we are entering is in many cases in its infancy.
Increase Handyware awareness
As our company will be a new name in our chosen market we will have to promote our brand name. A popular way to do this is through trade shows and although this technique has not been used by Handwares in the UK it will be important to take part in these in our chosen foreign market. As we are initially concentrating on a specific region of a country we can promote through regional newspapers. If the public are aware that catalogues will be delivered, they will notice them when they come. Once the company is set up weekly adverts informing the public of the drop off and collection dates of the catalogues will be important. The public will also not be familiar with the method of sales that Handywares operates and clear information will need to be available in the advertisements.
Medium term goals
Regional expansion
Once market share and brand awareness is created it will enable Handywares to expand through to the urban centres. This should be a relatively easy process once our short-term goals are realised and expertise in the chosen market is created by Handywares.
Long Term Goals
If our initial foreign expansion is successful then further expansion should be considered. For example, a plan could be developed as follows:
As you can see form the Diagram this could work with any country we decide to enter.
Market analysis:
As mentioned in section 1 all markets that we are considering must be analysed. The makets that will be analysed are as follows:
- China;
- Germany;
- Hungary;
- Poland.
This section will report on our findings of the research that we have pursued and prepared. We will discuss various factors of the market environment in relation to your product. The following criteria will be used to decide the chosen market:
Political: Political system, planned/free economy, membership of international organisations etc.
Economic Considerations: Inflation, level of foreign investment, average income, unemployment, labour costs, available financing, and market growth.
Country Infrastructure: Transportation, telecom, utilities, and media.
Legal system: Import laws, set up regulations, taxes, patenting.
Market demographics: Age, sex and geography of population.
Market transparency: Available information.
Competition: International and domestic.
Option No.1: China
Political Stability
Doing business in China is very different from doing business in the UK. The level of government involvement is very high and to be successful UK Companies must become acquainted with the different government agencies and other associations that are involved in the domestic equipment industry. Because the regulations for imports can change without notice, it is important to keep frequent contact with these agencies and associations.
Personal relationships play a very important role in the Chinese business world, so establishing close relations with counterparts and government agencies is of great importance if you want to make any sales.
Despite the level of government involvement China still operated under a socialist society and stability within the government is very high. This could prove advantageous over countries such as Poland and Hungary who have only recently completed the transition from communist economies.
Economic considerations
Financing is very difficult to obtain and if this is necessary it will have to be done though an international financier. Due to the planned economy in China unemployment is low, labour is often expensive and there is a minimum wage in operation.
Country Infrastructure
With regard to the media trade show exhibitions are a very effective way to expose and introduce new products. A trade show is also probably the best way for a Chinese company to get to know foreign companies. Regular attendance at Chinese trade shows leads to valuable contacts. There is also a very high readership of regional newspapers and it is very easy to locate specific markets though the use of different publications.
Although the domestic equipment market is stable right now, there are hindrances to the future development. The poor transportation infrastructure will play a major role in slowing down the industry's growth. The size of China makes it critical for domestic equipment suppliers to have a working transportation network to rely on. As result of double-digit inflation, the cost of raw materials has risen quickly. This also includes possible Handywares materials like tin plate and plastics. It is simply hard to get reasonably priced materials.
Legal system
Chinese companies also mimic western business strategy and often invest in similar equipment. This makes it difficult to gain an advantage over your competitors. The patenting system is easy to exploit and China is notorious in Eastern Europe for companies such as Samsung who mimic Japanese companies such as Sony with management and production techniques.
The legal system effects employment greatly as well as the aforementioned minimum wage there is also a law that state that employees cannot work longer than a five day week. This might mean Handywares having to redesign their operations.
Setting up a joint venture is a very advantageous form of doing business in China. Joint ventures often get tax deductions and different kinds of government subsidies. It also improves the possibility to have a good after-sales service. The Chinese are very eager to form joint ventures, Handywares should take advantage of this opportunity.
The main problem with setting up business in China is the laws on manufacturing. China impose heavy impost duties and for Handywares to set up they would have to manufacture in China to make any profit at all. Handywares have already discussed contracts outside China for production and decided this is the cheapest method.
Market Demographics
Trying to treat the whole country as one homogenous market is not a good idea. The size and diverse needs of China make it almost necessary to divide the country into at least four regions. The Beijing-Tianjin area, the East Coast around Shanghai, the South parts around Guangzhou and the rest of China. To date, generally, the UK suppliers have concentrated their sales to Customers in the first three regions mentioned above.
Market transparency
Although the information on the economics of China is easily available the systems in operation are far less transparent. Based on personal relationships rather than set procedures the Chinese market must be approached with caution.
Competition
Competition is regulated by the government, however it is common for domestic Chinese companies to undercut foreign firms.
Option No.2 Germany
Political
A politically stable liberal economy Germany is the perfect transition from the current UK domestic market. Leading the way in the EU trade barriers are low and there would be no political opposition to imports. Relationships are led on set procedures and Handywares would not find any surprises setting up business.
Economic
Economically very advanced Germany is certainly not a market that can be exploited. However advantages such as a stable rate of inflation and transition to the Euro currency should make business an easy option on an economic level.
There is a minimum wage in Germany and here we would have to pay higher wages than any other country on our shortlist. However we would find that we would be able to sell our product at a higher mark up as a result.
Financing is easy to find in Germany and as Europe Progress toward a single currency this will become even more of an attractive option.
Infrastructure
Germany has easy sea access and also an easily accessible network of rivers and motorways.
Legal system
One of the issues with Germany is its legal system. There are strong laws surrounding the environment. Packaging has to meet national standards and disposal must be completed though the proper channels.
Market Demographics
Germany is demographically an excellent option. There are seveal majo urban centres that would be excellent for Handywares to attempt to penetrate. There is a high 25-40 year old age group and part time employment (agent wok) is very popular among housewives.
Market transparency
Information is easily available on the German market.
Competition
There is a very high level of competition in Germany. Unlike the other members of our shortlist there are already several companies specialising in houseware and it is a notoriously difficult market to penetrate.
Option No.3: Hungary
Political
Economic
Hungary's political stability is an important factor behind its ability to attract foreign business. Hungary joined NATO in April 1999 and began negotiating for EU membership in 1998. By 1998 Hungary had just completed its third democratic transfer of power since the transition. The new government is committed to improving transparency in government decision-making; enhancing enforcement of intellectual property rights; tackling a pervasive grey economy; containing inflation and unemployment; and reforming the health care system
As Hungary’s economy is still in a transition from state to private run economy (stared in 1989). As a result there are many areas which are still underdeveloped. The domestic good home delivery industry is one of these and there is currently no direct competition in Budapest itself.
Legal
The establishment and operation of joint ventures in Hungary has been permitted since 1972. The foundation of companies operating with foreign participation is subject essentially to the same treatment as that of exclusively Hungarian-owned companies. In 1989, the earlier licensing procedure was abolished and today it is sufficient to have the company simply incorporated in the Trade Register. Foreign investors are allowed to purchase shares in Hungarian firms up to 100% majority participation. Joint ventures and 100% foreign-owned ventures - as all businesses in Hungary - are entitled to pursue foreign trade activities.
It is also possible to establish joint ventures in duty-free zones. In Hungary, in contrast to certain other countries, there are no specific duty-free zones delineated for establishing joint ventures. The land area of any enterprise or that of plants already existing or under construction can be declared as a duty-free zone by customs authorities.
Since January 1, 1994, the establishment of off-shore companies is also permitted in Hungary. Under the law on corporate taxation, off-shore companies enjoy an 85% tax preference. An off-shore company must be a limited liability company or a shareholders' company registered in Hungary, and must be wholly foreign owned.
Hungarian patent legislation provides protection for a twenty-year period under condition that the patent be used within four years of the date of application or three years from the date of issue. Copyright protection is extended to literary, scientific, and artistic creations, including software. Trademarks can be registered in Hungary; however, the process can take from six months to a year. Foreigners are required to appoint a local attorney to represent them. Registrations are valid for ten years and can be renewed.
Infrastructure
The motorways in Hungary are relatively developed compared to other countries in the region, however four lane highways only cover part of the country. The government is committed to developing the motorway network, indeed in 1997 a link between Vienna and Budapest was completed reducing the journey to under three hours.
Hungary has an extensive railway system which links large and medium size cities. Approximately 158 million passengers and 43 million tons of goods are transported annually across 7,600 kilometres of tracks.
Hungary's major airport, Ferihegy, is located in Budapest. The airport currently operates from two terminals. The completion of Terminal 2's expansion at the end of 1998 will double the airport's capacity.
Telecom: Hungary had one of Europe's least developed telecommunications systems in the early 1990s with a penetration rate of 15 lines per 100 persons, which resulted in a call completion rate of only 40%. Major investments by Ameritech and Deutsche Telekom in MATAV has resulted in 200,000 - 300,000 new lines per year and a waiting period of less than one month compared to several years. The development is set to continue into the future.
Hungary has nearly privatised all its gas and electric generation and distribution facilities. Despite price increases since privatisation utilities have been made available on a more widespread basis.
Market Demographics
Of the population of Hungary 47.7% are men and 52.3% are women. Culturally it is also much more common for women with a family not to work. This is advantageous to our company as we are concentrating on housewives who we will rely being at home during the day.
68% of the Hungarian population are age between 15 and 64. We are targeting the 25-40 year old age group that has a large population within this.
Hungary is historically and agricultural country split into counties with a very evenly distributed community. However with increased foreign investment urban centres have been created. Budapest is by far and away the largest of these and is predicted to continue growing as European integration furthers.
Market Transparency
As Hungary pushes for membership of the EU information on the economy is becoming more transparent. There are set procedure for opening business and although there is a black market in Hungary the government is continually working to reduce this threat
Competition
There is no direct door to door competition in Hungary, however companies such as Tehere and Curver-Rubbermaid operate through retailer networks and Tupperware operates though the ‘Tupperware Party’ system.
Option No. 4: Poland
Politics
Communication is slow with lots of bureaucratic red tape, to be cut through, High emphasis on face to face communication. An Agent would definitely be required to handle meetings, and to go through appropriate channels, so whatever was required was dealt with quickly.
Economics
Poland has the highest inflation of the shortlist at 13%. There is also high unemployment.
Purchasing power based in the Urban areas, which is not a disadvantage as long as we choose to enter though an urban centre. The economy is based around fossil fuels, textiles and metals with traditional industries of Farming and Minerals being replaced. This shows a development of the economy that should create more disposable income. However this can lead to an unstable economy due to the velocity of change.
Market Transparency
Business ethos is still very backward, with cash and wire transfers the only source of payments. There is a network of corruption which even penetrates the public institutions.
Infrastructure
Although there is an effective network of motorways and railways it is the furthest country form the far east be sea.
Market Demographics
Population of 38.7 million people is situated on the Adriatic sea coast, with 65% of the population living in urban areas.
Strategies & Tactics:
Here the broad marketing strategy or “game plan” is outlined. Important points mentioned here are the target market, positioning, product line, price, distribution outlets, sales force, service, advertising, sales promotion , R&D, and marketing research. It gives a broad overview of the plan for achieving the marketing objectives.
