Market entry strategies
According to Doole and Lowe (2002) for the majority of the companies the most significant international marketing decision they are likely to take is how they should enter new markets, as the commitments that they make will affect every aspect of their business for many years ahead. They also suggest that this is a critical step for small and medium-sized businesses. All types of strategy have their advantages and disadvantages in a particular situation and this is what will be discussed below.
Alternative market entry methods
These methods are shown in Figure 5 with the purpose of showing how the level of involvement changes with the method chosen.
Figure 5. Market entry methods and the levels of involvement in international markets
Source: Doole and Lowe, 2002, p. 248
Source: Doole and Lowe, 2002, p. 2484
Doole and Lowe (2002) suggest there is a set of criteria which have to be carefully examined before choosing one of the methods depicted above:
- the company objectives and expectations relating to the size and value of anticipated business;
- the size and financial resources of the company;
- its existing foreign market involvement;
- the skill, abilities and attitudes of the company management towards international marketing;
- the nature and power of the competition within the market;
- the nature of the product itself, particularly any areas of competitive advantage, such as trademark or patent protection; and
- the timing of the move in relation to the market and competitive situation.
The section of Chapter 3 which will refer to the criteria listed above will discuss all but two of them because of lack of sufficient information. The secondary data on which the analysis of Sweden as a potential market for Solid 55 does not give details on the nature and power of the competition within the market and on the nature of existing and anticipated tariff and non-tariff barriers.
The next step in the process of choosing a market entry strategy is the assessment of the levels of risk and control over the international operations that the company is willing to take. Figure 6. below shows how levels of control and risk vary in accordance to the entry method:
Figure 6. Risk and control in market entry
Source: Doole and Lowe, 2002, p. 2494
After deciding how much risk and control the company is willing to take it may decide which of the methods listed above to pick. A good explanation of what they are is needed for that purpose.
Chapter 3 of my final project will discuss the following methods of indirect exporting:
- domestic purchasing;
- piggyback operations;
- an Export Management Company (EMC) or Export Houses (EH);
- and trading companies.
It will also discuss methods of direct exporting:
- distributors;
- agents;
- own sales force.
The discussion of the entry strategy will be limited to those methods only because of the size, financial capabilities and exporting experience the company under consideration possesses. The rest of the methods will be mentioned but only with the purpose of comparison.
CHAPTER 2. THE ENVIRONMENT, THE COMPANY AND ITS STRATEGY
The Environment
Globalisation and government stability
For the purpose of this work and in consistence with latest developments in Europe and Bulgaria I identified globalisation and the political course Bulgarian government has taken as factors that will and are already changing the structure of the security doors industry and market.
I decided to comment on these two factors simultaneously because they are strongly related to each other. Globalisation would be impossible if governments of different countries were unstable.
Although strongly criticized by journalists and opposition the present government of Simeon Saxe-Coburg-Gotha created an image of itself as one which works for the Bulgarian people. I used the word “image” intentionally because many surveys (see Appendix A: Results from a survey) show that people’s living standards (according to their own opinion) have not moved upwards but on the contrary. The present government is stable despite of the negative image it has in peoples’ minds (see Appendix A for Results from a survey). Its political will to finish the negotiations with the European Commission is a part of the globalisation process called “Enlargement of the European Union”. It is expected that in 2007 Bulgaria will become the 26th member of the EU. Bulgarian market for security doors will then become a part of the common European market for such products. This will lead to serious changes in the structure and size of the domestic markets and will also pose threats in front of the manufacturers among which is Solid 55.
Legal factors
Some of the threats mentioned above will be a result of the changes implemented in Bulgaria’s legal environment.
Production of security doors is closely related to the building industry in Bulgaria. For several consequent years a big part of the major construction companies in Sofia have been including in their financial and building plans the purchase and installation of entrance doors for each separate flat. Those builders who targeted customers with income much higher than the average for the country could easily and should purchase luxury doors because their type of customers were ready to pay but only for good quality and finished job. There is not a wealthy customer who would be satisfied (and subsequently purchase another flat or recommend that company to someone else) if he or she finds a brand new expensive flat closed with a very cheap, low quality wooden door. First, this causes annoyance because the customer has to himself or herself go purchase the door which means waste of precious time having in mind that the construction company has previously worked with door manufacturers and could better decide on which one could provide higher quality. But what is more important here is that if a building company uses low quality doors just to cut its costs this is much likely to mean that it lowers costs and realizes economies from the materials it uses in the construction of the building. In Bulgaria in some cases this fact is obvious by just looking at the facades of some newly built residential blocks but it might be hidden in the construction and become obvious when it is already too late.
Ordinance on the Material Requirements and Evaluation of the Conformity of Construction Products
Such notorious practices led to the introduction of new laws and amendments to already existing ones. According to the Ordinance on the Material Requirements and Evaluation of the Conformity of Construction Products (See Appendix B for details) all kinds of doors are included in the nomenclature on the types of construction products which must be evaluated before used in a building’s construction.
One very important aspect of this ordinance is its 3rd Chapter. It states that “the requirements of the production quality control system are considered to be met in the cases when a manufacturer has implemented a quality management system certified under the BDS EN ISO 9001:2001 with the condition that the quality management system fulfills all the requirements of the product’s technical specification.” This motivated Solid 55’s management to start the implementation of a quality management system in accordance with the ISO 9001:2001 international standards in the production department of the firm.
2. The Market
The purpose of this section will be to present in brief the structure of the security doors market, how it is distributed among the main competitors and a short description of the types of products.
Figure 7. Layers of the business environment for Solid 55.
Source: “Exploring Corporate Strategy – Text and Cases, 6th Edition”
The discussion below will not include the interior and garage doors because Solid 55 imports the garage doors from the German producer Hörmann and is still not that experienced in interior door manufacturing. This means that both types of products are irrelevant to the work’s topic.
Description
The changes in Bulgaria’s social and economic environments after 1989 (the rejection of the communist regime and taking the way to democracy and market economy) crated a market for a new product – a security door which had to combine the basic functions of a door with another very important function: protection of homes and offices against burglary. Crime flourished in the first years of the transition period and a strong demand for security doors appeared. High crime, low initial resources needed and almost no barriers to entry motivated many people possessing entrepreneurial spirit to start manufacturing such products. Most of the producers were natural persons working with one or two partners in premises like garages and basements with no legal registration and permission.
This was the situation back then. But the past is not a subject of discussion for this work. What is important is the future of the company and it can not be discussed without a clear vision on the present.
The present
At the present moment the market for security home and office doors is divided between three classes of products according to their price:
-
Low class security doors – from € 175 up to € 200;
- Middle class security doors – from € 275 up to € 300;
- Luxury security doors – from € 300 to € 325 and above.
Leader on the market for luxury security doors – product and strategy
According to unofficial data the market shares of the main players on the luxury security doors market are as follows:
Figure 8. Relative market shares for Solid 55, Herazit, Ergon, Protecta and others
Source: Unofficial
The Product
As mentioned above these products’ prices start from about 300 € and can reach € 3000 and even € 4000. “Security” means that the door has an inner metal construction and a steel sheet on the front side. The most important part of the security door is the locking mechanism. Solid 55 has been working with only one supplier of locking mechanisms (for luxury doors) from the very beginning thus gaining some bargaining power over it despite of the fact that it is an Italian corporation with factories all over Europe. The regular quantities purchased and the correctness in all aspects gave Solid 55 the right to stand for exclusive rights on the distribution of that brand which lead to a significant competitive advantage over competitors willing to work with the same locking mechanisms.
What makes a security door “luxury” is its outer appearance. The metal construction I mentioned above is covered by wooden plates which are offered in several colours imitating real tree species (e.g. walnut). Depending on customer’s preferences the door could be ornamented. Not long ago the company used to outsource this action and the lead time and quality of the ornamented models depended to quite a big extent on the contractor. Recently, the company invested in a CNC machine which made it independent from the outer source. This piece of equipment allowed novel ornaments to be added to the present range that has been used for quite a long time. The period for producing a door with an ornament designed by the customer was significantly shortened and its cost significantly lowered – these options available add even more luxury to those who value it.
The Strategy – Route 5 on the Strategy clock
It is very important for companies which choose this type of strategy to carefully select the market niche in which they are going to compete. Initially, Solid 55 chose to compete on the market for luxury doors and attracted customers who perceived luxury appearance and high quality as valuable. Later on, when the focused differentiation gave results and the company started gaining benefits it could afford to invest in specialized machines which substantially increased productivity and at the same time allowed Solid 55 to go to the market with a new and unique product. The investments in equipment gave the firm an opportunity to broaden the market niche it was operating in until now. The customer group was enlarged while the initial base was kept – the new group perceived as value added the following characteristics:
- High quality;
- Luxury appearance;
-
Brand name – the company started identifying itself into the customer’s minds by a new logo and a new slogan: “Solid 55 – The leader in solid doors”.
-
Unique product – only Solid 55 produces a door which can be disassembled (without harming the appearance of the product) if a problem with the locking mechanism or some other part inside appears. This is achieved through aluminum profiles which close the door from all sides. Their production has been and it is now outsourced. This construction was patented as an invention which definitely impresses customers. Another feature that is still unique for Solid 55’s product is a new way of assembling the wooden decoration of the door which makes the appearance of the entrance better. This draws customers who value luxury more than anything else;
-
Exceptional security – introduction of a model called “TITAN” which has 20 locking points.
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Short manufacture period – thanks to the investments in highly specialized machines and equipment each unit is now produced faster compared to competitors.
The latter competitive advantage gained through choosing the focused differentiation strategy can be perceived as a turning point in the development of the company as a leader. This is because mainly the short lead times (but not only) won the major building companies in Sofia as strategic customers for the firm. What is very important when considering a building company and what makes it a strategic customer is its function of an intermediary who connects Solid 55 to a large group of potential customers - new home owners who value all or at least one of the features mentioned above.
4. Entry in the market for low class security doors
Definition
What is very important for this type of product is that the metal part of the item and the way it is processed is of greater importance compared to the luxury doors. The reason for this is that metal parts are now exposed to the customer. As in the previous product Solid 55 decided to integrate the locking mechanism of the same Italian supplier. In one sentence a low-class security door needs to have the same level of security but different outer appearance which actually makes it a different product targeted at different customer group. This of course means that the value adding process for this product is different and some new competencies are needed to be attracted to Solid 55.
4.2. The strategy – Route 3 on the Strategy clock
A very important lesson that the managers of Solid 55 learned by gaining more and more experience in their field was that if they are not constantly monitoring the opportunities and threats the environment is continuously introducing there is a real danger of the company’s growth to stop which would allow another player to become the leader.
The decision to enter the market for low class security doors was made after a careful analysis of external opportunities and threats and internal strengths and weaknesses. These are shown in the figure below:
Figure 9. SWOT Analysis for Solid 55.
Source: Lynch, R., Corporate Strategy 2nd edition, 2000, Pearson Education Limited, Essex, p. 563
All the strengths described above are fact because of only one very precious intangible asset Solid 55 gained since the start of its operation – its experience. Many of these competencies were gained on the principle of “trial and error” and some are a result from a combination between the technical education and entrepreneurial spirit most of the managers posses.
The strategy route that Solid 55’s management chose requires low costs and at the same time some extent of differentiation. It is Route 3 from Figure 3 or the hybrid strategy.
At this moment Solid 55 is offering low class doors at prices lower than its competitors but the profit margin is quite low. This is so because most of the competitors in this market niche have lowered their production costs at the expense of quality. Quality might be something natural in developed countries but in Bulgaria it is perceived as an additional feature. This phenomenon can be explained in many ways but in my opinion its explanation is not relevant to the topic of this work. Some of the “competencies” through which competitors lower their costs are: low quality materials, low skilled and low paid workers, assemblage of the door by installation crews when they reach the customer’s place, low quality locking mechanisms, etc.
It is going to be very hard for Solid 55 to lower costs more than competitors who has implemented such practices in their activities having in mind that high quality for products and services must be kept if the company wants to be a leader in that market.
Introduction of a new piece of equipment
Some steps have already been made towards the elimination of the problem mentioned above. The first point in the “Weaknesses” part of the SWOT analysis – lack of enough machinery which to give a good commercial appearance to metal components. Its elimination is related to the last point in the “Opportunities” from SWOT analysis – PHARE programmes for technical cohesion of SME’s.
Solid 55 applied for a grant under the “SME Services and Technology Grant Scheme” programme for the purchase and installation of a punching machine with computer numerical control for processing of sheet metal. The application included a budged head for the training of personnel on how to use the machine. The reason to apply for this grant was the modernization process of the whole production department which started in the beginning of 2002. Several new machines were purchased with the purpose of increasing productivity, decreasing wastage, decreasing costs and increasing profits. The purchase of the punching machine will play an important role in the process that I am describing in this chapter – keeping leadership in the luxury doors market and gaining a leadership position in the low-class doors market for Solid 55.
The managers of the company gave the following forecasted figures as final results from the application of the new equipment:
- increase of output approximately 1.3 –1.5 times;
- increase of revenues approximately by 20 %;
- increase of sales of metal doors approximately 200% (according to forecasted demand);
- increase of profits by 20 %;
- increase of the number of corporate customers by average of 15 %;
- decrease of production costs approximately by 4 %;
Source: (Grant Application Form of Solid 55 for Technology Grant Scheme)
A novel product
The strengths that Solid 55 gained throughout the years in the door industry and the opportunities that changes in the macro-environment create gave the company the chance to invent a novel product.
Description of Smart Lock TM and the Always Locked Transponder Door TM
The idea used for foundations of the Smart Lock system is quite original and simple at the same time. An industrial GSM-module, which commands an automatic locking mechanism, is installed in the door. It could be activated only when a call is received from a number preliminary entered in the memory. One major phone number is entered in the GSM-module’s memory at the initial installation and this number only is delegated with the administrative rights (usually this is the number of the building’s administrator or the company owner). Then, allowing or rejecting access to a certain individual to the building and the premises inside is literally performed in a few seconds by sending an sms from the administrator’s phone to the Smart Lock module.
A security door with Smart Lock is much safer than the classical schemes of locking. It compensates for the inevitable acts of negligence or carelessness performed by office employees or building residents. A two pace hydraulic door closer makes sure that the door is always tightly shut. After someone passes through it is again closed and in a short time interval (usually it’s 15 seconds with the possibility to be regulated) is locked automatically (that’s why it is called ALTD).
The door’s GSM-module has a memory in which the number and the time of each call are recorded. This gives the customer the ability to keep a detailed track of who and when enters the office or the residential building. Connecting Smart Lock to a personal computer would give statistical data in the form of readable graphics and tables. Visitors could no longer hide behind their anonymous presence as their personal mobile phone number could identify them undoubtedly.
The ALTD door is offered equipped with a transponder locking system with personal magnetic cards, which is an appropriate choice for installing into offices and public buildings. It is a matter of personal preference to choose either the magnetic card or the mobile phone locking system as both options have their advantages and disadvantages. The transponder system does not require from the owner to have a mobile phone and the option with the built-in GSM-module is very flexible and easy to be administrated. In the case of a lost magnetic card a person would not be able to enter the building until he or she is not equipped with a new one or someone else comes personally to open the door for him or her. When the customer have a GSM module built into his or her door it would not be a problem for another authorized person to open it even if situated at the opposite end of the city.
This section leads to the next chapter which will discuss the issues which Solid 55 has to deal with when starting the export of the product described above.
CHAPTER 3. INTERNATIONAL MARKETING ANALYSIS
1. Structure
Corporate policy
The corporate policy which actually lead to this analysis is one of sustained growth. The Bulgarian security doors market (and especially the segment of customers for the ALTD) is quite small and the company’s management decided to seek for international expansion.
Market assessment criteria
The main market assessment criteria in the case of the ALTD are:
- High purchasing power of population;
- Technology oriented population.
The population
The population of potential customers for the ALTD is roughly said all the people who inhabit houses or flats. It would be quite brave if I say it would be possible to sell the product to all these individuals. That is why I decided that my population will be comprised of the people living in the European Union. Again, the EU is quite a broad market and would not be realistic to enter the markets of all the 15 countries at once. For this reason I gathered information on some of the most important for the product’s realization statistical indices.
3. Segmentation of the market
I have segmented the market on the basis of statistical data gathered from different sources. The first index which in my opinion gives a good idea on how much people in EU generally spend compared to each other is the Purchasing Power Parity (PPP) and other related economic indicators at the level of Gross Domestic Product (GDP). The data is from 1995 to 2002 for 31 countries participating in the European Comparison Programme (ECP).
The per capita GDP volume indices, shown in Chart 1 and Table 1 (respectively Appendix D and C), represent the real volumes of production / total expenditure in per capita terms. The indices are expressed in relation to the European Union (EU15=100). If the per capita GDP volume index of a country is higher than 100, that country's level of production in per capita terms is higher than the EU average and vice versa.
In 2002, based on the preliminary PPPs, the grouping of the participant countries was the following:
-
Group I (.126% of the EU average): Luxembourg
and Norway;
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Group II (.111% and <126% of the EU average):
Austria, Denmark, Ireland, the Netherlands, and
Switzerland;
-
Group III (.91% and <111% of the EU average, i.e.
close to the EU average): Belgium, Finland, France,
Germany, Iceland, Italy, Sweden, and the United
Kingdom;
-
Group IV (.76% and <91% of the EU average):
Cyprus and Spain;
-
Group V (.51% and <76% of the EU average): the
Czech Republic, Greece, Hungary, Malta, Portugal
and Slovenia;
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Group VI (<51% of the EU average): Bulgaria,
Estonia, Latvia, Lithuania, Poland, Romania,
Slovakia and Turkey.
The other piece of statistics I have used was Statistics on the information society in Europe. I considered it important because it relates to the acceptance of new technologies emerging on different markets. ALTD is a product designed by the application of quite new technologies which means it is quite an innovative product and would not be accepted by customers who are generally not open to accepting new technologies. The source says that there were 117 million PCs in use in the EU in 2001 (see Appendix C: Table 2), which was equivalent to 31 per 100 inhabitants. There were three Member States that reported more than 50 PCs per 100 inhabitants; Denmark (58, 2002), Sweden (56, 2001) and Luxembourg (52, 2001), while Greece, Spain, Italy and Portugal were the only countries to report an average of less than 20 PCs per 100 inhabitants. Table 3 shows that there were 135 million Internet users in the EU in 2002. This was an increase of 15 % compared to the year before. This marked a slow down in the pace at which the number of Internet users was growing, as in 2001 the growth rate had been 27 %. (Source: Eurostat [online]).
On the basis of some primary research and the data above I have decided to choose the citizens of Sweden as a sample for my research. Sweden is situated in Northern Europe, bordering the Baltic Sea, Gulf of Bothnia, Kattegat, and Skagerrak, between Finland and Norway The population of Sweden is 8,878,085 (July 2003 est.) and it is currently a constitutional monarchy.
The main reasons for choosing Sweden as a market for the ALTD are:
- Primary research, which was in fact an informal conversation with a representative of the door industry in the Nordic region
who expressed an opinion that there was an increasing number of domestic burglaries in Sweden;
-
According to secondary data in the form of statistics gathered by the Eurostat Sweden has a technology oriented population (respectively Appendix C and D: Tables 2 and 3, Chart 2) and at same time Swedish households spend more than the average EU household, which means that the price of the ALTD would not be a vital factor and the stress of the market penetration strategy should be put on the image of the product.
Targeting
As I have already mentioned Sweden has a population of 8,878,085 but the ALTD and its popularisation won’t be targeted at all of them. According to my source (CIA: [online]) the age structure of the country is the following:
-
0-14 years: 17.7% (male 804,296; female 763,213)
-
15-64 years: 65% (male 2,933,183; female 2,835,835)
-
65 years and over: 17.3% (male 654,575; female 886,983) (2003 est.)
On the basis of these figures and the nature of the product I have decided that the target group will be comprised of people aged 25 to 65 years and over. Because of lack of more detailed information I assume that people aged 15 to 24 years comprise about 17% of the overall 65% for this group. Then, we will be targeting at approximately 65.3% of Sweden’s population. This percentage will of course be lowered after more detailed research on cultural backgrounds and patterns of behaviour which are a subject of an ad hoc primary research.
The promotion of the product will be the same for both target groups – ALTD is one very innovative product that the customer needs because the conventional doors are already obsolete as ours could even think for the house.
Problems and objectives
- Objectives
The objectives of the marketing team while trying to penetrate the Swedish door market for doors will be to create an image of the ALTD as an innovative and high tech product that is designed to replace ordinary doors. And here comes the major difference between the way ALTD is being promoted in Bulgaria and the way it should be promoted in Sweden. In Bulgaria ALTD is the ultimate barrier for burglars because there are a few of them who are specialists in both mechanical locking systems and electronic ones – ALTD has them both, so no more fear of your home being robbed. In Sweden, ALTD could not be advertised or popularized by such arguments and this naturally leads to the possible problems the marketing team should solve in advance of entering the new market.
- Possible problems
According to official data the number of domestic burglaries in Sweden is the following:
Table 1. Number and percentage change of acts of burglary for Sweden
Source: http://www.homeoffice.gov.uk/
The ALTD is originally designed to offer very high level of security because of the contemporary living conditions of Bulgaria. Although the statistics in the table above show that there was a slight increase of 3% in domestic burglaries in Sweden the figure of actually committed crimes is probably much lower because these figures include “attempts, preparation and conspiracy to commit an offence”. Just for comparison the figures in the same source show the following:
Table 2. Number and percentage change of acts of burglary for Bulgaria
Source: http://www.homeoffice.gov.uk/
The data presented above is not sufficient for the successful export of the ALTD in Sweden. However, it might be a good start for picking up “the right country” which would be a potentially good market for this product. In my opinion statistical data should be the smaller part of a marketing research and primary research “at the site” the bigger. Figures can not catch some of the most important characteristics of potential customers – their customs, habits and way of life, preferences and opinions considering a particular product. And these findings should, in my opinion, be the task of an international marketer and his or her team.
The analysis of Sweden’s economic environment revealed that market assessment criteria are fulfilled and the country is a potential market for the ALTD. The next level of the analysis is collection of primary information. However, in Solid 55’s situation (limited financial resources and lack of knowledge about international marketing) a strategy for entry in the market might be developed and the primary research could start together with the first steps towards internationalization.
CHAPTER 4. STRATEGY FOR ENTRY IN A FOREIGN MARKET
Introduction
All the factors, developments and strategies described in the previous chapters were aimed at increased market shares, increased sales and increased profits. All the competencies Solid 55 possesses and the development of Europe lead to new opportunities. If the company wants to achieve substantial growth it should go international because Bulgarian market for security doors is too narrow at the moment. At the same time a threat that will soon become reality is the penetration of our market by foreign companies. Solid 55 should go international if it wants to sustain its competitiveness even in a market invaded by big foreign players
This part of my final project will have the goal of describing the right strategy which Solid 55 has to implement in order to successfully penetrate the market described in the previous chapter.
Motivations to internationalize
The best proactive motivator for a company to become an international player is the profit advantage. One of the ways to increase profit margins or added-on profits is through international sales. This motive is undoubtedly the strongest one but many surveys (Source: International Marketing, 2002, Czinkota, M., Ronkainen, I.). show that expectations and results do not always meet. Mangers that are considering export should be prepared for quite a low initial profit simply because of the high start-up costs. If they are not expecting this disappointment could be so strong that the export activities might be canceled and even completely abandoned. Another important consideration is that no matter how well the export was planned on a perfect market research international marketers should be prepared for changes that are out of their control and could not be influenced on (e.g. wars, disasters, currency fluctuations, etc.).
Another very strong motivator could be the uniqueness of a product. Companies that have invented an unique product might enjoy a huge international success for years just because they are the sole supplier of a certain good. What is important here is that such a company should explore thoroughly all the markets that it is intending to enter and make sure the item that it is going to present as unique is really unique. Otherwise the whole export strategy might fail because of a competitive product that has the same parameters and may be even better. Another important issue here is that this competitive advantage could not be kept for too long because of the high access all players on every market have to information and technologies. This is the reason why the best companies in an industry are the best – the R&D process taking place in them is continuous and restless.
Managerial urge is also an important prerequisite for a firm to successfully internationalize. It might be the simple desire of a manager who has the needed authority in a firm to be a part of an international player. But more often internationalization is realized because of the entrepreneurial skills a manager has – these give the ability to always look for constant growth and market expansion.
The last but not least major proactive motive for internationalization I am going to discuss is economies of scale. Increasing production volume is naturally leading to decrease of costs and this effect is probably a major task of many managers all over the world. The Boston Consulting Group showed that a doubling of output can reduce production costs up to 30% (Source: International Marketing, 2002, Czinkota, M., Ronkainen, I.). This leads to the conclusion that if the exporting activities of a companies are successful this might lead to a competitive advantage on the domestic market. If the competitors are not exporting the domestic market will not give them the opportunity to increase output as much as the exporter and consequently production costs would be always higher.
In my opinion no one firm makes the decision to go international on a motive from only one of the groups. This is the case of Solid 55 – the decision was made by the president of the company but on the basis of many factors which according to him will have impact on the firm. One of these is Bulgaria’s future accession to the European Union. This might be perceived as a reactive motivation because the incorporation of the Bulgarian market for security doors into the European common market will mean stronger competitive pressures. But this in no case could define Solid 55 as a passive firm because there certainly are other motives for this decision and these are proactive ones: profit advantage, managerial urge, economies of scale and unique products:
- Solid 55’s managers plan to export and to gain added-on profit through increased sales volume;
- Managerial urge is in the basis of making the decision to export – if managers lacked entrepreneurship there wouldn’t be desire for growth subsequently no export decision would be made;
- Solid 55’s management decided that exporting might be the tool through which to double production volume thus achieving economies of scale. This will also lead to higher profit margins;
- The ALTD described above might be described as a unique product on the Swedish market because of the technology it is based on and its quality/price ratio.
Solid 55’s profile as an exporter
Solid 55 is at the second stage (see Chapter 1) according to the characteristics given for each separate stage. A company which is at the partially interested firm stage:
- Have not actively sought its first export order;
- Have started exporting to a psychologically close country;
- Its president has the most input in the export decision;
- Knows that the firm has exportable products;
- Tends to believe that exporting may be a desirable activity and undertakes some exploration of export possibilities;
- Its main motivations for exporting are a unique product and profit advantage.
Problems in the export effort for the partially interested firm might be:
- Financing;
- Information on business practices;
- Communication;
- The providing of technical advice; and
- Sales effort.
Source: International Marketing, 2002, Czinkota, M., Ronkainen, I.
All these characteristics to a smaller or bigger extent fit to Solid 55’s situation when discussing its exporting activities. They (the characteristics) will quite strongly affect its future international marketing strategy which is discussed below.
Market entry strategy
4.1. Criteria on which the market entry strategy will be chosen
-
The company objectives and expectations relating to the process of internationalization are growth of the firm through approximately two-fold increase of sales;
-
According to the EU classification of companies (Doole and Lowe, 2002) Solid 55 is in the group of small and medium enterprises. Its profit for 2003 was € 7 669;
Source: (Grant Application Form of Solid 55 for Technology Grant Scheme);
-
Solid 55’s existing foreign market involvement is limited to the domestic purchasing from a very small number of foreign companies;
-
The skills and abilities of the company management towards international marketing are too limited because up to this moment Solid 55 has not actively sought for export opportunities. The attitudes towards starting such activity are optimistic and managers are aware that internationalization could lead to growth.
-
The nature and power of the competition within the market might turn out to be a problem because Sweden has long traditions in the manufacture of locking systems.
-
The product (ALTD) is quite an innovative one and the comparatively low price could be considered as an area of competitive advantage. Also the locking system and the door into which it is integrated are patent protected according to Bulgarian and EU laws;
-
The timing of the move is made with consideration to the future accession of Bulgaria in the EU and also the future incorporation of the Bulgarian security doors market into the Common European security doors market.
Methods of exporting – involvement, risk and control
Indirect exporting
- Domestic purchasing would provide Solid 55 with access to and limited knowledge of international markets. This is the easiest way of exporting for small firms but the control over the process is fully transferred into the purchaser’s hands;
- Export management companies (EMCs) can help SMEs to start, develop and maintain their international sales. The risk when using EMCs is low and the control is also low. There is a threat that EMCs would not concentrate on Solid 55’s product simply because they trade with many other products some of which they might find more attractive. As EMCs are paid by commission they might put more efforts in selling products with immediate sales potential.
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In piggybacking, an established international distribution network of one manufacturer might be used to carry the products of a second manufacturer (Doole and Lowe, 2002). According to Terpstra and Yu (1990) this method is a particularly effective way for firms from developing countries to break into markets in developing countries. Possible problems when considering this method might be poor definition of the marketing terms and the conditions and also change of strategic objectives or change of demand that the “carrying” company faces.
- Exporting through trading companies also has its advantages and disadvantages as all the methods mentioned above. Trading companies have enormous trading networks and a lot of contacts but if Solid 55 uses this method it will be far from its markets and customers because of the low control which it can have over the intermediary.
Direct exporting
The methods that will be described below are ones which could make Solid 55 a proactive international player because of the higher level of involvement and control they allow (Figures 5 and 6). According to Doole and Lowe (2002) the benefits of direct over indirect exporting are in relation to greater control over the marketing mix, improved feedback, changing situations in individual markets and competitor activity, and the opportunity to build up expertise in international marketing. The disadvantages are related to higher costs of the direct investments required because all the costs incurred in the marketing, distribution and administration processes will be borne by the company as opposed to the indirect exporting where part of these costs are incurred by the intermediary because of the multiple exporters it is working with.
Success factors in exporting
According to a survey made among European manufacturers (Doole and Lowe 2000) the costs of export planning did not correlate with export performance or in other words Solid 55 does not need to invest heavily in order to profit. What is really important is to be flexible and adaptable to export opportunities and the ability to make an immediate strategic response. Another very important issue for Solid 55 as an inexperienced exporter is that firm size and the managers’ experience turned out (in the survey mentioned above) not to be critical factors but it was recognized that these factors may be the source of the export stimuli at the beginning and later on could be the major determinants of the firm’s commitment to exporting and its ability to solve problems.
Direct exporting methods
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Own sales force situated abroad is needed in cases where the market is large, high level of market knowledge and customer contact is needed. A home-based own sales force may be used to make periodic sales trips and after that continue relationship with potential customers through telephone, fax and e-mail.
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Hiring an agent could be a tough task because the nature of the agreement between the firm and its agent is crucial in ensuring the success of the arrangement. It is very important for issues like what is expected of each party and how the feedback from the market will reach the exporter to be clarified. The sources for finding a suitable agent are by asking potential customer to suggest a suitable agent, by obtaining recommendations from institutions such as trade associations, chambers of commerce and government trade departments, by using commercial agencies, by using agents for non-competing products, by poaching a competitor’s agent and advertising in suitable trade papers. The selection criteria for finding a suitable agent are:
- the financial strength of the agents;
- their contacts with potential customers;
- the nature and extent of their responsibilities to other organisations;
- their premises, equipment and resources including sales representatives.
Some very important issues to be observed in order for satisfactory manufacturer-agent relationship to be created are:
- Enough time and resources should be allocated in order for a suitable agent to be found;
- Both the manufacturer and the agent should understand what each expects from each other;
- The agent should be motivated to improve performance;
- Enough support from the exporter to the agent;
- Advice and information should always be transferred in both directions. (Doole and Lowe, 2002).
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Distributors on the contrary to agents buy the product from the manufacturer. The advantage for the exporter from this is that the distributor takes the market risk on unsold products. The disadvantage is that they usually expect to take a higher percentage to cover their costs and risk. Distributors usually seek for exclusive rights to represent a manufacturer in a given area which is in return for the investment they have to make in order to successfully distribute the product.
(Source: Doole and Lowe, 2002)
Comparison and evaluation of methods for entry in the Swedish market for Solid 55
After the description of the methods for entry for Solid 55 a comparison should be made on the basis of involvement, control, risk and feasibility. Table 3 below have the purpose of making that comparison:
Table 3. Comparison of modes of entry in the Swedish market for Solid 55.
The table shows that all the indirect methods for export are feasible (I have given my opinion on feasibility on the basis of Solid 55’s lack of experience in exporting, lack of foreign contacts and on lack of knowledge for the Swedish security door market) with low levels of risk but need low involvement and low control. The latter in my opinion will keep the company far from its foreign market and no export experience could be gained if they are used. I think it is inappropriate to outsource the exporting activity to trading houses because most of these are huge corporations which would not be interested in small trading quantities and Solid 55 can not start with huge amounts. There might be the same problem with EMCs but even if they are smaller and are interested in smaller quantities they are not likely to concentrate fully on the ALTD. Only piggybacking is in my opinion relatively attractive because Solid 55 itself could choose the manufacturer whose network will use in order to distribute the ALTD internationally. By saying “choose” this means choosing who to negotiate with so the manager who would negotiate with the “carrier” should posses very good bargaining skills.
I considered most of the direct modes not feasible on the same principle as the indirect. At the present moment Solid 55 does not have the needed contacts in Sweden in order to set up its own sales force which to be situated there. The same reason makes agents and distributors not feasible. The method that I found appropriate given the circumstances is the home-based own sales force. The reasons for that being:
- Relatively high control but only over the team and not the market;
- Relatively high involvement – the team would be motivated as it would be a part of Solid 55;
- Relatively low risk because of no direct investment.
These reasons in my opinion make the method the best for Solid 55’s starting internationalization.
The rest of the market entry methods that I did not include in the table are direct marketing, franchising, joint ventures, strategic alliances, own subsidiary, acquisition and assembly. In my opinion these are not suitable for SMEs which are just starting their export activities because of the heavy financing and substantial experience that is required for their implementation.
Of course, this does not mean that these categorized as “not feasible” should be discarded at all. After the company gains some more knowledge about exporting in general and about the Swedish market in particular it might start looking for new opportunities which will give better results but at this starting point even a method which relies on periodic travels like the home based sales force is appropriate.
CHAPTER 5. CONCLUSIONS
All the four chapters above have the purpose of discussing very important issues which every company, no matter its size, have to face and make the right decision.
The first part of Chapter 1 presents generic theories mainly concerning major strategic issues – model of environmental analysis and courses of development for a company with regard to its markets and competitors. The rest of Chapter 1 reviews the theoretical base which can serve as an advice to Solid 55 on what decisions to make when considering important issues like foreign country-market analysis, market entry methods, success factors in export activities, etc.
Chapter 2 has the purpose of relating the actions of Solid 55 from the near past to the theoretical terms in Chapter 1 thus making it possible to observe the strategic routes the company has chosen to follow. This could give a sound base for making new strategic decisions in the present with results in the future. One conclusion that could be made from Chapter 2 is that Solid 55 has enough intangible resources to start planning internationalization and even realize some actual foreign sales. However, the tangible resource which are needed for the company to become a proactive and highly involved international player are still missing. There isn’t anything worse than the failure to fulfill an order coming from abroad for a company which is still inexperienced in the process of exporting. But higher capacity means bigger premises, more land and big investments. Solid 55’s management decided to take the risk of financing a big project through a loan. The project that would double the production capacity includes the purchase of the land where the new premises will be build. This will give another competitive advantage to Solid 55 over its competitors – according to an unofficial source only one of the firm’s rivals own the land on which to perform its activities.
No company’s future development can be planned through only looking into its own past. Instead, companies should turn to the territories of their action fields that are barely or not at all discovered and be the first among other industry participants to explore them. It is very probable that they will become the ones who will set new standards and new rules for the rest to follow.
Holding this in mind the managers of Solid 55 have been working on an unique product which is already on the market and is starting to give the competitors new and stronger “headaches”. This a luxury security door with a locking mechanism controlled either by a magnetic card or a mobile phone (ALTD). It is now perceived by many customers as excessive and unreliable but it in fact is going to replace the traditional locking mechanisms simply because of using long digital codes unbreakable by “old fashionable” burglars. The uniqueness of the ALTD makes it an item that is suitable for foreign markets.
That is why Chapter 3 initiates an international marketing analysis for Sweden as a potential market for the ALTD. The main limitation of this analysis is the use of secondary data only which does not give picture of the competitive environment in the potential host country. However, it gives answers to some questions and in my opinion it might be a base for further primary research actions. The end of this chapter makes the assumption that Sweden is a potential market for the ALTD and because of Solid 55’s short experience in international marketing, exporting and limited financial capabilities primary research could be performed in parallel to the first steps towards market penetration.
Chapter 4 has the purpose of presenting some main concepts concerning the possible ways through which SMEs might enter foreign markets. The discussion is related to the final part of Chapter 1 by clarifying the advantages and disadvantages of the methods which in my opinion are suitable for a company like Solid 55. The profile of the company as an exporter is related to the motivations and the capabilities it possesses. I have prepared a comparison table on the basis of all the factors mentioned above. It has the purpose of classifying the different methods into “feasible” and “not feasible”. The result showed that piggybacking and home-based own sales force are the ones that are both feasible and preferable. The main reasons for that was their relatively high levels of control (level of control in piggybacking is low but is higher than EMCs and trading houses) and high level of involvement in the process of internationalization. Another advantage of these methods in my opinion is that they could be performed simultaneously and independently of each other. Of course, there are disadvantages for both methods – for piggybacking this is usually the substantial bargaining power the “carrying” companies posses. For the home-based own sales force the main disadvantage are the high traveling costs and long training times if Solid 55 decides to hire inexperienced personnel. Both methods have one and the same disadvantage which is related more to the nature of the ALTD. It requires high levels of servicing at the installing stage and also at thr after sales stage because of the specific technical components integrated in it. A possible solution to this problem is the preparation of an exhaustive user’s manual or outsourcing the installation and after sales servicing to a local company.
Of course, not all threats could be detected before starting to implement a certain strategy and that is why Solid 55 should be flexible and be ready to counteract to unpredicted events.
Bibliography
JOHNSON, G., SCHOLES K. (2002) Exploring Corporate Strategy – Text and Cases, 6th Edition, Financial Times Prentice Hall.
LYNCH, R., (2000) Corporate Strategy, 2nd edition, Pearson Education Limited, Essex
JAIN, S., (1990) International Marketing Management, 3rd edition, PWS KENT Publishing Company, USA.
MUHLBACHER, H., DAHRINGER L., LEIHS, H., (1999) International Marketing – A Global perspective, 2nd edition, Thomson Business Press, London.
DOOLE, I., LOWE, R. (2002) International Marketing Strategy – Analysis, Development and Implementation, 3rd Edition, Thomson Business Press, London
CZINKOTA, M., RONKAINEN, I., (2002) International Marketing, Southwestern, USA
TERPSTRA, V. (1990) “International Marketing”, in DOOLE, I., LOWE, R., International Marketing Strategy – Analysis, Development and Implementation, 3rd Edition
Official documents:
Research Agency “ALPHARESEARCH” [online]:
Grant Application Form of Solid 55 for Technology Grant Scheme
Online sources:
“BUILDING AND ARCHITECTURE BULLETIN”, 2003, issue N10, p.
EUROSTAT [online]:
INTERNATIONAL TELECOMMUNICATIONS UNION [online]:
CIA [online]:
UK Home Office [online]:
Appendix A
Figure 1. Financial state of families according to family members
Source: Research Agency “Alpharesearch” [online] www.aresearch.org
Figure 2. Support for the present government of Bulgaria
Source: Research Agency “Alpharesearch” [online] www.aresearch.org
Appendix B
Details on the Ordinance on the Material Requirements and Evaluation of the Conformity of Construction Products:
Article 1 of the General conditions of the Ordinance describes its areas of regulation:
- The material requirements to constructions which define the technical requirements to the construction products;
- The general requirements for construction products to get to the market;
- Procedures and systems for evaluation of the conformity of the construction products (groups of construction products) with the material requirements to the buildings;
- The conditions and the order for issuing of permissions to persons who shall evaluate conformity with the material requirements .
What is of crucial importance for Solid 55 is the third area mentioned above. Part I from the 3rd Chapter of the Ordinance on the Material Requirements and Evaluation of the Conformity of Construction Products defines the systems for evaluation of the conformity of the construction products with the material requirements to the buildings. According to Article 20. (1) the possible systems for conformity evaluation are:
- Certification of conformity of the construction product by a person who has received a conformity evaluation permit on the basis of:
- manufacturer’s obligations – production control and testing of samples;
- conformity evaluator’s obligations – initial testing of the type of construction product , initial control (audit) of the production control, constant control (supervision), evaluation and approval of the production control and possibility for testing of samples picked up from production department, the market or the building area;
- Declaration by the manufacturer for conformity of the product with the material requirements on the basis of:
- first option - manufacturer’s obligations (production control and testing of samples) and conformity evaluator’s obligations (certification of the production control on the basis of initial control over the production control, constant control and approval of the production control);
- second option – initial product testing by a laboratory which has received a conformity evaluation and production control permission
- third option – initial testing of the type of construction product by the producer and production control.
What follows next are the processes and procedures which should be implemented in a company’s production process so that its products reach conformity. According to Article 28a.(1) from Part III of the 3rd Chapter of the Ordinance on the Material Requirements and Evaluation of the Conformity of Construction Products “manufacturers are obliged to implement a documented production quality control system. Manufacturers can draw a conformity declaration and put a conformity mark on the construction products only if they have a documented production quality control system which to prove that the products conform to the technical specifications.” (Source: “Building and Architecture Bulletin”, 2003, issue N10). Article 28a.(2) continues with that “the manufacturer is responsible for the organizing and effective application of the production quality control system. “(Source: “Building and Architecture Bulletin”, 2003, issue N10). The system consists of:
- Preparing of written procedures and instructions for production quality control in conformity with the requirements of the technical specification;
- Effective application of the procedures and the instructions;
- Records of the application of the procedures and the instructions as well as the results from performed tests;
- Referring to those records and results from the tests when correcting inconsistencies, analyzing the events of inconsistencies and when needed changing the production quality control system with the purpose of avoiding them.
(Source: “Building and Architecture Bulletin”, 2003, issue N10)
Legend for Figure 4. The Strategy Clock
Needs/risks
Note: The Strategy clock is adapted from the work of Cliff Bowman (D. Faulkner and C. Bowman, The Essence of
Competitive Strategy, Prentice Hall, 1995). However Boman uses the dimension “Perceived value”.
Appendix C
Table 1: Per capita volume indices of GDP in PPS
1995 – 2002**, EU15=100
Source: Eurostat [online]
Table 2: Personal computers
Source: International Telecommunications Union, estimates.
Table 3: Internet users
Source: International Telecommunications Union.
Appendix D
Chart 1: Per capita volume index at the level of total GDP
2002 preliminary results, EU-15=100
Source: Eurostat [online]
Chart 2: Use of a computer and the Internet in the 3 months prior to the survey, 2002 (%)
Source: Eurostat [online]
In my case the strategy presented will be for a single company and not for a business unit which is a part of a bigger organisation.
The legend is presented in the Appendix
Source: “Exploring Corporate Strategy – Text and Cases, 6th Edition”
International Marketing Strategy – Analysis, Development and Implementation, 2002, 3rd Edition
Source: “Building and Architecture Bulletin”, 2003, issue N10
BDS is an acronym for Bulgarian National Standards. First letters don’t coincide because this a quotation and Bulgarian words were used in the original text.
Most of the participants are 100 % privately owned and a big part of the information which will be presented is based on assumptions but these assumptions are on the basis of long experience that the company has in the industry under consideration.
Prices will be quoted in EURO for readers’ convenience. The exchange rate is 1.95583 BGN for 1 EUR – Bulgarian National Bank fixing
CNC is an acronym for Computer Numerical Control
It is an opportunity because Solid 55 will outperform them on the basis of correctness in relations with customers thus adding value
SME is an acronym for Small and Medium Enterprises
SMS is an acronym for Short Message Service
Includes attempts, preparation and conspiracy to commit an offence.
Includes burglary in non-domestic premises (e.g. shop, garage, hotel).