Strategy for Entry in the Swedish Market for Solid 55 Ltd

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Portsmouth University, UK

Final Project:

STRATEGY FOR ENTRY IN THE SWEDISH MARKET FOR “SOLID 55” LTD 

Mihail Velikov

Bachelor of Arts in Business Administration

Sofia

2004

I, the undersigned, declare that this project is my own original work, and I give permission that it may be photocopied and made available for inter-library loan.

14.05.2004

Sofia

Mihail Velikov,

Signature

Synopsis

The main object for discussion in this final project is a real manufacturing company called “Solid 55” Ltd. (Solid 55). It has been in the doors industry for about 12 years and is one of the first in it.

The discussion below will have the purpose of reviewing the company’s past and present actions by putting them into strategic terms.

The main focus will be on how the firm can grow and as it is obvious from the title above one way is through exporting its production. Of course, the routes through which Solid 55 reached the position from where to start considering internationalization will be first depicted.

What is crucial for successful export actions is the analysis of the potential markets situated outside of a company’s home country. The analysis presented below is based on secondary data mainly and is indicating that the country chosen is worth being analysed by primary means of research.

After having chosen the foreign market it is important to review the possible entry strategies and to pick the feasible options. Such a review combined with knowledge of a firm’s tangible and intangible resources will result in the choice of an entry mode that will best fit the company’s profile as an exporter.

Last but not least this final project will produce conclusions which will actually be suggestions to Solid 55 on how to begin its exporting actions.    

Synopsis iii.

List of Tables and Figures vii.

2.        The population 

3.        Segmentation of the market 

4.        Targeting 

5.        Problems and objectives 

Appendix B 

 

List of tables and figures

        Figure 1. The PESTEL framework

        Figure 2. Layers of the business environment

        Figure 3. The Strategy Clock

        Figure 4. The process of potential market assessment

Figure 5. Market entry methods and the levels of involvement in international markets

        Figure 6. Risk and control in market  entry

        Figure 7. Layers of the business environment for Solid 55

Figure 8. Relative market shares for Solid 55, Herazit, Ergon, Protecta and others

        Figure 9. SWOT Analysis for Solid 55

Table 1. Number and percentage change of acts of burglary for Sweden

Table 2. Number and percentage change of acts of burglary for Bulgaria

Table 3. Comparison of modes of entry in the Swedish market for Solid 55

CHAPTER 1.        THEORETICAL BACKGROUND

Solid 55 Ltd. is a market leader in the production and distribution of security and industrial doors. The company started its operations in 1992. Currently it produces several own brands of luxury and metal doors and cooperates with leading European manufacturers. Solid 55 is 100% privately owned and at the present moment is employing a total number of 60 people.

I find this description appropriate because it will give the reader a general idea of the direction of my final project. It will try to present some tools which could take a small manufacturing company on the way to bigger markets and prosperity after it has survived a strong and long recession on a national level.

This final project is based on some fundamental for contemporary business theories. The first chapter is discussing some major strategic issues that the company have already dealt with.

        1.        The environment, the company and its strategy

  1.       The Environment

One of the most widely spread tools for environmental analysis is the PESTEL framework. According to Johnson and Scholes (2002) environmental influences can be categorised into six main types: political, economic, social, technological, environmental and legal. What is important for the PESTEL analysis is that it should be focused on the future because one environmental factor might have a different impact than the one it had in the past. Here are the macro-environmental influences forming the PESTEL framework:

Figure 1.        The PESTEL framework

Political

Government stability

Taxation policy

Foreign trade regulations

Social welfare policies

Sociocultural factors

Population demographics

Income distribution

Social mobility

Lifestyle changes

Attitudes to work and leisure

Consumerism

Levels of education

Environmental

Environmental protection laws

Waste disposal

Energy consumption

Economic Factors

Business factors

GNP trends

Interest rates

Money supply

Inflation

Unemployment

Disposable income

Technological

Government spending on research

Government and industry focus on technological effort

New discoveries/development

Speed of technology transfer

Rates of obsolescence

Legal

Monopolies legislation

Employment law

Health and safety

Product safety

Source: “Exploring Corporate Strategy – Text and Cases, 6th Edition”

An important issue which has to be taken in consideration before applying the model above is that the factors object of the analysis should be chosen on one criterion: are they important for the company’s activity?

  1. Structural drivers of change

It would be a time consuming and even useless activity to analyse all of the factors listed in Figure 1 one by one. What would be proper is to pick those which are likely to affect the structure of an industry, sector or market (Johnson and Scholes 2002) or in other words the structural drivers of change. The analysis of the environment presented in Chapter 2 is focused on three factors only:

  • Government stability;
  • Globalization (it is a result from economic and political factors); and
  • Legal framework.

The first reason for discussing only these factors is that in my opinion these play the role of the most important structural drivers of change for the company under consideration. The second is that they are the most relevant to the topic of my final project.

  1. The Market

This section of Chapter 2 will have the purpose of discussing the markets in which Solid 55 is competing at the moment. Johnson and Scholes (2002) divide the business environment in macro-environment, industry, strategic groups, organisation, market and organisational field and organize them in the following layers:

Figure 2.        Layers of the business environment

 

Source: “Exploring Corporate Strategy – Text and Cases, 6th Edition”

It is obvious from Figure 2 that the markets in which a company is competing are much closer to it than the macro-environment which was discussed in the previous section. The latter could not be changed by a single player but the market (even the industry) could be affected by the participants in it. The description of the market will have the function to introduce the reader to the tools through which the company under consideration gained its market share.

        1.2.        The Strategy

According to Johnson and Scholes (2002) competitive strategy “is the bases on which a business unit might achieve competitive advantage in its market”. In other words this is a set of decisions related to prices, features of the product, additional services offered with the product, etc made in such a way that a customer segment is attracted to a company’s product and choose it instead of the competition’s products. Johnson and Scholes (2002) give an illustration on how companies may combine the set of decisions depending on the product type, environment and competition under the form of “Strategy clock”:

Figure 3.        The Strategy Clock

Source: “Exploring Corporate Strategy – Text and Cases, 6th Edition”

  1. The focused differentiation strategy – Route 5

A focused differentiation strategy seeks to provide high perceived value justifying a substantial price premium, usually to a selected market segment (Johnson and Scholes, 2002). The discussion of this issue is important because this is the route which Solid 55 decided to follow in the beginning of its activity and is presently following. It is also important to discuss another route that the company took when decided to enter a new market with a new to it product.

  1. The hybrid strategy – Route 3

According to Johnson and Scholes (2002) such a strategy “seeks simultaneously to achieve differentiation and a price lower that that of competitors”. It is claimed that such a strategy requires ability to understand what customers value the most and at the same time to have low costs which will permit the company to reinvest in sustaining differentiation. The authors describe the cases in which this type of strategy is most likely to succeed:

  • If much greater volumes than competitors can be achieved, and margins still kept attractive because of a low cost base;
  • As an entry strategy in a market with established competitors. However, in following such a strategy it is important to ensure that:
  1. the overall cost base is such that low margins can be sustained, and
  2. a clear follow-through strategy has been considered for when entry has been achieved.

Source: “Exploring Corporate Strategy – Text and Cases, 6th Edition”

I decided to discuss these two types of strategy because they represent the ways through which Solid 55 gained its present position on the market for security doors.

This position and the changes in the environment discussed above allow and at the same time motivate the company to broaden its field of action outside the borders of Bulgaria. Chapter 3 and Chapter 4 of this final project will discuss the main issues which a company willing to penetrate international markets must deal with.

  1. International Marketing Analysis

2.1.        Definition

Jain (1990) suggests that “because not all of the world’s economies operate at the same level of efficiency, it is necessary to form a clear idea of the economic situation of a particular host country in order to develop an appropriate marketing strategy.”  Further on the author divides economic situation into macro and microeconomic environments. Chapter 3 below will analyze only the macroeconomic environment of the proposed host country.

The analysis will stop up to here because of the situation into which the company under consideration is. It is still in the beginning of its exporting activities and the secondary data on which the whole analysis is based has the purpose of pointing one country which is worth further analyzing but on the basis of in-depth primary data. (Source: Jain, S., 1990)

  1. Structure

Figure 4 below will give the structure of the research and its scope.

Figure 4.        The process of potential market assessment

Source: Muhlbacher, H., Dahringer L., Leihs, H, 1999

The research presented in Chapter 2 is based on secondary data only and the dotted line in the figure above sets its limit.

  1. Strategies for entry in a foreign market

  1.         Motivations to internationalize

Czinkota and Ronkainen (2002) divide the motives in two main types: proactive and reactive. The major proactive motivations of small and medium-sized firms are the following:

  • Profit advantage;
  • Unique products;
  • Technological advantage;
  • Exclusive information;
  • Managerial urge;
  • Tax benefit;
  • Economies of scale.

Chapter 3 will discuss all of them except for technological advantage, exclusive information and tax benefit simply because I do not find them relevant to Solid 55’s incentives driving it to internationalization.

And the major reactive motivations for internalization are:

  • Competitive pressures;
  • Overproduction;
  • Declining domestic sales;
  • Excess capacity;
  • Saturated domestic markets;
  • Proximity to customers or ports.

The only form of motivation that I am going to discuss in the respective chapter is the reaction to competitive pressure. It is described as the “… fear [of] losing domestic share to competing firms that have benefited from the effect of the economies of scale gained by international activities.” (Source: International Marketing, 2002, Czinkota, M., Ronkainen, I.) 

  1. Exporter profiles

According to Czinkota and Ronkainen (2002) firms can be categorized according to the stage at which they are on the way to internationalization. They describe six different stages:

  • Stage 1: The completely uninterested firm;
  • Stage 2: The partially interested firm;
  • Stage 3: The exploring firm;
  • Stage 4: Experimental firm;
  • Stage 5: The experienced small exporter;
  • Stage 6: The experienced larger exporter.

I am going to discuss only the second stage from the ones mentioned above because this is where Solid 55 is situated at the moment. Czinkota and Ronkainen (2002) gave the companies at this stage a profile according to which most of these firms have an annual sales volume below € 2.5 million and fewer than 100 employees. The current average annual export volume is below € 100 000, which is sold to fewer than ten customers. One-quarter of the firms have actively sought their first export order. Management knows that the firm has exportable products. Management tends to believe that exporting may be a desirable activity and undertakes some exploration of export possibilities. The main motivations are a unique product and profit advantage.

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  1. 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.

  1.      Alternative market entry methods

These methods are shown in Figure ...

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