International business Essay
The HG company has been in existence for over half a century and is on a mission to expand its markets into the foreign world. in the wake of these developments, it still has to evaluate the prospects of the profitability of carrying out this mission. This, it does, by carrying out a SWOT analysis on itself, and also by analyzing the macro environmental factors that exist in the new potential market. This paper therefore carries out this analysis to determine the profitability that the HG company may accrue from extending its branches into Saudi Arabia.
Introduction to the company.
The HG (Hi- Glitz) Chemical Company produces the HG branded chemical cleaning products that are used for cleaning purposes. In this case, these cleaning products are in the form of powder and liquids, and can be used for cleaning both household and office equipments. These chemicals hare also used for cleaning and purifying purposes in the hospitals and other health care centers. The HG chemicals have been known to be used as neutralizers foul smell, bins and oven cleaners, carpet cleaner, chewing gum cleaner and remover, dirt repellent, drainage cleaner, leather cleaner, glass shiner, grease remover, insect repellent and catcher,
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The HG chemical company is environmentally friendly due to the fact that its chemical products does neither deplete the earth’s vegetation cover upon dumping, nor does its manufacturing company emit a lot of carbon in the course of operations. It is on this backdrop that the United Nations Environmental Program (UNEP) recognized the HG company in its 2003 Annual Environmental Awards as one of the most environmentally friendly manufacturing companies (Hill, 2004 pp. 120). In addition to this its chemical composition is gentle to the human skin, its products cheap, and has a unique brand that distinguishes it from the rest of its competitors. The strength of these wide range of products come from the fact that it has a large industrial and market base in Europe, while at the same time, it produces products that have a wide range of use.
On the other hand, the HG chemical company has been faced by a lot of problems in the sense that it is now suffering serious financial setbacks that have been traced to the high expansion programs and growth rate that it has been carrying out. In the same wavelength, this chemical company has a problem in the sense that it has difficulty consolidating its market base in Western Europe due to the fact that it does not have appeal that can be considered formidable enough to ward off competition from the rest of the competitors.
The strengths that this company has is that there is an increasing awareness about the environmental preservation. This is because the company produces cleaning detergents that are environmentally friendly. More accruals are bound to come in, due to the fact that the UNEP is making strident measures to have governments give priority to products whose industries are less pollutant. This ensures that these companies are accorded with lower tariffs and taxation in comparison to their counterparts that are not environmentally friendly.
The threat that the HGF chemical cleaning manufacturing company faces is the fact that it has a big problem shifting its market base and activities due to the fact that some countries have hot climatic conditions and are not conducive to the HG chemical cleaning company, following the flammable nature of its operations and raw materials. In the same vein, the company faces stiff market competition from locally manufactured products.
Reasons for entering the the foreign market now.
Saudi Arabia has a big but untapped market that has very few providers of chemical cleaning products. The fact that there is a total population of 2.7 million inhabitants mean that there is already a huge market in Saudi Arabia for the HG chemical cleaners company. The prospects of the marketability of this company is seen in the fact that most of Saudi Arabia’s exports is in the form of petroleum and petroleum products, which are exchanged for chemicals and machinery. This means that there is a dearth of industries that manufacture the cleaning chemicals in Saudi Arabia. This translates into minimal competition for the HG company.
The economic and political situation in Saudi Arabia.
Saudi Arabia is the most ideal country for HG Company to venture into, due to the fact that it has a low annual inflation rate of 0.4% (Vaghefi, 1991 pp. 90). A low inflation rate ensures that the local currency, the Riyal is strong enough, and therefore equips the population with a strong purchasing power. Apart from the fact that the Riyal is a strong currency, the Saudi Arabian economy is stable, and this being manifested by an average of of annual growth in the GDP by 6.5% since 2005 (Wall and Rees, pp. 132).
The fact that this country has a plummeted rate of unemployment of 13% is good news to the HG chemical company due to the fact that this percentage is not big enough to debilitate the security situation of the country (Luo, 1999 pp. 75). In another wavelength, this percentage will also accord the HG Company subsidiary with available labor. Security and labor are very instrumental factors for business stability.
Saudi Arabia has also been a very close ally and trading partner to the US, Germany, South Korea, and China. It is on this backdrop that the US- Saudi Arabian International trade Agreements were ratified and have been consolidated since then. This ensures that the flow of capital between these two countries enjoy very minimal taxation rates, or are exempted from taxation. HG chemical company is likely to benefit from these relations due to the fact that its products are to be exempted from the imposition of conventional rate of taxation (Baker, 1993 pp. 100).
Apart from the stable situation in Saudi Arabia, the HG chemical company is bound to benefit from the fact that the country is politically stable, and has adopted a neutral stand on matters that bedevil international relations, matters such as Islamic fundamentalism and terrorism. In the same vein, the country will accord Saudi Arabia with a very peaceful and orderly market due to the fact that this country practices and observes the Sharia Law which is very deterrent to crime, following its punctilious nature.
Entry points and marketing strategies.
The HG chemical company should choose exportation as an entry point into the Saudi Arabian market. This is because, it cannot choose licensing and franchising due to the fact that it has already too distinct technological and methodological stance to borrow or procure ideas on these from other companies. Exporting the materials at the initial stages of entering the market will be expedient due to the fact that Saudi Arabia has a dearth in chemical and technological resources (Orsino, 1994 pp. 120).
On the other hand, the HG company has to first enter the market through the urban market. This is because market segmentation points at the middle and the upper class in Saudi Arabia as the primary buyers of the chemical cleaning products. Penetration into the rural areas can be done later and in phases after that the urban market has been established.
Baker, James. International business expansion in Saudi Arabia.
Michigan: Haworth Press, 1993.
Hill, Charles, Competing for the global market: international business.
New York: McGraw Hill, 2004.
Luo, Yadong. Entry strategies in international business.
Colorado: Greenwood Publishing Group, 1999.
Orsino, Philip. Business expansion: successful strategies and planning.
New York: John Wiley and Sons, 1994.
Vaghefi, Mohammad. Theory and practice of international business.
New York: Taylor and Francis, 1991.
Wall, Stuart and Rees, Brown, Saudi Arabia: International business.
New York: Prentice Hall, 2004.