Market Entry Strategy Paper Final Essay
THREATS – Inverter’s name could be misleading to consumers as it does not suggest the product’s other uses Strengths Never Is a multi-purpose product that has a variety of uses Including anta; corrosion, self-cleaning, and a many industrial uses. Since Never is such a versatile product that can be used in many deferent ways, it has the potential to be quite successful in the Saudi market. Weaknesses Never is primarily a water repellent, and annual rainfall In Saudi Arabia Is very low, so this may contribute to, and be the cause of, low sales in the market.
Opportunities As the oil industry is booming in Saudi Arabia, Never would prove to be very useful for workers who wish to keep their shoes looking new. Further, It can be used as a rust and corrosion repellent Threats As the name suggests, Never Is a liquid repellent, which may be misleading to consumers as they may think that it is only used as a water repellent. Target Consumer The ideal consumer of Never is general laborers. According to the word bank, Saudi Arabia last measured a labor force of 9,558,815 people in 2010.
This is an extremely large consumer group. Since Saudi Arabia has
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Target Market Currently, the economic situation in Saudi Arabia is good. In 2011, the Saudi Arabian gross domestic product (GAP) amounted to $576. 8 billion, an increase of 6. %, actually a record high. Inflation was at 4. 7%, compared with 5. 3% in 2010. While revenue skyrocketed to $296 billion, an increase of 50 percent, the highest increase of nearly 10 years. Spending on the other hand measured $213. 6 billion, an increase of 25%. Overall, there was a fiscal surplus of $82. 4 billion. Saudi Rabbi’s total imports measured $176. 7 billion, a surge of 1. 4%. Based on the World Bank and the International Financial Corporation report, the investment environment in Saudi Arabia is also improving; in 181 countries worldwide, the Saudi commercial freedom inked twenty-three in 2007 and has since risen to number thirteen as of 2009. For global trade and logistics, Saudi Arabia has a great geographic location. This is conducive to reaching the large market this country has to offer, as well as neighboring countries. This data illustrates that Inverter’s entry in the Saudi Arabian market possible.
Competitor Analysis Currently, there are no other products which are even remotely similar to Never available on the market in Saudi Arabia. Never is faced with a true lack in competition. However; should we hesitate to bring Never to Saudi Arabia, we old lose our first mover advantage. First mover advantages include: capturing market share without worrying about competitors trying to seize the same customers, when rivals do come, the first mover has advantages such as known products, brand loyalty, as well as up-and-running distribution systems over the competitors.
In the US however, competing products do exist such as Illiquid and Ultra Ever Dry. Yet the competition is not having nearly as much success nor appeal to consumers as Never does. Based on customer reviews, the two other competing products come with higher price tags and lower performance than that of Never. At Just $20 for the two step process, Never has a clear advantage over its competition.
Product Ultra-Ever Dry -repels almost any liquid; keeps objects dry and water-repellent -the coating resists abrasion and corrosion -extends life of products -price; base coating retails at $129 and top coating at $290 -liquid form of the product emits powerful amounts of fumes -many safety precautions necessary; nitrite gloves and IIOP rated respirator -cannot be used indoors Illiquid -claims to waterproof electronic devices -the demand is great for such products -shipping is covered both ways by the company provide a five-point tracking procedure to alleviate worry about the location of phones -requires phone to be sent into the company -only available for certain phone models -prices start at $59; additional $10 for rush orders and $10 for a film protector against scratches Objectives The main objective of Rust-ileum is to launch Never spray in the Saudi Arabian market and make it a successful product. The stakeholders of the company wish to sell Never profitably in Saudi Arabia. Rust-ileum is based out of Canada. It manufactures Never spray in Canada, and it has extra capacity to manufacturer ore Never spray there and then supply the product from Canada to Saudi Arabia. Another option is to create a small production plant in Saudi Arabia and produce Never there. However, the management is unsure about the sales volume of the product and also the product life cycle. So it wants to import Never from Canada and sell in Saudi Arabia.
When first launched in the United States, almost 500,000 Never twin packets were sold in the first year of Inverter’s operation. Saudi Arabia is 10th in terms of the population size of USA, and the average middle class income is less by almost 2. % compared to that of USA (World Bank 2014). Assuming Never will appeal the same way to the Saudi people as it did in USA, we expect to sell 20,000 packs of Never in the first year of operation (500,000/ (10*2. 5). However, based on our past experience with other innovative products, we have seen that the maximum growth takes place in the second year of a product’s launch. We assume a growth of 100% in the second year and a 50% growth in the third year.
The 4th and 5th years are expected to see a growth of 20%. As we will be dealing with two currencies, we will be using dollars as the common runners for all costs. The cost of production of a twin pack of Never spray is $3. The product will be shipped from the Canadian production facility to Riyadh via air cargo. UPS, Faded and other international air cargo have rates between $1. 0 and $3. 0 per Keg. One twin pack of Never spray weighs around 0. 5 Keg. Taking the average air cargo price of $2. 0, the per packet cost will be $1. 0 (Arthur 2010). The import duty for innovative technological product is low in Saudi Arabia. In fact, it $25 per packet.
So the import tariff will be $2. 5 per packet (World Bank 2014). It is expected that the average price will not go up in the next 5 years. In fact, it is feared that it may come down. Most of the input cost will see a 5-10% yearly rise. Never will spend around $50,000 for the marketing and promotion efforts in Saudi Arabia almost every year. Only, for the first year it has a budget of $100,000 earmarked for marketing. Other fixed costs including salary and the warehouse rent in Riyadh will cost around $200,000 per year with a yearly cost increase of 5%. Based on all the assumption and costs, the projected income statement for 5 years is as follows: Revenue from Never
Year 1 Year 2 Year 3 Year 4 Year 5 Price per unit 25. 00 Number of Units Sold 20,000. 00 40,000. 00 60,000. 00 72,000. 00 86,400. 00 Revenue from DVD Sales 500,000. 00 JAZZ,oho. O 3. 00 3. 15 3. 31 3. 47 3. 65 Cost of Transportation plus import Duty 1. 00 1. 10 1 . 21 1. 33 1. 46 Import Duty 2. 50 Cost of Storage in Saudi Arabia 0. 10 0. 11 0. 12 Cost of Transportation in Saudi Arabia 0. 50 0. 55 0. 61 0. 67 0. 73 Total Variable Cost 142,000. 00 296,200. 00 463,965. 00 582129. 90 731308. 55 Operating Income 358,000. 00 703,800. 00 Fixed Cost of Marketing 100,000. 00 50,000. 00 Other Fixed Cost 00,000. 00 210,000. 00 220,500. 00 231 ,525. O 243,101. 25 Total Fixed Cost 300,000. 00 260,000. 0 270,500. 00 281 ,525. O 293,101. 25 (158,000. 00) 36,200. 00 193,465. 00 300,604. 90 438,207. 30 From the table, it is clear that the company will be able to make profit from the second year onwards. The main challenge is to sell 20,000 packets in the first year and 40,000 in the second year. To do that, Rust-ileum needs to find out the target customer segment and reach out to those customers with its product effectively. More detailed discussion of the target market and customers is given below. Market Entry Strategies With a target foreign market has been selected, the company must consider choosing the most suitable market entry strategy.
There are four major different methods, we will briefly interpret these methods and then find out the most adaptable strategy for this company. Branch Offices Branch offices are another foreign direct investment (FAD) entry strategy. It is the first step in establishing presence in foreign. It can help a company to gains a foothold and to acquire valuable information about the foreign market dynamics, customer references and product suitability. Retail outlets create a network on behalf of the parent company. It not only can be totally owned and operated by parent company or by dealerships, but also gives parent company direct control over the whole distribution chain and in direct contact with its customers.
However, parent company is directly responsible for hiring and training sales staff, managing inventory as well as operations. Although this strategy is a simple way to entry foreign market, it is very expensive and consuming time, the company has to assume liability for everything in the striation chain and some issues relative to fulfilling legal and tax requirements. Joint Ventures Joint ventures are a tightly coupled form of strategic alliance as well as a form of foreign direct investment. The partnership constitutes a separate business entity from the parent companies, and it is formed for a specific business purpose and for limited duration.
It requires each participant company has to invest property, skills or finances, and shared profits and risks. Access to distribution channels and obtain greater volume sales. However, it also has many disadvantages. It must require companies spend more on managing relationship, to deal with conflict of interests; worries about partners will be a potential competitors because using common strategies. If the company wants to chooses this method, it should considers these conditions, goals, size of company, time, resources, product or service, remittance, intermediaries, control, investment, flexibility and risk. Licensing Licensing is a kind of transfer related market entry strategy.
A licensor grants permission to licensee using its intellectual property for a defined period of time, and n return for this permission, licensee should give fees and periodic royalty payments. The intellectual property includes patented manufacturing processes, trademarked products, technical assistance and copyrights. It is an extraordinary method for to enter a target market, but it requires a company has valuable intellectual property. The advantages of licensing are: immediate market entry, decreased risk of R&D (research and development) failure, licensor company can move into several markets at same time and capital is not tied up in foreign operations.
Nevertheless, licensing sacks of international marketing experience and creates new competitor. If a company wants to use this way, it should considers these conditions that are similar to Joint ventures. Sales Agents Sales agents, who specialize in a particular industrial sector or product line in a defined field, and they represent non competing clients within this specialty. They are representative, but they only empowered to enter into sales agreements on behalf of the exporter, they neither guaranteed to sell goods nor take any responsibility for goods shipping or safe arrival at the destination. Usually, an agent wrought network communicates with buyer, if the deal has been negotiated, agent will informs the exporting company.
The exporting company supplies the goods, and according to the terms that have been arranged to invoices the customers directly. Different country has different agreement between agents and exports. When customer pays the exporter, an agent will receive the commission. A suitable agent can assist exporting company gets higher profit, but unsuitable agent may be damage the company’s reputation. According to Saudi Rabbi’s various situations, we believe that a use branch office is he most suitable entry strategy. There are several reasons illustrate why we use branch offices strategy. Firstly, it is a relatively simple method to establish in a target country.
It can enter into Saudi Arabia rapidly because it is foreign direct investment, and we can obtain some advantages in this country, such as location advantages, initialization advantages and ownership advantages. Secondly, it can collect useful intelligence about this new foreign market. From this valuable information, we can customers’ behaviors. Thirdly, it overcomes most market barriers. It is a good way to avoid some market arises because we have a retail chain after establishing branch offices. Particularly, it resolves tariffs issues that importing our products to Saudi Arabic is so expensive. Moreover, although establishing branch offices in foreign country, the parent company still have complete control.
For example: how to position its products, advertising, marketing and selling. Finally, the government also encourages and welcomes foreign company investments in Saudi Arabia. This point is so important and beneficial for us to invest in this country because it will make procedure becoming easier and simpler. Ultimately, that is why we have chosen to use the branch offices strategy to enter in Saudi Arabic. Target Market Three major sellable features of Never are its anti-wetting, anti-icing and anti- corrosion qualities. However, with over 70% of Saudi Arabia being desert, the average rainfall in the country is very limited. Winter is so mild that there is no chance for icing to be formed in Saudi Arabia.
These eliminate the major two sellable factors for Never. The anti-corrosion property, however, has the potential to be received well in the Saudi Arabian market. The major industry in Saudi Arabia is based on oil, and Hereford, most of the tools used for machining, drilling and other purposes in the oil industry are corroded by constant exposure to oil and water and require replacement after few usages. Never not only has hydrophobic property but also involves oleo phobic property (Never 2010). This means that giving the tools and machines used for oil production a coating of Never will ensure a longer life as the chances of corrosion will become minimal.
Another industry that can benefit from the use of Never is the power industry because the transformers and HAVE lines used in this industry can be protected room exposure to water and oil through a coating of Never. This will also prevent potential damages and short circuits issuing from such exposure (Never 2010). In order to enter this industry, Never can directly approach the Saudi Arabian government with its product features as the main target customer is the government. It also can make approach towards the tools and part manufacturers with the same purpose. The general consumer market is another segment that can be penetrated by Never and that has the potential to increase the brand visibility.
Shopping being en of the most popular forms of entertainment in Saudi Arabia, Never can initiate its operation right from the shopping malls. Attire coated with Never will certainly appeal to a great many people. During the scorching summer months, most of the people sweat, and the clothes saturated with sweat often smell foul, but if a coating of Never can be applied on the dresses, then they will neither soak sweat nor will have any dust to settle over the surface. This means that a dress will require period of time. Same way shoes with Never coating can also be launched to the neural population (Fingers 2013). In both the cases, the target population can be anyone from young to old.
Oil and construction industry and its subsidiaries are the primary target segment for Never. However, the product that is launched by Rust-ileum focuses mainly on anti-water based application. While developing the product features, the properties of water and how the product can function in a mist and water based environment were taken into account (Never). In the oil industry in Saudi Arabia, the Never coating is expected to work in the same way against oil as it does against water. Rust- Ileum must try to improve its product features so that Never works on oil too. Furthermore, most of the applications that have been tried and tested with Never are all non-industrial by nature.
The Never coating is likely to face harsh conditions in the oil industry. The current product of Never has only been tested on steel for the construction related applications (Never 2010). Rust-ileum needs to do some further research and development to enhance the capability of the current product so that Never is capable of delivering outstanding results under harsh industrial conditions as well. For general use like Never shoes and never- sweat apparel, the product characteristics look promising enough of delivering the desired result. Therefore, no change in the product is required for this segment. Two kinds of approaches can be employed by the company to enter the segment.
The first approach involves Rust-ileum trying to sell Never separately in the market and tell the customers that the product can be used for making apparel and shoes permanently dry. Another approach would be Rust-ileum’s collaboration with apparel makers and shoe makers to design Never products and sell them in the arrest. Promotions The marketing objective of Rust-ileum is to reach all the target customer segments efficiently and become the number one solution provider for water repellent product segment. The company also aims to become the number one brand in the water repellent coating product segment within 2 years. The main purpose of the promotional campaigns for Never would be to create an awareness and reputation for the product among the targeted customers and eventually increase the market share.