Internationalization Process of Firms from Developing Country Assignment Sample
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Subject Name : Management
Global Business Environment
International expansion is an effective way to manage the growth of the organization. Through global entry modes, Cacao 70 can manage expanded growth opportunities in different markets. UAE is the target market for the organization to analyze effective successful opinions. Five common global entry modes are licensing and franchising, acquisition, exporting, venture and partnering and strategic alliance (De Villa, Rajwani and Lawton 2015). Each entry mode comprises of different advantages to promote business effectiveness. For the diversification plan of Cacao 70, global entry modes are considered as effective. It is aligned with the desired goals of business expansion in the UAE market. The chocolate industry is an effective industry that promotes immense opportunities. Major global entries for the organization can be based on trading and import-export opportunities. All the global entry modes can be described through their importance and relevance (Gollnhofer and Turkina 2015). Exporting is the easiest technique to expand in the international market. Most of the firms adopt this model to expand in the international market and promote outsourcing from the home country. It helps the organizations to avoid business operations and managing production in the new country. Distribution and selling in the new market work through a local company or distributor that works with appropriate labelling, pricing and packaging that suits the new market (Ali and Ahamat 2018). The major disadvantage of this entry mode is the cost available in the transportation of products from one country to another, it can affect the operational environment of the organization and promote high costs in the new market. High tariffs on the imported goods can be identified in UAE that can affect this entry mode. While low exportation cost can promote this facility in geographic locations (Gollnhofer and Turkina 2015).
Licensing and franchising is an effective trading option for entry in the new market. It can help to begin the business in the new location and allow another company to sell the products. Another person can charge some fees to sell the organizational products and services in the new market (Ali and Ahamat 2018). Cacao 70 can use licensing and franchising to develop a new customer market in UAE by receiving a fee from another individual or company to use the brand name and sell products. Partnerships and strategic alliances are considered an effective entry mode in the global environment that works through a mutual contract agreement. To achieve a common purpose, two organizations make an alliance approach to collaborate with the purpose of earning revenue and manage a valuable partnership (Ali and Ahamat 2018). It can be used by Cacao 70 by partnering with another company that works in the domestic environment of the UAE. It can help the organization to manage the business locally and perceive an effective business value. Whereas it can affect international business goals as it can be possible that another company can seek different goals in the business. The acquisition is an effective model for trading in the global environment (De Villa, Rajwani and Lawton 2015). Cacao 70 can acquire a company in the domestic market of the UAE to maintain a quick establishment in the country. This strategy can help to manage the new strategies and work as a branded product. Cocoa 70 can seek for several options that can help the organization to manage barriers in the international market and adopt suitable strategies. Import-export and trading are considered as the most appropriate techniques of business that can be applied in the organization (Gollnhofer and Turkina 2015).
Hofstede's model of cultural dimensions reflects the influence of culture in the workplace (Beugelsdijk, Kostova and Roth 2017). Through collective programming, individuals seek for effective national culture. With the business expansion in the UAE market, the major issue of culture can affect the organization. Different dimensions of national culture are presented in Hofstede's model which represents independent preferences that are distinguished from other individuals. The major dimensions of culture are individualism, small power distance, masculinity, indulgence, long-term orientation and high uncertainty avoidance (Beugelsdijk, Kostova and Roth 2017). Each dimension represents the requirement of different cultural background that can affect the business operations of the organization. The individual values are based on diverse cultures and their potential behaviour (Kristjánsdóttir, Guðlaugsson, Guðmundsdóttir and Aðalsteinsson 2017). Six cultural dimensions are:
Power distance: This dimension of culture is based on the powerful values of individuals in society. It expects the distribution of power can work as unequally in the organizations. Cacao 70 can manage small and high power distance to control social acceptance in the nation.
Uncertainty avoidance: This dimension represents the extent to which individuals can affect the organization in an uncertain manner. Cacao 70 can manage the organizational values and structure through effective strategies (Kristjánsdóttir, Guðlaugsson, Guðmundsdóttir and Aðalsteinsson 2017).
Individualism vs collectivism: The focus of this dimension is based on the individual preferences of individuals and their collected network. Through societal preferences and value development, Cacao 70 can manage business values (Beugelsdijk, Kostova and Roth 2017).
Masculinity vs. Femininity: Societal preference can lead to successful achievements. Masculinity prefers material award, assertiveness and heroism while femininity focuses on quality of life, modesty and cooperation. UAE is focused on masculinity preferences thus the organization needs to maintain effective material awards strategy (Kristjánsdóttir, Guðlaugsson, Guðmundsdóttir and Aðalsteinsson 2017).
Indulgence vs. restraint: The degree of involvement in society represents the desires of individuals. A detailed study about the culture of UAE can help to understand the strategical forces for effective operations (Beugelsdijk, Kostova and Roth 2017).
Long-term vs. short term orientation: It defines the inclination of the society towards the virtue of absolute truth. Cacao 70 requires long term and short term strategies that can manage the risk in the global environment.
With the entry of Cacao 70 in the UAE market, different structure of the organization needs to be followed by the company. Corporate governance is influenced by globalization through the available policies and procedures (Kristjánsdóttir, Guðlaugsson, Guðmundsdóttir and Aðalsteinsson 2017). The style of management needs to be based on the available resources and their culture. The individual values affect the leadership style and functions of the business (De Villa, Rajwani and Lawton 2015). Corporate culture is based on the individuals, thus the organizational culture is affected by the leadership style and individual values of the employees. Legal and political institutions define the regulations and laws that are necessary to be followed by the organization in the nation. The operations in the UAE market impact the organizational culture, values and structure through its cultural dimensions. It affects the organization through cost, prices, technological adaptation, quick production, target market and quick response to the customers to enhance market share (Ali and Ahamat 2018).
UAE is working towards the strategic plans and vision 2021 to meet the challenges of climate change and energy. The sustainable development goals help UAE to seek for sustainable actions. Through protecting rich biodiversity, it prevents the threatened species. With the creation of nature reserves, it works towards the protection of environment and wildlife in the country (Khan 2016). Ethical and sustainable considerations in business are necessary to attain effective outcomes and maintain future goals. The three aspects of sustainability are environmental, social and economic. To address these aspects, an organization require effective management practices that can work for the effectiveness of the nation. UAE is focused on sustainable practices in the nation to protect the wildlife and maintain the nature of the environment. Federal Law No.22 of 2016 regulates the trade and possession of dangerous and semi-dangerous animals (UAE 2020). It focuses on the exotic and wild animals to be kept by zoos, wildlife parks, breeding, research centres and circuses (Khan 2016). A license is required for managing pets. Voluntary activities are concentrated on animal protection and managing awareness campaigns. Preservation of plans and species is necessary to ensure the protection of wild animals and natural habitats. UAE government is working in collaboration with the United Nation to work with sustainable goals (UAE 2020). Sea dumping and pollution also raises concern for the government that affects marine life. The ecosystem of the region is based on the lives of marine animals. The protection of the coastal environment and marine lives are beneficial. Reduction in the use of plastic waste is useful for the nation to manage a culture of recycling and reuse. Sustainable practices in the community are based on the policy of single-use plastic bags as established by the government of Abu Dhabi (UAE 2020).
Corporate social responsibility (CSR) is based on commercial activities that are necessary for environment protection. Sustainable development approaches for greener economic growth and enlightens the society for better opportunities (Khan 2016). Businesses in UAE are based on responsible corporations that provide a commitment to working in a sustainable manner. For the long term growth in the business, corporate responsibility needs to be maintained by the business corporations. Financial transparency, environmental impacts, responsibility and accountability in the organizations are necessary to be maintained to meet the challenges of environment and economic goals (Khan 2016). Fulfilment of ethical and sustainable considerations helps Cacao 70 to establish an effective business in the country and maintain responsibilities towards the society and the environment (UAE 2020). Effective actions maintain the legal requirements in the business and promote business success. Anti-discrimination policy, consumer policy, community relations, environmental policy and work-life-balance affects the operations of the organization. Effective corporate social responsibilities in the environment lead to maintain the environment and fulfil the needs of the nation. Environment management promotes a positive outcome for the financial and non-financial performance of the nation. Companies implement CSR practices to maintain governmental support, fulfil a common guideline and manage independent verification. Sustainable investment helps societal improvement and encourages organizations to attain effective outcomes with business success (Khan 2016).
UAE government is concerned with the sustainability, environment and corporate social responsibilities. For social development and care in the economy, UAE focuses on several responsibilities that are needed to be followed by the organizations. Ethical and sustainable considerations for Cacao 70 are based on the operations of the organizations in the UAE market (UAE 2020). Cacao 70 can promote several initiatives for ethical and sustainable considerations in UAE:
Social development and caring: Cacao 70 can focus on social development to attain sustainable development in the organization. It helps to enhance the organization in the eyes of society. Through care towards society, consumers attract for the company. Sustainable initiatives help the organization to maintain social development that promotes the growth of the organization. Honest and trustworthy responses promote business values and maintain the organization as a responsible company (Khan 2016).
Social responsibility and supporting: Fulfilment of social responsibilities helps the organization to maintain effectiveness in society. A responsible organization helps in social development. Economic development is based on the social responsibility of the organization. Cacao 70 can maintain financial transparency in the organization to promote social development and enhance individual development goals. Concentrating on the health and safety of individuals, help to maintain effective procedures in the environment (Khan 2016).
Reciprocity and fair play: Without cheating, bullying or lying, an organization can play fairly in the market. It enhances the business operations of the organization. For business success in the UAE market, Cacao can focus on corporate social responsibility strategies that can enhance business operations through transparency and fair operations. The reputation of the business increases with ethical practices and leads to a rising share price.
Fairness: Fair practices in the organization are based on equity and honesty. Equal treatment and opportunities in the organization help to motivate employees and enhance business operations. Through moral and justice, responsibilities in the organization enhance that promotes effective operations in the UAE market. Cacao 70 can focus on equal treatment of employees and customers in the organization to promote effective employment conditions. It is effective for social development and managing social responsibilities (UAE 2020).
Truthfulness: Financial transparency can be seen through trustworthy financial reports and policies that can promote societal development. Sustainable practices are based on trustworthy and fair practices of the organization. Through moral values and managing social development, a positive framework can be developed by the management (Khan 2016).
Business ethics and sustainable initiatives promote effective business operations. For sustainable development in the UAE market, Cacao 70 needs to focus on fair, honest and equal treatment of employees that can lead to social development. Corporate social responsibilities also are fulfilled by the organization. Sustainable practices promote environmental, economic and social effectiveness. Cacao 70 needs to maintain sustainable practices through different strategies and possible efforts (UAE 2020).
Cacao 70 can focus on different entry mode strategies with its diversification plan. Comparison in different entry modes can help the organization to evaluate an effective entry mode. Most suitable entry mode allows the organization to maintain sustainable efforts and leads to business success. Diversification plan of Cacao 70 is based on the addition of new products that can enhance business operations and leads to core business. It helps to minimize risks in the business. Horizontal diversification is used by Cacao 70 to ensure business operations. It helps to minimize risks in the investment in a specific time (Mittal 2018). The major modes of entries can be compared are follows:
Import-Export: Exporting is the simplest way of entering into the international market. It involves direct export and import in different markets (Mittal 2018). Direct exporting is considered as direct sales that fulfil the potential demand of overseas consumers. It minimizes the risk of big investment in the overseas market. An effective strategy allows protecting against tangible assets. Although it is a high cost-based strategy that promotes additional transportation costs. It affects the organization through low control over the environment (Gollnhofer and Turkina 2015).
Licensing and Franchising: To establish the retail presence of the organization in the overseas market with the minimized risk, licensing and franchising are considered as most effective. With a licensing agreement and franchise, the individual or organization can pay a significant amount as royalty to use the brand name, products, manufacturing process and intellectual property rights (Mittal 2018). It helps to reduce the risk and share a specific proportion of profit. This is a low-cost entry in the international market that offers a passive income to the organization. Potential risks can also be reduced through franchising partner and allow minimal investment with brand popularity. It can lead to exercise complete control over the business with a similar manufacturing process (Gollnhofer and Turkina 2015).
Joint Ventures: It is known as the most preferred mode of entry in the global business that does not require sharing of knowledge, brand or expertise. By forming a joint venture with the local business in the UAE market, Cacao 70 can reduce the risks in the business and share a proportion of loss and profit in the market. It is suitable in some countries where a hundred per cent of foreign investment is not allowed. Although it can lead to cultural differences as both partnering firms belong to different cultural beliefs (Mittal 2018).
Strategic Acquisitions: Through the strategic acquisition, an organization can acquire control over an existing company in the overseas market. Through this strategy, Cacao 70 can overcome an organization in the UAE market that can benefit the organization with the expert knowledge, experience and expertise. It helps to maintain an effective position in the management. It does not require to manage a business from the scratch and use existing manufacturing facilities, infrastructure, market share, consumer base and distribution channel (Gollnhofer and Turkina 2015). Whereas it can affect the organization through cultural differences as the organizational employees can feel cultural diversity. Integration of systems and process can also be a major issue (Mittal 2018).
Foreign Direct Investment: It is based on the entry into an overseas market through specific investment in the country through mergers, acquisitions, greenfield investments or joint ventures. This strategy is popular for foreign investments and managing justified investment with the demand of the market. It allows certain control over business operations and finances. Low-cost labour and reduction in manufacturing costs can help to attain a competitive advantage in the UAE market. While there is a high risk of political risk as the government can protect local businesses that can affect foreign companies (Gollnhofer and Turkina 2015).
Each entry mode comprises of several advantages and limitations. Specific entry mode can promote effective business success that highlights the revenue-generating opportunities in the business. Cacao 70 can adopt any of the entry modes that can promote effective business opportunities and boost up the strengths. Chocolate products are widely popular in UAE that covers 8% in the annual demand (Gollnhofer and Turkina 2015). Import-Export, Foreign Direct Investment, Partnering, Franchising, Strategic Acquisition and Joint Ventures are different trading modes in the overseas market. The demand and need for chocolate consumers in the UAE market can impact the organization. Different barriers can be arising in the international market that includes cultural barriers, tariff and taxes, regulations, licenses and transportation barriers. Through the selection of an effective entry mode in the UAE market, Cacao 70 can overcome the barriers in the business (Mittal 2018).
The AAA frameworks is a global strategy framework developed by Pankaj Ghemawat in 2007, it helps us to determine the best approach to global value creation. The framework is based on AAA stands for adaption, aggregation and arbitration. Adaption emphasizes on the localization of the product giving tailored made features for a market. The aggregation focuses on the "standardization of the existing product and launching it to the new markets where arbitrage encourages reducing the cost and exploiting the difference between the markets itself (Ghemawat 2018). Considering the AAA, the combination of Aggregation and Adaptation would be the best because the UAE is a cosmopolitan country having residents from all walks of life who came from different countries. The Aggregation will help the company to establish its products by the touch of western taste and there are many people of west residing in the country. Also, the local people are familiar with the westernize tastes but the combination of Adaptation will be more advantageous because it will give the local flavour to the native Emiratis. Eventually, the company shall be able to cater to both audiences preferring western and native tastes. Overall, it will help the company to earn a high revenue and testing with new native flavour in markets.
Porter’s five forces
Porter's five forces is a framework developed by Michael Porter in 1980, it is used to analyze the competition in the market and determines the intensity of the competition in the market. Thus, it is a powerful tool to identify the entry barriers and challenges associated with this. Further, this helps in developing a competitive strategy for entering into a new market. Considering the energy bar market of the UAE below is the analysis of the five parameters of Porter's five forces
Competitive Rivalry: There is a cut-throat competition in the market as there are many chocolate brands including national and international. Mars is one of the key players in the market competing with other top players such as GCC chocolate, Nestle Middle East FZE, Ferrero Trading Dubai, Galaxy along with some local brands such as Al Nassam, Mirzam and many others. Moreover, there are some chocolate café and restaurants that have good footfall every day. Thus, it is a very competitive market to enter where the existing brands are already driving the market.
Supplier's Power: There are plenty of suppliers and importers of Cocoa and other products related to the manufacturing of the chocolate such Ceuconoc, Induz General Trading LLC, Jamal trading, Jampur International Fze, Alheef Café and many more (Tradeford 2020). Besides this, there are also suppliers of sugar, milk and dry fruits supplier across the country which gives thousands of options to choose from. Therefore, in this market, the company can have an advantage and bargain power over the supplier and seller of the raw materials of chocolate. The company can even find many manufacturers to outsource its manufacturing in UAE that will be beneficial for saving cost.
Buyer's Power: As the market is already fueled by numerous brands giving an opportunity to switch one after other in UAE. Here the supermarkets, confectionary shops, Forecourts, convenience stores, independent grocery stores, non-stores retailing and others (Techsciresearch 2020). Also it available on many of the eCommerce websites ranging from dark to milk chocolates. Many of the eCommerce run discounts offer that attracts the sale on their websites. Some of the manufacturers also deliver the chocolate by taking orders on their official websites. There are many people who are brand conscious and very loyal to their favourite brands.
Threat of Substitution: There are many products that can be used as the substitute of chocolate like milk bars, snack bars, fruit bars or even some other candies including toffee. Dry fruit bars are also very popular among the Emiratis. Instead of hot chocolates, people may prefer coffee with chocolate syrups. For cold chocolates, people may prefer other flavours ice creams or milkshakes and such other items. There is a high threat of substitute because that can be easily replaced other sweet eatables and the company face fell in the demand of the product. Also, the rising health risk like obesity, diabetes and cardiovascular health problem is now seeking for healthy options like fruit-bar, an energy bar that contain less sugar and has high health benefits.
Threat of New Entry: There are already some of the established players in the market that dominating and driving the market but there are some domestic brands that emerging as the popular brands like Al Nassam and Mirzam. Similarly, other small manufacturers are also entering into the market hoping to gain just a chunk of this huge market. Making chocolate is very easy and it attracts many entrants in the market but capturing the market is very difficult as it is already full with mighty brands that are competing for each other and have a good customer base and their loyalty.
As per the analysis of the work the UAE chocolate market, these are some of the barriers to enter into the market.
High competition and top brands are driving the market
There are some companies like Al Nassam and Mirzam who have positioned themselves under premium and luxury categories
There is a threat of substitute
Buyers have plenty of options to choose from.
Tactics to overcome
The company should better enter into the market with a unique concept that differentiates the brands from the other existing brands like advertising about the quality of the beans used. The company can also introduce a new flavour that does not exist in the market. In this way, the company can make it easy to enter the market among the major competitors. Also, the brand name Red Bull will also help in gaining popularity quickly in the market.
To beat the brands who are in the category of luxury and premium, the company can launch its own premium segment with lavish packaging and costly ingredient and can position it as the best gift to give someone. It will attract the rich population of the UAE.
To eliminate the loss due to the threat of substitute, the company should try to create a unique value like serving the chocolate in a pleasant way that can give the store buyer a different feeling. Also, at the chocolate café of the company can set a unique theme to attract who loves to enjoy chocolate in such restaurants.
Run a loyalty plan and engagement campaign to stay the customers connected or create a unique identity in the market that cannot be copied by other brands. The company should focus on delivering value to its customer that no other brands can give. In this way, the company can retain its customers for the long term.
References for Internationalization Process of Firms from Developing Country
Ali, M. S. S. and Ahamat, A. 2018. Internationalization Process of Firms from Developing Country: An Empirical Evidence of UAE Family Business Firms. International E-Journal of Advances in Social Sciences, 4(10), pp.100-106.
Beugelsdijk, S., Kostova, T. and Roth, K. 2017. An overview of Hofstede-inspired country-level culture research in international business since 2006. Journal of International Business Studies, 48(1), pp.30-47.
De Villa, M. A., Rajwani, T. and Lawton, T. 2015. Market entry modes in a multipolar world: Untangling the moderating effect of the political environment. International Business Review, 24(3), pp.419-429.
Ghemawat, P. 2018. The new global road map: Enduring strategies for turbulent times. Harvard Business Press.
Gollnhofer, J. F. and Turkina, E. 2015. Cultural distance and entry modes: implications for global expansion strategy. Cross Cultural Management, 22(1), pp.21-41.
Khan, M. A. 2016. Entry modes: franchise. In The Routledge Handbook of Hotel Chain Management. pp. 168-182. New York: Routledge.
Khan, S. 2016. A theoretical framework on factors affecting entry mode choices of MNCs. Journal of Arts, Science & Commerce, 7(4).
Kristjánsdóttir, H., Guðlaugsson, Þ. Ö., Guðmundsdóttir, S., &Aðalsteinsson, G. D. 2017. Hofstede national culture and international trade. Applied Economics, 49(57), pp.5792-5801.
Mittal, S. 2018. Choice of market entry mode: A critical issue in international business. Choice, 4(6).
n.a 2020. Cocoa Bean Importers in UAE. [Online] TRADEFORD. [Available at] https://uae.tradeford.com/buyers/cocoa-bean [Accessed on] 5th June 2020.
n.a 2020. Consumer Goods and Retail. [Online] TECHSCIRESEARCH. [Available at] https://www.techsciresearch.com/report/gcc-chocolate-market/3666.html [Accessed on] 5th June 2020.