Strategic Management

1. What incentivised Whittaker’s to branch out into international markets? Evaluate the benefits that Whittaker's has achieved by conducting international business. What are the potential risks it faces in an international environment?

In today's globalized economy, organizations of all sizes are expanding their operations into the international market in order to capitalize on the diversification and greater opportunities for market growth provided by international markets. In 2016, Wells Fargo conducted a survey on the attractiveness of international expansion and found that about 87% of US firms believed that such an expansion is not desirable, but necessary for long term business growth (Hamilton & Webster, 2018). There are several reasons behind such a favourable opinion of organizations in respect of international expansion. In the given case study of Whittaker chocolate, the company expanded into the Asian market to capture the changes in the tastes and preferences of Asian markets which were in favour of chocolate business. The company did have some exporting agreements with New Zealand consolidator who had overseas connections but the company did not have an understanding of the product's position in the market. This made the exporting, a side activity for the company. However, with the changes in the tastes and preferences of Asian market the company undertook a proper international expansion strategy to capture the Asian market.

The below-mentioned points describe the key reasons behind Whittaker's motivation to branch out into international markets.

High Growth Potential

According to Matt Whittaker, the head of Whittaker Chocolate's international market division, Asian and the Middle East has been under the spotlight for the company since the company took a more export-focused role some years ago. This focus on Asian and Middle East markets is mainly due to the fact that Asian markets are developing a sweet tooth which presents new opportunities for chocolate makers like Whittaker. Even though chocolate consumption in China is very high, the change in taste of Chinese consumers suggests that Chinese and subsequent markets have the potential to become a place for the high growth of the chocolate business (Oehmichen, 2018). This potential for future growth motivates Whittaker to expand into the said markets.

Free Trade Agreements

Moreover, New-Zealand and China have a bilateral free trade agreement under which 35% of all new Zealand exports will be tariff-free in china and 37% of Chinese exports will be tariff-free in New Zealand. In addition to this, by 2019, 96% of all exports of New Zealand will be tariff-free in china (Rodrik, 2018). This makes the supply chain of Whittaker Chocolate more cost-efficient and facilitates the expansion of the company with favourable trade policies. This also reduces the commodity prices and makes the company more competitive. Keeping the cost of goods low is especially pertinent in cost-conscious markets of Asia and the Middle East, and this cost-effectiveness also enables the company to improve its profit margin.

The company gained significant benefits from expanding into international markets. As mentioned in the case study, early reports suggest that the export push is expected to result in a growth of 216% in overseas sales between 2013 and 2016. However, despite the presence of significant opportunities, organizations take on additional risks while engaging in international business. In the case of Whittaker, the company had to undertake the following risks:

Commercial Risks

This includes inadaptability of export product to change according to the conditions of the foreign market and the presence of varying situations which cannot be anticipated before. These risks are present in domestic markets too, but, their impact is far greater in the international market. This was also a major risk for the company as its expansion was dependent upon the assumption that there is a shift in the taste of Asian population, apart from this the company did not have any significant information regarding the value its products will deliver to Asian and middle eastern market.

Political Risks

Political situations in Asians and Middle Eastern countries are not as stable as in New Zealand or other developed countries. Changes in the party in power, wars and coups are a major threat for the operations of Whittaker in the international market.

Foreign Exchange Fluctuations Risks

Since Whittaker is dealing in the international market, it is subjected to risks of fluctuations in foreign exchange rate. Such changes can have both favourable as well as an adverse impact on the operations of the company in the Asian market. Also, the company had experienced this while expanding in the Middle East as the company failed to effectively evaluate the new Zealand dollar and commodity prices which resulted in a sharp rise in the commodity price of the company and severely impacted company’s profitability.

2. Describe the options of international business strategy/ies (Entry mode) available to Whittaker's and critically evaluate the international business strategy/ies it has used.

In order to successfully enter into a foreign market; organizations have to undergo effective planning to come up with a strategy according to various factors involved in the expansion process. These factors include, but are not limited to, degree of adaptation required for the product, tariff rates, transportation costs, and marketing costs (Blackburne & Buckley, 2019). There are several different strategies which Whittaker could have used in order to enter into international business, some of them are mentioned below.

Direct Exporting

This expansion strategy includes directly selling into the chosen market. Companies use this strategy to quickly expand into the international market. Moreover, when organizations perceive a potential demand for their good and services in the overseas market, they can opt to supply their goods to importer rather than establishing their presence in the foreign market.

Licensing

It is a more sophisticated strategy as compared to direct exporting. Under this, companies make arrangements to transfer the rights to use their products to another firm. It is an effective strategy when the purchaser of license has a significant market share in the market under consideration (Surdu, Mellahi & Glaister, 2019).

Franchising

It includes a repeatable business model which can be easily transferred into foreign markets. In this strategy, the business model should be unique and the brand should be recognizable internationally.

Partnering

Partnering is quite crucial while entering into international markets. It is a useful strategy in such markets where the cultural, social and business factors are substantially different than the organization's local environment.

Joint Ventures

Under this strategy, 2 companies agree to work together in order to form a third company which will take the risk of expanding into a new market. This is a strategy to avert the impact of risk and one of its most popular example is the Sony/Ericsson cell phone company.

Piggybacking

This is a unique strategy of entering into international businesses by including the products and services into the inventory of a large domestic firm. This mitigates the risk of selling internationally as the domestic firm is marketing the product internationally (Shen, Puig & Paul, 2017).

Greenfield Investments

This strategy requires significant involvement in international businesses as this requires the organization which is planning an expansion to buy the land, facility and operate its business in the foreign market on an on-going basis.

Whittaker chocolates used the partnership strategy to expand into the Asian and Middle East market by establishing agreements with local suppliers, distributors and marketers such as the Swiss-owned multinational company DKSH. This strategy allowed Whittaker and its partners to leverage their respective expertise to expand into the Asian and Middle Eastern market. Moreover, it also mitigated political risks because of the presence of local partners. The only drawback of this strategy is that such partnerships can face cultural clashes and even disputes and dissolution of partnerships.

3. Imagine you were part of the upper management team at Whittaker's, recommend your ideal international business strategy and justify your recommendation.

The usual entry mode strategies available for Whittaker are abovementioned, exporting and partnerships, among others. These entry strategies differ in the level of control they offer, their level of commitment and the investment required. According to the traditional theory, it would be better for Whittaker to start with a low commitment entry mode like franchising or licensing and then gradually move up to a greater level of commitment as they develop local knowledge (Raghunath & Rose, 2016). However, establishing partnerships with local distributors and marketers tend to have its own drawbacks. It is quite challenging to adapt to the agreement in case of changing circumstances. Therefore, the underlying motive behind partnership agreements should be for lasting reasons than to satisfy local ownership requirement to acquire local knowledge. Whittaker should try to build contacts and local knowledge without giving up an equity stake in the business and by hiring local potential through consultants (Buckley, Burton & Mirza, 2016). This is recommended as durable partnerships are based on bundling which goes beyond contacts and expertise. For example, retailers in Asian and middle eastern can provide the brand, retail concept and product, while the local operators can help to secure quality staff, space and efficient operations.

In terms of establishment modes, greenfield investment versus mergers and acquisitions apply in Asian and middle eastern market would be most appropriate for Whittaker. Acquisitions would provide better speed as compared to greenfield projects. But it would be quite a challenge for Whittaker to find targets for acquisitions and determining the value of targets can be difficult. Integration can also arise when acquiring companies with great dependency on owner and founder. Whittaker can try to transfer the relationship owners have with key suppliers, customers and authority by starting with a minority stake and agreeing upfront regarding conditions of the complete acquisition.

While implementing such strategies, Whittaker must show a deep commitment to the respective region, even if there are some short term setbacks. The company can recruit local staff to demonstrate such a commitment. This is especially pertinent in gulf counties as MNCs underutilise the opportunity to use local managers. Moreover, in terms of risk management, Whittaker should not wait for some sort of political stability in the middle eastern region and should try to tailor their risk mitigation strategy and projects accordingly (Andersen & Andersson, 2017). It is common in international business to gain high returns from the risky environment and such an environment can even provide valuable opportunities to expand once the initial strategy has been successful.

References for Strategic Management

Blackburne, G. D., & Buckley, P. J. (2019). The international business incubator as a foreign market entry mode. Long Range Planning52(1), 32-50.

Blackburne, G. D., & Buckley, P. J. (2019). The international business incubator as a foreign market entry mode. Long Range Planning52(1), 32-50.

Hamilton, L., & Webster, P. (2018). The international business environment. Oxford University Press.

Oehmichen, J. (2018). East meets west—Corporate governance in Asian emerging markets: A literature review and research agenda. International Business Review27(2), 465-480.

Rodrik, D. (2018). What do trade agreements really do?. Journal of economic perspectives32(2), 73-90.

Shen, Z., Puig, F., & Paul, J. (2017). Foreign market entry mode research: A review and research agenda. The International Trade Journal31(5), 429-456.

Shen, Z., Puig, F., & Paul, J. (2017). Foreign market entry mode research: A review and research agenda. The International Trade Journal31(5), 429-456.

Shen, Z., Puig, F., & Paul, J. (2017). Foreign market entry mode research: A review and research agenda. The International Trade Journal31(5), 429-456.

Shen, Z., Puig, F., & Paul, J. (2017). Foreign market entry mode research: A review and research agenda. The International Trade Journal31(5), 429-456.

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