International Business of Industrial Chemicals Corporation - Essay Example

? Gary W. Biesemeier, President December 12, RE: Considerations for Expansion to Peru As a response to your request, we developed an analysis on the effects of market expansion to Peru on the internal operation of Industrial Chemicals Corporation (ICC). Presented below is an outline of actions that need to be undertaken to successfully enter the Peruvian market. Firstly, it describes the current internal operations of ICC. Secondly, it illustrates relevant actions involving business strategy, form of international business, organisational structure, marketing strategy, IT and supply chain, which are essential for a successful expansion in Peru. This will significantly help in evaluating on whether or not expanding to Peru is an effective strategy for ICC. Objectives: Strategy: Global Orientation provide effective solution to the various chemical needs of clients across different industries effectively and efficiently distribute commodity chemical products to a broad range of industries in larger geographic areas Value Chain Configuration Take advantage of the strategic location of chemical suppliers in America Key Advantages consistently deliver industrial firms with cost efficient and high value chemical products expand distribution of chemical products from Peru to potential markets in South America efficiently Take advantage of the strength of Industrial Chemicals Corporation maximise the benefit from the relationships with suppliers to deliver high value chemical solutions Key Disadvantage need to invest heavily in ways to increase cooperation and efficiency in the flow of chemical products from US headquarters to Peru Form of International Business Equity Alliance Enter into a strategic partnership with an existing industrial chemical distributor in Peru by gaining a minority ownership of the Peru based chemical distributor avoid exposure to high strategic, operational, and legal business risks Out of 185 countries, Peru got the 43rd spot for the best places for doing business in 2013 (World Bank) Peru ranked 44th based on the 2013 economic freedom indicator, and has the 29th freest economy among the 29 countries in Central and South America (“Peru”) Potential Problems Weak Ranking in the freedom from corruption Ratings from the freedom from corruption index is very much below the world average ((“Peru”)) Business Practices of Informal Sector About 70% of firms directly compete with unregistered businesses which is higher than the regional average of 62% (World Bank) Business Culture Differences Time Orientation Time is regarded with flexibility so it is usual to start a meeting late As an investor, it is still important to arrive on time during a business meeting (“Business Culture,” par. 1) High Power- Distance (“National Culture Dimensions,” par. 1) Hierarchical form of organisations tend to dominate; decision making is concentrated on the top (“Business Culture,” par.10) It is essential to conduct business meeting with top executives since they make the key decisions (“Business Culture,” par.10) Low Individualism (“National Culture Dimensions,” par. 4) Business relationship reflects their strong preference for collectivism; a reflection of their closely knit family relationships (“Business Culture,” par. 2) Inquiries on family matters are common during initial stage of business meeting (“Business Culture,” par. 3) Searching for the best complementary strategic partner: Conduct an analysis on the performance and culture of every potential alliance partner which operates in Peru Key characteristics of an effective strategic partner: Committed and trustworthy potential partner (Mohr & Spekman, 135) Potential firm has important capabilities and resources which are critical in strengthening the competitive advantage of ICC for chemical distribution (Yan & Luo, 19; Wakeam, par. 7). Potential firm has willingness for strong participation and constant communication (Mohr & Spekman, 135) Potential partner has a good reputation in the market (Saxton, 443) Potential partner can significantly contribute to the realization of a firm’s strategic objective (Wakeam, par. 6) Organization of the Company Vertical differentiation can serve as an effective structure which guides the efficient coordination of roles between top and divisional authorities Centralised Strategies are efficiently implemented since decision making is concentrated among top executives of Industrial Chemical Corporation and its allied firm (Kokemuller, par. 4) Having only few decision makers prevents the occurrence of bigger conflict within the organisation (Kokemuller, par. 5) Top management can also retain control which can influence the adoption of a desired corporate culture (Kokemuller, par. 6) Disadvantages first line managers and rank and file employees which have significant experiences in chemical distribution cannot share their relevant ideas (Wilkinson, par. 4) too much concentration of authority on top can overlook problems on the ground which leads to operational inefficiency Horizontal differentiation can serve as an effective structure at the subunits of the hierarchy Adopt specialization structure through departmentalization Establish an international division based on region Enables existing departments to focus on improving their competitive position on current geographical territories (i.e. North America and Central America) Allows the new international division (i.e. South America) to concentrate in penetrating the new market Improves operational efficiency and specialization for every regional division Marketing Strategies Marketing Orientation Distribution Orientation concentrate on business-to-business marketing (Riel et al., 841) efficiently deliver high quality chemical products to various industries Product Orientation Offers less differentiated industrial chemical solutions Since product is a commodity, differentiation is based on trust relationship and efficiency Market Segmentation and Marketing Mass Market Take advantage of economies of scale in distributing various chemical products across broad industries Market Development Expand distribution services to South American market by entering into a strategic alliance in Peru Pricing Strategies Cost- plus Strategy (Morris & Fuller, 139) price products at a desired mark up over expenses significant for gaining high profits instability of exchange rate in Peru, and rapid fluctuations in market prices makes it difficult to properly account distribution cost Key Considerations Significant increase in distribution cost as a result of longer distribution channels High fluctuations in exchange rates may significantly increase export price of industrial chemical products Push Promotion Strategy Personal Selling (Anderson 17) Conduct appointments between potential industrial clients in South America and key representatives of ICC and allied firm ICC and partner firm key representatives in Peru demonstrate their high quality solutions directly to potential industry clients Branding Strategy Bring the ICC brand to the market in Peru and South America to capitalise on the strong reputation already built in North America Distribution Strategy Build strong business relationships with potential clients in Peru before expanding into other South American markets Global Manufacturing Strategies: Not Applicable Since ICC is a distributor company, the processing of industrial chemicals will be done by ICC suppliers IT and Supply Chain Management Issues Enterprise Resource Planning (ERP) (Madapusi & D’Souza 7) facilitates the sharing of relevant information from different departments tracks the status of all business processes of ICC and provides real time view of their status in the field of accounting, sales, and distribution. allows for an efficient storage and management of relevant data across functions and departments which guides effective strategic decision making Electronic Data Interchange (EDI) (Mukhopadhyay et al. 137) Provides efficiency in processing of export forms by connecting various exporters to custom authorities allows fast distribution of industrial chemicals in various countries Total Quality Management (TQM) (Sila & Ebrahimpour 1123). build close cooperation with allied firm in Peru to infuse high quality in all areas of supply chain Guides ICC and allied firm to attain zero defects in all functions especially in product distribution to industrial clients in Peru and South American market General Level Standards ISO 9000 (Buttle, 936) Compliance to internationally recognised standard for high quality assurance ICC should only distribute chemical products with ISO certification which guarantees high quality to its industrial clients Foreign Trade Zones Take advantage of foreign trade zones through low tariff and low taxes in order to significantly reduce cost distribution cost across countries (Tansuhaj & Gentry 19). To build a profitable equity alliance in the Peruvian market successfully, Industrial Chemicals Corporation needs to be fully aware of its important implications to the internal operations of the firm. The outline above encapsulates the relevant actions that need to be undertaken with regards to strategy, organisational structure, marketing, IT and supply chain in order to effectively expand the market of ICC to Peru and eventually, the entire South American Region. Based on the above analysis, there is a need to critically evaluate whether or not expanding operations to Peru would support the long term growth of ICC. It is also important to evaluate if the impact of such expansion can significantly add value to the firm. Finally, it is also essential to check if the internal operations of the firm are ready and capable to make important adjustments to support the expansion strategy to Peru, and eventually the whole South America. ADDENDUM Figure 1. Map of North America - Current Market of Industrial Chemical Corporation (Our Locations) Figure 2. Map of South America - Peru (Central Intelligence Agency) Figure 3. Economic Snapshots in Peru (Heritage Figure 4. Proposed Structure for International Division Works Cited Anderson, Rolph E. “Personal Selling and Sales Management in the New Millenium.” The Journal of Personal Selling and Sales Management,16.4 (Fall 1996): 17-32. “Business Culture in Peru.” University of Birmingham Intranet, University of Birmingham, 2013. Web. 12 Dec. 2013. Buttle, Francis. “ISO 9000: Marketing Motivations and Benefits.” International Journal of Quality & Reliability Management, 14. 9 (1997): 936-947. Central Intelligence Agency. “Map of South America: Peru,” CIA Web. 12 Dec. 2013. Heritage. “Economic Snapshots in Peru.” Heritage Org. Web. 12 Dec. 2013. Kokemuller, Neil. “The Advantages of Centralized Organisational Structure.”Chron, Demand Media Web. 12 Dec. 2013. Madapusi, Aron, and Derrick D’Souza. “Aligning Erp Systems with International Strategies.”Information Systems Management, 22.1 (2005): 7-17. Web. Mohr, Jakki, and Robert Spekman. "Characteristics of Partnership Success: Partnership Attributes,Communication Behavior, and Conflict Resolution Techniques." Strategic Management Journal 15.2 (1994): 135-152. Web. Morris, Michael H., and Donald A. Fuller. "Pricing an Industrial Service."Industrial Marketing Management 18.2 (1989): 139-146. Mukhopadhyay, Tridas, Sunder Kekre, and Suresh Kalathur. “Business Value of Information Technology: A Study of Electronic Data Interchange.” MIS Quarterly, 19.2 (1995): 137-156. “National Culture Dimensions.” The Hofstede Centre, Hofstede Centre Web. 12 Dec. 2013. “Peru.” 2013 Index of Economic Freedom, The Heritage Foundation 2013. Web. 12 Dec. 2013. “Our Locations.” Industrial Chemical Corporation, ICC, 2013. Web. 12 Dec. 2013 Riel, Van , Allard CR, Charles Pahud de Mortanges, and Sandra Streukens. "Marketing Antecedents of Industrial Brand Equity: An Empirical Investigation in Specialty Chemicals." Industrial Marketing Management Saxton, Todd. "The Effects of Partner and Relationship Characteristics on Alliance Outcomes." Academy of Management Journal 40.2 (1997): 443-461. Web. 34.8 (2005): 841-847. Sila, Ismail, and Maling Ebrahimpour. "Critical Linkages among TQM factors and Business Results", International Journal of Operations & Production Management, 25.11(2005): 1123 -1155. Tansuhaj, Patriya, and James Gentry. "Firm Differences in Perceptions of the Facilitating Role of Foreign Trade Zones in Global Marketing and Logistics." Journal of International Business Studies 18.1 (1987):19-33. Wakeam, Jason. “The Five Factors of Strategic Alliance.” Ivey Business Journal, Ivey Business School Web. 13 Dec. 2013. Wilkinson, Jim. “Advantages and Disadvantages of Centralization.” The Strategic CFO, 24 July 2013. Web. 12 Dec. 2013. World Bank. “Country Snapshots: Peru.” Business Environment Snapshots,The World Bank Group 2013. Web. 12 Dec. 2013. Yan, Aimin, and Yadong Luo. International Joint Ventures: Theory and Practice. M.E. Sharpe, Inc. , New York : 2001. Web. Read More