Distribution of Thai Rice in UK - Assignment Example

 Distribution of Thai Rice in UK – Industry Data Analysis This assignment is intended to develop the analysis of the competitive arena that exists for a Thai Rice supplier to enter the UK market. The intention of the supplier is not to move in a whole-some move but by developing distribution channels. This assignment aims at critically analyzing the strategy in the perspective of the UK markets and developing a conclusion on its possible success or otherwise. Introduction Thailand is the 6th largest producer of rice in the global market, however, when it comes to trade, Thai rice is the most traded rice at the global platform (Industry Outlook, 2009). This illustrates the cutting edge that Thai rice has over its competitors, particularly the rising competition coming from India and China. Pakistan, though being producer of the best quality, fails to compete on the basis of quantity (Thailand Secret to World’s Largest Rice Exporter And the Future Plan, 2009). Generally, rice is found as a number of variants depending on their quality; each quality or variant has its own target market for example long grains are preferred in Asian countries while smaller grains are liked by the African markets. Thai rice, being of superior quality, lacks a characteristic and that is to produce maximum variants in cost efficiency, though the ones that are produced mainly are highly cost effective in nature. Nonetheless, the Thai rice dealers are always on the hunt for exploring global markets, particularly those of the west, and within west, the European countries. UK – the exports target European countries and particularly UK of late has been a big prospect market for exporters of rice, from across the globe. Approximately 80% of the rice consumption in the UK is based on imports, and a major facto herewith is that the markets are freely accessible with no quota restrictions from the UK government (Hossain, 2007). UK, being one of the most expensive economies in the world, is targeted by most exporters through authorized retailers or distribution networks – this being a major business in the UK itself. Even in the days of recession, the spending on food items such as rice has not lost its worth in terms of sales volume. The leading consumers of these are the newly opening Asian restaurants across UK, especially the Chinese restaurants, because rice is the major offering within a package deal. Market Entrance Strategy – Developing Distribution Network The plan hereby is to export rice from Thailand, and to develop distribution network in the UK. Amongst the various mechanisms of entering into a new market, two are very common: (i) entering the market with a huge investment, setting up own networks and channels and (ii) utilizing the existing distribution channels by means of strategic partnerships. Each of these have their distinct advantages and otherwise. In the first approach, it becomes relatively expensive for the business to move itself to a totally newer arena, and scratch establishment involves higher risk and higher cost; establishment cost is on the higher side and exit strategy is very expensive since the set up has to be dismantled. At the same time, the second approach is relatively cheaper in deal because in principle, strategic alliances with existing distribution channel implies that there is existing infrastructure for distribution, marketing, sales, direct sales, etc. so the set up cost lowers itself, and alongside since no direct huge investment is involved, subsequently, exit strategy becomes easy to deploy if need be. Following the major benefits and issues with the two schemes, a Thai rice exporter should move into the UK markets through the existing distributors. UK distribution channels are very strong in their networking; they have tied up links with all the major chains of super markets for example Sainsbury, etc. and such and similar networking makes it easier for them to have a new product introduced in the market and pushed towards the consumer. Majority of the exporters of rice in UK move through various distributors, developing their networks to reach the retailers or restaurants, etc that demand rice in bulk quantities. Apart from these two, there are storage houses as well that retain rice for 6-8 months time for its growth – since the older the rice, the better it becomes. Rice has a different perspective in UK then it has in South Asian countries, who are major consumers of rice. The following sections provide a critical analysis of the issues to be considered for a Thai firm when moving to the UK markets. Risk and Costing – Investments & R&D Expansion and particularly expansion across the geographic boundaries is a risky venture, and the level of risk enhances even further if the expansion is to a nation where economic variables are a 360-degree different than the home country – such as those of Thailand and UK (Pugel, 2004). Differences of cultures, values, language, norms and other such and similar variables create hurdles for an upcoming organization, and this it needs to move through a transition phase. The failure within this transition phase is truly the actual risk of failure for an expansionary project; once this phase is over, it is almost as good as a running and an on-going concern. This risk has to be minimized by appropriate prior research, as this is a capital intensive decision involving high cost of investment. The firm looking to move towards UK as its expansionary project should look towards the existing markets that which variants are: Present there locally Imported Demanded The relevant statistics about the same would lead a firm into analyzing the right mix of variants to send across. At present, the most recent statistics reveal that approximately over 80% of the rice demanded and consumed in the UK is imported, and majority of this influx comes from the Asian states such as Bangladesh, China, Thailand and Pakistan (Laurent, 2008). This assures the fact that UK’s general consumer of rice has a taste for the rice of sub-continent and Asian countries. Furthermore, the demand can be expected to rise further beyond the current outlook, and this has a prime undeniable reason. The expatriates in the UK are on the rise, with people migrating from various parts of the world to the other, and traditionally, Asians are always considered the largest consumer population of rice. Therefore, with Asians moving to the UK, a shift of consumers would move the demand on the higher side in the UK. Subsequently, there arises an opportunity for exporters of rice to move-in; considering this as an opportunity, it can be suggested that risk can further be reduced as there would be increase in demand of this commodity. Another risk worth-mentioning is the currency risk fluctuation; since most international trade takes place with USD as standard underlying currency, and the USD/GBP rate fluctuations have been truly unpredictable. Covering this risk is relatively easier with the assistance of local banks that would provide foreign currency swaps or fixed rate foreign exchange financing facility. However, the risk remains noticeable. Competition with China is yet another noticeable aspect. Not just in terms of durables but also in terms of perishable commodities, China has been on the rise, and rice is one of the prime commodities produced in China. A fact that defines the Chinese association with rice is that the word in Chinese that stands for rice is the same word that means ‘food’. Therefore, the competition from China can be safely assumed as a tough one (Rice Today, 2006). Issues and Challenges Whenever a change in structure or direction of a business is realized or implemented, there are issues and challenges associated with the same, and this case would try be no different. Entering a new region for business is a huge expansion decision and its challenges and issues should be well marked before any failure intercepts. This section discusses some issues and challenges that are expected to be faced by the Thai rice exporter in the UK, and these are as follows: Acceptability Issue from the Customers: Rice is an every-home-usage commodity, and for such a commodity, consumers really are not very comfortable in trying for a new brand or a new name of that industry. Therefore, acceptability becomes a major issue. Additionally, this issue can be enhanced and can be resolved based on the manner the distribution network relationship is handled. Since the firm is not coming itself but moving through the existing distribution sellers, it has to push the products through the same. If appropriate incentives are offered, and then definitely the distributor would push the product, else the acceptability factor may not be actually succeeded. Competition with the Suppliers: Where figures suggest that imports rule approximately 4/5th of the market, the competition amongst exporters increase drastically as each try to conquer maximum of the market share. However, the strategy adopted here i.e. of moving through the existing distribution channels would definitely assist in that regard since the distributors would keep a balance in their portfolio, depending on the incentives offered and maintenance of the relationship. A cut throat competition and a very fierce welcome can be expected by the firm when it moves to the UK markets (Thailand Secret to World’s Largest Rice Exporter And the Future Plan, 2009). Bargaining Power of the Distributors: The prime dependence hereby for the business would be on the distributors or the distribution network, and this is a critical variable since the success or otherwise of the business would depend on how the distribution takes this commodity. It won’t be wrong to suggest that the driving steering would be in the hands of the third party, which actually becomes a threat in itself for the firm. The major issue which the exporter would face is the higher bargaining power of the distributor because the distributional network would have offerings from exporters all over the world to market and push their respective products; subsequently the bargaining power of the distributor increases. The deal to be offered from the exporter should be such that it does not trigger a competitive offering rather let the competition be at the hands of the customers, and distribution network pushing the product with more or less similar power. Substitutes/Variants: Substitutes are another threat but their definition varies. Here, substitutes really imply the variants. There are numerous variants of rice, but not all are traded at the global scale. For example, if the Thai exporter is offering Irri368 for a certain price, while Chinese exporter is giving a better quality for a cheaper price, or even for the similar price, then the substitution of one variant through the other takes place, which in essence is truly a brand switching move. However, this is not a smart move to gain customer since it would actually lead to the next issue of a probably price war. Possible Price Wars: Price wars are a common phenomenon in highly competitive products. The ultimate aim in price wars is a very short term gain by first mover advantage. The first mover reduces price and quantity demanded goes up, the competition follows and cycle moves to a point where no one makes profits. These are the points where generally suppliers form consortiums; however, price war is good from customer viewpoint, it does nothing more than harming the existing profits of the organization. Price wars have been considered as an effective measure for driving a new competitor out of business since the existing businesses have readily attained economies and break even, thus, for them lowering price equivalent to their variable cost would imply temporary losses, but the new firm would find it difficult to compete under such circumstances. Barriers to Entry: The barriers to entry are a huge hurdle from the existing competition to a new arrival at the competition landscape. Commonly known as a dirty competition move, it keeps upcoming competitors out of the industry or even if they try entering, the creators of these barriers welcome them in a hostile manner by various factors, most commonly, a price drop. This hurdle is a major issue/challenge for a business to jump across. Barriers to entry are erected by existing firms in the industry to ensure that further competition can be kept out and the market remains divided between the existing players of the market only. Many a times, even governments fail to break such barriers leading to consumers not being able fight against rising inflation or un-due price hikes from the existing firms (Haykin, 1983). Recommendation Recommendations are a critical outcome of a business plan whereby the crux of the research is presented in analytical form. The study of various factors constituting the UK rice market have been studied alongside the prospects of the reaction from various entities such as customers, distribution channels, competitors, etc. when the Thai firm enters into the UK markets. In accordance with all the data and information that has been collected and analyzed, it can be recommended that moving in the markets by means of distributional channels, and not developing their own structure to start off with is a better idea. Possible, in the future, when the product circulates and sells itself, then moving into the region might turn up to be a better idea. At present, the recommended stance is to develop coordination through distributional network in the UK. It is also recommended to conduct an appropriate research survey on the variants of rice available in the UK market, their prices and demand. Subsequently, the firm can come across with the plan of which variants should it move across Europe. At the same time, there is a possibility that some particular variants are not being offered and the firm assumes them to be acceptable for the masses, so that can also be embedded in the plan. Conclusion The window of opportunity is defined by the roam created within a market to either allow existing players to expand or newer players to join in. Perishable commodities are different than durable goods, but the rule of thumb remains at its stance. Analysts anticipate that rice is a commodity whose consumption would increase with the passage of time, slowly and gradually. Subsequently, it is an indication for rice exporters from across the globe to get on the bus before it is too late. A bigger surplus comes for Thailand since the nation is readily placed number one by analysts as the biggest exporter of rice globally. Thailand is a huge name when it comes to the global trade of rice, and it has done well over the years especially considering that it has been competing with countries such as India and China. Thai rice is liked all over the world, which is expressed by the fact that it is the largest exporter of rice in the world. Therefore, it can be concluded and summarized that the window of opportunity exists, especially with the likeliness of the fact that demand is expected to grow and a shift in the existing demand is also expected to occur; the major influx is coming from the UK, with their existing demand rising as well as the demand shifting there from other parts of the world – thus far, the opportunity waits the Thai firms. References ʻAmmā Sayāmwālā, Stephen Haykin (1983) The world rice market: structure, conduct, and performance; Volume 39 of Research report (International Food Policy Research Institute), International Food Policy Research Institute. Intl Food Policy Res Inst C. Wayne Smith, Robert Henry Dilday (2003) Rice: origin, history, technology, and production, Volume 3 of Wiley series in crop science, Issue 3 of Crop Production Series. John Wiley and Sons International Rice Research Institute (2006) Rice today (Jul - Sept, 2006, Vol 5, No. 3) International Rice Research Massey-Ferguson Ltd, Massey-Ferguson School of Farm Mechanisation (2009) Mechanisation and the world's rice: the proceedings of a conference to support the International Rice Year 1966 of the Food and Agriculture Organisation of the United Nations, 26th September-1st October, 1966. Massey-Ferguson (Export), distributed by Blackwell Mohammad A. Razzaque, Edwin Laurent (2008) Global rice and agricultural trade liberalisation: poverty and welfare implications for South Asia. Commonwealth Secretariat T. W. Mew, International Rice Research Institute, Zhongguo nong ye ke xue yuan, Zhongguo gong cheng yuan (2003) Rice science: innovations and impact for livelihood. Int. Rice Res. Inst Anonymous (2009) Thailand Secret to World’s Largest Rice Exporter And the Future Plan [Internet] Available from [Accessed 31 March 2010] Anonymous (2009) Industry Outlook [Internet] Available from [Accessed 31 March 2010] Mahabub Hossain (2007) Where now for the global rice market? [Internet] Available from [Accessed 31 March 2010] Thomas A. Pugel (2004) International Economics Glossary [Internet] Available from [Accessed 31 March 2010] Read More