International Marketing: The Furniture Production - Essay Example

International Marketing: The Furniture Production This paper is presented in the form of the report, which has been virtually requested by my boss from the new international marketing manager hired by our enterprise. The aim of this work is to create through report on the markets our enterprise can expand to, the challenges, barriers and benefits which will be gained as a result of this expansion. Executive summary The purpose of this report is to distinguish the outside markets, which can be captured by our firm in the sphere of the furniture production. As this kind of production does not imply the use of the super modern technologies, but sets the challenges of the extremely high level of competitiveness and legislation, the report is necessary to outline the main directions and possible solutions with the aim of expanding business to the outer markets. The report will include external and internal, situation analyses, which will be used as the basis for the development of the outer marketing strategies. The outcome of the report will be realized in the real expansion into the country described as a potential consumer, with minor changes. The main finding of the work is that Ukraine now appears to be one of the most perspective markets for expanding our furniture business. Not accounting the problems with changing legislation and ‘gray market’ it is admitted that with the growth of living standards and requirements for the quality of products, our enterprise will be able to win certain market share for the stable position and profitability. 1. Country chosen The market of furniture production is rapidly growing, making its products more available for the consumer, simultaneously becoming too competitive inside the country. Thus, in order to keep leading positions, the inner furniture market is already not enough, and it is essential to consider the opportunity of expanding this business abroad. In the striving to choose the right country, the main attention has been paid for the countries of Eastern Europe, among which are Poland, Ukraine and Russia. However, it should be said that with Poland having entered the European Union, the access to its inner markets has become more difficult and expensive. ‘Once you decide to expand internationally, what can you do to help your executive team avoid the pitfalls often associated with international expansion?’ (DePalma, http://chiefmarketer.com/disciplines/international/take_brand_abroad_08202006/) With Russia actively supporting its national producers, Ukraine left the best choice for the following reasons: the country now faces active economic growth, which means that its citizens can afford buying the products of our company; though the furniture market in Ukraine seems to be saturated, the quality of these products leave much to be desired, and with the citizens becoming more demanding towards the quality, we have enough opportunities to gain certain market share in this country; despite the constantly changing legislation and difficulties with entering the market, the cost of the labor force is comparatively cheap, which will allow opening low-cost production, resulting in higher availability of the products for the local population. 2. Environmental factors The economic factors of the country described are very favorable at present; and there exist opportunities for creating a profitable furniture enterprise. Though the production of furniture is mainly based on imported materials, as the country has put a ban on using its wooden resources due to their scarcity, for the account of the low labor force costs, compared with that in other countries, it is possible to create a product affordable and of high quality. (Jeannet & Hennessey, 1999) Political situation at present has made the country open for the foreign investors and producers, creating favorable legislation in relation to the import and foreign economic activity in general. However, despite this activity the legislation of the country is yet difficult enough for understanding and with the country having gained its independence only 15 years ago, it changes very often with the changing world realia. As for the socio-cultural aspects, the majority of the Ukrainian population has already come to the conclusion that buying furniture is not a daily routine and should be addressed properly; the requirements of the citizens towards the quality increase, and the price does not always make the decision. However, the market is overloaded with small producers, who have no real equipment for the production of the high-quality furniture at their disposal. (Stone, Marilyn A. International Marketing: European Perspective. New York: Routledge, 2004, p. 92) 3. Competitive factors It has already been said that the competition at the furniture market of Ukraine is very high, though far not all enterprises of this sector use advanced and low-cost technologies, producing high quality products. This gives the basis for the assumption that it will be possible to quickly gain certain market share for the account of 'high quality for reasonable prices'. It is possible to state that despite the high level of competition we have a number of competitive factors which will work for the benefit of our business: 1. the saturation of the furniture market in Ukraine does not imply the high quality of products; 2. most of the producers are small and don't have enough resources for modernization, working with standard equipment and standard ideas; 3. only a few producers and suppliers offer unique furniture, but its price is too high for the average consumer. Competitive factors though are developed unevenly across the Ukrainian territory, but this country has already distanced itself from the unfair competition methods. However, the question of fair competition has yet to be regulated by laws, which are insufficient at present. The tax regulations of the country are somewhat different from the ones used in our country, the main difference being in the issue of the VAT and its payment on imported goods and services. As soon as we are going to deal with importing the raw materials, we should be aware of the certain level of nontransparency. However, the Ukrainian government at present applies all its efforts to the changing of the national and local regulations for the benefit of the foreign suppliers. The country does not put any quotas for importing raw materials for furniture, and it should be said that we will be the first suppliers and producers in the country who will import unique raw materials used for the production of our furniture. It is very important to have all the necessary documents accompanying the imported goods. First of all, there should be the Invoice, the Packing List or Consignment list, with the obligatory addition of the Certificate of Origin, certified by the Chamber of Trade and Commerce, and the certificate of Quality for the imported goods should also accompany each lot. According to the Ukrainian legislation, there is no license or other certificates necessary for importing the furniture raw materials, however the custom duty for this kind of goods rates between 2.5 and 4% of the materials cost, noted in the contract. Taking into account, that the average customs duty for all imported goods into Ukraine is between 5 and 15%, the level of customs duty for the raw materials we are going to import is comparatively low. (Stone, Marilyn A. International Marketing: European Perspective. New York: Routledge, 2004, p. 198) 4. Entry method The taxes set in the country for business enterprises are relatively low, the tax income being equal to 13%, profits income – 25%. The average salaries to be paid to the workers range from$250 to $500 per month, which opens an opportunity of decreasing the initial cost of furniture, making it more affordable for the average Ukrainian consumer. Thus, for the successful entry to the market it is necessary to learn the peculiarities of the Ukrainian legislation. It is important, that the procedure of opening business in Ukraine has recently been simplified, and now physically takes not more than two days. For the start of the business activity it will be important to open the enterprise in the country, which will allow dealing with banks, local suppliers and gross consumers. After the enterprise is opened it will be necessary to acquire special registration at the customs for performing the foreign economic activity. (Stone, Marilyn A. International Marketing: European Perspective. New York: Routledge, 2004, p. 212) 5. Market entry strategy However, besides studying the local legislation, it is necessary to develop the market entry strategy, as it is very important for achieving success on the market. For the assumption that opening the production enterprise in Ukraine will be beneficial there may exist certain counterarguments: first of all, home-based production is always less risky than the overseas based; before opening the production in Ukraine it is better to concentrate on importing the finished products for better investigation of the opportunities and threats of the market; operating overseas may put the newly opened business under risk, and exporting reduces these risks. (Czinkota, M.R., & Rivoli, Pietra. International Business. Dryden Press: New York, 1999, p. 29) It is essential to thoroughly develop the marketing strategy for the market entry, and to my mind, if we decide to open the inner production on the territory of Ukraine, the best choice for us will be creating the joint venture, taking a partner among one of the small enterprises, going through the hard times. Joint ventures are usually defined as ‘an enterprise in which two or more partners (investors) share control and ownership with the operation over the enterprise’. (Hills, Gerald E. Marketing and Entrepreneurship: Research Ideas and Opportunities. New York: Quorum Books, 1994, p. 76) The form of opening a joint venture is an option better than simple exporting and in our case it will present us with the number of benefits: 1. We will be able to share the responsibilities and risks with the investor we work, and to combine the knowledge which the local enterprise has in the sphere of legislation and consumer protection, implementing the know-how into the production chosen. 2. Financial strength in this case will also be joint. 3. In case we decide the joint venture is not the option we should take, this form of cooperation will only be used for entering the market, and later with the reception of deep knowledge of the local situation and adjusting the goals of the enterprise to the local opportunities. 4. Join venture may also become a source of supply for the third world countries, but this statement is more theoretical and is not aimed at being achieved by our production. Accounting the fact that Ukraine is a young country and its legislation is far from being perfect, joint venture may become a good choice, though as any notion and enterprise, this form of cooperation and market entry strategy also possesses disadvantages, among which are the following: our enterprise will not have the full control over the production management and will be shared with the second party; if it is necessary to recover the capital, with the joint venture it will be impossible; as for the benefits which are expected as a result of cooperation, the views of parties may be different, which may also put such cooperation under threat. Thus accounting these disadvantages and understanding the necessity for the enterprise to be independent for acquiring the necessary market share in Ukraine, the joint venture option may be used only for market entry and getting enough experience in working in Ukraine. Later this type of work may be changed into a separate manufacturing enterprise, which will concentrate the profits and give the management control to the single firm. 7. Marketing Mix The Four P’s of the marketing mix should also be used for the successful promotion of our products. The Place chosen is Ukraine, but due to its considerable size, it is necessary to carry out detailed marketing research for the definition of the most perspective Ukrainian markets. The Price of furniture should first be set at the level lower than the common price among local manufacturers; acquiring bigger market share and gaining consumer’s preferences it will be possible to make the price higher. The Product has been defined by us as furniture, though it will also be necessary to investigate each segment of the Ukrainian furniture market, to define what exact kinds of furniture will experience the best sales in this country. Promotion should be based on the statement that this furniture is of very high quality, and that the quality is always higher than the price. The promotion strategy should scope the regions which will be admitted as the most perspective through the future market researches. 7. Challenges Despite the fact that foreign countries may offer vast opportunities for performing profitable business, the need for expanding the business is often ruled by the specific enquiry of certain consumers in foreign countries. In our case we have not received any inquiry from Ukrainian enterprises yet but the Ukrainian market being full of business opportunities may become the means of serious expanding of our business. This country puts a series of challenges, which are to be met in case we want to succeed. These challenges are represented through the tariff and non-tariff barriers and should be discussed in details. First of all, trading tariff barriers are represented through the problems with which the enterprises dealing with import face at the customs. What is meant here is that according to the Ukrainian legislation, the set of documents necessary for importing the goods is rather complex and unique, that is why it is difficult for the exporting country at times to meet the Ukrainian customs' requirements. However, it should be said that this is the only obstacle for the import. Ukraine has recently decreased the customs duties for the biggest portion of the imported goods according to the European rates, and goes to the simplification of the customs procedures. ‘In 2002 Ukraine adopted the new Customs Code which became effective from January 1 2004. Among other changes, the Customs Code introduced a new system of customs value that complies with GATT/WTO requirements.’ (Import regulations – Ukraine. Read More