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MNG 00723 Global Business For International Business Expansion

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Questions:

For this assessment task, you are expected to demonstrate your understanding of the following: 

1. How to assess country potential through an analysis of risks and opportunities. Risks that should be emphasised (but not limited to) in particular are those relevant to brewing businesses such as cultural and legal aspects, government regulations and financial/currency risks. Opportunities may include (but not limited to) market size, economic growth and trade agreements between the 2 countries.
2. How to identify the best market entry strategy based on the business type and host country business environment (this includes the level of economic integration between home and host country, the political and legal environment of the host country). The recommended strategy must be well justified based on all the factors (e.g. organisational goals and objectives, resource requirement, degree of control required, risks in the target market, etc.) to consider when deciding entry strategy.

Answers:

Introduction

In the recent years, there is increased popularity for craft beers. It is a specialized beverage which is brewed in small manufacturing firms. Five business graduates from Australia have identified the opportunity in the business and established a small firm for beer brewing. The company has observed a significant growth as the local residents as well as the tourists in the country preferred the unique taste of the beer. The company was established with an initial cost of five hundred thousand Australian dollars and brewed the beer in three different categories.  With the passing time, the demand for beer did not deter as and a large number of people would become addicted to the specific beer. It gave strong competition to other alcoholic beverages and drinking products. However, the growth of the company has become slower with more competition and the slow-down in the demand.

Therefore, it is important that the company assures its growth by looking for new opportunities. In this regard, the markets of India and Brazil have been shortlisted for the expansion of the company. The present report will identify the most suitable market for the organization and identify the risks and opportunities in different counties. On the basis of the analysis, the report will select the most suitable market for the organization. Moreover, the report will also propose the best-fit strategy for entry into the foreign market.

Analysis of Risk and Opportunities


The selection of the foreign market is a complex decision for the business organizations. It is due to the reason that the international expansion need to strong financial investment from the organization and the success or the failure of the organization is dependent upon the selected market. Therefore, in the present case, the markets of Brazil and India have been selected for the future expansion. However, in order to select the best market, it is important to examine the risks and opportunities posed by both the markets. In this regard, the present section will conduct PESTLE analysis of both the countries.

Brazil:

Brazil is the one of the fastest growing economy of the country and it is the third largest beer market across the globe and the citizens consume alcohol inn their daily lives. The country is the oldest beer producer and consumer (Vashishth & Tripathi, 2016). There are several laws and regulations which are associated with the license to run operations. 

Opportunities

Legal and Cultural Aspects

It is a developing economy and in the recent years it has observed a strong growth. The middle-class population of the country is growing exponentially and the government has developed various policies to encourage foreign companies. The country has developed various policies related to taxation, intellectual property and employee remuneration. These policies have been formed to encourage healthy competition in the country. The country also has flexible polices related to alcohol consumption and its outlets. The social factors refer to differences in the lifestyle and the routine of the people which affects the demand of the consumer products. A significant portion of the country’s population is below poverty line which may impact on the demand of the organization. The Brazilian beer market is strong and the people consume beer in festive mood and at other times. Several micro-breweries and craft beer organizations have also been developed in the country; therefore, there is a strong market for the organization (Flander Investment and Trade, 2015).

Market Size and Economy

In the recent years, the economy of Brazil has shown strong potential for growth. With the changes in the policy, the FDI inflow in the country has increased which has strengthened the economy. The middle-class community of the country is growing and the difference between the rich and the poor community is declining. The inflation rate of the country is low and the purchasing power of the customers is increasing regularly. However, the government imposes high taxes on commercial enterprises. The economy is still in developing stage; therefore, the labor cost to the company is reduced. The country has developed a lot in recent years and it has resulted in the development of several technological developments in the country. The local infrastructure of the country has resulted in the development of small and medium enterprises in the country. In the recent years, several production and development technologies have been developed which has resulted in the efficiency and the growth of the company.

Risks

Intense Competition

 The primary risk for the organization is the intense competition in the marketplace. There are several companies which are selling craft beer at different flavors and sizes to the customers. The competition in the market is intense and the company will need to adopt different marketing strategies to establish its position in the marketplace.

Government Regulations

There are several government regulations in the country related to the organization structure and the work environment. The Brazilian government is also encouraging healthy drinking due to the high crime level; therefore, the business of the organization will be restricted in the country.

Cultural Factors

The culture of the country is as such that the people of the country consume alcohol only on festive occasions. Therefore, the sales of the organization will be bounded by the phenomenon of seasonality.

Currency Fluctuation Risk

The currency of the country real is quite weak. The country’s currency is weak and keeps fluctuating. In the recent years, the currency of the Brazilian real has dropped to a record low which shows that the currency of a country is weak (BBC News, 2015). 

India:

Risks:

Government Regulations:

India is a developing country and in the recent years, the government has implemented a number of policies and reforms to encourage foreign businesses in the country. As a result of these reforms, currently the company is considered as one of the major market across the globe. However, the country is not well-receptive for alcoholic beverages. There are several regulations which prohibit or limit the alcohol consumption in the country. Alcohol and other beverages can only be served in bars or restaurants with the help of license. The consumption of alcohol is controlled by the local state government; therefore, several states have been declared dry or prohibit alcohol consumption. Along with it, there are also certain states which have declared that the maximum age of alcohol consumption above 25 years old and control the sales of the product. Therefore, there are several political regulations which control the overall alcohol consumption in the country (Mathur, 2014).

Cultural Factors:

Alcohol consumption is considered as a negative influence and is not a part of the Indian social setting. There are several stigmas associated with the alcohol consumption and only a few families or people are open to drinking alcohol regularly. However, with the rise of the working population, the youth of the country has become more docile to the alcohol consumption. With the changing culture, several foreign companies as well as local alcohol companies have emerged which have declined the cost of the alcoholic beverages in the country. The surge in café and drinking culture has also increased alcohol consumption. Therefore, the social factors are amiable in the country (Ponnam, Acharya, Mitra and Banerjee, 2017).

Currency Fluctuation Risk:

The economy of the country is showing promising growth. In the recent years, the currency of the country has remained stable.

Opportunity

Financial/ Currency Factors:

In the recent years, the company has observed drastic economic growth. It has been the result of liberalization policies and reforms in the economic structure of the country. The spending power of the consumers has increased and the middle class section of the country is growing exponentially. Currently, the ratio of working population or the youth is very high and; therefore, the customers are spending on expensive and luxury products. Therefore, the economic conditions of the country are favorable for the economic growth (Davies, 2017).

Technological Factors:

In the present, the technical infrastructure of the country is well-developed and the government is focusing on developing the infrastructure so that it can attract more foreign capital in the country. The company can use its technical expertise and the infrastructure of the country to set up a plant in the country.

Trade Agreements

India has several bilateral ties and agreements with Australia. These agreements will assist the organization in setting up business operations in India. It will also accumulate the organization in tariff liberalization and resource accumulation in the new target market (IANS, 2017).

Selected Destination Country

With the help of the evaluation conducted for both the countries, it has been examined that the Brazil is the most viable option for business expansion. The primary reason for the selection of the country is that it is a growing economy and there is common culture for alcohol consumption in the country. The demand in the country for beer consumption is high and the company will access readily available market if it enters the Brazilian market. It will access the new market and the customers of the organization will also have access to the whole Brazilian market as well as it will have access to other markets in the South American subcontinent. The company can also achieve high profits at the time of high seasonality.

Cheers Company can also maintain high level of growth in Brazilian market.

Justification for the proposed Entry Method

In order to make entry into the Brazilian foreign market, the company has to choose one of the specific entry methods. Cheers Beer is an Australian company which may enter into the Brazilian market with the help of direct market entry, franchise, licensing or joint venture. In the current situation, the strategy of franchising will be the most suitable method of foreign market entry. The franchising agreement has limited risk and can assist the organization in setting up a new manufacturing plant in the most cost-effective method (Seid & Thomas, 2006).

In the franchising system, a semi-independent business owner pays royalty to the business organization and obtains the trademark, logo and license to sell the products of the company in the most cost-effective method. The franchisor can establish as many franchisees as possible. The franchising agreement is commonly formed for longer duration and provides several forms of right to the franchisees which includes training, equipment, and site approval and operations system. The franchisor provides all the necessary training and provides assistance in setting up the operations. There are several benefits of international franchising such as low political risk, low cost, expansion in different parts of the world and bringing managerial capabilities in the organization’s operations. However, there are also certain shortcomings of the franchising mode of operations such as maintaining control over franchisee is difficult. It is very difficult to maintain harmonious relations with the franchisee and they are most likely to result in legal disputes due to controversy in the licensing and other intellectual property issues. If the franchisee is not operating properly or enter into legal dispute with other company, it may detriment the image of the franchisor (Applegate & Johnsen, 2007).

The franchisor should also monitor and evaluate the performance of the franchisee and provide regular assistance to them. It may create financial burden on the performance of the organization. The franchisee can also take advantage of the information provided to the organization and they may become the future competition for the organization (Stack, Gartland and Keane, 2016).

In the present case, there are several advantages of franchising business model for the international expansion. Firstly, Cheers Beer is a small beer brewing organization and has limited access to the financial capital. Franchising is the most viable business model of expansion with limited financial capital. It offers several advantages such as risk of debt and cost of equity. The organization can grow with limited capital with limited liabilities. The risk is only limited with the capital invested in developing the franchise company. Another important benefit of the franchising model is that the business owner remains motivated throughout the tenure. While establishing a new unit in a foreign country, the business management of the organization finds it difficult to find a motivated and talented manager to manage the new subsidiary in a foreign country. The management finds it difficult to recruit a talented candidate in the organization or to retain them for longer duration. Moreover, the organization invests a significant amount of finance on training of managers (Bensoussan & Fleisher, 2008).

However, there long-term association with the organization is not guaranteed. However, when an organization selects a franchisee then they will be able to establish long-term relationships based on mutual benefits. The franchisee will be able to learn more about business and business operations. The franchise operators are the owners of their branch and; therefore, they make extra efforts to improve the performance of their organization. The organization will also be able to improve the operational quality of the organization. They keep the job location clean and train the employees better to manage the business. Moreover, they are also more concerned for the profitability and the innovation process in the business. They are constantly looking for opportunities to improve their business. In addition, they also have a stake in the business; therefore, they keep a sharper eye on the labor cost, theft and inventory items (Nunez and Castaño, 2016).

In Brazil, the beer business is established and a large number of organizations are familiar with the business environment and the market characteristics; therefore, it can be critiqued that the selection of franchisor will be beneficial for the organization to enter into the market. The company will get the added benefits as it will obtain the market knowledge of the new market. It will not need to invest in the marketing research activities and the organization can immediately access the market. As Brazil is a new business location, the company will easily obtain the support of the local business man.

Summarizing, it can be stated that franchising is the apt business model for the organization. It is a cost-effective and appropriate business model for the organization and it can readily access the market knowledge and other crucial information specific to the market. The company will not require investing in consumer litigation and other legal information related to the organization. All the management responsibility will be with the franchisee owner and the organization will not require meddle is small affairs. Craft Beer can save up time and cost to invest in other locations and marketplace. Other foreign market entry methods such as licensing or exporting will require heavy investment. If the venture of the organization fails, it has to bear heavy losses. Therefore, franchising is the most suitable option for the company.

Conclusion

Conclusively, it can be stated that the Cheers Beer is a small craft beer organization which deals with specialized beer production. The company has developed a niche market in Australia; however, the growth of the organization has become stagnant in the rent years. If the organization needs to grow in future, it needs to enter into foreign markets. In this case, the markets of Brazil and India have been shortlisted for the future expansion of the organization. It can be critiqued that the organization should invent in the market of Brazil for the future expansion. Drinking beer and alcoholic beverages are a social phenomenon and the people deer a large amount of beer at festive occasions. Moreover, it is also a developing economy and the middle-income group is growing immensely in the country. Therefore, it is an appropriate market for the organization.

References

Applegate, E., & Johnsen, A. (2007). Cases in Advertising and Marketing Management: Real Situations for Tomorrow's Managers. Rowman & Littlefield.

Bensoussan, B.E., & Fleisher, C.S. (2008). Analysis Without Paralysis: 10 Tools to Make Better Strategic Decisions. FT Press.

BBC News. (2015). Real worries: Why is Brazil's currency now so weak? [Online] Available at: https://www.bbc.com/news/business-34455980 [Accessed on: 26 August 2017].

Davies, W. (2017). India’s days as a beer-drinking lightweight may soon be over. Livmint. [Online] Available at: https://www.livemint.com/Industry/EzTfs9Ar2qksXQWSSFGitO/Indias-beer-market-set-to-soar-on-culture-change-growing-m.html [Accessed on: 26 August 2017].

Flander Investment and Trade. (2015). Beer Sector In Brazil. https://www.flandersinvestmentandtrade.com/export/sites/trade/files/market_studies/800151125155419/800151125155419_10.pdf

IANS. (2017). India’s economic success vital for global economy: UK envoy. [Online] Available at: https://economictimes.indiatimes.com/news/economy/policy/indias-economic-success-vital-for-global-economy-uk-envoy/articleshow/60211247.cms [Accessed on: 26 August 2017].

Mathur, A.K., 2014. Alcoholic Beverages Industry in India: An Exploratory Study. Eduved Global Management Research ISSN, pp.2394-0085.

Nunez, S. and Castaño, R. (2016). Building Brands in Emerging Economies: A Consumer-Oriented Approach. Business Analytics and Cyber Security Management in Organizations, p.18

Ponnam, A., Acharya, A., Mitra, A.N. and Banerjee, P., 2017. Deterrents to wine consumption in the emerging market of India: A qualitative study. International Food Research Journal, 24(3).

Seid, M.H., & Thomas, D. (2006). Franchising For Dummies. John Wiley & Sons.

Stack, M., Gartland, M. and Keane, T. (2016). Path Dependency, Behavioral Lock-in and the International Market for Beer. In Brewing, Beer and Pubs (pp. 54-73). Palgrave Macmillan UK.

Vashishth, A., & Tripathi, N. (2016). Study on Market Analysis of Indian Beer Industry. International Journal of Business and Management Invention 5(7), 28-32.

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