Internationalisation of the Hess AG

A suitable strategy for German sophisticated outdoor lighting concepts going global


Project Report, 2011

34 Pages, Grade: 1,0


Excerpt

Table of content

List of figures

1 Introduction
1.1 Hess – facts and figures
1.2 Hess going global

2 Choosing the right country

3 Entering Australia
3.1 A country profile
3.2 Choosing the entry mode

4 Penetrating Australia – the marketing plan
4.1 Segmenting the market
4.2 Positioning
4.3 Implementation and budgeting

5 Conclusion

List of references
Published
Online

List of figures

Figure 1: Hess countries

Figure 2: Drivers for Hess to internationalise

Figure 3: CAGE analysis at the county level from a German perspective

Figure 4: Country clusters

Figure 5: Porter’s Five-Forces applied on South Africa and Australia

Figure 6: Results of the Five-Forces analysis

Figure 7: PESTLE analysis of the Australian market.

Figure 8: Opportunities and threats

Figure 9: Strengths and weaknesses

Figure 10: TOWS matrix

Figure 11: Former internationalisation strategies of Hess

Figure 12: Advantages/Disadvantages of Hess’ entry modes

Figure 13: Market strategy, complexity and foreign market entry

Figure 14: Internationalisation of the firm: an incremental (organic) approach

Figure 15: Internationalisation strategy of Hess for Australia.

Figure 16: Micromarket segmentation

Figure 17: Strategy matching target groups.

Figure 18: Customer portfolio

Figure 19: Positioning possibilities.

Figure 20: Positioning Hess I – strategy outline

Figure 21: SMART objectives for the Hess region centre in Australia.

Figure 22: Elements of service marketing

Figure 23: Positioning Hess II – adaptation (A) or standardisation (S)

Figure 24: Marketing budget for year 01 of operation

1 Introduction

1.1 Hess – facts and figures

The Hess AG (further called Hess) is a medium-sized company, located in Villingen-Schwenningen, Germany. It was founded in 1948 with only eight employees by Willi Hess as a small metal foundry. Throughout the years the company has grown continuously and began producing street lighting in the seventies. In cooperation with architects and industrial designers the company oriented toward creation and production of sophisticated lighting concepts and developed to one of the world’s leading manufacturers of decorative and architectural street and outdoor lighting. Hess makes his mark with outperforming technological and sustainable products and reference projects like the lighting concept of the Olympia Park in Beijing (Hess AG, 2010a).

Since 2007, the family business is managed by CEO and third-generation offspring Christoph Hess. The company counts more than 400 employees and has three manufacturing plants in Germany and one in South Carolina, USA (Hess AG, 2010a).

In spite of the financial crisis Hess’ revenues are increasing steadily. 2008 the company’s revenue was almost 43 million Euro (Hess AG, 2009b). Its main market is still the domestic German market, but distributing in more than 40 countries (Hess AG, 2010b), the international revenue made 42% of total annual revenues (Hess AG, 2009a).

The company was recently rated one of Germany’s thousand elite global market leaders, comprising companies, which either dominate an entire market sector or which have individual market-leading products, measured by yearly revenues (Manager-Magazin, 2010).

Following Hess’ growth and expansion strategy (Hess, 2010) this paper is going to analyse the Hess company internationalising into another country market. Possible markets will be detected and evaluated. Moreover, an appropriate entry method and a marketing strategy to penetrate the chosen market will be developed.

1.2 Hess going global

CEO Christoph Hess is very ambitious in taking advantage of internationalisation (Hess, 2010). Hess distributes the products through own subsidiaries and sales offices. However, in some countries Hess products are only available through other lighting companies (Hess AG, 2010b).

Figure 1: Hess countries

illustration not visible in this excerpt
Source: compiled by the author, based on: Hess AG, 2010b

Based on the frameworks of Yip (2003) and Albaum & Duerr (2008) the following table gives an overview and explanation of key drivers the company considers to expand their business internationally.

Figure 2: Drivers for Hess to internationalise

illustration not visible in this excerpt

Source: compiled by the author

2 Choosing the right country

Christoph Hess’ managerial urge is one of the key drivers for Hess to internationalise. He has a clear vision of where he wants to go and what he wants to do. Projects are going to fail when they are subconsciously refused by the executive management (Kerzner, 2004). High management attention leads to substantial benefits in personnel motivation and performance (Accenture, 2002). Thus, for employees in a flat hierarchic family business the top-management’s attitude towards their work is even more important. Expanding in a new country demands many tasks to be done – evaluating potential markets in countries, choosing a country, deciding about the right entry method, shaping the strategy of how to act and penetrate the market and finally operating in the day-to-day business. With high attention of the CEO, there is higher commitment for these tasks of the employees and the company is more likely to prosper. “Major change is often said to be impossible unless the head of the organisation is an active supporter” (Kotter, 1996, p. 6). Christoph Hess is very interested in the countries Quatar, Australia, South Korea, Vietnam, Brazil and South Africa (Hess, 2010). He personally sees high potential in these countries. Therefore subconsciously his management attention might be much higher.

To evaluate, which of these countries to choose, is difficult. However, when having a choice, psychic distance between Germany and the destination culture should be lowest to face the least problems operating in the new market. The psychic distance is “the distance between the home market and a foreign market, resulting from the perception of both cultural and business differences” (Evans and Mavondo, 2002, p. 517). It can be revealed in a very solid and broad view using the CAGE framework, considering cultural, administrative, geographical and economical differences (Ghemawat, 2007, pp. 39-42). The following analysis will make these differences to Germany, the home market of Hess, visible.

Figure 3: CAGE analysis at the county level from a German perspective

illustration not visible in this excerpt

Source: compiled by the author

Australia is the country with least relevant differences to Germany (scoring 21), considering the shown CAGE framework. However, a precise evaluation of this analysis is difficult comparing a lot of data. Quatar, South Africa and South Korea appearing as likely candidates, because of just a few relevant differences (scoring 18-15), have to be regarded closer as well. The English language of Australia, Quatar and South Africa as a cultural distance factor is not very deciding. Germans working in global companies such as Hess generally have good capabilities in understanding English. A potential problem is the language barrier to Korea.

Australia exceeds the other countries from the cultural point of view, because values and behaviours, according to Hofstede (2009) and Gesteland (2002), are very similar to German ones. South Africa gains a bonus concerning the time difference instead, which is very important for availability during business hours. Quatar’s time difference with just two hours doesn’t stand out negatively either, but dealing with political influences of an Emirate might appear difficult for Hess.

The country clusters based on attitudinal dimensions (Ronen and Shenkar, 1985), showing the Germanic cluster and the Anglo cluster being adjacent, prove the relative similarity and relatedness of Germany with South Africa and Australia and stress the fact of a relatively low psychic distance to these countries. Therefore both of them will receive further focus to achieve a proper decision, which market to enter.

Figure 4: Country clusters

illustration not visible in this excerpt

Source: Ronen and Shenkar, 1985, p. 449.

Comparing countries to evaluate how likely they fit to Hess and how easy it is to operate in and be profitable, the industry level, namely the production and distribution of lighting products and concepts, has to be regarded as well. Applying the CAGE framework (Ghemawat, 2007, pp. 49) the industrial environment comprises for example geographical distances with consequences on shipping goods or cultural distances such as different technical standards for electricity. However, Hess is already a global player. Therefore they have experience in handling these matters, otherwise operations in other countries wouldn’t be successful. Using CAGE, threats of the industry in the countries are not considered in depth, as the focus lies on a comparison to the home base. Thus, the CAGE framework does not necessarily need to be applied here.

A more holistic approach to look at the industry is provided by Porter (2008). His five-forces framework reveals the competitive structure in a country’s industry and is an indicator of success potentials. The following table shows the threats in the lighting industry with regard on the intent of Hess to establish distribution of their products in South Africa (SA) or Australia (AUS). It deals with the industry as a whole and highlights particular facts of the countries, if they are relevant.

Figure 5: Porter’s Five-Forces applied on South Africa and Australia

illustration not visible in this excerpt

Source: compiled by the author, based on Porter (2008)

Figure 6: Results of the Five-Forces analysis

illustration not visible in this excerpt

Source: compiled by the author

It results, that competitive threats in that global industry are relatively low. For a lighting company in SA, they are even lower, because tariffs alienate new entrants and there are only few competitors to deal with. However, for Hess entering a new market, Australia looks much more promising. The market potential is worth to be skimmed, although facing small and even a few bigger competitors. With its brand name and reference projects from all over the world attracting architects to get orders and participate in Australia’s construction industry will be manageable with the right marketing strategy. Furthermore, the results from the CAGE framework above have already shown that the easiest way to enter a new country would be Australia, as the cultural and business differences to Germany are the lowest.

[...]

Excerpt out of 34 pages

Details

Title
Internationalisation of the Hess AG
Subtitle
A suitable strategy for German sophisticated outdoor lighting concepts going global
College
Anglia Ruskin University  (Ashcroft International Business School, Cambridge)
Course
International Marketing Strategies
Grade
1,0
Author
Year
2011
Pages
34
Catalog Number
V174224
ISBN (eBook)
9783640946587
ISBN (Book)
9783640946334
File size
1260 KB
Language
English
Notes
Aufgabe: “You are to introduce a B2B brand sold in one named country into another named country in which it is currently not available. Produce the analysis for market entry and an international marketing plan that will achieve the objectives that you define.” Nach einer fundierten und ausgedehnten Länderanalyse konzentriert sich die Arbeit auf den Markteintritt in Australien, inklusive ausgearbeiteter Marktsegmentierung und Konzeption des Marketing Plans.
Tags
Marketing Plan, Hess, Leuchten, Außenbeleuchtung, Internationalisierung, Marketingstrategie, Australien, Deutschland, market entry, Markteintritt, Segmentierung, Targeting, Positionierung
Quote paper
Benjamin Buchwald (Author), 2011, Internationalisation of the Hess AG, Munich, GRIN Verlag, https://www.grin.com/document/174224

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