Table of Content
2. Market Selection:
3. Export market entry options:
4. Export market communications:
6. Physical Distribution:
8. Appendix 1
9. Reference list
Globalization of business due to growing trade policy liberalization, stability in monetary transactions, regional economic integration, convergence of customer preferences, and technological advances have witnessed in the recent decades (Katsikeas, Samiee, and Theodosiou, 2006). Exporting comprises an attractive foreign market entry and expansion approach for firm, especially those of small and medium size. Moreover, export market expansion has become more a matter of endurance than choice for many firms that face challenging economic conditions (O’Cass and Julian 2003).
Children R Us is a small company of Bangladesh. It manufactures baby strollers which are made of foldable aluminum frame, four wheels, and a length of canvas. It is important for the Children R Us to find out the direct export sales potential for its baby strollers by considering Market selection, Market entry, Marketing communication, Price, Physical distribution. In this paper, the relevant literature and the application of literature are presented in case of taking baby stroller to the market of England.
In the first part of this essay, the market selection will present that how Children R Us is going to select England for its baby strollers. Later, the second part will discuss the market entry mode Children R Us is going select for entering into the England. Then, the third part will discuss two marketing communication methods which will be appropriate for the Children R Us. Moreover, the fourth part will discuss how Children R Us is going to finance its business to keep it solvent. Finally, it will discuss the benefits, changes of Incoterms 2010 and describe one of the Incoterms in details which facilitate the physical distribution.
There are two kinds of process in a market selection process (proactive and reactive) which analyze how companies move into exporting and international marketing. According to albaum et al (2008, p.188), “A reactive approach characterizes a situation where the exporter acts passively in selecting a market by filling an unsolicited order or awaiting the initiatives of foreign buyers, importers, agents and others who indirectly select the market for the firm.”Therefore, this type of selection process is informal, unsystematic and purchase oriented. On the other hand, Proactive process is more market oriented. The exporter is more active in initiating the selection of foreign markets and the further customer segmentation of them. This process is thus a more formal and systematic one (Albaum et al., 2008).
Two distinct procedures (expensive or contractible methods) for screening export markets are used in case of implementing a proactive or reactive process. (Tomes & Philips, 2003). Albaum et al ( 2008, p.190) mentioned about the expensive methods ,“market selection over time is based upon similarities between the national market structures of a political, social, economic, or cultural nature, so that the export marketer expands from one market to the next, introducing a minimum of further adaptation to the product as well as other export marketing parameters.”This expensive method is an experienced based market selection.
There are two approaches (nearest neighbour approach and temperature-gradient approach) for this experienced based market selection. The nearest neighbor approach refers to a type of grouping or clustering of markets based on geographic proximity (Albaum et al., 2008). On the other hand, temperature-gradient approach classified the countries as super hot, hot, moderate, cold according to seven variables: political stability, market opportunity, economic development and performance, cultural unity, legal barriers, physiographic barriers and geo-cultural distance (Russow & Okoroafo, 1996).
Albaum et al ( 2008, p.192) mentioned about the contractible methods, “the optimal market selection starts with the total number, or a large number, of national markets, which are eventually broken down into regional groupings on the basis of political, economic, language, or other criteria”. Contractible methods eliminate least promising markets and consider promising markets.
For Children R Us, it is more appropriate to use a proactive market selection as the company is a small company which does not have established brand image. Therefore, it is difficult for this company to choose reactive process as foreign buyers don’t know well about this company. As Children R Us is going to use the proactive process then, it will involve systematic market research, and even one or more visits abroad, such visits being to access the potential market. When Children R Us is going to implement the proactive process it will consider contractible methods. In case of applying the contractible methods, it is going to follow the process suggested by Root (1994). Children R Us is going to indentify the country market with the highest sales potential for the baby strollers. Starting with the preliminary screening, industrial market potentials are then estimated for a relatively small number of prospective target countries. Finally, Children R Us is going to estimate company sales potentials for the high industry potential countries. Therefore, Children R Us selects the market of England for its baby stroller. The sales potential of Baby stroller is related to the birth rate in this country. Therefore, some information regarding birth of baby is analyzed later for selecting the market.
According to Office of National Statistics (2011), “The number of live births in England and Wales also increased. There were 723,165 live births in 2010 compared with 706,248 in 2009, a rise of 2.4 per cent.”
illustration not visible in this excerpt
Source: Office of National Statistics, 2011.
From figure 1, it is found that the Total Fertility Rate (TFR) for 2010 in England and Wales was 2.00 children on average which increased from 1.96 children from 2009. Moreover, in 2010, 715,467 maternities in England and Wales which increased of 2.5 percent compared with 2009.
In case of General Fertility Rate (GFR), during 2010 was 65.4 live births per thousand woman aged 15-44 which is an increased compared with 63.7 in 2009 (Office of National Statistics website,2011).Therefore, Children R Us has found that the birth of the babies in the England is increasing.
Another reason of choosing England is that the language is English, and this will help Children R Us to negotiate directly with the potential distributors and business clients. Moreover, the existing competitors, for example, McClarens and Bugaboo Cameleon have weaknesses. In case of McClarens baby stroller, there are two locks on both sides which seemed to be a problem faced by the customers (Amazon Website, 2011). Moreover, Bugaboo Cameleon is not worth a $600 price premium over competing strollers based purely on functionality (consumer search website, 2011). Graco Stroller is not reliable which is realized by some customers (consumer affairs website, 2011). Children R Us will find a competitive advantage by overcoming the weaknesses of the competitors and offering a competitive price in the market.
Therefore, Children R Us is going to select the England based on the sales potential, language benefit, and existing competitors.
2)Export market entry options:
There are two ways of exporting- indirect and direct. Indirect exporting refers to the process of selling goods overseas through a third party, there by handing over control of the selling process of the goods. On the other hand, direct exporting refers to the process whereby the exporter becomes fully involved in and totally committed to the process of exporting on a proactive basis (Branch , 2006).
Children R Us is going to use the direct export only as it is suitable for this company. In this paper only direct export options will be discussed. Later, it will choose one entry mode of direct export for Children R Us and it will discuss and justify the reason of the choice.
The main advantage of choosing direct marketing is the access to local market experience and contracts with potential customers. On the other hand, little control over market price because of tariffs and lack of distribution control, especially with distributors is a disadvantage of choosing direct marketing. built-in department, export sales subsidiary, foreign sales branch, distributors and agents are the five main entry modes of direct export (Albaum et al., 2008).
Few entry modes of direct export are going to be discussed briefly here for the understanding of the options available in case of Children R Us.
“The built-in type of export organisation is the simplest in structure and, thus, the easiest to establish.” (Albaum et al, 2008, p.322). A build in type of export organization has a sales manager whose job is to do the actual selling or direct it. Advertising, logistics, credit are performed by the regular domestic market oriented departments of the company. The main advantage of the built-in arrangement is that it is simple in structure, flexible, and economical in use. However, many problems can arise when the export manager attempting to coordinate activities that are performed by the organizational units not under his or her direction (Albaum et al, 2008).
Export sales subsidiary:
“In attempting to divorce completely export marketing activities from domestic operations, some companies have established an export sales subsidiary as a separate corporation.” (Albaum et al, 2008, p.324). It is wholly owned and controlled by the parent company. However, it is a quasi-independent company which is attached to export operations. This type of companies gain many advantages including unified control, cost and profit control, allocations of orders in multiple plant enterprises, ease of financing , complete line of products and tax advantages. However, the manufacturer must build up a system of internal transfer which may cause many complexities and management problems (Albaum et al, 2008).
Foreign sales branch:
“A foreign sales branch handles all of the sales distribution and promotional work throughout a designated market area and sells primarily to marketing organisations (wholesalers and dealers) or, under certain conditions, industrial users.” (Albaum et al, 2008, p.325). One advantage is that storage and warehousing are often available, thus, the branch can maintain an inventory of the product itself. Additionally, shipment may often be completed from the plant to the initial buyer. For many manufacturers using a branch office can be as a service centre. However, when the sales branch is organized as a subsidiary, adverse tax law may exist and there may be problems involved in repatriating profits (Albaum et al, 2008).
Distributors are the exclusive representatives of the company and are generally the sole importers of the company’s product in their markets. According to the Hollensen (2007, p.318), “As independent merchants, distributors buy on their own accounts and have substantial freedom to choose their own customers and to set the conditions of sale.” The distributor takes the title to the exporter’s good while the agent does not. Moreover, distributors income come from the margin taken as determined by the trade discount granted by the exporter. Additionally, distributor normally carries an inventory (Albaum et al, 2008).
Agent normally provides fewer similar services like the export management company. On the other hand, the export agent keep hold of its own identity by operating in its own name and is often paid a straight commission which does not include advertising and financial assistance. This is beneficial for firms that want to sell small orders or enter a new market. One advantage of having agent is that the company can avoid the recruitment, training and payroll costs of using their own employees to enter an overseas market. However, the company is responsible for shipping and other trade-related logistics and the agent should help (Walvoord, 1983).
Children R Us is going to choose the build-in type of export organization initially .According to albaum et al ( 2008), build-in type of export organization is suitable for any of the following conditions like a small company , new and relatively new to export marketing, expected foreign sales volume is moderate to small, management philosophy not oriented toward growth of foreign business, exiting marketing resources capacity not fully utilized in the domestic market, either the company is unable to acquire additional resources, or if able to do so, key resources are not available. Therefore, build-in type of export organization entry will be suitable because Children R Us is small company, new and relatively new to the export marketing, and expected foreign sell is moderate to small. However, Children R Us will choose this initially because initially its financial condition is not stronger. But when it will make profit and its financial condition will be strong, and then it can choose the foreign based distributors. According to Albaum et al( 2008, p. 331), “ if a product is of a type that may require service, the distributor stands ready to provide such service by having the proper facilities, well-trained personnel, and a complete stock of the necessary parts and materials.” Moreover, approximately 80 percent of UK export trade goes via distributors, and it is the method most used by exporter ( Chee and Harris, 1998).Children R Us will choose this entry mode because baby stroller is a type of product which may require service, the distributor will be stand ready to provide such service by having the proper facilities, well- trained personnel, and a complete stock of the necessary parts and materials.