What Makes For a Successful Market Entry Strategy and Operation Mode? The Company Völkl Expanding to Argentina

List of contents

1. Introduction
1.1 Statement of the problem and ambition
1.2 Literature Review
1.3 Research concept

2. Research methodology
2.1 Secondary research
2.2 Primary research

3. Introduction to Völkl

4. Strategic Analysis of Argentina
4.2 Economic environment
4.3 Cultural and social environment
4.4 Technological environment
4.5 Ski industry in Argentina

5. Market justification

6. Market entry strategy and distribution mode
6.1 Distributor strategy
6.2 Online sales strategy
6.3 Sales and retail strategy

7. Marketing strategy

8. Profit and loss calculation

9. Conclusion

References

Index

1. Introduction

Multiple reasons can lead to the decision of a company expanding to a further and yet foreign market. Profit and growth goals, economies of scale or foreign market opportunities are just a few fundamental reasons. Besides the company’s interest in exploiting market possibilities there can also be problems or threats in the home market resulting in a pressure to expand.¹

According to Wolfgang Mayrhofer, the branch spokesman of ski industry, the ski market in Germany will no longer experience any growth. For the producers it is only about taking market shares from each other.² To not perish in this fiercely competitive industry it is unavoidable to expand business to further markets worldwide.

1.1 Statement of the problem and ambition

However every expansion is connected with many, also unpredictable challenges having the potential to destroy the purpose.³ Particulary when expanding to emerging countries companies will encounter a high potential of difficulties.⁴

The aim of the present paper is to develop a realsitic market entry strategy for Völkl Ski and Snowboard, to expand to the emerging country Argentina. The goal within this development is to detect how the structure of the company and the conditions in the host country influence the decision for an optimum market entry strategy.

The core question convoying the research and also underligning the aforenamed problem potential can be formulated as follows:

Is it possible for Völkl to successfully sell high quality products in a yet small market in a country being situated in a drastic political and economic change?

1.2 Literature Review

A wide range of literature already provides lots of information on a general market entry in Argentina. Country challenges, opportunities and also special procedures and requirements are listed. But the field of market entries into the specific argentine ski industry has not been adequatly researched so far. In the following this is to be examined within the scope of an impact analysis.

1.3 Research concept

For the process of the above named research question the first chapter of the paper implicates an introduction to the company Völkl, also identifying its state of internationalization. Further on the country Argentina will be analyzed by reference to the PEST approach. Additionally the second chapter includes the study of the ski industry in Argentina, also revealing the strongest competitors in the market.

2. Research methodology

The paper relies upon a dataset mostly including secondary data but also primary data contributing to a qualitative approach.

2.1 Secondary research

The results of the paper are mainly based on the evaluation of present literature. Various sources of secondary data are used to verify the credibility of the paper. Used statistics like Statista, GTAI and information from the Chamber of Commerce association underligne the reliability. In addition comparitive secondary data is devoted to provide a comparison between the home and the host country and also the ski market.

2.2 Primary research

To receive more detailed infomation on the company Völkl and also the ski industry in general, the research data includes an interview with Völkl Junior International Marketing Manager Felix Pätzold. The interview took place on 20 April 2016 and included among others specific questions on the strategic international alignment of the company.

3. Introduction to Völkl

Founded as a family business in 1884, Völkl evolved to an innovative, internationally active medium-sized company in the sports article industry. Völkl mainly offers ski and snowboard in numerous varieties addressing a big target group.⁵ In 2004 Völkl has been bought by the american sports- and lifestyle concern K2. Since then Völkl outsourced its production for snowboards and kids skis to China. But still 75 per cent of Völkl skis are produced in the only German ski production facility in Straubing.⁶

The company’s strategy is based on producing and selling high quality premium products with the newest technology. Already being represented in 39 countries, Völkl was able to reach 14 per cent of global market share in 2011. Currently the firm is positioned on rank four of the most successful ski producers worldwide.⁷

4. Strategic Analysis of Argentina

Due to a presidental change in Argentina, in 2015, the direction of economic policy shifted from nationalization and protectionism to liberalization and world market integration.⁸ This restructuring affects several indicators of the PEST analysis.

4.1 Political and legal environment

The current political environment in Argentina still remains difficult. The country has to deal with expropriation-, transfer- and war risk.⁹ The legal stability within the market is endangered through a high level of corruption, as another result of the former governement’s mismanagement.¹⁰

Before the change of presidency Argentina also promoted several tariff barriers. According to the World Trade Organization these import restrictions even broke international trade rule and the country was forced to lift them in 2015. Currently Argentina represents a better attitude towards foreign investment and is encouraged to liberalise onwards its trade policy.¹¹

4.2 Economic environment

Argentina not only faces political but also economic turbulences, which becomes apparent in one of the highest inflation rates in the world, reaching 40 per cent in 2014.¹² With a GDP per capita of $12,509.50 the country belongs to the group of newly industrialized countries.¹³ It has one of the highest standards of living in Latin America achieving a value of 0.836 in the Human Development Index in 2014.¹⁴ However Argentina also implies inequality in income resulting in a GINI Index of 44.5 in 2014.¹⁵

4.3 Cultural and social environment

Consequences of the former government also become apparent regarding the Hofstede Concept. Uncertainty is seen as a threat in the Argentine culture. Associated Argentines rather focus on achieving quick results. The prime key value having a further impact on business is the importance of personal relationships. Business is mainly done through face to face interaction, also having a stong focus on the nonverbal aspects of communication.¹⁶

4.4 Technological environment

The Network Readiness Index of 2015 categorizes Argentina in the second worse group.¹⁷ An inefficient energy economy and bad transport conditions lead to this weak result. Whereas the telecommunication system in the country is highly advanced.¹⁸

4.5 Ski industry in Argentina

The total of 22 Argentine ski areas are estimated to generate around one and a half million skier visits per year including 25 per cent of foreign skiers. In contrast to Germany, with almost 15 million skier visits, the Argentine ski market still is in the beginning of its development.¹⁹ Until now only 14 ski resorts exist within the total length of 7000 kilometres of the Andes Mountains. Enormous distances seperate them leaving endless opportunities to develop a high growth in the Argentine ski market.²⁰ The Argentine ski industry is not yet highly competitive. As well as in Germany Völkl mainly has to face the top three global players Atomic, Rossignol and Salomon. But " Made in Germany " as a fixed part of the brand pursues Völkl a major competitive advantage. Especially in Argentina it is a standing out feature, because quality is highly valued in the consumer preferences.²¹

5. Market justification

After many years of crisis Argentina finally is on the move towards a better political and economic future.²² Völkl faces a market with huge growth potential and yet less competitors. Therefore the company has the opportunity to increase sales volume and get more balanced sales over the year. In the long run Völkl has the potential and the possibility to be the leading firm in Argentina's market for wintersports.

6. Market entry strategy and distribution mode

The process of finding the appropriate market entry strategy for the company demands a lot of effort and time. It must be carefully considered because the basic performance of the expansion and the resulting distribution mode depend on the selected strategy.²³ Regarding Völkl, the key factor influencing the decision process is the level of centralization of production and distribution. The country Germany and its high quality standard, as part of the company’s brand, exclude a relocation of the production. Besides, the yet slow growing Argentine ski industry and the risky country environment postulate a relative low level of investment and transaction costs to minimize the existing risks. A summary and evaluation of these results lead to direct export as the ideal strategy, for the company, to enter the Argentine ski market.²⁴

6.1 Distributor strategy

Within this strategy, research and development, production and the main part of the marketing stay in Germany, while exporting the goods to an independent distributor in Argentina. The distributor is a merchant, who purchases the goods on his own account and resells them for a profit to the local retailers.²⁵ Völkl is in direct contact with him and participates down to the retail level, especially by marketing programs. This strategy is also applied for the snowboards being produced in China and afterwards being shipped to the distribution center in Straubing.

On the one hand this strategy provides several advantages like proficiency, fast exchange times, good business relations and market know-how through an experienced distributor. On the other hand, Völkl also has to deal with the challenges of a high dependence on the distributor, less profit and control, as well as currency and transport risks.²⁶

[...]

¹ Cf. Hollensen (2011), p. 50 f.

² Cf. Rothammer (2015): http://www.welt.de/regionales/bayern/article136958207/Die-Erben-des-bayerischen-Renntigers.html.

³ Cf. Hollensen (2011), p. 50 f.

⁴ Cf. Khanna; Palepu; Sinha (2005): https://hbr.org/2005/06/strategies-that-fit-emerging-markets.

⁵ Cf. Without author: https://www.voelkl.com/de/company/unternehmen/meilensteine.html.

⁶ Cf. Without author: http://www.handelsblatt.com/unternehmen/industrie/skihersteller-voelkl-schnelle-bretter- seite-2/2761782-.

⁷ Cf. Magenheim (2011): http://www.badische-zeitung.de/wirtschaft-3/skihersteller-voelkl-gewinnt-marktanteile -weltweit--52703295.html.

⁸ Cf. Prange (2015): http://www.dw.com/en/macri-to-take-argentina-in-a-new-neoliberal-direction/a-18898041.

⁹ Cf. United States Department of Commerce (ed.) (2015): http://acetool.commerce.gov/sites/acetool.my.commerce.gov/files/images/2015/march/150318_political_security_risk_chart_0.png.

¹⁰ Cf. Transparency International (ed.) (2016): http://www.transparency.org/country/#ARG.

¹¹ Cf. European Commission (ed.) (2015): http://trade.ec.europa.eu/doclib/docs/2016/january/tradoc_154188.pdf.

¹² Cf. Without author (2015): http://www.thejournal.ie/argentina-economy-prices-change-yearly-2396008-Oct2015/.

¹³ Cf. World Bank Group (ed.) (2016): http://data.worldbank.org/indicator/NY.GDP.PCAP.CD/countries/AR -DE?display=graph.

¹⁴ Cf. United Nations Development Programme (ed.) (2015): http://hdr.undp.org/en/countries.

¹⁵ Cf. United Nations Development Programme (ed.) (2013): http://hdr.undp.org/en/content/income-gini-coefficient.

¹⁶ Cf. The Hofstede Centre (ed.): https://geert-hofstede.com/argentina.html.

¹⁷ Cf. Without author: http://reports.weforum.org/global-information-technology-report-2015/report-highlights/

¹⁸ Cf. Without author (2016), p. 43 ff.: https://www.mrecic.gov.ar/userfiles/investors_guide.pdf.

¹⁹ Cf. Vanat (2016), p.50 f.; p. 143 f.: http://www.vanat.ch/RM-world-report-2016-vanat.pdf.

²⁰ Cf. Without author (2016): http://differentsnow.com/argentina/why.

²¹ Cf. Poon (2011): http://emerging-markets-research.hktdc.com/business-news/article/Argentina/1-2-The- Argentine-Consumer-Profile/bgemla/en/1/1X000000/1X07T7A5.htm#sthash.xMqORQZG.dpuf.

²² Cf. Street (2016): http://www.breitbart.com/national-security/2016/02/25/argentinas- new-president-dumps-marxism-to-spark-capitalist-revival/.

²³ Cf. Ammann (2012): p. 87 f.

²⁴ Cf. Ammann (2012): p. 87 ff.

²⁵ Cf. Without author: http://www.tradeport.org/index.php/trade-toutorials/65

²⁶ Cf. Delaney (2016): http://importexport.about.com/od/DevelopingSalesAndDistribution/a/Direct-Exporting- Advantages-And-Disadvantages-To-Direct-Exporting.htm.