09 Jun 2011

Sample essay: Opportunities and Challenges Likely to Be Encountered By Beauty Cosmetics in Its Expansion to Europe as a Foreign Market

Introduction

Expansion and venture into new market is an important component and issue that has been for business growth. Often such strategy can be achieved through various procedures such as entrance into new geographical markets and customers or expanding the current market so as to reach more of the already existing market. However, before any company expands its operation into a new market whether local or foreign, it is important that it conducts a market research so as to determine whether the proposed market would offer its products and service the most competitive advantage and best opportunities (Stevens 31).

It is on the above ground that Beauty Cosmetics being a company specialized in manufacturing and supply of beauty products opts to explore the opportunities and challenges that it is likely to face as expands to the foreign market in Europe. Although Europe seems to be a potential market for the Beauty Cosmetic products and services because of its vast market opportunities, cultural, heritage, and language similarities there are certain threats such as political and religious ideologies most probably will pose challenge in this new and foreign market expansion venture.

Screening the Europe Market for Beauty Cosmetics

Since Beauty Cosmetics desires to Europe as a foreign market, it will explore macroeconomic factors such as the stability of its currency, its level of domestic consumptions, and the exchange rates. Europe poses to be a stable market because of stable currency and strong exchange rates owing to the fact that Euro has remained stable against the dollar. This has therefore made it possible for her to possess a high domestic product that will boost sale of Beauty Cosmetic products and services (Lee 348).

The other issues that will be evaluated by Beauty Cosmetics as far as screening of Europe market is concerned would include mode of communication and the possible threats. Communication is an important component that would help Beauty Cosmetics not only to position itself, but also to find appropriate sales representatives for the right market segment ((Lee 340)). For instance, Beauty Cosmetic has to understand that besides English being used as the native language in Europe, their languages fall in four groups; Romance, Germanic, Baltic, and Slavic languages. Such procedure would help the company high and recruit its employees with communication in mind so as to segment, target, and position its products and services without communication barriers. On the other hand, possible challenges especially those that had been faced by a similar company would help Beauty Cosmetic to be prepared with appropriate strategies for addressing the challenges during its expansion into Europe (Lee 341).

Opportunities that Beauty Cosmetics is to Attain in European Market

The market opportunities that are offered in Europe are grounded on the economic, political, and socio-cultural status of Europe. Economically and politically, Europe is free trade zones and therefore would allow Beauty Cosmetic Company to easily access the markets that are vast and spread all over Europe. The free trade region principle is attributed to political good both within Europe and its neighboring countries (Doole and Lowe 104).

In addition, most countries in Europe are members of the wider European Economic Community (EEC) and the Economic Commission for Europe (ECE). These bodies have the mandate of ensuring that they there is effective regulation of the international trade (Tyson and Schell 190). Beauty Cosmetic Company would benefit from the economic integration that has been created by EEC. Similarly, the bodies have not only enabled Europe to develop strong and stable currency and market base, but have also enhance large, eager pool of labor, and well developed infrastructure which would be an asset in distribution of Beauty Cosmetic Company’s products and services  (Tyson and Schell 109-1).

The other opportunity existing in Europe for Beauty Cosmetic Company is based on size, rate of growth, and the intensity of the market. Europe has a large market size because both men and women are potential consumers of beauty cosmetic products and service (Longenecker and Gale 56). In addition, the intensity of the Europe market has minimal competition because of the presence of few similar companies. Consequently, there would be limited market congestion with high potential of growth thereby making the competition healthy (Stevens 47). With such market characteristic, there is much conviction that the size, intensity, and rate of growth of Europe market offers appropriate indicators that are required for Beauty Cosmetic Company expansion into the market.

Other financial and economic issues are market factors which include the GNP, GNP per capita and GDP as at 2010 was € 16, 228.23 billion.  The state with the least and highest GNP capita in 2009 were 61% and 271% respectively. When the gross national product (GNP) is below the demands of the country, this provides an opportunity for the company to consider investing in either country in Europe. Often such conditions would possibly lead to high demand for beauty cosmetics are than the production level (Doole and Lowe 110-1). Often countries strive to satisfy the demand of the consumers and would therefore ensure that its GDP meets the consumers demand. However, Europe has so far not majored in beauty cosmetics because it is only spending 1% of its GD P in the budget thereby making it possible for the Beauty Cosmetic Company to take advantage of such state (Lee 349). This is out of the proposed € 862 billion that was supposed to be spent between 2007 and 2013.

The Europe socio-cultural factors are other aspects that will promote sales from Beauty Cosmetic Company especially on the basis that all her socio-cultural institutions and beliefs are not against the use of cosmetics. In addition, most people from Europe are aged between 15 and 35 years thereby making a larger portion of the population to be appropriate clientele for beauty cosmetic products and services. This is because the youths are known to be on the look for new products and fashions in the market; an issues that Beauty Cosmetic Company can take advantage of as it expands to Europe as a foreign market (Hisrich 68).

Challenges the Beauty Cosmetic is Likely to Encounter as it Expands into European Market

Despite the fact that there are various opportunities for Beauty Cosmetic Company in Europe, there are a number of challenges and obstacles that it will probably face during its expansion to the foreign market (Tyson and Schell 192). The first barrier is political environment in Europe which will be as a result of difference in systems of government, political instability, ideologies, and national economic priorities. Certain governments distrust foreign investors in an attempt to maintain domestic control by enacting legal barriers that would stop foreign companies from operating in such markets (Tyson and Schell 192). Under such condition, companies such as Beauty Cosmetics can only take advantage of the regions free trade zones which allow free trade and expansion of companies into new markets (Lee 349).

Legal environment is another factor that can pose serious challenge to Beauty Cosmetic as it expands in European market. These regulations would include the tariffs, quotas, documentation, and import regulation. Other regulations include various investment tax, income tax and employment laws (Doole and Lowe 118). The company will therefore have to depend on the treaties native country shall have made with Europe so as to successfully venture into the new market. For example, General Agreement on Tariffs and Trade (GATT) is a profound treaty that will allow the Beauty Cosmetic Company to be part of the international transaction of member nations and therefore eliminate the barriers associated to trading in Europe (Stevens 67).

The other issues that Beauty Cosmetic will have to contend with are linked to Europe’s economy. For instance, the level of income and expenditure patterns on beauty cosmetics is relatively low among the population in various countries in Europe as most people would prefer to spend much in health care insurance policies as opposed to cosmetics (Longenecker and Gale 62). Consequently, as Beauty Cosmetic Company takes advantage of the wide spread and high income rate among the youths, it must consider and find ways of convincing people to invest in beauty cosmetic products and services.

Beauty Cosmetic Company might also be forced to regulate its prices for health competition at the expense of maximizing profit. That is, being a new entrant into Europe, it might be forced to reduce its prices as initial introduction that is favorable with the current market price even if the products were of higher quality that those from existing companies (Stevens 67). To address the price challenge, Beauty Cosmetic Company might be forced to lease with other companies dealing in beauty cosmetics and the government to regulate its prices. However, such move might either take longer than necessary or turn to be too expensive in the long run. This is because different countries have different means and procedures of regulating prices which might not consider quality of the products and services (Hisrich 68).

Socio-cultural might also pose challenge to Beauty Cosmetic Company. For instance, some people might simply ignore the products irrespective of their quality because they are manufactured by a new or foreign company. The literacy level, general education, language, and religious affiliations of the company’s clientele would determine their take and subsequent purchase of the Beauty Cosmetic Company’s products and services especially after adverts. Similarly, the ethical consideration of beauty cosmetics in Europe has been rated as low as 20% thereby posing threat on the purchasing ability of the clients (Lee 350).

At the same time Beauty Cosmetic can choose to be mobile by introducing the beauty products that are required in the market at the moment and later on changing the strategy based on market demand. Although most of the population in Europe is literate, still majority are better speakers of their native language which will directly influence how Beauty Cosmetic Company is to be received. In fact, most people prefer and understand adverts made in native language than English. Similarly, the most countries in Europe are Catholic, Protestant, and Pentecostal faithful. These religious beliefs have trained their followers to shun the use of cosmetics (Tyson and Schell 193). Consequently, Beauty Cosmetic Company’s successful expansion will largely depend on its ability to advertise in native language and promote the use of descent work, success, clothing, food, and language. It must also respect the social values and religious beliefs, and cultural norms (Tyson and Schell 193).

World Political and Economic Effects on New Market Expansion Plans

Political uncertain can adversely affect the growth and expansion of a company to a foreign market. Its risk often results from political instability and unrest. These aspects can lead to lose of equipment and overall lose to the company and therefore poses challenge of not only lose of profitability, but also closure of the company. These effects influence the fiscal, monetary, trade, industrial, and labor development. Moreover, governments may find it hard to settle some diplomatic or military executions that might be a risk to foreign investors (Doole and Lowe 121-2).

Certain global economic factors such as recession often cause rise in the cost of production (Stevens 95). This is an issue the Beauty Cosmetic Company must explore so as to determine whether cost of raw material and the overall production of its products and services would commensurate prices of the finished products. In addition, recession has sometimes caused fluctuation in the dollar standing against Europe thereby causing changes or instability in the transaction rate (Stevens 95).

In conclusion, Beauty Cosmetic Company’s expansion to Europe as a foreign market is often aimed at taking its products and services within the reach of consumers. In doing so, the company would be able to maximize profit by taking advantage of the opportunities existing in the foreign market. However, various challenges are bound to occur which if not properly addressed by appropriate new market venture strategies might result into lose and closure of the company. Therefore for Beauty Cosmetic Company expand to Europe as a foreign market successfully, it must meet new markets regulations, demands, legal requirements, environmental requirement, and consider the changing market parameters.

Works Cited

Doole, Isobel and Lowe, Robin. International Marketing Strategy: Analysis, Development and Implementation. London: South Western Cengage, 2008.

Hisrich, Robert. International Entrepreneurship: Starting, Developing and Managing a Global Venture. Los Angeles: Sage, 2009.

Lee, Seongil. Computer-Human Interpretation. Berlin: Springer, cop, 2008.

Longenecker, Justin and Gale, Thomas. Small Business Management: an Entrepreurial Emphasis. Mason: Thomson/South-western, 2006.

Stevens, Robert. Market Opportunity Analysis: Text and Cases. New York: Best Business Books, 2006.

Tyson, Eric and Schell, Jim. Business Opportunity Analysis: Small Business for Dummies. Hoboken: Wiley Pub, 2008.

21 Oct 2009

Sample Essay: Sector Matrix Vs. Product/Commodity Chains

Introduction

The rapid expansion of international trade from mid twentieth century has fundamentally brought on board the advantages of inter-business relationships when predicting the regional outcomes of market activities, this involvement has become somewhat huge. The need for reliance among organizations during various industrial processes such as manufacturing and distribution has led to the emergence of a comprehensive and concrete structure that defines their interrelations, though not definite in any sense, it almost resembles the structures governing the corporate themselves. Recently, much attention has been directed towards the study of such structures and how effective they are in understanding of product markets concept.  For instance, China is by far the largest manufacturing and consuming economy of both local and foreign commodities, consequently the Chinese government has given special importance on strategic instruments as a way of reducing environmental impacts of both the local and global economic activity. The commodity chains analysis has helped countries like China in creating a system of activities that are structured to study and analyze the environmental impacts and the importance of sharing responsibilities with other trading partners in the event of commodity marketing. (Gereffi,G. 1994).

This paper seeks to analyze the methodologies applied in an attempt to understand product markets, the challenges of the methods applied and the reason why sector matrix is increasingly providing an alternative to the study of related projects. The sector matrix provides a wide variety of economic analysis that is relatively easy to examine because it is able to compare national sources and provides huge data that can be compared against one another. Sector matrix also provides the single most comprehensive source data available. In view of this it is imperative to analyze the fundamentals of products markets and the reason for its diminishing preference.

Commodity Chain Analysis

The rationale behind commodity chain analysis is to determine the social and environmental impacts of production and supply chain activities of various commodities with the aim of facilitating and establishing a long term management of commodity chains not only locally but also globally. The commodity chain concept uses the approach of sustainability impacts which provides an approach that is fundamental in its own unique sense.

In the global arena, Global commodity chain analysis is based on the impacts of politics on the economy and how political affiliations determine and direct market outcomes. The study of commodity chains tends to study and explain how production is organized, and how trade and consumption has been globalized in the world economy. Viewing the product chain in this approach makes it rather easy because it is seen as a combination of processes whose main goal is arriving at the finished product.  The concept directs its attention towards the socio-economic relations between nations, which rely on the characterization of commodity chain as being either producer oriented or buyer oriented. It mostly includes the analysis of four basic elements of the chain which include the input-output structure which follows commodities as they move along the chain until they become finished products, the specific geographical locations where the various processes occur, the political and social relations that govern the operation of supply along the chain, and the various institutions outside the commodity chain that exerts influence on the action taken along the supply chain for instance government policy. Gereffi,G. 1994).

The structure of commodity chains analysis gives a lot of information concerning the global structure of production and the global economy. As a result it represents a fairly credible source for the stakeholders involved in production and distribution of commodities both locally and globally. The processes involved in commodity marketing are very complex and involves factors like the origin of the commodity consumed by the market, the various stages involved in the refining of raw materials and the final destination of the commodities. As Jean- Paul Rodrigue(2009) puts it, the commodity chain analysis includes a sequence of processes ranging from extraction of raw materials, the assembly of intermediate products to the distribution to the final consumer market. ( Jean-Paul, Commodity Chain Analysis. 2009).

Jean-Paul divides the complex processes involved in several perspectives, looking at this helps in understanding where the weaknesses of commodity chain emanates from. The levels include:

Transactional perspective: this area looks into how the management of commodity chains and it involves the processes of decision making and the management of transactions.

Comparative perspective: analyses the quality of the elements of commodity chains and how value that is added at each stage determines the competitiveness of the commodity.

Functional perspective: looks into the physical processes that commodities undergo during their distribution which includes capacity constrains in distribution which include: modal, intermodal and terminal effectiveness.

Looking at Jean-Paul’s analysis reveals that this type of analysis is only able to view at the distribution of commodities from a single perspective at a time. For instance the above analysis only centers on transportation and cannot divert and look into other areas such as political interrelations between nations, geographical or environmental factors. Commodity chain does not provide for a way to interlink the above aspects at a given time.

Limitations of commodity chain analysis become more apparent at the global level where the processes become more complex. The GCCA (Global Commodity Chain Analysis) has always been specifically directed towards providing a critical assessment in commodity chain and has therefore provided comfort. However, the fundamental requirement of a clear and comprehensive quantitative data on the trade flows and the environmental impacts of specific practices along the supply chain, creates limitations for the GCCA because it is a major pre-requisite for issues like effective environmental management. (Von Moltke, Konrad and Onno Kuik 1998).

The GCCA’s concentration on the social and economic relationships along supply chains provides a critical basis for the development of strategic market-based and regulatory policy by allowing targeted application of policy to the commodity chain context. The most important challenge facing thorough appliance of GCCA is that many of its most important concepts, such as the role of politics in product marketing cannot be effectively quantified. As a result most assessments tend to be qualitative, making consistency and comparability difficult to ensure.

The Ecological Footprint which was developed in Canada by Mathis Wackernagel and Willam Rees during the 1990s also provides a methodology for determining the environmental impact of economic activity as a function of geographic area. The basis of the footprint approach is established on the idea that it is able to provide a comparison between the resource demand of a particular area or population with the corresponding resource availability. In essence, the footprint involves translating of resource utilization into a quantitative estimate of the land area required to supply such resources.

The automobile industry provides a good example of a producer-driven chain, with several production systems that entail thousands of firms including parents, subsidiaries, and subcontractors.   All of these systems are too complex to be sufficiently analyzed using commodity chains. In an example provided by Gerrefi( 1999), the Japanese automobile industry had an average of 170 first-tier, 4,700 second tier and 31,600 third tier in the 1980s (Hill 1989). Florida and Kennedy (1991) established that this Japanese auto industry reorganized many of their country’s supply networks in North America. Furthermore, Doner (1991) went on to explain that this reorganization was extended to nations in the East and South East Asia. In view of the producer driven commodity chains have been to some extent successful in establishing a division of labor in East Asia through its study of internationalization of the US.

The Sector Matrix Analysis

Every scientific system of analysis usually has limits. The commodity chain system of analysis is not out rightly wrong, but the limitations it offers have given way to the sector matrix analysis. For instance chain analysis only works well for simple consumable goods like foodstuffs which require complex structures during their distribution, but need no additional infrastructure or services once they have been distributed. However, for complex products like pharmaceuticals which require complex infrastructures in form of healthcare and vehicles which require motoring and consumes a large proportion of domestic expenditure, the use of commodity chain analysis is rather myopic. This argument does not confine the applications of sector matrix to a few complex commodities, because its applications has widened due to the accompaniment of many commodities nowadays with services.

In their Book, “Breaking the Chains? A sector Matrix for motoring, Julie, F., Colin, H., Sukhadev, J. and Karel,W. provide an alternative to commodity chains in form of sector matrix by looking at the limitations of commodity chains in the motor industry. They argue that Gerrefi’s( 1996) views supply in simplified linear terms while assuming that demand is the reverse relations with product distribution chain. This alternative method is viewed in terms of activities such as motoring or healthcare where products such as cars and ethical drugs are consumed together with a lot of other services depending on consumer preferences and require a variety of other infrastructure. Julie, F et al base their general argument on a demonstration of the advantages of the Sector Matrix analysis of the motoring industry and the commodity chain consideration of the same industry as a car industry. They first argue that that the word industry has been previously used out of context by looking at it from commodity chain point of view. They provide an example for instance, where it is difficult to categorize a company that manufactures rear window for cars as being a separate industry altogether or a sub-industry within the motor industry. The Sector matrix provides a definition which effectively accommodates the two; an industry is a group of products associated by a common technology or supply or distribution channels.(Julie, F.  et al 1998)

Looking at China which is home to the third most huge connector region globally where the total connector sales totaled about $7.022 billion in connector sales in the financial year of 2007 it is easy to reveal the complexity of market processes and as a result the limitations of commodity chain in such a huge market. The manufacturers involved in the Chinese connection market are about 60 with 40 of them being major manufacturers. The processes involved these kinds of market are not only complex but also huge. Therefore viewing them in a linear fashion will not only take a lot of time but would create room for numerous errors. (Electronicas.Ca. Conducting a Market analysis).

The sector matrix analysis is governed by demand from firms and household outside the sectors which enables an organization to gather enough profits to be able to sustain its employees and allow for cost recovery. These surpluses can then be injected to other sectors of firms which operate at both the national and international level. Following the logic concept of viewing at only the commodities, not only at the substitutable finished products but also the complementary products that go along with the finished products which form part of what is required by the consumers will direct the view to a much broader sense of commodities and services. The result would not be commodity chain but a vertical and horizontal matrix. In the motor industry, this fact will shift the concentration to viewing the marketing of vehicles in terms of motoring. The relations on the side of the consumer will depend on the patterns of income as well as the subsequent distribution of demand.

In the motor industry supply interactions arises from the re introduction of nearly new second hand cars which are being sold at a discount with a first owner who will hold for less than two or three years which is normally the period for private owners, this scenario clearly presents itself in the UK motor industry. Traditionally, car firms sold cars at a discount to their own workforce and passed demonstration models to dealers. New cars are alike in the sense that expenses never end on purchase but goes on in form of expenses. (Julie, F.  et al 1998)

Conclusion

The sector analysis provides an efficient and complex analysis of commodities which is able to put together both complementary and competing goods and services. The sector matrix rather than providing an alternative to the commodity chain analysis provides for methodologies that complement the limitations of commodity chain analysis.

References

Barnet, J. & Müller, E. (1974). Global reach: The power of the multinational corporations. New York: Simon and Schuster.

Cardoso, F. H., and Faletto, E. (1979). Dependency and development in Latin America. Berkeley, CA: University of California Press.

Dicken, P. (1998). Global shift: Transforming the world economy, 3rd edition. New York: Guilford Press.

Doner, R. F. (1991). The Industrialization of the Automobile firms in Japan and Southeast Asia. Berkeley, CA: University of California Press.

Evans, P. B. (1979). Dependent development: The alliance of multinational, state, and local capital in Brazil. Princeton, NJ: Princeton University Press.

Florida, R. & Kenney, M. (1991). Transplanted organizations: The transfer of Japanese industrial organization to the United States. American Sociological Review 56, 3: 381-398.

Frank, A. G. (1967). Capitalism and underdevelopment in Latin America: Product marketing York: Monthly Review Press.

Fröbel, F., Heinrichs, J., and Kreye, O.  (1981).  The New International Division of Labor.  New York: Cambridge University Press.

Gereffi, G. (1994). ‘The Organization of Buyer-Driven Global Commodity Chains: How US Retailers Shape Overseas Production Networks.’ In G. Gereffi and M. Korzeniewicz (eds.), Commodity Chains and Global Capitalism. Westport: Greenwood Press.

Gibbon, P (2000). Global Commodity Chains and Economic Upgrading in Less Developed Countries Centre for Development Research, Copenhagen.

Jean-Paul, (2009) Commodity Chain Analysis.: processes involved  in commodity distribution.

Julie, F.  et al (1998). Breaking the Chains? A Sector Matrix for Motoring, Vol 3. Overseas Publishers Association. 1998.

Raikes, Phillip; Michael Friss Jensen, Stefano Ponte (2000). Global Commodity Chain Analysis and the French Filiere Approach: Comparison and Critique, Centre for Development Studies, Copenhagen.

Von Moltke, Konrad and Onno Kuik (1998). Global Product Chains and the Environment, Institute for Environment Studies, Amsterdam.

Von Moltke, Konrad and Onno Kuik (1998). Global Product Chains and the Environment, Institute for Environment Studies, Amsterdam.

www.elctronica.ca. . Electronicas.Ca. Conducting a Market analysis. Visited on 24th March, 2009.

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