An international expansion plan for Ferrero Rocher - Essay Example

? International Expansion Plan for a Product or Service Table of Contents A of the product 3 A of the organisational context 4 A description of the host country 6 Political 6 Economical 7 Social 7 Technological 8 Environmental 8 Legal 8 An analysis of how Ferrero Rocher fits with the environment of South Korea 9 Porter’s Five Forces Model 9 An analysis of how you intend to enter the host country market 12 The critical risks involved 12 Mitigation of the Risks 13 Conclusion 13 References 14 Introduction Organizations around the globe are trying to capitalize on the potential opportunities that are created due to globalization. Several organizations are trying to develop and implement unique and differentiated marketing strategies in order to increase the demand for the products among the global consumers. International business expansion strategy has become one of the profitable and important business growth strategies of several leading multinational business organizations. There are several advantages of international business expansion. Organizations can increase its market share through the help of global expansion strategy. In addition to this, multinational organizations can develop potential client base around the globe through this strategy. Major objective behind this internal expansion is to maximize business profit (Blenkhorn and Fleisher, 2005, p.76). The market demand and test or preference of the customers for global products is increasing significantly due to the significant effect of globalization and technological advancement. However, the organizations’ business expansion strategy can get affected due to several risks that are associated with the business operations in international market place. Ferrero Rocher, an Italy based spherical chocolate sweet has been chosen as a product for the assignment. The organization is planning to introduce this product in the potential South Korean market. This assignment will determine the business environment of the host country and preferred market entry mode for Ferrero Rocher. A description of the product Ferrero Rocher is one of the popular spherical chocolate sweets. This particular product has gained huge popularity among several regional and international customers. This product is made by a popular Italian chocolate producing organization named Ferrero SpA. Ferrero Rocher was introduced in the Italian market in the year 1982. The chocolate consist of roasted hazelnut. It is encased in a unique thin wafer shell that is filled with vegetable oil and hazelnut cream. This specific chocolate sweet is covered in chopped hazelnut and milk chocolate. Each and every sweet item contains 73 calories. In addition to this, each and every sweet item is packaged individually insider an attractive gold-coloured rapper. The product already has presence in several emerging international market. This specific product achieved huge popularity among millions of people around the globe due to its quality and taste. The product is considered as the leader within the industry and in its category. Effective quality control, innovative shape, original recipe, unique advertising campaigns and refined packaging attract the global customers toward this product (Ferrero, 2013, p.1). It can be stated that the creamy filling, delicious hazelnut centre and crunchy wafer increased the demand of this product. In addition to this, the organization implemented economic pricing strategy for the products. These products are often identified in the retail chains, stationary shops and confectionary stores. A description of the organisational context Ferrero Rocher is the product as well as the brand extension of parenting company Ferrero SpA. Ferrero SpA is known as one of the leading and popular Italy based manufacturers and distributors of the chocolate and other confectionary products. The organization was established in the year 1946 by famous confectioner Pierto Ferrero. The organization is headquartered in Alba, Italy. The founder of the organization understood the significance of globalization, international business diversification and product differentiation strategy. Recently, the organization has significant numbers of product portfolio. The grandson of the founder fulfilled the dream of Pierto Ferrero. Now-a-days, the organization has strong presence in global market. The Koreans like to accept the new products in the market and therefore the product under consideration have the probability to tap that market. Ferrero is a private organization owned by the Ferrero family. The organization became the most reputable organization in the world according to the survey rank of Reputation Institute. It is considered as one of the most secretive organization. The organization does not disclose any confidential aspect or business strategies with the public. Therefore, the organization has able to maintain its competitive position quite effectively in global market. The Ferrero group worldwide includes 38 different trading organizations. In order to maintain its privacy and secrecy, the Ferrero group worldwide never organized a press conference. Moreover, the organization does not allow the media to enter to its plants. The products of Ferrero are made with attractive design. Most importantly, the organization does not compromise with the quality of the products. According to the management of the organization, high quality of differentiated products can help the organization to meet current market demand. Skilled and experiences in-house technological and engineering department increased the business operation efficiency of the organization (Ferrero, 2013, p.1). It is clear from the above discussion that the Ferrero Rocher is a successful product differentiation and brand extension of the Ferrero Worldwide Group. It was highly important for the organization to introduce global expansion due to increasing demand of the products. The mission of the organization is to maintain crafted precision, high quality, and selection of finest raw materials, product freshness and respect for the target customers. The organization also focuses on the hygiene factor of the products. Ferrero tries to overcome the economic, environmental, social and political issues in each and every business operation areas in order to maintain business sustainability. Effective value to the target customers, employees and glocal business strategy helped the organization to earn huge respect from several external and internal stakeholders of the organization. Ferrero always develops customer and employee centric business operation strategies to maintain its good reputation in global market places. The relationship of the organization with the customers is based on mutual and longstanding trust. However, it is true that Ferrero Rocher can get significant success in South Korean market if the organization ensures sustainable business practices. A description of the host country It has been discussed that the Ferrero Group Worldwide is trying to introduce one of its most profitable and popular product Ferrero Rocher is the South Korean market. It is important for the organization to determine the external environmental opportunities and threats for business environment before business expansion. Following PESTLE analysis will help the organization to determine impact of several external environmental business opportunities and challenges on the business performance of Ferrero Rocher. Political South Korea is officially known as the Republic of Korea. It is a South Asian country, constituting the Korean Peninsula’s Southern Part. It is a sovereign country and the member of World Trade Organization. Strong foreign relationship and central power are the major political strength of this country. The government always motivate the multinational organizations to enter in the South Korean Market as it can help the government to maintain positive economic growth. Strong relationship with European Union is motivating several European organizations to enter in the prospective and emerging South Korean market. Ferrero Rocher is a product within the confectionary industry that can be considered as food and beverage industry (Wetherly and Otter, 2011, p.470). The government developed several business operation polices and rules regarding the quality of food products as these are considered as the sensitive goods. A major political challenge is the military influence in the politics of South Korea. In addition to this, international political tension between South and North Korea can affect the business performance if government does not support and influence the multinational organization. Looking into these several aspects, it can be stated that the product needs ort be introduced in the South Korean market as the political environment is favourable. Therefore the mutual interest of the government and the company will be a blessing for the company. Economical South Korea is economically developing country. The government always supports the multinational organizations as these organizations helped to foster the nation’s economic growth in several ways. It generates employment. In addition to this, effective business performance can significantly contribute to the country’s economic growth. The confectionery market of South Korea effectively contributes to the economic growth of the country. This favourable situation will help the product to achieve success. Social Rapid urbanization, high wages and high qualification background of maximum individuals are the major characteristics of the South Korean societies. The demand for this particular product is significantly increasing among the people (Hamilton and Webster, 2012, p.23). The chocolate and confectionary products are popular among South Koreans. Therefore, it will be effective for Ferrero Rocher if it maintains its quality in the South Korean market place. The industrialization experienced by South Korea has brought dramatic changes in the life of the people in South Korea. The foreign countries have influenced the life style of these people. The Koreans have accepted the newly developed imported products and they are currently changing themselves from following the traditional culture to the modern culture. Technological South Korea is technologically developing countries. Effective research and development centres and continuous technological advancement motivates several multinational organizations to enter in this South Korean market. Ferrero Rocher can get each and every technological equipments and services that are required for business operation. In addition to this, integration of advanced technology in business process will help to reduce the business operation cost. Environmental Government has developed several business regulations and environmental policies for the business organizations in order to maintain the environmental sustainability (Paul, 2010, p.425). It is highly important for Ferrero Rocher to follow each and every developed policies and regulations by the government in order to overcome the challenges. Legal The central government of South Korea developed several employment regulation policies. In addition to this, there are also various human rights policies that need to be followed by the organizations to overcome legal challenges (Aras and Crowther, 2011, p.178). However, it is recommended that the product should fulfill all the legal criteria before getting introduced to the market. An analysis of how Ferrero Rocher fits with the environment of South Korea The brand would enter into the South Korean market which is one of the emerging markets of Asia. Since the brand does not have any presence in the market an analysis of the Porter’s five forces model would provide an insight about the various macro and micro environmental conditions that lie ahead of the company. According to this model there are five forces that determine the prevailing conditions of a market. These five forces for the brand Ferrero Rocher has been analysed in the subsequent sections. Porter’s Five Forces Model The five forces are described with the help of the following figure as described by Michael Porter. Figure 1: Porter's Five Forces Model Source: Porter, 2008, p. 66 Industry Competitors: In South Korean Chocolate markets there are different players operating who have their price and cost strategies which are implemented to retain the market share. Most of these players are the local brands that take part in the production of chocolates. Out of these the most important ones include the brands Lotte, Nestle, Mars, Hershey, Cadbury and several other players. Thus the market in South Korea is a monopolistically competitive market with a large number of players who produce homogenous products. The South Korean Market has witnessed the co-existence of the international and the local brands catering to the confectionary market. Thus the intensity of competition is quite high in the South Korean market (Proctor, 2013, p. 23). Potential Entrants: South Korea being one of the emerging economies a large number of players would be trying to get advantage of this untapped market. There would be a number of potential entrants. Along with this there would be a large number of local players who would be using their low cost and automated systems to produce chocolates that would be sold at a very low discounted price. Ferrero Rocher on the other hand is a premium quality of chocolate with a considerably high brand value. Thus the company has to implement a strategy that would be able to capture the price sensitive South Korean markets. Along with this the cost of establishing a firm in South Korea is not very high because of availability of labour and the advanced technology (Kurtz, 2010, p. 12). All this depict that there is high threat of potential entrants. Substitutes: The threat of substitute product for the chocolate Ferrero Rocher is quite high. This is because children who are the main target market for the product may also prefer other forms of confectionery products like cookies and candies. Other alternatives that may be available to the consumers would include pastries, ice creams. The other chocolates or confectionary brands may also be comparatively cheaper. Thus the customers may not go for this brand of premium chocolates. Other forms of non chocolate snacks are also becoming popular in the present day like frozen yoghurt or low fat gelato. Suppliers: The raw material for the production of chocolates requires the cocoa beans, milk and sugar as the main ingredients. The suppliers of sugar and milk would be easily available to the company. The cocoa is however imported by South Korea from the other cocoa producing nations. For these cocoa producers around the world the chocolate producers would be the main customers and therefore they would try to retain these customers through proper pricing of their cocoa product. Thus, the bargaining power of the suppliers would be low for this industry (Wiliam, 2005, p. 49). Ferrero Rocher requires these basic ingredients for the process of production. However, the company would prefer to import the particular quality of cocoa to maintain the standardisation in the production of the chocolates. For the remaining ingredients the company has to rely on the local South Korean market. Buyers: In South Korea the young people below the age of fifteen constitute 40% of the population. Thus the company would have an access to the target market quite easily. The buyers would be demanding the product through the retail channel of sales where the product would be distributed. The switching cost for the buyers in case of the premium chocolates would be very low and so there would be considerable bargaining power on part of the buyers. Ferrero Rocher is however a very big brand of chocolate and it would have its unique taste and quality which would draw the potential customers towards this brand. An analysis of how you intend to enter the host country market Ferrero Rocher would enter the market as a wholly owned subsidiary of the major company in Italy. The company would set up the production unit in the capital of South Korea in Seoul so that the infrastructural support can easily be got in the country. The company would keep a control over the operations in Korea from headquarter in Italy but the management in the Korean subsidiary would consist of the people who would be of Korean origin. The people who would comprise of the production, marketing and the other divisions of the company also have to be from South Korea. Ferrero Rocher needs to employ the local people especially for the marketing of the product because being native people the company would have to understand the needs of the customers (Etzel, Stanton and Walker, 1997, p. 39). The consumers of the South Korean market are extremely price sensitive. Ferrero Rocher has to think of designing and making the products cost effective so that the chocolate has acceptability in the South Korean Markets (Belz and Peattie, 2010, p. 56). The South Korean economy is a socialist economy and therefore the company has to abide by the regulatory binding of the existing government. The company has to target that particular market segment for which the product would be the most attractive. In this case the children would be the group who would be the target market for Ferrero Rocher. The company can also attempt at takeover with the local chocolate companies that are struggling to survive in this huge economy. The takeover or the merger alliances would provide the company with a pre-established infrastructure and a better knowhow of the Korean technological expertise. The critical risks involved For any new entrant who would want to enter into a new market there would be various risks that would lie ahead. First of all, the people of the present day are becoming extremely health conscious and therefore these people would refrain from having chocolates as they are extremely harmful for health. The children are often not allowed to consume chocolates due to various problems of obesity, cavity as well as other side effects. Thus, the sale for the confectionary product at the present day is comparatively low (Kotler and Keller, 2006, p. 145). Secondly, being a communist country, the South Korean population may detest the purchase of a Western Product like Ferrero Rocher. Thirdly, the chocolate market in Korea has a large number of local players. These products would be available at a much lower price compared to Ferrero Rocher. Hence the middle income to the lower middle income group may not be willing to pay such a premium price to purchase the premium foreign chocolates. Finally the country may have several issues relating to tax in the country which may lead to a reduction of the net profit of the country. There would be currency risk and operational risk for the Italian company when it tries to enter into the South Korean market. Mitigation of the Risks In order to mitigate the risks in the host country the company has to design and customise the products as per the needs of the Korean market. There should be intensive pricing strategies that the brand needs to take in order to capture the price sensitive Korean market. The company can also introduce variants of the products to add in to the variety of the product portfolio. At the same time it is important for the company to maintain the quality standards that is existent in the country. These regulatory measures for any company are important because they would ensure that the company would survive in the long run. Conclusion Thus Ferrero Rocher has to make a thorough analysis of the various aspects of the culture of host country. An exercise involving environmental scanning is essential to ensure the strengths and weaknesses of the company and the opportunities and threats in the Korean market. The macro and micro environment would provide an insight about the existing completion and a direction for the strategies that would be essential for the successful running of the organisation. The company has brand presence in different markets. The South Korean market had remained unexplored (McDonalds and Keegan, 2002, p. 128). Thus it was an area where the company could expand. This is considered as one of the most important strategy of the brand to survive in the long-run. Due to the advent of globalisation Ferrero Rocher had taken this strategy for expansion so that this multinational giant is able to retain its brand presence in the country where the other global brands had already ventured. References Aras, G., and Crowther, D., 2011. Governance in the Business Environment. New York: Springer. Belz, F. M. and Peattie, K., 2010. Sustainability Marketing. New Jersey: John Wiley and Sons Blenkhorn, D., and Fleisher, C., 2005. Competitive Intelligence and Global Business. Ney York: McGraw-Hill. Etzel, M.J., Stanton. W.J. and Walker, B.J., 1997. Marketing. San Francisco, CA: McGraw-Hill Companies. Ferrero., 2013. Products. [Online]. Available at: < http://www.ferrero.com/products/the-most-famous-products/ferrero-rocher/a-brillant-idea/>. [Accessed on November 18, 2013]. Ferrero., 2013. The Group. [Online]. Available at: < http://www.ferrero.com/the-group/mission/Ferrero-values>. [Accessed on November 18, 2013]. Hamilton, L., and Webster, P., 2012. The International Business Environment. New Jersey: Pearson. Kotler, P. and Keller, K. L., 2006.. Marketing Management. Englewood Cliffs, NJ: Prentice Hall. Kurtz, D., 2010. Contemporary Marketing. Mason, OH: South-Western Cengage Learning. McDonalds, M., and Keegan, W., 2002. Marketing Plans that work. New York: Butterworth- Heinemann. Paul, J., 2010. Business Environment. London: sage. Porter, M. E., 2008. Competitive Advantage: Creating and Sustaining Superior Performance. London: Simon and Schuster. Proctor, T., 2013. Strategic Marketing. London: Routledge. Wetherly, P., and Otter, D., 2011. The Business Environment. London: Routledge. Wiliam, C. A., 2005. The Marketing Plan. New Jersey: John Wiley & Sons, Inc. Read More