Avery Wellness (M) Sdn Bhd is a private company specialise in total skin care and beauty product solutions in Malaysia. The company began its operation in Malaysia since 1990. Follow Me Industries Sdn Bhd is the sole manufacturing facility for all skin care and beauty products to Avery Wellness (M) Sdn Bhd. Avery Wellness business model involved in marketing and distributing skin care and sun care products within Malaysia market. The main distribution centres in Malaysia focus in all pharmacy chains, departmental stores and beauty retailers.The company is envisaged to transform from a local enterprise into a multinational brand company with growth plan to tap into overseas market. The company has a headquarter base in Subang Jaya Industrial Park with total 80 employees. The advantage of Avery Wellness products are HALAL accreditation and this gave the company a strong market presence in Muslim segment. The company with its marketing and branding strategy by leveraging on local Muslim celebrity as ambassador to successful help the brand enters the Muslim market. 2. 2 Vision and MissionAvery Wellness is visioning to capture the South East Asian market and to emerge as a dominant company in providing skin care and sun care solution for all consumers. The mission of Avery Wellness is to provide continuous innovative and reliable product to overcome all man and woman skin problems with a product certified halal accreditation. 2. 3 Sales Revenue Avery Wellness average sales revenue for the past 3 years from 2010 to 2012 mainly contributed from 3 major brands which are Ageless solution, Clear & Clean and Sun Safe™ (Table 1).The percentage of contribution is 46%, 20% and 34% respectively. The Sun Safe™ brand has two main sun care products which are Sun Safe™ Face and Sun Safe™ Body. Currently the market share for these two products in sun care category is more than 35% in Malaysia. Table 1: Sale Revenue on Skin Care Brand for Avery Wellness Brand2010 (RM/Million)2011 (RM/Million)2012 (RM/Million)Averagepercentage Ageless5. 55. 86. 05. 7746% Clear & Clean2. 42. 52. 52. 4720% Sun Safe™4. 24. 34. 34. 2734% Total Revenue12. 112. 12. 812. 5100% 2. 4 International Market Entry Objective In view of sales revenue stagnancy from year 2010 to 2012, and increasing of fixed and variable cost yearly such as cost of goods sold, salaries and wages, interest expenses and promotion, thus impacting in net income yearly. In fact, there is significant descent of net profit from 11. 4 % to only 9. 9% in year 2012 (Appendix 1). In order to sustain business growth and achieve imperative profitability, step to enter international market is essential.In particular, sustained economic growth has been experienced in emerging economies, which have become a source of expanding market opportunities and are currently underpinning the global recovery (Zizah Che Senik et al, 2010). Malaysia policy of governance encourages local SME to go International. In the effort to encourage SMEs to go global, SME Corp has introduced the National Mark of Malaysia Brand which is a certification process, audited and monitored by Sirim.Through this initiative, Malaysian Brands are developed not just for the local market, but with the intention that they would be good enough to penetrate international markets (Mohd Rithaudden Makip, 2012) In addition, the SME Master plan (2012-2020) has also outlined a High Impact Programme – Going Export Programme that will focus on addressing challenges faced by SMEs on entering new markets overseas, which include high upfront costs and the lack of detailed knowledge about the markets and local competitors (Charles Fernandez, 2013). 3 Country and Market Entry Analysis 3. 1 Country AnalysisIndonesia, Thailand and Singapore are selected as the potential markets for Avery Wellness’s expansion plan to sell HALAL accreditation sun care products. In order to minimize business failure and find out the best of the country market, three candidate markets (Indonesia, Thailand and Singapore) which are the most nearest country to Malaysia are chosen to make comparison for the first step of Avery Wellness to success. The selection of oversea markets is a vital issue for a company, this is imperative as the international business environment is turbulent and more uncertain as compared to domestic market.Therefore, fully identify the potential opportunities cab be exploited while minimizing threats and risks (Fariza Hashim et al, 2010). 3. 1. 1 PESTEL Analysis PESTEL analysis will be used to focus the discussion within this analytical framework on the political, economical, social, technological, environmental and legal factors that may influence the business operation for the company (Kotler 1994). A company must be aware of many considerations such as differences in language and customs as well as political and legal when doing business internationally (Farese et al, 2002).Table 2: Comparison of PESTEL on Indonesia, Thailand and Singapore Analysis FactorCountry IndonesiaThailandSingapore Political & Legal(tax)Doing business in Indonesia is complex and time consuming. This is because of negotiation through the regulatory and industrial landscape. Corruption in the country is active at all levels. Skin care Import duties and taxes of 10% are applied in this country. Thailand is an export-dependent country. A total of $ 223 billion worth of goods in 2011 were exported, accounting 69% of its GDP. Corruption and lack of transparency still a major concerns especially in procurement tender.Thailand’s average applied tariff rate is 11%. Highest tariff rates applied to imports competing with locally produced goods. Skin care is 35% of import duties and taxes. Singapore is a free port country. More than 99% of all imports enter Singapore duty-free. It is a liberal trading regime. Singapore is a strong intellectual property protection country with virtually no corruption. Singapore levies a 7% Goods and Services Tax (GST), including skin care products. Economic (Gross Domestic Product) Indonesia is the largest population with 240 million in Southeast Asia.GDP growth above 6. 5% in 2011 and projected to remain above 6%. GDP per capita of $3,500. .The total population in Thailand in year 2012 is 67 Million. Thai economy grew only 1% in 2011, as the devastation caused by severe flooding that happened yearly in the country. GDP growth rate only 5. 5% in year 2012 and estimated will be above 7. 5% in year 2013. Total population in in year 2012 is 5 Million Singapore economy expanded by 14. 5% in year 2012, become the second fastest growing economy in the world. GDP is expected sustainable growth of 4% in 2013.Social & CulturalRich natural resources country with very strong domestic demand. Bahasa is a common speaking and language used in Indonesia. Indonesian labor cost is relatively low by compare other Southeast Countries. Consumers are extremely price-conscious; prefer lower prices over product quality. Thai and English are the most common spoken language in the country. Labor cost is moderate, where unemployment rate in 2010 only 1% of the labor force. Most citizen and people are highly educated. English is common language for business and education. Local labor laws are flexible.EnvironmentInfrastructure and service networks still under developed in the country. Most of the area are rural and with more than 180 islands in the country. Severe flooding occurred yearly. It caused thousands of homes were inundated and many business operations affected. Singapore levies high excise taxes on motor vehicles and petroleum products due to environmental reason. TechnologyMobile internet is now emerges in the country, providing opportunities to do business through internet. E-Commerce technology enables Thai to support “business to business” collaboration.It is another technology upcoming trend in the country. Telecommunications and Internet facilities in Singapore are extremely well developed. Resource: 2012 Country Commercial Guide for U. S. Companies (http://www. state. gov/) 3. 2 Selection of Country Base on the PESTEL analysis (Table 2), Indonesia will be the best country as the target market of Sun Safe expansion plan outside Malaysia because of its the excellent overall performing ability, widely accepted culture, comparably higher economic growth with less interest rate, and moderate corporate tax rate.What’s more the fact that Indonesia is the largest population growth country which means a vast room for expansion has make it a more attractive market than Thailand and Singapore. 3. 3 Type of Entry mode The expansion into Indonesia market usually could be achieved by indirect investment such as exporting, licensing, trading, joint venture and direct investment. Export Trading Company acts more like an agent to pay the manufacturer for the exported products and thereafter sell the product to interested buyers.There is an advantage to help securing foreign market share on behalf of its clients (Fariza hashim et al, 2010). Avery Wellness is recommended to start its business by appointing a local trading and distribution company in the targeted sun care market. The reasons of appointing a trading company are 2 folds: First of all, risk can be transferred to the appointed local company in the new market development. This is because risks still exist since such market expansions come along with potential failures besides profit makings.Secondly, a well established local trading and distribution company has been proved successful pool their resources such as experiences, technologies and capitals together to expand the business in a fast speed. 3. 4 Trading Company Analysis and Selection In order to minimize the rate of failure and ensure the success entry to Indonesia market, an audit to local well known trading companies is made to compare the background of the company, services provided, distribution channel coverage and the reliabilities of the company (Fariza Hashim et al, 2010).There are 3 local trading companies which are PT Dos Ni Roha, PT Maha Jaya Suksesindo and PT Fremont Nusametal Trading that already well-established in Indonesia (Table 3). PT Dos Ni Roha is the best trading company of Avery Wellness because of its market expansion in Indonesia that covers a lot of states and operational experiences in the business. Table 3: Comparison of Trading Companies in Indonesia PT Dos Ni Roha (DNR Distribution)PT Maha Jaya Suksesindo (MJS)PT Fremont Nusametal Trading (FNT) Company BackgroundPT Dos Ni Roha (DNR) was established in year 1963. The company is now a truly professional distributor in the country.PT Maha Jaya Suksesindo (MJS) is a 15 years old trading company in Indonesia and primary business is exporting fast moving consumer goods to Indonesia Borneo and Sumatra island, and other part of ASEAN countries. PT Fremont Nusametal Trading (FNT) main business is distribution home appliances for international brands such as Sony, Panasonic and LG in Indonesia. The company was established in 1985. Scope of ServicesSales and distribution of pharmaceutical products, consumer products, medical supplies and equipment including after sales service. Logistics services including importation, storage, shipping and inventory managementExport and distribution of consumer goods. Trading and distribution of home appliances. Distribution ChannelDNR has 30 branches and 19 sub-branches spread out all over Indonesia: Java Island (greater Jakarta, west Java, central Java, east Java), Bali & Nusa Tenggara, Sumatera, Kalimantan, Sulawesi, Jayapura. MJS distribution is mainly in the sub-urban and rural areas of Indonesia especially in Sumatra island. The 8 sales offices of MJS are for exporting businesses. FNT has the largest distribution coverage across the 3 main islands of Indonesia – Java, Sumatra and Borneo. The business model of FNT is wholesaling of the home appliances.Business LicenseTrading license with ability to do product registration as currently distributing consumer health supplement products. Trading and Export license but MJS only experience in trading locally produced consumer goods. Trading license on home appliances Current Business PartnersDNR is one of the trading company for international consumer goods of Unilever, Kraft Food and leading local beauty products Mustika Ratu and international L’Oreal and medical products B. Braun, Novartis, Schering Plough. Yummy Food Utama is the largest consumer goods in Indonesia with brands such as Indomie and Yam Yam instant noodles.MJS is the sole trading company. Wholesaling partners for Sony, Panasonic and LG. FNT also is sole distributor of Yamaha heavy equipment in Indonesia such as water pumps, and power generators. Source: Indonesia Business Directory, www. gdgindonesia. com 4. Market and Industry Analysis 4. 1 Porter’s Five Forces Analysis Competitive rivalry within an industry An industry could be defined as substance between the established competitors and the substitute products (Porter, 2008). And the competitive rivalry exists between the established competitors in the same product segment and it is the center of the Michael Porter’s five forces model.Sun care industry in Indonesia, though there are many large corporations such as Beiersdorf and Oriflame Coemetics, but the industrial competitive rivalry would not obviously affect Avery Wellness as there is still a large potential growth of sun care in the country. Bargaining power of customers The bargaining power of the customers also poses significant influence over the business behaviors within the sun care industry. Such forces usually could be seen in term of forced down prices, demand for higher-quality or more services and pit rival organizations against one another (Porter, 2008).However, most customers with small quantity of purchase still having low bargaining power though they only demand in effectiveness product. Threat of new entrants The threat of new entrants comes is quite high due to the low entry barriers in Indonesia. This is because Sun Care products can be imported easily into the country of only 10% import taxes imposed. Besides, Indonesia with population of 240 million people among Southeast Asia country is attracted with all multinational company to tap into this large resource country.Bargaining power of supplier Collaborations with manufacturer Follow Me Industries Sdn Bhd in Malaysia has given Avery Wellness a quality assurance and stability supplied of innovative products. Base on the excellence working relationship for more than 20 years with existing cooperation, it should be possible for Avery Wellness to control such increases in bargaining power from suppliers due to the increasing demand of products during the execution of the Indonesia market expansion plan. Threat of substitute productsThe threat from substitute products to sun care products is very less thanks to the ingredients of sun reflective function named titanium dioxide and zinc oxide. This is because the 2 main ingredients only can be used on sun protection purpose. 4. 2 SWOT Analysis SWOT analysis used to summarize audit which concentrates upon main issues for objectives, strategies and tactics. The audit consists of internal current strengths and weakness that largely controllable, and also external future opportunities and threats that unpredictable (Lancaster & Massingham, 2011). Table 4: SWOT Analysis InternalStrength: Both have been establishing for more than 20 years and expertise in product sales and marketing strategy. -Halal certification for both sun care products help to gain more Muslim consumers which is occupied of 65% of Malaysian populations and 95% of Indonesian populations. Weakness: -Avery Wellness as a Distribution company in fact fully reliable on Follow Me as a Manufacturer to provide sun care product. -Market development solely dependent on PT BNR as trading company without involving in any management and strategic planning. ExternalOpportunity: -Indonesia population estimated to be more than 250 million with 58% live in Java island. Similar tropical country with sunny weather almost throughout the year to promote the using of Sun Care product. -Common language and culture between Malaysia and Indonesia which provide easy platform for market development. Threat: -Sun Care products can be imported easily into Indonesia because of only 10% import taxes imposed. -Plenty of existing premium Sun Care brands such as Cllinique, Clarins, Biotherm are entering Indonesia market. -Sun protection awareness is still primarily high only in Jakarta district. But the sub-urban and rural populations are very lacking of health conscious towards sun protection. 4. Total Market Size and Share of Sun Care Despite the market size of Sun Care in Indonesia relatively low compare to other country such as Malaysia, Singapore and Thailand even though at same currency exchange, whereby Indonesia population is 5-10 times larger compare to these countries, but still it shown the growth of sun care market ascent almost double from 11. 3 bn Rupiah to 20. 2 bn Rupiah within 6 years from 2007 to 2012 (Table 5). Positively, a sun care product is expected to have greater growth rate in Indonesia market. Table 5: Sun Care Market Size of Indonesia Sun Care2007200820092010201120122012 * (RM mn)World (US$ mn)6,817. 17,557. 77,521. 28,161. 89,043. 39,094. 22,860. 0 Indonesia (Rp bn)11. 311. 911. 613. 516. 720. 26. 36 Malaysia (RM mn)9. 39. 49. 69. 79. 910. 110. 1 Singapore (S$ mn)14. 515. 416. 217. 318. 619. 648. 9 Thailand (Bt mn)1,046. 21,200. 81,183. 01,282. 21,401. 71,597. 0162. 0 Resource: Euromonitor International 2013 *Equivalent to Ringgit Malaysia Table 6: Indonesia Sun Care Brand and Company Shares 2007-2012 BrandCompany Name (GBO)200720082009201020112012 NiveaBeiersdorf AG40. 141. 446. 042. 236. 843. 0 OriflameOriflame Cosmetics SA24. 319. 19. 214. 321. 412. 2 Nu SkinNu Skin Enterprises Inc6. 6. 28. 39. 210. 010. 9 The Face ShopLG Household & Health Cate Ltd–8. 08. 39. 09. 6 VaselineUnilever Group-4. 35. 15. 55. 67. 4 Banan BoatEnergizer Holdings Inc3. 74. 14. 43. 93. 24. 3 BiothermLoreal Groupe3. 23. 33. 73. 43. 02. 9 CliniqueEstee Lauder Cos Inc1. 62. 22. 52. 42. 22. 0 ClarinsClarins SA1. 21. 71. 81. 61. 51. 4 RossolareGalenium Pharmasia Laboratories PT0. 30. 30. 40. 40. 40. 4 The Face ShopFaceshop Co Ltd6. 76. 7—- OthersOthers12. 610. 710. 68. 86. 96. 0 Total100. 0100. 0100. 0100. 0100. 0100. 0 Source: Euromonitor International 2013 from trade sources/national statistics (Sun Care in Indonesia)The Sun Care brand shares held by most leading companies in Indonesia remained fairly stable from year 2007 to 2012 (Table 6). The top 3 sun care brands mainly imported from international market are Nivea, Oriflame and Nu Skin, total dominated 65-70% of sun care sales in Indonesia from year 2007 to 2012. Beiersdorf Indonesia with its Nivea Sun brand continued to lead sun care with a 46% value share in 2009. The notable fluctuation brand was Oriflame, which its overall share declined from 24. 3% to 12. 2% throughout year from 2007 to 2012 instability.However, Rossolare is the only local sun care brand owned by Galenium Pharmasia Laboratories PT at 0. 3% of total market share (Table 6). 5. Marketing Strategy 5. 1 Marketing Objectives Key Objective of Avery Wellness and PT BNR are to have Market Development of Sun Care segment in Indonesia market order to achieve: 1. Increase company sales revenue contributed from sun care brand market penetration: a. 10% in year 2013, b. 20% in year 2014 and c. 25% in year 2015. (From RM 12. 6 Mil- 2011 to RM 21. 0 Mil- 2015). (Appendix 1) 2. Capture 20% of sun care market share in Indonesia (2012 total market size in Indonesia RM 6. Mil/ 20. 2 bn Rupiah) 3. Achieve 15% net profit margin in Sun Care product segment in line with profitability generated from other skin care segment within 3 years. 5. 2 Financial Budget 5. 2. 1 Funding Avery Wellness indirect investment strategic to appoint a local trading company in entering Indonesia new market development needs both parties commitment to success the plan. So, both parties need to have contribution in startup capital base on 2:1 ratio whereby Avery Wellness will be contributing RM 500,000 and PT DNR required allocating RM 250,000 as capital to start up the business in Indonesia (Appendix 2). . 2. 2 Working Capital Cash Flow statement is an indication to show cash coming in and out every month. It is essential for a company to use cash to pay business expenses such as bills, wages, merchandise and even unexpected expenses (Farese et al, 2002). Projected cash flow statement (Appendix 3A & 3B) shows the budget planning start from December 2012 as a business startup month. Total funding of RM 750,000 (value equivalent to rupiah – VER) use to pay for 2 months inventories (sun care products), import duties of 10% and promotion support in Indonesia market.Account receivable is base on 60 days term and expected cash is recovered in month of March 2013 with RM 120,000 (VER) sales collected on every subsequent month onwards. Monthly wages, general operating and administrative expenses start from month January 2013 at fixed cost of RM 24,000 and RM 5,500 respectively base on monthly basis. Inventory cost at RM 84,000 (VER) will be paid quarterly to store for 3 months supply. Product registration cost of RM 8,000 is used at one off payment to get qualified certificate to sell sun care product within Indonesia. 5. 2. 3 Sales Forecast and ProfitabilitySun SafeTM brand consists of Sun Sport body and Sun Defense face are forecasted to generate additional sales of RM 1. 2 mil in 2013 (Appendix 4). A successful marketing plan is to achieve company main objective by generating satisfaction profit (Kotler 1994). Net profit ranges is expected between 12-19% yearly, which is above the company net profit of 9. 9% in year 2012. 5. 3 Market Mix George & Michael (2004) classified the 4 Ps marketing such as Product, Price, Place and Promotion as marketing mix. The target market for Sun SafeTM brand is focused on population in mass market of all age in Indonesia. 5. 3. Product There are 2 Sun care products named Sun Sport body and Sun Defense face to be sold in Indonesia market. Base on Warren Keegan model (table 7), there are 5 international product and communication strategies (Keegan & Green, 2011) Table 7: Warren Keegen Model Source: (Keegan & Green, 2011)) Avery Wellness is using Straight Extension whereby products that entering foreign market without changes as no requires R&D expenses, manufacturer retooling or promotional modification. This will be an added advantage for Avery Wellness as the products is using Bahasa and English as communication to deliver the message.In other cases, this strategy may be a disaster; for example Campbell Soup Company experienced a loss of $30 million by introducing a condensed soup in England. The reason is product communication breakdown as consumers did not realize water is added in the soup by assuming the product in small can was expensive. 5. 3. 2 Price Sun SafeTM brand will be positioning as low pricng with high quality value to win loyal customers (Kotler& Keller, 2012). The selling price for Sun Defense Face and Sun Sport Body in Indonesia will be set at RM 29 & RM 25 respectively (VER). . 3. 3 Promotion PT BNR will be using straight extension strategy. Therefore, the company does not change the products and also promotion methods since the culture and language for both Malaysia and Indonesia are similar (Kotler & Keller, 2012). For example, Ford adapted its advertising message due to the product used in United States would not be interpreted the same meaning by Spanish speakers. Sun SafeTM brand is expected to obtain sales of RM 1. 2 millions in 2013. PT BNR is budgeting 10% of the sales revenue for A&P purposes.The advertisement campaign is mainly focus on brand awareness and the whole entire activities as below: 1)Press and magazines for sun protection information/article 2)Merchandising at beauty retail outlets. 3)Social media campaign. 4)Public relation of local Muslim Ambassador. 5)Sample distribution in shopping mall. 6)Sales Promotion. 5. 3. 4 Place PT BNR currently is having a very strong and established distribution network in broad channel for its existing product line in 30 branches covered the following chains such as: a. Pharmacy Chains b. Beauty Retailers c. Departmental Store 6. Management Structure and ControllingManagement is the process of reaching goals through the integrated of technology and human resources (Farese et al, 2002). To facilitate the effectiveness of an organization, PT BNR is currently practicing Horizontal Organization structure. Horizontal Organization involves self-managing teams that set their own goals and decisions; it helps the process of making spontaneous decision without delaying any important task (Farese et al, 2002) Marketing plan should be controlled using qualitative and quantitative standards including sales, market share, expenses, profitability and customers tracking.The controlling process is an indication to the evaluation of the effectiveness of an organization marketing plan (Lancaster & Massingham, 2011). However, despite Avery Wellness is not participating in any sales and marketing activities but the director of sales will be monitoring and control the sales and marketing plan base on annual, profitability, efficiency and strategic control from time to time. 7. The Challenges for SME to Enter International MarketFrom a viewpoint of SME policy, the drastic changes in global growth and trade dynamics may open up opportunities for SMEs in international markets. However, they also pose a new challenge to policy makers in the need to design, adapt and implement effective policies to facilitate internationalization and enable SMEs to take full advantage of its benefits (Zizah Che Senik et al, 2010). In general, SMEs are considered to experience greater difficulties relative to large firms when operating internationally because of constrained resources and lack of international experience.Furthermore, the regulatory framework of some high-growth economies makes it more difficult for SMEs to enter the markets, which can be characterized by an unpredictable business environment likes frequent regulatory changes, weak protection of property rights, non-transparent judicial systems, inadequate enforcement of commercial law and specific institutional constraints. All these factors create additional challenges challenge to SMEs, which are typically resource constrained and inexperienced (Zizah Che Senik et al, 2010).A study on “Removing Barriers to SMEs Access to Global Markets” has identified in some of the barriers that affect the decision in entering foreign market. Table 6 has shown the ranking of the barriers (Koji Ito, 2013). Table 8: Types of Barrier of entering foreign market RankingTypes of Barrier 1Inadequate of well trained personnel 2Working capital shortage 3Insufficient and limited information on market audit 4Wrongly identifying foreign business opportunities 5Time management to manage international business is lack 6Inability to rapture potential customers in oversea market 7No strategy to develop products for foreign markets Unfamiliar foreign business practices and regulation 9Product quality and standard not meet the country requirement 10Unfamiliar exporting procedures and processes Source: US International Trade Commission (2010). 9. Recommendations It is suggested that Avery Wellness should build a network in Indonesia by appointing PT BNR as a trading company to distribute its products in the country. However, it is recommended that Avery Wellness can use direct entry mode after the successful of product penetration into Indonesia market.
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