Arabian Plastic Company’s International Business Entry Strategy

Summary

The Arabian Plastic Company has been successful in the local market. The management has decided to explore international markets as a way of expanding its market share. This report has provided a detailed plan of the steps that it should take in selecting specific countries with great growth potential. The report has identified the United States, China, and India as the most preferred markets that the company should target as it seeks to achieve market growth. The company should enter the American market as an exporter because of the high cost of production in the country. However, it may consider having its manufacturing plants in the Chinese and Indian markets.

Evaluating Worldwide Business Opportunities

The Product

The consumption of plastic materials in the global community has been on the rise for the past several decades. According to Nurhan (2018), although environmentalists have discouraged the use of this material because of its devastating impact on the environment, the lack of a proper alternative has forced companies to continue using it, especially for packaging their products. The Kingdom of Saudi Arabia is one of the leading exporters of plastic and raw materials used in its manufacture. The demand for the product is still high in Asia, North America, Europe, South America, and Africa. Various companies have emerged in this industry to take advantage of the large global opportunity in the industry. Cavusgil et al. (2017) explain that emerging technologies and innovations in this market have made it possible to develop long-lasting plastic materials that can be reused to ensure that they are less harmful to the environment. New technologies have also made it easy for this product to be recycled in different parts of the world. The danger that it poses to the environment can be overcome by making it easy for the material to be recycled and reused. The report will focus on the Arabia Plastic Company’s effort to sell its products in the global market.

The company will be selling raw plastic materials to its customers, as shown in figure 1 below. The production line will be defined in terms of color and quality of the product. The firm will provide different colors of the material as shown in the figure. The product will come in three categories, which are grade 1, grade 2, and grade 3. Despite this grading, the management is focused on producing high-quality plastic materials that can outperform what rivals’ firms are currently offering.

Raw Plastic Material
Figure 1. Raw Plastic Material (Nurhan, 2018, p. 56).

Figure 2 below shows the different classes of materials that the company will be offering to its customers in the global market. The company has put in place measures to ensure that the quality of its products matches the standards set by the targeted countries. The production capacity is projected to increase annually, from 850 tons in the first year, to 1,800 tons in the second, and 2,200 tons in the third (Nurhan, 2018). The production volume is expected to improve even further as the company explores new markets in North America, South America, Europe, parts of Asia, and Africa.

Grading of the Plastic Material
Figure 2. Grading of the Plastic Material (Nurhan, 2018, p. 61).

The Company

The Arabian Plastic Company was founded in 2012 as a marketer of petroleum products in the global market. Headquartered in Riyadh, the company later transformed into a leading manufacturer and exporter of plastic products within the regional and international markets. Annual reports indicate that it has received massive growth over the years despite the numerous challenges that it has faced in the recent past. It currently employs 1000 workers responsible for the production, logistics, promotion, and sale of its products. Most of these employees are in Saudi Arabia and are mainly responsible for the production of the plastic materials that the company sells in the market. Its revenues, profit, and assets have also increased tremendously over the same period.

The company has positioned itself as one that is concerned with the need to be environmentally conscious with its products. Most of its plastic materials are meant to last long to ensure that they can be reused before being recycled. The positioning strategy was motivated by the desire for the company to address the growing negative perception of plastic materials. Many countries have banned the use of specific types of plastics because of their impact on the environment (Buffington, 2019). The unique positioning strategy of the company gives it a competitive edge over its rivals in the industry. The company has invested a significant amount of its income in research and development as a way of developing unique products in the market. Its orientation toward production of environmentally friendly plastic materials has made it possible for the company to emerge as one of the most successful Saudi Arabian companies in this industry.

Figure 3 below shows the organizational structure of the company. At the helm of leadership is the chief executive officer. The company’s secretary, who is also the resident lawyer of the firm, is the chief legal adviser to the CEO. The departmental heads are responsible for the normal operations of their units. They include the head of the production, the head of finance, the head of marketing, the head of supply chain, and the head of global operations. Under the head of global operations are general managers in India, China, and the United States.

Organization Structure and Reporting Hierarchy.
Figure 3. Organization Structure and Reporting Hierarchy.

Potential Business Opportunities in the Global Market: SWOT Analysis

The Arabian Plastic Company has achieved impressive growth in the local market over the past few years. However, the company can no longer rely on the local market alone. Kurtz et al. (2019) explains that firms which are keen on expanding in size have to find ways of exploring foreign markets. When analyzing opportunities, a SWOT analysis can help in identifying internal forces that may affect the company’s ability to take advantage of what the market presents. The main strength of this company is that it has the financial capacity to meet expansion needs in the foreign market. Its team of highly experienced and dynamic managers will also enable it to overcome challenges it is likely to meet in the global market. It has also invested in empowering its workforce through effective recruitment and regular training.

The management must understand weaknesses that may derail its effort to achieve growth in the market. The biggest weakness of this firm is that it has no experience operating in the selected foreign markets. It means that the company will have to spend resources to conduct market research and understand needs and expectations of its new customers (Das, 2019). Flexibility is another issue that the company may struggle with in the global market. The firm is always slow to change, which may affect its operations in the selected countries, especially when competition is stiff.

The global market presents massive opportunities that the company should capitalize on as it seeks to expand. Plastic is still one of the most preferred packaging materials in the global community. It means that there is a potential in the global market for the company to explore. To achieve success in the global market, the company will need a proper strategy of expanding its operations. One of the factors that it will have to consider is the need to select specific countries that present the best opportunity for its success. When seeking global markets, it may not be possible for a firm to enter numerous countries in different continents at the same time. Instead, it should focus on making selecting entry, giving priorities to markets with the best potential for growth. The management of the Arabian Plastic Company will have to select appropriate countries where it can achieve rapid growth as it seeks to expand its market share. Analyzing the general business environment and indicators in the targeted locations may help the management to make the right decision in its globalization strategy.

The management should be ready to manage threats that it will encounter in the global market. One of the biggest threats is still competition. The industry has well-established players such as Dow Chemicals, ExxonMobil, and INEOS. These competitors have strong brands and it will be challenging to gain market share in markets where they dominate (Kaspers, 2018). Laws and regulations set by the host governments may be prohibitive to this firm, especially in China where the government has tight control over business activities of foreign companies. Emerging alternative materials and environmental concerns are the other major threats that companies in this industry will have to address as they seek growth. Figure 4 below summarizes the SWOT model.

SWOT Analysis.
Figure 4. SWOT Analysis.

Preliminary Screening Criteria

When planning to expand to the global market, it is essential for a firm to select specific countries that offer the potential for growth. There should be a criterion for screening these countries depending on the objective of the management. According to Kaspers (2018), some of the factors that a firm may want to consider when screening a country is the population size, purchasing power of the targeted customers, socio-cultural environment, government policies, and the popularity of the product among the targeted customers. Plastic remains one of the most popular packaging materials in the world (Das, 2019). However, the Arabian Plastic Company will need to select a country that meets specific criteria based on the short-term and long-term goals that it seeks to achieve. The preliminary screening criterion was based on a number of factors.

Global Population.
Table 1: Global Population. Source (Forrest et al., 2020, p. 45).

Table 1 above shows the past, present, and projected global population and that of the selected most populous nations around the world. One of the most important factors that the management had to consider was the population of the targeted country. The product is used in different industries. The volume of sales will directly be influenced by the size of the population. The management will have to focus on making an entry into markets with huge population. It is necessary to target countries with a minimum population of 100 million people. The second factor will be the purchasing power. As L. Ahuja and A. Ahuja (2017) explain, it is essential to ensure that the targeted customers have the capacity to purchase a given product offered to them. Lack of the capacity to purchase the product, even if the population is relatively large, would render the market unreliable. The preliminary screening will also focus on government policies, especially in the regulation of plastic materials. It will be necessary to avoid countries with restrictive policies and laws that may limit the ability of this firm to conduct its activities effectively.

Selecting Indicators to Evaluate the Investment Climate in the Targeted Country

In the preliminary screening plan above, a number of indicators to be selected for an entry that would define the country to be selected for an entry. One of those factors was the population of the country. The researcher had to collect data to identify countries with the right population. It was suggested that each of the selected countries needed to have at least 100 million people. Table 2 below identifies top ten most populated countries in the world. China, India, the United States, Indonesia, and Brazil are the top five most attractive countries based on this criterion. Others that qualify are Pakistan, Nigeria, Bangladesh, Russia, and Japan.

Most Populated Countries in the World.
Table 2: Most Populated Countries in the World. Source (Cavusgil et al., 2017, p. 71).

The second criterion was the purchasing capacity in the targeted market. According to Forrest et al. (2020), the best way of determining the purchasing power of people in a given country is to determine their per-capita. In this case, however, it was considered necessary to look at the gross domestic product (GDP) in general instead of focusing on the per-capita. As shown in figure 5 below, the United States has the highest GDP in the world, making it the most attractive market based on this economic criterion. China comes second while Japan is third. India has the fifth largest economy in the world. Other countries that have made it to the list of top ten include the United Kingdom, Germany, France, Italy, Canada, and Brazil. Their GDP makes them attractive for this company because they have the capacity to purchase its products.

World’s Largest Economies
Figure 5. World’s Largest Economies (Ayden et al., 2018, p. 65).

When focusing on the economic environment of the targeted countries, another factor that was of interest was inflation. According to Leeman (2018), inflation may negatively affect the ability of people to purchase specific items as the cost of living goes him. Based on the first two criteria above, the United States, China, and India have come out as the three most attractive markets for this company. As such, it was necessary to evaluate inflation rate in each of them. Figure 6 below shows the inflation rate in China. It is evident that the country has been able to manage inflation at below 2.7 from July 2018 to April 2019. The low rate of inflation is sustainable for the business community.

China’s Inflation Rate
Figure 6. China’s Inflation Rate (Calvelli & Cannavale, 2019, p. 49).

India was identified as another potential country that the Arabian Plastic Company can consider as it seeks to expand its operations. The government has been keen on regulating the use of plastic materials over the past few decades. However, it remains one of the largest markets for plastics in the world. Figure 7 below shows the inflation rate in the country. Within the same period of July 2018 to April 2019, the inflation rate in the country was maintained at less than 4.17%. It is evident that the government has done everything possible to manage inflation. Even though it is worse compared with that of China, it is within expectations of this company.

India’s Inflation Rate
Figure 7. India’s Inflation Rate (Calvelli & Cannavale, 2019, p. 49).

It was also necessary to evaluate the inflation rate in the United States. As the world’s largest economy, the country offers a huge growth potential for this company. Figure 8 below shows the inflation rate in the country from April 2017 to January 2018. It is evident that like China, the United States has been keen on managing inflation rate. The figure shows that within that period, inflation rate did not exceed 2.7%, which is a good indicator for a firm seeking to enter the market. In terms of managing inflation, data shows that the United States and China are performing better than India. However, all of them offer attractive growth opportunities.

United States’ Inflation Rate
Figure 8. United States’ Inflation Rate (Leeman, 2018, p. 89).

Other Barriers to Entry

The management of Arabian Plastic Company should also understand other factors that may become a barrier to entry into this new market. According to Leeman (2018), factors such as tariffs, product regulation, exchange controls, as well as indicators of business potential should not be ignored when planning to make an entry into a new market. Lately, there have been tariff wars between the United States and China, especially after President Trump took over power. However, it is less likely that such trade wars between the world’s largest economies will affect this Saudi Arabian company. The cordial relations that the Kingdom of Saudi Arabia has with each of the three countries are another major advantage for the company.

Product regulation is a major concern that the Arabian Plastic Company will have to observe. The United States, China, and India all have tough regulations regarding the use of specific types of plastic materials (Nurhan, 2018). They are all keen on fighting the negative impact of plastic on the environment. Each of these governments have set strict laws defining specifications that companies have to meet before releasing their plastic materials to the market. The company will have to follow these guidelines to avoid facing legal problems. Exchange controls will not be a major challenge in each of the three countries. Saudi Arabia has established an effective trade system with them, making it easy to address that challenge. Indicators for business potential should also be evaluated.

Infrastructural Requirements

It is important for the management of this company to understand the infrastructural development of each of the targeted countries that may affect the feasibility and profitability of exploiting market potential and managing competition. One of the most important infrastructural development that the management should be concerned about is media. Nurhan (2018) explains that media is a powerful tool that can help develop or destroy a company. When a company or an industry regularly receives negative reviews, it can easily be crippled and forced out of operation. It means that when a company is operating in a country with a powerful and independent press, it must ensure that its practices are in line with the set laws and regulations. Figure 9 below shows media freedom in different countries around the world. It is evident that in the United States, freedom of press is considered satisfactory. It means that media have the freedom to report on things that they consider good or bad practices. In such a country, the management of the Arabian Plastic Company should ensure that it maintains ethical practices besides following laws and regulations set by the government.

In India, freedom of the press is classified as being in a difficult situation. It means that although journalists may have the capacity to report unethical practices, they are subject to strict government regulations. The press can be manipulated in most of the cases to support a narrative favorable to those in power. In such a market, the management will need to maintain a cordial relationship with those who are in power. In China, the freedom of press has been classified as being in a very serious situation. It means that there is a total lack of media freedom. The press cannot publicize anything without the authority of the government. When operating in such a country, this firm should not be worried about negative publicity by the press as long as it follows guidelines provided by the government (Buffington, 2019). However, that does not mean it has the liberty of engaging in unethical practices knowing that there will be no major media coverage.

Freedom of Press around the World
Figure 9. Freedom of Press around the World (Kaspers, 2018, p. 78).

Physical distribution of the products is another important factor that the management will have to consider when choosing the right country. In this case, the management should be concerned about the transport infrastructure in the targeted country. It should be easy to transport its products from its premises to different parts of the country. China and the United States have some of the best infrastructures in the world (Das, 2019). The two countries have invested heavily in the improvement of roads, rail, water, and air transport. It means that the company will find it easy moving its products to targeted locations. In India, there has been a major improvement in the transport infrastructure. Although the infrastructure in this country is not as advanced as that of the United States and China, the company will not face major challenges transporting its products in the market. Major cities such as Mumbai and New Delhi may be prone to traffic jam, but the government is committed to addressing the issue.

The management of Arabian Plastic Company will also have to make a decision about distribution channels appropriate for its products in the foreign market. Buffington (2019) explains that various factors such as the financial capacity of a firm, knowledge of the local market, and the number of employees in the foreign market all define the channel that a company can use. Figure 10 below shows the possible distribution channels that the company can use to ensure that its products reaches the target market. Selling directly to customers as shown in option 3 may be an option when a firm is relatively small and is dealing with few clients. Option 2 may also be considered but it also requires a small firm that operates within the country.

The first option of the distribution channel is the most appropriate for the company for its plastic products. In this case of an exporter, this company will need to rely on other intermediaries to ensure that its products reach customers in the market. The firm will need to identify established and reliable wholesalers who can buy the product in bulk. The wholesalers can then sell these products to retailers that will ensure that the product reaches customers within targeted market. This approach will enable the company to focus on making its products available in bulk within the targeted country instead of spending much time to ensure that the product is sold to customers.

Distribution Channels
Figure 10. Distribution Channels (Buffington, 2019, p. 67).

Indicators of Product Market Potential

The management of the Arabian Plastic Company should have an understanding of product market potential before selecting countries that it should prioritize in its global expansion strategy. According to Kaspers (2018), the usage of plastic is still common in the global society despite the growing concern about its impact on the environment. Some countries have developed regulatory policies meant to minimize its usage as a way of protecting the environment. The problem that governments face when trying to lower the usage of plastic materials is that there is lack of a proper alternative. A country such as China has avoided enacting restrictive laws towards the use of plastic materials because the government understands that there is no proper alternative. In this section, it is important to collect data about plastic production, usage, sales, and competition from substitute products to help the management to make informed decision on the approach that should be taken in the global expansion strategy.

It is necessary to start by analyzing data about the production of plastic materials in the global society. Figure 11 below shows the annual production curve from 1950 to 2015. It is evident that from 1950 to 1958, the world was producing a few million tons of plastic every year. The low production rate can be attributed to the fact that it had not gained popularity in various other industries. The global population within that period was also low compared to what is currently the case (Kurtz et al., 2019). The statistics show that there was a sharp rise in the production of plastic from 1958 to 1972, before it dipped from 1972 to 1974. From 1974 to 2006, there was another consistent rise in the production of this material. The production then went down from 2006 to 2008, possibly because of the rising concern about the negative impact of this material on the environment. At this time, environmentalists had made it clear that the ecology was under threat because of the massive production, usage, and irresponsible disposal of items made from plastic. Surprisingly, from 2009 to 2014, there was another sharp rise in the production of plastics, which indicates the growing demand. Buffington (2019) explains that there is yet to be an effective environmentally friendly alternative.

Global Plastic Production/Sales
Figure 11. Global Plastic Production/Sales (Nurhan, 2018, p. 42).

The data above shows that there is a growing demand for plastic materials in the global market. The growing opportunities offers the Arabian Plastic Company a unique opportunity to expand its market share beyond the region. It was necessary to identify main sectors that rely heavily on this product to help in defining appropriate positioning strategy for the firm. The data from Euromonitor’s Global Marketing Information Database, in figure 12 below, shows packaging relies heavily on plastic materials. Other major sectors that the company can target include LD/LDPE, PP and fibers, textile, consumer products, and transport. PVC, additives, construction, electrical and electronics, and industrial machinery should not be ignored. Understanding the most attractive sector makes it easy for the company to understand how to modify its products to meet needs of its targeted market.

Plastic Consumption by Sector
Figure 12. Plastic Consumption by Sector (Nurhan, 2018, p. 33).

Plastic materials are sometimes sold as a recycled product as a way of reducing its negative impact on the environment. The management of Arabian Plastic Company should understand these market dynamics as it focuses on going global. It is necessary to identify countries that are importing the highest amount of world’s plastic wastes. Figure 13 below shows that China imports over 72% of the global recycled plastic materials. The United States comes a distant second, with only 3% of the global share. Other major importers include the Netherlands, Germany, Belgium, Canada, Italy, and India. It is important to note that the 3 countries (China, the United States, and India) that have been targeted using the screening criteria above have all made it in this list as well.

Leading Importers of Recycled Plastics in the World
Figure 13. Leading Importers of Recycled Plastics in the World (Buffington, 2019, p. 76).

Competing and Substitute Products

Competition is common in almost every major industry in the global economy. Kurtz et al. (2019) argue that competition enhances creativity and innovativeness as firms struggle to develop unique products that can outperform that of rival companies. The Arabian Plastic company should expect stiff rivalry in this lucrative industry, especially in the three countries that have been selected. Currently, the market has numerous players offering the same product to different sectors discussed above. Some of the top global producers and distributers of plastics include Dow Chemical, Lyondell Basell, ExxonMobil, SABIC, INEOS, LG Chem, and BASF (Nurhan, 2018). These are direct competitors to the Arabian Plastic Company because they offer same products.

Currently, Dow Chemicals, with its headquarters in in Midland, Michigan, is the dominant player in this industry. It dominates the North American market, but it also has its presence in European and Asian market. ExxonMobil is another competitor with a strong brand that share the same market as Dow Chemicals. INEOS is a European company that specializes in the manufacture and distribution of a wide variety of chemicals, including plastic materials (Kaspers, 2018). It has been keen on spreading its market share beyond Europe. LG and BASF are the other dominant competitors that enjoy a strong brand in the market. The rivalry in this industry is stiff, and as new firms continue to make their entry into the same market, the current situation is expected to become worse. The firm will need to find a proper way of dealing with this threat.

The management should also find a way of dealing with substitute products. As the plastic menace continues to be a major concern to environmentalists around the world, there has been a concerted effort to find a way of eliminating or at least reducing its usage in the global society. According to Buffington (2019), technological advancements have made it possible to develop other alternatives considered environmentally-friendly. There has been an effort to promote the usage of paper as a means of wrapping and packaging items. Figure 12 above indicated that packaging is by far the most attractive sector for plastic materials. The fact that it has been targeted by alternative products means that this company has to find a way of dealing with the threat.

In the construction, electrical and electronics, and various other manufacturing sectors, there is a growing trend where the use of plastic is being replaced with wood, glass, stainless steel, bamboo, pottery, and platinum silicone among other materials considered environmentally friendly. These alternative products are posing a major threat to the plastic industry, primarily because they are considered safe. Kurtz et al. (2019) believe that the only reason why the use of plastic is still common is its low cost when compared with the alternatives. The management of this company will have to be creative in finding ways of dealing with substitute products.

Key Success Factors

The analysis above shows that there is a huge opportunity for the Arabian Plastic Company in the global market. Based on the analysis, three countries have been identified as the most attractive markets for the company. China was selected because of its huge population and a strong GDP. The statistics above shows that it is currently the world’s leading consumer of plastic materials. The United States was another country that was selected. It was chosen because of its strong economy and a relatively large population. The third country in the list of markets that this company will have to target was India. Although the government of India has been discouraging the use of plastic materials for packaging, the country is still one of the largest consumers of plastic. Unlike the United States which is in another continent, India is close enough to Saudi Arabia, so exporting to this country will not be challenging. Its GDP is also strong enough to support the industry as long as players follow the set rules and regulations.

The management will need to understand key success factors in this market as it seeks to achieve the desired growth. Nurhan (2018) identifies strategic focus as one of the key success factors. It involves effective leadership, management, and planning of activities in the market. Each of the three markets is unique, as was discussed above, and would require unique strategies to achieve success. The approach used in China may not necessarily work in the United States or India. The second key success factor is people. The management should ensure that its staff is properly equipped with the relevant knowledge of the market and can meet customers’ expectations with ease. Regular training is critical at this stage, especially when dealing with highly demanding customers. Marketing is another key success factor that the management will need to give priority. The company will need to set aside part of its income to support marketing initiatives in the three countries.

Constraints That Impede the Marketing Effort

The review of the three markets shows that there is a huge potential for the Arabian Plastic Company to achieve success in the three countries. However, it is important to appreciate the fact that some constraints exist that may impede the firm’s marketing effort. In the United States, one of the biggest concerns is the power of the press. It means that any slight mistake that the company commits can easily be blown out of proportion by press, with devastating consequences. The company must also ensure that it follows government policies in terms of quality of the product that it sells to avoid litigation (Kurtz et al., 2019). In China, the close control that the government has over all sectors of the economy is a concern.

Top government officials can easily define the fate of a company in this country. Some of these restrictive laws may impede growth of the company in China. In the Indian market, the biggest concern is the effort that the country is making to shift from the use of plastics to other alternatives considered environmentally friendly. In all the three countries, the management will have to find a way of dealing with the growing negative publicity about the use of plastic and its impact on the environment. Embracing creativity and emerging technologies may help in finding a way of addressing concerns of environmentalists.

Developing an International Business Entry Strategy

In the previous section, the researcher conducted a comprehensive analysis of the product and global market. It is evident that the use of plastic is still popular despite the growing concern about its impact on the environment. In the analysis, the researcher selected three countries, the United States, China, and India, as the most preferred markets that the Arabian Plastic Company should target in its globalization strategy. In this section, the focus is to develop an international business entry strategy. The management of the company will need an effective way of entering and sustaining business operations in each of these countries. The previous analysis indicated that each of these countries has unique socio-political and economic environment. It means that the management will need to use varying strategies in its expansion effort.

Market Entry Strategy

Making an entry into a new market requires an understanding of external forces that the firm has to counter to achieve the desired success. Kurtz et al. (2019) explain that it is essential for a company to conduct an external assessment of the market and internal capabilities before making the entry. The information helps in defining appropriate marketing positioning based on the specific customers targeted. In this case, the company has selected three countries considered most attractive in the global market because of their huge population and their gross domestic product. It is important to note that the socio-political and economic environments in the three countries are different. It means that the company will have to define entry strategy that is unique to each of the selected markets.

Target Markets

The Arabian Plastic Company will need to make an entry into the three markets. The United States is home to over 300 million people and has the largest economy in the world. It is also one of the leading consumers of plastic materials (Buffington, 2019). China has the largest population in the world, estimated to be over 1.3 billion people. It also has the world’s second largest economy after the United States. The country is also the largest consumer of items made of plastic materials. India has the second largest population in the world, estimated to be over 1.2 billion people. It has a strong economy with a business environment that is supportive of foreign companies. The government has been promoting foreign direct investment as a way of creating jobs and enhancing economic growth. These markets offer the best growth opportunity for the company if appropriate steps are taken to make the entry and subsequent operations successful.

Production Location

Selecting production location is one of the most important factors that the management will have to define. Currently, the Arabian Plastic Company has a production plant in Saudi Arabia. It will have to decide whether to expand this production facility in the home country to support its exports or to open new production plants in the host countries. Kaspers (2018) suggests that when selecting the production location, factors such as regulations in the host country, cost of production, ease of accessing raw materials, and labor laws should be given priority. It is advisable for this company to use different strategies in each of the three countries. In the United States, cost of labor is relatively high.

The government has also developed stringent measures to minimize any form of air, land, and water pollution (Das, 2019). The best strategy in this case is for the firm to export already manufactured products to this country to avoid these restrictive regulations. In this case, the production plant at home will need to be expanded. Indian and China are always very supportive of foreign investors. The cost of production in both countries is also low, while technology is improving rapidly (Buffington, 2019). In this case, the company can set production plants in each of these countries to support the local economy and create jobs as a way of endearing the brand to the targeted customers.

Financials

The management will need to have a budget that can support the expansion into the three markets. It is essential to ensure that the proposed budget is in line with the company’s current financial position. The company will need to have an estimate of the cost of various projects that it will have to undertake to achieve the intended goals in each of the three markets. In china and India, the company will need to put up new production plans. In the United States, it will be exporting finished products, which means that its production capacity in the home market will have to be expanded. Other major areas where this company will need to make a significant investment into include logistics, promotional campaigns, statutory fees, salaries and wages, and other miscellaneous costs.

Table 3 below shows a summary of the activities that the company will need to undertake and the proposed cost. It is necessary to note that the cost proposed in the table can fluctuate depending on various factors that the company may face in the foreign market. The proposed budget shows that revenues that the company will make in the first year of operation will exceed its expenses. It means that the firm’s operations in the new market will be profitable within the first year of operation.

Table 3: Proposed Year 1 Budget in Foreign Markets.

Expenses Amount {SAR} Revenue Amount (SAR)
New Production Plants (China & India) 3,253,353 Sales 17,850,000
Logistics 2,437,670
Promotional Campaigns 1,295,715
Statutory Fees 170,636
Salaries and wages 3,339,609
Other Costs 1,537,607
Total Costs 12,034,590 Total Revenue 17,850,000

The funding of all the expansion project will be done by the company. The Arabian Plastic Company has been operating in the local market for about one decade and as such, it has the capacity to finance these projects from its revenues. When necessary, the management may consider procuring a loan from leading local or regional financial institutions.

The management should be concerned about the financial performance of the company when it makes an entry into the global market. Table 3 below shows the forecast of sales volume, product price, revenues, production cost, gross profit, annual expenses, the expected taxation, and the net profit. It is expected that the net profit for the company will grow annually as the firm understands the market. On the other hand, the annual unit cost of production will drop as the company becomes more efficient and continues to understand the market dynamics in the targeted countries. The table also provides production figures for the company within the first 4 years of operation in the foreign market. The table shows that within the first year, the company will produce 850 tons of plastic. In the second and third years, the production will increase to 1,800 tons and 2,200 tons respectively. The output will increase as the company expands its global market share.

Table 4: Financial Performance and Production Figures of the Company.

Financial Year 1 2 3
Sales Volume (Tons) 850 1,800 2,200
Product Price (SAR/Tons) 21,000 21,000 21,000
Revenue (SAR) 17,850,000 37,800,000 46,200,000
Production Cost (SAR) -12,000,000 -14,000,000 -18,100,000
Gross Profit (SAR) 5,850,000 23,800,000 28,100,000
Miscellaneous expense Expenses -950,000 -1,300,000 -4,830,000
Tax (10% of gross profit) -585,000 -2,380,000 -2,810,000
Net Profit (SAR) 4,315,000 20,120,000 20,460,000

Production Capacity

The company is currently operating in the Kingdom of Saudi Arabia, which is the home market. Its production capacity is expected to increase exponentially as it targets the three major markets. Meeting the new demand will require the company to increase its production capabilities significantly. The proposal given in this document focuses on a two-way strategy to meeting this goal. The first strategy is to open new production facilities in the foreign market. The analysis has shown that the strategy can work well in China and India. Setting up production plants in these two countries will enable it to expand production capacity at a relatively low cost. As Das (2019) observes, the cost of production in India and China is relatively lower than in Saudi Arabia.

This is so because cost of labor in the two countries is low. In China, technological advancements will also mean that some of the activities will be done using machines instead of human resource. The cost of production in the United States is significantly higher than that of the Kingdom of Saudi Arabia. The field work conducted indicates that restrictive laws that manufacturers have to observe are another barrier to setting up a production plant in this country. As such, it is recommended that the company should expand its current production plant in the local market. The additional products will then be sold to the American market as an export of finished product. Table 5 below provides the production capacity of the company within the first 3 years of its operations in the three foreign markets. It shows a consistent increase in the output of the firm as it increases its market share.

Table 5. Production Capacity.

Year Year 1 Year 2 Year 3
Production Volume (Tons) 850 1,800 2,200

The Strategic Plan

The Arabian Plastic Company will need a unique strategy that will enable it make a successful entry into the selected markets. According to L. Ahuja and A. Ahuja (2017), the ability of a firm to achieve success in a foreign market depends on the strategy that it embraces. Each of these markets have established players in this industry that this company will have to overcome. It means that it will have to convince its targeted customers that it is offering a superior product. In this section, the report focuses on the positioning strategy of the firm, pricing approach that should be embraced, the distribution channel, and promotional strategy. The section also discusses time horizon for the various activities proposed in this plan.

Product Positioning and Modifications

The global society is getting increasingly concerned about the impact of plastic wastes on the environment. There are attempts to eliminate the usage of this product in many countries around the world (Kaspers, 2018). Because of this negative publicity, the Arabian Plastic Company will need a unique product positioning that can overcome the negative publicity. The product of the company should be positioned as long-lasting reusable plastic products that pose minimal threat to the environment. It means that the company will need to have some modifications on its products, especially those that target American market. The plastic bags, containers, and other packaging materials should be strong enough to be reused. The modification is meant to ensure that the company offers what it promises its customers. The aim is to ensure that these products do not easily end up in dumpsites where they become a threat to the environment. The company may also consider introducing an initiative where it works with other local entities in these foreign markets to collect and recycle plastic materials. The objective is to create an image of a company that is focused on protecting the environment.

Pricing Strategy

Pricing strategy will define the market niche that the company will attract in the foreign market. Leeman (2018) argues that pricing may not always be as easy as some may think. When a product’s price is set high, many people will view it as being of high quality. The problem is that a larger section of the market may not afford to purchase it. On the other hand, setting a low price may attract many buyers because of affordability, but it may give the impression that the product is of low quality. There is also the challenge of causing price wars in the market when a company chooses to lower its prices. As such, the Arabian Plastic Company will set a relatively low price for its products. The fundamental goal should be to ensure that the price meets the cost of production, freight, distribution, and leaves the company with a profit that can ensure that its operations are sustainable. The management should consider having trade discounts for its large customers purchasing its products in bulk.

Figure 14 below shows the various pricing strategies that a company can use in the market depending on the goal that it seeks to achieve. As shown in the four classes of pricing, each is used to achieve specific goals (Nurhan, 2018). The company will use penetration piecing, where the price will be relatively lower than what competitors offering the same quality offer. The quality will not be compromised because of the low price. This strategy is meant to help the firm to penetrate the new markets.

Pricing Strategies
Figure 14. Pricing Strategies (Das, 2019, p. 88).

Distribution Strategy

The management will need to choose the appropriate distribution strategy that is in line with its planned operational strategy in the foreign market. A company can opt to use a direct or indirect distribution channel, as shown in figure 15 below. When using a direct channel of distribution, the producer sells its products directly to the customer. This company cannot use this strategy because of its huge size and the need to operate in different parts of the world. Instead, it will use the indirect channel of distribution. In this strategy, the company will rely on intermediaries to ensure that its products reach targeted customers.

The company will sell its products to wholesalers then to retailers before reaching customers. This strategy will be used in all the three foreign countries because of the need to focus on producing quality products in mass. The type of market coverage is another important factor that the management will have to consider. It is necessary to ensure that these products cover the entire market in each of the selected countries. To achieve this goal, the company will have to identify wholesalers located in different parts of each of the three markets.

Distribution Channel
Figure 15. Distribution Channel (Kaspers, 2018, p. 43).

Promotional Strategy

The company will need to make a significant investment in the promotion of its products in the foreign market. The first step is to define the media plan for the product. In this case, the company will need to have a delicate balance of having both social and mass media marketing strategy. Each of these two platforms can share the promotional budget by half. In mass media plan, the company should primarily focus on television and radio commercials. It may also have billboards erected in strategic locations, especially in busy urban settings (Leeman, 2018). The social media offers a unique opportunity for the company to reach a wide market.

Facebook, YouTube, WhatsApp, Instagram, and Twitter all offer effective platforms that the company can use to reach out to the audience. Having an advertising copy that can be used in all these platforms is essential. It would mean that the company will be able to use the same television commercial in all the social media platforms. Sales promotion is another strategy that the company can use to attract customers, especially when making its first entry into the market. Product samples, freebies, and coupons are some of the strategy that the company may consider. Personal selling will not be an attractive strategy because the company will be targeting wholesalers instead of individual end-users.

Time Horizon

The company will need to have a careful plan of how different marketing activities will be conducted within a specific period. Having the time horizon makes it easy to know when each activity will be conducted. Within the first year of operation in the market, the company should have an established both mass and social media marketing plans that target specific audience. In the third year of operation, the management should be in a position to identify platforms which are effective and those that lack the capacity to promote the brand of the company. The long-term goal is to have a marketing plan that reaches a wider audience. Cost should also be a factor when planning a long-term marketing plan. The selected strategy should not only be effective, but also affordable for the firm.

  • A detailed television commercial should be developed and approved by the marketing department within the first one month of making the entry official;
  • The television commercial should start to air in the local television stations in the selected countries within the second month of making the entry, as soon as it is approved;
  • Within the first 4 months of entering the market, develop an effective Facebook marketing program based on the television commercial that was approved;
  • Within the next 2 months, develop WhatsApp and Twitter marketing campaign program based on the concept developed in the Facebook marketing;
  • By the end of the first year of operation, the company should have an effective radio commercial program;
  • The first 6 months of the second year, the company should invest in billboards and other outdoor marketing campaigns.

The Required Budget

The management of this company will need to have a budget outlining the amount of money that will be spent on various activities. Table 3 above shows the proposed total cost of various activities that the company must undertake in the new market. In this section, the focus is to have a budget specifically for marketing activities. The budget should reflect the projected market share for the company, distribution, and promotional costs. Table 6 below outlines the proposed budget for the marketing activities that the company should consider. As was explained in table 2 above, the budget in table 6 is also flexible and can be adjusted when necessary depending on the prevailing market forces.

The fundamental goal will be to ensure that the selected channels enable the company to reach out to its targeted audience in the three countries in a way that strengthens its brand and products. The marketing department has the responsibility of evaluating the effectiveness of these strategies on an annual basis. Those that are found to be less effective can be eliminated or their budget significantly reduced. On the other hand, those that are effective can receive additional funds to help strengthen the brand of the company.

Table 6: Proposed Budget for Marketing Activities.

Marketing Activity {in the United States, China, and India} Cost {USD}
Television commercials 115,500
Radio commercials 65,000
Facebook marketing 85,500
YouTube, Twitter, and Instagram campaigns 52,500
Sales promotion 17,500
Other sales and marketing activities 10,000
Total Costs 345,500

Implementation Plan

The plan set is meant to enable the company to make a successful entry into the American, Chinese, and Indian markets before it can focus on other major global markets that were left out in this initial global expansion strategy. Implementation is as important as the plan itself. The management has to ensure that each activity is conducted as per the plan. In India and China, the first step will be to register the company, get all the necessary approvals, before setting up the production plants. The company will need to hire employees who will work at the production plants in the two countries. In the United States, the company will need to identity strategic partners that will buy its products in bulk. In this case, the focus of the company will be to make its products available for its customers.

Key Strategic Moves and Anticipated Future Developments

The company will need to make strategic moves in the foreign market to help it overcome competition and other challenges that it may face in the foreign market, depending on the implementation plan that it has embraced. In the United States, the company will be exporting its already manufactured products. The best strategy is to find a reliable distributer in the country that can enable it to deliver its products in the entire market. The first step will be to understand needs and expectations of the targeted customers. The company will then develop products that meet these expectations in line with regulations set by the government. The next step will be to identify strategic partners that can help in the distribution of products. The firm will also need to invest in promoting the product and the brand.

In India and China, the company may consider identifying different distributors to facilitate sale of its products across the two countries. In these markets, the first step will be to identify appropriate production sites to put up the necessary plants. The management will then need to get the necessary approval from local and national government. The next step will be to put up the construction plant and recruit workers who will play different roles in the production and supply of the product. As explained above, the firm will need to identify partners who will help in the distribution process. The company will also need to invest in training of its employees before and after starting its operations.

Contingency Plan

The Arabian Plastic Company has a huge potential in the global market despite the growing concern about its impact on the environment. The global expansion plan for the company is to make an entry into the United States’ market as an exporter, while in India and China, it will make an entry as a local manufacturer. However, it is always advisable to have a contingency plan in case the initial one fails to achieve the desired goals. The contingency plan is to have seek alternative markets if the selected ones fail to facilitate the growth. The first step in this contingency plan is to assess the progress made in each of the market. The assessment will be made to determine sales and market penetration. It should be done within the first three years of operation. In case it is established that the progress is unsatisfactory, the second step is to identify new markets based on the criteria set above. The last stage of the plan is to make an entry using either of the two strategies that have been discussed.

References

Ahuja, L., & Ahuja, A. (2017). Managerial economics: Analysis of managerial decision making. Chand and Company Limited.

Ayden, Y., Demirbag, M., & Tatoglu, E. (2018). Turkish multinationals: Market entry and post-acquisition strategy. Palgrave Macmillan.

Buffington, J. (2019). Peak plastic: The rise or fall of our synthetic world. Praeger.

Calvelli, A., & Cannavale, C. (Eds.). (2019). Internationalizing firms: International strategy, trends and challenges. Palgrave Macmillan.

Cavusgil, T., Gary, K., & Riesenberger, J. (2017). International business: The new realities (4th ed.). Pearson Group.

Das, T. K. (Ed.). (2019). Managing inter-partner risks in strategic alliances. Information Age Publishing.

Forrest, J., Nicholls, J., Schimmel, K., & Liu, S. (2020). Managerial decision making: A holistic approach. Springer.

Kaspers, C. (2018). Franchising as a model of entry into foreign markets. An evaluation. München GRIN Verlag.

Kurtz, D. L., Berston, S., & Boone, L. E. (2019). Contemporary business. John Wiley & Sons.

Leeman, J. (2018). Export planning: A 10-step approach (2nd ed.). Books on Demand GmbH.

Nurhan, O. C. (2018). Polyester production, characterization and innovative applications. IntechOpen.

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NerdyRoo. (2022, June 14). Arabian Plastic Company’s International Business Entry Strategy. Retrieved from https://nerdyroo.com/arabian-plastic-companys-international-business-entry-strategy/

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