Market Entry Into Turkey For Lifeway Economics Essay

Market Entry Into Turkey For Lifeway Economics Essay

The term planetary concern is going more familiar in the current concern context where, more and more little and average endeavors ( SMEs ) seeking to spread out into abroad market. A similar company called Lifeway is a U.S.A. SME, which is quickly turning in the place market. In 2008, the company was named 49th Fastest Turning Business by an American Magazine, Fortune Small Business ( Lifeway, 2008 ) .

Given that Lifeway intends to spread out into abroad market ( outside U.S.A ) , the Group study requires to supply analysis for the proposed host state ‘s strategic environment every bit good as a decently evaluated market entry manner for the company. We used three different analytical tools for analyzing host state ‘s strategic environment that are described below:

Hofstede ‘s Model of National Culture

Porter ‘s Five Forces

Plague Analysis

We evaluated different Market Entry Modes for Lifeway and selected ‘Exporting ‘ as a Market Entry from the followers:

Licensing

Strategic Alliances

Foreign Direct Investment

Export

We selected Turkey as a host state for Lifeway to spread out its operations into abroad market. Turkey is one of the largest manufacturers of dairy merchandises in its part every bit good as the state ‘s location is of a strategic importance, as its geographical location is connected to both sides of East and the West ( Europe ) . We chose exporting as a market entry for Lifeway to spread out into Turkish market.

host state strategic environment analysis

It is important for Lifeway to critically measure Turkey ‘s strategic environment. The strategic environment comprises of assorted variables such as Government ordinance, Country ‘s fiscal hazards, civilization, political stableness, economic system security hazards, rivals, providers and engineering.

Hofstede ‘s Model of National Culture

Harmonizing to this theoretical account a state ‘s cultural values can be implicated with different facets of the concern e.g. Human Resource Management, Leadership Styles, Motivational Assumptions, Decision Making and Organisational Decisions and Strategy ( Hofstede & A ; Bond, 1988 ) .

Figure – Hofstede ‘s Cultural Dimension Comparison ( U.S.A. & A ; Turkey )

Beginning: ( Hofstede, Geert Hofstede Cultural Dimensions, 2009 )

Power Distance

Harmonizing to Hofstede, Turkey is a relatively high power distance civilization as comparison to U.S.A. Organisational constructions of companies in Turkey are likely to be tall pyramid with many supervisors and directors. Merely top degree direction has the power to do strategic determinations. The pay difference between higher-ups and workers is high ; direction is important and high degree instruction takes precedency over public presentation. In contrast the opposite is true for the companies and concerns in U.S.A. like Lifeway.

Individuality

The figure-1 ( see p.2 ) shows clearly a immense difference in both the state ‘s cultural values in individuality. In collectivized society like Turkey, occupation choice procedure for direction is normally based on household mentions. It is besides assumed that managerial publicities are based on senior status and age. Conversely in U.S.A. an individualistic society, publicities are based on an person ‘s ability and making instead than age and personal mentions.

Maleness

Harmonizing to Hofstede ‘s theoretical account maleness in Turkey is low, 45 and high in United States, 62. In most instances Turkish leading manners emphasise on quality of life instead than work. Furthermore organizational construction is little with determination doing chiefly by groups. This is rather opposite to American society where organizational construction is normally big ; accent is on accomplishment, motive and self trust.

Uncertainty Avoidance

Harmonizing to figure-1 there is a high degree of uncertainness turning away in Turkish cultural as comparison to American civilization. In concern position, administrations in Turkey would hold clear regulations, ordinances, standardise processs, formalised construction and hazard turning away. Peoples want occupation security, are committed to long-run contracts every bit good as loyal and predictable. It reduces possible employee turnover in the administrations. However administrations and people of U.S.A are willing to take hazards, concerns have less ordinance and workers have autonomy.

Long-run Orientation

There is no information for Turkey ; nevertheless United States is a short-run orientated society ( see figure-1, p.2 ) . In U.S.A. , employees are selected on the footing of accomplishments and ability with speedy wagess and publicities holding less occupation security unlike long-run orientated societies. Turkey can be classified as a long-run orientated society on the footing of other Hofstede ‘s dimensions.

There are a few inquiry Markss about Hofstede ‘s cultural dimensions refering the truth of the information. Information found may be beliing e.g. Turkey, a high uncertainness turning away civilization implicates larger administrations nevertheless it is besides low in maleness which implicates smaller administrations. Hence information should be considered as a guideline hence cultural paradoxes and pigeonholing should be avoided. However it is a good starting point for Lifeway to hold an thought of a really diverse civilization as comparison to its ain.

Porters Five forces

Porter ‘s five forces is a widely known strategic concern analytical tool which helps directors to understand better the industry context in which the house operates.

Industry rivals

There are legion rivals in the probiotic industry. All of these companies operate internationally every bit good as in Turkey. This indicates the presence of market within the state.

Harmonizing to a new market research study, ‘Probiotics Market ( 2009-2014 ) ‘ , published by ( Marketsandmarkets, 2010 ) , the planetary probiotics market is expected to be deserving US $ 32.6 billion by 2014, with the Europe and Asia accounting for about 42 % and 30 % of the entire grosss severally. The planetary market is expected to enter a CAGR of 12.6 % from 2009 to 2014.

The undermentioned list below references Lifeway chief rivals.

Group Danone: their chief probiotic merchandise is Actimel probiotic yogurt drink incorporating a alone civilization called L.casei Imunitass, which is sole to Danone. ( Presence in Turkey ) .

Yakult Honsha: they produce a drink called Yakult. Yakult is a fermented milk drink incorporating lactobacillus casei Shirota Developed by Dr Minoru Shirota, the drink has been around for about 70 old ages in some signifier. It was ab initio merely produced in Japan but is now made in Holland for distribution throughout Europe. ( presence in Turkey )

Nestle Nutrition

Nestle probiotic merchandises are chiefly based on its LC1 trade name and include:

Ski BioVita: probiotic yogurt incorporating LC1 civilization.

Sveltesse Optimise 0 % : a probiotic, fat free, dairy drink incorporating a probiotic and fibre, available in Strawberry and Pineapple spirits.

Munch Bunch Drinky ( UK ) : a yoghurt drink designed for kids, incorporating fruit puree and a soft probiotic for kids. It is claimed that the probiotic, lactobacillus fortis, is specially designed for kids. ( Presence in Turkey )

The tabular array below it shows informations collected from the probiotics market and indicates the entire market value for each period and how it grew in per centum every five old ages.

2000

2005p

Cagr

00-05

2010f

Cagr

05-10

Probiotics

824.2

1,447.1

11.9 %

2,100.4

7.7 %

Market value ( a‚¬m )

Figure – Western Europe: Consumer Market for Probiotics 2000 – 2010

Beginning: ( RTS Resource Ltd. , 2010 )

Probiotics

Whilst functional drinks still occupy the largest market portion ( at about 50 % of all gross revenues ) probiotics ( chiefly dairy merchandises ) and probiotics ( consisting chiefly dairy merchandises, cereals and adust goods ) are the following largest sectors. Across Europe, the probiotic industry histories for more than a‚¬1.4bn at consumer monetary values. These figures speak for it, the probiotic drink market has been lifting since the twelvemonth 2000 and the prognosis is increasing ( RTS Resource Ltd. , 2010 ) .

Potential Entrants

Entry Barriers:

The capital cost of entry into the nutrient industry is high particularly since it will hold to vie with the large name such as Danone, Yakult and besides Lifeway Kefir.

Substitutes

These are some illustrations of replacements to probiotic drinks:

Probiotic capsules ( new tendency )

Symprove ( new probiotic in a non-dairy drink )

The degree of distinction for Lifeway merchandises is moderate as they manufacture all of their scope, quality being one of the most of import characteristic every bit good as wellness and well-being.

Dickering Power of Buyers

Buyers on the nutrient market have high power as there is a big scope of probiotic drinks, therefore rivals will be offering similar merchandises and monetary values. Buyers will travel to the shop that offers a lower monetary value. Everyone needs nutrient on a day-to-day footing ; the figure of purchasers involves everyone. Lifeway could present their latest scopes created late which could take to merchandise distinction in respects to other probiotic drink, these attack could take to a lessening in the bargaining power of purchasers. The cost of exchanging from one trade name to another is really low ; normally there is more than one probiotic drink on the shelf of supermarkets. New tendencies have pushed purchasers to buy their goods online.

Dickering Power of Suppliers

In this peculiar instance the concern is sing spread outing to Turkey, providers will hold less power. Lifeway is trying to derive competitory advantage by cheaper outsourcing ; a hunt for best providers in Turkey should ensue in a good trade. Suppliers in Turkey will desire to procure a contract with a company with Lifeway ‘s profile. However at the present Lifeway is merely meaning to export their goods to Turkey. Lifeway is the state ‘s prima maker of Kefir, these represents a chief advantage as the organisation enjoys the benefits of economic systems of graduated table in the place state.

Figure – Porter ‘s Five Forces with regard to Turkish Market

Beginning: ( Porter M. , 1979 )

Pest Analysis

In position of Lifeway new environment ( Turkey ) , the PEST analysis is a critical analytical tool for measuring a state ‘s strengths and failings. It focuses on political, economical, societal and technological factors and besides helps to develop a wide position of a state ‘s landscape.

Political Factors

Turkey ‘s policy is based on liberalization and free trade and besides efforts to make location advantages to pull foreign companies ( Datamonitor, 2009 ) . In 2003, the Turkish authorities introduced the Foreign Direct Investment ( FDI ) Law to better FDI policy. It chiefly contains the abolition of limitations which leads to an equal intervention of foreign and domestic companies. Furthermore, Turkey ‘s chief political end is to accomplish EU rank. This is a major political advantage if the state achieves EU rank, as companies would profit from EU free trade policies in Turkey. This in bend opens the door to put easy in other EU member states for companies based in Turkey. Lifeway is one of the first companies in the dairy sector meaning to spread out in Turkey.

In contrast, there still exists a high political hazard in Turkey. Harmonizing to A.M. Best Company ( 2009 ) , Turkey seems to be unstable particularly concentrating on regional, societal and governmental facets.

Figure – Political Risk Summary of Turkey

Beginning: ( A.M. Best Company, 2009 )

Major grounds for these instabilities are the terrorist groups, who are responsible for a mass of onslaughts in recent old ages and the being of high corruptness ( Datamonitor, 2009 ) . In add-on, the revenue enhancement system is really unstable harmonizing to OECD. The IMF, the World Bank and the investing environment by FIAS ( Foreign Investment Advisory Service ) have signaled concerns about the complexness of Turkey ‘s revenue enhancement system. This complexness has been exacerbated by revenue enhancement policy instability coupled with high and unstable rising prices rates ( OECD, p.6 ) . These high rising prices rates, e.g. 10.4 % in 2008 are rather higher than rising pricess rates of other western European states ( PRS Group, 2010 ) . Generally Turkey indicates a high political hazard ( CRT-4 ) which is defined as ‘Relatively unpredictable and nontransparent political, legal and concern environment with developing capital market ‘ , stated by AMB ( 2009, p.4 ) . Hence high political instabilities and hazards have an inauspicious consequence on foreign companies like Lifeway where it takes clip to accommodate to the political status in Turkey.

Economic Factors

Due to the political instability in Turkey, this has a negative impact on the overall economic system. Comparing the GDP growing rate during last twelvemonth decreased from 9.2 % in 2004 to 1.1 % in 2008 intending its economic system is in recession ( PRS Group, 2010, Country Forecast, p.8 ) . Besides the fiscal crises above all high rising prices and involvement rates 6.5 % in 2009 ( fxstreet.com ) caused this economic downswing. Turkey ‘s economic hazard is moderate because it experienced an fickle growing over the last few old ages due to a weak banking system, big current history shortages, and a deficiency of structural reforms ( AMB, 2009, p.2 ) . It means that although there is the being of an economic upswing during the last decennary but overall economic system is still non recovered – e.g. imports are still higher than exports.

In contrast, plans for the execution of free trade understandings raise hope among the Turkish population ( Datamonitor, 2009 ) . These understandings shall increase the international fight and hike the relationships with foreign states. In add-on to that by get downing to move and merchandise more internationally Turkey could besides implement the EU standards really shortly. This would assist the company in the hereafter to spread out the investing.

Social Factors

The unemployment rate of 10.4 % in 2008 is evidently caused by the deficiency of investing in instruction. Merely 34.5 per centum complete vocational or higher instruction which signifies a weak distinguishable inclination in the scope of the service sector ( PRS Group, 2010, Country Conditions, p.9 ) . On the contrary primary and secondary sector work force is about 59 % which shows that Turkey ‘s excellence in these two sectors.

For farther analysis of societal and cultural factors of Turkey see subdivision 2.1 on page 2-4.

Technological Factors

Turkey merely spent 0.71 % of GDP in 2007 for research and development harmonizing to the Federal Statistical Office of Germany ( 2010 ) . The deficiency of support in this sector would hold an huge negative impact on foreign companies. Particularly the figure of patent applications which is a major index of evaluation a state ‘s development in R & A ; D and it was 24.50 per million dwellers in 2007 ( Federal Statistical Office, 2010 ) . Although the Turkish dairy sector is typical, its merchandises are still behind the quality of the EU ( Reuters, 2009 ) . Equipment and hygiene have fulfilled the recent EU criterions but Turkish milk quality can still be considered as low.

However established authorities establishments try to counterbalance such shortages by giving fiscal assistance to companies and private citizens in the signifier of subventions and loans for R & A ; D undertakings ( PRS Group, 2010, Country Conditions ) . Additionally there is an visual aspect of ‘drain encephalon ‘ ( Datamonitor, 2009 ) . It means that Turkish faculty members that are populating abroad are coming back to their native state, recognizing the potency of Turkey going an EU member. Thus foreign companies like Lifeway with the purpose of spread outing could gain by future tendencies.

DIFFERENT MARKET ENTRY MODES

There are four major market entry types which will be analysed and evaluated in order to do a determination that which market entry Lifeway should take for Turkey.

Licensing

Licensing is ‘a contractual dealing in which the firm-the licensor-offers some proprietary assets to a foreign company-the licensee-in exchange for royalty fees ‘ ( Kotabe, 2008, p.293 ) . For case, a company is allowed to utilize the engineering, know-how or even a whole merchandise itself of another company against payment of alleged royalty fees.

Licensing does non necessitate puting capital and is particularly used by little companies which are looking for a fast and easy entree to a foreign state ( Kotabe, 2008 ) . Lifeway could for illustration save transit costs and duties and put them in other subdivisions. This is an easy manner of puting where there is no fiscal hazard involved, no hazard of merchandise or public presentation failure. By licensing, the company would acquire its net incomes ( royalty fees ) and it would besides profit the Turkish authorities and national providers.

In contrast licensing may ensue in a house ‘s giving off valuable technological know-how to a possible rival ( Hill, 1999, p.202 ) . Lifeway loses its competitory advantage by sharing cognition of bring forthing the different sort of spirits that are really popular among the US. Adopting engineering could better the spouse ‘s concern and lead from co-operation to competition. Additionally, ‘Licensing does non give a house the tight control over fabrication, selling, and scheme in a foreign state that may be required to maximise its profitableness ‘ harmonizing to Hill ( 1999, p.202 ) . Lifeway ‘s trade name name might go weak with the possibility of losing the licence as a consequence domestic companies could derive success.

Strategic Alliances

Strategic confederations are concerted understandings between two or more houses from different states to take part in concern activities, as stated by Parboteeah & A ; Cullen ( 2011, p.161 ) . Lifeway particularly focuses on the International Joint Venture ( IJV ) which is the most common signifier of strategic confederation.

International joint ventures bring together otherwise independent houses to portion resources in merchandise design, production, selling, and/or distribution ( Chan et al. , 2007 ) . The company can derive the cognition and the know-how of similar companies which could better Lifeway ‘s Kefir. Lifeway could obtain the possibility to portion its losingss and it will cut down its sum of investing in Turkey ( Kotabe, 2008 ) . Additionally, by collaborating with a domestic Turkish company Lifeway can suit its Kefir to the people ‘s gustatory sensation. Consequently extra costs for presenting and acceptance can be cut down and Lifeway could acquire an penetration of how to avoid cultural misinterpretations ( Kotabe, 2008 ) .

However at the same clip cultural misinterpretations might look within the confederation, particularly when it comes to commanding the company, see Hofstede ( subdivision 2.1, p.2 ) . Furthermore, Lifeway might lose its competitory advantage of developing and creative activity which made it alone in the US by sharing know-how and engineering ( Kotabe, 2008 ) . Like it is said before that the Turkish dairy industry is behind the EU criterion in the development of equipment and engineering. Deriving the same cognition as Lifeway, competitory companies in Turkey could suppress the European market and farther enlargement in Europe could ensue in increasing the competition. Obviously this would take to a disadvantage for Lifeway.

Foreign Direct Investment

Parboteeah & A ; Cullen states a Foreign Direct Investment ( FDI ) occurs when, ‘a transnational company owns, in portion or in whole, an operation in another state ‘ ( 2011, p.161 ) . Investing in fabrication or R & A ; D ( research & A ; development ) installations that are made or bought in foreign states can be considered as FDI ‘s, for illustration. Turkey ‘s strong FDI policy is particularly attractive to foreign companies because of its market potency, geographic propinquity, and low labour costs ( Deichmann et al. , 2003, p.1771 ) . This type of market entry potentially leads to higher net incomes in the early enlargement of the company because it besides avoids transit costs.

Lifeway can even salvage more money, in virtuousness of bar of dual revenue enhancement understanding between Turkey and the US ( worldwide-tax, 2008 ) . In Turkey immense proportion of the work force works within the primary and secondary sector because of the low instruction this provides low cost labor doing Turkey even more attractive ( Turkish Embassy, 2008 & A ; PRS Group, 2010, Country Conditions ) .

However based on the low quality production of milk in Turkey Lifeway ‘s trade name image could be damaged ensuing in the production of the low quality of Kefir ( AgriPolicy, 2009 ) . ( Paliwoda, 1997 p.154 ) described his point of position for FDI as, ‘a entirely owned subordinate is slow to accomplish, expensive to keep and decelerate besides to give any touchable consequences ‘ . Lifeway that merely developed during the last few old ages the determination of such a hazardous market entry might be excessively early on the grounds of a state which is still characterised by uncertainnesss, instabilities and insecurities. A high hazard is besides applicable to the credence of the merchandise among the population. Furthermore, there is a immense cultural difference in the society every bit good as in a concern context. Therefore it is hard for Lifeway to set rapidly into the local manner of making concern, see Hofstede ‘s cultural dimensions ( subdivision 2.1, p.2 ) . Hence it ‘s non in the involvement of the company to take this market entry.

Export

Harmonizing to ( Hill, 1999, p.201 ) export can be defined as, ‘producing goods at place and transporting them to the having state for sale ‘ . There are two major signifiers of export: direct and indirect export ( Kotabe, 2008 ) . In direct exportation, a company will name an internal squad that is responsible for exports by merchandising goods or services with a foreign jobber. While indirect exportation is when a company will sell its goods or services through some other domestic companies, alleged mediators ( Kotabe, 2008 ) .

Some major advantages could be attained by direct or indirect exportation. This type of market incursion is easiest and cost effectual ( Kotabe, 2008 ) . First, Lifeway does n’t hold to put in production installations such as edifice mill, warehouse, overhead costs and besides labour costs etc. Lifeway, which is considered as an SME holding little sum of equity ( as comparison to big MNCs ) would desire to hold minimal fiscal hazard. Second, clip is an of import factor, exporting makes it possible to acquire an immediate market entree ( Kotabe, 2008 ) . Particularly come ining in a Turkish market which might see an upswing in the close hereafter, it should be realised that the company could gain from new ordinances and subventions.

In contrast, exporting is unprofitable because of the being of high transit costs, duties and trade barriers ( Hill, 1999 ) . The Turkish authorities intervened to protect and back up domestic companies of the dairy sector by demanding high duties for importing dairy merchandises ( Export.By, 2010 ) . Merchandises like Lifeway Kefir can be produced in about any location because of a low value-to-weight ratio ( Hill, 1999, p.201 & A ; 202 ) . As a consequence it can be said that the demand of Lifeway Kefir in Turkey may non be equal to other diary bring forthing companies in Turkey.

Benefits of direct exporting would be to avoid information dissymmetries because Lifeway would be still responsible for major orders and temperaments ( Parboteeah & A ; Cullen, 2011 ) . Furthermore direct exportation is connected with higher gross revenues possible and net income as comparison to indirect exporting. However indirect exporting causes less committing mistakes. New environment, civilization and linguistic communication barriers could be avoided by this market entry manner or at least decreased ( Kotabe, 2008 ) .

Therefore, it is decided that Lifeway should prosecute indirect exporting for market incursion in Turkey. This is because of assorted grounds such as Lifeway is comparatively a little company with limited fundss, the merchandise is a simple and standardised hence no demand for preparation and after sale support and besides Turkish civilization is really different than Lifeway ‘s concern civilization which is American, harmonizing to Hofstede ( see subdivision 2.1 on p.2-4 ) . The company would accomplish foreign market presence in less clip at low cost and besides with the transition of clip addition market cognition and cut down psychic distance ( cultural differences ) . This would increase company ‘s chances of puting further in the state.

Decision

After critically analyzing Turkish strategic environment, it is suggested that exporting is the best suitable signifier of market entry for Lifeway. The company is a comparatively little and average size endeavor and is merely locally based in U.S.A. hence basically it would hold limited fundss as comparison to other big planetary companies. Finance is the biggest plus that any company holds therefore cost effectivity is the 1 of the cardinal strategic rules in concerns. Exporting could be viewed as the quickest and most cost effectual signifier of market enlargement. It does n’t necessitate complex activities and Lifeway could concentrate its attempts chiefly on the selling country to pull the new mark market in Turkey for its Kefir merchandises. It should besides be considered that the desire of Turkey ‘s inclusion into EU makes it a safer pick as it complies with the Torahs and ordinances of EU states than others in the Far East.

Although there are some drawbacks of exporting for illustration, high duties, transit costs and trade barriers. However looking at Lifeway ‘s context and comparing the disadvantages of other market entry manners it is clear that exporting is the easiest and most cost effectual signifier of enlargement.

Subsequently the company could put further and do strategic confederation as a joint venture with the local popular stigmatization company upon success in Turkey. With the transition of clip and depending on Lifeway ‘s success the best signifier of investing would be holding a production unit in Turkey. This would besides be really good for the company if Turkey becomes EU member. It would open the doors for Lifeway to easy spread out and perforate into EU market.

Even if Lifeway does n’t acquire the best responses from exporting, it would non be a catastrophe. Since the company would hold taken minimal fiscal hazard in spread outing into foreign market. It would be a good acquisition experience for Lifeway. Whenever concern environment becomes feasible the company could strategise once more and rectify the errors.