When planning to open a new branch in the market, it is important to monitor external environmental forces that may affect the level of success of a firm. Forrest et al. explains that the ability of a firm to sustain its operations depends on how effectively the management and all the relevant stakeholders use its resources and core capabilities to overcome external forces in the environment (45). In this case, ABC Company seeks to open a new brand in Jeddah, the Kingdom of Saudi Arabia.
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The main products that this company offers in the market include bags, pens, and watches. It is important to note that these products are also available in different outlets within this market. It means that this firm will be facing stiff competition once it starts its operations. The management would need effective strategies that would enable it to convince its customers that its products are unique compared with what rival firms offer. It will need a strategy that would enable it lower its cost of operation while at the same time increasing its revenues in the market. In this paper, the researcher will discuss strategies that would enable this company to achieve success in the market despite the various challenges that it may face.
Jeddah is one of the fastest developing business hubs in the Middle East. Its strategic location as a port city on the Red Sea has made it one of the best business hubs in the region (Saud 67). ABC Company selected this city as one suitable for its new branch because of its potential. However, it is important to appreciate the fact that the attractiveness of the market does not mean automatic success. This company must develop a unique market strategy that would enable it to penetrate the market despite the stiff competition. As Tynnhammar observes, it is not enough for a firm to gain new market share (35).
It is equally important for it to find effective ways of retaining its acquired customers. To achieve such a goal, it will need to find ways of meeting or even exceeding their expectations with the products that they offer. In this business proposal, the researcher focuses on issues that would enable the firm to realize success in the market.
Market Potential for the Product in the Target Market
The management has made the decision that Jeddah is the most appropriate city for the firm to set up its new branch. Prange explains that once a market has been selected, the next most important factor that the marketing team should consider is its level of attractiveness (34). One should analyze the potential of the market based on what the firm offers. It helps in determining if indeed the selected products will achieve success in the specific market. When analyzing the potential of the market for a given product, one must consider various factors.
The first one is the population of the market. Kim and Mauborgne note that it is critical to ensure that the population of the new market is large enough to create a meaningful pool of customers (78). Jeddah is the second largest city in Saudi Arabia, and the largest in the province of Makkah, with a population of about four million people (Sharma 38). Such a huge population makes the market attractive for the specific products that the firm offers. It means that there is a significant pool of potential customers that can sustain the operations of the company. The city’s population has been growing significantly over the past decades, which means that the market is destined to be bigger than it is currently. It means that this company will have an opportunity to sell its bags, pens, and watches to a large customer base.
The second factor that defines a market’s potential is its financial capabilities. It is one thing to have a huge population in a given region, and another to have potential customers who have the willingness and the capacity to purchase a specific product. In this case, the huge population in Jeddah should have the capacity to purchase products that the company offers. Saud explains that Jeddah is Saudi Arabia’s commercial center (90).
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The city has focused on promoting trade as an alternative income source to the country’s oil and gas sector. The flow of cash witnessed from other sectors of the economy within the city means that its residents have the potential to purchase products that ABC Company will be offering. The government has been supporting trade in this sector, a move that has attracted local, regional, and international investors to the city. These factors assure the company of the potential of its targeted clients to afford its products.
The strategic location of the market is another major factor that defines the ability of the firm to achieve success in the market. Jeddah is the primary gateway to the holy city of Mecca (Alsharif 89). Every year, hundreds of thousands of Muslims from all over the world visit this city for Hajj, the annual Islamic pilgrimage. As such, the city of Jeddah is one of the largest tourists’ hubs in the region. When these visitors come to the city, they would spend on various items that they find relevant. They may purchase bags when they find them to be unique compared with what they have back at home.
Pens will be in high demand among these visitors during their visit. Watches will also be another item that some of the visitors would purchase, just in case they want to time activities they will engage in while staying in the city. The majority of those who come to the city have the financial capacity to purchase these items. The three factors analyzed above demonstrate that Jeddah is a highly attractive market for the company to start its operations in within the country.
Sales Forecast for the First 5 Years of Operations
When this firm starts its operations in Jeddah, the management should ensure that its sales revenue remain on an upward trajectory. During the first year, it is expected that the sales will be low, as shown in table 1 below. The lower sales revenue during the first year of operation is often attributed to various factors. The first factor is that the company will be struggling to create a pool of loyal customers. At such a time, its brand is not known in the market and most of the customers will resort to buying these products from familiar premises. Another factor is that the company will still be struggling with the problem of understanding its market.
The sales team will need to understand how to present the company’s products in a way that is appealing to customers. The firm will also need to understand how to promote its products and brand in a way that is captivating to the locals.
The sales are expected to increase in the second year of operations. At this time, the firm will have a small pool of loyal customers who have tried its products and pleased with them in terms of their quality and approach of delivery. The massive campaign that the firm is expected to launch should also help in creating that large pool of customers in the market. These steps are expected to create an environment where this firm can achieve rapid success in the Jeddah market. The third and fourth years will be characterized with a significant growth in sales, as shown in the table below. It is expected that if the firm implements the plan effectively, it will have sales revenue exceeding seven million riyals by the end of its fifth financial year in the market.
Table 1: Sales forecast.
|Year||Sales in Saudi Riyal|
When a company starts its operations in a given industry, it may opt to be a manufacturer, distributor, or retailer of specific products. It all depends on what the management feels the firm can do best. In the case of ABC Company, its main products are unrelated in terms of their mode of production. It offers bags, pens, and watches. The management must decide whether it will be a manufacturer of these products, a distributor, a retailer, or a combination of these. As such suggests, it is necessary for a firm to focus on what it does best and avoid what it feels may be costly or what it lacks the capacity to do in the most cost effective and efficient manner possible (Forrest et al. 88).
Some of the customers who come to this city as tourists are rich. As such, they would only purchase specific brands of watches. The complex process of developing a watch also makes it more advisable to source for these products from established manufacturers with popular brands. Rolex, Lange & Sohne, Patek Philippe, and Tag Heuer are some of the most popular brands of watches in the market today.
Bags are also affected by the same trend. The current global society has created a trend where specific brands of bags are considered superior to the rest. The rich often purchase the brand. They want to pass a message whenever they use a specific product. Some of the top brands for handbags include Channel, Gucci Jackie, Prada, and Christian Dior (Ozuem and Azemi 55). Instead of this company starting its own line of bags, it would be appropriate to select one or two top brands and specialize on their bags in the local market.
It would also be more advisable for the company to source for the pens instead of producing them. The reason why it is necessary for ABC to focus on sourcing for these products instead of producing them is that they are unrelated. As such, it will cost the firm more to produce these items than it would when it decides to collaborate with renowned producers.
When the management makes the decision to be a retailer for these products, the next important issue that the management would need to focus on is how to acquire them at the lowest price possible and in a convenient way so that customers have access to what they need at all times. Tynnhammar advises that it is often advisable for a firm to engage the producers directly instead of relying on the distributors or brokers (67). This direct engagement helps the firm to cut on the unit cost of the items. It also eliminates a scenario where the retailer has to rely on the efficiency of the distributer to have its products available in the market.
The retailer can engage the producers closely to understand when new products are to be released to the market so that they can communicate the same information to their loyal customers. ABC Company should negotiate with these distributors about the cost of transporting their products to the market. They can have an arrangement where the producer offers to transport these products to Jeddah at a discounted cost. Alternatively, the producer can lower its products’ prices further to ensure that the transport cost do not affect the bottom line for the retailer.
Estimated Costs of Operations
The cost of operation in the market is always done on an annual basis. When developing the budget for its first year of operation, ABC Company will need to take into consideration various factors that will facilitate its operations.
First, it will need to identify and pay in full the rent for the premises where it will operate. The online survey conducted of the available commercial premises show that this firm will need to pay slightly over one million riyal for a strategic location. The items that the company is selling require a strategic location. It is economically viable for the firm to pay a high price for the strategic location than to settle for a cheaper premise that people rarely visit. The company will rely on impulse buying, which means that the products will be displayed appealingly in strategic locations.
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Employees’ salary is another important factor that the management should consider when developing its financial budget for the year. It is advisable for the firm to pay its workers a salary that is slightly higher than the market average to ensure that they remain motivated at work. Advertising expenses should also be set aside for the year. The company may need to spend a lot on awareness campaigns in its first year of operations to promote its brand and products. Before this firm can start its operations, it will have to pay all the relevant fees to the government for the permits. The cost of such fees should be part of the budget.
Market research, sourcing for the products in the market, and fixtures and fittings are the other costs that the company will need to take into consideration in its normal operations. As shown in table 2 below, it is estimated that the firm will spend slightly over four million riyals in its first year of operation. Compared with the sales revenue above, it is evident that the firm will spend more than it will generate in its initial year of operation. While the cost is expected to drop in the subsequent years, sales is projected to increase. As such, the business is expected to be self-sustainable within its second year of operation.
Table 2: Estimated cost of operations.
|Item||Cost Per Year|
|Renting the business premises||1,043,000|
|Sourcing for the products||1,200,000|
|Fixtures and fittings||350,000|
When ABC Company starts its operations in the market, one of its greatest concerns should be the level of competition in the market. According to Prange, competition is often a beneficial factor because it makes a firm to focus on meeting and exceeding customers’ expectations (78). Tynnhammar argues that the desire to outsmart rivals in the market forces companies to remain innovative, which is a positive factor in any given industry (56).
However, it is important to note that when the competition is too stiff, some firms may resort to using strategies that are counterproductive. When a rival company opts to use price wars as a way of edging out rivals, then it eliminates prospects of creativity in the market. Porter’s five forces model, shown in figure 1 below is often used to assess threats that a firm may face in a given industry.
As shown in the model below, one of the most important factors that the management of a firm should assess is the level of industry rivalry. When the rivalry level is very high, then chances of using undesirable business practices such as price wars may be high. It is important to note that the level of industry rivalry in the market is moderate. The number of companies offering bags, pens, and watches in Jeddah is significantly high.
However, if this company selects a unique niche, such as stocking some of the top brands of bags and watches, the level of industry rivalry will be lower. The threat of entry into the market is another factor that defines the level of competition. Majchrzak explains that when laws, regulations, and other external forces within the country makes it easy for new local and foreign firms to emerge, then the threat of entry would be high (78). It is important to note that the government of Saudi Arabia has been keen on promoting trade as a way of reducing its reliance on oil and gas sectors. As such, the threat of entry into this market is high as new firms can easily start operations in this market.
The threat of substitute is another aspect of competition analysis. Prange notes that when customers can meet their needs perfectly well using substitute products, then that would be a major competitive threat to a firm (112). The emergence of iPads and Smartphone is a direct threat to pens as a product in the market. Instead of using paper and pen, many people currently prefer using handheld devices.
It means that for the pens that this company offers the threat of substitute products being considered superior is high. It is also important to note that wristwatches have become more of jewelry than gadgets that people use to determine time. Many currently use their phones and tablets to know the time. As such, they also face stiff competition from substitute products. However, it is important to note that there is no effective substitute for handbags. In this case, the threat of substitute products is significantly low.
The model also focuses on two issues that may have a significant impact on the level of competitiveness of a firm. The bargaining power of suppliers is directly related to competition in the market. When suppliers have numerous customers that may want to purchase its products, then it would have a high bargaining power. The high number of retailing shops in Jeddah offering a wide range of products, including bags, watches, and pens means that the number of firms purchasing these products from the producers is high. However, it is important to note that the number of producers of these products is equally high.
As such, the bargaining power of the suppliers is relatively low. The bargaining power of customers is another factor. As Prange observes, when customers have numerous choices when they want to purchase a given product, they tend to be choosy, which gives them a high bargaining power (73). Unfortunately, ABC Company has to deal with this scenario in the market. It has to contend with a strong competition in the market.
Main Barriers to Entry
The competitive analysis conducted above shows that threat to entry is one of the biggest concerns that companies face in the market. ABC Company must understand that it may also face the challenge of making a successful entry into a foreign market. Understanding these challenges makes it easy to design ways of overcoming them. One of the biggest barriers to entry into the new market is competition. Tynnhammar explains that when competition in the new market is high, a firm may find it difficult to make a successful entry into that country (98). The problem is that the new firm will have to create a competitive edge over its rivals. It will have to deliver premium products at the most competitive prices possible. ABC Company will need a unique strategy to overcome this challenge.
Government policies and regulations pose another major challenge. Policies that regulate a firm’s operations in the retail industry within the United Arab Emirates are significantly different from those in the Kingdom of Saudi Arabia. It will require the management to understand policies that this company will have to observe in the new market to ensure that it operates within the law. The ease with which this company can have access to the products discussed above at good prices may become a barrier to market entry.
Some of these top brands of bags and watches mainly focus on markets in Europe, North America, and parts of Asia. As such, it may be a problem for this firm to have access to these products at the right time (Majchrzak 88). Such a problem may hinder successful entry into the Jeddah market. The management needs to find effective ways of dealing with these risks.
When analyzing risks that a firm can face in a foreign market, one of the issues that should be given a serious attention is political risks. Forrest et al. observe that a country’s political stability has a direct influence on the business environment (74). Lack of political stability often leads to anarchy. In such a situation, the rule of law will be suspended and people will use their power to achieve selfish goals. A business cannot thrive in a lawless environment.
Most firms are often forced to close their operations when there is a political anarchy in the region, such as in parts of Syria where civil war is ongoing. The Kingdom of Saudi Arabia has enjoyed a prolonged period of political stability (Kim and Mauborgne 54). The Arab Spring that was witnessed in various parts of the Middle East and North Africa region did not significantly affect the country. In this aspect, the management of ABC Company is assured of a stable political environment in Jeddah.
The involvement and interference of the political class in the business arena is another factor that may affect the ability of a firm to operate freely in a new market. When politicians have power to dictate the business environment to meet their personal interests, then this company may find it challenging to operate in the new market. Although the ruling class in Saudi Arabia is very powerful, they have developed a policy of non-interference with the private sector. The country has rules and regulations that companies have to observe, just as it is the case in other countries around the world. However, the rulers have created an environment that creates a sense of freedom for local and foreign investors in the country operating within the law.
Favorable Attributes For the Product in the Target Market
When making an entry into a market where the level of competition is high, it helps to have products with unique attributes, which customers will find attractive. These attributes may help in ensuring that the product gains superiority in the market. One of the main attribute of the bags that this firm will be selling to its customers is that they are made of pure leather. Unlike most of the bags in this market made of synthetic materials, which are less durable, ABC Company will be offering high quality pure leather handbags. It means that these products will be appealing to the rich in the market, especially tourists keen on purchasing the best quality products.
Another unique attribute of these bags is that they are bearing unique brand names associated with luxury. Christian Dior is one of the most luxurious brands in the apparel industry. The fact that the brand is known globally will give this company an edge over its rivals in the market. These bags come in different shapes, sizes, and colors to meet the diverse needs of its customers. It means that any client with the financial capacity to pay for these products will find a suitable bag.
The watches will also have unique attributes compared with what rivals firms offer to their customers. The brand is one of the most important factors that customers often consider when purchasing a product. They need to ensure that they have a product that is associated with a class in the society (Majchrzak 50). As such, ABC Company will stock Rolex watches. Although these watches are expensive, they are known to be popular among the rich.
They are durable and are made of previous metals. These attributes make them unique when compared with other brands available in the market. The company will also focus on stocking unique pens that have attributes unmatched by some of the local brands available in Jeddah. The goal is to ensure that this firm offers its target market more than a pen. The pen should be capable of expressing their financial capacity and status in the society. It means that they will not only be buying a pen but also a status symbol in the society.
Anticipated Operational Problems after Entry
The management of ABC Company should anticipate various problems that may emerge soon after the firm has made a successful entry into the Jeddah market. Identifying potential challenges that may arise in the market makes it easy for the firm to have a proper plan of responding to them. One of the major anticipated problems after entry would be the emergence of another company offering similar products. The aim of this company is to ensure that its products are as unique from that of its rival firms as possible. However, it is possible that some new entrant will borrow the same business idea and start a business offering similar products. The problem with such a scenario is that this firm will now have a direct rival in the niche it has created in the new market.
The company should be ready to deal with the potential threat of political instability in the region. Although the Kingdom of Saudi Arabia has remained relatively stable despite the ongoing Arab Spring, it does not mean it cannot be affected by this problem. Egypt, which was one of the most politically stable countries in the region, was unable to overcome the Arab Spring. It means that one cannot predict, with certainty that Saudi Arabia will not be affected.
Such an event would have catastrophic impact on the business community. It will force this firm out of the country because of the potential violence and lawlessness that is associated with it (Tynnhammar 76). The management of this company should know how to respond to such threats.
The firm might be affected by high rate of employees’ turnover. It takes time and resources to recruit talented employees and take them through training. When they are lost to rival firms, the firm will lose important resources that would otherwise enable it achieve competitive advantage in the market. The difficulty in finding equally talented replacements for these employees may be another challenge. Majchrzak explains that remuneration is one of the main reasons why employees may consider moving from one firm to another (64). The management of this firm will need to ensure that it has attractive remunerations that would attract and retain highly skilled and talented workers.
Sources of Finance and Foreign Exchange Issues
When starting a new branch, some of the main issues that a firm has to consider are the source of financing for the new business and foreign exchange issues. As Forrest et al. observe it is a standard practice for a firm to fund its initial operations in the market (38).
As such, the parent firm in the United Arab Emirates will fund all the activities of the firm in its initial years of operation. The report has identified a budgetary allocation for different activities that will need to be conducted once the firm starts its operations. The parent firm will need to provide for funds that would meet all the expenses of the company. In its first year of operation, all the funds will come from the parent firm. In the subsequent years, it is expected that funds from sale of products will generate income that would sustain the business.
The management of ABC Company will need to exchange the United Arab Emirates dirham into Saudi riyal for it to have value in the foreign country. Foreign exchange may not be a major issue for the company. Banks in the United Arab Emirates and those in the Kingdom of Saudi Arabia offer these services. Some of the large regional banks in the region such as Samba Financial Group also operate in both markets. It means that the parent company can deposit the cash in dirham in Dubai and withdraw the cash in Saudi riyals in Jeddah. Although the process of changing the money from one currency to another is simple, the management should be careful to avoid losses often associated with foreign exchange trading.
Sales and Marketing Strategy
The sales and marketing strategy that the firm uses in its operations defines its ability to achieve success in the foreign market. As a new company, one of the most important factors that ABC should consider is to strengthen its brand. It should ensure that local customers in Jeddah associate this brand with top quality. As such, its positioning should reflect attributes associated with clients in the targeted market segment.
The message that comes out of its promotional messages should reflect expectations of its customers. After developing an effective promotional message, Forrest et al. note that the next important step is to define a platform through which it will be delivered to customers in the market (114). The platform should be reliable enough to pass the message to the targeted audience. Social media platforms present the best avenue through which the company will promote its products and brand to customers in Jeddah.
Studies have shown that an overwhelming majority of youths and young adults in the United Arab Emirates are active on the social media. Facebook and YouTube are some of the popular platforms that they use to share information. The management of the company should invest a significant amount of money meant for promotional campaigns on social media marketing. A small amount can be set aside for mass media marketing, especially for television and radio commercials, to ensure that a wide majority of the targeted customers are reached. The company should plan its sales strategies to be as appealing to clients as possible. The sales team should treat customers with respect and understand how to meet their diverse needs effectively.
Jeddah is one of the emerging business hubs in the Middle East, and the decision of the ABC Company to explore this market is informed by the emerging opportunities in the market. Hundreds of thousands of tourists who come to the city for pilgrimage have created a huge business potential for local and foreign companies. Bags, watches, and pens were identified as popular products among the local customers. The management of the company intends to import these products to sell them in the local market. The idea is present customers with the best quality products to outsmart competition in the market. In this report, the researcher has outlined the annual budget and projected sales for the next five years to enable the management to make the right decisions when making the entry into the market.
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