Introduction
BIDCO Oil Refineries limited is a large manufacturing firm which deals with the production of a range of consumer products. The products include soaps, vegetable oils, margarines, fats and protein concentrates. The firm is based in Kenya but has expanded and has branches in the East African region. The firm began with the manufacturing of garments before moving to the manufacture of soaps and finally the manufacture of edible oils. In the 90’s Bidco set up Bidco oil refineries which became a leader in the industry by acquiring its rivals including Elianto which was the leading producer of edible oil at the time. The firm has been driven by providing quality affordable products to its consumers. The firm aims at being a 51% market leader in Africa by 2030.
Argument for diversification of the business
In any firm diversification is important because it is a method that the firm uses to spread risks. This reduces the risks by spreading the risks through a wide area or range of investments. Diversification enables a firm to guarantee it against any losses which may occur in case the industry has a turn over or the economy becomes hostile. It is the best strategy to use in order to attain the long term financial goals while minimizing the financial risks involved. Bidco has the aim of attaining a 51% control of the market in Africa by 2030. With such a strong goal the firm requires very concrete strategies, which among them includes diversification. The firm will venture into many different economies that have different conditions (Franklin, 1994).
Diversification is necessary to ensure the firm has a consistent income through out any year. This is an important survival strategy that ensures the profitability of the business at all times. Diversification involves expanding the portfolio of products and services offered in the market. The reception of the brand in the market is improved due to the many products they offer. There is increased brand reputation across the market so when it comes to expanding to new markets or introducing a new product it will be easier to carry out. According to Lisinski (2006) this strategy of diversification has positive results when done at the right time. The core business of the firm should be stable and profitable so that the diversification will be an improvement on the core business.
Strategy for diversification & how synergies may be gained
The diversification the firm will be involved in should include investments in different products in different markets. This will enable them to have a wide range of investments in various economies. Any eventuality that will result in people consuming less of the vegetable oils or the soaps then the firm will be adversely affected (Franklin, 1994). This can be cushioned by the firm diversifying its range of products. This diversification will offer better financial security because factors that affect one industry may not affect the other industry at all.
Investments in different asset classes will also offer security in case of market swings. This investment in bonds and stocks will offer a better way to secure finances because such assets will not be affected by market conditions. In these investments the effects of a negative shake in the economy normally makes them improve in value. This type of diversification ensures proper assets allocation in order to gain more across a wide range of assets. The diversification may also include acquiring other firms and competitors. This enables the firm acquire synergy by gaining more from the business venture. The corporate benefit the firm will get is the synergy it gets from such a diversification.
Foreign markets and the strategies to enter these markets
Bidco limited aims at entering all the markets in African countries so they can attain a 51% control of the market by 2030. The regions in Africa have different economic organizations so the firm has to come up with various strategies when entering each region. The firm will employ equity and non equity modes in entering each market. The non-equity methods include direct exports and indirect exports to other countries. Exporting is advantageous because the firm is strongest in the home country and has a strong control over the distribution channels. The foreign countries may also have their own importing distributors thus limiting the control the firm has. This is the same case with indirect imports where the firm has no control over the exports. (Franklin, 1994)
The equity methods include licensing, wholly owned subsidies, franchising, joint ventures and strategic alliances. These methods include a firm in the foreign country producing goods which are patented by the home firm. This occurs with permission from the home firm. This production of the goods includes the foreign firm paying the home company for the production of their goods. Wholly owned subsidies include takeovers or mergers where the home company comes and acquires another firm. These strategies of entering foreign markets are best applied depending on the markets situation in the foreign country and on the level of the firm in the home country.
Challenges in the foreign country and how to minimize them
The main problem faced by firms in the entry of new markets is lack of proper market insight. This is a result of low research in the market trends. The firm is not aware of the current technologies and future patterns in the foreign industry. They may not be aware of the red tapes in the new market and how to overcome them. There is also the inability of the firm to move into the new market with a ‘boom’. (Strickland, 2010)
This occurs due to the firm’s inability to bring a new innovative product that will differentiate it from the other products in the market. Proper evaluation of risks and opportunities will remedy any challenges for foreign market entry. An analysis of the political landscape and the threats that new entrants face is important in overcoming any challenges that may be foreseen. The firm should also move into the new market with realistic expectations that will minimize any losses that may occur due to over expectation.
Scenario for not diversifying into a foreign market
There is volatility in the economies in many countries thus many firms will avoid diversifying into those countries until the economies are stable. There is a lot of financial risk involved moving into foreign markets. There may be a lot of red tapes and barriers to entry in the industry that the firm may overlook. In this situation the red tapes may reduce the profitability of the firm in this foreign market. The financial exchange rates between the two countries may also increase the costs of diversifying into the new market. The firm may also face challenges in acquisition of raw materials to manufacture its products in the foreign market. Some countries may also change tariffs regularly; this reduces the profitability of the firm. (Thompson, 2010)
Ethical behavior in business
According to Richard (1999) ethical behavior in a business is the right way to behave which involves choosing the right from the wrong. The ethics in a business are applied widely across the organization. This provides a professional working environment. For proper business ethics the firm should ensure the values and cultures of the organization are properly followed by the employees. Promoting performance and productivity among the employees is a sure way to see that the ethics are followed. Another method of ensuring that ethics are in place is to ensure employees are satisfied with their working conditions.
References
Franklin Root (1994). Entry Strategies for International Markets. New York: Prentice Hall.
Lisinski, M. & Aruckij, M. (2006). Journal of Business Economics and Management. Principles of the Application of Strategic Planning Methods, 7 (2), 37-43.
Richard T. De George (1999). Business Ethics (7th Edition). London: McGraw Hill.
Thompson, A. A., Strickland, A.J., & Gamble, J.E. (2010). Crafting and Executing Strategy: The Quest for Competitive Advantage: Concepts and cases: 2009 custom edition (17th ed.). New York: McGraw-Hill-Irwin.