International Business Strategy for Foxton, UK

Executive Summary

The UAE and other Middle Eastern countries pose a great market for real estate investments (Walker, 2009). The UAE’s political, economic, and social environment is also suitable for foreign investment. However, the company is bound to experience competitive challenges from real estate multinationals and agents because they constitute approximately 80% of all foreign direct real estate investments in the UAE (Ball, 2008). The competition includes Arenco group, Better Homes LLC, Eqarat, Oryx real estate, Property link Dubai, The Bin Zayed group among others (Business Monitor International, 2009).

The company needs to incorporate the trade and direct foreign investment theories. The trade and direct foreign investment theories define the direction of products and services across international boundaries and explain the activities of the company in the international context (Kojima, 1978). For managerial strategies, Foxton would rely on ethnocentric predisposition which is defined by the tendency of managers of international companies to rely on the values and interests of the parent organization (Chowdhury, 2003). The product development strategy orientation would be polycentric predisposition which defines the ability of an international company to tailor its products and services to suit the local culture (Chowdhury, 2003).

Production and marketing strategies would have to be in line with the country’s laws and basically outsource the services of an international marketing agency whose main driving idea would be positioning Foxton as an international and local real estate solutions provider. The company should also adopt defensive mechanisms against risks of trade such as currency risks, cultural risks, commercial risks, country risks among others by diversification of assets and transferring risks to third parties among other measures.

Introduction

International business is becoming the new sphere for globalization as organizations seek new markets in light of an increasingly competitive business environment. International business ensures a greater integration of national economies and facilitation of free movement of goods, services, and capital across partner economies. Companies would therefore enjoy good financial inflows and growth in global investments. Some of the sectors known to be rapidly internationalizing include transport, information service, professional business, education, banking architecture among others (Business Monitor International, 2009).

Companies are also set to gain new ideas on product development, improvement of service delivery, and adoption of prudent business models when they go global (Ball, 2008). This would be necessitated by the convergence of consumer lifestyles, market diversification and growth, and the need to effectively serve key customers overseas. This study will seek to establish strategies that Foxton Company, a real estate business based in the United Kingdom could use to penetrate the United Arab Emirates (UAE) market.

UAE Analysis (Economic, Social, and Political Factors)

UAE is comprised of seven emirates established in 1971. UAE’s political map is a mixture of both traditional and modern approaches to governance. In 2007, the country adopted changes in government for better responsiveness to the country’s needs. Currently, the country is under the rule of HH Sheikh Khalifa bin Zayed Al Nahyan.

The UAE economy is highly industrialized and is among the fastest-growing in the world. World Bank has termed it as among the most developed in the world (Walker, 2009). These facts have been based on GDP and total energy consumption in the country. The country’s GDP is currently at $168billion which is the second largest in the Middle East after Saudi Arabia. Underworld rankings, the GDP of the country surpasses Malaysia’s as the 38th. The country’s major stock exchange market is the Abu Dhabi Securities Market and the currency used is the Drham (Walker, 2009).

The social system of the country was majorly characterized by desert nomadic life before the discovery of oil. Comparative to its huge endowment of oil stock and revenue, the country has a small population of 6,000,000 according to 2009 estimates (Walker, 2009). The population increased tremendously after the commercialization of oil but other factors affecting the increase were: an improvement in health conditions, diet, standards of living, and the importation of foreign laborers. Most of the laborers are male. As a result, the country now majorly depends on expert labor from oversees. However, the country’s population is not well endowed in technical skills, essential for modern society but the situation is slowly changing for the better because of labor importation (Business Monitor International, 2009).

The population is multi-ethnic because of the high importation of personnel from other countries. The traditional Emiritic population accounts for only 20% of the population according to 2009 estimates (Walker, 2009). The balance of males and females has also been affected, with most of the population being predominantly male. The official language in the country is Arabic but English is the major language used for commerce (Business Monitor International, 2009).

Business Analysis

Pressures for Integration and Responsiveness in the Industry

Property rates in UAE seem to be more stable than other international market destinations. There hasn’t been a decline in property rates in the past 3 months in the Dubai International Financial sector (DIFC). This is an indication of the office space rental market in Dubai. However, in 2009 there was a decline in DIFC rents of 11.1% but this was nothing compared to other countries like Moscow, Ireland, France, and Poland which experienced plunging property rates of 29.2%, 30.4%, 16.7% and 17.9% respectively (Business Monitor International, 2009). The real estate market in UAE is also quite attractive with prices projected to have increased by an overwhelming 60% from the year 2008. As a result, it is difficult to get a two-bedroomed apartment for less than $54,000 in annual payments. These are attractive figures to invite more investors in the UAE market (Business Monitor International, 2009).

This year’s real estate crisis in Dubai had a ripple effect across all sectors of the real estate industry. Foxton is bound to face the same conditions that prevailed in the industry with regard to the property crisis. The crisis had the effect of fewer real estate projects being unleashed contrary to estimated projections. The most noteworthy investment however was the buying of the Dubai Pearl project by the DIFC. This was worth approximately Dhs 3bn (Business Monitor International, 2009).

Foxton should however take advantage of the fact that there is no relentlessness from UAE’s real estate clients in buying property, despite the market slowing down. There is a speculative tendency among Middle Eastern customers of a surge in real estate property prices and Foxton should seize this opportunity by increasing investments in the sector.

With an increase in real estate suppliers in the UAE market, most clients are expecting better services (Business Monitor International, 2009). Abu Dhabi stock market has also experienced noteworthy occupier interest in the second quarter of this year and realizable real estate incentives projected in the coming few months (Walker, 2009). The demand for foreign real estate investment is also guaranteed from oil revenues in the short run and Foxton should take advantage of this opportunity by positioning itself as an international real estate advisor.

The company would also be venturing into UAE because of the economic potentiality of the country. The real estate market is quickly developing and it is a common characteristic of UAE investors to invest in foreign real estate properties (Walker, 2009). This is as a result of high oil revenues which are quickly translated into reliable real estate investments to avert the danger of losing business as the world seeks greener energy sources (Walker, 2009). UAE is already a growing economy and Foxton would benefit from being a part of the growth (Walker, 2009). This move would be beneficial in trying to explore UAE’s property market as it seeks to expand its market presence in light of stiff competition from other real state agents.

Company Profile, Products and Markets

Foxton is a real estate company based in London, UK but has operations in the United States as well. It commands about 25% of London’s real estate market with a dominance of about 20,000 real estate properties in the UK. It also deals with more than 400 new properties a week. With a staff base of about 340 front-end staff and 170 support staff, the company is effectively able to oversee its international operations (Ball, 2008). The company’s primary activities are leasing and renting property.

It has extensive operations in London, New Jersey, New York and other cities. The company offers real estate services to both individuals and institutions (Ball, 2008).

Factors Having a Bearing on the Business

Current statistics pit foreign direct investment at 80% of investments solely made by real estate multinationals and agents (Ball, 2008). Foxton should therefore be guaranteed stiff competition from other agents like Real Homes LLC and Eqarat. The laws of the country encourage foreign investments at all levels of the economy. Certain factors like language commonality and population dynamism will also facilitate the trade between the company and UAE.

In 2007, the government devised a plan to cover development projects including economic development, social development, infrastructure, development of rural areas, and other sectors based on the national program of the country (Business Monitor International, 2009). Foxton would therefore position itself strategically to gain and assist in the attainment of this vision.

Trade Barriers

Consideration should be made to the threat of entrants in the real estate business, potential suppliers, identification of potential buyers, availability of alternative real estate business, and the threat of rivalry in the industry (Ball, 2008). Foxton would therefore use its international, professional expertise to come up with strategies that could be used to counter these threats and take advantage of opportunities that the UAE market poses.

Foxton should also carry out an internal assessment of its strengths and weaknesses with regard to its capital base, company infrastructure, and technical skills.

Its ability to provide sufficient expert skills would be quite beneficial for the market because UAE doesn’t adequately have the necessary skills to effectively undertake the business. Other physical resources at the disposal of the company would also come in handy; coupled with the company’s financial backing. Foxton should also undertake a value-chain analysis to bring all these resources to work in harmony with each other. Since there is an income disparity between the United Kingdom and UAE, Foxton would have to restructure its pricing strategy to ensure the affordability of its services (Luo, 2009). Foxton should therefore have to look for cheaper real estate options that could be affordable to a wider population of UAE citizens.

UAE’s Political Environment and the Industry

The political similarity between the UK and UAE would go a long way in ensuring the long-term sustenance of the business. This similarity will increase the likelihood of the formation of a trading bloc between the two countries. Countries seeking to integrate economically must share a mutual political foresight and be willing to forego national autonomy for the greater good of international integration. For example, Sweden lowered its trade tariffs to position itself as an attractive investment destination in the wider EU community.

Entry Strategy

Risks

Cross-cultural risks

Foxton is faced with the possibility of a cultural shock brought about by a difference in UK and UAE cultures. This would affect the short-term and long-term strategies of the business in terms of negotiation and decision-making styles. These are the principles to which Foxton would be undertaking its price strategies and are bound to affect the overall profitability of the company. Cultural differences are also bound to affect the ethical framework to which the company will operate (John, 2006).

Commercial risks

As Foxton attempts to establish a foothold in the UAE real estate market, it is bound to be affected by critical commercial business dilemmas. There is an imminent risk of poor partnership if the company merges with a weak partner or operational problems because of structural barriers of the UAE real estate commercial sector. Foxton is therefore bound to be affected by these risks possibly impacting its timing of entry, competition, and execution of overall strategies.

Currency risk

Currency risk would affect asset valuation procedures for the company among other accounting policies the company incorporates. Foreign taxation would affect the profitability levels of the company and inflationary and transfer pricing are sensitive factors in determining the overall business environment of the country. Foxton should also be wary of the fact that their profitability could be affected by the use of Drham as a common currency for business transactions.

The risk would be eminent because the company would be using the sterling pound in paying its employees and setting up a business while at the same time being paid in Drham. This will be risky for the company because the sterling pound has been fluctuating in the recent past and the company might suffer financial losses as a result of loss of currency value. The company should therefore spread its assets across different currencies to avert the risk of the currency losing value. Risk transferring to an insurance firm would also be prudent in protecting the company against such risks (Sadek, 2008).

Country risk

Protectionism, barriers to trade, and investment are just a few of the ways through which government could regulate the activities of the real estate industry. The political environment of the host country would dictate government bureaucratic procedures, corruption levels, administrative delays and red tape; all of which are important to Foxton when setting up a business. The policy of the government should be able to cover Foxton’s patent rights and other forms of intellectual property. Legislative policies might be unfavorable for the set-up of business in the country coupled with social insecurity and political unrest. Economic failures and instances of mismanagement would also slow down Foxton’s growth in the sector.

Organisation of the Company

Ethnocentric Predisposition

Ethnocentric predisposition is the tendency of managers of international companies to rely on the values and interests of the parent organization (Chowdhury, 2003). Foxton’s strategic orientation behind ethnocentric predisposition revolves around the fact that the managers of Foxton would have to rely on home labor to carry out their duties in the UAE. The type of management would be hierarchical because most of the strategies to be implemented will be formulated in the UK. The dominant culture will be UK’s and the strategy would be global integration. Technology would play a role in the way Foxton undertakes its operations under this strategic orientation. It will be centered on mass production and would also help the newly established branch to effectively communicate with the parent company in London. Communication would be undertaken online through email, web conferencing or satellite. Because Foxton would be utilizing the professional labor at home, technology would ensure the process of communication between the two countries is smooth.

Direct Foreign Investment Theory (DFI)

The Direct Foreign Investment theory (DFI) theory stipulates the flow of services and capital from the parent company to the host company (Kojima, 1978). Labor, capital, and services would be the primary outflow from Foxton Company (UK) to the subsidiary in UAE. Foxton would in turn remit the profits obtained from the investment, back to the parent company in London (according to DFI). The direct foreign investment theory, therefore, ensures a mutual relation between the two countries.

The company should also establish a new, wholly-owned affiliate company in UAE. The strategy of establishing a new company would probably be the best bargain for Foxton because of the nature of its position in the real estate business. Considering Foxton is well endowed with the necessary experience and skill in the business, it would be unwise to share the same experience with lesser developed real estate agents in UAE. The options of joint ventures or partnerships would therefore be out of the question.

Product and Market Modifications

Product strategies

Foxton should use polycentric predisposition as its strategic orientation in ensuring proper marketing of its products. This orientation defines the ability of an international company to tailor its products and services to suit the local culture (Chowdhury, 2003). Foxton’s product and services would therefore be modified through the incorporation of the local dialect to seek public acceptance (Ball, 2008). Tools of trade such as brochures and invoices would be translated into Arabic and prices quoted in Drham.

In the real estate business, factors such as affordability, variety, and competition need to be taken into consideration before Foxton fully undertakes business in the country. In this situation, the company would use the home replication strategy which defines the use of home products for international because the business will only be regarded as a way to extend its product life cycle.

S ince Foxton already has an international presence, the company should tailor its products, services, and image as a reliable partner to offshore, real estate investments. This should be an effort to create a niche market never explored before.

Foxton is therefore guaranteed success when it establishes itself as a foreign consultant for overseas real estate investments. Back at home, the company should position itself as the real estate consultant for families willing to settle out of Europe into the Middle East or America. Foxton should also reinvent its services to include assistance to business people both in Europe and UAE in securing office spaces for commercial businesses.

Marketing Strategies

In order to establish a good marketing plan for Foxton, the company ought to factor in the outcome of an analysis of the UAE market to come up with the best marketing mix. The company would have to incorporate a variety of marketing strategies and device ways to which the strategies can be integrated together to create one marketing program. The creation of an effective marketing mix would ensure the company saves cost, standardizes advertising, standardizes promotional materials and sales training, standardizes corporate image, standardizes prices, easily controls company operations, and reduces preparation time to start a business (Luo, 2009).

The production strategies to be adopted would have to be modified to suit the UAE market.

Promotional Strategies

These strategies would primarily define the way the company should relate to the UAE public. It would be centered on creating a favorable buying action and a long-term effect of positive perception and confidence of the company’s services. The best strategy to use for the product would be to convey the same message globally. This means the company should be engaged in one marketing strategy for the different markets it operates in. For instance, a marketing advert used in its New Jersey market should be of use in UAE (Vine, 1999). This strategy has been practically used by Avon Maidenform co. in the past (Walker, 2009).

The company would adopt a “same product-different message strategy”. This strategy has been successful in other companies such as Honda which has had a different advertisement for its products in America and Brazil. Advertising will be done through the media and would be in Arabic so that the local population can identify better with Foxton. The law of UAE in relation to global marketing is flexible and so Foxton should advertise its services from a global perspective.

Its product mix will incorporate the use of humor, analysis of proper vs. traditional culture, and information content vs. fluff. Market segmentation should also be done for different customer needs. The company should therefore have different products for different classes of customers. The promotional mix for the company would engage paid, non-personal adverts that would emphasize the message of sophistication. This strategy would be the best for the company because of its global standing in the real estate business. With many years of Foxton’s experience in the real estate field, the promotional strategy should pass as the best in improving its corporate image. This strategy should be executed through global agencies that have a working agreement with the company.

The promotional strategies should then be made through local and international media including billboards and satellite TV because of their wide reach. International print media such as the readers’ digest and many financial journals should also be used in promotion. However, marketing should not only be limited to print and mainstream media, the internet should also be a viable tool in reaching an affluent audience. Web sites would be beneficial in featuring interactivity between the company and the clients.

Foxton should then undertake a combination of branding strategies including positioning the company in a global, regional and national platform. The management of the company should use a combination of the three strategies because Foxton is a global, real state brand. The national and regional strategies would be majorly centered on appealing to the domestic UAE market. In this respect, Arabic could be used to effectively market the company to the local population (Vine, 1999).

The approach of the international marketing agency should be to “think global but act locally”. This strategy should be beneficial in positioning Foxton as a viable local solution expert in real estate matters but at the same time, incorporated with international foresight trends of the market. When tailor-making adverts in Arabic, short illustrations would be beneficial in showcasing some of the successes of the company in other parts of the world and relating the same to services the company would be offering locally. The plan should however be made on a regional and international platform because UAE is part of the wider Middle Eastern society and positioning Foxton as a regional real estate solutions provider would increase the company’s future prospects of penetrating more Middle Eastern countries such as Kuwait or Jordan (Luo, 2009).

Pricing

Foxton will abide by the principle of transfer pricing to synchronize the price of one product sold in its UK firm to another affiliate product in another location. When establishing pricing structures, Foxton should bear in mind that the economic condition in UAE isn’t the same as the UK’s or American. A lot of emphases should therefore be made on the ability of the UAE population to afford the services of the company. The positive aspect of pricing however lies in its ability to vary with the environment. Pricing should therefore be the only variable element in the entire marketing mix (Sadek, 2008).

Pricing should be able to interact with other marketing forces like advertising and labor. The pricing strategy should be one that would ensure a steady cash flow for the organization while at the same time, able to recover all costs related to the provision of the services. Management should however take caution in setting high initial prices that could scare off most clients. The pricing strategy should also be able to create a high turnover for the business in terms of sales volumes. The pricing should also be done with consideration to the tax load on the company (Sadek, 2008).

Distribution Strategies

Foxton will rely on disintermediation whereby it would unravel traditional forms of distribution structures. This will be backed up by its use of the internet for the fast delivery of products and services. It should be known to management that distribution strategies would be interdependent on other marketing strategies like pricing or promotion. The company should rely on direct interaction with clients without delegating part of the service delivery to external agents. This would ensure the service delivery is not compromised. This direct link to the clients should majorly be done online, for the fast delivery of services.

Contingency Plan

The strategic orientation would be ethnocentric predisposition. This means that Foxton would be expected to implement its plans based on the recommendations of its parent company. The parent company in London would therefore choose what is right for Foxton to implement. This level of orientation would be suitable because the management already has the necessary experience needed in operating from a global perspective.

Foxton already has operations in America and therefore has the necessary experience to strategize on the entry into UAE. Ethnocentric predisposition is also suitable because management would be based primarily on home. Product and marketing strategy modifications will also be undertaken to ensure the products conform to the UAE market.

The UAE labor is not competent enough, according to the analysis of the economic conditions of the country. It would also be expensive to maintain employees from London in UAE because of economic disparities therefore the company should utilize home-based labor (Vine, 1999). Profits should also be brought back home because it would help improve the operation and growth of the company. These profits could be used to expand into other countries especially the Asian market.

Conclusion

he real estate business in UAE is increasingly expanding and Foxton would gain from investing in the sector. However, such a venture would require practical strategies which should align Foxton for success. An effective entry strategy would ensure that the company faces minimal barriers when penetrating the market while effective production and marketing strategies would ensure the company’s success in the real estate business (Grant, 2005). Ensuring the company against currency risk and negative effects of government intervention would also ensure the long-term sustainability of the business.

References

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