TocoMAS Product Expansion in Middle East Market | Free Essay Example

TocoMAS Product Expansion in Middle East Market

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Topic: Business & Economics
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Introduction

Holt and Quelch assert that all organizations operate in environments that influence their ways of doing business either directly or indirectly (69). This claim implies that for successful colonization of new markets, organizations must look for strategies of dealing with issues such as political instability while considering the impacts of various macro-environments within a selected location. Nevertheless, organizations should consider other attractive factors such as the availability of cheap youthful labor in the region and the legislative changes to encourage investment. This paper proposes introducing a new product (chicken hamburger) in the Middle East markets, starting with Saudi Arabia. TocoMAS, a hypothetical organization that is currently operating in the American market, makes, processes, packages, and markets this fast-food product.

Analysis of the Country of the Emerging Market

TocoMAS, a hypothetical retail company, is a rapidly developing organization. Currently, the organization has 250 retail stores located in different nations across the US market. These stores offer products such as vegetable salads, beef hamburgers, fruit juices, coffee, ice creams, French fries, and pizza. The company focuses on the American markets, although it plans to expand into international markets to increase profitability. One such market in the Middle East bazaar, especially the Saudi Arabian region. Although the organization is predominantly product-based, customer services are considered an important aspect of enhancing future growth. In the fast-food sector, the rate of serving customers and effective management of employee-customer relations are all important aspects of service delivery, which the management believes TocoMAS can use in building its long-term competitive advantage not only in the American market but also in the Middle East market.

Competitors of TocoMAS, such as Aldi and Lidl offer chicken hamburgers in their stores. As these organizations continue to expand globally in markets such as the USA and Russia, where they seek to take advantage of economies of scale, TocoMAS cannot afford to be left behind. TocoMAS struggles to secure an incredible market share in the retail market locally and globally, amid the high competition from organizations such as Aldi, Netto, Biedronka, and Lidl. On the global platforms, TocoMAS seeks to expand its operation to focus not only on the European markets but also on internationally emerging bazaars by opening up a store in the Middle East market.

Considering the challenges and opportunities in any new market, investors in the international arena have the freedom to make choices on whether to invest in the Middle East market. They can also opt to invest by deciding on the nations, which present fewer risks to their operations where the probability of success upon entering the markets is the highest. These decisions require the availability of frameworks and information together with insights that are critical to developing effective entry and expansion strategies. This move is particularly important for markets that are characterized by political turbulence and changing social developments.

Introducing a hamburger in the Middle East market exposes TocoMAS to varying cultural influences. Therefore, the strategy also calls for product diversification to meet the cultural needs of different people. Promotion and positioning of the product, especially in the Middle East markets, with a focus on Saudi Arabia, are important aspects of an internationalization strategy for TocoMAS. Evaluating the preferences of other international fast-food markets can reveal a different cultural preference. Through its creative and innovative team that brings new product designs, TocoMAS can develop an appropriate product marketing mix to meet the specific needs of the Saudi Arabian market.

Compared to other nations in the Middle East, Saudi Arabia is more stable politically. Hence, it is a suitable market of choice for introducing the new product. An investor who seeks to introduce new products and services in the Middle East market encounters various challenges whose proactive resolution is problematic due to the lack of sufficient data. This gap may hinder efforts to develop a reliable marketing plan. In the marketing planning process, many issues are considered, including decisions on products that are offered on the market for sale, the place where they are sold, pricing, and even the promotion techniques. The factors require a heavy input of consumption pattern data in a given market, which Rogman confirms its scarcity or its non-inexistence for developing markets such as those of the Middle East (par.13). How can TocoMAS arrive at a decision on how to re-engineer its chicken hamburger product to meet mass appeal for consumers in the Middle East?

Even though the Middle East nations present attractive markets for foreign organizations, political instabilities in nations such as Syria, Iraq, Iran, and the conflict between Israel and Palestine are a major problem that may make an organization susceptible to risks that may lead to financial failure. With these problems, it becomes important to provide a framework for entry modes to mitigate the impacts of the problems on business success. TocoMAS considers establishing business partnerships through licensing and franchising relationships with Saudi-established organizations.

Besides establishing business partnerships with locally established organizations in Saudi Arabia, developing appropriate marketing planning is necessary. In the market planning process, an organization must evaluate the capacity of the new product to meet the needs of the consumers when attempting to place a new product. The argument here is that goods and services offered for sale must deliver the utmost good to the consumers. For instance, foreign investors who seek to offer financial products and services in the Middle East need to understand the reception of contemporary financial systems in comparison with Muslim financial systems for them to compete aggressively with other organizations that are established in the Middle East nations.

Why the location of the emerging market is important

Venturing into emerging markets to sell the selected product is important. Such markets present the potential for building strong brands well ahead of the competitors. Entry into a new market calls for the analysis of the likely risk that prevails in specific markets of interest. Tim Rogman’s case study presents the dynamics of the Middle Eastern markets. The dynamics are apparent after the discussion of various changes that occur in the Middle East market block in terms of changes in trends. The main trends, alternatively referred as megatrends by Rogman, involve political volatility, enhancement of business regulations, the large wealth of energy resources that are necessary to boost production, regional integration, and the emerging influx of participation of women in the development and maturation of the labor force in the Middle East (par.4).

The demographic characteristics of the region, the shift towards value consumption, turning towards the east, and the rising multinationals in the Middle East also constitute important trends that organizations such as TocoMAS should consider when establishing business operations in the region (Rogman para.8). The rising number of multinationals in the region is incredibly important. An increase in the number of people who have tastes for fast foods can encourage the local people to try new delicacies such as the chicken hamburger.

Another important situation for TocoMAS to consider when making decisions to venture into the Middle East markets encompasses the location choices. While making such decisions, Rogman identifies the lack of a reliable regional data on market value statistics (par.13) as a major challenge. The challenge may compel the organizations to rely on fragmented macro-level data collected by companies for their specific use. Even after identifying attractive business locations, Rogman maintains that the consideration of other factors such as infrastructural developments, taxation, and the difference between thresholds of political risks in different Middle East nations is important (par.13-16). For this reason, Saudi Arabia constitutes a suitable location for the company to launch its product in the Middle East region.

Mode of entry for the new firm and the reasons why the company will succeed if it chooses the particular mode of entry

New markets often present challenges in terms of aligning organizational culture with the local tastes and preferences, attitudes, and beliefs. For this reason, Rogman identifies various entry mode options (par.17) as important situations that foreign investors need to consider when arriving at a decision to invest in the Middle East markets. The possible entry modes that may work in the markets include franchising, exporting, and joint ventures such as mergers and acquisitions (Rogman par.17). Nevertheless, each of these modes is suitable to some extent, depending on different situations. Franchising and licensing are a good option for the organization to venture into the Middle East markets, including Saudi Arabia.

The organization is likely to succeed through the chosen entry mode since venturing into new markets, especially in foreign nations, requires organizations to exercise due caution to ensure success. While TocoMAS can develop strategies to cope with entry changes that relate to its internal structure, dealing with macro-environmental factors in a foreign nation such as Saudi Arabia is incredibly problematic. This situation underlines the importance of developing an appropriate entry strategy that ensures that an organization deploys the available knowledge and experience of working in foreign countries. The chosen strategy entails opting for franchising and licensing before focusing on full ownership arrangements.

Recommended business-level strategies for the company

To operate in any market, an organization must develop corporate and business-level success strategies. Business-level strategies entail the integrated and coordinated commitment and actions taken by firms to acquire a competitive advantage through the exploitation of their core competencies, particularly product markets (Hitt, Duane, and Hoskisson 98). At TocoMAS, business-level strategies define the target customers, the necessary clientele needs, and the manner of satisfying them. Therefore, customers form the fundamental foundation during the derivation of successful business strategies. Two paradigms of selecting the best and appropriate business strategies may be recommended for the company.

Firstly, the company can classify its consumers based on parameters such as age, tastes and preferences, and cultural affiliations among other demographic characteristics (Ronda-Pupo and Guerras-Martin 162). Secondly, it can proceed to define the needs of its target market segments. In the context of tastes and preferences, TocoMAS should focus on offering delicious, quick, and non-expensive chicken hamburgers that are appropriate for each age group. This strategy suggests that the business-level strategy for the company should focus on producing and availing what the clients require while considering how they want it done.

Organizations may possess several business-level strategy options. Some of the options include the extensive target strategy, the constricted target approach, the cost exclusivity stratagem, the competitive advantage strategy, the competitive capacity approach, the incorporated cost management approach, and cost leadership that is focused on the differentiation strategy. The integrated cost leadership strategy constitutes the approach that can yield the most significant long-term success. Hence, it forms a good strategy for TocoMAS.

Operational challenges faced by organizations that operate in the fast-food industry justify the choice. For example, McDonald’s has a rich history of struggles to provide better services and low-priced fast foods meals. Due to the rising concerns about the nutritional value of fast foods, McDonald’s resorted to providing healthier foods, which had low calories. In the context of aspects such as price, management, quality, and employee empowerment, McDonald’s business remains well ahead of its competitors. These strategic efforts are part of the integrated cost leadership strategy (D’Aveni, Ravenscraft, and Anderson 369).

The strategies enable the company to adapt to environmental changes, acquire new operational skills, become technologically savvy, and/or leverage its core competencies while engaging in competition with its rival organizations. Clearly, based on this success, TocoMAS can benchmark from McDonald’s. The success of the product in the Middle East (Saudi Arabia) can be analyzed in terms of the new product feasibility using approaches such as strategy tripod, SWOT analysis, Porter’s five-force analysis, three generic competitive strategies identified by Porter, Porter’s diamond model, and five dimensions of culture.

Strategy Tripod

Expanding into new markets requires the deployment of appropriate strategies for successful placement of a product in the market. Strategy tripod is an instrumental perspective deployed by organizations such as TocoMAS among others that seek to exploit the emerging markets. Strategy tripod has three leading perspectives, namely industry-based rivalry, firm-specific capital and competence, and institutional conditions and shift (Peng, Wang, and Jiang 920). An appropriate combination of these three perspectives facilitates the development of a working strategy, which then translates into product performance in the new market.

As discussed in the next section, the SWOT analysis environmental model provides the required approach to analyzing the industry’s internal capabilities for TocoMAS to introduce a new product in Saudi Arabia. A discussion of Michael Porter’s five forces forms the basis of evaluating industry competition for TocoMAS. However, to develop an appropriate business strategy, a consideration of a third perspective, namely institutional-based concept, is necessary. According to Peng, Wang, and Jiang, this concept entails informal and formal institutions (923). Saudi

Arabia has formal institutions such as business laws and regulations that are influenced by Islamic systems and philosophies. TocoMAS must comply with the laws and regulations to conduct business in the emerging market. Informal institutions comprise norms and the behaviors of the Saudi societies. As a consumer society, the Saudi population does not object the consumerism culture. Therefore, the success of chicken hamburgers in the market will only depend on the capability to deal with industry competition while leveraging on internal resource capabilities for TocoMAS.

SWOT Analysis

In the daily operation of a company, situations are encountered, which act as strengths, weaknesses, opportunities, or even threats to the success of any organization (Hill and Westbrook 47). For TocoMAS, strengths include its ability to offer high-quality chicken hamburgers, pursuing the low-price strategy, and ensuring that operation costs are minimal. The company has also managed to establish a strong presence in an emerging market such as India and China. Therefore, it has learned and acquired experience on the challenges of successfully launching a product in a new market. Amid these strengths, TocoMAS encounters some weaknesses such as the relatively small brand in regions where competitors have managed to establish a higher presence. For instance, while TocoMAS has 100 outlets in Germany, Aldi has 8000 outlets. TocoMAS has low establishments in the global markets. Pursuing the low-cost strategy makes some customers consider the organization an outlet for cheap products or low-quality items.

Opportunities available for TocoMAS to capitalize on to enhance its success include the introduction of its brand in international markets where its competitors have a relatively low presence. Such markets also need to be dominated by retail organizations that have relatively lower economies of scale in comparison with TocoMAS. These bazaars include the Asian and African retail markets. Consequently, the Saudi Arabian market is a good opportunity for the company. Another opportunity for TocoMAS includes investment in promoting its brand to create consumer awareness. This move can help it in dealing effectively with the competitors in the local Saudi markets. The company has a major weakness since it cannot cater for all consumers who look for complete ‘retail shopping experience’. The organization has the threat of the changing government policies and regulations for the retail industry in Saudi Arabia and its engagement in price wars with competitors.

Porter’s five-force analysis

Different factors shape industry competition. The Porter’s five-force method is one of the ways of analyzing these forces. These forces include competition in an industry, pressure from new entrants, pressure from substitute commodities, customers’ bargaining authority, and suppliers’ bargaining command (Porter 57). The degree of competition comprises one of the most important factors for TocoMAS while expanding its operations in the emerging market. In fact, many emerging organizations are operating in the fast-food industry. This situation threatens to take up TocoMAS’ market share in case the upcoming companies open new outlets in the emerging markets such as Saudi Arabia. Such organizations include Wendy’s, In and Out, Burger King, Jack in the Box, and Taco Bell among others.

The increased rivalry in the industry makes the fast-food industry incredibly dynamic. Organizations keep on exploring mechanisms for enhancing their competitive advantage, including innovation of new products that meet the emerging needs of the consumers. For TocoMAS, innovation and product differentiation encompass central mechanisms for ensuring that it dominates its competitors. The bargaining power of the buyers tops the list of the most important competition forces for the company’s new market. The success of TocoMAS depends on the strength of its customer base. Therefore, apart from retaining the existing customers, it should also seek mechanisms for attracting new customers who are loyal to the competing brands. TocoMAS encounters major challenges while attempting to attract and keep customers whose influence on their bargaining power rests on concerns about eating healthy diets. These concerns force fast-food consumers to demand healthier products. To this extent, TocoMAS should anticipate facing challenges when trying to place and market its chicken hamburgers in Saudi Arabia as a healthy meal.

Although TocoMAS adopts healthier diets in its menus, the negative profiling created by books such as A Fast Food Nation and the film Super Size Me may influence it negatively in the emerging markets such as Saudi Arabia. With the mentality that fast foods are unhealthy, when a TocoMAS advertisement runs over the media, buyers can attribute such negative effects of fast foods to TocoMAS, especially because the company is foreign. However, this challenge is mitigated by the selection of franchising and licensing as an entry strategy into the Middle East market. This strategy ensures that customers will only consider chicken hamburgers an addition menu to locally established brands.

Three Generic Competitive Strategies Identified by Porter

In the Saudi market, TocoMAS can have a below or above-average industry profitability. Above average profitability is crucial to maintaining its competitive advantage. For this goal to be realized, TocoMAS should deploy product differentiation and/or low-cost strategy. According to Michael Porter, these two mechanisms for accomplishing the competitive advantage translate into three different generic competitive strategies, namely focus, delineation, and price management (Porter 57). Through cost management, TocoMAS may become Saudi Arabia’s chicken hamburger leader through pursuing economies of scale or having preferential accessibility to raw materials. Pursuing the economies of scale is feasible, considering that it has a huge resource base in the American market. This market can permit it to have the capability to recruit many suppliers through the licensing and franchising entry strategy into the new market.

Porter’s Diamond Model

In the book, The Competitive Advantage of Nations, Porter develops the diamond model for analyzing competition in a nation. In the Saudi Arabian emerging market, such competition may give TocoMAS a competitive disadvantage or advantage. The diamond model features factors such as the environment, firm, demand situation, and the related and supporting industries as its main four perspectives (Porter 59). For success in introducing the new product in Saudi Arabia, TocoMAS needs to consider conditions from the dimensions of raw materials, people who offer customer services, financial resources, expertise, and its knowledge bases. Where some of these conditions may be unavailable, their exportation subject to compliance with Saudi Arabian law and regulation on the importation of human resource is necessary. Figure 1 below illustrates a recommended approach to relating various perspectives of the diamond model as proposed by Michael Porter in The Competitive Advantage of Nations.

Applying the diamond model in the introduction of a new product in Saudi Arabia as an emerging market.Source: (Porter 61).
Figure 1: Applying the diamond model in the introduction of a new product in Saudi Arabia as an emerging market.Source: (Porter 61).

Five dimensions of culture

Norms, values, and ways of thinking define culture. Hofstede defines it as “collective programming of the mind, which distinguishes one group or category of people to another (89). The author regards culture as having five dimensions, which comprise authority span, ambiguity prevention, independence versus communism, masculinity versus femininity, and time course (Hofstede 92). The five dimensions of culture can be used to show how demographic changes can be effective and/or if people are ready to expand into the new Saudi Arabian market.

Power distance defines the manner in which power distribution occurs across the society. A low power distance is witnessed in emerging markets such as Saudi Arabia. The implication is that culture favors autonomy and personal responsibility while developing and marketing products. Therefore, people are more likely to accept the new product offered by TocoMAS through its business partners since they regard chicken hamburgers as complying with the considerations of customer needs and wants in their design.

Both the American and the Saudi cultures are highly uncertain. Such culture permits innovation and creativity, as opposed to standardization of products. Consequently, if the new product meets their preferences and needs, people in Saudi Arabia will accept it. People are open to innovation and creativity, especially considering the existence of individualistic culture. The blend of feminine and masculine cultural orientation makes the Saudi Arabian market even more attractive for TocoMAS. The demographic changes in Saudi Arabia are pointing towards the distortion of long-term tradition orientations. Hence, potential detriments to institutional change as a necessary move towards applying the tripod model in the Saudi Arabian market are seizing to affect consumer behavior. The five dimensions imply that people are ready for the expansion of TocoMAS through its chicken hamburger into the emerging Saudi Arabian market.

Conclusion

Whether an organization specializes in offering services or selling products, the aim of colonizing a new market is to increase the profitability levels. The objective of increasing profitability is to augment competitive advantage. Any factor that makes this goal unrealizable constitutes a major hindrance towards establishing a business in foreign nations’ new markets. Indeed, an organization can only invest in a foreign nation after calculating the probable risks and determining the possibilities of developing workable risk mitigation strategies. While the strategic location of various emerging markets such as the Middle East nations is attractive for international organizations that seek to expand their business portfolio to grow their profitability, it is essential to consider risks, especially political instability in the region.

Works Cited

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