Working With Local Culture of Goat Milk Products: RojaAHP

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Executive Summary

Hannah, Phillip, and Ali expanded into Iran by establishing RojaAHP. The business produced fine cosmetics with goat milk and saffron, luxurious and sensual through the adoption of unique recipes. RojaAHP was heavily dependent on organic, sustainable, and relatively low-cost ingredients, which they sourced locally for their production, which facilitated its entry and expansion in the foreign market. However, the corporation encountered severe challenges, especially during the initial stages after the launch. The corporation faced several challenges related to sales performance, product pricing, international relations, outsourcing, and language and intercultural differences, which impacted its production and profitability. To address these issues, RojaAHP needs to improve its sales performance, maintain its focus on sustainability, invest in market research and development, revamp its marketing efforts, and enhance role clarity.

Problem Statement

A company that intends to make a market entry in a foreign market requires effective strategies to ensure business success. Hannah, Phillip, and Ali have partnered to establish a business, RojaAHP, to produce fine cosmetics with goat milk and saffron, luxurious and sensual through the adoption of unique recipes. The production process also required oils, shea butter, emulsifiers, fragrances, additional additives, saffron, and goat milk. The firm extensively relied on organic, sustainable, and relatively low-cost ingredients, which they sourced locally for their production. Despite the three partners’ approach being perceived to be effective, the business faced several problems during the initial stages after the launch.

Case Study Data Analysis

Issues that RojahAHP was facing

Hannah and Phillip were foreigners and were operating a company in Iran, which had a different environmental setting from their native background of the United States. Their firm faced several significant problems, including declining sales, language and intercultural differences, poor international relations between the host and home countries, supply and distribution challenges, and unfavorable government regulations. These issues are discussed in depth in the following sections.

Cultural Differences

The corporate and national cultures contrasted sharply in many areas, including dressing code, negotiation with business partners, and employment of host-country nationals. For instance, according to the Persian culture, a woman is restricted from talking to a man. Hannah’s persistence in exercising her American culture in communication may be a limiting factor in marketing the brand. The effect of cultural differences is evident when the company sales in Tehran and Isfahan declined due to a communication gap in how Hannah negotiated with business partners from the region. The cosmetics manufacturer adopted several measures to bridge the language and cultural differences. For example, RojahAHP hired older women only to work in the company, and Hannar could not represent the company during negotiations with suppliers and other business partners. To address this issue, the company’s management invested in bridging the gap between their corporate and national cultures. For example, Hannah hired a personal assistant and an older woman to coach her on how to cloth, interact with locals, and interact with people at work and at home.

The Trend in Sales

Several factors determine the number of sales for any product, which affects the sale volumes. Customers’ perception of a brand depends on various factors, such as cultural differences between the company and the target market. Ali informed Hannah about her communication method as a woman with the supplier and the failure to agree on taking a paid break for the supplies, which indicated that the communication gap could be a factor in the drop in sales. Furthermore, local boutiques and other perfume outlets asked for huge discounts, which threatened RojahAHP’s profitability. To address the declining sales, Ali, who was a local Iranian, started negotiating on the company’s behalf. This strategy helped the company to overcome risks linked to cultural differences. In fact, the brand gained recognition in March 2013 after Ali took over the negotiations with business partners that succeeded because the man was culturally acceptable to engage in transactions with other male partners directly.

Product Pricing

Product prices were another serious concern because local retail stores asked for huge discounts. Product prices are also an essential determinant of the willingness of consumers to purchase a product. The number of sales of RojaAHP’s cosmetics products was low due to the prices that a majority of the consumers perceived to be costly and unaffordable. For instance, Armin failed to impact sales due to several boutiques’ demand to have a 30 percent price reduction. Therefore, prices were also a vital cause of the low sales count. The management addressed these concerns by setting reasonable prices and diversifying their distribution channels.

International Relations

Iran has been under sanctions from the international community, such as the Western European countries. RojaAHP production plant was in Tehran in Iran, which meant that the sanctions also affected some essential operations of the corporation (Shirazi et al., 2016). Even with large volumes of production, the company could not increase sales due to difficulties accessing various potential international markets, such as Western Europe, that had placed sanctions on Iran (Shirazi et al., 2016). The relationship between the firm’s production county and the international community limited the number of potential sales of products.

Unfavorable Regulations

Productivity is the relationship between input and output in the operations of any business organization. Consistent with Daft et al. (2020), production in RojaAHP depended hugely on the workforce and the working hours, which occurred even in two shifts to ensure large production volumes. However, the parliament passed a bill proposal that had been pending for over ten years, requiring a reduction in women’s working hours yet retaining full compensation (Kumari, 2018). This policy could potentially lower the productivity of the business. The firm addressed concerns linked to the new bill by reducing women’s working hours. For example, the corporation built a Kindergarten and childcare facility and implemented rest breaks between the two shifts to enable their women workforce to balance work and social responsibilities.

Transport and Logistics

The transport and shipping process for RojaAHP was also a challenge to achieving high profitability. Despite the company having a route to deliver its products to the port via the Utubahne 7 to Tehran for export, the company still faced severe problems distributing its goods. Major, the road experienced heavy traffic congestion that affected the delivery time and the trucks’ cooling systems. The company, therefore, selected a long route of 930 kilometers south to Bandar Abbas for loading freight containers. The long route proved costly to the firm by increasing the costs of delivery to the market. Similarly, the Suez Canal was another challenging route as it led to increased distribution expenses due to several insurance requirements such as general average, standard cargo, war risk, and piracy (Zhang et al., 2016). Therefore, the high expenses in transport, shipment, and insurance cover increased the costs of delivering the products to the foreign Western European market and hence low profitability.

Stakeholder Groups of RojaAHP and their Influence

RojaAHP’s business environment has several stakeholders who potentially determine its success, specifically under foreign ownership and in the cosmetics industry. Women in Tehran constituted the biggest potential cosmetic market with an expenditure of about USD2 billion. Despite Iran’s legislation limiting women’s working hours, engaging them would help input cosmetics preferences. The administration had police who monitored the dressing of individuals in Istafan. Any diversion from the cultural practices would result in problems with Hannah’s business operations.

Besides that, suppliers are important stakeholders who consider obedience to their culture during any business interactions. Hence, it is an opportunity for RojaAHP to adjust and take a competitive advantage over its rivals. Another key stakeholder is the government which enforces regulations and policies such as labor regulations and determines international relations. The regulatory requirements have a significant influence on the operations of any business enterprise (Daft et al., 2020). The last essential stakeholders were the boutique, shop owners, and the retail customers, who were determinants of the market sales considering elements such as prices and culturally oriented fashions. Therefore, consideration of these stakeholders is essential if the company intends to acquire a competitive advantage while ensuring sustainable profitability.

Key Decision Criteria for the Business

Business success depends on critical decisions on several aspects of operations when making entry into a new market. RojaAHP faced various problems during the business startup, which affected the business adversely. Hannah and partners need to consider multiple factors significant to their firm during any decision-making process, which in turn determine the company’s success in various aspects such as profitability, market competitiveness, sales volume, and customer satisfaction. Like any customer, I consider a variety of elements when purchasing a particular brand. The brand needs to have an affordable price while also available on my demand since I don’t prefer switching between brands. Fashion is also an essential aspect of consideration, although it needs to be oriented to my culture. Referral from a friend would also be significant when purchasing since their approval would imply reliability and ability to satisfy my taste. The company, as such, has to consider the factors that drive any consumer to make a purchase when making decisions ranging from production to pricing.

Product pricing is an important consideration when making critical business and investment decisions. This factor would have been a significant determinant of the number of sales for RojaAHP while also enhancing customer satisfaction. Prices of goods need to be at a competitive rate in the market, considering that the number of sales depends on the affordability of a product and the purchasing power of the consumers in a market (Daft et al., 2020). Therefore, price is an essential item for RojaAHP to consider since it would determine the sales and hence profitability and sustainability.

Furthermore, profitability is the principal objective of any business organization; thus, every company needs to develop and implement effective strategies to achieve its goals. Several factors that determine a company’s profitability include the price of products, labor cost, amount of sales, and cost of raw materials. High commodity prices and low cost of raw materials imply the potential for increased profitability (Daft et al., 2020). The availability and cost of labor also determine productivity, which in turn impacts profitability such that low labor costs produce more profits than markets with high labor costs.

Moreover, an organization’s corporate culture is another critical point of consideration because it impacts consumers’ willingness and preferences to purchase a particular brand over another. Developing products that consider the target market’s culture, for instance, Persian culture in the RojaAHP operation area, would promote the products’ acceptability. Such strategic alignment can help an organization to generate more sales than products with little cultural consideration. Similarly, the production of acceptable goods in diverse cultures would improve the acceptability in different markets and, hence, gain a large market base.

Additionally, raw materials are very fundamental to any company’s production process. The resources have a considerable bearing on overall production costs and, eventually, the profitability of a business. The way a firm sources raw materials determines the sustainability of production and, eventually, the amount of profit the entity will earn. In this case, RojahAHP demonstrates a strong commitment to the ethical principles of sustainability by sourcing locally available materials. This practice contributes to the company’s corporate strategy and success by lowing costs incurred on the transportation of raw materials. The use of locally available materials may enhance the brand’s acceptability in the country of production while also maintaining the firm’s corporate image. In addition, the company exercises ethical principles of social responsibility, accountability, and fairness by employing local women and giving fair compensation and competitive benefits such as childcare. These incentives strengthen RojahAHP’s brand reputation and profitability.

Therefore, making decisions for a company requires a set of criteria to follow and reach conclusions on strategies that are the most effective to benefit the business. Organizations need to consider the effect of the decisions on various elements of the success of the company. Factors such as product prices, intercultural differences in the market, profitability, and product pricing are essential factors for effective decision-making.

Alternative Analysis

RojaAHP, similar to any company, used various criteria in decision-making during the establishment and progressive business operations. Several decisions were effective and enhanced the company’s success in Tehran and the whole country of production despite facing numerous challenges that faced the organization. However, particular business measures of success and efficiency would have enabled the firm to achieve better outcomes if Hannah and the partners had employed alternative strategies. These alternative measures would range from product pricing criteria, sources and types of raw materials, transport and logistics, and cultural considerations. These considerations reflect the influence of various stakeholders on the firm’s corporate strategy and success.

The company seemingly set the product prices at levels that were relatively higher than the purchasing power of the local community in Tehran and other neighboring towns in Iran. One boutique owner’s statement that the company needed to reduce the commodity prices by 30 percent implies that the set prices had received less acceptability in the market and lower sales than if the prices had been relatively lower.

RojaAHP owners’ setting a lower price of their cosmetic products would have attracted more customers than the initial set prices, enabling the marketer, Armin, to make more sales volumes. The company used locally available raw materials in Iran’s production country, and hence, it would still make profits with lower commodity prices. Despite the potential increase in sales with alternative lower prices, the profitability per unit product would be lower than the initial set prices.

The cost and availability of labor significantly influence the cost of production of a firm and, in turn, its profitability. RojaAHP’s mainly relied on women as the workforce in its production process due to their workstations’ efficiency. An alternative labor force would be the inclusion of several men. This worker category would have a higher work rate and productivity than having a staff dominated by women. Men also have high endurance than women and can work for longer hours than women. Apart from a significant production rate for men than women, the firm can also realize lower production costs than when using women dominated workforce that requires the establishment of facilities such as kindergarten and daycare facilities for the elderly. On the other hand, male workers were under less labor-related regulations than women, for instance, the parliament’s passing of a bill on lower working hours for women. The decision to use a male-dominated workforce would ensure longer working hours for the firm and large volumes of production that could effectively meet the overall demand for its products.

As a key stakeholder group, suppliers have a significant influence on the firm. Using raw materials from local sources in Iran is an effective strategy that ensures the sustainability of producing an excellent corporate image. Reliance on locally sourced ingredients would probably have products that would only receive local acceptability in Iran and fail to recognize the international market. Therefore, RojaAHP needs to consider extending its raw materials to other global markets according to the ingredient preferences for such markets and customizing cosmetics. Broadening the sources of ingredients for cosmetics production would increase the acceptability of the products in more markets than reliance on locally sourced materials and hence, more sales.

Transport and logistics are production components that determine the production costs and effectiveness of market delivery of the products. At the start of exportation, after the lifting of sanctions against Iran, RojaAHP opted to use a 930-kilometer road t Bandar Abbas before loading the products into MSC freight containers. The ships also used a long route to Amsterdam via the Suez Canal. This extended route implies that the company had to incur more transport and logistics costs to deliver the products than if it had opted for an alternative route. The Utubahne route for the trucks would be shorter and less costly to transport the cosmetics via the Tehran metropolis than using the 930-kilometer route.

The success of marketing and sales is dependent on the locals, particularly their cultural orientation of a market and hence the acceptability of a product and brand. Iran is a country with strict cultural practices, and any activity would get the people’s approval if it adheres to cultural beliefs. A study of Iran’s cultural requirements before making a market entry and adherence to their ideas would have initiated more acceptability and recognition of the brand than Hannah’s persistence in practicing the Western cultural beliefs of association against the Persian culture. The alternative strategy on culture would therefore increase sales due to a better perception of the corporate image.

Recommendations

RojaAHP has successfully operated in Iran despite a few challenges they faced, especially during the initial stages of operation. Despite challenges in sales due to their perceived high prices and cultural differences, the company stabilized and realized an increase in sales due to the better corporate image it had established. The company needs to evaluate the price of its products and ensure that it sets realistic prices that are appropriate to the markets’ purchasing power. Lowering the prices would likely increase the demand for the products, which would, in turn, increase sales. The firm also has to consider diversifying the sources of raw materials to ensure that the product meets the consumer preferences of diverse cultures, especially the European countries that import cosmetics.

As the three main partners, Hannah, Phillip, and Harriette intend to go on new adventures and leave the firm to operate independently. They need to identify a management team that would maintain and progress the objectives of the firm. The leaders would need to keep the corporate image that the Iranian authority embraced, including the use of locally sourced ingredients, sustainable jobs, and a human working environment for the female workers.

Action and Implementation Plan

Goals and Objectives

The goal of the plan is to improve its overall sales performance and maintain it at a sustainable level while ensuring customer satisfaction and sustainable production. The plan will increase the profitability of the company and enhance its expansion into the international market.

Resource Allocation

The plan will need more personnel to research and advance the innovative aspects of sales and marketing to develop strategies that can increase sales and profits. The company will allocate part of its budget to market research to better understand consumer needs, the available alternatives of raw materials, and the demand for the existing raw materials from suppliers.

Role Allocations

The business owners, Hannah, and the three partners will be responsible for the overall process of implementation. The research and innovation team will provide valuable insights that may help in finding suitable alternatives for raw materials, labor, and transport and a competitive method of increasing sales and brand recognition of RojahAHP.

References

Kumari, R. (2018). Economic growth, disparity, and determinants of female labor force participation: Research agenda.World Journal of Entrepreneurship, Management and Sustainable Development, 14(2), 138-152. Web.

Shirazi, H., Azarbaiejani, K., & Sameti, M. (2016). The effect of economic sanctions on Iran’s exports.Iranian Economic Review, 20(1), 1-14. Web.

Zhang, Y., Meng, Q., & Ng, S. H. (2016). Shipping efficiency comparison between Northern Sea Route and the conventional Asia-Europe shipping route via Suez Canal.Journal of Transport Geography, 57, 241-249. Web.

Daft, R. L. Murphy, J., & Willmott, H. (2020). Organization theory & design (4^th ed.). Cengage Learning.

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