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Introduction
Furniture Fripe Incorporation is a private limited company which operates within the UK office furniture industry. The firm’s core product category entails provision of office furniture. To meet its customer’s demands, the firm has integrated the concept of product diversification which has been attained through incorporation of a number of product lines.
Some of the furniture products which the firm supplies include chairs, desks, filing cabinets and tables in its product portfolio. Since its inception in 2000, the firm has been very successful with regard to marketing its products in its domestic market. To attain its profit maximization objective, the firm intends expand into the global market.
According to Kazmi (2008, p.207), there are different market expansion strategies that firms can adopt in their strategic management processes. One these strategies entails the internationalization strategy.
Andexter (2008, p.70) asserts that there are different internationalization options that a firm can consider. Some of these include; exportation, licensing, franchising, Foreign Direct Investment (FDI) and formation of strategic alliances.
In its effort to enter into the international market, the management team of Furniture Fripe has adopted the exportation strategy. The firm has cited China, United Arabs Emirates [UAE] and Saudi Arabia as its potential export destination.
As a result, the management team has appreciated the importance of conducting a comprehensive analysis with regard to the external environment. This paper outlines an analysis of Saudi Arabia, China and UAE external analysis on the basis of the PEST model.
Political and legal environment
Analysis of the political risk of a particular country is a major factor which should be taken into consideration when expanding into the international market (Onkvisit & Shaw, 2008, p.125). A number of elements should be taken into consideration when evaluating a country’s political environment.
The most important factors relate to political stability, bureaucracy and legal framework and taxation. The table below illustrates the ranking of the three countries on the basis of these elements.
The political stability in China, UAE and Saudi Arabia will enable the firm to undertake its businesses more effectively without any form of political interference such as a result of riots. The legal frameworks in the three countries will ensure that the firm’s investments are protected.
China has not completely eliminated trade tariffs and bureaucracies despite its ascent to WTO. This will increase the cost of venturing into China. On the other hand, UAE and Saudi Arabia have minimal trade barriers in terms of tariffs and bureaucracies.
Economic environment
Currently, different countries have adopted different economic systems. Tucker (2011, p.515) defines an economic system as the methods and organization used in determining the goods and services to be produced, method of production and the target consumer.
During the 21st century, most countries are transforming their economic systems (Rosser & Rosser, 2004, p.115). As a result most economies are characterized by a mixed economic system (O’Connor & Faille, 2003, p.17). Currently, China has a communist economic system which is a type of command economy. Saudi Arabia has adopted a planned economic system.
The two systems are characterized by the fact that it is the government which dictates major economic decisions for example with regard to production and marketing. As a result, China’s and Saudi Arabia’s economic systems can be rated as command economic systems (O’Connor & Faille, 2003, p.17). On the other hand, UAE has adopted a free market economy system.
In a market economy, it is the forces of demand and supply which determines the price of products and services. Its free market economy is evidenced by the fact that it is a member of the World Trade Organization (Katzman, 2010, p.12). Additionally, both UAE and Saudi Arabia are members of the Gulf Cooperation Council which is one of the trading blocs in West Asia.
According to a survey conducted by Index Mundi in 2011, Saudi, UAE and China had a Gross Domestic Product per capita which amounted to $ 24,200, $ 49, 600 and $ 7,600 respectively (Index Mundi, 2011, p.1). One of the most important elements to consider when venturing into the foreign market is the exchange rate regime adopted by the host country.
China has adopted a controlled floating exchange regime by pegging the Remnibi (Yuan, 2011, p.11). On the other hand, Saudi Arabia and UAE have adopted a flexible exchange regime (Economic and Social Commission for Western Asia, 2004, p.13).
UAE’s and Saudi Arabia’s free market economic systems present an effective investment destination for the firm. This arises from the fact that its marketing decisions will not be influenced by the host government compared to the Chinese command economic system.
Additionally, the high GDP per capita in UAE and Saudi Arabia compared to China means that there is a high probability of the firm making high profit from increased sales due to the associated purchasing power amongst the consumers.
On the other hand, China’s fixed exchange rate policy is advantageous to Furniture Fripe Incorporation export strategy because it minimizes innate risk from exchange rate fluctuation. On the other hand, being members of the respective trading blocs will provide Furniture Fripe with an opportunity to have a wider market.
Technological environment
The success of any business enterprise is influenced by the prevailing technological environment.
The technological environment in the three countries is very effective as indicated by their telecommunication and internet networks. These infrastructures will play a vital role in improving the effectiveness efficiency with which the firm undertakes its operations such as marketing.
Social environment
The social environment influences various marketing aspects such as the consumer’s buying behavior and perceptions (Doole & Lowe, 2008, p. 7). The following table outlines the main social elements with regard to the three countries.
When venturing into the international market, it is critical for entrepreneurs to evaluate the dominant language and religion of the host country. For example, language determines how the message to be used in the promotion will be developed. In both Saudi Arabia and UAE, the firm can use the Arabic language in its market communication.
This means that it can develop a uniform marketing communication message for the two countries. On the other hand, it is important to consider religion because it influences the consumers’ beliefs and values which in turn affect the consumers’ behavior.
Industry structure
Over the past decade, the office furniture industry has experienced tremendous growth. The industry has become very competitive. This is evidenced by the emergence of a large number of office superstores which produce and market inexpensive furniture in different parts of the world.
The main competitors within the industry include OfficeMax, Office Depot, and Staples. Additionally, the industry is also characterized by intense competition emanating from various club discount stores such as Sams, ASDA, Costco and Price Club.
Conclusion
From the above analysis, UAE emerges as the most viable investment destination for Furniture Fripe Incorporation. This is evidenced by a number of factors such as the high rate of political stability. Additionally, UAE has adopted a free market economic system. This means that it will be able to operate without any form of interference by the government.
However, its decisions will be influenced by the forces of demand and supply. The technological environment in UAE is optimal as evidenced by the well developed telecommunication and internet infrastructures. UAE’s social environment is relatively uniform compared to that of China. Therefore, Furniture Fripe Incorporation should consider UAE as its investment destination.
Reference List
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Andexter, T. 2008, Analysis and evaluation of market entry modes into the Asia-Pacific region: Based on the example of a German SME in the industrial goods, GRIN Verlag, Munchen.
Central Intelligence Agency, 2012, The world fact book, Saudi Arabia. Web.
Central Intelligence Agency, 2012, The world fact book, United Arabs Emirates. Web.
Cui, X. 2009, In-depth analysis of PC industry in China, International Journal of Business and Management, vol. 4, no. 11, pp. 150-157.
Doole, I. & Lowe, R. 2008, International marketing strategy: Analysis, development and implementation, Cengage Learning, New York.
Economic and Social Commission for Western Asia, 2004, Monetary and fiscal trend and forecasts, United Nations, New York.
Index Mundi, 2011, Country comparison: GDP per capita (PPP). Web.
Katzman, K. 2010, United Arabs Emirates: Issues for US policy, Diane Publishing, New York.
Kazmi, A. 2008, Strategic management and business policy, Tata McGraw-Hill, New Delhi.
Menafn, 2010, The future of technology in Saudi Arabia. Web.
O’Connor, D. & Faille, C. 2003, Basic economic principles: A guide for students, Greenwood Publishing Group.
Onkvisit, S. & Shaw, J. 2008, International marketing: Strategy and theory, Taylor and Francis, New York.
Rosser, J. & Rosser, M. 2004, Comparative economics in a transforming world economy, MIT Press, London.
Shihab, M., n.d., Economic development in the UAE. Web.
The Law Society, 2011, China’s antitrust laws. Web.
Tucker, I. 2011, Macroeconomics for today, South-Western Cengage Learning, Mason, Ohio.
UAE Interact, 2012, Political system. Web.
Yuan, L. 2011, Further development of Renminbi’s exchange rate regime after joining WTO, GRIN Verlag GmbH, Munchen.
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