Suncoast Gold Macadamias (Aust) Limited: Market entry

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Executive Summary

Suncoast Gold Macadamias Limited is the leading macadamia product processing company in Australia. In an effort to maximise profit, the firm has incorporated the concept of product diversification. As a result, it has managed to develop a strong product portfolio.

On average, the company’s annual turnover amounts to AUD $ 30 million. Over the years, the firm has nurtured a strong base with regard to tangible and intangible resources.

Suncoast Gold Macadamia Limited has also developed numerous unique capabilities and core competencies that have contributed to considerable improvement in the firm’s competitive advantage. In a bid to deal with the problem of climate change, it is critical for the firm to formulate programs that would minimise its weakness with regard to decline in nut production.

As its target investment destination, Saudi Arabia presents numerous opportunities for the firm to exploit as illustrated by the country’s characteristics such as the wage rate, population size, economic growth, exchange rate, the political environment, and government policy on trade.

The firm will be required to develop effective competitive strategies to deal with the prevailing competition in the market to penetrate the market successfully. Some of the modes of entry that the firm can consider include sole-ownership, joint ventures, and exporting.

Of the three options, exporting is the most appropriate entry point into the Saudi Arabian market. In a bid to be successful in its market entry, the firm should conduct comprehensive market research to understand the market dynamics of Saudi Arabia. Upon entering the market successfully, the firm should consider adopting foreign direct investment.

Introduction

Suncoast Gold Macadamias (Aust) Limited is a public company that operates within the Australian macadamia industry. The company was founded in 1985 and it operates as a cooperative.

Its core line of business entails production, processing, and supplying of high quality macadamias. Since its inception, the firm has been very successful due to incorporation of effective business and corporate level strategies (Suncoast Gold Macadamias 2010).

In an effort to attain its profit maximisation objective, the firm has adopted market expansion as one of its business level strategies. Suncoast Gold Macadamias Limited has successfully managed to establish itself in both the local and international market.

Currently, the firm ranks as the global leader in the macadamia industry. Despite its presence in the international market, there are some economies where the firm has not penetrated.

One of these countries is Saudi Arabia, which is currently an emerging economy according to business scholars. The purpose of this assignment is to analyse the market entry modes that Suncoast Gold Macadamias (Aust) Limited can incorporate in its international market entry strategy.

Ownership

Over the past 28 years, Suncoast Gold Macadamias (Aust) Limited has undergone significant growth from being a small business establishment to becoming an international leader in the macadamia industry.

Currently, the firm has a substantial annual turnover of approximately AUD $ 30 million. More than AUD $ 21 million of the firm’s total sales are generated from exports, while the domestic market only accounts for AUD $ 9 million (Suncoast Gold Macadamias 2010).

Tangible resources

Since its inception, the firm’s management has been committed towards establishing a strong competitive advantage. One source of the firm’s competitiveness is effective nut processing technology. The firm has implemented modern nut processing facilities.

Suncoast Gold Macadamias (Aust) Limited has been conducting major plant upgrade by integrating state-of-the-art technology. In 2012, the firm purchased two machines of the most modern sorting technologies in the industry, which significantly enhanced the firm’s competitiveness.

For example, its output increased with 50 per cent (Pilcher 2012). In a bid to improve its competitiveness with regard to plant technology, the firm has also purchased a multi-scan machine.

The machine has made separation of bad and good nuts more easily in addition to separating nuts based on their weight and colour before cracking. The firm has also established a supplier network of 135 suppliers to ensure that its products are easily accessed in its domestic market.

Intangible resources

In addition to tangible resources, Suncoast Gold Macadamias (Aust) Limited has accumulated various intangible resources. The management team appreciates that the firm’s success is greatly dependent on the effectiveness and efficiency of its human capital.

Employee development is one of the elements that the firm has taken into account and to achieve this, the firm has formulated a staff training and education program. The program aims at imparting new knowledge to employees.

In addition, the firm is committed to nurturing a strong relationship with its customers, suppliers, and employees (Suncoast Gold Macadamias 2010).

In its domestic and international market, the firm has nurtured a strong positive reputation due to its operational efficiency, provision of high quality services, and development of an all-inclusive client service, which has contributed towards development in the level of customer loyalty.

Capabilities

The firm has developed numerous macadamia brands to appeal the diverse customer product needs. The firm has integrated the concept of value addition. The firm supplies different variety of macadamia products such as macadamia oil, chocolate coated, macadamia shortbread, and macadamia nuts.

The firm has also developed sufficient capability with regard to packaging. Additionally, the firm ensures that its brands are packaged according to customer specifications. The firm has also developed the capability with regard to supplying fresh and high quality macadamia (Suncoast Gold Macadamias 2010).

Core competencies

The firm’s success in an industry that is characterised y intense competition has arisen from development of effective core competences. One of the firm’s core competences relates to the provision of high quality macadamias. The firm ranks as the first macadamia company to attain internationally recognised quality within the industry.

The firm is also effective in quality management, which it has attained through assimilation of effective quality management systems. Suncoast Gold Macadamias core competencies also emanate from the high rate of innovation that it undertakes.

Its innovative ability has played a critical role in enhancing the firm’s competitive advantage. The firm utilises macadamia waste products by generating energy and thus it has managed to minimise the cost energy necessary for its operation.

Weaknesses

The major source of the firm’s weakness is the high degree of susceptibility to nature. The firm has experienced a poor season due to bad weather over the past few years (The Australian Business Journal 2011). Bad weather adversely affects the firm’s profitability due to decline in the volume of production.

However, with numerous environmental conservation measures being undertaken by the government and other environmental stakeholder, the firm expects that climatic conditions will improve considerably.

Location advantage

Saudi Arabia’s economy is mainly oil-based. The country has the largest proven oil reserves globally. Its rich oil reserves have played an important role in the country’s economic growth and development. In 2011, the country’s Gross Domestic Product (GDP) was estimated to be $676.7 billion, which is an increment from its $635.6 billion in 2010 (Index Mundi 2012).

By the end of 2011, it was estimated that the country would undergo a real GDP growth rate of more than 6.5 per cent. The country’s total population is estimated to be 28 million. Additionally, the country has a relatively low rate of unemployment. By the end of 2011, unemployment rate stood at 10.9 per cent (Index Mundi 2012).

The country’s snapshot shows that there is a high probability of Suncoast Gold Macadamias succeeding in its profit maximisation by entering in Saudi Arabia. The high rate of economic growth coupled with the relatively low rate of unemployment means that the country will experience an increment in per capita income.

Ultimately, there will be an increment in consumer’s purchasing power. The country’s high population means that the firm can increase its customer base by identifying relevant target customer group. The attractiveness of the country is also enhanced by Saudi Arabia’s recent ascent to the World Trade Organisation. Its ascent will present an opportunity for Suncoast Gold Macadamias to increase its customer base.

Customers

Saudi Arabians are becoming more concerned with consumption of healthy food products. This transformation has arisen from an increment in cases of diabetes and obesity problems amongst the old and young. A report by Saudi Arabia’s Ministry of Health showed that the rate of diabetes in the country is approximately 30 per cent.

Some of the factors that have been attributed to cause diabetes include increased introduction of western diets to the country, adoption of sedentary lifestyles, and growth in the number of supermarkets. Growth in the level of awareness regarding the health risk of such food products will contribute towards change in consumer purchasing behaviour.

Therefore, the shift in consumer purchasing habits presents a high opportunity for Suncoast Gold Macadamias attracting more customers. Saudi Arabia is also characterised by a large number of middle and high-income customers and educated customers.

This customer category is the largest consumer of diet products such as the macadamia products produced by Suncoast Gold Macadamias. These customers are more concerned with the nutritional value and quality of the food products in their purchasing patterns (Al Swailem Consulting Group n.d).

Politics

In 2011, the country experienced an increment in calls for speedy reforms with regard to governance mainly from intellectuals. However, the country has not experienced major incidences of political instability in the recent past compared to other Arab countries, which experienced the effects of Arab Spring in 2011.

The political stability being experienced in Saudi Arabia presents a good opportunity for Suncoast Gold Macadamia to enter the market. According to Klug (2006), a country’s attractiveness is increased by the prevailing peace and tranquillity due to political stability.

Government policy (taxes and tariffs)

The Saudi Arabian government is greatly concerned with enhancing the country’s economic growth. Promoting foreign investment is one of the strategies that the government has adopted. A number of measures such as the abolition of taxes and trade restrictions have been implemented in an effort to foster foreign investment.

The government has designed the country’s economy based on free enterprise and thus no limitations on imports and exports of goods and services. This aspect means that Saudi Arabia has a favourable business environment for foreign firms (Al Swailem Consulting Group n.d.).

Wage rate

For a considerable duration, the Saudi Arabian government had not imposed any minimum wage for employees. However, in an effort to deal with unemployment, the government recently instituted SAR 3,000 as the minimum wage (Al Swailem Consulting Group n.d).

Exchange rate

The Saudi Arabian Riyal is relatively stable to most major currencies such as the Australian dollar. The current exchange rate of the Riyal to the Australian dollar is AUD $ 1 to 3.7 Saudi Riyal. This rate of exchange will make it possible for the firm to venture into the Saudi Arabian market more cost effectively for the firm will require a few AUD dollars to enter the market.

Competitor analysis

In its operations, Suncoast Gold Macadamias will face intense competition from other confectionary companies operating in Saudi Arabia. Some of these companies include:

Al Nukaly International Trading Company: -This firm has been in operation in Saudi Arabia for a number of decades, since its inception in 1932. In its operation, the firm has developed a strong workforce of approximately 100 employees.

Bahadi Company: – Since its inception, this firm has established itself effectively in the international market. Currently, the firm has established an effective operational base in Saudi Arabia, the Middle East, and Africa.

Anwar Al-Mustafa: – The firm was established in 2000 and has over the past decade managed to penetrate the nuts industry in Saudi Arabia. It has also managed to develop a substantial financial base with its turnover estimated to be US $ 0.5 million.

Competitor threats

The above-mentioned competitors pose a number of threats to Suncoast Gold Macadamias. One source of threat arises from the fact that these firms have incorporated the concept of product diversification in their operations. Some of the products that these firms deal with include nuts, dried fruits, coffee, spices, chocolate, nuts, bakery, candy, and crackers.

Consequently, the firms have managed to offer consumers a wide range of products. Ultimately, competitors have managed to develop a substantial level of customer loyalty. Therefore, Suncoast Gold Macadamias will experience a significant challenge in developing a substantial market base.

Suncoast Gold Macadamias opportunities

Despite the intense competition in Saudi Arabia, Suncoast Gold Macadamias has a considerable competitive edge that will contribute to its success. One source of the firm’s competitiveness relates to its ability to produce high quality macadamia products. The firm has incorporated the concept of quality assurance in an effort to ensure a high level of food security.

Considering the increase in the degree of health consciousness amongst the consumers, there is a high probability of Suncoast Gold Macadamia attracting customers. This arises from the fact that its products have high nutritional values.

For example, macadamia oil is not in any way associated with the rise in cases of obesity. Additionally, the high population in Saudi Arabia also presents an opportunity for Suncoast Gold Macadamias to increase its sales revenue by employing aggressive marketing.

Modes of market entry

Firms seeking to venture the international market should consider making effective strategic decisions on the mode of market entry to adopt (Agarwal & Ramaswami 1992). Some of the entry modes that a firm can choose include joint ventures, licensing, wholly-owned enterprises, and exporting.

A substantial amount of resources is required for a firm to venture the foreign marketing by employing any of these market entry modes. Changing the selected mode of entry is costly after its commencement because it would lead to loss of money and time (Agarwal & Ramaswami 1992). Consequently, it is important for firms intending to venture the international market to select the most effective market entry mode.

Sole ownership

This market entry mode entails the establishment of a wholly-owned business enterprise and two main strategies exist for a firm to incorporate in order to own a firm wholly. The first method entails undertaking acquisition of a firm within the respective industry in the host country.

Secondly, a firm might decide to undertake foreign direct investment, which entails establishing a business entity from scratch (Chon & Yu 2008). Sole ownership comes with a number of advantages. First, the firm acquires total control of the business venture. Undertaking an acquisition will also be beneficial to the firm with regard to infrastructure.

The acquired firm may have well developed distribution networks, an effective workforce, and efficient technologies. Therefore, the firm can gain higher economic rewards (Chon & Yu 2008).

However, the major disadvantage is that undertaking either acquisition or building own business establishment will require the firm to have a substantial investment. Additionally, the firm may incur substantial loss in the event of the host country experiencing incidents of political instability (Chon & Yu 2008).

Joint ventures

This business venture is a form of partnership between a foreign company and a local company. Joint ventures are established with the objective of creating a business entity that is owned jointly by the two partners. However, for a joint venture to be established, the two companies must have mutual interests (Fisher, Hughes, Griffin, & Pustay 2006).

Joint venture is an effective market entry mode especially if the foreign company is not conversant with the degree of stability within the foreign business environment. Therefore, using joint venture as a mode of entry minimises the probability of failing by avoiding risk.

However, the downside of joint venture is associated with business control. Joint ventures vary from one country to another especially with regard to structure.

The foreign company may be required to hold the minority (49 per cent) of ownership while the domestic company holds the majority ownership (51 per cent). This element is a limitation to the foreign company for it might not be possible to make high profits compared to if it held the majority ownership (Chon & Yu 2008).

Considering the fact that Suncoast Gold Macadamias intends to maximise its profitability, adoption of joint venture is not an effective strategic decision because its profitability potential will decrease substantially. Additionally, there is also a likelihood of the firm having trouble with regard to coordination.

According to Agarwal and Ramaswami (1992), lack of coordination between joint venture partners emanates from divergence in their source of motivation. Consequently, it is important for parties of a joint venture to evaluate the degree of fit between their business enterprises before commencing on joint venture negotiations.

Exporting

(Best recommended method of market entry for Suncoast Gold Macadamias)

This mode of entry entails producing goods or services in one country and marketing them in another. According to Andexter (2008), exporting is one of the most effective ways that firms can adopt in their internationalisation strategy. A firm may adopt different modes of exporting. Firstly, a firm may decide to undertake indirect exporting.

This strategy entails selling a firm’s product in the foreign market without undertaking special marketing activities, which means that the firm does not engage in international marketing (Ireland, Hoskisson, & Hitt 2008). Secondly, a firm might decide to undertake cooperative exporting.

This strategy entails entering into a contract with other firms in the industry with regard to certain export activities for example promotion, distribution, and market research. The firm may enter in a contractual agreement with Export Trading Companies (ETCs) or the Export Management Companies (EMCs) within the foreign market (Andexter 2008).

This exporting strategy provides the firm with an opportunity to gain a relatively higher control of its international sales despite the lack of sufficient capital to establish its own export sales firm (Tielmann 2009).

Alternatively, the firm may decide to undertake direct exporting by establishing its export network within the host country. In a bid to ensure success, it is paramount for the firm to focus more on establishing an exporting network that will enhance its long-term survival in the host country.

In an effort to venture into the Saudi Arabian macadamia industry, Suncoast Gold Macadamias should consider adopting exporting as its mode of market entry. Through exporting, Suncoast Gold Macadamias will access customers relatively easy.

Exporting will also provide an opportunity for the firm to maintain total control of its operations within the foreign market. Suncoast Gold Macadamias Limited will also benefit the firm by gaining sufficient knowledge and experience regarding the foreign market. Therefore, it will be possible for the firm to implement effective expansion strategy in the future.

Despite its advantages, exporting has a number of disadvantages. Exporting to some countries may result in high cost for the exporting firm. This cost may emanate from prevailing export barriers such as quotas and tariffs.

Fortunately, by venturing into Saudi Arabia through exporting, Suncoast Gold Macadamias will not incur such trade barriers because Saudi Arabia has eliminated all trade barriers (taxes) with regard to exports.

Recommendations

Suncoast Gold Macadamias should consider a number of issues to ensure success in venturing the Saudi Arabian market as outlined below.

The firm should undertake a comprehensive market research. The market research should focus on both the consumer and the competitor. Consumer market research will play an important role in understanding the consumers’ product demands.

Consequently, the firm will develop and introduce macadamia products that are in line with the prevailing market demands. On the other hand, competitor market research will enhance the firm’s effectiveness in formulating its competitive strategies.

For Suncoast Gold Macadamias to be successful in its initial market entry to Saudi Arabia through exporting, its management team should ensure that it contracts well-established Export Management Companies. This element will play an important role in its effort to gain market ground.

Upon gaining successful market entry in Saudi Arabia through exporting, it is paramount for the firm to consider reviewing its mode of operation in the host country. Suncoast Gold Macadamias should consider undertaking foreign direct investment based on the market knowledge gained to increase its economic benefits. This aspect will significantly result in the firm operating more cost effectively.

Reference List

Agarwal, S. & Ramaswami, S. 1992, ‘Choice of foreign market entry mode: Impact of ownership, location, and internalisation factors’, Journal of International Business Studies, vol. 1, pp. 1-27.

Al Swailem Consulting Group: Doing business in the Kingdom. Web.

Andexter, T., 2008. Analysis and evaluation of market entry modes into the Asia-Pacific region, Grin, London.

Chon, K. & Yu, L. 2008. The international hospitality business: Management and operations, Routledge, New York.

Fisher, G., Hughes, R., Griffin, R. & Pustay, M., 2006. International business: managing in the Asia Pacific, Pearson Education Australia, New South Wales.

Index Mundi: Saudi Arabia economy profile , 2012. Web.

Ireland, R., Hoskisson, R. & Hitt, M., 2008. Understanding business strategy: concepts and cases, South-Western Cengage Learning, Mason.

Klug, M., 2006. Market entry strategies in Eastern Europe in the context of the European Union: An empirical research into German firms entering the Polish market, Univ-Verl, Wiesbaden.

Pilcher, R., 2012. Going for gold in a nutshell. Web.

Suncoast Gold Macadamias: Australian packaging covenant action plan. 2010. Web.

The Australian Business Journal 2011, ‘Suncoast Gold Macadamias’, via George Media Network Database.

Tielmann, V., 2009. Market entry strategies: International marketing management, Grin, London.

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