Market Analysis

Market Analysis

Introduction

The most important factor for any company that plans on introducing a product in a new market is the pilot study. This clearly outlines the market situation in the new market or country, a picture of what to expect while venturing in.  However, most ventures still fail for some reasons. In most cases, companies will fail due to failure to do objective research, or to follow the guidelines outlined in the same. Failure may also emanate from the use of wrong communication, advertising, and advertising channels.  To achieve a successful launching in a new market, therefore, a proper set of processes that are based on research is a key factor to consider. This paper will discuss company analysis, market specific issues, political and economic environment, and the entry strategy for new toothpaste in Brazil with a brand name DailyFresh.

Company and Industry Analysis

A survey by Wang, (2012) on the industry environment for a new market suggests that it should be guided by several key factors. The study should entail the analysis of the geographical area in terms of whether it is local, national, regional or international. The size, outlook as well as the trends within the industry, are crucial considerations. Other key factors include the product, target buyers, company information, and environmental regulations.

The oral home-care products industry in the Brazil and elsewhere has a long history. Toothpaste as it is today was first developed in the 19th century. With time, new components have been added as a result of technology advancements and changes market needs brought about by competition. A study done in 2004 on the sales of oral care products indicates that the consumption in Brazil is one of the highest, standing at the 10th position in the world. Sales of toothpaste were five times higher in Brazil than Argentina in 2002 despite the fact trends showed more increase in the income in Argentina (Mumme 2012).

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According to Wang (2012) other players in this industry include ABIHPEC, Nielsen, and Colgate-Palmolive. It is estimated that, in Brazil 99.9% homes have toothpaste. An individual Brazilian consumes 18.8 m of dental floss and 16.7 toothbrushes per year. The consumption trend has been on the rise each year since 2001. The reasons for the increase are attributed to rise in women’s involvement in the labor market. The industry use of the cutting-edge technology has boosted the productivity and reduced prices. Sales have also been boosted by an increase in variety brought about by competition.

Studies show that companies in Brazil have become very innovative and competitive in the recent past. They have improved immensely in terms of procurement and purchasing. Companies have also invested more in market surveys and marketing for their products. The country is a doing well in advertisement and consumer brands with agencies being recognized every year through international awards. Besides these efforts, more is being done through social media reaching and connecting with even a larger group of their consumers Wang, (2012).

In future, these trends will to a great extent, depend on a number of factors. For instance, there is need for continued consolidation by consumers and companies so as to realize economies of scale. The country’s geographical location facilitates the setting of manufacturing base for goods that are then transported to neighboring countries. Infrastructure is bound to improve with the world cup, and the Olympic Games bound to take place in the country. The country also enjoys a large domestic market with 40% out of the total population of 190 million continually migrating from poverty to middle income levels Wang, (2012).

Organizations that have brands or well established can use that as strength to venture into new markets. This practice is referred to as “geo-arbitrage” or “topicalisation”. It entails adapting the already well established business model and adapting it to the new market.  The idea has been around for a while, though just recently, it has gained widespread use in countries like china and India. Studies show that firms are making bigger profits in emerging markets than they make locally. This is because there are so many firms locally than in emerging markets that are still growing. The fact that much layout strategies and efforts are already developed by the original firm is a contributing reason to this phenomenon (Mumme 2012).

 

Market Specific Issues, challenges and Risks

A study by Martincus and Carballo (2010) reveals that the process of entering into a new market is a challenging process and involves high risks and potential uncertainties. However, success can be achieved where enough is done to identify and understand the risks involved.   It would be seen as a high-risk high-reward undertaking. Some of the barriers that are likely to be faced while entering in the Brazilian market are the taxes. Brazil imposes heavy taxes on imported finished products and most companies opt to bring in parts and assemble them locally. Costs incurred as a result of import duty may result to losses. There is need, therefore, to establish a harmonized tariff section that matches the product (Mumme 2012).

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Language barrier would be another barrier that requires proper measures. In this case, it is important that the company acquires some employees that are familiar with the local languages to ensure effective communication.  Use of the locals as sales people is will help to link the company with the customers and bringing on board the much required market information (Martincus and Carballo 2010).

According to Martincus and Carballo (2010) other local and international players in the market are a key factor to consider. They are likely to determine your market place accessibility. Focus in this case is on the price and the quality of the products compared with those of the competitor. The new product should be competitive enough to ensure continuity of business.

Transport and infrastructure are key barriers especially where goods have to be distributed to rural areas that are not well covered by rail and good roads. Poor roads would mean more expense in terms of transport (Mumme, 2012).

Economic stability of the country determines s to a great extent the ability of the people to buy the products. Factors in the economy such as GNP growth rate, per capita income, and unemployment rates reflect the ability of consumers’ expenditure. The best markets to bring in new business are those that are growing and stable (Mumme, 2012).

To venture into any potential market, an important question needs to be answered, one regarding the political climate in that country.  Political system determines how business is carried out in terms of tariffs, security, support for international trade, and incentives. Consequently, unstable political systems pose a threat to economic stability and are unsafe to establish businesses (Mumme, 2012).

Mumme (2012) argues that managing risks in markets can be hectic for companies especially where assumptions are made that the same measures that are in use their home countries will be employed.  Companies, therefore, need to develop a proper outline of the local market before venturing into any market. This would be achieved by closely working with the local experts and government agencies. This would enhance their understanding of the laws, cultures, and regulations of the local markets. The risks of any market are unique and keep changing. It is crucial that companies conduct thorough surveys not only before venturing into a new market but periodically.

Ofek and Turut, 2008 note that bribery, fraud, and corruption have emerged as key issues in most countries. Companies entering new markets have to deal with government officials that expect inappropriate gratitude from them so as to obtain a business advantage. Other issues include commercial bribery, conflict of interests, fraudulent financial reporting, and vendor collusion. To address these problems, the organization should undertake assessments for fraud risk specific to the market.  To curb corruption, anti-corruption systems such as unannounced internal controls should be developed.

The use of information technology can mitigate several of the risks involved in new markets. This works better when it is incorporated right from the start during the planning stage. A crucial method to reduce risks when entering new markets is to enter into agreements with suppliers and partners (Ofek & Turut, 2008).

 

Political and Economic Analysis

According to Kingsley and Vanden (2012) the PEST analysis is an important factor in understanding markets in terms of growth potential and threats. PEST stands for Political, Economic, Social and Technological factors. It is a business assessment tool used to measure the suitability of a potential market. For any company that plans to venture into a new market it is important to conduct a PEST analysis before a SWOT analysis. The main aim of conducting a PEST analysis is to identify external factors that affect an organization. It also helps to find out external factors that are likely to change in future. The tool is crucial in enhancing these of opportunities while minimizing the threats.

PEST gives an overview of the business environment surrounding the organization and is able to show the potential of a new market as shown in the figure (Kingsley & Vanden, 2012).

 

 

In assessing the potentials of a new market, it is taken that the more the negative factors surrounding a market the harder it is to transact business in it.

Some of the factors to be considered in a PEST analysis are presented in the table below (Kingsley and Vanden, 2012).

 

Political

  • trading policies
  • international legislation
  • environmental issues
  • grants and initiatives
  • future legislation
  • government policies
  • government terms
  • regulatory processes
  • wars and conflicts

Economic

  • overseas economies
  • economy trends
  • weather issues
  • industry factors
  • taxation issues
  • taxation
  • international trade
  •  market cycles
  • exchange rates

Social

  • lifestyle trends
  • demographics
  • consumer attitudes
  • media views
  • consumer buying patterns
  • fashion and role models
  • major events
  • buying access
  • ethnic and religious factors
  • advertising and publicity
  • ethical issues

Technological

  • competing technology systems
  • research funding
  • replacement technology
  • maturity of technology
  • manufacturing maturity
  • global communications
  • information and communications
  • technology legislation
  • consumer buying
  • intellectual property issues

 

The PEST analysis entails collecting of information on economic, political and any other factors that are to be considered. The next step would be to identify factors that represent opportunities and those that pose threats.

An export plan is also necessary at this point. This focuses on the SWOT analysis that stands for Strengths, Weaknesses, Opportunities, and Threats. In the plan consider the country of focus in this case Brazil. The analysis entails strategies to be used to do marketing and distribution of the products. The plan should outline the competitors, time required, and how the prices are to be determined. The level of staffing required is also a key factor at this level. It is important to have an outline of how business is to be evaluated at different levels in the plan (Kingsley & Vanden, 2012).

There are several factors that need to be considered regarding the political climate of the targeted potential market. First, identify the type of the political system where the new market is based. Stability of the tariffs and taxes are dependent on the government policies. Stable tax system enables businesses to plan ahead. Consequently, find out how supportive the government is to international trade and whether there are any incentives offered. The other factor is finding out the overriding attitude associated with transacting business with companies from America (Kingsley and Vanden, 2012).

According to Eichengreen (2012) there are integrative and defensive approaches to managing political risks. In integrative strategies, the organization creates good communication systems with the government. The other method is to use the local personnel that are familiar with the culture and language of the country. The steering team should be ready to renegotiate with the local government if need be. Organizations also engage in corporate social responsibility and joint ventures that engage the locals. On the other hand, the host and, defensive mechanisms involve the use of a few people from the host country in key positions. The organization insists on government guarantees and employs joint venture partners from other countries.

Studies show that the economic outlook is quite promising in 2014 for Latin America. This can be attributed to macro-economic factors such as low ratios of public debt. Resilient domestic demand that is expected to boost growth from 2.7% in 2013 to 3.2%in 2014 as a result of structural reforms being adopted in these countries. However, it is important to note that external risks, crime, and lack of competitiveness are still a threat to the stability of the market in Brazil (Dowell, 2006).

Jiatao and Liu (2013) points out that the impact of the media on the market cannot be ignored in the Brazil. Since the year 2000 E-commerce has been growing at the rate of 30% per year. The country also enjoys one of the world’s best online banking. The number of internet users and the number of hours they spend surfing is also very high and comprises of over 63 million users at 48 hours 26 minutes per month. This high usage of internet in turn influences the market in terms of marketing. Leading companies are now using the social media like twitter to reach out to their customers. However, there is a lower use of credit cards in Brazil as most opt to pay using cash. Credit only accounts for 40% of the GDP.

Eco-friendly concerns and demands are higher in Brazil than even in the European countries. People are more focused on the environment and how industries produce and dispose of their waste. The consumers have gone to an extent of even rejecting goods from companies that do not respect regulations on environmental conservation. An emerging trend of supermarkets that are now selling only eco-friendly products clearly reflects this (Cherian and Crooker, 2010).

Entry Strategy Plan

Entering into new markets offers great opportunities to companies to increase their sales and enhance their brand awareness. The process of entering a new market requires proper analysis of the existing competitors and potential customers (Donadelli and Persha, 2014).

 

According to Donadelli and Persha (2014) entry plans involves a set of procedures that needs to be considered. First, is the process of selecting the market. In this stage, comparison is done of the different alternatives available in terms of market size, competitors, prices, technology available, as well as the consumer profiling. Secondly, consider the Go-to market strategy.  At this stage once the market has been identified a strategy to get into the actual market has to be developed. Models that can be use include the direct model, in-direct model, or the acquisition model. Markets that are much developed calls for the use of the direct model and requires more investment in terms of money and resources. The indirect approach entails partnering with a player who will support the growth and establishment of the business in that market. In this model, it is important to start with one or two partners as you familiarize with challenges and other factors in that market. Acquisition approach is applicable for medium sized firms with stable firms, assets and management teams to enable them develop long-term decisions. This stage is crucial in facilitating the budget process for the whole process of market entry.

The fourth stage involves identifying the key customers for the toothpaste in Brazil, prospecting as well as lead generation. This is achieved by preparing a list of targeted decision makers and a marketing plan. A crucial consideration to make when planning at this point is the available revenue (Baker and Becker, 1997)

Conclusion and Recommendation

In conclusion, it is important to note that a company’s entry into new markets provides an opportunity to increase their sales and gain a wide view of the market dynamics as presented by the diversity. Several factors need to be factored in the process to start a business in a new market. First, the organization has to conduct a survey on the market and employ key models such as the PEST analysis tool and SWOT. The PEST tool analysis the political, economic, social, and technological factors in the new market. Information gathered through these models gives an insight into what to expect in terms of competitors, customers, costs, and technology. For instance, in this case the introduction of new toothpaste in Brazil would be informed by the fact that there are existing oral care products in the market. Secondly, there is a high demand for the product in the country. And third, government taxes on imported finished goods are very high

Once information has been gathered on the opportunities, threats, and potential of the new market it is time to come up with an entry strategy.  The plan is to maximize on the potential and opportunities while minimizing the threats. Organizations are able to budget and create guidelines regarding which approach of entry to employ. Organizations should avoid at all costs misconceptions concerning any factors when implementing the plan. Lack of proper survey and implementation plans could result to failing of the business. In this study, it was evident that the economic environment in Brazil is conducive for new products as it is stable and growing. The political sphere is also friendly for international business. The people of Brazil have a strong culture that promotes oral care thus promoting market for these products in the country.

It is recommended that DailyFresh should venture into the new Brazilian market and establish a market for its product. The entry model to be employed should be the direct model. However, much focus should be factored in marketing the product to counter the already established companies in the market. Measures should also be taken to address issues of fraud and corruption. The management team must be prepared participate fully in the venture and to consult widely with other key players in the market as well as government officials.

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