essay writing

Subject: International Marketing

Word count: 2866

The main aim of the report is to develop a suitable market entry mode for Danish company name George Jensen in target country Switzerland. The reason to select this company is it is innovative and has capacity to expand in the foreign market and this company faced a huge competition in home market and preparing to enter to Switzerland for the first time where the psychic and cultural distance is similar.

Target country has political stability, economic growth, better social development, advance technology, big market size which are attractive point to enter. The geographic distance, psychic distance and cultural distance between host country and home country is small therefore Uppsala internationalization model is recommended. The firm will have less control towards operations, low commitment resources and high flexibility in foreign market. Due to small firm size, moderate international experience, exporting type externalization mode of entry is suggested.

Table of Contents 1. Introduction 1 2 Level of attractiveness and risk of Switzerland 1 2.1 PEST analysis of Switzerland 1 Source: (Dreamstime, 2020,Online) 1 2.1.1 Political analysis 1 2.1.2 Economic Analysis 1 2.1.3 Social Analysis 1 2.1.4 Technological Analysis 2 2.2 Micro- Environmental Factor 2 2.2.1 Market Demand 2 2.3 Overall Risk and Attractive analysis 3 3. Proposed Internationalization Theory for George Jensen 3 3.1 The Uppsala Internationalization model 3 4. International Marketing Framework for George Jensen 4 4.1 Internal factors 5 4.1.1 Firm Size 5 4.1.2 International Experience 6 4.1.3 Product 6 4.2 External Factors 6 4.2.1 Sociocultural distance between Denmark and Switzerland 6 4.2.2 Country Risk and Attractiveness 7 4.2.3 Market Size and growth 8 4.2.4 Direct and Indirect Barriers 8 4.2.5 Intensity of Competition 8 4.3 Transaction-Specific Factors 9 4.4 Desired Mode Characteristics 9 4.4.1 Risk-averse 9 4.4.2 Flexibility 9 4.4.3 Control 10 4.5 Overall Findings 10 5. Justification of a Proposed mode of Entry in Detail 10 5.1 Proposed Exporting mode of entry 10 5.2 Justification of proposed mode of Entry 11 6. Summary of Report 11 7. Reference List 12 8. Appendices 14 8.1 Appendix 1 14 Worldwide Governance Indicators 14 8.2 Appendix 2 14 8.3 Appendix 3. 15 8.4 Appendix 4. 15 Broadband penetration of 2019 15 8.5 Appendix 5. 17

George Jensen is a limited liability company established in 1904 in the center of Copenhagen with (CVR)of 26573645(Virk,nd,online). It has an activity code of 464800 wholesale watches, jewelry and silver and gold articles including 214 employees (Virk,nd, online). The main purpose of the company is to manufacture and trade, specifically within the jewelry, silver, and gold goods industry (Virk,nd, online). George Jensen has been chosen for internationalization because it is an innovative company which has capacity to expand in a foreign market with complex and differentiated product (Virk,nd, online).

The main purpose of this report is to develop a suitable market entry mode for Danish company George Jensen in the target country Switzerland. Internationalization offers several benefits to this company such as find the opportunities in target market, reduce transportation cost, to increase control over production facilities, to make the brand familiar in the Swiss market, to generate revenue, to gain international experience, so on (Hollensen,2020). The report describes the product, service, and the existence of the company in section 1, and section 2 is about PEST and micro factor analysis in the target country. Section 3 discussed proposed internationalization theory and section 4 discuss international marketing framework which influences decisions, Similarly, Section 5 justifies the proposed market entry and type. At last, a summary and little recommendations have made based on the entire process and findings.

3

Figure 2

Switzerland has a political stability score of 1.3 (Appendix 1). It is a strong democratic and least corrupted country with a corruption percentage of 96.2 % as per 2019 data (Appendix -1). Switzerland has relaxed regulations on financial secrecy as it was disconnected from the OECD list of tax havens whilst religious discrimination is growing every year (Euromonitor,2020).

According to Appendix -2, the Gross Domestic Product(GDP) per capita of Switzerland is 81,839 US$, GDP growth rate is 0.90 %, unemployment rate is 4 4.40%, inflation of 0.36 %whereas it has trade problems with some trading partners within EU that put the economic pressure (Marketline,2020).

Switzerland has a great level of human development which ranked second out of 189 countries with a Human Development Index value of 0.954 and the country supports for good healthcare, infrastructure for its population and also has a high level of life expectancy that is 82.8 and literacy rate of 99% in 2019(Marketline,2020). The Power distance of Switzerland is 34 and Denmark is 18, Both are the individualistic country with Switzerland’s score of 68 and Denmark’s score of 74). However, the country has an increasing burden of public expenditure, Denmark is feminism culture (16) whereas Switzerland is masculine culture (70).

Denmark, Switzerland

Figure 2.1.3: (Hofstede Insights, 2020)

Switzerland is forward in the telecommunication market where mobile subscribers have grown at an average rate of 2 % from 2009-2019 (Marketline,2020). According to Appendix -4, the broad-line penetration of Switzerland is 46.9% which was higher than Denmark, Sweden, and the US and the Internet penetration of Switzerland is 91.3 %(Appendix-5). However, the weakening relations with EU countries may lead to a shortage of skilled labor in the market (Marketline,2020).

As per consumer luxury goods of Switzerland, the sales of luxury goods are 14.290,4 CHF million in 2019 and a Growth rate of +1,1% whereas the swiss customers are burdened by the high cost of remaining that makes them sensitive to price (Appendix 3).

Based on the above PEST analysis and market demand, Switzerland is attractive to enter because it has high political stability, low tax rate, high GDP percapita, great human development index, large market size, positive growth rate, innovative technology, lesser power distance, relaxed regulation. However, it has a weakening relationship with EU, public expenditure is increasing, religious discrimination is rising and consumers are becoming sensitive towards the price.

Internationalization is associated with the choice between foreign direct investment and exporting (Hollensen, 2020). For a small-medium business like George Jensen, The Uppsala internationalization model is appropriate than Network and Transaction Cost approach.

George Jensen has limited knowledge and low commitment towards the foreign market which will effect the decision of internationalization. The intention of choosing this model to begin the operation in Swiss market which is close geographically, small psychic distance, and is planning to enter through export modes, which will have less risk, and have a possibility to penetrate the target market. This model uses two factors that are market knowledge and market commitment.

To operate the business in the international market, the company needs market-specific knowledge and general Knowledge(Hollensen,2020). This company has gained some experience in the domestic market that is Denmark as well as from few foreign markets that are Sweden, Norway (Virk, nd, online) That means it has little to moderate experience in the international market which will have a weaker commitment to the market.

Based on Appendix -2, The Unemployment rate of Denmark has 5.04%, The Inflation rate is 0.76%, GDP per capita of 59,551.08, GDP growth rate is 2.37%whilst Switzerland Unemployment rate of 4.40%, GDP per capita is 81,839.54, the Inflation rate is 0.36%, and GDP growth rate of 0.90%. It demonstrates that both countries have high income, low unemployment rate, low inflation, and growing economies which clear that they have similar psychic distance. Both countries are politically stable with a score 1.3 of Switzerland and 1.0 for Denmark, which indicates similar country characteristics. Similar psychic distance won’t disturb the movement of information between two markets and and attracts the attention of investors (Forsgren, 1975)

According to Hofstede’s Insights (2020) culture dimension, both are low power distance and Individualistic countries meaning they have similar cultural values. It suggests to start internationalization in target country because they will get opportunities of profitability and perceived market uncertainty will be little (Brewer, 2007). However, internationalization through this model might be slow, time- consuming, and iterative, therefore the management of George Jensen has to accept that internationalization might have proceeded at a slower rate and sometimes adjustment take place (Vahlne, 2011)

Entry mode is an institutional preparation for the entry of a company’s services and products into a new market(Hollensen,2020). Some of the factors that influence the entry mode decision in a specific country are described below:

Figure:4

Source: Hollensen (2020), Factors affecting the foreign market entry mode decisions

In case of George Jensen, it comes under small-medium enterprise as it has 214 employees with fewer resources commitment which results low level of control over the operations like in marketing, research and product. Therefore, they should externalize through export entry mode which will be easy and safe, Conversely, a high level of control can acquire through acquisition, joint venture, and franchise, (Hollensen,2020).

George Jensen has little to moderate international experience from countries like Norway, Sweden, The United Kingdom (Virk, nd,online) that assist to reduces cost and uncertainty of offering in market with high profitability. Due to its little experience externalization export entry mode is suitable with lesser financial risk and allows to gain local market knowledge whereas the company will have low level of control and less resources commitment (Hollensen, 2020).

George Jensen products such as Watches, Jewelry, home products are of high quality, differentiated and complex, hence it is profitable to do direct exporting from Denmark to have control overproduction rather than having a production facility in Switzerland because they are neighbors by a geographic distance which in turn reduces the Transporation cost (Hollensen,2020). When the Geographic distance is large then it is recommended to do licensing, franchising, or production abroad in suitable conditions (Hollensen,2020).

As per Hofstede’s cultural dimension (2020), power distance between Denmark (18) and Switzerland (34) is almost similar where communication is direct, employee has autonomy, participative behavior and societies believes that inequalities between people should be reduced. In addition, power is decentralized among team members in which everyone can place their opinion, and workplace environment is informal with direct communication.

Both countries are individualist with high score of Switzerland (68) and Denmark (74) where they prefer a loosely- tied social framework where individuals are supposed to take care of themselves and their families only, they use a direct mode of communication, and hiring and promotions are decided based on benefit only (Hofstede’s Insights,2020). Even though, they are similar in power distance and individualism dimension, they have big gap concerning masculinity. Denmark has feminine society (16) whereas Switzerland has masculine society (70), the Swiss society achieves their success through competition, performance and focus is on equity like through cars, expensive home but Danes achieves through dominant values in society such as caring for others and quality of life (Hofstede’s Insights,2020).

From above Uppsala internationalization model analysis, it can be seen the small psychic distance between two countries. Due to small psychic and cultural distance, George Jensen should do externalization where it will have low communication, trade barrier and huge opportunity to understand local consuming behavior.

The voters of Switzerland were concerned with immigration, social insurance, the employment market, health insurance and climate (Marketline,2020) which indicates there might be some pressure for investors regarding business policy. Switzerland is a strong democratic and least corrupted country that means everyone has right to vote and raise voice and there is strict legislation in place to control and some implementation process are against corruption (Marketline, 2020).

From Appendix 1 it can be seen that the government of Switzerland is stable with a score of 1.5 in range of -2,5 to +2.5. Switzerland became a politically stable country alongside the huge amount of voters being loyal to their parties(Euromonitor,2020). The stable political environment of host market decreases the demand uncertainty faced by firms and amount of risk is less for firm inventories and receivables. In political stable country the government stays for longer period which means policies, rules and regulations, and trade laws toward foreign investment won’t change often which is impressive for foreign investors.

The stable exchange rate of Swiss France to Dollar (0.99) that diminish uncertainty over fluctuations in the currency, prevents devaluation and build excellent confidence for investors to invest in Switzerland (Appendix- 2). Switzerland stood in 36 th position out of 190 countries in world Bank’s ease of doing business in2020 (Marketline,2020). That indicates the business environment is favorable with distinct and talented workforce. The corporate-tax in Switzerland is between 12-14 % which is quite lower (Marketline) which draw the attention of investors and possibility to stay business for long term. Appendix-2 displays that Switzerland has low inflation rate of 0,36 % that symbolize the strengthening of Swiss economy, Low inflation rate motivates this company to invest by maximizing productive capacity. The low tax rate of country attracts the foreign investors but Switzerland has trade barrier with some EU partners which is not impressive point for investors.

The market growth rate of Swiss is in the upward trend that is +1.1 as per 2019 data, the size of the Swiss market for luxury goods is huge which will allow this firm to expand the market (Euromonitor,2020). Hence, there is possible to have great demand for this company products, as demand rises the sales revenue will go up and finally the business will become profitable.

Switzerland has relaxed regulations on financial secrecy as it was disconnected from the OECD list of tax havens (Euromonitor,2020). Furthermore, there was a bilateral treaty signed by Bern with The UK, Austria and Germany that needs Swiss banks to assemble taxes on undeclared foreign accounts(Euromonitor,2020). It signifies that there is no trade barrier in the target country for this firm to make entry tough,

The intensity of competition of George Jensen with other luxury goods will be high in the target country because of its complex product, this company should avoid internalization, if it avoids internalization, they should use externalization, externalization is the process of doing business through an external partner like importer, agent, the distributor then markets will be profitable even in less resources commitment(Hollensen,2020). Therefore, the greater the intensity of competition in the target country, the company favors entry through export mode that has low resource commitment.

Transaction cost is the friction between buyers and sellers which is described by opportunistic behavior that involves distortion, misleading, and confusion(Hollensen,2020). While taking George Jensen, in order to keep safe from such hazardous behavior they may employ safeguards like a control mechanism which provides fairness between transactions. The friction between buyer and seller is less between Denmark and Switzerland that means the confusion between two countries will be less in terms of communication, marketing, price, distribution and soon therefore they should externalize.

As George Jensen entering the Swiss market for the first time, they do not want to take more risk that ‘why they desire to enter through export modes like direct exporting this will enable George Jensen to have low levels of management and financial resource commitment (Hollensen,2020).

Export mode will provide higher flexibility for George Jensen because while applying export mode George Jensen can terminate an agent contract in a short time period, however, the company may have to compensate for one to two years depends on a contract (Hollensen,2020).

Due to minimal resource commitment, this company will have little control over the operation promotion, marketing Swiss market but it offers less risk, safe and fast(Hollensen,2020).

From marketing framework analysis, it is found that the size of the form is small-medium with 214 employees, international market experience is moderate from domestic and few countries market, the cultural and psychic distance between two countries is small, the country has political stability and GDP per capita is growing, the firm wants to take less risk, high flexibility in target market but low control and low commitment. Furthermore, the market size is big, less trade barrier, small fraction between buyer and seller. Therefore, based on all above findings externalization is suggested for George Jensen.

From PEST and micro analysis, it is found that the target country is attractive to entry, Uppsala model has been used as internationalization theories with small psychic distance, and due to less market knowledge and less commitment. After analyzing several factors of market entry decisions, externalization mode of entry is recommended. Externalization allows high flexibility, low control, and low commitment for this firm(Hollensen,2020)

Export entry method is recommended where the product is going to manufacture in Denmark and will transfer into Swiss market through direct exporting (Hollensen,2020). George Jensen will so direct exporting to retailers through contract who has skill of luxury goods in the international market then retailers will pass the products final consumers (Hollensen,2020). The reason to sell directly to retailer is there are not enough distributor to contact for complex product like jewelry and high-quality household products. In addition, selling directly to retailers will save the cost which has to pay for distributor. Moreover, Production facilities will take place in home country, promotion will be similar as in Denmark through social media like Facebook ads, YouTube ads and price will increase by 5% than in Denmark.

Export mode entry has been applied because it carries less risk and fast entry. The Direct exporting mode through experienced retailers enhance the chance getting contacts with potential customers and the local market. Selling products through retailers, placing production facilities only in home country and applying same marketing policies won’t need more investment in target country that will diminish the administration cost and market risk.

To conclude, before entering the international market company needs to do Micro and Macro analysis to discover attractiveness and risk. Macro analysis like political stability, Economic growth, technology and cultural and macro like the market size. The company should enter a foreign market if they find attractive, opportunists, and benefits over risks. It is an appropriate decision for small-medium size company to enter the country with a small psychic, geographic and cultural distance by applying the Uppsala model to avoid risk and uncertainty. Externalization export entry mode by direct exporting allows the company to access the knowledge of the local market and customer. The company does not need to make huge investments while entering through distributors. However, be noted export entry mode has less control and less commitment towards different operations.

First, this firm will start with export entry mode, when the demand rises as it gains great knowledge of the market then it is recommended to move to direct investment to have control over operations, technology, management, and so on. It is recommended to sell direct to retailer for complex product to save the intermediary cost.

Brewer, P., 2007. Operationalizing psychic distance;a revised approach. Journal of Internatinal Marketing, 15(1), pp. 44-66. Dreamstime, 2020. Pestle analysis. [Online] Available at: https://www.dreamstime.com/illustration/pestle-analysis.html [Accessed 01 01 2021]. Economy Freedom, 2020. Switzerland. [Online] Available at: https://www.heritage.org/index/country/switzerland [Accessed 01 01 2021]. Euromonitor, 2020. Luxury Goods in Switzerland. [Online] Available at: https://www.portal.euromonitor.com/portal/analysis/tab [Accessed 02 02 2020]. Euromonitor, 2020. Market Sizes. [Online] Available at: https://www.portal.euromonitor.com/portal/StatisticsEvolution/index [Accessed 01 01 2021]. Euromonitor, 2020. Switzerland :Country Profile. [Online] Available at: https://www.portal.euromonitor.com/portal/Analysis/Tab [Accessed 02 02 2020]. Forsgren, J. &. J., 1975. International føretagsekonomi. s.l.:s.n. Hofstede Insights, 2020. Country Comparision. [Online] Available at: https://www.hofstede-insights.com/country-comparison/denmark,switzerland/ [Accessed 02 02 2021]. Hollensen, S., 2020. Global Marketing. s.l.:Pearson. Marketline, 2020. Switzerland:Macroeconomic Outlook Report Switzerland. [Online] Available at: https://advantage.marketline.com/Analysis/ViewasPDF/switzerland-macroeconomic-outlook-report-54148 [Accessed 01 01 2021]. Stefano Elia, M. M. &. P., 2019. Entry mode Deviation: A Behavioral approach to internalization theory. Journal of International business studies, Volume 50, pp. 359-371. Vahlne, J. I. &. J., 2011. he Tortuous roaod to globalisaiton for Volvo's heavy truck business:extending the scope of the Uppsala model. International Business review, Volume 20, pp. 1-14. Vahlne, J. I. I. &. J., 2011. The Tortuous roaod to globalisaiton for Volvo's heavy truck business:extending the scope of the Uppsala model, s.l.: s.n. Virk, n.d. [Online] Available at: https://datacvr.virk.dk/data/visenhed?enhedstype=virksomhed&id=26573645&language=da&soeg=26573645%20 [Accessed 1 01 2021]. Worldwide Governance Indicators, 2020. Country Data view. [Online] Available at: https://databank.worldbank.org/source/worldwide-governance-indicators [Accessed 01 01 2021].

Political Factor Analysis of Switzerland

Source: (Worldwide Governance Indicators, 2020)

Economic Analysis of Switzerland and Denmark of 2019

DKK: Danish Krone

Source: (Marketline 2020)

Market Size of Switzerland

Sales of Luxury Goods

Note: Swiss France(CHF)

Source:(Euromonitor,2020)

Source: (Marketline 2020)

Source: Marketline 2020

1