Modify the international business case study

Objectives

1) To use STEEPLE analysis to analyze Greece market and Turkey market which is better for MariLux Ltd to enter.

2) To define, discuss and appraise relevant concepts and theories of international trade, investment and internationalization of business.

3) To suggest most appropriate Entry strategy for MariLux Ltd

Methods - STEEPLE analysis

STEEPLE analysis helps to understand the main factors of a market environment and their potential influences to the operations of a business based on the nature of the business. The political aspect of the STEEPLE analysis tool refers mainly to the government policies that can possibly impact on the operations of a business. For instance, in this case study MariLux Yachts Ltd intends to enter foreign markets. Some governments embrace protectionism and hence in this case the operations of MariLuxYachts Ltd could be affected adversely by the government policies. The political aspect may also refer to the state of political stability in the foreign market as it has significant impacts on the operations of any business. Technological aspect refers to the status of technology in a given market. It determines such aspects as the mobility of raw materials and goods produced as well as cost of production et al. The economic aspect reviews factors that can possibly affect the demand of the products being offered by an organization in a given market. For instance, it may review the purchasing power of the consumers as well as the tastes and preferences of the consumers’ et al. It may also review the economic development of a given country to ascertain the ease of carrying out business in the given environment. The social aspect refers to factors related to the social life and the culture of the target consumers that can possibly affect the demand for products or services being offered by an organization. Lastly, the environmental aspect refers to the factors related to the physical environment that can possibly impact on the operations of a business.

Turkish market- STEEPLE analysis

Political environment

In turkey there are several strengths for a business that intends to enter the Turkish market in relations to its political environment. The World Bank Group (2013) provides that the government of turkey has liberalization policies. It is an indication that the government supports international trade. Togan (2015) provides that the custom union agreement in 1996 enabled turkey to carry out trade with other countries. Tariff barriers were eliminated and hence this is an indication that it is easier for a multinational company to enter the Turkish market. The country does not exercise protectionism as it supports international trade and hence this makes it easier for any multinational organization to enter the Turkish market. In turkey there is political stability despite the fact that the country has multiple political divides. The country thus creates an enabling political environment to carry out business. Turkey has enabling political aspects for any foreign business to enter the market. It is, however, worth noting that turkey is one of the countries facing the problem of terrorism. The aforesaid is a disadvantage to any foreign firm that may be willing to start a plant in turkey as it may be targeted by the terrorists a factor that increases the risks facing the business plant.

Technological environment

Information communication technology has significantly grown in Turkey. According to THE REPUBLIC OF TURKEY PRIME MINISTRY INVESTMENT SUPPORT AND PROMOTION AGENCY, turkey as a country has realized the crucial importance of ICT in the business world and it has been undertaking necessary strategies to ensure that there is significant growth in the specific area. The fruits of the efforts that turkey has undertaken as a country are evident. Information communication technology in the country has been growing by double digits. Despite the efforts that have been undertaken, there is a challenge in relation to the technological environment in turkey in that the country is not investing sufficiently in research and development which is a key factor for development of technology in any given country. The aforesaid is an indication that any multinational firm setting up a plant in turkey ought to invest heavily in research and development or else import technology from its home country. Importing technology in this case may mean obtaining labor with the required technological know how from the home country.

Legal environment

Turkey as a country has a strong judicial system. It is advantageous to foreign firms and also to the local firms as it is an indication that the firms operate in an environment where law is enforced. In case an issue arises, it is possible for an organization to start a fair legal proceeding. Another noticeable advantage in relation to the Turkish legal environment is that the legal formalities followed when registering a business in the country are not lengthy. As such, it is easy for the organization under review in this case study to set up a plant in the Turkish market.

Economic environment

It has been noted that the gross domestic product of turkey has been growing significantly in the recent past. It is an indication that the purchasing power of the consumers has been increasing a factor that shows that the amount of disposable income held by the consumers in turkey is relatively high. It is thus an indication that the consumers can spend on luxurious goods such as yachts a factor that makes it justifiable to predict that the yachts are likely to have effective demand. It is also worth noting that turkey is developed in terms of infrastructural development. As such, the cost of production is likely to be low. Low production cost implies a high total contribution margin for an organization, ceteris paribus. The aforesaid forms a basis on which high profitability for the organization under review in this case can be predicted. It was earlier noted that elimination of the tariff barriers by the Turkish government opened the country’s market to the world. It is an indication that the market for the yachts is not limited to the citizens of turkey but rather to the other countries which trades with turkey. As such, chances are that the organization under review in this case is likely to obtain large market share for its products.

Social system

In turkey there are relatively high levels of literacy. However, besides the fact that most of the people and especially the young people in the country are educated there is high level of unemployment. Trading economics reveals that in the year 2015 the rate of unemployment in Turkey increased by 15% a factor that attests to the high level of unemployment in Turkey. Often, when the rate of unemployment is high in a market where there are high literacy levels it indicates that there is availability of cheap labor. Hence, setting a plant in the Turkish market would be viable in relation to the social environment.

Environment

The environment in turkey is suitable for yacht business. There are nature of its physical environment facilitates an increase in the demand for yachts. Though turkey seems to have a suitable environment for setting up a plant in the market, it is important to note that the suitability of the environment is dependent on the nature of business. In the case of yachts, the raw materials are available. Hence, setting up a plant in the market would be viable as it will increase proximity to the target consumers.

Greek market- STEEPLE analysis

Economic environment

Economy of Greek has been doing well but currently the economic environment in Greek does not provide enabling conditions for organizations which want to venture in its market such the organization under review in this case. One of the challenges that face the country is low rate of development and high level of unemployment[endnoteRef:1]. Though it may be argued that high rate of unemployment provides cheap labor and hence this may be good for an organization in terms of production costs, it can be noted that low rate of development and high level of unemployment is an implication that the level of consumer income is low. As a result, the amount of disposable income available to the consumers is limited and hence they may not spend more luxurious goods such yachts. The aforesaid implies that yachts may not have high effective demand in the Greek market. The country faced financial crisis in the year 2007 which affected the economy of the country adversely. Often, when a country’s economy is affected adversely consumers tend to change their consumption patterns in that they tend to consume only the basic goods due to their constrained amount of disposable income. This further shows that the level of effective demand for the yachts in this case may be low and hence the organization under review in this case may not be able to maximize its profitability by venturing into the market. The country has been recording negative growth rates over successive financial years. Economics in Greece also shows that the country has in the recent past been highly indebted. Increased indebtedness means that the country may not undertake economic development projects more frequently since a significant portion of its public revenue may be used to repay the debts. In an incidence whereby the government is not undertaking economic development projects it implies that the amount of income available to the consumers is limited and hence this constrains their purchasing power a factor that may imply that there effective demand in the country is likely to be very low for yachts. [1: Economy of Greece (N.d). Retrieved on 19th November, 2015 from www.greeka.com]

Political environment

Just like it is the case with the economic environment in the Greek market, the political environment does not encourage entry into the market. From the economic environment, it has been noted that the country has been recoding negative growth rates over successive financial years. The public of the country has responded to the aforesaid by engaging into strikes and riots thereby making the political environment unsuitable for any foreign organization that intends to enter the market. Greece also has a territorial problem with turkey[endnoteRef:2]. This further makes the political environment unsuitable for any foreign business to operate in the Greek market. It can is noted that disputes between Greece and such countries as turkey and Macedonia are very frequent and this creates uncertainty in the political environment in the Greek market. [2: Politics in Greece (N.d). Retrieved on 19th November, 2015 from http://www.greeka.com/greece-politics.htm ]

Social environment

The social environment in Greece is not as pleasing either. Due to the crisis and social unrest that has been witnessed in the country there have been incidences of crime in the country. The social unrest makes hinders the citizens of the country from being as productive as they ought to be. Also, in Greece there have been incidences of drug trafficking a factor that makes the country’s citizens unproductive. The aforesaid social aspects in Greece has made tourists shy away from the country a factor that implies that there is a likelihood of having low effective demand for the yachts. Just like many other countries across the world, Greece faces the problem of terrorism from time to time. Terrorism makes the business environment of the country highly risk a factor makes it unsuitable for any multinational organization to set up a plant in the country.

Technological environment

The status of technology in Greece is enabling for foreign companies to set up a plant in the country. Major multinational corporations have contributed to research and development in the country thereby leading to technological development in the country. Such corporations include Coca-Cola, Motorola and Siemens et al.

Legal environment

The country’s policies create an enabling environment for foreign investors. It was noted under the economic environment that the country has been into financial crisis. In an attempt to recover from the crisis the country’s government has adopted legal policies which encourage both local and international trade. One of the strengths related to the legal environment in the Greek market is that the country does not exercise protectionism and hence this creates an enabling environment for foreign investors.

Environmental factors

Though there are environmental issues in Greek such as air pollution and acid rains, there are no issues relevant to the business of producing and selling yachts. Hence, in relation to the environmental aspect of the STEEPLE analysis it would be justifiable to argue that it viable for the organization under review in this case to venture into the Greek market.

Result

Turkey has a relatively high gross domestic product an indication that the purchasing power of the consumers is also relatively high. The country has a 1.586 trillion of International dollars of gross domestic product (Global Finance, 2015). Considering such other factors as the legal, political and technological environment as discussed in this paper shows that it is suitable to enter the Turkish market. Greece, on the other hand, does not have promising business environment factors that can make it suitable to invest in the market.

Discussion

Due to the liberalization policies, the Turkish market has flourished and it has achieved great economic development. Yachts are not basic goods but rather they are luxurious goods. Hence, the effective demand is highly dependent on the purchasing power of the consumers in a given target market. According to the Global finance (2015), the gross domestic product of turkey is relatively high and it has been growing significantly. Argy (2013) provides that the gross domestic product is a key indicator of the purchasing power of the consumers as it is an indication of the consumer level of income. Thus, the higher the gross domestic product the higher the level of consumer income. High consumer income means that the consumers have high disposable income and hence they can spend on luxurious goods such as yachts. It is thus justifiable to predict that yachts are likely to have high effective demand in turkey.

Recommendations

Which market to enter

Considering the results from the analysis of the two suggested foreign markets for the organization under review in this case, it is justifiable to recommend that MariLux Ltd should enter the Turkish market as it is likely to make significant sales and hence profits from the market. The political and legal environments also create an enabling environment to enter the Turkish market.

The government policies encourage international trade which provides an opportunity for the MariLux Ltd to enter the market. It is, however, worth noting that the problem of terrorism may increase the risk that the organization faces by entering the market. Considering that other aspects of the Turkish market environment are enabling and the economic environment is promising, suitable strategies can be put in place to counteract the problem of terrorism. For instance, undertaking to insure the risk of a terrorist attack is one of the strategies that can possibly address the problem of terrorism. Also, the organization can embrace an entry strategy that minimizes the impact that of a terrorist activity. For instance, exporting is a strategy that minimizes the impact that may be attributed to a terrorist attack without taking into account other relevant factors that may influence the choice of the entry strategy suitable to the organization. Regardless of the several hindrances, STEEPLE analysis reveals that it is viable for the organization under review in this case to enter the Turkish market. The key objective of expanding into foreign markets is to maximize profitability and for the objective to be achieved some costs must be incurred and challenges must be encountered. Hence, most importantly is to weigh between the benefits of entering a given foreign market compared to the challenges and costs incurred. In this case the likely benefits outweigh the challenges to be encountered and the costs to be incurred a factor that makes it justifiable to recommend that the organization should venture into the Turkish market.

STEEPLE analysis of the Greek market reveals that it is not viable for the MariLux Ltd to enter into the market. Major aspects such as the economic and political aspects do not provide prospects that would make it justifiable to recommend that the organization can enter into the Greek market. For instance, analysis of the economic environment reveals that there is not likelihood that there is expected sufficient effective demand for yachts. Without effective demand it would be needless for an organization to venture into a new market since the key objective of venturing new markets is to maximize profitability. Hence, it would be justifiable for MariLux Ltd not to enter the Greek market despite the fact that some aspects such the technological and environmental factors provide an enabling environment.

Moving production activities

Moving production to Greece is a good choice for MariLux Yachts Ltd. Greece has highest unemployment rate in recent year. If MariLux Ltd moving production to Turkey, It can improve Turkey's unemployment rate. Effective activation policies to help the unemployed and inactive link people work. So they need to strengthen the motivation and employability of job seekers in order to improving their employment opportunities. MariLux Ltd also can reduce the labor cost if choose Greece to move production. And the Turkey taxes is also lower than Greece.

Entry strategy

Wild et al (2014) provide several factors that should be considered by an organization when choosing the entry strategy into a foreign market. Such factors include the risks involved in entering the new market, the level of commitment in terms of capital which is determined by the organization’s size and financial capabilities as well as the legal environment in the foreign market et al. As seen in the case study, MariLux Ltd is a small organization and hence the most suitable strategy for it is a strategy which has the least costs involved. Exporting would be the most suitable entry strategy for the organization. Exporting as an entry strategy is advantageous in that it reduces the risk that maybe associated with setting up a plant in the foreign market. The market the organization reviewed in this case is supposed to enter is the Turkish which is subject to the risk of terrorist attacks. Exporting can help to counteract the aforesaid risk. Also, given that the organization is a small one exporting would be suitable for it since it requires less capital as compared to other entry strategies that require the organization to set up a plant in the foreign market. Exporting is a suitable entry strategy to test the market.

Conclusion

STEEPLE analysis reveals that it is not viable for MariLux Ltd to enter the Greek market. The Turkish market, however, provides an enabling environment despite the various challenges that may anticipated. Hence, it is recommendable that the organization in this case should venture into the Turkish market and not to venture in the Greek market. Exporting is the most suitable strategy for the organization considering that it is still a small organization and also considering that there are some risks associated with setting up a plant in the foreign market.

References

Argy, V. (2013). International macroeconomics: theory and policy. Routledge.