LONDON SCHOOL OF COMMERCE
COLOMBO CAMPUS SRI LANKA
MBA FOR EXECUTIVES
MODULE ASSIGNMENT : INTERNATIOAL BUSINESS
STUDENT NAME : GAJENTHINI BALENTHIREN
STUDENT REGISTRATION NUMBER : A0027CBECBE0816
MODULE LECTURER : DR. FRANCIS PIRON
MODULE TUTOR : MS. APSARA HEWAGE
7DATE SUBMITTED : 04th MAY 2017
TOTAL WORD COUNT : 4345
Sri Lanka is becoming very successful in business. In this competitive environment organizations should prove themselves by showing new technologies and innovations. The Sri Lankan government also encouraging entities to expand business. Likewise Link natural product pvt ltd is the one of the leading company in Sri Lanka is manufacturing and delivering herbal and organic product to the Sri Lankan consumer market. The sales of their product is massive and they capture large market. Based on the analysis LNP select Germany as their exporting country. LNP identified as Germany as their new market hence they identified they are having good potential for their product.
In this global market entering into new market is very complicated. People are adopted to fast moving goods. The usage of herbal and organic product is reducing but if those product packed and delivered they like to use those. They prefer quick food but which should healthy and neoteric. Here the business development manager analysed about the home country and host country in detail by using several techniques and theories. When enter into new international market a company should well aware of those market. The analysis help to prevent from risk. At the end of the report the manager will recommend the suitable entry strategy to move into new market.
TOC o “1-3” h z u Executive summery PAGEREF _Toc481531990 h 11.INTRODUTION PAGEREF _Toc481531991 h 42.PRODUCT OVERVIEW PAGEREF _Toc481531992 h 52.1 Link Samahan PAGEREF _Toc481531993 h 52.2 Benefits of Link Samahan PAGEREF _Toc481531994 h 62.3 Direction for Usage PAGEREF _Toc481531995 h 63.SWOT ANALYSIS OF LINK SAMAHAN PAGEREF _Toc481531996 h 64.HOST COUNTRY MARKET ANALYSIS PAGEREF _Toc481531997 h 94.1 PESTLE ANALYSIS PAGEREF _Toc481531998 h 105.ANALYSIS OF NATIONAL COMPETITIVENESS OF THE TARGET MARKET PAGEREF _Toc481531999 h 136.IMPACT OF CULTURAL DIFFERENCES IN INTERNATIONAL BUSINESS DEALING PAGEREF _Toc481532000 h 157.1 Managing Risk PAGEREF _Toc481532001 h 178.CULTURAL ANALYSIS OF GERMANY PAGEREF _Toc481532002 h 189.STRATEGY FORMULATION PAGEREF _Toc481532003 h 209.1 ENTRY STRATEGIES PAGEREF _Toc481532004 h 209.2 INTERNATIONALIZATION STRATEGY PAGEREF _Toc481532005 h 2111.REFERANCES PAGEREF _Toc481532006 h 2512.BIBILIOGRAPHY PAGEREF _Toc481532007 h 26
LIST OF FIGURES
TOC h z c “Figure” Figure 1 Link Samahan Product PAGEREF _Toc481524426 h 5Figure 2 swot analysis PAGEREF _Toc481524427 h 6Figure 3 Geographical location of Germany PAGEREF _Toc481524428 h 9Figure 4 PESTLE analysis PAGEREF _Toc481524429 h 10Figure 5 Germany economic indicators PAGEREF _Toc481524430 h 11Figure 6 Porter’s Diamond model PAGEREF _Toc481524431 h 13Figure 7 porters Five Forces Model PAGEREF _Toc481524432 h 16Figure 8 Strategy marketing entry model PAGEREF _Toc481524433 h 20Figure 9Internationalization model PAGEREF _Toc481524434 h 21
LIST OF ABBREVIATION
LNP Link Natural product pvt ltd
LS Link Samahan
SL Sri Lanka
INTRODUTIONIn this modern and high technology oriented world the expectation on herbal and organic food is being rapidly increasing day by day. This demand arises due to the negative impact from fast foods and artificial foods. There are different types of unidentifiable diseases arising all over the world. So the people are becoming smart and moving to natural herbal foods to reduce the negative impact from such foods.
In Sri Lanka Link natural product pvt ltd company becoming leaders in manufacturing and distributing herbal and natural products to the market. This is the company which provide new innovative, safe and healthy product to consumer market. They are research oriented company which means they identify customer needs and their philosophy. Based on the philosophy they manufactures Ayurveda related herbal products such as link samahan, link sp balm, link sudantha, link essentials, kesha, hair care cool, swastha thiripala, link natural enriched paspanguwa, gotugola tea. These herbal products satisfy the Sri Lankan consumer’s requirements. There are high demand for these products. Based on the high demand of these products they are now plans to export one of their product to international market. The international market they selected was Germany. The German market was highly nutritious oriented market.
Link natural product ltd was established in 1982 for the purpose of providing herbal and organic product to Sri Lankan market. They are having very innovative organic products. They categorized as safe and effective health care product, Ayurvedic pharmaceutical products and personal care and wellness products. Nearly around 200 products was developed by themselves which were measured highest international standard. All of their product was produced with ISO 9001, ISO 14001, HACCP and GMP certification. This certification gives added benefits to sell their products in the markets. This is an added competitive advantage to them. LNP production facilities were held at Dompe in Sri Lanka. This company recognized as leading herbal healthcare company in SL. It deserves respect and market leader among consumers and stakeholders. The company was won most prestigious awards.
Currently LNP is exporting one of their product Link samahan to German market. A detail analysis of country and the market and pros and cons of Germany will be discussed in clearly.
PRODUCT OVERVIEW2.1 Link SamahanLink Samahan is a natural and organic product which clinically proven to get relief from cold and catarrh related human symptoms. Likewise LNP research proves that this samahan product prevent 15 common symptoms among people. It identified as flagship product and recognized as super brand product in 2007. In SL market Samahan is the first choice for cold remedy. It’s 100% herbal and organic which extracts of medical plants which used in peyawa formulations. Nearly around 19 years this product was consuming in SL. (herbal eatable product at srilanka – Bing images, 2017)
Figure SEQ Figure * ARABIC 1 Link Samahan Product2.2 Benefits of Link SamahanLink Samahan is an herbal product which minimise the several symptoms like catarrh, cold, sneezing, nasal congestion, watery nasal discharge, scratchy throat, hoarseness of voice, cough, through pain, feverishness, heachache, itchy eyes and tearing, itchy ears and blocked ears, tiredness, body pain, loss of appetite and difficulties in day to day work. These was clinically tested and trial. Ancient Sinhala and Tamil doctors and present English doctors also preferring this as natural remedy. (Company Profile | Link Naturals Pvt Ltd, 2017)
2.3 Direction for UsageTo prevent and get rid from cold, catarrh any other above mention symptoms have to use LS per day with the mixture of warm water or tea or milk. If this symptoms increase a lot can have 3 or 4 time a day. (Samahan Powder | Samahan Tea | Samahan for Cold, 2017)
SWOT ANALYSIS OF LINK SAMAHANSWOT analysis helps to identify the internal strength and weakness of the product and external opportunities and weakness of link samahan and LNP. That analysis helps to launch the product in international market. (Renault, 2016)
Figure SEQ Figure * ARABIC 2 swot analysishttps://www.bing.com/images/search?q=swot+analysisSTRENGTHS
LNP should identify their main strength to launch their product in international market. They identified below as their main strength.
Stable company and Strong Brand name
The LNP was delivering herbal product since 1982. The continuous growth and their brand name was recognized and accepted by all the people in the country. The products are trusted among consumer market. This added benefit help to launch this product in international market especially in Germany
LNP and its product was received ISO 9001, ISO 14001, HACCP and GMP certificates. Those helps to recognized LNP product and increase high demand among consumer market.
Healthy and nutritious Product
The link samahan was made of pure herbal and organic product which doesn’t give any side effects to consumers.
High Innovative product
LNP having well experience and knowledgeable team and management. Those helps to export their product in Germany. Sri Lankan seasonal climate helps to get the ingredients to produce samahan.
LNP bran and products were not popular in foreign countries
Some people expect to drink English medicine for those type of symptoms.
Fear of using the product.
International people expect high standard and packaging.
Up to now no complaints or side effects from consumers
There is no subsidiary product available in Germany
Arising international demand for herbal and organic product
Positive export rules and regulation in Sri Lanka
Subsidiary products available in India .High competition from them
High expectation from international people
Rules and regulations of Germany and taxation policy
USGAE OF LINK SAMAHAN
As per the research held by LNP it was clearly identified that LNP products were very successful in SL market. The main reason for this success is SL people believe herbal and organic product won’t give any side effects. The respect and trust should be educate among international consumer market. However foreign people accept health consciousness and healthy herbal oriented products. This product is 100% natural.
HOST COUNTRY MARKET ANALYSISWhen entering into new market environment it is compulsory to analyse the host country market analysis to perform well in export. If the exporter and exporting company having better knowledge the international business get success.
Identified international market: Germany
Life Expectancy: 79 years
Capital city: Berlin
Figure SEQ Figure * ARABIC 3 Geographical location of Germanyhttps://www.bing.com/images/searchgermany/geographical/location4.1 PESTLE ANALYSIS
PESTLE is the one of the important tool to evaluate host country’s Political factors, Economical factors, Social factors, Technological factors, Legal factors and Environmental factors.
Figure SEQ Figure * ARABIC 4 PESTLE analysishttps://www.bing.com/images/pestleanalysisPolitical Factors
German government called as federal republic. The government comes under the rules of president. Election held once in 5 years term. The government and political condition of German is very stable. This factor helped to make investment. The current export policies of Germany was very attractive to new investors. Germany is one of the member of World trade organization.
Germany is the largest national economy in Europe and fifth largest country in the world. The monetary policy of Germany was modifies by European central bank during 1999. Euro currency also introduced during 1999 period. This records were categorized under World Bank report. Unemployment rate is very low. The GDP was US dollars 3.353 trillion. GDP per capital us dollars 36,864
GDP Growth Rate0.4 %
Unemployment Rate3.9 %
Inflation Rate2 %
Interest Rate0 %
Balance of Trade19881 EUR Million
Government Debt to GDP68.3 % Figure SEQ Figure * ARABIC 5 Germany economic indicatorshttp://www.tradingeconomics.com/germany/indicatorsSocial Factors
Germany is the one of the largest country. It’s having the population of 80,282,988. Sri Lankan people moved as resident, visit visa and under work permit. Majority of the population are white people. Germany people like to move to herbal and organic products.
German is highly technology oriented company which ranked 2nd in the world. The federal government supports a lot for new innovation technology. They annually grant 2.3 billion euros for technology related process. High class infrastructure which include wide range of transportation and telecommunication. The mobile users and internet users of German population are high. The companies and entities are using new technologies. So Sri Lankan company should adopt for new technology of Germany.
All food and beverages governs under the civil laws of Germany. The safety of food export governs and monitored by safety control legislation. Consumer protection Act also introduced by German government. The value added tax of Germany was 19% and value added tax for food is 7% corporate tax was 15%.The
German government issuing working visa for students and outsiders. When exporting food and beverages to Germany the approval should be obtained from relevant authorities.
Germany is surrounded with natural beauty and stunning environment. The country has rapidly changing summer winter autumn spring climates.
ANALYSIS OF NATIONAL COMPETITIVENESS OF THE TARGET MARKET
Figure SEQ Figure * ARABIC 6 Porter’s Diamond modelSource: http://www.mindtools.com/pages/article/porterdiamond model
Germany is the well performing and globally acceptable environmental market which includes human, physical, knowledge, capital and infrastructure. Furthermore living cost of Germany is high and business environment is favourable business conditions. Such as natural resources, skill labour force, modern transportation and infrastructure and best financial system management. (Staff, 2017)
Germany is very attractive and beautiful country which provide natural and herbal product to consumers. People prefer meat, fresh vegetables, fresh leaves and foods. Normally German people do not like to prefer fast food. They love to have mixture of vegetables and vegetable soups. Home market can help competitive advantage to those people. LNP’s product link samahan has favourable market condition in Germany.
Relating and supporting industries
Germany labour market is bit expensive because unemployment rate is very rare. But they are having strong and experience labour force. The labour force was 43.5 Million. The labour force divided as agriculture 2.4%, industry 29.7 % and services 67.8%. Recorded unemployment rate was7.5%. Eastern Germany identifies as more unemployment than western Germany. The innovation and internationalization falls under supporting industries.
The federal government chancellor currently introduce more relaxation on food and beverages industry. They expect high standard and quality from other countries as well as. There are potential market opportunities and strategic environment available for new investors. LNP should get relevant approvals from German government and Sri Lankan government. Those legal certification should help LNP to perform well the new market. They might allow premiums or discounts on their tariffs.
Firm strategy and structure rivalry
Currently Samahan doesn’t have any similar product in Sri Lanka. Likewise in Germany also there are no any similar product. But India produce substitute product for Samahan. They couldn’t capture the market.The competition among competitor market is very low. LNP is exporting directly to Germany. LNP make arrangements to shift product through ship. So they have to get approval from marine also. LNP target individuals, restaurants, schools, corporates, and super markets.
IMPACT OF CULTURAL DIFFERENCES IN INTERNATIONAL BUSINESS DEALINGCommunication
In Germany English considered as second language. But it is the official language. Main language is dutch. For Sri Lankan communication is the big issue to them. Usually they used face to face communication. They are very friendly. They used to call people by their first name.
Germany is with full of white people. Few people are from different part of the world. Most of the corporates and organizations management are under the control of white people. The senior management also from themselves. Sri Lankans should co-operate with them and follow their managerial procedures. There won’t be any conflicts between white people and Sri Lankan. Because the majority is them.
Negotiations and Agreement
The exporting customers should get relevant approvals from the relevant authorities from Germany. The certification and agreement should be shown. The young people should have knowledge and experience. The German people are very open minded and very trust worthy. To export goods should fulfil the legal requirements. The below certificates should be obtained from Sri Lankan government.
Certificate of origin
Certificate of Quarantine
Certificate of Quality
Certificate of Health
However the LNP should have adequate experience on exporting goods. These helps to expand their business
ANALYSIS OF THE INDUSTRY ENVIRONMENT OF THE TARGET MARKET
Porter’s five force model explain the analysis level of competition within the industry. LNP should do environmental analysis to export themselves into new market. This helps to make decisions for the management. (Competition, 2017)
Source: http://porters-five-forces-model.jpgFigure SEQ Figure * ARABIC 7 porters Five Forces ModelThreat of Substitute
Substitute means which satisfy a person’s same need. The switching cost and relative price should influence on the power of substitute. LNP is pure herbal and organic entity. In Sri Lanka there are few substitute product available in the market.
Threat of new Entrance
Nowadays the economy is open market. Anyone can freely enter into the new market. A new entry will create threat to existing investors in the market and it reduce the total revenue of the industry. This influences due to economies of scale, government policies and procedures, channel if distribution, differentiation and switching cost. Competition is very high.(Porter’s 5 forces, 2016)
Bargaining power of customers/buyers
In new market the competition for link samahan is very low. So the customer won’t shift to new product. The influence on switching cost is very low. It influence by buyer concentration, buyer volume, buyer switching cost, brand identity, buyer profits, impact of quality.
Bargaining power of suppliers
This means the influence on deciding the price for the specific product. This influenced by differentiation of inputs, switching cost, supplier concentration, cost relative to total price.
Competitive rivalry means whom the market is completed. It influenced by industry growth, fixed cost, brand identity, exit barriers, over capacity. LNP should decide whether which pricing should they used for their strategies.
7.1 Managing RiskThe management of LNP should identify the risks which could arise and the impact on the business. It help to prevent from different type of problems. The strategies should be applied by the high level management.
The risk which might arises in LNP
Political factor – Low level Risk
Economical factor – Medium level Risk
Financial factor – High level Risk
Operational factor– Medium level Risk
Government introduce several techniques to solve the risk which arise in the market. Such as mode of entry, financial instrument, lobbying and policy toward corruption. Risk managing process include risk identification, risk measure, risk response, risk monitoring and controlling. Corrective action should take by these processes.
CULTURAL ANALYSIS OF GERMANYWhen expanding local business to international market the cultural influences of relevant country to be analysis in detail. The cultural patterns of two countries help to make decisions about the business and help to solve problems and come out of that. If SL employees are working in Germany they should learn German language which is called Dutch. LNP should give proper training. The experience of SL employee and German employee are difference. The packed samahan should be distribute all over the part of Germany. That process can be handled by German employees also. Food structure of both countries are differ. Sri Lankan main food is rice and curry. German people main food is fresh vegetables and meat. Alcohol is permitted in both the countries. In SL wages paid monthly basis but in Germany wages paid daily basis. Cost of living of both are huge different. SL cost of living is very low and German cost of living is very high. Sri Lankan can go for work permit, educational purpose. They can get citizenship and marry anyone or buy lands and freely do business. Apart from the employment the German people believe religious and cultural beliefs. LNP should clearly evaluate cultural impact when moving into Germany. (Solutions, 2017)
Cultural comparison between Home country (Sri Lanka) and host country (Germany)
Cultural Elements Home country condition
(Sri Lanka) Host Country condition
Individualism Vs collectivism Sri Lanka is one of the collective society group of people. They scored 35 which is low when compare with others. The bond between families are strong and close. It’s very long term and they care each other. Extended family nature. Young people even after their marriage they live with their parents
Germany falls under individualistic society group of people. They scored 77 which compare with others. In this group of people they care only their immediate family members also. Here children like to stay separately.
Power distance Based on the hotstede cultural theory Sri Lankan have high level of power distance. The discrimination between job and their status is very high. The employees get salaries based on their work and gender.
Centralization is availabale in Germany. Here the employee get equal pay. Either mam or women or different kind of work people get equal amount of pay. Power distance is very low.
Uncertainty avoidance Sri Lankan didn’t show any strong comments. There are many uncertainty issues arises in the environment. The Sri Lankan government have taken steps to protect the country. Sri Lankan dislike to move to new technology.
Germany is scoring low uncertainty avoidance. They are precaucrnery action to their issues. They are pre planning and doing hard work on their activities.
Masculinity Vs Femininity Nowadays there are equal responsibilities given to male and female. They both studying same qualification and earning same salaries. In Germany also females are in good positions. They are very good in their education and career as well as. Life equality is available.
Short term vs long term Sri Lankan cultural is short term. In this dimension Sri Lankan spending power is very low. They prefer saving habit. Some are depended on borrowing money from others. In Germany dimension it also short term. Their spending power is very high. They dislike to save. They enjoy themselves a lot.
STRATEGY FORMULATION9.1 ENTRY STRATEGIES
Figure SEQ Figure * ARABIC 8 Strategy marketing entry modelSource:http://internationalbusinessmodel/methods-of-entry-international
There are several ways a new company can enter into a market. Based on the country based on the business the entry strategies may vary. Most of the companies choose direct exporting method. Because those considered as most appropriate way of mode. There are several factors which influence on deciding the strategy. Such as the product exporting, marketing cost, transportation cost and branding cost. (Countries – Geert Hofstede, 2017)
Currently LNP exporting their product to Middle East countries and Asian countries but they are not sending any product to Europe countries. Germany is the first country selected by LNP. At the initial stage link samahan is the first product launched to this target market. The market conditions consumer behaviours influenced. After the analyses it’s clearly identified direct exporting should be the most appropriate method. (Market Entry strategies. 2017)
The LNP having well experience since 1982.
The products which manufacture are as per international standard and high quality.
Link samahan is less price in local market and foreign market.
LNP having own machineries and well experience staffs.
Direct exporting is less cost effective method than other strategies. There are no factory and labour cost in Germany.
Benefits of direct exporting
Manufacturing in Sri Lanka (home country) is less risk
Operating cost at host country is less
Can learn about international market
9.2 INTERNATIONALIZATION STRATEGY
Figure SEQ Figure * ARABIC 9Internationalization modelhttps://www.bing.com/images/search/internationalization+strategies;simind
This means the organization manufactures and deliver the goods and services to abroad. Which means the product sells in home country and the host country are the same. Link samahan is one of the same type of product which sells in Sri Lanka and Germany.
This means the home country make changes in goods and services when transporting them to international market. It’s based on the host country requirements.
This means the combination of internationalization and localization such as high quality product in low cost.
LNP plans to export the samhan by using direct strategy method with the service of sales agent. Sales agents are the group of German employees and Sri Lankan living in Germany. The combination can help to travel several places and reduce language barriers. The shipping clearance and delivery can be handled by themselves.
Based on the requirement of Germany the LS will be export by LNP. The relevant sales agent should manage and organize the delivery arrangements.
LNP selected marine as their mode of transport. The relevant sales agent clear the product from port and then they will deliver it to respective retail shops and supermarket. The direct purchaser will clear the product which ordered by themselves directly.
The manufacturing and exporting process handled by SL. So additional labours are no need in Germany.
Framework and groundwork are necessary when dealing with international business. Germany is high technology oriented country. So our product match should match with their standards.
Packaging and transportation method
LNP packing division divide the sizes into five strategies. Based on the standard they packed in specially designed polythene bags. Then they arrange into boxes which made of cardboard and front labels should be written in English.
As per the practice and policies exporter should bare all the cost. Such as shipping and freight cost. The shipments handled through documentary credit method.
Clearance charge – Exporter
Shipment arrangement and agreement – Exporter
Loading – Exporter
Insurance – Exporter
The purpose of this analysis is to enter into German market with LNP’s Link samahan product. LNP’s senior management can take necessary actions based on the above report and the information. The behaviours and culture of Sri Lanka and Germany are differ from each other. The above theories and techniques clearly explain about how LNP should enter into new market and how they want perform. The micro and macro-economic factors influence on both home and host country. By the new market entry strategies LNP can generate more income and they can expand their business.
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