Why Expand? There were 4 key issues with Jabwood in Lebanon 1) Limited revenue: Revenue streams have taken a steep decline over recent years and will take an even further hit with the loss of being the exclusive supplier of T!"T# Limited funds are available for any expansion$ capped at 1%%$%%% &'( to any single market# ) (anagerial constraints: "t is re*uired that management have full control of operations for any new market# +urthermore$ only family members are employed in managerial positions# There are only two family members available with the re*uired knowledge and expertise to take on new positions# ,) -olitical unrest: Recent uprising in the (iddle .ast$ especially in /yria# This has led to a closing of all borders between Lebanon and /yria# 4) Loss of .xclusivity of T!"T: 0abwood served as the exclusive supplier of T!"T for % years in the (iddle .ast$ a highly recognied softwood brand from Russia# T!"T has accounted for nearly 2% percent of the company3s revenue# ue to 0abwood3s loss in market share and sales$ the rights to sell the product were extended to another timber trading company$ leading to the potential for increased competition and loss in market position#
External Environment Analysis Porter 5 forces Kingdom of Sadi Ara!ia "KSA# – /audi timber market has moderate entry barriers# The most important is that existing timber importers are ma5or corporate houses with incredible wealth and influences# 6iven that$ entry can be highly influenced by the incumbent importers such as l 7halaf and /attra !ational trade# This also means that there could be expected retaliation against new entrants if they challenge the sales and market share of existing and well established traders# The small timeframe re*uired to start a business and to import further heighten the competition 8n the other hand$ local regulations allow imports of wood products$ duty free thus fuelling supply of timber and other wood products# s noted before$ /audi rabia is a very lucrative market with expected investment in infrastructure to go beyond 1%%% 'illion 9/# /audi rabia is the biggest market in the (iddle .ast with local consumption est# to be 1 million &'(year# !o capital restriction on mobility of funds makes is a very attractive market for new entrants# dditionally; favorable capital regulations where capital can be 1%%< foreign# Looking at the expected and current demand of timber and construction material and economies of scale: buyer concentration to trader concentration ratio is very low# "n other words$ there are less firms for number of buyers for such wood products# This means$ suppliers have an upper hand in determining prices and lacks a general ability to put the firm under pressure# Therefore$ /audi customer is less sensitive to price change# 8pposite is true in case of suppliers# There are far less suppliers of raw materials and ver y few substitutes# s a result$ customer has to agree to the prices set by these firms# This is especially attractive for any new entrant since they can establish themselves as costprice leaders gaining a competitive advantage#
ue to concentration of suppliers$ each has to fight hard to maintain their market share# =ith increasing industry growth$ this competition becomes more intense# =ith diversified operations in different areas$ a new entrant will have to work hard to capture market share# !onetheless$ wood remains the primary material for furniture making and construction in 7/# The locals lack experience in working with steels and concrete making it favorable for Jabwood to enter#
China$ /tringent product re*uirement in the &hina market are favored by the suppliers which are able to charge higher price for the lack of alternatives# +ew suppliers fulfilling uni*ue market demand of specialied wood and *uality thus reducing bargaining power of buyers# >igh demand and consumption for wood in &hina together with limited supply produced locally$ &hina has to depend on foreign export to meet its needs# >owever$ the timber industry still faces a high intensity of rivalry despite the &hinese preferring other materials such as steel and concrete and lacks the skills with wood work# "n deciding the country for expansion$ Jabwood will have to consider the competitive opportunities and the risk involve in each country# =hile both &hina and /audi rabia offers great opportunities to Jabwood $ the level of risk involve in each country differ# =ith its prior experience in /audi rabia$ Jabwood faces lesser risk# &hina$ although offers high growth opportunity$ being a ?culturally distant@ country as compared to home country$ poses a higher risk to Jabwood # Therefore it will be an ?offensive strategy to expand to &hina vs# defensive move to move to 7/ to stop the bleeding of depleting sales in Lebanon# >owever$ >igh risk means high returns and if Jabwood moves to &hina$ it is poised to take advantage of high growth and can make high returns$ if the strategic move is successful# To solve its declining sale Athat leads to T!"T pulling out from the exclusivity deal)$ it is highly recommended that Jabwood expand to /audi rabia given the lower risk and shorter time re*uired to start the business going# "n the long run$ with proper restructuring of the management$ trainings$ and marketing$ 0abwood should consider a 5oint venture with another &hines company facilitating expansion into &hina# Recommendation-
&odes of Entry 'ecision Criteria for entry mode (rgani)ational (!*ectives$ To secure and save T!"T exclusivity contract$ Jabwood would re*uire *uick penetration into the foreign market to boost its sales# The time pressure and mobility of funds will affect the mode of entry and choice of market#
+eed for Control$ s stated in the case$ +aye and "mad stresses on relevance and control as the primary factor when deciding the mode of entry# dditionally$ management has to have full control of all administrative and operational tasks in the chosen country#
-nternal esorces / Constraints +inancial resources re*uired for the expansion is a ma5or constraint for Jabwood # =ith declining sales and the loss of the exclusivity deal$ Jabwood will face difficulty in having to invest heavily in the new market# -
ecommendation$ "n my opinion$ although the team differed$ having considered the advantages and disadvantages of each entry modes in the presentation$ together with 0abwood3s ob5ectives$ motivation and resources availableB exporting will be the best option for it to expand to the new market# =ith a low intensity of investment and high control$ it is 5ust what Jabwood is looking for when entering the new market# (oreover$ having the ability to ship global orders almost immediately$ Jabwood can leverage on this core competency to serve the market as soon as it enters#
0essons This case has allowed me to understand the importance of careful analysis of complex factors affecting international business# "n order to successfully manage and run international business one must ask; =hy engage in international business; expand sales$ ac*uire resources andor reduce riskC "dentify the ob5ectivemotivation for engaging in international business# 8nce a business decides to go international$ it has many external factors to take care of:
Cltre: "n order to expand to another country a business has to understand and appreciate the culture of the host country# /ome of the primary strategic *uestions are: should " locate to ?similar culture@ which will allow me to market my products easily or locate to ?distant culture@ which might give me more opportunity to diversify but with high risk# +or example$ Jabwood had to make a decision to either move to 7/$ which is culturally similar and poses low risk vs moving to &hina; which is culturally distant and poses high risk but high growth opportunity# /ince Jabwood wanted to make a less risky decision owing to its limitations and company ob5ective it chose to locate to a country with similar culture to its own# nother *uestion is; if we do locate to a culturally distant country how do we restructure or management and company orientation to adapt to local market and customs# "f Jabwood moves to &hina; they would have to learn how to do business from scratch since they are new to &hinese business customs# "n my opinion$ you can get all the data you want to understand the economy and market sie$ but it3s an entirely different ball game to learn behavioral practices of a different country# +or example; 0apanese don3t like physical contact during business meetings$ but "ndians like to emphasie on a point by touching the shoulder#
Political and legal environment1 nother important point to consider is the lack of or existence of sound legal framework and political stability# "t3s important to understand if the country is based on informal institutions where Dwho you know3 is more important like in 7/ or where the government is too involved in corporate affairs like in &hina#
Economic and rade polices1 +ollowing from the above point$ company needs to perform economic analysis of the target country# =hat is the rate of inflation$ poverty$ budget constraint of target population and economic growthC (ost developing countries have great economic growth indicators; but does that make launching a product tenableC "n case of Jabwood ; economic indicators of &hina such as consumption rate$ economic growth make it a great market to enter# 'ut its culturally distant nature and lack of familiarity makes it a high risk
environment for Jabwood # /imilarly; trade policies such as import duties$ free trade agreements$ and tariffs are important considerations when considering cost of doing business# ccording to this parameter 7/ is more favorable because there is no import duties on processed wood products#
Entry &ode1 fter considering various factors to evaluate entry into a country$ a company needs to figure out what is the best entry mode# =ithout going into detail on pros and cons of each method; a company needs to align entry mode with organiational ob5ectives; i#e# do we want immediate penetration in a foreign market or we have time to set up operations from scratchC o we have enough capital to start operations and which is the least capital intensive exerciseC &an " bring back my money after "nvest in a countryC o we need a local partner or can we go alone and learn from mistakes like maonC =hat kind of control on production or service needs to be thereC re there any internal constraints preventing us from going global such as lack of management or capitalC ll these *uestions have to be answered before we can evaluate a viable entry mode#
-nternational &ar3eting1 fter selecting a country and a viable entry mode; selling products is a different ball game# 8ne has to understand local market factors$ limitations of local infrastructure and culture# o we standardie the product or adapt to local marketsC =ill my brand image be lost in translationC
estrctre " think the most important consideration in "nternational 'usiness is an ability of a firm to maintain operations abroad and important aspect of that is management# 8ne of the key factors that prevents Jabwood’s move to &hina is lack of management personnel who know issues of challenging international business and can effectively handle international business issues outlined above# /o if an organiation is new to this area; they must take immediate steps to e*uip local and home office operations with *ualified managers Adepending upon the strategy a company follows) +or example# "f Jabwood were to expand to &hina they would have to adapt their products to local standards and hence would need to follow multi; domestic strategy# +or that they would need people who can adapt strategic decisions of home office to local standards# Therefore they would need to use polycentric framework to staffing#
