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Secco F Inland Oy Market Entry Strategy Finland

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Final report of our winning presentation about internationalization of case company Secco Finland

Final report of our winning presentation about internationalization of case company Secco Finland

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  • 1. SECCO FINLAND OY - MARKET ENTRY STRATEGY AUSTRALIA Internationalization Strategies Baroli Giulio Dvalishvili Shalva Muhammad Hezha 23.5.2009
  • 2. HAAGA-HELIA PROJECT REPORT Going International SECCO Finland Oy (IBU1LI071-6) Group 1 23.05.2009 Authors Group 1 Baroli Giulio, Dvalishvili Shalva, Muhammad Hezha Sub-Team 6 The title: SECCO Finland Oy – Market Entry Strategy Finland Number of pages Case company: SECCO Finland Oy 14 Supervisors Kalela Suvi The objective of the study is to suggest Secco the most suitable operational mode when entering the Aus- tralian market. One intention is to consider Secco’s current financial situation and the target country in order to make some valid recommendations concerning the chosen operational mode. Therefore the main intent of this study is to analyze several possible operational modes and find out which could be the most effective mode to enter. The theoretical framework was based on Czinkota and Ronkainen entry strategy. According to them there are mainly three most typical international entry and expansion strategies: exporting, licensing and fran- chising. The study was executed in the form of elaborating a matrix which works as a main framework for the choice of the suggested operational mode. Firstly data were gathered through an interview to Secco CEO, Ms. Isabella Haas, in order to find out Secco’s present operational modes in foreign markets and the de- sired mode for entering the Australian market. This analytical approach was qualitative. Secondly, consi- dering several variables, we have created an operational mode matrix so that it would be clear for Secco the advantages and disadvantages of 5 viable operational modes that could be used by the company. This approach was quantitative. The results of the matrix clearly indicated that e-commerce is the most effective and suitable operational mode for Secco when tackling difficulties when entering Australia. The results also indicated that consider- ing the poor capital available at Secco, this is probably the only option they have at this moment. In addi- tion we made some short- and long- term recommendations. The first ones concerning e-commerce and the second ones indicating some future strategy to implement operations in Australia. In conclusion, considering the poor capital available at Secco, at this moment e-commerce is the only op- tion they have to enter Australia and test the market. Key words: Internationalization strategies, Australia, SECCO, Recycled Design Products, E-commerce
  • 3. TABLE OF CONTENTS 1 INTRODUCTION .......................................................................................................................... 2 2 RESEARCH METHODS ................................................................................................................ 3 Interview with SECCO Finland Oy CEO Ms. Isabella Haas ............................................. 3 3 APPLICATION .............................................................................................................................. 4 3.1 Analysis of viable operational modes for Secco entering Australian market ............ 4 3.1.1 Direct Export through Foreign Retailers ............................................................ 4 3.1.2 Indirect Export through Export Management Company ................................. 4 3.1.3 Joint Venture............................................................................................................ 5 3.1.4 Licensing................................................................................................................... 5 3.1.5 E-Commerce............................................................................................................ 6 3.2 Operational Mode Matrix ................................................................................................. 7 3.3 E-Commerce – The Most Suitable Operational Mode ................................................ 8 4 RECOMMENDATIONS...............................................................................................................10 4.1 Current Recommendations ............................................................................................10 4.1.1 First Step - Improve Website Layout and Design ............................................10 4.1.2 Second Step - Improve Website Visibility Structure........................................10 4.1.3 Third Step - Controlling and Monitoring Performance ..................................12 4.2 Future Recommendations ..............................................................................................13 BIBLIOGRAPHY...............................................................................................................................14 LIST OF TABLES/FIGURES FIGURE 1. Operational Mode Matrix ................................................................................................7 FIGURE 2. Cost per click (CPC) of suggested top 15 keywords for Seccoshop ...................... 12
  • 4. 1 Introduction Secco, as a company, has a great brand potential and high quality products to offer. Their product offering is unique and is greatly inspired by the philosophy of using waste and re- cycled material to manufacture design products. Due to the small size of the Finnish market, the company highly relies on operating abroad. As a result, the internationalization process is crucial for the company’s survival. Secco has already an established network of retailers all over Europe and, in particularly, a successful and reliable retailer in Japan, where Secco’s products are very much appreciated among the youth. Continue strengthening its position as a unique and appealing brand in foreign markets is seen as a key factor for the company in question. Consequently, at this stage, the main goal for Sec- co is to enter the Australian market. According to Secco CEO Ms. Isabella Haas, due to its high consumer’s environmental awareness, Australia is their first option when selecting the next target country where to enter. Following the case company’s indications, this study attempts to indicate the most applicable operational mode when entering Australia. Considering Secco’s current situation and the tar- get country main characteristics, this study analyses five viable operational modes that Secco could take into account when planning to expand its operations to Australia. Thanks to the creation of a matrix, where several variables are considered, the analysis clearly shows that e- commerce is the best operational mode to use. Since there is no capital available within the company in order to consider the use of other operational modes, e-commerce is the only option that allows the company to test the Austral- ian market at affordable costs and, at the same time, guarantees a relatively high market learn- ing and control over key operations. In addition to this, there will be also a satisfactory prod- uct margin return due to the fact that many intermediaries can be cut off. As a last part of the report, suggestions are given in order to help Secco in improving his web- site and visibility to reach end users. Being aware of some of the risks implied with the use of this operational mode, Secco is provided with relevant hints in order to overcome some po- tential threats related to the recommended mode. Additional suggestions will be also given so that Secco will have a broader picture concerning future strategic changes in their operations in case of successful results after testing the market through e-commerce. 2
  • 5. 2 Research Methods Interview with SECCO Finland Oy CEO Ms. Isabella Haas Interviewee Ms. Isabella Haas CEO SECCO Finland Oy Fredrikinkatu 33, 00120 Helsinki FINLAND Mob: +358 44 5885 209 E-mail: isabella.haas(at)seccoshop.com The team members interviewed Ms. Isabella Haas on May 15, 2009. The interview was verbal and had a question – answer form. The information obtained from the interviews is summa- rized below. SECCO Finland Oy operates on many European markets, and in USA and Ja- pan. So far, Secco has been entering international markets through foreign re- tailers, making it easy for the company to avoid having intermediaries in the ex- port process and enter international markets with low capital investments. Currently, Secco is considering expanding their operations to Australian market, due to Australia’s high consumers’ environmental awareness. An ultimate goal is to establish a partnership with a local firm within the same business field. 3
  • 6. 3 Application 3.1 Analysis of viable operational modes for Secco entering Australian market In order to indicate the most applicable operational mode when entering Australia, consider- ing Secco’s current situation and Australia’s main characteristics, this study analyses five viable operational modes that Secco could take into account when planning to expand its operations to Australia. 3.1.1 Direct Export through Foreign Retailers Direct exporting means that a company exports directly to a customer interested in buying its products. The company is responsible for handling the logistics and collecting the payment. When a company sells directly to foreign retailers, products are usually limited to few lines or products upon retailer’s choice. This method relies mainly on sales representatives who direct- ly contact foreign retailers but of course it can be also carried out by mailing catalogues, bro- chure or online material. (U.S. Department of Commerce and UNZ & Co., 1998) Considering Secco, we think that this is not the most successful entry strategy to be used. There are of course few advantages but selling directly to other businesses is less profitable than selling directly to end users. Retailers have the option to choose which products they want and how many pieces they want to purchase. In addition to this, there is no control over the marketing approach used by foreign retailers. On the other hand, this is most likely the least expensive direct export form since the investments needed are low. Sales can be made singularly by phone or e-mail and deals are often made after fair trades or exhibitions. This strategy has not been successful at all in Secco case. They have already several retailers (mainly in Europe) but the strategy did not turn out to be a winning one. The main reason relies on the fact that retailers’ commitment in pushing Secco products has not been really high. There- fore, also in this case, retailers have to be selected carefully. 3.1.2 Indirect Export through Export Management Company Indirect exporting means that a company exports its products/goods through a domestic in- termediary. Export Management Companies play the role of intermediaries helping companies to export to foreign markets. They can provide small or medium companies with access to foreign buyers. Main competences of EMCs are export logistics and deals with the necessary documentation and have extensive knowledge of purchasing practices and government regula- tions in the foreign markets. 4
  • 7. Export management companies have two forms of operations: working as an agent, where the agent receives commission on sales or acting as a distributor in which they take title of goods and sell them. From Secco’s perspective, it could be easy to start testing Australian market with the help of an EMC. This would give Secco certain advantages, an EMC with expertise in Australian mar- ket and local regulations, would give Secco an opportunity to reach potential buyers with its help acting as an agent. One more advantage is that you save costs compared to other opera- tional modes. This entry strategy would not require high financial investments from Secco, considering Secco’s present financial situation, which does not look very bright. 3.1.3 Joint Venture According to Cateora and Graham (2002, 336), “a joint venture is a partnership between of two or more participating companies that have joined forces to create a separate legal entity.” Two, or more, parties agree to create a new entity by both contributing equity, and they then share in the revenues, expenses, and control of the enterprise. The venture can be for one specific project only, or a continuing business relationship. Two main characteristics of joint ventures are cooperation and autonomy. Therefore, selecting the right partner and setting the right joint venture objectives are critical stages in establishing this operational mode. In our opinion, this entry strategy seems to be quite inapplicable for Secco and its target mar- ket. Joint ventures are often used for entering in market where there are high entry barriers and restrictions, which does not seem to be the case for Australia. Moreover, joint ventures allow a company to benefit from economies of size and scale and which is not case for Secco. On the other hand, a joint venture could facilitate Secco’s entry to the Australian market and reduce the risks related to this entry. Of course the partner has to be reliable and have an ex- tensive knowledge of the Australian market. A partner with a high degree of marketing pres- ence and expertise could eventually be of great help for Secco. Anyway, considering the poor finances available at Secco, we would not recommend them to establish a joint venture with an Australian partner since they would not have the needed capital in order to contribute to the equity required. 3.1.4 Licensing Secco can act as a licensor that will grant a license to a licensee under intellectual property laws to allow a use of design to produce Secco products. The license will have a fixed time, for how long its valid. It will have a territory limit, meaning where the license can be used defined in agreement by the licensee and licensor, there might be also other contract details agreed upon. The licensor will receive royalty as payment for providing Secco designs. 5
  • 8. As an entry strategy, it would beneficial for Secco, since it requires neither capital investment nor detailed involvement with foreign customers. Licensing would allow Secco to test the market without major capital investments or management time. But through licensing, Secco would risk losing the design and the licensee would possibly use the design of Secco after the license has expired or even during by creating a third-party company to go around the restric- tions of the license contract. Secco’s profit opportunity also may be limited to the license fee and royalty. 3.1.5 E-Commerce Electronic commerce, commonly known as (electronic marketing) e-commerce consists of the buying and selling of products or services over. The amount of trade conducted electronically has grown extraordinarily with widespread Internet usage. 74,3 % of the Australian population had access to the internet in 2008. (Internet World Stats, 2009.) Since this is the operational mode we have selected for Secco, a more detailed analysis will be provided later in this study. 6
  • 9. 3.2 Operational Mode Matrix Operational mode matrix provides evaluation of each operational mode by variables chosen. Each operational mode is evaluated according to scale of – 5 the lowest and + 5 the highest with consideration of Secco’s current situation and specifics of the target market. The matrix will clearly display the most appropriate operational mode for Secco in order to enter the Aus- tralian market. Direct Export Indirect Joint Venture Licensing E-Commerce Foreign Export VARIABLES Retailers EMC Agent Required Capital +3 +5 -5 +5 +4 Control +2 -4 +3 -4 +3 Product Margin +2 -2 +2 -4 +3 Required Expertise -2 +5 +2 +4 -3 Risk 0 +4 -4 +3 +2 Market Penetration 0 -2 +4 +2 +3 Market Learning +3 -4 +4 -5 +4 OVERALL +8 +2 +7 0 + 16 RATING FIGURE 1. Operational Mode Matrix Explanation of variables Required Capital – overall capital investments needed in order to start operations. Control – level of control over the operations. Ability to follow up and receive relevant feed- back. Product Margin – price of product deducted by cost of product. In our evaluation it consid- ers the number of intermediaries in the supply chain along with other costs such as marketing, logistics, etc. Required Expertise – expertise required to handle necessary documentation and target mar- ket knowledge, along with overall international experience. Risk – related to risk of failure and risk of capital. Market Penetration – the speed of penetrating the market and obtaining market share. 7
  • 10. Market Learning – the ability to learn from customers/buyers with up to date market infor- mation and acting upon them to meet the demand. Profitability – the probability of making gains in business activity for the benefit of the com- pany. Applicability – how well does each of the operational modes apply to Secco’s case specifical- ly taking all company factors into consideration, particularly their financial situation. 3.3 E-Commerce – The Most Suitable Operational Mode Advantages: Being able to conduct business 24/7. Your physical storefront does not need to be open in order for customers and suppliers to be doing business with you electronically, this is important due to the time difference of Finland and Australia in the case of Secco. Access the global marketplace. Possible to do business with any business or person who is connected to the Internet. This is very important because Australia a large continent, so for Secco to cover the whole market, e-commerce would make this possible. Opportunity to reduce costs. The Internet makes possible to offer products and services that may be cheaper or more effective. Also there are fixed costs are minimal, these fac- tors are extremely important for Secco as they don’t have the financial ability to set up a new shop or to commit big amount of capital. Stepping beyond borders to a global view. Many e-commerce transactions involve credit cards, many businesses in Australia need to make arrangements for accepting online payments. However a number of major Australian banks have tended to be unhelpful laggards on this front, charging a lot of money and making it difficult to establish these. In some cases, therefore, it can be easier and cheaper to set up arrangements which by- pass this aspect of the Australian banking system. Disadvantages: Physical product, supplier & delivery uncertainty. In some respects e-commerce pur- chases are made on trust. Firstly, not having had physical access to the product, a pur- chase is made on an expectation of what that product is and its condition. Secondly it can be uncertain whether or not they are legitimate businesses and are not just going to take your money. Thirdly, even if the item is sent, it is easy to start wondering whether or not it will ever arrive. 8
  • 11. Personal service. Although some human interaction can be facilitated via the web, e- commerce cannot provide the richness of interaction provided by personal service. This helps businesses to understand, anticipate and meet changing online customer needs and preferences, which is critical because of the comparatively rapid rate of ongoing In- ternet-based change. 9
  • 12. 4 Recommendations 4.1 Current Recommendations 4.1.1 First Step - Improve Website Layout and Design We feel that while Secco has a website consisting of a web shop already, there are several is- sues that need to be improved in order to be a successful e-commerce business. Here are the following improvement recommendations: 1. Products should be easily located and visible to visitors, making main product groups vis- ible in the first (landing) page, for possible customers to see as soon as they enter the website. 2. There should be a logical order in when to create the brand of Secco and when to sell, now there is a confusing mix of both messages back and forth in the website. They should first show the products, then try to create the brand awareness and company val- ues. 3. Shopping cart is hard to find, after the customer has clicked the order button, making it more visible is important for decreasing several unnecessary clicks, which would in turn decrease customer dissatisfaction and increase customer satisfaction. 4. The website design is static, hence making it boring. With the niche market and products, Secco should try making the website more interactive and interesting; use of flash pro- gram would be beneficial with the help of professionals. 5. Pictures of products are very poor, with no possibility to zoom. In some cases the prod- uct is over 150€, the customer will want to see them either up-close or even interactively through a flash or video program being used by a consumer, creating a better overall website visit experience. 6. To decrease security worries of possible buyers, Secco should get a VeriSign logo and se- curity services, which guarantee that credit card purchases are safe and secure. 4.1.2 Second Step - Improve Website Visibility Structure Search engine optimization Search engine optimization (SEO) is the process of improving the volume or quality of traffic to a web site from search engines. Typically, the earlier a site appears in the search results list, the more visitors it will receive from the search engine. According to Jupiter Research 62 % search engine users don’t look past the first search page. As an Internet marketing strategy, 10
  • 13. SEO considers how search engines work and what people search for. Optimizing a website primarily involves editing its content and HTML coding. Placing high in search engine results would improve the image of Secco, because according to Jupiter Research 36% of search engine users’ link search result placement to company promi- nence in their field. Keyword research Keyword research is a vitally important aspect of your search engine optimization campaign. If your site is targeting the wrong keywords, the search engines and your customers may never find you, resulting in lost dollars and meaningless rankings. Using Google AdWords keyword tool, we could identify the following keywords used in the Seccoshop website and the number of times used: plastic recycling (7), green building (7), recycle (40), rubber (10), material (5), citizenship (9), sustainable (5), jewelry (6), Miscellaneous keywords (28). We feel that current Seccoshop keywords are not telling the possible customer in the internet what the whole website is about, hence making these currently used keywords ineffective for getting potential customers to the Seccoshop website and converting them into sales through the web shop. Based on our research from the help of Google AdWords keyword tool, in order to be found by potential customers, we would suggest Seccoshop to use the following top 15 keywords into their website: Green fashion, Green design, Eco design, green products, eco fashion, re- cycled products, recycled bags, green accessories, recycled fashion, eco gifts, eco jewelry, eco friendly design, eco friendly fashion, recycled gifts, environmental fashion. Google AdWords AdWords is the main source of revenue ($16.4 billion in 2007) for Google. AdWords offers pay-per-click (PPC) advertising, and site-targeted advertising for both text and banner ads. The AdWords program includes local, national, and international distribution to help prevent any useless, wasteful clicking. Below are the top 15 keywords that we have suggested for Secco to use in their search engine optimization and to include it in their internet marketing campaign, which will largely consist of having text and banner ads through google adwords to the google search engine and to relevant websites concerning Secco’s product line. 11
  • 14. FIGURE 2. Cost per click (CPC) of suggested top 15 keywords for Seccoshop 4.1.3 Third Step - Controlling and Monitoring Performance Google Analytics Google Analytics is a tool that that can be used to track information about the way visitors interacts with Secco website. During a search engine optimization campaign, Google Analytics can track the performance of used keywords in order to have a successful campaign. It will enable Secco to know how much traffic each of the keyword brings to their website. Able to find out how website visitors locate Secco’s website. 1. Able to identify through which pages and links visitors clicked to the website of Secco. Eliminating the ineffective ones and improving the successful ones. 2. Visitor segmentation. With this, this will enable Secco to know how many new visitors has a search engine optimization campaign brought. 3. Able to fine tune a website. With this analytic report, Secco will be able to fine tune their website, change any page that is not converting well. Google optimizer Website Optimizer, free testing and optimization tool, allows Secco to increase the value of their existing websites and traffic without spending a cent. Using Website Optimizer to test and optimize site content and design, Secco can quickly and easily increase revenue and return on investment of any marketing campaign. 12
  • 15. Features of Optimizer tool: 1. Choosing the pages and content to test. Using Optimizer’s web-based interface, provide them with the content of your website -- headlines, images, or text, for example -- and de- sign alternatives that Secco would like to test. 2. Testing these changes with Secco visitors. Website Optimizer will then show these con- tent and design alternatives to Secco’s site visitors, all the while monitoring which combi- nations lead to the highest conversion (sales) rates. 3. Learning what changes drive the most conversions. Optimizer’s reports allow even the mathematically-challenged to quickly and easily identify and implement the best combina- tion. Since there is no capital available within the company in order to consider the use of other operational modes, e-commerce is the only option that allows the company to test the Austral- ian market at affordable costs and, at the same time, guarantees a relatively high market learn- ing and control over key operations. In addition to this, there will be also a satisfactory prod- uct margin return due to the fact that many intermediaries can be cut off. 4.2 Future Recommendations If e-commerce as a market entry would proof to be successful, Secco could start planning the long-term strategy. Establishing an alliance with the local firm in the same business field would give Secco many benefits. Well known local partner with an expertise in the domestic market, could make Secco’s products more appeal to Austalian customers. But this can be implemented only if Secco improves its financial situation. 13
  • 16. Bibliography - Cateora, P. R., and Graham, J. L. (2002). International Marketing. 11th Edition, New York, McGraw-Hill. - U.S. Department of Commerce and UNZ & Co. (1998). A Basic Guide to Exporting. http://www.unzco.com/basicguide/. Accessed 28.4.2009. - The Institute of Working Features.( 2009). An Introduction into E-Commerce. http://www.marcbowles.com/sample_courses/amc/ec1/ec1_3.htm. Accessed 28.4.2009. - Internet World Stats. (2009). Statistics. http://www.internetworldstats.com//. Ac- cessed 28.04.2009. - Google. (2009). Analytics. http//www.google.com/analytics/. Accessed 15.05.2009. - Google. (2009). Website optimizer. http://www.google.com/websiteoptimizer/. Ac- cessed 15.05.2009 14

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