Gaining Competitiveness with Innovations beyond Technology and Products: Insi...
International Marketing Plan - TradeMerit
1. This document contains marketing plan for
entering the German market using
Greenfield Investment as a market entry
strategy.
FITT-
International
Marketing
Plan
TradeMerit Inc.
FITT ID: 306549
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TABLE OF CONTENTS
Serial No. Contents Page No.
1 Executive Summary 3
2 Corporate Profile 5
3 Market Choice Rationale 8
4 Market Entry Rationale 12
5 Legal/Political/Cultural Impact Identified 16
6 Pricing/Promotional Mechanisms Rationale 20
7 Logistics Mechanisms Rationale 24
8 Conclusion 26
9 Bibliography 28
10 Appendices 32
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EXECUTIVE SUMMARY
TradeMerit is a company specialized in providing business process management and supply
chain management solutions. The company has engineered proprietary processes and software to
identify and mitigate risks in various business functions by integrating all the business functions
under a common platform. TradeMerit’s business solutions services enable its customers to
manage their business efficiently, by trending the cascading effect of any business decision taken
in any business vertical.
After analyzing the long term objectives of the company I recommend Germany as a potential
market to provide its proprietary business solutions. Germany is the second largest
manufacturing country in the world and is the pillar of the European economy. The current
market size of the German manufacturing sector is EUR 1.57 trillion. The small and medium
manufacturing enterprises in Germany have had a competitive advantage because of their
superior technological process. However this dominance is threatened by the emergence of new
manufacturing hubs like India and Brazil, the rising cost of labour in the Euro zone and the cost
of raw materials. The only way the SME sector will be able to maintain a competitive advantage
is by managing their supply chain effectively. TradeMerit’s products will enable the German
manufacturing sector to maintain its competitive advantage.
I recommend TradeMerit to enter the German market using Greenfield Investment as the market
entry strategy. This will enable TradeMerit to be closer to the customers in the market place,
rather than the strategy of e-commerce used by its competitors. Germany is a foreign investor
friendly market and the setting up process is relatively faster than most OECD countries. The
cost of setting up a limited liability company in Germany is minimum EUR 25000 plus the
registration charges of EUR 10000.
The pricing strategy recommended for TradeMerit is value added pricing. The suggested pricing
strategy will enable TradeMerit to recover its investment cost in a short period of time. It will
also distinguish itself from the competition as it will be positioned in the market as a product that
provides more value added services than its competitors and the customers have the choice of
paying for the services that they require.
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COMPANY PROFILE
TradeMerit is a Canadian company specialized in providing international trade and logistics
service solutions. It is headquartered in Ottawa, Canada and has its representative offices in the
US and Saudi Arabia. TradeMerit was founded by Sami Al-hussieni, Wael Aggan and Tarek El-
gillani in 2006. The robust growth in the international trade fostered the thought of effective
management of supply chain as being the driver of success in the global market. The leadership
trio of TradeMerit engineered products to facilitate organizations manage their supply chain by
collaborating cross company processes.
MISSION
TradeMerit strongly believes that the time has come wherein best companies will not be
competing against each other in order to gain dominance in the market, but it will be a
competition amongst the supply chains of the companies. Keeping in view the future competing
ground the mission of TradeMerit is to facilitate the organizations and their supply chains to
function as inter-connected, highly intelligent and agile business networks.
VISION
TradeMerit’s vision is to empower the businesses to understand the problems faced by their
supply chains in real time and provide solutions without affecting their business objectives.
TradeMerit’s motto is “Know Where Your Business is Going”.
PRODUCTS OFFERED
Supply Chain Management (SCM)
This product assists in managing the current supply chain and also to develop new supply chains.
TradeMerit has created a unique method to address supply chain issues and provide solutions in
real time.
Business Process Management (BPM)
This product enables the business managers to develop new strategies to structure the business
process in use, so as to overcome operational loopholes. It provides an integrated approach
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towards problems faced by various verticals of business and applies solutions which avoid
cascading negative effects on the entire business process.
Cloud Computing Strategy (CCS)
As the globe has moved towards new technologies to manage business and the tons of data,
TradeMerit assists in setting up Cloud Computing function for the businesses, and helps integrate
it in the current business functions.
Risk Management (RM)
TradeMerit assists in managing risks in various business functions. It helps in enabling the
managers realise the potential risk in the supply chain, and provides solutions to avoid the same.
UNIQUE SELLING PROPOSITION
TradeMerit combines the best business practices, industry intelligence and new technology to
enable business growth. It provides solutions that can be easily deployed in the current system
without disrupting the business process in use. TradeMerit guarantees that with the solutions
provided through its various products, an organization can earn ROI of more than 250%.
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THE PROSPECTIVE MARKET: GERMANY
Germany has experienced roller-coaster ride like economic events since the fall of the Berlin
Wall in 1990. Germany struggled to implement economic reforms throughout the 90s. A popular
weekly magazine The Economist had written off Germany as a failed nation labelling it as “the
sick man of Europe” in 2000. The economic turmoil from the period 1990-2003, called for
political reforms and economic reconstruction of Germany. The reforms implemented brought
Germany back to its glory days from 2004 and a new nation emerged from its economic
sluggishness. The new Germany is economically and politically strong, which has set an
example for the other European countries to follow its model of success.
Currently the European region is undergoing an economic recession. Germany has been the
backbone of European economy during this recessionary phase as the largest economy in
Europe. Germany has become the second largest manufacturing exporter as per Deloitte’s 2013
Global Manufacturing Competitiveness Index. The manufacturing exports grew 2.7 times
between 2000 and 2011. The manufacturing sector contributes 29.1% to the GDP of Germany.
The service sector and agriculture sector contributes 70% and 0.2% respectively to its GDP.
Germany has experienced a boom in the manufacturing sector due to the following reason:-
It has built the highest quality of infrastructure. Swiss institute, International Institute for
Management Development (IMD), ranks Germany seventh among 59 countries on the
quality of infrastructure.
The government supports the SME sector by providing tax breaks and depreciation
allowances. The government driven incentive programs have enabled the SMEs to
manufacture sophisticated goods and services that cannot be easily replicated.
Germany has invested a very high percentage, by international standards in R&D
intensive industries. This has allowed German companies to invent sophisticated
technologies and gain competitive advantage.
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The formation of the Euro Zone in 1999 extended Germany’s market to the Far East of
Europe. The free labour movement across the Euro Zone enabled Germany to reduce the
labour cost by 6%.
The strict environmental regulations to conduct business compelled the industries to
adopt sustainable business practices.
RATIONALE TO SELECT THE MARKET: GERMANY
Germany was replaced by China in 2009 as the number one manufacturing destination. In 2010
Germany’s rankings for manufacturing competitiveness had slipped to number eight. Although it
regained its second spot in 2013, Deloitte’s survey states that Germany’s dominance in the
manufacturing sector is threatened by emerging economies like India, Brazil and South Korea
(see Appendix A). Over the next five years Germany will slip to the fourth position being
replaced by India and Brazil. The major concerns for Germany not being able to maintain its
dominance are:-
The labour cost is very high as compared internationally. As of 20th
March 2013 the
gross pay per hour is USD 41.16 and the non-wage labour cost is USD 35.85. Even as
per European Union’s average Germany’s labour cost is 32% higher (Federal Statistic
Office, Germany).
There is a shortage of skilled labour. As per research carried out by the Association of
German Engineers and the Cologne Institute for Economic Research, Germany was
losing 3.4 billion euros over the next three years due to shortage of skilled engineers.
Germany is not rich in natural resources. Germany’s specialized sectors like chemical
industry, electrical industry, automotive sector and metal processing have to heavily
dependent on expensive imports of raw materials.
Global value chain is an integral part of the manufacturing industry. Integration of the
various business processes with the global value chain has posed problems for the
German industries.
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The rising cost of labour market and raw materials and lack of skilled workforce in Germany has
fragmented the production processes favouring outsourcing and offshoring. This has called for
the change in German industries tried and tested manufacturing process. TradeMerit will
facilitate the German companies to manage their business processes by integrating its value
chain in a flexible framework. Effective management and control on each component of the
value chain will assist the German companies to tide over the problem of rising cost and lack of
skilled labour, thus enabling them to achieve and maintain their competitive advantage. Germany
will be one of the largest markets for TradeMerit’s supply chain management services.
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MARKET ENTRY STRATEGY
Based on the long term objectives of TradeMerit to become a dominant player in providing
business process management solutions the economic situation of Germany and the potential
market size was researched. The favourable business environment, state of the art of
infrastructure and the government policies towards foreign direct investment in Germany, I
recommend TradeMerit to enter the German market through Greenfield Investment.
MARKET ENTRY RATIONALE
The German government provides incentives to the foreign investment that creates jobs. The
monetary policies on capital inflows are liberal. The foreign companies entering the German
market through Greenfield investment are treated on par with the local German companies’ i.e.
foreign investors are subject to same regulations as their German counterparts in securing
licences, building permits and obtaining approval for investment incentives. The foreign
investors face no restrictions on exchange controls for ordinary commercial transactions and the
companies have unconditional access to both borrowing and lending abroad. International
Finance Corporation ranked Germany 20th
in the Ease of Doing Business rankings out of 185
countries.
PROCEDURE FOR GREENFIELD INVESTMENT
I recommend TradeMerit to set up a limited liability company (Gessellschaft mit beschrankter
Haftung or GmbH), which is governed by the Limited Liability Act. The procedure for forming a
limited liability company is easier and faster than a Joint Stock Corporation. GmbH is the
preferred corporate form for foreign investors because it limits the risk of activities to the amount
of investment only.
Site of business office
The place from where the business will be conducted is very crucial for the success of the
organization. Since TradeMerit is in a service oriented business its office must be located near
the corporate offices of the manufacturing sector. The following steps must be undertaken to
select office space.
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• Set criteria about the area of office space required.
• Conduct research about the location of the target markets corporate offices.
• Conduct detailed research about the real estate prices.
• Take a decision to buy or lease the office space.
• Underline a budget to buy or lease the office space.
• Contact the real estate agents to find office space as per the company’s requirements.
If the decision is to lease the office space, a lease agreement must be signed with the owner of
the office building and duly notarized by a gazetted officer and filed with the Registrar of Land
Registry.
If the decision is to buy the office space, the space transfer agreement must be signed with the
owner. The same must be notarized and filed with the Land Registry. Simultaneously an
application with the Land of Registry must be submitted for the registration of the new owner of
the property.
Capital required for setting up a GmbH
The minimum capital required to set up GmbH is Eur 25000, but only EUR 12,500, including
deposits in kind, must be paid in. The registry court will value the deposits in kind paid in.
Registration of Documents
The company must file its registration application with the commercial, provincial or district
court in which it is based. Simultaneously it must file a deed recording the articles of association,
bye-laws of the company, a calculation of the costs to be borne by the company for formation
and all documents regarding the management team. All the documents must mention the place
where the office is situated in Germany.
GmbH comes in to existence when the application is recorded in the Commercial Registry and
the minimum capital of Eur 25000 is paid in.
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COMPETITIVE ADVANTAGE
TradeMerit will be able to gain competitive advantage by entering the German through
Greenfield Investment. Majority of its competitors are offering their services through the e-
commerce platform, which has not been successful so far. A physical presence in the market
place accompanied with the expertise of local human resource, will enable the company them to
become the dominant players in the market.
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Legal/Political/Cultural
Impact Identified
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LEGAL FRAMEWORK
Germany has a stable and transparent legal system. The ultimate source of all German laws is the
constitution or Basic law (Grundgesetz). Any act presented at the state or federal is void if it
conflicts with the constitution. The business law is governed by the principle of freedom of
economic growth. There are no licenses or permit required to conduct business in Germany, a
simple process of signing with the Company Registry is all an entrepreneur requires to establish
his company.
The German judiciary system is decentralized. The courts are divided into different streams, each
specializing in its various fields of law. Therefore there are separate courts to try commercial and
labour law suits, tax, etc. Each separate court has its own federal supreme court. The judgement
of the courts is binding.
Germany has framed strict laws to protect the intellectual property (IP) rights. The protection of
foreign investors is one of the reasons for Germany being the preferred destination in Europe for
foreign business. A registered trademark is valid for 10 years and cane be protected indefinitely
in 10 year increments. The usual processing time of IP is 10-12 months, however for an
additional fee the processing time can be reduced to 6 months. Many IP disputes are settled by
delimitation agreements.
POITICAL SCENARIO
The constitutional form is the Federal Republic of Germany (Bundesrepublik Deutschland),
comprised of sixteen federal states (Länder). Each level of government (federal, state, district
and local community) is directed by an elected body competent to take decisions on all matters
remitted to it by the constitution. Berlin is the capital. It is the home of both chambers of the
federal parliament and of most government ministries. Other ministries and government
authorities are located in various German cities, particularly in Bonn, the former West German
capital.
The federal parliament has two chambers. The lower chamber (Bundestag) is elected by the
population for a four-year term. Its seats are allocated on a system of proportional representation.
The government is formed by the party or coalition (in practice, invariably a coalition) with a
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majority of the seats. The remaining parties represented in the Bundestag form, collectively, the
opposition. The upper chamber (Bundesrat) is made up of members delegated by the parliaments
of the individual federal states with votes in rough proportion to the size of their populations.
The party allegiances of its members reflect the identity of the governing party or coalition in
each federal state.
Most acts of parliament are initially proposed and debated in the Bundestag. The Bundesrat does
have certain rights to propose, or to propose changes to, bills, although its primary function is to
safeguard the interests of the federal states against acts of expropriation by the federal
government. Since all acts affecting the interests of the federal states are subject to its approval,
very few acts of national importance can be passed by the Bundestag without the support of the
majority of the Bundesrat. This division of political functions and responsibilities forces
willingness to compromise on all major political parties.
Bills are enacted into law on signature by the federal president (Bundespräsident) to whom they
are submitted after acceptance by both chambers of parliament. The signed acts then take effect
on promulgation in the Federal Law Gazette (Bundesgesetzblatt).
The present government is a coalition of the Christian Democrats (CDU/CSU) and the Liberals
(FDP). Its term will expire with a general election in 2013.
TAX SYSTEM
The foreign companies in Germany are subject to the same tax system as the local companies.
The taxes applicable to companies in Germany are the corporate income tax, municipal trade tax,
value added tax (VAT) and social security contributions (see Appendix B). In order to finance
Germany’s reunification an additional surcharge of 5.5% is levied on corporate income tax.
Canada and Germany have signed a tax treaty agreement, according to which the problem of
double taxation is avoided. The companies can choose to follow the profit to be taxed in either of
the countries depending on their business practice. If 100% of the profits are repatriated by the
subsidiary operating in Germany, the profits are not taxed in Germany. The profits withheld in
Germany are taxed as per the withholding tax rates.
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CULTURAL ASPECTS
Culture plays a vital role in the way business is conduct. As per Professor Geert Hofstede, the
founder of comparative intercultural research stated that understanding cultural differences is the
quintessential component of success in a business negotiation. Exploring the German culture
through the lens of the five cultural dimensions (5D) model, we can get understand the drivers of
German culture as compared to Canadian culture (see Appendix C).
Comparative Analysis of culture based on Hofstede’s 5-D model
Power Distance (PDI)
Canada and Germany have the same PDI score. This shows that both the societies are highly de-
centralized and co-determination rights are extensively used in management of business.
Individualism (IDV)
Canada’s individual score is 80 which is higher than Germany. Both the societies are
individualistic; however the German society is more interdependent than Canadian society.
Masculinity/ Femininity (MAS)
Germany’s score is higher than Canada in this cultural dimension. This shows that Germans are
highly aggressive in their approach. The German society believes more in competitive approach,
as compared to Canadian society which is more accommodative.
Uncertainty Avoidance (UAI)
Germany is an uncertainty avoidant society. It believes more in deductive rather than inductive
approaches which is literally the opposite of the way the Canadian society operates.
Long Term Orientation (LTO)
Germany and Canada both are short term oriented societies. Both the societies work towards
immediate results.
I strongly recommend TradeMert to study the cultural aspects of German society, in order to
conduct business in the German environment.
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Pricing/Promotional
Mechanisms Rationale
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TARGET MARKET
Germany has been able to become the second largest manufacturing exporter in the world not
only because of firms like Siemens, Volkswagen, Allianz, SAP and BASF, but also due to the
fact that it houses the most number of small and medium manufacturing enterprises in the world.
The small and medium manufacturing enterprises employs over 25 million people, making them
the largest employers in Germany. They are regarded as the backbone of German economy. The
SME sector has annually grown by 39.2% which is higher than the global average of 17.61%.
The growing SME sector is also at immense pressure to reduce costs, as it is threatened to
become uncompetitive by 2020 because of the manufacturing industries refining their business
process in Asian countries.
MARKETING STRATEGY
Product
The detailed description of the products offered by TradeMerit is provided in the Corporate
Profile section on page no 5. The product is targeted towards the small and medium
manufacturing enterprises. The target audience will benefit in the following ways through the use
of the services:-
Integration of all the business processes under common software.
Ability to monitor and control the business functions at the click of a button.
Identify the risk areas and provide remedial actions.
Report the occurrence of a potential delay in the supply chain in real time.
Store all the business information through cloud computing.
The only modification that the product will require is the option to use the product in German
language. Currently all the services are offered in English language only.
The products currently available in the market are only compatible with few business software.
The products offered by the competition can integrate only the production and finance function
of business, as compared to TradeMerit’s products which can integrate all the business functions
and provide a cause effect relationship between all the processes.
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Price
TradeMerit is offering a product in the market which is most required for the manufacturing
industry to stay competitive in the international market. The major benefit of the product is that
the manufacturing units will be able to significantly reduce their costs by deploying effective
management and control methods on their business processes.
TradeMerits strategic objectives are to maximize its profits and to become a market leader in its
segment of business. In order to achieve its strategic objectives it has implemented value added
pricing strategy. Currently the competition is offering products that are similar to TradeMerit,
however the one aspect that differentiates TradeMerit’s products form its competition is that it
warranties a fixed rate of decrease in cost of the business processes of the customer.
TradeMerit’s competition has not been able to come up with such an assurance which can be
quantified in real money terms.
TradeMerit uses full cost pricing method to arrive at the cost of the final product. The cost of the
product includes the direct and indirect labour and both the variable and fixed overheads. This
costing method ensures that all costs are recovered from conceptualizing to making to delivery
and after sales service of the product.
Promotion
TradeMerit will promote its business through SME trade shows and exhibitions organised by the
German government, German Federation of Industrial Research Association and Canada Europe
SME Forum. TradeMerit plans to rent a booth at the trade shows to market itself to the SME
sector of Germany. It will always promote its product through advertising in business magazines,
business directories and business journals. The cost of renting a booth at trade show will be
approximately EUR 4500 for one day. The cost of advertising through print media will be
approximately EUR 2500 per for a weekly magazine and EUR 8000 for a monthly business
journal.
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People
Majority of the small and medium manufacturing enterprises corporate offices are situated in
Western Germany. A dedicated team of 20 sales persons will be required to tap the target
audience. The sales staff will be provided a training of 14 days on the various products offered
by TradeMerit. A team of 10 people will be required to provide real time tech support to the
companies using TradeMerit’s products.
The software will be sold outright on cash basis to the customer and technology support service
will be provided as a package deal. This is also the normal practice of the service industry.
After-Sales Service
The customer will be provided technological support for one year on purchase of the services.
Annual maintenance fees will be collected from the customer from the second year. The
customer will be provided quarterly report regarding the cost reduction the software has affected
the customer’s business. The product offers a guaranteed reduction in cost of running the
business through its software.
The product will be positioned as a product that adds value to one’s business by facilitating cost
reduction to efficient management of its business processes and risks.
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SERVICES INDUSTRY LOGISTICS
The services industry does not transport large quantities of goods, however the service industry
have logistical needs of their own. The timely delivery of the services promised to the customer
is very critical in the service industry. The service industry engages in constantly updating their
business processes to make the services available to the customer in real time.
TradeMerit provides technological and software expertise to the manufacturing sector to
efficiently manage their business processes and supply chain. The support services provided by
TradeMerit are through internet and telecommunication. The office space in Germany that
TradeMerit will conduct its business must have access to high speed internet and
telecommunication facilities. It has engineered a safe platform of communicating sensitive
information with the customer. In order to provide utmost customer satisfaction TradeMerit
deploys dual platform for exchange of information, which in case one platform fails due to server
problems, the other platform supports and runs without hindering the business process.
The products offered by TradeMerit can be easily integrated with the current software used by its
customers. TradeMerit’s proprietary software creates a link on the systems of the customer, and
can be easily used on the intranet of the customer.
A consolidated report of the performance of its products used by the customer is provided to
them every quarter through local courier services. This report is delivered on the first Monday of
each quarter.
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CONCLUSION
Germany is the largest economy in Europe. In spite of the entire Euro zone reeling under
recession, Germany has been able to grow at a decent rate as compared to rest of Europe. The
government policies are foreign investor friendly, hence Germany ranks among the world’s
leading countries for foreign direct investment. In 2011 it received more than EUR 513 billion as
FDI stocks. The tax structure in Germany is another driving factor for foreign companies to
invest in Germany. It allows the firms the flexibility to choose German tax or their domestic tax
system for taxation purpose. The transparency in the judiciary process has instilled confidence in
the foreign investors. The booming manufacturing sector which contributes 30% to the GDP of
Germany is an attractive destination for companies offering third party support services to the
manufacturing industries. Canada is in process of signing the Comprehensive and Economic
Trade Agreement (CETA) with Europe, which would further relax the terms of trade between the
Euro zone and Canada.
ACTION PLAN
As per Easy of Doing Business survey by International Financial Corporation, the maximum no.
of days required to set the Greenfield Investment to start functioning is 45 days at a total of
expenditure of EUR 35000. The expenses included the minimum paid up capital and registration
charges. The expenditure did not include buying of fixed assets like land and building.
A management team must be formed for the German subsidiary which would report to the CEO
of TradeMerit. A trained sales team of 20 local people will be required and a team of 10 people
for technology support.
Step By Step Process
• Lease/buy office space in Germany.
• Appointment of management team for German subsidiary
• Complete registration process and file for patents and trademarks.
• Start promotion campaign
• Recruit and train the staff
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APPENDIX A
Comparative Analysis Manufacturing Competitiveness over Five Year Period
Current Competitiveness (2013) Competitiveness in five years (2018)
Rank Country Index score
(10=High
1=Low)
Rank Country Index score
(10=High
1=Low)
1 China 10.00 1 China 10.00
2 Germany 7.98 2 India 8.49
3 USA 7.84 3 Brazil 7.89
4 India 7.65 4 Germany 7.82
5 South Korea 7.59 5 USA 7.69
6 Taiwan 7.57 6 South Korea 7.63
7 Canada 7.24 7 Taiwan 7.18
8 Brazil 7.13 8 Canada 6.99
9 Singapore 6.64 9 Singapore 6.64
10 Japan 6.60 10 Vietnam 6.50
Data Source: Deloitte Global Manufacturing Competitiveness Report 2013
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APPENDIX B
Germany Tax Facts
GERMANY QUICK TAX FACTS FOR COMPANIES
Corporate Income Tax 15%
Branch tax rate 15%
Capital gains tax rate 15%
Solidarity Surcharge 5.5%
Trade Tax 12%-18%
Basis Worldwide basis
Participation Exemption Yes
Loss Relief Carryforward Indefinite
Loss Relief Carryback 1year
Double Taxation Relief Yes
Tax Consolidation Yes
Transfer Pricing rules Yes
Thin Capitalization rules No, but there are interest deduction limits
Controlled foreign company rules Yes
Tax Year Calendar Year
Data Source: Deloitte Taxation and Investment in Germany 2013 Report
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APPENDIX C
Cultural Comparative Analysis
Data Source: The Hofstede Centre
39
80
52
48
23
0
10
20
30
40
50
60
70
80
90
PDI IDV MAS UAI LTO
Canada
Germany
