Choice of Foreign Market Entry strategy for SME PDF

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This report will look at foreign market entry selection; in this scenario the chosen company will be MSL Moobel, bringing its products and services to the French market. MSL Moobel is a small-scale private limited company based in Estonia, primarily engaged in manufacturing furniture products, and w...

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Choice of Foreign Market Entry strategy for SME Introduction: The global business environment is a very prominent factor as SME or newly-formed MNC attempt to expand their operation into oversee markets. International expansion present opportunities for SME to increase Sales growth, competitiveness and facilitate access to distribution channels, land or souring raw materials. However, internationalization for a SME is a process associated with institutional voids and barriers and lacking an appropriate strategy, the international venture is more likely to be unsuccessful. There are many factors that need to be addressed within the host country before deciding to enter the targeted market. Upon entering a Foreign market, the appropriate market entry mode need be selected, which is critical decision for a small-scale enterprise. This is the reason why the report will look at foreign market enter selection, in this scenario the chosen company will be MSL Moobel to market its products and services to the French market. MSL Moobel is a small-scale private limited company based in Estonia, primarily engaged in manufacturing furniture products and been operating within the Estonian market since 2010 (tradewithestonia.com, 2018). One of MSL Moobel strategic objectives is expand its operation across the Scandinavian and European markets. France would be a desirable to for chosen company to enter France is currently ranked as the 5 th largest economy in the world, in terms of GDP with 2017 figures standing at $2.5 billion (countryeconomy.com, 2017. Also, France is ranked as the 6th largest economy for imports worth $540 billion which provide significantly opportunities for MSL Moobel to increase its sales growth (Atlas.media, 2016). Finally, the size of the French market can offer greater quantity of opportunities when its comes to ready-to-assemble wood furniture. However, the French market is highly competitive with many domestic firms within the furniture industry. Therefore, it is essential to select the appropriate entry method to avoid wasting the chosen company’s resources. The first section of the report will explore the nature of the Estonian furniture industry with greatly stressing on the advantages and drawbacks presented within the Estonian furniture sector. The second section will seek to identity the suitable exporting strategy for MSL Moobel, PESTLE analysis will be the chosen marketing tool to assesses the market conditions and environmental factors of the French market. The report will analyse the resources and capabilities of MSL Moobel and attempt to propose methods to reduce the risks associated with its targeted market. The third section will address the theoretical framework by summarising the applicable market entry theories. Analysis of the selected export methods will be provided and investigate the factors which influence the choice of the market entry mode. The report should provide the solution to main question, which market entry method is the most effective for MSL Moobel to gain entry and operate successfully within the French Market.

Estonian furniture industry: MSL Moobel’s operation Forestry is one of the most significantly resources in Estonia, the forests account for 50% of the country’s territory (Visitestonia.com, 2018). The furniture industry is one most traditional and highly competitive industries within Estonia, however the domestic market isn’t very large and Estonian consumers purchasing attitudes are quite sensitive in regard to products (societegenerale.com, 2018). Majority of Estonian forestry and wood manufacturers does not consider Estonia as their domestic market due its size of the demographics and small population standing at 1.3million. Ideally, the Estonian wood manufacturers consider the Baltic region (Latvia, Lithuania and Estonia) as the domestic market with combined population of 6 million and ease of conducting business with market that are similar in terms of sociocultural distance. Also, 75% of Estonian’s furniture production is exported to nearby Scandinavian countries. It is evident that Estonian furniture manufacturers are heavily dependent on these foreign markets to make sales. (Estonian-Furniture-Industry, 2014). This is greater reason for MSL Moobel to branch out to western European markets, as the furniture manufacturer can take advantage of the export opportunities available in the French market. Shifting the focus to the chosen company, MSL Moobel. The private limited company specialise producing and marketing solid wood furniture. The main operations of MSL Moobel are:    

Responsible for manufacturing process of products: sourcing raw materials, design and wood finishing. Engage in Wood furniture purchase and sale agreements with Clients Purchase of wood furniture components Establish partnership with multinational wholesalers and domestic retailers (Wurth and Stokker)

As stated in previous bullet point, MSL Moobel is actively involved in B2B market. This shows that the company has the competence and can demonstrate high level of expertise within all interactions with its clients, in regard to product knowledge and technical specifications (Hague, Hague and Harrison, 2018). This imply that MSL Moobel can cope with the implications that are related to being SME operating in foreign markets and falls into the company’s strategic objective of successful penetrating the French market. The Estonian furniture sector In this section, analysis of the opportunities and challenges presented in the Estonian furniture industry will be address. To start with, the Estonian timber and wood products are well received across the global markets and Estonian furniture manufacturers have establish sales arrangements with various wholesalers and retailers from oversee market. For instance, the Estonian furniture industry from a global perspective have generated the largest revenue amount in the U.S. market, accumulating over $304 million in 2018. The Estonian wood and furniture industry has generated over $609 million in 2018 and the industry is projected to grow on yearly basis by 6%(www.statista.com, 2018). The wood and

furniture industry significantly covered 20% of total production of domestic manufacturing, greater than majority of other countries within the Baltic region. As can be seen on the chart, the wood and furniture industry has seen increased in the number of furniture companies operating in the Estonian industry in recent years. In 2015, there are 1102 furniture companies active in wood and furniture manufacturing in comparison to 1061 in 2013. Also, the wood and furniture industry have the largest workforce with over 17,000 employed and account for 15.7% of the Estonian workforce.

Estonian wood & Furniture industry 1200 1000 800 600 400 200 0

No of Enterprises 2015

2014

2013

Subcontracting is widely incorporated by furniture manufactures in Estonia when it’s come to employment, however manufacturers employed designers and develop their own collections of products. As the Estonian market is seeing an increasing number of domestic companies entering the furniture industry with a very small consumer market, selling to oversee markets is essential for Estonian manufacturers to increase their sales revenue. Wood and furniture goods have the second largest share in the Estonian market, its exports of 1.2 billion euros accounted for 10.2% of Estonian exports in 2016. Also, export share in sales revenue of furniture in 2015 stood at approximately 62% (Statistics Estonia, 2017). The added value created within the industry helps with increasing the goods of exports and imports by 3% in 2016. Therefore, for the Estonian economy, it is essential for the furniture industry to be innovative and to be highly competitive. As the Forests is one of the few natural resources available in Estonia, efficient use of the resource to produce a wide variety of end products is crucial. Over the past decades, exports of the Estonian forestry have assist the wood and furniture industry with seeing significantly growth (Estonian-FurnitureIndustry, 2014).

The pie chart below displayed the main commodity groups that been exported by Wood and furniture manufacturers based in Estonia. In 2015, the highly exported goods of Estonian furniture were seats (www.unece.org, 2015).

The main advantages and constraints for Estonian furniture companies to export Since, more than 60% of wood and furniture goods produced in Estonia are exported to various foreign markets, it is imperative to investigate the barriers and constraints associated with engaging exporting. In the Estonian market, the furniture manufacturing companies mainly consist or independent SME that have limited export capabilities. Highlighted in the “growth strategy of Estonian enterprising”, Estonian furniture SME are not actively involved in foreign markets and small portion of their products are directly send to end user. Lack of product visibility mean foreign consumers are unaware of the furniture manufacturers whose supply the furniture good(www.mkm.ee/en, 2014)s. A survey conducted by the Estonian chamber of Commerce and Industry to investigate the export-related problems and opportunities are presence within the operations of Estonian furniture manufacturers. The survey highlighted that speed, quality of products, and flexibility are considered to be the predominate competitive advantages that furniture manufacturers possess. Also, due to the small size of these furniture manufacturers, their production process required lower level of automatizing in comparison to large manufacturing plants. For instance, tasks that demand high precision over time which 89% of respondents said are not suitable to be automated (Frohm, Lindstrom, Winroth and Stahre, 2006). However, the constraints of furniture manufacturers address in the survey ranged from insufficient marketing skills, limited networks of contacts within foreign markets, lacking structed development and long-term planning. In addition, Estonian furniture manufacturers seem to have weak cooperation with foreign companies and lack sufficient market knowledge of the host country. Finally, another obstacle that hinder Estonian manufacturers is the lack of sufficient protection of intellectual property (www.mkm.ee/en, 2014). The problems that Estonian manufacturers are likely face, depend on the size of its operations, export experience and capital structure. The survey stressed that cooperation with

international companies is essential to establish partnerships or strategic alliance and open markets to Estonian companies. Foreign-owned companies have the advantage of greater access to export markets and their credit issues are resolve more quickly in comparison to furniture companies that are owned by Estonian capital. On that account, bringing foreign investments into the Estonian market assist with solving one of the main constraints for furniture companies, which is establishing a presence within foreign markets(www.mkm.ee/en, 2014).

Pestle analysis of target market: France

P:The French Republic is a country that comprise of Metropolitan France and various overseas regions France operate the under framework of a semi-presidential system defined by the Constitution. The major political parties are the Socialist party, the Republicans and newly formed En Marche party founded by the current President of France: Emmanuel Macron. The political environment of France is steady and stable, the country has reach its lowest value of the political stability by -0.06 in 2016 (-2.5 weak; 2.5 strong) . This measurement account for the likelihood of terrorisms and politically-motivated violence within the country (www.theglobaleconomy.com, 2016).

France have strong control of over corruptive activities, the estimated control of corruption value for the country in the 2016 is 1.37. In comparison in 2015, where the control of corruption for France has decrease by 6%. Overall, the risk of corruption is fairly controlled within France. Finally, the French Government had initiate a Stability programme 2014-2017 to strengthen the domestic economy and seen increase in jobs within the private sector. The Government believe this is the effective method of increasing the purchasing power of households (Economie.gouv.fr, 2014). E: As France is geographically located within the heart of EU, the French market is highly competitive with exporting companies competing with each other for market share available

in the French service sectors. France provide some favourable conditions within its economic environment to MSL Moobel as the country is the fifth-largest economy across the globe and 2nd largest in the Eurozone with GDP of $2.5 billion in 2017 (countryeconomy.com, 2018). Shifting the attention to the economic conditions of French furniture market, according to the EU market sector, furniture market is one of the largest within the European union grossing over 9.34 billion Euros in 2015. The furniture market account for 13% of household furniture sales....