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University of Greenwich ASSIGNMENT SUBMISSION COVER SHEET SUBJECT CODE

: BUSI 1602

SUBJECT TITLE

: Global Business and Sustainability

ASSIGNMENT TITLE

: Reflection Report

PROGRAMME

: MBA OUG International Business

SEGi ID

: SC-KL-00048271

UOG ID

: 000919448

LECTURER’S NAME

: Mr. Vicky

LEARNING CENTRE

: SEGi COLLEGE KUALA LUMPUR

SUBMISSION DATE

: 24/4/2016

Contents Introduction...................................................................................................... 2 Country Analysis and Entry Decision................................................................2 Currency exchange rates................................................................................. 3 World Toothpaste Market.................................................................................. 4 Product management....................................................................................... 4 Production........................................................................................................ 5 Distribution...................................................................................................... 6 Pricing.............................................................................................................. 7 Promotion......................................................................................................... 8 References....................................................................................................... 8 Appendix.......................................................................................................... 9

Introduction In 1924, a U.S.-Based multinational consumer products company known as Allstar brand is establish which produce and sells all kind of ethical pharmaceuticals, OTC (over-the-counter or non-prescription) drugs, and consumer product. Allstar brand is a firm with $8.9 billion and able competes with all kind firms, based on which type of the product its market belongs. I have been appointed as a country manage base in Latin America. Due to most of our business in United State, operations base in Europe as well as our Asia alliance are doing a very good progress. But the markets had begun to saturated as more and more competitor is coming in. the business life cycle is reaching a stage 3, where is it in the “red ocean”. The business started to aging slowly and grow of population is in slow progress as well. On the other hand, improving our business in America is too slow compare with outsider. Hence in order to improve our situation we need to open up another new business channel to increase our stock price. Therefore. I have been given a mission to archive, which is to open up a market presence in Latin America. Latin America market will be analysis and will decide which countries will be penetrate fist and subsequently in 10 years’ time. The chosen countries are as follow: Argentina, Brazil, Chile, Mexico, Peru, and Venezuela. Allstar brand aim is at least to have 1 production facilities in one of the countries and show a positive result in market share and profit as well as Alllstar Brands appear in all 6 countries within 10 years’ time.

Country Analysis and Entry Decision Latin America, population in the region is 50 percent larger compare to United States and Canada. It is well known with the political issues and lots of economy problem, such as high inflation rate, low growth and not willing to take the tough economic actions to solve these problem. Spanish is the majorities’ language being used across Mexico and Central and South America, except for Brazil where they frequently use Portuguese as their daily use language. Some population in South America even speak more than one language. In recent years, there have been many trade enhancement have been take into action. Such as, NAFTA agreement between Mexico and United States and Canada. Because of this agreement, it have improve the business opportunity between this 3 countries. It has shown the great opportunity for outsider to establish production in Mexico by taking the advantage of low labour costs and fairly seamless access to the United States and Canadians market. As for MERCOSUR agreement it provides some linkages between the South American countries of Argentina, Brazil, Chile, Paraguay, and Uruguay, Including association agreements with Bolivia. Beside the agreement mention before, there are several agreement also exist to increase and ease the business opportunity between countries.

By using the internet source from CIA site the table below compare the economic and social characteristics of United States market and the six markets is take into consideration as well. Table 1 and 2 below compare economic and social characteristics of United States market and the six markets under consideration.

Table 1 Market Comparison on Basic Economic Characteristics

Table 2

Market Comparison on Basic Social Characteristics

Currency exchange rates By having difference in value of currencies may cause us difficult to make lots of final decision. It might affect our following data analysis too. In Allstar’s corporate office, we have to convert the cost and revenue into US$ for the purpose of exchange rate fluctuation as it will affect consolidated reports directly. On the other hand, local currency will be used for pricing and budget. So, we have to manage in the local currency and culture. But stay focus on the exchange rate changes. Table 3 shows the current exchange rate.

Table 3 Current Exchange Rate

World Toothpaste Market Base on the report by Glodal Industry Analysts, Inc. it says that the global toothpaste market to reach US$ 12.6 billion by 2015 and it could reach up to US$14.0 billion by 2020. The largest market for toothpaste is own by Brazil, which is 583 per capita consumption (in grams), United States come in second with 539 per capita consumption (in grams). There are multiple type of toothpaste available in the market, we are able to categorize it in few category such as:    

Size (25g, 75g, 150g) Deliver system (tube or Pump) Textures (gel or paste) Formulation (basic, whiteness, healthy, kids)

Base on the chart below, it is the data collected from the country manager teams by using survey and research method. Through the analysis we are able to determine which country to penetrate 1 st and the following country. However, based on the chart we were unable to determine when and how we should penetrate the Latin America Market. Therefore we need to use Table 1, 2 and 3 as our further reference and help us determine the period of entry for each country and by understanding the method require to do business in Latin America market.

Product management The key assets of Allstar Brands is Allsmile. In the United States, it is one of the most well-known company’s brands. Their production is based on United States and Germany, mainly focus on European and United States markets. Hence, stock keeping units (SKUs) are produce in large number. 3 line extension have been developed to overcome the slow market growth in United States and reduce competitor market shares. Each extension line have

their own target customer and benefits. Hence, there is total of 24 SKUs of Allsmile in the United States market:

The existing SKUs formulation will be used for market entry in Latin America, country manager will decide which type of toothpaste will be used in chosen country. Basically all 4 type of the 24 SKUs will sell those countries as a introduction of Allstar brands. After that we will do some review of the performance then only we invest more resources into it. In order to build customer relationship more easily, it is necessary to produce our packaging in others language such as Spanish and Portuguese to suit the local culture. By using the limited number of SKUs to enter the Latin America market at the first stage and follow by expansion in the market will show as below: 



Performance such as growth rate of the product and the market penetration will be review from time to time. if the review is positive, more SKUS will be added into the first stage. Once we have a one market entry success, we can use the similar method to penetrate other countries. It can be using the same product as introduced in stage one, but totally different SKUs.

Production To manufacture and deliver toothpaste is surprisingly easy. Production can be done in any location around the world and shipped to the anywhere. On the other hand, it would not be a problem to manufacture at local, if the company have its own facility at local. We can directly purchase toothpaste from the parent firm base in United States as well for a short term source of capacity, but the overall costs will be slightly higher than locally manufacture. Other than that, the United States show a promise that it have a trustworthy productive capability and an overall stable currency. Having a production in locally is another method to have toothpaste. However, it needs time and money to building a plant as well as growing its

size. Once it achieve the significant volume the cost per unit should be lower with a local production.

“A major trade off is between lower per unit manufacturing costs from plants operating at high capacity versus lower shipping costs by producing in or close to served markets. A second trade off can involve decreasing production costs with higher volume versus increasing duties, taxes, and tariffs because of border crossings.” (Interpretive Software, Inc. 2008, p. 16) We need to be very caution when making a production decision, else it will affect the market entry flow and cause difficulty in following expansion in Latin America market. “For example, a plant serving just one country may not achieve low COGS due to relatively low volume. But when the plant begins producing for a second Latin American market, higher volume and capacity utilization may yield lower COGS that are realized in the initial and the new markets.” (Interpretive Software, Inc. 2008, p. 16)

Distribution In most of the retails outlet in United States sale domestic toothpaste. “Grocery stores (e.g. Kroger), drug stores (e.g. Rite Aid), mass merchandisers (e.g. Wal-Mart), convenience stores (e.g. 7-11), and other outlets (warehouse clubs, etc.) all sell toothpaste. By focusing on most of the type of means that many national accounts have been distributed directly by Allstar. Indeed, various retail accounts consist of approximately 70 percent of Allsmile volume. There are still, however, a number of smaller local or regional stores that require the use of an indirect channel via wholesalers. ” (Interpretive Software, Inc. 2008, p. 17) In Figure 2 show the visual illustration of direct versus indirect distribution. Figure 1: Distribution Structure – Direct vs. Through Wholesaler (Indirect)

manufactu re

direct

retailer custome r

manufactu re

wholesal er

retailer

custome r

Different country have their own type of retailer which will keep their toothpaste in stock. In United States, we noticed that there are less type of retailer who is selling toothpaste in United States compare to the rest of the world. Besides that, as there are more retailer joining up to form an

international alliance. It cause the market around the world to become less saturated compare to United States. This is how the market should develop, while the old fashion family base retailing remain unchanged. In Latin America, the distribution channels can be categorizes as: old fashion, self-serve, and hypermarket. Due to the traditional channel is small, majorities of the stores and market are serve by wholesaler, not by manufacturer. Convenience store and grocery store are consider as a selfserve category which is a bit more advance store where the consumer were able to help themselves out with purchasing. But it only has a narrow line of merchandise. Even though some of them are reginal chain, but mostly are owned by locally. Usually large city have hypermarkets and this is a new distribution channel. Normally it able to store all its goods and directly get the items from the manufacturer. For example, Wal-Mart and Carrefour are one of those who allied with global distributor or owned by foreign hypermarket chains. Product turnover, slotting allowances, sale force support, and advertising support are very crucial for the brands to move, together with distribution of shelf space and positioning. Hypermarket and chain self-servers belongs to allowance and turnover. As for old-fashion stores and independent self-serve focus to sales force support.

Pricing When manufacturer determine the MRSP, product cost and market conditions will need to be consider. To set a manufacturer’s suggested retail price (MSRP) is based on following:    

Size Delivery system Texture Formulation

Although retailers have the right to over the final price set in the store, however many choose to follow the MSRP respectfully. 15-30 percent of the MSRP will be given out by manufacturer’s base on volume purchased and which channel is chosen. Manufacturer will calculate the per unit revenue using (MSRP) (1-discount). In different country they have their own pricing terms and agreement. By agreement, MSRP and quantity discounts are set by manufacturers in Latin America. When setting the price, there are few thing in a country need to be consider.   

Price sensitivity Market competition Cost

Furthermore, if the price difference between country market is to big far the same brand. It can cause the product alteration through unauthorized dealer and the market price change from higher to lower.

Promotion A marketing strategy in consumer product consist of two major part, consumer and trade promotion. Lots of event planned by trade promotion to maintain customer interest towards a brand. Slotting allowance and co-op advertising is the general type of trade promotion. Type of promotion Slotting allowance

Co-op advertising

Purpose       

Used by weaker brands Help ensure shelf space As discounts from MSRP Affect gross margin Brand feature in channel’s advertising Expenses included in promotion budget Affect net contribution

There are few types of normal promotion method to attract consumer such as giving out some free tester, discount coupon or voucher and point-of – purchase display. Like co-op advertising, these expenses are include for as part of the promotion budget and it will cause changes in the net contribution.

References INTERPRETIVE SOFTWARE, INC. (2008). Country Manager: The International Marketing Simulation. [online]. Last accessed 22 April 2016 at: http://www.cbpp.uaa.alaska.edu/afef/cmgr-student%20manual.pdf

Appendix