Market Entry Into Turkey For Lifeway

Market access Into jokester For LifewayThe term globose c atomic number 18 is becoming more familiar in the current headache context where, more and more sm all told and medium enterprises (SMEs) trying to b down in the mouth ones stack into unusual commercialize. A equivalent troupe called Lifeway is a U.S.A. SME, which is rapidly suppuration in the home grocery store. In 2008, the attach to was named 49th Fastest exploitation Business by an American Magazine, Fortune Small Business (Lifeway, 2008). given(p) that Lifeway intends to expand into overseas securities industryplace (outside U.S.A), the Group report requires to provide epitome for the proposed host countrifieds strategical environment as rise up as a properly evaluated market adit mode for the keep guild. We used three several(predicate) analytical irradiations for analysing host countrys strategic environment that argon described beneathHofstedes Model of National CulturePorters Five ForcesPEST analytic thinkingWe evaluated contrary Market Entry Modes for Lifeway and selected Exporting as a Market Entry from the pursuanceLicensingStrategic AlliancesForeign Direct investitureExportWe selected bomb as a host country for Lifeway to expand its operations into overseas market. washout is one of the prominentst bewilderrs of dairy merchandises in its region as hale as the countrys fixing is of a strategic importance, as its geographical location is attached to both sides of East and the West (atomic number 63). We chose exporting as a market founding for Lifeway to expand into Turkish market.Host country strategic environment analysisIt is crucial for Lifeway to critically evaluate Turkeys strategic environment. The strategic environment comprises of various variables much(prenominal) as Government regulation, Countrys financial insecuritys, ending, governmental stability, economy security risks, competitors, suppliers and technology.Hofstedes Model of Nation al Culture accord to this lay a countrys cultural values can be implicated with various aspects of the pipeline e.g. Human Resource Management, Leadership Styles, Motivational Assumptions, Decision making and Organisational Decisions and Strategy (Hofstede Bond, 1988).Power DistanceAccording to Hofstede, Turkey is a comparatively risque power distance culture as comp be to U.S.A. Organisational twists of companies in Turkey argon resemblingly to be tall pyramid with numerous supervisors and managers. Only top level attention has the power to make strategic findings. The wage difference amid superiors and workers is postgraduateschool management is authoritative and broad(prenominal) level procreation takes precedence over per defecateance. In contrast the antonym is true for the companies and condescensiones in U.S.A. like Lifeway.IndividualismThe figure-1 (see p.2) shows clearly a immense difference in both the countrys cultural values in individualism. In collec tivist society like Turkey, job selection process for management is usually based on family references. It is in addition assumed that managerial promotions atomic number 18 based on seniority and age. Conversely in U.S.A. an individualistic society, promotions argon based on an individuals ability and qualification rather than age and ad hominem references.MasculinityAccording to Hofstedes model masculinity in Turkey is low, 45 and luxuriously in linked States, 62. In most cases Turkish conduceership styles emphasise on quality of life rather than work. Moreover organisational structure is refined with decision making mainly by groups. This is quite contrary to American society where organisational structure is usually large emphasis is on achievement, motivation and self reliance.Uncertainty AvoidanceThere is a high level of uncertainty bendance in Turkish cultural as equal to American culture. In business perspective, organisations in Turkey would arrive at clear rule s, regulations, standardise procedures, formalised structure and risk avoidance. People privation job security, are committed to long-term contr telephone numbers as well as loyal and predictable. It bowdlerises potential employee turnover in the organisations. thus far organisations and people of U.S.A are imparting to take risks, businesses shed less regulation and workers hurl autonomy. long-term OrientationThere is no data for Turkey however United States is a short-term oriented society (see figure-1, p.2). In U.S.A., employees are selected on the basis of skills and ability with quick rewards and promotions having less job security unalike long-term oriented societies. Turkey can be classified as a long-term oriented society on the basis of oppositewise Hofstedes dimensions.There are a few question marks about(predicate) Hofstedes cultural dimensions concerning the accuracy of the data. Information found may be contradicting e.g. Turkey, a high uncertainty avoidance c ulture implicates larger organisations however it is overly low in masculinity which implicates smaller organisations. Hence information should be considered as a guideline at that placefore cultural pa, therefore, stereotyping should be avoided. However it is a good starting point for Lifeway to have an idea of a very diverse culture as compare to its own.Porters Five forcesPorters basketball team forces is a widely known strategic business analytical tool which helps managers to understand better the industry context in which the firm operates. manufacture competitorsThere are numerous competitors in the probiotic industry. All of these companies operate inter depicted objectly as well as in Turkey. This indicates the presence of market indoors the country.According to a new market research report, Probiotics Market (2009-2014), create by (Marketsandmarkets, 2010), the global probiotics market is expected to be worth US$ 32.6 billion by 2014, with the Europe and Asia accounti ng for nearly 42% and 30% of the total revenues respectively. The global market is expected to record a CAGR of 12.6% from 2009 to 2014.The following list below mentions Lifeway main competitors.Group Danone their main probiotic harvest-time is Actimel probiotic yogurt drink containing a unique culture called L.casei Imunitass, which is exclusive to Danone. (Presence in Turkey).Yakult Honsha they produce a drink called Yakult. Yakult is a fermented milk drink containing lactobacillus casei Shirota Developed by Dr Minoru Shirota, the drink has been around for about 70 categorys in more or less form. It was initially only produced in Japan but is now do in Holland for distribution throughout Europe. (presence in Turkey)Nestle NutritionNestl probiotic products are mainly based on its LC1 brand and includeSki BioVita probiotic yoghurt containing LC1 culture.Sveltesse Optimise 0% a probiotic, fat free, dairy drink containing a probiotic and fibre, available in Strawberry and Pineapp le flavours.Munch Bunch Drinky (UK) a yogurt drink designed for children, containing fruit puree and a make up probiotic for children. It is claimed that the probiotic, lactobacillus fortis, is specially designed for children. (Presence in Turkey)ProbioticsWhilst functional drinks legato occupy the largest market share (at around 50% of all sales) probiotics (mainly dairy products) and probiotics (comprising mainly dairy products, cereals and baked goods) are the next largest spheres. Across Europe, the probiotic industry accounts for more than 1.4bn at consumer prices. These figures speak for it, the probiotic drink market has been rising since the year 2000 and the forecast is change magnitude (RTS Resource Ltd., 2010).Potential EntrantsEntry BarriersThe capital embody of entry into the sustenance industry is high especially since it will have to compete with the astronomical name such as Danone, Yakult and also Lifeway Kefir.SubstitutesThese are close to examples of substi tutes to probiotic drinksProbiotic capsules (new trend)Symprove (new probiotic in a non-dairy drink)The level of differentiation for Lifeway products is mark as they manufacture all of their range, quality being one of the most important feature as well as health and wellbeing.Bargaining Power of BuyersBuyers on the nutrition market have high power as there is a large range of probiotic drinks, therefore competitors will be offering sympathetic products and prices. Buyers will go to the store that offers a lower price. Everyone acquires nutriment on a daily basis the number of buyers involves everyone. Lifeway could introduced their latest ranges created recently which could lead to product differentiation in regards to another(prenominal) probiotic drink, these approach could lead to a decrease in the bargaining power of buyers. The cost of fracture from one brand to another is very low usually there is more than one probiotic drink on the shelf of supermarkets. New trends have pushed buyers to purchase their goods online.Bargaining Power of SuppliersIn this particular case the business is considering expanding to Turkey, suppliers will have less power. Lifeway is attempting to gain competitive reward by cheaper outsourcing a search for beaver suppliers in Turkey should dissolvent in a good deal. Suppliers in Turkey will want to hard a contract with a company with Lifeways profile. However at the dumbfound Lifeway is only intending to export their goods to Turkey. Lifeway is the countrys leading manufacturer of Kefir, these represents a main advantage as the organization enjoys the benefits of economies of scale in the home country.Pest AnalysisIn pile of Lifeway new environment (Turkey), the PEST analysis is a critical analytical tool for evaluating a countrys strengths and weaknesses. It focuses on political, economical, social and proficient factors and also helps to develop a broad view of a countrys landscape.political FactorsTurkeys pol icy is based on liberalisation and free plow and also attempts to create location advantages to attract contrary companies (Datamonitor, 2009). In 2003, the Turkish governance introduced the Foreign Direct Investment (FDI) Law to improve FDI policy. It mainly contains the abolition of restrictions which leads to an equal treatment of foreign and internal companies. Furthermore, Turkeys main political finale is to achieve EU membership. This is a major political advantage if the country achieves EU membership, as companies would benefit from EU free trade policies in Turkey. This in turn opens the door to invest easily in other EU member countries for companies based in Turkey. Lifeway is one of the first companies in the dairy sector intending to expand in Turkey.In contrast, there still exists a high political risk in Turkey. According to A.M. better(p) Company (2009), Turkey seems to be unstable especially focusing on regional, social and governmental aspects.Major reasons for these instabilities are the terrorist groups, who are responsible for a mass of attacks in recent old age and the existence of high depravity (Datamonitor, 2009). In addition, the tax system is very unstable according to OECD. The IMF, the populace Bank and the investment environment by FIAS (Foreign Investment Advisory Service) have signaled concerns about the complexity of Turkeys tax system. This complexity has been exacerbated by tax policy instability coupled with high and unstable lump rates (OECD, p.6). These high inflation rates, e.g. 10.4% in 2008 are quite higher than inflations rates of other western European countries (PRS Group, 2010). Generally Turkey indicates a high political risk (CRT-4) which is defined as Relatively unpredictable and nontransparent political, legal and business environment with under essential capital market, stated by AMB (2009, p.4). Hence high political instabilities and risks have an adverse effect on foreign companies like Lifeway whe re it takes time to adapt to the political condition in Turkey.Economic Factors delinquent to the political instability in Turkey, this has a negative impingement on the overall economy. Comparing the GDP growth rate during decision year decreased from 9.2% in 2004 to 1.1% in 2008 meaning its economy is in box (PRS Group, 2010, Country Forecast, p.8). Besides the financial crises above all high inflation and interest rates 6.5 % in 2009 (fxstreet.com) caused this economic downturn. Turkeys economic risk is moderate because it experienced an erratic growth over the last few years due to a weak banking system, large current account deficits, and a slip of structural reforms (AMB, 2009, p.2). It showion that although there is the existence of an economic upswing during the last decade but overall economy is still not cut e.g. imports are still higher than exports.In contrast, plans for the implementation of free trade agreements raise hope among the Turkish population (Datamon itor, 2009). These agreements shall increase the international competitiveness and boost the relationships with foreign countries. In addition to that by starting to act and trade more internationally Turkey could also implement the EU criteria very soon. This would help the company in the future to expand the investment. mixer FactorsThe unemployment rate of 10.4 % in 2008 is obviously caused by the lack of investment in education. Only 34.5 percent complete vocational or higher education which signifies a weak distinct tendency in the range of the service sector (PRS Group, 2010, Country Conditions, p.9). On the contrary primary and secondary sector workforce is about 59% which shows that Turkeys excellence in these two sectors.For unless analysis of social and cultural factors of Turkey see section 2.1 on page 2-4.Technological FactorsTurkey only spent 0.71% of GDP in 2007 for research and development according to the Federal Statistical Office of Germany (2010). The lack of curb in this sector would have an immense negative impact on foreign companies. Particularly the number of patent applications which is a major indicator of rating a countrys development in RD and it was 24.50 per million inhabitants in 2007 (Federal Statistical Office, 2010). Although the Turkish dairy sector is distinctive, its products are still after part the quality of the EU (Reuters, 2009). Equipment and hygiene have fulfilled the recent EU standards but Turkish milk quality can still be considered as low.However established government institutions try to compensate such deficits by giving financial aid to companies and private citizens in the form of subventions and loans for RD projects (PRS Group, 2010, Country Conditions). Additionally there is an appearance of drain brain (Datamonitor, 2009). It means that Turkish academics that are living abroad are coming ski binding to their native country, recognising the potential of Turkey becoming an EU member. Thus foreign com panies like Lifeway with the intention of expanding could profit by future trends.DIFFERENT securities industry ENTRY MODESThere are four major market entry types which will be analysed and evaluated in order to make a decision that which market entry Lifeway should choose for Turkey.LicensingLicensing is a contractual transaction in which the firm-the licensor-offers some proprietary assets to a foreign company-the licensee-in exchange for royalty fees (Kotabe, 2008, p.293). For instance, a company is allowed to use the technology, know-how or even a whole product itself of another company against payment of so-called royalty fees.Licensing does not need investing capital and is especially used by small companies which are looking for a fast and easy access to a foreign country (Kotabe, 2008). Lifeway could for example save transportation cost and tariffs and invest them in other branches. This is an easiest way of investing where there is no financial risk involved, no risk of pr oduct or performance failure. By licensing, the company would get its profits (royalty fees) and it would also benefit the Turkish government and national suppliers.In contrast licensing may result in a firms giving away valuable technological know-how to a potential competitor (Hill, 1999, p.202). Lifeway loses its competitive advantage by sharing knowledge of producing the different kind of flavours that are very popular among the US. Adopting technology could improve the partners business and lead from co-operation to competition. Additionally, Licensing does not give a firm the tight control over manufacturing, marketing, and schema in a foreign country that may be involve to maximize its profitability according to Hill (1999, p.202). Lifeways brand name baron become weak with the possibility of losing the license as a result domestic companies could gain success.Strategic AlliancesStrategic alliances are cooperative agreements between two or more firms from different countri es to participate in business activities, as stated by Parboteeah Cullen (2011, p.161). Lifeway especially focuses on the International colligation Venture (IJV) which is the most common form of strategic alliance.International interchangeable ventures bring together otherwise independent firms to share resources in product design, intersection, marketing, and/or distribution (Chan et al., 2007). The company can gain the knowledge and the know-how of similar companies which could improve Lifeways Kefir. Lifeway could obtain the possibility to share its losses and it will concentrate its amount of investment in Turkey (Kotabe, 2008). Additionally, by cooperating with a domestic Turkish company Lifeway can fit its Kefir to the peoples taste. Consequently additional cost for introducing and adoption can be reduce and Lifeway could get an insight of how to avoid cultural misunderstandings (Kotabe, 2008).However at the same time cultural misunderstandings exponent appear within the alliance, especially when it comes to controlling the company, see Hofstede (section 2.1, p.2). Furthermore, Lifeway might lose its competitive advantage of developing and creation which made it unique in the US by sharing know-how and technology (Kotabe, 2008). Like it is said onward that the Turkish dairy industry is behind the EU standard in the development of equipment and technology. Gaining the same knowledge as Lifeway, competitive companies in Turkey could conquer the European market and further expansion in Europe could result in increasing the competition. Evidently this would lead to a wrong for Lifeway.Foreign Direct InvestmentParboteeah Cullen states a Foreign Direct Investment (FDI) occurs when, a multinational company owns, in part or in whole, an operation in another country (2011, p.161). Investing in manufacturing or RD (research development) facilities that are made or bought in foreign countries can be considered as FDIs, for example. Turkeys strong FDI poli cy is especially charismatic to foreign companies because of its market potential, geographic proximity, and low labor costs (Deichmann et al., 2003, p.1771). This type of market entry potentially leads to higher profits in the early expansion of the company because it also avoids transportation costs.Lifeway can even save more money, in virtue of prevention of double taxation agreement between Turkey and the US (worldwide-tax, 2008). In Turkey huge proportion of the workforce flora within the primary and secondary sector because of the low education this provides low cost labour making Turkey even more attractive (Turkish Embassy, 2008 PRS Group, 2010, Country Conditions).However based on the low quality production of milk in Turkey Lifeways brand image could be disgraced resulting in the production of the low quality of Kefir (AgriPolicy, 2009). (Paliwoda, 1997 p.154) described his point of view for FDI as, a wholly owned subsi diary is slow to achieve, expensive to verify an d slow also to yield any tangible results. Lifeway that just developed during the last few years the decision of such a furious market entry might be too early on the evidence of a country which is still characterised by uncertainties, instabilities and insecurities. A high risk is also applicable to the acceptance of the product among the population. Furthermore, there is a huge cultural difference in the society as well as in a business context. Therefore it is difficult for Lifeway to decline quickly into the local way of doing business, see Hofstedes cultural dimensions (section 2.1, p.2). Hence its not in the interest of the company to choose this market entry.ExportAccording to (Hill, 1999, p.201) export can be defined as, producing goods at home and ecstasy them to the receiving country for sale. There are two major forms of export direct and verificatory export (Kotabe, 2008). In direct exporting, a company will appoint an internal team that is responsible for exports by trading goods or services with a foreign middleman. While indirect exporting is when a company will sell its goods or services through some other domestic companies, so-called intermediaries (Kotabe, 2008).Some major advantages could be succeed by direct or indirect exporting. This type of market perceptivity is easiest and cost impelling (Kotabe, 2008). Firstly, Lifeway doesnt have to invest in production facilities such as building factory, warehouse, overhead costs and also labour costs etc. Lifeway, which is considered as an SME having small amount of equity (as compare to large MNCs) would want to have minimum financial risk. Secondly, time is an important factor, exporting makes it possible to get an immediate market access (Kotabe, 2008). Especially launching in a Turkish market which might experience an upswing in the near future, it should be realised that the company could profit from new regulations and subventions.In contrast, exporting is unprofitable because of the existence of high transportation costs, tariffs and trade barriers (Hill, 1999). The Turkish government intervened to protect and support domestic companies of the dairy sector by demanding high tariffs for importing dairy products (Export.By, 2010). Products like Lifeway Kefir can be produced in almost any location because of a low value-to-weight ratio (Hill, 1999, p.201202). As a result it can be said that the demand of Lifeway Kefir in Turkey may not be equal to other diary producing companies in Turkey.Benefits of direct exporting would be to avoid information asymmetries because Lifeway would be still responsible for major orders and dispositions (Parboteeah Cullen, 2011). Furthermore direct exporting is connected with higher sales potential and profit as compare to indirect exporting. However indirect exporting causes less committing errors. New environment, culture and actors line barriers could be avoided by this market entry mode or at least reduced (Kotabe, 2008).There fore, it is decided that Lifeway should pursue indirect exporting for market penetration in Turkey. This is because of various reasons such as Lifeway is relatively a small company with limited finances, the product is a simple and valuate hence no need for training and after sale support and also Turkish culture is very different than Lifeways business culture which is American, according to Hofstede (see section 2.1 on p.2-4). The company would achieve foreign market presence in less time at low cost and also with the passage of time increase market knowledge and reduce psychic distance (cultural differences). This would increase companys prospects of investing further in the country. final stageAfter critically analysing Turkish strategic environment, it is suggested that exporting is the best accommodate form of market entry for Lifeway. The company is a relatively small and medium size enterprise and is only locally based in U.S.A. hence essentially it would have limited fina nces as compare to other large global companies. Finance is the biggest asset that any company holds thus cost effectiveness is the one of the fundamental strategic principles in businesses. Exporting could be viewed as the quickest and most cost effective form of market expansion. It doesnt require complex activities and Lifeway could focus its efforts mainly on the marketing area to attract the new target market in Turkey for its Kefir products. It should also be considered that the desire of Turkeys inclusion into EU makes it a safer choice as it complies with the laws and regulations of EU countries than others in the Far East.Although there are some drawbacks of exporting for example, high tariffs, transportation costs and trade barriers. so far looking at Lifeways context and comparing the disadvantages of other market entry modes it is clear that exporting is the easiest and most cost effective form of expansion. subsequently the company could invest further and make strateg ic alliance as a joint venture with the local popular branding company upon success in Turkey. With the passage of time and depending on Lifeways success the best form of investment would be having a production unit in Turkey. This would also be very beneficial for the company if Turkey becomes EU member. It would open the doors for Lifeway to easily expand and penetrate into EU market.Even if Lifeway doesnt get the best responses from exporting, it would not be a disaster. Since the company would have interpreted minimum financial risk in expanding into foreign market. It would be a good learning experience for Lifeway. Whenever business environment becomes viable the company could strategise again and correct the mistakes.