INTERNATIONALIZATION Essay Example

  • Category:
    Marketing
  • Document type:
    Assignment
  • Level:
    Undergraduate
  • Page:
    5
  • Words:
    3543

15INTERNATIONALIZATION

Internationalization Group Assignment

Table of Contents

Introduction 3

Marketing Analysis 3

Political-Legal Issues 3

Economic-Financial Issues 5

Cultural Issues 6

Technological Issues 7

Environmental Issues 8

Entry Mode 9

Target Market Segments 10

The Marketing Theory of 4P’s 11

Conclusion 13

References 15

Introduction

Following its successful performance in Australia, the Bliss Honey Company intends to extend its operations into foreign markets with Indonesia being the next destination. The decision of any international company to expand its operations into foreign markets necessitates the development of effective strategies to handle the several challenges associated with the internationalization of businesses. Some of the challenges include handling the necessary administrative formalities, HR management, risk management, managing cultural differences, accessing finance among others (FEB, 2014). Apparently, the firm believes that its success in the international market depends on its ability to handle the impediments appropriately. Indonesia is one of the emerging markets that present a fast-rising economy thereby implying a favorable international destination for multinational corporations that intend to expand their operations. The paper consists of four main sections that address the Indonesian market environment. The sections encompass the marketing analysis that covers the political and legal issues, the economic and financial issues, the cultural issues, the environmental issues and the technological issues. In the second section, the paper covers the appropriate mode of entry. In the subsequent sections, the report covers the target market segments and the 4P’s theory of marketing that includes the price, product, promotion and place.

Marketing Analysis

Political-Legal Issues

The legal culture of Indonesia relies on the practices and laws of the colonial era of the Dutch that started in 1800 until 1942; a time when the country was under the control of the Japanese. The Indonesian political system comprises of the President, the people’s Consultative Assembly, the Supreme Court, the Indonesian Cabinet, the National Departments, Ministries and Bodies, and the regional governments and autonomy. On a business perspective, it is evident that the country has experienced an increase in the number of foreign investors over the recent years. Foreign investors have decided to establish businesses in Indonesia on the grounds that the country boasts of its adequate natural resources, a growing domestic market and a young workforce to provide the required labor (Hermawan Juniarto, 2014).

The Indonesian Government has also realized the potential benefits of foreign investment. As a result, it has strived to encourage foreign investment by broadening the scope of the existing business opportunities. For instance, it has endeavored to provide the required public infrastructure and develop the country’s natural resources. Despite the fact that the government has portrayed its dedication to direct foreign investment, it still regulates the extent of foreign investment with the intention of protecting local businesses. The government also regulates domestic goods and services, manpower, and requirements for the partial and total ownership of local businesses in the country (Hermawan Juniarto, 2014). The existence of a foreign business in the country starts with the establishment of a representative office that may be a Foreign Company Representative Office, a Foreign Trade Company Representative Office or a Construction Service Provider Representative Office. The Trade Minister approves the Foreign Company Representative Office.

The Capital Investment Coordinating Board is the board that registers the proposed foreign investment in the country. Following the registration of the company by the Board, the foreign investor should endeavor to establish and incorporate the company. The foreign investor should execute the company’s articles of association and deed of establishment before a notary. The investor should also submit the establishment deed and the Ministry of Law and Human Rights and the notary for processing before planning for the deed’s publication in the State Gazette. The third step entails opening a bank account in Indonesia to deposit the share capital. Finally, the investor should obtain the domicile certificate. After the incorporation of the PMA Company, the next step entails obtaining several permits and licenses that enable the firm to hire employees, run its business operations, import capital goods, commence construction of the business premises where necessary among other activities (Hermawan Juniarto, 2014).

Economic-Financial Analysis

After the end of the Asian crisis, Indonesia’s economic performance has posted tremendous results. The country has enjoyed a stable and strong growth over the past fifteen years. The policy reforms that have resulted in a robust macroeconomic policy are responsible for the positive results that the country has posted economically. Prior to the policy reforms, the country depended on domestic consumption as its major source of growth. The reforms also improved the conditions for the labor market (OECD, 2015). Better labor-market conditions in conjunction with the poverty-alleviation programs enhanced household income as well as the confidence of the domestic consumers. The global demand for Indonesian products sufficed to be the external sector that boosted the economic position of the country. However, outgrowth has recorded decreasing growths as a result of the diminishing emphasis that the current government is putting on the economic reforms.

The success of the country towards achieving a constant reduction in poverty emanates from the well-targeted and highly-efficient government measures and strong per capita gains. However, the previous decade has presented an increase in income inequality with the country recording an annual per capita income o approximately US $ 9,300. Apparently, the per capita income income defines the terms of the differences in the purchasing power. In fact, a good number of the working population still engages in low-productivity agriculture. Most importantly, the country is still within the catch-up phase of economic development. Reprioritizing expenditure such as the recent decision of the government to cut down on fuel subsidies implies a favorable environment for both domestic and foreign investors. Banks dominate the country’s financial system since they account for 79% of the assets in the financial sector in 2013. As a result, there is little room for the other financial institutions since insurance companies account for a mere 10% of the assets (OECD, 2015).

Cultural Analysis

There are five major religions in Indonesia with Islamic being the majority. The other religions are Catholics, Buddhism, Protestants and Hinduism. The different religions result in different cultural influences on the country. Some of the cultures encompass Islam, Confucianism, Buddhism and Hinduism. The cultures dominate the major trading cities of the country. Garuda Bineka Tinggal Ika suffices to be the national motto. The motto implies the existence of unity in diversity. The Indonesian culture has a traditional family structure that allocates clear defined roles to each of the members of the family. The culture respects, maintains and emphasizes hierarchical relationships. As a result, the community and the family have better positions as compared to a business. In other terms, Indonesians are indirect communicators since they are extremely careful in speaking and interacting. The implication is that they do not communicate directly what they want or what they are thinking in their minds. Therefore, Bliss should be able to listen, interpret or read between the lines to understand what the Indonesian consumers are saying or thinking. They also use body language and gestures thereby necessitating the ability of the listener to interpret and understand the gestures. For instance, there are different ways of saying ‘yes’ when the actual meaning is ‘no’. Moreover, there are twelve different ways of saying ‘no’ (Davidescu, 2012).

The fact that businesses are personal in the country implies that the investors have to deal with customers on a face-to-face basis after developing personal relationships. Indonesians regard harmony and good relations to be the source of money instead of time. Being a collectivist society, Indonesians place much emphasis on the group rather than an individual. Since they require significant time to consider a business request, they require lengthy conversations. Indonesians never rush when engaging in business transactions. They consult the elderly and aged individuals prior to making decisions. Therefore, Bliss should devote substantial time towards establishing face to face communications with Indonesians to convince them to become loyal customers. Apparently, relationships influence different aspects of the commercial life. As a result, the commercial dealings should portray flexibility and patience to enhance the probability of successful results as well as build customer trust and confidence (Davidescu, 2012).

Technological Issues

Apparently, technological improvements have played a pivotal role towards enabling firms to prosper and compete with one another in the market. Technological absorption and the use of ICT are the main components that determine the technological readiness of a country. Technological readiness measures the agility presented by the firms while harnessing new technology with the interest of enhancing productivity. On the other hand, ICT use measures the population’s use of information and telecommunication technologies. Indonesia has posted dismal performance in the measurement of technological readiness. The country holds the 91st position with a GCI score of 3.2 (Geiger, 2011). The nation trails behind Singapore and Malaysia that occupy the 11th and 40th positions respectively. Malaysia and Singapore are hi-tech powerhouses. Moreover, Indonesia trails behind Vietnam, Thailand, China and Brazil that occupy the 65th, 68th, 78th and 54th positions respectively. However, Indonesia does not trail behind India by a considerable margin since India holds the 86th position. However, it is in accordance with the middle income group average of 3.1 and the regional average of 3.3.

With regard to the ICT absorption into businesses, Indonesia attained a 4.9 score and occupied the 63rd position behind Malaysia, Thailand, India and Brazil that occupied the 59th, 35th, 40th and 44th positions respectively. It is important to note that the country performed better than China and Philippines that occupied the 83rd and 66th positions respectively. Singapore turns out to be the highly ranked country on the list since it occupies the 3rd position in regard to the measure. The increased availability of new technologies in India has improved its position in relation to technological readiness courtesy of direct foreign investment. Firms have also exhibited an increasing tendency of adopting the technologies. Mobile telephony suffices to be the fastest-spreading technology in the country. Therefore, the comparative analysis of the country reveals that it is a potential investment decision in regard to its technological readiness which turns out to be an advantage to the company (Geiger, 2011).

Environmental Issues

Based on the environmental challenges that Indonesia’s business sector faces such as environmental destruction and pollution, the government requires all businesses to comply with the standard environmental benchmarks prior to the establishment of any business. The firm should understand that the country is fighting environmental pollution and destruction following the relegation of 35 rivers as second class water sources due to pollution. According to the Indonesian Constitution, all Indonesians have the right to a healthy and a good environment as stated in Article 28 (1). According to the Article, it is the right of all individuals to live in physical and spiritual prosperity and enjoy a healthy and good environment. The individuals also have the right of accessing and receiving medical care (Rapid Assessment, 2008).

Article 33 (4) of the Constitution also requires businesses and corporations to manifest economic solidarity thereby manifesting the efficiency and solidarity principles. Towards realizing the objectives, Bliss should use sustainability and fairness besides maintaining the environment in a self-sufficiency and sustainable manner. Moreover, there are several legislations that govern environmental protection and management in Indonesia. The categories of the legislations and regulations include the General Environmental Legislation (GEL), the Ratified Environmental Convention (REC), the Sector Environmental Legislation (SEL), the Local Environmental Legislation (LEL) and the Provincial Environmental Legislation (PEL). Based on the numerous environmental legislations available in Indonesia, it is proper to state that the successful operation of any business in the country necessitates strict adherence to the rules of the legislations (Rapid Assessment, 2008).

Entry Mode

Being a foreign direct investment (FDI), it will be appropriate for Bliss to form a cross-border strategic alliance as the entry mode into the Indonesian market. To be precise, the firm should use a vertical strategic alliance to address competition effectively and reduce business uncertainties thereby enabling international corporation to attain competitive advantage easily (Uddin & Akhte, 2011). The primary reason of vertical strategic alliances is to reduce the number of competitors existing in the foreign market. In the case of the Indonesian market that boasts of its increasing per capita income and a high population, it is also proper to create value of the goods with the intention of attacking the competitors so as to attain competitive advantage. Creation of value also ensures yields customer loyalty and trust since the quality of the products developed by the foreign company will be higher than that of the existing domestic firms. The firm will also capitalize on the alliance to understand the collectivist Indonesian culture before deciding to invest on an individual basis in the market. The alliance also enables the foreign company to break the language barrier since the partner company already understands the domestic languages thus will handle the communication challenges that the foreign firm could have encountered.

The cross-border strategic alliance will also enable the firm to capitalize on its competitive advantages thereby making maximum utility of any opportunities that emerge from the rapidly changing global economy. However, it is proper to identify some of the challenges associated with setting up a strategic alliance as an entry mode into the Indonesian market. Some of the challenges include increased complexity in risk management, role playing, the evaluation of performance and profit-sharing. The increase in complexity emanates from the high network of trust in the business network. In the quest to guarantee ready access to the new market, establishing a joint venture suffices to be the most viable option of a strategic alliance. The mode will enable the collaborative sharing of the core capabilities and competencies of the two firms to attain competitive advantage (Uddin & Akhte, 2011).

Target Market Segments

Understanding what Indonesian consumers are willing to consume and where they make the purchases turns out to be the main points of argument regarding the segmentation of the Indonesian market. In simplified terms, understanding what the consumers want refers to determining the exact products, their quality, prices and other pertinent product aspects that consumers consider before making any purchase of the product. Regarding the potential of the product in the Indonesian market, it is proper to understand that the frequency of purchase of the product and its penetration into the market. Since the company will form a strategic alliance with an already established domestic firm in Indonesia to ease the market entry process, it is proper to state that the commodity has already penetrated the market. Therefore, product repositioning and innovation will be the next strategies of the company to enable it attain the subsequent stage of market development. The implementation of the strategy will eliminate the natural growth limits of the already existing product thereby providing more room for the development of the new products (Budiman et al. 2012).

Regarding the second aspect of market segmentation that addresses where customers purchase their commodities, it suffices to state that Indian consumers portray an in-depth understanding of the available brands. Furthermore, they are also loyal to certain brands. Consequently, before entering a retail store, the customers already know the brand that they intend to purchase at the store. A study of the consumer purchasing attributes on the product categories revealed that either one or two brands presented high scores in each category. The brands that portrayed the highest levels of customer loyalty were either domestic products or products manufactured by multinational corporations that have been in operation for a long duration. Having the idea in mind, it will be appropriate for Bliss to form a joint venture strategic alliance with a company that has already posted tremendous results in brand loyalty. By so doing, product repositioning and innovation will propel the products into further stages of market development thereby enabling the company to attain competitive advantage. Increasing consumer awareness through advertising sales promotion will also be effective towards the better positioning of the product in the market (Budiman et al. 2012).

The Marketing Theory of 4P’s

According to Hair et al. (2000), product suffices to be the primary tool of the marketing mix. In Indonesia, the urban product strategies are different from the rural ones. Urban consumers in Indonesia mainly comprise of young adults. The marketing department of the company should be in a position of assessing the gender preference of the product prior to making conclusive decisions regarding the product attributes. Therefore, it is proper for the international company to increase the awareness of the target group about the product; particularly its benefits. By so doing, the consumers will have an in-depth understanding of the product that will influence them to make the purchase. Young adults also exhibit the tendency to prefer high-value products to their low-value counterparts. As a result, it will be proper for the international company to increase the value of the product by incorporating the qualities that the young adults favor. Since Islam is the major religion in Indonesia, it would be appropriate for the company to develop products that do not impact negatively on the culture of the Muslims. Finally, increasing customer desire for a product requires the company to develop “lifestyle” products that meet the needs of the young individuals in urban centers. The sub-urban population also requires additional knowledge and an increase in the variety of products and product quality to lure them to make purchases.

Price Strategies

Since most individuals in the urban areas have more knowledge about the product, they are in a better position of determining the product components and its expected pricing (Kusumastuti, 2012). As a result, the company should allocate proper prices for its products or risk losing customers to other rival products. Similar pricing strategies also apply to sub-urban populations. Even though the population comprises of married individuals rather than young adults and university students as is the case in urban centers, the company should also adopt effective pricing strategies that will increase the demand of the product rather than compel consumers to opt for alternative products offered at relatively cheaper prices.

Place Strategies

The selection of an appropriate distribution channel characterizes the place strategies that a firm should implement (Kusumastuti, 2012). The distance and ease of location of the premises bears paramount significance to its success in the Indonesian urban centers. For instance, it is proper to locate the company premises at the residence, city centers and close to the universities and other areas where the young people converge. Since the budget of the young consumer is comparatively lower than that of the middle-age customer, the marketing manager of Bliss Honey Company should endeavor to adjust the price of the product in urban areas to reflect the budget. In the case of sub-urban consumers, the distance and ease of location of the consumer to the firm’s premises or stores also bears significant significance.

Promotion Strategies

Product promotion influences the sales of realized by a company. As noted earlier, most of the consumers in Indonesian urban centers are young adults; some students and recent graduates. Apparently, such individuals have an increased access to internet. Therefore, Bliss can use the web as an advertising channel to create awareness about the existence and location of its products. The company can also use the web to provide additional product information to consumers. Using pamphlets or public mass communication strategies is the proper promotion strategy that the firm can use when targeting sub-urban customers due to their reduced access to the Internet (Kusumastuti, 2012).

Conclusion

Over the recent years, Indonesia has exhibited an increase in its per capita income implying an increase in the purchasing power of the consumer. After identifying the positive impact of foreign direct investment, the Indonesian Government has endeavored to create a favorable environment for foreign investors. Having the challenge of overcoming environmental pollution and destruction, the Indonesian Government requires its investors to adhere to its environmental sustainability measures. The country also has a collectivist culture that places the group or community above an individual or business. The country has also portrayed technological readiness thereby providing a favorable investment opportunity Bliss Honey Company to utilize the technologies. In order to gain competitive advantage, it would be appropriate for the company to establish a joint venture strategic alliance.

References

Budiman, A., Chhor, H., Razdan, R., & Sohoni, A. (2012). The New Indonesian Consumer. McKinsey & Company.

Davidescu, C. V. M. (2012, January). Culture and Ethics in Indonesian Business. International Conference on Business, Entrepreneurship and Management 2012, San Beda College.

Federation of Enterprises in Belgium (FEB). (2014). Doing Business Internationally: Practical Guidelines for a Sustainable Strategy.

Geiger, T. (2011, June). The Indonesia Competitiveness Report 2011. In World Economic Forum.

Hair, J. F., Bush, R. P., & Ortinau, D. J. (2003). Marketing Research within a changing into environment. New York: McGraw Hill.

Juniarto, Hermawan. (2013). Doing Business in Indonesia. Retrieved from: http://www.hoganlovells.com/files/upload/doing%20business%20in%20indonesia_reduced.pdf

Kusumastuti, A. E. (2012). Consumers Perceptions and Purchasing Decisions Towards Yoghurt-A Case Study in Malang City, East Java Province, Indonesia.

OEDC. (2015). OECD Economic Surveys: Indonesia. Retrieved from: http://www.oecd.org/eco/surveys/Overview-Indonesia-2015.pdf

Rapid Assessment. (2008). Environmental Compliance and Enforcement in Indonesia. Retrieved from: http://www.aecen.org/sites/default/files/ID_Assessment.pdf

Uddin, M. B., & Akhter, B. (2011). Strategic alliances and competitiveness: Theoretical framework. Journal of Arts, Science and Commerce, 2, 43-54.