Assessing the Business Performance of Metricum

Based in the east of England, Metricum is now a well established international SME founded 28 years ago. Their international activities are complex with manufacturing bases in Sweden and China and a wholly owned subsidiary in Romania from which they source raw materials. Currently the Romanian firm is running at just 20% of capacity, but a great deal of effort is being made to build linkages between the design teams in the U.K and Romania where they have high potential for innovation. Now in the process of restructuring their Romanian operation, Will Hatton, the C.E.O, and his teams are seeking to explore market opportunities in some of the less developed former Eastern Bloc countries such as Ukraine but have identifiable and recognised skills gaps in assessing the market opportunities. They are not sure how to assess the market potential, the competition and the best route to market. There is currently no dedicated Marketing staff within the firm. And all such issues are handled by the Sales manager.

1.0 Assessing and understanding the unfamiliar markets:

There are the following ways that we can assess as well as understand the unfamiliar markets. Firstly we have to scan the macro environment (the wider social, political and economic setting in which organisations want to operate) because of increased rate of environmental change. Environmental forces may fluctuate rapidly or slowly but one thing is certain that they are dynamic. Although the future is uncertain but some estimation can be made by scanning and marketers can modify their strategies in response to the dynamic environment. Precaution is better than cure and thus need for scanning arises. The macro environment factors are Political, Economical, Social, Technological and Legal. As Metricum want to enter the other eastern European markets such as Ukraine so we have to first scan the Political, Economical, Social, Technological, Customer, Competitors and Legal Environment.

1.1 Political Environment

Political Environment help to determine the degree of government intervenes in the economy. It includes mainly Labour law, environmental law, tax policy, political stability, tariffs and trade restrictions. As we take the example of emerging free market like Ukraine, there are different kind of relationship between government and business. Overlapping responsibilities between different government agencies creates conflicting instruction and policies. Many times we hear that Ukraine government is "non transparent". Historically Ukraine has been suffering from corruption. Therefore, companies are forced to seek personal relationships with officers of government for their safety and access to information. For successful business in Ukraine, companies should be adapted to existing communication styles, to some extent, even if you feel like you are "compromising your principles."

1.2 Economical Environment

Economical environment plays a key role for assessing an unfamiliar market. It includes inflation rate, exchange rates, economic growth and interest rates etc. The costs of exporting goods and the supply and price of imported goods in an economy are being affected by exchange rates. Interest rates affect a firm's cost of capital and therefore to what extent a business grows and expands. When inflation rate is high (typically as a result of public finances being out of control), then it is very difficult to take informed decisions for the firms. Therefore, we have to consider these factors minutely while entering in a market.

1.3 Social and Cultural Environment

Age distribution, population growth rate, health consciousness, culture, career attitudes and emphasis on safety are the following factors which comes under the Social and cultural environment. "The socio cultural environment encapsulates demand and tastes, which vary withA fashion, disposable income, and general changes can again provide both opportunities and threats for particularA companies"A (Thompson, 2002; Pearce and Robinson, 2005). The company's products and their way of doing the business are being affected by social environment. For example, the way of doing business in Ukraine is very different from other countries including the U.S.A, England, Germany and other northern and central European countries. Foreigners in Ukraine find that it is too late are the norm for the Ukrainians. Arriving five minutes late to a meeting or a meeting is usually considered a perfectly fine. There are also some fundamental differences between Ukraine and western culture. Western cultures are more inclined towards Individualism and rely somewhat on teams while Ukraine is totally opposite.

1.4 Technological factors:

Environmental aspects such as Research and Development activity, technology incentives, automation, and the rate of technological change and ecological aspects are the following factors which should be considered while assessing an unfamiliar market. They influence outsourcing decisions, barriers to entry and minimum efficient production level. Furthermore, the technology pillar measures the agility with which an economy adopts existing technologies to enhance the productivity of its industries.

1.5 Market size:

Market size is also one of the main factors while assessing an unfamiliar market because size of the market affects productivity, large markets help the firm in exploiting the large economy of scale. Due to globalisation, international markets have become a substitute for domestic markets, especially for small countries. By including both domestic and foreign markets in the measure of market size, it also avoids discriminating against geographic areas such as European Union that are broken into many countries, but have one common market.

1.6 Legal Environment:

Legal factors can affect the company operations, product costs and demand for products. Health and safety law, consumer law, discrimination law, employment law and antitrust law etc are the following factors have to examine while assessing an unfamiliar market.

1.7 Competitor Analysis:

Sun Tzu (see Clavell, 1981, for a lucid and readable translation), the great fourth-century BC Chinese general, Encapsulated the importance of competitor analysis: "If you know your enemy as you know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory you gain you will suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle". By doing competitor analysis we can easily know about the strengths and weaknesses of current and potential competitors. It also helps in determining the threats and opportunities which underlying in the market. There are following steps by which we can do competitor analysis. First we should know about our industry scope and nature. What are the key success factors in our industry then we should know who the competitors are, what their strength and weakness and rank each competitors according to their or industry success factors.

2.0 Internal Skills and Knowledge Base of the Company:

For building Internal skills and Knowledge base of the company we must know about the organisation's resources (its assets, capabilities and competencies), although we should recognize both existing and potential resources. This is the base from which organisations build a competitive position, and any marketing strategy that is not grounded in these realities faces two major risks. First, it may ignore those resources that could provide a unique differentiation in the customer's eyes. Second, it may rely for success on resources and an ability that is does not have or cannot acquire. These strategies will inevitably fail at the implementation stage. Fig 1.1 This is shown schematically in Figure 1.1, starting from the most general issues and moving progressively to the more specific.

2.1 Understanding organisational capabilities

While any organizations could produce a long list of the resources at its disposal, what is important is to identify those resources that can help create competitive advantage, and ideally that can be sustained into the foreseeable future. The resources that will most likely create advantage have a number of key characteristics. First, they enable the provision of competitively superior value to customers (Barney, 1991, 1997; Slater, 1997). Second they are resistant to duplication by competitors (Dierickx and Cool, 1989; Reed and DeFillippi, 1990; Hall, 1992, 1993). Third, their value can be appropriated by the organization (Kay, 1993; Collis and Montgomery, 1985). From the above it is clear that resources such as brand equity, relationships with customers, effective distribution networks, and the competitive position occupied, are potentially significant advantage generating resources. These have been termed marketing resources as they relate directly marketing activities and are directly leveraged in the marketplace. There are many marketing resources which are intangible in nature such as a firm enjoying the resource of close relationships with key customers might be more difficult for a competitor to copy than one offering cut price bargains. By building these resources we have to be very careful that either these resources are contributing to the creation of sustainable competitive advantage for the organization or not? Where it does, or it could be leveraged to, the resources should be recognized as the source of a superior marketing strategy and protected from external recognition and internal myopia.

2.2 The resource based view of the firm

While assets are one type of resource in the RBV of the firm, capabilities or competencies are the other. This refers to the abilities of an enterprise to organise, manage co-ordinate or undertake specific sets of activities (Teece et al., 1992). In essence, capabilities refer to a firm's ability deploy assets through organisational processes to achieve a desired result. There are two ways we can assess the capabilities. Firstly, these are strategic, functional or operational. Secondly capabilities may lie with individuals, with group, or at the corporate level Strategic capabilities include issues such as dominant logic or orientation guiding management (which will strongly influence strategic direction), the ability of the organisation to learn (to acquire, assimilate and act on information), and the ability of senior managers tto manage the implementation of strategy. Functional capabilities lie in the execution of functional tasks. These include marketing capabilities, financial management capabilities and operations management capabilities. These have been usefully categorised by Day (1994) as inside-out, outside-in and spanning capabilities. Operational capabilities are concerned with undertaking individual line tasks, such as operating machinery, the application of information systems and completion of order processing. Individual competencies are the skills and abilities of individuals within the organisation. They include the ability of the individual to analyse critically and assess a given situation (whether this is a CEO assessing a strategic problem, or the shop floor worker assessing the impact of a machine failure). Group competencies are where individual abilities come together in teams or ad hoc, informal, task-related teams. While the abilities of individuals are important, so too is their ability to work constructively together. Corporate-level competencies relate to the abilities of the firm as a whole to undertake strategic, functional or operational tasks. This could include the ability of the firm to internalise learning, so that critical information is not held by individuals but is shared throughout the firm.

2.3 Auditing Resources:

Assessing an organisation's capabilities in terms of its specific strengths and weaknesses commences with a thorough audit of the resources of the organisation that can be brought to bear in the marketplace. The assessment needs to go about a mere listing of resources to identify those resources that make the organisation strategically distinct from its competitors. For these purposes the marketing audit (see Kotler et al., 1989 for a classic description) has been suggested as a systematic approach to assessing marketing resources and their utilisation within the organisation. Strengths and weakness exist, however, only in relation to the tasks the organisation is seeking to achieve, the priorities of customers and the capabilities of competitors (see Piercy, 1997). These analyses should help to identify the distinctive competencies of the organisation in a practical way and the core weaknesses inherent in its current operations and activities (see Prahalad and Hamel, 1990) There are some other resources which Metricum have to assess so that they can build the internal resources and knowledge base of the company to allow them to do things effectively and efficiently. These are technical resources, financial standing, organisations, managerial skills and information systems. Technical skill is one of the key resources in a world of rapidly changing technology. This involves the ability of the organisation to develop new processes and products through research and development, which can be utilised in the marketplace. A second important resource in the organisation is financial standing which help in deciding its scope for action and ability to put its strategies into operation. For example, in 1997 Microsoft was reported as holding $7 billion in cash reserves available for investments in new projects such as developing Internet-based products and services, and partnership with Comcast to develop interactive and video services (Economist, 14 June 1997). Managerial skills in the widest possible sense are a further resource of the organisation. The experience of managers and the way in which they discharge their duties and motivate their staff have a major impact on corporate performance. Organisation structure is one of the valuable assets or resources. Some structures, such as matrix organisation, are designed to facilitate wide use of skills throughout the organisation. For organising the marketing effort product management, as pioneered by Procter and Gamble in the early years of the last century, has proved particularly successful in developing brand champions. 2.4 Assessing marketing capabilities: The resource based perspective, and particularly relating this to marketing activities (Moller and Anttila, 1987; day, 1994, Hooley et al., 1998), provides a basis for defining the key marketing capabilities that can be used to create competitive advantage (see Figure 1.2). These capabilities all stem from the central processes with which marketing is concerned. Figure 1.2 Key marketing capabilities

2.5 Developing and exploiting Resources

With the emphasis above has been on identifying existing resources organisations also need to ensure they are developing and nurturing the resources that will be required in the future. This involves a degree of forecasting how markets and customers will change over the time. Figure 1.3 shows four strategies for development

Figure 1.3

Next generation Diversified opportunities Fill the gaps Exploit current skills

Organisational Resources New

Existing

Existing New Market and Customers

In the lower left quadrant the focus is on utilising existing resources as effectively as possible in existing markets. The 'Fill the gaps' strategy involves looking for better ways of serving existing customers, using the existing strengths of the organisation In the top left quadrant the organisation retains its focus on existing markets and customers but recognises that the resources it will need to serve them in the future will need to change this requires the 'next generation' of resources to be built and nurtured.. In the bottom right quadrant the organisations seeks new market and customers where it can 'exploit current skills' more effectively. This quest for new customers, or new markets, is, however, guided by the existing capabilities of the organisation. The acquisition of the U.K retailer Asda by the American firm Wal-Mart is a case point. This enabled Wal-Mart to further exploit its merchandising and purchasing capabilities in the new markets of the U.K. Finally at top right the organisations looks to serve new customers with new resources through 'diversified opportunities'. This option takes the organisation simultaneously away from its existing markets and its existing resources- a more risky strategy and one that should not be pursued lightly. Firms that go this route often do so through acquisition or merger. In short, Metricum have to think how competencies and capabilities are understood, but noted that company's focus on competition positioning (i.e. the choice of target markets and the competitive advantage exploited) provides a mechanism for reconciling the internal focus on competencies and resources with the external focus demanded by market orientation. The practical reality faced in building robust marketing strategies is that each company has its own unique strengths and weaknesses with respect to the competition and its own distinctive competence. While the overarching imperative is customer focus, a key factor for competing successfully in ever more competitive markets is to recognise these factors and utilise them to the full. At a fundamental level each organisation needs to understand its core competencies and its resource base. These are the particular skills and processes at which the company excels, and that can produce the next generation of product and services. At the next level the organisation should be aware of its exploitable marketing assets. The asset-based marketing approach encourages organisations to examine systematically their current and potential assets in the market place and to select those for emphasis where they have, ideally, a defensible uniqueness. Assets build up in the market place with customers are less prone to attack by competitors than low prices or easily imitated technologies. Combined, these different perspectives come together in the assessment of the critical marketing resources of the firm.

3.0 Developing an appropriate market entry strategy

The decision of how to enter a foreign market can have a significant impact on the results. Expansion into foreign markets can be achieved via the following mechanisms: Exporting, Turnkey Contracts, Licensing, Franchising, Joint Venture and Wholly owned subsidiaries.

Exporting:

Exporting is one of the strategies to enter in a foreign market. There are following conditions which favour the export mode such as the country who have limited sales potential or little product adaptation require. Secondly liberal policies and high political risk are also favouring this mode. Third, the country which has high production costs. There are following advantages and disadvantages of this entry mode. The first advantage is it minimise the risk and investment cost. Second, it is of the quick way to entry in a market. Third, it helps in realizing the locations and experience curve economies. But if we talk about disadvantages these are trade barriers, transport costs, limited access to local information, problem with local marketing agents etc

Turnkey contracts:

Turnkey is not very popular way to enter in a foreign market because it creates efficient competitors and have lack of long-term market presence. But it has one advantage i.e. it has ability to earn returns from process technology skills in countries where FDI is restricted.

Licensing:

Licensing is also one of the ways to enter in a foreign market. There are many conditions which favour this route. These are import and investment barriers, legal protection possible in target environment, low sales potential in target country. Licensing helps in minimising the risk as well as getting the high return on investment. It's also help in quick entry. But there are many disadvantages also like lack of control overuse of assets. The company which are Licensee may become competitor many times. Licensing period is also limited and knowledge spillovers generally.

Franchising:

Franchising is also one of the popular ways to enter in a foreign market. The main condition which favours this mode is low development costs and risks. But it has also so many disadvantages i.e. it helpless to control over technology. By franchising, company does not able to realize location, experience curve economies and global strategic coordination.

Joint venture:

Joint Venture is one the most famous and successful method to enter in a foreign market. There are hundreds of companies which follow this strategy. Most of the successful companies have adopted this strategy. There are so many conditions which favour these routes. By this mode companies can easily enter in those countries which have import barrier problem, large cultural distance, high sales potential, some political risk and assets not are fairly priced, government is having restrictions on foreign ownership where local company can provide skills, resources, distribution network, brand name, etc. Joint venture is also having following advantages like it help in overcomes ownership restriction and cultural distance and combining resources of two companies. It's also help in those countries where less investment require, more potential for learning and can view as insider. But it also has some disadvantages like it is very difficult to manage and control. It has greater risk than exporting and licensing and sometimes partner becomes a competitor.

Wholly owned subsidiaries:

Wholly owned subsidiaries are also one of the main strategies to enter in a foreign market. This strategy generally adopted by those companies which are high cash rich. Import barriers, small cultural distance, not fairly priced assets and low political risk are the conditions which favour the most. It helps in viewing as an insider in the country and it also minimise the knowledge spillover. By establishing a wholly owned subsidiary company can have greater knowledge of local market and can better apply specialized skills. But this entry mode is highly risky as compare to other modes. It requires more resources and commitment.

Suggested Strategy for Metricum:

As Metricum manufacture materials handling equipment and intelligent handling solutions. Therefore for entering in the other market it require high cost and company is not sure how to assess the market potential, the competitors and the best route to market. To overcome these types of problems, company should use Joint Venture route to enter in a foreign market as most of the companies do like General Electric, Tesco and 3M etc. In the joint venture, there are following advantages like Market Entry, risk/reward sharing, technology sharing and joint product development, and conforming to government regulations. Other benefits include political connections and distribution channel access that may depend on relationships. As they are looking at international markets, they should realised that the best opportunities were not in established markets, such as those in North America and Western Europe, where strong local competitors already existed, but in the emerging markets of Eastern Europe like Ukraine where there are few capable competitors but strong underlying growth trends. Otherwise Metricum can uses its Exports Strategy to establish an initial presence in a foreign market, only building foreign production facilities once sales volume rises to a level that justifies local production. The export strategy is build around simple principles. One is known as "FIDO," which stands for First in (to a new market) Defeat others. The essence of FIDO is to gain advantage over other exporters by getting into a market first and learning about that country and how to sell there before others do. Secondly they can follow the other principle like "make a little, sell a little" which is idea of entering on a small scale with a very modest investment and pushing one basic product. Once Metricum believes that they have learned enough about the market to reduce the risk of failure to reasonable levels, then they can add additional products. Third, they can hire the local employees to sell the firm's products. The company normally sets up a local sales subsidiary to handle its export activities in a country. It then staffs this subsidiary with local hires because it believes they are likely to have a much better idea of how to sell in their own country as compare to expatriates.

4.0 Building a global strategy

Another common practice is to formulate global strategies plans for the Joint Venture, export and eventual overseas production of its products. Within the context of above discussed plans, company should gives local managers considerable autonomy to find the best way to sell the products within their country. For example when the Minnesota Mining and Manufacturing Co. (3M) first exported its Post-it Notes, it planned to "sample the daylights" out of the product, but it also told local managers to find the best way of doing this. Local manager hired office cleaning crews to pass out the samples in Great Britain and Germany; in Italy, office products distributors were used to pass out free samples; while in Malaysia, local managers employed young women to go from office to office handling out samples. In typical 3M fashion, when the volume of Post-it Notes was sufficient to justify it, exports from their own country were replaced by local production. And in the case of Joint Venture, when the venture becomes established, company can increase its ownership stake in its partner.

Some other Resources Requirement

Dedicated marketing staff is one of the main problems Metricum is facing so first challenge was the lack of staff skilled in the business of exporting. It's very difficult to build an international business without in-house expertise in the basic mechanics of exporting. So Metricum needed people who understand the nuts and bolts of exporting- letter of credit, payment terms, bill of lading, and so on. Second, long-term perspective that is often necessary to build a successful international business. Building long-term personal relationships with potential foreign customers is often the key to getting business. Even with such efforts, however, the business may not come quickly. Meeting with potential foreign customers yields no direct business 90% of the time, although it often yields benefits in terms of competitive information and relationship building.

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