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Development of Business

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The Challenge of Improvement. Within the context of E European markets ... Parochial or professional -parochial. Open or closed -open. Tight or loose control ... – PowerPoint PPT presentation

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Title: Development of Business


1
Development of Business Trade in CE Nations
  • Week 8

2
The Challenge of Improvement
  • Within the context of E European markets
  • EU accession
  • Value congruence
  • De facto congruence
  • Technological development
  • Media exposure
  • Real income improvements
  • Expectations

3
Business environment not much change at the top
4
Paradox of the market
  • How similar are Eastern European Markets
  • How homogenous is the region
  • Should marketing be
  • Local
  • Pan-European
  • What of local companies?

5
Strategic Management Strategic Marketing
  • Adapting an organization to changes in the
    environment
  • To achieve optimum performance organizations
    must
  • Align Strategy and structure
  • Strategy and environment
  • Structure and environment
  • Strategy - determine long term goals and adapt
    courses of action and resource allocation

6
Strategies
  • Defenders
  • maintain small niche concern with costs and
    efficiency
  • Analysers
  • only enter new markets after viability is proven
    cost efficient but must be able to seize new
    opportunities
  • Prospectors
  • locate and develop new markets
  • Reactors
  • show inconsistent and unstable adjustments

7
TAMIV SA Romania(1998)
  • Leather processing
  • Employs 300 people
  • 15-20 of production exported
  • 75 of raw materials imported
  • Totally privatized management/employee buyout
    in 1993
  • Is profitable

8
Organisational culture independent dimensions
of practices
  • 5 dimensions following Hofstede (1990)
  • Process or results oriented
  • -results
  • Job or employee oriented
  • -job
  • Parochial or professional
  • -parochial
  • Open or closed
  • -open
  • Tight or loose control
  • -loose high tight lower

9
Strategy of Company
  • Performance stable in non-complex sector
  • Strong homogeneous dominant coalition exists in
    the firm with same objectives
  • Firm has simple structures without administrative
    problems
  • Management uses rational pragmatic decision
    making processes
  • Strategy and strategic position defender

10
Organisation and Promotion
  • Tamiv is pretty typical
  • Production versus Services
  • Does this defender position affect marketing
    strategy
  • Is there a link between organisational strategy
    and product promotion?
  • Vorhies Morgan (2003) emphatically!

11
Under attack?
  • If local CEE companies operate defender
    strategies then this informs how they market?
  • If external companies have prospector marketing
    strategies
  • What would they be and
  • What impact on local companies?
  • Should local defenders move out of character?

12
Technology
13
Spread of the internet
14
E-business
  • Drivers of internet as sales medium
  • Improved internet security
  • Rising internet penetration
  • Greater standardisation
  • Constraints
  • Fears of lack of security
  • Little evidence of e-business success
  • Thaler May 2001

15
Market or Sell?Computer or other media
  • Analysis of markets can determine strategy rather
    than organisation
  • Product type
  • Preferred media
  • Similar/dispersed markets

16
Europeans arent all the same!
17
More proof Brand Strategy 02/04
18
Lessons?
  • In terms of how to promote
  • There is a clear distinction even between the
    advanced new EU members
  • In terms of media in UK we dont read!
  • A standard method of promotion cannot be employed
  • In terms of e-business/promotion CEE likely to
    take time to mature

19
Marketing in Czech Firms 1999 - 2003
  • 83 use web to advertise
  • 23 use web for ordering/purchasing
  • Conclusions of study
  • Underestimation of value of marketing
  • Few clear marketing strategies
  • Positive shift in perception of discipline
  • Increase in internet use
  • Enthusiastic take up is encouraging
  • Evidence of a trend in transition economies to
    view technology as a surrogate for
    entrepreneurial success
  • Technologies should be developed in tandem with
    strategic vision

20
Marketing standardization in CEE
  • Shuh (2000) conducted a survey of 8 Western
    companies marketing in CEE
  • In all except Beer standardized approach
  • Reasons
  • Most CEE markets are small and customization does
    not pay off
  • The markets will converge to West standards in 10
    years
  • Differentiated markets are inefficient (economies
    of scale)
  • Market structures and consumer behaviour can be
    changed over time

21
Market changes
  • In transition markets product preference can go
    through rapid change
  • Eg 1998 Poland analysis
  • Overall growth but emerging pattern
  • High end premium brands perform well
  • Low-end value brands hold up
  • Pressure on mid-priced products (particularly in
    FMCGs like coffee chocolate)

22
Meaning.?
  • As emerging markets mature product profiles
    establish
  • Basically first 10 years are atypical
  • Needs corporate responses
  • Cadbury began to produce on site (Wedel factory)
    13 year on year volume growth

23
Pliva D.D. Croatia SWOT analysis
24
Multinational entry modes
  • Joint ventures
  • Greenfield sites
  • Acquisitions
  • Brownfield sites/investment

25
Brownfield investment
  • Acquisition method which leads to radical
    restructuring of acquired firm
  • External growth strategies are inhibited by poor
    quality local firms
  • Internal growth strategies that depend on
    specific local resources

26
Definition
  • Brownfield investment is a foreign entry that
    starts with an acquisition but builds a local
    operation that uses more resources, in terms of
    their market value, from the parent firm that
    from the acquired firm

27
Research suggests major motive for FDI is
  • Buying a market share
  • First mover advantages
  • Schöller Lebensmittel a German frozen-food
    manufacturer acquired majority share in Hungarian
    ice-cream factory Budatej
  • Reconstructed factory
  • Introduced 4 new production lines
  • Rebuilt factory
  • Built new warehouses
  • Replaced freezers in retail outlets
  • Even discontinued local brand (perceived low
    quality)
  • 4 years later fully acquired company

28
Reasons for strategy
  • Obtain faster access to market
  • Benefit from companys existing market share
  • Used imported production technology and
    international brand names
  • Provided intensive training to impart management
    knowledge
  • Used only few of local firms assets but did use
    customer base and networks

29
Danisco A/S Danish food company
  • Acquired East German sugar companies because
    sugar quotas for firms were set by EU
  • Acquisition of sugar refiners increased Daniscos
    available production quotas.
  • East German refiners were technically backward
    but production were location bound and had to use
    local sugar farmers produce. Strong competition
    developed to acquire these refiners.
  • A company seeking to enter a new market may adopt
    a brownfield policy rather than Greenfield

30
Availability of suitable trading partners may
influence entry mode
  • British Vita sought to expand into Poland.
  • 30 years policy of expansion by acquisitions
  • In general, we found the companies were
    overmanned and the equipment old. For example,
    we currently employ 38 people in production to
    manufacture 8-9,000 tonnes per year. A company
    we looked at in Lodz produced 4,000 tonnes a year
    using 350 people.
  • British Vita invested in Greenfield site
  • Schöller established a Greenfield plant in Poland
    to manufacture ice-cream because the industry was
    far more underdeveloped than in Hungary

31
The advantages of brownfield investment
  • If local industries are advanced they may make
    retaliatory moves if Greenfield strategy adopted
  • Greenfield does not guarantee a market share
  • Costs of market entry would be higher with
    Greenfield

32
What conditions determine entry method?
  • If the strategic intent of an investment depends
    on local resources it is less likely to be
    Greenfield
  • Firms with transferrable resources (excess
    management, access to finance) are more likely to
    choose Green/Brownfield investments
  • Entry via acquisition is more likely if local
    industry possesses assets that are valuable for
    foreign investors (eg internationally competitive
    technology)
  • Entry via acquisition is more likely if existing
    firms in the industry are protected by high
    barriers to entry
  • Entry into a country with low quality of
    resources available on the free market, reletive
    to those available in firms, is more likely to be
    in the form of acquisition

33
Inward FDI
  • 2001
  • Worldwide decline in FDI had no impact on
    transition economies
  • Overall FDI inflows remained unchanged from
    previous year
  • Decline only affected advanced economies
  • Cause
  • Stagnation of leading economies
  • Loss of market value of some TNCs lead to scaled
    back investment plans
  • This may have an effect this/next year on
    transition economies

34
Why?
  • Thanks to recent productivity gains, most east
    European transition economies have been able to
    improve their cost competitiveness vis-à-vis
    their main trading partners.
  • This on-going improvement in competitive position
    obviously helped east European exporters to
    perform better on west European markets in 2001
    than some of their competitors.
  • The gains in competitiveness and the improved
    export performance has led to an increase in
    eastern Europe's share of the EU's extra-EU
    imports from 9.9 per cent in 2000 to 11.1 per
    cent in 2001
  • Economic Intelligence Unit

35
So what did happen then?
  • September 22 2003--Foreign direct investment
    (FDI) inflows into the transition economies of
    eastern Europe this year are expected to be
    similar to, or even exceed, the record total of
    US34bn achieved in 2002.
  • Economist Intelligence Unit (Economies in
    transition, September 2003) reports data for the
    first half of 2003, which support the expectation
    that the region will continue to buck the global
    trend of FDI decline. Continued buoyant inflows
    into eastern Europe are forecast for the medium
    term. However, despite EU enlargement in 2004,
    the main traditional FDI destinations in eastern
    Europe will attract a declining share of regional
    FDI

36
Drivers of FDI
  • Continued FDI inflows into the region are being
    achieved despite slow OECD growth and the ongoing
    difficulties with privatisation programmes in
    some countries.
  • This has been offset by the increased relative
    attractiveness of the region compared with most
    other emerging markets, and cost-cutting
    pressures on Western companies that have
    increased the incentive to relocate operations to
    eastern Europe.
  • Strong growth in much of the region assured
    access to EU markets for many countries and the
    continuing pull of abundant natural resources in
    some CIS states have also played a role.
  • Despite the weak global economy most transition
    economies have continued to perform well in 2003
    in terms of output growth.
  • The Economist Intelligence Unit forecasts that
    average real GDP growth in 2003 in the transition
    economies will accelerate to 5.1, from 4.3 in
    2002

37
A shift away from east central Europe?
  • The overall FDI figure for the region masks some
    important intra-regional shifts and changes in
    FDI patterns. First-half year data reveal
    significant year on year declines of FDI into the
    leading central European economies (the Czech
    Republic, Poland, Hungary and Slovenia), which
    has in part been offset by the rising trend in
    all the other sub-regions.
  • In Hungary inward FDI was actually negative in
    the first half of 2003, as disinvestment by
    existing companies exceeded new investments.
    Hungary has been hurt by strong wage growth and
    the real appreciation of the forint in 2001-02,
    as well as generally weakening performance.
  • However, the data may portray a somewhat
    distorted picture because official Hungarian FDI
    data omit reinvested earnings, and
    theseaccording to some estimatescontinue to be
    significant

38
South East Europe hinderances to inward FDI
  • Slow rate of privatization
  • Mixture of insufficient regulation and control
    and too many administrative rules and
    institutional involvement
  • Lack of transparency leading to bribery
  • Local business which has become a mixture of the
    legal and the illegal
  • Unstable politics
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