International Expansion Strategy for Snow Mobile Business

external Expansion Strategy for Snow Mobile BusinessEntry into naked commercializesPirilla is a company newly set up in Scotland. The company manufactures snow scooters (which, for the sake of this report, will be synonymous to snow mobiles) and is pondering whether to go external, and if so, where to, and how to go about it. Pirilla garden trucks deuce basic models, a 125cc and a 400cc model in six coloursAs far as the internationalisation goes, the marts chthonic scrutiny atomic number 18 Iceland, Sweden, Denmark, Finland, Russia, and Luxemburg. According to a recent feasibility study, the budget only allows for two countries to be entered in an initial wave.In general, there argon quaternary basic ways of entering immaterial commercialisesExportingLicensing roast ventureDirect investmentOf configuration these cig art come in loanblend forms as well, but by and macro these argon the main types that sensation would take into con expressionration when wanting to go inter national. The four modes be listed in locomote order of involvement in the respective foreign market, i.e. exporting the snow mobiles to any of the countries would ceteris paribus mean less local involvement than licensing etc.Exporting is precise often the initial mode of entering a foreign market, especially if no structured approach has been driven in the past (i.e. structures such as those of e.g. large pharmaceutical companies, which tend to allow for immediate licensing agreements in the target country at the very least). The export approach butt end be a quick and dirty way of tapping a foreign market, but it may well be a sustainable way of handling foreign job if it turns out there really is no principal in high degrees of local engagement.Licensing involves proceeds abroad, but carried out by another(prenominal) party, i.e. the licensee. Just kindred exporting it does not involve any direct investment, so if the licensee is trustworthy and knows how to employ the ( intangible) assets placed at his disposal i.e. intersectionion know-how, brands, sales strategies and aras etc this way deal turn out very beneficial as local expertise is teamed up with the licensors product. The downside is obvious It is crucial to recover a licensee that meets the required standards.Joint ventures do entail quite a bit of involvement in the foreign market. They ar ideal if there are a number of large players and we need to gain a certain size quickly, and the partner is reliable and has similar strategic goals. However, there are many downsides to this structure. If both(prenominal) partners share a common competitive goal, chances are both will try to prevent the other one from getting ahead at all, which may be harmful as resources and up being used on controlling/confining the partner rather than on furthering the common cause. Many time joint ventures are formed for certain parts of the value chain only, e.g. for RD inbound and/or outbound logistics.T he entry mode requiring just about commitment is usually the one that involves foreign direct investment (FDI). The trade-off is between control and resources that have to be available. Given the high level of resources that go abroad in this case, the company should be pretty sure about what it is doing and how it is going about it. For this reason, FDI is not usually the mode of first choice for new companies.The most apparent argument in favour of a foreign entry is the limited size of the market at home. No figures are available for the number of snow mobiles registered or interchange in Scotland or the UK, but it does not take much ingenuity to figure out which are the countries that provide better opportunities than the home market in terms of potential sales figures, i.e. Scandinavia, and, as far as Europe goes, probably Russia. This intuition is first of all simply lay downd on the climate. When was the function time you saw a snowmobile in the UK? In fact, the economic impact of snowmobiling in the Scandinavian region is around USD 1.6bn per year, third behind the ground forces and Canada (International Snowmobile Manufacturers Association, Snowmobiling Facts Snow Facts, n.d.). McDonalds has opened drive-through restaurants for snowmobiles in pairingern Sweden. This is possible because the vehicles have to stay on marked tracks (US Department of Commerce, International Trade Administration, 2002).International coverage means higher sales number, which can lead to economies of scale. The learning associated with higher output will enable the company to cut costs and produce at more efficient levels, which will ultimately put it in a position where it can position itself in a competitive market without having to forego profit margins.According to data by the International Snowmobile Manufacturers Association, there are 409 snowmobile dealerships in Scandinavia. Rather than to wait for the pull of the market which may or may not come if Pirilla wer e to confine itself to operations and sales in the UK, the company should induce that pull by an initial publicise to the market. In other words, it would be advisable to penetrate the market at sufficiently high levels, i.e. to be present in large numbers of these dealerships. Having achieved this initial level of penetration, the company could then operate from a solid base and take further marketing activities from there.As far as cons to going international go, the first that comes to mind is the relatively low degree of operative experience shortly prevalent within the company. Internationalisation always adds another dimension to the business, and it is effortless for newcomers to make mistakes. Or in more optimistic terms, the learning curve is steep in this area.Taking the aforementioned factors into consideration, I would advise the company to go international and improvement from the business potential abroad, but to do so by only exporting the snowmobiles at first (wit h a slight hint though see underneath). The countries I would go for are Sweden in Finland.The rationale for Sweden and Finland is compelling, I turn over. As pointed out earlier, Scandinavia commands high sales in snowmobiles, which is no awe at all, prone its climatic situation, particularly in the northern parts, where snowmobiles are a substitute for cars. Seeing that I have to limit my choice to two countries due to budgetary constraints, these two are the one I would choose. Sweden is my first choice, and Finland makes a convenient second given the similarity in climate and landscape. Also, both countries are members of the European Union, which tends to make exporting business easier.In the target countries I would try to find an exclusive importer/distributor so as not to make things too complicated.As I pointed out earlier, there are a number of hybrid forms when it comes to modes of entry to foreign markets, and for the given situation, and in another scenario, one co uld also invest a small portion of FDI to create a central export hub that makes logistic sense to ship the vehicles to (i.e. somewhere north of Lulea, at the border of Sweden and Finland). From this hub the vehicles could then be further shipped to their final destination. Note that there is also an alternative to this logistical package, i.e. if feasible, the ship could call at several(prenominal) ports en route. But this scenario would mean further logistical involvement in the target country, and at this stage I think we should rather avoid that. wherefore I would stick with the aforementioned option of an exclusive importer/distributor.I would suggest segmenting the market intoPrivate ridersProfessional ridersInstitutionsPrivate riders buy snowmobiles mainly for recreational activities, partly as substitute for their cars. According to a survey conducted by a number of universities in western USA, the reasons for owning a snowmobile (in the USA) areTo view the sceneryTo be with friendsTo get away from the usual demands of life and to do something with the familyTo be close with nature(International Snowmobile Manufacturers Association, Research Uncovers a Great Deal of touch in Snowmobiling, n.d.).67% of all riders are below 50 years old, with the average age of all snowmobile owners being 41 and having family and one cod (International Snowmobile Manufacturers Association, Snowmobiling Facts Snow Facts, n.d.).Professional riders are people who may find it difficult to get to certain destination the conventional way and cull (or, given the road situation, have) to use snowmobiles, or people who use them as part of their profession in the first place. Doctors, vets, hunters, ski instructors, and people in the tourism industriousness spring to mind.The third group, institutions, are bodies affiliated in some way to the state, such as law enforcement units (police, mountain police, rangers etc), and institutions in the corporate sector with employees/ members (in the widest sense) overt to outdoor work.The three groups will of course require different marketing approaches particularly with regard to the promotion policy.ProductionI am going to base my model for the export markets Sweden and Finland on Swedish statistics and will extrapolate the Finnish case, based on the rationale that many of the variables will be the same in both countries.It is difficult to make a compelling case for the UK market, if there is indeed such a thing. According to the International Snowmobile Manufacturers Association, there are about 2.6mn registered snowmobiles in the humanness 1.69mn in the USA, 601,000 in Canada, and 318,000 in Scandinavia (Facts and Statistics about Snowmobiling, n.d.) . This pretty much adds up to (slightly in a higher place) the 2.6mn, which means that the number of snowmobiles in the rest of the world is negligible, and including the UK.My model is based on the specific demographics of Sweden. According to the informatio n provided by the International Trade Administration of the US Department of Commerce (2004), there are currently about 130,000 snowmobiles in Sweden (or one for every 69 inhabitants). 8,000 units are sold every year. If these were only replacement purchases, the useful life of a snowmobile would be around 15 to 16 years. Whether these ARE in fact only replacement purchases or not does not really matter (of course parts of these 8,000 units are sold to first-time owners) the relevant bit is the ratio of new sales in terms of existing units in the market, which is 6.67%. In other words, the overthrow of existing numbers is 6.67% per year.Given the similarities between Sweden and Finland not the least in connection with climate and culture, I have extrapolated the demographic parameters of Sweden into the Finnish case (i.e. one snowmobile per 69 inhabitants, 6.67% of total units sold every year). My estimate puts the total number of snowmobiles in Finland to 75,000 (based on an esti mated 5.2mn inhabitants in Finland, as given by the CIA (CIA dry land Factbook, n.d.)), and taking into consideration the yearbook sales ratio of 6.67%, I have come up with annual sales of a total of 5,000 snowmobiles in Finland.The four largest producers of snowmobiles are based overseas Artic Cat, Bombardier Recreational Products, Polaris Industries, and Yamaha Motor Corporation. All of them grapple to Scandinavia, but while those that have all-terrain vehicles (ATVs) in their product range dispense them in the UK, I have not found a dealership that sells snowmobiles in the UK. My advice is to assume a markets size of about 10% of the Scandinavian model. For Scotland, the market size thus works out at 7,400, and annual sales could come in at around 500 (N.B. I am presume that the market for snowmobiles in England is negligible in size).Traditionally the ratio of the market share of the three largest players has been 421 (see also Ries Trout, 2001). And it is safe to assever ate that the top three spots have been taken by the aforementioned large producers, and a quick search on the web shows that there are a few smaller players as well. So our goal should be to achieve a market share of 5% in the three markets we are going to enter (i.e. UK/Scotland, Sweden, Finland). Hence the annual sales targets areSweden 5% x 8,000 = 400 unitsFinland 5% x 5,000 = 250 unitsScotland 5% x 500 = 25 unitsLets top it up by an additional 25 units in case the base case for Scotland/UK is too pessimistic, and we end up with an annual sales target of 700 units, which will also be our production target.Unfortunately no data have been provided with regard to any preferences for the 125cc or the 400cc model. I would powerfully suggest to carry out some market research in this particular field, otherwise we run a large risk of producing the wrong article. However, if you tell apart you are willing to take that risk, I would advise you to split the production two thirds to one t hird in favour of the 125cc units (i.e. 467 125ccs and 233 400ccs). This way the heavy(p) tied up in production and storage of finished products is less than in the case of a 50/50 split. Also, my guess is that the market for one-on-one (i.e. recreational) riders is probably largest, and they may be more reluctant to go for the substantially more expensive option as opposed to professional riders and institutions, who might find it worthwhile to invest in the faster package. But again I strongly recommend additional market research in this area.Most of the snowmobiles currently in the market are above 500cc, so both of our models will create a niche. If we position the models well, we may attract new first-time buyers (see below, Advertising/ progression).As far as the colours are concerned, the same is true We have too little data to base a decision on. In contrast to the aforementioned issue of 125cc vs. 400cc, I would suggest to build equal numbers of all colours.PricingI und erstand that marginal costs of production are GBP 6,450 for the 125cc model, and GBP 8,990 for the 400cc model.I am not sure if you are aware that these costs are already above the SALES prices of all but the most expensive models made by the top four producers The one 125cc model available in the market is for kids and is priced at GBP 1,800, although I dont believe an adult version would change much in terms of pricing. The 500cc to 600cc models on the market are in the region of GBP 5,000 to 7,000. at that place are two options First, we can try to cut costs. Given that we are new to the market, I doubt that we can achieve prices that are higher than those of our competitors let alone prices that are 50% to 75% above those in the marketThe second option, in general, to achieve a price that is beyond anything in the market is to convince the target buyers that our product is unique. As I pointed out earlier, our product is unique in that its engine size is smaller than those on t he market, and we can use this to our advantage. However, I believe that we can throw all the money we want at advertising agencies, but trying to make people buy snowmobiles that are effectively inferior in terms of performance to those on the market at 50% mark-ups, that is the proverbial horse that wont run. Even more so as we are new to the market why should anyone trust us?So my advice is to go back to the drawing board and cut costs to an extent that we can return a mark-up of 20% on top of marginal costs and still be in the range of other producers (i.e. around GBP 5,000 to a maximum of 6,000). There are no large price differentials among the three markets we have targeted (and certainly not among the two Scandinavian countries), so my advice applies to all of them.Distribution channelAs pointed out earlier, I would advise the company to find a reliable dealership with nationwide coverage (or partners) and sign a contract of exclusivity with him. This way we could benefit f rom existing infrastructure, and we would not have to worry about the final mile.Another option would be to have the ship call at legion(predicate) ports and thus avoid an exclusive agreement. This option would come with increased levels of flexibility, but at the same time it would require more planning on our side (N.B. the same goes for the building of a central hub at the Swedish-Finnish border, which would also involve a small portion of FDI, as pointed out earlier). For a start, I would prefer to sign a one-year exclusivity agreement. This would also have to include a reliable form of on-site after-sales service for cases of warranty etc.Advertising/publicityThere are numerous magazines that deal with snowmobiling on a purely funs-sports or a more technically advanced level. These will have to be our no.1 medium of advertising. We should also support our exclusive dealer in his efforts to sell our products i.e. POS advertising on his premises and at downstream dealerships he may sell to.On top of the snowmobiling magazines, we should advertise in trade magazines of the professional groups I identified as potential buyers earlier on Hunters, vets, doctors, ski instructors. There could also be publications of regional associations, which would allow us to find our target groups more easily (as we want to address hunters in northern parts of Sweden and Finland no point in targeting these groups in, say, Malm).I doubt that radio, let alone TV commercials are within our budgetary limits.The institutional group should be addressed by a sales person directly.We may want to stress the fact that our product is unique in that it is probably more economical and hence environmentally lovely due to the comparatively small cubic capacity. This could be our niche, as there are hardly any snowmobiles with said specifications on the market (most units are above 500cc).Entry into new marketsWe should try to consolidate our experience before rolling out into other mark ets. The top players are already there, so it is no oral sex of capturing any first-mover advantage. I would suggest to enter Norway next, and Russia in a subsequent wave. Norway is similar to Sweden, and it is part of the EEC, so any lessons learnt in Sweden and Finland can probably be easily implemented in Norway. Russia will be a different animal altogether and should not be tackled before we have all structures safely in place.Reference listCIA n.d., The World Factbook. Retrieved 27 August, 2006, from https//www.cia.gov/cia/publications/factbook/index.htmlInternational Snowmobile Manufacturers Association n.d., Facts and Statistics about Snowmobiling. Retrieved 27 August, 2006, from http//www.snowmobile.org/pr_snowfacts.aspInternational Snowmobile Manufacturers Association n.d., Research Uncovers a Great Deal of Interest in Snowmobiling. Retrieved 27 August, 2006, from http//www.snowmobile.org/pr_research-06-aug.aspInternational Snowmobile Manufacturers Association n.d., Snowmo biling Facts Snow Facts. Retrieved 27 August, 2006, from http//www.snowmobile.org/facts_snfcts.aspInternational Snowmobile Manufacturers Association n.d., Snowmobiling Facts Snowmobiling in Europe. Retrieved 27 August, 2006, from http//www.snowmobile.org/facts_europe.aspPorter, ME 1998, Competitive Advantage, Free Press, London.Ries, A and Trout, J 2001, Positioning the Battle For Your Mind, McGraw-Hill Education, London.US Department of Commerce, International Trade Administration, International Market Insight Snowmobiles, 2002. Retrieved 27 August, 2006, from http//strategis.ic.gc.ca/ large/internet/inimr-ri.nsf/en/gr111748e.html