Expanding a fudge company from Northampton to Austria using Foreign Direct Investment

¶ … Northampton-Based Organisation Wishes Expand Market Internationally

Strategy of International Trade

A firm may decide to operate internationally due to a wide variety of reasons. These reasons include but are not limited to market imperfections at home, gaining market power and favourable environment overseas. In order to operate internationally, firms need an appropriate strategy so that their resources are put to best use and the whole process of internationalization proceeds according to plan. (Twarowska and Kakol, 2013)

There are two ways of entering an international market, equity-based entry and non-equity-based entry. The former gives high return on investment and market control but it has high risk associated with it. The latter does not give sufficient market power nor high rate of return but it is volatile and minimizes the risk. (Twarowska and Kakol, 2013)

The first and the least risky method to trade internationally is engaging in import and export. Using this strategy, the firm produces its product at home but to fulfil the international demand. There are two types of exports, direct and indirect exports. If agents carry the product of one firm overseas, then it is called indirect exports. If the firm itself engages in marketing and selling, then it is called direct exports. (Twarowska and Kakol, 2013)

Licensure, franchising and joint ventures are also international trade strategies. In these strategies, the firm buys a license or gives permission to a franchise to produce its product. In this way, the profits are shared between parent company and overseas branch. (Twarowska and Kakol, 2013)

The strategy that suits you the most is Foreign Direct Investment. Following this way of entry, a firm starts a new business in the foreign country of interest. The firm may buy an existing setup or it may start from the beginning. Foreign Direct Investment suits you as you have opted for internationalization. It will also help you to preserve the recipe, as you will have full control of the firm overseas. Moreover, FDI can give the highest return on investment. Lastly, you can also pick your own staff and manage them the way you want. The autonomy given to an investor by FDI is far more than any other strategy and you can use it to your benefit. (Twarowska and Kakol, 2013)

Changes Required

The production processes must be changed firstly. The right amount of the right product should be produced. As the demand in Austria will not be same as Northampton, the production will need realignment. The demand of the populace can be determined using surveys and other research methods. It is necessary to produce what the people demand or the turnover will plummet. (DeRuiter Consultancy, 2009)

Although the business has been producing fudge for the last five years, the production processes must still be improved if the company has to compete effectively. If the production is very expensive, then the firm will lose the competitive advantage and therefore, its profits as well. (DeRuiter Consultancy, 2009)

Sales and distribution changes are also needed in order to make the business prosper internationally. Sales are very critical to a consumer product such as fudge. As the customers are attracted towards a good shop experience, attention should be given to the selection of disciplined and friendly sales men. In addition, the sales should also be increased in order to spread the high fixed cost incurred after the FDI. (Osman and Westgerd, 2008)

Distribution channels should be carefully selected. The distribution channels must be resilient enough to endure the changes in consumer demand. The distribution channels can give a firm competitive advantage by enabling it to deliver the product on time. In this way, the goodwill of the firm will be improved. Hindrances in the distribution channels can have calamitous results. Therefore, distribution should become speedier as the firm will be new in this country and best performance will be needed for the company to develop its good repute. (Osman and Westgerd, 2008)

Marketing is an aspect that is affected directly by the sulture and habits of people. Moving to Austria will require a change in marketing strategy as well. The political, economic, cultural, technological and legal environment of Austria will be different. Therefore, to market the product successfully, the firm will need an understanding of the Austrian perspective. To achieve that, Austrian nationals can be employed or the culture and way of living of Austria can be studied.

Process Map

Production

Sales

Distribution

Raw materials and employees

Forecasting the demand

Correct distribution channel

Develop a new recipe

Send a sample of the new recipe to staff and customers

Is the recipe approved?

Yes

No

Produce the new and old recipes

Forward to sales

Receive the product

Manage the stock produced

Select appropriate logistics and distribution personnel

Forward to distribution

Receive the consignment

Market testing

Is the market viable?

Yes

No

Forward to retailers

Organizational Culture

The type of organizational culture you have can be categorized as bureaucratic culture. This is mainly because the power of decision-making resides with the business owners. In addition, the business owners are also leaders recommending the subordinates what to do. Trial of new recipes and making the recipes is also in the hands of the owners. (Barney, 1986)

Moreover, the business is consistent with the rational goal model theory. According to this theory, the business focuses on fulfilling external demand. The business is product oriented and is constantly innovating in order to remain competitive. Moreover, according to rational goal model, the business is controlled by the top management, which, in this case, are the owners. (Barney, 1986)

The organizational structure needs minor amendments in order to sustain in the international environment. As mentioned earlier, bureaucratic structure is not open to adaptations. Therefore, recommendations regarded the recipe and other business decisions are discarded immediately or eventually. To succeed in Austria, you must accept and welcome the advice and recommendations of employees as innovation leads to better product quality. In addition, some of the local employees will certainly have more knowledge about the taste and preferences of the Austrian populace and accepting their advice will lead to a better business. (Barney, 1986)

Organizations use different stories and examples to change their culture. Different role models are discussed to increase the motivation of the employees. These examples are delivered to the employees by the management. The employees are then motivated to follow a specific role model in order to achieve the laurels explained. Therefore, management has a pivotal role in changing the organizational culture. In case of this business, the partners should play their part if they want to reap the benefits of a more flexible organizational culture. (Fard, Rostamy and Taghiloo, 2009)

Managing People to Get Successful

An efficient human resource management can steer the organization towards success. All the employees have to integrate their personal goals with the goals of the organization and a good human resource management can help them with it. According to the strategic HRM and resource-based theory, there is a direct link between HRM and the performance of a firm. The theory suggests that the link between human resource management and performance of the firm is because of three reasons: (Paauwe and Boselie, 2002)

Employees can give an organization a massive competitive edge

The actions of the HRM affects the employees directly

Successful HRM can give a firm matchless performance (Paauwe and Boselie, 2002)

A successful HRM can motivate the employees to give their best. As the employees are the primary source of ideas and innovation, their motivation means that the business will thrive. In addition, technological advancements also require the training of the staff. If the staff is not trained, the technology will become a disadvantage rather than an advantage. (Paauwe and Boselie, 2002)

Careful management of people working in an organization also helps the firm as the employees are able to sort out their individual goals and the goals of the firm. The management can train and educate them about the problems that might arise if the two types of goals are jumbled up. Furthermore, the management can also discuss the goals and discrepancies with the employees as well. (Paauwe and Boselie, 2002)

Moreover, the human resource management also helps in settling various disputes that arise in the workplace. As the people can belong to any nation, race or religion, many diversities can arise. These diversities include, race, gender, age, disability and cultural diversities. If any of these diversities is found in an organization, the employees will not be able to fulfil their duties as they will be occupied by other matters. If the employees are trained and managed in a way that they do not hurt their colleagues. (Paauwe and Boselie, 2002)

Human resource management is also very necessary to give the talented employees a fair chance. In this setup, the employees are not involved in making decisions about the recipes but they can be given a chance to prove their skill in other areas. An efficient human resource strategy can help the employees in demonstrating their skills and therefore, the business prospers. (Paauwe and Boselie, 2002)

Management of employees is very important for new business to grow and succeed. Without proper management, the company might lose important employees and its good name as well. For instance, when PepsiCo bought Californian Pizza Kitchen. PepsiCo started a heavy campaign to promote the business and opened sixty new stores. Initially, the business was a success as the people could visit the shops at different locations. Later, however, seventeen stores were closed due to quality and service issues. This shows that management plays a pivotal role in the success of a new business. (Menefee, Parnell, Power and Ziemnowicz, 2006)

Steps towards Change

As mentioned earlier, necessary changes are needed in an organization in order to enable it to operate internationally. The distribution, sales and marketing processes should be realigned according to the demand of the people of the new country. In addition to that, the organizational culture should also be changed according to the new country. The way of doing things and taking decisions is different in every country and therefore, processes and culture need a change when a company goes international. (Burnes, 2004)

As changes occur, the employees are the ones who are affected the most. Therefore, change should be carefully managed in order to preserve employee loyalty and devotion. The three-stage model, devised by Kurt Lewin, pertains to organizational changes. This model is used to make the transition smoother. (Burnes, 2004)

According to this model, every change has three phases and each phase requires appropriate actions and steps from the management. The first phase is called the unfreezing phase. In this phase, the existing mind-set of the employees about the culture and processes is changed. This phase requires two steps to be taken by the management. These are: (Burnes, 2004)

Planning the change

Making the employees aware about the change (Burnes, 2004)

Following the model, the management should first plan the change. In the planning phase, new distribution channels, sales methods and marketing strategies should be discussed. The change in organizational culture should be given the greatest importance as it is the most difficult to change. After planning, the change should be discussed with the employees in order to make them aware about the change. Completing the aforementioned steps, the management can move to the second phase. (Burnes, 2004)

The second phase, known as the period of transition, is the phase where the change actually happens. The success of the first phase determines the success of the second one. In this phase, the idea of change has already been planted in employees' minds. Therefore, the management should continue with the actual change following the given steps: (Burnes, 2004)

Gaining acceptance to the change

Changing the current processes and culture (Burnes, 2004)

The management should then mould the thinking of the employees, if necessary, to accept the change. After gaining the acceptance, the actual change should be undertaken. The stories and examples should be delivered to the employees to change the existing goals and suture. Moreover, small targets should be set for the employees to achieve and incentives should be given to those who succeed. In this way, the whole paradigm will be flipped. Changing the processes is relatively easier as they do not normally require a change in behaviour. (Burnes, 2004)

After completing the second phase, the management should start the third phase of the change: refreezing. In this phase, the processes and culture are settling into the minds of the behaviour. Errors and discrepancies are identified and the employees make themselves comfortable with the new way. (Burnes, 2004)

The role of the management is to strengthen the new system. Amendments should be made if the new system has any errors. The employees should be briefed about the amends and further changes as well. Following the aforementioned steps, the organization will successfully bring about the necessary change. (Burnes, 2004)

Conclusion

International trade has become the objective of most of the firms nowadays. However, correct strategy should be chosen to enter the international market. Moreover, the firm should also generate the necessary changes in the processes and culture to succeed overseas. Furthermore, the employees should also be managed carefully to produce the best outcomes. Lastly, the firm should opt for the correct steps and actions to bring the change so that the transition from the old system is smooth.