Chabros International\'s Expansion to North Africa Chabros

Chabros International's Expansion To North Africa

Chabros International is a company based in Lebanon that sells wood products and veneer that began its operations in the 1960's. The company was started by the current owners father and father's brothers. The company was envisioned, at the beginning, as a small local company that would deal in local wood products and veneer. During the ensuing years the company had very little growth, but it produced a living for the family, and, when his father died in 1987, Chami took over the company (Chabros, 2012).

Chami was more ambitious than his father had been and he wanted to take the company further that his father had ever thought possible. The first issue he faced is that Lebanon was still in the midst of a civil war that had plagued the country since the mid-1970's. It was difficult to find reliable suppliers, and it was hard to find workers who would stay with the business for very long (Chabros, 2012). This uncertainty ended in 1991 when the Christian and Muslim factions in the country agreed to an agreement that ended the fighting (if only temporarily) (Global Security, 2012). When the war ended Chami saw an opportunity to begin to build the way he thought he could. His company had started to import some supplies to Dubai, and they sent a representative there on a permanent basis to ensure the company's operations. They soon opened their first international office in Dubai, and the company has taken off from that point (Chabros, 2012).

Chabros International now has offices in eight different countries in the Middle East, and a lumber mill in Serbia besides their headquarters in Lebanon (Chabros, 2012). Because of the success of these operations, they are now able to think of even greater expansion into other regions. Chabros is far from saturated in the countries in which it operates, but the company does have more than 50% of the veneer business in some of the countries in which it operates (Chabros, 2012). But hardwood and softwood products remain the biggest sellers. The company has also become a brand name that is sold in Europe, Africa, and Asia although the company does not have offices outside of those previously mentioned. The company has become a known supplier in much of the world, and the quality of its products is without dispute.

The Problem

The issue that Chabros has to contend with is that they have not ventured out of their comfort zone before. All of the operations that they have begun in the past have been contained in the friendly (to them) confines of the Middle East. The desire of the company's managers is to expand into markets that have very little representation, especially in the veneer market, so that Chabros can gain market share quickly and establish a base from which to operate.

Chabros wishes to expand into North Africa, and they will first target the markets in Morocco. The problem is that they do not know the market, they have not previously worked with the government of the nation, the customers will not recognize the brand, and there is some amount of political unrest in the country. The company has done some exploratory studies into the market and the difficulties they may have in establishing a base there, but they are not yet confident in their ability to enter the market in Casablanca. Thus, the company wants to do some more exploratory work that may be able to give them a greater amount of confidence in the venture.

Problem Solutions

There are many different methods that can be used to find solutions to the issue of moving to Morocco and the inherent dangers of entering a new market (EIU, 2012). The company needs to know as much about the area it is entering as possible. It is possible to get this information second hand, but it is better if the solutions are examined by someone who is trusted by the company. It is possible to use ad hoc methods because such a situation has been worked through in the past. When Chabros entered the Egyptian market, they were just as unfamiliar with the market and the people as they are in this instance. The company has made many moves within the confines of the Middle East, but each time they had to conduct PESTLE (Marketing Minefield, 2012) assessments on the nature of the external obstacles and SWOT studies for the market, product and Chabros itself. This could provide solutions that would spare the company the expense of sending an advance buyer to the region (as it had done in Dubai (Chabros, 2012)) to work with the people in the area and establish how the company was going to operate. Another possible solution is just to enter the market with all possible resources that Chabros can provide behind the startup (Lisle, 2010). Of course, there are benefits and dangers to all four potential solutions.

The problem is complex because there are many avenues that failure can take in the proposed expansion. The expansion is dynamic and complex because there are many things that must be accomplished in order to accomplish the move, and dynamic because the situation does not remain solid in either the area to which the company is moving or in Lebanon itself (EIU, 2012). The dynamic problems, such as recurrent unrest, needs to have a solution that will be in place to deal with it as it happens. In some ways, this is also an issue that will remain somewhat ill-structured because the problem itself dictates that there will be some amount of chaos. One issue here is that the market is growing faster than the suppliers can deal with (Moroccan-Market, 2012). Although, Chabros has taken care of that problem to some extent by purchasing a mill in Serbia, they are still not able to provide enough product by themselves, and the forests that the company controls do not have all of the woods that they will be needing, especially in a new market (Chabros, 2012). Thus, the solution will have to be one that is able to encompass all of the issues that can happen, that is, be as structured as possible, but have some means of dynamism because of the nature of the issues.

Evaluate Solutions

Thus, there are four possible solutions to the issue that has presented itself to the Chabros board. They can do nothing and grow market share in the areas where they are already established; they can do market studies to see if this is a good move and then move cautiously; the company can send an advance buyer to the area, which they have done before successfully in other markets, to establish their brand name and gauge the climate of the region; or, they can enter the market in full force with all of the resources behind them that they have at their disposal. All four are viable solutions to the problem, but only one seems to give the company all of the advantages of making immediate sales without the dangers of entering the market in an all-out fashion (Lisle, 2010). The company has decided to send a broker into the country who can arrange sales of product with local buyers and who can conduct an analysis of the situation first-hand. All of the solutions will be discussed in detail below.

Three of the solutions were rejected because they contained problems that could not be overlooked and were difficult to overcome. The first was to continue in the markets where Chabros has some amount of comfort, and not enter this new market at this time. It is possible that Chabros can grow market share in the areas it already occupies, but the competition has become more intense. The company looked at the competitive components in Porter's five forces model (threats from new competition, the bargaining power of competitors, and the intensity of the competition) and decided that this would not be a viable option. The reason was when they looked at the data from the study on the intensity of the competition (Economist, 2012). The Middle East, and especially Dubai, is becoming one of the wealthiest and fastest growing areas on the planet. This means that there are a lot of suppliers of the same products that Chabros sells who are vying for contracts. Because of the money involved, the competition is fierce for every job. It is difficult to maintain market share, let alone grow it, when the market is so intense. Other areas of the region are starting to recover from the events of "Arab Spring," and the competition there is increasing also (Bilan, 2012). Chabros is not afraid of competition, but the owners realize that it will be difficult to gain market share going forward. It may cost as much to do this as the company gains from the exercise.

The company could also evaluate the situation without doing anything right away in order to perfect there position and make sure that they are entering the market at the right time. This seems like a good idea, but Chabros has grown by being bolder than that. The evaluations from PESTLE and SWOT analysis are necessary, but they can be done in conjunction with other solutions.

The final failed solution is probably the most dangerous of all. The company cannot extend itself like that without serious danger to the company as a whole. If they commit resources and the people of the region choose another supplier, they will not have the capital available to rethink their position. It is necessary to have some surety in the internal and external features of the market before they enter into it in such a fashion.

The only possible solution is to enter the market in a fashion that does not create a large impact in the company, but does create a new market for their products. One product in particular was a big reason that Chabros decided on this solution. Venner is graded in A, B, and C (Veneernet, 2012). C veneer will never sell, and it is usually chipped up to be processed for other products such as plywood. Grade A veneer is the product that is almost exclusively used, and is demanded by contractors. However, Chabros was very successful finding a market for its grad B. product in Egypt (Chabros, 2012), and Morocco is a similar market. Builders are less concerned with the look of the veneer as long as they have it. So, it is the perfect market to sell more of the grade B. veneer. Without these markets, this grade would also be sold to makers of other products. This solution gets Chabros into the new market, and does not overcommit the company financially. Also, the company will conduct the PESTLE and SWOT analysis to make sure that they understand the market as well as can be expected before they commit more resources to it.

Solution Implementation

Implementation of the solution is simple in the execution, but it may be difficult going forward. Initially an employee is sent to Morocco as a seller, and he or she tries to conduct business with some of the local buyers of wood products and veneers. This is not a cold call type of mission. The seller has knowledge of the market beforehand and will select buyers for their usefulness to the company. However, there are some potential problems with the implementation phase that need to be examined.

It is probably simplest to do this by asking what could happen, and then devising possible solutions to those issues. The PESTLE examination showed that the country is relatively stable now, but that there are factions which cause unrest at times. There primary activities are arson and some bombings to protest too much economic involvement with the West. In one regard, this is good for Chabros as they can present themselves as a company that understands the majority Muslim culture and is willing to work with them specifically (Chabros, 2012). But, this also causes issues because any unrest is not good for a company entering a market. Chabros needs a solid platform on which to establish its business. Economically, this is a poor country which may not be able to afford some of the products that Chabros has available. This also provides an opportunity in that this means that the company should have no problem selling the lower grade veneer product, and they can even send hardwood and softwood lumber product to the country which may not be acceptable elsewhere. The reason it is also a threat is that Chabros wishes to grow into the market and establish a permanent base there (Chabros, 2012). In order to accomplish this goal, they will have to have the ability to sell all of their product in Morocco. This may not be possible. The fact that the people are not familiar with the product (social), that the legal system is slightly different than that in Lebanon, and any concerns with the environment do not seem to be an issue. Also, although the country of Morocco does not enjoy some of the technological advantages some other countries have, they are available to businesses for the right price (EIU, 2012). All of these issues can be solved.

The SWOT analysis revealed some issues also. Chabros is a strong name in the Middle East, and their brand is starting to generate buzz as a quality product around the world (Chabros, 2012). However, the weakness to this supposed strength is that the government in Morocco has already expressed that it does not give preference to any company from the East or West. They are interested in the quality of the product, but the government also operates on a structured bribe system. It will be necessary for Chabros to understand what that system is, and tom make sure that they are delivering quality product to the right sources. Another weakness is the fact that the economy is still largely a barter economy. Some suppliers will come to Casablanca with a load of rough cut wood and barter with local merchants for it (Moroccan-Market, 2012). These local suppliers are not the largest competitors that Chabros will have in the region, but the scenario presents a problem. Many of the buyers that Chabros will have to deal with have questionable credit. In a country with such a rudimentary economic system, it is difficult to establish credit as they do in other areas of the world. Thus, Chabros cannot know whom to give credit to with any accuracy. The strength in this case though is that Chabros will be one of very few suppliers. This means that if the Chabros is shafted by one of its buyers, they can just not sell to them anymore. This should help mitigate the credit fraud that could otherwise be a problem (Moses & Harrington, 2010).

The company will implement the plan by allowing the company authorized seller to conduct business using just the veneer products to begin with. This is a market that has been determined to be wide open in Morocco (Eiu, 2012). The assumption is that buyers will want both the A grade and the B. grade products because they both have uses in construction. After establishing a client list over an approximate three to six-month period, the seller will be authorized to sell hardwood and softwood products. This will allow some time for the Chabros name to become familiar, and for the seller to establish contacts in the country. There could be problems along the way that Chabros has not anticipated, but most of the difficulties have been addressed prior to entering the market, and any that occur later will be dealt with using an action plan which is already in place. This plan will use the information from the seller and the PESTLE to make sure that as many eventualities as possible are thought of and guarded against.