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Brand Management Assignment: Internationalisation of Mural Ceramics in France

Question

Task: Prepare a brand management assignment considering a small UK manufacturing company who is considering expanding into mainland Europe (Please specify the exact country).
Identify and critically evaluate the 4 most immediate factors of the macro business environment it must take into account when assessing the decision to internationalize. You must use examples and academic models to illustrate your answer

Answer

Introduction
According to the wordsMetsola et al (2020) considered in the brand management assignment, internationalising a business means taking the business to the international market, where it is exposed to millions of new customers and several new global competitors. In this paper, Mural Ceramics Co. Ltd., a small manufacturing company in the United Kingdom is planning to expand its business into France, which will be analysed. The company had been operating within the domestic territories of U.K. But they are planning to expand their business further to other parts of the continent. The company is aiming at capturing a larger customer base in the global market.The company has been operating in U.K.

Reason for Choosing France
For expansion, they chose France because of its close geographical location, similar market conditions and familiar business environment. Internationalisation will be easier if they enter a familiar market within the same continent like that of France than expanding into a completely different business environment, for instance, China. Moreover, as the main product of Mural Ceramics Co. Ltd. is porcelain items used for home décor, they specifically chose France because the French people have good taste for decorative items. This will generate good demand for the company. The company must analyse the business environment of France to enter the market and sustain.

In this paper, the various factors of the business environment that Mural Ceramics Co. Ltd. would have to consider while expanding and internationalising its business will be highlighted. The reason why the company is wanting to internationalise will be evaluated. The four factors which needs to be considered by the company during expansion will be highlighted. The appropriate entry mode which the company must adopt while entering the new market will be recommended.

Reasons for Expansion
Mural Ceramics Co. Ltd. is a small company operating in the manufacturing sector of the United Kingdom. The company manufactures ceramic items. Ceramics is a form of brittle, hard, corrosion-resistant, and heat-resistant material (Scherrer et al, 2017). Ceramics is manufactured by Mural Ceramics Co. Ltd. by shaping and further putting a non-metallic mineral on fire. These non-metallic minerals could be clay, which is set on fire at high temperatures. Mural Ceramics Co. Ltd. produces products of porcelain, brick, and clay.

These items are offered for sale in the domestic market of U.K. The company had been operating within the national boundaries. However, they are planning to expand their business. To bring about growth in their business they are aiming at internationalisation. They would grow and expand their business operations. The company has realised the benefits of internationalising a business. They know at in the global market they would be able to generate higher revenues, compete for the new sales, diversify their operations, access better investment opportunities, etc.

According to Harrison (2017), the internationalisation of business would reap other benefits like lowering of the costs and recruiting skilled and talented employees who are competent and familiar with the international standards. When a company internationalises its business, they can diversify their business, which gives them stabler flow of revenue. The domestic market eventually gets saturated. Therefore, it is important to expand in order to grow.

Factorial analysis
Mural Ceramics Co. Ltd. Is aiming to expand its business and enter the market of France. The company is new to the internationalisation process. They are expanding for the first time outside U.K.While expanding; the company needs to keep in mind certain factors that would affect their business in France.

Local competition:
Mural Ceramics Co. Ltd. expanding its business into France should be concerned about the local competition. There are many local companies that are operating in the domestic market of France. These companies also produce similar products made of porcelain, clay and brick. The local competitors are already owning a large share of the market. When Mural Ceramics Co. Ltd. enters the market of France, it will have to compete with the pre-existing domestic producers. The intense competition in the market will be beneficial for the customers. They will be able to access better quality goods at reasonable price. However, these local businesses could be a threat to Mural Ceramics Co. Ltd. The company being new to the market will have to struggle to attain its market share and loyal customers. The company cannot charge a higher price for its products. It may be difficult for the company to cope with the cost of expansion. Mural Ceramics Co. Ltd. has to gauge the intensity of competition it would face from the local players operating in the same market. Entering a market overcrowded with local competitors would not be a profitable venture for Mural Ceramics Co. Ltd. If Mural Ceramics charges a higher price than the local companies, it will lose its customers and business.

Local competition is very important as a factor and affects the business of a company entering a new market. The local companies could ruin the business of Mural Ceramics Co. Ltd. These local competitors have a lower cost of operation as they are operating within the same geographical area. However, the cost of operation of an international marketer is higher as it is expanding and entering different markets. The local companies try to offer better quality or similar quality at a lower price to attract customers. This makes it difficult for the international marketers to sell their products at a price that will cover their costs and also yield some profit. The locational advantage favours the local companies and they are often more efficient than the international companies. Thus, the local companies selling in ceramics, bricks and clay products will be more efficient, better informed about the market conditions and can easily access various locations within the domestic territory. On the other hand, Mural Ceramics Co. Ltd. will be a disadvantageous position as it is new to the area, with less accessibility across the region, less market information and lower efficiency. In this way the local companies could be a threat to Mural Ceramics.

As the company has been addressing the needs of the people of U.K, it is better informed of their tastes and preferences. They know which style is trending and can produce such products to attract the target market. However, in France it is a totally new environment. The company is less aware of the latest trending styles. The local companies will be better informed about the current styles and trends. Their products will address the customer needs in a better way. As the cost of operation is less for the local companies and they operate on a lower scale. They often seem to bear losses and take risks. An international company like Mural Ceramics which has just started planning its internationalisation process, will be risk averse. They will plan their ventures cautiously and try to mitigate risks. The local companies are also at an advantageous position over Mural Ceramics Co. Ltd. as they have better customer relations and a strong base of loyal customers.

Market attractiveness:
The market attractiveness is a very crucial factor which impacts the business of a company while it enters a new market. The market attractiveness refers to the degree to which opportunities are offered by a market. The better the market attractive, the greater scope the organisation will have to prosper in the business given the market conditions. The market attractive is a factor which Mural Ceramics Co. Ltd. must consider critically. The company will be entering a new market and will face a completely new environment. They need to take into account the market size for their products of bricks, porcelain and clay, in France. They must make an analysis of the growth rate and the intensity of competition in the new market scenario. The company by gauging the market attractiveness will also be able to analyse its constraints and plan the required strategies.

Mural Ceramics Co. Ltd., while entering the market of France needs to analyse the market attractiveness. According to Annushkinaand Regazzo(2020), the market attractiveness can be measured on the basis of few factors. These include the market size. It refers to the total sales or total revenue that a company can earn in the given market structure. The market size of France needs to be attractive enough for Mural Ceramics Co. Ltd. This will motivate them to enter and set up their business in the new market. The next factor under market attractiveness is market growth. The market should offer sufficient growth opportunities to Mural Ceramics Co. Ltd. If the company finds the growth prospects attractive, they will take the risk of internationalisation and bear its subsequent costs. Market attractiveness is also dependent on the pricing trends. Mural Ceramics Co. Ltd. has to make a thorough analysis of the price trends over the last decade in France before entering the market. Based on the pricing trends of the new market, the company can plan its price range for the products. The other very important factor is market competition, which has already been discussed in details under local competition. Besides, there are international players operating in the same industry. So, when Mural Ceramics Co. Ltd. enters the market of France, it has to be prepared to face tough competition from the local as well as international competitors.

However, in the presence of excessive competition, the company should avoid venturing into the market of France. The other crucial aspect which influences the level of market attractiveness is the overall risk of the industry. When an industry in a market is prone to huge risk, the companies should avoid expanding into such markets. Mural Ceramics Co. Ltd. has to make a study of the overall attractiveness of the market of France and to what extent the expansion will be beneficial for the company. Internationalisation involves a good amount of cost. Bearing this cost will be a strategic decision only when the new market opens a gateway of opportunities for the company to grow and flourish in its business.

Entry Mode:
There are various modes that a company can choose while deciding to enter the global market. As per Ahi et al (2017), the common modes of entry into the international market are direct export, distributors and international agents, licensing and franchising, joint ventures, foreign direct investment, and strategic alliance. The various modes differ in terms of its level of risk, the involved costs, the level of reward or return and the level of execution ease. While choosing one of the modes of entry from the existing, there would arise a trade-off. A mode of entry which would be least risky would yield least returns, while that generating highest returns would also involve highest level of risk.

Annushkina and Regazzo in brand management assignment

(Source: Annushkina and Regazzo, 2020)

The choice of the right entry mode is a very significant factor that will impact the business of a company which is in the initial stage of internationalisation.The entry mode needs to be chosen considering the current position and potential of the company. This is a strategic decision which Mural Ceramics has to make carefully. Based on the choice of entry mode, the resources will be allocated. The commitment of resources is different for different markets. The returns or profits vary across markets. The risk level is also different for various target markets. These aspects need to be considered before finalising the entry mode for expansion or internationalisation. Considering the specific attributes of the company, they need to restrict their internationalisation process. Choosing an inappropriate entry mode could ruin the company’s business and wipe it off from existence. While direct investment yields highest return, it also involves highest amount of risk. On the contrary, indirect investment has least risk but generates minimal returns. Therefore, for Mural Ceramics Co. Ltd. as it is the first expansion venture and the first step towards internationalisation, they need to choose and entry mode which will not involve high risk. The risk should be minimal so that it could be easily overcome. The returns could be slow or low in the beginning. However, with growth in business the company can move to other modes as well which would earn them higher returns. For Mural Ceramics Co. Ltd. it is important that they choose the right mode of entry into the market of France. They need to minimise the risks but also ensure adequate returns so that they can continue their expansion. For the company, licensing and franchising will be the most appropriate mode of entry. This mode is neither high risk involving nor high return generating. As a start the company should go by this entry mode which will have a moderate impact. This will be a safer option for Mural Ceramics Co. Ltd. because high risk could cause permanent damage to the company.

Social and cultural peculiarities:
When a company which had been operating locally so far plans for internationalisation, they need to consider several aspects of the business environment. Among the crucial factors of the external business environment, cultural and social peculiarities affect the business. The products which Mural Ceramics Co. Ltd. is offering for sale include few necessary items required for maintenance works in the house. However, most of the items are of home décor. The décor a person wants in the house depends highly on their tastes which is influenced by the culture and society. To expand into a new market, region, or country, it is very important that the society is well understood. The social and cultural aspects need to be thoroughly studied to adjust the operations as per the requirement of the customers (Chatchawanchanchanakij, Arpornpisal and Jermsittiparsert, 2019). The culture of Europe has always been quite rich. The people try to preserve it.

The culture of U.K is little different from the rest of the France. The reason is that U.K is quite influenced by the nation’s history. They have a Christian religious life and English-speaking people (Singh et al, 2018). The culture of France is slightly different as it has many countries which are non-English speaking. They also have a diverse culture. The important aspects of the society that could affect the business of Mural Ceramics Co. Ltd. include the gender contribution in employment, the demand for porcelain, clay, and brick products, the education of the people, income level, their cultural beliefs, tastes and preferences, etc. As the ceramics are used for making products that could be used to decorate the house, decorate the floors of rooms, decorating the counter parts of kitchens and walls, it needs high demand for such decorative items in their houses (Anggakarti and Farid, 2020). Thus, the taste of the customers is important here. For insulating the building, the ceramic roof tiles are also used. These ceramic items act as a barrier for the water and facilitate proper drainage. The customers of France need to know the use of ceramics and create demand for the same so that Mural Ceramics Co. Ltd. can grow its business. In U.K people have a high taste for ceramics which has helped Mural Ceramics Co. Ltd. to flourish in the domestic market. The variation in the tastes and preferences which is determined by the cultural and social peculiarities of the region will highly impact the business of Mural Ceramics Co. Ltd.

Recommendations
Licensing and Franchising

For Mural Ceramics Co. Ltd., it would be wise to enter the international market through the mode of licensing and franchising. This would help the company to establish its presence in the international market involving minimal risk. In case of licensing and franchising, the other company or business would assume the risks on behalf of the expanding company (Dinu, 2018). In the agreement of licensing and franchise, a business which is overseas based would be paying the expanding company a commission or royalty for using either the brand name of the expanding company, their products, manufacturing process, intellectual properties, or trademarks.

In this case, the risk for the expanding company is minimal because the franchisee or licensee assumes the risk on behalf of the company. The latter bears the loss of the expanding company. The advantage of this mode of entry is that the expanding company Mural Ceramics Co. Ltd., would enjoy a proportion of the profits and revenues earned by the franchisee or licensee, who would also share the burden of risk and loss. The licensing and franchise mode of entry would work best for Mural Ceramics Co. Ltd., if it chooses an established company in France for partnering. As stated by Grünig and Morschett(2017), the established company would have a loyal customer base in the country, which would be beneficial for the expanding company to access. For the established company, it would be beneficial to enter the licensing agreement because the gaps in their product line and manufacturing process would be filled by the expanding company. Thus, licensing and franchising is beneficial for both the parties. They fit into the business perfectly just like the pieces of the jigsaw puzzle, where one completes the other. However, the licensing and franchising mode of entry into the international market is quite different from the joint ventures (Onyusheva and Tantisewekul, 2018).

Mural Ceramics Co. Ltd. is expected to reap the benefits of licensing and franchising, through which it is entering into the market of France. First, the cost of entry into the global market would be low. Moreover, the market knowledge which is a very significant factor for internationalisation. This is available with the franchising and licensing partners who are already operating in the same business environment. Besides, the expanding company has a scope for earning income a passive source. As opined by Pegan, Vianelli and de Luca (2020), the political risks in licensing and franchising are quite low compared to direct investments. The licensing partner or the franchisee is already a business entity in the local market who knows the political scenario and ways of dealing with it. Furthermore, through licensing and franchising the company Mural Ceramics Co. Ltd. can enter various regions with least investment.

Conclusion
Every business big or small has the dream to dominate the global market. This starts with expansion and gradual internationalisation of the business. Within the industry to attain global domination, several aspects of the global market need to be analysed. Every step or move related to the expansion and internationalisation needs to be planned by the company. It can be concluded that Mural Ceramics Co. Ltd. must plan its business considering its finances, capabilities that exist, and potentials for growth in the overseas market. The company could have opted for other modes of entry besides licensing and franchise. However, it chose the licensing and franchising mode of entry to minimise the risk. Mural Ceramics Co. Ltd. is a small company which will not be able to bear the burden of the huge risk that direct investment or joint ventures would lead to. Thus, the company has been prioritising risk minimisation over high returns. The cultural and social aspects of France need to be focused upon while planning for expansion and entry. The company must gauge the local competition and market attractiveness in the new business environment. Internationalisation could reap great benefits to the business if planned and executed successfully. However, many companies’ existence has been wiped off from the market as they had made a hasty and unplanned entry into the international market.

References
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Annushkina, O.E. and Regazzo, A., 2020. Entry Modes: How to Enter a Foreign Market. In The Art of Going Global (pp. 81-108). Palgrave Macmillan, Cham.

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