INTRODUCTION:
This assignment focuses on the various options for the Scottish company, producing Scottish premium food products, planning to penetrate the German market. As the company is planning to penetrate the German market, so the external environment analysis needs to be done to check the feasibility of the marketing of Scottish food products in Germany and if it’s feasible then exploring the different ways of penetrating the market along with the risk associated with it. And finally
BRIEF PROFILE OF GERMANY
Germany is the federal republic nation having 16 states with its capital located at Berlin. It’s the most densely populated country of Europe having a population of nearly 82 million and is also the largest economy in Europe. German is the official language of Germany. It’s the second largest exporter of the world after China and also the second largest importer after United States. The chief imports are the machinery, vehicles, chemicals, food stuffs etc. The GDP of Germany is 2489.4bn EUR (2008) and the per capita of Germany is EUR 30258(2008). Cultural is an important issue when doing business with German people as they are considered to be humourless, punctual, aggressive, adamant and possessed with details.
Consumption pattern:
As Germany is having a population of nearly 82 million, hence it makes the largest market for food and beverage in Europe. Germany is the second largest food manufacturer in Europe having a turnover of nearly 150bn EUR in 2009 and the exports amounted to nearly 26% of the total turnover. As the domestically produced good only satisfies a part of its food consumption hence they import the food products from countries such as other European Union countries, Russia, United States and Switzerland. The imports amounted to 40.7bn in 2008. The largest sale of the food products in 2008 was meat which accounted to 21.6%. In the last ten years the imports has been steadily increasing and there has been seen a considerable rise in the demand of organic and speciality food i.e. ethnic food.
The global economic crisis which occurred had severely impacted the German market but the overall sales of the food products remained well throughout the year. There was only the change in the buying behaviour as people preferred to eat at home rather than having food outside. This resulted in the demand for the good quality food product.
Competitor Analysis:
The main competitors for the small manufacturing firms or the new entrant are the big multinational companies who have large marketing budgets and thus they sideline these small manufacturers as they are unable to compete in terms of price reduction, promotions and advertising. Even the powerful discounters such as Aldi and Lidl have sidelined these supermarkets as they have managed to capitalize the perceived lower retail prices. The traditional consumers have become more aware of the ecological concerns and this has led the manufacturers and the retailers to have a bio certified food. Even the private retailers having their own brand have added bio to their food products. This has become the trusted symbol of quality for the consumers as it indicates that the foods are free from genetically modified organism, pesticide and synthetic fertilizers. There has been a rise of foreign food products being imported specially from China, Turkey, and India etc because of the foreign immigrants from these countries. As of date there are nearly 1500 national and international players currently operating in the German.
OPTIONS FOR ENTRY:
There are various options available for the company to go for exporting. It all depends on the company’s financial backup and the amount of risk the company is willing to take. The available options for the company to go for exporting could be that they could either go for indirect exporting or direct exporting. The various indirect exporting available are:
EXPORT MERCHANT:
The export merchant operates in the same way as the domestic wholesaler operates. They buy and sell the product on its own account. This reduces the marketing job of the manufacturer as the export merchant handles the entire international marketing task. The basic disadvantage of this type of channel is that they are more interested in the staple food products which are easily sold in open market. Hence they do not undertake products which requires considerable amount of sales effort and also they are unwilling to allow the manufacturer to enjoy more than the manufacturing profit.
EXPORT MANAGEMENT COMPANY (EMC):
They function as an independent export unit for several related but non competing products. They give out their expertise as they had been functioning in the market for a long time. They act more of a manufacturer’s distributor as they conduct business in the name of each manufacturer it represents. They perform all the market analysis and also devise the export strategy. They also take the credit risk and pays off the manufacturer the cash for every order made. They also do advertising and promotion at a minimum cost and also serve as a shipping and forwarding agent. They are useful for small and medium sized manufacturer who cannot afford to set up its own export marketing organizations.
MANUFACTURER EXPORT AGENT (MEA):
They function in the same way as EMC, the only difference is that they do not engage in any buy or sell arrangements and if they undertake any foreign credit risk they charge a ‘del creder’ commission in addition to the regular commission. They are most successfully used when a firm wants to sell small orders to a new foreign market. As MEA retains their own identity, hence they desire to remain the foreign sales representative for which they would not encourage the firm to set up their own export department.
EXPORT COMMISSION HOUSE (ECH):
They are an intermediary which is hired by the buyer in the overseas country and are residing in the exporter’s home country. The exporters find this channel as an easy medium to export and also there is low credit risk as the payments are prompt. The exporter cannot directly communicate with the buyer for the negotiation as it is worked by the ECH and the overseas buyer and also they do not have any direct control over the international marketing of products.