This report examines a proposed business startup of Haigh in Thailand. The Parent company Haigh Chocolate, in Australia, wants to diversify to Thailand to increase revenue and market dominance. The report examines the key participants, such as Specialty Food Store, and how they impact the business plan. Also, the expansion risks such as financial, commercial, and country risks. The cultural similarities and differences between Australia and Thailand are succinctly evaluated to determine how their culture influences the setting up of the proposed business. The government intervention such as appropriate foreign policy, the attraction of investors, limiting policy on setting up a business explains the government’s impact on the proposed business. The entry strategies control form the last part of this report, and it examines the strategies that can ease or limit setting Haigh proposed chocolate business.
Role of Key Participant and Challenges
Some of the prominent participants for this company are Specialty Food Stores Industry and Food Standards Australia New Zealand. Specialty Food Store Industry acts as retail for specialized food products. The company sells its products on behalf of other firms and increases revenues for firms that supply its food products (Holtbrügge & Baron 2013, p. 240). Specialty plays a significant role in promoting and retailing A.E Haigh Chocolates in Australia and Thailand. The firm will help retail its product, particularly in Thailand, where it wants to diversify its markets to increase revenues. Since the Specialty Food store is also in the US, the company will use its dominance in food retailing to sell chocolate products to international markets in the US and other parts of the Continents like Asia.
The other major participants for the proposed expansion are Food Standard Australia. The organization ensures the Australian manufacturers of products like A.E Haigh comply with the standard serving size restrictions and labeling requirements. Under the Australia New Zealand Joint Food Standard Code, the manufacturers are expected to share nutritional information, ingredients, or any other material used to manufacture the chocolate products. Failure to comply with the standard code may impact the company’s reputation, brand, and revenues. Thus, Food Standard Australia is a significant participant as it affects its operation both domestically and internationally. Since the company will transport its raw material to the proposed location (Thailand), it must first comply with these standards before shifting them to the Thailand branch.
Since the company manufactures high-quality chocolates in Australia, it must ensure it accesses the best raw material and processes them appropriately. With agents in Europe and other parts of the world, the company receives the finest imported cocoa and then makes chocolates and later transports them to their retail shops. For this reason, the company controls the whole process, from allocating the most refined raw cocoa to manufacturing and distributing the raw material to its own retail shops (Cavusgil 2014). The company should comply with the regulatory restraints related to product labeling, food safety, consumer law, occupational health, taxation policies, and employment laws. The regulatory constraints require that confectionary manufacturers comply with these regulations. Since the significant suppliers of the raw products used in making the chocolate are cocoa, milk, and sugar, the concentration of these suppliers plays a part in the company’s growth in Thailand (Thomas et al 2013). The availability of these products will ease the overall product costs and ensure the proposed expansion achieves its significant objectives.
The company faces stiff competition from international companies or large-scale organizations like Nestle, Mars, Lindt Chocolate, Cadbury, and Kraft Foods. Due to the market’s competitiveness, the company has to set its prices at a level similar to competitors and endeavor in the extensive advertisement to promote its chocolate product consistently. The limited opportunity to perform a price strategy like increasing the selling price for its product due to consumer sensitivity to price makes it challenging to break even. When consumers realize a slight increase in the product, they will switch to premium brands or lower substitutes (Tahoun & Van Lent 2013). Therefore, A.E Haigh finds it challenging to compete with recognized brands that distribute their products at lower prices to large retail stores such as supermarkets.
The firms have to engage in extensive advertisement to attract potential and retain existing customers. Due to the extra cost incurs promotion and distribution to retail outlets and shift competition, the firm cannot increase prices to match a particular profit margin or make it earn significant profits (Thomas et al 2013). Raising their prices will chase customers to cheaper substitutes such as cereals, snack foods, and biscuits. As the number of substitutes increases, the firm experience further difficulties in the attempt to increase their price for chocolates even if there is an increase in production costs.
Risks Associated with Expansion and Mitigation
The company experiences commercial risks, financial risks, and country risks. The commercial risk the organization experience in its proposed expansion includes competitive risks; financial risks are transfer pricing, inflationary, and foreign taxation; country risks are regulations and laws harmful to foreign firms; and unstable political environment (Cavusgil et al 2020). The competitive risk arises due to the availability of other established brands like Lindt Chocolate, Cadbury, and Kraft Foods that offer their chocolate products at affordable prices and have dominated the market share. Also, the competitors acquire significant spaces in large stores such as supermarkets in Thailand. This aspect market will make it sophisticated to compete pretty with established brands.
Another competitive risk is the availability of substitutes such as cereals, snack foods, and biscuits with chocolate products but cheaper. This risk prompts the business to invest wisely in promoting and selling their product at affordable prices to avoid customers from shifting to cheaper alternatives in the market (Cavusgil et al 2020). The financial risk experienced by the company in its proposed expansion is the raising in the value of the dollar. This increase in the dollar since the 2008 global financial crisis will decline the company’s revenue. With the adverse fluctuation in exchange rates, the company will face uncertainties regarding growth, profit, and transfer policy of products from the leading firm to Thailand or from Thailand to outside markets such as Asian markets (Kumar et al 2009).
Porter’s Diamond Model
Haigh’s chocolate applies Porter’s diamond model as a determinant of national competitiveness. In Australia, the medium confectionery producers distribute or sell their products to wholesalers like Woolworth, Kmart, Big W, Target, and Coles and large retail outfits, petrol stations, convenience stores, and department stores (Bakan & Doğan 2012, p.445). However, Haigh sells its product to integrated own retails stores rather than other retails stores. This selling product model enables the firm to retain individual customers who notice its unique and exclusive taste.
Political and legal environment
Thailand is among the nations with the most effective business reforms regulation over the last few years. The business reforms have enhanced Thailand in setting up a firm, and the country has reduced the wait time before commencing a business from 27.5 to 4.5 days. According to the World Bank metrics, Thailand has improved as a country to conduct business, and it is ranked 27th most safe and conducive environment to open and operate a business. The political climate of Thailand has changed since the 2014 coup d’état, and now it is ruled by the military organization known as National Council for Peace and Order (NCPO). The organization undertakes all the administration requirements. The country has a court system, and the constitutional court is still in existence. The military, the legislative branch, and the Constitutional court rule make the country a safe place to develop a business.
The legal framework of Thailand includes; the country’s legal system is statutory, and it is ruled mainly by written laws enacted by the legislature (Croissant 2007, p.15). The legislature uses the Supreme Court and the constitution to pass Codes and Acts, customs, and decrees. The political and legal environments create a suitable ground for setting up businesses, particularly for the locals. However, the country has restrictions on foreign firms through the Foreign Business Action. This Act restricts foreigners from conductive specific business and ownership in certain sectors such as banking, insurance, and telecommunication. Notwithstanding, Haigh’s fall under the food and process industry, therefore its opening cannot be limited to Thailand.
With the country depending majorly on agriculture approximately and employing approximately 40% in agriculture and manufacturing firms providing an estimated 50% of Thailand’s Gross Domestic Product, setting up a business is possible, and it is easier to pick as it majorly relies on manufacturing products (Biddle & Swee 2012, p.215). Therefore, the proposed opening of Haigh Chocolate is feasible and easy to determine as most people depend on manufactured products. In addition, Thailand’s business environment is ranked as the fifth economies in the global by the World Bank. For that reason, it is much easier to run a commercial business such as a chocolate firm in the country. The government of Thai has also been in the constant process of encouraging foreign investments and domestic firms and startups. This incentive has increased the number of foreign investments in the country. This aspect makes it easier to start the proposed Haigh chocolate firm in Thailand and ascertains fast break-even.
Cultural Similarities and Differences between Australia and Thailand
The cultural similarities between Australia and Thailand are based on family, land, resources. For instance, their families focus more on respect and maintaining distance while communicating. In terms of reference, the family members bond and respect each other and the outsiders. Their polite way of communication is something both Australians and Thai’s found unique to different cultures, such as the European culture. The culture of Thailand and Australia views life as a never-ending journey (Croissant 2007, p. 1-18). Thus, they bond spiritually to each member to live a virtuous life and meet their goals while acquiring success. In both countries, family is the priority as the extended families are considered a functional unit and live closer to each other. In both nations, the people are proud of progress and heritage.
Australia consists of different cultures due to influence from various migrations; therefore, the religion is other, while in Thailand, people worship and believe in Buddhism. In Thailand, the people believe in ghosts and spirits (Croissant 2007, p. 1-18), while in Australia, different cultures make them have a different view of ghosts and Spirits. The Thais have a strong belief in family status, and they perform their business relationship, while in Australia, they conduct business without any personal connection. Australians are mostly business persons, while in Thailand; people are primarily farmers, especially rice. In Thailand, people value and cherish the quality of life (Kislenko 2004). While people value business and generate money before life in Australia. The Australians shows emotions and do not maintain emotional distance while communicating while the Thais expose minimum expression of aspect such as emotions. In the Thai culture, people remain neutral and do not show assumptions while expressing themselves in any occupation.
The cultural differences and similarities have a significant on Haigh’s Business. The significance of this variation implies the processed business expansion. For instance, Thailand’s emphasis on agriculture can lower the cost of the inputs used to produce chocolate, such as milk and sugar (Munger 2007, p. 455). Similarly, this culture may affect productivity as most people rely on vegans. In terms of family bonds and value for the business, the Australian values business than family, making them more productive as they are driven with success. Thus, in terms of the proposed business succeeding in Thailand, there needs to be more retails to distribute chocolate to the families. The positive business environment and its position in global economies, Thailand has grown into a lucrative investment center that will attract more investors and success in an existing business (Munger 2007, p. 455). For that reason, the positive business culture in the country will see more production and revenue from Haigh’s company. The proposed business will also experience significant and fast break-even as the environment is appropriate for business and livelihood.
The Thailand government has tremendous progress towards expanding its economy. Some of the intervention includes protecting foreign investments, reducing investing limits, and encouraging industrializations. The significant contribution toward Thailand’s development is the shift from an agricultural to industrialized country (Tahoun & Van Lent 2013). This move has been contributed to enabling import substitution and emphasis on export promotion as well as creating investor-friendly industrial policies. With a third of the population living in agriculture, the country is ensured of sustaining an agrarian population and maintains food security in the economy. For that reason, startup firms such as the proposed Haigh business is expected to grow due to favorable foreign policy. In addition, export and import promotion of the products manufactured by firms and friendly investment ground will enable foreign investors and companies to grow.
The minimum disturbance such as over taxation and restriction towards setting up new businesses also enhance foreign investment and increase GDP. Despite the spike in Covid-19 and an expected decline in income and the creation of wealth inequalities, the government had played a significant role in control the pandemic and supporting business growth. Its long objectives related to SDGs will enhance investment promotion and impact the Board of Investment that coordinates the private and public organizations. The countries integration into a liberal market economy in the 1970s has ensured the country remains crucial economies in the five tigers of Asia, with an average economic growth of 3% over the last year. Thus, the proposed business is expected to peak in the market as Thailand’s economy favors foreign investments, industrialization, agricultural farming, and manufacturing firms. Similarly, the government has a better policy for investors, such as getting a business permit in less than five days.
Pressure for local responsiveness
Managers or firms decide on the global business strategies through the trade-off between global integration and local responsiveness. The four global business strategies are standardization, transnational, export, and multidomestic strategy (Cuervo‐Cazurra 2011, p.383). The export strategy is family used by a business that focuses majorly on the domestic operation. The strategy intends to promote export and international opportunities. The standardization strategy applies when the business treats the global world as one market with minimum variation. Multi domestic strategy customizes processes or products to meet particular conditions for each country. The Transnational strategy combines multi-domestic strategy and standardization strategy. This strategy assists the business when it faces cost pressure from global competitors, yet it also offers products to local customers to meet their needs (Cuervo‐Cazurra 2011, p.383).
The most appropriate I-R framework the Haigh should follow to compete successfully in the international market is the standardization strategy, as it does not need to customize its chocolate products to meet the Thailand users. This strategy will enable the company to manufacture products to the Australian market and maintain its uniqueness. The customers can assess the similar taste of the product, whether outside or inside the Thailand market. Standardization enables the business to produce efficiencies by centralizing everyday product design activities, reducing marketing costs, and scales economies in processing and manufacturing (Thomas et al 2013).
Evaluate Entry Strategies
The entry strategies that can best suit Haigh’s business are contractual manufacturing, where the firm markets its products. It is a crucial way to establish the marketing presence of a company in foreign markets. The strategies utilize the firm’s expertise to market the products while assigning responsibilities and problems to the host country. Therefore the business will have moderate over the entry.
The licensing is another strategy level that stipulates that the firm’s entry does not require much leeway in deciding the level of involvement in foreign markets (Chen 2005). The licensing is related to the manufacturing of the product and marketing-related tasks. Thus, the firm has low control over this entry strategy.
When the firm chooses to export as its mode of entry, it gets fewer choices, particularly indirect export. However, with direct marketing, the business will have more control and perform the marketing activities in the foreign markets (Chen 2005). Under this strategy, the firm chooses to open a distribution network in international markets and control the marketing mix. The business has high control over the entry strategy under this market entry strategy. The most appropriate strategy is exporting under direct exporting. Under this strategy, Haigh will have significant control over its manufacturing and deciding its appropriate distribution channel. The high control over an entry will dictate the foreign market and control its marketing mix.