The purpose of this paper is to develop an export strategy for the board of directors of Albaco Shoes Ltd. Albaco is a leading manufacturer and distributor of footwear in Albania.
Thus, the export strategy is expected to enable it to export its products to Norway. SWOT analysis will be used to assess the company’s ability to export to Norway. In addition, Porter’s five forces framework will be used to assess the suitability of Norway as an export destination.
Brief Synopsis of the Issue
Globalisation continues to enhance trade between countries through economic liberalisation policies. Norway and Albania have focused on liberalising their economies through removal of tariff and non-tariff barriers to trade. This helps the countries to create jobs and increase the growth rate of their economies (Carbaugh 2012, p. 67).
Albania signed a free trade agreement with the European Free Trade Association (EFTA) in 2009 (AIDA 2014). Since Norway is a member of the EFTA, Albaco can access its market without facing entry barriers such as high import taxes. Norway is a developed country with a high per capita GDP, whereas Albania is a developing country (IMF 2014).
However, Albania has an absolute advantage in producing footwear because it can access cheap labour and raw materials (Buxey 2013, pp. 100-133). By contrast, over 50% of footwear products in Norway are imported from other countries. Thus, exporting to Norway is a huge growth opportunity that will enable Albaco to increase its revenue and share of the global market.
The company should consider the following strategies to export its products. First, it should adopt the direct exporting strategy by collaborating with independent distributors in Norway to sell its products. This strategy will reduce Alaco’s operating costs since activities such as marketing will be shifted to distributors (Hamilton & Webster 2012, p. 117).
Second, the company should focus on product adaptation. Generally, product adaptation involves aligning product features to the needs of the export market (Brooks & Wilkinson 2010, p. 121). Thus, it will enable Albaco to overcome socio-cultural issues such as varying tastes and preferences in Norway.
Finally, Albaco should implement a cost leadership strategy in order to improve its competitiveness in Norway (Daniels, Radeaugh & Sullivan 2012, pp. 20-150). Specifically, the company should focus on reducing its production costs to avoid high retail prices for its products in Norway.
Background: SWOT Analysis
Albaco’s main strength is its ability to produce footwear products at a low cost. In addition, the company has spare capacity and a talented workforce. Thus, it can fulfill orders within a short time lead. The company also has a strong brand image that is known for unparalleled quality and reliability.
The main weakness of the company is its lack of adequate knowledge about the dynamics of the Norwegian market. Lack of market intelligence will limit the company’s ability to develop products that meet customers’ expectations. Moreover, Albaco has a narrow product line, which is likely to have a negative effect on its sales in Norway.
High competition is the main threat to the company’s success in Norway. Albaco’s products will not penetrate the market if they cannot compete in terms of price and quality (Baxey 2010, pp. 997-1016). High shipping costs will also reduce the competitiveness of Albaco’s products.
The rapid growth of Norway’s footwear market is the main opportunity that is available to Albaco. The market is expected to grow by 3.5% in the next three years (MERZ 2014). Similarly, robust economic growth will create demand for Albaco’s products.
Research on the Assessment Topic
The Norwegian footwear market was worth $1.2 billion in 2013 (Pirolo, Giustiniano & Nenni 2014, pp. 1-23). The demand for footwear products is expected to increase in the next five years as the economy rebounds. Thus, players in the industry expect a steady increase in profits in the next five years.
Retailers such as supermarkets and departmental stores account for nearly 80% of sales in the industry (Pirolo, Giustiniano & Nenni 2014, pp. 1-23). This means that Albaco has to collaborate with large retailers in order to penetrate the market.
Imported footwear products are more competitive than those produced in Norway due to their low prices and unique designs. China is the main source of imported footwear products since it accounts for 38.1% of the Norwegian market (MERZ 2014).
China is closely followed by Vietnam and Italy, which account for 23.3% and 12.01% of the market respectively (MERZ 2014). In this regard, Albaco is likely to succeed by introducing Albanian footwear designs that are hardly available in Norway.
Arguments against the Recommendation (Exporting)
Threat of New Entrants
The Norwegian footwear industry is characterized by a high threat of new entrants. In the last decade, the government of Norway focused on signing bilateral and multilateral trade agreements with several countries in Europe, South America, and Asia that produce footwear products (Wacziarg & Welch 2008, pp. 187-231). Consequently, foreign firms can easily enter the Norwegian market.
Joining the footwear industry is not capital intensive because new firms can easily contract established manufacturers to produce various products on their behalf. In addition, increased access to financial capital in major countries that produce footwear products enables new companies to join the industry easily.
The high threat of new entrants means that Albaco is likely to lose its market share in Norway as more companies join the market. In this context, exporting to Norway is undesirable since the opportunities for making high profits are limited (Pirolo, Giustiniano & Nenni 2014, pp. 1-23).
High Competitive Rivalry
The competition in Norway’s footwear market is very high due to the following reasons. First, companies have embarked on product differentiation in order to attract and retain new customers. However, increased availability of differentiated products reduces customers’ switching costs. This leads to high competition as customers change brands to satisfy their tastes and preferences.
Second, very many companies are exporting footwear products to Norway. Similarly, several companies are producing shoes in the country. Thus, companies are competing based on price in order to penetrate the market. However, price-based competition reduces the profit margins of manufacturers of footwear products (Gerber 2012, p. 89).
Finally, high fixed costs such as warehousing lead to intense competition. High competition discourages exportation to Norway by reducing profits in the market. Consequently, Albaco is likely to make huge losses if its products are not able to overcome competition in the market.
Arguments in Support of the Recommendation
Suppliers’ Bargaining Power
Suppliers in Albania’s footwear industry have a low bargaining power. There are thousands of livestock farmers in Albania who produce leather products that are used as the main raw materials in the footwear industry. The resulting increase in competition prevents suppliers from increasing the prices of their products (Vyuptakesh 2012, p. 92). Low product differentiation also reduces suppliers’ bargaining power.
Generally, the low bargaining power of suppliers allows Albaco to negotiate for favorable prices for raw materials. As a result, its products can compete effectively in Norway with their counterparts from China, which are known for low prices.
Buyers’ Bargaining Power
Buyers (retailers) have a moderate bargaining power. One of the factors that improve retailers’ bargaining power is their market dominance. Since retailers control the distribution channel, they can take advantage of manufacturers by demanding for high profit margins (Du 2007, pp. 527-543).
However, the limited supply of high quality footwear products that target niche markets reduce retailers’ bargain power. In this regard, Albaco can increase its income by serving niche markets where retailers are not likely to reduce its profit margins.
Threat of Substitutes
The threat of substitutes is low in the footwear industry. In particular, footwear products such as shoes, slippers, and sandals have no substitutes since people have to use them to protect their feet. Thus, Albaco’s products mainly compete with substitute brands that are produced by other companies. Albaco’s products are likely to outperform their counterparts from Italy, Vietnam, and China due to the following reasons.
To begin with, Chinese and Vietnamese companies face higher shipping costs than Albaco because of the long distance between their countries and Norway (Du 2007, pp. 527-543). Although Italy-based companies are known for superior designs, their products tend to be expensive due to high production costs. The low threat of substitutes is an opportunity to Albaco to expand its market share by exporting to Norway.
Implementation of the Recommendations
Albaco’s strategic objectives are to increase its market share and profits. Moreover, the company intends to reduce its operating costs as it expands its operations. The market entry strategies that are available to Albaco are direct and indirect exporting. Given the company’s objectives, using direct exporting is justified by two main factors.
First, the strategy will reduce market entry costs since Albaco will use the distribution systems of its partners rather than establishing its own distribution channels (Lipczynska 2010, pp. 14-15). Second, direct exporting will allow Albaco to serve its partners’ customers in Norway. This will lead to an increase in market share and revenues.
The first issue that has to be dealt with during the market entry is identification of customers’ needs through marketing research. The results of the research should be used to adapt the company’s products so that they can meet the expectations of Norwegians in terms of design, quality, and price (Ceko 2013, pp. 1-20).
Specifically, the company should use its product differentiation initiatives to deliver the desired quality standards. Albaco should also engage in ethical behaviors such as protecting the environment to avoid a boycott of its products in Norway.
The second issue that has to be addressed is operating costs. Albaco should adopt a business-to-business e-commerce platform to reduce its supply chain management costs (Ceko 2013, pp. 1-20). In addition, it should reduce costs at the production plants (cost leadership) to offset the high cost of transporting the products to Norway.
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