Expansion into a foreign market is often associated with numerous benefits in terms of performance and profitability. However, the process is also associated with significant risks due to a host of unfamiliar and factors and a low suitability of the environment. To minimize the said risks, it is necessary to create an entry strategy based on the available data. The following report provides the recommendations for the Bush’s Best Baked Beans’ entry in the Egyptian market.
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Bush’s Best Baked Beans is a brand owned by Bush Brothers and Company, a corporation producing a variety of canned beans and other products such as green peas and hominy (Bush Brothers and Company). The company operates primarily in the United States and Canada and is responsible for more than 80 percent of the baked beans sold in the domestic market (Bush Brothers and Company). The success of the brand in the United States has prompted the company to seek the opportunities to expand to the foreign markets.
Industry and Economic Development
The economy of Egypt has undergone a significant transformation in the recent decades, primarily due to the proactive stance of the government. Currently, the country’s economy is based on a free market system. While the government is still in control of a significant proportion of the economy, a positive trend is observed towards its liberalization (Nations Encyclopedia). In addition, the government has managed to achieve a relative stability in the economic development, indicated by a steady annual growth of gross domestic product by an average of 4% (Nations Encyclopedia).
However, it should be mentioned that the described positive tendency is primarily due to support from the United States and the European Union, and the pace of improvement has considerably slowed down in the recent years due to the recession of Gulf economies. Thus, the economy cannot be considered favorable for the international entry.
Public and Private Enterprise
As was mentioned above, the Egyptian government has taken a proactive stance towards the development of private enterprise in the country. Currently, the state-owned entities are not allowed to receive preferential treatment from the government and are subject to the same legal requirements as private companies. Another positive trend is a privatization of the state-owned enterprises initiated by the government in an attempt to stimulate growth of the private sector (The World Bank).This setting allows for a fair and direct competition between the public and private sector and is favorable for entry.
Despite the described positive trend discussed above, the current legislative environment is largely restrictive to businesses. Numerous legal aspects required for the establishment of business, including obtaining construction permits, trading across borders, registering property, and enforcing contracts, are both complex and expensive. According to the World Bank, Egypt is ranked 128th by the ease of doing business (The World Bank). The process is especially challenging for the international players, whose lack of familiarity with the country’s legal landscape decreases the efficiency of actions at the initial stage.
The taxation system in Egypt is challenging due to the complexity and inefficiency of the collection system. The country has two forms of income tax, which significantly complicates the process and discourages the parties from paying. As a result, the tax evasion rate is high in the country (KPMG). The majority of employers mitigate these difficulties by developing numerous strategies intended to aiding their employees in the process. However, such approach requires sufficient familiarity with both formal and informal aspects of the system. Therefore, it would be reasonable to expect significant difficulties faced by the management of a foreign company upon entry.
Foreign Direct Investment
According to the latest report from the investment minister, foreign direct investment in Egypt is increasing steadily. By the end of a fiscal year in June, the total amount of foreign direct investment was $8.7 billion (Export.gov). This result can be considered an improvement over the previous year’s amount of $6.9 billion. However, it is still below the identified target of $10 billion, which is expected to be reached by the end of the year, according to the official statement (Noueihed and Feteha). However, it is worth noting that FDI measurements vary depending on the involved organization and sometimes differ from the numbers reported by the independent statistical sources, which undermines the relevance of the metric for the entry strategy.
As can be seen from the information above, the business environment of Egypt poses numerous risks for the entry by a multinational company. The most notable risk is the dependence on the country’s economy on several external factors. The most notable ones are the support issued by the United States and the European Union.
In addition, it should be noted that despite the significant effort on the part of the Egyptian government, Bush’s Baked Beans will face numerous financial and resource losses associated with the opaque and inflexible legal landscape. It is also reasonable to expect a certain amount of difficulty faced by human resources department since the employment conditions may be adversely impacted by the lack of familiarity with the taxation system. However, all of the highlighted risks are mostly feasible in the short term and will have negligible effect in the long run.
On the other hand, the ongoing reform of the country’s economic environment and the increasing attention to the growth of private enterprise suggest a feasible opportunity for the long-term economic development. The latest step undertaken by the government is the transition from a fixed exchange rate to a floating one. This move helped the country to comply with the requirements of the International Monetary Fund and increased its attractiveness to the international players. Therefore, it is reasonable to suggest that the long-term perspective of international entry is positive.
It is also worth mentioning that the labor market in the country is characterized by a high percentage of unemployment among the young, educated individuals. This factor should be incorporated into the company’s strategy through a polycentric approach to hiring. This approach would provide access to the untapped market segment and ensure that a sufficient number of employees are familiar with the specificities of the local regulatory and economic environment.
The most feasible directions for the development of the corporate social responsibility program are the improvement of conditions of the local communities and the compliance with the environmental regulations. For the Bush’s Best Baked Beans brand, the latter will be primarily focused on the preservation of land used for agricultural purposes and the promotion of the sustainable agricultural practices. Due to the fact that a significant proportion of the country’s GDP is based on agricultural activities, such direction may enhance the sector and, by extension, diversify and stabilize the economy.
The former can be done in multiple ways including the minimization of the company’s environmental impact, the promotion of environmentally-friendly practices, and the establishment of programs designed to respond to the unaddressed needs of the communities. It should also be mentioned that the establishment of healthy agricultural and industrial practices in combination with the creation of jobs for farmers has the potential for improving the quality of life of the local residents while at the same time contribute to the performance and profitability in the long run.
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Recommendations and Conclusion
As can be seen from the information presented in the report, Egypt can be considered a viable destination for international expansion in the long term. The factors in favor of this assertion are the ongoing reform of the business environment undertaken by the Egyptian government tackling the economic and legal domains and aimed at greater compatibility with the international standards. Based on the observed trends and the results demonstrated in the recent years, it is possible to expect further economic growth, by extension, the increased purchasing power of the population.
However, it is important to acknowledge that the said changes are a recent addition and depend on the stance of the government that is still in control of a significant proportion of enterprises in the country. Considering the political instability in the region, the possibility of major changes should be taken into consideration. It is also important to acknowledge the challenges of the current legal and taxation system that are unlikely to be eradicated in the short term.
Based on this data, it is reasonable to recommend joint venture as a preferred mode of international entry. Such an approach would allow for the utilization resources from a well-developed agricultural sector. In addition, the experience of the local businesses will help to avoid the majority of the issues associated with unfamiliar conditions.
Bush’s Best Baked Beans. Bush Brothers and Company, n.d. Web.
Export.gov. “Egypt – 9.5-Foreign Direct Investment.” Export. 2017. Web.
KPMG.”Egypt – Income Tax.” KPMG. 2017. Web.
Nations Encyclopedia. “Egypt – Overview of economy.” Nations Encyclopedia, n.d. Web.
Noueihed, Lin, and Ahmed Feteha. “Egypt to Top $10 Billion FDI Target This Year, Minister Says.” Bloomberg. 2017. Web.
The World Bank. “Ease of Doing Business in Egypt, Arab Rep.” The World Bank, 2017. Web.