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Chabros International Group’s Major Challenges Case Study


Introduction

Chabros International Group is a Lebanese multinational wood company founded and owned by the family of Chami. In 1991, Chabros had officially introduced its first international operations in Dubai and later expanded to neighboring countries in MENA region, such as Saudi Arabia, Qatar, and Oman, among others. Chabros’ international expansion boosted its profits and market share, with Dubai considered as the most profitable international subsidiary, having accounted for 50% of Chabros’ $100 million in total sales in 2008.

However, the global economic crisis of the year 2008 affected Chabros tremendously. To counter this crisis, several strategies were initiated by its financial advisers; they included market development growth strategy, market penetration strategy, diversification of wooden products, reduction on the company’s expenditure on salaries through layoffs, venturing into new untapped markets like Morocco, and re-boosting brand image (Beamish & Farah, 2012). This paper discusses major challenges that Chabros faced in its internationalization process as well as strategies used to overcome those challenges.

Major Issues and Management Problems Challenging Chabros International Group: Marketing Strategy and Sourcing Strategies/Logistics

Marketing strategy and sourcing strategies/logistics are some of the challenges that Chabros International Group faced. Chabros, being a wood manufacturer, a veneer, and a lumber wholesaler, experienced challenges when tried to compete with other suppliers in the market, who were specifically involved in the wholesale of wood products only (Beamish & Farah, 2012). In 2008, Russian suppliers sold their wooden products at lower prices as compared to Chabros’ products offered at higher prices for the same value.

Another challenge that Chabros faced was poor reception of its brand in countries in which it operated mainly due to a lack of proper strategies to make the brand appealing to the larger market segment. All the abovenentioned put Chabros to a disadvantaged position that subsequently handicapped its market share and reduced its competitiveness compared to Asian and European suppliers (Beamish & Farah, 2012).

What Motivated Chami to Expand Chabros’ Operations Internationally?

Chabros originally operated in Lebanon, dealing only with veneer wood products. It serviced its Dubai customers from Lebanon, who would purchase Chabros products and subsequently ship them to their domestic markets in Dubai, U.A.E, and Saudi Arabia (Beamish & Farah, 2012). Chami thought of increasing sales of his products through market research by his sales representative, Mr. Nicholas Mousalli. Eventually, Chabros started exporting wood products, Lumber and Veneer, directly to Dubai.

At first, it supplied Chabros’ original clients and later opted to open a warehouse that eventually developed to a fully operational international Chabros branch. Chabros followed the international strategy in its expansion. It began by exporting wood products directly from Lebanon to its clients in Dubai, and after acquiring a significant market share, it decided to open a branch in Dubai, followed by other units in Saudi Arabia, Qatar, Oman, Egypt, and the expansive MENA region; Serbia and other European countries were also introduced (Beamish & Farah, 2012).

Strategies/Options Available to Chabros to Overcome Financial Crisis

The first option used was a market penetration strategy, which involved increasing Chabros’ market share in countries where it already had its operations (Daniels, Radebaugh & Sullivan, 2013). Chabros’ financial advisers and managers had an idea of how and where to develop and diversify operations of the firm based on potential returns and market conditions. Through diversification, they contemplated whether they should change their product mix by focusing more on lumber than on veneer, although veneer was their original product during Chabros inception in Lebanon (Beamish & Farah, 2012).

An alternative option was to try and re-boost Chabros’ sales and subsequently grow its revenues and profits. Another strategy involved reducing expenditure on salaries by closing parts of its Serbian sawmills, cutting the number of employees by half, and hence saving about $ 400 000 in salaries (Beamish & Farah, 2012).

The best strategy that I would recommend is a market penetration strategy involving “expanding into countries with a high demand for European lumber species” (Beamish & Farah, 2012), where the company would supply wood from its Serbian sawmills. Chabros would also have to work on its image, both in MENA countries and its home country, Lebanon, for its influence to be felt and henceforth increase its market share, boost sales, and increase its profits.

Country to Expand Market Development Growth Strategy

A market development growth strategy involves the expansion of the potential market through finding “new users of product from new geographical segments, new diversified demographic segments, new institutional segments, and new psycho-graphical segments” (Daniels, Radebaugh & Sullivan, 2013). The core basis of doing this is to increase the sales and profits of a particular company.

The new order of countries that I would expand into in relation to Chabros from the most likely to the least are as follows: Dubai – Saudi Arabia – Qatar – U.A.E – Oman – Egypt – Serbia – Morocco – European countries (including England, Germany, Denmark, Spain, and Turkey) (Beamish & Farah, 2012). Dubai is the most favorable due to its high revenue returns over the years; it remains the most active compared to other branches.

Dubai is Chabros’ international group leading subsidiary in terms of sales volume. Even after the 2008 global financial crisis, it still ranked first in terms of sales, followed by Saudi Arabia and Qatar, respectively. European countries contributed the least amount of sales, as some of them were chief producers of wood products and provided stiff competition, hence low sales in those countries (Beamish & Farah, 2012).

Present Country where Chabros would Further Penetrate

I would further penetrate into Saudi Arabia due to its huge market and booming economic prospects. Despite the success in Dubai, Chabros next move would be to expand to the Saudi Arabia market. Evidently, Chabros has had a bit of Arabic and Islamic roots from Lebanon, thus the Saudis way of doing business and their cultural mentality would be a bit easier to adapt to (Beamish & Farah, 2012).

In 2003, there was a rise in demand for Lumber and veneer products in Saudi Arabia and its neighboring countries, an incident that caught Chabros off guard, resulting to shortages; this factor shows that Saudi Arabia would actually be a good market if Chabros increases its production capacity and maintains a steady availability and supply of products. This would also be boosted with large sales volume, as customers in Saudi Arabia would purchase their products in large quantities due to low prices, hence an added advantage to Chabros (Beamish & Farah, 2012).

Would Morocco Be a Good Country to Expand into?

There are various factors that favor Morocco as the ideal market to diversify Chabros’ operations. Through market development growth strategy, Chabros would invest in expansion to potential markets such as Morocco in a bid to increase sales and profits in the long run (Daniels, Radebaugh & Sullivan, 2013). Morocco is a favorable alternative due to its French history following colonization by France, geographic position neighboring the Chabros Arabic market and economic stability.

These factors would make it easier for Chabros to introduce its products into Moroccan market, as it has experience with both the European markets and Arabic markets following its previous interaction through supply and sales of its products. Morocco presents itself as a virgin market free from competition from European producers who have majorly concentrated in other large markets. The fact that Chabros is showing interest of expanding into Morocco would be an added advantage as it tries to heal from the 2008 financial crisis (Beamish & Farah, 2012).

Chabros SWOT Analysis

Strength
  • Large market – several international subsidiaries
  • Higher capacity to produce lumber-Serbia sawmill branch
  • Higher demand for wood products in UAE, Qatar, and MENA region
  • Cultural similarities of MENA region markets to Lebanon – Chabros’ origin
  • Both a manufacturer and wholesaler of veneer and lumber
Opportunities
  • Expansion into Morocco
  • Demand for European wood (Chabros’ Serbian saw mills)
  • Largest lumber market share in the MENA region
Weakness
  • High capacity to produce but low sales
  • Majorly traded in Euros, which is not a flexible medium of exchange, compared to its competitors’ use of dollar
  • Chabros poor image and branding in MENA region
Threats
  • 2008 Global Economic Crisis
  • Competition from Asia, England and American producers
  • Emergence of local and international hardwood producers
  • Staff layoffs due to financial crisis
PERT Analysis Chart.
PERT Analysis Chart.

PERT analysis on how to overcome Chabros International Group’s financial crisis

Task Task Description Prerequisites Optimistic duration Most likely duration Pessimistic duration
1. Re-boost sales In existing markets 3 Months 5 Months 6 Months
2. Follow a growth strategy Expand to Morocco 2 Months 3 Months 7 Months
3. Market penetration Existing markets/countries 6 Months 1 year 3 Years
4. Product development Quality of lumber and veneer 5 Months 4 Months 6 Months
5. Market development In new countries like Morocco 2 Months 6 Months 8 Months
6. Diversification strategy Increase European type of wood products 1 Month 1½ year 3 Years

Conclusion

Chabros international Group’s case is a good example of how a company can use its resources to increase its market share with ease in a new target market. Cultural differences, geographical segments, and demographical differences are some of the factors that can either increase or reduce the pace at which a company would expand its market and also affect business decisions.

The lesson my team can learn from this case study is that, before a company decides to expand market scope of its products or venture into a new region, it should do a SWOT analysis (strengths, weaknesses, opportunities, and threats) to get a feasibility knowhow of what to expect from the new market. Moreover, a PERT analysis provides a clear picture of how the company would overcome challenges when expanding to the new market.

References

Beamish, P., & Farah, B. (2012). Chabros International Group: A World of Wood. Ontario, Canada: Ivey Publishing.

Daniels, J., Radebaugh, L., & Sullivan, D. (2013). International Business-Environments and Operations, NY, USA: McGraw Hill.

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1. IvyPanda. "Chabros International Group's Major Challenges." November 26, 2020. https://ivypanda.com/essays/chabros-international-groups-major-challenges/.


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IvyPanda. "Chabros International Group's Major Challenges." November 26, 2020. https://ivypanda.com/essays/chabros-international-groups-major-challenges/.

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IvyPanda. 2020. "Chabros International Group's Major Challenges." November 26, 2020. https://ivypanda.com/essays/chabros-international-groups-major-challenges/.

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