Introduction
One of the major challenges of international expansion is being able to properly assess and penetrate the foreign market to establish organizational recognition and dominance. The given case concerns TSA Pty. Ltd. (TSA), a privately owned packaging company. Over the recent decade, the organization has been highly successful in expanding internationally from its hometown in Australia to the UK, Europe, the US, and Mexico.
The key region where TSA lacks a presence in Asia is why the report will conduct a preliminary research of these potential markets and discuss how the new international production operations can be incorporated. Based on the analyzed information, initial recommendations will be made, alongside core risk factors. The findings suggest that the TSA should expand internationally to India, as it offers a large market, a skilled workforce, and potential future growth opportunities.
Theory and Methodology
Although countries should be compared with each other based on their own contexts, strengths, and weaknesses, the global business market presupposes the derivation of international competitive advantage. Thus, the theory of absolute advantage of international business will be used in the given report. It essentially states that nations can specialize in gaining an absolute advantage, and the global market is not interested in relative advantages. It was first proposed by Adam Smith in 1776 (Brondino, 2021). For instance, a nation with the cheapest labor will produce the cheapest products if the labor is utilized. Similarly, a nation with the greatest population will likely form the largest consumer market if the purchasing power is equivalent (Hamilton and Webster, 2018). The method will adhere to absolute advantage theory, where the national metrics of each country will be viewed from a baseline rather than in relation to each other.
Preliminary Analysis: Potential Markets
India
There are two large countries in Asia with massive populations and potential for TSA expansion, which include China and India. Since China already has manufacturing facilities, India offers a new opportunity for entry. It offers two advantages, and the first one is a population of more than one billion people. This means that the market is large, and potential revenue can be significant if the market is penetrated properly (Collinson, Narula, and Rugman, 2020). To understand the international market significance of India for TSA, it is useful to critically reevaluate the situation from the perspective of two macro-environmental factors: economic and political variables.
In terms of economy, India is demographically one of the largest nations in the world, trailing only slightly behind China. The nation is considered a developing economy with significant potential for growth and the capability to become heavily industrialized. The gross domestic product (GDP) for India in 2021 was $3,173 billion; however, the GDP per capita was only $1,960, largely due to its large population of 1.4 billion (Udemba et al., 2022). The World Bank (2022a, para. 1) reports that “since the 2000s, India has made remarkable progress in reducing absolute poverty.
Between 2011 and 2015, more than 90 million people were lifted out of extreme poverty.” The key sectors contributing to India’s GDP include agriculture, construction, manufacturing, mining, public administration, and utilities. The national unemployment rate is 8.3%, with a labor force participation rate of 47.3% (Udemba et al., 2022). Thus, India is a substantial and critical market for TSA.
The annual GDP growth rate for India is shown in the chart above. It is evident that the GDP growth was relatively stagnant for decades, similar to the trade balance, but the COVID-19 pandemic led to significant losses. Still, after recovering from the global crisis, the Indian economy is even getting stronger than before, and the reason behind this success is geopolitical shifts. The World Bank (2022a, para. 7) states that due to “these proactive measures, the economy is expected to rebound … and growth is expected to stabilize at around 7% thereafter.” It is rather challenging to determine whether or not trade barriers were the reason for the recovery.
In the realm of politics, India is a politically stable nation with robust institutions for a large and diverse population. The country is an imperfect democracy with a historical caste system that continues to have an impact to this day (Lolayekar and Mukhopadhyay, 2020). However, more importantly, India has a neutral and advantageous geopolitical stance, especially under the current global tensions centered around the War in Ukraine.
India is a flexible and adaptable geopolitical player despite its tensions with China (Lolayekar and Mukhopadhyay, 2020). Even though the energy crisis is affecting a multitude of nations worldwide, India has secured favorable oil and gas deals with heavily sanctioned Russia (Bildirici, Genc, and Castanho, 2022). At the same time, India was able to maintain relationships with its Western partners as well. Therefore, both its economy and political environment are rather stable and reliable, with no substantial disruptive threats awaiting TSA’s bottom-line operations.
India is one of the most protectionist large economies. The most common reason for the trade barrier is short-term political gains, which include employment rates and support of domestic businesses (Selby, 2017). The second reason is national security. India is pressured by three geopolitical superpowers: China, Russia, and the United States (Kotabe and Helsen, 2020). If India allows one side to be involved in the economy, this would damage other relationships (Selby, 2017). The barriers of this category include testing, labelling, certification, standards, import licensing, procurement, anti-dumping, export and domestic subsidies, and service barriers (Rahman, 2019). Therefore, the key reasons behind trade barriers are protectionist and geopolitical.
Japan
Japan is a highly industrialized country with a competent and well-educated population and a significant demand for food packaging. Japanese food culture is rich and diverse, and many of its food products are packaged, which means that there is a massive market for TSA capabilities. The World Bank (2022b, para. 3) reports that “Japan strengthened its status as a creditor in the 1970s and became the second-largest shareholder of the World Bank in 1984.” It is among the strongest economies in Asia, second only to China. The population exceeds 126 million, but its growth rate is low (The World Bank, 2022b). The figure below shows that the country’s real GDP growth was significantly affected by the pandemic, a common occurrence among other nations, including those discussed earlier.
Unlike India, Japan is already a heavily industrialized and well-educated nation with no elements of absolute poverty. Its global partnership network is extensive since “Japan is now the second largest supplier of capital to the World Bank and an important partner to the World Bank in many fields” (The World Bank, 2022b, para. 2). The GDP per capita is significant and on par with the developed nations, which is equal to $39,312 (The World Bank, 2022b). Politically, Japan is a strict and dynamic constitutional monarchy with its own business rules, frameworks, and regulations, unlike any other country. Japan is a close ally of the US and Western democracies, which means its geopolitical stance is not as dubious as India’s.
However, Japan has limited prospects for massive future growth, as its economy has already matured, which is why its growth percentages are smaller than those of other developing markets. The technology and manufacturing sector in the country is competitive and well-established, which means that TSA will face serious rivalry and saturated markets if it decides to enter (Hasegawa and Witt, 2019). The country has significant industrial and manufacturing capabilities, which could easily pressure the TSA if there were to be direct competition. Therefore, TSA will have to enter with a significant product advantage to succeed in Japan.
Vietnam
Vietnam has often been overlooked as a market for international expansion, typically because China or India overshadows it. However, the World Bank (2022c, para. 1) notes that “Vietnam has been a development success story … from being one of the world’s poorest nations to a middle-income economy in one generation.” Its growth is significant, and the percentage of economic growth is increasing.
For example, “growing at 2.5% to 3.5% per year over the past three decades, the agriculture sector has supported economic growth and ensured food security” (The World Bank, 2022c, para. 1). The stability in Vietnam is one of the key and strongest elements of its economy. The core sectors of its economy include hospitality, textiles, furniture, paper, and service sectors, which means that there is no serious competition in the food packaging industry. Figure 3 showcases the real GDP growth of Vietnam.
The COVID-19 pandemic did not halt the trend of stable economic growth in Vietnam. The World Bank (2022c, para. 7) reports that “Vietnam has grown bolder in its development aspirations, aiming to become a high-income country by 2045.” More growth is expected once travel and tourism are no longer as restrictive as they were during the lockdowns. The food market for packaged and processed food in Vietnam is large, and the consumer base for this category of food products is significant due to the population demographics.
One of the key elements to consider is the population and its capacity for growth. Vietnam has a population of 97 million, but it is aging (The World Bank, 2022c). The majority of the public is educated and industrious, which means that TSA will be able to find employees skilled enough to operate the machines. Geopolitically, despite the historical past, Vietnam is a close ally of the United States and the West, which means it will have few international issues under the current tensions centered around the War in Ukraine.
Advantages and Disadvantages
In general, each of the countries discussed above has its advantages and disadvantages. Firstly, the key strengths of India are its massive population and the potential for market capitalization for the TSA. Additionally, it is geopolitically stable and open to international business. The population is literate and educated, and its economy is expected to grow. However, the weaknesses include trade tariffs and low GDP per capita (Cherunilam, 2020). The former is a problem if TSA wants to manufacture all elements in Australia and export them to India. Instead, the company will have to manufacture and produce the entire equipment, mostly in India itself, to eliminate trade barrier problems.
The population is large, but the purchasing power of each consumer is limited. Non-packaged foods tend to be more important than packaged and processed foods, which means that only a small percentage of the population regularly buys processed foods. Indian food culture and markets are dominated by street food, and many families opt for unprocessed foods to cook at home, which means that TSA will have to carefully approach and assess India for its range of intricacies and peculiarities before entering its markets.
Secondly, Japan has several advantages, including being a heavily industrialized nation with a significant demand for packaged foods. TSA will find customers in the Japanese market, and it will have no issues securing the necessary human resources to manufacture or operate its machines. Japan is a key supplier to TSA, which is why entering Japan will bring it closer to its main supply chain partner. The population is highly educated, and the need for additional training will not constrain TSA’s growth.
However, the Japanese economy is mature and saturated with its own domestic businesses, which are highly competent in manufacturing. The nation boasts technological giants who are competent and skilled in their respective industries. The population growth is halted, which means there will not be a constantly growing future demand, and immigration is low. TSA will only succeed in penetrating the Japanese market if it is certain that its products are superior to the local competitors. In other words, it has to enter strong and prepared in order not to be quickly dominated by the local giants.
Thirdly, Vietnam’s core advantages include its population, education system, and prospects for economic growth. TSA will find skilled workers in the country, and there is a massive and growing market, indicating positive prospects. The economy is stable and growing, which means there is better potential compared to Japan. Geopolitically, Vietnam is a reliable and aligned partner with the TSA’s country of origin. Additionally, there is virtually no serious competition for TSA due to the absence of a large manufacturing sector. The disadvantages are similar to those in India, particularly in terms of GDP per capita, where individual consumers have limited purchasing power. In other words, the manufacturing sector may be underdeveloped precisely because of the low domestic demand for packaged foods.
Lastly, considering all the factors, India is the most attractive market with the greatest potential for future growth and expansion. Vietnam is essentially a smaller and older version of India from the TSA’s perspective, whereas Japan’s market is dangerous due to its competent tech giants. India offers the best opportunity to expand if a set of specific conditions is met in terms of manufacturing. By accounting for all these factors, one can safely state that the War in Ukraine, the global energy crisis, or geopolitical and internal instabilities do not impact TSA’s continuous viability of market operations.
In addition to the latter, India is a growing economy with the largest population, which has a favorable perception of the company’s main product. Politically, India has no hostility towards multinational corporations, such as those from the United States, since its protectionist measures are focused on trade with foreign nations. It does not hinder or restrict the operations of intentional corporations within its economy. Thus, marketing efforts can be allocated to strengthen the company’s position.
International Production Operations
The TSA’s current international production operation is centered around maintaining all essential operations in Australia, with a few offices located abroad. In addition, the company’s products are manufactured and distributed from its Melbourne office, which limits its international presence primarily to its offices. Although some research and development (R&D) facilities are located in China and the US, the core offices remain in Australia. Since India was selected as the next country for TSA’s expansion, it is critical to enter it with precaution in terms of its trade barriers.
The new international production operations should shift from Australia-centered production to a local one. For the TSA to succeed in India, it should ensure that it manufactures and produces its machines within the country. It should not adhere to the old format of exporting its machines by merely having offices globally. The production must also be reallocated geographically, which will double the competitiveness of TSA. The company already has a highly competitive product, which dominates Europe, the US, and other regions.
However, India’s strict trade tariffs will affect the cost if imported into India. The country has the workforce, government support, and market for TSA’s products, which is why it is worthwhile to invest in building production facilities in India. Notably, India has relatively soft trade barriers with Japan, which is why Japanese component imports are unlikely to be affected under this new international production operation framework.
However, if the new production facility is built in India, it must create all product lines that will be sold in the country. Therefore, it will not be beneficial if the new operation produces only a limited number of products. India is strict with its trade barriers but highly supportive of international companies that create jobs and sell products within the country. The TSA should first determine which products it wants to sell in India, then build the production facilities for these specific items.
Main Risks
In the case of Japan, the primary risk is competition, as its businesses operate under the Keiretsu model, as illustrated in Diagram 1. In short, a Keiretsu refers to a network of closely cooperating distributors, manufacturers, banks, and other companies that function as a closed system (Tomeczek, 2022). There is no competitive advantage for TSA when faced not only with directly rivaling companies but also their network of collaborators. The case demonstrated that competition and competitors copying the technology created a series of litigation issues, which TSA won.
However, Japan is a technological hub of innovation and a globally recognized leader in machinery (Brell, Dustmann, and Preston, 2020). Its conglomerates can develop a similarly competitive technology without breaching patent laws. For Vietnam, the aging of the population is the main risk. Although it has a significant population size, it is demographically aging, which means that its stable growth might be halted in the future. Other issues in India are comparable to those in other countries, such as a low GDP per capita; however, India offers its benefits on a larger scale with more future potential.
Recommendations
The initial recommendation is for TSA to enter India’s market, but a series of actions need to be taken before the process, as shown in Diagram 2. For the plan of action, first, TSA must assess the demand for food packaging machinery to determine which of its products can best meet local needs. Secondly, the company needs to identify which machinery it wants to produce and analyze the cost of establishing these production facilities in India.
Thirdly, the location for the production site must be secured, which means consulting with the Indian government. Fourthly, it is essential to prepare the workers who will operate and manage the facility. TSA has never done this type of expansion before, which is why it is likely that some of the current Australian employees will be asked to temporarily or permanently relocate to India. All of these actions require information on their validity and plausibility as well as costs. Only after TSA analyzes its capability to do so can it enter India’s market and sell its products in the country.
To improve sales and marketing in India, it is crucial to understand and familiarize oneself with the local culture, including its work and business practices. This is why it is valuable for the TSA to hire many specialists locally, rather than solely relying on its Australian experts. Local marketers, sales managers, and product managers will help TSA successfully penetrate cultural barriers. Additionally, it is valuable to partner with India-based agencies and potential suppliers to establish a network similar to the one in Australia.
Conclusion
In conclusion, India is an ideal market for the TSA’s international expansion, as this country offers a vast market, a skilled workforce, and promising growth opportunities. Although both Vietnam and Japan have their own strengths, India’s advantages are more substantial in scale and size. However, the solution is that India needs to adopt a new international production operation model, where manufacturing is done locally rather than in Australia. It will help the TSA avoid trade barrier problems while capitalizing on local markets.
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