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In the year 2010, 5 business graduates of Southern Cross University came together to pursue their dream of starting a new business. They conducted a thorough analysis of the Australian market and found a growing demand for craft beers not only from local residents, but also from tourists from other countries. So they decided to start a small brewing company named 'CHEERS' on the Gold Coast with an initial start-up cost of $ 500,000 (each partner contributing $ 100,000) and brew 3 varieties of craft beer. The choice of craft beers was also to avoid competition with and differentiate from beers produced by larger and more established brands in the local market. The product was well received within this Australian niche market, and even with a slightly higher price (when compared to other mainstream beer brands), demand for CHEERS' varieties did not seem to deter.
In the following 6 years, the business experienced significant growth. Turnover increased from $ 2.5 million in the financial year 2010-2011 to $ 30 million in the financial year 2015-2016. Number of employees also increased from 8 to 28 during the same period. However, growth of the business has somehow stalled since end of 2015, and the management team at CHEERS realised that they will need to look for overseas market to maintain the growth momentum. They looked into numerous potential target markets and shortlisted 2 countries – Brazil and India.
You, being a recent recruit as an International Operations Manager at CHEERS, have been asked to prepare a report (2500 words) for the company's executive evaluating the risks and opportunities in each of these two countries and recommend the best destination for the company. As a part of this project, you have been also requested to suggest the most appropriate entry mode for the chosen country.
When completing this assignment you are required to access and use materials beyond your text and readings. As a guide you should include 15 references which may include academic sources, government websites, and reports published by international organisations and consultancies. Please place the word count for this assignment on the cover sheet. 10% more or less than the stated word count is acceptable. Executive summary, table of contents, tables, visuals, references and appendices will not be included in the word count. The marker may, at their discretion, discontinue marking if you go above 10% of the recommended word limit.
For this assessment task, you are expected to demonstrate your understanding of the following:
- How to assess country potential through an analysis of risks and opportunities. Risks that should be emphasised (but not limited to) in particular are those relevant to brewing businesses such as cultural and legal aspects, government regulations and financial/currency risks. Opportunities may include (but not limited to) market size, economic growth and trade agreements between the 2 countries.
- How to identify the best market entry strategy based on the business type and host country business environment (this includes the level of economic integration between home and host country, the political and legal environment of the host country). The recommended strategy must be well justified based on all the factors (e.g. organisational goals and objectives, resource requirement, degree of control required, risks in the target market, etc.) to consider when deciding entry strategy.
Globalization has provided opportunities to the companies to boast / revive the declining sales in the domestic market. At 'CHEERS' we are experiencing slowdown in business growth and it is important to adopt a growth strategy to come out of the present scenario. The present report highlights Risk factors and opportunities for expansion of the craft beer business to India and Brazil.
After looking at various risk factors and relative advantages in terms of opportunities, it has been concluded that tapping Indian market will be a better strategy for CHEERS considering the high population, high GDP growth rate, increasing per capita income and demographic advantage (huge young and working population) in case of India.
Further looking at the limited resources with the company and limited experience, it is suggested to enter the new market through licensing / franchising model which carry moderate risk. Company needs to enter into a suitable contract with already established pub / bar having presence in tier 1 or tier 2 cities and having good knowledge of local rules and regulations. Entering through licensing mode with mitigate the risk associated with Indian market to some extent. After gaining necessary experience of the Indian market the company may expand its business in India through FDI route with higher control over the business.
Globalization has ensured that growth in global trade is higher than the world DGP growth rate (Southern Cross University 2017). Globalization has led to increase in wealth and living standard of nations, decrease is global inequality, spreading of Democracy. For individual firm, internationalization is pursued in order to maintain the growth momentum, higher profit, to achieve economies of scale etc. (Southern Cross University 2017).
It has been observed that extent benefits of globalization differ for different industries. Further the extent of benefit varies from country to country. Similarly the Threats involved in expanding the business depend upon the type of industry and the country of choice (Twarowska & Kąkol 2013). A Company as a part of effective global strategy needs to take into accounts its strengths and weaknesses vis-à-vis associated opportunities and risks when deciding on expansion of business overseas (Twarowska & Kąkol 2013). Emerging Markets are the most attractive destination for expansion of business due to various factors like growing middle class, large population, high demand and availability of labour (Southern Cross University 2017).
The present report provides analysis of risks and opportunities involved in expansion of craft beer business operating in Australia to Indian and Brazilian market and selecting one country among the two for expansion. The report also suggests the appropriate entry strategy for the selected country.
2. Risk and Opportunities
For and organization, it is important to first understand the risk factors involved and opportunities envisaged before formulating overseas expansion strategy. Let us first look into risk factors for India and Brazil.
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