Before expanding to global markets, managers should plan carefully by conducting background research on the country of entry by using the PESTEL tool. After analysing these factors, a firm should segment and target the potential market before positioning itself strategically to create value and gain competitive advantage. Bates Farms and Dairy, a company operating in England, needs to expand to the US market as part of its globalization plans. The American market is ideal for dairy products given its robust economy, third highest population in the world, technological advancement, and stable political environment. Bates Farms and Dairy should use direct importation of its products to the US as the preferred mode of entry. This paper shows why the company should enter the US market by conducting PESTEL analysis on the country and discussing the viable market segmentation plan together with the entry options.
Companies are seeking to expand their markets and tap into the global market share as a way of remaining competitive in an ever-changing business environment. Bates Farms and Dairy is a dairy company located in Merseyside, England, and having been in business for the last 75 years (Bates Farms and Dairy, 2020), it wants to expand its operations into the US. This paper discusses the various political, environmental, social, technological, economic, and legal factors that Bates Farms and Dairy should consider in the US before starting its operations. The paper also explains the market entry options, market segmentation, and Porter’s generic strategy for Bates Farms and Dairy as it seeks to enter the US market.
The US is one of the leading democratic countries in the contemporary world with the president heading government operations. As a mature democracy, the US has a highly stable political environment, which has been a major point of attraction for foreign direct investment (FDI). Therefore, it will be advisable for Bates Farms and Dairy to expand into this economic giant and enjoy the many benefits associated with the prevailing political stability in the country.
Based on the nominal GDP, the US is the largest global economy. It is home to the most multinational companies dominating the world, such as Facebook, Coca Cola, Apple, Google, and Microsoft among other related businesses. In 2019, its GDP stood at $21.428 trillion, which was a growth of 2.9 per cent from 2018, with a per capita income of $65,112 (Imbert, 2019). In September 2019, unemployment dropped to 3.5 per cent, which was a 50-year low (Imbert, 2019). Therefore, the economy is growing, which means consumers have the purchasing power; hence, it is an ideal place for market entry.
In terms of population, the US is the third leading country in the world after China and India, with a population of around 327.2 million in 2018. The society is highly individualistic with reduced power distance. Nevertheless, with a huge population and educated people with good salaries, the country has a ready market for Bates Farms and Dairy. The issue of lack of reliable labour force is solvable because every year thousands of immigrants relocate into the country.
The US is a global leader in technological innovation, with companies, such as Apple, Facebook, Microsoft, and Google among others headquartered in the country. Hundreds of start-ups emerge every year to solve the various problems that people face in their day-to-day lives. The technological revolution of the 21st century has changed the way business is conducted in the US. This aspect presents an opportunity for Bates Farms and Dairy as it can leverage technology to remain competitive in the US market.
The country experiences both cold and warm weather seasons, and it has a diverse geographical set-up. Millions of tourists visit the country every year to experience its diverse environmental aspects. However, in the recent past, the country has been witnessing extreme weather conditions, which has affected businesses negatively. Therefore, people are becoming worried about the effects of climate change. While this issue is a threat to companies, it could be turned into an opportunity if Bates Farms and Dairy could adopt sustainable measures that protect the environment.
The US has federal laws based on the national government, and state laws, which vary from one state to another. Therefore, companies are under the regulations of state laws depending on where they operate. However, they are also subject to federal laws based on the nature of their businesses. Additionally, the US has strong intellectual property laws, which helps businesses to grow without the fear of their products being counterfeited. Bates Farms and Dairy could take advantage of this legal environment to establish its operations in the country.
The market entry options into the US depend on various factors, such as competition, the ease of establishing a business, and government regulations among other related aspects. First, Bates Farms and Dairy could form strategic alliances with other companies already operating in the country. Local entities will play a major role in providing information about markets and customer preferences, establish relationships with suppliers, and offer distribution channels. The company could also licence its products and let another firm in the US sell its goods.
This strategy is preferable if the company being licensed has established a significant market share in the country of operation. Bates Farms and Dairy could also consider a joint venture whereby it will partner with another company to form an independent third entity, which is managed independently. Additionally, the company could think of mergers and acquisitions by buying a firm that is already operational in the US and leverage on its market share.
However, the most appropriate and viable option for Bates Farms and Dairy is the direct importation of its products into the US. The company has well-established production systems in England, which could be scaled for optimal production to serve its current market and the emerging one in the US. The business will only need to sign contracts with distributors and convenience stores whereby it will deliver its product for distribution to consumers. This market entry strategy fits Bates Farms and Dairy because it does not need high initial capital investment, which could be a constraint for the company at the moment.
Additionally, minimal legal paperwork will be required using this mode of entry as compared to others, such as mergers and acquisitions. Finally, the firm will not need to hire many workers, which solves the problem of the US having an aging population that might not provide adequate affordable labour.
Market segmentation involves identifying potential people that could become consumers of a company’s products. According to Camilleri (2018), “Market segmentation is the actual process of identifying segments of the market and the process of dividing a broad customer base into sub-groups of consumers consisting of existing and prospective customers” (p. 70). Potential customers are placed in different segments depending on various factors, such as demographics, lifestyle, and location among other related aspects.
Once the target market has been identified (segmentation), the company decides the nature of customers that should be pursued (targeting), and finally comes up with ways to create value for that specific group of individuals or companies (positioning). Therefore, this process is a triad, which occurs through segmentation, targeting, and positioning (STP).
Bates Farms and Dairy should start by looking at the potential clients in the US and grouping them based on various factors including demographics, behaviour, psychographics and geography among other related elements. To accomplish this process effectively, the company should answer the why, what and who questions. The “why” question seeks to understand how customers behave by looking at their past purchase patterns to predict how they are likely to behave in the future. The “what” question focuses on breaking down data on purchase behaviour to understand monetary values, recency, and frequency.
Finally, the “who” question identifies demographic information, such as age, income, family size, and education. Bates Farms and Dairy has a potential market in families with children because they are the major consumers of milk and other related dairy products. Understanding this market niche and creating value would give the company a head start into becoming a competitive player in the US dairy products market segment.
Porter’s Generic Strategy
For firms to remain profitable in the long-term, the management has to look for ways to gain sizable market share and become competitive. Porter’s generic strategy outlines ways through which companies could become competitive in the market. The three major Porter’s generic strategies include cost leadership, differentiation, and focus (Islami et al., 2020). Cost leadership implies the pricing that a company adopts. For instance, a business could choose to offer products at low costs or prices and gain a large market share. On the other hand, an organization could differentiate its products and services and set high prices for the same. Focus is intertwined with the first two – cost and differentiation, whereby a company could focus on a wide market segment through low pricing or target a niche in the market through differentiation and sell at high prices.
Given that Bates Farms and Dairy is in the milk business, which is widely consumed, it could focus on low cost to command a wide market share. The economic times are hard, and with the current COVID-19 outbreak, it is expected that world economies will undergo a period of recession. Therefore, the cost will be a major determinant in the purchase decisions of consumers. Therefore, Bates Farms and Dairy has a strong network of farmers and established production system, which could be leveraged to minimise cost of production and delivery affordable products into the US market. This is a better option compared to differentiation meaning that its prices will be premium, which could be problematic during these hard economic times.
Bates Farms and Dairy is an established company in England dealing with dairy products for the last 75 years. It now seeks to expand its operations into the US market. Based on the PESTEL analysis discussed in this paper, the US is an ideal business location for the company. Its market segmentation strategy should focus on the STP model to identify potential customers and create a value proposition for them. In terms of its competitive strategy, Bates Farms and Dairy should focus on providing low-cost products especially during this time when world economies to enter into a recession in the post-COVID-19 era.
- Bates Farms and Dairy. (2020). Welcome to Bates Farms & Dairy Ltd Local dairy produce, from local dairy farms, delivered 6 days a week.
- Camilleri, M. A. (2018). Market segmentation, targeting and positioning. In Travel marketing, tourism economics and the airline product (pp. 69-83). Springer.
- Islami, X., Mustafa, N., & Latkovikj, M. T. (2020). Linking Porter’s generic strategies to firm performance. Future Business Journal, 6(3), 1-15.
- Imbert, F. (2019). The hard data says the US economy is just fine. CNBC. Web.