HP Company’s Market Entry Strategy in the Middle East

Executive Summary

The case study below is aimed at evaluating the existing marketing strategies HP Company should use in the context of introducing its products in Israel as one of the countries in the Middle East before it can open up branches in the other countries of the Middle East such as Egypt and Turkey in its expansion plans. Israel was chosen due to its strategic position, the fact that other rival companies have already invested there and the stability of the country compared to others as well as technological advancements made the management assume that the reception would be easier in Israel compared to other countries.

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The report first evaluates the existing global market entry strategies any company is faced with when it is in thought of introducing a new product in a new market, assessing the benefits and the short comings of every method then after that select the best which in our case we selected the combination of high quality low price due to the long term goals of securing a large market share in the country. This was also done in consideration of the existing macro conditions, analysis of competitors, and the capabilities of HP Company.

Introduction

Globalization and trade liberalization has enabled the easy flow of goods and services between different countries in the world. With free trade, companies are now able to search and penetrate new market, which they haven’t yet saturated with their products. As a result of the benefits which came along with trade liberalization, HP needs to introduce its products to the Middle East and has chosen Israel as their country of choice after penetrating and securing big market shares in both the American and European regions. The company now needs to choose a marketing strategy which will work best in Israel to ensure that most of the customers there access HP products easily.

A marketing strategy usually defines the company objectives and indicates how an organization or a company intends to penetrate a new market or retain its market share with the threat from other competitors within the industry. The objectives of this study will be to analyze the existing market strategies and then seek the best which HP Company should use when introducing her products to Israel and if the product reception turns out positive, then the same strategy will be applied to other countries within the Middle East region.

Why Israel is selected Among the Three Countries in the Region Middle East – Egypt, Israel, and Turkey

With the given rapid changes in technologies as well as tastes from the consumers, companies have been forced to develop a stream of new products as well as look for new market places since they have already saturated the home markets or facing stiff competition. Presently in the Middle East, there is huge market to choose from but before HP could choose any country among Israel, Egypt or Turkey, the following factors had to be considered: who the HP products will target, chances of making good returns, the HP product positioning and whether there will be differential advantage the company will offer over the other competitors in the industry using this criteria, Israel was a choice.

Another factor which forced the HP to choose Israel over the other countries in the region was the fact that most people in Israel have embraced technology compared to the other members in the region and thus the country offered an advantage in reception as long as the HP products could be introduced with new features and at attractive prices. Finally, with the ongoing riots already affecting Egypt, a choice of a stable government was made and with the likelihood of chaos spreading to the other regions, Israel remained the better suited country for HP to introduce her products first before penetrating the other countries in the region.

Hewlett Packard Company Current Situation

According to Bloomberg News (2011) the shares of HP fell despite the latest acquisitions that the company has made aimed at fuelling sales growth. In support of that, other news state that after the first quarter in the helm of the company, the Chief Executive Officer delivered some worrying news that the company’s revenue will be lower fuelling the need of the acquisitions the company has been making. Despite this, HP company brags to be the largest technology company by revenue and thus the need for expansion, which are likely to be productive in the long run (Robertson 2011).

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The company has been making numerous acquisitions across the United States of America and its desire to expand to other territories is their main goal since they have penetrated every aspect of the American market and saturated it with its products thus its time they expand to other territories and Israel provides the potential for its further growth and expansion and future revenues (Ladendorf 2010).

Potential Market Entry Strategies

When a company makes a decision to invest in overseas markets, there are several options which it can chose from in order to ensure that its impact will be felt. Most of the times the available options usually vary with the costs involved, risks involved and the degree of control which shall be exercised over them by the authorities or the government they intend to invest in; thus choosing a marketing strategy that optimizes the above factors is very crucial if the company hopes to succeed (Lymbersky 2008). A market strategy usually defines the objectives that the company seeks to follow when introducing a new product.

Any company seeking to introduce new products in a new market is usually faced by several problems. Before entering into the market, the company ought to decide which segments they will be aiming to attract as well as how to implement the effort and whether to market directly or through the use intermediaries.

According to Kotler (2007) segmenting the market gives a company a narrow field to focus and please in order to achieve the objective in contrast to targeting the whole market where the company would seek to please everyone. The other problem a company faces is how to source for the products: whether to obtain the products from the recognized subsidiaries or to introduce a new subsidiary is usually a problem (Keegan 1989). With these problems, therefore, a company needs to choose a marketing strategy carefully and ensure that the strategy chosen is the one that optimizes the company goals.

Before assessing the available market entry strategies, it is usually necessary to have an overview of market selection process. There exists certain criterion that must be evaluated before selection of a market. These market related characteristics include issues about tariffs, political situations, cost related aspects, and the market related issues (Keegan & Schlegelmilch 2001). The market related characteristics are concerned with issues such as the market size, the purchasing power of the customers, the level and quality of the competition among other factors (Hollensen 1998).

The cost related aspects, such as, the transportation networks and the other logistics involved are some of the cost issues that need to be considered before a company decides to enter into anew market. The political atmosphere within the country where the company wants to open new ventures is another major key factor that needs consideration. The political risks, which arise, may evolve from issues of being denied operation licenses to the limitation of the number of foreign employees a company can employ, are some of the political issues that companies need to be considerate of (Johansson 1997).

Even with trade liberalization, some governments have been allowed by the World Trading Organization to place some tariffs on certain industries in order to protect the home industries thus before entering to the new market, a company needs to be aware of the tools the government of the country wish to invest in uses to control foreign companies. The tariffs and non tariff barriers, which exist, should be well known. However, it is important to note that not all tariffs and non tariff barriers are discriminatory; some are usually put into place to ensure the public is not exploited (Mikic nd).

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When the above factors are well considered, it’s only then the company should move forward and decide on the strategy suitable to use in order to penetrate the new market successfully. The following are the global marketing strategies HP should consider, investigate and evaluate before entering the Israel market: exporting, foreign production, licensing, franchising and local manufacturing (Jeannet& Hennessey 2004).

Companies which use exporting as an entry strategy do so if the countries they intend to introduce their goods and services are not equipped with large and enough opportunities to justify local production. This method is more preferred since it allows a company to manufacture its products from the mother company for several markets and therefore it becomes easier for the company to achieve economies of scale thus reducing the costs involved. Other than achieving economies of scale, direct exporting adds volume to an already existing production operation located in different geographical locations and as a result this increases the marginal profitability of such exports and it results in the company making more money (Gilligan& Hird 1985)

The form of exporting chosen can either be directly or indirectly controlled by the company. The advantage of using a foreign company based on the country of export is that the company most of the time possesses knowledge of the existing market conditions in the country and this makes penetration into the market easier. On the other hand, direct exporting occurs when a company establishes a subsidiary within the country of interest and then sells her goods directly to the customers or the marketing intermediaries existing within that country.

The main disadvantage of using direct exporting strategy is that an exporter must establish with large number of foreign contacts in the countries they would like to export their products thus requiring more expertise and more logistics. For direct exporting to be successful, the relationship between the producing company and the local distributor should be strong and genuine. Huge (investments) costs are saved by the exporter through strong relationship build up.

As expected, the independent distributor can only earn revenue through the price differential or the margins between the buying price and the selling price; this is usually translated to an amount the exporter should have earned thus serving as a disadvantage to the exporting company. Most firms usually have a preference exporting directly to their own subsidiaries abroad in the process, sidestepping the independent intermediaries ( i.e. due to the transaction costs and other hidden costs involved since the sales subsidiaries generally assume an independent role in the nation where they are located).

Companies also use foreign production as entry strategies in another country. As a result, these companies have entered into one of the following ways to manufacture their goods within the country of their interest: Licensing, franchising and local manufacturing. Licensing can be classified in similar ways to contract manufacturing. The firm that is in need of selling her products to other countries receives terms for producing locally. In this case, the license issuing authority receives loyalty (Johnson & Turner 2003). Advantages of using licensing as an entry strategy are the fact that it offers a firm access to trade names, and exclusive linked to the product.

By using licensing, a company can gain revenue through the loyalty fees paid from the issue of patents. The other advantage of licensing is mainly related to the low risks and low investment costs which are involved. The method is also preferred by those companies which want to test the markets before investing fully. The licensee usually has the benefit of adding the licensed products volume to an ongoing business and thus curtailing the needs for gigantic investments. Licensing also saves managerial expenses which would be required since it allows the available limited scarce skills to be used in other fields.

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In nations with political and economic qualms it serves as a security since the licensing agreement protects the corporation from potential risks, which could be associated with investments on fixed assets. The drawbacks of licensing method as an entry strategy are that the business depends on the local licensee (to yield revenues) and thus royalties can only be paid on the percentage of transactions undertaken. The uncertainty of the product company is another major disadvantage due to the fact that if the licensee company sold substandard goods its reputation would be tarnished and this might reduce the profitability of the company. This makes the producer company lose control of its own products (Cateora and Graham 2002).

Finally, franchising is the other method a company can use when introducing its product to the market. It is typically a special form of franchising where the franchiser makes total selling program including logo, products among others (Doole and Lowe 2001). The franchising agreement is usually more detailed and comprehensive compared to the licensing program and thus requires close scrutiny and understanding (Murphy 2006). The major advantage of a franchise business is it offers the franchisor with the market information thus it becomes easier to introduce the product to a market. The major disadvantage is that the costs involved may be higher that the expected when buying a franchise. With the franchise business including restrictions on how one is supposed to run the business and one cannot make changes no matter how favourable they might appear.

Recommend the Most Suitable Entry Strategy

As the Director of the International Operations Department of HP, I would recommend the company to use the licensing method to introduce its product to the Israel market. This is taking into consideration that Israel is a country that has advanced more than any other country in the Middle East region; we would expect other rival companies such as Acer and Dell to have already introduced their products in the market. The only way which the HP products can survive is by using licensee method since the licensee will be able to introduce the products comfortably in the market. The strategy offers more advantages compared to the other methods as we have seen above.

Conclusion

Selection of a successful marketing strategy is always critical to how the company performs in a foreign country where it wants to invest in. For HP to succeed in introducing new products to Israel, the company will need to consider several issues. These issues can either be central to the organization or external factors which the company cannot influence. While the internal issues include the availability of resources, the staff experience and the company goals and objectives towards expansion, the external factors that HP might not be able to control are issues about the market size, the costs aspects, government regulations as well as the political atmospheres in Israel. These issues need thorough evaluation as most of the times they determines the stability of the chosen market strategy. The advancement in technology and liberalization of trade have made competition fierce among rivals, thus, most companies have realized that internationalization is no longer an option but a necessity if the companies are going to succeed.

Reference List

Bloomberg Business Week, 2011. Hewlett-Packard, Chevron, Ford are big movers. Web.

Cateora, P. R., Graham, J. L. 2002. International Marketing. 11th Edition, New York, McGraw-Hill.

Doole, I.,& Lowe, R. 2001. International Marketing Strategy. 3rd Edition, Bedford Row, London, Thomson.

Gilligan, C., Hird, M. 1986. International marketing: strategy and management. Taylor & Francis Publishers.

Hollensen, S. 1998. Global marketing: A Market-Responsive Approach. London, Prentice Hall.

Jeannet, J-P., Hennessey, H. D. 2004. Global Marketing Strategies. 6th Edition, New York, Houghton Mifflin Company.

Johansson, J. 1997. Global marketing: Foreign Entry, Local Marketing, and Global Management. Chicago, Irwin.

Johnson, D., Turner, C. 2003. International business: themes and issues in the modern global economy. Routledge Publishers.

Keegan, W.J., 1989. Global Marketing Management, 4th ed. Prentice Hall International Editions.

Keegan, W.J., & Schlegelmilch, B. 2001. Global Marketing Management – A European Perspective. London, Prentice Hall.

Kotler, P., 2007. Marketing Management, 12th Edition. London, Prentice Hall Publishers.

Ladendorf, K. 2010. Battle between Dell, H-P for 3Par grows more expensive. Web.

Lymbersky, C. 2008. Market Entry Strategies: Text, Cases and Readings in Market Entry Management. London, Christoph Lymbersky Publishers.

Mikic, M. Not dated. Rising Non-Tariff Protectionism and Crisis Recovery. Web.

Murphy, B. 2006. The franchise handbook: a complete guide to all aspects of buying, selling or investing in a franchise. Atlantic Publishing Company.

Robertson, J. 2011. HP Shares Slide As Powerhouse Faces Growth Fears. Web.

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