International Business Strategy: Case Study on Clippy Bag

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Executive summary

Clippy London has grown in leaps and bounds from a small scale company to a national and international company. From a few bags in the range of hundreds to selling products across the UK and making foray into Japan and United States market. The market has readily accepted Clippy London products. The need to explore international market is informed by the market saturation in the UK. There comes a time when the product has undergone many transformation in the local market to a point where it becomes increasing hard to increase unit sales. The clippy bag is relatively well known in the United Kingdom and as such the market can be said to be saturated. New markets introduce new perspectives in the management structures, product designs and operation models. It gives the company space to experiment with new ideas, conquer new markets, and if the market is less developed then it offers the company to sell old technology no longer relevant in the domicile market.

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Introduction

In the consideration of the Clippy Company’s entry into international market, it is critical to evaluate the organizational architecture and organizational culture of the company. This is of critical importance as the entry into international market implies that the company will have to establish some form of basic organizational structures in the host countries (Kline, 2010). Whether the company establishes fully fledged offices in those countries or franchises the business, these organizational structures have to depend on the mother companies in terms of policies, decision making, working culture and processes (Shenkar and Luo, 2008).

Organizational architecture refers to the big picture of the company’s organization which includes the organizational structures, control systems and incentives, processes, organizational culture, and people.In the context of the organizational architecture we will examine Clippy growth in product design and experiences and how those factors contribute to its international business expansion.

The company’s operations and management complexity has grown and matured to a level where the company can handle international market dynamics. From an initial borrowed capital of 2, 500 British pounds and initial production of 250 bags, the company has been able to explore markets in Japan and United states (Clippykit London, 2011). This international experience forms critical foundation in Clippy London’s entry into international market. It is worth noting that Clippy London has capitalized on contacts with the United Kingdom’s Trade and Investment (UKTI) London international team. UKTI is a government body that helps UK based companies explore international markets (UKTI, 2011).On the other hand, the various awards and recognition such as the London Young Business of the year award and the creative section of Enterprising Young Brits (Daily mail, 2010).

Exporting and importing

Export business, also known as international trading, is conceptually derived from shipping goods and services from a country’s port to another country. The person selling the goods to the foreign market or country is the exporter. On the other hand, the person buying the product in the foreign country would be the importer. Custom authorities set rules of engagement in the export and import business. However the launch and widespread use of electronic commerce has largely by passed the custom requirements.

Management orientation towards international trading is a critical component of international business success. There are several reasons that countries or companies in those countries engage in international business. Countries may opt to export the surplus produce (Ethnocentrism), or countries may have an orientation towards subsidiary operation (polycentrism). On the other hand, countries may be involved in a regional orientation towards the world market (regiocentrism) or geocentrism which is a world orientation for market strategies. Both regiocentrism and geocentrism capitalize on the similarities between markets to obtain the cost benefits of doing so.

Companies may be looking into long term expansion without necessarily looking for immediate returns. This may involve creation of an international sales and marketing program. This helps a company identify market opportunities as well as develop a working relationship with the overseas partners. Identification of the market opportunities involves studying the overseas market so as to enhance the company’s competitiveness in the market, acquire new technologies and new ideas for the product (Hill, 2011)

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There are several factors that influence a company’s decision to enter the export market and there are also several factors that influence the choice of the export market as well as the success of the export business. According to Omotayo (2009), export performance determinants can be grouped into internal and external factors. The internal factors include the company’s characteristics and competence, managerial characteristics, and product characteristics (Omotayo, 2009). The external factors determining export performance include the industry dynamics, foreign and domestic market characteristics (Omotayo, 2009). Other factors affecting a firm’s performance in the export market include the firm’s size, technological use, competition and product adaptation. Johnson and herb (2001), argue that a firm wishing to join the export business has to make two critical strategic decisions. One of the decisions is on choice of the target country market and the other is on the identification of the export distribution channel to use (Johnson & Herb, 2001).

In the context of clippy london, the internal export performance determinants such as the company’s characteristics and competence, managerial experience, and product characteristics will be critical in the success of export business. The company has been able to meet the demands of a very high end United Kingdom market. This is evidenced through the use of the company’s products by the UK celebrities who to a certain extent are also global celebrities. The company has also grown from a small kitchen based company with one employee to a limited company whose products are distributed in hundreds of stores across UK. This experience in meeting high end client demands and the handling of logistics of a nationwide distribution of the products would enable the company perform relatively well in the export market.

The company’s proprietor, Ms. Calypso Rose, has developed in terms of managerial expertise. She has been able to grow from handling a few orders at a personal level to signing of contracts and maintenance of paper trail in business transactions. Interaction with members of United Kingdom’s Trade and Investment (UKTI) London international trade team has sharpen her business skills. She has gained substantial business knowledge in participation and organization of several campaigns through her company. Doing business in Japan and New York has also given her, an international exposure to doing business at a global level. It can be argued that in terms of management experience, the clippy company’s management is competent to run an export business.

In the context of the Clippy London the choice of export market will be partially determined by the company’s products. It is critical to note that the clippy products are fashion accessories. The products would thus fall under the luxury goods and not necessities. The company thus need to look for countries that have a large number of citizens with extra disposable income to spend on luxurious goods. The products also involve the customization of the bags with friends, relatives and events photographs. Such products would be widely acceptable in countries with vibrant lifestyles. In this context, clippy should look for a developed country in contrast to a developing country.

Another factor to consider in the choice of the target country is the affinity and appetite for western products in the target country. The western world has had a huge impact on the global arena in the context of exportation of movies, music, fashion and many more products. This has contributed to a global influence in values, style, lifestyle and fashion in many developing and developed countries. A good target country is the one with a fairly high obsession with the western products and style. This can be determined in the target countries by the choice of music, movies and apparel among other factors.

On the distribution front there are two extreme scenarios and a combination of various options between the two extremes. A firm may choose to establish a sales office in the foreign market. The establishment of a sales office in the export country implies that the company is performing all its marketing and distribution functionality (Johnson & Herb, 2001).This mode of direct importing is called market mode (Johnson & Herb,2001). On the other hand, the firms may choose to delegate the marketing and distribution functionalities to independent firms in the export market. This mode of distribution is called hierarchical mode. There are other options between the two extreme scenarios often referred to as intermediate modes. Intermediate models may involve use of joint ventures or commission agents (Johnson & Herb, 2001). Different marketing and distribution models offer the clippy management and proprietor different levels of control.

Clippy company is a relatively small company in terms of workforce numbers. Establishing a sales office in the foreign market would imply incurring unnecessary costs on the company. This is so if one considers that establishing a sales office would require clippy to send in some skeleton management staff to the host country. These staff would then be complimented by local staff at junior levels of the sales office management structure. Outsourcing the marketing and distribution functionality to an independent entity would make sense to clippy company. It is more cost effective considering that internet sales do form a critical component of the clippy company sales.

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Companies wishing to export sometimes do face considerable challenges. Some of the challenges that Clippy bag may face include lengthy legal requirements, low product adaptation in the host country, transport problems, communication and technological barriers etc. International markets do have their own challenges that Clippy Company must strive to overcome. In the UK market, Clippy London has met the customers’ needs and reoriented itself to continually meet its client needs. On the other hand, entry into foreign markets requires different strategies and approach. Some multinational companies have identified some market issues as their major hindrance in their international business. Such market issues include connection, contacts and the staff compliment that makes it difficult for the companies to export. Lack of suitable qualified staff may hinder a company’s foray into international market. Transportation issues which may be associated with distance may also hinder a company’s quest for international business.

The strategy of international business

The business model of the clippy bag is heavily reliant on being able to quickly avail the customized bag to the customers. The customers log to the net and find the bags sizes that they want. They then customize the bags with the photos that they have uploaded, clearly specifying where the photos will be placed in the specific places of the bag. Clippy bag must then ask its manufacturer to manufacture the bag which is then sent to the client. It must be noted that turn around time is of essence so as to get satisfied clients. It is also critical to note that the Clippy bag is heavily reliant on the quick execution of its instructions by the manufacturer.

In the context of international markets, it may not be economically viable for the company to ship customized products from the UK. It would thus make more business sense if the company would get a working relationship with a local manufacturer in the host country. While in the UK the aspect of online ordering and the logistics of delivering a customized product to the customer may be relatively easy, the same can’t be said of the export market especially in the developing countries. The direct implication of this is that the business must work in a country with relatively highly developed e commerce infrastructure, if it decides to go with the customized bags.

Capitalization on the UK brand for value addition

United Kingdom as a country has had a relatively huge influence to the global sports arena. Barclay’s premier league is one of the most watched sports events worldwide. It can thus be said that the sports personality in those leagues do have a considerable support base across the world. Noting that clippy bag is relatively well known in the UK and with considerable use among the celebrities, it should exploit these marketing opportunities to popularize itself worldwide. In this context Clippy bags may opt to deviate from the business model of customizing bags at an individual level, and move to mass produced bags with photos of popular sports personalities. In this context, the company would have to look for a cheap mass manufacturer of the bags say in China and then ship the products across the world.

The mass produced bags would imply that the company is selling an already finished product. This highly contrasts with the aspect of when the client is customizing the bag which is then manufactured and transported to him at personal level. The mass produced bags will help in the introduction of the product to the overseas market. Having introduced the product as a mass produced product, the company may then consider customization of the product at the individual level in the host countries where the product has been widely accepted.

The recent royal wedding provides an excellent international business opportunity for Clippy bags. The world is fascinated with the royal wedding and especially with the Prince and his wife. Clippy bag may consider customizing the bags with the photos of Princess Catherine. In this context, the company would need a collection of several photographs of Princess Catherine, both the wedding and non wedding photographs. These bags are highly likely to resonate well especially with young girls across the globe. The royal wedding provides a dream wedding for most women. Clippy bags may capitalize on these emotions to market the bags.

Clippy bags and the whole range of products from the company are fashion accessories. Celebrities act as the trend setters fashion wise. The company must there fore consider working with celebrities in the host countries. One way of doing this is to customize the bags and other company products with the local celebrity photography in those host countries. This would help localizing the product. Sometimes customers in different geographical locations may have strong nationalistic feelings. Localizing the product feeds on those nationalistic feelings thus helping in product adaptation. The target market may also identify more with local celebrity as opposed to international celebrity.

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Use of events for brand visibility enhancement

It is noteworthy that that Clippy bag has in the past undertaken major projects with the girls in the UK as part of the brand awareness campaign. One of these events was a competition in which about 650 girls across London were personalizing the Clippy bags with issues that affect them. Such activities are very critical in creating memorable experiences for the girls hence creating a positive brand experience. Having interacted with the brand in a fun way, the girls are likely to use the products at a later stage. In the global context there are a myriad of issues affecting girls and young ladies.These issues give clippy bag a brand awareness campaign opportunity. Some of those issues in the third world include lack of sanitary wear, female genital mutilation and gender discrimination in education provision. The company may organize events in host countries where girls customize the bags with issues specific to those countries. On the other hand, the company may hold these events at regional level with issues cutting across the region. Such events when they are held should be highly publicized.

Product endorsement and placement

Product endorsement and placement forms an integral part of brand awareness campaign and marketing. In the host countries, clippy bag must continually look for influential personalities to the target market. Offering free samples to such personalities that have a large influence on the target market is critical to the success of the brand in that market. Such personalities may be celebrities or role models to the target market. When such personalities use the product then the product may be viewed as ‘cool’ or a ‘must have’ product. This has a large influence on the target market.

Product placement is also another avenue in which the company can use as an international marketing strategy. The company must continually look for opportunities to place its products in television programmes, music and movies consumed by its target market. Such placement goes along way in getting the product positive publicity.

It is important to note that whichever export market that Clippy Company wishes to invest in, the company must research on the clients needs on a market by market basis. Different customers may have different needs dependent on the social economic contexts. While standardization of products has been the trend for international trade so as to cut on costs, creating products for specific products have been known to increase profits over standardized products.

Khan (n.d) has studied the ways in which the beverage giant, Coca Cola, has customized its products for specific markets resulting in increased profits and growth. The company introduced a two and half litre bottle in the Mexico region fuelled by consumer needs. This was informed by research which indicated that Mexican families eat together requiring about two and half litres of soft drinks to go with their meals. At the time the largest Coca Cola product was packed in two-litre packages. This led to a 1.5 billion increase in unit sales in that particular year. In the United States market, Coca Cola realized that consumers preferred their diet coke with a lemon slice. Responding to the consumer needs in that specific geographical entity, Coca Cola introduced a diet coke with lemon resulting into a four percent volume growth in sales. Coca Cola has increased its largest bottles of diet coke in North America, and introduced completely new products to specific regions in response to consumer needs. Such products include Qoo in Asia, Bibo in Africa and Minute Maid, Disney Juices and Simply Orange in America (Khan, n.d).

Entry strategies and alliances

Clippy London must understand that entry into international market requires patience and consideration of a strategic market entry option. This is so because the international market is different from the local market in terms of culture, customer experiences, infrastructure, competition and other factors (Brand, 2000). Clippy London need to screen potential markets and the strategic entry options for market entry. This is critical because as it forms the foundation and the basis of a comprehensive export business strategy. The strategy based on well grounded research of the market increases the chance of international success. The main purpose is to assemble market dynamics to enable adequate mobilization of resources.

A clearly written marketing strategy offers some immediate benefits to the company such as it helps in formulating and polishing an export strategy. It is also not easily forgotten or overlooked thus making it more valuable. A plan will acts as a guideline on the way forward for the company wishing to export by setting each staff’s role in the international expansion.

There are several ways in which the clippy London may choose to enter the international market. According to Hill (2011), companies can use different entry modes into the export market such as exporting, franchising the business, and working with a local company in a joint venture mode. The other option is the establishment of an independent subsidiary and taking over an ongoing business in the host country. The choice of which option a company should use in entering a foreign market is determined by several factors including trade barriers in host country, political and economic risks, and various costs such as transport costs and administrative costs.

Market will vary in different geographical entities and as such the entry mode will vary among the different geographical entities. The entry mode in which Clippy London decides to use will thus be to a large extent country specific. Similar entry model may be used for markets with similar characteristics. In order to understand the ideal entry mode for Clippy London, we will examine the different entry modes in detail and discuss the cost implications of each of the entry mode.

Exporting

Exporting is an attractive entry mode for companies that are selling already made standardized products to the export market. In the context of Clippy London, exporting would imply that the company is transporting the product from the United Kingdom to the destination country. This would ideally work for Clippy London if the company’s products are globally standardized. Global standardization implies that the products are similar across different markets.

Customizing the clippy bags and other products forms an integral component of the creativity of the Clippy London’s products. It is this creativity that fuels the company’s success in the United Kingdom. The ability to customize the Clippy London’s products with photographs at a personal level is what differentiates Clippy London as a company. This customization ability thus forms the company identity and is part of customer expectation on the Clippy London Company’s products. Exporting implies that Clippy London has to change the business model from the customizing business model to mass producing the globally standardized products.

Standardizing the product for a global market has risks that Clippy London must evaluate whether they are worth taking. Among the risks is the loss of company identity, loss of the creativity edge of the company and lack of product differentiation. The company would lose product differentiation in the sense that a mass produced fashion accessories loses the personalization bit hence the products doesn’t stand out among other similar fashion accessories. These risks would vary dependent on the specific market dynamics. Standardizing the product would have a negative effect in the developed countries while it may survive in the developing countries. This is because the developing countries are easily influenced by the western culture in terms of music, movies and sports functionalities. In this context, Clippy London may customize the bags and the other fashion accessories with events and personalities with a global appeal.

Exporting has several cost implications. Transport costs will bear a significant portion of the international business costs. This is because Clippy London will have to transport the product from the UK manufacturer, or any other manufacturer, and transport the products to the destination country. The need to physically move the products in bulk quantities implies that there is need for warehousing services in both the exporting country and importing country. Dependent on the size and location of the warehouse, these costs might be substantial. Other logistics include clearing with customs officials in both countries. There might be administrative costs involved in the custom clearance. To minimize on these costs, Clippy London may opt to passively feel orders from domestic buyers who then export the products. In such a context, the foreign products compete with the local product at the same level. The buyer may not even be aware that it is a foreign product. The importer handles all the logistics.

Exporting would also require substantial manpower and time commitment from Clippy London’s management. Handling of the exporting logistics needs time, capital and human resources from Clippy London.. Export as an entry mode strategy would thus work best when the product is globally standardized.

Business franchising

Business franchising offers an ideal entry mode for Clippy London into the foreign markets. Business franchising implies that Clippy London will have limited financial and legal risks in the foreign market. In business franchising model, Clippy bag would license a foreign company to sell the products of a producer or to use its intellectual property such as patents, trademarks and copyright in exchange for royalty fees. Under international franchise agreement, a company grants a foreign company the right to use its brand name and to sell products or services thus making the exporting very interesting. (Fox, 2009).The franchise operates an independent company from the franchiser. He is responsible for the day to day running of the company as well as its profitability. However, he must put in place certain rules imposed by the franchiser (Webster and Hamilton, 2009; Morrison, 2009). Franchising as an expansion mode has been used globally for many years. Examples in the global arena include McDonalds.

Apart from the limited risks that the business franchising offers to the Clippy London, it also has several other advantages. In contrast to the export entry mode where Clippy London may incur substantial transport and custom costs, in this model the licensed foreign country assumes all these costs. The products can also be localized to the specific market’s requirements. In this context, the Clippy London may still retain its customizing model of doing business if the market is ideal for such scenario. The franchising model is flexible in terms of whether Clippy London wants to globally standardize the products or to localize the products to the specific market region. Clippy London also saves resources on researching on the market as well as the administrative costs of setting up an office in the host countries.

Despite the advantages of the business franchising model, Clippy London ought to be very careful on the foreign company they license to sell their products. If the companies don’t have sound business skills then their failure may be interpreted as brand failure in the specific markets.

Joint ventures and strategic alliances

Some countries have nationalistic feelings and governments in those countries don’t allow foreign companies to operate without a local partner. In such contexts, Clippy London may opt to enter into joint ventures and strategic alliances. A strategic alliance is meant to be mutually beneficial to both partners in the alliance. Examples of strategic alliances on the global arena include Viacom and Beijing television. Beijing television produces Chinese language music and entertainment programming which Viacom distributes. In joint ventures both partners fund the independent entity in which they co own and agree on the management structure as well as sharing of profits.

In the context of joint ventures and strategic alliances, Clippy London ought to be careful on the choice of business partner. Differences in management styles, company visions, market experiences among other factors may contribute to disharmony between the two partners. Among the risks of joint ventures and strategic alliances is that the failure of the business partner in their market may adverse effects on the Clippy London’s brand. However while the model may have low returns compared to other entry models, there is the sharing of operational costs which shields Clippy London from unpredictable market dynamics.

Independent subsidiary

Clippy London may also opt to establish independent companies in each of the markets it has interests in. The independent subsidiaries imply that they are wholly responsible for profit making in those specific markets. Establishment of independent subsidiary shields Clippy London from draining its resources on a failing foreign expansion.

Establishing independent subsidiaries is one of the ideal scenarios for Clippy London. While the entry model shields Clippy London from unnecessary risks in those markets, it still enables Ms. Calypso Rose to retain substantial control over the foreign operations. The independent subsidiaries are wholly responsible for their operations including making a profit on the investment.

Acquisition of an existing company

Clippy London may also opt to buy off an existing company in the countries it opts to operate in. Ideally the business must be carrying almost similar business operations for it to make sense for the Clippy London to buy it. Acquiring an existing company saves Clippy London the hassles of establishing an office.

Logistics of the various entry modes into foreign markets

Different entry modes demand different logistics to go with them. The export entry modes may require transport logistics for the exporting of the ready made goods. Custom clearing in both countries imply that there is custom handling logistics. Acquiring of business permits also requires manpower to handle the logistics with relevant governmental authorities. On the other hand business franchising, joint ventures, strategic alliances and establishment of strategic alliances imply that there are contract to be signed and management to travel to various countries.

Conclusion and recommendation

Clippy London must weigh the merits and the risks of a global expansion. While expansion is may lead to profitability and company growth, it also has the potential to bring down a well established company. Sound business ethics and management practices must be put in place for the company to succeed.

Based on the Clippy London’s products, I would strongly recommend business franchising as the entry mode to different international markets. This mode allows the local entities to localize the product to their unique market environments while Clippy London still retains some aspect of control.

References

Brand, R (2000). Fundamentals of international business transactions. Kluwer Law International

Clippykit London. (2011) All about me. Web.

Clippykit London. (2011) The story of a bag and its owner. Web.

Daily Mail. (2010) Enterprising young brits 2010 competition

Daily Mail. (2010). Enterprising young brits 2010 competition: Is there a tycoon of the future in your family?

Fox, W (2009). International commercial agreements: a primer on drafting, negotiating, and resolving disputes. Kluwer Law International.

Hill, C (2011). International Business; competing in the market place. Mc Graw.

Johnson, W and Herb, J. (2001) Strategic factors affecting export decisions: The case of Indonesian Manufacturers

Khan, S. (n.d) Marketing strategy of Coca Cola.

Kline, J (2010) Ethics for International Business: Decision making in a Global Political Economy. Taylor and Francis.

Morrison, J (2009).International Business; Challenges in a changing world. Palgrave Macmillan.

Omotayo, O. (2009) Effect of marketing strategy on export performance: Evidence from Nigerian export companies. Web.

Shenkar, O and Luo, Y. (2008) International Business. Sage.

United Kingdom’s Trade and Investment. (2011). About UKTI. Web.

Webster, P and Hamilton, L (2009). The international business environment. Oxford University Press.

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