Survival and sustaining in the competitive market is difficult due to saturation of the business organization in a particular country. After a certain time, a particular sector becomes saturated in a country, as the number of organization increases to cope up with the current demand of the customers. Therefore, after the demand is fulfilled, the business organizations are left with less opportunity for conducting the business and sustain. Therefore, business organizations go for international business expansion, as this allows them to invade new markets and customers of the host country. This is noted as a successful strategy undertaken by the business organizations to increase the revenue, the customer base, and the market.
This report emphasizes on the international business expansion of an Australian Company named XYZ in the Czech Republic. XYZ is an Australian beer company that aims towards international business venture in order to explore new markets and opportunities. The report consists of an overview of the beer industry along with an analysis of the internal and external environment of the industry and the country respectively. Suitable recommendations are also included in the report in order to make the international expansion for XYZ Beer Company successful.
The beer market of Czech Republic is a diversified sector highlighting the presence of small, medium and large sized beer organizations. The main beer organizations in the Czech Republic include Pilsner Urquell, Staropramen Brewery, Heineken, Budweiser Budvar, Lobkowitz Brewery and Moravian-Silesian Brewery (Wanninayake and Chovancova 2012). The country also houses 27 individual medium to small sized beer companies. Reports suggest that 160 beer companies were registered in 2016 only. However, recently the beer industry has been lately affected by the economic crisis that hit the Czech Republic. This has resulted in the decline in the overall beer output of the country following the increase in the taxation system. In 2012, the production of beer in the Czech Republic increased by 2.75% after encountering significant downfall of the past two years (Lorencova et al. 2012).
Figure 1: Total Beer Production in the Czech Republic
(Source: Matsui et al. 2012)
The above graph suggests that the total production of beer in the Czech Republic has declined from 1950-2012. This is supposedly due to an economic crisis that has hit the country and the increased rate of taxation imposed on the beer industry.
Figure 2: Beer Production for Domestic Market in the Czech Republic
(Source: Kozak 2013)
The above graph also states that the production of beer in the domestic market has encountered major downfall between the year 2007-2010. However, the production has increased in the domestic market by 2.6% in 2011 and 1.4% in 2012, that is also very negligible considering the fact that the beer industry contributes almost 1.6% of the Czech GDP.
Thus, it can be said that XYZ Australian Company has a suitable option for establishing an international venture in the country.
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Strength · High volume of beer consumption · Embedded in the culture of the countries · Unique quality of the beer · High-profit margin |
Weakness · Competitive beer industry · Loyal customers · Beer quality depending on freshness · Higher price than mass production |
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Opportunities · New drinkers · Huge investment · Increase in the sales · Low market concentration |
Threats · Competitive pricing · Loss of investment · High substitution rates · Loss of market |
The above table states the SWOT analysis of the beer industry.
Beer is consumed widely on a global scale and is most preferred around the world. Around the world, beer is consumed both traditional and non-traditional purposes. Therefore, in order to cope up with the demands of the customers, adequate numbers of beer companies are essential at a global scale.
Figure 3: Highest Beer Consumption in countries
(Source: Rodriguez-Carrasco et al. 2015)
According to the above-mentioned graph, it can be said that per capita consumption of beer is highest in the Czech Republic. Therefore, increased demand of the beer throughout the world is one of the strengths of the beer industry.
As commented by De Jong (2013), beer is an integral part of some cultures around the world making the consumption of beer comparatively higher. As beer consumption is a part of the tradition of the country, the demand for beer is also higher. As a result, the individuals have to consume beer as a part of their tradition thereby, increasing the business opportunity of the industry. The beer companies need to manufacture and produce high quality and adequate amount of beer to satisfy the market demands. Individuals have different beer preferences that provide maximum variation in the beer industry. Therefore, beer companies manufacturing beer can differentiate from each other by producing a variety of beer in terms of flavors thereby, providing a suitable competitive market for the beer industry.
Based on the strengths, the potential opportunities for the industry include huge investments. According to Colen and Swinnen (2016), as the demand for beer consumption is high at a global scale, a large number of investors willingly invests in the industry and the beer companies. The more the demand for the product and the industry, the better is the investment opportunity for the investors. As beer consumption is a part of the tradition for many cultures and legal, the industry has new drinker every year (Toro-Gonzalez, McCluskey and Mittelhammer 2014). After a certain age, as the individuals are allowed to consume beer, the industry never lacks appropriate opportunity. Increase in the number of drinkers also signifies an increase in sale for the industry. Therefore, the demand of the industry is directly proportional to the production and sales of the beer. As beer manufacturing and production requires an appropriate license and adequate finance, the market has a low concentration that is also a potential opportunity for the beer industry.
As mentioned by Conner et al. (2013), increased number of beer manufacturing and producing companies leads to market saturation and weakness for the industry. However, the beer manufacturers manufacture wide range of beers in terms of flavor, there are some companies producing similar flavors. This results in tough competition between the companies producing similar beer flavors. Particular beer flavors are preferred by individual customers and consume only those flavors. Therefore, it is difficult for one beer company to attract the loyal customers of another beer company thereby, having a limited number of customers (Shukla and Gottschalk 2013). The higher price of the beer also restricts the consumption of beer by people in all segments and is regarded as a potential weakness for the entire beer industry. The reason of comparatively higher price is due to entire supply chain management of the beer industry that cannot be compromised in order to maintain the quality and quantity of the products.
Based on the weakness, the potential threats of the beer industry include competitive pricing, loss of investment, high rate of substitution and loss of market. As mentioned by Conner et al. (2013), increasing demand for beer and beer products results in the tough competitive market. This is because each organization in the industry implements unique business strategies and attracts customers thereby, leading to market saturation and competition. Because of tough competition, at certain instances, the beer companies tend to lose their market. Loss of market thereby results in loss of investment by various financial bodies (Shukla and Gottschalk 2013).
It is estimated that by the end of 2017, the GDP of Czech Republic is going to reach the US $279.8 billion. The major factors that will drive the economy of the country are predicted to be automotive, retail, construction, energy, and beer over the period. The economy of Czech Republic grew around 5% over the period of 2002-2007 with an average growth increment by 6.8% in the year 2006. This is recorded as the highest growth of the economy of the court in the past 15 years. The major reasons for economic growth of the country include an increase in the net export from the country along with gross capital formation and private consumption (Svejnar 2013).
Reports suggest that the GDP of Czech Republic feel drastically to 6.1% in the years 2007. Moreover, the GDP of Czech Republic fell to 2.5% due to fall of the global economy in 2008. However, Czech Republic achieved an overall growth in the GDP by 2.3% in 2010, as the global economy of revived. Moreover, the government of the country also helped Czech Republic in coping up with the fall of GDP within the required time. The country has encountered robust growth over the past 10 years but is predicted to encounter economic growth by another 2% in the next five years (True 2012).
The Czech Republic has provided private establishment for sectors such as banking, retail, and telecommunication and has undergone severe economic reformation. As the Czech Republic has encountered huge economic growth within 2001-2011, the economy is favorable for investors. However, the economy of Czech Republic was adversely affected due to global economic downfall. Due to this the government of the country used and implemented fiscal consolidation help the public with financed thereby, improving the business environment of the country. As a part of the fiscal consolidation, the government also introduced pension and health care reforms. As a result, the country revived and grew by 2.5% and 1.8% in the year 2010 and 2011 respectively. However, the recovery of the country’s economy remained stagnant in the year 2012 and remained to 1.2% (Tworzecki and Semetko 2012).
However, the political scenario of Czech Republic has encountered continuous struggle due to the opposition and the ruling government. This ultimately led to tension between the political parties that hampered the business market of the overall country. The main reason for the tension between the political parties was the emergence of the new political party named the Liberal Democrats. Therefore, the emergence of the new ruling party resulted in spilled between the governments. The other members of the ruling party later joined the opposition due to the power (Albu et al. 2013).
As the Czech Republic is included within the European Union, the legal outline of the country will be similar to the EU. Increased number of mergers and partnerships between the international brewing companies suggests that the legal framework of the country is not strict. This provides suitable and many opportunities for international beer companies to establish the business in the Czech Republic successfully. However, the tax rates for the country are considerably high thereby, prohibiting medium and small sized beer organizations for entering the country for business. Moreover, Czech Republic also imposes high labor taxes making it unaffordable for some companies to venture in the country (Sklenicka et al. 2013).
From the economic, legal and political analysis of Czech Republic, it can be said XYZ Beer Company has potential and suitable options to establish the business successfully in the country. Apart from the analysis of the external environment, the high demand for beer and being the highest consumption of beer per capita, XYZ Beer Company have suitable opportunities for international business expansion.
The European nation Czech Republic has opened up its doors to FDI. Statistics of the country shows that it is a substantial receiver of Foreign Direct Investment. Being a medium sized country and having an economy which is totally export driven creates a substantial demand for the foreign investment (Zapletalová 2015). The country being in the most favored trading area, euro zone gets a huge advantage while carrying trade. The main trading area of the country is Europe which contributes more than 80% of the total exports. The country took a wait and see option before making an entry into the Euro zone as it wanted to ensure the maximum profit before entering the core markets of Europe. The country is a totally functional market economy with the availability of practically all kinds of goods and services (Cette 2016). The private sector of the country accounts for more than 80% of the Gross Domestic Production. The government of the country has slowly converted all the business sectors into private to ensure the maximum participation of local as well as foreign investors in the market.
XYZ Company which manufactures beer has decided to expand itself into a number of global markets, Czech Republic being one of them. The company has started the basic things that are needed to enter into the market. At the beginning the management of the mentioned organization has decided to analyze the trading and investment options in Czech Republic. The study conducted has found out that the country applies the union trade policy like antidumping, anti subsidy measures to control the market. The adoption of the Fiscal Compact in 2014 limited the state budget deficits to 3% of the Gross Domestic Production. The adoption of Euro has also changed the business environment in the country (De Boer and Bitetti 2014). Though some major economic reforms has taken place in the country the slow movement of the legislative and the judicial reforms has created a major obstacle to the investment opportunities in the country. The government of the country has integrated the EU laws with the existing laws of the country to change the situation and the investment options of the country seem to be heading towards the right direction. The absence of the import controls on majority of the goods and services makes life easier for the different companies that have set its foot in the Czech market. The country is termed as the brewers of Europe as the best beer companies of the continent are located here. Beer accounts for 1.6% of the Czech GDP and creates around 80,000 jobs annually. The privatization of most of the sectors in the mentioned country will be posing a major challenge to the industry and this can be implemented by means of joint venture agreements between XYZ and any local beer companies or any international beer company that is already active in the Czech market (Cette et al. 2014).
Foreign Exchange issue is one of the key factors that needs to be considered by XYZ beer company before entering into the Czech market. The host country has its own set of currency which is the Czech crown or Koruna. The currency is fully convertible and the government has ensured the absence of foreign exchange controls while carrying on trading. The country has free access to foreign currency like Euro and until now there has been no such occasions when the currency has failed in the country. This is largely because of the presence of a strong and unified banking system in the country. XYZ Company has decided to lower the market rates of their beer to make sure that they have a substantial portion of the Czech market share (Ozturk et al. 2015). Both the service fees and the operating expenses of the country are recognized by the local currency the foreign exchange rates can be seriously affected by weak economic conditions of the market (Cette et al. 2017). The mentioned European country has been undergoing a transition phase before switching to the new currency of Euro. This will pose some problems for the mentioned Beer Company to analyze the market rates and the economic factors. The company has to take a wait and see approach to start its operations only when the Euro is declared as the regular currency. The reason behind such a decision is that the company has to reconsider the price of Beer when the new currency is brought out in the Czech market (Ehrenberger et al. 2015). The price of the Beer will be a bit higher in the presence of Euro. Therefore it can be said that Foreign exchange is one of the necessary player during the entry of a new firm in the international market (Shaw 2015).
The financial factors needed to be considered by XYZ Company to start its Czech operations are;
Czech Republic is an European country with a population of more than 100 million. 95% of the people living in the country speak Czech while the others speak either Slovak or English. The Czechs are very much private in nature and they believe in extreme privacy. Being reserved and formal makes it tough for the companies to communicate with them and make them aware about the different products that are offered to them (Musteen et al. 2014). The people of the country are very prompt in nature and business appointments are to be made in advance. Business is carried out round the year except in August. The country has some cultural taboos which must be kept in mind by the management of the XYZ Company before starting their business. Some of them are;
Some of the main challenges that the cultural factors pose to the entry of XYZ company are;
XYZ Beer Company may face other significant problems while making an entry into the Czech market. Some of them are;
The researcher has provided some recommendations for XYZ Company to survive in the new market. They are;
Conclusion
The research that has been carried out by the researcher to analyze the marketing environment of Czech republic and the different factors affecting the entry of the company into the market has been very much successful. It has met all the aims and objectives that were predefined by the researcher. The conduction of the political, economic and legal factors of the Czech market has analyzed that the mentioned market can be a suitable business option for XYZ Company. Both the SWOT Analysis and the PESTEL Analysis has helped the research to be compact and flawless.
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