This report will analyse the market entry options for the Palliser Furniture in the Mexican market. In the first part of the essay, the necessary strengths and opportunities that the company would experience in the Mexican market have been highlighted. Along with that the threats an risks that the company would witness will also be highlighted in the report. In the next part, the competitive advantage of the company by operating in the Mexican market will be highlighted. The DEPEST model have been highlighted in the next part of the report.
This model specifically sheds light on the various macro environmental factors that would be detrimental for the success or failure of the company in Mexico. Lastly, the 4Ps model as well as the Market Segmentation theory have been applied for the assessment of marketing feasibilities that would impact the business of the company in the country. In the end, a detailed analysis of the business plan of the company for launching its products have been highlighted here.
1. SWOT analysis of market entry of Palliser in the Mexican market
1.1 Strengths
Palliser provides good quality products that are durable and light weight. More importantly, the prices of the products of the company are also low. This is why they are going to get a competitive edge in the Mexican market. The customers of the Mexican market, unlike the customers of the other neighbouring customer bases, prefer changing furniture on a regular basis and keep up with the latest trends (Yu et al. 2017). Whereas broad customer bases elsewhere consider furniture to be lifetime asset. Herein lies the main strength (advantage) in terms of entering the Mexican customer market.
Other than that cost control and sustainability are two well-known aspects of the company and this is going to favour them highly in the Mexican market as the primary customer base of the region are middle class people with average disposable income.
1.2 Weaknesses
One of the primary weaknesses of the furniture of the company is that they require manual set up and they are also lacking is styles, patterns and colours. These are the attributes that the Mexican furniture brands are known (Thomas & Ong, 2016). Furthermore, given the fact that the customers mostly favour to alternate their products on a regular basis shows that the above discussed attributes of the Palliser Company can go against the taste of the customers.
1.3 Opportunities
The market of home furnishings in the Mexican market is highly segmented. Again, the developing consumer preferences in the market are rather chained. This shows that if the company is once able to establish a likeability for their products among a small customer base, customer loyalty of the brand would gradually keep spreading. Another important opportunity for the company in the market is that Mexico is having a rapidly growing middle class who are developing a likeability for the branded furniture (Klooster & Mercado-Celis, 2016). This would favour the market entry of the company in the Mexican market.
1.4 Threats
The existing branded as well as fashionable furniture brands in the Mexican market are going to poise a high level of competition for Palliser in the Mexican market. Besides, the corruption level in the country is also high and that is why the company might find it difficult to establish a significant business set up with physical stores and business warehouses.
However, the SWOT analysis shows that if the company is able to meet the customer’s requirements in the Mexican market and gain a certain level of brand equity among the primary customer base, the company would be able to gain easy market penetration in the furniture industry of Mexico.
2. Customer Value Proposition
A chief aspect of the value proposition of the Mexican market is that the customers need to well communicate with the values that the products are bringing in the customer market.
In this context, the cost leadership of the Palliser Company is going to favour the market entry of the company in Mexico. As Ng, B. K., & Kanagasundaram, T. (2017), informs, in the other markets where the company have been operational, they have shown a typical trend of adapting to the pricing policies of the local market and as such moderated the prices of the products keeping the quality and the designs of the products almost similar.
The company after entering in to the Mexican customer market, only needs to develop a distinct product line based on the preferences of the customers. That is how the brand loyalty and the product equity can be developed in the target market of Mexico that is mostly comprised of the young and middle aged customers most of whom pertain to the middle class and have a distinct taste for branded customers.
The advertising campaign that have been launched by the company would be favouring the recent market trend of the Mexican market. The advertisements of the Palliser Company exhibits that the people should not consider changing furniture with life style (Rabellotti, 2016). This is a very poignant step that shows that the company is ready to accept the demographic purchasing pattern in the country and as such it implies that they have been able to adapt to the buying trends of the company. They have already introduced flexible furniture (multipurpose) and other categories of kitchen as well as living room furniture that are interchangeable.
The company is pertaining to the market competition based on the four significant features. These are:
Again, in order to alleviate the user experience, the company are introducing the designation of design consultants in the Mexican market. These professional are going to provide free advice to the customers regarding how they can best decorate their home using products of Palliser (Guerrero et al. 2017). This is a customer involvement strategy that adds significantly to the value proposition also.
3. Competitive advantage
As highlighted in the SWOT analysis, the strength of the company to develop low cost products and that also with the appropriate product qualities grants an assured advantage to the Palliser Company in consideration to then recent economic developments of the Mexican major customer base. Mexico is a potential market and the demographic customer are highly influenced by the adherence to the American market alignment and that is why having a comprehensive sales party in the customer market of USA is going to help the company develop a purchasing parity in the Mexican market also.
4. DEPEST analysis
4.1 Demographic
The primary quality of the major demographic base of the customer market of Mexico is that the majority of the purchasing parity (in context to the furniture industry) lies with the young and middle aged population. Analysis by Gereffi (2017), reveals that this is the exact customer segment that likes changing products mostly and adapting to the latest life style trends. Palliser provides good quality products that are durable and light weight. More importantly, the prices of the products of the company are also low. That is where the role of the company’s sales strategy is going to come in to play. The trendy product line of Palliser is going to entice the above mentioned customer base.
4.2 Economic
The economic advantage of the Palliser company is that they are they are offering good quality product at a comprehensible price range and because of that the company is going to reap an added advantage of quicker market penetration. Other than that the company is going to enjoy the advantages of high purchasing parity of the target sales market where they are operating. Mexico have also witnessed a steady growth in its GDP and that implies that the market liquidity of the market will keep rising steadily (Story, 2014). Hence, the time for the market entry of the company is also ideal.
4.3 Socio-Cultural
In Mexico, the main characteristic of the customer’s buying parity is highly dependent on the decision taken by the elders also, particularly regarding the homely assets like furniture. In this context, Arriaga & Leal (2018), have opined that the elders while shopping always seeks for price comparison and as an outcome, of which, it implies that the company have to resemble with the pricing trends of the region where they are attempting to maximise their sales.
4.4 Technological
One most important technological aspect of the business of Palliser is that they are coming from an origin where they were mostly accustomed with warehouse storing and physical stores operations. On the contrary, the market in Mexico heavily relies on ecommerce. This is where the company needs to develop an absolutely new infrastructure and update their whole warehouse potential, digitally (Griffith et al. 2017). This would incur a heavy investment and require a distinct team of technical proficiency which has an experience of operating in the local and zonal markets of Mexico and also a very good understanding of the market trends as well as demographic demands of the customers.
4.5 Ecological
The company has launched an environment management system by means of which they can reduce the environmental impact by using the currently employed resources of the company. The baseline environment performance of the company exhibits that they generally prefer to use seasoned wood for all their products. In order to reduce the environmental impact from their products, the company have also planned to develop synthetic timber from absolutely natural ingredients. This would help the company to contribute to the green synergy program of the country.
4.6 Political
The Mexican political domain have been quite open to the brands that have a prolific business base in the American domain. As a consequence the brands that have gained access to the American market are greatly favoured in the Mexican market also. As Ruiz Massieu and González Brambila (2016), informs, Mexico is a popular supply chain for the products of American origin. That is why, the governments of the areas have developed a strategic collaboration that would enable trade to flourish. Now since, Palliser is a company that have well spread .business in US, the market entry would be easier for the company.
5. Porter’s five forces analysis
5.1 Supplier’s bargaining power
Supplier’s bargaining power in Mexican market is very low. This is because, very less proportion of the timber is procured from the local suppliers. Majority of the raw timber is imported by the company. However, in Mexico, the company uses some selective suppliers only. In fact, the company also conducts aplenty audits every year and thus ensures that there is regularity in the supply chain and absolutely no violations.
5.2 Bargaining power of buyers
The influencing capacity of the individual buyers in the country is minimal. However, since the company lays high level of emphasis on the attractiveness of the products as well as their affordability, it can be easily commented that the company seriously considers the influence of the buyers on the business. In the same context, Finzi and Pelizzari (2017), informs that the company have to manufacture products that suits the pockets of the customers.
5.3 Threat from substitute products
The threat of substitute products is low in the Mexican market. This is because of the fact that the company makes products from various kinds of products that are natural substitute of timber. Besides, owing to the availability of various products under the same roof, the company have less threat from the substitute products.
5.4 Threat from new entrants
The threat of the new entrants entering the market is high since this is the ideal time for the market entry in the furniture industry of the country (Kabiraj, 2018). However, other than Palliser, there are no other major brands in the market who are likely to make an entry in the market of Mexico.
6. Market entry strategy for Palliser in Mexico
Based on the size of the market, specific regional territories should be considered by the company. Like most of the firms, local distributors or agents have to be affixed for the various locations. The company can also consider framing contract with the government which would help the company to gain momentum of market entry
7. Selection and justification of the target market segment in Mexico
In the Mexican market, the company should specifically target the young and the middle aged customers. This is because, this customer base specifically emphasises on buying the latest products that pertain to trendy lifestyle (Sellitto et al. 2017). Other than that it is to be ensured that the salaried section of the society develops a brand loyalty towards products of Palliser.
8. 4Ps analysis of Palliser for entry in the Mexican market
8.1 Products
The company specialises in making sectional gourmet furniture, beds and sofas as well as room décor. There are not many companies that professes in manufacturing of such a vast range of products in the country.
8.2 Price
The company have to keep the prices of the products moderate. They should not lessen the price excessively. Otherwise the brand parity of the product line would go down. On the other hand, the price cannot be too high also. This is because the target customer segment is mainly salaried middle class.
8.3 Promotion
As a part of promotional strategy, the company have to pertain to traditional television advertisements as well as online branding over the social media as well as paid websites.
8.4 Place
The specific residential zone based cities should be the main target of the company.
9. Description of the business risks
The threats are as follows:
The basic financial goals that have been set by the company are:
The viability of the business plan is reflected in the table of annual assumptions that is stated below:The break-even analysis of the business of Palliser shows that immediately after the market entry, the costs of operation would increase and then gradually stabilise. The following table exhibits that Palliser needs to sell off 16 units or 32 lineal cabinet feet in order to break even (de Oliveira, 2016).
The Break-Even analysis shows that the monthly revenue break-even is $38,806. On one hand it is evident that the average percent variable cost is 68% and the estimated value of the monthly fixed costs is $12327 (DaSilva-Glasgow et al. 2016). The projected business volume of the company is exhibited in the following pro forma analysis.Based on the determination of the Standard Industry Classification, a table have been prepared that highlights important ratios for the Palliser Industry.
|
Ratio Analysis |
||||
|
Year 1 |
Year 2 |
Year 3 |
Industry Profile |
|
|
Growth of Sales |
0.00% |
126.24% |
50.00% |
7.90% |
|
% of Total Assets |
||||
|
Accounts that are Receivable |
42.13% |
64.83% |
60.00% |
35.00% |
|
Rest of the Current Assets |
12.28% |
8.35% |
5.15% |
30.30% |
|
All over Current Assets |
100.00% |
100.00% |
100.00% |
71.50% |
|
Long-term Assets |
0.00% |
0.00% |
0.00% |
28.50% |
|
Total Assets |
100.00% |
100.00% |
100.00% |
100.00% |
|
Current Liabilities |
21.77% |
38.66% |
35.55% |
42.70% |
|
Long term Liabilities |
33.92% |
15.41% |
4.28% |
14.30% |
|
Total Liabilities |
55.69% |
54.07% |
39.83% |
57.00% |
|
Net Valuation |
44.31% |
45.93% |
60.17% |
43.00% |
|
Percent of Sales |
||||
|
Sales |
100.00% |
100.00% |
100.00% |
100.00% |
|
Gross Margin |
31.76% |
27.50% |
27.50% |
31.60% |
|
Selling, General and Administrative Expenses |
34.37% |
24.76% |
21.45% |
16.70% |
|
Advertising Expenses |
1.27% |
0.80% |
1.00% |
0.50% |
|
Profit Before Interest and Taxes |
-1.70% |
3.56% |
7.25% |
3.40% |
|
Main Ratios |
||||
|
Current |
4.59 |
2.59 |
2.81 |
1.64 |
|
Quick |
4.59 |
2.59 |
2.81 |
1.28 |
|
Total Debt : Total Assets |
55.69% |
54.07% |
39.84% |
57.00% |
|
Pre-tax Return on the Net Worth |
-22.04% |
40.45% |
63.17% |
7.50% |
|
Pre-tax Return on the Assets |
-9.77% |
18.58% |
38.01% |
17.40% |
|
Additional Ratios |
Year 1 |
Year 2 |
Year 3 |
|
|
Net Profit Margin |
-2.61% |
2.74% |
5.96% |
n.a |
|
Equity Return |
-22.04% |
34.38% |
52.90% |
n.a |
|
Ratios of the activities |
||||
|
Receivable Turnover of accounts |
6.67 |
6.67 |
6.67 |
n.a |
|
Collection Days |
58 |
39 |
45 |
n.a |
|
Accounts Payable Turnover |
14.65 |
11.17 |
12.18 |
n.a |
|
Payment Days |
28 |
21 |
25 |
n.a |
|
Total Turnover of assets |
3.75 |
5.77 |
5.34 |
n.a |
|
Debt Ratios |
||||
|
Debt to Net Worth |
1.27 |
1.18 |
0.68 |
n.a |
|
Current (Liab. to Liab.) |
0.40 |
0.720 |
0.890 |
n.a |
|
Liquidity Ratios |
||||
|
Net Working Capital |
$92,257 |
$106,350 |
$181,125 |
n.a |
|
Interest Coverage |
-1.88 |
10.66 |
56.14 |
n.a |
|
Additional Ratios |
||||
|
Assets to Sales |
0.27 |
0.17 |
0.19 |
n.a |
|
Current Debt/Total Assets |
22% |
39% |
36% |
n.a |
|
Acid Test |
2.66 |
0.91 |
1.13 |
n.a |
|
Net Worth |
8.46 |
12.56 |
8.87 |
n.a |
|
Dividend Pay out |
0.00 |
0.00 |
0.00 |
n.a |
Conclusion
Cost control and sustainability are two well-known aspects of the company and this is going to favour them highly in the Mexican market as the primary customer base of the region are middle class people with average disposable income. The customers of the company mostly favour to alternate their products on a regular basis shows that the above discussed attributes of the Palliser Company can go against the taste of the customers. In the next part of the report, the marketing benefits of the company have been highlighted. Based on the size of the market, specific regional territories should be considered by the company.
Like most of the firms, local distributors or agents have to be affixed for the various locations. The company can also consider framing contract with the government which would help the company to gain momentum of market entry. In the scope of the analysis, it is evident that the Company have to keep the prices of the products moderate. They should not lessen the price excessively. Otherwise the brand parity of the product line would go down. On the other hand, the price cannot be too high also.
This is because the target customer segment is mainly salaried middle class. In the end, a Break even and profit ratio analysis of the company have also been conducted. The Break-Even analysis shows that the monthly revenue break-even is $38,806. On one hand it is evident that the average percent variable cost is 68% and the estimated value of the monthly fixed costs is $12327.
Reference List
Arriaga, R. V., & Leal, A. H. (2018). Export-led growth and inflation targeting: Foreign and internal restriction of growth in Mexico.
Bahmani?Oskooee, M., Harvey, H., & Hegerty, S. W. (2018). The real peso–dollar rate and US–Mexico industry trade: an asymmetric analysis. Scottish Journal of Political Economy.
DaSilva-Glasgow, D., David, S., Bynoe, M., & Glasgow, M. (2016). Upgrading in the Global Furniture Value Chain: What Possibilities for Guyana.
de Oliveira, J. A. P. (2016). Environmental upgrading of industrial clusters: Understanding their connections with global chains in the Brazilian furniture sector. In Upgrading Clusters and Small Enterprises in Developing Countries (pp. 57-76). Routledge.
Finzi, U., & Pelizzari, S. (2017). World Furniture Outlook 2017-2018 (No. W0a). CSIL Centre for Industrial Studies.
Gereffi, G. (2017). NAFTA and global value chains.
Griffith, D., Zamudio Grave, P., Cortés Viveros, R., & Cabrera Cabrera, J. (2017). Losing Labor: Coffee, Migration, and Economic Change in Veracruz, Mexico. Culture, Agriculture, Food and Environment, 39(1), 35-42.
Guerrero, J. E., Leavengood, S., Gutiérrez-Pulido, H., Fuentes-Talavera, F. J., & Silva-Guzmán, J. A. (2017). Applying lean six sigma in the wood furniture industry: A case study in a small company. Quality management journal, 24(3), 6-19.
Kabiraj, S. (2018). China US Trade Relations: A Holistic Review. International Journal of Business Insights & Transformation, 11(2).
Klooster, D., & Mercado-Celis, A. (2016). Sustainable Production Networks: Capturing Value for Labour and Nature in a Furniture Production Network in Oaxaca, Mexico. Regional Studies, 50(11), 1889-1902.
Ng, B. K., & Kanagasundaram, T. (2017). Sectoral innovation systems in low-tech manufacturing: Types, sources, drivers and barriers of innovation in Malaysia’s wooden furniture industry. Institutions and Economies, 549-574.
Rabellotti, R. (2016). External economies and cooperation in industrial districts: a comparison of Italy and Mexico. Springer.
Ruiz Massieu, D., & González Brambila, C. (2016). Lo Mío Es Tuyo: Financing Growth. Entrepreneurship Theory and Practice, 40(6), 1287-1303.
Sellitto, M. A., Luchese, J., Bauer, J. M., Saueressig, G. G., & Viegas, C. V. (2017). Ecodesign Practices in a Furniture Industrial Cluster of Southern Brazil: From Incipient Practices to Improvement. Journal of Environmental Assessment Policy and Management, 19(01), 1750001.
Story, D. (2014). Industry, the state, and public policy in Mexico (Vol. 66). University of Texas Press.
Thomas, W. F., & Ong, P. M. (2016). Do stringent environmental regulations cause firm relocations and job loss? A case study of the wood furniture industry in Southern California. Interdisciplinary Environmental Review, 17(1), 20-37.
Yu, Y., Wang, X., Zhong, R. Y., & Huang, G. Q. (2017). E-commerce logistics in supply chain management: Implementations and future perspective in furniture industry. Industrial Management & Data Systems, 117(10), 2263-2286.
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