Risk Management For AlcaPlast’s Entry Into UK Sanitary Market

Situation Analysis

Risk management is the process to identify and control the risk and threats involved with the company planning to enter into the new market (Rejda, 2011). The major risks consist of the uncertainty of the external environment and finance, natural disasters, legal obligations etc. (Lam, 2014). The current report is based on the largest sanitary manufacturer; AlcaPlast which deals with around 580 products (AlcaPlast, 2018).  Here, the company is planning to expand in the new market as the United Kingdom so the risk analysis has been done on the basis of Porter’s five forces model and value chain. Furthermore, strategies options have been evaluated with the insertion of related sources. Apart from this, risk analysis has been carried out to understand the potential risks and strategies applied to the mitigation of the same.

• Company growth strategy-AlcaPlast is the largest company in the Eastern and Central Europe that deals in sanitary products. It provides a range of valuable products with the higher utility and now it wants to enter into the UK market with a high density of technology. The current status of the AlcaPlast at a broad level because it has six subsidiaries in the abroad along with more than 40 countries exporters in all over the world (AlcaPlast, 2018).
• Overview of resources-It has a number of employees 550 and company has prepared a significant structure to encourage the employee’s collaboration. The organization render the training services to the employees timely because it has a strong belief that investment in the development of staff is profitable for the success of the business (AlcaPlast, 2018)

Resource capabilities can be identified with the help of Porter’s value chain it provides the information regarding resources. Primary and secondary activities of the business are described in the value chain analysis because it relates to the competitive strength of the company (Kaplinsky and Morris, 2000).  

Primary activities include inbound, outbound, service, marketing and sales whereas technological development, procurement and infrastructure of a firm are secondary activities.

Primary activities

• Inbound logistics- The Company has 40.000 m² area of production and a warehouse at a large level to store the stocks. The firm started to produce the new products and all the finished products of the company pass through a test process so that quality can be assessed (AlcaPlast, 2017).
• Marketing and sales- The company has started a new digital marketing approach to create awareness of the customers regarding sanitary products. It offers the services and information on the Youtube channel, distribute a products milestone etc. (AlcaPlast, 2017).

Secondary activities

• Procurement- AlcaPlast has better relations with its suppliers and provides the material on time with quality. The company offers the warranty periods to the customers. It has specific suppliers so no need to go anywhere else to procure the material and it saves time, money and relations with suppliers (AlcaPlast Info, 2018).
• Technological development- The company sells the products in the overseas markets and production process is controlled through the management of the production cycle. It also facilitates the stainless-steel products in sanitary and less welding technology is used by the AlcaPlast (AlcaPlast, 2016).

Porter’s Five Forces model has been applied to the industry analysis of AlcaPlast.

The AlcaPlast is a new brand in the UK market so the industry analysis is helpful to know about the market situation. According to the above-mentioned Porter’s five forces model, the bargaining power of buyers in the UK market is high because there are already a large number of competitors of the sanitary products (IBIS World, 2017). Here, customers have a right to buy from those sellers who offer the material at a low price with quality. In this manner, it increases the purchasing power of the customers and they can shift to other brands. On the other hand, the bargaining power of the suppliers is low because there are plenty of suppliers in the UK market (British Plastic Federation, 2018). Most of the suppliers buy raw materials from Feldspar and Potash etc. and manufacture the products at own level and offers at a low price. The intensity of rivalry is high in the UK market because there are already more competitors in the UK market and AlcaPlast has to face a strong competition. Apart from this, a threat of substitute products in the UK market for the AlcaPlast is high because there is a number of substitute products of the sanitary industry in the market. AlcaPlast offers steel made products but consumers have an option to shift from steel products to plastic, wood, marbles etc. for the lower price (Alcaplast, 2018). In the UK market, there is an existence of both domestic and overseas sellers, it shows that there are barriers to entry into the UK market for the AlcaPlast.

Evaluating of industry and the market

AlcaPlast has several competitors in the UK market in the sanitary industry and they are offering products and material as per standard. So, AlcaPlast has to face a strong competition in the UK market. It offers the product in the ceramic along with steel made which creates a high density for the competitors (AlcaPlast, 2018). Existing industries provides the products quality and affordable pricing, so in the new market, AlcaPlast has to monitor all the figures for the UK market. Here, the major competitors of the firm consist of Zehnder group UK, Croydex Group, Trojan Plastics and Shades Bathrooms etc.  (PR Newswire Association LLC, 2018).  

There are main three entry options including direct exporting, franchising and partnering which can be opted by AlcaPlast to enter into the new marketplace. These are explained as follows-

• Direct exporting- Direct exporting is one of the better strategies to enter into the new market because under this, the new marketer will stay in the home country and access the business in another country (Gillespie and Riddle, 2015). The AlcaPlast has an option to adopt the direct exporting to enter into the new market of UK because in this company will use its own human and technological resources. Further, it helps in to save money and time for resources because a company will hire various distributors to promote and export the sanitary products directly in the UK market.
• Franchising- AlcaPlast can expand its business in the UK market with the help of the Franchising. In this, the business model of the business should be unique so that the brand can be recognized at the international level. However, businesses get affected by the bad performance of one franchise and have an impact on the reputation of the brand. In this, franchisers come under the obligation that they cannot operate the business in another country without the confirmation of the management (Salar and Salar, 2014). But the franchise business has a higher rate of success as compare to start-ups business because it incurs the less cost and does not have to start a new business (Grewal and et al., 2011).
• Partnering- AlcaPlast can also enter into the market with the partnering option because it would reduce the risk to a great extent by sharing the profit and loss (Cohen, 2017). A partnership is helpful to understand the culture of that market in which company is going to start a new business. In the partnership, capital will be invested separately but the profits will be distributed in the ratio of capital or equal whatever is decided in the partnership deed (Aaronson, 2011).

With the analysis of different options, it has been found that franchising option can be used as it AlcaPlast has the unique business model and quality as well as a varied range of its products can be helpful in operating in the new country with franchising.  Therefore, AlcaPlast will adopt the franchising strategy to enter into a UK market in the sanitary industry. In the franchise, all management of business will be in the hands of AlcaPlast because franchisers will perform as per the instructions of the company (Grewal and et al., 2011).

The scope of management will be on a broad level because the franchise will have a well-established brand and image in the market. Moreover, in franchising the all over management will remain in hand of the AlcaPlast and franchisers would be helpful in creating the brand image of the business in the new country through its appropriate level of promotion (Holtbrügge and Baron, 2013).

In franchise, AlcaPlast will have to pay the less initial fees to start the business because land and other related aspects are acquired at the own risk of investors; however, the set-up related aspects and the stock is provided as per the standard of the corporation. More, franchise owners can help in the advertising of the sanitary products to the franchisors.

With the help of franchising, a company can earn more profits by investing a low amount in the business (Hoy and Stanworth, 2014). Because there are many other franchisors also who invested in the business and the profits distributed among all the franchise as per their investment or decided ratio. More, input cost will be low for the investors in the franchise because franchisors have already established the business and there is no need to invest more money in the establishment of business. However, after incurring the initial cost, AlcaPlast will get an appropriate rate of return through which it can establish itself in the new marketplace effectively.

Competitive landscape

The franchisors sell the rights to the third party by including the logo, name along with model but the all over controls remains in the hand of the business owners (Brookes and Roper, 2011). In this, AlcaPlast will also facilitate the rights and fame to the franchise company and controls the business completely at own.

There is always involvement of risk exists because it is not necessary to always earn a strong return on investment. However, higher expectations from the franchise, less support, lack of communication with franchisors etc. can be the risk factors in the franchise business through which the business may be failed (Sun and Lee, 2016). But the risk-bearing ratio can be minimized by sharing among all business franchisors.  

The risk identification facilitates corporation to understand the risks which are occurred with the set of particular strategies (Lim and et. al., 2012). This enables the business to take the corrective action with the proper identification of the potential risks (Ankley and et. al., 2010). The risk identification of the AlcaPlast has been done in the following table wherein score has been given for each objective on the basis of risk. This score varies on the scale of 1 to 5 wherein 1 reflects quite low and 5 stands for quite a high risk. In this context, different risk such as technology-related issues, competitive rivalry, changing demand of products and services as well as the pressure of stakeholders etc. have been identified on the basis of situational analysis of the business. The assessment of these different risk would make it possible for AlcaPlast to ensure successful operation in the UK marketplace and accordingly grab the attention of the large mass of buyers.

Table 1: Risk identification

Risk Identification	Objective-1 Expansion of the business in the UK	Objective-2 Customer satisfaction	Objective-3 Differentiation	Objective-4 Brand recognition	Score
Technology related issues	3	5	5	4	17
Competitive rivalries	5	3	2	3	13
The pressure of a political group	5	5	4	3	17
Low brand recognition	2	5	4	5	16
Pressure of stakeholder	2	2	4	3	11
Changing demand for the product	4	2	3	5	14
The burden of employee development or training	1	5	1	1	8
Export-related risk	5	1	1	1	8

Risk prioritization is the process of finding the most crucial risks through the comparison of risks against the target risks or level of tolerance (Li, 2014; Mojtahedi, Mousavi and Makui, 2010). In this context, the risk identified for the AlcaPlast has been identified in the below-mentioned table. According to the table, the risk with a high score is the major focus because it is likely to affect the performance of the business in the UK market to a great extent. Owing to this, suitable actions can be taken to mitigate the risk on the basis of prioritization (Choudhry and Iqbal, 2012; Overholser, Braden and Dieter, 2012).

Table 2: Risk prioritization

Rank	Score	Strategic risks
1	17	Technology related issues
2	17	Pressure of political group
3	16	Low brand recognition
4	14	Changing demand for the product
5	13	Competitive rivalries
6	11	Pressure of stakeholder
7	8	Burden of employee development or training
8	8	Export-related risk

On the basis of prioritized risk, the corporation can effectively assess the risk level (Zhang and Chu, 2011). This requires analysis of the risk on the basis of their likelihood and consequences (Bozdag and et. al., 2015). It would be helpful for a business to shape the right strategies through which successful market entry procedure can be completed (Wrona and Tr?pczy?ski, 2012). Generally, risks are assessed on the individual basis but they may interact with the similar type of risk and affect the business to a great extent. At this juncture, the corporation needs to check for their interaction and accordingly frame the suitable strategy (Aharoni, Tihanyi and Connelly, 2011). This matrix has been shown as follows-

Market Entry Options

Table 3: Risk Assessment

Risks	Risk 1	Risk 2	Risk 3	Risk 4	Risk 5	Risk 6	Risk 7	Risk 8
Technology related issues	Pressure of political group	Low brand recognition	Changing demand for the product	Competitive rivalries	Pressure of stakeholder	Burden of employee development or training	Export-related risk
Likelihood	4	3	3	3	4	2	2	3
Consequence	4	3	4	2	5	2	2	3
Risk 1		3	5	4	1	3	2	0
Risk 2	4		0	4	0	3	1	5
Risk 3	4	0		4	5	5	0	1
Risk 4	4	3	5		5	2	1	0
Risk 5	4	0	5	5		0	0	2
Risk 6	4	3	3	4	0		0	1
Risk 7	4	0	3	2	4	0		0
Risk 8	0	4	0	1	0	1	0	0
Risk Interaction score	24	13	21	24	15	14	4	9
Risk Interaction Weighted score	96	39	84	48	75	28	8	27

On the basis of the above table, it has been found that each risk associated with the AlcaPlast have a certain level of interaction with all other types of risk. This influences corporation to assess the risk accordingly through which appropriate action plan can be taken (Li, 2014). As per the above risk interaction map, the brand value of the business gets affected due to technology-related issues and accordingly competitive pressure etc. Although, the impact of each risk is not same on the business and it varies on the basis of its likelihood. This enables management of the corporation to take a necessary step so as to effectively look into the issue and ensure successful operation of AlcaPlast in the new market.

The score level of each risk and impact has been explained as follows. The points or scale level of risk, likelihood is defined in the following manner. This has been applied for constructing the risk map for the AlcaPlast.

The interaction level has been decided on the scale of 0 to 5.

0= No interaction

1= Quite low interaction

2=Low interaction

3=Medium interaction

4= High interaction

5=Very high interaction

The below-mentioned table is showing the score of likelihood and impact of each particular risk. This facilitates to define the risk in the right manner and accomplish the specific purpose of the corporation.

Table 4: Score of likelihood and impact of risk

Consequences level	Score	Likelihood level	Score
No impact	0	None	0
Quite low impact	1	Less than 25%	1
Low impact	2	26 to 45%	2
Medium impact	3	46 to 65%	3
High impact	4	66 to 85%	4
Quite high impact	5	86 to 100%	5

The risk response for AlcaPlast in the new market has been explained as follows-

• Improve the brand recognition-On the basis of the above risk analysis, it has been discovered that there is low recognition of AlcaPlast brand in the sanitary industry in the UK. So, it is recommended that the company should work on the marketing strategies of the products to create awareness among the consumers of the UK.
• The pressure of political groups- On the basis of risk analysis, it has been found that there is more political pressure on the new entrance of the business. AlcaPlast also has to follow the government rules on the establishment of the sanitary business. It is suggested that a company should make fair and strong relations with the political leaders to remove the legal hurdles to some extent.   
• Changing demand for the products- According to risk analysis, it has been discovered that demand for the products remains to change time because customers preferred the modern products in the sanitary. At this juncture, it is recommended that AlcaPlast should offer the new and updated products instead of outdated items in the sanitary.  
• Burden of employee training- On the basis of risk analysis, it has been found that there is a requirement to provide training to the employees in the UK market. To make changes in the business criteria employees must have knowledge of cultural differences. Thus, it will be helpful in understanding the consumer’s preferences and demands so that products can avail as expected.

Conclusion

On the basis of the report, it has been concluded that there is very high bargaining power of the buyers in a sanitary industry of UK market because there is a large number of competitors and they offer the products at a low price with quality. It is also concluded that AlcaPlast adopts the franchise strategy to enter into the UK market in the sanitary industry because it is helpful to earn more profits. Further, on the basis of risk assessment, it is concluded that there is a risk of less brand recognition, changes in demand and requirement of training for the employees in the franchise business.

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