Good Example Of Report On Market Entry In Eastern Europe ‘sainsbury Looks East For Inspiration.’
Romania offers tremendous business opportunities for FDI Investment and for MNC’S searching for new markets. With the inclusion of Romania in EU on 1st Jan 2007, the MNC’S will have more economically reformed markets for investment. Romania has the lowest tax rates among the nations of EU (16% for both personal income and corporate profit). The country witnessed a 13% rise in exports and is categorized as an upper middle income country economy. After 2000, Romania has witnessed increase in FDI investment in almost all sectors. It is the largest FDI destination center in Southeastern and central Europe. In 2006, the FDI in Romania was around € 8.3 billion. A study ranked the country second in terms of speed of economic reforms.
Romania provides national treatment to foreign investors (US Commercial Service, 2014). It has a well educated workforce and provides competitive wages. It has abundant natural resources. It also provides access to nearby markets by emerging Central Asian, East and European markets (Florean, 2014). The country has worked to improve its tax administration system and has made the system more transparent so as to ensure ease of FDI flow. Romania has around 19 million consumers and thus there is great scope for new entry, especially in supermarket chain. More than half of the country’s population i.e. around 55% lives in urban areas, thereby increasing the scope of supermarket investment and growth (Florean, 2014).
Supermarket concept came into Romania post 1989. After 2000, the country has witnessed a huge growth in supermarkets. Many of the supermarkets in the country are in joint collaboration between domestic players and foreign MNC’s. The retail market of Romania has witnessed a tremendous 150% increase in the last decade. As of now, the supermarkets cover 16% of the market value. There has been a 17% increase in the number of retail stores. The local suppliers and traders have also provided efforts for improving the distribution system, supply chain and infrastructure (Florean, 2014).
The Romanian consumer is now more aware and buys after comparing the options (in terms of fair price etc.). People now prefer to shop one day in the weekend than on every other day. This aspect is favorable for supermarket FDI. Some major existing players in the Romanian supermarket and hypermarket segment are Carrefour, Cora Romania, Kauflan, Mega image and Billa.
As awareness among people about clothing and style is increasing, many companies are investing multi billion dollars to gain competitive advantage. To become a market leader it is not just a blind investment needed but a well-defined Integrated Marketing communication plan, which helps a company to achieve its goals easily and efficiently.
Once the problem is identified in any segment of the company, solutions to be solved using different strategies like if people are unaware of the brand then increase advertisement campaigns. For any company to attain success it is necessary to have goals and objectives and most vital part is to formulate strategies as per the objectives set by the company.
IMC plan is a kind of approach followed by the companies to achieve the objectives of marketing campaign using different promotional methods. It explains the roles of different communication segments like public relations, segments, and advertising etc. and helps the company to improvise the present strategies or consider the alternatives for present ones (Armonstrong and Kotler, 2008). The IMC plan communicates multiple marketing disciplines like social media, advertising and owned assets and develops the marketing strategies as per the goals or objectives set by the company.
When creating a brand strategy the most important part is to know points of parity and points of differences between us and our competitors, then analyze and understand our competitors in what way they are better or how we can achieve the top position, where there could be no alternatives or substitutes for our product (Doyle and Stern, 2006). This can be done by setting our goals clear and hitting a target market and conducting market survey and devising strategies so that we will be first to know what kind of things the customers are looking for and come up with those which satisfy and make them rely on us for further trends (Doyle and Stern, 2006).
Pestle analysis for FDI in supermarket retail in Romania
An EU member nation- Romania is a member nation of the European Union. It has obtained funds for its development in various sectors from the EU.
A NATO member country- Romania is member of NATO (North Atlantic Treaty Organization) and is safe as far as international security environment is concerned (Chiriac, 2014).
Out of recession- Romania is now out of the 2008 recession. It has introduced several economic and judiciary reforms for facilitation of FDI flow.
Witnessing rapid economic growth- Romania is undergoing rapid economic growth in GDP (0.7%). The Romanian retail sector will grow at around 24% in coming years (Romania, n.d.).
A stable currency- Romania currency has been one of the most stable currencies in the region (performing better than the currencies of emerging economies like Brazil). The country has a low inflation rate since the National Bank of Romania relaxed its monetary policy to support the nation’s economy and boost economic reforms. Liberalization of energy supply is still required to pace up the process of Romania’s economic development. According to European Economic News (RTT), the recession in the country has further decreased making the economy and currency more stable.
Support for economic development by the government of Romania- New policies have been introduced by the government to ease business processes. The economic system has been overhauled. More emphasis is given now on e-governance so that the foreign business establishments save time and enhance growth of the economy.
Eradication of corruption- The government has taken efficient corruption preventing measures.
Rise in exports- There has been a steady rise in country’s exports since 2000.
A sizable consumer market- It has a sizable domestic market with 19 million consumers. The domestic market is increasing at a rapid pace with growth in GDP and per capita income (Romania, n.d.).
A upper middle class economy- Romania is an upper middle economy nation with higher amounts of spending. The GDP per capita for Romania is 6072.84USD in 2013.
A tiger economy- Romania in one of the very few tiger economies of the region and British firms approximately do around € 6.3 billion of trade there each year (J.C., 2013).
A welcoming nation- Romania offers a welcoming environment to foreigners.
A supportive government- The government provides national treatment to MNC’s.
Unexplored sectors- Romania has got a lesser developed e-commerce sector. An MNC harping on the exploitation of e-commerce development is bound to gain access to a huge customer base that remains unexploited.
Technologically ripe environment for conducting business- All the modern communication and business tools are available in Romania. Romania has a well educated workforce and offers good wages.
Improving energy efficiency- Romania is evaluating and redesigning its energy policy. With the new strategy, the country is bound to make progress in providing cost effective energy to new business.
Ease in taxation for companies performing CSR activities- Romanian law provides a rebate to the foreign companies in corporate income tax (of around 10%). The rebate is for corporate social responsibility tasks (US Commercial Service, 2014).
Supportive legal structure- The country has not relaxed labor and environment laws for the sake of increase in FDI. In all other respects, the legal framework of Romania supports FDI.
An enthusiastic government- The government aims to make the country a global economic player and has legislations which boost access to the domestic market by MNC’S.
Judicial improvement and new business policy framework- The new civil procedure code 2013 of Romania promises benefits for new businesses as it speeds up the process and gears up the slow bureaucratic framework of the country.
An MNC business friendly nation- Romanian fiscal laws provide free access to private businesses to of domestic markets to private businesses and MNCs. It also allows FDI investors to participate in privatizations.
No upper FDI limit- Romania has fixed no upper limit for FDI. Therefore any business can establish an entirely foreign owned enterprise in Romania. An international business organization can convert 100% of the after tax profits and repatriate with their profits.
A favorable climate- The country has a favorable environment to live and work.
Abundant natural resources- It has huge amounts of natural resources to support supermarket food products (Country studies/ Romania, n.d.). More than two third of the country is used for agricultural purposes. 41% of the land is arable land. The country gets adequate precipitation and has fertile soil.
An advantageous demographic situation- Romania provides strategic access to the nearby European and Central Asian Markets which are lesser developed. If the company manages to gain a foothold and make positive reputation in Romania, it will be able to expand its business to nearby countries. Hence, Romania provides a low cost foothold and platform for entering other European Union, Eastern and Central Asian markets.
Shortfalls-The negative aspects
Corruption and Slow Bureaucratic set-up
The Romanian government plays a dominant role in the business affairs of the country. It is the major employment provider and impacts the business environment to a larger extent. The bureaucracy is not very efficient and approvals have to go through red-tapism, corruption and political turns (Romania, n.d.). Thus the business environment may falter because of corrupt practices. The country’s government has taken reform initiatives in the field and has introduced electronic approval and licensing programs for the businesses to save time and money. The e-governance scheme has been a boon for the private investors and has contributed to increase in FDI in Romania.
The country has not-so-good physical infrastructure in the form of airports, roads, railways and water supply. This may adversely affect productivity. Thus, it is important that proper business partners (suppliers, distributors, franchisees) must be selected after careful scrutiny. The EU funding may be invested in physical infrastructure for its improvement (Commay, 2011).
Recommendations to Sainsbury Board
It is recommended that Sainsbury select trustworthy suppliers and distributors after careful scrutiny. It should try to use e-governance for business activities like obtainment of permit etc. A close customer-company relationship can be built if the market entry is done in the form of joint venture or acquisition. It is better to enter a new market with some existing positive reputation on Sainsbury side. Franchisees also form a lucrative proposition (Official website of Sainsbury, n.d.). If no such partnership is to be made then it is essential to advertise heavily.
Romanian counsels with sound knowledge of country’s financial and other laws are to be employed for protecting business interests in the long run. It will also serve to the financial interest to have lasting relationships with banks, chartered accountants etc. who are local to Romania and have thorough understanding of country’s economic scenario. All contracts signed should provide for international arbitration (Romania, n.d.).
The positive reputation of the brand can enjoy a place in the premium price market segment as Romanian customers opt for quality products. It reflects in the online spending of Romanians with abroad websites enjoying 60% of the markets share. Quoting prices in local currency will ensure greater success. Commercial litigations must be avoided.
Romania has ratified different laws after joining EU. Knowledge of these laws is essential and all business activities are to be conducted in their ambit. EU law for controlling chemicals REACH (Registration, Evaluation, Authorization and Restriction of chemicals) came into force in 2007 and all the chemical use has to be done as per the guidelines of the law (Romania, n.d.). The use of vegetables, fruits and other plant materials can only be done after obtaining proper phyto-sanitary certification. Sanitary certificates are also required for sea foods and fisheries. WEEE directives (EU rules on waste electrical and electronic equipment), Cosmetics rule etc. are some other rules that a business has to abide by.
Romanian customers are very sensitive to after-sales service. To build reputation and for long term market hold, it is advisable for the company to provide good and prompt after sales service. It is better to develop own procurement and distribution channels for food products. Romanian people are very quality conscious. Therefore, all circumstance should be avoided where there can be a lag in quality. The country has a large base of mobile phone subscribers. They can be catered through e-selling. Every one in four Romanian internet user buys online. The e-commerce market of Romania is not yet fully exploited and has tremendous growth opportunities for businesses that are willing to work and spend effort in the area.
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