The Business Environment
The internal and external elements that influence company operations are referred to as the business environment. Both the interior and external environments make it up. Customers, executives, suppliers, and shareholders make up the internal environment. Political variables, the demographic environment, the social-cultural environment, and the law environment make up the external environment. The company can only adjust to the rules because it has no influence over the external environment. In this instance, it has been suggested that external factors, particularly the legal environment, present difficulties for international businesses establishing operations in Cuba. Local laws and U.S. sanctions against foreign commerce have been seen as unfavorable, which has led to The business failure of foreign companies startups (Brouthers, 2013).
Factors Affecting Foreign Companies in Cuba
The failure of foreign companies set in Cuban is mainly attributed to the fall of communism in East Europe. According to the case study, foreign businesses struggle to survive as the legal system is humiliating and unfair especially to international market undertaking direct foreign investments in the country. The worst part is that it does not recognize international trade laws that are set to regulate and protect direct investments in a foreign country. Another issue that affects foreign companies entering Cuban is the entry strategy, joint venture proving to be the worst. Hence, the entry strategy must be very strategic and relevant to Cuba business operating system and legal system for the business to succeed without lawsuits. It may be concluded that Cuban external environment is hostile for foreign companies.
Bidco Company's Expansion into Cuban Market
Bidco is manufacturing and Retail Company with subsidiaries in different countries. The company headquarter is situated in Egypt. The company deals with production and distributions of cooking fats, bar soap and liquid soap in different countries. Bidco Company uses joint venture as the entry strategy in a foreign company for better orientation and acquisition of customer base in the new environment. It has succeeded in setting up subsidiaries in 14 foreign countries. The company is considering entering the Cuban market to further its investment; therefore it is essential to evaluate its strengths that drive it to success in the markets, and the weaknesses the company will strive to turn into strengths. The company will first assess the opportunities being posed by the Cuban business environment and how they seek to utilize them, and the threats they are likely to encounter. The environmental scanning will be a useful initial step as it will help in setting up strategies for establishing a successful venture in Cuba.
Strengths, Weaknesses, Opportunities, and Threats (SWOT) Analysis
SWOT analysis outlines the factors a company should consider while introducing their product in the new market. Strengths and weaknesses will help evaluate the internal environment while external environment will assist in assessing the external environment. Some of the useful strengths for Bidco Company significant in entering Cuban markets include excellent sales staff who have previous experience and knowledge of the products; thereby it will be easy for the company to penetrate the market (Maekelburger, Schwens, & Kabst, 2012). Also, Bidco Company has successful marketing strategies that have the company at a high competitive edge among competitors in the industry in different countries. Another strength of Bidco Company is the excellent reputation of Bidco for being innovative and having a good relationship with customers. The company will have a competitive edge over the competitors facilitated the above strengths.
Turning Weaknesses into Strengths
Bidco should seek to turn their weaknesses into strengths for survival in the new market. Some of their weaknesses to be maximized are poor recording keeping which may bring confusion in the company; the high rental costs hence should consider renting in economically friendly location to achieve maximum profit. Bidco also has another challenge of holding market data which is outdated therefore are overtaken by competitors in the process.
Opportunities and Threats in Cuban Market
Cuban business external environment poses opportunities and threats to the international foreign companies. Hence, Bidco should consider setting up strategies to adapt to the external environment. Cuban Market represents opportunities crucial to the success and sustainability of Bidco Company. Cuban has a high population thereby providing a ready market for the products. In Cuban manufacturing and distribution companies dealing with household items are not reliable. Thus provision of similar products in the market are expensive and inconsistent (Brouthers, 2013). In Cuban, households are on demand; thereby the Bidco may provide unique and high-quality items in large quantities to meet the demand. Bidco Company should further strive to develop strategies for overcoming the threats posed by the Cuban legal systems and regulations which include approval of direct investment by the government. Also, corruption issues and U. S suctions are threats that may bring down Bidco company in both long-run and short-run. Another threat is the existence of similar products in the country, therefore a high rate of competition. Hence Bidco may develop strategic pricing strategies, undertake promotion and advertising campaigns to increase brand awareness.
Entry Strategy
Entry strategy for a foreign market varies from one international market to the other. Some of determining factors include; country regulations, tariff rates, the rate of adoption of the products, and cost of setting up the company. The cost of entry strategy chosen should not exceed the profitability estimated. Entry strategies include; joint ventures, direct importing, licensing, franchising, partnering, buying a company, piggybacking and greenfield packing (Maekelburger, Schwens, & Kabst, 2012). The Joint venture is an entry strategy that involves partnering of a foreign company with a domestic company. In Cuban, joint venture entry strategy has been regarded as the unfavorable entry strategy as local firms tend to acquire all the profits. Bidco may consider using franchising strategy to enter Cuban market. The company may succeed in this method as it has a strong brand reputation in all its subsidiaries in different parts of the world. Bidco needs to create a strong brand in Cuban and establish franchisees to help in distribution of the products. The partnership may not work out for Bidco as previous companies have been betrayed by domestic partners in Cuba, therefore closing down. The most important aspect is to agree on the profit sharing. Franchising will work best as it will prevent direct investment into Cuban bearing in mind that direct investment must be authorized by the highest government body because the state owns almost everything. Also, Bidco will be prevented from false accusations such as corruptions that current direct investing companies have been accused off. Research shows that Cuban is a complicated place for a typical business transaction; therefore franchising strategy will work out the best for Bidco Company. Franchising entry strategy will increase awareness of Bidco products in Cuban within a short period of time, thereby increasing sales and offsetting the franchise costs.
References
Brouthers, K. (2013). Institutional, cultural and transaction cost influences on entry mode choice
and performance. Journal of International Business Studies, 44(1), 1-13.
Maekelburger, B., Schwens, C., & Kabst, R. (2012). Asset specificity and foreign market entry
mode choice of small and medium-sized enterprises: The moderating influence of knowledge safeguards and institutional safeguards. Journal of International Business Studies, 43(5), 458-476.
