Bext Manufacturers Diversification
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The Bext Manufacturers Company has been around for three years. During the time of its operations, the company has been able to gain loyalty of customers in New York City, where it is situated. The company’s primary specialization is soap and detergents manufacturing which has brought a great success. It was recently discovered that during the months of April, August, and December of the last year the company was generating the highest sales. The analysis also shows that the other months were bringing in low sales, and the company is currently facing financial challenges. This issue calls for diversification of the company’s products into new markets. The company needs to differentiate its product line to ensure more stable sales throughout the year, which will also influence the company’s financial department’s strength. It should also be noted that the market for detergents is getting saturated; thus, income rate from detergents is expected to slow in the near future. Therefore, it is very important to either add other products or come up with innovations for already existing products, which will let the company get to new markets with new offerings and also improve sales of old products in those new markets. It will allow the company to grow rapidly (Yadong, 1999).
Bext Manufacturers is currently producing bar soaps, powder, and liquid detergents. The company may consider a conglomerate diversification strategy and engage in manufacturing of washing machines to go along with detergents. Such strategic choice would require huge capital investments, but if implemented successfully, it would create an opportunity for the company to achieve growth and increase in sales. Machines should be made in a way that the company’s detergents would be the most suitable for use in cleaning. It would ensure that detergents produced by the company meet the demand in the market as long as the machines are being used. The company can also think of diversifying existing products through improving and changing its detergents. The company can start producing more variety of soaps and detergents according to smell or product packaging. It would allow the company to extend its customer base and eventually it would lead to increased sales. The company could also consider producing detergents for toilets and floor cleaning. It would give the company an opportunity to enter a new market as well as to increase the old market size. The company could also produce special detergents for cleaning vehicles. Taking into consideration the fact that the number of vehicles being manufactured all over the world is continuously increasing, the company could take another step in improving its sales. With the new extended product line, the company would generate more stable income throughout the year, and it would reduce the chances of the company’s bankruptcy.
It is to the advantage of the company to explore and invest in a foreign maret. Companies invest in foreign markets for a number of reasons, one of which is to diversify and broaden a current market. However, it is essential to assess the potential of the markets before making a decision to invest in any of them. There are a number of ways for a company to decide to enter a foreign market. The company may choose to export its products to another country while producing them in the home country. This option may be chosen by the company if it does not want to become multinational. The main reason for it is lower costs associated with producing goods in the home country in comparison to the foreign country. Some of the expenses may be incurred as a result of higher costs of raw materials (Salomon, 2006).
The company can also decide to extend the manufacturing process of goods to a foreign country and sell the final products in the same country. This option may be chosen if the production of goods in that foreign market is cheaper. This strategy is known as foreign direct investment. Since Bext Manufacturers is a young company with little capital available, it should sell its products in other countries, including new markets in Europe and Africa, but produce back home in America. In another way, the company might not meet the required costs associated with expansion. It involves higher costs since it is necessary to purchase land and machines used for production and employ new workers. The company would have to start all the operations over again in the new market, which is a real challenge for the company. For this company to diversify abroad, it must identify markets in Africa, Europe, Asian where the cost of producing that product is very cheap depending the government policy in terms of foreign investment.
The process of expansion to reach a foreign market will not be easy for the company since it will also involve a number of challenges along with the mentioned advantages. One of the challenges is competition from existing companies in the market of entry. The company should ensure that it practices healthy competition. It should also ensure that its products are of the highest quality, and it will generate higher sales along with a competitive advantage over other players in the market. Another challenge is political influence in a foreign country, which might impact the company negatively.
The company may find it very difficult to expand its business internationally because of many factors either local or international factors. For example if this company makes losses every financial year, it may be very hard to expand its business because of huge hose making, meaning to start up a new branch somewhere will cost the company so much hence leading to closure of the company. Other factor which may make the company not to diversify is the type of goods produced. If these goods are only consumed locally, these make no meaning for the company to invest abroad. Lastly the company may find it hard to invest aabroad due to economic, social and political factors which may be identified first before any step.
The company should ensure the scan of the political environment before investing and getting into the new market. If there is a possibility of the country’s politics affecting the business, it is safer not to invest in the operations in that country. The company can also face a possibility of a market failure. It would be a tremendous loss to the company since it would have already spent much capital and time to enter the market. It would also negatively influence the sales of the company as well as its potential growth. Policies and regulations of the foreign country’s government can also represent a challenge. They might limit activities of the company in that country. Some countries even regulate the number of domestic employees that a company should hire. The tax issue is another big challenge that the company might face. Taxation in a country of entry can make the company incur losses. The company should first analyze the tax policy of the government before entering the market and investing in the country (Hitt, Ireland, & Hoskisson, 2009).
It would be of no importance for the company to diversify if the original product would have not yet excelled in its current market. Generating more products would not make sense since it had not been able to sell even its first product. Diversification requires a lot of capital investment since expansion is involved. It means that it would be of no importance for the company to diversify if it would not have funds or other sources of finance for diversification. The main goal of the diversification strategy is to explore new markets and ensure stable income throughout a financial year. Thus, it would not be necessary for the company to diversify or expand abroad if it had not yet exhausted available domestic markets.
As it was mentioned earlier, ethics plays an integral part in business operations. The company should ensure that the environment is taken care of, and that it doesn’t unreasonably overprice the products. It usually happens while many companies try to confuse customers especially the ones who associate price with quality. Equity should also be ensured to employees and customers all the time. Quantity of necessary ingredients should not be altered when producing detergents. Many companies employ such practices to achieve higher profits even though it is not ethical at all. The company should also ensure that no cases of corruption happen within the company. Furthermore, if the company’s advertisement states that detergents are of a high quality, it has to be ensured; otherwise, it is unethical to lie to their customers. On other hand social responsibility of the company must be a key factor because if the company will not participate in contribution of social welfare, then the company will lose its image, (McDonald, Burton, & Dowling, 2002).