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Acknowledgements
We would like to thank Bjørn Olav Drabløs, and the rest of the employees at Buer for providing useful information and supplies to completing our thesis. The inhabitants at the CSH students house for participating in our primary data research.
Special thanks to Dipl.-Kfm Stefan Hattula, our supervisor for the project.
_____________________________ _____________________________
Peter Tonning-Olsen Tor Arild Jørgensen
_____________________________ _____________________________
Alexander Beldring Anders Selj
Executive summary
This project is written by four students at the University of Mannheim, and concerns the possible introduction of Lompe in to the German market under the brand name Buer.
Buer is a small bakery in Askim, Norway, that has specialized on making Lefse and Lompe. Lefse and Lompe are made of 80% potato, and can be regarded as a unique Norwegian product. Buer has recently had a change of ownership. After the new owner Bjørn Olav Drabløs took over operations, they have had a remarkably strong growth. By gaining a market share of 30% in Norway, Buer have had a 167% growth in revenue from 2006 – 2009. Our problem statement for this project is “Can Germany be a attractive market for Buer Lefse and if so, can Buer enter the market?”
To understand if there might be a market for Buer Lefse in Germany, we used quantitative and qualitative methods. They are focused on finding out if the product is liked, and how it could fit into the marketing mix.
To understand if Buer could enter the market, we have looked at the internal attributes of the company, and analyzed the external forces that influence the company. Furthermore, we have discussed the marketing mix and possible segments that would be attractive if Buer enters the new market.
Our finding in this project is that there is a market for Lompe in Germany, however, we have reached a conclusion that Buer cannot currently enter the market. Our recommendation to Buer AS is that they stay in their domestic market. This decision is based on their limitations in terms of organizational and financial resources, and the opportunity to strengthen their position even further in Norway.
Introduction
This paper is a bachelor thesis written by students attending the International Marketing program at BI Norwegian Business School and the University of Mannheim. The thesis is written in Germany and all research is conducted here.
We have divided the assignment in to four parts.
Part one is the internal analysis of the strength and weaknesses of Buer AS. We will use analytical tools to understand these factors. The VRIO-framework and the value chain will be analyzed to uncover if Buer is able to utilize their resources to gain a competitive advantage. The Bakka model will be used to identify in which stage Buer fits as an exporter. We will also use the ACE model to assess the likelihood of Buer being successful as an exporter. We are going to comment on Buers financial position. Finally we place Buer in the Y-Axis of the Solberg´s nine strategic windows to help understand what kind of strategy they should use when entering new markets.
The second part contains the external analysis. Here we shall use a PEST analysis to try to give a holistic picture of the new market potentially facing Buer. The competitive environment will be analyzed using the Porters five forces model.
Finally Buer will be placed in the X-axis of Solberg’s nine strategic windows, and we will draw a conclusion on the model.
The third part contains a discussion on strategy. The SWOT analysis is an important tool for deciding on strategy. We will combine findings from the internal and external analysis and comment on it. Furthermore, we will find key success factors and write possible entry strategies. If Buer should enter the German market, we will discuss segmentation and the marketing mix.
Part four will be our final recommendation.
About the Company
In 1957 Birger Buer started Buer. At the time Birger Buer was a carpenter, and made “lompe” in his basement with his mothers old recipe. He made everything by hand, and used his bicycle for distributing the product. In 1958 the product started to get recognized, and with the increasing demand Buer moved in to a larger location in 1960, and the flattening process was automated. After two more expansions and producing 40.000 “lompe” per day, Birger Buer sold the company to Skoga Brød AS. They modernized the factory, changed the recipe and from this point on Buer economic performance decreased.
In 2004 Bjørn Olav Drabløs (Now CEO at Buers) and his business partner Kenneth Ingilæ bought Buer from Cerelia AS (formerly Skoga Brød AS). At this point, Buer was faced by potential failure, and closing. They both had past connections with Cerelia AS, and prior to buying Buer they engaged in talks with Birger Buer himself.
From these talks, they were able to get Birger Buers old traditional recipe, and once again named the product Buer Lomper – the original name. Drabløs and Ingliæ wanted to bring to company and the product back to its roots. This gave them a contract with “Norges Gruppen” (One of the largest retail and wholesale company).
After Kenneth Ingliæ tragically died due to a genetic heart-condition in 2006, Bjørn Olav Drabløs sits with 90% ownership of the company, and has continued his work without a new partner.
From 2006 until 2009 Buer has increased their revenue by 167%, from 15million NOK to 40 million NOK. This has qualified them to be a “Gazelle” company, a title from a Norwegian Financial Journal (Dagens Næringsliv). In 2010 their revenue hit 50 million NOK, producing 32000 lompe per hour and having 21 employees. They are planning on increasing the production capacity this year, and hiring 4 more employees to the production. Buer are investing 30 million NOK in a new production line. This can increase their production output to 52000 lompe every hour and the revenue to 70 million NOK in 2011 (approximately 8,9 million
Euro). Today they have a market share close to 30% with their licensed production of other brands.
The prices of the lompe are between 15 - 30 NOK, or 2 – 4 Euros depending on the type and size of the product. There are between 6 and 10 lompe in one package. The different lompe produced by Buer is Lompe, Langlompe (bigger), Speltlompe (spelt flour) and Salt and Pepper Lompe. Buer also makes a version that they freeze right after the production. The reason for having a frozen version is to reach all parts of Norway. They are sold unfrozen and have an expiration date of 14 days after this. The big problem is that the unfrozen Lefse often
crumble up, and therefore many consumers only buy the fresh versions. The most popular product in Norway is the basic Lompe.
In addition Buer also produces Lefse – which are bigger and often used with different garnish, but basically the same product. They have expanded their revenue by introducing a “premium” range of Lefse in recent years. Buer is always trying to be innovative and develop new products.
About the product
Buer have two core products in Norway. These are Lefse and Lompe. Basically they are the same product, but with a different shape which leads to different types of use. They are made of 80 % potato, the rest of the ingredients are wheat, salt and potato flakes. Lefse is a traditional Norwegian product, which is used in a variety of ways, but can most easily be described as a wrap. The Lompe is slightly smaller than the Lefse and is most commonly used to wrap a sausage and garnish as a snack.
One of our first methods of understanding if Buer Lompe had a market in
Germany, was to conduct a focus group. One of our critical findings was that the participants connected the product name Lompe, with the Dutch meaning of
“lompen” which means “old clothes”. Since a substantial part of the group made this connection, we decided to introduce the product name Lefse as an alternative.
This was received in a positive way, and had no negative associations. Because of this, we have chosen to call the product Lefse throughout this bachelor thesis.
Methodology
In this thesis we have gathered information from both primary and secondary data.
For selecting our primary data, we have used both qualitative and quantitative sources. For our qualitative research we had a focus group to help structure our survey and listen to consumers in the target group reflecting on the brand new product experience. Our quantitative research is based on a questionnaire. Our secondary data comes from a combination of qualitative and quantitative information sources like web- pages, articles and literature. The purpose of
gathering the information is to figure out whether Germany is an attractive market for Buer, and whether they should enter it.
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Research Aim and objectives
The goal of our research is to find out if there is a market for Buer Lefse in Germany and if it is possible for Buer to enter the market. Lefse is a unique Norwegian product, and will be a new experience for most German consumers.
That means it is also important to find out not only whether German consumers like the taste, but also where they would see themselves using the product. We wanted to find out how much the product should cost. We also want to find how Buer Lefse could position themselves, if entering the German market.
Problem statement
Can Germany be an attractive market for Buer Lefse and if so, can Buer enter the market?
Research questions
To find a way to solve our problem statement, a number of research questions needs to be answered to make a decision on the answer of the statement
(Gripsrud: 56). When the decision of Germany being an attractive market or not is taken, it is important to get a broad picture of the target consumers. We have decided on these questions:
1. Is the taste of the product positively received in Germany?
2. How much are German consumers willing to pay?
3. Do the German consumers identify the practical aspect of the product?
4. Do the product and the brand name seem appealing?
5. Where does German consumers see themselves buying the product?
6. Are they willing to buy the product, and recommend it to others?
Research Design
The design of a research project depends on how much we already know about the subject. The research design is a description of how the process of analysis will work to solve our problem (Gripsrud: 58)
When doing a research analysis one usually differ between three different types of design: explorative design, descriptive design and causal.
(Gripsrud: 58) Explorative design
When knowledge on the subject is limited, a primary goal can be to explore for more info on the subject. Before the research starts one does not have a clear view on possible connections. The goal of the explorative design is to understand and interpret the phenomenon in a good way. There are two different ways to collect primary data in the explorative design; focus groups and depth interviews (Gripsrud: 58).
We used a focus group as primary data. We needed an explorative approach to understand how German consumers perceive the product, and how they reflected over its attributes, and if they were positive or negative to the product. We had eight participants and followed a study guide that was used to guide the talks, which were divided in to six parts. A moderator guided the participants, and the focus group was recorded. After the session was finished we listened to the recording. By doing a qualitative comprehension of the direction of the focus group, we gathered information to influence our analysis and make our survey.
Descriptive design
When a basic understanding of the subject has been acquired, descriptive design is used. It is meant to describe the situation on a certain subject. Typical for a
descriptive design are questionnaires. With a descriptive design we can find
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mutual variation, but not causal connection (Gripsrud: 62). We designed a structured questionnaire and had 53 participants answering it.
Validity and reliability
When one conducts an analysis it is important to find out how “good” it is. This is where the question of validity and reliability comes in. Validity is how well we are able to measure what we intend to measure. Reliability measures if the data collected can be trusted, and if the same results would be seen if the analysis would be repeated (Gripsrud: 72). We can say that our survey is valid, since it is measuring what we indented it to measure. However, it is not necessarily reliable because the selection of participants was not optimally randomized. We had the survey in front of a student-house, and those that were home during the time we were there, were asked to attend. The reason why we solved it in this matter is because of convenience, and thus, we cannot be sure of that we would get the same result if doing the survey again.
Research challenges and limitations
Because our participants in the survey and focus group were not selected randomly, but according to convenience based on accessibility, we have a
convenience-selected group (Gripsrud: 150). All the participants in our survey and focus group lives in the CSH student-house in Mannheim, and 90 % of them are students. Based on this, there is a high likelihood that our findings are not representative for the population as a whole, and therefore is not reliable.
The reason why one uses a group in the research is to estimate one or more entities of the population. The likelihood of actually measuring what is true in the population requires precision and is measured by degree of confidence. Since our survey only has 53 participants, and the population in Germany is over 80 million, there is a reason to believe that there will be high degree of margin errors. During our research we have not had the resources to conduct a survey with a larger group of participants. Thus, our findings will not be as accurate as they could have been with a larger group of respondents.
Internal analysis
VRIO analysis
“VRIO is a mechanism that integrates two existing theoretical frameworks: the positioning perspective and the resource-based view. It is the primary tool for accomplishing internal analysis” (Barney and Hesterley 2010: 70)
The VRIO framework is a tool for identifying the internal strength and
weaknesses of a company. According to Barney and Hesterly, the competitive advantages of the company can be identified through the resources and
capabilities four broad categories, such as financial resources, physical resources, individual resources and organizational resources. The VRIO consists of four questions; the question of value, rarity, imitability and organization. (Barney and Hesterley 2010: 70)
The question of value.
“Does a resource enable a firm to exploit an environmental opportunity and/or neutralize an environmental threat?” (Barney and Hesterley 2010: 72)
One way to identify potentially valuable resources and capabilities in a firm is to study the firms value-chain. A firms value chain is the activities in which it engage to develop, produce, and market its product and services (Barney and Hesterley 2010: 72)
By looking at Michael Porters generic value-chain, we can answer the question of value. The generic value chain divides value creation into two large categories, primary activities and support activities. Primary activities include inbound logistics, production, outbound logistics, sales and marketing, and services.
Support activities include infrastructure, technology development, and human resource management and development. (Barney and Hesterley 2010: 75)
(Porter´s value-chain)
Primary activities
- Inbound logistics
Buer has a large storage basement for potatoes, and have contracts with local potato farmers for a constant supply of premium potatoes. Buer prioritize using local farms, and Norwegian potatoes to support local trade and make a Norwegian product. The inbound logistics does not give them any specific tangible advantage, however it might be used as an intangible advantage through communicating that Buer exclusively use Norwegian ingredients.
- Operations
The production at the Buer factory is a high tech operation. After Bjørn Olav Drabløs took over Buer, the staff has been decreased, and more technology helps making the factory more efficient. The production line is almost entirely automated, employees of the production line now only do minor operations, and take care that nothing in the machines failures.
Sliming the organization was important to create better margins for the company – and it also provided a competitive advantage through lower production costs than the competitors.
Furthermore, Buer also has a unique frying process. The Lefse is fried on both sides, by using a unique machine component only used and designed by Buer. This makes the Lefse taste more like it is home baked, and keeps the brand consistent with its identity of Birger Buer´s original recipe.
At the moment they are installing a new production line which will increase their output capability by 20 000 units per hour.
- Outbound logistics
Buer quality products are sold fresh, and the expiration date is two weeks.
This is an industry standard for the fresh products, and thus, delivery vans are used to get the product out to the customers as fast as possible. The frozen products last longer, and can stay at a wholesaler for a longer time if needed. They have in-house storage for their products. There are no advantages or disadvantages on the outbound logistics.
- Marketing and sales
Buer´s marketing efforts are very limited. They do not use commercials and advertising to communicate to the consumers. They have recently made a new home page, and try to educate their customers in different areas of use for Lefse. Their sales focus lies in landing larger deals with the retail chains. They have been successful with this strategy so far, and by producing “First Price” retailer owned brand for “Norges Gruppen”, they also get to sell their product in their stores. Norges Gruppen is the largest retail chain in Norway. This has given them an attractive advantage in terms of sales, because a lot of their competitors only have local deals and arrangements with retailers. The deal with Norges Gruppen ensures them a 30% market share including their licensed production.
- Dealer support and customer service
Support activities towards customers is limited, providing leaflets and online instructions for recipes and alternative usage of Lefse is the only service. Increased areas of usage is very attractive for Buer in Norway to increase their sales, but this being a recent development in strategy, no
advantages can be mentioned. Buer has a sales representative who deals with support to dealers.
Secondary activities
- Firm infrastructure
Buer being a “Gaselle”, and experiencing good earnings and growth makes them financially strong. Their financial position however is not a
competitive advantage because they stand-alone and are almost solely owned by Bjørn Olav Drabløs. Some of their competitors are owned of major industrial companies who have much deeper pockets.
- Technology
As mentioned before, Buer has unique technology for frying Lefse.
Furthermore they have a unique family recipe. They also develop new products like the Salt and Pepper Lefse, which is adapted for barbequing.
Exclusive products like the premium Lefse “Anna’s mandelpotet Lefse”,
“Birger’s beste” has helped increasing their revenues. The design of these products also looks far more exclusive than the standard Lefse.
- Human resource management and development
Buer has a slimed organization, and work structured to gain growth and develop new products, and ways to use their product. The organizations ability to come up with new product varieties is a competitive advantage, and as Bjørn Olav Drabløs (CEO) told us – the new products often does not take market share from their other products but creates new revenue.
The employees at Buer AS have a unique knowledge and insight in the Lefse segment, which is hard to copy.
The question of Rarity
“Is a resource currently controlled by only a small number of competing firms?”
(Barney and Hesterley 2010: 72)
There are not many producers of Lefse in Norway. The four largest producers, Buer, Ola Lompa, Gjøvik Lompa and Haugli, controls most of the market. There are more small producers of Lefse but they generally have local deals with
retailers and do not have a substantial market share. In other words, there are not a lot of companies that possess the particular resources and capabilities needed to make Lefse. This being a unique product for Norway, there will most likely not be any other producers of the same products elsewhere in the world.
The question of Imitability
“Do firms without a resource face a cost disadvantage in obtaining or developing it?” (Barney and Hesterley 2010: 72)
Since very few factories produce Lefse, the machinery for producing it, even without Buers unique technology, requires a large specific investment and therefore posts a large risk for new competitors that would want to imitate the production process. Copying Buer´s unique frying technology will also need a lot of investing since it will most likely need to be hand made, and designed from scratch. Buer´s recipe can be imitated, but mass production of the product will still be a barrier.
The question of Organization
“Are a firm´s other policies and procedures organized to support the exploitation of its valuable, rare, and costly-to-imitate resources?” (Barney and Hesterley 2010: 72)
The organization in Buer is slimed, but with an extensive in the production of lefser. They continuously try to develop more competitive advantages. After Bjørn Olav Drabløs and Kenneth Ingilæ took control of Buer they hired Birger Buer as a consultant. Birger, who first started Buer, knows the recipes and helps Buer to keep their competitive advantage of the quality of the product active.
Conclusion of the VRIO-framework
In the case of Buer, their ability to grow fast and make quality products comes from a combined number of factors. By analyzing Buer´s value chain, it appears that Buer has many advantages in the production of Lefse. The high tech
production line, slimed organization, unique frying technology and recipes are
important for Buers competitive edge. Their sales deals through licensed
production has given them important connections in Norway and makes them able to sell the product nationwide for the largest retailing chain in the market. New product developments have helped their growth.
The rarity of the product in Norway can give an advantage, but it is important for Buer to differentiate themselves from other brands. As of today, this is not necessarily an advantage. The product is hard to imitate due to the rarity of the industry, the machines and production lines require major specific costs and the unique technology of Buer enhances this effect, giving Buer a competitive
advantage. The organization is well trained and experienced, and by having Birger Buer on their team they are able to use the old original quality recipes of the Buer family – thus giving a competitive advantage.
Summary of VRIO, Competitive Implications, and Economic Implications Valuable? Rare? Costly to
Imitate?
Organized Properly?
Competitive Implications
Economic Implications
No No Disadvantage Below Normal
Yes No Parity Normal
Yes Yes No Temporary
Advantage
Above Normal (At least for some
amount of time)
Yes Yes Yes Yes Sustained
Advantage Above Normal
(Barney and Hesterly 2008)
The Bakka model
Bjarne Bakka developed the Bakka model in 1973. Bakka was one of the first to make an internationalization model showing the different forms of exports. Bakka divides exports into five different stages; trial export, extensive export, intensive export, multinational export and global export. To decide which stage a company fits into Bakka model, we look at seven factors (Solberg 2009: 119).
We will use this model to determine Buer’s position in the internationalization process and which factors they need to improve or change to be able to reach the next export stage.
Export motive
Today Buer has very limited export revenue. So all export for Buer will be trial export. The goal for exporting Lefse to Germany is to reach a new market and increase their financial or operative income. Buer Lefse will be a new product for every new market they decide to export to, and their main competitors will be companies who sell products used with wurst.
Market choice
Lefse is only sold in Norway, and the product is used by both genders, and buyers are in all ages. Generally Buer says that their target group is young adults that love good food. Buer Lefse is very rarely enjoyed on its own, and therefore it is necessary for Buer to connect it to other products. Most Norwegian’s use Lefse together with a sausage. But in some districts with strong traditions for Lefse it is used in several ways, for example Lefse with butter and brown-cheese. Buer’s export is today random and it is only in Sweden you can buy Buer in one or two stores.
Market share
In Norway, Buer is one of the two largest producers of Lefse with a market share around 30% (included licensed production). Since Buer does not actively export their products, we will have to place Buer in trial export. In the international markets the company is invisible.
Organization
Since the company does not export their products today, it fits into stage 1 and
“One man show”, part time. It is private persons or stores who have asked Buer if they could sell their product in Sweden, not Buer themselves. Buer’s CEO Bjørn Olav Drabløs does not use time on export, and they have no plan off doing so in
the near future. The same goes for the rest of the organization. When we visited Buer, they said that they knew about an agent in Sweden they could use, but for the moment Buer wants to be a stronger market leader in Norway. Bjørn Olav Drabløs and the rest of the leader group said that they are curious about finding out if it is a potential market outside of Norway, in this case Germany.
Entry strategy
Buer has no entry strategy for markets outside of Norway’s today, and therefore we have to place Buer in trial export.
Marketing mix
Buer Lefse is a low price product in Norway, at around 15 NOK per package.
Buer does not use commercial advertising. However, Buer has just released a booklet with recipes on how to use Lefse in other combination than sausage. They want to give this booklet to customers who buy Lefse. One thing that Buer is very good at in Norway is to make new products varieties. Buer was the first Lefse producer who made Lefse with spelt flour. Today almost every Lefse company offers “spelt Lefse”. Buer has realized that their new product does not take sales from their regular products. This is one of the main reasons for Buer’s good results in reason years. Buer’s innovative way of thinking could help them when entering new markets. They have limited promotion and a low price, this places them in trial export.
Economic results
Their economic results are good. Their export to Sweden is helping their good economic results, because Buer does not spend money or time on it, but it is marginal. This puts Buer in trial export, marginal or negative.
To summarize, Buer is in stage one in the Bakka model. To find out if they could reach stage two and three, extensive and intensive export, they have to change a lot in all the seven factors. Before they decide to enter a new market, they need to do research in markets they find interesting.
(Source: Solberg 2009)
Financial Position Buer AS
We have already mentioned that Buer has increased their revenue since the year 2005. It is important to take a closer look on some other numbers and figures in the accounting for Buer. Their financial situation will be a major factor when considering different strategies for going to a new market with their products.
!!
Trial export
Extensive export
Intensive export Multinational export
Global export
Export motive
Operative Operative Strategic/Operative Mainly strategic
Mainly strategic
Choice of Market
Neighbor countries
Many markets
Concentration of markets
Market expansion
Consolidation the “triaden”
Market share
Company is invincible
Insignificant Increasing Big in chosen markets
Big in key markets
Organization Part time one-man show.
Distribution
Full time one-man show.
Distribution
Exporting department.
Agents
International division. Sales office
Global or transnational organization.
Sales office Entry
strategy
Trading House.
Piggy back
Agent Sales offices in main markets
License production
Production Alliances
Market mix Limited promotion.
Low price
Some promotion.
Low price
Cultural adaption.
Product commercial.
Medium price.
Cultural adaption.
Profile building. High price.
Global products and promotion.
International PR
Economic result
Marginal or negative
Marginal or negative
Positive contribution
Mutual dependency on the home market
Price leader.
Main income source
Return on total assets in present
This is a measurement on returns from the assets Buer owns. This is a good measurement when doing profitability calculation. In 2007 Buer had 12,1% return on total assets, this number has increased to 32,6% in 2008 and 32,9 % in 2009.
That is considered as very good, and it is much higher than Buer has to pay for their loans. (http://www.proff.no/)
Liquidity ratio
For 2008 and 2009 Buer had a liquidity ratio at 1,4. To find this number we had to take the total sum of current assets and dived it with the total sum of short time debt. Liquidity ratio is a measurement on how much short-term cash Buer has compared with how much short-term debt they have. 1,4 is satisfying, but it could mean that Buer should have more cash before they could start to loan more money.
Equity ratio in present
Equity ratio shows how large amount of the assets who are funded by the equity.
In 2007 Buer had a ratio on 20,9%, and in 2009 it had expanded to 39,8%. 39,8%
it’s a quite good ratio, and could mean that Buer is a solid company. Their equity has grown from 1 430.000 NOK in 2005 to 8 118.000 NOK in 2009. Their result before taxes has also gone up much since 2005, 183 000 NOK to 6 402.000 NOK in 2009.
All the numbers has strengthened since 2005, and if Buer’s market shares will grow in the near future, the figures will continue to be positive. On the other hand Buer has invested a lot of money in a new production line, and if this investment fails, Buer could get a liquidity problem in the future. But for now, we will say that Buer has a quite healthy economy.
2009 2008 2007 2006 2005 Return on total
assets
32,90 % 32,60 % 12,10 % 25,10 % 5,10 %
Results of operations 16,60 % 16,60 % 6,60 % 12,30 % 2,30 %
Liquidity ratio 1,4 1,4 1,2 1,6 1,5
Equity ratio in present
39,80 % 29,70 % 20,90 % 27,60 % 22,30 %
(Source: http://www.proff.no/)
Solberg´s nine strategic windows – Y-axis
Solberg´s nine strategic windows is a tool we can use to find out what strategy Buer should choose. The Y-axis shows the preparedness for internationalization, and the X-axis shows the industry globality. The model can be divided into two parts. This is because the Y-axis has to do with internal factors of the company and X-axis has to do with external factors. Since we are first focusing on the internal analysis, we will first have a closer look at the Y-axis; the preparedness for internationalization (Solberg 2009: 149). There are three aspects that will affect the preparedness for internationalization, and that is the international business culture, market share in the reference market and market network.
First we will have a look at Buer´s international business culture, here we will apply theory from the ACE model.
ACE model
For a company to be successful in international markets they will have to depend on their internal involvement and their support to the internal internationalization process. We can describe internationalization, as a process that stepwise will develop the company´s international business culture thru their developing attitude, competence and their embodiment (Solberg 2009: 138).
Attitude
Export has been discussed in the board, and they are positive to export, but they are focused on initiating it when they have achieved their goals in the domestic market. For the moment they are focusing on growth in the domestic market by investing 3.200.000 - 3.800.000 Euro on a new production line. Because of the big investment in a new production line Buer have not sett a specific date for when they will start exporting to new markets.
Competence
Buer has only been focusing on the domestic market and therefore has no previous experience with export to other markets except to some stores in Sweden.
However, their customers here are mainly Norwegians that cross the border because of the price differences between the two countries. Even though Buer sells their products in some outlets in Sweden, they do not have much knowledge about the requirements that will apply by exporting, such as sales technique, language barriers, cultural differences, logistics and market analysis (Solberg 2009: 136). Although Buer has a low knowledge today, they are interested in establishing contact with agents and collaborators, so they will be more equipped for the future if they want to expand.
Embodiment
Buer is a company with 25 employees where the communication between the management of four people and the employees are good. The four people in the management group all agree that Buer first should increase the market share in Norway before exporting to new markets. However, their desire to start exporting is strong, but they have not set a date for when Buer should start exporting. Their plan is to gain a 40% market share within 3 years (excluding the licensed
production).
The market share in the reference market
Buer´s reference market is Norway, where they since 2006 – 2009 have increased their revenues by 167% and still growing today. In Norway, Buer, have a market share of approximately 20% when we include the licensed production of other
brands. The future of the company also looks bright. Recently they have decided to invest 3,8 million Euro in a new production line that can increase their annual revenue by 2,6 million Euro.
Market network
To gain a successful export commitment it is important to have a well developed market network that is build on trust, loyalty and common sets of norms. Further it will help to develop global strategies that will motivate the company to engage deeper into international markets (Solberg 2009: 148).
For the moment Buer does not have a wide international market network that would gain them advantages on export to new markets, except one agent in Sweden that they could use for further growth in Sweden.
Conclusion
The management in Buer is positive to export into new potential markets, but first they want a bigger market share in the domestic market. Buer does not have expertise in exports, even though they have one foot in the Swedish market.
Except from the Swedish agent Buer does not have a wide market network abroad. By looking at the Y-axis of Solberg’s nine strategic windows one could say that Buer belongs somewhere in the lower part of the preparedness for internationalization.
External analysis
PEST analysis
The PEST framework aims to analyze the broad macro-environment of an organization. PEST provides a wide overview; key drivers help focus on what is important and build key drivers to explore different ways in which the macro- environment might change. It provides a comprehensive list of influences on the possible success or failure of particular strategies. PEST stands for Political, Economical, Social and Technological. (Johnson and Schorles: 55).
Political
Germany is a federal nation made up of 16 different states and is a parliamentary, representative democratic republic. The head of Government is Angela Merkel and the President is Christian Wulff. They both belong to the Christian
Democratic Union (CDU). CDU governs Germany in a coalition with FDP and CSU. The political course of Germany is relatively stable, and since 1949 CDU and SPD (Social Democratic Party) have had the role of chancellor in between them. (CIA world fact book)
When investing in foreign markets and exporting products, political stability and presence of corruption represents a degree of risk. If the new market has an unstable political system, new rules and terms of engagement can be changed swiftly. Thus, making the future of the investment uncertain. Corruption can be a costly affair for the investment, and because of legal requirements it will be hard for the Norwegian government to navigate in a heavily corrupted country.
Germany is overall politically stable and has a low degree of corruption (CPI score of 7.9 in 2010 (Transparency International)).
The European union
Germany is one of the founding countries of the European union and is the largest economy in the union. The European Central Bank is based on the German Bundesbank and is placed in Frankfurt. Because of these factors, Germany is by many means the economic centre of Europe. The creation of a single European
market took place in 1993, and this agreement enabled free movement of capital, labour, goods and services amongst the members of the union. Norway is not a member of the European union, but from being a member of the EEA (European Economic Area) Norwegian companies can still participate in the free trade through EFTA (European Free Trade Association). This makes Germany an accessible market for a company like Buer. The trade deals will help Buer reaching the market, but it is also worth mentioning that the trade agreement means tougher competition to be successful.
Taxes
Companies operating and selling products in Germany have to pay taxes on each sold product. Value Added Tax, or VAT, in the European Union is a general, broadly based consumption tax assessed on the value added to goods and services.
It applies more or less to all goods and services that are bought and sold for use or consumption in the Community (European Commission, 2011). The Value Added Tax is paid by the end user, and added onto the price of the product for each transaction. It is based on the value on the product and measured in percentage of the value. The general tax rate in Germany is 19% and for special products like food and other day-to-day usable products is 7%. (http://www.steuerliches-info- center.de/, 2011).
Customs
No frontier controls exist between Member States, and therefore VAT on goods traded between EU Member States is not collected at the internal frontier between tax jurisdictions (European Commission Taxation and Customs Union, 2011).
Norway is a member of EEA and EFTA.
Infrastructure
Germany has a good infrastructure with focus on railways and motorways (Autobahn), it also has canals and big harbours. Their network is also highly modern with the trains going up to 300 km/h, and the Autobahn with its reach to all of Germany. There is a lot of transporting of goods through Germany due to its central location in Europe, and goods transport with trucks or on cargo trains is the most common.
Economic
When entering a new market, the economic stability, strength and growth are important to analyse if the market is attractive for the company. Germany has the sixth largest economy in the world when looking at the GDP (purchasing power parity) being at 2,96 trillion in 2010. It is Europe’s largest economy and the second most populated country with 81,5 million people. The GDP growth was recorded to be 3,6% in 2010, up from – 4,7% in 2009, this show that Germany has recovered well from the Sub-prime crisis and manages to create growth and recover from a financial crisis. The unemployment rate in 2010 was 7,4%
decreasing from 7,5% in 2009.
The consumer price index in the new market is important to have a long-term safety of the markets prices. Germany has kept close to the European Central Bank (ECB) goal of 2% inflation, but in 2009 a slump in prices for mineral oil and food dragged the percentage down. Liquid fuel fell 30% and food prices dropped by 11% (www.destatis.de, 2011). In 2010 the CPI has risen to 1,1% and is closing in on the ECB target.
The German consumer:
This year, the average German consumer has 19.700 Euro to spend on living expenses, a 500 increase from 2010. The EU as a whole has an average of 12.000 Euro. Germans use 11 % of their disposable living expenses on food, and this puts them in the lower area of the European average. Consumers who are particularly price sensitive but also quite quality conscious influenced the food market in Germany. This poses a twofold challenge for the companies in the sector: the need to offer the highest quality at the most competitive prices. (Food safety, quality crucial for exports to Germany, The Nation)
Currency risk
A company trading in Germany will have to use the Euro for trading, and since Norway uses the Norwegian Krone (NOK), one should be aware of the currency risk. If one currency changes its value in comparison with the other, it can push a company’s margins. If the NOK strengthens against the Euro, the goods coming from Norway will be more expensive in Germany. If you have a one-year contract with a retailer on a fixed price for a Lefse in Germany, this will cut into your margins because the value of the product changes in Norway, but stays the same in Germany.
This graph from Netfonds.no shows the 2-year development of the Euro versus the NOK. From the graph one will notice that the Euro has weakened a lot, and the NOK has gained a lot. This is due to several factors, but a very important factor for the Euro, and the German economy is the Euro crisis. The Euro has had a lasting downward trend, and this makes Norwegian goods more expensive for Europe and is not advantageous for Norway.
(www.netfonds.no, collected 05.03.11)
Euro crisis
When the financial crisis hit the economy, a lot of European countries struggled, and some never recovered. Greece, is the country where the Euro crisis started, it had major state budget deficits and 25% of the working population was hired by the state. Problems with paying their debt due to poor output made the interest rate rise to 9,55%, in comparison to Germany that had a rate of 3,05%. This made them unable to even pay the interest on their loans, which means they were bankrupt. More countries joined Greece with the financial struggling; Portugal, Italy, Ireland and Spain (PIIGS countries).
Greece was then bailed out by the EU and IMF, which was a breech of the “no bail-out” clause in the EU. After this, bail out has also been paid to Ireland, and Portugal. The reason why the EU is bailing out the member countries is to try to preserve stability of the common currency, the Euro. As the EUR/NOK chart shows, the Euro has weakened against the Krone – but high oil prices have been pushing the Norwegian Krone up. It is important for a company that is
considering entering Germany to realize that there is a financial risk with the Euro.
Social factors
Doing business in Germany means adjusting for German business culture and etiquette. In German culture one would for-instance expect negotiation style,
meeting etiquette and business protocol to be quite similar to that of the Norwegian.
Looking at Hofstede´s five dimension model, one can see that Germany and Norway is relatively alike. The biggest difference lies in “masculinity”, and shows that the countries have a gap between men’s values and women’s values. Like Norwegians, Germans are generally quite formal when it comes to business- situations, and they will not spend much time on relationship building seeing that they are a deal focused culture rather than a relationship oriented one. They are well known for being though, thorough and precise in their work and like spending time on planning, consultation and considering in order to avoid risk.
Getting to consensus is also important for them. In Germany business is hierarchical and decision-making is held at the top of the company.
(www.geert-hofstede.com, collected 28.05.11)
When dealing with Germans, it is important to know that the society retains a level of social formality, which is reflected in business protocol. It is important to use titles with persons of executive rank and those with higher academic
qualifications” (Gesteland 2005:316). The German tradition of showing respect to people with higher rank and titles reflects the German social formality, and that the power distance is higher in Germany compared to that of Norway. According
to Gesteland, being on time, and being punctual is important – not doing so might arouse suspicion of unreliability (Gesteland 2005:315). Germans in large
corporations mostly speak English, however, this is not always the case for the population as a whole (Gesteland 2005:315). The similarity’s to Norwegian business culture is in general is that both nations is said to be “Deal-focused, Moderately formal and have a monocronic perception of time” (Gesteland 2005), therefore even though there are differences between the two, there should not be any significant problems conducting business.
Health Awareness:
With an aging population, and increasing number of health related issues, personal health is gaining momentum as an important trend affecting the German food choices. Government education, media and advertisements fronting a increased focus on a healthy lifestyle. According to a report done by AC Nielsen about consumers and nutritional labeling, approximately 76 % of German consumers read the nutritional information carefully (AC Nielsen 2008:3). Many products in Germany has adapted to this new trend by reducing calories, sugar, fat and artificial flavoring.
Technological factors:
Germany is an innovative and technologically advanced country in many fields, this applies also for their commitment to environmentally friendly technologies such as renewable energy and the development of efficient packaging and marking of product packaging. They are also leading in recycling packaging and other household waste and have come far when it comes to labeling and
information requirements. If Buer enter the German market they will have to abide by certain requirements for product labeling that have not yet been necessary in Norway.
Solberg´s nine strategic windows – X-axis
The external part of Solberg´s nine strategic windows explains the industry globality (X-axis). To get an overview of where approximately Buer is located on the X-axis we have to look at the two important factors, international competition structure and globalization forces.
International competition structure
To find the international competition structure we have to analyze the competitors for wurst accessories, and then position them after their international involvement and organizational strength. For the German market we can say that the
competition is strong and mainly comes from regional bakery chains like Kamps, Grimminger and Bäcker Wiedemann (www.europages.no, 2011) where the degree of specialization is could be regarded as high, because the core product constitutes a large part of the company´s total product range. It is reasonable to assume that the local bakeries have a low international orientation because of their size. The competition is more or less indirect since no one at this stage offers Lefse.
Globalization forces
There are three globalization forces that will affect the industry structure and that is protectionist regulations in individual countries, nationalistic attitude of the buyer and different preferences between buying groups or various traditions when it comes to technical solutions (Solberg 2009: 144).
When it comes to protectionist regulations Norway is member of EFTA that makes them able to participate in the EU´s internal market. Because of EFTA, Buer will have the same equal rights like their competitors in the German market when it comes to free movements of goods, services, labor and capital
(www.efta.int 2011). Buer will therefore have no higher disadvantage then their competitors concerning protectionist regulations. When it comes to nationalistic attitude, we know that Germany have been one of Norway´s largest trading partners for several years and still are today (www.ssb.no 2011). Because of the strong historical trading band we do not think it will be any noticeable
nationalistic attitude entering the German market. The last globalization force that could affect the industry structure is the various traditions on technical solutions.
The technical solutions on bakery products at least within Europe are quite the same and since Lefse will be released as a new type of product, Buer will be the one with the expertise.
Conclusion
Our conclusion on the X-axis is that generally the competition on bakeries in Germany comes from smaller local industries, with a high degree of
specialization, and low international orientation. There are no specific globalization forces that will affect Buer in a negative way. The protectionist regulations, the German nationalistic attitude above Norway and the various traditions on technical solutions are all- low.
By using Solberg´s nine strategic windows we could say that Buer will belong somewhere in the local part of the “industry globality”, even though, all the globalization forces where low.
Since we now both have information on the internal- and the external part of Solberg´s nine strategic windows, we will be able to place Buer in one of the nine windows. We know from the internal analysis that Buer belongs in the lower part of the Y-axis, “preparedness for internationalization”. Therefore we will place Buer in the window “Stay at home”. In this window there are few or non-threats when it comes to big changes in the market or competition climate. The company also has a poor foundation for further internationalization capability. If the
company still wants to expand to international markets, it should be done in small steps to build up experience and market share. (Solberg 2009: 149)
(Source: Solberg, Carl Arthur. http://www.jstor.org collected:2011)
Porters five forces
Michael Porter made his five forces framework so business managers could understand the industry context their company operates in easier. The five forces are: the threat of entry into a industry, the threat of substitute to the industries products, the power of suppliers into the industry, the power of the buyers of the industry and the extent of rivalry between competitors of the industry. Porter’s essential message is that where these forces are high, then industries are not attractive to compete in. There will be too much pressure and competition to allow reasonable profits (Johnson and Scholes: 60)
We will use these five forces to take a look on the forces that Buer will have to face if they enter the German market.
