Internationalization is an important strategy for most of the companies all over the world. Most of the companies are forced to adopt the internationalization strategy because of the ever increasing competition from the foreign companies in the home country (Johanson and Mattsson 2015). Internationalization has become a significant part of the strategy formulation of the conglomerates with an intention of expanding its business in the foreign market to increase revenue and brand loyalty (Frynas and Mellahi 2015). The companies are figuring out the countries and the products that are in need to target the foreign customers in the foreign market. Most of the big companies in Australia are also adopting the internationalization strategy to enter into the European countries where the production of some of the commodities and products are found in scarce.
Description and justification for country recommendation
The report takes into consideration the internationalization strategies and marketing plan of BHP Billiton (Broken Hill Proprietary Company Limited), an Anglo-Australian multinational company of the metal and mining industry which has gained a huge popularity in the host country. It has pointed out that some of the companies in Europe have very small quantity of ores, especially iron ore (Golev et al. 2014). Germany is one of them where the demand for the ore is very high. Since the economy of Germany is very powerful, BHP Billiton is planning to market its products in the European nation to get the competitive advantage. Iron ore is a very essential and popular mining product required for almost all the countries in the world for making steel (Wills and Finch 2015). It is an abundant rock material that constitutes of about 5 to 6% of the Earth’s crust and is still the 4th commonest element in the world. Australia is a country rich in iron ore and that is the main reason the metal and mining giant is utilizing the material for internationalization purpose. About 99% iron ore are used for the making of steel that is accounted for about 90% of all the metals found on Earth.
The PESTLE analysis of Germany shall provide information to BHP Billiton about the social, political, legal, economic, technological and environmental aspects of the country that can help in doing business in the foreign market. Germany is the fourth largest economy of the world. The discussion about the various aspects of the country has been discussed below.
Germany is a democratic republican country whose political system was formed in 1949. The Federal Republic of Germany has a Constitution that has laid down the structure of the Government. The nation follows the value system made by the Constitution.
Germany is a country which is having a very low concentration of raw materials than other European countries (Inglehart 2015). It has some significant amount of lignite and potash. Most of the other important resources are imported from other countries. BHP Billiton has taken this as an opportunity to expand their business. The country imports about two-third of its total energy and is the 3rd largest importer of the world. The country is famous for its popularity of global brands like Audi, BMW, Adidas, Mercedes Benz and so on but lacks in the minerals.
Germany is the largest country in the European Union in terms of population. It is a multicultural country. There is a variation in the lifestyles of the Germans. The family holds the significant reference unit of the Germans in spite of several changes in the society. The literature, local architecture, music, arts and sports reflect the social scenario of the country. The literature of the country is dated back to the Middle Ages. The country has produced many renowned authors like Friedrich Schiller, Thomas Mann, Herman Hesse and Bertolt Brecht.
Germany is a country rich is technology. It has independent laboratories and supports different types of research and development. The country has a good position in the European Union in terms of technology. The National History Museum in Berlin has botanical, geological, mineralogical and zoological components (Lazzeretti and Capone 2015). The automobile sector shows the technological strength of the country. Germany is a very peaceful country for the conduction of a business where the standard of living is very high.
The laws are enacted by the Federal government of the country. There is a tough competition in the business world in Germany (Ash 2013). The legal stability of the company attracts a lot of people from around the world for the sake of investment. There is a strong protection of the patents and trademarks in Germany.
The country has witnessed a rapid industrialization that affected its environment. Germany depends primarily on the fossil fuels for the sources of energy (Blazejczak et al. 2014). Other notable sources are solar, wind-powered power plants, natural gas, nuclear energy, petroleum and domestic coal deposits.
The main competitors of BHP Billiton are the iron ore mines which are under the government like those situated in West Germany. They are Saar Vogelsburg, Westphalia and Erzeburg. Others are Roter Bär Pit and Schacht Konrad for the production of iron ore. BHP Billiton will be creating a huge mine in Germany for the production of iron ore. Some iron ore mines of other countries like Netherlands can pose serious competition to BHP.
Germany has a huge demand of iron ore. It has imported about 2.9% of the total iron ore imported in the year 2016 that had a costing of US $ 2.4 billion (Workman 2017).
The cultural dimensions of Germany are described by Hofstede model of cultural dimensions. The traits are power distance, individualism, masculinity, uncertainty avoidance, long-term orientation and indulgence (Vaiman and Brewster 2015).
This dimension describes the fact that there is no equality in the society. It is defined as the degree to which the people, who are less powerful in the society, expect and accepts the unequal distribution of power. The inequality of the society is endorsed by the followers same as that of the leaders. The score of the power distance dimension of Germany is low which is only 35 (Nistor et al. 2014). There are hierarchies in the organizations for better convenience. The managers depend on the individual employees and also on the team as well for better performance. The mode of communication in the business organizations of the country is direct, participative and formal. There has been a direct and participative form of communication in Germany. There is a degree of equality among the people in the society, regardless of their status and position.
The individualism dimension addresses the primary issues. In the societies of individualism, people tend to look after themselves and provide direction to their families. On the other hand, people of collectivistic society belong to certain groups and take care of each other through the exchange of loyalty. Germany is a country having a high score of individualism, which is about 67. The Germans look after themselves and also after their families. People are expected to become self-reliant in the business world. In an exchange-based community, decisions regarding hiring and promotion are taken based on merit. The individuals in the country have high self-actualization. The people in the country try to keep a large personal space to safeguard their personal lives. The family of a German is not so extended. The Germans like to live on their own without the assistance of others. As they are very workaholic, they are having enough money and ability to satisfy their own needs.
A high score of masculinity gives an indication that there is a high competition, success and achievement in the society. This form of value system is initiated from the school and is continued throughout the entire life. A low score indicates femininity that defines that caring for other people and the quality of lifestyle is of prime importance. It states the factors that motivate people, to become the best or like to do something.
Germany has score of 66 on masculinity (Hennigs et al. 2015). The behaviors of the people in the school, workplace and sports are based on the values which entails them to strive for the best. They are proud of themselves and give importance to the hiring and promotion decisions. Status is shown by the popular brands like Audi, Mercedes and so on. The society is very competitive in Germany. The managers in Germany are very decisive and assertive. They show high performance standards. The Germans are confrontational within their friends. Humor is not appreciated in the country. They become aggressive within a very short time when there is a disagreement with other’s ideas.
This is a critical dimension, which states that the society has no indication about the future. This gives rise to anxiety and people of various cultures have learnt to live with this ambiguity. The level to which people of the society are afraid of the ambiguous situations and possess the beliefs to avoid them are reflected in the score of uncertainty avoidance of Germany. It has a high score of 65 for this dimension, as Germany is a high uncertainty avoidant country (Engelen et al. 2014). The Germans cannot tolerate the uncertain situations. They obey the laws and regulations and try to keep the city clean.
Long Term orientation
This dimension says how the society maintains a link with the past and how it deals with the present and future. The normative societies, which have a low score on this dimension, prefer to stick with the traditions and norms. Germany has a high score of 83 which indicates that the country is highly pragmatic (Rose-Ackerman and Palifka 2016). Germans keep their focus on the present job, save some money and try to lead a happy life without thinking about the future. They are very action-oriented. They get into the details of everything.
This dimension states the degree to which people tend to control their impulses. Weak control is known as indulgence where strong control is known as restraint (Pandey and Devasagayam 2015). Germany has a low score of 40 that indicates that the country has a restrained culture. People are very pessimistic in the country.
Germany and Australia have differences in the long term orientation and indulgence dimensions. They have high contrasts in these two dimensions. Other dimensions are more or less the same in both the countries.
Country-of-Origin, foreign and domestic consumer predispositions
The demand of steel is very high in Germany which is the primary reason of the increase in demand of iron ores in the country (Feldman 2015). The Steel Federation of Germany has expected an increase in the demand of steel by about 1 to 2% in the year 2018 and an expected increase of 1% this year (Reuters 2016). The number of orders for steel has risen by about 5 percent this year because of its demand in construction and automotive industries. The steel companies of the European Union are importing steel at a considerable rate. The below figure shows that iron ore import of Germany is very high which indicates that the demand of the ore is very high.
Market Segmentation, Target Marketing and Positioning
The imports of iron ore in Germany is considerably high and recently, it has hiked by 4% during the month of February, 2017 (prnewswire.com 2017). Hence, Germany is the ideal market where BHP Billiton can invest, as the trade statistics indicate. As per the statistics, the largest exporter for Germany has been Netherlands and to compete with this, BHP Billiton has bright chances to join in the iron ore import of Germany. As for the market segmentation, BHP Billiton falls in Business to Business category and hence, the typical market segmentation for B2C categories will not be applicable here. The market segment for BHP Billiton will be therefore, industrial segmentation based on the high demand of iron ore (Ploumis 2015). In this context, the target market for BHP Billiton in Germany will be the flourishing steel companies that import iron ores from countries like Netherlands, Sweden and the like. These steel companies are:
- ArcelorMittal Bremen
- EKO Stahl
- Dillinger Hutte
- Otto Wolff
- German Steel Trust
- Thyssen AG
- Vereinigte Stahlwerke and so on.
Significant reasons are there behind targeting the German market of iron ore as in the recent years, the demands of iron ore has been increasing in the steel companies of Germany, where February 2017 has seen a steep 4.1% growth in import in comparison to the previous year. The country last year has imported 3.33 million tons of iron ore while the overall value of German import business of iron ore is reported to observe a sharp 67% rise in country expenditure from February 2016, from $169.201 to $281.978 (Ploumis 2015). The import price has significantly gone up on average by 60 percent to reach the price of $81.2 per ton this year, while in the previous year, 2016 the average rate was merely $50.8 per ton.
In the absence of any Australian company, the market of Germany has been overtaken by other European countries like Netherlands and Sweden. In the previous year, the total import from Netherlands was valued at around $125.66 million while Brazil exported iron ores of worth $48.48 million to Germany (bhpbilliton.com 2017). Sweden, another European company had been on the third place with exporting $47.616 million worth of iron ores to Germany. Among other major exporters there are South Africa, Canada and Russia who are making huge profit by grabbing the opportunity of huge demand of iron ore in German market (Ploumis 2015). The agglomerated iron ore has also high demand in various German steel companies which was around 1.059 million tons in total during last year (Gilroy 2014). The import value is also going up sharply in the country and in this situation; the presence of BHP Billion in the German market will be highly profitable for the company. It is better that the company opens its divisions in Germany where it would obtain supply of iron ore from the Australian market. Thereafter, it can directly participate in the iron ore trade b selling it to the German steel companies at a much cheaper price. With this, BHP Billiton is expected to overtake the iron ore market of Germany very soon with its low cost and diversified commodities.
Market entry and expansion
BHP Billiton shall go for licensing in Germany for its market entry and expansion. It has several advantages like it will involve little expense and involvement. It will only involve a little cost of signing the agreement with the government of Germany and policing the implementation. Licensing is a good option for a company trying to start its operation in the foreign company and make an opening for creating low risks manufacturing relationships. One advantage is that the capital is not tied up in the operational activities in the foreign market. There is a option of linking the parent and receiving partner interests which means that both of them are benefited out of the marketing activities.
On the other hand, the disadvantages are that the potential returns from manufacturing and marketing may be lost. There can be limited form of participation regarding trademark and length of agreement. The licensees can become a competitor in some cases.
BHP Billiton may plan to expand in the next 5 years by making agreements with the government. The company should try to buy more lands for creating mines so that the production can be increased. It must have good links with the steel producing companies so that the supply gets increased and steel production is enhanced. BHP may think to expand the business from Germany by producing and supplying iron ores to other countries of European Union as the countries of Europe are having a scarcity of iron ores that affect the steel production.
BHP Billiton should go for licensing because of the advantages, it will be providing to the company in starting its business in the foreign market where the demand of iron ore is very high. The primary reason is the cost of agreement is very less for licensing in Germany.
The report has inferred about the relevance of internationalization strategy for the expansion of business for most of the organizations. The report has included the internationalization strategy of one of the popular companies of Australia, BHP Billiton in Germany with respect to iron ore which the host country scarcely has. The description of iron ore, the cultural dimensions of the host country Germany and the contrasting features with Australia have been put forward. The competitors of BHP in Germany has been identified and a macro analysis of the country has been done. The consumer predispositions of the domestic and foreign country have been taken into account. Market segmentation, targeting and positioning of iron ore have given us an indication about the market scenario of the product in the country. The market entry and expansion strategies of BHP Billiton in Germany have been discussed and its advantages and disadvantages have been stated. Lastly, some recommendations will be provided that can help the mining company in operating its business in the foreign market successfully.
While penetrating a new market like Germany, BHP Billiton has to take care of certain things considering the international marketing mix and the factors of German market.
- In the first place, BHP Billiton must increase the supply of Hematite or other forms of iron ore demanded most by the German steel companies. BHP Billiton should invest to obtain these suitable types of ores that not only from the Western Australia mines but from China, Brazil and other large mines (com 2017).
- Average price of iron ores matters a lot in the German market as the prices are surging each year due to the demand. BHP Billiton should, therefore, offer a highly competitive price, lower than the Chinese and European mining enterprises.
- High promotional activities are also needed for obtaining a strong foot in the target market i.e. the German steel companies. For this, BHP Billiton should make its presence prominent in the German market (Donovan, Hartley and Billiton 2016). To achieve this, the company can either invest in advertising specifying the quality and variety of iron ore it offers or it can approach the steel companies directly through company representatives.
- As for the distribution channel, BHP Billiton can directly acquire the required iron ores from the huge acquisition of mines it has in Western Australia (Donovan and Hartley 2016). However, considering the distance between Germany and Australia, the supply chain of BHP Billiton is likely to increase the price and with this, the company may not be able to offer a competitive price. Hence, the company should buy some more mines in the European zone to expand the distribution channels and in this way, BHP Billiton would be able to offer commodities in a low cost
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