Market Analysis For Arnott's Australia: Entry Into European And Asian Markets

You are required to select an Australian company as the basis of a case study. Once the company has been approved by your lecturer you will be required to prepare a detailed strategic report to management that analyses the macro-environmental, geopolitical risks and opportunities, as well as overall market attractiveness of entry of this company into both a specific European and Asian market. 

Introduction of Arnott’s Australia

In 1865, Arnott's Australia started its journey as a small bakery in Newcastle, NSW. It mainly supplied pies, bread, biscuits to the people and the crews of the ships. Therefore, millions of Australians grew up with Arnott's over the past 150 years and most of the well-known products of Arnott's are Tim Tam, Shapes, SAO, Vita-Wheat, Iced, Salada and Tiny Teddy. Arnott's is now one of the largest food companies in Asia Pacific Region and Arnott's is subsidiary of Campbell Soup. At present, more than 2,400 Australians are employed across all territories and states. Arnott’s also employs people from New Zealand, Japan, Malaysia and Singapore. Arnott’s spends more than AU$ 250 million on products and services from Australia suppliers and farmers (Arnotts.com.au 2018). Each year 85,000 tonnes of grains and flour are supplied from areas of Australia and Arnott’s takes 18,500 tonnes of sugar from North Queensland. Revenue of Arnott’s Australia reached AU$ 1.09 billion in 2015 (Arnotts.com.au 2018).

Indonesia is the southwest Asian country and it is well known for the travel and tourism business. In addition, the UK is a European country where Arnott's Biscuits can start its marketing.   

Macro-environmental factors of Indonesia

Indonesia is the third largest democracy in the world and it has the largest economy in Southeast Asia. Indonesia has the stable political condition at present, however, the average Political Stability Index of Indonesia is -1.14 point that is low and it represents that political stability is not up to the mark. Indonesia is the member of ASEAN in the G20 and it follows the Presidential system. In Indonesia, it has a comprehensive push for decentralisation of much power transferred in the regions (Tambunan 2017). Laws of business and the country are passed by Parliament or it can be done by the Presidential Decree. In addition, Indonesia has current GDP of US$ 1,106 billion and Indonesia is ranked 16^th globally as it has a larger economy than some of the EU countries. Indonesia has been experiencing the economic growth of 5.1% and the government of Indonesia reduced the unemployment by 7.1%. The poverty rate in Indonesia has been decreased from 13.3% (2010) to 10.5% in 2017 (Nasution 2017). Indonesia is experiencing a strong investment in the export-oriented business. Foreign investment in Indonesia has been increased by 7.2% and the commodity price in Indonesia is also increased. As stated by Soelistijo et al. (2017), the Indonesian economy is dependent on the extractive industries and natural resources. In the bakery industry, Indonesia experienced a large increase in the big and medium bakery products sales to US$230 million and it shows the increase of 23% (Gbgindonesia.com 2018). In addition, a society of Indonesia mainly follows the Islamic region and the preference of the people is changing with the time. Major drivers of the growth of the bakery industry in Indonesia are the growth of the packaged food, packaged pastries with widening the distribution channels so that the people can get the products on time. Population growth in Indonesia is 1.2% and 121.7 million of people in Indonesia are working population (Lussier 2016). Indonesia is observing the 0.05 point in human development index. Long-term increase in the disposable income of Indonesian people makes the people afford bakery based food. Finally, in the world, Indonesians are the fourth largest users of Facebook. The manufacturing industry is considered as the largest contributor of the GDP in Indonesia and Indonesian people use higher technologies in cultivation in the form of seed cultivation, animal health and pest control (Law et al. 2016). Indonesians believe in the high technology using e-payment and online ordering.

Identification of the two countries selected for market entry

Macro-environmental factors of the UK

The recent incident of Brexit has created political chaos in the UK. The UK has always been choice of FDI for multinational companies as the UK provides the well-structured economic backbone. In the UK, the corporation tax is 19% and the UK is now the fifth largest economy in the world (Dean et al. 2015). The average value of the UK in the political stability is 0.5 and at present, Brexit has created political issues in the UK. Current GDP of the UK is US$2.936 trillion and the GDP rank of the UK is 5^th. GDP per capita of the UK is US$44,189. In addition, an inflation rate of the UK is 2.4% and the GDP growth of the UK has been slowed as it is now 0.4% (Martin et al. 2017). Labour force of the UK is 32 million and an unemployment rate of the UK is 4%. The World Bank served the data where it is mentioned that the UK is ranked 7^th in ease-of-doing business. At present, the bakery market in the UK costs £3.6 billion and the total volume of selling loaves, biscuits and packs are 11 billion in a single day (Miah et al. 2018). Moreover, the disposable income of the people in the UK is high and the people can afford confectionery and bakery food. The preference of the UK people has been changing and during the breakfast, bakery based products are important for the people. In technological advancement, the UK is famous for the manufacturing industry as it uses high technological machines (Davis 2016). The companies in the UK use online technologies to improve the sale. In the UK, companies of bakery follow the industrial bread making rule and the new product development with technologies.

Geopolitical forces impacting Indonesia

Indonesia has to follow the diverse ethnic group and diverse nation together under the ruling system of Jakarta. Indonesia is also the gateway between the Indian Ocean and the Pacific Ocean (Soelistijo et al. 2017). Therefore, the passing of the merchant ship, it is very important to make a good relationship with Indonesia. Indonesia has always been an amiable country in terms of hearty cordiality in the coastal rule. Pacific Indian commerce is very important for many of the Asian countries and peace and prosperity of Indonesia is needed for the overall development of Asian economic prosperity.

Geopolitical forces impacting the UK

The fundamental issue of geopolitical force in the UK is continental Europe. In addition, the UK now consists with England, Scotland and Northern Ireland. The UK has to maintain a good relationship with all the three major regions. The UK has got the strength from the geopolitical map and it has insular territorial composition. In addition, the UK wants to make balance in geopolitical scenario after the Brexit which has created an issue in making peace with EU countries. The UK wants to follow the continentalism in the political scene as well (Symeoniditis 2017). Major friends of the UK are Australia, New Zealand, Canada and Saudi Arabia, whereas opponents of the UK in the geopolitical scenario are the India, Russia, South Africa, Brazil and North Korea.

The current macro-environmental and geopolitical forces impacting on countries

Development of trade and business policy of Indonesia and the UK

Indonesian trade and business policy

Indonesia is a large country where more quarter of billion people spread in more than 17,500 islands. Indonesia has been growing affluent in the middle-class economy with more 45 million customers. In Indonesia, trade policies are reviewed and mandated through WTO agreement. Indonesia has been making development with the average annual growth of 5.9% (Kis-Katos and Sparrow 2015). In Indonesia, State-owned enterprises play the significant role in the economy of Indonesia. Indonesia gives MFN treatment to the WTO members and the WTO member countries can invest in Indonesia with export financing, special economic zone and in export financing. The trade policy of Indonesia focuses on increasing the export of the non-oil products and improves the domestic market managing the basic products. In certain businesses, Indonesia allows 100% foreign investment with any condition (Teuscher et al. 2015). Indonesia and Australia are in discussion to make the comprehensive economic partnership agreement (Indonesia-Australia CEPA). This trade agreement will focus on the free trading between these two countries (Knowles et al. 2018).  

The UK trade and business policy

Most importantly, the UK has not taken any trade policy after leaving the EU. The political power and agencies are reconfiguring the business and trade policies in the UK as the country need to find out the right set of rules for the international trade. The UK has 100% FDI in the bakery industry and foreign trade department of the UK monitors the export and import of the country. UKTOP (Trade Policy Observatory in the UK) ensures that the new trade policies will benefit the small and medium enterprises (Brennan and Tennant 2018). Institutional design, enforcement and the negotiation support can help in the trade policy of the UK. At present, UK regulation and trade are governed by the EU laws o the commercial policy along with custom union (Williams and Martinez 2018).

An assessment of the potential dangers, risks and opportunities in the current or short-term policies of Indonesia and the UK 

Political dangers, risks and opportunities in Indonesia

The political situation of Indonesia is complicated recent time by the increasing unemployment rate and growing income disparity of the common people. Social instability is increasing due to noncompliance of the political system. The political system of Indonesia cannot offer a poor regulatory environment and ease-of-doing business ranking of Indonesia is stood on 114^th. Indonesia needs to provide the quick-win activities for the progress of the business and Indonesia is the member of International Labour Organisation to follow the labour rights. Indonesia has always been in the top place in the Corruption Perception Index as Indonesia is ranked 78th out of total 190 countries (Storey 2017). Lack of quality infrastructure of doing business in Indonesia is another issue for investing in the business and government needs to plan for huge investment for the betterment of the country's infrastructure. In addition, earthquakes, volcano eruptions, tsunami and the natural disasters are risks in Indonesia in doing the business. Indonesia provides a terrorist threat and it hardly provides protective security in organised crime.

Macro-environmental factors of Indonesia

On the other side, Indonesia provides a large population for the customers and Indonesia expands the middle class to have the large customer base. Indonesia also outpaced the regional labour and it is bringing the significant alteration in the spending, capital information and saving (Alvarez 2016). Indonesia government is committed high levels of investment in the social and economic infrastructure.

Political dangers, risks and opportunities in the UK

Rising political risks in the UK pose threat to the foreign companies and cybersecurity risk is one of the major risks in the UK. The companies are pessimistic about the economic growth of the country in the next five years due to the Brexit and political turmoil in the UK has created political isolationism (Sari 2017). The concerns of the companies in the UK after the Brexit are the apprenticeship levy, Heathrow expansion, data protection and the national living wage. The UK companies are facing issue to expand the business in EU based countries due to Brexit. Business companies can also face the risks of lower GDP growth in the UK and compliance management in the UK has not made for the regulation and laws. The structure of the tax is not ready in the UK after the Brexit (Setiwan et al. 2018). The international companies have not got the tax structure and the foreign policies after the Brexit incident and the political structure can pose threat to the business with social policy, health and labour.

The UK gives the best business opportunity in the manufacturing industry as it has a strong infrastructure, a developed economy and educated staffs. In addition, the customers have disposable money to spend in the desert and in the confectionery products. The UK government provides sufficient taxation and legal system along with manageable regulation to increase the flexibility of operating business in the UK.    

Conclusion and recommendation of which one is most suited for market entry 

It has been noted that both Indonesia and the UK have some weak and strong points; most importantly, both the countries are diverse in nature. Arnott’s Australia can consider Indonesia as it is nearer to Australia and both the countries are considering the Free-Trade agreement which will be profitable for Arnott’s Australia. Arnott’s Australia can start to export the baker products to Indonesia as Indonesia allows 100% FDI. Foreign direct investment in Indonesia reached US$ 32 billion and it showed the increase of 8.5%. Increase FDI inflow proves that Indonesia is the constant choice for the foreign companies.

The Indonesia government has started the stimulus package for the companies focusing on deregulation, business certainty, law enforcement, interest rate tax cuts and energy tariffs.

Most importantly, Arnott's Australia will get the benefits of the large customer base as Indonesia has nearly 250 million inhabitants spreading across different islands. The huge internal market for the bakery based products is an advantage.  

Indonesia has abundant natural resources with natural gas and metals and it provides great bio-diversity. Resources can be got easily in Indonesia and the banking and financial sector will provide financial resources to Arnott's.  

Macro-environmental factors of the UK

Indonesia expands in the domestic market and increasing middle class will be helpful for having a large market share.  

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