Executive Summary
The task provides an evaluation of Alcaplast limited company in relation to the potential launching of its business operations in the United Kingdom. In assessing the feasibility of the company’s capability to enter the sanitaryware industry in the UK, a situation analysis on the company’s growth strategy and an overview of the resources and capabilities has been detailed. The assessment depicts that Alcaplast has enough financial resources to fund an expansion strategy considering the firm has sustainable operating revenue. Additionally, the company’s current growth strategy is the market development that involves selling existing products to new consumers in a new country. The organisation is operating in six different countries around the globe. The strengths of the firm are having skilled and qualified employees in addition to intellectual resources such as patents over various innovative products.
Moreover, an evaluation of the market in the UK has been done. The sanitaryware industry in the UK has a market structure that can be referred to as perfect competition. A perfect competition type of market is characterised by many firms in the market and no single organisation can influence the product prices, and the sale of homogenous products. Three entry options evaluated for consideration are the joint venture, direct exporting and Greenfield investment. The selected strategy that Alcaplast can enter the UK with is Greenfield investment which has a high risk but also soaring returns. Through the development, the organisation can open a new branch in London and only sell sanitaryware products. The company would sell bathroom products after achieving success in the products initially launched. To mitigate the risks of the entry option, the firm should develop appropriate response strategies.
Introduction
The purpose of the task is assessing Alcaplast limited company through various ways. The report has been organised into four sections including situation analysis, evaluation of the UK industry, evaluation of market entry options, risk identification, risk assessment and risk response.
The situation analysis conducted on the company provides the organisation’s file, current growth strategies, and an overview of the resources and capabilities. Secondly, an evaluation of the industry and the market is given and the organisation’s competitive landscape in the United Kingdom. In addition, the report evaluates three specific potential entry options that include the specific location, name of the potential partner in the UK and specific brands to take to the UK. Finally, the report provides for identification of risks, risk assessment, and response to risk.
Situation Analysis
Company profile (current growth strategy, overview of resources and capabilities)
Alcaplast is a limited company founded in the year 1998 in the Czech Republic operating in the manufacturing in particular sanitary industry. The company is a family run business (Alcaplast, 2017). A married couple with expertise in engineering and manufacturing operate the business. Currently, Alcaplast exports to approximately 40 countries and has six subsidiaries abroad making the firm among the leading producer of sanitary ware in Europe (Alcaplast, 2017). The merchandise assortment of the company is approximately 580 products (Alcaplast, 2017). Alcaplast is both a distributor and manufacturer of their products and engages 3rd party distributors to export and sell various products. The company emphasises on innovation considering the changing consumer needs and preferences. As of 2016, the company had over 500 employees (Czech News Agency, 2016). The firm aims at meeting the requirements of the customers, working reliably, and enhancing the quality of life.
The current growth strategy for the company can be referred to as market development (Alcaplast, 2017). Market development involves an organisation selling products that exist to new customers in a new region or country. The aim of market development is identification and building of a new clientele base different from the existing. In the case of Alcaplast, existing consumers were first in the Czech Republic where the company started. However, over the years, the company has been expanding their services to new geographical regions using new channels of distribution and dissimilar pricing policies. As a result, the product price is brought in the competence of novel segments of the market. After the company was founded in 1998, the first years were spent in developing new products and building of production facilities. The company would start implementing its growth strategy in 2008 when it first expanded through the opening of a branch in Romania, Sibiu. Later, in 2009, Alcaplast had their operations launch in Belarus, Minsk, and the next year 2010 they opened another branch in Bielsko-Biala, Poland (Alcaplast, 2018). In 2011, the firm opened a branch in Hungary, Komarom and in 2013, they established a dealership in Moscow, Russia (Alcaplast, 2018). Opening new operating locations internationally demonstrates market expansion as the growth strategy that the organisation has been exercising. One of the reasons that prompt Alcaplast to utilise the strategy is because of the financial capital available to produce unique products in large-scale. The innovative strategies adopted by the company has allowed it to become a leader in the sanitary industry in Central and Eastern Europe.
The strengths of the business are on the resources and capabilities. First, the competency of the managing directors and a skilled pool of employees has allowed the firm to become innovative during the production of different products. According to Agbodo (2018) employees in the organisation have working environments that are flexible, components that encourage innovation and creativity. Moreover, the staff are highly qualified and trained through an in-house training in addition to a developed education program (Vadnjal and Zupan, 2011). Secondly, intellectual resources like patents are critical for the firm considering technology is given priority. To ensure competitive advantage, patents are required. Since the year 2015, the financial resources of Alcaplast including the total assets and operating revenue have been steadily increasing and hence the capability to expand their operations globally. The capabilities of the organisation include the ability to invest in research and development activities, a strategy that has helped in understanding the needs and wants of the customers and hence production of products considered as a high utility (Agbodo, 2018).
Evaluation of the industry and the market (UK)
In the United Kingdom, the sanitaryware industry is often referred to as the bathroom industry. In 2017, the market for bathroom products increased value by about 3% however, the growth had decreased in the 12 months compared to the past 2-3 years (AMA Research, 2018). The primary factors that influence the market in the UK include low levels of business and consumer confidence, an aspect which has affected the demand for the products. The forecast between 2017 and 2021 has been estimated to be approximately 12% (AMA Research, 2018). In the United Kingdom bathroom products market, the largest sector is the baths and sanitaryware then taps and mixers, bathroom accessories, spa systems, and bathroom furniture. There has been a growing customer preference for wall-hung, minimalist, and countertop designs which will consequently affect the demanded volume of the sanitaryware (AMA Research, 2018). In the UK, there has been an increased awareness and knowledge by the consumers on bathroom products as they seek to acquire quality products and designs with both luxury and longevity. Additionally, the benefit of smart technology and digital control in the UK industry is becoming more popular. There is a large population in the UK that is aging in addition to multiple people with disabilities which brings the need to develop products that are easy to use. The industry largely depends on the construction industry. In 2012, there was a decline and the market for sanitaryware did not recover until 2013 (AMA Research, 2018). In 2014 and 2015, the pace of growth accelerated as the housing market achieved steady recovery. A strong commercial sector performance saw the market in 2016 remain positive as it was supported by opportunities in the health, education, offices, and entertainment sectors. The growth in 2017 was sustained (AMA Research, 2018).
Competitive landscape (UK)
The market structure of the sanitary industry in the United Kingdom is generally a perfect competition. According to Shneyerov and Wong (2010), for a market to be considered a perfect competition, certain requirements must be met. First, individual firms lack the capability to influence the market price of certain products. Secondly, the market should have multiple players who sell items that are homogenous in nature. Thirdly, market share does not have the ability to influence the price of products (Alcaplast, 2018). In the United Kingdom, the sanitary industry is under this category because of a large number of players, both domestic and international. According to the mapping by the strategic group, the most relevant and direct competitors of Alcaplast in the UK are Ideal Standard, Mira, and Bathroom Brands because they have high similarity in the products price range (Alcaplast, 2018). Nevertheless, what makes Alcaplast unique compared to these organisations in the UK is being a business run by a family. While the market is a perfect competition, larger suppliers such as B &Q could influence the current market structure in the near future through their sanitary products that are branded considering the firm has 17 percent of the DYI home renovation industry market share (Westgarth, 2017).
Market entry options
The section provides an evaluation of three potential entry options that Alcaplast can consider when seeking entering the United Kingdom. Important to note is that no single market entry option is suitable for all overseas market. In choosing the most appropriate option, a number of options influences the choice such as and not limited to transportation and marketing costs, tariff rates, and a product’s degree of adaptation needed. These factors have a direct impact on the cost. However, increase in sales in the new country can offset the costs incurred.
In the present case of Alcaplast, the three international entry options to be evaluated include direct exporting, joint ventures, and Greenfield investments. In each of these three options, the evaluation is based on the scope of management commitment, capital commitment, potential profits, input costs, scope of control and risk.
Direct Exporting
Direct exporting involves the export of products in a one on one situation with the customer without involving a third party (Gao, Murray, Kotabe & Lu, 2010). The individual responsible for the export handles all the processes required during the exchange. According to Pehrsson, (2008) direct exporting would be suitable for Alcaplast because of its ability to save money that could have been used by an intermediary. According to Raff, Ryan & Stähler, (2009), some of the benefits that Alcaplast could gain from entering the UK market include; the customers are able to meet and interact with the sellers gaining a sense of security.
The preferred location that the company should start exporting products in the UK is London primarily because of the people traffic. Considering the characteristics of this method, the name of a potential partner or organisation in the UK does not arise. Alcaplast will be entirely involved in providing customers with the sanitaryware products. The specific brands that the company could take into the London market include valves, toilet seats, shower drains, and pre-wall installation systems (Alcaplast, 2018).
Pehrsson, (2008) notes that in most cases, organizations hire export sales personnel’s who directs and controls all the sales activities. Thus, the scope of control is not limited meaning the organisation is able to monitor the processes efficiently. Nevertheless, to achieve this level of control it requires utilisation of huge resources in both the home country and the exporting nation. Consequently, the input costs are also averagely high. The sales managers will need to have their own departments in the company and they are set to operate independently. Therefore, the level of commitment required on the part of managers is appalling. Managers should show high commitment to have the project succeed. Overall, the scope of capital commitment is averagely high when compared to other entry options.
Joint Ventures
A joint venture can be defined as a co-operative business which is owned by two or more organizations for the purpose of one specific task(Killing, 2013). In a joint venture, owners come up with a business idea where they contribute, assess, have equity in the enterprise and decide on how the business can be managed. The appropriate location to set up the joint venture would be in London. Specifically, Alcaplast can establish a joint venture with Astral Pools an organisation that produces products associated with swimming pool. Considering it has a presence in the UK and does not sell products offered by Alcaplast, it would be an appropriate choice for a joint venture business. Some of the products to offer to the consumers would include bathroom accessories, taps, and mixers, and sanitaryware products.
When forming joint ventures, Alcaplast will only need a written agreement which shows terms and conditions. The agreement outlines the details such as how the profits and losses shall be shared and also shows equity during decision making (Deitz, Tokman, Richey & Morgan, 2010). The scope of input costs and capital commitment of a joint venture business are relative to the agreement between the companies and the estimated length of operation. The potential profits are relatively low considering all the parties involved will share in accordance with the developed formula. On the other hand, the scope of management commitment on both sides will have to be extensive. To achieve a successful project, Alcaplast managers will have to work extra hard to ensure the scarce resources are used to achieve the joint venture goals. A joint venture is a highly risky method of entry. The reliance on another party for success can be disastrous if there is a failure to do as required. Subsequently, the scope of control in a joint venture business is soaring particularly if all the stakeholders are committed to having their capital contribution used in the right manner.
Greenfield investments
Greenfield investment can be defined as a method of foreign investment which involves a particular company starting a business or a new venture which does not have any facilities in a new location (Raff, Ryan & Stähler, 2009). Greenfield investment aims at increasing control of other organizations and the ability to come up with new marketing partnerships, therefore, avoiding intermediary costs. An organisation that gains entry in a foreign market through Greenfield investment have control over the services or goods produces and sold. Consequently, for Alcaplast, the company would achieve control over the product manufacturing, the quality, rates of production and finally the rate in which the organization expands in the country (Qiu & Wang, 2011). The investment will first bet set in London, UK before opening other branches depending on the success of the business. Initially, the products that Alcaplast will sell in the UK market are sanitaryware products and leave bathroom products during the initial months of the business. Based on the characteristics of this kind of entry option, Alcaplast will not need an organisation or partner to establish the business. A Greenfield investment is similar to opening a new branch in the home country. However, complex processes are involved and it requires using more resources in particular financial.
Organisations have the option of beginning on a small-scale operation in the foreign country and later advance to a large-scale market depending on the growth of the business. Therefore, the input costs and scope of capital commitment is high as the entry option relates to setting a new business from scratch. The risk involved is also high as failure to penetrate into the local market can lead to massive losses. However, the potential profits for a Greenfield venture are soaring in particular when consumers have a high interest in the product and services offered. Additionally, the scope of management commitment becomes easy as the organisation depends on own staff to learn the progress of the business.
Risk Identification
The strategy selected for Alcaplast to enter the UK market is the Greenfield investment. The company has a presence in a couple of countries. In five of the countries, the organisation opened new branches. Thus, previously, Alcaplast might have experience in dealing with this type of entry strategy. Additionally, the company has enough financial resources and human resources to compete with some of the domestic firms in the United Kingdom. Nonetheless, there are specific risks which are associated with Greenfield investment. These strategic risks include construction risk, capital availability risk, geographical risk and commercial risks.
The risk of construction usually involves the risk of a contractor and the public sector interaction. First, the contractor risk refers to the capability of the contractor to deliver the new infrastructure in the UK as per the specifications (Marsh and McLennan 2015). In a Greenfield development factors such as confidence in the ability of the contractor to deliver, efficient utilisation of resources, and having a record of accomplishment of similar projects are critical. Getting permission for the Greenfield project is not a straightforward process and often depends on the jurisdiction and the contract negotiations with the UK government. Importantly to note is that even for the most qualified and experienced contractor, events which were unplanned can happen often leading to time and cost overruns.
The second risk is the commercial risk where every development is expected to suffer from it. The commercial risk faces any organisation entering a new country expects to face considering that the customer interests on the products or services will determine the actual demand (Marsh and McLennan 2015). Thirdly, there is the capital availability risk in both equity and debt. While Alcaplast has financial resources, a budget estimate will be specifically developed for the Greenfield investment. When actualising the project, the estimates might differ and hence the need for extra resources to set up the development for business operations to commence as scheduled (Marsh and McLennan 2015). As a result, Alcaplast will need to source for extra funds beforehand. Having a construction risk profile methodology that is detailed is important before commencing the Greenfield project in the UK. The top managers should convince Alcaplast investors that while the project is a high risk, the returns are also high when successful. Both equity and debt investors should be assured that the contractor will deliver an infrastructure that receives a high rating from the government authorities (Marsh and McLennan 2015). Finally, every Greenfield project has a risk that is often magnified by the new geographical region, in particular, the United Kingdom. Agencies from the government are key partners in a successful Greenfield development. Legal frameworks that are satisfactory in nature should be in place and preferably shorter timetables to handle disputes. Launching in the United Kingdom provides Alcaplast with new challenges associated with different culture, language and ways of doing things. The risk has been faced by the company before and hence will not be unique in the UK market.
Risk Assessment
To achieve what can be referred to be a Greenfield premium where the revenue returns are high, the developers and the investors requires having knowledge and an understanding of implementing certain specific practical strategies. These strategies include selection of the right project, selection of a qualified contractor, planning efficiently, and finally implementation of project management techniques. In doing so, the organisation minimises the possibility of being negatively affected by the above mentioned risks.
Importantly for Alcaplast is assessing the likelihood of the above risks happening for purposes of structuring effective strategies. The assessment criteria that Alcaplast should undertake ought to be qualitative measurement of the risks which involves a formal judgment on the probability and consequence using the severity and the likelihood. The table below provides the tools and techniques for qualitative risk analysis of the identified risks.
Risk Identification Cost Impact Schedule Impact Performance impact Risk prioritising
Risk Interaction Likelihood levels Consequence levels
Construction risk High High Average High priority Medium interaction 81%>99% High Impact
Capital availability risk High High High High High <20% High Geographical risk High High High Medium Medium 21%>40% Medium
Commercial risks High High High High Medium 81%>99% High
Table 1 Risk assessment
Source: Curtis, and Carey, (2018)
Based on the above table, the risk that Alcaplast should be constantly monitoring in relation to Greenfield investment should be the commercial risks and construction risk. These two risks should be prioritised considering that they have a high likelihood of occurring. Additionally, the consequence levels can be high. Failure to monitor and control these risks can be damaging to the company’s operations in the United Kingdom.
Risk response
Risk response is associated with developing mitigating strategies that are related to the Greenfield investment. The entry option selected will provide Alcaplast with an opportunity of opening a new branch in the United Kingdom to sell sanitaryware products. Based on the risk assessment above, the two risks that should be prioritised should be construction and commercial risks.
The first step that the top managers of the company should undertake is investing in a market research. A market research targeting the UK sanitaryware industry can be critical to have some facts that will aid in making informed decisions on where and when to start the Greenfield investment. Through a market research, the organisation receives adequate feedback on some of the most popular products among the potential consumers. Moreover, the firm gets to gain knowledge on the tastes and preferences of the customers in regard to innovation, style, and quality. While, Alcaplast is a renowned brand name, there are established foreign and domestic companies in the UK that will offer stiff competition. Consequently, Alcaplast will require adopting unique strategies that do not only reduce the risk exposure but also provide a competing edge. Performing a market research beforehand is one of the strategies that will increase the organisation’s understanding of the local sanitaryware market in the UK. Specifically, the strategy will address the commercial risk.
Secondly, project management techniques will be critical in mitigating the construction risk. Thus, the organisation will need to employ a project manager responsible for overseeing the completion of the Greenfield investment (Marsh and McLennan 2015). A project manager will ensure that all the legal requirements as per the UK government are adhered to. Moreover, selection of the most appropriate contractor in terms of experience and qualification will be the responsibility of the project manager. The project manager will be in constant communication with the contractor on site to ensure that the all works are done in accordance with the specifications agreed upon. Apart from adopting these mitigation strategies, Alcaplast should establish good relations with the different UK government agencies. Historically, for many Greenfield investment projects, government actors become major bottlenecks. However, much has changed and today organisations that establish rapport under the guidance of the law and regulations become successful upon commencement of the operations through Greenfield investment. Earning the support of the UK government eliminates many small risks that come with doing business in a foreign country.
Conclusion
In conclusion, Alcaplast is an established sanitaryware brand that enjoys huge success in Czech. The situation analysis shows that the company has both human and financial resources that can enable expansion to overseas countries. Moreover, the operating revenue of the firm has been sustainable and hence the ability to provide employees with internal training programs. Additionally, an evaluation of the UK market shows that the sanitaryware industry has been experiencing growth and the same is forecasted in the next decade. The UK market has both domestic and international organisations and hence a perfect competition market structure. One of the advantages that the market in the UK offers is having many organisations selling homogenous products and no single firm can influence the prices. Therefore, upon entry into the UK market, Alcaplast can adopt innovative marketing strategies that can help the firm have a competitive edge considering the reputation of the brand name in some parts of Europe. The three entry options evaluated for Alcaplast to consider include direct exporting, Greenfield investment, and joint venture. The most appropriate strategy to implement is the Greenfield investment despite the risks identified. Some of the identified risks related to Greenfield development are construction and commercial risks. Appropriate mitigation strategies should be developed to ensure success in the project. Among the suitable risk response strategies include undertaking a market research and utilising project management tools and techniques.

References
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