Individual Assignment Sample

Individual Assignment

[Name of student]

[Name of Professor]

[Date of Submission]

. 12

Company Profile and target market

Kuwait has oil based economy but the risk of oil depletion has influenced governments and individual investors to diversify their investment portfolios to tackle the risk in future when oil is depleted completely from the country (Al-Sabah, 2017). Therefore, domestic companies have emerged into fields other than oil and such one of the company is Kuwait Dairy Company (KDC) established in 1960, and today it is a leading dairy producer and distributor in Kuwait. The company is engaged in production and sales of dairy products such as fresh milk, laban, yoghurt, cheese, and ice cream around the Kuwait and Middle eastern countries. KDC sources its raw materials from domestic and international markets, whereas the company also has its own dairy farms to ensure the quality of its products (KDC, 2023). The company operates through its three subsidiaries, namely Al-Qurain Dairy, Safat Al-Ghanim, and Al-Nasser Dairy. The company has been recognized for its commitment to quality, food safety, and environmental sustainability.

            Meanwhile, referring to selection of company for exports to EU, then it can be determined that exploiting the European Union (EU) market could be beneficial for company due to various seasons. The first and foremost reason is that the EU is one of the largest importers of dairy products globally that makes EU an ideal market for the company to enter and export its products because it can capture a good market share if it complies with all regulations of the EU. This reason is further supported by European Commission (2020), the EU imported around 3.5 million tonnes of dairy products in 2020 that has a value of around €9.3 billion. Meanwhile, specifically target market, Finland, has highest consumption level of milk around the work. The consumption of Milk in Finland stands at 99.2 kg milk per capita that is significantly higher as compared to other EU countries (Statista, 2023). Hence, Finland is target market for the export of milk product by KDC. Meanwhile, the demand for dairy products in the EU is driven by various factors including rising population, rising incomes, changing dietary habits and also increased awareness in the general population to focus on organic sources of food.

            Furthermore, the second reason for the EU market is suitable is that EU market has high food safety and quality standards that could turned to be an advantage for company. Because the company has already been complying with the international standards to and is being recounted for its commitment to quality and food safety. Therefore, this advantage of the company and regulations of the EU could turn to be competitive advantage for the company. The last and final reason for selection of EU as market for exports is that company would be able to export to EU that would help company to diversify its customer base and reduce its dependence on the domestic market. In addition to, exporting to the EU would provide company more growth and expansion opportunities because currently it is operating in relatively small market.

Competitive (comparative) advantage

A competitive advantage is something achieved by the company over a long period of time and it may also refer to something special that company can do and others cannot and it may also refer to the high quality and cost efficiency (Baroto, Abdullah & Wan, 2012). Meanwhile referring to the comparative advantage of KDC could be the quality of products and safety of their products. Because, the company already has a pre-established image into the local market that it is following international standards (Al‐Zenki et al., 2007). So, this can work as competitive advantage for the company because the western consumers are quality and safety conscious that makes them a very difficult market for a new entrant particularly from a developing country such as Kuwait (Baylis, Nogueira & Pace, 2011). Therefore, company being highly conscious about the quality and safety of the products would provide an advantage in the international market as well.

            Furthermore, the uniqueness and taste of KDC’s milk product could provide another potential benefit. Because, the company has been producing a milk product specifically for the Middle Eastern and Arab region. This uniqueness and distinctiveness could differentiate company from the competition in the EU market specially in target market Finland. This could attract consumers looking for safe, healthy and also organic dairy products with uniqueness. Hence, these two advantages of the company could allow company to enjoy the EU market and thrive (Jansik & Irz, 2015). However, it is also important that KDC could face few challenges in the EU market. One of the major challenge is that competition from the EU market, because those competitors producing dairy products with similar or better quality products (Bojnec & Fertő, 2014). In addition to, price may be another factor that could affect KDC as it will be exporting the products to EU market and it might have to price the products much lower else reduce the prices and bear the lower profit margin.

            Meanwhile, coming to the domestic market, the company is already enjoying some competitive advantages including brand recognition, economies of scale, and established distribution channels. However, these advantages do not necessarily correspond with the advantages in the EU market, as the competitive landscape, consumer preferences and market parameters are different in the both markets (Rezitis, 2019). But as far as the sustainability of KDC's competitive advantage is concerned then it depends on several factors such as ability of the company to maintain their reputation for quality and safety, ability to innovate and adapt to changing consumer preferences, and also their ability to manage costs and pricing to remain competitive in the market (Virkajärvi et al., 2015). However, it is prerequisite for the company to comply with EU regulations and achieve compulsory certifications and licenses from the regulatory authorities in EU and this would help company to sustain competitive advantage in the EU market.

External environment

Political and Legal Environment

            KDC will need to comply with Finnish regulations and laws related to importing and distributing dairy products. Finland is a member of the European Union, which means that KDC will need to comply with EU import regulations as well. One specific regulation is the EU's hygiene package, which outlines food safety and hygiene standards that KDC will need to meet (Virkajärvi et al., 2015). KDC will also need to obtain a Finnish import license and comply with Finnish labeling and packaging requirements.

Economic Environment

Finland is a developed economy with a GDP of €276 billion in 2020, and the dairy industry contributes 2.5% to the GDP of the country (World Economics, 2022; Statista, 2023a). The Finnish dairy market is highly competitive as there are various local and international competitors already. Meanwhile, the consumption of dairy products in the Finland is declining slowing that might be attributed to the hyperinflation globally and declining disposable income of the consumers due to changed economic situations globally and within the country. The inflation in the country remains at 7.9% and slower economic growth are two main factors that could affect the company (Trading Economics, 2023). For instances, it is planned to export the milk product to the Finland and the situation in the Finland is already competitive, where company might have face challenge in capturing the market share and it might have to price its products much higher to gain a profit margin otherwise might have to keep prices competitive profit margin lower.

Social and Cultural Environment

            Finland has highest consumption of dairy products among the EU states and this suggests that there is a strong culture of dairy products. Because the population is considered to be lactose tolerant as compared to other EU countries. This makes country more attractive for the KDC but at the same time it also poses one challenge that is adoption of taste. Because, consumers in Finland are well aware of the dairy products and have same taste, and it is imperative that KDC must meet their expectations in terms of taste (Puska & Ståhl, 2010). However, as far as safety and quality is concerned, it could be an advantage for KDC in the Finland. For instances, it is already following the high high-quality and safe dairy processes and follows international standards. Hence, in this area KDC will meet with the expectations of the Finnish consumers but at the same time, company must adopt the consume preferences and design the marketing and distribution channels accordingly so that quality is not affected and product still priced competitively.

Technological Environment

      Technological environment in the country is well known for being an advanced and the company also has adopted the latest technology to meet expectations and follow the market trend. Similarly, Finland is known for its technological advancements in the dairy industry (Puupponen et al., 2022). The companies operating in the dairy industry are effectively investing into the in new technologies such as automation, robotics, and AI to improve their production and distribution processes. Similarly, KDC will also have to adopt new technologies to remain competitive in the market and improve its operational efficiency.

Attractiveness of the market in terms of market size and growth

The Finnish dairy market has value of €2.5 billion as of 2020. The population of the country is around 5.5 million, and there is 99.2 kg milk per capita milk consumption in the country that is significantly higher as compared to other EU countries. This implies that there is a significant demand of the dairy products in the Finnish market that could present an attractive opportunity for the company to enter by means of exports and increase the customer base at the same time (Statista, 2023a)). In addition to, the dairy industry is growing at CAGR of 1.4% that is also consistent over a period of 2016 to 2020. Therefore, it can be attributed to the factors such as rising health awareness, changing dietary habits, and a preference organic food and high-quality dairy products (EMR, 2023). These factors indicate that growth in the country is unprecedented in terms of growth. This growth potential indicates that the Finnish dairy market could offer long-term opportunities for KDC to expand its business and increase its market share. Therefore, it can be determined that the Finland is an attractive market for the KDC in terms of market size and growth potential. However, it is also important to state that the company will need to consider various external factors that could affect the company and these factors include; competitive landscape, consumer preferences, and regulatory and license requirements.

Cultural differences and mitigation

Kuwait Dairy Company (KDC) can face various cultural differences within the Finland due to difference in cultural values in Kuwait and in the Finland. Meanwhile, these differences are critically analysed, discussed, evaluated and potential solutions are discussed as well.

            One of the major difference is the communication or difference in the language and cultural norms that are necessary for effective communication within an international country. KDC will have to adapt communication style and language of the Finland when it will communicate with local consumers, distributors or partners. For instances, KDC would need to hire a translator or local experts who can help company with respect to the communication difference (Isosävi & Vecsernyés, 2022). Therefore, in order to overcome this difference, KDC might have to invest in developing cultural competence within team to understand the cultural differences and how tackle them. So, this problem of cross-cultural communication needs to be addressed through cross-cultural training, hiring local staff or consultants, or partnering with local distributors. These potential solutions could address the problem of communication.

            There is another major difference that is business practice as there are key differences in negotiation styles, decision-making processes, and expectations for business relationships. Meanwhile, the core difference also remains with respect to how situations are being dealt by the local companies (Atanasova, 2022). For instances, the local companies have local knowledge to deal with problems and challenges but KDC will not have such knowledge on how to deal with the problems. Therefore, it might need to learn about the cultural norms and business practices of the EU market to effectively manage these differences. For example, in EU market, there is always collaborative way of doing business, and KDC may also have to adopt negotiation style to be more collaborative so that it can build long-term relationships with local partners (Altis, 2022). Therefore, in order to overcome this difference, KDC might have to adapt communication and marketing strategies that are culturally appropriate for the EU market. Meanwhile, this could involve translating marketing materials into the local language and using culturally specific images or messaging in marketing campaigns so that they become locally influenced.

Attractiveness of the market in terms of legal dimensions

Finland is developed country with strong rule and law system and has a well-established legal system that is based on the civil law system. In addition to, the country is also well known for the its transparency and predictability in legal matters. The Finnish legal system provides a clear framework for contract law, including the principles of freedom of contract and the duty of good faith (Baylis, Nogueira & Pace, 2011). This means that KDC can expect to have a reliable and enforceable legal system when it comes to entering into contracts in Finland. Additionally, Finland has strong intellectual property protection laws that are in line with the EU's intellectual property laws. KDC can expect to have strong protection for its intellectual property rights, such as trademarks and patents, which is essential for a company that values its brand and innovations (Matikainen, Schovsbo & Norrgård, 2022)). However, it is essential to note that KDC will need to comply with Finnish and EU import regulations and obtain the necessary certifications and licenses to sell its dairy products in the Finnish market. This may involve obtaining a Finnish import license, complying with Finnish labeling and packaging requirements, and meeting EU food safety and hygiene standards.

Attractiveness of the market in terms of real or perceived trade barriers

Finland as European country could be considered moderately attractive for the company considering the real or perceived trade barriers, including tariffs and non-tariff barriers. One of the major barrier is the tariffs, where Finland is a member of the European Union (EU) that means that company will have to comply with EU import regulations and tariffs. However, it is also important to state that EU has a common external tariff that applies to all imports from outside the EU states and this can make company’s product expensive and less competitive in the Finnish market (Semenova, 2022). However, there are some benefits for companies which import agriculture products; as the Kuwait and the EU have a free trade agreement that eliminates tariffs on some products particularly agricultural products including dairy products. This implies that company will be able to benefit from reduced tariffs on its dairy products. Hence, there will be low cost for exporting the products from Kuwait to EU member state. This makes the Finland as an attractive in terms of perceived trade barriers.

Furthermore, there are also non-tariff barriers such as Finland is a developed country where government and general population is highly concerned regarding technical, health and environmental standards. For instances, there are strict food safety regulations, hygiene standards and prerequisite certifications and licenses including labelling, packaging and quality control requirements (Uusitalo, 2022). However, KDC is already an internationally recognized at ISO for following all food safety and quality standards, so this makes it easier for the KDC to meet requirements of Finland and EU regulations. But it might have to review some of the measures with respect to the labeling and packaging requirements. Therefore, it can be determined that the Finland market could be considered moderately attractive for KDC in terms of trade barriers, including tariffs and non-tariff barriers.

Tax issues when exporting to an EU country

There are two tax issues that could be encountered by KDC when exporting to Finland as a EU member country. For instances, implementation of VAT that is imposed on the goods and services sold within the Finland and import VAT tax rate is 8.8% that KDC would have to charge on its sales invoices to consumers. But, the company can also claim back the VAT when it is paid on the business expenses in Finland. Furthermore, other tax issue is the import taxes for the company. Since, it is planning to enter into the Finland that is a EU member country then it must pay import taxes such as customer duties. Meanwhile, the custom duty for the milk is 24.8% that means company will have to pay this custom duty on exports of milk to Finland (Prodhan, 2022). These are two tax issues that company will face when exporting to Finland, whereas there are two other tax issues such as corporate tax and withholding tax, but these two will not be applicable on the KDC given the fact that it will not establish any subsidiary in the country.

The currency exchange rate risk and Mitigation

There are two potential problems that require instant and on-spot solution for the KDC, for instances, KDC will invoice consumers in Euros and will grant them two months’ credit. This exposes company to exchange rate because the company will receive the payments after two months of invoice sent to consumers. So, in two months’ period, there is high risk that exchange rate fluctuations could affect the profitability of the KDC. Because, if the Euro strengthens against the Kuwaiti Dinar then company will realize lower profit, but if it weakens then will benefit from it. However, as business and considering real practical approach, this cannot be left on the luck and wish that Euro will weaken within two months and this speculation cannot be made considering the global economic situations and hyper-inflation conditions worldwide.

Therefore, it is critical for the KDC to implement such mitigation strategies that could help company to tackle the exchange rate risk. There are potential solutions that could be implemented by KDC in order to address the exchange rate risk when exporting to Finland. One of the mitigation strategy is currency hedging instrument, where company can purchase the forward contracts, options or futures to mitigate the downside risk by lock in exchange rate (Koyama & Takeda, 2023). This will protect company against the unfavorable currency movements and the hedging contract will ensure that company receives the fixed amount of Kuwaiti Dinars as specified during contract. Meanwhile, another method to address the exchange rate risk is currency swap agreement with a financial institution (Syrstad & Viswanath-Natraj, 2022). This agreement allows to exchange one currency for another currency at a pre-specified rate for a specific period of time. This could also protect KDC from exchange risk while sales are made on credit for two months.

There is one benefit and one limitation is associated with each of these methods. Hedging currency through instrument will require a fees on each transaction that company protects through contract and company will have to bear the cost. However, at the same time, currency hedging contract gives right to pull off from the contract. The company has option to exercise the contract or not, so in favorable exchange rate, it can benefit from not exercising the option but in unfavorable currency fluctuations, it can exercise the contract to get payment as per pre-specified exchange rate (Koyama & Takeda, 2023). Meanwhile, referring to the currency swap agreement, KDC will not be charged for each transaction that is cost saving for the company but it will have to exercise agreement and it cannot pull of and there is no option to withdraw when currency fluctuations are favorable (Syrstad & Viswanath-Natraj, 2022).

Other Challenges Associated with Business

Kuwait Dairy Company (KDC) may also encounter other challenges when exporting its dairy products to Finland. One of the challenge is finding an appropriate and cost effective way for logistics of milk from Kuwait to Finland so that neither cost is increased nor quality is compromised. For this purpose, the company might have to find a reliable logistics service provider that can deal with customs regulations and documentation requirements. Meanwhile, another challenge is design of marketing campaigns and content for the Finland consumers specifically. There is a significant difference in culture of Kuwait and Finland, so the company needs to adopt such marketing strategy that best fits with local market of Finland. In addition to, finding a reliable distribution also tend to be major challenge, because a distributor must have a well-established network of distribution that also has to reputable in local market and negotiations with these local partners is also a challenge itself. Lastly, there is risk of non-payment from the customers so the company may face this challenge in collecting receipts from the customers. So, this challenge could be addressed by requesting customers letter of credit when sales is made. This will assure to mitigate the risk of non-payment.

References

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