A Case Study on Alcaplast Limited Company

The task provides an evaluation of Alcaplast limited company in relation to 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 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 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, the company has six subsidiaries abroad and exports its products in more than 40 nations and hence the largest manufacturer of sanitary ware in Central and Eastern Europe (Alcaplast, 2017). The product portfolio 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 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 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 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 high utility (Agbodo, 2018).

Evaluation of the industry and the market (UK)

In the United Kingdom, the sanitary ware industry is referred to as the bathroom industry. In 2017, the market for bathroom products increased value with 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 affects 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 counter top 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 ageing 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 of influencing the price of products (Alcaplast, 2018). In the United Kingdom, the sanitary industry is under this category because of the 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. Such activities involve market research for the products, the logistics and statistics involved in the shipment of products, invoicing and foreign distribution (Gao et.al, 2010). Most organizations or business people prefer the method due to its ability to save money that could have been used by the intermediary (Pehrsson, 2008). In addition, direct exporting improves credibility and safety of goods since the owner has total control of the sales and is able to communicate directly to the customer therefore building a strong relationship.

According to Raff, Ryan & Stähler, (2009) some of the benefits associated with direct exports include; the customers are able to meet and interact with the sellers and therefore, they gain a sense of security while conducting business with the individual or the firm. Moreover, some customers develop a close relationship with the individuals responsible for exports such that if anything goes wrong, they know whom to contact. The company is able to know the current situation in the market and therefore, export managers are able to keep up with competition. The method is safe for the products involved in the export since the owner is able to keep track and protect trademarks, copyrights and patents. The greatest advantage involved with direct export is that the profits are maximized since the company is able to get rid of all intermediaries.

Companies that use the direct export method have various strategies to use while exporting since the method consumes much time and energy. In most cases, organizations hire export sales personnel’s who directs and controls all the sales activities (Pehrsson, 2008). 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 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. Some organizations prefer setting up an export sales subsidiary instead of an export department therefore keeping the export procedures and processes separate from other activities in the organization (Pehrsson, 2008).

Direct export can have some negative effects to the company or even the customer (Gao et.al, 2010). The organization has to add more staff to deal with the exports and if anything goes wrong, the organization is held responsible and is accountable for any damages incurred. Compared to other methods, direct exporting is less costly. Additionally, local agents have a fast response to the customer which might not be the case with the organization (Gao et.al, 2010). 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).The joint venture often comes up with a business idea where the owners contribute, assess, have equity on the enterprise and decide on how the business can be managed. The nature of the entity is decided depending on what the managers agree and for that reason, it can become an organization, partnership, corporation or a limited liability. In some cases, however, individuals decide to retain their initial ownership and only operate on a joint venture agreement. Therefore, the parties involved in the joint venture agreement share the profits and losses according to the contract agreement. Joint ventures are mostly formed for research, production or even single purposes although they may also be formed for a continuous task such as a business.

When forming joint ventures, the owners only need a written agreement which shows their 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). Deitz et.al, (2010)noted that some people might confuse joint ventures for partnerships although they are two different things. A partnership involves two or more organizations and is a single business entity while the joint venture joins several organizations or business entities (which may be of any legal entity) into one new entity that may or may not be referred to as a partnership depending on the agreement of the owners.

Most organizations prefer joint ventures to partnerships since they are temporary and after the companies have attained their objective, they are no longer committed to each other unless they chose to. Moreover, the joint venture provides an organization with an opportunity to gain new expertise and insights making the market easier to understand (Killing, 2013). The company also accesses better resources which they may not have such as technology and staff. Stronger business relationships are built between organizations although the partnership was initially made to complete a specific task. Deitz et.al, (2010) explained that although the joint ventures are more advantageous to the companies involved, they may have some negativities which might be the reason why some organizations do not prefer to use them. The joint ventures limit or restricts flexibility and therefore, the owners have to solely focus on the joint venture thus making their businesses to suffer. Sometimes, the joint venture has vague objectives that are not clearly communicated to all participants clearly. Additionally, there may be imbalance in the assets, expertise and investment involved since the joint venture involves different organizations.

Based on the above assessment, the scope of input costs and capital commitment are relative on 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, managers will have to work extra hard to ensure the scarce resources are used to achieve the joint venture goals. Joint venture is a highly risky method of entry. The reliance on another party for success can be disastrous if there is 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 have 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. Moreover, Greenfield investments mostly take place in the developing countries since the investment boosts the country’s economy due to the increase in business opportunities and the option to expand emerging markets. An organisation that gains entry in a foreign market through Greenfield investment have control over the services or goods produces and sold. Moreover, there is control over which the product is manufactured, 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.

Organizations 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. Through Greenfield investment, the company is able to adapt to the demands of the local market such as the quality of the products and the pricing. Complete ownership of the subsidiary company enables the organization to extend favours to the customers in an aim of increasing their sales and popularity in the foreign market. Such favours include warranties or rebates and discounts (Raff et.al, 2009). Additionally, the scope of management commitment becomes easy as the organisation depends on own staff to learn the progress of the business. One of the greatest advantages of sing the Greenfield investments is that the company is able to avoid intermediaries while conducting business therefore managing their profits and losses. Moreover, the company can also receive business tax incentives that add to the profit made depending on the county’s economic policy.

Risk Identification

The strategy selected for Alcaplast to enter the UK market is the Greenfield investment. The company has 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 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 experience 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 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

The 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 having 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 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.

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