We need to determine whether Sterling possesses the key success factors necessary to expand internationally into the UK. Our analysis will evaluate the feasibility of Sterling’s international expansion via exporting, licensing and branching.
SITUATION ANALYSIS:
Market Segmentation (SWOT)
Strengths
-Significantly higher market demand than in Canada (162k-192k vs. 87K)
Weaknesses
-Barriers to entry include, high number of competitors, high exchange rate, high initial capital requirements, cultural differences among sales people (perhaps not as aggressive as in Canada, resulting in lower sales)
-Lack of current Sterling brand identity
-Development of bad reputation
-Lack of die and embosser sub-assembly integration
Opportunities
-Sterling’s high quality Mark Maker could dominate the current poor seal market
-Sterling’s computer technology may be attractive to suppliers due to its efficiency and effectiveness
Threats
-High degree of loyalty between seal producers and formation agents could hinder Sterling’s market penetration
-Potential duplication of Sterling’s patented Mark Maker by UK’s competitors
-Potential unexpected demand drop due to legal non-requirement of embossed seal
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Sterling’s Expansion (PROs/CONs)
PROs:
-Quick response rate to any orders due to Sterling’s sophisticated computer technology
-Unique/Innovative product
CONs:
-Inadequate initial cash flows due to lack of brand awareness
-Premium pricing structure might prevent high market penetration due to price sensitive customers
-Unclear direction, role and authority of Sterling’s management might create confusion and generate objectives/targets that would not be aligned with company’s goal/mission.
Proposed Billing Method
If we decide to expand into the UK, charging a very high premium price will not be very beneficial for Sterling in a market that is extremely price sensitive and that might have no need for the Mark Maker in the future. Sterling must adapt a competitive price and incentive structure, which will enable it to compete with Jordan, Bolson and Others and force its sales team to generate above-average returns. I suggest selling the Mark Maker at a maximum price of £8.50 ($17.85 Cdn), which will allow Sterling to earn a satisfactory profit.
Segment Penetration
“Optimistic” Approach:
Assuming that Sterling will attack the UK market with great force, offer lucrative sale, £1.50 off the regular price of £8.50, on the Mark Maker and achieve high penetration level, matching its domestic level of 67%, Sterling would sell (172,000*0.67) 115,240 units of the Mark Maker. At £7.00 per unit, Sterling would generate revenue of £806,680 or $1,694,028 Cdn.
“Probable” Approach:
Assuming that Sterling will be a bit more conservative and aim to only compete with suppliers other than Jordan and Bolsom, still offer the lucrative sale, £1.50 off the regular price of £8.50, on the Mark Maker, and achieve medium penetration level of 17.5%, Sterling would sell (172,000*0.175) 30,100 units of the Mark Maker. At £7.00 per unit, Sterling would generate revenue of £210,700 or $442,470 Cdn. Achieving sales of 30,100 units is approximately 10X as many units as Sterling is currently providing to Jordan, which indicates a probable scenario.
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“Pessimistic” Approach:
Assuming that Sterling will not be able to penetrate the market due to the loyalty among producers and suppliers regardless of any sales or product quality and only achieve low penetration level of 5%, Sterling would sell (172,000*.05) 8,600 units of the Mark Maker. At £7.00 per unit, Sterling would generate revenue of £60,200 or $126,420Cdn.
Key Success Factors
The following are critical factors that will promote Sterling as a successful international business and they include: Attractive/Competitive Price; Excellent Service; Motivated Sales Force; Brand Awareness; Unique/Innovative/Superb Product;
EVALUEATION OF ALTERNATIVES:
“Status Quo”
Under status quote Sterling will not expand internationally. Sterling will be able to focus closely on its internal/organizational structure and issues, and follow its distressed US business. Sterling will fail to achieve higher production and revenues. Sterling’s presence in the UK market would remain extremely low with a total number of Mark Maker units sold equaling 3000. Additionally, Sterling’s reputation would continue to be severally damaged as a result of poor die manufacturing by Jordan, which could potentially harm Sterling Mark Maker’s brand identity in other parts of the world.
“Exporter”
Important aspect to keep in mind is that under this scenario Sterling is assuming that it will become the sole provider of Mark Makers in the UK. It is irrational to expect to dominate the entire market upon entry. While Sterling would be able to meet UK’s demand, it would face some fearce competition especially from UK’s top seal producers, which include Jordan and Bolsom, who have very loyal customers. Furthermore, duty, taxes and other regulatory exporting barriers would significantly lower Sterling’s potential revenues. On the positive side, Sterling would not be giving up its core competency (computer technology) and the threat of patent duplication resulting in a potential domestic branch failure would not exist. Additionally, Sterling would be able to test the market with its problem without high-risk exposure.
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“Licensing”
This option possesses a threat to one of Sterling’s core competencies, which is its state of the art computer technology. It would not be in Sterling’s best interest to proceed with this alternative, as UK’s MBF McFarlane would be more than happy to become a significant player in the UK market thanks to the help of Sterling’s computer technology, which it would acquire through licensing with Sterling.
“Sterling UK Branch”
By developing their own branch in the UK, Sterling’s management could directly oversee its operations. Sterling’s delivery time to market would substantially improve as it would not have to import from overseas, but rather produce locally. Additionally, Sterling could potentially expand its lines of business in the UK. The downfall to a local branch is that it requires extensive initial capital investment and that there is an exchange rate risk. Furthermore, the threat of duplication is of the highest concern to Sterling. A slight difference in the shape of the Mark Maker could result in a great loss, especially if one of the leading seal producers would be the duplicator, as they would already have a high market share and customer loyalty, therefore, very much eliminating Sterling’s competition.
RECOMMENDATIONS & ACTION PLAN:
Based on our analysis of alternatives, we believe that Sterling should proceed with international expansion via exporting. This method will prove to be the most beneficial for Sterling based not on the revenue, but rather on the high-risk exposure associated with other alternatives.
Sterling should immediately cut ties with Jordan so that further reputation damage would not occur. After it should concentrate on penetrating the UK market via sales to small name search houses, offering them discounts as mentioned above. Once Sterling gains additional market shares it might perform additional research and analyze other means of international competition.
