Global Market Opportunity In The Olive Oil Industry: The Case Of Baser Food

Table of Contents

TOC o “1-3” h z u HYPERLINK l “_Toc289610282” GLOBAL MARKET OPPORTUNITY IN THE OLIVE OIL INDUSTRY: THE CASE OF BASER FOOD PAGEREF _Toc289610282 h 1

HYPERLINK l “_Toc289610283” Section I: The Growth, Development and Structure of the Global Olive Oil Market and Baser’s SWOT Analysis. PAGEREF _Toc289610283 h 3

HYPERLINK l “_Toc289610284” 1.0 Executive Summary PAGEREF _Toc289610284 h 3

HYPERLINK l “_Toc289610285” 2.0 The growth, development and structure of the global olive oil market PAGEREF _Toc289610285 h 4

HYPERLINK l “_Toc289610286” 2.1 An Overview of the selected Uppsala Internationalization market PAGEREF _Toc289610286 h 4

HYPERLINK l “_Toc289610287” Based on the above theoretical and operational levels, the olive oil market can be analyzed as follows: 2.2 At the theoretical level PAGEREF _Toc289610287 h 5

HYPERLINK l “_Toc289610289” 2.3 At the operational level PAGEREF _Toc289610289 h 5

HYPERLINK l “_Toc289610290” 3.0 Baser SWOT Analysis PAGEREF _Toc289610290 h 7

HYPERLINK l “_Toc289610291” 3.1 Strengths PAGEREF _Toc289610291 h 7

HYPERLINK l “_Toc289610292” 3.1.1 The Existence of Its Key Brand(S) PAGEREF _Toc289610292 h 7

HYPERLINK l “_Toc289610293” 3.1.2 Presence of International Olive Oil Organizations PAGEREF _Toc289610293 h 7

HYPERLINK l “_Toc289610294” 3.1.3 Existence of a Wide Market PAGEREF _Toc289610294 h 7

HYPERLINK l “_Toc289610295” 3.1.4 Efficient distribution network PAGEREF _Toc289610295 h 8

HYPERLINK l “_Toc289610296” 3.1.5 An Efficient Hardworking Staff PAGEREF _Toc289610296 h 8

HYPERLINK l “_Toc289610297” 3.1.6 Readily Available Raw Materials PAGEREF _Toc289610297 h 8

HYPERLINK l “_Toc289610298” 3.2 Weaknesses PAGEREF _Toc289610298 h 8

HYPERLINK l “_Toc289610299” 3.2.1 Weak Home Economy PAGEREF _Toc289610299 h 8

HYPERLINK l “_Toc289610300” 3.2.2 Little Financial Capability PAGEREF _Toc289610300 h 9

HYPERLINK l “_Toc289610301” 3.2.3 Inability to “Mass Produce” PAGEREF _Toc289610301 h 9

HYPERLINK l “_Toc289610302” 3.3 Opportunities PAGEREF _Toc289610302 h 9

HYPERLINK l “_Toc289610303” 3.3.1 An Increasing Olive Oil Market PAGEREF _Toc289610303 h 9

HYPERLINK l “_Toc289610304” 3.3.2 Continued Expansion PAGEREF _Toc289610304 h 9

HYPERLINK l “_Toc289610305” 3.3.3 Favorable Environmental and Climatic Conditions PAGEREF _Toc289610305 h 10

HYPERLINK l “_Toc289610306” 3.3.4 Increasing Health Conscious Societies PAGEREF _Toc289610306 h 10

HYPERLINK l “_Toc289610307” 3.3.5 The Variety of Benefits Associated With Olive Oils PAGEREF _Toc289610307 h 10

HYPERLINK l “_Toc289610308” 3.4 Threats PAGEREF _Toc289610308 h 10

HYPERLINK l “_Toc289610309” 3.4.1 Stiff Competition From Rivals PAGEREF _Toc289610309 h 10

HYPERLINK l “_Toc289610310” 3.4.2 Rising Inflation Levels PAGEREF _Toc289610310 h 10

HYPERLINK l “_Toc289610311” 3.4.5 The “Expensive” Name Tag Associated With Olive Oil Products PAGEREF _Toc289610311 h 11

HYPERLINK l “_Toc289610312” 3.4.6 Existence of Relatively Cheap Edible Oils PAGEREF _Toc289610312 h 11

HYPERLINK l “_Toc289610313” 3.4.7 Olive Flies PAGEREF _Toc289610313 h 11

HYPERLINK l “_Toc289610314” 3.4.8 Poor Harvesting Ppractices PAGEREF _Toc289610314 h 11

HYPERLINK l “_Toc289610315” 3.4.9 Inadequate Government Support PAGEREF _Toc289610315 h 11

HYPERLINK l “_Toc289610316” 1.0 Introduction PAGEREF _Toc289610316 h 11

HYPERLINK l “_Toc289610317” 2.0 The Adoption of Exporting Model PAGEREF _Toc289610317 h 12

HYPERLINK l “_Toc289610318” 4.0 Conclusion PAGEREF _Toc289610318 h 16

HYPERLINK l “_Toc289610319” 5.0 References PAGEREF _Toc289610319 h 17

Section I: The Growth, Development and Structure of the Global Olive Oil Market and Baser’s SWOT Analysis.1.0 Executive SummaryThe olive oil industry has experienced increased production levels across the globe in recent times. The producers of olive oil have expanded from large manufacturers to incorporate some large supermarket chains hence increasing the already existing stiff competition in the industry. This has called for the need for organized marketing in the industry since as The Olive Oil Source (2011) puts it, “the best oil is useless if you don’t have buyers for it.” In order to address the existing stiff competition, many marketing strategies have been adopted by both the manufacturers and their member associations.

This study therefore aims to analyze the growth, development and structure of the global oil market using chosen marketing theories. The study will proceed to perform a SWOT analysis for Baser Food Company.

2.0 The growth, development and structure of the global olive oil market2.1 An Overview of the selected Uppsala Internationalization marketThe global olive oil market can be based analyzed using the Uppsala Internationalization Market which, according to Buckley and Ghauri (1999), seeks to explain and predict two aspects involved in the internalization of a firm: i) the step by step pattern of institutional development within individual national markets; and ii) the expansion of firms across national markets as they move from nations which are proximal to those which are increasingly psychically distant (p.166).

The theoretical and operational levels of this model can be as summarized in the below diagram

38195251430020Psychic distance:

Firms choose new markets; markets characterized with increasing psychic distances

Psychic distance:

Firms choose new markets; markets characterized with increasing psychic distances

2266950439420THEORETICAL LEVEL

THEORETICAL LEVEL

22669502153920OPERATIONAL LEVEL

OPERATIONAL LEVEL

-190501353820Establishment chain:

Firms do not engage themselves in regular export activities

They service markets via selected agents

Performs sales subsidiary

Perform production subsidiary

Establishment chain:

Firms do not engage themselves in regular export activities

They service markets via selected agents

Performs sales subsidiary

Perform production subsidiary

4057650715645Firms study current activities

Firms study current activities

4000500182245Managements make commitment decisions

Managements make commitment decisions

266700715645Managements commit themselves to the markets

Managements commit themselves to the markets

266700106045Olive oil firms seek/gather market knowledge

Olive oil firms seek/gather market knowledge

Based on the above theoretical and operational levels, the olive oil market can be analyzed as follows: 2.2 at the theoretical levelThe Uppsala model emphasizes that the expansion process initiates with firms seeking knowledge on the existing potential markets. In the same way, olive oil firms expand by managements doing visibility studies in potential markets for expansion. This is shown when Mr. Ahyan, the sales director at Baser food company is allocated the task of comparing and analyzing the existing potential markets of Australia and USA. To make sure that a right expansion market is selected, Mr. Ahyan incorporates the assistance of his juniors and boss, Mr. Mehmet Baser (Sriram & Bilgin 2003, p.14). The market is also characterized by firms making intensive study activities for instance; Baser Food Company’s CEO mr. Mehmet makes intensive studies on the available ways for Turkish olive firms to approach into new markets. He studies the option of major Turkish producers creating a joint fund with their government to accelerate demands. He rules out this option on the fact that this would take long to be effected by the concerned stakeholders (Sriram & Bilgin 2003, p.14).2.3 at the operational levelAt this level, the Uppsala model emphasizes that firms do not engage in direct export activities, service markets via selected agents, perform sales and production subsidiaries and choose markets based on psychic distances. In the same way, the olive oil market is dominated by firms selling their products to foreign countries through use of agents. For instance, Baser Foods had employed the use of two agents to market and sell its products in the USA. In addition, Majority of olive oil firms across the world employed the use of exclusive distributors in their foreign supply chains. This meant that rival olive oil producing countries could not share the services of similar distributors.

The global olive oil market is characterized by olive oil firms concentrating themselves in traditional olive growing areas of the Mediterranean. Countries that were the largest growers for instance, Algeria and Brazil, also topped up as the largest producers of the olive oil (Sriram & Bilgin 2003, p.5-6). According to the Uppsala model, most business firms concentrate themselves in their traditional backyards to avoid the uncertainties considerably associated with entering into foreign markets (Buckley & Ghauri 1999, p.166). In the case of olive oil market, these uncertainties may include amongst others shifting consumer demands to other edible oils for instance, the sunflower oil, stringent regulations in some countries for instance, USA and preferential treatments offered to produces from specific regions for instance, olive oil from Italy. The global olive oil market has been characterized by many customers developing strong preferences to quality, taste and color. Sriram and Bilgin (2003) stated that the varying climatic conditions across the world led to olive oil customers developing strong preferences to olives from certain places of the world (p.2).

Olive oil market is also characterized by firms first expanding to markets that are geographically and culturally proximate to their home markets before expanding their operations to markets characterized with successively geographical and cultural distances. This concept in the Uppsala model is commonly referred to as the ‘psychic distance’. This concept is demonstrated in the Baser case study when the company establishes a strong presence in its traditional Turkey homeland before gradually expanding into Far East and the Pacific Rim, including Japan, Australia, Taiwan, and Malaysia (Sriram & Bilgin 2003, p.14).

3.0 Baser SWOT Analysis3.1 Strengths3.1.1 The Existence of Its Key Brand(S)Baser established the Cavallo D’Oro brand which continues to be highly attractive to many customers across global markets where it has been introduced. Sriram and Bilgin (2003) had noted that the brand had gained strong recognition due to its attractive packaging and its strong image (p.9). The two scholars also go ahead to postulate that Bayer had gone ahead to establish MedOlive brand at the insistence of one of its multiple distributors in Hungary and Israel who objected to sharing the Cavallo d’Oro brand name. The Cavallo d’ Oro brand name was chosen specifically to win on the strong preferences many oilive oil consumers gave to the Italian-sounding olive oils (Sriram & Bilgin, 2003, p.9).

3.1.2 Presence of International Olive Oil OrganizationsBaser had joined international olive oil organizations for example The North American Olive Oil Association which provided it with promotional support. Moreover, the existence of International Olive Oil Council (IOOC) and the California Olive Oil Council (COOC) has created awareness among consumers on the use of olive oil in the USA and the neighboring states. These organizations have initiated campaigns that create awareness on the use olive oil across the world hence increasing the consumer market for the product.

3.1.3 Existence of a Wide MarketThe variety of benefits associated with olive oil have availed an expansive market network for Baser to operate in. Baser’s expansive market incorporates United States, Italy, Spain, Venezuela, Russia, Poland, Georgia, South Korea, Canada, Saudi Arabia, Malaysia and Ukraine (Sriram & Bilgin, 2003, p.10). In addition to the above, the company’s sales and marketing director, Mr. Ahyan, is also considering establishing an active distribution network in the Far East, Japan and Taiwan (Sriram & Bilgin, 2003, p.11).

3.1.4 Efficient distribution networkSriram and Bilgin (2003) concurred that Baser had employed exclusive distributors who were not permitted to represent other companies’ products (p.10). These have also acted as strength for the company.

3.1.5 An Efficient Hardworking StaffOther than the ever hardworking Ahyan, Baser employed two additional managers and two support staffs at its Istanbul headquarters. These assistants followed up and monitored Baser’s plans as well as representing it at many international food shows around the world (Sriram & Bilgin, 2003, p.10). It is also acknowledged that since the top management of Ayhan and Mehmet had travelled regularly to foreign markets and created strategic plans, they had come to exercise patience when it came to making key decisions for the company.

3.1.6 Readily Available Raw MaterialsThe improved of climatic conditions in Turkey and the increased planting of new trees had encouraged olive oil production in the country. Also, increased tree care had raised production levels (Sriram & Bilgin, 2003, p.2). The harvested olives provided ready raw materials for the firm.

3.2 Weaknesses3.2.1 Weak Home EconomyCompared to other European countries, Turkey’s economy has existed as a relatively weak economy thus making it hard for Baser Food to compete successfully with firms that operate in strong economies for instance, those in USA. Baser Food Company was traced its motherland back to Turkey, a country which had been going through its worst recession in its history (Sriram & Bilgin, 2003, p.3). The country’s wholesale price index had also rapidly risen by 51.4% while its consumer price index had risen to a high of 54.9% (p.10).

3.2.2 Little Financial CapabilityThough Baser had spread its network in over 20 countries, the company still lacked the strength to pose a competitive challenge to established competitors in strong economies. This is shown when the company’s top management became confused and scared with the high costs and high risks associated with establishing an active presence in potential markets of USA or Australia. Sriram and Bilgin (2003) had opined that the company’s expansion programme had been held back by its resource constraints which forced it to prioritize (p.11).

3.2.3 Inability to “Mass Produce”Bayer, like any Turkish olive oil firm, had failed to utilize on the existing large volumes of harvested olives. As such, much of this produce was exported to Italian and Spanish countries which re-branded it to re-sell to countries of the World; Turkey included at competitive prices.

3.3 Opportunities3.3.1 An Increasing Olive Oil MarketThe olive oil market continues to widen as more people become health conscious. The market has expanded to incorporate USA, Spain, China, Australia and many other countries. The expanding market is likely to avail a ready market for Baser’s brands.

3.3.2 Continued ExpansionThe company’s top management has made expansion a top priority for the company. This is likely to give the company a competitive edge over its rivals.

3.3.3 Favorable Environmental and Climatic ConditionsThe improved climatic and environmental conditions in Turkey had increased production volumes. This has in provided Baser with ready raw materials.

3.3.4 Increasing Health Conscious SocietiesA growing health-consciousness among some segments of the societies have facilitated the adoption of olive oils across the world as healthy products (Sriram & Bilgin, 2003, p.3). This has helped in widening Baser’s market share.

3.3.5 The Variety of Benefits Associated With Olive OilsOlive oils have gained popularity due to a variety of benefits associated with them. Some of these benefits include the provision of basic fatty acids necessary for the body and the provision of high caloric value; besides some basic vitamins such as A, D, E and K (Sriram & Bilgin, 2003, p.3).

3.4 Threats3.4.1 Stiff Competition From RivalsBaser’s Cavallo D’Oro brand faced stiff competition both within Turkey and the international Markets. In Turkey, the brand received stiff competition from major brands that included Komili, Kristal, Bizim and Luna (Sriram & Bilgin, 2003, p.5).

3.4.2 Rising Inflation LevelsThe rising energy prices across the World have led to the emergence of a financial crisis which has caused high inflation rates across the World. Turkey’s economy has been no exception. Sriram and Bilgin (2003) argued that as a result of Turkey’s economic crisis, some olive oil consumers had been switching to cheaper brands (p.5). These effects are likely to lower Baser’s market share. Its production costs are also likely to increase in prices eating into their profits.

3.4.5 The “Expensive” Name Tag Associated With Olive Oil ProductsOlive oils have come to be associated with high prices and as such many lower class people have shied away from purchasing them due to their low income levels. This notion is likely to act as a threat to the success of the olive oil industry in Turkey.

3.4.6 Existence of Relatively Cheap Edible OilsTurkeys cooking oil market boasts of readily available and less expensive edible cooking oils such as sunflower and corn. As a result, many customers have shifted to their consumption as the economic crisis persists.

3.4.7 Olive FliesFlies had continued to harm trees thereby decreasing olive tree rates.

3.4.8 Poor Harvesting PpracticesThe hitting of olive oil tree branches to release the fruits continued to weaken the trees leading to prolonged regeneration and production periods for the affected trees.

3.4.9 Inadequate Government SupportThis proved to be a setback for the whole of Turkish olive oil sector. Baser Foods was not an execption (Sriram & Bilgin, 2003, p.103).

SECTION II: Using the Exporting Model to Select On Australia as the Most Viable Expansion Market for Baser

1.0 IntroductionThe increased effects associated with globalization have increased competitions amongst firms. In trying to address to these challenges, companies’ top managements have expressed willingness of expanding their activities to reach foreign markets. These companies have adopted different approaches to win on target clients in these regions, increase growth as well as increasing company’s profits. The selection of best market expansion strategies has therefore become of great importance to these companies. Tielmann (2010) avered that in choosing a market strategy, from the cheapest to the most expensive, companies-should, as a matter of fact, align their strategy to their objectives and adopt them to foreign market environments (p.1). Singh (2011) went on to name the following as the 4 models or mechanisms upon which a firm can expand into foreign markets; direct investment, joint venture, licensing and exporting.

In analyzing Baser’s case, this report adopted the exporting model which led to the proposing of Australia as the best potential market upon which the company can expand its activities to. It should be noted that the general market or product expansion strategy was adversely consulted when comparisons were done on the Australian and USA markets.

2.0 The Adoption of Exporting ModelIn choosing the exporting model, Baser will market and directly sale its domestically produced olive oil in Australia. This model is chosen based on the view that being an old and well established model of incorporating foreign markets, Baser stands to benefit from its many advantages. The following are some of the advantages which are likely to accrue to Baser in implementing the use of this model in Australian market;

Baser’s foreign key players will be agents in Australia who will have been familiar with the home market.

The company will have more control over its foreign market activities.

Direct exporting will lead to higher returns for the company (Tielmann 2010, p.7).

Baser will be able to overcome the only disadvantage associated with this model; that of overcoming entry barriers on the market. This is because Baser has already accumulated a lot of international experience having previously indirectly exported its oil products to foreign markets (Gavruchenko et al, 2005). Table 1: Comparing Varoius Entry Modes (Partly Adopted From QuickMBA, 2010)

Mode Conditions Favoring this Mode Advantages Disadvantages

Exporting Limited sales potential in target country; little product adaptation required

Distribution channels close to plants

High target country production costs

Liberal import policies

High political risk Minimizes risk and investment.

Speed of entry

Maximizes scale; uses existing facilities. Trade barriers & tariffs add to costs.

Transport costs

Limits access to local information

Company viewed as an outsider

Licensing Import and investment barriers

Legal protection possible in target environment.

Low sales potential in target country.

Large cultural distance

Licensee lacks ability to become a competitor. Minimizes risk and investment.

Speed of entry

Able to circumvent trade barriers

High ROI Lack of control over use of assets.

Licensee may become competitor.

Knowledge spillovers

License period is limited

Joint Ventures Import barriers

Large cultural distance

Assets cannot be fairly priced

High sales potential

Some political risk

Government restrictions on foreign ownership

Local company can provide skills, resources, distribution network, brand name, etc. Overcomes ownership restrictions and cultural distance

Combines resources of 2 companies.

Potential for learning

Viewed as insider

Less investment required Difficult to manage

Dilution of control

Greater risk than exporting a & licensing

Knowledge spillovers

Partner may become a competitor.

Direct Investment Import barriers

Small cultural distance

Assets cannot be fairly priced

High sales potential

Low political risk Greater knowledge of local market

Can better apply specialized skills

Minimizes knowledge spillover

Can be viewed as an insider Higher risk than other modes

Requires more resources and commitment

May be difficult to manage the local resources.

3.0 A Comparative Analysis Of The Two Markets

The following comparison justifies why Australia was the proposed market for Baser’s expansion. The table compares the strengths and weaknesses identified in the two potential markets; USA and Australia. Deductions are then made from the identified comparisons.

USA Australia

Strengths and opportunities

1. The USA market has over 50 brands. This is likely to offer stiffer competition to Base’s brands.

2. The country has rising olive oil import levels. It can be deduced that Baser stands to gain from this market since its products will be among those imported.

3. Olive oil consumption continues to increase as more people become health conscious. This implies that Baser will have a steady market if it chooses this market.

Risks and challenges

1. The variety of brands in the US markets is likely to stiffen competition leading to Baser experiencing high costs and low returns.

2. A whooping $2 million will be required to carry out a TV and print campaign. To add on the promotional costs, an additional $ 500,000 is needed to be spent in retail promotion. These costs can be too strenuous for a small multinational company like Baser.

3. For Baser to implement the exporting model in this country, it is required to Strengths and Opportunities

1. Relatively high per capita income. This is likely to act as an advantage since more people are likely to afford Baser’s olive oil.

2. The country has stable political and economic systems. These are likely to provide a smooth environment upon which the export trade is likely to flourish.

3. The country’s majority population consists of immigrants who have made foreign brands familiar to them. This is likely to act as an advantage for Baser’s olive oil brands.

4. The company’s olive oil market consists of 95% imports. This is more likely to provide a bigger market for Baser’s products.

5. The market is less competitive meaning that Baser can obtain high margins ranging from 25-30%.

Challenge

From Ahyan Statistics, only a $ 100,000 is needed for off-start. This is a relative little challenge which can be made by the small MNC.

establish stocking units for distribution purposes. Each stocking unit is to cost a total of $ 75,000. This is also appeared too expensive for the small MNC. 4.0 ConclusionFrom the comparisons done above, it is obvious that Baser should prefer to expand into the Australian market rather than the USA market. Though both markets avail a variety of opportunities to this small multi-national corporation (MNC), it is obvious that the strong challenges that the USA market offers are far beyond the reach of this small MNC. These challenges include those of high costs, low returns, high promotional cost and high costs of setting up stocking units. To Baser Food Company, the Australian market will act as a discovery of a new international market with a lot of future opportunities that remain promising.

5.0 ReferencesBuckley, PJ & Ghauri, PN (1999), The internationalization of the firm, 2 edn, Cengage Learning EMEA, Oxford.

Gavruchenko, T, Baltas, G, Fotis, C & Hadjidakis, S (2005), Comparative marketing strategies for organic olive oil: The case of Greece and Holland, Ministry of Agriculture, Greece.

Hassouna, V 2010, Virgin olive oil, Books on Demand, Norderstedt Germany.

Singh, V 2011, Strategic corporate expansion, Valore International, USA.

Sriram, S & Bilgin, Z 2003, Global marketing opportunity in the olive oil industry: The case of Baser Food, North American Case Research Association, USA.

The Olive Oil Source, 2011, Everything but the olive oil, viewed 28 March, 2011, < http://www.oliveoilsource.com/page/business-plan>.

The QuickMBA, 2010, Strategic management, Foreign market entry modes,viewed 28th March, 2011, < http://www.quickmba.com/strategy/global/marketentry/>

Tielmann, V 2010, Market entry strategies: International marketing management, GRIN Verlag, Norderstedt Germany.