full version Wafex Company Analysis Essay

Wafex Company Analysis

Category: Business

Autor: jack_X 14 November 2009

Words: 3687 | Pages: 15

WAFEX
CASE ANALYSIs


INTRODUCTION

Wafex is a wholly owned Australian business involved in the horticulture industry since the year 1990. The company is presently Australia’s leading exporter to flower importers and wholesalers domestically and around the world, with expertise in providing Australian native wildflowers both fresh and dried varieties. Wafex’s business strategy is to be proactive in selling, with a strong customer focus, and continually looking for opportunities to add value to its services. The company and its owners are aware of the importance of exporting for the survival and expansion of the company; and also believe quality and time to market are important factors in gaining a competitive advantage in the international market.

The purpose of this case analysis report is to discuss Wafex’s feasibility of entering the China market; identify Wafex’s target market; consider a suitable marketing mix for the company’s upper socio-economic target market; discuss possible environmental factors in Australia that can affect Wafex; and an explanation on why Wafex have strong personal relationships with both suppliers and customers.











(Q1.) The feasibility of wafex entering the china market

Wafex presently export to over 16 countries (Wafex, 2006)1 that include Japan, USA, and Taiwan, and it can be assumed that the company persist to look for more opportunities to expand its exporting business overseas, such as the prospect of entering the China market. The viability of Wafex entering China is negative, although Wafex may possess certain strengths however there are major threats, which may hinder the company’s feasibility of entering China.

STRENGTHS AND OPPORTUNITIES

The uniqueness of Wafex’s products ―Majority of exported products are all exclusively Australian grown, which gives the company a competitive edge against competitors when entering China market.

China’s entry into the World Trade Organisation in 2001 has opened up many opportunities for Wafex. The company could capitalise on the increase in their Asian market size: Japan, Taiwan, Singapore, Hong Kong, Korea, and potentially China.

Under the Australian-China Agricultural Cooperation Agreement, Wafex has been given funding by the Federal Government to pioneer the trade delegation to China, giving them an artificial competitive advantage over competitors in other countries (Maarschalk, 2004) . This funding gives Wafex the opportunity to research and develop new varieties of flowers and products that Chinese customers demand for.

Promotion of Wafex in the China market may not be as costly since the positive reputation of Wafex has been spread to China from Japan, thus reducing advertising costs. However, additional information is needed in understanding the Chinese culture and values and forms of promotional mix that attracts this market.

China has a system of modern transportation with shipping ports, road and rail networks (TravelChinaGuide.com, 2008) , Wafex’s logistic providers can take on the opportunity to form networks with China’s air/sea freight transportation networks, and thus create possibilities of negotiating transportation costs to China.

THREATS

There is a high possibility that Wafex will face strong competition when entering the Chinese market as other foreign competitors have the ability to produce Australian native products at a much cheaper price (Maarschalk, 2004)2.


China is a possible threat as a strong competitor to Wafex:
China has low cost labour and greater accessibility to the Japanese and other Asian markets.

China had an estimated 60,000 hectares of land under cultivation for flowers and foliage in 1994, oppose to Australia with only 3940 hectares in 1993 (International Labour Organisation, 2008) .

The Chinese government has “Committed to help build the infrastructure necessary to make the country a cut-flower export powerhouse. China has more hectares in flower production than the rest of the world combined” (Florists’ Review Enterprises, 2006)
China’s export value of cut flowers in 2006 have increased since 1990’s (figure 1), there’s potential it will further rise when the country becomes a �Cut flower export powerhouse’.





Trade Barriers: High tariffs are still maintained on exported products that compete with domestic industries in China (Office of United States Trade Reprehensive) . China’s tax regulations are into conformance with international standards (Parliament of Australia Senate) . Therefore at present, cut flower exports to China carry a 70 percent import tax, including cost of transport, plus a value-added tax of 17 percent (Richard Tomlinson, 1995) .

Large hindrances to Wafex increasing their market share are― increase in transport cost and fuel prices; airport expenses on security due to high security in airports since the terrorist attacks; and implementation of bio-terrorism laws.

The appreciating Australian dollar has a negative effect for Wafex exports, due to it slashing the returns for the company. There may be a possibility that Australian exported products in China are twice expensive when purchased by wholesalers/importers, thus influencing China market to purchase cheaper priced products from foreign competitors.

Overall, Wafex targeting the Chinese market is not a feasible option, because of many barriers that Wafex could face if exporting to China. Also China may become a powerful competitor of Wafex in the future; since China’s economy is strengthening, thus allowing them to develop their own flower industry and may outsource in regions such as Australia as well as invading on Wafex’s markets and attract some of Wafex’s resources (Maarschalk, 2004)2.






(Q4.) Wafex’s Target Markets

WAFEX Australia has had an international focus for its business strategy in the expansion and survival of the company given its core products are sold to a niche market such as the upper socio-economic strata — this segment has high purchasing power to buy Wafex’s unique but relatively expensive range of Wildflowers. Nevertheless, there are other markets that Wafex target their products to, these include:
Importers and wholesalers (e.g. florist retailers and supermarkets) in the overseas markets: Japan, USA, Taiwan, Hong Kong, Singapore, Netherlands, Switzerland, and Korea.
Corporate offices
Large hotels
Fashion-conscious markets ―Wildflowers are exotic and fashionable products thus making them to become a fashion fad. A possible niche market for Wafex.

Kotabe, et al. (2005, p.227) identified three ways in developing strategies in a broad product market―
1. Single target market approach: Selecting one homogeneous segment as the target; e.g. grouping all of Wafex’s target countries and regions among countries into a homogeneous segment; and developing and using only one marketing mix.
2. Multiple target market approach: Selecting two or more target segments and developing different marketing mix for each, e.g. upper-socio economic segment and fashion-conscious market.
3. Combined target market approach: Combining submarkets into a single target market and developing one marketing mix for the combined market, e.g. combining Japan’s upper-socio economic segment and the corporate offices/large hotels segments into one market; the Japanese market.

Considerations of whether to target Wafex’s markets separately or combining them relates back to standardisation and customisation/differentiation of products and marketing mix. Standardisation is a strategy of offering a uniform product across region or worldwide, with minor modifications to meet local regulations (Kotabe et al., 2005, p.168)9. For example, the same product is exported to various markets as it is. Customisation however, is a strategy that focuses on cross-border differences in the needs and wants of the company’s target consumers (Kotabe et al., 2005, p.168)9, for example modifying and adapting the product to meet specific needs of the different markets. There are several advantages and disadvantages for both standardisation and customisation, in which can assist Wafex’s management to decide as to whether to implement a single/combined market approach with a standardised strategy (table 1.0); or implement a multiple (separate) target market approach with a customised strategy (table 1.1).
ADVANTAGES & DISADVANTAGES OF STANDARDISATION
ADVANTAGES DISADVANTAGES
Achieve economies of scale of production. For example, it allows greater degree of automation and mass production to save labour, material and R& D costs. Achieve economies of scale in terms of global advertising by communicating consistent brand image and symbols, results to Marketing standardisation Standardisation and uniformity makes for simpler management e.g. in inventory control and production management. Global branding Use of global advertising has benefits of crossfertilisation and spillover effects. Marketing flexibility is loss due to the needs for overseas distributors or subsidiaries to conform to company’s agreed practice. Needs of individual markets or local preferences are ignored, hence restricts company’s ability to compete for bigger foreign market share.In terms of global advertising: Linguistic barriers, cultural diversity Legal regulations and constraints, taboos Production and Media limitations Market maturity, differences in product lifecycle stages.
Source Ing, L 1990, Fundamentals of International Marketing 2nd ed., p.115-116; Kotabe, M., et al. 2005, International Marketing: An Asia Pacific focus, p.352.
ADVANTAGES & DISADVANTAGES OF CUSTOMISATION
ADVANTAGES DISADVANTAGES
To meet the specific needs and requirements of the particular market e.g. small niche markets such as the Chinese minority in USA. To meet and adapt to local regulations, cultural differences, values, and languages. Allows local innovation and the exercise of initiatives by distributors or a company’s overseas staff. Local expertise represents a company’s valuable asset, which can significantly contribute to success. Retooling and other modification costs Marketing cost is also increased because of the need to produce different promotion and advertising materials to suit each market segment; also an increase in the need to keep an inventory of a larger variety of stocks. More difficult to develop a global company image or brand identity because of cost and other restraints.
Source Ing, L 1990, Fundamentals of International Marketing 2nd ed., p.116-117.

It is evident that a single/combined target market approach using a standardisation strategy is the best option for Wafex. A standardised product is the easiest to sell abroad logistically, because the firm incurs no additional manufacturing costs and is able to use the same promotional messages across different regions in different countries across the world (Kotabe et al., 2005, p.425) 9. Wafex being a small firm with strict budgetary control, the standardisation strategy would definitely benefit the company. Also recommendations can be made that rather than customising its products to meet specific needs, Wafex is better off using the available resources to improve the quality of existing products or enhance their promotions to persistently capture their niche market such as the upper socio-economic segment.




( Q5.) Wafex’s Marketing Mix For A Market Segment


The upper socio-economic market ― one of Wafex’s major target markets, will be used in terms of analysing and considering a marketing mix for this segment. This group is made up of employing groups, large landholders, and some self-employed people, higher administrative and managerial such as CEOs and top-level executives of a corporate office or owners of large hotels. They possess a high purchasing power, prestige lifestyle, and a position of power in the society, and are a quality-conscious market (Neal, Quester and Hawkins, 2006, p.496) .

PRODUCT MIX

A product mix is the total group of products that an organization makes available to customers (Pride et al., 2006, p.201) . The product mix can be described using two dimensions — the width (e.g. number of product lines offered by company) and the length (e.g. number of different product items offered in each product line). In the case of Wafex, the depth of its tangible product mix consist of a large variety of Australian native wildflowers, both fresh and dried, in whereby this variety is widened by seasonal availability. Other relevant parts of the product strategy other than design, is the quality and packaging of the product, in which all of the three contribute to consumers’ perceptions about the product (Belch & Belch, 2007, p.59) .

Most upper class consumers are quality-conscious of the products they purchase. So, Wafex has continued to take consideration of this issue, and makes sure all exported products are of the best quality for Wafex’s major target markets including the upper class market. In fact, Wafex believes that quality is an important factor in gaining a competitive advantage in the international market, and thus has taken initiatives in implementing a �Quality Assurance’ program. This program ensures 100% focus on all flower handling/despatch procedures and 100% trace ability on all flower shipments; ensuring flowers are packaged safely using an ethylene box liner to maintain the quality of the product (Wafex, 2006)1. The program also ensures packing facilities feature up to date handling, cool-storage and pre-cooling facilities. As a result, Wafex’s upper class market definitely acknowledges that “Quality and Performance” is the WAFEX motto and goal (Wafex, 2006) 1.
DISTRIBUTION (PLACE) MIX
The distribution component of the marketing mix links to logistic planning, in which decisions and actions are involved in making products available to customers when and where they want to purchase them (Pride et al., 2006, p.201)11. Wafex distributes it products through indirect channels, usually using a network of wholesalers and or retailers (Belch & Belch, 2007, p.62)12, such as florists, who sell primarily to one of Wafex’s markets; the upper socio-economic segment. However, as mentioned in the case study, Wafex had to reassess their distribution channels and plan alternatives to deal directly with end retailers such as supermarkets and florists due to the rapid changes in channels where the traditional grower-exporter-importer-wholesaler-retailer was being replaced by more direct methods. It is assumed that Wafex is involved in supply-chain management, which is defined as “Long-term partnerships among marketing channel members that reduce, inefficiencies, cost and redundancies and develop innovative approaches to satisfy customers” (Pride et al., 2006, p.319)11. In this case, to provide efficient and quality service, Wafex should continue to be members with Wholesale Florist & Florist Supplier Association, Australian Flower Export Council and Wildflowers Australia; and work closely with these operational networks to access key markets and expand its overall exporting operations. Also, Wafex continues to have a supply-chain network in terms of physical distribution of its products, with dedicated shipping and airfreight companies to support them in ensuring the shortest possible delivery time.

The most used distribution channel to sell Wafex’s products to its markets through florist retailers and supermarkets. Therefore recommendations can be made that a more possible way of attracting and distributing to the upper socio-economic market is by the company exporting their flowers directly to more sophisticated, popular and professional florist outlets that are perceived by this market to be most suitable of their prestige lifestyle. Also, since this market includes people that are CEOs of corporate offices or hotels, Wafex can take on the opportunity to showcase their products in business and hospitality trade shows and offer Australia wildflower samples to interested offices or hotels to consider Wafex as a future supplier of their floral decoration in their businesses.


PROMOTION/COMMUNICATION MIX
The promotion mix, defined as a combination of promotional methods used to convey and promote a specific product to prospective customers (Pride et al., 2006, p.387)11. The communication mix elements include advertising, direct selling, sales promotion, event sponsorship and trade shows. Presently, Wafex has various affiliations with organizations that not only assist Wafex with its exporting operations but also provide support with marketing programs for its domestic and overseas markets. These organizations include the Australian Flower Export Council, Austrade, Wholesale Florist & Florist Supplier Association, Flower Association of Queensland Inc., and Wildflowers Australia. Wafex implements the push strategy for the promotion of its products. The push strategy involves the company promoting the products to the wholesaler, who in turn promotes to the retailer and whereby this marketing channel will then promote directly to the consumers.

To better attract the upper class market towards Wafex’s products, a recommended promotional program that employs the elements of advertising, direct selling/marketing and trade shows is considered. Through Wafex receiving continuous assistance with marketing from Austrade through Export Market Development Grants and other associated organizations, Wafex can advertise their products in specific magazines that interest upper class markets such as lifestyle and business magazines. It’s also recommended that Wafex should consider looking at being affiliates with Telefora, a well-known network of worldwide florists who also conduct advertising campaigns for flower companies such as Fast Flowers so to have a reputable marketing channel.

Direct marketing can also be an effective tool since it’s growing very rapidly internationally (Kotabe et al., 2005, p.375) 9. The forms of direct marketing that can be utilised are the Internet ― Wafex has its own website in whereby customers can buy online ― and catalogue selling. These two forms of direct marketing are beneficial for customers who have a busy lifestyle and or belong in the upper class market. The benefits are that they can purchase a variety of products without time limitation, and can do it from home. Another promotional elements are trade shows, whereby as mentioned, Wafex should take on the opportunity to showcase their products in business and hospitality trade shows. The reason to this is because not only would Wafex be marketing their products to corporate offices and large hotels’ markets but will encounter promoting to affluent personnel attending the event. Wafex can also use sales promotion at the event in the form of offering Australian wildflower samples to potential and interested consumers.



















(Q3.)The Importance Of Personal Relationships and Networks

The case study mentions that Wafex is committed in maintain close and strong personal relationships with both customers and suppliers both at home and overseas. Personal relationship also known as interpersonal relationship can be described as a form of mutual trust and understanding, dependency, reciprocity, loyalty, confidence, mutual alliance between the company and its suppliers and customers (Kotler, 1991). Developing and maintaining strong personal ties and networks are beneficial for the company as it can result in economic growth for the business as well as customer loyalty.
This strategy of developing and maintaining strong relationships with both customers and suppliers should not be used identically in a domestic to an international business situation, unless the management and its representatives are fully aware that �business negotiations’ and the formation of �personal relationships’ are perceived and exercised differently in most countries other than the company’s home country. For example in most Asian countries like China, before successful business negotiations are to take place, there needs to be some form of mutual trust and understanding already built between the negotiating parties (Parliament of Australia Senate, 2008) . So to successfully develop strong relationships and networks with overseas markets, a company must have vast knowledge and understanding about each target countries culture, values and business customs and practices. So in the case of Wafex, it can be assumed that the company has in some form taken implemented this step as both business partners are very well travelled persons and this gives them the opportunity to not only gather relevant information about the international cut flower market but also get firsthand understanding and knowledge about each countries culture etc, through travelling. Also, they get firsthand knowledge of overseas market opportunities and develop a wide range of personal contacts in foreign markets.


(Q. 2) Environmental Variables Potentially Affecting Wafex


Australia’s overall horticulture industry is continually threatened by several environmental factors, thus potentially affect Wafex’s supply of native wildflowers for their exporting business to both domestic and international markets. The environmental challenges that domestic growers of wildflowers in Australia face relate to:
Soil condition ― soil erosion, and soil acidity: soil loss and acidification permanently reduces the productive capacity of agricultural and horticultural lands.Erosion mainly occurs when soil particles are washed or blown from one site to another (Government of South Australia, 2006) .
Pest and disease outbreaks ― insect infestations
Climate conditions ― droughts, flooding, bushfires
Most environmental factors are uncontrollable, though contingency plans can be implemented to at least minimise or prevent some environmental variables from developing. These are:
Erosion Contingency Plan
Implementing and increased adoption fo improved land management practices such as: direct drill sowing and no-till sowing
Use the land in accordance with its capability
Protect the soil surface with some form of cover
Prevent and control runoffs before it develops into an erosive force
(Queensland Government― Natural Resources and Water, 2008)

Drought Contingency Plan
Most States in Australia have implemented a Drought Management Plan. It is recommended that this plan should be taken seriously and be implemented and monitored regularly. The purpose of the plan is to reduce the potential impacts of drought by identifying principle activities and groups at risk and developing mitigation actions and programs that alter these vulnerabilities. The plan proposes actions such as:
Consistent management of current sources such as river management
Monitoring rainfalls and water quality
Water restriction management― All residents in most Australian States must abide to the States water restriction level. Warnings and fines are issued to property owners who breach the restrictions.
Another reccommendation is that more greenhouses should be built for both agricultural and horticultural industries. This is because greenhouse production allows a greater value of production per given area, and that growing undercover has many advantages for both the grower and environment, such as;
Greenhouse crops are less likely to be damaged by weather.
Can adjust growing conditions to minimise pest and disease problems to and to control crop development.
Integrate pest and disease management more effectively and the ability to grow out-of-season flowers (NSW Agriculture, 2001) .
Pest Outbreak
Insect infestations in the flowrs and foliage can cause importing countries to reject consignments. Thus a reccommended contingency plan for pest outbreaks is by continuously and effectively implementing the Pest Management Plan that already exist in Australia’s Agriculture industry; in which this plan includes actions such as weed control and safe and effective use of chemicals. Also another reccommendation is the use of Phosfume, a form of insecticidal treatment for flowers and plants.



Conclusion

In conclusion, to successfully remain as Australia’s leading Exporter in wildflowers in the future, Wafex should continue to build strong personal relationships with all its customers and suppliers; persistently adhere and achieve its business strategy, which is �to be proactive in selling, with a strong customer focus, and continually looking for opportunities to add value to its services’; and to maintain its reputation of maintaining and providing high quality products to its markets. Also, through the completion of this case analysis, it was identified that the China market is not a feasible option for Wafex to target; and that addvertising on magazines, direct marketing, sales promotions and trade shows are the most effective promotional tools for Wafex to use to attract their upper socio-economic markets.