Market Entry Strategy of Kraft Foods Group

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1.0 Part 1: Porter’s National Diamond Analysis

Ferdows (2008) claimed that the diamond model is an empirical method for determining any region or nation’s competitive advantage. Such a technique is used to examine the desire of the firm to expand its operations in different markets so as to increase the reputation and popularity. However, in order to create a sustainable position, the organization need to analyze certain factors such as factor and demand conditions, related as well as supportive industries, rivalry and firm strategy as well as structure. However, Porter (2011) criticized mentioning that failure to examine the aspects mentioned above might prove detrimental for the organizations entering new market regions. Considering these aspects, the management of Kraft foods group decided to offer highest attention towards the four major aspects of porter’s diamond model, prior entering the sector of wine of Greece. This is because; the wine industry of Greece is extremely competitive due to the presence of numerous rival players (Levitt, 2008). Therefore, to combat such a challenging scenario, most of the existing players tried to offer varied types of product lines. This is done, so as to satisfy the alternating demands of the customers in order to increase the demand and position of the brands. Apart from this, the factor and demand conditions of the wine industry of Greece are examined with the help of porter’s national diamond analysis.

Market Entry Strategy of Kraft Foods Group

1.1 Factor Conditions

In Greece, the production quantity of wine is quite limited and extending from a decade before. However, in the recent decade, the production quantity of wine is growing to a considerable amount due to the finest and expert human resources. Some of the major wine producing region of Greece are Anchialos, Attica, Rapsani, Limnos, Paros, Kos and many others (Porter, 2011). Just as diverse names, the quality of the wines are also different such as red, dry rose, rose, sparkling, white, dry, red vinde liqueur and many others. Such a diverse variety of wines available within the region of Greece is mainly due to the presence of many types of grapes like robola, debina, savatiano and others (Levitt, 2008). Apart from this, due to the presence of highly advanced technologies as well as machines, Greece became successful in increasing its wine production to a considerable extent due the presence of high-tech machines and techniques of production.

1.1.1 Material Resources

Natural Resource

Greece comprises of numerous landscapes and varied wine producing regions. There are many valleys and plains present within the region that manufactures wines. Pipers River and Coal River near Tamar valley is efficient in watering the grape plants for the development of finest quality of products (Porter, 2011). Moreover, the climate of Greece is typical Mediterranean in nature with warm summers and gentle and rainy winters. However, in the other parts of the year, sunshine remains in the entire region (Ohmae, 2011). Maximum extent of the soil structure of Greece is silty, sandy and rocky in nature. Lime stone is prime aspect of the soil of the country and so it helps in the manufacture of the finest quality of grapes. The major wine producing regions of Greece are shown below:

Figure 1: Wine producing region of Greece

Market Entry Strategy of Kraft Foods Group

(Source: Okoroafo, 2010)

Apart from this, the quantity of resources is also extremely high within the region of the country which acts as a catalyst for the nation. This helps the nation in increasing its position and prosperity regarding wines in the global perspectives as compared to others (Levitt, 2007). Along with this, the capital resource of the nation is also quite high that proved effective in increasing its production quantity to increase the reputation and attractiveness in the market.

Varieties of Wine in Greece:

Greece produces a majority of the varieties of grapes such as Macedonia, thrace, Epirus, thessalia, sterea ellada, Peloponnese and many others. These varieties of grapes helps in manufacturing varied types of wines such as red wines, white wines.

This is mainly due to the Mediterranean climate and rainy winters that helped in the development of the finest quality of grapes (Porter, 2011). Hence the demand and overall selling of the wine product to its excellent taste is higher.

1.1.2 Human Resources:

The education level of the citizens in the region of Greece is comparatively higher as compared to its neighboring nations. So, the rate of unemployment is quite lower rather than others (Porter, 2008). Therefore, the literacy rate of the labors within the region of Greece is lower as compared to its adjoining regions and this acted as a boon for the organisation functioning in the section of wine. However, the skill to handle advanced machines is quite lower among the individual of Greece, but it need to be improved in future (Rugman & Collinson, 2012). Only then, Kraft food group might attract and retain the customers within the concern for the long run, despite of extreme bargaining rivalry.

2.0 Demand Conditions

Other than factor conditions, the demand conditions of the wine industry of Greece also proved quite advantageous in the age of extreme rivalry. In this aspect, there are three prime elements such as demand of the domestic market as well as international market and the pattern of the growth (Quan, 2012).

2.1 Domestic Demand:

The home market of Kraft’s food is United States and the demand of wine is extremely high in it. In the year 2010, approximately, 884 million gallons of wine were sold rather than to brandy. Among it, table wine accounted for 650 million gallons, desert wines are sold of 69 million gallons and sparkling wine is of 37milion gallon. Along with this, the export market of wine of US also increased significantly in the recent decade by 24% to $1.02 billion (Rugman & Girod, 2009). The quantity also enhanced by 1% to 4.12 million hectolitres that proved quite advantageous for the nation. This is because; it proved helpful in increasing the gross domestic product (GDP) and total revenue of the nation in a significant manner. Therefore, the export and import rate of the nation is also quite higher as compared to other regions as shown below:

Table 1: Export and import figures of Wine in Greece

Market Entry Strategy of Kraft Foods Group

(Source: Zarkada-Fraser & Campbell, 2008)

Apart from this, the demand of wine in the region of Greece is also extremely competitive in nature and so Kraft food group decided to develop products as per the taste and preferences of the customers. Only then will the company thrive among several other competing players in improving its brand identity and credibility on the market. Some of Greece’s highly sought-after wines are como, Cyprus, Santorini, thera, white keffesia, red patras and many more. In addition, the number of individual wine buyers on both the U.S. and Greek markets is also quite higher than on others. This also proved extremely effective for the organisations operating in this segment in this age of extreme competitiveness (Yukhanaev, Sharma & Borodin (2014). This became possible mainly because, the customers are of sophisticated nature so; the level of acceptance is extremely higher. The target mass of both United States and Greece is highly adoptive towards the newly introduced products and this acted as a catalyst for the operating firms like Kraft’s Food group. As the result, Kraft’s food group would increase its reliability and dominance in the market leading to improvement of the demand and total sale considerably (Yukhanaev et al. 2014). Hence, the equity of the brand would get increased and it may make a distinct image of the product lines of Kraft’s food group in the market among others. This is because; due to the presence of a wide range of individual and sophisticated buyers, the intention to enter the market of Greece is extremely lower. However, Yip, Loewe, Yoshio (2010) argued stating that failure to analyse the trends and preferences of the market as well as target mass might hamper the prosperity of the firm. Considering this aspect, Kraft food group decided to offer highest attention towards the demand conditions of Greece, prior entering it. It proved quite advantageous for the organisation and hence, the position and market share of the concern might get enhanced to a significant extent as compared to many rival players.

2.2 Internationalization of Domestic Demand:

Another important element of demand conditions is internationalization of domestic demand. As per the views of Taylor & Taylor (2008) internationalization in domestic market helps the customers in presenting varied types of product lines, thereby, increasing the loyalty and reliability considerably. As a result, the profitability of the organisations newly entered in the domestic markets augmented that improved its reputation and operating income. Furthermore, entrance of the foreign firms helps in integration of the product portfolios and the hence the total sale augments. Similarly, certain techniques and policies of the domestic firms are also captured by the international players as well. Therefore, the brand value and sustainability of both the firms increases, despite of extreme bargaining rivalry among the competitors. So, the export rate also increased and it enhanced the economic condition of the nation.

Thus, it may be clearly revealed that both demand and factor conditions are interrelated with one-another in the figure as shown below: However, it may be inferred if that improvement in the demand of the product lines of a specific brand in the domestic market is high then, dedicated focus need to be presented towards the concept of innovation. Innovation would increase the scope to introduce varied types of product lines that may enhance the operating income and loyalty of the brand within wine industry (Rugman & Girod, 2009).

Figure 2: Porter’s Diamond Model

Market Entry Strategy of Kraft Foods Group

(Source: Rugman & Collinson, 2012)

3.0 Related and Supporting Industries:

            The manufacturers of grapes as well as developers of wines are entirely related to one-another. As per the Quan (2012) the organisations related with the manufacture of the wine products are mainly those that supply the resources required for the production of the wine products like grapes, agrichemicals, irrigation equipment, winemaking equipment, bottles and harvesting. The competitive edge of the product of wine in Greece might get improved only if the qualities of the technology used in its preparation procedure may get augmented (Puffer et al., 2012). Along with this, improvement in the operational facilities used for the manufacture of diverse varieties of wine may act positively over the productivity and brand image of the organisations. Apart from this, the level of relationship within the wine producers as well as gap manufacturers in Greece is comparatively low due to inadequate communication rate. Therefore, the unfriendly relationship may prove detrimental for the organisations operating within the region of Greece might get lowered significantly as compared to many other regions of the entire globe. Contrary to the above statement, Puffer & McCarthy (2008) mentioned that accurate bonding and relationship among the manufacturers and developers of wine might prove helpful for the organisations of Greece. It would help in augmentation of the quality of the wines and hence the preference and demand of the wine might also get increased significantly. Hence, the position and brand image of the wine operators within the market of Greece would get improved resulting in amplification of the prosperity and equity.

Other than this, in order to improve the quality of the wine products within Greece, the Minister of Agriculture and Forestry, and the Minister of Economy tried to apply certain types of policies. The strategies are presented below:

  • Mandatory tasting procedure
  • Issuing certificates for the quality of the wines
  • Issuing certificates on the quality of the origins of the grapes
  • Improvement of the policies related to the wine manufacture (Porter, 2008).

Proper maintenance of the above mentioned rules and policies by the ministry of the Greece might reduce the quality errors of the wines and it would result in improvement of the craze. Thus, the total sale and profit margin of the wine products in Greece might get improved as compared to others.

Moreover, as per the Ministry of Economy of Greece, tourism industry is one of the most pivotal sectors offering a wide range of revenue towards the GDP of the nation. This is mainly due to the diverse natural beauty of the region and so the government tries to offer highest attention towards the infrastructural facilities (Porter, 2011).  Thus, to satisfy the requirements of the customers of varying age groups, race and culture, the producers of wines are of diverse taste and flavours. It is also spread in the entire region and so it acts as an added advantage for the visitors to get attracted towards the beautification of Greece (Pattisson & Lindgreen, 2009). This increased the popularity and equity of wine products within the region of Greece so as to many other regions.

4.0 Firm Strategy, Rivalry and Structure:

The government of the economy of Greece tried to utilize advanced technologies and machines to manufacture finest quality of wines. The prime reason behind this is that it tried to attract a wide range of visitors towards the region so as to improve the total sale and demand of the wine products. Along with this, in order attract more visitors, the government of Greece also offered highest attention towards infrastructure. This also acted as a driving force for the organizations operating in this segment (Özlem, 2009). Thus, due to the presence of best quality of wine products, the competitiveness in the market increased and most of the rivals are trying to develop innovative products. Only then, it may become successful in fascinating the visitors towards its brand that may enhance the profit margin and total revenue of the organisation (Okoroafo, 2010).

The above points thus give a strong picture of Greece’s wine industry. Having learned this, Kraft Food Group could design its strategies to pierce Greece’s market. So that the location and demand of the wine product lines can be increased.

Part 2: Market Entry Strategy

Ohmae (2011) mentioned foreign direct investment is an investment within a business by an investor organisation of another nation. It is also denoted as the procedure of acquisition of the guiding interest of an organisation in an entirely new market region. The organisation might select foreign direct investment (FDI) as the entry mode, when it desires to market its product lines within an entirely new market region. The prime desire behind this policy is to attract a wide range of customer bases and profitability of the organisation in this age of extreme competitiveness (Levitt, 2008). Moreover, FDI mode to entry a new market is suggested by the multinational enterprises (MNE’s).  Contrary to the above mentioned point, Levitt (2007) opined that failure to select FDI strategy to enter the new markets might prove detrimental for the MNE’s in the recent era. After analyzing these aspects, the multinational organizational Kraft food group decided to utilize FDI to create a distinct presence and position in the market of Greece.

Advantages of FDI

Improvement of Awareness Level:

FDI would also offer facility to increase the awareness level of the product lines among the target mass by reducing the competitions. Kraft food group might also attain the facility to analyze the promotional as well as branding policies to fascinate a wide range of customers towards the product lines of the brand. This may prove effective for the organisation in improving its brand image and reputation in a new market, despite of the presence of numerous competing players (Le, Li & Yukhanaev, 2014).

Access to Foreign Markets:

            FDI is considered as one of the most effecticient strategy to enter foreign markets, since numerous markets restrict the entry of foreign organizations. The prime aim behind such a strategy is to restrict the access of the firm in the market in order to retain the demand of its domestic brands (Henisz & Zelner, 2010). However, Lampel, Jha & Bhalla (2012) mentioned that restriction for the foreign multinationals to enter new markets is highly facilitated. As a result, numerous MNE’s like Kraft food group decided to implement FDI policy to enter Greece, in order to augment its prosperity and total revenue as compared to others.

Easy International Trade:

FDI is the most easy and simplified form of international trade within a new market in order to increase the productivity and profit margin. Considering this, FDI is selected as the entry mode strategy by Kraft food group, while entering Greece (Ferdows, 2008).

Access to Skilled Resources:  

FDI also facilitated the utilization and access of skilled and highly knowledgeable resources that may prove advantageous in the introduction of numeorus inventive product lines. Considering this aspect, Kraft food group selected FDI so as to hire highly expert staffs within the organisation so as to increase its equity and dominance in the market among many other contending players (Demirbas, Yukhanaev & Stepanov, 2011). However, Demirbas & Yukhanaev (2011) denoted that failure to implement this procedure may not prove effective for Kraft food group to retain and expand its business in foreign markets. Along with advantages, FDI also comprises of certain disadvantages. Some of the limitations are also presented below:

Risk of Political Alteration:

Political influence offers a significant impact over the FDI rate of the country. As a result, the brand image and total sale of the brand also gets significantly influenced (Davies & Ellis, 2008). Similar scenario might be faced by Kraft food group, while entering the market of Greece.

Economic Non-Viability:

The investing procedure in foreign countries is much more expensive as compared to exporting of the products and services. Due to this, most of the organisation desire to export the products rather than entering the new market region (Clark, Pugh & Mallory, 2009 ).

Thus, it may be evaluated that FDI would be the best policy for Kraft food group, while entering the Greece market for the promotion of the wine products. This is because; it would become easier for Kraft food group to increase its demand and total sale in the market. Moreover, the profit margin of the organisation might also get enhanced considerably, despite of the presence of numerous competing players. The scope to attain skilled resources and labors may get increased, thereby, augmenting the intensity of sustainability in this aggressive scenario.

Part 3: Contemporary Management Issues

To attain a distinct equity and position in the market, an organisation needs to handle the prevailing contemporary management issues in an efficient way, only then it may retain its popularity and reliability in the market. After evaluating this aspect, Kraft food group decided to tackle the below mentioned contemporary management issues in an effective way.

Skilled Human Resources:  

Buckley (2011) denoted that availability of skilled human resources is the most important contemporary management issue. This is because; skilled human resources may be used by the organisation in developing varied types of inventive product and services. These products and services may be used by the organisation to satisfy the changing requirements of the target mass resulting in amplification of the prosperity of the organisation. Considering this fact, Kraft food group decided to train the resources available in the market of Greece to increase the profitability and productivity of the organisation. However, Bremmer (2008) argued mentioning that failure to offer effective training services to the resources might prove problematic for the organisation. It may decline the reliability and confidence of the target mass and hence the loyalty rate might get declined significantly as compared to many other existing competing players.

Technologically Advanced Machines:

Implementation of technologically advanced machines is the most pivotal requirement of an organisation functioning in this age. This is because; it may increase the quality of the products thereby, decreasing the level of errors. As a result, the demand and productivity of the organisation might get enhanced considerably in the market. Moreover, the total sale of the organisation might also get improved resulting in the amplification of the portfolio. This is the most important requirement of an organisation to enhance its retention rate in a new market (Bartlett &  Ghoshal 2008). Therefore, Kraft food group decided to offer highly advanced machines, within its organisation for producing wines. So that, it may gratify the requirements of the customers in an effective way and hence the demand might get enhanced significantly. However, Alexander & Korine (2008) denoted that failure to implement advanced technologies within the organisation may hamper the distinctiveness in this dynamic market scenario. This may prove discrepancies for the entire organizational image and reputation.

Thus, it may be revealed that, the above mentioned contemporary management issues need to be handled properly so as to increase the renowedness and status in the market.

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