Our client is a successful manufacturer of industrial lubricants in Europe. They have significant market share in most of Europe. They are looking at international expansion by moving into the growing south east Asian market in order to increase their revenue and profits. They produce lubricants for the automotive market (gear oil, engine oil) and even for industrial uses (heavy duty machinery oils, fats etc)
They are evaluating expanding into the South East Asian markets with their automotive range of products.
The client has hired us to advise him on the market entry strategy for the South East Asian Markets.
The project has been structured into two phases:
- Phase 1 – Choosing a test market in South East Asia from a shortlist of potential markets using a structured approach.
- Phase 2 – Create a market entry strategy for the test market chosen in Phase 1
Suggested case structure
- Background and case approach: The interviewee should attempt to lay out a list of typical parameters that can be used to evaluate the test market– market size, growth, profitability and probability of success.
- Test market Selection: The interviewee should then probe for data on the different markets, perform analysis to prioritise the different markets and recommend a test market
- Market entry strategy: In phase 2 of the project, the interviewee must lay down the approach for entry into the selected market by evaluating the product, supply chain, distribution, brand and price of the product in the new market
- Recommendation: Based on the market entry strategy, the interviewee must succinctly lay down the next steps for the client in order to enter the test market
If he is stuck, prompt him to think about how he would choose one market over the other? What factors would he consider?
A great interviewee might come up with a structure of evaluating market attractiveness vs probability of success matrix to structure the test market selection problem.
2. Test market selection
a. Market size
The interviewee should now ask for information about the countries which were shortlisted internally by the client. He should attempt to evaluate – market size, growth, profitability and probability of success.
b. Growth, profitability, competition
- Singapore is already a developed market
- Malaysia and Thailand are experiencing a high growth period, with their GDP predicted to grow at 6-7%.
- Car sales typically follow GDP growth patterns; however Thailand seems to have a higher growth in its two wheeler segment compared to car sales.
- No data is available
- However, preliminary research by the product team indicates that the Malaysian market prefers the premium brand and the margins are better than the other two geographies.
- The market research team of the client has come back with the following index of the level of competition in the three geographies:
- Thailand – High competition
- Malaysia – Low competition
- Singapore – Medium competition
With the above data in addition to the market size data, the interviewee can evaluate the markets along the different parameters to come to a conclusion.
c. Comparison matrix
- Malaysia though is the second largest market, it is growing the fastest and seems to be the most profitable.
- The low competition in the market makes it rank high on the probability of success as compared to the other two geographies.
- Malaysia should be chosen as the test market.
3. Market entry strategy
- Both the product lines of the company i.e. lubricants for automotive segment and lubricants for industrial uses would find a market in Malaysia; although the key demand is for the automotive sector where premium oil brands are preferred.
- There are several regulatory guidelines for the products in this market.
Production and supply chain:
- There is excess production capacity in the European factories, so one option is to produce in Europe and transport to Malaysia.
- However, this would lead to delayed reactions to the market demand changes. Or on the other hand, the company would need to hold large stocks in Malaysia in order to factor in demand fluctuations. The transportation costs from Europe to Malaysia, would reduce profit margins significantly.
- The other option would be to produce in Malaysia and use it as a hub for future SEA expansion as well.
- The Malaysian market volumes would justify production capacity by itself.
- The cost of setting up a production unit in Malaysia is significantly lower than the cost in Europe.
- OEM’s are the primary channel. The first fill during production forms a bulk of the sale. OEM’s typically negotiate a contract with a single supplier.
- The other important channel is the authorised service centre of the OEM. The partnerships with the OEM tend to drive sales in this channel as well.
- Independent mechanic workshops and gas stations are the other channels. The gas stations however sell their own brand in most cases.
- One of the European OEM’s to whom our client supplies, is also present and is a popular brand in the SEA market including Malaysia. This OEM is present in the mid to premium automobile segment.
- Brand is an important criteria in this segment.
- An extensive retail branding campaign would be necessary in order to enter the market.
- The company would also need to secure business from at least one large OEM. This would lend credibility to the campaign.
- B2B marketing campaigns would be required in order to secure business from authorised service centres and workshops.
- Our client is positioned as a premium oil brand in the European market. The initial research of the Malaysian market has shown a clear consumer preference for premium oil.
4. Final recommendation
The interviewee must make the following observations:
- Product: Given the automobile lubricant segment presents the largest proportion of demand in the Malaysian market, the company should enter the market with only this product for the test phase. It could expand its product segment into industrial lubricants at a later stage.
- Production & supply chain: The company should set up a production unit in Malaysia. The Malaysian unit is a justifiable investment based on the market size; the unit could be used as a supply hub for future SEA expansion and would also enable the company to produce at a lower cost and closer to the market.
- Distribution: OEM supplier tie-ups would be the most critical aspect of the distribution strategy. The company must commence talks with its existing client in Europe who has a presence in SEA. These OEM tie-ups will also impact the success of the authorized service partner network.
- Brand: The tie-up with the existing European client would be important for the marketing campaign of the client as well. If the tie-up is successful, the company can use it to secure additional OEM tie-ups as well as use it in the B2C campaigns. Key account managers and a sales team on the ground would help the client push its sales and build the brand in the B2B segment.
- Price: The company should continue to position itself as a premium oil brand as there is a clear market preference for it. This also fits in well with the positioning of the potential lead client who is popular in the mid to premium automobile segment.
Hence, the company should launch its product in the Malaysian market after taking care of the above product, price, production, distribution and brand factors.