International Business Strategy and Market Entry INTB6035

Introduction

The Kuwait Dairy Company (KDC) produces dairy products, and it seeks to expand its business by exporting yogurt to the European Union (EU). The paper mainly aims to explain the competitive advantage of exports (Euromilk, 2024). Then the paper analyses the external environment. The growth and size of the market will also be evaluated along with cultural differences, legal dimensions, tax issues, and distribution. Lastly, the main findings of the paper have been concluded briefly.

Exploiting the EU target market

KDC is a leading producer of dairy products in Kuwait, and they are renowned for their high-quality dairy products. The case scenario states that The Kuwait Dairy Company will invoice the future client in euros. It has been found that the Euro provides several benefits for businesses. These mainly include stability of price, where the prices can be compared between the countries that consequently the competition between the businesses, benefiting the consumers (Europa, 2023). Moreover, invoicing in euros will improve economic growth and stability. In addition to this, it will help KDC to secure its best prices. The case scenario also states that KDC will be granting customers g months of customer credits and will pay after that period. This will help KDC establish trust with its consumers and will also increase customer loyalty. Moreover, this will also help to enhance the reputation of the customers. Digitalization has been found to contribute to the development of markets that were not foreseen at the time when the Directives were adopted (Europa, 2024a). The fast technological developments registered since the adoption of directives have brought important changes to the market of consumer credit, both on the demand side and supply side, like the emergence of new products and the evolution of preferences and consumer behavior. Hence, granting consumers credit for the EU customers will help both KDC and the customers.

The competitive advantage that KDC could enjoy in the EU market

As KDC is a renowned company, it will gain brand awareness as they have a strong brand that is well known for its freshness and quality. Moreover, they have advanced facilities of production. The company adapts state-of-the-art technology to produce yogurt that meets international standards (Europa, 2024b). The comparative advantage that the proposed export could enjoy in the European market includes access to the global markets. Exporting KDC can increase profits and sales by reaching a global customer base. Moreover, it will also increase market share and competitiveness. In the case scenario, it has been mentioned that the European Union is among the most open economies in the world, and this implies that the business can benefit from the lower import tariff. Every customer tends to try new things and hence, as a renowned business, KDC will have greater profit and can attract many customers. Along with this single market of the European Union has resulted in much more trade between other countries and the European Union. Betrayed deals of the European Union provide Europeans with many more opportunities for business growth, investment, and jobs. The granular comparative advantage here can play a vital role in shaping the export specialization of the country (European Union, 2024). This ensures that exporting products from other countries benefits the domestic market of the European Union in various ways including a greater number of jobs, a greater number of trades, much more competition, and many more. Although KDC can enjoy various comparative or competitive advantages in the market of the European Union, the advantages will not be sustainable as the advantages are not static and change over time.

External Environment Analysis

Political

In advancing the internationalization of KDC into the European Union, political factors play a vital role. The political components that might impact the productivity of endurance of an organization are well assorted (Statista, 2023). The dangers related to political factors might shift from the unexpected changes in the existing political system to turmoil to the meaningful choice of 'public authority daily. It has been noticed that post-Brexit, there is instability in the market growth of Europe, and this will impact the market of KDC. Along with this, trade might increase the cost of business due to increment of prices, uncertainty, and diversion of trade.

Economical

Growth of consumption and demand has shown a significant decline in per capita growth of consumption in the European Union. It has been found that on average each inhabitant consumes 600 grams of dairy and milk products (Statista, 2024). However, between the years 2019 and 2023, the consumption of dairy products per capita fluctuated. In the year 2019, the value was nearly 52.35 kilograms per capita, whereas in the year 2023, the value was approximately 52.81. This shows that the rate of consumption has increased in the last 4 years. However, the rate is very low, and this might impact the profits and income of KDC.

Social

The altering attitude towards high-quality consumption and food production might impact the preferences of customers and thereby impact the profits of KDC. Along with this, it has been found that there is an increasing concern of people towards animal welfare, and this impacts the dairy companies in the European Union. People across the world are opting for plant-based alternatives and hence, companies who are dependent on animals for dairy products are getting impacted negatively. This might also influence the market of KDC in the European Union. In the year 2023, the market of milk substitutes in the European Union was worth nearly three billion U.S. dollars. Moreover, there are lots of people who have various reasons to not consume milk. For example, 18 percent of people in Sweden follow lactose lactose-free diet and around one to three percent of people follow a vegan diet and they would not consume animal-based dairy products.

Technological

The European Union has advanced technologies for producing dairy products and this will increase the efficiency and productivity of the farm. The company can also use the technology of Artificial intelligence to predict the intake of milk. Along with this, many other technologies are used by the companies of the European Union to produce milk. These partnerships are important in contributing to the technological evolution of the innovation procedures. Moreover, the dairy companies are using biosensors in dairy farming daily and it will positively influence the market of KDC.

Legal

The issues related to the quality of products and safety impact the growth of the companies. There are various laws that dairy product companies must comply with. Moreover, the utilization of Intellectual property is required to safeguard the firm. There are various limitations exist in the contracts while expanding their business in the European Union and those limitations are to be considered by KDC. KDC can export their products under specific quotas that are opened by third countries and those are subject to the issuing of export licenses. In addition to this, there are tariffs and taxes related to the product in the European Union. All of these factors will impact on the market of KDC.

Environmental

The Altering labels of products to tackle the wastage of food impacts the growth of dairy products in the European Union. KDC should focus on creating positive impacts on the entire environment with the help of sustainable business. Along with these, there are other environmental factors that impact the companies of dairy products and those include soil, biodiversity, habitat and landscape, air, and water (Europarl, 2024). As per the data analyzed, it has been found that the dairy farmers of the European Union produced nearly 160 million tonnes of milk in the year 2022, and out of that, 94 percent of milk was delivered to the dairies where the raw milk is being processed to fresh products like butter or cheese.
The main competitors of KDC include Arla, Danone, Muller, Savencia SA, Friesland Campina, Unilever plc, and many more.

Attractiveness of the target market in terms of market size and growth

The dairy market of the European Union is growing, and it is a large market with a population of more than 500 million customers. The demand for yogurt is strong specifically, driven by health convenience, and consciousness. The entire market is projected to continue growing in the coming years (Researchand, 2023). The case scenario states that KDC will be granting consumer credit for the European Customers, and they will provide a time of three months for repaying that amount. This will attract a greater number of customers and people nowadays are dependent on credit. Along with this, it is important to understand the target market for reaching international customers. it is also important to adjust the market strategies. Therefore, KDC should adopt strategies to comply with local preferences.

Cultural differences the company encounters when dealing with the EU

The relationship between Kuwait and the European Union has been strong historically. The bilateral relationship has witnessed a prime boost in recent times. Kuwait was referred to as the first country in the Gulf to sign EEAS (Cooperation Arrangement with the European External Action Service) in the year 2016. The arrangement offers a platform for regular political consultations that will cover common regional challenges in the Middle East and beyond. However, there will be some cultural differences between both countries (Europa, 2024c). KDC will be required to navigate the cultural differences while dealing with the European Union. These mainly include business etiquette, preferences of consumers, and language. KDC will be required to translate the materials of marketing along with packaging to local languages. Understanding the local protocols and customers for business interaction is needed. Adapting the flavors of products and packaging to meet the taste buds of the consumers of the European Union.

Attractiveness of the market in terms of influencing contracts and intellectual property rights

Regarding intellectual property and contracts, it has been found that the European Union has strict regulations which govern the legal environment. In the context of the attractiveness of the market regarding legal dimensions, KDC will be required to comply with the regulations to avoid any kind of legal dispute. comprehend, KDC needs to comprehend the rules on the formation, termination, and performance of the contracts according to the rules of the European Union (Netherlands, 2023). They also need to have registered patents and trademarks to safeguard their innovation and brand. KDC must obtain legal advice before starting transactions. Along with this, it is important to have an experienced attorney who can offer guidance on various matters like the protection of intellectual property and contracts (Globalnaps, 2017).

Attractiveness of the market in terms of real or perceived trade barriers

KDC might experience trade barriers while exporting to the European Union including tariffs. Customs duties are generally imposed on imported goods. Conforming assessments maintaining the standards required to be conducted by the KDC (Europa, 2024a). The non-tariff barriers include environmental, health, and technical standards which can restrict imports. To counter these barriers, KDC will be able to comply with European standards to promote market entry. Partnering with the local distributors will help KDC to use their knowledge of the market and the regulations. Advocating for favorable trade policies should be done by KDC to be involved in lobbying.

Tax issues the KDC Company when exporting their product to the EU country

National rules of tax will be overseen by the EU in a few areas specifically with regards to EU customer policies and business. This will make sure capital, services, and goods free flow surrounding the EU that constitutes the single market. The second regulation is businesses in a particular country will not obtain any unfair benefit from various competitors within the other country. In addition, taxes will not showcase any discrimination against businesses, workers, or consumers from other countries of the EU (Europa, 2024). The single market within the EU provides an allowance for services and goods to be freely traded across borders. As per the EU law, a standard rate of VAT comprising a minimum of 15% applies to maximum services and goods. In addition, member states can also be utilizable to two minimized rates as reduced as 5% where a 0% rate is charged to a restricted set of services and goods from the set of agreed lists. The other one will be a super-minimized rate which is reduced as compared to 5%. The KDC Company while exporting yogurt to the EU country needs to make sure whether the product being sold is an EU-VAT registeredorganization or not (Taxation customs, 2023). If the business is situated in some other EU country, then the KDC Company will not be charged any VAT on the specific sale of the product. Besides this, if selling the relevant product is done to the ultimate customer present in the EU, then the KDC organizations will be responsible for bearing the responsible rate.

Ways to avoid the risk of the currency exchange rate

The currency-oriented risk related to currency exchange shall be avoided by the KDC Company by opting for the strategy of forward contracts. Within this approach, exporters of the firm will be allowed to sell a set of foreign currency amounts at one pre-agreed rate of exchange and delivery. The date of delivery varies between 3 days and 1 year looking into the upcoming years. When the KDC organization has the expectation to obtain payment within a foreign currency, with the assistance of the bank, they can make entrance into the policy of forward contract (Trade gov, 2024). They will further reach an agreement that without considering the market rate, the foreign currency will be sold at the established exchange rate. The benefit of this forward contract process is when the KDC company locks in the date of exchange the business can manage its cash flow as well as do planning effectively of their finances.

Adjustment of forward contracts can be done to particular necessities of the KDC Company comprising the delivery rate, exchange rate, and currency amount. The other way that the firm can opt is hedged investments to avoid potential risks of currency exchange (Accaglobal, 2024). These comprise hedged funds which are exchange-traded and are tackled by all fund managers. They are responsible for hedging the risk of forex at a reduced cost. The existing exchange rate of EUR/GBP is 0.89800. For example, to hedge the company's exposure to foreign exchange, the company will make the decision to take out a minor GBP/EUR CFD that is the sterling will be purchased during the same time when the euro will be sold. If the contract of EUR/GBP is 100,000 worth, therefore, the firm will be required to take 2.45 contracts equivalent exposure for balancing the exposure of currency in relation to 245,000 amount for the product (IG, 2019). Market conditions of the EU need to be highly considered by the KDC firm as it highly relies on accurate predictions and market volatility in relation to movements of the exchange rate in the near future.

Potential marketing, logistics, payment problems, and distribution challenges for the KDC Company

Logistics shall be considered a potential challenge specifically for the KDC firm that would export the dairy product, yogurt to the EU. The challenges associated with logistics include customs clearance, disruptions within the supply chain, and transportation issues. Customs clearance in an efficient manner is vital to avoid delays as well as make sure conformity is maintained with regulations. In addition, a logistics partner having sufficient knowledge and understanding in relation to tariffs and procedures of European customs shall assist in expediting the procedure of clearance (Mangla et al., 2019). The KDC Company further needs to maintain better awareness with regards to their customs clearance and shipping issues and they can ultimately result in causing disruptions of the supply chain.

In consideration of making international payments, the exporter of the KDC Company can take a potential step to recognize the supply place. Setting this area, the company will place its offer for all EU customers that they will receive a credit of three months credit for purchasing the product, and after they can clear all their payments. The taxes and duties can be easily known after the supply place is recognized (Hodder, 2024). As there are fluctuations in the currency, the KDC firm can face the same with the progression of time. Other than this, the reduction of currency risk can be identified as another potential obstacle to making international payments.

With aspects of marketing-oriented issues, the KDC Company might face regulatory complexities from the EU as it obtains a wide range of strict regulations. This comprises environmental standards, labeling, and safety of the products which are a complex process to navigate. This will also require making sure conformity for and with exporters of the business. In addition, recognizing the correct partners of distribution within the EU constituting online platforms, retailers or wholesalers is necessary to effectively attain the target market (Hodder, 2024). The KDC Company will be required to adapt to the product necessities of the market. This will focus on meeting local market necessities such as packaging alterations, ingredient adjustments, or design modifications to fulfill their product standards.

Conclusion

Analyzing the above content, it has been observed that there are various aspects that need to be considered by KDC. The dairy market of Europe is influenced by increasing demand for day products in the food service sector. This resulted in propelling the growth of the dairy market. Moreover, dairy products such as yogurt are consumed by various people due to their health and nutritional benefits. However, dairy products based on plants have growing demands as people nowadays are much more concerned about the welfare of animals, thereby impacting the profits of KDC. European Union has several rules and regulations in terms of trading and hence, those need to be considered by KDC. A direct role is not obtained by the EU to collect taxes or settle rates of tax. The national government makes the decision on the tax amount payable by each citizen together with the process of spending the collective taxes. The forward contract process will provide significant protection to the KDC Company against significant losses because of fluctuations in currency.

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