Challenges of Manufacturing Company to Expand Operations in an Emerging Market

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1.1 Research motivation and research design

The rationale behind studying this particular topic is that Four Seas has strong financial performance and that is why, through secondary study, it is analysed that Malaysia is suffering from Obesity people and that is why, providing healthy products in Malaysia will help to improve people's health. Through secondary data, it is analysed that the health of Malaysian people is not good and as the entire food industry is related to halal that is why, a study on the particular study will assist Four Seas in expanding the business in Malaysia or not.  Besides this, a study on the external environment of Malaysia will help to determine that there is a need for healthy products even if the country is economically stable and that is why, expanding a business of healthy food products will lead to improved health of people with increase financial performance of business.

The entire market of Malaysia is based upon the halal industry and it is a dominant country and that is why, none of them prefer to eat healthy products. The researcher does not agree with this and during research, time constraints are the major problem related to the research.
The current research is based on the international expansion of Four Seas from Hong Kong to Malaysia. Therefore, through international expansion, the company enter the overseas market which allows faster growth for a business. Moreover, through expansion, the growth of Four Seas Group also increases and sustains the brand image at the global level. In the same way, the company also get another benefit of expansion that it learns a new culture i.e. (Malaysian culture) and this in turn provides opportunities to be exposed to foreign investment (Dynamic language, 2014). Additionally, the quoted firm also helps the business to generate more revenue potential and this in turn also leads to enhancing its customer base. Such that the healthy products are served only in the domestic market and when the company emerge in a new market, then it will help the business to maintain the brand image and earn more revenue by generating new sources of income. Moreover, by expansion, the company also has access to a new pool of potential employees who possess unique skills and mindsets which assist in growing a business at a further level of success.
So expanding a business in Malaysia helps the business to improve the company's reputation and leads a business to diversify the company market. The main motive of the company's expansion is to provide healthy food to a range of countries. As the company's main motive is to Eat safely and Happily, through expansion, the business offers a range of products to Malaysian people which in turn helps a greater number of people. It is analysed that Malaysia is one of the fattest countries and there is a need to introduce such healthy products by Four Sea Group so that it will lead to improve people's quality of life.

1.2 Research Framework

Questions:

(1) Is Malaysia a country economically viable for Four Sea Group to expand operations?

(2) What are the challenges Four Sea Group faces while emerging its business in Malaysia?

(3) Is there any opportunity for Four Sea Group to emerge from its business in Malaysia?

To answer the above research questions, the researcher will use qualitative research and secondary sources such as journals, articles and books to address the research issue or problem. These data collection methods support the entire research and help to determine whether Four Seas should expand in Malaysia or not.

1. Company Background

Four Seas Group was established in 1971 with its mission of satisfying the needs of all types of customers [what types of customers/] and the market demand (FSML,2019,p6). It has become as one of the popular household food suppliers in the Hong Kong and in the Mainland. The main business of the Group covers food distribution, manufacturing, catering, and retailing to bring pleasant surprises to food lovers in Hong Kong.  The Group facilitates several kinds of products from 20 countries and more through their strong network of distribution which covers department stores, convenience stores, distributors, bars, airlines, hotels, supermarkets, etc. The Group operates in Japanese snack outlets that as Okashi Land, the cookie stores that is YOKU MOKU and the concept store Calbee PLUS in Hong Kong (FSML, 2019, p6). The core business of Four Seas is food distribution which has been developing on a steady basis. The sales team of an entity sources high-quality and unique products from different countries across the globe including Japan, Korea, Indonesia, Singapore, Thailand, Britain, Germany, Malaysia etc. The corporation brings food items all over the world like milk powder, health food, snack food, sausage, and sauce to the customer through a comprehensive network of distribution, shrewd vision and effective marketing strategies. The firm is operating or running its business in a highly competitive market as there are many different companies who are dealing in food distribution. The group focuses on extreme care for food hygiene, quality and safety to live with a motive that relates to Eating happily, eating safely and devoting specific care to production and the distribution of the food.  It also established a comprehensive system for ensuring product safety, building customers, taste and quality etc. The performance of the company is seen as better because its sales and profit margins have increased over the years which in turn reflects a sound leverage position and good profitability performance within the industry.

2.1 Product portfolio of the company

Table 1 Sales revenue of the major items of the Group

Source: FSML, 2019, pp18-24

Table 2 :Geographical segments  and net revenue (HKD in million)

Interpretation: from the above table, it is interpreted that Four Sea's major product is snacks because it occupies 42.98% of the domestic market, while its sales in 2019 were 1,301.811. On the other side, its beverage and dairy products occupy 7.36% of the domestic market and also contribute to 223.010 portion of its total sales. Moreover, Confectionery is the second largest product occupying 19.22% of domestic share with 582.269 in Hong Kong.

Segment net revenue in Hong Kong In % Segment net revenue in Mainland China In %

2,045.230 67.52% 983.757 32.48%

(FSML,2019.p 431)

Interpretation: From the above table, it is interpreted that 2045.230 is the net revenue of Four Seas in Hong Kong of which 983.757 is earned from Mainland China. Therefore, it is analyzed that from overall 67.52% of the market share of Four Seas in Hong Kong, the company's 32.48% part is occupied in China.

2.2 Foreign and domestic market environment

To determine the foreign market environment, Porter's five force model is used which is as mentioned below:

The threat of new entrants: The new entrants in Malaysia are quite low and it is so because they require a high amount of investment and there is no guarantee of gaining extra inputs. Therefore, it is analysed that there is a low switching cost in Malaysia which means people did not switch towards another company, such that the entire food industry is dependent upon the halal industry. Further, customers only eat non-vegetarian products only. Or else, when a new company invest in this market, it requires high capital cost. On the other side, in the domestic market, the threat of new entrants is also low because it requires a high amount of money for investment and that is why, it is not possible to invest in the food industry.

The threat of substitution: Malaysia faces a low threat of substitution because it Is a highly Muslim-dominated country where people only prefer to have fish and non-vegetarian products. Therefore, due to low switching costs, the majority of the people did not prefer to use other food products and this, in turn, decreased the threat of substitution. On the contrary, in the domestic market i.e. Hong Kong the threat of substitution is high because there are a variety of companies who also provide the same food and this in turn creates a threat among top companies i.e. small restaurants that provide a range of healthy and nutritious food. That is why, the threat is high.

Bargaining power of suppliers: Suppliers influenced the company's production capacity which is based upon the raw material thus, Malaysia have a weak bargaining power of suppliers because it did not supply its products to another part of the country. Therefore, due to having a large halal industry with the majority of Muslim people, customers get direct products without using suppliers. Moreover, it is analysed that there is a weak force of low forward vertical integration of suppliers which also affects the overall system in just the opposite manner. In the domestic market, the bargaining power of suppliers is high because there is a range of suppliers who are available and the large population of suppliers also weaken the effect of individual suppliers on Four Seas.

Bargaining power of customers: Malaysia faces high bargaining power of customers such that the entire food industry is dependent upon the halal industry. Therefore, they prefer to have products which are rich in protein i.e. fish. Therefore, the industry also takes care of all the demands of customers and also provides the same. In Hong Kong, there is a high rate of bargaining power of customers because of strong switching costs among customers, which means customers may shift towards another when they find good products.

Competitive rivalry: there is a high competitive rivalry in Malaysia because the majority of people prefer food from the halal industry and that is why, when a new concept of food is introduced it also helps to make competition strong. Such that the majority of the market overlaps with the halal industry and when new healthy foods are introduced then it will assist businesses to provide good products to their customers with varieties. On the other side, it is analysed that people in Malaysia are obese and that is why, it is quite essential for the firm to introduce products which are help to improve their life and thus in turn, lead the business to face tough competition as well.

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2.3 Rationale for expanding the business in Malaysia

The reason of expansion the business in Malaysia is that people in Malaysia are too obese and that is why, there is a need to introduce nutritious food that helps people improve their lifestyle. Further, by introducing new and healthy products, the company will easily generate opportunities to expand its product in a new country that helps to enhance its financial performance. Further, this will assist the business to generate profit and attain its defined motive as well.

1. Country  Background

As Four Seas company wants to expand its business in Malaysia, there is a need to analyse the economic and social aspects of the country to decide whether it is worthy to expand business there or not. The major characteristics are listed below:

(Source: Malaysia: Market profile, 2020)

(Source: http://emerging-markets-research.hktdc.com/business-news/article/Asia/Malaysia-Market-Profile/mp/en/1/1X000000/1X003IG2.htm)

The above image reflects that Malaysia is one of the most open markets in the world and its economy is also well diversified and has strong macroeconomic management with low and stable inflation. Further, to increasingly challenging external environment will also reduce the opportunities for export-led growth and this in turn increases the domestic demand. Further, the companies who want to export rubber, timber and palm require special permission from the government and that is why, it is beneficial to set up new businesses because the laws and policies are simple. Along with the trade policy, ASEAN- Hong Kong announced the conclusion of negotiation in 2017, September which provides better market access and equitable treatment in trade and investment. That is why, it is beneficial for the company to invest in Malaysia as it has strong economic and political stability.

(Source: Malaysia: retail sector, growth, trend and forecast. 2020)

(Source: https://www.mordorintelligence.com/industry-reports/malaysian-retail-industry)

There is a growth of the Malaysian retail industry from 2017 to 2018 up to 6.7%. such that the major key players in the retail industry are Eon, Tesco, and Parkson. Along with this, the study also reveals that the Malaysian national economy is also recorded as having a sustainable growth rate of 5.6% in 2018. Moreover, the retail sector of Malaysia is also projected to witness a CAGR of 3.4% and the market is further segmented by category of product, distribution channel and market dynamics. From 2018 onward, customer preference has also shifted towards stores that offer more convenient ways of shopping. Further,  Malaysia's most significant F&B exports are in the oils and fat category and that is why, the country is considered one of the two largest exporters in the world.

3.1 Economic Setting

The economy of Malaysia is continuously increasing and Fiscal consolidation has also proceeded with the government pushing through important initiatives i.e. GST. Further, in the current situation, there are no signs of inflationary pressure, even on the domestic front, Malaysia's strong employment is also boosting private consumption and the investment is also assisting in deriving growth. Thus, it shows that the economy of Malaysia is on its way to attaining a high-income status. Further, the average inflation in 2017 was 3.8% while in 2016, it was 2.1% and it led to an increase in oil prices (Albiman and Suleiman, 2016). On the other hand private sector credit growth is also moderated which also implies a further decline in the credit gap that was estimated at 3.2% of GDP.

It is further analyzed by the World Bank that Malaysia's economy grew moderately at 4.5% and 4.9% in the first two quarters of 2019 (Thestar, 2019). Also, the Malaysian government remained committed to the Fiscal consolidation plan and wants to attain a 3.4% fiscal deficit target in the next year. Moreover, the inflation rate is moderate in 2018 and growth should also decelerate from its 2017 peak. When ongoing cyclical upturn begins, momentum in activity is also expected to remain strong in 2018 starting which is further supported by domestic demand and continued strength in global trade. Hence, core inflation should edge up to 1.9% which is a further response to a positive output gap. Malaysia is a net importer of food and the country also exports food products to more than 200 countries. The monetary policy also remains quite supportive with a bias towards reducing accommodation, such that in domestic economic and financial considerations that also continue to guide monetary policy decisions with a policy framework which further delivers broad price (Pero,  2020).

On the other side, it is observed through the secondary research of the country's economic background that Bank Negara Malaysia has also maintained an accommodative position with its policy rate that keeps changing at 3%. In 2017, the bank also signalled a bias towards reducing accommodation and justified that there is stable inflation and no financial sector stress (Bakari,  2017). Moreover, there is a need to compliance all the laws and regulations made by the Malaysian government because it may oppositely affect the food sector such that every country's packaging regulations change and government also force the company to provide a range of healthy food products that also creates a direct impact upon the performance of the business and increase the economy as well.

Overall, Malaysia has strong and resilient macro-economic fundamentals and it also reflects that it can manage all challenges and also pursue structural reforms. Therefore, the economy's strength in Malaysia also derives from a highly diversified economic structure and has a resilient external position with a flexible policy that helps to enhance the economy and broaden growth sources as well (Ramlan and Ram, 2018). Hence, this provides many growth options for other companies to expand or emerge in Malaysia and sell their products that help to meet the demand of customers and enhance the economy of the country as well.

3.2 Sociological setting

Malaysia is a multi-cultural and multi-racial country that is well known for its social and cultural incorporation. Therefore, as per the religious background of Malaysia, Islam is the official and widely extended religion that represents around 60.4% of the total population and 19.2% belongs to Buddhism. Due to having a high range of Muslim communities, they require healthy and nutritious food such as fish.  The majority of the public agreed that they want healthy food and their lifestyle is also changing which creates a direct impact on the food industry (Ibrahim and et.al., 2018). The socio-culture of the country is to eat healthy products and their lifestyle is different from other countries. The majority of the population of Malaysia does not eat junk food because it causes harm to their body and that is why, they generally avoid these food products.

It is also analysed that Malaysia has the highest rate of obesity and overweight among Asian countries and the majority of them prefer to take high-calorie and protein products because the country has a large number of Muslims. The lifestyle of Malaysian people has an inadequate food intake combined with a lack of physical activity and genetic susceptibility also causes disease. On the other side, poultry products are much cheaper in Malaysia as compared to other countries but people do not take care of their health and this leads to an imbalance in their overall lifestyles (Shafaei and Razak, 2016). That is why, Four Seas wants to emerge its market in Malaysia that provides a range of healthy products to the customers which in turn decreases the problem and provides a healthy lifestyle to the Malaysian people.

It is also analyzed that the food intake in Malaysia is not nutritious but people especially youngsters demand to get healthy and nutritious food that helps to decrease the level of obesity among people. Moreover,  Malaysia is considered the fattest country where approximately half of the population is overweight and obese. This also affects the quality of life and causes many physical changes like Breathlessness, snoring, sleep, and tiredness and this in turn also leads to psychological conditions like low self-esteem and depression. Therefore, it is an opportunity for Four Seas to emerge in Malaysia helps to increase its financial performance and improve the social life of people as well (Koh and Harris, 2020). Overall, it is reflected that the people of Malaysia are not healthy and their needs are also dynamic and that is why, there is a need to provide healthy food that assists them to enhance or improve their quality of life.

[I think you may want to provide a summary in a short paragraph regarding Malaysia as the best choice for expanding the Group's business.]

1. Analysis and the discussion

In the analysis and discussion section, the Theoretical Models such as the SWOT Model, and Porter's Five Forces is/are used to facilitate the analysis to produce empirical evidence to justify our arguments to expand operations in Malaysia. There are various expansion options to establish themselves significantly in the Malaysian market and minimize the risk exposure.

FDI i.e. Foreign Direct Investment involve establishing an outlet in a foreign country, by buying an existing company or by entering into mergers or acquisitions (Iamsiraroj, 2016). The distinguishing factor here is that in such kind of expansion method, the ownership remains with the company that is investing in the foreign country. There are certain determinants of the Malaysian economy that can be used to analyse FDI as an investment option. In Malaysia, the market size, interest rate prevalent in the economy, the human capital and its yield, the per capita income level of the residents and the spending percentage; all such factors are the major factors that affect the selection of FDI as an investment option. As per the reports published by, Malaysia Foreign Direct Investment in 2020(Ceicdata, 2020), the investment in the Malaysian economy through FDI investment increased in the second quarter by 588.5 million USD. The report further compares the figure of Dec 2009 when the FDI investment in Malaysia was -1 billion USD and in Mar 2019, it achieved an all-time high of 507 billion USD. The reports help in concluding that the market in Malaysia is regularly growing and the consumers are increasingly looking out for healthy eating options without compromising on the taste aspect and FDI seems the correct expansion option for the company in Malaysia.

TNC i.e. Trans National Corporation is the second option where the companies do not have a centralized management system and in different countries the base is different. While the companies evaluate this option, the major factor that they consider is that the economy must be growing and the cost of raw materials or investment must be adequately covered by the revenue that they generate. The figures published by Transnational Corporations and the Environment: The Case of Malaysia (Rasiah,1999), show that the major TNC investors have been Japanese technology companies where they entered into joint ventures where power was higher with the TNCs. Therefore, the market and economy seem more favourable in the context of FDI as an expansion option.

If it needs to be evaluated whether there needs to be a comparison between FDI and TNC as an investment option, it can be adequately stated that Four Seas should select FDI as an investment option where the political and economic aspects are in favour and the regular growing economy gives better return options (Jones & Temouri, 2016). The investment made in the Malaysian economy has also increased with time and hence Four Seas can interpret that the companies are finding the market attractive which shows that the time to expand in Malaysia is correct and profitable.

4.1 Theoretical background

4.1.1 Theory and the Model

SWOT: It helps in conducting an internal analysis of the company:

SWOT analysis Table

Strengths

• The Company has a loyal and large customer base because of the health-conscious choices that the company offers
• Innovation and feasibility are additional contributors to the company
• There is a large variety of health options that are available to consumers.

Weaknesses

• The company is not much known about and lacks popularity.
• The company does not venture into any other segment apart from the food industry.

Threats

• The major threat is that it may be outperformed by rapidly rising competitors that are operating at a wider level and have greater publicity.
• Easy imitation of the type of food products offered by Four Seas is another threat.

Opportunities

• Expansion in other countries is the major opportunity that is available to the company.
• The company can expand into other segments as well. 

The SWOT Model is chosen because it helps to determine the internal environment of the company. Such that by analyzing the company's strengths, it will be easy to implement a strategy for the same. Moreover, the model also assists in determining the company's weaknesses and after that company develop a strategy in order to convert the weaknesses into strengths.

Along with this, this approach also assists in determining the future opportunities available for the company that will help to enhance its financial performance in the company and generate future growth options as well. The last element is threat which helps to determine what are the loopholes for the company that create danger for the business.

Overall, the rationale behind choosing this model is that this model helps to identify the strengths, weaknesses, opportunities and threats that assist the manager of the company to make future decisions for the business. Such that by determining its strength, the company will easily make future business decisions which assist in increasing its overall performance.

Ansoff growth vector: This model helps in ascertaining what is the correct expansion strategy for the company based on the current scenario (Polyxeni & Theodore, 2019). Four options are available to the company where first is that the company can continue operating in the existing market using existing products i.e. market penetration. The second strategy is product development under which the company can launch new products in existing markets. The third strategy is market development where new markets can be entered into with the existing products of the company and lastly, there is a diversification strategy where the company can enter new markets with an entirely new product range. Since the Four Seas company is planning to expand itself based on the current merchandise that it owns, then market penetration diversification and product development do not seem to be the correct expansion strategies.

Porter generic strategy: This model describes how the company pursues competitive advantage for the chosen market scope. Further, this describes three strategies such as the cost differentiation strategy which states that products should be offered at low cost. Next is the differentiation strategy which states that the company should provide unique products which are different from rivals. Last is the focus strategy, which concentrates on a particular niche market by understanding customer needs.

4.1.2 Application

By applying SWOT analysis, it is analysed that Four Seas group have a range of healthy products and it wants to provide these products at the global level. That is why, through this model, it is easy to determine a company's overall strengths, weaknesses, opportunities and threats.

Further, by using the Ansoff growth vector matrix, the Four Seas group uses a Market development strategy in which the company establish a unit in Malaysia. Therefore, through this strategy, Four Seas may easily expand into a new market which means expanding into new geographies, customer segments and regions (Laverón, Sánchez-Tabernero and Larrainzar, 2020). Overall it helps to improve the lifestyle of people and this in turn also helps to improve the financial performance.

Through Porter's generic strategy, it is also analysed that the company uses a differentiation strategy while emerging into a new market. It is so because Malaysia is a highly Muslim-dominated country where people prefer halal and that is why, offering healthy products in the Malaysian market will help the firm to enhance the lifestyle of people. The USP of the Four Seas group is its healthy products which are not offered by any other and that is why, this strategy assists the firm in establishing goodwill.

4.2 Challenges 

4.2.1 Empirical facts

The facts of Malaysia's food industry show that the revenue in the Food and Beverage segments amounted to US$337 m in 2020 (Statista, 2020). Even the revenue of the food industry also shows an annual growth of 12.3% and this may increase the overall market share by occupying the volume of US$536 m by 2024. Further, the strength of Malaysia is its halal food industry and its labour productivity is also high as compared to other countries. Thus, as compared to non-muslim countries, Malaysia itself has proven one of the highly qualified food industries. Thus, it clearly shows that there is stiff local competition in the food industry in Malaysia.

The halal food industry of Malaysia is also looking forward to partnering with other companies to enhance its market share. The facts also state that there is an issue related to halal standards and halal certification, Malaysia is an originator in promoting halal food at a global level but due to not maintaining the quality of food and hygiene, this is converted into the biggest issue (Rego and Carvalho, 2020). Due to the high dominance of Muslim people, the country is mostly focused on promoting halal food products only and that is why, it started exporting the products at the global level. Thus, it reflects that the growth of Malaysia's economy is only due to halal industry but due to this there are many challenges which people face i.e. Obesity.

4.2.2 Determination of the Potential Challenges

Culture is the biggest challenge which a company faces while establishing a new business. Through Four Seas is operating in Hong Kong and it wants to establish a new unit in Malaysia and culture is completely different from Hong Kong. Therefore, it is quite difficult to understand the culture of Malaysian people. Additionally, the Language barrier is another challenge which may also be faced by the Four Seas group such as both countries having their local language. As Four Seas Group wants to emerge in Malaysia the management and HR of the quoted firm face issues to establish its unit.  This in turn also affects the recruitment process and the company did not find talented employees for the company.

Tax codes and compliance issues are another challenge because every country has their legal policies and Four Seas is operating in Hong Kong and that is why, the company must be aware of Malaysian laws and legislation.

Local competition is another challenge that which Four Seas group may face and the majority of people in Malaysia are Muslims and that is why, they only prefer non-veg food (Bogoviz, 2020). Due to having a large food market in Malaysia, Four Seas may face issues due to local competition.        

4.3 Responses towards working on challenges

To respond the cultural and local issues, the company must hire employees who understand Malaysian languages and the company will also recruit candidates who are multi-linguistic. Further, by providing training to the candidate, the company also reduce challenges.

Before establishing a new unit, the company must understand the laws and tax tariffs of Malaysia so that it will not create any issues later. Moreover, identifying the important laws and tax codes, and then complying with them will help the business to run smoothly.

By hiring local experts in Malaysia, Four Seas brings many benefits because working closely with them will help to deliver a range of products to the local market. This in turn helps to find new customers for the company and increase sales as well.

1. Conclusion and recommendations

5.1 Conclusion

By summing up the above report it has been concluded that Four Seas Group may emerge its market in Malaysia because facts and figures reflect that there is a large scope for investing in the food industry. Further, from the above, it has been concluded that expanding the Four Seas Group in Malaysia will help to improve the lifestyle of people because the study shows that Malaysian people are highly obsessed. Further, the report also discussed that the company chooses market development as a growth strategy in which it enters into new markets with existing products. Then using Porter's generic strategy, it is also concluded that the company uses a Differentiation strategy in which it provides healthy and nutritious products to Malaysian people.

Moreover, while expanding the company within a new emerging market, the company also faces many challenges such as language & cultural barriers, tax code compliance, and local competition and there is a need to sort out the issues to expand the business in Malaysia.

5.2 Recommendations

Four Seas Group should focus on personal management skills in which they identified the strength and weakness of every employees. Further, the manager of Four Seas Group should also learn how to delegate the roles and responsibilities to the team so that they will easily perform the work in a better manner.

Four Seas Group should also provide effective training sessions to their employees so that they will easily enhance the strength of the entire team and this in turn also helps to increase the productivity level of a firm. Moreover, it is also recommended to the firm that for smooth functioning, the company should hire experts who may easily help to attain the defined aim and objectives.

Further, it is also recommended to the management that the company should focus on the quality of products and services that will be offered to customers. As Malaysia is a highly Muslim-dominated country and thus, people are highly concerned with the quality of products. That is why, the management team should develop key performance indicator that helps to meet the requirements of customers which in turn ensures about smooth functioning of operations.
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