Contents

Why Expand?.............................................................................................................. 2
External Environment Analysis...................................................................................2
Porter 5 forces......................................................................................................... 2
Kingdom of Saudi Arabia (KSA)............................................................................ 2
China-................................................................................................................... 3
Modes of Entry........................................................................................................... 3
Decision Criteria for entry mode.............................................................................3
Organizational Objectives-................................................................................... 3
Need for Control-.................................................................................................. 4
Internal Resources & Constraints.........................................................................4
Recommendation-................................................................................................... 4
Lessons....................................................................................................................... 4
Culture.................................................................................................................... 4
Political and legal environment:.............................................................................. 5
Economic and Trade polices:................................................................................... 5
Entry Mode:............................................................................................................. 5
International Marketing:.......................................................................................... 5
Restructure.............................................................................................................. 5

Why Expand?
There were 4 key issues with Jabwood in Lebanon
1) Limited revenue: Revenue streams have taken a steep decline over recent years and will take an even
further hit with the loss of being the exclusive supplier of TANITA. Limited funds are available for any
expansion, capped at 100,000 CBM to any single market.
2) Managerial constraints: It is required that management have full control of operations for any new
market. Furthermore, only family members are employed in managerial positions. There are only two
family members available with the required knowledge and expertise to take on new positions.
3) Political unrest: Recent uprising in the Middle East, especially in Syria. This has led to a closing of all
borders between Lebanon and Syria.
4) Loss of Exclusivity of TANITA:
Jabwood served as the exclusive supplier of TANITA for 20 years in the Middle East, a highly recognized
softwood brand from Russia. TANITA has accounted for nearly 70 percent of the companys revenue.
Due to Jabwoods loss in market share and sales, the rights to sell the product were extended to another
timber trading company, leading to the potential for increased competition and loss in market position.

External Environment Analysis

Porter 5 forces
Kingdom of Saudi Arabia (KSA)
Saudi timber market has moderate entry barriers. The most important is that existing timber importers are
major corporate houses with incredible wealth and influences. Given that, entry can be highly influenced
by the incumbent importers such as Al Khalaf and Sattra National trade. This also means that there could
be expected retaliation against new entrants if they challenge the sales and market share of existing and
well established traders. The small timeframe required to start a business and to import further heighten
the competition On the other hand, local regulations allow imports of wood products, duty free thus
fuelling supply of timber and other wood products.
As noted before, Saudi Arabia is a very lucrative market with expected investment in infrastructure to go
beyond 1000 Billion USD. Saudi Arabia is the biggest market in the Middle East with local consumption
est. to be 1 million CBM/year.
No capital restriction on mobility of funds makes is a very attractive market for new entrants.
Additionally- favorable capital regulations where capital can be 100% foreign. Looking at the expected
and current demand of timber and construction material and economies of scale: buyer concentration to
trader concentration ratio is very low. In other words, there are less firms for number of buyers for such
wood products. This means, suppliers have an upper hand in determining prices and lacks a general
ability to put the firm under pressure. Therefore, Saudi customer is less sensitive to price change.
Opposite is true in case of suppliers. There are far less suppliers of raw materials and very few substitutes.
As a result, customer has to agree to the prices set by these firms. This is especially attractive for any new
entrant since they can establish themselves as cost/price leaders gaining a competitive advantage.

Due to concentration of suppliers, each has to fight hard to maintain their market share. With increasing
industry growth, this competition becomes more intense. With diversified operations in different areas, a
new entrant will have to work hard to capture market share. Nonetheless, wood remains the primary
material for furniture making and construction in KSA. The locals lack experience in working with steels
and concrete making it favorable for Jabwood to enter.

ChinaStringent product requirement in the China market are favored by the suppliers which are able to charge
higher price for the lack of alternatives. Few suppliers fulfilling unique market demand of specialized
wood and quality thus reducing bargaining power of buyers. High demand and consumption for wood in
China together with limited supply produced locally, China has to depend on foreign export to meet its
needs. However, the timber industry still faces a high intensity of rivalry despite the Chinese preferring
other materials such as steel and concrete and lacks the skills with wood work.
Recommendation- In deciding the country for expansion, Jabwood will have to consider the competitive
opportunities and the risk involve in each country. While both China and Saudi Arabia offers great
opportunities to Jabwood, the level of risk involve in each country differ. With its prior experience in
Saudi Arabia, Jabwood faces lesser risk. China, although offers high growth opportunity, being a
culturally distant country as compared to home country, poses a higher risk to Jabwood. Therefore it
will be an offensive strategy to expand to China vs. defensive move to move to KSA to stop the
bleeding of depleting sales in Lebanon. However, High risk means high returns and if Jabwood moves to
China, it is poised to take advantage of high growth and can make high returns, if the strategic move is
successful. To solve its declining sale (that leads to TANITA pulling out from the exclusivity deal), it is
highly recommended that Jabwood expand to Saudi Arabia given the lower risk and shorter time required
to start the business going. In the long run, with proper restructuring of the management, trainings, and
marketing, Jabwood should consider a joint venture with another Chines company facilitating expansion
into China.

Modes of Entry
Decision Criteria for entry mode
Organizational ObjectivesTo secure and save TANITA exclusivity contract, Jabwood would require quick penetration into the
foreign market to boost its sales. The time pressure and mobility of funds will affect the mode of entry
and choice of market.

Need for ControlAs stated in the case, Fayez and Imad stresses on relevance and control as the primary factor when
deciding the mode of entry. Additionally, management has to have full control of all administrative and
operational tasks in the chosen country.

Internal Resources & Constraints

- Financial resources required for the expansion is a major constraint for Jabwood. With declining sales
and the loss of the exclusivity deal, Jabwood will face difficulty in having to invest heavily in the new
market.

RecommendationIn my opinion, although the team differed, having considered the advantages and disadvantages of each
entry modes in the presentation, together with Jabwoods objectives, motivation and resources available;
exporting will be the best option for it to expand to the new market. With a low intensity of investment
and high control, it is just what Jabwood is looking for when entering the new market. Moreover, having
the ability to ship global orders almost immediately, Jabwood can leverage on this core competency to
serve the market as soon as it enters.

Lessons
This case has allowed me to understand the importance of careful analysis of complex factors affecting
international business. In order to successfully manage and run international business one must ask- Why
engage in international business- expand sales, acquire resources and/or reduce risk? Identify the
objective/motivation for engaging in international business.
Once a business decides to go international, it has many external factors to take care of:

Culture:
In order to expand to another country a business has to understand and appreciate the culture of the host
country. Some of the primary strategic questions are: should I locate to similar culture which will allow
me to market my products easily or locate to distant culture which might give me more opportunity to
diversify but with high risk. For example, Jabwood had to make a decision to either move to KSA, which
is culturally similar and poses low risk vs moving to China- which is culturally distant and poses high risk
but high growth opportunity. Since Jabwood wanted to make a less risky decision owing to its limitations
and company objective it chose to locate to a country with similar culture to its own.
Another question is- if we do locate to a culturally distant country how do we restructure or management
and company orientation to adapt to local market and customs. If Jabwood moves to China- they would
have to learn how to do business from scratch since they are new to Chinese business customs. In my
opinion, you can get all the data you want to understand the economy and market size, but its an entirely
different ball game to learn behavioral practices of a different country. For example- Japanese dont like
physical contact during business meetings, but Indians like to emphasize on a point by touching the
shoulder.

Political and legal environment:

Another important point to consider is the lack of or existence of sound legal framework and political
stability. Its important to understand if the country is based on informal institutions where who you
know is more important like in KSA or where the government is too involved in corporate affairs like in
China.

Economic and Trade polices:

Following from the above point, company needs to perform economic analysis of the target country.
What is the rate of inflation, poverty, budget constraint of target population and economic growth? Most
developing countries have great economic growth indicators- but does that make launching a product
tenable? In case of Jabwood- economic indicators of China such as consumption rate, economic growth
make it a great market to enter. But its culturally distant nature and lack of familiarity makes it a high risk

environment for Jabwood. Similarly- trade policies such as import duties, free trade agreements, and
tariffs are important considerations when considering cost of doing business. According to this parameter
KSA is more favorable because there is no import duties on processed wood products.

Entry Mode:
After considering various factors to evaluate entry into a country, a company needs to figure out what is
the best entry mode. Without going into detail on pros and cons of each method- a company needs to
align entry mode with organizational objectives- i.e. do we want immediate penetration in a foreign
market or we have time to set up operations from scratch? Do we have enough capital to start operations
and which is the least capital intensive exercise? Can I bring back my money after Invest in a country? Do
we need a local partner or can we go alone and learn from mistakes like Amazon? What kind of control
on production or service needs to be there? Are there any internal constraints preventing us from going
global such as lack of management or capital?
All these questions have to be answered before we can evaluate a viable entry mode.

International Marketing:
After selecting a country and a viable entry mode- selling products is a different ball game. One has to
understand local market factors, limitations of local infrastructure and culture. Do we standardize the
product or adapt to local markets? Will my brand image be lost in translation?

Restructure
I think the most important consideration in International Business is an ability of a firm to maintain
operations abroad and important aspect of that is management. One of the key factors that prevents
Jabwoods move to China is lack of management personnel who know issues of challenging international
business and can effectively handle international business issues outlined above. So if an organization is
new to this area- they must take immediate steps to equip local and home office operations with qualified
managers (depending upon the strategy a company follows) For example. If Jabwood were to expand to
China they would have to adapt their products to local standards and hence would need to follow multidomestic strategy. For that they would need people who can adapt strategic decisions of home office to
local standards. Therefore they would need to use polycentric framework to staffing.