Strategy, Organization, and Opportunity Assessment

Introduction

The small and medium-sized enterprise (SME) is an essential sector in any country's economy. Typically, SMEs is preferred as they stimulate growth and diversifies economic activities bridging the gap between the micro and large-scale enterprises (Kelly, 2015). Unfortunately, in a challenging economic setting, it becomes tough for small-scale businesses to grow and increase their productivity against the framework of weak market demand. In the 21st-century internationalization has been the most modern approaches adopted by almost all corporations to venture into foreign markets. Global interdependence is now pervasive not only in the political and military setting but also in the economic environment (Meyer & Estrin, 2014). Consequently, internationalization has attracted significant interest from nearly every company as a way of expanding market opportunities, diversifying risk, and attaining substantial economies of scale. Arabian International Company (AIC) is among the companies in Saudi Arabia weighing its readiness to expand globally.

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The Arabian International Company and its Readiness to Internationalization

Arabian International Company is a Saudi Arabian owned structural steel engineering, fabrication, and manufacturing Company founded in 1994. AIC headquarters are in Jeddah with secondary plants in the United Arab Emirates (UAE) (Al Khaimah, 2011). From its early days, AIC focused on tackling the most challenging projects, which requires high-quality demands and schedules. In its initial stage of development, the company built an extensive reference in an array of business sectors primarily on issues related to aluminium smelting and fossil power projects. Similarly, AIC aligned themselves with main contractors in Saudi Arabia, therefore, becoming their steel partner of choice. Nevertheless, although AIC initially specialized in steel fabrication, they have grown into a business that spans multiple industrial disciplines and supporting functions (Al Khaimah, 2011). The company has managed to earn reputation in plate works, piping, sheet metals, telecommunication and power transmission.

Due to the limited size of the local market in Saudi Arabia, it is prudent for AIC to embrace the internationalization strategy to secure economic growth. Typically, internationalizing a firm involves broadening its productivity and performance of trade and investment beyond the national borders. The growth of international businesses has concurred with the widespread phenomenon of market globalization and the ongoing economic integration mainly caused by the growing interdependence between nations (Cavusgil, Rammal & Freeman, 2011). However, going global does not guarantee success, and therefore internationalization readiness is among the key factors determining the development of a business in a multinational market (Venkat, 2015). For a multinational corporation to succeed it should, therefore, organize, produce, source, market and carry out activities that adds value in the international scale.

AIC decision to expand its activities to foreign markets is driven by its objectives to grow, diversify business risk, enlarge its economies of scale and secure its supply chain. Despite being successful in Saudi Arabia, AIC growth was getting limited in the domestic market, which is small and keeps attracting new investors. Therefore, it is necessary to seek more attractive and profitable market, which will sustain growth in the company. However, its plan would expose the company to challenges and risk factors such as cultural gaps and the foreign exchange among other trials. According to internationalization process theory, exploring international market is a gradual and unidirectional learning process due to lack of resources, information, and experience related to the prospected market limiting their product potential in the foreign market.

Estimating Industrial Market Potential and Data Sources Used for Sampling

The estimation of demand is among the most common issues in international marketing. The economist has come up with various techniques such as the chain ratio method, multiple regression modelling and time series analysis among other models to build a better understanding of market potential. Nevertheless, it is difficult to have a perfect estimation method but based on evaluation requirements each approach has its strength and faults (Waheeduzzaman, 2014). By carrying out a considerable evaluation of the market potential in the foreign markets, AIC would make an informed decision on its global strategy. Some of the market potential indicators AIC should consider include precision, price, and prediction.

The Chain Ratio Method

The chain ratio technique is used to estimate the total demand of a product in which a base number such as the total number of households in a country is multiplied by several percentages of the targeted population in need of services or products offered by a business. For instance, for piping AIC would take the number of household and business facilities and multiply it by the percentage of reported cases of leakages in the nation of interest. Similarly, on steel works the company would take the mass of steel used in various construction sites and relate it with the number of steel workshops in the country of interest.

The Time Series Analysis

Taking the United States as the potential market for investment AIC would look for data on piping, steel equipment and telecommunication in all emerging markets to analyze the trend and patterns of consumption. Mostly, the time series data analysis is typical for monitoring industrial processes. The approach accounts for facts as indicated by data collected over a given period (Arsham, 2015). By embracing a transnational global strategy, AIC can use their partners to collect essential data on the past trends of sales over a given period. The facts would then be used to estimate the levels of demand in that country. Nevertheless, there is a risk in assuming the future will correspond to the past although predictor variables might be used to mitigate the problem. Likewise, for precision, AIC should carry out a multiple time series where they have to analyze sales of their brands and those of key competitors.

Proxy Indicators

The success of proxy indicators predominantly depends on surrogate used the analysis purpose. The process relies heavily on available data to drive a suitable comparison (Kadric & Rangelova, 2013). For example, it would be helpful for AIC to have a precise number of businesses and households connected to telecommunication facilities and indeed of steelworks. Therefore, in this case, based on the cost of various products and service affordable to a particular group of potential customers AIC can carry out a proxy indicator analysis to estimate the demand for their products. For instance, those who can afford washing machines are likely to be connected to telecommunication services. Likewise, those who could manage to pay for personal cars would also put up and provide steelwork services.

Lastly, AIC would consider sampling to obtaining a wide range of opinions from diverse sources in their market research. A sample design would provide a framework for gathering essential information used in the estimating market potential (Navarro-Garcia, Arenas-Gaitan & Rondan-Cataluna, 2014). The time series analysis and the chain ratio method demands some degree of precision. Therefore, AIC depends highly on collected data mostly by potential partners or from the industrial database related to the prospective foreign market. By considering the two sources of information simultaneously, AIC would make an informed decision on internationalization.

References

Al Khaimah, R. (2011). Arabian International Company for Steel StructuresLLC. Businessgateways.com. Retrieved from https://businessgateways.com/aicsteel

Arsham, H. (2015). Time Series Analysis for Business Forecasting. Home.ubalt.edu. Retrievedfrom http://home.ubalt.edu/ntsbarsh/Business-stat/stat-data/Forecast.htm#rgintroduction

Cavusgil, S. T., Rammal, H., & Freeman, S. (2011). International business: The new realities.Pearson Higher Education AU.

David, J. P., & Cariou, G. (2014). Evaluating the Firm's Readiness for Internationalization: fromthe Design to the Application of an International Qualification Framework. InternationalJournal of Business and Management, 9(7), 1.

Griffin, R. W., & Pustay, M. W. (2012). International business. Pearson Higher Ed.

Kadric, E. S., & Rangelova, T. (2013). When is a firm ready to go abroad? An analysis of SMEinternationalization readiness.

Kelly, N. (2015). Seven Traits of Companies on the Fast Track to International Growth. HarvardBusiness Review. Retrieved 19 March 2018, from https://hbr.org/2015/03/7-traits-of-companies-on-the-fast-track-to-international-growth

Meyer, K. E., & Estrin, S. (2014). Local context and global strategy: extending the integrationresponsiveness framework to subsidiary strategy. Global Strategy Journal, 4(1), 1-19.

Navarro-Garcia, A., Arenas-Gaitan, J., & Rondan-Cataluna, F. J. (2014). External environmentand the moderating role of export market orientation. Journal of BusinessResearch, 67(5), 740-745.

Venkat, P. (2015). Global strategies. Retrieved from https://www.youtube.com/watch?v=83rBbT5Qq_E

Waheeduzzaman, A. N. M. (2014). Market potential estimation in international markets: acomparison of methods. Journal of Global Marketing, 21(4), 307-320.