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Forta was the leading firm in the Romanian furniture market, but its growth had slowed since 2010 as IKEA and other foreign furniture companies increased their penetration into the Romanian market. To capture biggest pie back, the company made a big move in 2013 and acquired Abilit. As IKEA entered and captured a significant percentage of market, like most of firms, the Forta executives start getting interested in entering the foreign markets to grow bigger and make more profit. Romania was the second largest manufacturer of furniture in eastern Europe, behind Russia, with over $1.2 billion in retail revenue in 2014. Romanian consumers were price sensitive. If a brand could meet the desired price point, customers focused on durability, as longer-lasting furniture would allow them to spend less in the long run. ConAsumers with disposable income valued craftsmanship and would spend more for high-quality furniture. Brands regarded as high quality enjoyed significant brand loyalty. A company that won a Romanian consumer's initial business had a 75% chance of retaining that customer over the next 20 years. Younger Romanian consumers differed from their older counterparts because they focused less on durability and more on comfort and aesthetics. They wanted products that looked and felt new and up to date. This generation viewed national borders as more permeable. They were more likely to have visited or studied in other countries, and they did not have as much loyalty to Romanian brands. Forta would commit significant resources to an expansion plan for creating long- term growth. With this goal in mind, they had to decide what opportunities were the most promising and likely to be successful. Forta had two primary options. One involved expanding into Romania's eastern European neighbor, Bulgaria, where it was already selling some furniture without making a concerted effort to build market share. The other option was to expand into Poland, where customers had shown an interest in Forta's furniture. Doing so would facilitate Forta's eventual expansion into western Europe, particularly into France, Germany, and the United Kingdom. Because consumers in these countries were wealthier, and the markets were large enough to support a small presence by Forta, this expansion was essential for Forta to grow significantly. However, entering western Europe would be a challenge for which Forta was not yet ready. Building a brand in western Europe would be expensive, and mistakes would be costly. Given the less favorable impressions of Romanian furniture in western European countries, it was also likely that in the short run, consumers in these countries might not be willing to pay enough to make entering there profitable for Forta. If a venture into western Europe failed, it might not get a second chance. Poland offered a good intermediate step for this long-term plan while Forta learned both the varied needs of different countries and the logistics required to meet those needs. Forta Branded Entry. In the Polish market, forecasts suggest that Forta could build a .5% market share in year one, an additional .5% in year two, and an additional 1.5% in year three, totaling a 2.5% market share as a branded entry. Retailer margins are 30%. To reach this level of market penetration, Forta would need to spend $20 million for marketing and another $6 million in design and production improvements. It is estimated that a Forta product would have a retail price of $110. While in the Bulgarian

Forta was the leading firm in the Romanian furniture market, but its growth had slowed since 2010 as IKEA and other foreign furniture companies increased their penetration into the Romanian market. To capture biggest pie back, the company made a big move in 2013 and acquired Abilit. As IKEA entered and captured a significant percentage of market, like most of firms, the Forta executives start getting interested in entering the foreign markets to grow bigger and make more profit. Romania was the second largest manufacturer of furniture in eastern Europe, behind Russia, with over $1.2 billion in retail revenue in 2014. Romanian consumers were price sensitive. If a brand could meet the desired price point, customers focused on durability, as longer-lasting furniture would allow them to spend less in the long run. ConAsumers with disposable income valued craftsmanship and would spend more for high-quality furniture. Brands regarded as high quality enjoyed significant brand loyalty. A company that won a Romanian consumer's initial business had a 75% chance of retaining that customer over the next 20 years. Younger Romanian consumers differed from their older counterparts because they focused less on durability and more on comfort and aesthetics. They wanted products that looked and felt new and up to date. This generation viewed national borders as more permeable. They were more likely to have visited or studied in other countries, and they did not have as much loyalty to Romanian brands. Forta would commit significant resources to an expansion plan for creating long- term growth. With this goal in mind, they had to decide what opportunities were the most promising and likely to be successful. Forta had two primary options. One involved expanding into Romania's eastern European neighbor, Bulgaria, where it was already selling some furniture without making a concerted effort to build market share. The other option was to expand into Poland, where customers had shown an interest in Forta's furniture. Doing so would facilitate Forta's eventual expansion into western Europe, particularly into France, Germany, and the United Kingdom. Because consumers in these countries were wealthier, and the markets were large enough to support a small presence by Forta, this expansion was essential for Forta to grow significantly. However, entering western Europe would be a challenge for which Forta was not yet ready. Building a brand in western Europe would be expensive, and mistakes would be costly. Given the less favorable impressions of Romanian furniture in western European countries, it was also likely that in the short run, consumers in these countries might not be willing to pay enough to make entering there profitable for Forta. If a venture into western Europe failed, it might not get a second chance. Poland offered a good intermediate step for this long-term plan while Forta learned both the varied needs of different countries and the logistics required to meet those needs. Forta Branded Entry. In the Polish market, forecasts suggest that Forta could build a .5% market share in year one, an additional .5% in year two, and an additional 1.5% in year three, totaling a 2.5% market share as a branded entry. Retailer margins are 30%. To reach this level of market penetration, Forta would need to spend $20 million for marketing and another $6 million in design and production improvements. It is estimated that a Forta product would have a retail price of $110. While in the Bulgarian

Management, Loose-Leaf Version
Management, Loose-Leaf Version
13th Edition
ISBN:9781305969308
Author:Richard L. Daft
Publisher:Richard L. Daft
Chapter8: Strategy Formulation And Execution
Section: Chapter Questions
Problem 2CFCA
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 Which entry mode makes the most sense if Forta were to expand ? 

Forta was the leading firm in the Romanian furniture market, but its growth had slowed since 2010 as IKEA and other foreign furniture companies increased their penetration into the Romanian market. To capture biggest pie back, the company made a big move in 2013 and acquired Abilit. As IKEA entered and captured a significant percentage of market, like most of firms, the Forta executives start getting interested in entering the foreign markets to grow bigger and make more profit. Romania was the second largest manufacturer of furniture in eastern Europe, behind Russia, with over $1.2 billion in retail revenue in 2014. Romanian consumers were price sensitive. If a brand could meet the desired price point, customers focused on durability, as longer-lasting furniture would allow them to spend less in the long run. ConAsumers with disposable income valued craftsmanship and would spend more for high-quality furniture. Brands regarded as high quality enjoyed significant brand loyalty. A company that won a Romanian consumer's initial business had a 75% chance of retaining that customer over the next 20 years. Younger Romanian consumers differed from their older counterparts because they focused less on durability and more on comfort and aesthetics. They wanted products that looked and felt new and up to date. This generation viewed national borders as more permeable. They were more likely to have visited or studied in other countries, and they did not have as much loyalty to Romanian brands. Forta would commit significant resources to an expansion plan for creating long- term growth. With this goal in mind, they had to decide what opportunities were the most promising and likely to be successful. Forta had two primary options. One involved expanding into Romania's eastern European neighbor, Bulgaria, where it was already selling some furniture without making a concerted effort to build market share. The other option was to expand into Poland, where customers had shown an interest in Forta's furniture. Doing so would facilitate Forta's eventual expansion into western Europe, particularly into France, Germany, and the United Kingdom. Because consumers in these countries were wealthier, and the markets were large enough to support a small presence by Forta, this expansion was essential for Forta to grow significantly. However, entering western Europe would be a challenge for which Forta was not yet ready. Building a brand in western Europe would be expensive, and mistakes would be costly. Given the less favorable impressions of Romanian furniture in western European countries, it was also likely that in the short run, consumers in these countries might not be willing to pay enough to make entering there profitable for Forta. If a venture into western Europe failed, it might not get a second chance. Poland offered a good intermediate step for this long-term plan while Forta learned both the varied needs of different countries and the logistics required to meet those needs. Forta Branded Entry. In the Polish market, forecasts suggest that Forta could build a .5% market share in year one, an additional .5% in year two, and an additional 1.5% in year three, totaling a 2.5% market share as a branded entry. Retailer margins are 30%. To reach this level of market penetration, Forta would need to spend $20 million for marketing and another $6 million in design and production improvements. It is estimated that a Forta product would have a retail price of $110. While in the Bulgarian
Transcribed Image Text:Forta was the leading firm in the Romanian furniture market, but its growth had slowed since 2010 as IKEA and other foreign furniture companies increased their penetration into the Romanian market. To capture biggest pie back, the company made a big move in 2013 and acquired Abilit. As IKEA entered and captured a significant percentage of market, like most of firms, the Forta executives start getting interested in entering the foreign markets to grow bigger and make more profit. Romania was the second largest manufacturer of furniture in eastern Europe, behind Russia, with over $1.2 billion in retail revenue in 2014. Romanian consumers were price sensitive. If a brand could meet the desired price point, customers focused on durability, as longer-lasting furniture would allow them to spend less in the long run. ConAsumers with disposable income valued craftsmanship and would spend more for high-quality furniture. Brands regarded as high quality enjoyed significant brand loyalty. A company that won a Romanian consumer's initial business had a 75% chance of retaining that customer over the next 20 years. Younger Romanian consumers differed from their older counterparts because they focused less on durability and more on comfort and aesthetics. They wanted products that looked and felt new and up to date. This generation viewed national borders as more permeable. They were more likely to have visited or studied in other countries, and they did not have as much loyalty to Romanian brands. Forta would commit significant resources to an expansion plan for creating long- term growth. With this goal in mind, they had to decide what opportunities were the most promising and likely to be successful. Forta had two primary options. One involved expanding into Romania's eastern European neighbor, Bulgaria, where it was already selling some furniture without making a concerted effort to build market share. The other option was to expand into Poland, where customers had shown an interest in Forta's furniture. Doing so would facilitate Forta's eventual expansion into western Europe, particularly into France, Germany, and the United Kingdom. Because consumers in these countries were wealthier, and the markets were large enough to support a small presence by Forta, this expansion was essential for Forta to grow significantly. However, entering western Europe would be a challenge for which Forta was not yet ready. Building a brand in western Europe would be expensive, and mistakes would be costly. Given the less favorable impressions of Romanian furniture in western European countries, it was also likely that in the short run, consumers in these countries might not be willing to pay enough to make entering there profitable for Forta. If a venture into western Europe failed, it might not get a second chance. Poland offered a good intermediate step for this long-term plan while Forta learned both the varied needs of different countries and the logistics required to meet those needs. Forta Branded Entry. In the Polish market, forecasts suggest that Forta could build a .5% market share in year one, an additional .5% in year two, and an additional 1.5% in year three, totaling a 2.5% market share as a branded entry. Retailer margins are 30%. To reach this level of market penetration, Forta would need to spend $20 million for marketing and another $6 million in design and production improvements. It is estimated that a Forta product would have a retail price of $110. While in the Bulgarian
market, forecasts suggest that Forta could build a 1% market share in year one, an additional 3% in year two, and an additional 4% in year three, totaling an 8% market share as a branded entry. Based on Forta's cost of capital, all revenue streams in years two and three should be discounted by 10% annually. Retailer margins are 25%. To reach this level of market penetration, Forta would need to spend $3 million in marketing expenses over the three-year period and another $500,000 in design and production improvements. It is estimated that Forta's product would have an average retail price of $90. Forta Private-Label Entry. In comparison, in a Polish market, forecasts suggest that Forta could build a .5% market share in year one, an additional 1% in year two, and an additional 2.5% in year three, totaling a 4% market share as a private-label entry. The large private-label forecasts are due to Forta's ability to underprice competition to gain a foothold, which in turn is due in large part to lower labor costs and excess capacity. As a private label, Forta would need to pass through 30% of revenues to the retailer and 25% to the consumer-facing brand. The retailer would charge an average price of $110. Forta would need to spend $5 million for marketing and $6 million in design and production improvements. While in Bulgaria, Forecasts suggest that Forta could build a 1% market share in year one, an additional 1% in year two, and an additional 2% in year three, totaling a 4% market share. Because products are already priced quite low in the Bulgarian market, Forta would find it difficult to have private-label price points that would satisfy the local brands. Forta would have to pass through 25% of revenues to the retailer and another 20% to the consumer-facing brand. The retailer would charge an average price of $90. Forta would require $500,000 in marketing expenses and $500,000 in design and production improvements. There were some design and style preferences that seemed to vary by country, but with a design team fully integrated, the company could address this issue. I recommend that Forta would expand their business in Poland with a Branded- entry because based on data given, the investment compared to other entry would require a higher amount than that of branded entry. But, it is important for Forta to be the initial brand to expand, as it is the flagship of the company. Both durability and aesthetics are important to Polish consumers. Interior design is a growing phenomenon in Poland, so trendy products are valued. The most successful companies release new styles of furnishings quickly. However, many companies produce trendy products that have lower price points, but these products are not very durable. With Poland, Forta's expertise with manufacturing and logistics would ensure a successful expansion.
Transcribed Image Text:market, forecasts suggest that Forta could build a 1% market share in year one, an additional 3% in year two, and an additional 4% in year three, totaling an 8% market share as a branded entry. Based on Forta's cost of capital, all revenue streams in years two and three should be discounted by 10% annually. Retailer margins are 25%. To reach this level of market penetration, Forta would need to spend $3 million in marketing expenses over the three-year period and another $500,000 in design and production improvements. It is estimated that Forta's product would have an average retail price of $90. Forta Private-Label Entry. In comparison, in a Polish market, forecasts suggest that Forta could build a .5% market share in year one, an additional 1% in year two, and an additional 2.5% in year three, totaling a 4% market share as a private-label entry. The large private-label forecasts are due to Forta's ability to underprice competition to gain a foothold, which in turn is due in large part to lower labor costs and excess capacity. As a private label, Forta would need to pass through 30% of revenues to the retailer and 25% to the consumer-facing brand. The retailer would charge an average price of $110. Forta would need to spend $5 million for marketing and $6 million in design and production improvements. While in Bulgaria, Forecasts suggest that Forta could build a 1% market share in year one, an additional 1% in year two, and an additional 2% in year three, totaling a 4% market share. Because products are already priced quite low in the Bulgarian market, Forta would find it difficult to have private-label price points that would satisfy the local brands. Forta would have to pass through 25% of revenues to the retailer and another 20% to the consumer-facing brand. The retailer would charge an average price of $90. Forta would require $500,000 in marketing expenses and $500,000 in design and production improvements. There were some design and style preferences that seemed to vary by country, but with a design team fully integrated, the company could address this issue. I recommend that Forta would expand their business in Poland with a Branded- entry because based on data given, the investment compared to other entry would require a higher amount than that of branded entry. But, it is important for Forta to be the initial brand to expand, as it is the flagship of the company. Both durability and aesthetics are important to Polish consumers. Interior design is a growing phenomenon in Poland, so trendy products are valued. The most successful companies release new styles of furnishings quickly. However, many companies produce trendy products that have lower price points, but these products are not very durable. With Poland, Forta's expertise with manufacturing and logistics would ensure a successful expansion.
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