Market Entry Strategy for Palliser in Mexico

This report analyzes the market entry options for Palliser Furniture in the Mexican market, including SWOT analysis, competitive advantage, DEPEST analysis, and Porter's five forces analysis.

Running head: BUS8350 GLOBAL BUSINESS MANAGEMENT CAPSTONE
BUS8350 Global Business Management Capstone
Student’s Name
University Name
Author’s Note

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Table of Contents
Introduction................................................................................................................................3
1. SWOT analysis of market entry of Palliser in the Mexican market......................................3
1.1 Strengths...........................................................................................................................3
1.2 Weaknesses.......................................................................................................................4
1.3 Opportunities....................................................................................................................4
1.4 Threats..............................................................................................................................4
2. Customer Value Proposition..................................................................................................5
3. Competitive advantage...........................................................................................................6
4. DEPEST analysis...................................................................................................................6
4.1 Demographic....................................................................................................................6
4.2 Economic..........................................................................................................................7
4.3 Socio-Cultural...................................................................................................................7
4.4 Technological...................................................................................................................7
4.5 Ecological.........................................................................................................................8
4.6 Political.............................................................................................................................8
5. Porter’s five forces analysis...................................................................................................8
5.1 Supplier’s bargaining power.............................................................................................8
5.2 Bargaining power of buyers.............................................................................................9
5.3 Threat from substitute products........................................................................................9
5.4 Threat from new entrants..................................................................................................9

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6. Market entry strategy for Palliser in Mexico.........................................................................9
7. Selection and justification of the target market segment in Mexico....................................10
8. 4Ps analysis of Palliser for entry in the Mexican market.....................................................10
8.1 Products..........................................................................................................................10
8.2 Price................................................................................................................................10
8.3 Promotion.......................................................................................................................10
8.4 Place...............................................................................................................................11
9. Description of the business risks..........................................................................................11
10. Financial viability and attractiveness of the Business Plan...............................................11
Conclusion................................................................................................................................15

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Introduction
This report will analyse the market entry options for the Palliser Furniture in the
Mexican market. In the first part of the essay, the necessary strengths and opportunities that
the company would experience in the Mexican market have been highlighted. Along with that
the threats an risks that the company would witness will also be highlighted in the report. In
the next part, the competitive advantage of the company by operating in the Mexican market
will be highlighted. The DEPEST model have been highlighted in the next part of the report.
This model specifically sheds light on the various macro environmental factors that would be
detrimental for the success or failure of the company in Mexico. Lastly, the 4Ps model as
well as the Market Segmentation theory have been applied for the assessment of marketing
feasibilities that would impact the business of the company in the country. In the end, a
detailed analysis of the business plan of the company for launching its products have been
highlighted here.
1. SWOT analysis of market entry of Palliser in the Mexican market
1.1 Strengths
Palliser provides good quality products that are durable and light weight. More
importantly, the prices of the products of the company are also low. This is why they are
going to get a competitive edge in the Mexican market. The customers of the Mexican
market, unlike the customers of the other neighbouring customer bases, prefer changing
furniture on a regular basis and keep up with the latest trends (Yu et al. 2017). Whereas broad
customer bases elsewhere consider furniture to be lifetime asset. Herein lies the main strength
(advantage) in terms of entering the Mexican customer market.

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Other than that cost control and sustainability are two well-known aspects of the
company and this is going to favour them highly in the Mexican market as the primary
customer base of the region are middle class people with average disposable income.
1.2 Weaknesses
One of the primary weaknesses of the furniture of the company is that they require
manual set up and they are also lacking is styles, patterns and colours. These are the attributes
that the Mexican furniture brands are known (Thomas & Ong, 2016). Furthermore, given the
fact that the customers mostly favour to alternate their products on a regular basis shows that
the above discussed attributes of the Palliser Company can go against the taste of the
customers.
1.3 Opportunities
The market of home furnishings in the Mexican market is highly segmented. Again,
the developing consumer preferences in the market are rather chained. This shows that if the
company is once able to establish a likeability for their products among a small customer
base, customer loyalty of the brand would gradually keep spreading. Another important
opportunity for the company in the market is that Mexico is having a rapidly growing middle
class who are developing a likeability for the branded furniture (Klooster & Mercado-Celis,
2016). This would favour the market entry of the company in the Mexican market.
1.4 Threats
The existing branded as well as fashionable furniture brands in the Mexican market
are going to poise a high level of competition for Palliser in the Mexican market. Besides, the
corruption level in the country is also high and that is why the company might find it difficult
to establish a significant business set up with physical stores and business warehouses.

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However, the SWOT analysis shows that if the company is able to meet the
customer’s requirements in the Mexican market and gain a certain level of brand equity
among the primary customer base, the company would be able to gain easy market
penetration in the furniture industry of Mexico.
2. Customer Value Proposition
A chief aspect of the value proposition of the Mexican market is that the customers
need to well communicate with the values that the products are bringing in the customer
market.
In this context, the cost leadership of the Palliser Company is going to favour the
market entry of the company in Mexico. As Ng, B. K., & Kanagasundaram, T. (2017),
informs, in the other markets where the company have been operational, they have shown a
typical trend of adapting to the pricing policies of the local market and as such moderated the
prices of the products keeping the quality and the designs of the products almost similar. The
company after entering in to the Mexican customer market, only needs to develop a distinct
product line based on the preferences of the customers. That is how the brand loyalty and the
product equity can be developed in the target market of Mexico that is mostly comprised of
the young and middle aged customers most of whom pertain to the middle class and have a
distinct taste for branded customers.
The advertising campaign that have been launched by the company would be
favouring the recent market trend of the Mexican market. The advertisements of the Palliser
Company exhibits that the people should not consider changing furniture with life style
(Rabellotti, 2016). This is a very poignant step that shows that the company is ready to accept
the demographic purchasing pattern in the country and as such it implies that they have been
able to adapt to the buying trends of the company. They have already introduced flexible

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furniture (multipurpose) and other categories of kitchen as well as living room furniture that
are interchangeable.
The company is pertaining to the market competition based on the four significant
features. These are:
 Cost Leadership
 Catering to broad customer segments in the new market
 Design Differentiation
Again, in order to alleviate the user experience, the company are introducing the designation
of design consultants in the Mexican market. These professional are going to provide free
advice to the customers regarding how they can best decorate their home using products of
Palliser (Guerrero et al. 2017). This is a customer involvement strategy that adds significantly
to the value proposition also.
3. Competitive advantage
As highlighted in the SWOT analysis, the strength of the company to develop low
cost products and that also with the appropriate product qualities grants an assured advantage
to the Palliser Company in consideration to then recent economic developments of the
Mexican major customer base. Mexico is a potential market and the demographic customer
are highly influenced by the adherence to the American market alignment and that is why
having a comprehensive sales party in the customer market of USA is going to help the
company develop a purchasing parity in the Mexican market also.
4. DEPEST analysis
4.1 Demographic

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The primary quality of the major demographic base of the customer market of Mexico
is that the majority of the purchasing parity (in context to the furniture industry) lies with the
young and middle aged population. Analysis by Gereffi (2017), reveals that this is the exact
customer segment that likes changing products mostly and adapting to the latest life style
trends. Palliser provides good quality products that are durable and light weight. More
importantly, the prices of the products of the company are also low. That is where the role of
the company’s sales strategy is going to come in to play. The trendy product line of Palliser is
going to entice the above mentioned customer base.
4.2 Economic
The economic advantage of the Palliser company is that they are they are offering
good quality product at a comprehensible price range and because of that the company is
going to reap an added advantage of quicker market penetration. Other than that the company
is going to enjoy the advantages of high purchasing parity of the target sales market where
they are operating. Mexico have also witnessed a steady growth in its GDP and that implies
that the market liquidity of the market will keep rising steadily (Story, 2014). Hence, the time
for the market entry of the company is also ideal.
4.3 Socio-Cultural
In Mexico, the main characteristic of the customer’s buying parity is highly dependent
on the decision taken by the elders also, particularly regarding the homely assets like
furniture. In this context, Arriaga & Leal (2018), have opined that the elders while shopping
always seeks for price comparison and as an outcome, of which, it implies that the company
have to resemble with the pricing trends of the region where they are attempting to maximise
their sales.
4.4 Technological

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One most important technological aspect of the business of Palliser is that they are
coming from an origin where they were mostly accustomed with warehouse storing and
physical stores operations. On the contrary, the market in Mexico heavily relies on
ecommerce. This is where the company needs to develop an absolutely new infrastructure
and update their whole warehouse potential, digitally (Griffith et al. 2017). This would incur
a heavy investment and require a distinct team of technical proficiency which has an
experience of operating in the local and zonal markets of Mexico and also a very good
understanding of the market trends as well as demographic demands of the customers.
4.5 Ecological
The company has launched an environment management system by means of which
they can reduce the environmental impact by using the currently employed resources of the
company. The baseline environment performance of the company exhibits that they generally
prefer to use seasoned wood for all their products. In order to reduce the environmental
impact from their products, the company have also planned to develop synthetic timber from
absolutely natural ingredients. This would help the company to contribute to the green
synergy program of the country.
4.6 Political
The Mexican political domain have been quite open to the brands that have a prolific
business base in the American domain. As a consequence the brands that have gained access
to the American market are greatly favoured in the Mexican market also. As Ruiz Massieu
and González Brambila (2016), informs, Mexico is a popular supply chain for the products of
American origin. That is why, the governments of the areas have developed a strategic
collaboration that would enable trade to flourish. Now since, Palliser is a company that have
well spread .business in US, the market entry would be easier for the company.

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5. Porter’s five forces analysis
5.1 Supplier’s bargaining power
Supplier’s bargaining power in Mexican market is very low. This is because, very less
proportion of the timber is procured from the local suppliers. Majority of the raw timber is
imported by the company. However, in Mexico, the company uses some selective suppliers
only. In fact, the company also conducts aplenty audits every year and thus ensures that there
is regularity in the supply chain and absolutely no violations.
5.2 Bargaining power of buyers
The influencing capacity of the individual buyers in the country is minimal. However,
since the company lays high level of emphasis on the attractiveness of the products as well as
their affordability, it can be easily commented that the company seriously considers the
influence of the buyers on the business. In the same context, Finzi and Pelizzari (2017),
informs that the company have to manufacture products that suits the pockets of the
customers.
5.3 Threat from substitute products
The threat of substitute products is low in the Mexican market. This is because of the
fact that the company makes products from various kinds of products that are natural
substitute of timber. Besides, owing to the availability of various products under the same
roof, the company have less threat from the substitute products.
5.4 Threat from new entrants
The threat of the new entrants entering the market is high since this is the ideal time
for the market entry in the furniture industry of the country (Kabiraj, 2018). However, other

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than Palliser, there are no other major brands in the market who are likely to make an entry in
the market of Mexico.
6. Market entry strategy for Palliser in Mexico
Based on the size of the market, specific regional territories should be considered by
the company. Like most of the firms, local distributors or agents have to be affixed for the
various locations. The company can also consider framing contract with the government
which would help the company to gain momentum of market entry.
7. Selection and justification of the target market segment in Mexico
In the Mexican market, the company should specifically target the young and the
middle aged customers. This is because, this customer base specifically emphasises on
buying the latest products that pertain to trendy lifestyle (Sellitto et al. 2017). Other than that
it is to be ensured that the salaried section of the society develops a brand loyalty towards
products of Palliser.
8. 4Ps analysis of Palliser for entry in the Mexican market
8.1 Products
The company specialises in making sectional gourmet furniture, beds and sofas as
well as room décor. There are not many companies that professes in manufacturing of such a
vast range of products in the country.
8.2 Price
The company have to keep the prices of the products moderate. They should not
lessen the price excessively. Otherwise the brand parity of the product line would go down.
On the other hand, the price cannot be too high also. This is because the target customer
segment is mainly salaried middle class.

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8.3 Promotion
As a part of promotional strategy, the company have to pertain to traditional television
advertisements as well as online branding over the social media as well as paid websites.
8.4 Place
The specific residential zone based cities should be the main target of the company.
9. Description of the business risks
The threats are as follows:
 Threats coming from the large companies as well as economies of scale
 Stringent business relation with the current existing companies in the circuit
(Bahmani‐Oskooee, Harvey & Hegerty, 2018)
 Failure to create product differentiation from other leading brands.
10. Financial viability and attractiveness of the Business Plan
The basic financial goals that have been set by the company are:
 Obtaining an operating line of credit from one financial institution
 Growth of finance through retained earnings
 Operating over a 25 to 30% gross margin.
The viability of the business plan is reflected in the table of annual assumptions that is stated
below:

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The break-even analysis of the business of Palliser shows that immediately after the
market entry, the costs of operation would increase and then gradually stabilise. The
following table exhibits that Palliser needs to sell off 16 units or 32 lineal cabinet feet in
order to break even (de Oliveira, 2016).
The Break-Even analysis shows that the monthly revenue break-even is $38,806. On
one hand it is evident that the average percent variable cost is 68% and the estimated value of
the monthly fixed costs is $12327 (DaSilva-Glasgow et al. 2016). The projected business
volume of the company is exhibited in the following pro forma analysis.

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Based on the determination of the Standard Industry Classification, a table have been
prepared that highlights important ratios for the Palliser Industry.
Ratio Analysis
Year 1 Year 2 Year 3
Industry
Profile
Growth of Sales 0.00% 126.24% 50.00% 7.90%
% of Total Assets
Accounts that are Receivable 42.13% 64.83% 60.00% 35.00%
Rest of the Current Assets 12.28% 8.35% 5.15% 30.30%
All over Current Assets 100.00% 100.00% 100.00% 71.50%
Long-term Assets 0.00% 0.00% 0.00% 28.50%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 21.77% 38.66% 35.55% 42.70%
Long term Liabilities 33.92% 15.41% 4.28% 14.30%
Total Liabilities 55.69% 54.07% 39.83% 57.00%

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Net Valuation 44.31% 45.93% 60.17% 43.00%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 31.76% 27.50% 27.50% 31.60%
Selling, General and Administrative
Expenses
34.37% 24.76% 21.45% 16.70%
Advertising Expenses 1.27% 0.80% 1.00% 0.50%
Profit Before Interest and Taxes -1.70% 3.56% 7.25% 3.40%
Main Ratios
Current 4.59 2.59 2.81 1.64
Quick 4.59 2.59 2.81 1.28
Total Debt : Total Assets 55.69% 54.07% 39.84% 57.00%
Pre-tax Return on the Net Worth -22.04% 40.45% 63.17% 7.50%
Pre-tax Return on the Assets -9.77% 18.58% 38.01% 17.40%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin -2.61% 2.74% 5.96% n.a
Equity Return -22.04% 34.38% 52.90% n.a
Ratios of the activities
Receivable Turnover of accounts 6.67 6.67 6.67 n.a

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Collection Days 58 39 45 n.a
Accounts Payable Turnover 14.65 11.17 12.18 n.a
Payment Days 28 21 25 n.a
Total Turnover of assets 3.75 5.77 5.34 n.a
Debt Ratios
Debt to Net Worth 1.27 1.18 0.68 n.a
Current (Liab. to Liab.) 0.40 0.720 0.890 n.a
Liquidity Ratios
Net Working Capital $92,257 $106,350 $181,125 n.a
Interest Coverage -1.88 10.66 56.14 n.a
Additional Ratios
Assets to Sales 0.27 0.17 0.19 n.a
Current Debt/Total Assets 22% 39% 36% n.a
Acid Test 2.66 0.91 1.13 n.a
Net Worth 8.46 12.56 8.87 n.a
Dividend Pay out 0.00 0.00 0.00 n.a
Conclusion

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Cost control and sustainability are two well-known aspects of the company and this is
going to favour them highly in the Mexican market as the primary customer base of the
region are middle class people with average disposable income. The customers of the
company mostly favour to alternate their products on a regular basis shows that the above
discussed attributes of the Palliser Company can go against the taste of the customers. In the
next part of the report, the marketing benefits of the company have been highlighted. Based
on the size of the market, specific regional territories should be considered by the company.
Like most of the firms, local distributors or agents have to be affixed for the various
locations. The company can also consider framing contract with the government which would
help the company to gain momentum of market entry. In the scope of the analysis, it is
evident that the Company have to keep the prices of the products moderate. They should not
lessen the price excessively. Otherwise the brand parity of the product line would go down.
On the other hand, the price cannot be too high also. This is because the target customer
segment is mainly salaried middle class. In the end, a Break even and profit ratio analysis of
the company have also been conducted. The Break-Even analysis shows that the monthly
revenue break-even is $38,806. On one hand it is evident that the average percent variable
cost is 68% and the estimated value of the monthly fixed costs is $12327.

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