Market Entry Opportunity for Arnott's Australia in Indonesia and the UK

This paper explains the market entry opportunity of Arnott’s Australia in the UK and in Indonesia. It provides emphasis on the trade and business policies of both the countries which can be risks or opportunity for the business. In addition, risk, political danger and opportunity of the business have been explained for both the countries.

Running head: INTERNATIONAL BUSINESS
International Business
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Executive Summary
This paper explains the market entry opportunity of Arnott’s Australia in the UK and in
Indonesia. Arnott’s Australia is famous for selling biscuits and bakery based products.
Therefore, the external business environment along with geopolitical forces of both
Indonesia and the UK has been explained focusing on political, economic, socio-cultural
and technological factors. Market entry is a planned strategy to target new market along
with distributing the products in the new market. Therefore, this paper also provides
emphasis on the trade and business policies of both the countries which can be risks or
opportunity for the business. In addition, in the following section, risk, political danger
and opportunity of the business have been explained for both the countries. It has been
noted that after the Brexit, the political and economic conditions of the UK has not been
favourable for marketing new foreign brand. Therefore, Arnott's Australia can consider
Indonesia as the selected market as it has a huge internal market, abundant natural
resources, it allows 100% FDI and Indonesia provides high domestic demand in the
bakery based products.

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Table of Contents
1. Introduction of Arnott’s Australia....................................................................................3
2. Identification of the two countries selected for market entry.........................................3
2.1 The current macro-environmental and geopolitical forces impacting on countries. 3
2.2 Development of trade and business policy of Indonesia and the UK......................6
2.3 An assessment of the potential dangers, risks and opportunities in the current or
short-term policies of Indonesia and the UK..................................................................7
3. Conclusion and recommendation of which one is most suited for market entry...........8
Reference List..................................................................................................................10

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1. Introduction of Arnott’s Australia
In 1865, Arnott's Australia started its journey as a small bakery in Newcastle,
NSW. It mainly supplied pies, bread, biscuits to the people and the crews of the ships.
Therefore, millions of Australians grew up with Arnott's over the past 150 years and
most of the well-known products of Arnott's are Tim Tam, Shapes, SAO, Vita-Wheat,
Iced, Salada and Tiny Teddy. Arnott's is now one of the largest food companies in Asia
Pacific Region and Arnott's is subsidiary of Campbell Soup. At present, more than 2,400
Australians are employed across all territories and states. Arnott’s also employs people
from New Zealand, Japan, Malaysia and Singapore. Arnott’s spends more than AU$
250 million on products and services from Australia suppliers and farmers
(Arnotts.com.au 2018). Each year 85,000 tonnes of grains and flour are supplied from
areas of Australia and Arnott’s takes 18,500 tonnes of sugar from North Queensland.
Revenue of Arnott’s Australia reached AU$ 1.09 billion in 2015 (Arnotts.com.au 2018).
2. Identification of the two countries selected for market entry
Indonesia is the southwest Asian country and it is well known for the travel and
tourism business. In addition, the UK is a European country where Arnott's Biscuits can
start its marketing.
2.1 The current macro-environmental and geopolitical forces impacting on
countries
Macro-environmental factors of Indonesia
Indonesia is the third largest democracy in the world and it has the largest
economy in Southeast Asia. Indonesia has the stable political condition at present,
however, the average Political Stability Index of Indonesia is -1.14 point that is low and
it represents that political stability is not up to the mark. Indonesia is the member of
ASEAN in the G20 and it follows the Presidential system. In Indonesia, it has a
comprehensive push for decentralisation of much power transferred in the regions
(Tambunan 2017). Laws of business and the country are passed by Parliament or it can
be done by the Presidential Decree. In addition, Indonesia has current GDP of US$

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1,106 billion and Indonesia is ranked 16th globally as it has a larger economy than some
of the EU countries. Indonesia has been experiencing the economic growth of 5.1% and
the government of Indonesia reduced the unemployment by 7.1%. The poverty rate in
Indonesia has been decreased from 13.3% (2010) to 10.5% in 2017 (Nasution 2017).
Indonesia is experiencing a strong investment in the export-oriented business. Foreign
investment in Indonesia has been increased by 7.2% and the commodity price in
Indonesia is also increased. As stated by Soelistijo et al. (2017), the Indonesian
economy is dependent on the extractive industries and natural resources. In the bakery
industry, Indonesia experienced a large increase in the big and medium bakery
products sales to US$230 million and it shows the increase of 23% (Gbgindonesia.com
2018). In addition, a society of Indonesia mainly follows the Islamic region and the
preference of the people is changing with the time. Major drivers of the growth of the
bakery industry in Indonesia are the growth of the packaged food, packaged pastries
with widening the distribution channels so that the people can get the products on time.
Population growth in Indonesia is 1.2% and 121.7 million of people in Indonesia are
working population (Lussier 2016). Indonesia is observing the 0.05 point in human
development index. Long-term increase in the disposable income of Indonesian people
makes the people afford bakery based food. Finally, in the world, Indonesians are the
fourth largest users of Facebook. The manufacturing industry is considered as the
largest contributor of the GDP in Indonesia and Indonesian people use higher
technologies in cultivation in the form of seed cultivation, animal health and pest control
(Law et al. 2016). Indonesians believe in the high technology using e-payment and
online ordering.
Macro-environmental factors of the UK
The recent incident of Brexit has created political chaos in the UK. The UK has
always been choice of FDI for multinational companies as the UK provides the well-
structured economic backbone. In the UK, the corporation tax is 19% and the UK is now
the fifth largest economy in the world (Dean et al. 2015). The average value of the UK in
the political stability is 0.5 and at present, Brexit has created political issues in the UK.
Current GDP of the UK is US$2.936 trillion and the GDP rank of the UK is 5 th. GDP per

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capita of the UK is US$44,189. In addition, an inflation rate of the UK is 2.4% and the
GDP growth of the UK has been slowed as it is now 0.4% (Martin et al. 2017). Labour
force of the UK is 32 million and an unemployment rate of the UK is 4%. The World
Bank served the data where it is mentioned that the UK is ranked 7th in ease-of-doing
business. At present, the bakery market in the UK costs £3.6 billion and the total volume
of selling loaves, biscuits and packs are 11 billion in a single day (Miah et al. 2018).
Moreover, the disposable income of the people in the UK is high and the people can
afford confectionery and bakery food. The preference of the UK people has been
changing and during the breakfast, bakery based products are important for the people.
In technological advancement, the UK is famous for the manufacturing industry as it
uses high technological machines (Davis 2016). The companies in the UK use online
technologies to improve the sale. In the UK, companies of bakery follow the industrial
bread making rule and the new product development with technologies.
Geopolitical forces impacting Indonesia
Indonesia has to follow the diverse ethnic group and diverse nation together
under the ruling system of Jakarta. Indonesia is also the gateway between the Indian
Ocean and the Pacific Ocean (Soelistijo et al. 2017). Therefore, the passing of the
merchant ship, it is very important to make a good relationship with Indonesia.
Indonesia has always been an amiable country in terms of hearty cordiality in the
coastal rule. Pacific Indian commerce is very important for many of the Asian countries
and peace and prosperity of Indonesia is needed for the overall development of Asian
economic prosperity.
Geopolitical forces impacting the UK
The fundamental issue of geopolitical force in the UK is continental Europe. In
addition, the UK now consists with England, Scotland and Northern Ireland. The UK has
to maintain a good relationship with all the three major regions. The UK has got the
strength from the geopolitical map and it has insular territorial composition. In addition,
the UK wants to make balance in geopolitical scenario after the Brexit which has
created an issue in making peace with EU countries. The UK wants to follow the

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continentalism in the political scene as well (Symeoniditis 2017). Major friends of the UK
are Australia, New Zealand, Canada and Saudi Arabia, whereas opponents of the UK in
the geopolitical scenario are the India, Russia, South Africa, Brazil and North Korea.
2.2 Development of trade and business policy of Indonesia and the UK
Indonesian trade and business policy
Indonesia is a large country where more quarter of billion people spread in more
than 17,500 islands. Indonesia has been growing affluent in the middle-class economy
with more 45 million customers. In Indonesia, trade policies are reviewed and mandated
through WTO agreement. Indonesia has been making development with the average
annual growth of 5.9% (Kis-Katos and Sparrow 2015). In Indonesia, State-owned
enterprises play the significant role in the economy of Indonesia. Indonesia gives MFN
treatment to the WTO members and the WTO member countries can invest in
Indonesia with export financing, special economic zone and in export financing. The
trade policy of Indonesia focuses on increasing the export of the non-oil products and
improves the domestic market managing the basic products. In certain businesses,
Indonesia allows 100% foreign investment with any condition (Teuscher et al. 2015).
Indonesia and Australia are in discussion to make the comprehensive economic
partnership agreement (Indonesia-Australia CEPA). This trade agreement will focus on
the free trading between these two countries (Knowles et al. 2018).
The UK trade and business policy
Most importantly, the UK has not taken any trade policy after leaving the EU. The
political power and agencies are reconfiguring the business and trade policies in the UK
as the country need to find out the right set of rules for the international trade. The UK
has 100% FDI in the bakery industry and foreign trade department of the UK monitors
the export and import of the country. UKTOP (Trade Policy Observatory in the UK)
ensures that the new trade policies will benefit the small and medium enterprises
(Brennan and Tennant 2018). Institutional design, enforcement and the negotiation
support can help in the trade policy of the UK. At present, UK regulation and trade are

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governed by the EU laws o the commercial policy along with custom union (Williams
and Martinez 2018).
2.3 An assessment of the potential dangers, risks and opportunities in the current
or short-term policies of Indonesia and the UK
Political dangers, risks and opportunities in Indonesia
The political situation of Indonesia is complicated recent time by the increasing
unemployment rate and growing income disparity of the common people. Social
instability is increasing due to noncompliance of the political system. The political
system of Indonesia cannot offer a poor regulatory environment and ease-of-doing
business ranking of Indonesia is stood on 114th. Indonesia needs to provide the quick-
win activities for the progress of the business and Indonesia is the member of
International Labour Organisation to follow the labour rights. Indonesia has always been
in the top place in the Corruption Perception Index as Indonesia is ranked 78th out of
total 190 countries (Storey 2017). Lack of quality infrastructure of doing business in
Indonesia is another issue for investing in the business and government needs to plan
for huge investment for the betterment of the country's infrastructure. In addition,
earthquakes, volcano eruptions, tsunami and the natural disasters are risks in Indonesia
in doing the business. Indonesia provides a terrorist threat and it hardly provides
protective security in organised crime.
On the other side, Indonesia provides a large population for the customers and
Indonesia expands the middle class to have the large customer base. Indonesia also
outpaced the regional labour and it is bringing the significant alteration in the spending,
capital information and saving (Alvarez 2016). Indonesia government is committed high
levels of investment in the social and economic infrastructure.
Political dangers, risks and opportunities in the UK
Rising political risks in the UK pose threat to the foreign companies and
cybersecurity risk is one of the major risks in the UK. The companies are pessimistic
about the economic growth of the country in the next five years due to the Brexit and
political turmoil in the UK has created political isolationism (Sari 2017). The concerns of

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the companies in the UK after the Brexit are the apprenticeship levy, Heathrow
expansion, data protection and the national living wage. The UK companies are facing
issue to expand the business in EU based countries due to Brexit. Business companies
can also face the risks of lower GDP growth in the UK and compliance management in
the UK has not made for the regulation and laws. The structure of the tax is not ready in
the UK after the Brexit (Setiwan et al. 2018). The international companies have not got
the tax structure and the foreign policies after the Brexit incident and the political
structure can pose threat to the business with social policy, health and labour.
The UK gives the best business opportunity in the manufacturing industry as it
has a strong infrastructure, a developed economy and educated staffs. In addition, the
customers have disposable money to spend in the desert and in the confectionery
products. The UK government provides sufficient taxation and legal system along with
manageable regulation to increase the flexibility of operating business in the UK.
3. Conclusion and recommendation of which one is most suited for market entry
It has been noted that both Indonesia and the UK have some weak and strong
points; most importantly, both the countries are diverse in nature. Arnott’s Australia can
consider Indonesia as it is nearer to Australia and both the countries are considering the
Free-Trade agreement which will be profitable for Arnott’s Australia. Arnott’s Australia
can start to export the baker products to Indonesia as Indonesia allows 100% FDI.
Foreign direct investment in Indonesia reached US$ 32 billion and it showed the
increase of 8.5%. Increase FDI inflow proves that Indonesia is the constant choice for
the foreign companies.
The Indonesia government has started the stimulus package for the companies
focusing on deregulation, business certainty, law enforcement, interest rate tax cuts and
energy tariffs.
Most importantly, Arnott's Australia will get the benefits of the large customer
base as Indonesia has nearly 250 million inhabitants spreading across different islands.
The huge internal market for the bakery based products is an advantage.

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Indonesia has abundant natural resources with natural gas and metals and it
provides great bio-diversity. Resources can be got easily in Indonesia and the banking
and financial sector will provide financial resources to Arnott's.
Indonesia expands in the domestic market and increasing middle class will be
helpful for having a large market share.

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