INTERNATIONAL BUSINESS PENETRATING MIDDLE EAST MARKET: OPPORTUNITY OR THREAT LG

Executive summary

The current paper aims at discussing international marketing with an example of the LG company that is tending to build a factory either in Egypt or in Oman with concerning to the different strengths, weaknesses, opportunities and threats in each of the two countries. The company is trying to manufacture a new product called OLED which are new displays used for saving in power and place as well as providing better display for devices such as TVs, smartphones and others as the technology is new and will replace the crystal displays in the global market. The current paper is studying the company's potentials and their relation to the available chances in the two countries, Egypt and Oman through some different means of analysis such as PESTLE analysis, SWOT analysis and studying the feasibility in each country based on these analysis to find that Oman is the better choice for LG factory to be established there due to some reasons such as the governmental support to foreign investments, less taxes, better importing system, better economical and political stability in Oman and cheap work force. Egypt is not preferred as a result of some main reasons such as the non stable situation regarding politics, dollar availability and dealing, work force, high taxes on imported items, difficulties of establishing a foreign plant and shortage in safety measurements. The study will also present a number of obstacles that the company will face during establishing the plant and achieving the project such as the difficulties of working with women in Oman as this is one example for cultural obstacles and as the high and changing salaries of engineers, holidays related to religion are too many in addition to the 8 hours that represent the maximum working hours for Omani as the company may need workers to stay longer to end better. 

Table of contents

TOPIC	PAGE
ABOUT LG	4
SCOPE OF WORK	5
PRODUCT PROFILE	6
EXTERNAL ENVIRONMENT ANALYSIS	8
MARKET/SECTOR ANALSYSIS	11
COMPATITORS ANALYSIS	14
SOWT ANALYSIS	16
INVESTMENT FEASIBILITY	19
MODE OF MARKET ENTRY (OMAN)	20
OBSTICALES	21
REFERENCES	22

1. About LG

LG electronics is a multinational company for producing electronics and it is mainly a South Korean company with a headquarters in in Yeouido-dong, Seoul, and a member of the LG Group. The company is employing about 83.000 employee distributed for working in the international 119 local subsidiaries. The company gained in 2013 about USD 53.1 billion (KRW 58.14 trillion), from global sales. There are five divisions the company is operating in including the home entertainment, home appliances, Energy solutions and air conditioning, mobile communications and vehicle components. CEO of LG Electronics is Mr. Bon-joon Koo, who was assigned as Vice Chairman of LG Electronics on the date of 1 October 2010. In 2011, LG Electronics was second-largest television manufacturer in the world.   

2. Scope of Work

LG electronics is investing in the Middle East in many electronic products including refrigerators, TVs, washing machines, cooking appliances, built in appliances and mobile phones and it has good investments in many countries of the Middle East, the company is studying opening a new plant for producing OLED or organic light-emitting diode displays for larger TVs, smart watches and automotive displays and this will be in Oman and in Egypt to supply the future need for O

3. Product profile

The new product is produced to provide a new display type which is used for cutting power use, showing colors in a brighter way and making thinner devices.  This new technology was produced to be a replacement for the smartphones liquid-crystal displays as the OLED is sought by big companies such as Apple for its iphones in 2018. It is said by LG that there will be 10 trillion to be spent over the product along with three years' time period in order to produce and market these advanced technology of displays that provide the customers with advanced screens with a brighter picture that is also sharper than the LCDs. The new product is able to save power and space as they are not in need for a backlight. The new product is needed as a result for the slow LCDs sales especially in the smartphones and other wearable devices. The company tends to invest in the new product to surprise the market with its known rivals by it and it tends to invade the Middle East countries such as Oman and Egypt with the new product marketing plan that can be better than anything in the market. (Timesofoman, 2016)

4. External environment analysis (Oman and Egypt)

4.1 General information

	Oman (Asia)	Egypt (Africa)
Capital	Muscat	Cairo
Area	309,501 km2	1,002,450 km2
Population	4.2 Million persons	87,5 Million persons
Language	Arabic, Most educated people speak English	Arabic and most educated people speak English and some add French
Currency	Rial (OR)	Gunaih(Pound Egyptian )
GDP	23,315  $ per capita	2,970  $ per capita

The report Oman, (2015) World report Egypt, (2015)

2. PESTLE analysis

	Oman	Egypt
Political	The country is a Sultanate ruled by the Sultan. It is stable with limited political freedom. Taxes for importing products is very low without taxes among GCCC. Good relations with world countries and neighbors. Many labors are foreign workers. WTO member since the year 2000. A tendency towards Omanization.	Egypt began to have a quite stable politic situation. Election rules the country by a president. A level of publicity freedom. Imported products are under high taxation rates. Local business entities are under high income tax system. The market is dominated by local workforce. Relations with neighbors are ok but with some issues with Israel, Sudan and Libya. Bureaucratic system limits external investments.
economical	The economy is growing. It is a country with high income. Growing GDP per capita is (26,000$ per capita) that is ranked as the 50 globally. Economic freedom index score is: 67.9 and there is a low unemployment rate. A growth in demand for electricity. The government provides high support for local manufacturers. Interest on loans and factory rent are low	The economy is growing but not with a good level. Lower middle income. Growing GDP per capita (3000$ per capita) the economic freedom is low with a low industrial production. There is a high demand on electronics in the market and sales are high.
Social	People are of the Islam religion. People are divided socially into tribes and families. 81%literacy rate. Good education.	People are of the Islam religion and there are Christians. People are divided socially into families from Cairo, Delta or Upper Egypt and minority Bedouin. 72%literacy rate. Good education.
Technological	High technology based business. high interest with IT in life and education. Modern network, communication and high interest in modern technologies in mobiles and internet. There are plans for the GCC train. The country enjoys modern transportation systems. There is lack in media channels and media industry. Few number of radio stations and TV channels.	Low interest in technology based industries but the people like to purchase the latest trends of technology appliances. Old transportation but good communication and internet. Lots of media channels such as radio stations and TV channels and satellites.

  Bbc, (2015) -internations, (2015)

5. Market sector analysis

market demographics

Oman

Oman is showing that its customers are consuming high amounts of electronics and smartphones that the new product can be used with as this

The market shows that there are many updates in that field and people are attracted to the new and updated products and this is seen in the PC, AV, smartphones and handset segments which shows that in the year 2017, there will be more sales as growth is expected in the Omani spending on electronics by consumers according to the spent in 2016 and this is conditioned with the stronger performance of companies manufacturing and distributing such products in the Omani market and with the economic conditions in Oman as risks are able to exist. Demand on the new product is underlying with the growth of Omani population and the reduced prices of the different devices and the introduction of new supportive devices that can have new features such as the current product of OLED.

There are many updates and developments in the industry as follows:

-Computer Hardware Sales: USD257mn in 2016 and expected to beto USD282mn in 2019, with a percentage of of 3.2%. Tablet market is expected to grow from 2017 with demand for hybrid notebooks.

-AV Sales: USD175mn in 2016 and expected to reach USD187mn in 2019, at a percentage of 1.5%.

-Handset Sales: USD737mn in 2016 and expected to be USD759mn in 2019, at a percentage of 1.7%.

-Smartphone sales: It is almost stable and there are expectations for them to grow in the next years.

Figure 1 Oman Smartphone Sales

Egypt

It is thought that the Egyptian market is a promising market for electronic consumption as the market there reflects that although there is a negative effect of the currency depreciation in Egypt, people are still purchasing electronics and there are expectations for growth in the industry there as there are expectations for market settlement there but slowly as sales of the year 2014 in electronics were very high. The country is witnessing a rise in people's income but there are government restrictions regarding exported items and taxation laws. There is a growth in smartphones and tablets demand with the need for new updates such as the OLED.

Latest Updates & Industry Developments

Computer Hardware Sales: were USD916mn in 2015 and became USD 965mn in 2016, up 5.3% in terms of US dollar AV S ales: were USD648mn in 2015 to be USD671mn in 2016, up 3.5% in terms of US dollar Handset Sales were USD2.12bn in 2015 to USD2.26bn in 2016, increasing 6% in terms of US dollar terms.

Customers

Customers include all social categories such as adults, teenagers, males and females. They can be included within families, companies and schools.

Market needs

High quality

Products such as electronics are needing to be of high quality as they need to be able to endure many applications and uses. The market I full of Chinese electronics that lack many quality measurements and customers need new high quality products.

Punctual delivery

Punctual delivery is a major need for retailers who distribute to customers as this makes the market flourishing and apply the customers' need of having many varieties to choose from.

Competitive price

Competitive prices are needed to boost the high competency in the market with the existence of cheap Chinese products.

Variety of options

OLED products should be diversified to include smartphones, tablets, cameras, handsets, PCs and other electronics as well.

Customer service

There should be high quality customer service that encourages customers to purchase the products.

6. Competitor analysis

Porter's five forces

Figure2 :Porter's five forces

Market Rivals

The electronics market is full of famous companies that tend to invest in the OLED products including TVs as its market is expected to go over $10 billion globally in 2019 and its share is also expected to rise from 1% to 10%. Companies such as Samsung electronics will start marketing its OLED products in the Middle East in 2018. There are some Chinese electronics companies in Asia are releasing some OLED displays panels. Japanese companies such as Panasonic and Sony are going to enter this field soon. Skyworth started in marketing some OLED products in 2014 and there are other companies such as High Sense, Haier and TCL are preparing to invade the market too. (Jin, 2016)
 Threats of entrants   When LG is making a plant in Egypt and Oman; this will take a lot of time that allows other companies to establish the competing plants there and this will raise competition and long time will reduce the opportunities of LG in the market. The Chinese and Indian products that are cheap and have strong position in the Middle East market can threaten the LG new products and reduce its value especially when they produce the same OLED electronics or imitated copies of them. High quality will enable LG products to penetrate the market and get a strong position against other rivals.  

Threat of substitute products

The market is full of different companies that at any time can produce new technologies in the same field and can produce new products that can compete with the LG products and reduce its sales.

Bargaining power of customers

Power of customers can be controlled by LG when quality and price pass over other products in the market such as those cheap Indian and Chinese products as well as the expensive European products in the market.

Bargaining power of suppliers

Suppliers' power can be maintained when LG provides them with the best offers and keeping different suppliers for having substitutes if there are conditions the suppliers aren't able to supply the company.

Competitive position of LG Oman and Egypt

According to Torraleja et al, (2012), Brown strategic clock can refer to the current competitive position of LG in the Middle East market and how it can make use of its resources and abilities to invade the market with its new OLED devices and this can be seen from the Brown diagram:

The diagram shows how the company can provide a moderate price of the product without monopoly of the price as it can be risky and the company can provide high quality product in compared to others in the market and this can be shown through differentiation and hybrid products in order not to lose the market share and beat competitors.

7. SWOT analysis

SWOT analysis will be used to help the company decide how to enter the two markets of Egypt and Oman as it declares the strengths and weaknesses in each of the two countries regarding the marketing for a new product there and the opportunities and the threats that the company may face there.

Oman

Strengths Low taxation system. Human resources of high quality. High individual income. Strategic location. Franchising many businesses as being local factories. A public demand for innovation in electronics. The Omani people is seeking new devices and smartphones. The strategic location of Oman in the Arabian Gulf. Low operational costs The country has good relations with neighbors. There is high possibility for meeting the needs of the customers. Low transportation costs.

Weaknesses Difficulties in manufacturing all parts in Oman. Time consumed in establishing the plants. High costs of lands for the plants. High costs of engineers. Omanization restrictions can delay the projects and lead to undelivered at deadlines.

Opportunities Oman is enjoying political stability Good banking loans for local manufacturers. Low difficulties resulting from bureaucracy. People are easily attracted to updated electronic versions. Good economy and healthy social measurements for electronics. The year 2018 will witness opening the GCC train. High public increases for smartphones, TVs and other electronics updates especially in displays.  There are advantages provided for local electronics that support Oman. The government doesn't make it hard on investors to market their products in Oman.  Low costs of Asian labors. Increased constructions of factories in Oman.

Threats The Omani market is full of different electronics companies with high technology and high diversity. Not enough human capabilities. The weather in Oman may be of bad conditions at any time. The government changes the employees' wages without referring to the companies of the private sector. Problems of visas for residents non Omani employees.

Egypt

Strengths Strategic location in the Middle East. Low costs of employees, engineers and labors. Egypt is considered a leader in the global electronics market. People are trying to find new trends in technology. Reaching customers easily via different media channels. reasonable costs of land renting for the factories. The country has a large number of population.

Weaknesses High capital costs. Difficulties in manufacturing all parts in Egypt. High costs of exported materials. High taxation cost. Low individual income.

Opportunities The country began to enjoy political stability. The economy is growing. Local products are receiving many advantages. Local franchises are favored there. High demand for constructing different factories and manufacturing plants. Local products are under lower taxes. The strategic location of Egypt is a good opportunity for making other businesses with neighbors. The company can save from the local labor costs. Adequate quality of transportation systems. High efficiency in communication and advertising tools.

Threats The different companies are prevailing in the market and affecting the production. High bureaucracy and difficult laws regarding building plants. High crime ratios, low safety and security measurements and problems with dollar dealings. The economy of Egypt is not stable and doesn't support good foreign investments and it has many problems regarding the currency and dollar situation there as there are many restrictions on dollars dealing there in Egypt and the factory may stop working and make loss if there are problems regarding the dollar.

8. Investment feasibility

Any project needs to have a feasibility study in order to measure, expect and realize the different benefits or harms that the project may be liable to when it is executed and it is also useful to estimate the risks to the project after application and how to avoid them. The above SWOT analysis and PESTLE analysis can tell many things relevant to the project and the feasibility of it such as how much time is to spend in order to finish the project, how it can be scheduled, what strengths can be there for the project to make use of, what weaknesses can affect the project and how the products can be marketed in specific time period. The current situation can be understood if the strengths and weaknesses were understood well in each of the two countries and if LG company considered methods to make use of the opportunities provided for the company. Both countries are suitable for establishing the factories but Oman's external environment looks better and at the same time, Egypt population is encouraging to attract more numbers of customers. Oman's plant seems to be easier to be built due to the governmental opportunities provided to the investors there and the opportunity to find many facilities related to the project and Oman can also be a gate to the other Gulf countries easily which means a very big audience and many new customers for purchasing the new product. The threats in Egypt can be more effective in choosing one country as the problems and differences in Dollar dealings can affect the success of establishing the plant there in addition to the threats from high taxations imposed on foreign investments and on imported products which makes Oman is a better market for beginning launching the new OLED displays devices for the previously mentioned reasons and for the different strengths and political stability there. This makes Oman is the most suitable market to be chosen for establishing a plant for OLED displays and different relevant devices using them and marketing these products by LG companies as the feasibility of success is higher in Oman rather than in Egypt electronic markets. The coming parts will present the mode of entry to Oman's market and how this can be done by LG successfully and the different obstacles that the company may face as challenges in the Omani market.  

   

9. Mode of entry

The new plant will cost Apple the supplier for LG about 10 trillion ($8.7 billion) and the money will also be allocated for increasing the production of the OLED as they will be used for cutting the use of power and delivering customers with a very thin device that has brighter colors. The factory will be assigned for manufacturing organic light-emitting diode displays that can be used with very large TVs, automotive displays and smartwatches. The products will be delivered to the market through media channels in Oman at first and in the Gulf after that to spread into the Arabian Gulf after Oman. This will be at the first half of year 2018 when the plant establishing and work is done. The OLED technology will be a substitute for the smartphone liquid-crystal displays. The factory will also produce new panels that are power and space savers due to the absence of backlight. This investment can raise the company's share to Samsung in the market if time was well used. LG is deciding to enter the Omani market by franchising the new displays business via OLED technology in a local factory that manufactures and distributes the new product in Oman with plans to market it in the Gulf area after that to increase the business and reach larger customer scales. The factory will manufacture the different sizes of the OLED displays and assembles them with the different parts of the devices. Many companies will work with the LG company as suppliers for different parts such as Apple company. Apple is LG Display’s greatest customer, representing for about 25 % of sales, according to Bloomberg supply chain analysis. The South Korean company has reported a 30 % decline in third-quarter operating profit as prices and demand fell. (timesofoman, 2016)

 

10. Obstacles

Among the different challenges and obstacles the company may face is the cultural challenge that makes the society of Oman not able to employ a large number of employees due to the avoidance of employing women in that society. Another challenge is some restrictions on employing women as they should wear Hijab which will be solved by imposing uniform women who work in the factory should wear that is formed of a long sleeved Abayaa and a Hijab or something like that as the company has to respect the social and cultural customs and religious beliefs of Oman. Another problem is the big number of religious effects and rules that make holidays related to religions are too many and may affect the work soothe company should make a balance between the holidays and the work. The maximum work hours is another obstacle that the company may face during establishing the factory as there may be different shifts and this problem will be dealt with by the contracts and the employees.