Group No.

5
Dhruv Dhul 170103062
Jay Rajani 170103092
Mayank Sharma 170103119
Megha Mondal 170103120
Mridul Bagani 170103123
Mudit Arora 170103125 Multinational Strategy
Neerja Hamsirwala 170103135
KP Nidhin 170103136 PGDM 2017-19
Nobel Dhar 170103142
Prajjwal KS 170103151
 Established in the 1930’s as a small wood planks shop
 Grew from 4000 CBM to 400,000 CBM over the years
 Family Run business offering products and services
 4 locations in Lebanon
 1990 to 2004 – Rapid Growth
 Establish distribution around the middle east in Syria, Jordan and Iraq – had
exclusive distributors and no physical presence in Saudi Arabia Jabwood
has a direct physical presence
 2007 - closure of Saudi Arabia Subsidiary
 2009 - Jabwood could supply the middle east with most of its timber
supplies and peaked at 100 enployees and sales of $50 Milliion
 2012 - Tanita removes exclusivity from Jabwood
 Broken Exclusivity
 Major supplier from Russia – Tanita
 Tanita agreed to sell to an additional wood trading company in the region,
therefore breaking exclusivity
 20 year long relationship in which Jabwood heavily dependent on Tanita with 60-
70% of revenue sourced from the company
 Significant Reduction in Revenue
 Situation and unrest in Syria had reduced sales by 20%
 There was drop in sales / revenue / market share and price premiums
 Due to which Tanita wanted to break exclusivity and extend Jabwood’s exclusive
rights to another timber trading company
LEBANON

Background
 1918 – Fell under the French mandate
 1943 - Independence
 1975 – 1990 - Effects of Civil war and Ta’If agreement
 2005 – 2007 – Major clashes and fights
 Politically unstable country
 Conflicts between political parties and religious sects
 Middle East effects on Lebanese economy (Tourism)
 Formation of Pro –Syrian regime or against
LEBANON

Political and Legal System Economy

 Parliamentary Liberal Republic  Free Market Economy
 Six Governorates  Service oriented – Banking and Tourism
 Mixed legal system – French +  Corruption, High taxes, Unsecured IP,
Theocratic arbitrary legislation, post war reconstruction
 Political system – Three branches Market of Services 31.43% of GDP
Tourism Sector 9.5%
 Cultural and Religious mosaic
Real GDP 42$ (growth 3%)
 54% Muslims and 41% Christians
GDP Per Capita $9904
 Effects – Unemployment 9%

o Political Instability and risk People below poverty line 28%

o Material losses (Economy)  Construction and Real estate sector

(Decline)
o Government Procedural risks
LEBANON

Social Infrastructure

Population 4.23 Mn
Growth rate 0.45%  Major damage during Civil War
Urban Population 87.2%  Poor Network of roads
Life Expectancy (Avg) 72.4 years
 Increasing congestion
Literacy rate (Youth) 98.7%
 Two ports and Seven paved airports
Literacy rate (Adults) 89.6%
Common Languages Arabic, English, French  Major power shortages and power cuts
 Internet – slow growth and development
 Difficulty in business development
 No. of mobile phones – 68% of population
 Construction and Infrastructure sector -
Saturated
Business Environment Indicators (China Vs Saudi Arabia)

China Saudi Arabia

Demographics
Total Population 1.3 Bn 28 Mn
Population Growth Rate 0.47% 2.28%
Age Structure 17.6% (0-14), 73.6% (15-64) 29.4% (0-14), 67.6% (15-64)
Middle Class Size 23% 42%
Urban/Rural Composition Urban: 47, Rural 53 Urban: 82, Rural: 18
Government
Government Stability 4.8 6.1
Economic Freedom 51.2 62.5
Openness to FDI 0.41 0.34
Legal System Civil Law/ Communist Islamic
Currency Convertibility 3/5 4/5
Business Environment Indicators (China Vs Saudi Arabia)

China Saudi Arabia

Physical Infrastructure
Road and Highways 3,860,800 Km 221,372 Km
Railways 86,000 Km 1,378 Km
Airports 497 21
Navigable Waterways 110,000 Km 0
Ports 8 4
Economics
GDP Growth Rate 9.10% 6.77%
Per Capita GDP 5429.6 20,540
Consumer Inflation Rate 5.41% 5.01%
Trade as Share of GDP 55.84% 92.24%
Ease of doing Business 91/183 12/183
Time to Import (Days) 24 17
Time to start a Business (Days) 38 5
Business Environment Indicators (China Vs Saudi Arabia)

China Saudi Arabia

Communications Infrastructure
Fixed Telephone Market 294.3 Mn Lines 4.16 Mn Lines
Wireless Telephone Market 859 Mn Subscriptions 51.5 Mn Subscriptions
PC Ownership 16 Mn 55 Mn
Internet Users 460 Mn 11.2 Mn
TV Ownership 400 Mn 5.1 Mn
Wood Industry
Forest Area 22% 0%
Wood Import 100 Mn CBM 1 Mn CBM
Investment in Infrastructure (Next 15 Years) <500 Bn >1000 Bn
Cost to Import (US$ per container) 545$ 686$
Income Tax 30% Foreign Investor 3% Local 20% to 45% Foreign Investor 2% Local
Custom Duties 3% to 12% 12%
New Entrants Market Share Assumptions

Familiar Markets New Markets

Estimated Market Share 5% 5%
Estimates First Year Sales 10% of Target market 2% of Target market
Sales growth estimated 100% in year 2, 50% in year 3 0% in year 2, 100 % in year 3

Legal and Fiscal Characteristics (China Vs Saudi Arabia)

Saudi Arabia China
Tariffs on Lumber 12% 3% - 12%
Process Wood Products exempted from taxes
Corporate Tax Rate 20% - 45% (Foreign companies), 2.5% (Local) 30% (Foreign companies), 3% (Local companies)

Capital Can be 100% Foreign Can be 100% Foreign

Mobility of Funds No restriction No guarantee on retransfer of capital, annual
transfer of dividends, transfer of capital in case
of termination
Exchange Rate 3.75 Riyals per US Dollars, pegged 6.37 Yuan per Dollar, fluctuating
New Regulation – Replacement of Sloppy rooftops
with Sawn timber
 To understand the important internal factors for the company to watch, we should first
have a look at its business model canvas

 It will help us to understand strong connections between the important pillars of

companies business model and its operational localities

 The company’s vision is to: “supply virtually to every country in the middle east with
products and services that have earned recognition..”

 Following is the business model canvas of the company:

Key Partners Key Activities Value Proposition Customer Customer Segments
High Quality products Relationship
TANITA Wood import Personal and long All segments and every
Other Suppliers Wood wholesale lasting middle east country
Wood retail Reliable delivery Rather partners than
Services suppliers Construction companies
Low cost Consultants
Key Resources Channels Furniture manufacturer
Healthy financial Fast shipping Presence in Lebanon
situation Distributors in other Retailers & Wholesalers
Wood storage capacity Expertise in the industry countries
Expertise in industry Word of mouth
Strong relationship with
TANITA
Cost Structure Revenue Streams
Large volume purchase to reap the benefits of Economies of 60% softwood, 28% WBP plywood, 10% hardwood and 2%
Scale services

60-70% revenue from TANITA products

Based on above understanding we can derive following factors limiting the
company:

 Undeveloped Logistics network

One of the company’s key values is a fast and reliable delivery. To fulfil this in areas
with undeveloped logistics network is a very difficult task
 Market know-how
Jabwood has a decent know-how of customer taste, channels of operation in Middle-
eastern market but these cannot be implemented in non-Middle Eastern markets
 Strong connection to one supplier
Selling TANITA products brings in 60-70% of revenue. Company has the exclusive
rights to sell the product of this company in Middle East. Expanding outside the Middle
east might find them other competing companies selling TANITA products
 Manpower limitations
Rule of appointment of only a family member as manager can limit the growth in
unfamiliar markets
 While making a decision as important as expanding, number of factors are taken into
account for comparison.

 General characteristics for both China and Saudi Arabia are scored on the basis of
Business Environment Risk Index(BERI) to quantify this comparison.

 This method only reflects which country is better than the other but not by how much.

 The notable difference between the market size gives China an edge over Saudi
Arabia as China imports 100 times more than Saudi Arabia.

 On the contrary the planned investments in infrastructure over the next 10-15 years
make Saudi Arabia a better opportunity than China.
 Moreover the local institutions in Saudi Arabia have a more favorable attitude towards
entrepreneurs making it a better heaven for wood.
 Unlike the general characteristics which have a high degree of measurability, specific
characteristics are harder to quantify but have a high impact on the success in a chosen
market.
 In this case these specific characteristics are cultural characteristics and attitudes.
 For example, for construction and furniture making, wood is preferable in Saudi Arabia
while in China they prefer metal and concrete.
 Also, the Chinese administrative procedures are very bureaucratic and the business
environment differs significantly from the middle east.
 Though having same score for general characteristics, China is less attractive because of
hesitant attitude to use wood for construction, complicated administrative procedures and
the Communist System.
Forest Wood Producers Retailers
Importers/ End Users
Owners/
Saw Mills Wholesalers

• ILIM • Jabwood • Jabwood

Timber • Jabwood • Coca
• Sinno • Jalal Cola
• PVS Obeid • Wesmacro
• Kronosp • Tadamon
• etc • Bidawi • DMN
an
• Circle
• Romanel Exhibitio
n
THREAT OF SUPPLIERS Competitive Rivalry
 No natural resources  Local and regional competition
 Heavy dependent on imports  Cheap imported products
 Less no. of suppliers  Foreign competitors incl. china and
Indonesia
 Monopoly cartels  Expensive workforce
 Strong relationships with foreign suppliers  Lack of govt. support
 Higher margins  High energy costs
Post 1990s Quality as a source of competitive
 Large number of suppliers advantage and differentiation
 Higher profits attracting new entrants into
supplier industry
 Increasing scale of SME retailers
 Reduced margins
 Trade agreements to open up imports
 Reduced trade barriers and tariffs
Threat of Substitutes
• Low availability of close
substitutes
• Major usage for
construction and furniture
• High switching costs in the
country
• Challenge from growing
economies
• Industry challenge because
of environmental issues
Threat of Buyers
 Highly fragmented buyer
market
 High switching costs
 Less availability of
substitutes
 Low threat of backward
integration (vice versa in
case of Jabwood)
 Low threat of buy`ers
Threat of new entrants
• High economies of scale
required for production
• Low product differentiation
and brand identity
• High switching costs
• Difficult access to raw
material
• Government laws making the
sector attractive
• Potential for foreign markets
• Increasing profit margins
• High threat of new entrants
Threat of substitutes Threat of new entrants
• Low availability of substitutes
(primary material) Low :
• High potential as country is • High scale of wholesalers
developing heavily • High bargaining power
• Large requirement for • Intense price competition
building materials, casting
moulds, carpentry
and furniture Competitive
rivalry
High competition
• less number of Intense price
buyers (Group competition • High number of foreign
companies) Low differentiation suppliers
• High profitability • Lucrative market as high
of buyers growth potential
• Business • Lower profit margins
dependent on • High bargaining power of
long lasting wholesalers
relations • Exempt from import duties

Threat of Buyers Threat of suppliers

Timber industry in China

Threat of substitutes Threat of new entrants

Increasing wood consumption Low :
Biggest construction market in the
• High scale of wholesalers and
world
distributors
Steel and concrete as major
substitute
• High bargaining power and
Lack of skill and knowledge to use exclusivity
wood • Intense price competition
Biggest producers and Competitive
exporter of WBP rivalry
High competition
• Stringent Intense price • High number of foreign
requirements of competition suppliers
size and quality Low differentiation • Second biggest importer
• High profitability Strict requirements of wood
of buyers Complications in • Lower profit margins
• Business laws • High bargaining power of
dependent on wholesalers
long lasting • Exempt from import duties
relations and • Stringent requirements of
laws size and quality

Threat of Buyers Threat of suppliers

  Strengths  Weaknesses

•
No pre-existing ideas about the company in
China
Jabwood has prior knowledge of entering new
markets.
S W •
•
Different cultures
Family member might not want to move to
China- managerial structure will have to be
reviewed
• TANITA already exports to China.

 Opportunities  Threats

•
Emerging middle class are building more
houses
China is the 2nd largest imported of wood
O T •

after the US
• There is a demand of 100 million CBM/year
• There is a good rate of growth expected in
the coming years.
•
Chinese are more accustomed to building
with steel
High tariifs of 3-12% on wood
• Takes 33 days to start a business
• Estimated 1st year sales are 2% of target
market
• Takes 3 years to have sales growth at 100%
• Highly competitive market with many
countries entering due to high demand
• Strict requirements w.r.t to quality of wood.
  Strengths  Weaknesses

•
•
•
Existing relationships
Common Arabic culture
Sales growth estimated at 100% in the second
year and 50% in third year.
S W •

•
Potential weak reputation due to leaving the
market
Price competition

 Opportunities  Threats

•
•
•
Proximity to Lebanon (4 days by ship)
No local wood production
Focus on future infrastructure
O T •
•
•
No exclusivity with TANITA
Tariff of 12% on lumber
High bargaining power.
• Biggest market in Middle East.
 Jabwood Market Share (Sales forecast)
Reference Saudi Arabia(Familiar Market) China (New Market)
P7, P8, E7 Wood Import (in M) CBM 1 100
E8 New Entrant Market Share (in %) 5 5
New Entrant Market Share (in M) CBM 0.05 5
E8 1st year Sales (% of Target Market) 10 2
1st year Sales (in M) CBM 0.005 0.1
E8 Sales growth 2nd year (in %) 100 0
2nd year Sales (in M) CBM 0.01 0.1
E8 Sales growth 3rd year (in %) 50 100
E11 3rd year Sales (in M) CBM 0.015 0.2

1st year Sales (in Million $) 1.5 30

2nd year Sales (in Million $) 3 30
E11 3rd year Sales (in Million $) 4.5 30 (max supply - .1M)
Considerations:
was previously)
 Established long-lasting relationships
 Local knowledge
 Grasp of Arabic business culture
 Time required to start a business is 5
days
 Low cultural difference
 Ease of implementation
 Relatively less open to FDI
 Indirect business model did not work
well
Wholly owned Subsidiary (as
 Set up physical operations at Saudi
 Gives full control of all administrative
and operational tasks
 Use existing Arabic market knowledge
 Rekindle established relations as the
fallout was personal and not professional
 Set up business at the earliest to avoid
further losses
 Use the strength of knowing the
languages

Considerations:
 Stringent requirement with
regard to size and quality
 Cultural Distance is very high
 Complications when dealing with
bureaucratic and human capital
 Very strict administrative
procedures
 Language barrier
 Time zone is different
 Ease of doing business is higher
 Relatively open to FDI
International Sales Subsidiary: Best Case
 Business becomes localized
 Gain local market knowledge and be able to adapt
products and services to the needs of local
consumers
 Reduce the element of risk attached to a FDI
 Set up more like a distributor that is owned by
Jabwood hence complete control over
administration and operations can be retained
 Employ localites for language and cultural
adaptation
Exclusive Distributors and Agents:
2nd Option
 Incorporate locals to reduce cultural barriers,
language problems and time zone differences
 Low cost and investment
 Easy access to market knowledge
Broken Exclusivity with Jabwood had been the exclusive supplier of TANITA
TANITA in 2012 products in the middle east for more than 20 years
before losing exclusivity

Post 2009,Jabwood has witnessed a growing dip in

Significant Reduction in
its revenue after exiting from Saudi market and in
Revenue
recent times political instability and fierce
competition have made it even worse.
Exploit both the markets  Risks of entering unfamiliar markets
currently in need of high quantity (China)
wood products
 The sustenance to withstand little
growth rates in new market

Set up a new exclusive agreement  Financial capabilities due to recent

with TANITA for MENA region and poor performance
possibly set up an agreement
incorporating Chinese market.  Cost of $120,000 to open the offices
 Competition in Competition in
Saudi Arabia China
 Competitors are mainly  2nd largest wood importer
from powerful and wealthy in the world
families embedded in local
relationships  Competitors are MNEs
from countries like
 High buyer bargaining NZ,USA, Russia &
power Australia
 Lower profit margins
 Competitors have
exclusive distributors
Jabwood in
Competitive landscape
 Faces liability of
foreignness in both the
countries
 Lack of knowledge about
Chinese culture, consumer
behaviour, communication
& business
 In Saudi Jabwood can
exhibit experiential
knowledge about business
preferences
 Saudi Arabia has previously contributed over 50% of revenue. They need to regain
market share by returning to Saudi with a direct business model in order to be
more proactive.

 Compromising on their existing managerial structure Jabwood needs to enter

Chinese market with an international sales subsidiary to gain overall control over
administration and operations which would also mitigate risks associated with FDI.

 Jabwood shold regain exclusive sell rights of TANITA products for MENA region
and also exploit the Upcoming Chinese market to form an exclusive supplier tie
with TANITA.