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VYTAUTAS MAGNUS UNIVERSITY FACULTY OF ECONOMICS AND MANAGEMENT MARKETING DEPARTMENT SIRUS GASIMI INTERNATIONAL MARKETING STRATEGY OF SHEKI-IPEK Master Diploma Paper Programme: Marketing and International Commerce, State code 621N50005 Study Field: Marketing Advisor: Assoc. prof. dr. Nina Klebanskaja (degree, academic position, name, surname) (signature) (date) Defended: Prof. habil. dr. Pranas Žukauskas Dean of the Faculty of Economics and Management (signature) (date) Kaunas, 2015 68 CONTENTS SANTRAUKA .................................................................................................................................... 3 ABSTRACT ....................................................................................................................................... 4 GLOSSARY OF TERMS ................................................................................................................. 5 INTRODUCTION ............................................................................................................................. 7 1. THEORETICAL ASPECTS OF INTERNATIONAL MARKETING AND EXPORT ......... 9 1.1. Analysis of international marketing environment .................................................................... 9 1.2. The formation of the company’s strategy penetrating into the international market ............. 12 1.3. International strategy formation ............................................................................................. 15 1.3.1. Decisions of international marketing strategy ................................................................. 15 1.3.2. International marketing program elements ...................................................................... 18 2. INTERNATIONAL MARKET RESEARCH OF SHEKI IPEK ............................................ 27 2.1. Sheki Ipek and its activities in Azerbaijan ............................................................................. 27 2.2. Methodology of the research .................................................................................................. 28 2.3. The results of the research ...................................................................................................... 31 2.4. Economic relations between Azerbaijan and Lithuania ......................................................... 39 2.5. Macro environment analysis of Sheki Ipek ............................................................................ 41 2.6. Competitive and SWOT analysis of Sheki Ipek ..................................................................... 47 3. THE DEVELOPMENT OF INTERNATIONAL MARKETING STRATEGIES FOR COMPANY SHEKI IPEK IN LITHUANIAN MARKET .......................................................... 53 3.1. Marketing objectives .............................................................................................................. 53 3.2. The selection of target segments ............................................................................................ 54 3.3. Positioning of Sheki Ipek home-made carpets ....................................................................... 56 3.4. Functional marketing strategy ................................................................................................ 57 3.4.1. Product ............................................................................................................................. 57 3.4.2. Price ................................................................................................................................. 59 3.4.3. Distribution ...................................................................................................................... 62 3.4.4. Promotion ........................................................................................................................ 65 3.5. The strategy formation model of Sheki Ipek .......................................................................... 67 CONCLUSIONS AND RECOMMENDATIONS ........................................................................ 70 REFERENCES ................................................................................................................................ 72 ANNEX 1 .......................................................................................................................................... 77 ANNEX 2 .......................................................................................................................................... 80 2 SANTRAUKA Baigiamojo darbo autorius: Sirus Gasimi Pilnas baigiamojo darbo pavadinimas: Sheki Ipek tarptautinė rinkodaros strategija Baigiamojo darbo vadovas: Doc. dr. Nina Klebanskaja Baigiamojo darbo atlikimo vieta ir metai: Vytauto Didžiojo universitetas, Ekonomikos ir vadybos fakultetas, Kaunas, 2015 Puslapių skaičius: 82 Lentelių skaičius: 10 Paveikslų skaičius: 33 Priedų skaičius: 2 Pagrindinis darbo tikslas – naudojant išanalizuotus teorinius modelius ir charakteristikas plėtoti tarptautinę rinkodaros strategiją Sheki Ipek. Darbą sudaro trys pagrindinės dalys. Pirmojoje dalyje aptariami teoriniai tarptautinės rinkodaros modeliai, aplinkų analizė įmonės požiūriu, tarptautinės įsiskverbimo į rinką strategijos ir strategijos formavimo ypatumai gamybos organizacijų aplinkoje. Antroji dalis skirta tarptautinės prekybos strategijos formavimo Sheki Ipek galimybių tyrimui. Trečioji dalis pristato tarptautinę rinkodaros strategiją Sheki Ipek. Darbo pabaigoje pateikiamos išvados ir pasiūlymai. 3 ABSTRACT Author of diploma paper: Sirus Gasimi Full title of diploma paper: Intenational marketing strategy of Sheki Ipek Diploma paper advisor: Assoc. dr. Nina Klebanskaja Presented at: Vytautas Magnus University, Faculty of Economics and Management, Kaunas, 2015 Number of pages: 82 Number of tables: 10 Number of figures: 33 Number of annexes: 2 Main aim of the work – using analyzed theoretical models and characteristics to develop the international marketing strategy for Sheki Ipek. The work consists of three main parts. The first part deals with the theoretical models of international marketing, analysis of the environments in the enterprise point of view, international market penetration strategies and strategy formation peculiarities in the manufacturing organizations. The second part carries out a research for the possibilities of international marketing strategy formation for Sheki Ipek. The third part presents the international marketing strategy for Sheki Ipek. At the end of the work conclusions and recommendations are being presented. 4 GLOSSARY OF TERMS Advertising – is the customer’s paying for indirect sale of the information promoting the product (Hoxie, 2010). Concentrated market strategy – a strategy of small companies, the company seeks to get the big part of the market or several smaller markets (Murphy and Tenold, 2008). Differentiated market – market where the company offers different elements of market complex: different product is sold, the price differs, the product is sold in different places, it uses different forms of promotion (Brasington, Pettitt, 2003). Distribution – is the element of the marketing mix, covering decisions and actions related to the movement of products from producer to consumer (Hui-Chu and Green, 2009). Export – the selling of products abroad. Franchise agreement – is a contract under which the franchisor undertakes to transfer for value the franchisee and gives the right to use the trade name, trademark or service mark, protected commercial (industrial) information and other rights, and the franchisee shall pay established franchises salary in this contract (Business & Management Dictionary, 2007). Global marketing is when the company operates in the global market and doesn’t divide the market into internal and external. License is an international trade that can be understood as an authorization for production or commercial purposes legally use the invention, the net or industry benchmark, trademarks or service marks protected by law and the technical knowledge and practical experience (White, 2009). Non differentiated market strategy – strategy where the whole market is being considered as one market, and all the consumers must react the same way to the marketing actions. It is rarely effective. There are no products that everybody would want (Brasington, Pettitt, 2003). Personal selling – is a compelling delivery of products or services to a potential customer, dealing with him face to face. Product differentiation – production for the individual segments. Sales promotion is such an activity of the company, when buyer gets improved conditions. Target market is a group of consumers, that has the same needs and wants, that the company wants to fulfill (Kotler and Armstrong, 2013). The leader of the companies – a company that has the biggest share of the market. The manufacturer-persecutor – company that always observes the company-leader, its actions, uses its ideas to get into the company-leader place. 5 The followers of manufacturer – some of them plagiarize the main ideas, and others – plagiarize everything that comes to the company-leader and its actions, even they can sell the product using the manufacturer’s name. The manufacturers-niche fillers – the ability to adapt the specific needs of small market segments. 6 INTRODUCTION Information technology, business models, market relations development in the world increased competition, developed the market and provided businesses with a huge acceleration and new possibilities. Nowadays complex world pushes to get oriented in the marketing: to look for innovative ways to interest buyers, where to realize the production, how to present it and distinguish from other competitors. In many countries where the economy is based on the market-based approach, developed and applied marketing strategy consists of business basics, which are indispensable for efficient business process management. Relevance of the topic. Companies pay little attention to the international business, when the local market is huge and there a lot of different options. But increasing interdependence between different countries’ market goods and services caused the companies to recognize that business must be seen globally. Home made carpet manufacturers, relying on modern and advanced technology, in response to dynamic customer needs, has acquired a new, flexible business forms. In other words, a successful international marketing activity requires continuous improvement, and the education of the key competencies in the field. The novelty of international marketing activities assessment is the fact that here international marketing strategy formation for home made carpets is being formed. This type of analysis of the company’s international marketing strategy is different from trade or service international marketing strategies. Therefore, it can be said that this is a specific marketing strategy, which differs from the traditional in some aspects, which will all be referred in the conclusion part. Changing environmental conditions and strong fierce competition in all areas of activities, forces the company leaders evaluate their possibilities very seriously and provide further ways of developing activities, thus, the opportunity to expand business activities internationally. The ongoing relationship between the market development of the country not only opens up new foreign markets, create new economic development opportunities, but also imposes strict requirements. Each company will have to develop their competitive advantage in the international market by choosing some competitive sphere (products, market segments) that is not used by competitors, or gain a competitive advantage in combining exceptional product features, quality, distribution, and promotion. Marketing knowledge for business organizations helps to choose the methods to act in the market, also arouses the initiative, creativity and progress. Expanding the market and competition relations, marketing analysis is necessary for businesses that seek their goals acting not only locally but also in the international markets. Any manufacturing company, expanding its activities must be able to correctly understand and evaluate the macro environment surrounding it and the influence of possible changes on the company’s objectives. 7 Scientific problem. Sheki Ipek wants to open its shop in Lithuania and sell home-made carpets. So the most important problem the company faces is the preparation and development of international marketing strategy for Sheki Ipek to enter Lithuanian market in the best way. Object of the work – the international marketing strategy for Sheki Ipek. Aim of the work – using analyzed theoretical models and characteristics to develop the international marketing strategy for Sheki Ipek. Main objectives: 1. To summarize international marketing strategy in manufacturing companies: to analyze the international marketing models, perform international marketing environment analysis, develop international marketing strategic decisions, analyze the international marketing program elements. 2. To analyze Sheki Ipek possibilities for international marketing strategy formation. 3. To develop international marketing strategy for Sheki Ipek. Logical structure of the work. The work consists of three main parts. The first part deals with the theoretical models of international marketing, analysis of the environments in the enterprise point of view, international market penetration strategies and strategy formation peculiarities in the manufacturing organizations. The second part carries out a research for the possibilities of international marketing strategy formation for Sheki Ipek. The third part presents the international marketing strategy for Sheki Ipek. At the end of the work conclusions and recommendations are presented. Methods and techniques – analysis of the scientific literature and other information sources, questionnaire will be used in the research, also descriptive statistics will be used for the second part of master thesis. 8 1. THEORETICAL ASPECTS OF INTERNATIONAL MARKETING AND EXPORT 1.1. Analysis of international marketing environment Marketing macro environment consists of factors outside the organization – a whole of country’s economic, social and political developments, technological capacity and competition. Macro-environment changes are inevitable. Hence rapid spread of technological innovation, the organization is important to provide its adaptation to the environment means. In deciding to trade or not to trade abroad, a company has to study international marketing environment in-depth. This environment is characterized by its structural model, shown in Fig. 1. Fig. 1. Structural model of international marketing environment Source: Kumar (2011) When examining the international marketing environment, the main focus should be on the company’s macro environment elements that cannot be controlled. There are seven of them (Fig. 1). The analyzed authors (Riekstina, 2010; MacLeod, 2010) usually indicate such elements of international marketing macro environment: cultural, economic and political-legal environment. It is necessary to assess the effect of international marketing environment forces for the company, that decides to do exports. Cultural environment. Each country has its own traditions and norms. Before planning a marketing program, the seller has to study, what representatives of different countries think about certain products and how they use these products. The seller must identify the existing cultural 9 constraints of target market and investigate and comprehend them diligently (Terpstra and Sarathy 2012). The main cultural elements of the environment are shown in Fig. 2. Religion Values and attitudes Language CULTURE Aesthetics Education Social organizati on Law and politics Technology and material culture Fig. 2. A cultural framework Source: the figure has been created by the author, based on the data from Terpstra and Sarathy (2012) All these elements form the resulting stereotypes that to some extent, directly or indirectly effect the forming strategy of an exporting company. Also it can be noted that the aesthetics in most countries, is indeed makes a serious impact on people’s attitudes to many products. Another element of the cultural environment that may affect the company is education. The country’s literacy rate, the persantage of people that have secondary and high education show the level of education. The country’s level of education matters when creating foreign capital companies and searching employees. Next environment, influencing international marketing strategy formation, is economic environment. In this environment, global forces exsist and it is virtually impossible to control them. The main economic environmental factors can be: demand in the market and economic conditions of company functioning. The evaluation of competitive potential is important before new products are released on the market – by researching and designing, because almost 80 percent of production’s marketing 10 costs depend on the success of the economic technical parameters research at the initial product development stage (Banterle et al., 2014). Another important factor affecting the economic environment – market demand, which is resulted by a number of indicators. The first indicator – population. Population density in a given market is the most important indicator of the market size, revealing the potential demand. Population indicators can be classified by: age distribution and life expectancy, economic structure and income distribution. For the markets to be attractive, they must contain not only a lot of people, but also their purchasing power, which depends on income, prices, savings, debt and credit facilities. Purchasing power of people is reflected in the country’s GDP per capita. Next factor affecting economic environment is the economic conditions of company’s functioning. Most often they are resulted from the economic system of the country, the structure of state expenditure, which reflects the expenditure slippages by key government functions or objectives in concrete spheres of economic, currency system, foreign trade policy, qualifications of staff, the profit potential, infrastructure. Political-legal environment. Political-legal environment is also another important element of macro environment of marketing (Fig. 3). It directly affects the marketing activities. So, a marketing manager should study and analyze it carefully while making marketing strategies, plans and programs. Law, government policies, government agencies, pressure groups etc. are included in political-legal environment. Since these elements do not remain under control of any organization, marketing mix should be made in agreement with them. Fig. 3. Political-legal environment Source: the figure has been created by the author, based on the data from Analysisproject (2013) There are no countries, where laws and regulations seek to regulate only international business, but they still affect the activity of the company abroad. For example, the state-determined minimum wage affects the international competitiveness of enterprises, when the manufacturing processes of the organization require a lot of labor force. Thus, unlike the other examined elements, 11 political and legal environment effects business from two positions – the country to which export is conducted and the country in which the organization is established. In conclusion, once the main environments are being talked about, it can be said that each nation has unique features that need to be known. Country’s consumers willingness to purchase a variety of products and services as well as its position as attractive market for foreign companies, depend on the cultural, economic, political-legal environments. In this aspect, it is very important for companies to know these environments that way it would be easier to meet the buyer’s needs and expectations. Thus, the evaluation of international marketing environment of the company can help to analyze the competitive environment and the buyer. By assessing the environments, it is appropriate to analyze the factors influencing international trade. These factors and their influence on the willingness to engage in international trade are being discussed in the next chapter. 1.2. The formation of the company’s strategy penetrating into the international market In the market there are a lot of companies that are reluctant to participate in international competition. It goes without saying, because often these companies are real connoisseurs of the internal market, while stepping into international market forces to encounter with the unknown customs, culture, language, tax and tariff systems, transport systems and currencies. And at the end, products will be modified or even their structure will be changed to meet the requirements of foreign quality and technical parameters (Abrahams, 2009). All things considered, the question is why more and more companies want to go into international market? There seven main reasons for that (Fig. 4). Business portfolio diversificatio n Oversaturate d domestic market Slow growth of internal market Influence of competition Domestic market is too small Internation al interest in production Maintanace of the company 12 Fig. 4. The company’s reason for going into international market Source: the figure has been created by the author In search of a new marketing opportunities in the leading foreign countries, companies realize that the internal market growth is very low. This becomes a reason to engage in international activities. Another common factor to engage into international business, is related to product demand abroad. Often foreign manufacturers’ products are required. This is related to the famous international brands and companies’ logo that guarantee the quality of products or services. In most cases, when one of the competing companies decides to expand its business abroad, the other follows it. This is especially true with oligopolistic economy companies. Other factor related to the competitive environment, is company’s goal to compete with foreign company that settled in its domestic market. Taking into account all the factors that influence the company to engage in international trade, the company has to choose the most necessary ones for formation of its strategy (Prymon, 2014). The company, that is planning to go in foreign market has different choice for doing that. This is one of the important decisions when forming a strategy, because this affects the implementation of international strategy and the size of profit. Different forms for entering a foreign market are decided upon degree of risk. The company, that decided to enter a foregn market, also has to decide at the same time which form it is going to use and what size of the market it wants to occupy. Each of the forms give the perspective opportunities for development in the international market. So the company can use not only one form. One of the most famous forms for entering a foreign market is export, i.e. the selling of products abroad. The government that sucessfully operates, states that export should be developed and small and mid-size companies have do export as well. Export is the least risky way for entering the foreign market. This is implemented through existing dealer in foreign market. However, the exporter weakly controlls the intermediaries. Intermediates do not use aggressive marketing and do not try to sell a product at the highest cost. So the biggest disadvantage of export is low degree of control and limited feedback on the market (Abraham et al., 2009). For the minimum degree of risk, export is used for testing foreign markets. If it is successful, the company chooses such method, which gives the greater control possibility of international trade operations. The previously mentioned limitations of export can be avoided by switching to the second stage of the export organization in a foreign country – the establishment of its own sales department. Such department helps the company to aggressively promote its products, to create foreign market for its products and to monitor sales efforts. 13 Creating own sales department gives the question – what kind of people should work in this branch. If foreign national workers are hired, it is obvious that they will be closer to the culture and have a better understanding of the country‘s buyers and consumers. On the other hand, they will know little about the company and its products. Otherwise, exporter country’s people can work, but they are poorly adapted to the local culture and traditions so they need a lot of efforts to start a successful work. But it can be an intermediate decision, where representatives from both countries could work. Company, expanding in foreign markets and selling its production, can use product licenses. License is an international trade that can be understood as an authorization for production or commercial purposes legally use the invention, the net or industry benchmark, trademarks or service marks protected by law and the technical knowledge and practical experience (White, 2009). Licensing is most commonly used foreign markets through the sale of “know-how”. It may be physical products, production processes, management techniques, marketing strategies or any other combination of these various markets. Franchise agreement – is a contract under which the franchisor undertakes to transfer for value the franchisee and gives the right to use the trade name, trademark or service mark, protected commercial (industrial) information and other rights, and the franchisee shall pay established franchises salary in this contract (Business & Management Dictionary, 2007). Next entrance to the foreign market – an establishement of a joint venture that involves local and foreign capitals. This method provides an opportunity to gain experience from a foreign market partner, provides “local” status of the company and distributes the risk. The biggest problems in joint ventures are associated with bad management (Chen et al., 2014). The more equal are the parts of local and foreign capital, the biggest is the possibility of conflict between the two sides. The greatest potential for gain control and entrance to the foreign market goes to next method – development of production overseas. These companies, which seek to capture the longterm and strong positions in foreign markets, often prefer the establishment of branches and direct investments. By choosing a branch establishment method, the company gains more control to implement its marketing and production programs. On the other hand, this method requires the largest investments in finances and labor, also large management efforts (Niron and Ravi, 2011). This method – the most risky method because the effectiveness of direct investments is influenced by political, financial, economic and other external, uncontrolled environmental factors. Creating a global corporation is the highest international integration form. These corporations usually do not share activity to the local and foreign activity components. Both 14 activities are integrated into one and cannot be separated. The companies plan and implement their global marketing strategies worldwide (Levicki, 2003). Thus, each of the above mentioned methods for entrance to the foreign markets have their own advantages and disadvantages, but it does not mean that any one of them is better than the other. The best entrance to the foreign market method is the one which optimally meets the company’s objectives, resources and foreign market conditions. Only this combination allows the company to successfully enter foreign markets and meet its objectives. Depending on these goals, every company should decide what international marketing techniques to use in their activities, set strategic decisions and marketing program elements which face the company. 1.3. International strategy formation 1.3.1. Decisions of international marketing strategy The choice of international marketing strategy objectives includes the company‘s objectives in international market. To set a goal – means to pave a way to the future for survival and growing of the company. Goals give the company clearity and purposefulness (Chung, 2009). The marketing strategy helps to find out if the business can be done in the competitive market. The formation of marketing strategy firstly begins with the prediction of sales volume and other goals‘ indicators. The are four strategic decisions to be analyzed: 1. The choice of target market; 2. The choice of competitive strategy; 3. The choice of positioning; 4. The choice of strategies for market complex elements. The choice of target market. Target market is a group of consumers, that has the same needs and wants, that the company wants to fulfill (Maihotra et al., 2009). According to the target market, the marketing strategies can be as follows: non differentiated market, diferentiated market and concentrated market. When applying non differentiated market strategy, the whole market is being considered as one market, and all the consumers must react the same way to the marketing actions. It is rarely effective. There are no products that everybody would want. In the case of differentiated market, the company offers different elements of market complex: different product is sold, the price differs, the product is sold in different places, it uses different forms of promotion. Company needs a lot of funds for implementation of this program, so this program is usually used by the large companies (Brasington, Pettitt, 2003). 15 The concentrated market strategy was treated as a strategy of small companies for a long time, because it doesn‘t need a lot of funds. In this case the company seeks to get the big part of the market or several smaller markets (Murphy and Tenold, 2008). The choice of competitive strategies. The competitors of the company must be evaluated by performing the analysis of the situation. The position of the company and its abilities in comparison with competitors, can reveal the important advantages or disadvantages of the marketing strategy. According to Ph. Kotler and G. Armstrong (2013), the competitor can be: 1. The leader of the companies – a company that has the biggest share of the market. Such company always gives better prices, offers more new products than competitors and etc. 2. The manufacturer-persecutor. Such company always observes the company-leader, its actions, uses its ideas to get into the company-leader place. 3. The followers of manufacturer – some of them plagiarize the main ideas, and others – plagiarize everything that comes to the company-leader and its actions, even they can sell the product using the manufacturer’s name. 4. The manufacturers-niche fillers. The main competitive strategy – the ability to adapt the specific needs of small market segments. The sales volume aren’t very big, but these manufacturers work profitably. The selection of positioning method. The conception of products or services positioning recognizes that consumers are affected by different companies, servicing the individual market, marketing program. Ph. Kotler and G. Armstrong (2013) present four positioning methods: Positioning by consumption; Positioning according to the user; Positioning according to user interaction with goods; Positioning based on a direct comparison. Positioning solutions in the company can not be done before the perspective analyzed, and particularly those of competitive strategies. As well as the positioning can not be done before choosing a target market, because the positioning options depend on the consumers’ characteristics of the planned segment. On the other hand, positioning strategy in a company must be provided before decisions on specific marketing mix elements are made (Shrafat, 2014). The selection of seperate marketing elements strategy. By developing the coherent marketing strategy it is necessary to choose the appropriate functional elements of the marketing mix strategies. Their options include: In marketing mix element “Product” – strategic decisions in assortment, quality, trade name issues; 16 In marketing mix element “Price” – the strategic decisions of new product prices, the payment issues; In marketing mix element “Distribution” – distribution strategic decisions (exclusive, selective, intensive distribution strategies), distribution control system (system of ownership and control ways) issues; In marketing mix element “Promotion” – decisions about choosing promotion strategy (push, pull or mixed), strategic decisions in budget allocation. The following factors that need to be constantly assessed in the formation of an international marketing strategy (Zeriti et al., 2014): 1. Company resources. Every company must have the recources for production development and other marketing costs. 2. Product differentiation. Production for the individual segments. 3. The stage of the product life time. When the product reaches maturity stage, its marketing strategy must be reviewed. 4. The competitors’ strategy. Continuous product improvement for seeking the competitive advantage. Different companies have different search methods for international market and the implementation of international marketing strategy. International marketing can be implemented in such ways shown in Figure 5. No direct marketing Infrequent foreign marketing Permanent foreign marketing Internation al marketing Global marketing Fig. 5. International marketing stages of implementation Source: the figure has been created by the author, based on the data from Zeriti et al. (2014) Indirect marketing. This phase doesn’t do any users’ preparation actions. The manufacturer sells its products to trader or other foreign company that have an interest to resell or distribute them. In other ways, the products reach the foreign market by the help of intermediaries using no any prior marketing efforts to prepare buyers. Infrequent foreign marketing. Temporary surplus commodities or irregular orders disrupt continuity of production, that’s why the company sometimes needs the efforts of infrequent foreign market. The excess of products is usually temporary, that’s why the sales possibility abroad exists temporary and the need of international marketing is also temporary. 17 Permanent foreign marketing starts when the company has production capacity for producing products to the foreign market. Here we have the international marketing research and decision making need. A big dependence on foreign market is being felt in this phase. International marketing. The company already operates internationally in this phase, applies different marketing to different countries. The production is being planned and implemented according to the demand and specification of foreign markets and the products totally depend on the luck in the international markets. Global marketing. The global marketing is when the company operates in the global market and doesn’t divide the market into internal and external. The global marketing seeks to find the unique features markets, that let the creation of marketing strategies suited globally for all markets. The organization can go through all these stages or it can omit some. It depends on the company’s situation, objectives and international marketing strategies selected. So the international marketing strategies can be defined differently and can be implemented in different ways. The formation of the strategy can be defined according to what products and markets are being covered by the actions, how much investment this activity gets, what function strategies would be used and what kind of strategic advantages would be developed for competitors. The strategy can be defined according to competitive advantages: low costs, differentiation, directed activity to one small part. By forming a marketing strategy, it is recommended to follow the recognizable structure, which is connected with the most important marketing aspects: the exclusion of target market, the selection of competitive strategy, the positioning method, and the selection of separate marketing mix elements’ strategy that effect the successful activity of the company. Next section will give a better view of the selection of marketing mix elements’ strategies. 1.3.2. International marketing program elements Product and its decisions. The company‘s marketing activity begins with discovering a market and interpretation of its environment requirements. Of course, sometimes the company can sell the products without the understanding of the market, but this success does not maintain a constant test. It is far more useful to determine what is required and thus try to meet this need by analyzing product, price, distribution of products and organizing promotion. It is appropriate to carefully plan the marketing program for each foreign market. An effective conception of a developed product is the first step in planning a marketing program. Product – is a complicated concept that has to be consistently described. In marketing the most important thing is product value or its utility to the consumer. The value of a product shows 18 how much raw materials, materials or labor was used to produce the product, and the value of consumption of the product describes its utility for its intended purpose, social significance, practical applications, and so on (Felzensztein et al., 2014). To make a success in a foreign economics, the company has to assess more accurately its products eligibility for export. Some products do good with only small changes that make customers interested in foreign markets, others need big changes. The main challenges for the companies would be, before presenting the product to foreign markets, compare their products‘ advantages to competitors, to explore how the product is evaluated by trading companies, how the product meets the needs of consumers. It is recommended to apply the research procedure of product eligibility for foreign markets (Fig. 6). The analysis of own and competitors' products How traders evaluate the product How the consumers evaluate the product Product adaptation in the market Fig. 6. Procedure of product eligibility for foreign markets Source: He and Avinandan (2009) Investigation of their own and competitor products must take into account some criteria: technical characteristics of the product, the quality of the product and additional services. Analysis of the products offered by competitors according to the following criteria can help to identify market niches, or the opposite – to avoid a certain market segment. A product is customized for foreign markets by modifying it, changing some of the physical parameters, design, identification of elements, additional services. According to this, the strategy for adaptation of products to foreign markets can be (Luan and Sudhir, 2010): 1. The distribution of unmodified product. 2. The distribution of modified product. 3. The distribution of new product. Unmodified product distribution in foreign markets is the cheapest method. It is possible when the goods are sold in foreign markets or their segments in which the macro environment are close to local market macro environment elements. By modifying a product for foreign market needs, a change of the physical product happens rarely because it is associated with certain production changes and requires considerable additional costs (Brasington, Pettitt, 2003). 19 Companies that decide to work in foreign markets, should choose strategies very carefully. In some cases, the low level of development in the country requires reverse innovation, that is, drastically simplified versions of products appearing in the market. It happens when a consumer purchasing power is weak or they do not know how to use the product. Such technically sophisticated facilities of consumer behavior for companies to trade in foreign markets can be identified (Luan and Sudhir, 2010): 1. A buyer‘s decision to purchase a product is determined by the price of product and its technical parameters. 2. When deciding to buy a product, the indices of products and services offered by the seller (additional services) are important. In order to properly and timely serve the customer, usually support services abroad are organized. This is an expensive and complicated process. 3. The country‘s social and cultural background differences in trading technically sophisticated devices are less important than trading every day use products. When deciding on the product, the company must take into account other elements of the marketing mix, such as price. Price and its decisions. Out of all the marketing mix elements only price generates income, all other elements are expenses. It is a key competitive tool. And although the company always wants to set the price as high as possible, competition pushes the company to reduce the price. Export price setting – is a task, that is being solved by all companies without exception. In most cases it is based on the costs of production, although in the prevailing conditions, such pricing is unacceptable. According to B. A. Vander Schee et al. (2010), in most cases companies will have to have their own pricing methodology. There are different ways to establish export prices. Preferred phasing is as follows: 1. The optimal product pricing in the foreign market is determined. 2. The difference for foreign product prices in different markets is grounded. The setting of export pricing relates to a number of variables, which are different in different markets. The expenses of different companies operating in foreign markets also are not the same, they might reach different purposes. Therefore, the first step is to determine the optimal product price in the particular market. The first factor in export prices – market demand. Price setting methodology, focusing on the demand for products is based on the research of demand and economic value, this product creates for the consumer. Economic value is determined by the social and cultural environment. It is 20 also necessary to investigate the economic environment. The interaction between export prices and the factors determining them is shown in Fig. 7. Consumer purchasing power Social values Demand of product Company’s activity objectives in foreign market Ratio of product value and price The competition of product Origin country of product Optimal export price Fig. 7. The factors influencing the optimal price setting Source: the table has been created by the author, based on the data from Liozu and Hinterhuber (2012) One of the most important factors in the fluctuation of pricing, by choosing the optimal price, is competition in the market. The calculation of export price based on the price level of competitors can be divided into four stages: 1. Competitive material is selected. 2. The main selected material competitive conditions are compared: technical and economic parameters of the production, delivery and payment terms, prices. 3. In accordance with an appropriate correction coefficients the selected material competitive prices are being corrected; This takes into account technical delivery terms and economic differences in the price. 4. The reference export price is being set according to the company’s pricing strategy chosen by the setting of the intervention of export price. Pricing also may be influenced by the company‘s internal capabilities, producer of products and its country’s image abroad. To set one optimal price is not enough, because different countries has different environmental and economic factors. Thus, in order to get an acceptable pricing, an export price in the second stage of pricing formation has to be adjusted. To achieve proper regulation of prices in different countries, even in their region is difficult. It should also be noted that the formation of an international pricing strategy requires to develop and regulate the distribution chain margins. F. Brasington and S. Pettitt (2003) provide a framework, providing exemplary mark-up in the system (Fig. 8). 21 Producer price – 45EUR Wholesaler price – 78EUR Producer Wholesaler Production expenses: 50EUR Mark-up: 30% 15EUR The buying price: 65EUR Retailer Retailer price – 109EUR Mark-up: 20% 13EUR The buying price: 78EUR Mark-up: 40% 31EUR Fig. 8. Mark-up system Source: Brasington and Pettitt (2003) Export price forming factors and goals lead to the fact that the company has to choose the export price strategy. International marketing uses three main export price strategies: 1. The global standard price (subject to the same all over the world product prices). 2. The dual pricing (in the local market product has one price and exported product has a different price). 3. The pricing belonging from the market (same product is offered for different markets at different prices). In summary it can be said that in any particular case such price policy and strategy must be implemented that the prices set would let to penetrate the market and conquer its part, promote the sale of products, what would guarantee the profit. The effective pricing is a key element of the company’s market policy. Pricing as a marketing tool used most effectively when it is combined with other elements of the marketing mix, i.e., presentation of products and their stimulation. Therefore, next the rational distribution of products at the international level will be discussed. Distribution channels. Products produced in the company must reach the consumer, to be offered to him and sold. Manufacturer‘s efforts to achieve this objective may be successful only if the products will be offered for those customers who need them, in a place, at such time and in such quantity as they wish. Distribution is all the activities, including the presentation of products to consumers, the product movement from the manufacturer to the consumer. Ch. Hui-Chu and R. D. Green (2009) defines distribution as follows: distribution – is the element of the marketing mix, covering decisions and actions related to the movement of products from producer to consumer. Distribution channel choice is influenced by many factors: product related factors, factors related with consumers, competitors, factors associated with the company. Manufacturer on the basis of factor analysis has to evaluate the distribution channel alternatives and select the most appropriate (Xia, Xiao and Zhang, 2013). Before selecting the method of allocating products, the manufacturer needs to evaluate how much additional income will be received, how much additional expenditure he will have, to what extent he is able to properly perform marketing functions. Such distribution channels may be 22 distinguished (Table 1). Each manufacturer selects the most suitable type for him and applies its appropriate structure. Table 1 International distribution channels Type of distribution channel Direct distribution Indirect distribution Business success depends on the distribution system formed Possible structure of international distribution channel The manufacturer sells his goods to the consumer in his own brand shops Manufacturer operates through its intermediaries in a foreign country, i.e. supplying them products. Manufacturer operates through its sales representatives abroad. Establishment of equipment manufacturing or collecting unit in foreign market Note: the table has been created by the author, based on the data from Harison and Hoek (2002) There are three main distribution chain links between the manufacturer and the end user. The first link in the chain is manufacturer‘s international marketing division within the country, controlling distribution channels and at the same time is one of the channel’s part. The second link is the international distribution channel that take care of distribution from one border to another. The third level is the internal distribution channel in a foreign country, when foreign products are delivered from the border of the importing country to the end user. Assessing the company’s ability to build the distribution channel structure, the company has to keep in mind the analysis of expenditures, distribution channel control, channel quality and channel activity duration. When choosing a distribution channel, it is appropriate to compare the costs of product distribution moving through different channels. Distribution channel control objects are transportation and storage of the products, the forseeing of sales promotions, price level and sales conditions, quality of service. The quality of distribution is described by the channel‘s capabilities, reliable image in the market. Therefore, when selecting intermediaries, it is needed to consider trading intermediary image in the market. The consumer can always take into account the level of reliability in the market. The image of the exporter in the foreign market depends from the image of manufacturer (Christopher and Peck, 2003). In summary, it can be said that the final solution of organization for the distribution channel and the strategy depends on the company‘s, operating in foreign markets, goals. Consequently, product distribution channels and strategies, on the one hand, are determined by the needs of consumers, on the other hand, the aims of the producers and opportunities. Promotion decisions. Effective communication is very important for international marketing: producers, consumers and intermediaries are appointed by the geographical and 23 psychological distance, and it is often the communication process that helps to achieve win-win arrangements. As far as the international activity of the company, communication is communication between international business company and end consumers buying products imported from abroad. It is very important for companies to develop an appropriate strategy for the promotion and take into account each country’s environmental factors influencing the communication process. Formation of promotion strategies in foreign markets involves several key elements: Identifying the target audience; Determining communication objectives; Determining the message; Budget decisions (Sneha, 2013). It is very important to choose the appropriate means of promotion to support the objectives of the company. Main promotion means are advertising, sales promotion, personal selling and Internet. 1. Advertising – is the customer’s paying for indirect sale of the information promoting the product. Campaign costs are determined by the objectives of foreign companies operating in the market and the prevailing level of spending in foreign market advertising. Advertising in foreign countries is usually done by advertising companies. The main objectives of advertising are distinguished by their effect on the audience and are divided into information, persuasion and reminder (Hoxie, 2010). There are several basic types in product advertising: brand advertising, advertising of regular price policy, promotional advertising of special items. 2. Personal selling – direct communication between buyer and seller. It’s interpersonal communication with one or more potential customers, hoping to sell or convince to perform certain actions. It may be a telephone call, help staff at the store, and so on. Personal selling – is a compelling delivery of products or services to a potential customer, dealing with him face to face. Compared with the previously discussed means of promotion, this promotion form is an expensive, time consuming, and requiring expertly trained personnel. Personal selling has clear advantages – the response and the visible result are being gotten (using personal sales price of products is being raised 2-3 times). This form is less important to the manufacturer. In a foreign country it would be pretty hard to organize this type of promotion. However, this form of promotion is useful when the company has its office in a foreign country. Personal selling is an especially flexible stimulation, because it is adapted to each customer. And the costs are usually lower than when using advertising. However, the disadvantage of such selling is that it includes quite a few buyers (Ferrell et al., 2007). 3. Sales promotion is such an activity of the company, when buyer gets improved conditions. To form such conditions, a company has to dedicate portion of its profit. This is one of 24 the most popular and most reliable forms of promotion. The main sales factors are indicated in Fig. 9. Coupon use guaranteeing discount when purchasing the product Free samples sending Gifts for buying other products of the company Sales promotion factors Reduction of sales price and etc. Organization of competition between vendors, dealers and buyers, giving awards Demonstration of products on store shelves Discounts for wholesalers Fig. 9. Procedure of product eligibility for foreign markets Source: He and Avinandan (2009) If the advertising provides a cause to buy, a sales promotion stimulates to perform an action – to buy. One can distinguish the main objectives of promoting the sale, which can help to select the corresponding stimulus measures: increase purchases over a short or long period of time; increase benefits (number of customers, company’s profit); to introduce a new product to the market; to introduce a consumer with the brand name (create identification); encourage the loyalty to the company, its brand, products and (or) services, and so on. Price reduction is perhaps the simplest and most common form of promotion. It is particularly prevalent in enterprises, where manufacturers do discounts for intermediaries. Intermediaries’ promotion – manufacturer companies encourage intermediaries, who buy directly from the manufacturer. Commercial discounts for buying in bulk, goods paid advertising costs are the most frequently used methods. Sometimes manufacturers envoke demonstration at the stores. New products are displayed in exhibitions and fairs. Here traders can get the detailed information (Kapferer, 2004). 4. Internet in the international marketing is very popular, distinguished by unique marketing features and performs a dual role: This is a new communication tool, different from traditional media, because of its interactive, flexible and infinite nature; This is a virtual global electronic market, without any territorial restriction. All consumers want to get the required products quickly, so everything is determined by the term “time-tomarket” (time before entering the market). And in todays world, even a monthly delay can 25 cost millions of losses (Gosselin and Poitras, 2008). Online campaign can be far more effective than traditional advertising channels. An advertising online can be created, delivered and, if necessary, changed faster. As an advertising can lead consumer directly to the site where he will get more information and the opportunity to communicate interactively, much more impressive and more informative data can be given on a product. In order to obtain adequate benefit from international marketing execution, advertising campaign and other promotion actions should be carefully planned and combined in a way that they fortify rather than interfere each other, i.e., a free flow of communication must be. To sum up, it can be said that by forming an international marketing strategy it is the most important to assess the environments in which the company operates or intends to operate, select the appropriate strategic decisions and analyze the international marketing program elements. These decisions are the base for strategy accomplishment scheme and subsequent performance of the company. In practice, these aspects will be analyzed in the formation of international marketing strategy for an Azerbaijani company. 26 2. INTERNATIONAL MARKET RESEARCH OF SHEKI IPEK 2.1. Sheki Ipek and its activities in Azerbaijan Sheki Ipek produces silk goods in Azerbaijan for many years now. Sheki Ipek has been in business since 1931, so it has a large experience in selling silk products. The company deals with production of raw silk, twisted silks (silk yarn), fabrics from natural silk and in a blend with other artificial and synthetic fibers, national lady‘s head cloths „kelagai“ and master manufacture of carpets from natural silk. This cooperation has made partnership and trading with post Soviet Union republics. However in Azerbaijan still there are big potential opportunities and all necessary preconditions for revival and development of sericulture and the silk industry. In the country there are very favorable climatic conditions for sericulture, still existing two P3-P1 egg production stations and 7 hybrid egg production factories, 80 centers for cocoon drying and storage, located in 30 areas of the republic, indefatigable interest of farmers to sericulture, presence of rich genetic resources of the silkworm and mulberry, strong support by the Government, subsidized the Sheki Ipek silk company with about 2 million US$. The vision of the company – business and society that mange the resources effectively. The mission of the company – to be the leader in the home-made carpet production sector, to satisfy all the needs of consumers and to offer the best quality products. The values of the comapny: Innovative and highquality products; Responsible attitude to customers and employees; Long-term and reliable partnership. From this year, the carpet production in Azerbaijan amounted to 50,000 m2 per year. The company’s stable growth rates and high professionalism of the staff allows the company to expand and do export to another countries. Sheki Ipek is a large company, that employs more than 1000 employees. Total annual sales volume is about 1 mln US dollars. Main market of Sheki Ipek covers Eastern Asia, so the company decided to expand and to fill the niche market in Eastern Europe countries. Company Sheki Ipek produces silk products and hand-made carpets. Hand-made carpets can be woven, knitted, knotted, sewed or embroidered and glued. Company sells exclusively handmade carpets, which production method reaches the oldest times. They like works of art are produced and practicing both in rural communities and urban manufactory, supervised by professionals. Classic Eastern carpets are smooth. They are made by hand from wool, cotton or silk, 27 with horizontal and vertical machining and their weft is wool. Thread after thread they are blend ed in seamlessly by the pattern layout, drawn up by an artistic designer and illustrator. The oldest pile carpet types - knotted. They tethered vertical or horizontal frames. The oldest type of shaggy carpet – knotted. They tethered vertical or horizontal frames. Long gone are the days when Eastern Asian rugs traveled with buyers miles in caravans – now they reach Europe via the experienced traders. West European experience shows that it is very risky to buy a carpet using the service for home delivery, or during the sell-out or in market. Often, the original Asian patterns are reproduced in the wool and silk carpets from China, India, Nepal and Pakistan, indicating that they are made in the world recognized Iranian provinces. These rugs are relatively cheaper and qualified as an ordinary commodity. However orginal carpets for the quality of wool or silk, color harmony and nodes density and coupling method, the accuracy of ornaments, are more valuable and therefore more expensive. So next chapter is appointed for the research of Lithuanian market for Sheki Ipek production – hand-made carpets. 2.2. Methodology of the research To keep the research flow and consistency, the second part of the thesis was done following these research steps: The formulation of research problem; The setting of research type and information resources; The selection of research data gathering methods and forms; The setting of research sample and gathering research data; The analysis of research data and interpretation; The preparation of the research report. The formulation of research problem. The aim of this step is to define proper the existing problem and the objective. The identification of the problem and the methods of elimination of it should reflect in the research conclusions. This research will help to analyze and eliminate the problems, answer the questions, obtain the information about the behaviour of the potential customers and would help to choose the right decisions for setting the strategy of homemade carpet entering the market. This year, company Sheki Ipek plans to start export of home-made carpets to Lithuania, so the most important questions that the company can face are: What means will be used to reach its target market? How to get the part of Lithuanian market? What kind of home-made carpet tendencies are in Lithuania? 28 Are Azerbaijani home-made carpets known in Lithuania? So to answer these questions, the objective of the research was formulated – to find out the importance of criteria, which the clients use for choosing the home-made carpet. The objectives to reach this aim: 1. To find out the buying habbits of home-made carpets and the notoriety of carpet selling companies; 2. To evaluate the criteria of choosing the home-made carpets; 3. According to different criteria evaluate the expectations of the ideal possible home-made carpet shop in Lithuania. The setting of research type and information resources. The objective of the second type is to set what kind of methods will be used to reach the aim of the research. The quantative research method was chosen to ask a bigger number of respondents and to get the more accurate data. The descriptive research was carried out, during which the primary data was collected. This method is rather informative and cheap, which lets to gather precise results. The selection of research data gathering methods and forms. The questionnaire was chosen for the research method. The questionnaire in Lithuanian and in English was formed of 23 questions (Annex 1 and 2), because they were handed to Lithuanian people. The questions were formed in groups. First group of questions consisted of common closed type questions about the tedencies of buying the home-made carpets. These questions will help to find out if the customers buy carpets, how much they are willing to spend and what factors are important when choosing a carpet. Second group of statements was formed to find out the meaning of criteria to the customer when choosing the home-made carpets. This group of statements was evaluated by Likert scale, where 1 meant that the respondent disagreed with the statement, and 5 means that the respondent fully agreed with the statement. Third group of questions was formed to find out how the customer imagines the ideal shop for selling Azerbaijani home-made carpets. To find out how important is the criteria to customer, the last group of statements was evaluated by Likert scale, where 1 meant that the respondent disagreed with the statement, and 5 means that the respondent fully agreed with the statement. The questionnaire contains ranking question, that would help to know what countries make home-made carpets the best or worst in customers‘ opinion. The customers had to rate the countries that produce home-made carpets in the five point scale (5 – country that makes the best home-made carpets, 1 – country that makes the worst home-made carpets). To find out how the respondent knows the Sheki-Ipek brand, their products, the open-end and closed questions were asked before the demografic questions. 29 Last group of statements were asked to find out what factors are the most important to the customer when choosing home-made carpet shop. This type of statements will help to evaluate what factors should the company Sheki Ipek take a notice at and pay more attention when creating and developing an international marketing strategy. At the end of the questionnaire the demografic questions were asked to find out the repondent‘s gender, age and education. The setting of research sample and gathering research data. The fourth step of the research is to name the research population and to set the research sample size. The research was carried out in Kaunas city, but there is no data what number of people is buying home-made carpets. The common demographic tendencies in Kaunas are similar to the tendencies of other Lithuania‘s cities – the number of population is constantly decreasing. As the company Sheki Ipek wants to open its store in Kaunas, the target segment is mature people (age 18 and up). According to Statistic department of Lithuania, more than 300 000 people live in Kaunas (Table 2), so this number can be a size of population. Table 2 The number of people at the start of year (features: administrative teritory and year) 2010 m. 3 141 976 329 542 Republic of Lithuania Kaunas area 2011 m. 3 052 588 317 319 2012 m. 3 003 641 310 773 2013 m. 2 971 905 306 888 Note: the table has been created by the author, based on the data from Statistic department of Lithuania, 2015 The survey sample then can be counted by the use of formula (1): 1 n = ∆2 +1 ⁄N (1) where: n – sample size; Δ – error size (0,05); N – general whole size. n= 1 = 399 0,052 + 1⁄300000 General whole size is N=300 000. Thus, for a successful survey 399 respondents has to be interviewed. The analysis of research data and interpretation. It‘s the fifth step of the research, when the analysis of the research data is being done and the results are interpreted. The results were processed by Microsoft Excel program. The preparation of the research report. This is the last and most important research step. All the results of the research are being summarized and the conclusions are being made. 30 To do a research, the simple convenience by chance selection was chosen. This is a selection based on a principal of convenience. This method was chosen because it is convenient and cheap. There was no possibility to ask people in the home-made carpet shops, because they are competitors of Sheki Ipek. For these reasons, the research was carried out by shopping center Akropolis and Mega using a principal of convenience. The research was carried out from the 9 th of March till the 22nd of March. 400 questionnaires were handed out, but only 308 respondents fully completed them. Only 203 questionnaires were good for a research and contained valuable information, because the rest of the respondents don‘t buy carpets. So 203 respondents will represent the Kaunas city people and their view into the carpet market perspectives. Next chapter describes the results of the research in more details. 2.3. The results of the research The aim of this part of work is to analyze all the data collected during the research: to systematize the information, to carry out the meaningful notice and draw conclusions that will be useful for the third part of the master thesis. A total of 308 respondents participated in the survey and 203 of them were suitable for the research. According to the obtained data, 47% of them are men and 53% are women. Thus, the gender distribution among the survey respondents are more or less the same. The analysis of the data by age shows that the majority of respondents (36%) fall into 3645 year age group and 34% fall into 26-35 years age group. Respondents whose age group 61 years and more contains the minority of respondents (only 4%). So most respondents are from 26 to 45 years old, and are considered to be the target segment of specialized home-made carpet shop (Fig. 10). 40% 30% 20% 34% 36% 10% 0% 6% 20% 4% 18-25 26-35 36-45 y. 46-60 more y. y. y. than 61 y. Fig. 10. Age groups of respondents Source: the table has been created by the author 31 The analysis of the distribution of respondents by education received showed that the majority (71%) respondents have higher education (Fig. 11). Accordingly, as the age groups mentioned, respondents with higher education are also considered specialized carpet shop’s segment. Therefore, the greatest attention is paid to the analysis of these group’s responses. 12% 1% 3% 4% Not finished secondary 9% Secondary Professional Higher education University education 71% Fig. 11. Education of respondents Source: the table has been created by the author The first survey’s question was to find out how often the respondents buy carpets. The distribution of responses is shown in the Fig. 12 below. These figures show that slightly more than half – 56% respondents buy carpets once every 5-10 years. While 9% - once a year. Never buy even 34% of respondents. No respondents buy couple times a week. Carpets are such products that are not used every day. They can be treated as a luxury product that’s why they are not being bought very often. Never buy 34% Once every 5-10 years 56% Once a year 9% Couple times a month 1% Couple times a week 0% 0% 10% 20% 30% 40% 50% 60% Fig. 12. Respondents carpets’ buying frequency Source: the table has been created by the author The second survey question was: how much you normally pay for a carpet when you buy it in a shop? In that regard, it was important to find out what would be the most appropriate pricing strategy for the company in order to sell its production by the price categories according to the 32 majority of respondents. From the chart it is clear that the majority – 53% of respondents compared with other price categories, are choosing carpets in the price range of 151-200 EUR (Fig. 13). The second most common answer selected by respondents (25%) was 201-250 EUR for a carpet buying it in the shops. Meanwhile, the very small percentage of respondents choose carpets costing 251300 EU (3%) more than 300 EUR (2%). 60% 50% 40% 30% 20% 10% 0% 53% 25% 6% 11% 3% 2% Fig. 13. Respondents spending for carpets Source: the table has been created by the author Third question was asked to find out what factor influenced the most when buying a carpet (Fig. 14). The responses to this question didn‘t surprise because the factor that influences the most was price. This factor was chosen by 31% of respondents. Colours, pattern and quality go close too. 28% of repondents think that quality of the carpet matters the most, and 27% of respondents think that colours and paterns should be important the most. The least important factor was size of the carpet (only 2%). Country of origin also is not so important (5%) that makes some doubt for Sheki Ipek when entering a Lithuanian market – how their carpets would be sold in this country. Recommendations of friends, family and etc. matters only to 7% of respondents. Buying a carpet is such a process that you want to be responsible for yourself and to decide what is better for you because nobody else can advise what kind of carpet you should lay down in your house. Recommendation of friend,… 7% 5% Country of origin 2% Size 31% Price 27% Colours and pattern 28% Quality 0% 10% 20% 30% 40% Fig. 14. Factor influences the buying habbits the most Source: the table has been created by the author 33 Carpet buying selection criteria is specified by questionnaire’s statements (Fig. 15): “By choosing the carpet, the quality is important for me”, “By choosing the carpet, the price is important for me”, “By choosing the carpet, the origin country is important for me”, “By choosing the carpet, the colour and texture are important for me”, “By choosing the carpet, it is important that the carpet is hand-made”, “I think that the best way to buy a carpet is in the shopping centers”, “I think that the best way to buy a carpet is in the specialized shops”. The first statement according to the importance is the colour and texture of the carpet (60%). This is the most important feature for respondent when choosing the carpet. Also important is the price of the carpet. 55% of respondents think that by choosing the carpet, the price is important. People want to pay but get good quality (37%). The least important factor, that influence buying the carpet is the choice whether to buy in a shopping center or in the specialized shop. 12% of respondents don’t think that it is good to buy at the shopping center. Usually shopping centers sell carpets at an affordable price. They are not of a very good quality, usually they come from China. And they are not hand-made. The country of origin is not important to 11% of respondents. The answers to this statement distributed pretty much evenly, this shows that origin of country can be important to one respondent, and totally unimportant to the other. But 22% of the respondents would like to have their carpets hand-made. This statement reveals that respondents’ answers are quite different. Some of them values quality, some of them want the carpet to be cheap and others want hand-made carpet. But the majority of respondents (53%) agrees that you can only buy a good quality carpet in the specialized shops. By choosing the carpet, the quality is important for me 3% 0% 0% By choosing the carpet, the price is important for me 6% 1% 4% 34% 55% 15% 25% 30% 11%19% By choosing the carpet, the origin country is important for me By choosing the carpet, the colour and texture are important for me 33% 37% 3% 0% 0% 5 60% 37% 22%30% By choosing the carpet, it is important that the carpet is hand-… 1% 1% 3% 10% I think that the best way to buy a 25% carpet is in the shopping centers 12% 21% I think that the best way to buy a 19% 3% carpet is in the specialized shops 4% 4 3 2 46% 1 50% 53% 0% 10% 20% 30% 40% 50% 60% 70% Fig. 15. Carpet buying selection criteria Source: the table has been created by the author 34 The next block of statements helps to find out the vision of an ideal home-made carpet shop (Fig. 16). This statement is very important for Sheki Ipek company, because when entering a Lithuanian market it needs to open a shop there. So the respondents‘ answer to these statements can help to decide better what kind of shop it should be. The most important factor for the respondents is the assortment of carpets (49%). The respondents want the assortment include at least 50 kinds of carpets. This is quite large range of assortment and Sheki Ipek have to produce at least 50 different kinds of carpets. The sellers at the shop also have to meet such criteria. 39% of respondents agree that the seller should be an expert in this field because they want to get the best service at the shop. 53% of respondents think that the ideal home-made carpet shop should sell different assortment of carpets that the shopping centers. Of course, home-made carpets are different in their structure, material, colour and most importantly – the quality. The size of the shop doesn‘t matter that much. Only 6% of respondents think that it should be large. So it doesn‘t matter what kind of shop it can be as long as it sells good quality, large assortment home-made carpets. 6% The area of the ideal home-made carpet shop must be large Only expert sellers should work in the ideal home-made carpet shop The assortment of the homemade carpets should include at least 50 kinds of carpets In the ideal home-made carpet shop the assortment of production should be different than in the shopping centers 14% 22% 14% 27% 4% 4% 0% 13% 17% 19% 44% 39% 5 4 28% 49% 2 1 21% 3% 1% 3 22% 53% 0% 10% 20% 30% 40% 50% 60% Fig. 16. Ideal home-made carpet shop criteria Source: the table has been created by the author When asked to evaluate the countries that make carpets by the least important to the most important, the respondents of course, evaluated China being the country that makes the worst homemade carpets (Fig. 17). Persia (Iran) was rated the best home-made carpets’ country. No wonder, because this country has a long carpet producing traditions that go back to the ancient times. Persian carpets are always being valued as of good quality, beauty and ornaments. The Azerbaijan and Turkey takes the second place of being the countries that make good carpets. This question revealed an important factor, that the company Sheki Ipek can start its international marketing entering 35 strategy because Lithuanian people value Azerbaijani carpets. All Eastern countries are known for their good quality carpets. India and Lithuania is in the third place (3 points) and Russia got only 2 points. Russian carpets are not valuated because of the events going on between Russia and Ukraine. People do not like Russia and that maybe influences the choice of its products too. 0% 2% 9% 12% 0% 0% 33% 55% 12% 15%21% 41% 12% 11% 59% 13% 14% 5%9% 15% 33% 46% 3% 3% 19% 43% 10% 13% 15% 28% 10% 44% 8% 10% China Russia Lithuania Persia (Iran) Turkey Azerbaijan India 0% 20% 40% 60% 77% 5 4 3 2 1 80% Fig. 17. Respondents opinion about countries, that produce home-made carpets Source: the table has been created by the author By the 17th survey question respondents were asked to list what specialized carpet shops in Lithuania they know. By analysing the responses received, six specialized carpet shops located in Lithuania have been mentioned at least once. Figure 18 shows the most frequently mentioned carpets shops. Most often mentioned was Dubingiai shop – 121 time, next – Senukai shop – mentioned 62 times. Thirdly, most frequently mentioned is Maxima – 31 times. Although the survey was carried out in the city of Kaunas, respondents knew and mentioned the specialized carpet shops in Vilnius – Persija and Kilimu pasaulis. 9% 6% 4% Dubingiai 43% 17% Senukai Maxima 27% Iris Persija Kilimu pasaulis Fig. 18. Respondents notoriety of carpet shops in Lithuania Source: the table has been created by the author To check the Azerbaijani carpets‘ populiarity one more control question was asked if the respondents would like to buy Azerbaijani carpets (Fig. 19). So 18% of respondents would like to 36 buy Azerbaijani carpets, 68% maybe would like to buy, and 14% would not buy Azerbaijani carpets. So the answers to this question shows that Sheki Ipek has 18% potential customers, and it can attract more if choosing the right international marketing strategy when entering Lithuanian market. 18% Yes No 14% Maybe 68% Fig. 19. Respondents willingness to buy Azerbaijani carpets Source: the table has been created by the author To find out if the respondents know Sheki Ipek company, the next question was asked about Sheki Ipek notoriety (Fig. 20). The results were not surprising because 97% of respondents never heard about such a company. 3% of respondents thou say they heard about such a company. Sheki Ipek has a distributor of its silk scarves and shawls in Vilnius – Trading Estate JSC. So these answers showed that the company has to create a good promotion company to get the potential customers to get to know about it. 3% I heard about it 97% No 0% Yes 0% 20% 40% 60% 80% 100% Fig. 20. Respondents notoriety of company Sheki Ipek Source: the table has been created by the author Next group of statements helps to evaluate the factors that are important when creating a shop (Fig. 20). The most important factor when evaluating the shop is the quality of the products. This factor is important to 55% of respondents. Also important factors are exclusivity and professional staff. 47% of respondents want to be attracted by exclusivity of the products, staff’s clothes and etc. Also professional staff is important to 46% of respondents. So the company Sheki Ipek has to think about hiring only the professional employees to please Lithuanian customer. 37 The image of the shop is moderately important (30%). Lithuanian customers are concerned more with the price and quality of the products than with the image of the shop. The answers to the statement about the pleasant staff communication and service didn’t differ a lot: it’s very important to 32% of respondents, important to – 25% of respondents, moderately important to – 19% of respondents and unimportant to – 21% of respondents. Mobility is totally unimportant to 17% of respondents. This means that the distance is not very important to the customer. If the product is good and has a good price, the customer is willing to go an extra mile. Also the customers would like to get a lower price than in the other shops. This factor is very important to 38% of respondents and important – to 25% of respondents. So the conclusion is that price is the most important factor when evaluating the company’s shop. The customer wants the lower price but he wants good quality too. 3% Pleasant staff communication and service 21% 19% 25% 32% 8% 9% 14% Exclusivity (in staff’s clothes, products and etc.) 2% 2% Professional staff 16% 7% The image of the shop 30% 32% 31% 57% 33% 0% 0% 5% The quality of products 6% Prices lower than other shops 0% Unimportant 15% 16% 17%22% 11%17% Mobility (I’d choose a shop in my city which is closer to my home) 10% 46% 34% 7% 5% 0% Notoriety (constantly observed shop’s advertising) Totally unimportant 47% 22% 40% 14% 17% 25% 20% Moderately important 30% 55% 38% 40% Important 50% 60% Very imortant Fig. 21. Factors that are important when evaluating a shop Source: the table has been created by the author The purpose of this research was to determine the importance of the criteria by which consumers prefer carpets. It was also intended to create a vision of an ideal shop. Therefore, in this section the comments received and the results processed with the computer program Microsoft Excell are being summarized. The first task of this empirical research was meant to determine the patterns of buying carpets by reviewing the demographic characteristics of the respondents and to perform the notoriety of carpet shops. A total of 308 respondents participated in the research and slightly more 38 than half – 72% respondents buy carpets less than couple times a year. So the vast majority buys carpets rarely. Also it was important to find out how much the respondent usually pays for a carpet buying it in a shop. The results showed that most 53% of respondents are willing to pay 151-200 Eur for a carpet. This criteria should help to figure out what would be the most appropriate pricing strategy in order to market this production. By analyzing the notoriety of the carpet shops in Lithuania, the most known in respondents’ opinion is the shop Dubingiai (it was mentioned 121 times), located in Kaunas city. By evaluating buying habbits of the customer, the six statements were given. The answers showed that the most important factor is the colour and texture of the carpet (60%). This is the most important feature for respondent when choosing the carpet. Also important is the price of the carpet (55%). The statements about the vision of an ideal home-made carpet shop showed that the most important factor for the respondents is the assortment of carpets (49%) and selling different assortment of carpets than the shopping centers (53%). When evaluating countries that make carpets, China was being the worst and Persia (Iran) was the best evaluated country. Azerbaijan was in the second place. So this shows that people value Eastern countries‘ carpets and that could be a good niche market for company Sheki Ipek. There are not so many shops in Lithuania that sell carpets, except shopping center. The best know specialized carpet shops were: Dubingiai, Persija and Kilimu pasaulis. Persija sells Persian carpets and is a competitor to Sheki Ipek. The question about Azerbaijani carpets‘ populiarity showed that 38% of respondents would like to buy Azerbaijani carpets, 54% maybe would like to buy, so Sheki Ipek has a quite large target segment that it could attract if choosing the right international marketing strategy. But Sheki Ipek firstly has to use a good promotion strategy in order to get the people know it, because only 3% heard about such company. Lastly the results of the statements about the important factors when evaluating a shop were revealed. The most important factor when evaluating the shop is the quality of the products (55%), exclusivity (47%) and professional staff (46%). 2.4. Economic relations between Azerbaijan and Lithuania The Lithuanian economic system is being transformed from 1990. Also, integration into the European Union, globalization, changed Lithuanian trading system. Measures used for country to compete in the world trade is also bring changed and liberalized. Foreign trade seeked to integrate into the international trading system, liberalize trade and develop free trade agreements. 39 When Lithuania ratified the World Trade Organization arrangements, it became a member of WTO – that meant Lithuania got stability and reliability in trade relations. According to Saboniene (2009), Lithuanian trade with the third countries has become more liberal, transparent and predictable, while Lithuania – more attractive to foreign investment. Since membership in WTO, Lithuania has gradually moved towards more free trade by introducing a simplified tariff band structure and simultaneously decreasing the average tariff rate to internationally acceptable levels. As Lithuanian economy has opened up to international trade, it would be easier for Sheki Ipek to start its business there and to bring home-made carpets from Azerbaijan. According to ICC Open Markets Index (2011), Lithuania’s trade openness is relatively high. In 2011, intra-EU trade amounts to around 80% of GDP which is above the EU average (68%). Diplomatic relations between Azerbaijan and Lithuania were established on the 27th November, 1995. Between the European Union (EU) and the Republic of Azerbaijan, Partnership and Cooperation Agreement was signed in 1996, which entered into force in 1999. Such agreements and contracts have an impact on Lithuania and Azerbaijan economic cooperation: The contract between the Government of the Republic of Lithuania and the Government of the Republic of Azerbaijan on the avoidance of income and dual capital taxation and prevention of tax evasion (effective 2004-11-13). The Government of the Republic of Lithuania and the Government of the Republic of Azerbaijan Agreement on cooperation in the economic, industrial and energy (effective 2008-12-15). The Government of the Republic of Lithuania on the 17 of June, 2009 accepted a resolution No. 659 and decided to make an intergovernmental bilateral cooperation between Lithuania and Azerbaijan, which is chaired by the Minister of Foreign Affairs. Lithuania and Azerbaijan signed the investment protection agreement on the 6th of June, 2006 but it is not ratified yet. According to the Lithuanian foreign trade turnover in 2008, Azerbaijan has 59 place in terms of exports – 52, according to the import – 55 place. In January-July, 2009, Azerbaijan was analogous in the 50, 41 and 60 place (Ministry of Foreign Affairs of the Republic of Lithuania, 2009). According to the statistics of Azerbaijan‘s State Customs Committee (AzerNews, 2015), foreign trade turnover between Azerbaijan and Lithuania increased by 9.4 percent in JanuarySeptember 2013 compared to the same period last year and reached $17.58 million. During 2013, 40 Azerbaijan‘s imports increased by 12.2 percent and reached $15.7 million, while exports decreased by 9.5 percent and reached $1.9 million. According to 2015 Index of Economic Freedom (2015), Lithuania’s economic freedom score is 74.7, making its economy the 15th freest in the 2015 Index. Its overall score is up by 1.7 points from last year, reflecting improvements in half of the 10 economic freedoms including freedom from corruption, the management of public spending, labor freedom, and monetary freedom. Lithuania is ranked 6th out of 43 countries in the Europe region, and its overall score is well above the world and regional averages. Recording its fifth straight year of advancing economic freedom, Lithuania achieved its highest score ever in the 2015 Index. Since 2011, its economic freedom has advanced by 3.4 points, with gains in seven of the 10 economic freedoms driven by prudent fiscal and monetary policies and declining levels of perceived corruption. Remarkably, Lithuania has experienced no score declines in any factor over this period. Lithuania’s transition to a dynamic economy open to global commerce is facilitated by low tariff barriers and open financial markets. Investors are attracted by an efficient regulatory environment with low barriers to entry. The economy scores above average on rule of law, but institutional issues in the judiciary and property rights regime persist. So to wrap up, it can be said, that Lithuania is an attractive country for foreign investment and Sheki Ipek can be positive about opening its shop in Lithuania. For further analysis and better view of the possibilities for Azerbaijani company to enter a Lithuanian market, competitive analysis, macro and micro analysis and SWOT analysis are done in the next chapter. 2.5. Macro environment analysis of Sheki Ipek Analyzing the company’s macro environment, the attention should be paid to the following key factors: Economical environment. First of all, is the GDP factor has to be analyzed (Fig. 22). Lithuanian Gross Domestic Product annually rises – soon that should feel ordinary citizens too. 41 Fig 22. GDP per capita, at current prices Source: the figure has been created by the author, based on the data from Lithuanian Statistics (2015) As it can be seen from Fig. 22, the GDP factor in the 4 th quarter dropped down a little and now is even to 3163.192 EUR. And it is bigger than last year, so GDP is growing in comparison with 2013. According to Bank of Lithuania (2013), annual inflation was decreasing significantly in the beginning of 2013: compared to December 2012 (2.9%), its rate in March almost halved (1.6%). Inflation was reduced by more favourable changes in prices in all main consumer basket groups, but among them, food, fuel and administered prices had a greater impact, while the core inflation had a lesser impact. Trends of indicators associated with consumer prices remain favourable for low inflation. The annual rise in producer prices on the domestic market is still declining (in December 2012 it amounted to 2.9%, in March 2013 – 1.1%). Producer prices for non-durable and durable consumer goods, i.e. producer price components, most associated with consumer prices, had a negligent effect on the growth of producer prices. The economic situation is pretty much stable. Lithuania’s currency euro is strong. The income should increase too. Having more income, residents will be able to spend more too, because with lower income home-made carpets are not the products of necessity. 42 Fig 23. CPI-based consumer price changes Source: the figure has been created by the author, based on the data from Lithuanian Statistics (2015) Fig. 23 shows CPI-based consumer price changes from 2007 to 2014. It can be observed that CPI is being constantly dropping down from being high 8.1 in 2007 to -0.3 in 2014. Unemployment rate is changing unevenly (Fig. 23). It reached the lowest peak in the 3rd quarter of 2014 and in the 4th quarter it started to rise slowly. This is a good thing because more employed people, the more money they could make. Fig 24. Unemployment rate Source: the figure has been created by the author, based on the data from Lithuanian Statistics (2015) The average earnings (Fig. 25) didn’t changed drastically in the period of 2013-2014. Now it is even to 714.5 EUR gross monthly earnings. 43 Fig 25. Average earnings Source: the figure has been created by the author, based on the data from Lithuanian Statistics (2015) Textile and clothing sector is particularly important for the whole economy of Lithuania. Although the past few years, the volume of this sector in the Lithuanian economy has been steadily declining, but this market is still remaining one of the basic. At present, the textile and clothing industry is experiencing quite a serious transformation in the world. Although classic products are dominating in this sector that are intended for the general mass of users, however, is the need of the production which requires the modern scientific and technological knowledge is constantly growing, as well as showing up non-productive activities’ trend signs. Lithuanian textile industry is one of the largest exporters of the country. It is not only facing the benefits of the new markets, but it is often forced to cope with a variety of obstacles. Manufacturers consider how to move from relatively cheap sale of labor to the conception of innovative product development value, the implementation of which requirs not only microeconomic level initiatives developed. Lithuanian textile manufacturers noticed that Lithuanians are buying products and prefer a lower price at the same time, of course, and a reduction in quality. So, it is natural that the majority of Lithuanian textiles are exported to foreign markets. On the other hand, it is not true to blame a decrease in purchases of Lithuanians, because the government claims that the textile industry is highly feasible, without the future. For this reason, and a lack of young professionals, because they prefer laser technology or biochemical sciences, rather than textile industry. It is hard to believe that Lithuania would create so many job places for them, but textile industry could do that. For this reason, Sheki Ipek can try to enter Lithuanian market because Lithuanians don’t like txtile sector and Sheki Ipek could find a niche market in Lithuania by selling hand-made carpets. 44 Another important factor is that Lithuania manufactured products’ price is slightly higher than the products that are imported from Asian countries so the company can use the competitive price marketing strategy. According to the Lithuanian Statistics, even before the economic crisis Lithuanian textile industry employed 60 000 people. Today that number has decreased slightly, but it started to rise again. Textile and garment industry in Lithuania create the most jobs in comparison with all other light industries. For this reason, the textile sector deserves the attention, respect and to it must be supported. The industry is always open to innovation, so it’s another proof of its vitality. In recent years, the textile industry, as well as an investment into it is constantly growing, so it is a favorable factor for the company Sheki Ipek to enter the market. Currently most of the Lithuanian textile industry products are exported, this proves that despite all the negative predictions of this industry, competitiveness is very high. According to information of Omniteks representatives, economical factors contributed to the better clothing and textile industry results. Still constrained, the financial markets in Europe influence the fact that the order get smaller, as well as the rising need of production terms, the average delivery time is 4-8 weeks. Declining competitiveness of Asian manufacturers – China continues employees’ wage increase, in addition, marine transportation services are getting significantly more expensive (Malinauskiene, 2014). All of these factors increase the competitiveness of European manufacturers, and the companies, which are able to quickly and flexibly meet orders, win. Political-legal environment. This environment also makes an impact to Sheki Ipek export activities. The company has to monitor the changing laws of Lithuania and take measures to adapt them. Sheki Impek is exposed on the law changing, also custom laws and laws and procedures for opening a company in Lithuania. Starting a business in Lithuania takes on average 22 days. In Europe this time is only 14 days. But on the other hand, Lithuanian businesses average time to enforce contracts is almost twice shorter than the EU average and thus it ranks first in Europe (respectively 275 days and 510 days). Resolving Insolvency takes 1.5 years (Single Market Governance, 2012). So as it can be seen, the procedure of opening business in Lithuania for Sheki Ipek is quite shorter and simpler than in other countries. Lithuania faces the following primary challenges to its long-term competitiveness: unfavorable demographic developments; labor-market deficiencies and high emigration rates; rising levels of poverty and social exclusion; a lack of competition and interconnection in the country’s infrastructure; low energy efficiency; a low level of R&D spending; and a poor performance in 45 terms of innovation. Therefore, the country should continue implementing policy reforms, in particular regarding the labor market, social policies, energy efficiency and the energy sector. The European Union’s planned 2014-2020 financial assistance for Lithuania, which is expected to total about €13 billion over the seven-year period, offers an opportunity to boost Lithuania’s competitiveness. However, these funds should be rationally allocated, with particular focus on growth-enhancing sectors, while avoiding mismanagement and the addition of new administrative burdens (Nakrosis, Vilpisauskas, Jahn, 2014). So as it can be seen the political-legal situation in Lithuania will hopefully get better with the investment of EU. Socio-cultural environment. Social environment primarily characterized by demographics. Their study allows to identify potential customers, their composition by gender, age, household composition, education, place of residence, occupation, ethnicity and so on. Demographic changes are taking place in the Lithuanian social environment. The most important of them are: depopulation; decline in fertility rates and an aging population; changes in family structure (marriage age increases, decline in the number of children, divorce, growing number of families in which the wife is working); the growth of non-family households (sole households – divorced spouses, widows and widowers). These factors are very important to the company and especially their dynamics. For example, because of changes in the population of a country the market can expand or narrow. Increase rate of birth means that the growing children will need more and more things. Rising average life expectancy increases specific goods needed by elders. Many goods are not used individually, but together. Therefore, an important demographic indicator is the family (household), its size, composition, age and other respects, the number of employees, and other income. Sheki Ipek should take a notice to satisfy women’s need firstly because women usually picks the interior details, so do the carpets. The culture also influences the buying decisions of customers. Consumers who purchase the product, think about its function, design and content. The seller should pay attention to all three aspects of the user resulting from cultural attitudes. For example, such product as home-made carpet will have specific buying decisions – for some people it is just a decor, others value its origin, patterns and etc. Different cultures, different customers influencing the choice of products. Technological environment. Technological environment includes: rapid technological changes, the huge investments in research and deployment, updates, control building. Factors affecting the demand of home-made carpets and their impact assessment: 46 Complex production technology – the cost of ptoduction of home-made carpets is not ow, because the technological processes used are complex. Production automation and mass production technology would help to reduce production costs and increase the amount of production and will lead to investment. Minimizing the cost of production of home-made carpets would increase the demand. Analyzing the company’s micro-environment, the following key factors can be highlighted: Target market segmentation. Sheki Ipek will choose a target market according to demographic characteristics of the customers. As the results of the research showed, more customers (53,1%) are women and 36% of them are of the age of 36-45 and 34% fall into 26-35 years age group. Also they have higher education (71%) and willing to spend 151-200 EUR (it can be considered medium income). So the target segment of Sheki Ipek production will be higer educated women, 26-45 years old, with medium hosehold income. Products. Sheki Ipek will sells such products in Lithuania – home-made carpets. The carpets assortment will include: carpets for living room, small bathroom carpets and carpets for dining room. All the carpets will be hand-made, of the best quality. The composition of carpets will be of two kinds – rough fiber based and short-fiber based. Also the carpets will come in such dimensions: 70x140 cm, 100x200 cm, 120x170 cm, 140x200 cm, 160x230 cm. So the customer will have a good choice of the sizes. The carpets will be of different patterns and colours. The company will present its catalog with the examples of carpets. Also for the convenience of the clients, the custom orders will be taken too. 2.6. Competitive and SWOT analysis of Sheki Ipek Competitors‘ assessment based on M. Porter’s five forces model. Analyzing the situation in the carpet market, the competitive forces analysis is done by using M. Porter’s five forces model. It is appropriate to analyze separately each of these competitive forces: The bargaining power of customers. By the growth of the carpet market, consumers are the most important factors that influence company’s success or failure. Sophisticated users differ in age, income, education, habits and so on. So their reaction to a product is different too: carpets are not daily necessity goods, as well as they do not require the involvement of consumers buying them. So, for carpets consumer quality of the goods, durability, innovation and other features are the most important factors. Therefore, users looking for high-quality carpet products, have no bargaining power, as they seek to find themselves the most acceptable option. It should be noted that some companies in 47 order to retain existing customers and attract new ones, seek competitive advantage through flexible discount systems (e.g., ‚Kilimai Art de Vivre‘ offers good discounts for some of the production; ‚Lentvario kilimai‘ sometimes organizes discount for their carpets too) or organizing some extra services for the customers (e.g., the company ,Made in Lithuania‘ has a service for renewing the carpet for the customer). The bargaining power of suppliers. The analysis of home-made carpets companies’ competitive position, the most important factor becomes the bargaining power of suppliers. The bargaining power of suppliers and the image of the company depends from the organization’s current and future suppliers. At a time when the supply is decreasing, and consumers are willing to buy their proposed products, companies are forced to pay higher prices to suppliers or to find new ones, offering similar products at lower prices, but, again, remains a big risk, because users can hardly accept innovation. Analyzed companies has a lot of suppliers, so by deterioration in the quality of products offered or the price makes to look for new opportunities (e.g., ‘Lentvario kilimai‘ has a supplier that brings them New Zealand sheep‘s wool). All the companies have to order the raw material, because Lithuanian farmers grow sheep but their wool is dirty and it is not good to be pocessed. Usually the producers order wool from New Zealand ans Australia. Evaluation of existing competitors. According to R. Rutkauskaite (2013), some of the companies, that were making hand-made carpets went out of business, so the market niche is not filled at the present. This situation was used by the company ‚Fashion Colours LT‘ but still they don‘t fulfill all the orders. The demand is bigger than the supply so this factor is favorable for Sheki Ipek too. There is almost no competition for carpet manufacturers in Lithuania, and consumer willingness to buy durable and valuable product, created for you, that could be left for children and grandchildren, still survived. Lithuania companies make hand-woven carpets from natural wool and wool, cotton or linen and Sheki Ipek would offer products made from silk. So the company’s products can be very competitive with the products of Lithuanian companies. The competition between carpet producing companies is very low in Lithuania. The company‘s Sheki Ipek direct competitors are only three companies that produce home-made carpets: ‚Kilimai Art de Vivre‘, ‚Lentvario kilimai‘ and ‚Made in Lithuania‘. Those companies produce home-made carpets. The competitive analysis of these companies by sales volume is shown in Table 3. 48 Table 3 Sales volume of the competititor companies Companies Kilimai Art de Vivre Lentvario kilimai Made in Lithuania Sheki Ipek Sales volume, EUR 100 001-200 000 300 001-500 000 don‘t show its sales volume 700 001-800 000 Note: the table has been created by the author, based on the data from Rekvizitai.VZ (2015) As it can be seen from Table 3, Sheki Ipek has the biggest sales volume. These are the main competitors, occupying a similar position in the Lithuanian textile market. The companies competitors were chosen based on the similarity of product strategy. All of these companies produce home-made carpets. The biggest difference between company Sheki Ipek and other companies, is that its sales volume is bigger than other companies‘, and it can offer a great variety of home-made carpets. ‘Lentvario kilimai’. This company is a well known Lithuanian company that has a big experience in producing home-made carpets. The company looks at the carpet not just as a beautiful, stylish accessory, but also as a practical and functional element of interior. The company works with only reliable suppliers. ‚Art de Vivre‘. The company was founded by hand-made carpet production professionals in Europe in 1995. ‚Kilimai Art de Vivre‘ is the branch of the ‚Art de Vivre‘. The company creates contemporary and trendy carpets by using the newest technologies. The active development secret of ‘Kilimai Art de Vivre’– is the highest quality production at affordable prices. All this, as well as the love of carpets, their philosophy, a huge work in this particular field of expertise and corporate approach to customer service, ensures the company’s ‘Kilimai Art de Vivre’ successful work. ‚Made in Lithuania‘. It is a young company, created just before the economic crisis but it is stilll successfully working and expanding. The company offers quite a wide range of textiles: rugs, lamps, carpets and other products for the interior. The company’s products are mainly exported to Western countries. The threat of new competitors. Home-made carpet trading market in Kaunas city is not filled yet so new competitors may try to enter it by getting interested in the growing consumer demand. Newcomers foothold is quite difficult (e.g., In 2012, ‘Denava’ tried to establish itself in the market, but it did not stand a strong competitive advantage of companies-leaders and failed). It is now appropriate to draw attention to just newly popuped linen carpet producing and trading company ‘Pluosto linija’, which has a good marketing strategy, and so it can be assumed that the company will be able to establish themselves in a particular area of Panevezys market. 49 The threat of substitutes. Home-made carpet trading companies do not have threat from direct substitutes. Customers who don’t have a lot of money looks for carpet substitutes in the shopping centers, but they won’t get the same quality and natural fiber there. So these substitutes usually come from China and other Eastern countries that makes cheaper but lower quality carpets. Internal analysis of Sheki Ipek. Internal analysis of the factors is used by the organization to find out strengths and weaknesses of it. This process starts with the analysis of strategic internal factors. Sheki Ipek collects the majority of information about the textile industry by actively participating in international exhibitions. This helps the company to get into relations with the international companies. The company Sheki Ipek has a good reputation in Azerbaijan. It‘s a biggest company that produce home-made carpets. As it‘s been in the market for a long time and has deep traditions in the production of carpets, that helps this company to stand out from the competitors. Another strategic internal factor is company’s staff training. Company spend time and makes investment in the staff‘s teaching, organizes various educational courses. Most of the company’s specialists have higher education. The salaries of employees depend on their education so every employees tries to get the right qualifications. The organizational structure of the company Sheki Ipek is organized as a subordination of the lower links to the higher. This makes the implementation and assessment of the work much easier. Each employee is responsible for its department manager and each manager is accountable to the director of the company. The director is the leader of the company. He organizes the production, planning proceses and makes sure the control activities are being implemented. The main weakness of the company is that there is a lack of employees for the foreign market. Also the advertising and promotion of home-made carpets can be done not only in the fairs and exhibitions but also other promotional methods should be applied. The lack of staff for the international markets minimizing the competitive chances for the company in the foreign markets. The service level also could be higher because that would help the company to stand out from its competitors, especially trying to enter a foreign market. To test the strategic business and its environmental situation the SWOT analysis is used (Table 4). SWOT analysis makes it particularly powerful and with small efforts the company can see a great opportunity, which is well positioned to take advantage of. Seeing the weaknesses of the business, the company can manage and eliminate all threats that could be damagable, if unobserved. There are many options that can affect the success of the marketing strategy inside the company. 50 Table 4 Sheki Ipek SWOT analysis Opportunities Attracting new customers Finding new markets Absorption of new products and services Threats New and strong competitors The slow growth of market Consumer pressure Strenghts Company’s reputation Quality of products Reputation of quality Customer satisfaction level Guarantees Planning system Professional competence of managers Competence of the leader Staff competence Working capacity and potential of staff Geographical location (Use of company’s strenghts for realization of opportunities) Export market development Export market competition Exploiting the company’s reputation and goodwill (using customers’ recommendations) Maximum satisfaction of needs Using the competence of employees Weaknesses Advertising strategy Service level Working capital Competitive status (Neutralization of weaknesses by using opportunities) Minimizing the inefficienct products Increase the service level To use the proffesional level of managers To use the competence of managers and the leader To use the geographic position of the company To use the satisfaction of customers needs The value of promotion minimizes Increase the use of potential opportunities Planning system The potencial and working capacity of the staff (Using strenghts to avoid threats) Strategies (strengthening of the company’s weaknesses) The use of competitive status Orientation to the existing level of Improvement of promotional strategy customers needs improvement Strengthen the operational Focus on the company’s reputation for management control quality To increase the efficiency of products Use of existing patents and licenses Harnessing the potential competitors’ products “on the company’s server” Better use of the service level Properly adjust the use of working capital To use the professional competence of the managers Improving the use company‘s opportunities of Source: the table has been created by the author 51 SWOT analysis helps to identify factors associated with the strategy that can have a major effect to a company. All factors in this analysis are not of equal value. In this way, the experts should identify the critical factors affecting the company. From the list, they must select the most important threats and opportunities assessment of each, with the help of two parameters, as this may affect the company’s follow-up actions. From the foregoing, it is important to focus on two aspects: export market development and export market competition. These two aspects are mentioned because they affect the company’s marketing strategy and can indirectly influence events. Export market development relates to the overall level of education and life in the export market. As the level of development of the export market is growing, the company will have to adapt its marketing strategy to this market. In addition, more educated consumers need more specialized marketing strategies that better adapt to their use. Marketing strategy must be tailored to the export market environment. Export market competition takes place when companies seek to overcome one another in order to obtain the relevant part of market. Competition may change from many aspects, such as the amount of competition, price and service performance. As the level of competition within the export market rises, the company has to adapt its strategy to stand out in its proposal. When competition increases, the company has to adapt all aspects of marketing strategy. So it can be concluded that in order to achieve the strategic objectives set, in Lithuanian market, the company’s Sheki Ipek choice of foreign marketing model is proposed to interconnection of the company’s activities and marketing strategies. From SWOT analysis it can be seen that one of the company’s weaknesses is a lack of working capital. The company could open a shop in Lithuania with the same minimum cost. And not to be afraid to take this risk, even in the global economic recession. The company without enough capital to enter new markets, it is possible to use a semi-franchise model, then the branch and the company will have stocks in another country’s subsidiary. The subsidiary is useful because it has access to the know-how, i.e. experience and information, also, the company’s reputation, the different technical options, etc. Marketing strategy is developed only in the Lithuanian market, but some segments may be used in other markets too. Next part of this master thesis concerned about providing management solutions to Sheki Ipek company which would be most appropriate marketing strategies to follow in order to enter the Lithuanian market with Azerbaijani carpets. Since the company’s principal activity would be the trade of Azerbaijani carpets, the largest task of the company will be to penetrate into the retail handmade carpet market, to market its products and become the major home-made carpet representative in Lithuania. 52 3. THE DEVELOPMENT OF INTERNATIONAL MARKETING STRATEGIES FOR COMPANY SHEKI IPEK IN LITHUANIAN MARKET 3.1. Marketing objectives The third part of master thesis provides specific solutions related to Azerbaijani homemade carpets entering the Lithuanian market. First of all, the work discusses the objectives of the proposed marketing strategy, then a target market segment is selected, product positioning is done and the solutions for the four ‘P‘s‘ are made. The aim of marketing strategy is the creation of an exclusive position of the company. The key to growth – even survival – is to create a position which is less vulnerable to direct (existing or future) competitors and less vulnerable to the loss of buyers or suppliers. It can be created in many ways – the most favorable is by uniting the relationships with customers, product differentiation, integration, creating technological leadership. In order to offer the company the proper marketing strategy it is necessary to follow a certain marketing strategy model. The author of the thesis created such a model for a company Sheki Ipek (Fig. 26). Mission Goals External opportunities and threats Perspective research Internal strengths and weaknesses Marketing objectives Marketing strategy According to target market Positioning According to the marketing complex elements Fig 26. Marketing strategy model Source: the figure has been created by the author 53 As it can be seen from Fig. 26, the initiative step for planning the marketing strategy is the company‘s mission. As it has already been mentioned in the second part of the master thesis, the company‘s Sheki Ipek mission is to be the leader in the home-made carpet production sector, to satisfy all the needs of consumers and to offer the best quality products. The second and the third step of the marketing strategy model was also analyzed in the second part of the master thesis. It is therefore important to analyze the fourth step in the strategic planning of marketing – marketing objectives, which show what the company would like to achieve by the help of marketing means. These objectives could be: To become the most reliable and the best home-made carpets representatives in Lithuania. To become the most informative home-made carpets dealer to the consumer. To inform consumers about the Azerbaijani culture and traditions of home-made carpets production. To promote and expand the home-made carpets market in Lithuania and to familiarize the user with a high quality home-made carpets of Azerbaijan. To pay attention to the Azerbaijani home-made carpets brand positioning. Since the company is currently only in the process of establishing its shop, it needs to develop a market strategy for Lithuania, i. e. set of marketing actions, the purpose of which – to achieve the long-term marketing objectives. So when planning the company’s activities, it is appropriate to follow a quite strict and widely recognized structure which is related to the most important aspects of marketing: 1. Selection of target market. 2. The choice of positioning method. 3. The choice of individual functional elements of the marketing mix strategies. 3.2. The selection of target segments As the company hasn’t opened its shop in Kaunas, there are no existing segments, so it is necessary to determine Sheki Ipek’s target segments. As already mentioned in the situation analysis, the largest part of users that would buy home-made carpets in Lithuania are older than 26 years, with higher education, middle and high-income people, as well as consumers who prefer homemade carpets by coulours and patterns and quality. The author of the thesis thinks that Sheki Ipek’s customers also should be segmented according to consumer salary, i. e. the target segment of the company should be customers with the average and higher than average income per month. As a shop will particularly have a large selection of high quality Azerbaijani carpets, these carpets‘ rates compared to other venues (the 54 biggest, smaller shopping centers) will be lower, but relatively high for the user with low income per month. The largest assortment of home-made carpets will consist of products ranging from 300600 EUR. And the current situation of rise in the cost of living, would make difficulties for the customer with low incomes to afford to buy a home-made carpet. Already couple decade ago, consumer shopping habits have become less and less predictable. Many people have become rich without education, others’ sophisticated tastes have become price sensitive. Therefore, consumer tastes and shopping habits are not necessarily completely dependent on consumer income. A great example would be the cunstruction workers in Lithuania, usually without higher education, which significantly get higher than the average wage. However, high-quality carpets makes a really small percentage of their shopping cart. So, as an additional to the main target segment, the desirable segment profile could be isolated, i. e., additional users are segmented by demographic criteria such as education and age. As well as the empirical research showed that respondents with higher education are willing to pay more for a home-made carpet than those without education. As already mentioned, the main price categories will be approximately 300-600 EUR in the shop. Consequently, the company’s target segment should be users with the higher education. Also, users with higher education usually have sophisticated taste, and the company gives most of its attention to the high-quality product. It should also be noted that often customers with higher education and the average and higher wage per month are older than 26 years. Therefore, this age group also should be attributed to the selection of company’s target segment. Of course it would also be possible to segment users by gender – men, women. However, it is difficult to define what type, color, or pattern one sex or the other prefers more. As the research showed, more customers (53,1%) are women, so they can make a target segment too. So Sheki Ipek the target users should be women, higher educated, mostly older than 26 years, with the average and higher than the average income per month. Thus, in this case, the company’s marketing mix should be directed to the above mentioned segment. When selecting one segment of the market and managing it, the company will use a concentrated marketing strategy. Concentrated marketing is a strategy whereby a product is developed and marketed for a very well defined and specific segment of the consumer population. Concentrated marketing is particularly effective for small companies with limited resources because it enables the company to achieve a strong market position in the specific market segment it serves without mass production, mass distribution, or mass advertising. 55 3.3. Positioning of Sheki Ipek home-made carpets There are different ways of positioning: positioning by user, positioning by product class, positioning versus competition, positioning by use/application, and positioning by quality or value. Since the company Sheki Ipek didn’t open its shop in Lithuania, it is still considered under development, because it did not deliver its products to the Lithuanian market. Therefore, the author of the master thesis thinks that the most appropriate way of positioning is to position the place and production itself. Accordingly, the trade place should be positioned acording to the user, while the production should be positioned according to consumption. The empirical results of the research showed that the most important features of the carpet are colour and texture. This is the most important feature for respondent when choosing the carpet. Also it is important if the customers know such a company. As the results showed that almost all respondents didn’t know such a company. So the company should position itself and its brand better. Also some respondents buy carpets in the shopping centres, where they don’t get good quality. Assortment of Azerbaijani home-made carpet currently in Lithuanian market is really small. Accordingly, the Azerbaijani home-made carpet brand is unknown. According to the survey results, only a small proportion of consumers (18%) would buy the Azerbaijani carpets. Most consumers cannot recognize and they don’t know the Azerbaijani carpets. Therefore, it can be said that Azerbaijani carpets’ trademarks positioning in the market is really weak and almost invisible. This only proves that Sheki Ipek entering the market should pay really close attention to its creation of the image of its production and place of sale in the of the customer. In order to stand out from its competitors, the company should pay attention to its brand positioning. As the company plans to sell different kinds of carpets, it should pick and pay attention to some special kind of carpets that could be a ‘face’ of the shop and represent the good quality of it. The author of the thesis thinks that the best way to do this would be positioning of the brand for carpets’ quality, price, and the country itself. In order to distinguish the product by any of its feature, often referred to quality and price, which in itself is very important. For example, the quality of positioning can be every time when the customer looks for carpet, talk about its manufacture methods. That would represent Azerbaijani country and culture. A great importance would be an Azerbaijani employees from Sheki Ipek that could work in this shop. As the shop will be opened in the Kaunas Old town, it would be appropriate to position it by the user. As a shop will be trading high-quality products, as well as exclusive attention would be given to Azerbaijan, the country’s culture, the message for the user could sound like: ‘For the ones that would appreciate the exquisite carpets and want to feel the spirit of Azerbaijan.’ 56 3.4. Functional marketing strategy 3.4.1. Product For the company to make successful sales and permanently increase of them, it is needed to figure out the system of marketing opportunities and weaknesses and the most efficient use of available marketing resources. An important factor in planning and managing marketing strategy – a choice of functional elements of marketing mix strategy. According to the product purpose, carpets can be attributed to the personal consumption of products. Accordingly to the product consumption duration – it is a durable product, since the carpet’s production will take a long time. According to the demand, carpets can be attributed to nonperiodic demand of products, usually because carpets are purchased less than every year. Sheki Ipek’s product assortment is continually expanding, adapting to new consumer needs, following the textile products consumption trends in order to take advantage over the competititors. A company should focus more on expanding the assortment and develop it, and removing products that are of little use. It should also examine the potential for production of new products. For the product objective to be implemented, the following strategy can be used: To have a full assortment of products for each target segment. To analyze and prove the rules for portfolio construction and twice a year do an assortment of products inventory, ‘clean up’ the company’s products assortment from low-use products. To set the rules and start to model the product life cycle from the following year, use this information to form future product assortment. To strengthen trade management process and to ensure that the new range of assortment would be presented to the Board of the company for approval not later than 1 month before launching into production. Company Sheki Ipek in order to get success in foreign economic activity, as well as many other companies engaged in the production of carpets, needs as accurately as possible to evaluate if the product fits for export. In order to assess the suitability of products for foreign markets, the fitness of product criterion, market traders and consumers assessment, and product adaptation should be evaluated. Evaluation of product criterion. Sheki Ipek is a manufacturing company producing carpets. The product are with reinforcements – product come along with its service, product delivery and personnel training. Carpets can be treated as a long-term use. All the assortment (Table 5) of the company is now being exported to Russia and other neighbouring countries. The same assortment is going to be exported to Lithuania too. 57 Table 5 Assortment of products Carpets for living room Carpets for bathroom rough fiber based, 70x140 cm rough fiber based, 100x200 cm rough fiber based, 120x170 cm rough fiber based, 140x200 cm rough fiber based, 160x230 cm Carpets for dining room rough fiber based, 100x200 cm rough fiber based, 120x170 cm rough fiber based, 140x200 cm rough fiber based, 160x230 cm short-fiber based, 70x140 cm short-fiber based, 100x200 cm short-fiber based, 120x170 cm short-fiber based, 140x200 cm short-fiber based, 160x230 cm short-fiber based, 100x200 cm short-fiber based, 120x170 cm short-fiber based, 140x200 cm short-fiber based, 160x230 cm Source: the table has been created by the author Sheki Ipek export production in procents is given in Fig. 27. 23% Carpets for living room Carpets for bathroom 58% 19% Carpets for dining room Fig 27. Sheki Ipek export production in procents Source: the figure has been created by the author, besed on the company‘s documents As it can be seen from Fig. 28, carpets for living room takes the majority (58%) of the whole production sold by Sheki Ipek. Carpets for dining room (23%) and carpets for bathroom (19%) are sold at pretty much the same capacity. Inherent of the product is the packaging. The company’s packaging performs security functions. Packaging helps to transport and store products safely – a requirement of the channel participants (brokers) too. Packing consists of a wrap-up bag, label and instructions for taking care after. The product also needs the taking care services, which the company can offer after sales. Figure 28 presents the after sales care scheme. 58 Care after sales Cleaning company Individual cleaning Sheki Ipek’s persons employees Fig 28. Sheki Ipek after sales care scheme Source: the figure has been created by the author, based on the company‘s documents Cleaning persons, that work in the company Sheki Ipek are being taught once a year. The teaching is being held in the company itself. Also a cleaning company can do that job. Adaptation of the product in the market. The company Sheki Ipek uses unmodified product distribution strategy. An analysis of the product and its compliance with the relevant market, traders and consumers’ needs, showed the most problematic areas of expanding in Lithuania – price. So the next section will review the company’s price strategy in international marketing. 3.4.2. Price Out of all marketing programs, only price element generates income, all other elements are cost. It is a key competitive tool. And although the company always wants to set the price as high as possible, the competition pushes it to reduce the price. Setting export price is the most important and complicated task, which is solved by all manufacturing companies. Sheki Ipek is trying to set a price that will guarantee the full company cost coverage: production, transportation, marketing, stimulation, as well as costs associated with certain risks. The final price of the product is guaranteed by the rate of return too. Pricing objectives in the foreign market. In determining the prices, Sheki Ipek’s objectives are: 1. Maximize profits; 2. Increase sales and market share in Lithuania and other Baltic States; 3. Stand out of the competitors. According to the company’s Sheki Ipek activities in Lithuania, stages of formation of the export price are presented in Figure 29. 59 Pricing stage in foreign market Setting of demand Product competitiveness setting Cost influence on the price Optimal pricing for the market Fig 29. Sheki Ipek formation of export prices Source: the figure has been created by the author Demand setting. In the initial stage, in order to achieve a pricing objective it is necessary to analyze the demand. After evaluation of distribution of the recent years sale, it is concluded that higher demand is for cheaper carpets. The company’s product demand in Lithuania is partly influenced by the reduction of population and consumer purchasing power. Another factor influencing the demand of the carpets in the market – cultural environment of the customers, because the buyer depends on the subjective assessments of psychological satisfaction which is experienced by the consumer after using the product. Setting product competitiveness. Sheki Ipek have some competitors in Lithuania – ‚Kilimai Art de Vivre‘, ‚Lentvario kilimai‘, Made in Lithuania‘. The most important weapon against competitors that produce and sell similar products, is the price. Sheki Ipek’s product price in some ways is less than the competitors‘ (Table 6). Table 6 The comparison of Sheki Ipek‘s and ‚Made in Lithuania‘ carpet prices Sheki Ipek Dubingiai Carpet size, cm Price, EUR Carpet size, cm Price, EUR 70x140 202,90 60x130 859,00 160x230 145,90 180x180 648,00 140x200 260,90 150x180 183,00 Source: the table has been created by the author, based on the company‘s data 60 So as it can be seen from Table 6, the price of Sheki Ipek is staying competitive. Most of the company’s production is less expensive than their competitors. Also, Sheki Ipek’s carpet exclusivity is that they are made of natural silk. Cost influence on the price. Cost determines lower price limit of Sheki Ipek’s carpets. However, it is not low because the production requires a lot of hand work, expensive raw material. In order to maintain a lower unit cost, large quantities of raw material should be ordered. However, the final export price of carpets is formed by evaluating specific costs to Lithuania. Cost of export prices is presented in Figure 30. Conditioning Special labels in Lithuanian are being made Commercial costs Sample production, testing Costs Costs, associated with the search of representativives Organizing of exhibitions, market research costs, administrative costs of document preparation Transportation, document preparation, insurance costs Fig 30. Sheki Ipek costs that influence export prices Source: the figure has been created by the author Optimal pricing for each market. The upper limit of carpet’s export price is determined by demand and competitors in the target market in Lithuania. The selling price is of two levels: retail and wholesale. Detailed price policy has been outlined in Figure 31. The factory has established the wholesale and retail price limits in the Lithuanian market: I. Wholesale price limit is valid: 1. For the selling price of the sale of products from the company’s factory to the Lithuanian wholesalers that have entered into a cooperation agreement with the company. 2. For the selling price of the wholesaler that has a contract with the company, wholesalers and retailers without contracts. All the above sales contract don’t get reduce prices below the wholesale price limit. II. Retail price limit is valid: 61 1. For the selling price of representative to end-user; 2. For the selling price of the wholesaler that has a contract with the company to the end user. Sheki Ipek factory Wholesaler Minimal wholesales price set by the company Wholesaler Retailer Minimal retailer price set by the company End-user Fig 31. Sheki Ipek price policy in Lithuania Source: the figure has been created by the author So it can be seen that Sheki Ipek performs a complex pricing policy in Lithuania. The main aim is to seek the highest possible degree of uniformity in the rate of price between the company’s current official dealers. In order to accurately apply a fixed price policy, it is necessary to properly select the distribution channel which will comply with the retailers and consumers needs. 3.4.3. Distribution Sheki Ipek’s distribution – is the way in which the products reach the intended market of consumers. The company distribution goes by direct and indirect channels. This determines the number of representatives and their responsibility (Fig. 32). 62 Distribution of Sheki Ipek’s production Subdivision of sales in Lithuania Wholesalers Retailers The end-user in Lithuania Fig 32. Sheki Ipek‘s distribution channels in Lithuania Source: the figure has been created by the author In the present case, Sheki Ipek, as the company of not particularly large production volume, chooses wholesale companies that will perform marketing and distribution of products to end-users. Distribution to Lithuania will be done by direct and indirect channels, although direct is rarely used, only at the customer’s request. Table 7 represents the functions to all distribution channels. Table 7 Functions of distribution channels Company Sheki Ipek Subdivision of sales in Wholesalers Retailers Lithuania Production Sales Sales Sales Promotion Taking the orders Taking the orders Taking the orders Help for brokers Local marketing Local marketing Promotion in the shops Broker‘s education Financing Financing Financing Organization of events Promotion in the shops for users Organization of events for users Source: the table has been created by the author 63 Through these functions, the company carries out the control of its distribution channel members. The company‘s production price depends from the quality of these functions. Sheki Ipek performs expenditure, distribution channel control, channel quality and channel activity duration analyzes. Selecting the distribution channel structures in Lithuania, Sheki Ipek analyzed what costs were required for methods of transportation (plane, truck, train containers). Distribution channel control objects: 1. The transportation of products. The choice of the company-transporter is the important moment of forming a distribution channel. Sheki Ipek has signed a long-term cooperation agreement with the international transportation company. This helps to minimize the time expenses for searching the right distributor and it is expected that long-term cooperation will enable the application of special discounts. 2. Setting the sales conditions. The company Sheki Ipek for manufacturing activities needs stable and relatively high working capital. The only condition for its enforcement – the control of timely settlement of the sold production which is carried out by the company‘s sales managers. Terms of the settlement in the Lithuanian market are given in Table 8. Table 8 Terms of the settlement in the Lithuanian market Settlement conditions Remarks 100% advance payment; 50% Lithuania is the first Baltic country to which the export is being started. prepayment and 50% after the At present, this market will have 4 traders pursuing the company’s product realization wholesale. It is a country of stable supply. Therefore, it is subject to 100% advance payment. In exceptional cases, when the order is large, the amount of 50% is allowed to pay after realization, but it is defined in a single annex of the general contract. Source: the table has been created by the author 3. Quality of service. Sheki Ipek undertakes to comply strictly the time of order fulfillment. This is emphasized in the cooperation agreements. For the order to be produced 30 working days are needed. Delivery to Lithuania takes 5 working days. The difference between the terms of transportation appears for the ordering of transport and distances. By selecting representatives of the Lithuanian market, the company Sheki Ipek based on their degree of reliability and how much they are known in the local market, because it affects the quality of presentation of the distribution channel and duration. All representatives of the Lithuanian market are known as textile sellers in Lithuania, so that would help Sheki Ipek to sell its production better. Also it plans to open a shop in Kaunas which will be as the distribution center for the wholesalers and retailers. 64 In summary, it can be said that the choice and the quality of the company’s Sheki Ipek distribution channels depends on the objectives of the company, the competence of employees, representatives. The timely made, at minimum cost presentation of high-quality products enables the channel quality. It is also one of the objectives of the company. 3.4.4. Promotion Another important element of the marketing mix – product support. Sheki Ipek decided to engage in international trade, faces the difficulties in the organization of international advertising. All foreign companies face with a similar challenge. But despite this, Sheki Ipek formed a promotion strategy which is presented in Table 9. Table 9 Promotion strategy elements of Sheki Ipek in the Lithuanian market Elements Objectives of promotion Setting of geographic area of the promotion campaign Selection of promotion tools Market reaction to promotion tools, verification and evaluation Remarks The main objetives of product promotion: information about the products and sales promotion The promotion campaign is concentrated on those areas where the company’s representatives are really working, except exhibitions, which aim is to expand the company’s activity area, then by the help of promotion tools the promotion is carried out extensively. Advertisement, popularization of products, personal sales, sales promotion Market reaction to the promotion tools is not estimated, trusting in representatives and sales results. Source: the table has been created by the author The goal of the each company is to increase sales volume and introduce their products to the market. Continuous promotion strategy will be done by the company and its representatives. Used promotion tools by the company Sheki Ipek are: advertising, promotion, personal selling and sales promotion. Advertising in the company Sheki Ipek is understood as the customer paid indirect delivery of products, promotion and information transfer. The advertising will be done by representatives but the extent of advertising and expenses are being adopted by Sheki Ipek’s sales managers. The main purpose of international advertising – informational. It includes brand advertising and special sales promotion for products in specialized media. Ad text and layout is formed by the local advertising company, because it can better evaluate the external environmental factors (the country’s residents’ education, degree of nationalism, the approach to the exporter’s country, the country’s level of economic development and direction), which affect the attractiveness and the targeting of advertising. The frequency of advertising and publications in which it will be hosted, is described in Table 10. 65 Table 10 Specialized publications and products’ advertising frequency in Lithuania Publication Magazine “Namas ir as” Magazine “Interjeras.lt” Informational brochure Frequency Promotional material is provided every month Promotional material is provided every month Promotional material is provided every three month Source: the table has been created by the author The company as a manufacturer fails to comply with aggressive advertising for lack of working capital. Populiarization of products. The company Sheki Ipek doesn’t do direct promotion of products on the Lithuanian market. This will be done by the respresentative companies. Organization is less likely than representatives participates in international fairs and exhibitions. The company sends the sales managers to the exhibition if requested to make a good product delivery to the booth. Interested in the production new firms – potential customers, gets a catalog and pricelist. Private sales. Private sales is the communication of direct buyers and seller. The main working part of company’s Sheki Ipek sales managers consists of personal sales to representatives. It is quite expensive, time-consuming and highly qualified sales tool. However, this is the most effective method of selling in the marketing carpets. The specificity of the product determines the need of supplementary information and communication. According to the company’s sales managers, the advantage of personal sales is an obvious customer reaction and immediate result. The most results can be reached when the sale is made at no distance and cultural differences between the seller and buyer. Sheki Ipek’s sales managers personally get acquainted with their representatives at the time of the visit. Sales promotion – it is such an activity of the company, when the buyer gets improved conditions. Sheki Ipek applies such sales promotion actions: discounts to wholesalers. Representatives of the country buy products at the same price. In order to encourage excellent results showing representative, introducing new products or improving them or wanting to realize modifications of the old production, company applies additional discounts to wholesalers; lowering the price for the frequent orders or large amounts. For ordering 3 or more carpets, representatives receive an additional 7% discount; lowering the price 3% for paying in advance; compensation of part of advertising costs. Upon advertising expenditure estimates and named its expediency, representative can receive up to 50% compensation. 66 These sales inducement methods are planned in advanced and presented to the representative in the cooperation agreement. Internet – very popular form of promotion. Company Sheki Ipek website www.shekiipek.com.az is not working at the moment, because it is being renewed and adopted for the use of international representatives. It will be in three languages: Azerbaijani, Russian and English, because the most business is being done with Russia. Advertisement is necessary on purely in increase of the number of competitors who offer low prices and quality and it is difficult to survive in a competitive market. So the correct way of organizing all the forms of the promotion campaign will help to meet the company’s objectives. 3.5. The strategy formation model of Sheki Ipek International marketing strategy is a process: it starts much earlier than is actually perceived opportunities. The process is very difficult, depends on many factors and is analyzed in the scientific researches. Analyzed and systematized the theory of international marketing strategy models and practical company’s Sheki Ipek experience, the identification of four main stages are being indicated to form an international marketing strategy: 1. The analysis of engagement in international trade and the factors influencing it. 2. The choice of entrance to the foreign market form. 3. The choice of international marketing strategic decisions. 4. The optimization of the company’s objectives and needs (Fig. 33). At the I phase, the elements are identified, that affect the company’s wish to enter international trade. This phase is important because you need to properly assess the circumstances and answer the questions: Why do we have to engage in international trade? What are the main reasons to go into international marketing? Is the domestic market too small? Is the growth of the internal market, competition influences are too small? At this phase, the answers to these questions should be sufficiently general in nature. The main reasons to engage in international trade for Sheki Ipek were the following: domestic market is too small; competition among the local manufacturing companies; international interest in the production. After checking and identifying the causes affecting engage in international trade, the company enters into the second phase. 67 Company Sheki Ipek I phase WHY? Reason for going into international marketing The selection of international marketing strtegy Analysis of the external market Economic II phase HOW? Cultural Franchise Political Export License Legal Subdivision of sales III phase IN WHAT METHODS? Selection of the strategic decisions Positioning strategy 4 P’s strategy Competition strategy Strategy of choosing the target market Optimization of the company’s objectives and needs in the international market IV phase IMPLEMENTATION Fig 33. The model of international marketing strategy for the company Sheki Ipek Source: the figure has been created by the author 68 In the II stage, the entrance to foreign market forms are being analyzed in details. A critical evaluation of the future business at an early stage is necessary in order to avoid major mistakes before investing time and effort on strategy formulation of the economically unsound idea. At this stage, familiarity with the market should be deeper, direct. The company answers the questions: HOW profitable the trade should be carried out? Run exports only? Open the sales division in a foreign country, or establish a joint venture to develop production abroad? Selecting a form is closely related to the country’s micro and macro environment analysis and foreign macro environment. In order to make appropriate decisions, in this phase the environment is being analyzed (economic, legal, cultural etc.), which influence the decisions suitability. The greatest influence to the company Sheki Ipek is given by cultural environment (level of education of the country’s population), the country’s economic environment (population, industry structure) and the political and legal environment (customs system, laws on product exports, registration and etc.). Next step is the choice of form for entering a foreign market. There are two entrance phases to the foreign market for Sheki Ipek: export to the biggest cities of Lithuania and then – trying to enter Estonia and Latvia markets. And after that, the company can establish its own subdivision of sales. At the III stage it is very important to form a proper team, a good initial business environment – formal and informal relationships with suppliers, business advisors, potential clients and many other important businesses for the long term – creating international marketing strategy, which will help to better understand what and how to implement. At this stage, the issues raised: Which way to shape the international marketing strategies? What path to choose? Implement a marketing strategy, or positioning strategy, or target market selection strategy, or competitive strategy, or multiple strategies? The selection of the proper strategy for Lithuanian market shows that international marketing strategy for this market is not formatted in advance – it is generated automatically by selecting the profile of production, doing the production, product pricing, distribution and promotion. In order to effectively carry out activities in this phase it is appropriate to predict them in advance. The IV phase is implementation of the formed international marketing strategy. According to the international marketing strategy theoretical models and conducted Lithuanian market research, this international marketing strategy model recommended to the company, influenced by various reasons to engage in international trade, and which wants to optimize its goals and needs of the international market, to analyze the environment of the country selected, choose the entrance to the market strategies of the country and take strategic decisions. This model also be suitable for the companies with similar activities. 69 CONCLUSIONS AND RECOMMENDATIONS The following conclusions can be made: 1. International marketing strategy formation – foreseeing of the production company’s target market, according to the chosen positioning techniques, combining individual elements of the international marketing program. These features of the marketing program element of an international marketing strategy for manufacturing companies can be defined: Pricing from trade companies differ in that it focuses more on company’s internal factors, that it can adjust itself – these are the general objectives, pricing organization in the company, giving attention to the foreign market characteristics of the products manufactured for foreign market, production costs and so on; The quality of distribution channels of foreign market describes the channel capabilities, reliability, image in the market, so it is important for the channel selection; By forming the promotion campaign of the intenational companies, greater attention goes to the company’s image and reputation. By evaluating the promotion in foreign markets through personal sales, communication between the trader companies and the company-producer should be evaluated. 2. SWOT analysis showed that one of the company’s weaknesses is a lack of working capital. The company can first open a shop in Lithuania, which can later be a subdivision for the wholesalers and retailers in the Lithuanian market. It is possible to use a semi-franchise model, then the branch and the company will have stocks in another country’s subsidiary. Marketing strategy is developed only in the Lithuanian market, but some segments may be used in other markets too. 3. For the company Sheki Ipek to successfully enter a Lithuanian market and to achieve the strategic objectives, a foreign marketing model is being proposed to interconnection of the company’s activities and marketing strategies. The essence of the model: company, influenced by various reasons to engage in international trade, and to optimize its goals and needs of the international market, have to analyze the selected country’s environment (economic, political, cultural, legal, etc.), choose the entrance strategy to the market (the franchise, export, license, sales establishment, etc.) and to make strategic decisions (positioning, marketing complex, competition, target market selection, etc.). This model can be successfully used by other companies with similar activities too. 70 Recommendations for the company Sheki Ipek: 1. Optimize distribution of products in the Lithuanian market. By the first chance and expansion possibilities, to start production in Lithuania. 2. It is important for the company to constantly analyze the situation, assess the Lithuanian companies’ activity, monitor competitors, and in the light of changing circumstances, adjust its actions, provide new targets and the ways for seeking them. 3. Centralized promotion strategy is required, mistrusting the promotion organized by representative companies. It is necessary to carry out the control of the company’s representatives’ actions: Obtaining the information from the official dealers about promotion carried on. Regular sales manager participation in major textile exhibitions and fairs in Lithuania, in order to evaluate official dealers’ promotion actions. 4. It is recommended to question traders at least twice a year. 71 REFERENCES 1. Abrahams, A. S. et al. (2009). Inducing a marketing strategy for a new pet insurance company using decision trees // Expert Systems with Applications, Part 1, Vol. 36, Iss. 2, March. 2. 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Building brand equity with cause-related marketing: A comparison with sponsorship and sales promotion // Journal of Marketing Communications, Vol. 20, Iss. 6, December. 75 ANNEXES 76 ANNEX 1 Questionnaire RESEARCH OF AZERBAIJANI HOME-MADE CARPET ENTERING LITHUANIAN MARKET The student of Vytautas Magnus University is carrying out the research about Azerbaijani homemade carpets entering Lithuanian market. This research is totally confidential so please fullfill these questions sincerely. Your answers will be used only for the master thesis. Circle the correct answer. 1. How often do you buy carpets? Couple times a week Couple times a month Once a year Once in 5-10 years Never buy 2. How much do use usually spend for carpet? 50-100 EUR 101-150 EUR 151-200 EUR 201-250 EUR 251-300 EUR more that 300 EUR 3. What factor influences you the most when buying a carpet? Quality Colours and pattern Price Size Country of origin Recommendation of friend, family etc. Rate the below statements using the 5 point scale (1 – totally disagree, 5 – totally agree). Mark the correct answer in each line of statement. 4. I always buy the same kind of carpets 1 2 3 4 5 totally disagree totally agree 5. By choosing the carpet, the quality is important for me 1 2 3 4 5 totally disagree totally agree 6. By choosing the carpet, the price is important for me 1 2 3 4 5 totally disagree totally agree 7. By choosing the carpet, the origin country is important for me 77 1 totally disagree 2 3 4 5 totally agree 8. By choosing the carpet, the colour and texture are important for me 1 2 3 4 5 totally disagree totally agree 9. By choosing the carpet, it is important that the carpet is hand-made 1 2 3 4 5 totally disagree totally agree 10. I think that the best way to buy a carpet is in the shopping centers 1 2 3 4 5 totally disagree totally agree 11. I think that the best way to buy a carpet is in the specialized shops 1 2 3 4 5 totally disagree totally agree When choosing the ideal home-made carpet shop, rate the below statements using the 5 point scale (1 – totally disagree, 5 – totally agree). Mark the correct answer in each line of statement. 12. The area of the ideal home-made carpet shop must be large 1 2 3 4 5 totally disagree totally agree 13. Only expert sellers should work in the ideal home-made carpet shop 1 2 3 4 5 totally disagree totally agree 14. The assortment of the home-made carpets should include at least 50 kinds of carpets 1 2 3 4 5 totally disagree totally agree 15. In the ideal home-made carpet shop the assortment of production should be different than in the shopping centers 1 2 3 4 5 totally disagree totally agree 16. Rate the countries that produce home-made carpets in the five point scale (5 – country that makes the best home-made carpets, 1 country that makes the worst home-made carpets) India Azerbaijan Turkey Persia (Iran) Lithuania Russia China 17. What kind of specialized carpet shops do you know? (write the names) ______________________________________________________________________________ 18. Are you willing to buy Azerbaijani home-made carpets? Yes No Maybe 78 19. Do you know the company Sheki Ipek? Yes No I heard about it 20. When choosing home-made carpet shop, which factors influence you the most? (Mark X only one answer in each statement) Very important Important Moderately important Unimportant Totally unimportant Prices lower than other shops The quality of products Mobility (I’d choose a shop in my city which is closer to my home) Notoriety (constantly observed shop’s advertising) The image of the shop Professional staff Exclusivity (in staff’s clothes, products and etc.) Pleasant staff communication and service 21. Your age? 18-25 y. 26-35 y. 36-40 y. 41-60 y. more than 61 y. 22. Your gender? Man Woman 23. Your education? Not finished secondary Secondary Professional High education University education Not finished university Thank you for your sincere answers! 79 ANNEX 2 Anketa AZERBAIDŽANO RANKŲ DARBO KILIMŲ ĮĖJIMO Į LIETUVOS RINKĄ TYRIMAS VDU magistro studentas atlieka tyrimą apie Azerbaidžano rankų darbo kilimų iėjimą į Lietuvos rinką. Šis tyrimas yra konfidencialus, todėl prašome atsakyti į klausimus nuoširdžiai. Jūsų atsakymai bus panaudoti rašant magistrinį darbą. Apibraukite teisingus atsakymus. 1. Kaip dažnai perkate kilimus? Kartą per savaitę Kelis kartus per mėnesį Kartą per metus Kas 5-10 metų Niekada 2. Kiek maždaug pinigų išleidžiate perkant kilimą? 50-100 EUR 101-150 EUR 151-200 EUR 201-250 EUR 251-300 EUR Daugiau kaip 300 EUR 3. Koks faktorius Jus labiausiai įtakoja perkant kilimą? Kokybė Spalvos ir raštai Kaina Dydis Kilmės šalis Šeimos, draugų ir kt. rekomendacijos Įvertinkite žemiau pateiktus teiginius 5 balų skale (1 – visiškai nesutinku, 5 – visiškai sutinku). Pažymėkite teisingus atsakymus kiekvienoje eilutėje. 4. Aš visada perku tokios pačios rūšies kilimus 1 2 3 4 5 visiškai nesutinku visiškai sutinku 5. Renkantis kilimą, man svarbu kokybė 1 2 3 4 5 visiškai nesutinku visiškai sutinku 6. Renkantis kilimą, man svarbu kaina 1 2 3 4 5 visiškai nesutinku visiškai sutinku 7. Renkantis kilimą, man svarbu pagaminimo šalis 80 1 2 visiškai nesutinku 3 4 5 visiškai sutinku 8. Renkantis kilimą, man svarbu spalva ir tekstūra 1 2 3 4 5 visiškai nesutinku visiškai sutinku 9. Renkantis kilimą, man svarbu, kad jis būtų rankų darbo 1 2 3 4 5 visiškai nesutinku visiškai sutinku 10. Manau, kad geriausia kilimus pirkti prekybos centruose 1 2 3 4 5 visiškai nesutinku visiškai sutinku 11. Manau, kad geriausia kilimus pirkti specializuotose parduotuvėse 1 2 3 4 5 visiškai nesutinku visiškai sutinku Renkantis idealią rankų darbo kilimų parduotuvę, įvertinkite pateiktus teiginius 10 balų sistemoje (1 – visiškai nesutinku, 10 – visiškai sutinku). Pažymėkite teisingus atsakymus kiekvienoje eilutėje. 12. Idealios rankų darbo parduotuvės plotas turi būti didelis 1 2 3 4 5 visiškai nesutinku visiškai sutinku 13. Tik rankų darbo kilimų ekspertai turėtų dirbti parduotuvėje 1 2 3 4 5 visiškai nesutinku visiškai sutinku 14. Rankų darbo kilimų asortimentas turėtų būti bent 50 1 2 3 4 5 visiškai nesutinku visiškai sutinku 15. Rankų darbo kilimų asortimentas specializuotoje parduotuvėje turėtų skirtis nuo asortimento prekybos centruose 1 2 3 4 5 visiškai nesutinku visiškai sutinku 16. Įvertinkite šalis, kurios gamina kilimus 5 balų skalėje (5 – šalis, kurioje gaminami geriausi kilimai, 1 šalis, kurioje gaminami blogiausi kilimai) Indija Azerbaidžanas Turkija Persija (Iranas) Lietuva Rusija Kinija 17. Kokias specializuotas kilimų parduotuves žinote (išvardinkite jas) ________________________________________________________________ 18. Ar Jūs pirktumėte Azerbaidžano rankų darbo kilimus? Taip Ne Galbūt 81 19. Ar žinote kompaniją Sheki Ipek? Taip Ne Girdėjau apie ją 20. Renkantis rankų darbo kilimų parduotuvę, kuris faktorius Jus labiausiai įtakoja? (Pažymėkite X tik vieną atsakymą kiekvienam teiginiui) Labai svarbu Svarbu Nei svarbu, nei nesvarbu Nesvarbu Visiškai nesvarbu Kainos, mažesnės nei kitų parduotuvių Produktų kokybė Mobilumas (renkuosi parduotuvę arčiausiai namų) Žinomumas (nuolat pastebima parduotuvės reklama) Parduotuvės įvaizdis Profesionalūs darbuotojai Išskirtinumas (darbuotojų drabužiuose, produktuose ir pan.) Malonus bendravimas ir aptarnavimas 21. Jūsų amžius? 18-25 m. 26-35 m. 36-45 m. 45-60 m. Daugiau kaip 61 m. 22. Jūsų lytis? Vyras Moteris 23. Jūsų išsilavinimas? Nebaigtas vidurinis Vidurinis Profesinis Aukštasis neuniversitetinis Aukštasis universitetinis Nebaigtas aukštasis Ačiū už Jūsų nuoširdžius atsakymus! 82