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International Management Essay

Problem Statement

Jabwood International is contemplating international expansion into new markets specifically, Saudi Arabia and China to compensate for a decline in revenues.

Problem Causes

The Middle Eastern situation, specifically the uprising in Syria.

The borders between Lebanon and Syria being closed causing the company’s main wood supplier TANITA to expand to other timber companies.

Jabwood’s market share and sales volume had a drop of 20 %.

Jabwood does not have any business in Saudi Arabia which has the Biggest Market in the Middle East for wood products.

Jabwood does not have any business in China which the potential for wood products have increased every year due to the population.

The company depends on one major Supplier, which constituted 60 to 70 percent of its revenue source.

Managers are under tremendous Pressure to meet sales quotas and avoid any conflict with TANITA because it generates most of Jabwoods revenue.

Jabwood has no succession plan incorporated and discussion for it is considered Taboo.

Finally managerial positions were only extended to family members only, which shows favoritism to those individuals and no advancement or promotion to other employees.

Possible Alternatives

Jabwood needs to incorporate a succession plan as well as extend managerial positions to non-family members, doing so will reinvigorate the employees and change their views on the company. Jabwood has two difficult decisions whether to expand to a place they know Saudi- Arabia or to China which they have no Knowledge in.

Saudi-Arabia Expansion

Jabwood operated in Saudi Arabia before and had established operations with one of the Jabado brothers Adnan During the time they had business in the country. Saudi- Arabia generated half of Jabwood international sales. Jabwoods market share dropped once they withdrew from Saudi-Arabia. Expansion with Saudi- Arabia does have its pros and cons.

Pros
First year sales are 10% of the target market.
Sales growth is estimated at 100 % in two years.
There are no restrictions on mobility of funds.
Capital can be 100% foreign.
Processed wood products are exempted from import taxes.
Government Stability is at 61 which means it is not likely for the country to go unstable.
Saudi- Arabia is in the Middle East and it also an Islamic country which Jabwood international is familiar with that market.

Cons

Tariffs on lumber are 12%.
28 million population does not compare to the 13 population in China and the citizens who need homes there.
0% forest areas
1 million CBM to import wood.
82 % of the country are urban areas meaning less places required for wood construction.
$686.00 to import per container.
Sawn timber is not needed.

China Expansion
China is a huge market for wood products, Demand for wood is through the roof. The Chinese wood industry has been Prospering since 2010. They have become the biggest producer and exporter of WBP and plywood in the world, they are the second biggest importer of wood products in the world.

Pros

A new regulation in Shanghai allows the replacement of sloppy rooftops to be replaced with sawn timber, this would be a huge market for Jabwood International. Tariffs on lumber are low.
Only 150 million CBM is produced locally.
The 13 billion population alone makes the demand at an astounding number for wood. Rural areas are at a higher percentage, meaning more room for building houses. Cost of imports are at a less cost than in Saudi-Arabia.

Sawn timber is needed.
Cons
First years sales are at 2% of the target market.
Sales growth estimates are at 0% by the second year.
China law does not guarantee re-transfer of capital, annual transfer of dividends, and transfer of capital in cases of termination. No exclusivity to sell TANITA products in China.
Establishing a representative office in a foreign country in $60,000. The Chinese wood market is known to have stringent requirements with regard to wood sizes and quality. The Communist laws in China might lead to issues in business practices. Staff must know Chinese regulations and speak Chinese to have an easier time trying to cope with the strict business administrative procedures. Chinese people are afraid that houses made of wood are prone to natural disasters.

Decision

Jabwood International should make the decision to re-establish its connections in Saudi-Arabia and began working there immediately.

Justification

Even though the Market in China is more in demand since there are 13 billion people. There are much more cons to expand there than there would be in Saudi-Arabia. Also expanding in China would be very risky, since Jabwood International never did any type of business there before. Jabwood International has experience in Saudi-Arabia and they made about 50% of their sales when they did do business there, which justifies why they should return there.

Action Steps

Fayez Jabado should conduct a meeting with Imad and Mahmoud Jabado since they are familiar with the Saudi market and begin plans to expand out there as soon as possible. Adnan Jabado should be head leader or in charge of the operations in Saudi-Arabia since he has done so before. It only takes 5 days to start a business in the country so operations can began sooner than expected. Some issues that may arise are the high costs of tariffs and corporate tax rate. The Jabado brothers should divide the tasks among each other so the expansion can go as smoothly as possible.


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