Haitoglou Bros

7/28/2019 Haitoglou Bros

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AMERICAN COLLEGE OF THESSALONIKI

MKT 318 FINAL PROJECT

CMR

Milica, Besjana, Irini, Victor

5/28/2013


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Executive Summary

For this project we chose a well-known Greek company, Haitoglou Bros S.A food

industry. Haitoglou Company was founded in 1924 in Thessaloniki, Greece. It started as a small

family business and it kept expanding more and more. Nowadays, Haitoglou Company exports

more than 50% of its production in USA, Canada, Australia, Russia, the European Union

countries, Middle East, and Asia. Haitoglou Company produces sesame-based traditional

products of high nutritional values. They produce a variety of products such as: halva, sesame oil,

sesame bars, tahini, jams, honey, sugar, cocoa, glucose and many other home cooking mixes.

Haitoglou Company has been successful in all of the markets that they have entered so far. They

like to have close control of their products, so exporting is one of the key weapons they use for

entering the new markets. Haitoglou Company makes use of various sophisticated technologicalmachinery that increases efficient in producing healthy products full of nutritional values.

Even though Haitoglou Company has covered large number of markets across various

countries there are some additional markets looking really promising which Haitoglou is takeing

into consideration. For choosing a new market to expand we analyzed two possible markets:

Serbia and Turkey. After exploring the economic, political, cultural and competitive environment

of each of these two countries we decided that the best market to expand is the Serbian market.

In addition, we discussed the various possible modes of entry and exporting to Serbia was the

most reasonable and promising mode of entry. We decided that in this initial stage we should

export the following products: halva, sesame oil, sesame bars and tahini of different flavors anddifferent package at different trading volumes. Since the two markets, the Serbian and the Greek

market are similar we decided that there is no need for any adaptation of the products. The only

changes that need to be made regard packaging size of the products and few price variations.

Therefore, we considered to introducing the products in smaller packages and adjust the prices of

these products to the living standards and average income levels of the Serbian consumer. We

decided to use domestic distributors to help us with the distribution of these products in the

Serbian market, since doing the distribution by ourselves would be very costly. After the

Haitoglou products have entered the Serbian market we are going to apply our promotion

strategy that is mostly advertising through TV, radio stations, billboards, and also through the

Web. This is a strategy to reach, simultaneously a large number of the Serbian population and the

various segments of our target market. According to our analysis the strategy for entering this

new market looks effective and in accordance to the Serbian reality; hence we believe in its

success. The following presents the detailed analyses of our strategy.


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Overview of our Business

Economic Environment

In this section we are going to compare Turkey and Serbia regarding the economic

environment and the most prominent economic issues and opportunities these countries face.

Below we present a table summarizing their main economic variables.

Economic Evaluation (September 2012)

Serbia Turkey

GDP (PPP) $78.9 billion $1.1 trillion

GNP $42.9 billion $794.468 billion

5-year Compound Annual Growth 1.70% 3.50%

Population 7.4 million 74.0 million

GDP per Capita $10,642 $14,517

GNP per Capita $5,667 $10,609

Inflation (CPI) 11.20% 6.50%

Imports $19.12 billion $225.60 billion

Imports/GDP 24% 21%

Exports $11.45 billion $154.20 billion

Exports/GDP 15% 14%

Economic Freedom Score 58.6 62.9

Unemployment 23.40% 11.70%

FDI Inflow $2.7 billion $15.9 billion

Public Debt 47.9% of GDP 39.4% of GDP

Top Income Tax Rate 15% 35%

Top Corporate Tax Rate 10% 20%

Trade-Weighted Average Tariff 6% 2.40%

Source: World Bank Indexes

TurkeyTurkey has the world's 15th largest GDP and 18th largest nominal GDP also the country is

one of the G-20 major economies.In the early years of this century the country went through

chronically high inflation, eventually the country managed to control it and this led to the launch

of a new currency, the Turkish new lira, on 1 January 2005. Today it is called the Turkish Lira,

freely floating and exchanges a proximately at 1 Euro = 2.35 Turkish Lira. Turkey emerged fromthe global economic downturn largely unscathed and continues its transition to a more flexible

and open-economy. Performance is relatively good in many areas of economic freedom, and

GDP has tripled since 2002. Trade has been a strong driver of economic growth and the

government has pursued reforms to encourage entrepreneurial activity and eliminate regulatory

inefficiencies. Turkey is a member of WTO and has also taken advantage of the European Union

Turkey Customs Union, signed in 1995, to increase its industrial production destined for


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exports, while at the same time benefiting from EU-origin foreign investment into the country.

Turkey has also opportunity of a free trade agreement with the European Union (EU) without

full membership that allows it to manufacture for tariff-free sale throughout the EU market.

The process for registering and setting up private enterprises has become less time-consuming

over the years, but bureaucratic red tape and ineffective enforcement of regulations continue to

hinder entrepreneurship. (Source: Heritage.org)

SerbiaSerbia is ranked as an upper-middle income economy by the World Bank. Serbia has a

transitional economy mostly dominated by services, manufacturing and agriculture. The

economy is heavily reliant on exports and foreign investment. Although average GDP growth

over the 5 past years has been 1.7% (despite the crisis), Serbia suffers from a high

unemployment rate (23.4) %) and an unfavorable trade deficit. The official currency in Serbia is

the Serbian dinar - RSD, freely floating, currently 1 Euro = 110 RSD. Their inflation is high

(11.2%) and they encounter high unemployment. Over the past decade, Serbia has implemented

significant structural reforms in some parts of its economy. The economys competitiveness is supported by low flat tax rates, relative openness to global trade, and ongoing regulatory reforms.

At 10 percent, the corporate tax rate is among Europes lowest. Serbia has a Free Trade

Agreement (FTA) with the EU enabling exports of all products originating from Serbia without

customs and other fees also have an agreement with the other countries in the region for exports

of all products originating from Serbia without customs and other fees. Moreover they have FTA

with Russia, and the Scandinavian countries but they are not part of the WTO. The trade-

weighted average tariff rate is relatively high, and non-tariff barriers add to the cost of trade.

Some trade barriers though have been reduced as part of Serbias efforts to join the WTO. The

business start-up process does not require minimum capital and takes only six procedures.

Despite progress in streamlining the process for launching a business, other requirements remaintime-consuming. (Source: Heritage.org)

Figure1: The value of the Euro to Turkish Lira (EUR/TRY) over a 5-year period


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As we can see from the graph despite the fluctuations in the exchange rate both thecurrencies have depreciated to the Euro in the last 5 years. The Serbian Dinar has a higher

depreciation which might have a negative influence in the competitiveness of our products in the

market and also is going to affect the pricing strategies of our products. Another issue to consider

is the mode of entrance in these markets. Until now Haitoglou Bros exports only sesame to

Turkey and has not connections with the Serbian market; therefore at first sight it might be easier

to enter the Turkish market either by expanding exports, a joint venture or a direct investment.

On the other hand, there is a need for a general study to establish the possible mode of entry in

the Serbian market. Both Serbia and Turkey are in the processes of entering the European Union

and eventually the Euro zone. Serbia is a candidate country for EU membership as of 2012 while

Turkey is a candidate country for membership of the European Union (EU) as of 1999. Thecountry has had a long association with the project of European integration. Membership of the

European Union would bring a lot of changes in these countries which would help their

economies develop and open new business frontiers for the investors. Therefore the possible

entrance in the Eurozone is a benefit for Haitoglou Bros in doing business in one of these

countries.

Political Environment

Different political and Regulatory Issues

TurkeyTurkey is the third most populous nation in Europe with 74 million residents. It is a

promising and big market for many foreign companies that enter the market. Turkey is a republic

based on secular, democratic, and pluralistic principles. Turkish economy is one of the fastest

growing economies in the world and especially after the World War II when Turkey maintained

Figure2: The value of the Euro to Serbian Dinar (EUR/RSD) over a 5-year period


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a pro-Western foreign policy. This is an incentive for many European countries to invest in

Turkey. Foreign investors are free to make direct foreign investments in Turkey and they should

be treated equally to domestic investors. Turkey has established the Foreign Direct Investment

Law since 2003. According to this law foreign investors can easily open a new business in

Turkey. But not only this, Turkey has entered a customs union with the EU in 1996 and has been

an EU accession country since 2005. This makes it easier for EU countries to enter the Turkish

market. For this reason is going to be relatively easy for Haitoglou Company to enter the Turkish

market with its food products.

There is another principle that clearly specifies that foreign investors can transfer to other

countries, including their own country, by using banks or any other financial institution: the

considerations of net profit, dividend, sale, liquidation and indemnity; amounts arising from

license, management and similar agreements; and foreign credit capital and interest payments

arising from their business and activities within Turkey. This is going to be a bonus for the

Haitoglou Company, meaning that all the profits arising from the sales in Turkey will be

transferred to the parent company located in Thessaloniki, or this amount of money can be usedfor other investments in any other country.

The Turkish Ministry of Labor and Social Security allows the employment of foreign

personnel belonging to different nationalities by the foreign companies. This again is an

advantage for the Haitoglou Company, which will have the ability to choose its own staff.

Usually foreign investors prefer to have as top manager or CEO of the companies operating in

foreign countries, people of their own nationality. The Turkish law makes this possible for our

company. The Foreign Direct Investment Law makes it easier for foreign investors to enter the

Turkish market by excluding some foreign investment specific permissions. This means that is

going to take less time for Haitoglou Company to establish its branch in Turkey as well.

Except of all the rules and regulations there are some other criteria we should take into

consideration before expanding our company, the Haitoglou company. We need as well to pay

attention in the corruption rate that our target country faces and how would corruption affect the

operation of our business. In a survey done two years ago Turkey was placed in the 61 st position.

This is not that bad, this shows that Turkey is a country with not many corruption problems.

Therefore also the Haitoglou Company is not going to face many problems related to the

corruption in Turkey. This is one more reason why Turkey is a promising country where the

Haitoglou Company should export its products.

SerbiaWe would like as well to investigate how the rules and regulation would be in Serbia and if

its easier or more difficult to export in Serbia rather than Turkey. Serbia represents a dynamic,

fast growing market with a great potential for further progress. The business registration in

Serbia typically takes 13 days; it requires 7 procedures, costs 7.8% of income per capita and

requires paid-in minimum capital of 6.0% of income per capita. Company types in Serbia are

similar to those in developed economies. One can incorporate a business as a Joint Stock


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Company, Limited Liability Company, General Partnership or Limited Partnership.

In Serbia the most common type of business is Limited Liability Company (LLC) because it has

a simple form and its fast to incorporate.

The Foreign Direct Investment Law eliminates previous investment restrictions, and instead

it extends national treatment to foreign investors, allows the transfer/repatriation of profits anddividends, and provides guarantees against expropriation. In October 2008, the Serbian

Parliament approved the creation of the Anti-Corruption Agency (ACA). The purpose of the

ACA is to monitor conflict of interest settlements, monitor political party financing, tracking

businesses and their operations if legal or not. The creation of the Anti-Corruption Agency is

going to provide an advantage for our company to compete in the Serbian market together with

all the domestic companies in a fair and legal environment.

Cultural environment

Culture encompasses the entire heritage of a society transmitted orally, via literature orany other form and it is embedded in the elements such as traditions, morals, habits, religion, art

and language. Cultures differ across countries and therefore, to be able to properly appeal to

specific market, one of the most important aspects that a business needs to take into

consideration is to understand thoroughly the culture of a country. Cultures of two countries we

chose to analyze have both similarities and differences. It is important to mention, that Serbia has

been under the Ottoman Empire for almost 500 years and this definitely left a big impact on its

culture, especially in terms of language, food, music and various traditions.

One of the basic differences between Serbia and Turkey is religion. Serbian people are

Christian Orthodox while Turkish people are Muslim. These differences in religion have a

significant influence on the marketing environment due to its profound impact on societies.Muslim peoples diet differs significantly from Christian people in terms of the fact that by Islam

the consumption of pork and alcohol is prohibited which make their diet stricter as opposed to

Christians who have no such restrictions. Additional differences include clothing practices, holy

days, status of women etc. One of the best ways compare cultures is to relate to Hofstede

Measures of Culture. The following chart shows how much each country scored on 5 different

dimensions. As it can be observed, both countries follow rather same trend with different relative

strengths of different dimensions.

Turkey scores high on power distance dimension which indicates its dependent and

hierarchical characteristics. Employees expect to be told what to do and the power is centralized.

The same structure can be observed in family unit where the father is the one to whom others

submit. With the score of 37 on the second dimension, Turkey falls under the category of

collectivist countries. This means that We is important, people belonging to families, groups or

clans, who look after each other in exchange for loyalty. Harmony in a group needs to be

maintained and open conflicts are avoided. As a result, nepotism may be encountered. By

scoring 45 in the third dimension, Turkey is in the middle on the scale with small incline on the

feminine side. This means that softer aspects of culture such as leveling with other, consensus


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Figure 3: Hofstede measures of Culture (Numbeo)

and sympathy for the underdog are valued and encouraged. Leisure is important since it is the

time when family and friends come together to enjoy life. By scoring 85 on uncertainty

avoidance it means it is high on this dimension and the need for rules and laws arises. In order to

minimize anxiety, people make use of rituals both religious and social.Serbia scores high on power distance dimension which means that people accept a

hierarchical order in which everybody has a place. Hierarchy in an organization is seen as

reflecting inherent inequalities, centralization is popular and subordinates are expected t be told

what to do. As Turkey, Serbia is considered a collectivist society which is manifested in a long-

term commitment to the group, family, and extended family. Society fosters strong relationships

where everyone takes responsibility for the fellow member in a group. By scoring 43 on the third

dimension, Serbia is considered a relatively feminine society where the focus is on striving for

consensus, solidarity and equality. Well-being is important while status is not shown. This

country has a high preference for avoiding uncertaintyit is important to maintain rigid codes of

belief and behavior and there is an emotional need for rules. Precision and punctuality are thenorm.

Another important aspect of culture is education. Literacy rates in Serbia are higher than

those in Turkey and weigh 96.40 % and 87.40% respectively. Language is another important

factor; both, Serbia and Turkey are high context cultures, which means that the meaning of

words changes depending on who is speaking to whom, where the person is speaking and to

whom.

We can observe from the below tables that the rural population growth is negative as well

as that there are more males then females in this country. It can be also noted from the education

figures that males are the ones to receive more education namely to be enrolled in schools. Thenumber of woman seats in national parliaments is only 9, 1%; it indicates the less developed

women role in the society.


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Some other important social factors are summarized in the following tables:

Figure 4:.Turkey (UnData)

Figure 5: Serbia (UnData)


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Population growth rate on annual basis in Serbia is unfortunately negative. Urban

population is quite lower than the same figure in case of Turkey. This countrys population has

more females than males and the education level amongst the sexes is rather equally distributed

with difference of only 1, 4%. Number of refugees is significantly higher in the case of Serbia

which can be attributed to the political issues related to sovereignty of Kosovo. Government in

Serbia seems to spend larger part of its GDP on education. Serbia also has a larger portion offemales in national parliaments.

Competition

TurkeyThere are many local competitors in the Turkish market, the biggest being Derya Halvah

and Food Co. They are the leading manufacturer of sesame products and lokum in Turkey

and Europe. They are established in 1989 and operate by ISO quality standard (9001:

HACCP), which gives them a significant advantage over potential entrants; however, their

current focus is on North America, therefore they might lack awareness of the local market

which provides a good opportunity to take advantage by targeting a certain market niche.

Another opportunity would be to offer them a joint venture since their interest lies in bigger

markets such as the US and Canada. Deryas growth may serve as an entering point for

Haitoglou Bros if they manage to locate an overlooked niche or come up with a joint venture

strategy that would benefit both companies since they are leaders in their native markets.

Nevertheless, beside the large established companies in the market there are also small localcompetitions that operate low cost and know very well the local tastes and preferences of the

customers. Since Turkey is a large county with large populations these type of local

producers are widespread along most of the geographical area and especially in the large

urban areas. From a research we did on Alibaba.Com an online Turkish global trade site

there are more than 110 manufacturers/ producers of halava and its derivative products in

Turkey. From small size family businesses to larger companies have already established

themselves as local competitors in the market.

SerbiaAlvasari is the biggest halva manufacturer in Serbia; the company has been in the market

for over 20 years, throughout those years it has managed to establish long standing

connections with distributors and retailers in the local market. Alvasari may be the largest

producer in the local market but its annual revenue is one tenth of Haitglou Bros. Moreover,

there are no other feasible local competitors in the Serbian market strong enough to

jeopardize the success of Haitoglous products.


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Alvasaris strengths stand in their established position in the market and reduced

transportation prices, since they produce in Serbia. The company is currently increasing their

product line by adding jellybeans and Turkish delight. They maintain ISO standard of quality

(9001:HACCP) and have contracts with large scale local retailers such as: Dis, Univerexport,

Gomex, Idea, Aman, Metro Cash & Carry. However, Alvasari has some weaknesses compared to

Haitoglou Bros; firstly, theyre a significantly smaller company which does not have the means

to spend us much in R&D as Haitoglou and as a result their product variety is smaller; in

addition, Haioglou benefits of economies of scale advantage due to their production capacity.

Secondly, the relative proximity of Serbia means that transportation costs would not be relative

high barrier. Also, in Serbia traditionally halva products were related to Greece as country of

origin, which would incline people to choose Haitoglou Bross products. A potential entrant to

the Serbian market is Derya Halvah, being the largest producer in Turkey; however, their focus

is on much larger markets like the US and Canada so the actual chance of this scenario occurring

is minuscule.

As we mentioned above possible markets that Haitoglou Company can expand are: Serbia

and Turkey. After analyzing the economic, political, cultural and competitive environment for

each of these countries we decided that Serbia would be the best option for Hatitoglou Bros S.A.

to expand. The political environment of both Turkey and Serbia is motivating foreign companies

to invest in these two countries and make it easier by putting fewer regulations. Relating to their

economic environment both of these two countries are constantly growing and are becoming an

interesting market for foreign investors. Even though Turkey is a stronger economy and a larger

market there are strong issues regarding competition that discourages Haitoglous expansion.

The cultural environment is very different in the two countries but the Serbian culture is closer tothe Greek culture than the Turkish one. Differences in culture are one of the reasons that made us

choose Serbia. The other reason is competition. In Turkey there are many companies producing

halva and other sesame products. They are well-established and they hold a big percentage of the

market share. Entering this market would be very difficult, to build customer loyalty and

compete with the local competitors. Also we should mention that Haitoglou Company already

exports to Turkey, only sesame, for the last couple of years. And until now there wasnt any

attempt to introduce more products in the Turkish market because of the high competition.

Maybe in a later stage Haitoglou would be able to spread even more in the Turkish Market.

Instead Serbia is a growing economy, where a big number of the population is interested in halva

products. After deciding our target country we started to analyze the mode of entry that we are

going to use for succeeding in the new market.

Modes of Entry


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The most suitable and possible modes of entry in the Serbian Market for Haitoglou

Company are: Exporting, Licensing, Franchising, and Joint Venture. We are going to analyze

each one of them and choose the best possible strategy for entering the new market.

Exporting

Exporting can be either Direct or Indirect and is a very promising strategy for introducing

the Haitoglou products into the Serbian Market. The Haitoglou Company has a well-established

factory, with very sophisticated machinery placed in Thessaloniki; therefore exporting to Serbia

has low financial cost because of the geographical proximity and infrastructure. Exporting will

give us the opportunity to test the Serbian Market and the only risk would be to draw back the

Haitoglou products from the Serbian Market in case that the product is not successful. Except of

this, there isnt any other major risk that the Haitoglou Company should be skeptical about. By

using Exporting strategy Haitoglou will be able to firstly introduce the products in a limitedamount, after observing the market response to the product (if has been liked or not) it can bring

even more products in larger amounts.

But exporting has its negative side as well. One main problem is the extra costs that are

going to rise as a result of the transportation, distribution and warehousing. These are costs that

management should take into consideration before entering the Serbian Market. Another issue

regards Serbian distributors. We cannot be sure about their credibility and reliability, and if they

will distribute our products successfully. Since we are going to enter the Serbian Market that is

going to be a totally new market for Haitoglou we should be informed in advance about the

customers needs and preferences. While exporting the Haitoglou products to Serbia we mightface trade barriers and tariffs.

Licensing

Another option for Haitoglou Company is to use licensing and to permit another company

in the target market to use Haitoglou trademark, production technique and produce halva and

other products for the Serbian Market. For this service the Haitoglou Company is going to charge

the licensee a certain fee for using the intangible property and for any possible technical support.This mode of entry has low financial cost and low risk, since its going to be another company

that is going to produce the products for the Serbian market. Licensing, usually, gives high return

on investment. By using Licensing the Haitoglou Company enters another market without

committing financial resources in this new market.

But there are some disadvantages for adopting this mode of entry. The Haitoglou

Company will not be able to control the licensee, therefore cannot be sure if the licensee will


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perform up to expectations. The license period is limited, meaning that after the contract has

come to an end they have to reconsider if they will sign another contract or will try to find

another company to give license to. Maybe the licensee will not be willing to sign the contract,

since he turned out to be powerful enough and become a competitor for our company.

The Haitoglou Company always wants to have control of its products and the marketsthey operate, therefore they wouldnt be willing to give a license to another company and have

the risk of creating a future competitor.

Franchising

Another mode of entry that Haitoglou Company may use for entering the Serbian Market

is franchising. Through Franchising the company will give limited rights to franchisees to use its

brand name in return of a certain amount of money and a percentage of its profits. By using

franchising the Haitoglou Company faces low risks and costs, since it isnt investing directly in

Serbia but it lets the new company, most probably domestic company, to sell its products. In thisway Haitoglou has the opportunity to obtain important information for the foreign market.

Franchising gives the opportunity to have more control over the Franchisee rather than in

Licensing. And of course there is need to mention the flows and drawbacks of using franchising

as a mode of entry. Haitoglou Company will have to share its profits with the franchisee and will

not have quality control over the products that the franchisee offers to the Serbian Market under

the Haitoglou brand name. Franchising asks for more responsibility from the franchisees side

(local company) and from the franchisor (Haitoglou Company) as well. In this way Haitoglou

will not have control of the products and the target market and this makes Haitoglou be in a

disadvantage.

Joint Venture

Haitoglou Company has the option to come together with one Local Company in Serbia

and form a company that will operate in the host country (Serbia).

In this way Haitoglou will benefit from the partners knowledge of the host country.

Since this type of entry combines the resources of the two companies it requires less investment

from our company. But joint venture holds a big risk as well and its more risky than Franchisingand Licensing. It is very risky and difficult to choose our partner in the host country. Hatioglou

will have trouble managing and controlling the partner company. There are big chances as well

that the partner company can turn out to be one of Haitoglous competitors.


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Our Choice

Haitoglou Bros Copmany exports worldwide products such as the Macedonian Halva and

its variations, sesame bars, sesame oil as well as all of its other product variations. Their

international operations are spread in more than 52 countries; indeed approximately 50% of itstotal production is exported. From the U.S. and Canada, Australia, the countries of the European

Union, Russia and the markets of Eastern Europe to the Middle East and Asia, these products

establish some of the best representatives of Greece flavored food. Exporting is the main method

they use to enter the global market. They focus either on direct or indirect exporting depending

on the country they deal with.

In our case Serbia and Turkey both represent interesting market choices for Haitoglou to

expand their operations but we are going to focus on Serbia as a target country for this

assignment (the reasons are going to be explained in the next part of the paper) and we believe

the most appropriate mode of entry for Haitoglou in the Serbian market should be by exportingtheir products there. In the 52 counties have spread their operations exporting has been the most

efficient method to penetrate the markets. We think this method should be followed even for

Serbia for several reasons:

Firstly, exporting doesnt require any investments in the host country and Haitoglou is adeeply vertically integrated company. If they experiment in other methods of

international expansion they would be required to invest and transfer both their,

technology, knowhow and capital to another country, which might result in a loss in

vertical integration and increase costs of the company.

Secondly, Haitoglou has made large fix investment in Greece where its main productionfacility is located. The investments in fixed assets and technologically advanced

equipment allows them produce efficiently and economically enough to achieve

economies of scale.

Third, due to the geographical proximity the two countries have, it is more efficient touse the extra capacity in their main facility and export the extra products to Serbia. It will

simultaneously help reducing cost due to economies of scale and obtain available

products to export in the Serbian market.

As far as regards the two methods of exporting, direct and indirect, the company might consider

both of them as an opportunity to enter these new markets however the company due to

extensive exporting has experience in marketing research , patent protection, logistics and theactual marketing of its products.

Therefore, since Serbia represents a relative small market and Haitoglou has the know-

how to execute exports from already exporting in other countries we believe they either should

make use of export agents that are going to be focused mainly on sale and handling of products

or find an independent distributor in Serbia. The type of distributor doesnt add any direct costs


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to Haitoglou and will be useful if the export volumes are low. To sum up we believe these

methods represent the most effective and least costing strategy to enter the Serbian market and

establish ongoing relationships with our new potential customers.

Overcome risks of Exporting

Exporting as an entry option besides of its benefits also brings about some risks that need to

be taken into consideration and need to be carefully evaluated. These risks and problems include

difficulties in terms of identifying customers needs, selection and potential problems of finding

local distributors, trade and tariff barriers, and in our case even the exchange rate risk due to the

fact that Serbia has its own currency. Prior to entering a country all of these need to be carefully

evaluated.

Identification of consumers needs is one of the most important aspects because even if all

other factors are extremely favorable for the company, if its products do not meet the need of the

particular market all the effort will be wasted. Our proposition of focusing on Serbia is based on

the assumption that Serbia has many common points with Greece in a sense of the shared

religion, culture, close geographic area etc. As discussed in the part I of this paper, culture with

all its ingredients, plays an important role in terms of identifying consumers needs and wants.

Among other religious and cultural practices that are similar in Greece and Serbia, one of the

important one for this specific case refers to the diet and types of food the populations of these

two counties eat. Both tend to have more or less the same or at least similar categories in all

restaurants, hotels, shops etc. Due to the close patriotic and religious connection of these two

countries, it is expected that Haitoglou products with the Greek-lish characteristics will be more

than welcomed by the Serbian population and that they will satisfy their tastes and preferences.

Location and selection of the local distributors is a very important and delicate step that

Haitoglou would have to undertake. As for any company, one of the most important

characteristics of distributors employed would be that they are responsible, reliable and effective

in their work. However, this may not always be easy to determine especially when we are talking

about the foreign markets. One of the advantages that Haitoglou would have is the fact thatSerbia and Greece are close geographically, so going to Serbia to meet and discuss with various

potential distributors would not incur such high costs. Doing some research about potential

distributors and obtaining detailed information from them; once the selection is narrowed down

to few of them would be very useful. For instance getting information about how efficient they

have been so far in their networks, how are they handling all their activates, are their previous

and current clients satisfied with them, why do they think Haitoglou should chose them over


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their competition etc. These are some ways that Haitoglou can select the best distributor and deal

with the risks that this process brings. Once it has done so, in the future, again because Serbia is

close, this will allow Haitoglous managers to travel to Serbia in order to evaluate and also

motivate the distributors so as to ensure that the products are handled properly and that this stays

the same for the future.

Unlike the issues and risk involved in distribution selection, through which the company

may work its way in order to minimize the uncertainty, when it comes to the trade and tariff

barriers and exchange rate fluctuation, companies may not be able to do much. That is, these are

the systemic risks that are basically out of the control of a company and it is the risk that

Haitoglou would have to bear if it wishes to enter Serbian market. The current trade-weighted

average tariff rate is 6 percent, and non-tariff barriers add to the cost of trade. As discussed in the

part A of the paper which refers to the economic environment of Serbia, some trade barriers have

been reduced as part of Serbias efforts to join the WTO and this is encouraging if we look at the

long term horizon. When it comes to the exchange rates fluctuations, they represent one of the

biggest risk factors involved in operating an exporting business in a sense that sales that havevalue in the foreign currency (dinar) may change relative to the value of the euro in this case.

This means that some of the profits may be lost in the translation. One potential way to deal with

the exchange rates fluctuations is to use the currency hedging in order to protect from the risk of

changing currency values. What Haitoglou may do basically is to fix the currency exchange rate

between dinar and the euro according to which the transaction will occur in the future. In this

way, Haitoglou would be ensured to get the exact amount of money regardless of what markets

do in the meantimethe risk will be minimized.

Marketing Strategy

Target Market

Haitoglous products can be consumed by any age group, demographic, and religion. It is

proper for children, adults, and older people, because the products are good source of organic

nutrition elements. For example the consumption of 100 gr of halva covers the daily dietary

needs for an adult man and it contains 58% Fe, 55% Mg, 48% P, 36% Cu, 32% Zn, 18% Mn and5% Ca. All these are elements that should be included in the daily dietary of a person and can be

found in only 100 gr of halva produced by Haitoglou. The wide available consumption spread of

these products is really helpful for the company since they can target a large market of possible

consumers. In order to target our Serbian Market we have to establish the market segments firstly

and then expand our products to the whole target market. As we mentioned in the previous part

Serbia represents a promising market for exporting our products with a population of 7.4million.


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The first segment we are going to target concerns consumers that through their monthly

earnings are classified as high income group and mid income group. We will cater to the higher

and middle income group since we believe the range of our products and strategies will be more

successful if directed to this segment. This segment of consumers usually lives in the urban areas

of the country, for instance in cities like Beograd, Nis and Novi Sad and these consumers are

usually the middle age people who have stable jobs and have already created their families .

Basically this segment covers consumers that live in the family environment, provide and make

decisions in terms of price and quality about the food that is going to be served to the other

members of the family such as the kids or the grandparents. In addition these consumers are the

one that do most of the grocery shopping for the family, are be willing to spend some extra

money for having in return a high quality and healthy product and obviously are the first ones

exposed to the product.

The second segment of our target market is going to cover people that have a taste for

halva or might develop one after tasting in but might not have enough disposable income to beregular consumer. This segment is made of the young generation of peoples like pupils,

university students or young workers that either might be unfamiliar with the halva taste or that

knows and has tasted it from their parents or grandparents since in Serbia it is considered

traditional product. This is a relatively not a big segment in sales numbers but makes a big part

of the population and generally has incentive to try new food products especially when the

products are offered in forms of snacks or pre-prepared food products. This targeted group can

be reached by using social media and word of mouth, since they are actively engaged to the

globalized world of the internet. On the other hand, this segment that targets consumers with

low disposable income is composed also by elderly people that live on their pensions, are really

concerned about the daily diet and tries to find the healthiest products in the market at generally

low costs. They might express interest for products like tahini and sesame oil that are extremely

nutritive and low in sugar and carbohydrates.

Product Adaptation Strategy

Haitoglou Company has a huge variety of products. Below is shown the different types of

products and flavors that the Haitoglou Company produces and the different packages that those

products can be found.

Sesame Products:

Halva(different flavors: Vanilla, Cocoa, Almonds, Honey, Peanuts, Pistachio nuts, Hazelnuts,

Chocolate, Chios mastiha and different packages: Package 16x40g, 100g and 250g, 400g, 500g,

600g, 1kg, 2.5kg, 5 kg, and 10 kg. )


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Tahini(Package of 300g and 450g: Macedonian Tahini, Brown Tahini, Tahini with honey,

Tahini with fructose, Tahini with cocoa (300g), Tahini with orange, Tahini with probiotics,

Tahini with honey and breadsticks, Original sesame tahini of Thessaloniki "Haitoglou") Some of

this types of Tahini can be found in packages of 900g and 2 kg.

Sesame Oil(Package of 250 ml, 500 ml, 1 lt, 5 lt)

Sesame Bars(Sesame snack: 30g, 50g and 100g, Sesame snack (57% sesame): 30g, Sesame

crunch: 50g and 150g, Original sesame snack: 40g and 70g, Sesame and almond bites with

honey: 175g, Candy nuts: 60g.)

Other Products:

Home cooking mixes, Wafer rolls, Marmalades and jams, Honey, Syrup, Sugar, Hazelnut spread,

Glucose, Cocoa, Breakfast cereal, Linseed, Sunflower, Sesame spread, Sesame flour, Praline

spreads.As we can see Haitoglou offers so many products in different packages and volumes. At

this initial stage we would like to focus only in couple of these products and introduce these

products in the Serbian market. The products we would export at this starting point would be

halva, tahini, sesame oil and sesame bars. Halva is a very successful product in Greece and we

expect it to be as successful in Serbia as well, since there are not that many cultural and taste

differences between these two countries. Also Haitoglou has been awarded for halva and sesame

oil. According to us it would be really successful if we would introduce firstly halva in all the

different flavors (Vanilla, Cocoa, Almonds, Honey, Peanuts, Pistachio nuts, Hazelnuts, and

Chocolate) in package of 16g, 40 g (which are similar to a small chocolate bar), 100g, 250g, and

500 g. Halva in the small packages is going to be an incentive for the Serbian consumer to try it,

since it is going to be innovative and attractive. Sesame oil is a new product and at the same

time very healthy. This product would be successful if introduced in package of 250ml and 500

ml. Sesame bars are very healthy as well and because their package is similar to a chocolate bar,

it could replace the chocolate bar full of sugar with a healthy and tasty sesame bar. We are going

to introduce all the sesame bars: Sesame snack: 30g, 50g and 100g, Sesame snack (57%

sesame): 30g, Sesame crunch: 50g and 150g, Original sesame snack: 40g and 70g, Sesame and

almond bites with honey: 175g, Candy nuts: 60g. All these sesame bars are in small packages of,

very suitable for being introduced in our new market, Serbia. We think that by introducing these

products we first introduce the identity of the company to the new market. This identity issesame and variety of products that could be produced from it, such as sesame oil and different

bars with honey and sesame.

Macedonian tahini is the next type of product we plan in exporting to Serbia. It is

produced using exclusively selected varieties of sesame which are dehisced, baked and ground in

a traditional way, in stone mills, without any chemicals, conservatives or other additives. We will


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export only the package of 300g of the Macedonian Tahini, Tahini with honey, Tahini with

cocoa and Tahini with orange.

All this products are very healthy and contain many nutritional elements. By introducing

these products first, we increase the awareness of the Serbian customer for the high quality

products of the Haitoglou Company and at the same time raise their interest for the products ofthis company. Since halva is a well known product, meaning that it isnt a new product that the

consumer isnt familiar with, selling this product is going to be easier. The sesame oil and

sesame bars are going to be introduced for bringing something new to the market and for

differentiating the Haitoglou products from the rest of the products in this market.

The Serbian Market is very similar to the Greek Market. Therefore the Hatioglou

Company doesnt need to make a lot of changes in its products in order to adapt to the new

market. What we think would be a good strategy for the Hatioglou Company to be successful in

Serbia is to introduce its product in small packages so the Serbian consumer would be curious to

try the new product and if he would like it then he would be buying the product regularly. If the

products are in smaller packages, expect of the incentive to try, the price is going to be lower as

well, so this is going to be another reason for buying the product. Is really important to pay

attention in the price of the product, since the Serbian market has lower income and values the

product differently.

The adaptation that the Haitoglou Company is going to use is a discretionary adaptation,

since the changes are going to be made from the willingness of the company and not because it is

required. In Serbia there is a continental climate, compared to the Mediterranean climate of

Greece, where winter is very cold and it is very hot during the summer, therefore the temperature

isnt going to vary that much so there isnt any need for changes in our product that would

overcome this differences.

The Serbian Culture is very similar to the Greek culture, so we dont think that is

necessary for the company to make any extra changes to their products in order to be accepted by

the Serbian consumer. As we mentioned before we are going to introduce in the Serbian market

the sesame bar and the halva bar as well. We think that this is a good strategy since we want to

make the Serbian customer consume, for example halva, not occasionally but in regular bases as

they would consumer a normal chocolate bar. Thats why maybe the halva bars that were

introduced in the United States would be good to be introduced to the Serbian Consumer as well.

By informing the Serbian consumer about the healthy elements that are included in a small halva

or sesame bar, we want him to choose our product as a healthy and tasty one. We actually wantthat the Haitoglou products to become a daily snack for the Serbian consumers.

One of the basic elements that we should consider is definitely price. The sales and the success

of Haitoglou products are going to depend mostly on the price. So we carefully choose the price

for our products and adapt it to the income level of the Serbian customers.


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Pricing Strategy

Price is an issue that concerns the expansion of Haitoglou to Serbia. The first question to pose

would be to follow a standard pricing strategy or to adapt the pricing strategy to this new market.

Haitoglou Company has made already a large investment in fixed assets in their main facility inGreece and they increase their investments continuously presently they estimate approximately

150 million investments in fixed assets. In addition Haitoglous facilities currently operate with

excess capacity and we estimate the demand in Serbia to be relatively low in comparison to the

demand of the other countries they already exports; therefore the existing facilities support the

Serbian market demand. So basically the company has a specific fixed cost for its outputs and

the only costs that vary are the variable cost per output. Nevertheless, this cost is not exclusive to

products exported in Serbia but are the same for all the products, because Haitoglou Company by

producing and assembling only in its main facility encounters the same operational costs for raw

materials, wages, energy and also the same general supply chain length and logistics. On the

other hand, transportation costs affect possible Serbian exports. There is an approximate 500 kmdistance between Haitoglous facility and Belgrade; in addition the rising prices of oil and

gasoline will affect the costs of our products. The main transportation method would be tracks

and railroads and even though this way is cheaper compared for instance to air or naval

transportation it still increases the product costs. In addition, tariffs and taxes might affect our

pricing strategy; since Serbia is neither part of the European Union nor of the WTO our products

might be subject to additional trade barriers. As mentioned in the above parts the trade-weighted

average tariff rate is 6 percent in Serbia, and there are a few non-tariff barriers and the VAT rate

for these types of products is 8 percent. The combination of these variables would increase the

prices of our products.

On the surface it seems reasonable to follow a standardized pricing strategy for theSerbian exports but a more detailed analysis made us favor more product pricing adaptation.

Firstly the income level of the country and the population respectively is low in absolute terms

and lower than most of the countries Haitoglou already exports. Serbia is as an upper-middle

income economy with a GDP estimated for 2012 at $79.654 billion or $10,528 per capita and

obviously the disposable income of the population is relatively low. Nevertheless, food is an

important necessity on the Serbian family budget and most of the income is spend on that.

The main issue however remains the high elasticity of demand the Serbian consumer

might have toward Haitoglous products. Even though the products are not considered expensive

in Greece and other European Countries they might be considered expensive in Serbia, especially

during the beginning of exports when the customer does not recognize the brand and its quality.

As a result Haitoglou should try to offer effective prices to attract the first customers but also to

confront an already established competition.

The second issue that affects our pricing strategy is exchange rate fluctuations and risk

associated with it. The Serbian consumer buys with Dinars a currency much weaker than the

Euro and encounters a high rate of inflation (12% in 2012) so basically Haitoglous prices in

Euro are not competitive in the Serbian market and less attractive to the consumer. The possible


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solutions would be either to decrease prices or decrease the portions of the product and maintain

the same price level. We think they can incorporate these two in order to come up with a

competitive product. During the introduction period they can opt for a cheaper product in order

to attract the consumer and afterwards if they cannot decrease operations costs they might

decrease the portions of the product to maintain their profit margins. After discussing the

alternatives we think the best strategy would be to adapt the prices of our products to this newmarket for the above several reasons. Below we present some of the price adoptions of specific

products.

Retail Price Greece Retail Price Serbia

Package 16g 100g 400g 15g 90g 380g

Halva Vanilla 0.55 1.25 4.06 0.48 1.09 3.86

Halva Cocoa 0.60 1.32 4.5 0.53 1.15 4.28

Halva Almonds 0.60 1.35 4.63 0.53 1.17 4.40

Halva Honey 0.60 1.38 4.83 0.53 1.20 4.59

Halva Peanuts, 0.60 1.25 4.65 0.53 1.09 4.42

HalvaPistachionuts

0.65 1.40 4.63 0.57 1.22 4.40

Halva Hazelnuts 0.60 1.30 4.9 0.53 1.13 4.66

Halva Chocolate 0.60 1.25 5.12 0.53 1.09 4.86

Package 30g 60g 100g 30g 60g 100g

Sesame snack 0.65 - 1.20 0.55 - 1.20

Candy nuts 0.95 0.90

Package 300g 280g

Tahini Macedonian 3.24 2.92

Tahini Orange 3.30 2.97Tahini Honey 3.55 3.20

Tahini Cocoa 3.77 3.39

The major price adoptions will occur of the small packages of halva and sesame snacks,

this is a tactic to attract the low income segment of our target market, while on the larger

packages there are less price discounts. On the other hand there have been reductions in the size

to make up for the price discounts.

Distribution Strategy

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Promotion strategy

The basic emphasis when it comes to promoting Haitoglou products in Serbia will be

placed on advertising. Advertising informs people about new products, their utilities, costs and

other requirements. It makes consumers more informed to make the purchase. Advertisementsallow for attracting huge number of potential customers and make positive impact about the

products/services in question. In addition, proper advertising efforts have a great impact on sales

and that is why most of the companies actually do invest in this promotional activity.

So far, the Haitoglou company has been following the so called shotgun promotional

approach. This is an approach to mass marketing. It involves reaching as many people as

possible through television, cable, radio etc. It includes advertisements on the Web, through

banners and on as many websites. This technique is trying to spread the message to anyone and

everyone who is willing to listen, so the truckload of general advertising is done to mass market

which allows the company to appeal to more people.Since this is the basic strategy that the company follows when entering all of the markets

it operates in, it is also the strategy that will be partially pursued when it comes to Serbia. The

advertising efforts proposed here will reach both of 2 segments discussed previously high and

middle income groups as well as the pupils, students and young workers. This is so, because

regardless of the differences amongst them in terms of age and income, they are all exposed to

the following advertising media.

The basic idea is that the advertisements will be placed primarily in the supermarkets,

kiosks and billboards. These are the very visible and it is important that they are presented in

such places where there is traffic and high people circulation. In this way, people can learn aboutthe products offered, their characteristics, benefits, prices and where they can be purchased.

People will be exposed to them when they go to work, to university, when they go for a walk

basically in any sphere of their everyday lives. All of the three urban cities mentioned, Belgrade,

Nis and Novi Sad make extensive use of billboard method of advertising and due to this mass

application, its cost are not as high as they used to be. In addition, since the shopping in large

supermarkets in Serbia is done by whole family together, and is a sense a family ritual, a good

idea would also be to have a Haitoglou stand in the largest of the supermarkets. Basically, at

those stands, customers will be able to try different products, get free samples, or any

information they may want to obtain about the products. This provides superior customer value

and it also allows for the direct feedback from the consumers which may be used in the future toimprove the advertising efforts, the products themselves, to develop new ideas etc. It will allow

for bonding with the existing customers and for developing the relationship with the new ones.

Placing advertisements on television would definitely be a good idea, since this type of

advertising has a high reach and good frequency, however it depends on the budget by the

company. The reason is that television ads are usually the most expensive type of advertising.

Radio, on the other hand may be more affordable alternative. People tend to listen to the radio


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throughout their day, at the job, at school, in the car, while they exercise etc. There are few radio

stations in Serbia that are the most popular ones (TDI, RADIO7, RADIO-S), so placing ads

within them, for the first period of time from which the products are offered, will be a good idea.

Being popular, also menas that these stations are played in the malls, various supermarkets,

stores etc. Radio has a very good reach and it is not as expensive and thats why lot of emphasis

will be placed on it.

The basic idea is since the new products are introduced to the market, to try to have the

consumers as exposed to them as possible. Namely, if people dont know about the products

they will not buy it. So if the customers sees the ad on TV, hears about Haitoglou halva on the

radio while driving, sees the ad on the billboard, and finally sees another one at the supermarket,

it will stay in his/her mind and this individual may be more inclined to try out the product and

hopefully become a regular consumer. Moreover, ideally, there would be a word of mouth as

well. So these advertising efforts will increase the consumers awareness and have them

introduced to the products offered by the Haitoglou Company.

When it comes to competition, Haitoglous biggest competitor in Serbia is Alvasari. Even

though this company has been in the market for the last 20 years, there is very limited

information about their promotional activities. Based on some informal data obtained, due to the

crisis that Serbia as all countries of Europe is experiencing, this company has significantly

decreased the investment in advertising over the last decade. Currently, they have a fan page on

Facebook which is based on our exploration not very effective in a sense that it does not have

many followers as well as that it wasnt updated for quite some time. This will therefore not

significantly affect the communication strategy proposed for Haitoglou.

It is also important to mention, that the local agency would deal with these advertising

efforts in an more efficient manner. That is, the local company has a better knowledge and

experience about the Serbian market. For that reason, they will be able to better determine what

radio to use, which TV channel, what will the ad structure be, so as to be as appealing to the

Serbian people etc. These are some important issues that the global company may not be able to

detect as efficiently, or would be forced to engage in extensive market research so as to obtain

such information which would require time and would also increase costs significantly. Local

agencies on the other hand have the advantage and can leverage their knowledge in this sense.

Conclusion

We analyzed carefully and in detail the possible future options that Haitoglou Company has for

expanding even more in new markets. We explored many options and decided that Serbia is a


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promising market. It is always risky entering a new market and sometimes companies spend a lot

of time and resources on Research and Development to be able to detect new markets to enter.

And even after a lot of research they might make wrong decisions. Our suggestions and

strategies are based on the research that we were able to conduct based on the sources that we

found and the knowledge we obtained in our Marketing Course. Entering the Serbian market

initially with the products we propose, with the prices we suggested, using the local Serbiandistributors and advertising our products in Serbian TV channels, radio stations, supermarkets

looks a promising and successful strategy. But still we need to test our theory and strategies to be

able to say with 100% certainty that Serbia was the right market, at the right time, introducing

the right products and promoting them properly.

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