Magic Pulse Ltd.

Elite Dynamic Strategy Consulting Group.

This report is an abstract analysis of the company

including an extensive assessment of both the internal

and external environments. It also provides

comprehensive and robust strategies for further

international growth.

Executive Summary

The objective of this report is to provide an analysis of the company at a micro, macro and

meso level. It also includes potential strategies and opportunities for long term international

growth. As Magic Pulse Ltd desires to internationalise, the problem lies on the decision of

where to internationalise to. As they have already ventured into the UK and Australian

markets, their next potential target is the US market. However, this is not limited strictly on

familiar markets, as there are identifiable and endless opportunities to venture into non-

English speaking markets, ie Asia. We have provided three promising strategic options for

internationalisation which include Differentiation, International Networking and Effective

Standardization. We see that there are no restrictions for choosing an optimal combination of

strategies however; we have included a satisfactory recommendation. The process of this

recommendation shall be implemented over a number of years as we face a difficult

recession. With an expected economic recovery in 2010, and strong international growth in

2011, it would be wise to internationalise at a later stage but with this in mind, over the

recession, preparations such as an analysis of the company and potential markets, along with

high investment on product development and strengthening of the company, would be ideal

before further internationalisation.

Table of Contents

Executive Summary ................................................................................................................................ 1

Background ............................................................................................................................................. 3

Case Update ............................................................................................................................................ 3

Corporate Profile ..................................................................................................................................... 4

Internationalisation ................................................................................................................................. 4

International Growth ....................................................................................................................... 4

Strategic Tool Analysis ................................................................................................................... 5

Strategic Options ..................................................................................................................................... 5

Differentiation ................................................................................................................................. 5

International Networking ................................................................................................................ 6

Effective Standardization ................................................................................................................ 7

Implementation ....................................................................................................................................... 7

Recommendations ........................................................................................................................... 7

Proposed Timeline of Strategic Implementations ........................................................................... 9

References ............................................................................................................................................. 10

Appendix ............................................................................................................................................... 12

1.0 Step Analysis .......................................................................................................................... 12

2.0 SWOT Analysis ....................................................................................................................... 15

3.0 Yip’s Globalisation Drivers ..................................................................................................... 16

4.0 Porters Generic Strategies ..................................................................................................... 18

Background

Magic Pulse Ltd started off as one of the small companies in the T-up Technology Centre.

Formed in 2002 by a man named Tom Murphy, their first innovative opportunities were to

utilise the advantages of „text-messaging‟. However, after realising the lack of opportunities

to expand with „text-messaging‟, they decided to seek new opportunities. After incorporating

the advantages and ideas of „text-messaging‟, Kitomba was born. „Kitomba‟ was their

primary product as a program software designed to help small to medium sized enterprises

with „customer care‟ specifically in hair and beauty salon industry, managing client

appointments and financial functions. However, over the years, Magic pulse has been

rigorously upgrading the Kitmoba program to be able create more solutions to help the

structure and organisation in the company. With this high innovation and ability to help small

enterprises, Magic Pulse had become one of New Zealand‟s top companies in the ICT

(Information and Communication Technology) industry

Case Update

Over the eight years of operation, they have been rigorously growing in New Zealand and

have built themselves into a team of 25 personnel. As of only just two years ago in 2008,

Magic Pulse Ltd penetrated into the international market. Surprisingly, their first target

market they entered was the UK market. And only just recently, six months previous, they

had also entered into the Australian market. Given that Kitomba has already penetrated two

of its initial options, this being the UK and the Australian market, there is only one market

left to penetrate which is the USA market. As a result of a STEP analysis of the USA market,

one major factor impacting the firm is culture, as the USA market has high cultural distance

to NZ culture. This is important to Kitomba as they realised the importance of even the

slightest cultural difference when entering the UK market. These cultural differences prove to

be crucial in terms of formulating strategies to establishing distribution channels in other

countries. As identified in the UK market, Kitomba found face to face contact was the main

way in establishing contact with potential distributors. The impact of culture also goes

beyond the initial establishment of the distribution network. Kitomba characterises their

market offering as high customer service, with high communication support. In the UK

market, Kitomba realised that traditional phone manner in the UK is vastly different to that of

NZ. Such manner could have deterred other companies if they had not understood that it was

typical UK culture. Understanding culture is important to forming distribution networks and

sustaining this relationship with the distributor

Corporate Profile

Magic Pulse Ltd is known for its unique innovation and persistence in product development.

Kitomba‟s core competency is developing its own product (instead of outsourcing

production). This has a lot to do with quality and reliability of their own product. They have a

direct sales force in Sydney and Melbourne in Australia. They have a good relationship with

L‟oreal. They have received much support from L‟oreal stating that the company acts as a

„big brother‟ to Kitomba.

Their goal was now to further internationalise their organisation and expand into the US

market. The main concerns for Magic Pulse Ltd for internationalisation were that they had

limited funding and human resources and because of these restrictions, choosing an

appropriate entry mode would be essential to lessen risk. They had indentified that their main

risk was that they would lose their competitive advantages and their main concern was losing

control of their main product, Kitomba.

Internationalisation

International Growth

International Growth is based upon moving into new markets and industries across

international borders. The most appropriate way to do this is by using mergers and

acquisitions with other organisations across the globe.

As a small organisation Magic Pulse Limited has large drives and incentives to succeed in

internationally, as they have proven and done so in the United Kingdom and United States,

they have achieved this by adopting more closely to a culture and environment that is more

similar to New Zealand‟s such as Australia and used similar entry modes to enter into the UK

market.

Indicators of success in international growth are varied depending on the reasons for the

growth. They can include monetary measures such as market share or profit gained, measures

of stability such as length of stay in markets and industries, or as simple as whether the move

was perceived as a „failure‟ to achieve the goal of the expansion (Akoorie & Scott-Kennel,

2005). In order to succeed when growing internationally, a strong and accurate assessment of

the environment aimed for is required, paired with the ability to adapt and a clear and well

communicated goal for what is trying to be achieved.

Strategic Tool Analysis

Kitomba specialises in the niche market of hair and beauty. Their market offering is their

focus on meeting customer needs offering a complete package, much more than software.

Their focus is on service, seeing customer service is important rather than just the offering of

a product. They have an innovative pricing payment model and technology deployment.

Though they are quite specialised, they are not exclusive believing that „everyone‟s [their]

friend, and [they‟re] no one‟s enemy‟. A large part of the marketing of their brand is done

through recommendation and endorsements. Kitomba is a small company which is made up

of 25 people. Being a B2B company they are heavily reliant on others stating that „to rely on

other people is key to penetration‟.

From our appendix below, shows our tools of analysis for the company at the current time. It

allows us to identify their success of internationalisation that the company has gained over

the eight years of operations and how they have been achieved. Each tool is an essential

source of information as it contributes to the decision of choosing a strategy for entering the

US market. Refer to the appendix for a full analysis.

Strategic Options

Differentiation

This strategy has been taken out of the GSM (Porters Generic Strategy Matrix) Model as seen

in Appendix 4.0. The current strategy that Magic Pulse Ltd had been incorporating was the

„differentiation‟ strategy. Magic Pulse will need to continue creating more software products

that are unique and different. By doing this they will allow themselves with the opportunity

off centric diversification, Which Magic Pulse can use to expand the firms' operations by

adding markets, products, services, or stages of production to the existing business. The

purpose of diversification is to allow the company to enter lines of business that are different

from current operations. When the new venture is strategically related to the existing lines of

business, it is called concentric diversification (Thomas, 2009). More specifically, concentric

diversification is where a firm develops or acquires new products or services that are closely

related to its core business or technology, to allow it to enter one or more new markets

(Thomas, 2009).

International Networking

Given the economic situation of the world outlined in the STEP Analysis section, Magic

Pulse may find it hard to adapt to an overseas environment, especially with no experience of

success and failure in a international market. Therefore Magic Pulse will need to pursue

strategic alliances and joint ventures. International Networking involves international

cooperative agreements such as strategic alliances and joint ventures. Magic Pulse LTD need

to propose entering into strategic alliances with other IT organisations in the markets they

wish to enter, a strategic alliance will allow them to diversify product ranges and increase

technology efficiencies in the future. Magic Pulse should find companies that have similar

aspirations of becoming more socially responsible in the way they operate and their impact

on the environment and society. This will enable Magic Pulse to learn from others to share

the costs and risks of research and development, and benefit from the relationship with other

companies who already have a strong favourable brand name with consumers who are

already environmentally and socially sensitive too.

Magic Pulse will need to incorporate a global strategic vision where both firms that prescribe

their aim/s and how to get there. This harmonisation of corporate vision allows the

optimisation of synergy between the two firms. This is also linked to partner selection which

insures that the two firms not only have similar aspirations, but also similar corporate cultures

and systems, and are both competent firms intent on the success of their combined goal. In

order to create this synergy, the venture strategy needs to be formulated, implemented,

managed, and monitored with the commitment of the senior management in both firms. If the

level of commitment is not sufficient, it may reduce resource efficiency and affect its ability

to accomplish its objectives. This strategy will be beneficial to them as it will allow them

experience markets in another country it will also reduce and share costs, and will allow them

to have immediate market growth from the reputation of the other firm. Magic Pulse could

one day become a global known firm if they have the potential to succeed in such a weak

economy.

Effective Standardization

Magic Pulse Ltd need to adopt effective standardization when internationalizing and by doing

this they provide their overseas markets with high quality performance and expandability.

High quality technology is required for best performance, as they have to comply to their own

standard as well as government standards and by setting their own standards in an overseas

market will mean that they will provide their customers with the best services and innovation

creation. Effective Standardization will allow them to lower acquisition costs which proves to

be beneficial for Magic Pulse Limited as it will significantly reduce their resource and,

research and development costs. It will also allow the company to attract and assure

customers, demonstrate market leadership, create competitive advantage and, maintain and

develop a better practice. This strategy will help the Kitomba product as it will provide the

means of differentiation in a competitive marketplace, they will be able to show their unique

point of difference allowing them to work towards standards in an environment, such as

government rules, policies and regulations.

Implementation

Recommendations

Internationalising in such a profound economy is a difficult target to accomplish for Magic

Pulse LTD, however there are many obstacles that need to be faced, for them to

internationalise their software products and range of beauty products to overseas markets. It

is essential to thoroughly analyse the market by a STEP analysis, the Social, Technological,

Political, and Economic environment. From Porter Generic framework it is concluded that

cost and differentiation have a equal range of importance. However differentiation was still

found to have significance of importance.

It is recommended that Magic Pulse LTD incorporate two strategic strategies, which includes

differentiation and International Networking. Magic Pulse have distinct characteristics due to

their innovation and creation of software products that are different from their competitors,

however they still need to create a „name‟ behind their software products that will allow them

to market themselves in an global environment. Once they have created this specific point of

difference, they can then move onto centric diversification and producing new lines of

products. In USA, Kitomba‟s entry mode should continue to be licensing as this is the main

way to sell their product whilst remaining control of the brand. This form of control is

important as it will leverage sustainable income by ongoing rental fees as opposed to plainly

selling the product.

Their second strategy is International Alliances and Joint ventures. Magic Pulse need to have

an international alliance and joint venture with a similar market overseas, with little

internationalization experience and limited global brand reputation in the US, and a weak

economy in NZ, Magic Pulse could be setting themselves up for failure. By having a joint

venture with a similar overseas firm, they are able to work together, share knowledge and

research and development costs. With their „everyone‟s [their] friend, and [they‟re] no one‟s

enemy‟ attitude, they can see that even their major competitors are a high potential candidate

for their strategy. One of their key attributes that they acquired during their international

venture was the experience of joining up with large cosmetics companies such as L‟oreal.

They could use a similar method for entering the US market. If choosing this strategy, the

overseas firm should also have brand reputation meaning that Magic Pulse Ltd will not have

work as hard on their marketing, as their alliance partner would have already created a brand

reputation. The alternative course of action would be to implement each of the following

strategies, this will enable them with better effective and efficient business flow, and help

them to internationalise in a more established manner.

One of the largest weaknesses Kitomba face is their in-ability to internationalize to non-

English speaking countries, this is a major weakness for Kitomba as they could potentially be

focusing on other non-English speaking countries such as Asia, they could easily hire a

translator or a research development team that can do an in-depth analysis of the non-English

speaking countries, they are missing out on an major key markets by not doing substantial

research, if they did so Kitomba would have a large opportunity to expand even further. This

is one aspect Magic Pulse Limited need to work, they need to change their mission of

targeting English speaking countries only and encounter non-English speaking countries this

will further increase their success as an organisation.

Proposed Timeline of Strategic Implementations

o 2009 Severe Recession

- Remain in domestic, UK and Australian markets

- Continue with R&D for further product development

- Identify major competitors in the US Market

- US Market research and analysis

o 2010 Recession Recovery

- Bench

- Strengthen & rebalance team, structure and capability

- Bottom line financial results reassessment

- Continue to fulfil customer needs by increasing customer focus

o 2011 Strong Market Growth

- International Alliances or Joint Ventures in the US

- High investment in Research and Development for further Differentiation

- Seek opportunities to penetrate non-english speaking countries

References

Akoorie, Michele E.M., Scott-Kennel, Joanna. International Business Strategy: A New

Zealand Perspective. (2005). Auckland: Pearson Education New Zealand.

Barney, B. Jay. The Academy of Management Executive: Looking inside for Competitive

Advantage. (1995) Vol. 9, No. 4, pp. 49-61

Bennet, A. (2009). Treasury:Recession may be over. NZ Herald. Retrieved 26 April, 2010,

from

http://www.nzherald.co.nz/surviving-the-

recession/news/article.cfm?c_id=1502812&objectid=10595826

Fisher, G., Hughes, R., Griffin, R., and Pustay, M. International Business: Managing in the

asia-pacific. (2006). Pearson Edition.

ICT Wellington: http://www.ictcapital.com/members/Member.79/

Ideas Revolution. (2008). Retrieved 27th

April 2010, From:

http://kempton.wordpress.com/category/digital-revolution/

Kitomba, Magic Pulse: http://www.kitomba.com/salonsoftware/view/company

Marketing Teacher. (2000). April 27, 2010, from

http://www.marketingteacher.com/Lessons/

Morrison, M. (2007). RADIPID. Retrieved 27th

April 2010, From:

http://rapidbi.com/created/pestanalysis.html

Porter, Michael., Argyresm Nicholas., and McGahan, M. Anita. The Academy of

Management Executive: An Interview with Michael Porter (2002) Vol.16, No.2,

pp.42-53

Porters Generic Strategies. (2007). Retrieved April 24, 2010, from

http://www.quickmba.com/strategy/generic.shtml

Quick MBA. (2007) Global Strategic Management. Retrieved April 27, 2010, from

http://www.quickmba.com/strategy/global/

Rugman M. Alan, Hodgetts M. Richards. International Business. Harlow: Pearson Education

Limited.

Thomas, Joe. G. (2009) Diversification Strategy. Retrieved April 24, 2010, from

http://www.enotes.com/management-encyclopedia/diversification-strategy

Appendix

1.0 Step Analysis Given that Kitomba has already penetrated two of its initial options, there is only one market

left to penetrate which is the USA market. As a result of a PEST analysis of the USA market,

one major factor impacting the firm is culture, as the USA market has high cultural distance

to NZ culture. This is important to Kitomba as they realised the importance of even the

slightest cultural difference when entering the UK market. These cultural differences prove to

be crucial in terms of formulating strategies to establishing distribution channels in other

countries. As identified in the UK market, Kitomba found face to face contact was the main

way in establishing contact with potential distributors. The impact of culture also goes

beyond the initial establishment of the distribution network. Kitomba characterises their

market offering as high customer service, with high communication support. In the UK

market, Kitomba realised that traditional phone manner in the UK is vastly different to that of

NZ. Such manner could have deterred other companies if they had not understood that it was

typical UK culture. Understanding culture is important to forming distribution networks and

sustaining this relationship with the distributor.

Socio cultural

UK

Because the UK and New Zealand culture is quite similar to each other Kitomba was able

to enter the market without too many difficulties. Furthermore, because of the similarity of

cultures, Kitomba was able to identify subtle cultural differences which would prove

significant to their business. Such differences are that Kitomba understood that typically in

the UK their phone manner is quite rude and demanding because they perceive that they

will receive better customer service this way. This is vital to understand to Kitomba as a

lot of their customer support is dealt with through the phone. Closeness of NZ culture and

UK culture has allowed Kitomba to identify cultural nuances which help them better

understand their potential clients and distributors.

o Kitomba was able to establish a good reputation for their business because their

values were accepted by UK distributors. UK companies stated that it was not

uncommon to be „ripped off‟ or cheated when buying scheduling software in the

UK. Many companies had experienced that when receiving the product it would

very much be blank CD and the company would have wasted their money.

Kitomba‟s product was a refreshing contrast to the market offering a reliable

service, as companies labelled them as honest and trustworthy. This proves vital

for the company as their promotion is primarily based on reputation and word of

mouth.

Australia

o A major drawback for Kitomba not entering the Australian market before the UK

market was because of the nationalistic cultural environment as Kitomba found

that many Australian companies, had they been given the choice, would prefer to

choose Australian made products as opposed to Kiwi made products. Despite the

close cultural proximity of the countries, socially it can be seen that Australian

customers prefer to have a separate identity to that of NZ.

o After their entry in the UK market, Kitomba found that the Australian market

demanded their product. Their successful entry in the Australian market can be

attributed to this close culture proximity, and despite initial issues, the reputation

they had built in UK nullified the problem of being rejected for being a Kiwi

brand.

Technological

UK

o Kitomba identified that despite the UK market being fairly proficient with the

internet, their technology and software in the hair and beauty industry was

surprisingly backward. They found that there was not much development in the

technology in this industry. This provided Kitomba the strength to leverage their

more advanced knowledge when entering the UK market.

Australia

o Kitomba did not identify many technological barriers or specific technological

benefits in this market.

Economic

UK

o The large attraction to the UK market was their exchange rate two years ago which

made it viable, attractive and easier to enter compared to Australia.

Australia

o The Australian market was not largely affected by the recession compared to many

other countries. In fact Australia‟s reserve back noted that the growth in Asian

economies affected the positive development in Australia‟s own economy, despite

much financial turmoil in other countries. Being able to penetrate this market

recently benefits Kitomba as they can rely on a fairly stable economy. It also

provides stability for the company in the future.

Political

Both countries are very similar in respect to their legal systems. In terms of trade

Kitomba did not identify their main issues to lie in the political environment.

However, this could be because of past relations and similarity of the UK and

Australia political/legal system to that of NZ thus there were few trade barriers. If

Kitomba aim to penetrate the USA market, it is important to note the different systems

in place compared to NZ and to identify this environment as a real barrier to trade.

2.0 SWOT Analysis Internal----------------------------------------------------

----------------------------------------------------External--------------------------------------------------

A SWOT analysis can then identify both the internal and external factors of the company. “A

very simple analysis of the firm‟s Strengths, Weaknesses, Opportunities and Threats (SWOT)

will enable a manager to see progress on current objectives and whether a firm might achieve

Strengths

Kitomba entered Australia only 6 months ago. Despite

being only their newest market, today there are more customers in Australia than in the UK.

Kitomba employed a business coach as they thought the UK would be more sophisticated. UK was technologically savvy with regards to the internet; however Kitomba found that they were quite ‘backward’ when it came to hair salon software. They established good relationships with salons they work with, seeing that the salons promote Kitomba so they look after the salon in return.

They have also established good relationship with L’oreal. They have received much support from L’oreal stating that the company acts as a ‘big brother’ to Kitomba. This perhaps is a huge reason they are successful, as this can be seen as having a semi-partnership with a local who has many distribution channels.

It may be important to note that Kitomba was approached to enter the Australian market, as their products were original and become a desired need to the Australian market.

Weaknesses

- When Kitomba first internationalised to Australia they was

not successful, as there are major beauty and salon competitors that already existed in Australia.

- Kitomba see other markets to be of a lower focus to them. Kitomba wish to target English speaking countries because of the language their software is based on. Furthermore, culturally hair and beauty is different in non-english speaking countries such as Asia compared to NZ, Australia and UK. With Kitomba they had their distribution models and they needed to know about the hair and beauty industry itself. However this is a major weakness for Kitomba as they could potentially be focusing on other non-English speaking countries such as Asia, they could easily hire a translator or a research develpoement team that can do an in-depth analysis of the non-English speaking countries, they are missing out on an major key markets by not doing substantial research, if they did so Kitomba would have a large opportunity to expand even further.

Opportunities

Kitomba attend an expo named Salon smart which was

run by salon magazines targeted at smarter salons. At the expo Kitomba was seen as a new player. There were other products such as iSalon, Salon Genius, Australian Company Short cuts, with also a French company and a US company. However at the expo Kitomba received some good feedback saying that they are really honest and trustworthy. Kitomba quickly realised there was a different way they had to present themselves: as being honest. In the UK, companies typically expect to get ripped off. However, Kitomba was seen as very reliable. Kitomba have stated that the UK is currently their most competitive market.

Contrastingly in the UK there were many diverse companies all competing for market share. Therefore Kitomba thought it would be easier to penetrate a market with many competitors with relatively even and low market share, compared to Australia with a major competitor with high market share. Furthermore, the UK exchange rate at the time was more attractive. Many of Kitomba’s team had also worked in UK before thus had experience.

Threats

- Kitomba have 20 competitors in the UK - The reason Kitomba chose UK over Australia initially was

because they heard that many companies had gone to Australia and failed. A big reason was many companies saw it was better to buy Australian rather than Kiwi. Furthermore signed agreements had prevented them from trading. At the time, in Australia there was only one major competitor thus trying to directly compete with them was seen as unwise

future aspirations.” (Akoorie & Scott-Kennel, 2005, p.198). This is a useful tool for a small

organisation especially because it helps to identify the main points of the target markets that

the company wishes to internationalise to. “The Prevailing SWOT model of

strengths/weaknesses/opportunities/threats was based on the idea that every case is different

and that the relevant considerations are company-specific” (Porter, Argyres & McGahan

2002, p.44)

3.0 Yip’s Globalisation Drivers

Cost drivers

Their main resources are spent on product development which is one of their main

advantages and can be used as a driver for internationalisation. I identified that with a high

product development, the product will have a higher quality and it will be superior. This is

something that Magic Pulse Ltd invests in since it satisfies customer needs. A more potential

strategy for them would be to have more of a product differentiation against the other

competitors.

Market Drivers

Magic Pulse Ltd selected three market types that had similar attributes to the New Zealand

market. These were the Australian, United Kingdom and United States markets. The

similarities of these markets were that the customers had a similar need for organising their

customers more efficiently. The main influence that the markets have is that the size of the

market is significantly bigger than the market in New Zealand. And since their main target

market is the hair and beauty industry, the standard size of a company would be relatively

small. One of their main advantages that they will use is their dominance on the domestic

market. They have the reputation of being one of the top ICT companies in New Zealand.

Having ventured into the UK and Australian market their main modes of marketing in the UK

were word of mouth, considering they were building a good honest reputation. They tried

testimonials but it didn‟t work. They employed a business coach as they thought the UK

would be more sophisticated. UK was technologically savvy with regards to the internet;

however Kitomba found that they were quite backward when it came to hair salon software.

They establish good relationships with salons they work with, seeing that the salons promote

Kitomba so they look after the salon in return.

Government Drivers

Boutique salons in New Zealand are characteristically single ownership, with very few

franchises. It is much easier to encourage single owner salons to use Kitomba. In UK,

although there are many single owner franchises, there are many co-operative franchise

salons which is a form of a union which has the same effect as if they were under a franchise.

It is very hard to penetrate a franchise or these unions. Kitomba focuses on individual salons

and franchises are only a minor priority. A big factor is the cost of sales.

Competition Drivers

As Magic Pulse is a leading competitor in the New Zealand market, this can be used as an

advantage when internationalising. With the innovative skill of Magic Pulse Ltd, they then

have a competitive advantage over most of the other substitute products. Since customer

satisfaction is key for more sales, Magic Pulse Ltd has the upper hand with the program,

Kitomba. “In order to maintain a competitive position, a country must continually upgrade or

adjust its facto conditions.” (Rugman & Hodgetts, 2003, p.17). With ongoing upgrades to

their products, they have the ability to stay ahead of their competitors. However as they

ventured into the UK, they identified twenty other competitors which was noted to be their

most competitive market. Even so, they have received good feedback about their product and

have that competitive advantage. Their major competitors stand as iSalon, Salon Genius,

Australian Company Short cuts, with also a French company and a US company.

4.0 Porters Generic Strategies

Competitive Advantage

Co

mp

etit

ive

Sco

pe

Bro

ad

Low Cost High Cost

Overall Cost Leadership

Differentiation

Nar

row

Cost Focus

Differentiation Focus