Jabwood International Strategy Case Study

PROBLEM

Jabwood International is facing a declining trend in sales revenue and market share due to its over-dependence on a shrinking Lebanon market, the only market it is present physically in.

BACKGROUND

There are several issues that seemed to have cause this problem. The first and most influential was the occurrence of political uprising in Syria. As a result of which, the Lebanon-Syria borders were closed, severely impacting Jabwood’s business. In 2007 subsidiary of Jabwood International based out of Saudi Arabia was closed for non-business related matters. This subsidiary, before closure, contributed to approximately half of Jabwood International’s sales. With it gone, Jabwood’s market share and sales revenue nosedived to the present figures. The financial crisis and economic downturn of  in major markets such as USA, UK and the European Union, led to stock piling of lumber at sawmills & warehouses, driving down the price of wood and negatively impacted Lebanon’s timber industry in 2009. Furthermore, the flat performance of Lebanon’s real estate market in 2012 made a direct negative impact on all wood companies including Jabwood.  Also, the competition in the timber industry has been increased by the advances in transportation and technology and new entrants (due to low barriers to entry) leading to declining profit margins. The reluctance of the company to physically expand into other markets even though it realized that the indirect business model is not working out (as was the case in Saudi Arabia) is another major cause for the worsening business situation Jabwood is in.

These causes have led to a substantial decrease in sales revenue and erosion of market share for Jabwood, so much so that its single largest supplier is contemplating ending Jabwood’s exclusivity as the sole distributor of TANITA softwood in Middle East, citing contract terms that require a minimum sales and market share figures.

CRITERIA

There are many alternatives that Jabwood can look into but any decision on entering into a new market has to fulfill the following key criteria:

• Demographics- The decision should provide lucrative business opportunity in terms of positive population growth, higher percentage of urban population as compared to rural and as such demographics of the market will be an important consideration.
• Political Stability – Jabwood has already seen a long civil war in Lebanon, which has had a negative impact on the overall business and economy .Thus, the chosen market should provide not only greater political stability but governmental support for new businesses (e.g. tax breaks/lower taxes).
• Infrastructure – One of key aspects of timber Industry is the ease of access to the raw materials and logistics ensuring accessibility of product to customers. Thus, infrastructure such as well-built systems of roads, ports etc. is necessary for the sustaining the business.
• Economic Conditions- The new market should provide for favourable local economic conditions such an increasing GDP, rate of GDP growth, less time requirement to start a new business, less cap on Foreign Direct Investment etc. Jabwood would do well if it keeps these in mind when coming up with a final decision.
• Local Industry situation – An important criteria is to understand how the local timber industry is performing in the target market .This also includes knowing about the total forest cover, current competition in the market, current sources of wood. E.g. if the timber industry is already shrinking or facing great economic difficulty in the target market than it would be better for Jabwood to steer away from such a market.
• Projected Numbers for New Markets – market share for new entrants, sales growth
• Fiscal characteristics – currency convertibility, cost to import, mobility of funds

The move should allow Jabwood to maintain its competitive advantage and increase sales revenue. In addition, it should be within the capabilities of the company i.e. resources such as capital, human resources, product knowledge.