Green Toys Inc.

Green Toys Inc.

International Business Strategy Case Study

BEMT, INTT3A

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Elaine Ye

Tiffany Kosasih

Brian Yang

Masami Ueno

International Business Strategies TDMT 3305

Leo Lei

November 14, 2017

Executive Summary

Green Toys Inc. is a US based manufacturer of eco-friendly toys. The company is distributing its products to 35 countries globally; however, 90 per cent of its sales are from the US market.

To succeed in global business, the company has to address the problems in global sales, changing consumer behaviors, and high production costs. Although Green Toys has distributors in 35 countries, the company couldn’t achieve high revenue in the global market because of lack of proper internationalization approach. In addition, birth rate is changing internationally. It affects the company’s future business strategy since it has a big influence on consumer behaviour. Moreover, when the company considers expanding its global business, the high production cost in the US is a serious issue.

Green Toys’ development is restricted to three root causes: glocalization marketing strategy, sociocultural changes, and high production cost. Firstly, Green Toys has been trying to expand its market to different countries. The concept of producing eco-friendly toys succeed in the US market but not the international market because of not adapting local consumers’ preference and needs. Secondly, sociocultural factors have big impacts on consumer behaviour, which has great influence in the global toy industry.  Lastly, high labour and material cost leads to high production cost. The company has not achieved lower average total cost explained by the economies of scale theory.

There are three alternatives for Green Toys’ future development. The first alternative is opening factories in selected countries. This will allow the company to keep the major concept of providing eco-friendly products by using local capital and materials. However, the plan requires large amount of capital investment, and there is uncertainty in political and economic status. The second alternative is forming a joint venture with another toy industry company in the target country. Joint venture allows two companies combining their resources and core competence, and shares risks and costs; however, control and management are also shared. The third alternative is exporting to foreign markets. Green Toys will get flexibility in choosing target markets and save capital investment. The disadvantages include low control and profit margin, high transportation costs and tariff. 

From the alternatives mentioned above, Green Toys is recommended to use the joint venture strategy. The company should expand its market to the UK, since UK is one of the biggest consumers in the toy industry. This strategy requires one year to implement. By using joint venture, Green Toys will be able to adjust its marketing strategy with local customers, raise brand awareness, reduce production cost, expand to one market at a time, and as their experience grow, Green Toys can expand to new countries such as Germany and France.

Table of Contents

Executive Summary        2

Introduction        5

Symptoms and Problems        5

Problem Analysis        7

Alternatives        8

Appendix A: the process flow to implement the recommendation        11

Introduction

Green Toys Inc. is a US-based toy company established in San Francisco in 2007 by Goeben and Hyman. Goeben is a venture capitalist and an electronic toy designer in San Francisco, and holds two US patents in toys and games. Hyman used to work as a marketing executive for several consumer-marketing companies. The two co-funders contribute their specialties in product design and marketing.

The core competence of the company is making eco-friendly toys from recycled plastic and other environmentally friendly materials, which are provided from only California suppliers. The objective of the business is to improve the overall health of the planet, create opportunities in the US job market, and support green movement. Green Toy products are sold in 5,000 US stores and has distributors in 35 countries. The turnover was about US$17.5 million in 2010.

The company’s key customer segment is parents, especially woman, between the ages of 25 and 40, with children from 0 to 14 years old. Most of the consumers are moms who are well educated and online, which are frequently searching online products and trends.

Until now Green Toys has had no plans move to production out of the US; however it may move manufacturing abroad with local sourcing materials.

Symptoms and Problems

There are three main problems, which Green Toys Inc. needs to address based on the current business situation. To expand its global business successfully, the company has to consider the problems in global sales, changing consumer behaviors, and high production costs.

Firstly, even though Green Toys has distributors in 35 countries, 90 % of the company’s revenue comes from the US market. Until now, all production takes place in the US, which lowers the profit margin. There are competitive advantages of producing in home country, such as creating job opportunities for local people, supporting domestic suppliers and environment. However, keep producing in the US also limits the company’s business opportunities in overseas markets. The high percentage of revenue from domestic market shows that the company does not have a suitable internationalization approach, and expanded too fast in its overseas business compared to its capacity. Therefore, the company does not have high awareness in the global market.

Secondly, birth rate is changing globally. There are many reasons why birth rate is changing; for example, increasing cost of raising kids, accessibility of higher education, increasing amount of job opportunities, and late marriage. These changes have significant impacts on toy market and the company’s global market strategy. On the one hand, the birth rate is extremely low in some developed countries, such as Germany and Japan, but these countries are also the high-spending markets for toys. On the other hand, birth rate keeps increasing in some developing countries, but the consumer expenditure in these countries are not as large as some developed countries. Consequently, changes in birth rate cause changes in consumer behavior and affect the company’s future business strategy.