Chabros international risk analysis

Topics: Saudi Arabia, United Arab Emirates, Economics Pages: 12 (1442 words) Published: January 20, 2015
Chabros International Group: A World Of Wood
As many other companies Chabros International Group faced a financial crisis after the global economic crisis in 2009. The decision from Chami of investing $ 11 million in his Serbian sawmill was taking right before the beginning of the crisis and may have been crucial. Why did Chabros operate internationally?

In order to understand Chami’s decision we have to take into account which reasons he argued for expanding his business outside of Lebanon. First of all, Lebanon was a very unstable country and when Chabros received by occasion the first orders from Lebanese customers in Dubai he did not think twice to expand into this country. In 1998 they opened their first branch outside of Lebanon, which led automatically to a share of risk in their operations. From this point on Chabros did not depend anymore on one single market. Another important reason for the expansion was that they could significantly increase their sales numbers. Change in expansion motivations

Through this first very positive experience Chami was convinced about his internationalisation plans and his next country on the list was Saudi Arabia. The market entry was not as easy and successful as the one in Dubai. This was partially due to a different strategy with Italian partners as a joint venture which caused problems through cultural differences (Both Italian partners left the market between the first and second year). Shortly after this Chabros faced supply problems due to a much higher demand than they could deliver on time. Therefore Chabros changed for the first time their expansion motivations because they opened an office in Serbia not in order to expand their business in this country. They expanded because they needed to ensure a certain production capacity. First Chabros subsidized its supplier but in 2007 they acquired the Serbian supplier and entered thereby in the manufacturing market. Between 2003 and 2007 Chabros also expanded into Qatar, Oman, UAE and Egypt. The expansion into the last two countries were motivated by the advantages a higher sales volume and cheaper purchasing quantities. Besides, the market entry in Egypt is also reasoned by another factor from Chami due to the fact that Egyptians prefer the lower quality product from Chabros. This strategy ensured its sales for all the different product qualities offered. Closing parts of Chabros’ Serbian Sawmill

However, after facing a significant decrease in sales and falling into serious crisis Chabros has to decide how to overcome it and one possible solution is shutting down half of the Serbian sawmill. The benefits from this step would be first of all a reduction of salaries up to $400,000 per year. Moreover they would save money through less operation costs like in storage or for the machines. In addition Chabros will be more flexible since they can always re-activate the closed parts again as soon as the global economy improves. On the other hand getting off the half of the employees will result in a high insecurity between the working staff. The motivation will be very low which results in a low productivity. Thus, there is a high probability that the more skilled workers will leave the company because of the crisis in the company. Another important fact is that closing parts of the sawmill will only have a short-term result in the financial account but will not be the solution for the decreasing sales numbers in Dubai. They accounted for 50% of the total sales in 2008, whereas in 2009 sales in Dubai accounted just for a little bit more than a third of Chabros’ total sales. Continue exporting to markets

Another solution to solve the current financial crisis may be to increase the penetration in the current markets or even entering completely new markets. One interesting fact of staying and expanding in the present markets is that besides the developments in Dubai there was an overall increase of sales by 10% in all the other...
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