SECTION A: Introduction

General Background of the Company

Derlon Limited, established in 1968 by Derek Lonsdale, has evolved from a small family-run
business into a respected manufacturer of agricultural machinery. Originating from a modest
dairy farm in northwest Ireland, the company began with the launch of the Derlon 1, a compact
tractor tailored for small farms. Over the years, Derlon has maintained its commitment to
affordability and functionality, culminating in the recent release of the Derlon 2006 tractor.
Today, as a family-owned SME, Derlon employs 50 people and boasts a turnover of £10 million,
with plans for future growth under the leadership of Derek's sons, Sean and Barry.

Rationale for Expansion

The decision to expand into Croatia is driven by several strategic factors:

Profit-Seeking: Entering the Croatian market presents an opportunity for increased revenue
through access to new customer bases (Dunning, 1993). With a growing agricultural sector in
Croatia, Derlon can capitalize on demand for affordable and efficient farming equipment.

Market-Seeking: Croatia's integration into the European Union has opened avenues for trade
and investment. By establishing a presence in this emerging market, Derlon can enhance its
competitive edge and brand recognition across Europe.

Resource-Seeking: Croatia offers potential advantages such as access to skilled labor and
favorable government incentives for foreign investments. This could facilitate cost-effective
production and operational efficiencies.

The expansion aligns with Derlon's long-term vision of diversifying its market presence while
ensuring sustainability and growth for future generations. As Sean and Barry prepare for
retirement in 2026, tapping into Croatia's agricultural landscape could be pivotal in securing their
legacy and providing their children with a robust business foundation.
Section B: Market Analysis of Croatia

As Derlon Limited seeks to expand its operations into Croatia, a comprehensive market analysis
is essential to understand the complexities and dynamics of this emerging market. This section
will evaluate the economic conditions, cultural differences, and political landscape that shape the
business environment in Croatia. By examining key economic indicators such as GDP growth,
agricultural sector performance, and employment rates, we can identify potential opportunities
and challenges for Derlon's entry strategy (Libretext, 2023). Additionally, an assessment of
cultural dimensions will provide insights into local consumer behavior and preferences, while an
analysis of political risks and government interventions will highlight regulatory considerations
that may impact operations (Global,2024; Hollesen, 2016; Honeycutt et al., 2023). Together,
these factors will inform Derlon's strategic approach to successfully navigate the Croatian market
and establish a sustainable presence in the growing agricultural sector.

Economic Analysis of Croatia

Croatia's economy has shown steady recovery and growth since joining the European Union in
2013. The agricultural sector, which constitutes about 3% of GDP but employs a significant
portion of the workforce, presents opportunities for Derlon Limited as it seeks to expand its
market for tractors and farming equipment. The following table highlights key economic
indicators relevant to the agricultural machinery market:

Main Indicators 2022 2023 (E) 2024 (E) 2025 (E)

GDP Growth Rate (%) 6.3 2.8 3.0 2.7

Agricultural Sector Growth Rate (%) 4.5 3.5 4.0 3.8

EU Agricultural Funding (million €) 1,200 1,300 1,400 1,500

Unemployment Rate (%) 6.8 6.2 5.8 5.5

Source: European Commission (2024).

The growth in the agricultural sector indicates a rising demand for modern farming equipment,
which aligns with Derlon’s offerings of compact and affordable tractors. Additionally, EU
funding aimed at improving agricultural productivity can provide financial support for farmers
looking to upgrade their machinery.
Assessment of Cultural Differences

Assessing cultural differences is essential for Derlon Limited's successful expansion into Croatia,
as understanding the local business etiquette and social norms will facilitate effective
communication and foster strong relationships in a market that values trust and personal
connections Budak et al., 2013)

Understanding cultural nuances is vital for Derlon Limited’s successful entry into the Croatian
market. Applying Hofstede’s cultural dimensions provides insight into how Croatian culture may
influence business practices:

Power Distance: Croatia scores around 73, indicating a hierarchical structure where authority is
respected. This suggests that establishing strong relationships with local distributors and retailers
will be crucial for market penetration (Usunier, 2005).

Individualism vs. Collectivism: With a score of 33, Croatia leans towards collectivism. This
cultural trait emphasizes community and family ties, which can be advantageous for Derlon in
building partnerships with local farming cooperatives or associations.

Uncertainty Avoidance: Scoring 80, Croatians prefer structured environments and clear
guidelines. Derlon should focus on providing comprehensive product information and support to
alleviate any concerns about adopting new technology.

By understanding these cultural dimensions, Derlon can tailor its marketing strategies to resonate
with Croatian farmers, emphasizing community benefits and offering robust customer support.

Assessment of Political Risk and Government Intervention

Croatia's political environment is characterized by stability since its EU accession, which has
enhanced regulatory frameworks and transparency in business operations. However, there are
several factors that Derlon Limited must consider:

Government Support: The Croatian government actively supports foreign investments in

agriculture through incentives and grants, particularly from EU funds aimed at modernizing
farming practices. This creates an opportunity for Derlon to leverage such support when entering
the market.

Trade Barriers: As an EU member state, Croatia benefits from tariff-free access to other EU
markets but may impose tariffs on non-EU imports. For Derlon, this means that sourcing
components or machinery from outside the EU could increase costs.

Protectionism: While Croatia promotes free trade within the EU framework, there may be local
preferences for domestic products among Croatian farmers. To mitigate this risk, Derlon could
consider establishing local partnerships or even local assembly operations to enhance its
competitivenes
Section C: Assessment and Justification of Entry Modes

As Derlon Limited considers expanding its operations into Croatia, it is essential to evaluate
various entry modes that align with the complexities identified in previous sections
(GeekforGeeks, 2024). This analysis will focus on three primary entry modes: exporting, joint
ventures, and licensing (Vedantu, 2024). Each mode will be assessed not only for its advantages
and disadvantages but also for its suitability in addressing the specific challenges and
opportunities presented by the Croatian market.

1. Exporting

Exporting is often the first step for companies entering international markets, allowing them to
sell domestically produced goods in foreign markets with relatively low risk and investment
(Albaum et al., 2008). For Derlon Limited, exporting could involve directly selling the Derlon
2006 tractor to Croatian distributors or farmers.

Suitability Analysis

Given Croatia's growing agricultural sector and increasing demand for modern farming
equipment, exporting presents an attractive entry mode. The benefits of exporting include:

- Low Investment Risk: Exporting requires less capital investment compared to establishing a
local presence, which is crucial for a company like Derlon that may be cautious about initial
expenditures in a new market (Manuel, 2022)

- Flexibility: The ability to adjust production levels based on demand allows Derlon to respond
quickly to market fluctuations without the burden of fixed costs associated with local operations.

However, there are challenges associated with exporting:

- Limited Market Control: By relying on third-party distributors, Derlon may have less control
over how its products are marketed and sold in Croatia. This could affect brand perception and
customer relationships.
- Trade Barriers: While Croatia is part of the EU, potential tariffs or trade regulations could
impact profitability. Understanding these barriers is crucial for effective pricing strategies.

In summary, while exporting offers a low-risk entry strategy, it may not provide the level of
market engagement necessary to build strong relationships with Croatian farmers.

2. Joint Ventures

A joint venture involves partnering with a local firm to share resources, risks, and profits (Zahra
et al., 2000). For Derlon Limited, forming a joint venture with a Croatian agricultural machinery
distributor could facilitate market entry.

The complexities identified in Section B highlight several reasons why a joint venture could be
beneficial:

- Local Market Knowledge: Partnering with a Croatian firm would provide Derlon access to
valuable insights about local consumer preferences, distribution channels, and regulatory
requirements. This knowledge is essential given Croatia's unique cultural context and business
practices (Rajh et al., 2016).

- Shared Risk: Entering a new market can be risky; a joint venture allows Derlon to share
financial burdens and operational challenges with a partner who understands the local landscape.

However, joint ventures also present challenges:

- Potential for Conflict: Differences in management styles or strategic priorities between

partners can lead to conflicts that hinder operational efficiency.

- Shared Control: would need to navigate shared decision-making processes, which might slow
dowDerlon response times to market changes.

Overall, while joint ventures can enhance market entry success through local partnerships, they
require careful management of relationships and expectations.

3. Licensing

Licensing allows a company to grant another entity the rights to produce and sell its products in
exchange for royalties (Zahra et al., 2000). For Derlon Limited, licensing its technology or brand
could be an alternative entry strategy.
Suitability Analysis

Licensing offers several advantages relevant to the Croatian market:

- Low Financial Risk: Licensing requires minimal investment compared to establishing

manufacturing facilities or distribution networks. This aligns with Derlon’s goal of cautious
expansion.

- Rapid Market Penetration: By leveraging local licensees' existing networks and knowledge,
Derlon can quickly establish a presence in the Croatian market.

However, licensing presents its own set of challenges:

- Loss of Control Over Brand Image: Licensing agreements can lead to variations in product
quality or marketing practices that may harm Derlon’s brand reputation if not managed
effectively.

- Risk of Creating Competitors: Licensees may gain enough knowledge about Derlon’s
technology or business model to become future competitors.

Given these factors, licensing could be a viable option for quick market access but would require
stringent quality control measures and oversight.

Proposed Entry Mode: Joint Venture

After analyzing the three entry modes—exporting, joint ventures, and licensing—it is clear that
forming a joint venture is the most suitable approach for Derlon Limited's expansion into
Croatia. This conclusion is supported by several factors:

1. Alignment with Market Complexities: The cultural insights gained from Section B indicate
that building strong relationships is crucial in Croatia's collectivist society (Rajh et al., 2016). A
joint venture allows for deeper engagement with local stakeholders compared to exporting or
licensing.
2. Leveraging Local Expertise: The complexities of navigating regulatory environments and
consumer preferences make local knowledge invaluable. A joint venture provides access to this
expertise while sharing risks associated with entering a new market.

3. Long-Term Growth Potential: Establishing a joint venture positions Derlon for sustainable
growth by fostering collaboration and innovation within the local context. This aligns with their
goal of expanding operations beyond Ireland and the UK.

Country Attractiveness and Competitive Strengths Matrix

To further justify this recommendation, we can utilize a Country Attractiveness and Competitive
Strengths matrix (Imber and Toffler, 2008; B2B International,2024; IBRD, 2022; Lee, 2015):

Strengths Croatia (Attractiveness) Derlon (Competitive Strength)

Niche player in compact

Market Size Medium tractors

Growth Potential High Established brand reputation

Strong engineering
Regulatory Environment Favourable capabilities

Commitment to customer
Cultural Fit Morerate service

Existing network through

Local Partnerships Essential family connections

From this matrix, we can see that while Croatia presents significant opportunities for growth due
to its favorable regulatory environment and high agricultural potential, Derlon's competitive
strengths lie in its established brand reputation and commitment to customer service. A joint
venture capitalizes on these strengths while addressing the need for local partnerships essential
for successful market penetration.

To further justify this recommendation, we can utilize a Country Attractiveness and Competitive
Strengths matrix as shown below:

1. Market Size & Growth Potential:

 - Croatia's agricultural sector presents medium-sized opportunities due to its existing
infrastructure but shows high growth potential driven by EU investments aimed at modernization
(European Commission, 2024). A joint venture enables Derlon to tap into this growth effectively
by leveraging local knowledge and distribution networks.

2. Regulatory Environment & Cultural Fit:

- The favorable regulatory environment supports foreign investments while requiring an

understanding of local practices (Connell, 2010). A joint venture addresses this need by
partnering with local firms familiar with regulatory compliance and cultural nuances.

3. Local Partnerships & Competitive Strengths:

- Establishing strong local partnerships through a joint venture enhances credibility among
Croatian farmers who prefer working with established local entities (Rajh et al., 2016).
Additionally, Derlon’s commitment to customer service complements this strategy by ensuring
that local partners maintain high service standards aligned with brand values.

Conclusion

In conclusion, after assessing various entry modes—exporting, joint ventures, and licensing—it
is evident that forming a joint venture represents the most suitable strategy for Derlon Limited's
expansion into Croatia. This approach aligns well with the identified market opportunities while
leveraging Derlon's competitive strengths and addressing potential challenges effectively. By
fostering strong local partnerships through a joint venture, Derlon can establish a sustainable
presence in Croatia's growing agricultural sector.

Section D: Marketing Strategy and Tactics for Derlon Limited's Expansion into Croatia
As Derlon Limited prepares to enter the Croatian market, developing a comprehensive marketing
strategy that addresses the complexities identified in previous sections is essential. This strategy
will encompass product, pricing, positioning, and promotional strategies, all tailored to align
with Croatia's economic conditions, cultural differences, and government regulations.

1. Product Strategy

Standardization vs. Adaptation

Given the insights from Section B regarding Croatia's collectivist culture and specific needs of
small farmers, a product adaptation strategy is recommended (Kotler & Keller, 2016).

The Derlon 2006 tractor may require modifications to suit local agricultural practices and
environmental conditions. For example, incorporating features that enhance performance in
Croatia’s diverse terrain will make the product more appealing to local farmers (Bradley, 2002).
Additionally, offering options for attachments or accessories that cater to specific farming needs
can enhance the product's value proposition (Zahra et al., 2000).

Understanding the cultural context is crucial; Croatian farmers may prefer machinery that
reflects their traditional practices while integrating modern technology. This adaptation can
foster a sense of trust and reliability in the brand (Indeed.com, 2024).

2. Pricing Strategy

Derlon Limited should adopt a penetration pricing strategy when entering the Croatian market.
This approach involves setting an initial low price to attract customers and gain market share
quickly (Nagle & Holden, 2002). Given Croatia's moderate GDP per capita and the economic
challenges some farmers face, a competitive pricing strategy will make the Derlon 2006 tractor
more accessible (European Commission, 2024; Connell, 2010). By keeping prices lower than
competitors initially, Derlon can entice price-sensitive customers (Porter, 1990).

The pricing strategy should communicate value by highlighting the durability and efficiency of
Derlon tractors compared to cheaper alternatives. As brand recognition grows and market share
increases, prices can be adjusted gradually without alienating existing customers (Nagle &
Holden, 2002).

3. Positioning Strategy

Derlon Limited should position itself as a provider of affordable yet high-quality agricultural
machinery tailored for small and medium-sized farms in Croatia (Kotler & Keller, 2016). The
positioning strategy must emphasize Derlon’s commitment to quality, customer service, and
understanding of local agricultural needs. This can be communicated through targeted messaging
that resonates with Croatian farmers' values of community and sustainability (Aaker, 1996).
Establishing a strong brand image as a reliable partner in agricultural success will help
differentiate Derlon from both local competitors and larger international brands. Engaging in
community initiatives or sponsorships can further enhance brand visibility and credibility
(Bradley, 2002; Solberg & Huse, 2023).

4. Promotional Strategy

Derlon Limited should implement an integrated marketing communication (IMC) strategy that
utilizes multiple channels to convey a consistent message about its products (Kotler & Keller,
2016).

- Promotional Mix Elements:

- Advertising: Utilize local media channels such as agricultural magazines, radio stations, and
online platforms popular among farmers to promote the Derlon 2006 tractor (Nguyen, 2020).

- Sales Promotions: Offer introductory discounts or financing options to encourage trial

purchases among hesitant customers (Nagle & Holden, 2002).

- Public Relations: Engage with local farming communities through events or sponsorships
that demonstrate Derlon’s commitment to supporting agriculture in Croatia (Zahra et al., 2000).

- Direct Marketing: Use targeted email campaigns or direct mail to reach potential customers
with personalized offers based on their farming needs (Bradley, 2002).

- Cultural Sensitivity in Promotion: All promotional materials should be culturally sensitive and
available in Croatian to ensure clear communication with the target audience. Highlighting
testimonials from local farmers who have successfully used Derlon products can also enhance
credibility (Indeed.com, 2024; UX24/7, 2023; Schlegelmilch,2016).
Section E: Conclusion

In conclusion, Derlon Limited's strategic entry into the Croatian market is well-positioned to
capitalize on the growing demand for agricultural machinery. By implementing a product
adaptation strategy, adopting a penetration pricing approach, and establishing a strong market
position focused on quality and customer service, Derlon can effectively meet local needs.
Additionally, an integrated promotional strategy will enhance brand visibility and foster trust
among Croatian farmers. This comprehensive marketing strategy not only addresses the
complexities identified in previous sections but also lays the foundation for sustainable growth
and long-term success in Croatia's evolving agricultural sector.

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