The Expresso Lane to Global Markets
Executive Summary
Every business organization is aimed at expanding and covering a large market base as much as possible. However, the means for covering such large market bases are several, but the problem of choosing which is the best and can bring the best results to the company is the one that needs to be chosen. This is where there is indeed a problem.
In this case study, Expresso is one of the largest coffee firms in Italy. The company whose headquarters has been struggling to find a way to bridge its niche market. From a consultant point of view, a company, Espressamente, is a new brand in the market. According to an analysis of the situation ta hand, it is a challenge to introduce such a new brand into the market. The managing director of Espressamente at Illy has contemplated the place of the company in the global market. The global market consists of stiff competition. Besides, the managing director also contemplated about the company’s future growth opportunities.
Hence, the problem at hand in this company’s new approach is the challenge to know where does the potential for success lies actually. This would enable easy prioritizing markets. Most importantly, there is a lack of strategy to be pursued to push the Espressamente into the global market. This is because of the competition from countries which are good in coffee production. The competition the company faces comes from countries such as China, Brazil, the USA, Germany, the USA, and India. However, Brazil and the United States are the leading coffee production nations. The competitive firms giving the officials of Espressamente sleepless nights are Starbucks, McDonald’s McCafe, Costa Coffee, Lavazza, segafredo as well as the coffee bean and Leaf.
There are several possible solutions that the company can use. The cost-effective ones are Franchising, direct exportation, and joint ventures. When it comes to Franchising, there are various franchising methods that the company has been diversified to use. They include; direct Franchising, area franchising, master franchising, sequential Franchising, and joint ventures. Although a joint venture is a type of Franchising, it is also a unique strategy on its own. Through joint ventures, Espressamente can use another company with an international presence to push its products into the international stage.
The Expresso Company Problem Identification
The main problem as per the case analysis is the challenge of the Espressamente to enter the global market. Besides, the management is concerned about the company’s future growth opportunities. This is because the main opportunity for the company’s future growth is its entrance into the global market. Besides, the strategy to use for the company to enter the market is another problem.
According to the company performance measurement and analysis of even the external sources is that there has been an increase in coffee products demand. The coffee industry has been experiencing massive improvements over the past few years. This is an opportunity that the company wants to grab, but there is a challenge on what kind of strategy they can use. From the year 2010 October to September, the following year, the coffee exports in the world have risen tremendously to 103.1 million 60 kg bags by a margin of 9.4% (Onley, 2020). This is a considerable margin, which shows indeed, the coffee industry is at its peak. The growth of the coffee industry is said to be due to the growth and expansion of the niche markets, which has been mainly witnessed in the traditional consuming countries (Onley, 2020) particularly. Besides, economic research on coffee economic performance shows that there has been an arrival of new consumers in the market, a condition that has contributed to a rise in coffee products demand. However, the global route for companies such as the Espressamente implies that they need to prioritize the markets and analyze the market to see where the is indeed a potential success. Besides, the gap to be filled in based on what kind of strategy needs to be used to push Espressamente to market (Onley, 2020).
The Expresso Lane to Global Market Problem Analysis
Every company has the ambition to grow and become one of the best performers in the global market. With such a state, it is accompanied by various effective strategies. Espressamente company devised a strategic plan between 2010 and 2012. For instance, according to Espressamente, their goals have been to become recognized and identified as the only authentic Italian bar chain that is dealing with superior customer satisfaction to premium transit to coffee prospective customers and even ardent fans (Onley, 2020). The achieve such ambitions, Espressamente initially focused on the premium transit, retail as well as services. It did this instead of focusing on its private dealers and also its consistency development. More than that, the company also focused on luxury retail stores.
The company started to focus on other areas instead of also combining all areas such as its private sector. The competition in the global coffee industry is another challenge that is pushing Espressamente into this corner. Between the years 2010 and 2011, global coffee marketing has been increasing tremendously. The demand for coffee products continues to rise at a very steady rate, which is very beneficial to prospective investors such as Espressamente (Onley, 2020). There has been a growth of niche markets among the various traditional consuming nations. In addition, there has been a rise in the number of new consumers in the market in need of coffee products. Driven by the company’s ambition of becoming the leading global, authentic Italian bar chain, Espressamente wants to use this opportunity to expand its market at the international stage.
The company also wants to become a strong stand-alone brand. However, there is indeed a challenge. There are several factors that are indeed putting the Espressamente company at risk of failing if they lack an effective strategy. Despite the growth in demand for coffee across the globe, there is c challenge of stiff competition in the industry. The competition comes from different nations and mainly from firms. Some such firms and nations are named, and they include India, Germany, the USA, Brazil, among others. The firms include Starbucks, McDonald’s McCafe, Costa Coffee, and Lavazza, Tchibo, among others (Onley, 2020).
Guided by its ambition, the company has contemplated its future in the global stage. The company lacks a global route to market and a way to determine the potential areas for success. The company also in need of a strategy it can use to promote the growth and expansion of Espressamente into the international market. Without such very important consideration, failure at this stage is a guaranteed process. The coffee sales across the world earlier on were impacted by a disposable income as well as the general economic environment.
Nevertheless, Epressamente has seen an opportunity for its products to grow. The origin of this opportunity is the increase in demand for coffee by traditional consumers in traditional nations. According to the article, coffee manufacturers in different coffee reloaded nations have been depending on and continues to do so on a healthy economy as well as a strong consumer expenditure to boost the company sales. However, there has been a new trend where the industry is witnessing a rising consumer among the traditional countries. Most importantly, it has been the rise of the middle class, which has turned into new markets. This has indeed improved the prospects for a successful premium product. Moreover, in some countries, the coffee industry has been characterized by highs saturation, including aggressive competition. Emerging new markets indeed are the ones which have sharpened the way of thinking of Espressamente company.
There is indeed an improved growth and expansion of the coffee industry, which has opened more opportunities for companies such as Espressamente. However, marketing is the main challenge that is facing Espressamente. The company wants to find a strategy it can use to enter into the global market. Besides, there is a challenge of finding a global route to market prioritizing markets. Based on the analysis of the problem at hand, there are several possible solutions to the marketing of Espressamente company.
The main problem for Espressamente is entering the global market. A strategy needs to be device don how the company can enter the market. One of the marketing process I believe they should take is internationalization. This is part of the marketing process of the company, according to its managing director Mr. Reale. This begins by looking at key success factors in each market that would determine the best market selection. The criteria selected by the company were coffee consumption, the concentration of coffee shops, income per capita of the top 10 percent of the market population, rates of urbanization, GDP, ease of doing business rank, most attractive segment as well as coffee sales.
Furthermore, market expansion solutions needed to be expanded. The above were just means of entering into the new global market. There are several expansion strategies that the company needs to use. They include strategies such as direct Franchising, area franchising, master franchising, multi-unit franchising, sequential Franchising, joint venture franchising, and the wholly-owned Franchising. The direct franchising method involves the provision of materials, training as well as other forms of support from the franchisor to a franchisee who pays a fee to license a firm’s trademarks, products, and services (Onley, 2020). Through this method, the parties involved enjoy an advantage on each side. The franchisor gets to expand his products and brands to other markets with protection against falling into risk. The franchisee, on the other hand, gets a proven brand, market exposure, an established client platform, including management and administration expertise (Onley, 2020).
Another expansion strategy, as mentioned, is the area franchising. In this case, it gives the franchisee an opportunity to enter into a deal to come up with a minimum number of outlets within a specified period of time and territory. Master franchising, on its side, gives the franchisees an opportunity to extend sub-franchise rights within a specified geographical region (Onley, 2020). The multi-unit Franchising gives the franchisee an opportunity to run over one unit. The franchise is an integral member of day to day to operations. The sequential Franchising is also useful for Espressamente company entering into the global market expansion strategy. The advantage of this method is its opportunity for the franchisee to operate a single franchise before being given another opportunity to operate the second one, and the process continues (Aliouche & Schlentrich, 2011). Another option which the company can use to expand into the global market is through joint ventures. This occurs when two or more firms combine to share ownership of a third product or service (Velocity Global, 2020). The companies also collaborate in terms of the production or manufacturing of the goods. Besides, the Espressamente company can use an intensive mode of entry, which is the wholly-owned subsidiary. However, this method is only advantageous for big corporations. Considering that Espressamente is not that large company on the international stage, this method might be very risky to the company’s marketing structure.
Franchising is one of the best methods that the company can use to expand in the international markets. Economic statistics research shows that Franchising accounts for USD $ 3000 billion in Europe, USD $ 850 billion in America, and USD $ 130 billion in Australia annually (Onley, 2020). This clearly depicts the reason as to why it has been becoming a prominent model of international market expansion. The profitability of Espressamente is also a factor to consider. International markets are very challenging. Hence, there is also a need to create a profitability target or the revenue target which the company wants to achieve within a certain time period in a specific geographical territory. The revenue target should be achievable.
The franchising model is the best model and strategy Espressamente can use to enter new markets. This is because of the various advantages the model offers. Based on research and evidence from companies such as Domino’s Pizzo, IHOP, and Dine Equity, the franchising model provides streamlines the process for organizations to expand into the international market efficiently (Grossmann, 2018). With such a strategy in hand, the franchisor is in an opportunity to work together with local operators who are fully aware of the market cultures and consumer behaviors of the new markets the prospective company wants to enter (Gillis & Castrogiovanni, 2012). With such collaboration, Espressamente has a good opportunity to expand into new markets using the local operators.
Recommendations
From the analysis of the problem and definition of the strategy, there are several possible solutions to Espressamente’s ambition of entering into new markets and promoting its international market expansion. However, as an economic consultant, there are several more possible solutions to the company situation. The possible solutions include both an entry mode into a new market as well as expansion strategies. As a company, you enter into a new market but find it difficult to expand. Consider that you are entering into a new environment with new consumers with different consumer behaviors from the ones you know.
From the analysis of the Espressamente, the main method the company seems to rely more on is Franchising. However, there are other methods, such as direct and indirect exportation of its products into international new markets. Direct exportation is the main method that also companies rely on. This method will imply that Espressamente company, a member of Illy, will have to export its products to its target country and sell them directly to consumers (Wrona & Trąpczyński, 2012). In this case, Espressamente will have to rely on its agents and distributors. They will act as the stores and branches between the two parties.
Likewise, Espressamente can also use the partnering up method. Entering into the new market, especially at the international stage, is not quite an easy job. For the case of Espressamente, as an economic consultant, I would advise the marketing company to mainly partner up with another company. This will allow the new partners to assist in marketing the company’s products while at the same time they will have to allow for a cut of profits (How to enter a foreign market, 2020). However, you have also been careful of the type of partners you are joining hands with. With time Espressamente will be able to understand the new market and even decide on whether to now stand on its own.
In addition to that, Espressamente can also buy a new company in another country and introduce your product using your new company. Buying a company is not an easy thing. Mainly it is possible for large companies. But this does not imply that it is impossible. For me, as an economic analyst, the best method for Espressamente is to buy a new company, especially a small manageable company, introduce its new product in this new company and push it through the market. The use of piggybacking methods to enter into a new market was not highly considered by Espressamente. However, for this method to be successful, Espressamente needs to be already in the process of selling its new coffee to other domestic companies. The companies should be mainly the ones that have an international presence since expanding into the international market is the main goal of Espressamente. Using the piggybacking method is like trying to see how the international market perceives your products (Velocity Global, 2020). Licensing is another method of entering the market. Although it is similar to piggybacking and Franchising, in this case, Espressamente can talk directly to another firm and request it to temporarily own the firm. Countries at the international stage are also very different. Hence, it is best if Espressamente can consider using a different method for different companies.
On the other hand, there is the issue of international market expansion. After conquering the market entry challenges, Espressamente has to deal with the challenge of market expansion. International market expansion requires a lot of effort, dedication, and sacrifice. Some of the strategies for market expansion have already been discussed. Although they are Perceived as market entry strategies, they still can help significantly in the process of international market expansion. One f such methods is the partnering up method. When Espressamente partners with a new firm and one which has an international presence, this is a good opportunity for the Espressamente to use this new partner in pushing it news coffee products at the international stage.
Besides, another method that Espressamente can use is the aspect of revenue gain, reinvest, and repeating the process. This strategy can be applied in collaboration with other strategies. You cannot invest using this project without a strategy where it can be done. For instance, when it comes to direct exportation, the Espressamente should reinvest the money it has gained from its exports against to cover a new export challenge such as increased demand for its coffee in other countries. As time goes and through continuous use of this process, the international presence of the company usually starts to rise. This implies that you need to repeat this wheel time in time out.
Nevertheless, Espressamente is a new firm on the international stage. Proper planning is very important at this stage. It is recommended in many cases to divide your international market target into segments. Then you take your time to analyze the different markets. Never make the mistake of entering into all the international market targets at once. Hence, Espressamente needs to ensure that it focuses on one at a time.
Despite the various available methods, Franchising, joint ventures, direct exportation seems to be the most considered methods of market entry and expansion by Espressamente. All these methods have their advantages and disadvantages. For me, as a consultant, Espressamente should use all these three methods but each in the different target markets. Franchising has various benefits. One of the benefits is that it will enable Espressamente to avoid the challenge of having to deal with the different market cultures of your target international market territory. Such cultures include the difference in language, culture, currency, supply chains, among others. Besides, this method is very cost-effective and efficient than other expansion models like corporate chain outlets. The international marketing structure outlined in the franchising model provides a streamlined process where Espressamente company can enter into new efficiently. Direct exportation, on the other hand, will enable the company to have full control of the entry and expansion of its products into new foreign markets. Besides, it will enable Espressamente to establish its own supply chain using the locals in the new market territory.
Timeline is a very aspect of every plan. Especially when it comes to marketing, a timeline enables you to know the time range within which you expect to meet your targets. For direct exportation, it is a process that has no time range within which it should be done. As long exportation has begun, it can continue for a long until when the company decides when to use another market expansion strategy. Franchising for me, it would be commendable if it can be done for a period of two to three years. This is enough time for Espressamente company to study their new environment and find a way of operating as a single entity. This is also similar to international market territories where Espressamente company will use the joint ventures approach.
Case reflection
From this case analysis, it is clear that there are various strategies we can use to expand our business or brands to the international market. Many times I have been wondering how certain new products from other countries find their ways into our local marketing. However, from the overview of this paper, I have realized some of the strategies we can indeed deploy as a future corporate.
Most importantly, direct exportation of products has never appeared to me as a way of entering into new foreign markets and furthermore, a method of international market expansion. This has indeed has triggered me to an extent I can be able to think outside the box on how to approach a marketing problem. From this analysis, I have realized that indeed you can directly export your products into new markets, and through reinvestment of the revenue you gain from the business; you tend to expand with time in the foreign market.
There are several concepts we have learned in class that has indeed been utilized in the case of Espressamente company market entry and foreign market expansion. Such concepts include the franchising market expansion model, the use of direct exportation, joint ventures, partnering up, licensing methods, among others. These strategies, as learned in class, are effective when it comes to market entry as well as market expansion. They are tied to this case through its various applications, for instance, Espressamente company can export its product directly into foreign markets and hence find its ways through such a market in such a manner. Besides, the company can also join with other companies with international presence and hence enables them to push their new coffee products into the international stage.
There are similar findings from the current events. There are various firms that have used franchising market expansion model. Starbucks is one of the largest Coffee firms which has successfully used the franchise method. This is the main reason as to why it currently stands where it is today. Dunki Donats, Maui Wowi, Biggby Coffee, among others, are some of the small firms using Franchising market expansion models as per the year 2020. They indeed are a force to reckon in the market.
References
Aliouche, E. H., & Schlentrich, U. A. (2011). Towards a strategic model of global franchise expansion. Journal of Retailing, 87(3), 345-365.
Gillis, W., & Castrogiovanni, G. J. (2012). The franchising business model: an entrepreneurial growth alternative. International Entrepreneurship and Management Journal, 8(1), 75-98.
Grossmann, R. (2018). Could Franchising Help Take Your Business International? Retrieved 20 April 2020, from https://www.entrepreneur.com/article/323686
How to enter a foreign market | Workspace? (2020). Retrieved 20 April 2020, from https://www.workspace.co.uk/community/homework/growth-and-strategy/how-to-enter-a-foreign-market
Onley, J. (2020). The Espresso Lane to Global Markets. IVEY publishers.
Velocity Global, Top 5 Global Expansion Strategies. (2020). Retrieved 20 April 2020, from https://velocityglobal.com/blog/top-5-global-expansion-strategies/
Wrona, T., & Trąpczyński, P. (2012). Re-explaining international entry modes–interaction and moderating effects on entry modes of pharmaceutical companies into transition economies. European Management Journal, 30(4), 295-315.