Executive SummaryPremium Swiss brandis renowned for its hand- crafted products. As the biggest competitor, Lindt and Sprungli are similar in terms of origin, product lines and philosophy. Despite similarities, Vollenweider’s products are traditionally handcrafted and there is a more diverse range. Australia is desirable as the first destination for overseas expansion due to the host country’s low political risk. Australia is ranked 7th in the world for biggest chocolate consumer country and there has been an increase in demand for premium or healthy products. Australian consumers have a stable purchasing power and there is overall increase in disposable personal income, suggesting that consumers have more income to spend whilst removing currency differences. Overall, Switzerland and Australia are quite similar in Hofstede cultural dimension scores, except for long- term orientation which may require Vollenweider to set short- term goals for Australia. With Vollenweider’s creativity and innovation, the company can develop flavours that reflect Australian culture. A franchise strategy reduces the cost of investment whilst retaining control. However, there is the risk of franchisees turning into competitors as well as damage to brand name if franchisees do not meet standards. In order to combat these risks, the business can use a home country expatriates, train staff at Switzerland Headquarters and detail non- competition clauses in franchise contracts.
IntroductionThe choice of an appropriate country and international strategy is vital for a company’s expansion into the overseas market. With a deep history of 75 years in traditional chocolate making, Vollenweider chocolate is well- known amongst local citizens and tourists. However, the company is seeking to expand overseas into the Australian market with a franchising strategy and gain strong international success. Before expanding into Australia, it is essential for the business to analyse the situation through evaluation of the current organisation, competitors, the potential country and market, the customers, management, and the strategy to be used.
A. Business AnalysisSwiss brand Vollenweider chocolate is one of the most traditional brands amongst premium hand crafted chocolates within the country. With a strong passion for creativity and innovation, the company distinguishes itself from competitors with the creation of high quality products for its customers. The company manages a total of 5 business operations located in the Canton of Zurich, in which 4 are positioned in Winterthur and 1 in Zurich. This includes a retail store in Zurich and Winterthur, a factory in Winterthur, a café in Winterthur and a combined retail and café also in Winterthur (Vollenweirder 2018). Currently, Vollenweider’s product range are set at a premium price, comprising of cakes, chocolates, macaroons, ice cream, and pastries. As the business's products are quite similar to Lindt and Sprungli, it is feasible for the company to also expand into the international sphere, as demonstrated by the success of its competitor. Given the saturation of the Swiss chocolate market, the company is experiencing limited domestic growth (Kyläheiko et al. 2011). Hence, it is essential for Vollenweider to grow through the penetration of the overseas market (Kyläheiko et al. 2011) to gain capabilities economies of scale (Assaf et al. 2012).
B. Competitor AnalysisLindt and Sprungli is the biggest competitor for Vollenweider in terms of origin, product lines and philosophy. Like Vollenweider, the competitor also originates from Switzerland; however, the latter is based in Zurich (Lindt & Sprungli 2018). The competitor’s product lines are positioned in the premium price range and consists majorly of perishable chocolate (Linemayr 2011). However, the brand also sells cakes and desserts in its worldwide cafés. Furthermore, the company is focused on creativity and innovation, as evident in the development of original products, such as the Lindt Creation range (Lindt & Sprungli 2018). Lindt and Sprungli currently own 8 brands, with more than 410 stores operating globally (Lindt & Sprungli 2018). Subsidiary brand Lindt is most well- known and is voted “the most familiar and favourable chocolate brand among consumers” (Ramli 2017), denoting the brand’s global outreach and popularity. Notwithstanding the similarities, Vollenweider utilises a more diverse range of chocolate- related products and holds a competitive advantage in nature of its products. This is essential for Vollenweider to compete in the international market as the company is generating meaningful differentiation with the value created for the buyer (Porter 2011).
C. Country and Market AnalysisAustralia was chosen for Vollenweider’s international expansion due to the country’s low country risk and large demand for chocolate, particularly those in the premium range. The traditional chocolate market that encompasses mass- produced products such as confectionary sold in supermarkets, has been deteriorating over the last few years (Ibis World 2018). This is due to consumers being more health conscious which subsequently increased demand for products positioned as premium or healthy alternatives (Euro Monitor 2017). The dominants of the Australian chocolate market are Mondelez, Mars Inc, Nestle and Lindt and Sprungli (Tech Research 2018). Mondelez Australia’s Cadbury is the leader with 37% of the confectionary market but is suffering slow decline due to the increase in demand for premium chocolate (Euro Monitor 2017). On the other hand, premium brands Lindt and Sprungli and Darrell Lea currently hold 5% each and are growing at a steady pace (Euro Monitor 2017). As seen in figure 1, Australia is ranked 7th in the world for biggest chocolate consumer country, with an average of approximately 10.8lbs (4.9kg) chocolate consumed per capita (McCarthy 2015). With the premium sector supporting the chocolate industry’s growth by approximately 0.7% each year, this is a market with great potential for Vollenweider’s international expansion (Ibis World 2018). Figure 1 (McCarthy 2015) Australia currently scores 87 in the Political Risk Index, denoting the low country risk of operating within the country (PRS Group 2018). This measure is important in evaluating the potential success of international expansion for the company (Jiménez 2010). Regarding Government regulation in Australia, Vollenweider would need to register with ASIC (Australian Securities and Investments Commission) in order to operate due to the company’s status as a foreign company (ASIC 2018). Additionally, similar to the VAT (Value Added Tax) system used in Switzerland, Australia uses a GST (Goods and Services Tax) system, which may impact the cost of operations within the country (Avalara 2018).
D. Customer and Management AnalysisThe Australian market is attractive for Vollenweider due to the stable purchasing power parity of the country and overall increase in disposable personal income for consumers. As shown in figure 2, the purchasing power parity (PPP) of Australia has been stable over the last 10 years. Yet in figure 3, the disposable personal consumers have been progressively increasing. These measures combined indicate Australian consumers having more income to spend whilst removing currency differences (Deaton, Heston 2010). Figure 2 (OECD Data 2018) Figure 3 (Trading Economics 2018) A significant concern for a company expanding overseas is the cultural implications it may bring, especially managerial differences between the host country and the home country. Culture sensitivity is important when operating abroad as it can assist the resolving of conflicts (Ferraro, Briody 2013) and these differences can be analysed using Hofstede’s culture dimensions in figure 4. Figure 4 (Hofstede Insights 2018) Overall, Switzerland and Australia are quite similar in cultural dimensions, except for long- term orientation. The low power distance in both countries suggests that flatter structures are beneficial for efficient communication within the company. Furthermore, Vollenweider may maintain the home country’s management structure in the host country due to similarities in working styles. While both countries are individualistic and masculine, Australia’s high individualism indicates a need for employee autonomy in the workplace, as well as an established reward structure. Teamwork settings used in Switzerland may not be as effective in Australia and may require adjustments. Within Vollenweirder’s product range, there are products that are large in quantity, such as the 36 piece macaroon set or the 51 piece praline and truffle box (Vollenweirder 2018). These products may not be purchased frequently by Australian consumers, given the largely individualist nature; hence concerns for large box sizes would need consideration in the future. Australia’s intermediate uncertainty avoidance combined with low long- term orientation suggests the company may experience high sales at the beginning. Customers are willing to try the product but time is needed before Vollenweider is able to establish market share. Management in Switzerland may set long term goals but these goals may inhibit Australian management from performing effectively; it would be more beneficial to set short term goals instead. Additionally, both cultures exhibit a high indulgence culture, demonstrating product viability in both markets. Consumers are willing to spend money on luxury products as a means of enjoying life. It would also be useful for the company to emphasise employee benefits such as flexible working hours, to attract personnel during the recruitment process.
E. Strategy AnalysisFranchising is the best international strategy for Vollenweider based on the capabilities of the firm and evaluation of the Australian market. As seen in figure 5, the company is a follower internationaliser due to the small company size and domestic market. This indicates the company following larger competitor Lindt and Sprunglii who has already paved the way for Swiss chocolate brands entering foreign markets (Peng 2017). Figure 5 (Peng 2017) Franchising is a suitable strategy for Vollenweider as it does not require as large of an investment as a wholly owned subsidiary whilst maintaining control over business operations (Twarowska, Kąkol 2013). An important feature of the company’s competitive advantage is the traditional craftsmanship of its products. Franchising allows the franchisor to transfer knowledge, train and provide the materials in order to maintain consistency in quality and standards of the company, regardless of location (Cavusgil et al. 2014). Vollenweider can use this entry mode for retail stores and cafes in the early stages but later progress to use wholly owned subsidiaries (Twarowska, Kąkol 2013). This will avoid the risk of failed operations after the company has successfully established itself. Despite the low costs and high control associated with franchising, there are disadvantages. A major disadvantage is the risk of franchisees turning into a competitor in the future (Twarowska, Kąkol 2013). This is a large cost for the company due to the resources invested, as well as the cost of losing customers in the future. Another disadvantage is the damage to company brand name if franchisees do not meet expectations and standards (Cavusgil et al. 2014). This creates a risk for the business regarding brand image and reputation, as well as customer loyalty if customers receive an unsatisfactory experience. As part of Vollenweider’s international strategy, it is crucial to understand the local tastes and preferences of the Australian market to maximise success. As per Vollenweider’s creative and innovative philosophy, the company can develop flavours to reflect Australian culture.
RecommendationsBased on the analysis of Vollenweider, it is vital to maintain the quality of its products as part of its competitive advantage to ensure greater success for internationalization.
A. Set up business operations with Home Country ExpatriateIt is recommended to set up business operations in Australia with an employee from Switzerland who is familiar with Australia or operating in foreign environments. Having an employee with understanding of the company is beneficial for the company as it minimizes the risk of recruiting an inappropriate franchisee (Fang et al.2010).
B. Training at Switzerland HeadquartersUpon establishing business operations, it is recommended to invite managing staff and chocolatiers from the Australian master franchisee to train at Switzerland headquarters. This allows Australian employees to better understand the values and vision of the business (Carraher, Sullivan, Crocitto 2008), as well as develop a sense of belonging. Additionally, the training can better transfer the tacit knowledge of chocolate making to ensure the maintenance of product quality (Chang, Gong, Peng 2012).
C. Detailing non- competition clauses in franchise contractA risk identified earlier was the risk of franchisees turning into a competitor in the future. In order to prevent this risk from occurring, it is recommended to include detailed non- competition clauses to protect the brand against franchisees misusing the skills and knowledge learnt from the company (Klarfeld, VanderBroek 2011).
ConclusionIn conclusion, franchising is appropriate for Vollenweider’s international expansion into Australia. The business’s handcrafted chocolate products will be viable for Australia who is currently experiencing an increase in demand for premium chocolates. Furthermore, the country’s large chocolate consumption and similar cultural dimensions to Switzerland reduces the uncertainty of penetrating this market. With great international success, Lindt and Sprungli is the main competitor of Vollenweider due to similarity in products. The use of a franchising strategy can reduce the cost of overseas investment whilst maintaining control of operations and recommendations have been made to ensure the quality of Vollenweider’s products.
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