Analysis of Italy as a target for business expansion

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INTRODUCTION

  1. Aim/purpose
  2. This report was developed with the main aim of conducting an analysis to determine whether Italy is a prospect for Hudsons Coffee.

  3. Authorization
  4. It was a report developed through the request of the Senior Marketing Manager at Hudsons Coffee.

  5. Scope
  6. The report starts with the general overview of Hudsons Coffee. Statistical analysis of different markets in Europe will be conducted and presentation will be in form of a spreadsheet. This will be serving the purpose of comparing all the chosen countries in the region so that the best prospect can be determined. The home market will be analyzed. Later in the report the overseas market (Italy) will be analyzed in terms of political, environmental, social, technological and competitive environment variables. Services available in Italy will also be highlighted.

  7. Sources/methodology
  8. This is a report that was compiled through primary and secondary research.

Report Body

  1. Overview of Main Parameters
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    Hudsons Coffee is under the ownership of Emirates Leisure Retail property limited (Australia) which is a subsidiary of Emirates Group. This company stemmed from an Australian market that had for a long time been unfulfilled (Taylor, 2008). When it came into operation, it started providing high quality coffee. Its services have been superior so far in several locations which are very convenient. Its first store was opened in the year 1998. This was in Melbourne, Victoria. Many franchise businesses have been opened in many locations especially in hospitals, airports, CBDs and other regional areas. This has steered continued growth increasing the company's profile despite the competitive coffee market in Australia. It's estimated that in Australia, the consumption of coffee Per Capita is 2.4 kilos. Coffee market in total is now at A$1 billion. This incorporates increasing local coffee production. The retail sector sells instant coffee amounting to $425m out of the total $510 while the remainder is spent on ground and roast coffee. Reports have it that Australia is the leading consumer of instant coffee. Approximately 90% of coffee is drunk at instant in Australian homes.

    Hudsons Coffee was started in 1998. It mostly operates in the local market. It has a firm franchise platform and most of the lucrative locations that have assisted to have continued growth are those in airports, hospitals, CBDs and regional areas. Several stores have been established which include ACT, New South Wales, South Australia, Western Australia, Victoria, Tasmania and

    Queensland. Through its franchising platform, this company today has over 50 stores nationally. It has a menu that offers several delicious drinks like cold drinks, hot chocolate drinks, hot coffee drinks and hot tea drinks. Its sales in the recent years have been amounting to more than $3 billion annually since 2005. The company has got excellent skills of handling customers. They believe in creating customer loyalty as most of their franchisees have experience in client liaison, customers' service, training and development. Their major emphasis is on their customers who they take as their strongest asset. In all their stores, customers receive the same quality of service (Hudsons Coffee, 2005). One of the important resources that they have is the recent installation of an interactive terminal. Customers of Hudsons can now register and pay for goods using a card reader (touchscreen ordering). This is helping them to avoid queues. What has been developed of late is the online shop so that their customers can purchase products wherever they are. Web resources are being utilized so much by Hudsons Coffee. The company applies high quality standards in everything it does. Its focus on increasing the market share by using its firm franchise platform coupled by the above skills and resources will allow it to penetrate the Italian market.

    Hudsons' coffee is freshly roasted to the prime quality requirement. Purest coffee beans are gathered and extensive consumer research together with taste tastings. Tremendous training is done because the finished product is made of a mixture of coffee beans using the skill of Barista.

    The countries in consideration are only those in Europe. This report will however focus its analysis on the Italian market.

    Secondary research will be the main method of data collection. This will involve use of already existing data in the internet, statistical tables' publications from the UN and online books. For primary research data, surveys will be conducted in the Italian market so that we can establish that data which is not recorded and may be important for concluding our research.

  3. Statistical Information
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    Italians consume up to a total of 14 billion espresso coffee annually. Per capita, they consume 3.7 kilos of coffee. Over 270,364 work as Baristas while 57% of them have over 10 years experience. In a day, a bar can sell an average of 230.3 cups. Of these, 59% are sold as espressos, 12.3% as correttos, 4.5% as decaiffenatd coffee and 9.9% as machiattos. Average price of coffee is $8.22 for a kilogram. In the year 1980, the highest coffee imports in Italy were from Brazil (30.41% of all imports) (Mayer, 2006).

    The shift share analysis involves evaluation of a country's imports increase/decrease of a given product. This is done in relation to either decrease on increase in the product. Identifying the SITC code for the product is the first stage. This is usually a 3 digit code and is obtained from http://dataweb.usitc.gov. The second stage involves checking a given group of countries from a region of your own. The import figures for two years that have well documented data are recorded. The last stage will require you to apply the import data figures into a spreadsheet so that you can determine the best country prospect. The country with the highest figure of percentage net shift gives the best option (Hewings, 1977).

    My analysis shows that Italy gives the reasonable figures out of the nine selected European countries. The total percentage net shift is 5.708% compared to the closest country, Belgium with 2.883%. Actual change for Italy is US$653.100. I decided to take Italy as it appears the best prospect for Hudsons Coffee (United Nations, 2009).

  5. Sources of Advice on Likelihood of Success
  6. Walter Import Export Agency is one of the import export agency in New South Wales, Australia that can be consulted by Hudsons Coffee. It offers business services, trading consulting and marketing and advertising. Several commercial banks which can provide investment tips and exchange rates information and effects in different countries include Australia and commonwealth Bank of Australia, National Australia Bank, New Zealand Banking Group and Westpac Banking Corporation. Austrade will assist investing in the local and international market. They provide vital directions on establishment of overseas offices joint ventures and subsidiaries. Major services which Hudsons Coffee can benefit from in Austrade are advices on preparation of exports; this includes country and industry information (Nolan, 1996). This is going to assist Hudsons to know the Italian market in advance before they embark on their overseas trading. Several seminars and informative events are also arranged by Austrade and they are also of great importance. Austrade conducts assessment on exports capability providing the relevant advice on such exports which is tailored to individual business needs. The kinds of information on exports that is provided include logistics, export planning, payments, budgets and marketing strategies. Since Hudsons is considering entering the overseas markets, the major prospect being Italy, Austrade can assist them to select other potential markets and the most competitive marketing strategies.

  7. Environmental Analysis
  8. Political and legal environment

    In Italy, formation of a joint venture requires the members interested to demonstrate how their venture will meet the S.O.A certification requirement. Each member should have a list of responsibilities he is to play in the venture. They must adhere to the joint venture agreement and be furnished with an Italian Mandato (notarized legal document). This is the document that will establish the venture. Hudsons also need to have the information is included in the joint venture agreement. This information include; name of firms wishing to form the venture, name of the venture, names and titles of the officials, structure and composition of the venture, responsibilities description and category of responsibilities for each partner and the date the agreement was issued. Several restrictions are there in Italy. Certain classes of merchandise may face restrictions so that the economy can be protected together with the security of the country itself. This is done to safeguard consumer health. Due to bilateral trade agreements some commodities may face an import quota. Italian Customs Department is the one that enforces most of the laws and regulations on imports that are usually administered by Italian Government agencies. There is an important message to Hudsons Coffee from the regulations in Italy. Since the company is selling coffee, any time they are selling beverages they should know that Italy prohibits the importation of food products which contain milk or meat. This can only be imported if it's accompanied by the relevant documentation. The market generally appears to be stable. Corruption has been reported in major businesses and the government where even the Prime Minister Silvio Berlusconi is alleged to be involved in bribery. Business politicians in Italy are not left behind. Most of the businessmen who were in politics have further reinvested in politics with this same wealth they acquired through corrupt ways.

    Economic Environment

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    Italy is the world's sixth largest economy. It has rapidly expanded spanning from the early 1950s. The structure of this economy has drastically changed. Italy has been a leader in the European industrial design and fashion for the last few decades. In year 2001, services in this economy were approximately amounting to 68%. There are however challenges in the growth of this economy due to limited natural resources, poor landholdings (also small), minimal industrial enterprises and growth in industry has not fully been transformed into prosperity. Italy is a wealthy country but suffers seriously through inequalities in wealth distribution. Class system is assessed using six categories. Bourgeoisie has entrepreneurs who employ a minimum of six people, managers, self-employed (this accounts for only 10% of the Italian population). Middle class covers those in white collar jobs, or those in non- manual jobs making 17 % of the population. Urban petit bourgeoisie has 14% share of the working population (small entrepreneurs). We have the rural bourgeoisies with 10% who are in the agricultural primary sectors. Urban working class makes 37 % in manual labor. The last group in this class structure is the rural working class employed in the primary sector with 95% share of the population. This structure has been in application since the 1980s and can help the Hudsons coffee to know who to target in this market depending on their locations and occupations. The Australian dollar has been performing poorly against the Euro and also the Italian Lire.

    Socio-cultural Environment

    Hudsons Coffee should know that Italians have a sophisticated understanding of the espresso. They have high standards and proper methods of brewing. In this society, children are introduced into coffee at a very early age. Well prepared coffee is taken as a natural part of every Italian's life. This culture has enjoyed traditions and it's only of late that buying habits have been influenced by other nations. Italians are known to stick to traditions and products they know. Most Italian families will mix their home and social life with drink and food. Culinary arts are a daily practice. Dining out is done only on special occasions (Blinkhorn, 1984). First consideration in dining out is the quality of the dining experience, price is placed second. Italians traditional values are mostly driven by life quality. Most of the citizens here will do without considerations but later spend their money on those things that are not consistent with their standards. There is preference of Americanized products. Consumers in Italian market are very sensitive to adverts and they take them cautiously. Several regulations have also been established by the authorities with the aim of protecting their citizens from unfair product promotions.

    Technological Environment

    The technology used by Hudsons Coffee will suit this market as the quality of their finished products is great. Espresso is a product that is favored and Hudsons should make efforts to coin the similarity of their quality to this. Italians like Americanized products (Symons, 2007). The use of Baristas in their franchises will enable them to be competitive enough in this market as they are experienced. Few descriptions on the product will do them a favor. Italians favor radio advertising.

    Competitive Environment

    This is a very extensive coffee market. There are almost 600 small roasting firms, 150 are middle-sized roasters. There are about 9 companies that can distribute the coffee products nationally. Few examples include Illy, Costa and Sangredo. Of all these companies, they dream of one day placing their products on those executive bars. Several companies have been very successful in this market.

    Method of Entry

    The best method for Hudsons Coffee to enter into the Italian market will be through joint ventures. The research conducted by my team has found that there are so many established companies in Italy and they are selling coffee in large volumes. It therefore means that for them to be established in this market and make sales, its going to take them time as these companies are already known. Hudsons Coffee needs to form a joint venture with the already established companies so that it can introduce itself and the brands in Italian market. By forming a joint venture, they will cut down on some costs that they may accrue if they decided to use direct export entry method. Because of culture differences, Hudsons Coffee needs a company that already understands what consumers favor in a product. It's from here that they can later enter the market as a separate entity after gaining enough experience and information concerning the Italian market.

    Support Services Available

    Global index provider FTSE is one of the companies that can be used to provide services to the Hudsons Coffee. This group has been helping international and domestic investors in Italy with new opportunities to track, invest and analyze the equity market. Others include Food Marketing Support Services, DWA advertising agency, marketing agencies like Emilia-Romagna, Abruzzo, Calabria and Friuli-Venezia among others (Butler, 2009). Costa coffee franchisees and Illy are a good example that can form a joint venture with Hudsons Coffee.

Conclusion

Shift-share analysis can be applied by companies which want to increase their market share through going overseas. Comparison of imports for several countries in a given region allows the company in question to determine the best prospect out of the chosen group. Since Hudsons Coffee has Baristas who have a lot of experience on how to make quality coffee products, its easy for the company to enter into the Italian market with its products through a joint venture and get maximum benefits. There are so many coffee selling companies in Italy. This competition may make a direct entry strategy into Italian market difficult. The manner in which the Italian social class is structured in terms of defined occupations can allow Hudsons Coffee to easily segment its market based on the different classes. The tastes and preferences of each class level will be easily addressed.

Recommendations

Hudsons Coffee was established in Melbourne in 1998. Before they embark on the long journey to establish themselves in other countries, this research report recommends that extensive research is required before they do so. Different countries of the world have got different and even conflicting values, cultures and regulations. Failure to conduct prior research may result in total losses because there is no guarantee that Italy will provide a good base for its coffee products.

Sometimes as a business that wants to succeed you are required to look at the strengths and the weaknesses of those you are competing with. My report recommends that before Italian market is explored, the weaknesses and the strengths of the major coffee industry players need to be at the finger tips of the top management.

References

Blinkhorn, M (1984). Mussolini and fascist Italy. Victoria: Taylor & Francis.

Butler, M (2009). Email Marketing - A Guide To The Internet's Most Effective Marketing Tool. New York: The Butler Publishing Group.

Hewings, G (1977). Regional Industrial analysis and development. London: Taylor & Francis.

Hudsons Coffee (2007). Welcome to Hudsons Coffee. Retrieved from http://www.hudsonscoffee.com.au/Home/tabid/263/Default.aspx

Mayer, N & Klandermans, B (2006). Extreme right activists in Europe: through the magnifying glass. London: Routledge.

Mooij, M (2005). Global marketing and advertising: understanding cultural paradoxes. New York: SAGE.

Nolan, J (1996). Australia business: the portable encyclopedia for doing business with Australia. New York: World Trade Press.

Symons, M (2007). One continuous picnic: a gastronomic history of Australia. Victoria: Melbourne Univ. Publishing.

Taylor, B (2008). Frommer's Seattle Day by Day. New York: Frommer's.

United Nations (2009). United Nations Statistics Division. U.N. ComTrade. Retrieved from http://unstats.un.org/unsd/default.htm