Costa Coffee Enters France - Essay Example

Introduction Whitbread is now considering expansion of its Costa Coffee brand in France; the company has been relatively successful in its primary market, but may have to consider a different approach when doing business in France. Costa Coffee’s success is predominantly in a country that did not have a cafe culture to begin with; Italy and France are better known for their strong sophisticated tastes for the beverage. In fact, Whitbread borrowed the cafe concept from capitals like Paris and Vienna, so it makes senses for the organisation to leverage on local expertise in the target market in order to increase its factors of success. Coffee culture in France Coffee culture in France is rather old; even prominent historical writers have been known to mention a cafe or two in their accurate descriptions of the French revolution. Therefore, coffee businesses are ubiquitous in France; one can find a coffee shop in almost every street corner in the nation’s capital. Most of them are high-end, chic cafes, with lots of decorated interior designs and room for interaction with one’s acquaintances. These types of shops can mostly be found in places like Saint Germaine as well as the Left Bank, which also has a high concentration of elegant coffee shops (“The Cafe Culture in France”). Typically, a French cafe will have both indoor and outdoor sitting with plenty of wooden interior designs and an intimate atmosphere all around. Cakes, pastries or sandwiches may be available but most consumers go into these shops for the coffee; espresso in small cups is their preferred choice while others may choose different versions of the espresso and cream. Most French waiters in these cafes seem ambivalent about meeting consumer needs and may even appear arrogant to foreign nations. Smoking used to be a distinct aspect of coffee culture in France but after its ban, most patrons prefer to smoke in the outdoor section of the cafes. Overall, the ambiance of cafes makes coffee cultures predominantly unique in France; people think of coffee drinking as a ritual to be enjoyed. Waiters care little about turnover rates, so patrons have the freedom to sit in as long as they like while catching up with friends (“The Cafe Culture in France”). The cafe is a social meeting place and reflects the unhurried nature of French culture in comparison to other western societies. Regardless, international coffee franchises like Starbucks have already entered the country, so this deep-rooted coffee culture should not intimidate Costa Coffee in any way. It just has to work with what already exists in the target market and do away with the aspects that have proven uncompetitive in the past. Factors to consider before selecting the market entry strategy First, Whitbread has already stated that it is considering direct involvement of the organisation in France because this is a large market that must be handled carefully. Therefore, some indirect methods like exporting, contracts, licensing or franchising are inapplicable to the organisation. Prior to determination of the final decision, the company needs to be aware of factors that other international businesses have considered before selection of an entry strategy in new markets. First, the level of risk associated with a certain entry strategy must be kept in mind as some degree of loss of control or knowledge of the target country may affect risk outcomes. Whitbread may bear all the risks associated with external expansion if it chooses to fully own its French subsidiary since the capital and management would be under the organisation. However, the ability to control all the above resources would be beneficial to the company as it could recover and keep all returns on investment. In addition, because Costa Coffee has been doing well in the UK, the company would still have the ability to maintain similar marketing decisions in the new market. It could leverage on the advantages or lessons it learnt in its older international markets to make things work in France. However, since Whitbread is in the hospitality industry, it may need to consider certain factors before it can fully settle on the above option. First, a substantial degree of planning, investigation, fact-finding and interpretation may need to be done, which could come at considerable losses in the market (Chen & Mujtaba 322). Additionally, full ownership of the subsidiaries would imply that the company already has superior knowledge of the coffee-drinking culture, but as stated earlier, France is one of the coffee capitals of the world. It would be reckless for Whitbread to assume that it has nothing to learn from the local culture as reverends already have certain expectations about their coffee. In the coffee business, the difference between successful an unsuccessful organisations has often been knowledge and mastery of local cultures. Furthermore, Costa Coffee may not have the same credibility that local cafes like Les Deux Magots and Le Cafeotheque have among residents in the target market. Cost challenges should also be taken into consideration when selecting full ownership as the preferred mode of entry into France. The organisation would have to incur all the costs associated with setting up in the market; this is particularly hefty for a player in the service industry. Investment in real estate is a real problem as the company would either have to commit to huge rent payments or make do with unfavourable lease payments, as foreign players may not know cost-saving measures (Florin & Ogbuehi 92). The other alternative for the company would be the use of joint ventures as a method of entry into France, and this involves shared ownership, control and operation of a business venture among two or more parties. In order to determine whether this would be the best method of entry, the company must consider its financial strength; the joint venture can be a unique way of leveraging on assets among local and foreign partners. Although the organisation appears to be financially sound owing to a 16.5% increase in profit, a lot can be gained from saving up on accruing expenses as these could overwhelm the company in the long run. Another critical factor that the company should consider before choosing this method of entry is the relevance of local in-depth knowledge on service provision. If local culture is paramount to success, then a joint venture could be the best option especially in terms of the actual business approach for the company. Clearly, this is the case for Costa Coffee, which cannot ignore the complex way in which people drink their coffee within this target market. It is relatively easier to penetrate the market when the company selects a firm that already has knowledge of the dynamics in this country. Involvement of Whitbread directly in management of the business could also show commitment among patrons and this may increase their response to them. Overall, this strategy is less risky because it will allow the company to piggyback on a local stakeholder’s assets, capital, marketing strategies, operations and expertise. A few factors may prevent the company from choosing this option, and they may include the lack of full control over operations in comparison to the former alternative. Additionally, the partners would have to share rewards, but if Costa Coffee picks the right partner, then it need not worry about sharing returns because outcomes would depend on equal input as well. Furthermore, expectations on future expansions of expected benefits may differ thus leading to disagreement; it is for this reason that both joint venture partners ought to sit down and agree on the vision for the organisation before they can sign an agreement. Why joint ventures are ideal Other competitors like Starbucks have already entered the French market, and appear to be doing relatively well; the secret behind this competitor’s success is its reliance on joint venture partnerships. Starbucks’ market internationalisation strategy illustrates that even large corporations require some help in order to achieve their goals (Kotha and Glassman 6). It is not realistic for a company to assume that market needs can be met solely by the organisation; this primary competitor in London has often used joint ventures in international expansion in order to share risks. Only the UK subsidiary is wholly owned by Starbucks, all the rest are licensed or have been done through joint ventures. Certain products and services are needed in order to make an ideal cup of coffee; these materials could be sourced internationally or come from internal suppliers. Certain standard ingredients such as milk and sugar do not have to be exported to France, so Costa Coffee would need local knowledge on the best places to obtain them. Furthermore, the company needs to have real-estate experience in order to build a brand that rapidly extends around the country; for this reason, only a local partner would be the best source of information on this. Aside from information, a local French partner may already have the structure (chains of restaurants), which Whitbread can take advantage of by simply rebranding and establishing itself there. Successful global expansions often work by merging areas of success in the country of origin with local needs and cultures in the target market. The Costa Coffee culture is not so different from the French one because it tries to create superior products while allowing buyers to interact. However, as has been mentioned before, certain differences exist between these two nations that cannot be ignored, so local partners would assist in bridging that gap. Customer service is particularly wanting in French cafes; therefore, it would be imperative for the organisation to implant its strong customer service principles in its French subsidiary. A high quantity of coffee shops already exist in this market, so it makes sense to have a local partner that can help Costa Coffee navigate this murky waters. Conclusion Costa coffee has the option of licensing, exporting, fully owning, partly owning (joint venture) and contracting its business in France. Exporting cannot work because the company sells a service rather than a product; furthermore, it has already mentioned that it prefers not to license since this is an indirect method in a potentially promising market. Full and part ownership are its only other options of entry, but full ownership will deny it the immense opportunity of leveraging on local knowledge and assets. Joint ventures seem to be the most plausible option as they will allow the company to incorporate local coffee culture, which is already highly developed, and make use of capital opportunities such as real-estate infrastructure. Works Cited “The Cafe Culture in France”. Cafe de Flore. 12 May 2012. Web. 16 Jun. 2014. Chen, Lisa & Bahaudin Mujtaba. “The Choice of Entry Mode Strategies and Decisions for International Market Expansion.” Journal of American Academy of Business 10.2(2007): 322. Print. Florin, Juan & Ogbuehi, Alphonso. “Strategic Choice in International Ventures: A Contingency Framework Integrating Standardization and Entry-Mode Decisions.” Multinational Business Review 12.2 (2004): 83-110. Print. Kotha, Suresh and Glassman, Debra. Starbucks Corporation: Competing in a Global Market. 7 Apr. 2003. Web. 16 Jun. 2014 Read More