Phuong Bui

Professor Ozkaya

IBM 4141

6/10/2021

Case Study: The Espresso Lane

1. Conduct a CAGE analysis.

The CAGE analysis (cultural, administrative, geographic, and economic) allows

businesses to navigate the desirability of foreign markets depending on the distance

between their nation and the place where they want to do business.

Brazil

-Opening new American-style coffee shops

Cultural
-Specialty coffee market growing

Administrative
-Social programs grow middle class
(political)

-Brasília, Brazil's capital, was approximately 9,054

Geographic kilometers distant from Rome, Italy.

-Largest grower of coffee in the world and second-largest

consumer market
Economic
-Growing middle class

-Eighth-largest economy in the world

 China

- Tea and coffee were established product categories there

and were expected to experience modest grow.

Cultural
-Coffee consumption projected growth of 10.7 % through

2015.

-Laws created in 2007 made it more difficult for foreign

businesses.

Administrative -Complex nature of doing business

(political) -Franchising new to Chinese

-Beijing, China's capital, was approximately 8,147 kilometers

Geographic away from Rome, Italy.

-Beverage industry was one of the country’s fastest growing

sectors.

-Consumer income was rising, and so was the level of living.

Economic -Franchising popular but difficult

Germany

-Per capita consumption of coffee in Germany had been

decreased in the last 15 years.

Cultural
-Increased in US style coffee chain due to popularity.

-Interested in freshly prepared specialty coffee.

 -Franchise Association had a great deal of power, but it was

Administrative only partially recognized by the court.

(political) -Easy to do business

-Berlin, Germany's capital, was approximately 736

Geographic kilometers away from Rome, Italy.

-Coffee was ranked second in the world in pounds per coffee

consumed per person.

- Fierce competition and high concentration (1000 franchise

systems).

Economic -Coffee growth inhibited by world economic difficulties

India

-Transitioned to sophisticated coffee bars began in the 1990s.

-Indians had increased exposure to international lifestyles and

Cultural
global trends

-The sixth-largest producer of coffee in the world.

Administrative

(political) -Difficult to do business

-New Delhi, was approximately 5,929 kilometers away from

Geographic Rome, Italy.

- Low coffee saturation

Economic
 -Middle class emerged, increased in income, and number of

working women.

-Coffee retailing was one of the fastest growing segments.

Japan

Traditionally tea drinking

-Product innovation.
Cultural
-Ranked third as the largest coffee importer. Expected 5.4%

compound growth through 2015

Administrative

(political) -Easy to do business

-Japan’s capital, Tokyo, was approximately 6,138 kilometers

Geographic away from Rome, Italy.

-Difficult to franchise

-Developed market

Economic

United Kingdom

-Grew stronger during recession

Cultural
-Transition from tea to coffee culture.

-Trade and investment Agency helped foreign businesses

Administrative invest and locate without any restrictions.

(political) -Easy to do business

 -London, the capital of the United Kingdom, was roughly 893

Geographic kilometers away from Rome, Italy.

-One of the easiest regions to launch a franchise

Economic -Large economy and high disosable income

United States

-Cultural obsession

Cultural -50% of American 18 and over drink coffee every day.

-Global leader for coffee.

Administrative

(political) -Easy to do business

-Washington, DC, the capital of the United States, was

Geographic roughly 4,497 kilometers away from Rome, Italy.

-The highest income with the lowest growth potential.

Economic -Easy franchising system


Opportunities
1.Increasing
acceptance/growth/demand
for specially coffee
2.Increasing in product lines
3.Rising middle-class
income that willing to spend
on coffee
SWOT ANALYSES
(For Illy)
Strengths Weaknesses
1.Brand name 1.Limited franchise
experience
2.Great quality and coffee
culture 2. High-end price
3.Large number of products 3.Failed to attract customers
from different nations.
4. Premium transit, retail
and service partners
Possible solutions to Possible solutions to
address opportunities and address opportunities and
strengths weaknesses
1.Create a marketing
strategy to target a certain 1. Educated people about
customer group in order to coffee
maximize income.
2.Expand franchise
2. Utilize shipping method
to maximize the quality of it
 products.

Threats Possible solutions to Possible solutions to

address threats and address threats and

1.Many competitors
strengths weaknesses.
2.Culture differences

3. Environment and legal 1.Create new competitive 1.Create more diverse

issues advantage product lines

4.Volatile coffee prices 2.Educate consumers about 2.Celebrate other cultures

the Italian culture by having promotions

5.Highly dependent on

disposable income

3.Conduct analysis using the GE Matrix and the BCG Matrix. What do you learn from

them?

GE MATRIX

(Allocate Countries into one of the boxes)

Market Attractiveness

Total Coffee Sales in US$ million

Earn Selectively Harvest

 Invest or Grow or Divest

High United states

Germany

Medium Brazil

China Japan

United
Low
Kingdom
India

High Medium Low

Competitive Position

BCG MATRIX

(Allocate Countries into one of the boxes)

Market Attractiveness

Potential Market Growth 2011-2015

China India

high Brazil

United
Kingdo
m
 low

United Japan
Sates

German
y

high low

4.What does analysis of the CAGE and SWOT show you? Based on these results, which

international market should Espressamente pursue next?

The analysis of CAGE demonstrates that coffee consumption has risen in several

nations throughout the world. According to the report above, coffee consumption has

been steadily expanding in markets that were original tea drinking. Furthermore, the

commercial prospects in the world promote coffee use. The SWOT analysis demonstrated

the company's fundamental strength and internal weaknesses, as well as the opportunities

and threats for each prospective targeted market.

Based on these results, Espressamente should expand the market either into the

United States or United Kingdom next. The United Kingdom had a slight cultural

difference from Italy, and the coffee market in the United Kingdom was mature, with a

quality that was very acceptable for customers in the United Kingdom. Foreign
franchisors had no additional entry obstacles to doing business in the United Kingdom

market as compared to domestic franchisors. The United States is another appealing

market for Espressamente to approach since coffee is a cultural preoccupation in the

United States, even though the American market is very competitive with several brands.

It may still distinguish itself from high-quality coffee and services. Furthermore, the

United States was ranked fourth in terms of ease of doing business, which might provide

significant benefits to the company if it chooses to conduct business there.

5. Which variables from the case are the most important in Reale’s decision-making?

When determining which countries to grow into, Reale must consider several

variables before selecting which market is the most appealing. We can utilize CAGE and

SWOT analysis as guidance to help us determine these variables. These analyses are very

important because they will help find all the key factors and prepare Espressamente to

expand internationally. In the opinion of Reale, the most important variables in

decision-making are coffee consumption per capita, coffee shop concentration, income

per capita of the top 10 percent of the population, disposable income, ease of doing

business, and future growth.

6. How should Reale prioritize the foreign markets?

It is safe to say that Reale should prioritize the expansion in the United Kingdom

and the United States. The reason is that both countries are very high in terms of potential

for international expansion and ease of doing business. These two countries' cultures are

very similar to those of Italy. Therefore, Espressamente can eliminate a significant barrier

that is generally present when deciding on a foreign market to develop into. Furthermore,

the rate of urbanization, GDP per capita, and coffee sales are all quite high. The market
existing in the United States and the United Kingdom provides a well-established market

with a significant potential for earnings. However, due to the high concentration of coffee

shops per million people, the company still has to deal with many competitors. With so

many competitors and the prospect of alternatives in these sectors, Espressamente must

be able to effectively separate itself from the current coffee shops in these sectors.

7. What mode of entry should Reale consider? Should it be different based on the market

selected?

The mode of entry can be considered depending on which market the company is

targeting. For instance, in the case of India, can use Greenfield investment as a strategy to

enter this market. Espressamente can take a high level of risk owing to political and

banking problems and lack of stable infrastructure. However, on the other hand, the

company would be able to lower the cost of capital and labor because this is a high risk

and high reward situation.

8. What are the relevant environmental and organizational variables that should impact

the decision?

The relevant environmental factors that are impacting the decision are political,

economical, social, and legal. Political demonstrates the level of ease of doing business in

a certain nation helps in making corporate-level judgments. The rules and regulations

define the business's success. Economic elements such as per capita income, disposable

income, GDP per capita, and so on contribute to shaping consumer behavior, and their

reactions influence the speed and rhythm of Reale. In addition, Reale's choices will be

influenced by people's lifestyles and social behaviors. Lastly, legal issues such as rules

and regulations will have a significant impact on the business's strategy.

 Organizational factors are including trade orientation, organization structure, and

flexibility. Since the firm is increasingly focused on the global market. Hence, decisions

must be made in that direction. Besides, the decision to make the structure organic or

mechanistic to conform with the environment in different countries should also be

addressed. Furthermore, to be successful internationally, the organization's level of

flexibility and the company's work style must be determined.