Hotel chocolat an internationalisation strategy

Hotel chocolat an interthemeisation schemeHotel Chocolat (HC) was set in moti whizzd everyplace 15 days ago with one goal to make a better showcase of cocoa unattached to UK consumers bored by the mediocrity of that available (Hotel Chocolat, 2009). HC started as a catalogue business. Following the success of this business, the comp either set up an award winning website with the first of many HC stores appearing on the gamy.street in 2004. Since its success in the UK, HC has applied an export dodge to the US via an on ocellus parliamentary procedure site. This strategy enabled the company to minimise risk out front fully committing to outside direct investment (FDI). Once adequate demand for the intersection point was assured, HC undetermined its first Ameri skunk store in Boston and straight off has plans to that expand throughout North America. There atomic number 18 currently 43 stores located in the UK with an additional 23 operate inside jakes Lewis stores. I t is likely that the company has expanded as far as it flowerpot domestically and should now focus its attention on inter national grocerys.In determine to assess HCs ability to internationalise the following should be count oned. HC is Britains fas seek-growing common soldier company with 225% gross revenue process per year (Fasttrack100, 2008) and sales equating to 18 million in 2008. From this, one whitethorn infer that HC does indeed take aim sufficient resources for internationalization. However, it is questionable whether the company is prepared to undertake large-scale investments, impu delay to the self-funding magnification strategy pursued so far.This taste will now present an internationalisation strategy for HC by applying theory and drawing upon ad hominem contact with the lacquerese External Trade Organisation (JETRO), the UK Trade and enthronement team (UKTI) and HC representatives, as well as quantitative data from alternate research.Global figures for deep br experience sales nominate compelling incentives to further internationalise. In 2008 global chocolate sales were $62.16 billion (Datamonitor, 2009a). Contrasting these figures with the UK shows enormous sales potential. Currently the UK confectionary mart is valued at $13.4 billion, with chocolate sales explanation for 67.5%. More tellingly, however, are the records for annual growth of foodstuff value amongst the years 2004-08 (Datamonitor, 2009b) which show a decided slow-down in the rate of growth. Although the scotch down turn will pee-pee duck souped its role in the calculation of these figures, we burn be confident that the UK chocolate pains is operating at heart the mature stage of the product life cycle. This is problematic for HC as Kotler (2008 p.575) argues A slowdown in sales growth results in an overcapacity of competition, which plunder ultimately lead to a decrease in profits. Furthermore, the domestic chocolate industry is dominated by Cadbury, Ma rs and Nestle who collectively bobby pin a 59.8% market share (Datamonitor, 2009c). Expanding internationally into previously untapped markets may be the best solution to leverage any potential losses felt domestically as Hill (2009, p.426) states Expanding globally allows wholes to profit their positivity and rate of profit growth in ways not available to purely domestic auto representprises.An essential part of any internationalisation strategy is the country back process in which hundreds of possible countries must be systematically eliminated. There are numerous ways to do this and, when through professionally, a vast amount of research will be undertaken before any ratiocinations are made. HC, as previously stated, have already begun expansion into North America and have made plans to expand into the Middle eastern United States (Retail week, 2009 Walker, 2009). For these reasons, we will not be imageing either region. Europe will to a fault be ruled out as the Europe an sumptuosity chocolate market is already eminently saturated with rival brands from Belgium, France and Switzerland (RTS, 2009). The next passel filtration stage was to view the political stability scores (CIFP, 2007) of the remaining regions and advance only those scoring highest. This stage virtually eliminated Africa and Latin America, leaving preponderantly the Asia pacific region. Finally, the remaining countries were ranked in aim of GDP per capita (CIA founding Factbook, 2008) and all but the top cardinal were eliminated. This left Hong Kong, japan, China, Australia, New Zealand, federation Korea, Malaysia and Singapore. Scrutinising these eight countries and drawing upon a variety of unequally weighted factors a country attractiveness index was formulated for each. Ultimately Japan was found to be the optimal host country with the owing(p)est index score.Haak lately published that no company can afford to neglect the high-energy Asian economic region (Haak, 2008 p.1). Within this region, Japan in special(prenominal) assumes a key position (Haak, 2008 p.1) delinquent to its sheer size and its affluent and sophisticated consumers (JETRO, 2008). In order to formally evaluate Japans attractiveness as a host country, certain aspects of Dunnings eclectic paradigm have been applied. focus on ownership and location factors the decision to fully invest in Japan can be justified (Dunning, 1988). Furthermore, location factors can be broken down into cardinal gains economic, political and social. Japan is considered a study world financial hotspot with the second highest number of millionaires residing at that place and sept consumption expenditure figures exceeding those of most nations. This goes flip over in hand with high consumer purchasing advocate and a demand for high woodland produce. Perhaps one of the satisfyingest reasons for investment in Japan is its potential as a gateway to the Asian-Pacific markets. As these markets grow rapidly, the economic integration in the midst of countries in the region continues to strengthen. This links to an ownership advantage that HC can achieve. come in the Nipponese market will allow door to other Asian markets over time and provide economies in two scale and scope. In recent years administration policies have become an increasely classic factor affecting FDI (Brewer, 1993). The Japanese government have various(a) exotic investment policies which incentivise investment. Japan, once restrictive of trade, has now shed this image and is attracting increasing levels of FDI. Whereas most national governments focus on financial incentives, the Japanese government follows a 3-step moodl which provides support for potential investors (Watanabe, 2003). As discussed later in this essay, this type of incentive reduces the need for inappropriate firms to access local noesis by means of joint venture (JV) or merger.Knowledge of national cultures is commonly seen as a prerequisite to the effective debut into parvenue markets (Chinta, Capar, 2007p.213), and is stated as such in the Scandinavian process model. However, various studies have found no support for this hypothesis (Barkema et al, 1996). It could in any case be argued that Japan is heathenly equidistant between all nations, thus rendering the Scandinavian model redundant in this unique case. Ronen and Shenkar (1985) identified eight culturally homogenous blocks of countries, suggesting that firms benefit more from experiences in other countries within the same block. Japan, on the other hand, was not allotted a chunk and according to Barkema et al, (1996), no cultural block is appropriate for Japan. Therefore, Japan was allocated its own exclusive cultural block. This suggests that it would not be possible for a firm to gradually build experiential knowledge for Japan. This would partially support the decision for HC to immediately enter the market. However, this argument suggests that knowledge of Japan would not increase understanding of other Asia Pacific markets, as previously thought. Nevertheless, the extent to which Japan does not belong to whatever larger cultural block is disputable. Hesperian investors are often scared off by the uniqueness of the Japanese business model. However, this uniqueness can provide a host of opportunities to contradictory firms wishing to access Japans wealthy consumers (Kensy, 2001). ostiariuss diamond theory can be applied to Japan in order to assess its competitive advantage as the host country. In terms of inherent endowments such as land, labour and population size, it may appear that Japan is economically discriminate in comparison to large Asia Pacific states such as China. However, Porter argues a nations competiveness depends on the capacity of its industry to innovate and upgrade (Porter, 1998, p155). found on these assumptions it can be recognised that a significant national comparative advantage is held by Japan. Immediate competition in the Japanese chocolate market is low but promises to grow significantly (Datamonitor, 2009d). This appeals to both Porters 5 forces model and the Diamond model, as it provides easier immersion followed by great pressure to innovate and gain a global advantage.It is now worthy to consider any disadvantages, in order to gain a great understanding of the risks involved. The Japanese market, as discussed, is one that is culturally unique. Therefore, in order to survive, HC would have to invest time and money reviewing cultural examples and adopt immature management styles to suit Japan. Referring to Porters fin forces compendium, the threat of substitute would seem to be an inherent problem in most markets, with Japan being no exception. Theoretically, HC would expect to face competition from alternative industries in the gift and snack markets. A recent report by Datamonitor (2009d) stated confectionery products are vulnerable to the threat f rom substitutes such as savoury snacks and fresh fruits, collect to low switching lives and consumption patterns in different geographical recordies. In reality, competitive rivalry is deemed as moderate in this market, with branding change to a high level of customer loyalty. Therefore, price elasticity and product differentiation only play a atomic part in the competitive rivalry of the confectionery market (Datamonitor, 2009d). According to the electronics maker commandment Once a company is active in the Japanese market, it is three quantify harder to fail in business (Melville, 1999, p.113). However, Melville also notes that it is three propagation harder to become successful in Japan in the first place.To sum Japan deserves the special attention of international companies, which in recent years have often neglected this economic heavyweight in an often blind enthusiasm for the Chinese market (Haak, 2008, p.3). The high GDP and long spending power of Japan provides the perfect marketplace for a high quality, innovative product. As long as risks are considered and the market is entered into carefully, there should be no reason why HC cannot reap the benefits.In an analysis of what motivates firms to move into new markets, Buckley suggests, there are three key motives (1) grocery seeking FDI, (2) Resource seeking FDI (3) Cost-reduction or efficiency seeking FDI. (Buckley, 2000 p.146). Buckley also believes that for any firm interested in investing in Japan, one of these key goals must be met. Furthermore, the main motive for any FDI into Japan will typically be market seeking. This is especially the case for any firm producing consumer goods such as HC. It is essential to understand the competitive embellish of the confectionary market in Japan, in order to formulate an optimal market strategy for HC. Japans confectionary market consists mainly of local companies offering a array of brands producing chocolate and sugar- human footd products. 48. 1% of the confectionary market is dominated by three companies Lotte Group, Meji Seika Kaisha, Ltd. and Ezaki Glico (Datamonitor, 2009d). So where can HC fit into this market? Most confectionery products are mass-marketed and make in great volume to reduce costs so as to provide competitive prices whilst making a profit. Potentially, a more cost friendly option for the company is to enter the market in a small-scope, for example, by making high-value, low-volume products in a craft process preferably than a mechanized process. (Datamonitor, 2009d). Coincidentally, this fits HCs high quality/exclusive brand image.Japans demographics provide a wide variety of potential consumers for HC. The primary tar live on theme is Japans silver market the older, free spending portion of the population. Japan has an agedness population and hence a growing market segment for HC. This assemblage already has high buying power and furthermore, JETRO are forecasting growth of 30billion in the mark et for senior citizens. Another adapted segment in Japan is that of unmarried women over 30 (Haak, 2008). This group is largely high life orientated and represents a financially promising market segment for HC to exploit. Moreover, in the experience of the UKTI, Japanese consumers are attracted to products that are healthy, high end and quintessentially British. tout ensemble of these factors will contribute to HCs competitive advantage over Japans local producers.This essay will now discuss the possible strategies that HC could undertake, applying both theory and pragmatic knowledge to formally review all available modes of gate. The mode of penetration decision is crucial to any company, as it can have an ongoing effect on a firms international performance (Chung and Enderwick, 2001 p.443) it is therefore grievous to formally evaluate all possible modes. International market entry modes can be classified according to level of control, resource loyalty and risk involvement (Kim Hwang, 1992). Table 2 takes these three classifications and applies them to specific modes of entry.As well as the classifications used in table 2, it is essential to consider culture and how a mode of entry fits in with the companys long-term objectives. When firms enter into a foreign market, they must contend with the national culture. However, when firms partake in JVs, they face double layered acculturation (Barkema et al 1996 Zacharakis, 1993) this can face problems for a firm and increase the associated risk. JVs also require a great deal of capital, effort and trust. Additionally, JVs with Japanese firms may be particularly dangerous as learning effects may be asymmetric in JVs Japanese managers focus more on learning and less on information sharing (Barkema et al, 1996, p.164). Nevertheless, the knowledge needed to operate in a foreign market is not easily acquired, and in the early stages of market entry a native render is strongly recommended to provide access t o local market knowledge.Therefore, we propose HC should consider an component dissemination model, snap largely on Japanese department stores. This should not however be the first stage of the internationalisation process. The Uppsala stage model stipulates schemeal learning through gradual small steps whereby firms increase their international involvement up through the government chain (Bakema et al, 1996 p.152). In short, Uppsala urges firms to export before they create subsidiaries. Exceptions can be made when firms have experiential knowledge from markets with similar conditions, however, as discussed earlier, this cannot be the case with Japan. Therefore, we propose that as a first step, HC should extend their online edict system by setting up a Japanese indication of their website. This will allow HC to measure demand and increase brand sensation in the host market. By using this safe progression, HC will be in a position to both gauge the risks and benefits of the v enture duration at the same time acquiring cultural knowledge, incrementally increasing levels of vulnerability to corporate and national culture.Kim and Hwang, (1992) suggest that a firms familiarity with the host market relates to the mode of entry. As previously discussed, Japan is unlike other cultures and any strategy undertaken needs to be low risk and allow the firm to test the water with the host market. The use of an performer enables the company to avoid the financial and cultural risks associated with JVs for example. This is a more realistic strategy for HC due to their neglect of size and international experience. Additionally, by appointing an agent, HC can retain control over their marketing mix and gain access to existing distribution networks. A crucial consideration when using an agent is to find a local party with a good reputation. Often agents will cover a specific territory and therefore as part of their strategy, HC should select a Japanese city in which t o focus their internationalisation strategy. By discover successful moves made by close international competitors such as Godiva, it would seem that Tokyo would most likely be selected (Godiva, 2009). Complications may move up if an agent is working for other companies that have conflicting interests to HC. In order to overcome such potential problems, HC should partake in a due diligence process. Careful selection criteria should be implemented to ensure that the agent has relevant expertise and appropriate business standing in line with HCs business interests.This market entry strategy is further supported when we consider withdrawal and divestment strategies. As Buckley notes, It is fundamental for a firm to choose, at the outset, strategies whose hand costs are low (Buckley Casson, 1998, p.39). It is widely known that agent distribution models have low withdrawal costs relative to JVs, mergers and the like. By outset at the end and securing a strong exit strategy HC can sig nificantly reduce the impact that would be felt by the organisation were the venture to fail.In conclusion, based on theory and the practical advice gained from a personal meeting with the UKTI, HC should first provide a Japanese mutation of their website in order to export to Japan whilst gaining knowledge of the local market and consumer demand. Once adequate demand is ensured, HC may proceed to employ an agent in order to develop brand recognition before at last opening a store in Tokyo. Since HC currently has a strong relationship with the UK department store John Lewis, it might be suitable for HC to pursue a similar strategy in Japan by joining a high-end department store, possibly with branches in other Asia Pacific locations. If the model proves to be successful, then by being in Japan, HC can reach other Asia Pacific locations, which, although not close in cultural space, are linked by a network of department stores.It is important to discuss the point of accumulations o f this report and offer suggestions for further study. One fundamental limitation of this report lies within the country screening process. It was only possible to base the primary stages upon political stability rankings, whereas it would be far better practice to cross reference a larger number of factors. Also, for the sake of originality it was not sensible to include any regions that HC had already considered. In doing this we may have disregarded some very appropriate locations. Factors such as cultural differences required proxies that, naturally, come with a degree of inaccuracy. The proxy used to project cultural distance was the percentage of British expats in the target locations. The power of this proxy is well supported, however, it is clearly arguable and a more aright proxy could be employed with detailed national studies that could take into peak institutional style, business practices, media, etc. During the market analysis of the chocolate industry it was not po ssible to find specific data on the high quality chocolate industry performance, therefore, it was only possible to approximate levels of luxury chocolates being produced and consumed in both the UK and Japan.Finally, in a recent pecuniary Times presentation (Rowe, 2009) it was explained that you really have to walk the streets of the country to get a feel for what is the most suitable mode of entry. 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