In this paper, an assessment is conducted on Marvin " Smith Coffee Shop’s expansion into Sweden, marketing mix of the business, factors to put into consideration during the expansion and financial evaluation of the coffee shop. A detailed conclusion summarizing the paper will also be provided.
Question 1: Business Expansion into Sweden
Marvin and Smith need to expand their coffee business into Sweden. Sweden is a Scandinavian Nordic country that is neighbored by Finland, Norway, and Denmark. There are various reasons for the selection of Sweden as an ideal country for Marvin and Smith to set up their coffee shops. Firstly, Sweden is categorized as the 6th major consumer of coffee around the world at 8.2 kg per capita (Bernard, 2018). Most of the Swedes take their coffee seriously and this has gotten to a point that it is their way of life (Kamann, 2018). Based on the ever-growing consumption rates of coffee in Sweden, Marvin and Smith will majorly benefit from the available market. Subsequently, this will not only contribute to an ease in the penetration of the coffee shop into the market but also an increase in the revenues generated.
Fig 1: Coffee Consumption in Europe
Sweden offers a superb environment for the growth of both foreign and local businesses. The government of Sweden encourages FDI and this is evidenced by the 2.7% improvement in Foreign Direct Investment in 2017 compared to the previous year. Marvin and Smith will thus have to take advantage of the economic stability and the incentives from the Swedish government in setting up its coffee shop. In terms of funding, the coffee shop may attract several investors in the country that may inject portions of financing into the business. Additionally, there are several financial institutions that offer loans at low rates (Saloner, 2018, p.70). By borrowing funds from these banks and microfinance, with a flexible repayment plan, the coffee shop will fast gain sustainability and stability in Sweden.
Other than the high coffee consumption rates in Sweden, the country has various regulations and policies that safeguard businesses and their employees. The government of Sweden has in the past two years implemented various measures that are aimed at ensuring that there is fair competition in the various sectors. The policies on fair competition will be beneficial to Marvin and Smith because of the reduction in obstacles that will hinder their penetration into the Sweden market (Hill and Hult, 2018, p.120). The workers are also protected by some of the rules that focus on low wage rates and unfair termination of their employment and contracts. From a broad perspective, it is evident that Marvin and Smith will majorly benefit from the Swedish policies in expanding their business into the country.
Fig 2: Swedish lifestyle
Another reason for the selection of Sweden as a country for expansion is because of its tax reliefs. In 2015, Sweden and the UK got into an income and capital tax treaty that was aimed at benefiting individuals and companies from both nations. In the case of Marvin and Smith, the tax treaty will be favorable to them in the sense that the coffee shop to be set up in Sweden will not have to go through double taxation. Subsequently, this will contribute to a reduction in the costs of production for the coffee shop, thus an increase in the revenues generated. The fact that the Swedish workforce is highly skilled and qualified will also be instrumental in ensuring that the coffee shop experiences immense growth in Sweden.
Question 2: Marketing Mix in relation to the coffee shop
A marketing mix is termed to as a combination of factors that play a major role in convincing buyers to purchase products from a given brand. A suitable location for a business, aggressive marketing strategies and the production of high-quality products are some of the elements that contribute to an improvement in the revenues generated by a business. Brands also have to have full information on the level of competition in the market, thus implement strategies that will give them a competitive edge over their rivals.
Product
Marvin and Smith Coffee Shop will primarily supply coffee to its consumers in Sweden. The product will be in such a way that it will meet the tastes and preferences of the customers in the new market. By combining the finest coffee beans from Gumutindo Coffee and outsourcing some coffee beans from the host country, the coffee shop will benefit immensely from the production of high-quality coffee. The targeted market for the product in Sweden is males and females, 15-60 years. Diversification in the production process is a strategy that the company will have to embrace in gaining a competitive edge over the rival shops in the country. Some of its diverse products will include cappuccino, White Mocha, Espresso shakes and White Mocha.
Fig 3: White Mocha
Price
The pricing strategy adopted by an organization will always determine its ability or failure to attract and retain customers (Saloner, 2018, p.16). Marvin and Smith will have to conduct extensive research on the market with the aim of identifying the prices that have been set by the competitors. Armed with the relevant information, the two investors will have to embrace the penetration pricing strategy. Under the penetration pricing strategy, as a new business in the foreign market, the coffee shop will set the prices for its product slightly lower than its competitors (Hill and Hult, 2018, p.120). The lower prices will attract several consumers from the other coffee shops and this will be beneficial in the sense that Marvin and Smith Coffee Shop will benefit from an increase in sales.
Place
Place refers to a location where a given business is set. In the quest for selecting locations for business, some of the factors that need to be put under consideration include security, accessibility and the level of competition. Marvin and Smith will have to set up their coffee shop in the major towns in Sweden and this is attributed to the large customer base in the location. Moreover, the investors will have to ensure that the locations for the business have ample security (Hill and Hult, 2018, p.120). They may also decide to place their shop along the major road leading to the city of Stockholm and this will be advantageous in the sense that several consumers will be able to identify it and stop over to have a cup of coffee. The business will also offer home deliveries to the customers that will order coffee via its website.
Promotions
Promotion refers to raising awareness of the products and services that are offered by an organization and this is made possible by relying on various marketing tools. Having ensured that the coffee shop is located strategically, it will be advisable for Marvin and Smith to rely on the most cost-effective marketing strategies. Firstly, the business may depend on brochures and these will be placed on poles and walls of buildings around town. The coffee shop may also use social media marketing by opening Facebook and Instagram pages where it will regularly update information on the quality of its product as well as the prices for the various coffee products on offer (Cadogan, 2012, p.344). The use of social media marketing will provide the coffee shop an opportunity to capture the attention of a large consumer segment in Sweden, thus contributing to an increase in its revenue generation.
Question 3: Factors that Marvin and Smith need to put into consideration
Marketing
One of the main factors that Marvin and Smith will have to put into consideration in their quest for their expansion into Sweden is marketing. The marketing strategies adopted by the investors will play a critical role in the determination of the coffee shop’s penetration into the market and an improvement in its revenue generation. Superb marketing strategies will also give the company a competitive edge over its rival firms in the market.
The use of website marketing is one of the platforms that the company can embrace in the marketing and advertisement of its coffee products in Sweden. The website will be designed in such a way that customers will be able to log into it and access information on the type of the coffee products offered by the coffee shop, location of the coffee shop and the prices for the various coffee products (Abdullah, 2015, p.12). Moreover, consumers will be able to seek any help from a customer care representative available via the website.
Another marketing strategy to be embraced by the coffee shop will be social media marketing. The company will have to create Facebook, Twitter, and Instagram and these will primarily be used for the advertisement and marketing of the coffee products. The business will update the social media pages on a regular basis and this will aim at capturing the attention of the larger customer base in Sweden. Other than digital marketing techniques, the coffee shop may also utilize promotional strategies and discounts (Cadogan, 2012, p.342). The coffee shop may, for instance, state that the first 50 customers on a daily basis will get massive discounts of 10% for their purchases. Additionally, the firm will also promise different rewards and gifts for its loyal customers. From a broad perspective, the marketing and advertisement strategies adopted by the coffee shop will not only increase its revenue generations but also ensure that the business gains a competitive edge over the competitors in Sweden.
Human Resource Management
Human Resource Management is an integral aspect of any company or business. HRM is termed to as the strategic approaches that are embraced by an organization with the aim of ensuring that employees’ needs are met and that the recruitment process is done in a proper and ethical manner. Some of the functions of Human Resource Management entails hiring skilled and qualified workers, setting and implementation of policies and regulations that workers have to abide by and engaging in staffing processes.
Marvin and Smith have to ensure that they invest heavily in the Human Resource Management. The HRM will play an integral role in ensuring that the coffee shop penetrates and maintains sustainability in the new market in Sweden. The hiring of skilled and qualified workers is one of those roles that the HRM will have to play in strengthening the performance of the company (Tarique, Briscoe and Schuler, 2016, p.17). Upon setting up the business in Sweden, the HRM will make an advertisement for various job positions and candidates with qualifications in the fields of accounting, finance, hotel management, and Business Management among others will be asked to apply. During the recruitment process, only the skilled, talented and qualified candidates will be hired into the firm.
Another major function of the HRM will be to ensure that employees are motivated and that an organizational culture is implemented that will be beneficial to the company (Mondy and Martocchio, 2016, p.13). Approaches such as workplace diversity, team building and the implementation of superb recognition and compensation packages will be integral in bolstering the motivation levels of the workers within the coffee shop. Subsequently, this will contribute to an enhancement in the financial performance of the organization.
Question 4: Financial performance of the business
Liquidity ratios
Current ratio
The current ratio is used in the assessment of the ability of an organization to clear its financial obligations.
Current ratio=current assets/current liabilities
35,400/6200=5.71
Quick ratio
The ratio provides an overview of the ability of an organization to clear its short-term financial obligations (Britton and Waterston, 2013, p.43).
Current ratio=(current assets-inventories)/current liabilities
(35,400-8000)/6200=4.419
Profitability ratios
Gross profit margin
Gross profit margin provides an overview of an organization’s ability to rely on revenues in the generation of gross profits.
Gross profit margin=Gross profits/Sales revenues
208,000/360,000*100=57.8%
Net profit margin
=Net profits/Sales *100
26,800/360,000*100=7.4%
Current business
The current ratio for Marvin and Smiths Coffee Shop in the year ending 2017 was 5.71 and this is higher than the standard current ratio of 2. Based on the calculated current ratio, it is evident that the coffee shop has an adequate resource that can facilitate its expansion into Sweden. The quick ratio for the company is 4.4 and this significantly higher than the standard quick ratio of 1. The quick ratio is an indication that Marvin and Smiths Coffee Shop has the ability to clear its short-term financial debts with ease. Moreover, a large amount of the coffee shop’s quick assets are available and can be used for the expansion of the business.
The net profit margin for Marvin and Smiths Coffee Shop as at the end of 2017 was 7.4%. The low net profit margin as evidenced by the calculations was attributed to the high costs of production and expenses that the coffee shop incurred in the form of rent payments and wages. Gross profit margins provide an overview of the earnings that are made by the firms. The gross profit margin for Marvin and Smiths Coffee Shop in 2017 was 57.8% and this shows that after deducting the purchasing costs, the business still posted high earnings as at the year ending 2017.
Impact of the ratios on decision making
The current and quick ratios will help Marvin and Smith make suitable decisions on the type of capital structures to implement. Currently, the liquidity ratios are higher than the standard liquidity ratios and this implies that the business can comfortably rely on debts in the funding of its operations. The net profit margin for the company is, however; slightly lower than the industrial average. Marvin and Smith Coffee Shop needs to cut down on its high expenditure so as to improve on its profitability. The healthy liquidity and profitability positions are evidence enough that the coffee shop can comfortably expand into Sweden.
Question 5: Conclusion on the overall viability of overseas expansion
With the aspect of globalization, most companies around the world have in the past two decades embraced international expansion approach. There are various benefits that come along with the decision by a firm to expand globally and these include strengthened customer base, an improvement in the revenues generated by a firm and broadened exposure. Some of the factors that a business needs to put into consideration when expanding globally include cultural differences, the market and government regulations in the host country, level of competition and the availability of labor and markets. Marvin " Smith Coffee Shop need to expand into Sweden and this is attributed to the high coffee consumption rates, a suitable business environment in the country and the availability of a skilled workforce. The coffee shop will also benefit from the double tax treaty once it sets its operations in Sweden and this will be instrumental in that it will help it cut down on the high costs of production. However, the business may be faced with the challenge of intense competition in the country. Currently, there are several coffee shops in Sweden and Marvin " Smith will have to implement strategies that will give it a competitive edge over the competitors. Cultural variation between the UK and Sweden is another issue that the business leaders will have to put into consideration. The coffee shop may also take advantage of its idle quick and current assets in expanding its business effectively to Sweden. Aggressive marketing and advertisement tools such as websites and social media platforms will provide the company with an opportunity to capture the attention of a large customer base, and this will in return contribute to the strengthening of its brand and an increase in its revenue generation.
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