Firms exist with the purpose of create and deliver economic value (Bensaco et al 2010, p. 365); therefore, business that create better economic value than its competitors will attain an advantage position in market place. Companies might try to improve its sales (profit) through domestic expansion, product diversification or by internationalisation; this report will focus on the reasons of espressamente Illy to expand internationally; additionally, its sources of competitive advantage and, the analysis of three markets in which company want to participate.
Reasons for international expansion
The core business of “Illy Coffé” group is in the food industry, specifically in the coffee sector (detailed profile information can be found in the appendix). The major part of sales 88% (Prospectus, 2012) are concentrated on products based on coffee; furthermore, this sector is characterized for a strong dependence on price, strong competition, dependence of customer´s preferences and, economic factors (GDP, inflation, etc.); in fact, these characteristics denote a high risk of reduction of sales or profitability due to changes in customer demands, preferences or volatility of production costs.
There are several reasons or motivations that managers can argue to expand Illy overseas, first due to continuous need of looking for new sources of profit, second in order to reduce the impact if for example one of the previously mentioned risks come true. Regardless of the reason for expansion, it is important that the strategy adopted for the company will be aligned with their identity (Values); it is important to remember that Espresamente Illy was created with the purpose of providing a service based on the culture of “Italian Style coffee“ (Prospectus, P 44), where company not only offers traditional espresso, but also offers a variety of other products largely based on coffee.
In conclusion, Illy´s expansion might be considered taking advantage of the good moment of coffee sector within Illy has brand recognition. Stimulus for making the expansion can be found in the monthly coffee market report of the international coffee organization. The report shows the attractiveness of industry; for example, the world consumption of coffee has been increasing in recent years and expectations is that this trend will continue; Additionally, the composite price of the several types of coffee indicate a tendency to downward; therefore, the production costs of coffee products could be diminished in accordance with the price reduction of coffee bean.
In order to achieve and maintain a competitive advantage firms need resources and capabilities than permit establish a strategy. Competitive advantage of Illy is based on differentiation through innovation; sources of that can be observed in the fact of being recognized as the producer of the finest tasting coffee around the world, promoting the culture of coffee, with a strong brand...