The Mode of Entry to the International Market Is Very Important

Introduction

The process of identifying a viable business opportunity requires a lot of research to be done in the market place. Research has to be done to determine the gap that exists between the demand for a good or service and its supply in the market. A company therefore assesses the business opportunity to see whether it is viable or not. A company needs to identify a market niche so that it is able to supply the market with a product or service that is in high demand.

The company is then able to acquire new customers who buy the products and services of the company. In addition, the company needs to consider other factors when searching for a viable business opportunity such as the level of competition in the market, trade restrictions, threat of new entry and the availability of a substitute product or service. By doing so, the company is able to formulate ways of overcoming new challenges that come with the new business opportunity thereby being able to maximize profits from the new business venture.

Country Profile

Georgia is among the oldest countries of the world and it has been a favorite destination for foreign traders and companies over the years due to the favorable business environment (Quinn, 2017). The country acquired its independence from dissolution of the Soviet Union on April 9 1991. The country is located in the South Caucasus in Europe with part of the country going up to the North Caucasus. Georgia has an estimated size of 69,700 square kilometers and borders four other countries.

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They include Russia which is to the North of the country, Turkey which is in the Southwest region, Armenia located in the South region and Azerbaijan which borders the country in the Southeast region. The country has very diverse cultures and also religions. The ethnic groups present in the country include Georgians, Azeris, Armenians and Russians (Quinn, 2017). In addition, Georgia has beautiful scenery and also ancient history. Anyone that visits the country must be in owe of a certain aspect be it snow covered peaks of mountains, subtropical shores, barren deserts, lush forests, cities and also the villages. The capital city of Georgia is Tbilisi which has an estimated population of 1.1 million people.

The economy of Georgia is that of a free market economy. The National currency of the country is the Georgian Lari with 2 GEL equating to 1USD. The GDP of the country is approximately 16 billion USD. The GDP per capita of the country is 4.05 USD (Metreveli, Kokhia& Merabishvili, 2018). However, the GDP experienced a decline after the dissolution of the Soviet Union but later recovered due to the economic and democratic amendments put in place by the government. The country has experienced a dramatic economic growth over the years and it has been a favorite place to do business for many investors. The GDP growth rate of the country is approximately at 4.8%. The rate of inflation in the country is at the rate of 4.7% in the recent years. In addition, Georgia experiences an unemployment rate of 14.0% yearly. Georgia has also been recognized to have very low cases of corruption in the European region and this fosters business activities. The country is also a member of the European Union Free Trade Area.

The European Union is a major trading partner to the country and is responsible for the major trade turnover of the country. The main sectors of the economy of Georgia include Tourism, Transport, communication and also foreign trade (Rytkönen, Vigerland & Borg, 2019). The major import partners of Georgia are Russia, Turkey, China, Azerbaijan and also Ukraine. The major imports by the country include petroleum, motor cars, medicine products and cigarettes. On the other hand the major export partners of Georgia include Russia, Azerbaijan, Turkey, Armenia and also China. Majority of the commodities are exported to Europe and other commodities to Asia. The commodities exported include wine, mineral water, ores, and nuts among other commodities. (Rytkönen, Vigerland & Borg, 2019).

The economic policies of Georgia puts in place measures which are business- friendly including low taxes but also invest in human capital and strive for inclusive growth in the country. The country is open for foreign investment (Abuselidze & Mamuladze, 2020). The country is doing marketing campaigns in a bid to foster foreign investments in the country. The country has no formal procedure of screening foreign investments however it puts in place registration requirements and business license requirements. In order for a company to register a business in Georgia, first there must be payment of the registration fee, then the company is registered with the Entrepreneurial Register. The company is then required to acquire an identification number and certificate of state and tax registration. The registration fees include GEL 100 for a regular business registration; GEL 200 is required for expedited registration together with GEL 1 for bank charges (Abuselidze & Mamuladze, 2020). Bank account must also be opened. In addition, the personal information of the founders and the chief officers, incorporation articles and the area where the company is conducting its business is required to register a business in Georgia. The type of business also determines the required documentation for registration.

Georgia has the National Bank of Georgia as its central Bank. The bank is tasked with the role of putting in place monetary policies, issuing of relevant licenses and supervision of operations carried out by banks and currency exchange offices (Gelashvili & Atanelishvili, 2016). The country through its central bank ensures that commercial banks have foreign currency deposit liabilities which regulates money circulation and encourages the citizens to deposit their money to commercial banks in the national currency. The government of Georgia requires banks to be categorized as Joint Stock Companies and also submit reports by the use of International Financial Reporting Standards. Georgia has also set in place foreign currency rules that state the Georgian currency is the only legal tender used in transactions within the country. The currency is exempted for business activities like import and exports and free industrial zone.

The only securities market present in the country is the Georgian Stock Exchange. The Stock Exchange was formed with assistance from the USAID and it functions following a legal framework that was put in place by experts from the United States (Gelashvili & Atanelishvili, 2016).The securities market follows the world best security practices in stock trading and it provides local and foreign investors with a proper investment platform. The Georgian Stock Exchange has a stock trading system which is automatic and is able to include many securities which can be traded by stock brokers who are far away in their offices and also in workstations that are located in the floor of the Georgian Stock Exchange building.

Due to high economic growth rate that is taking place in Georgia, a number of business opportunities have arisen since there is growing demand for certain products and services (Lordkipanidze, 2019). The working population which is growing has led to high demand of coffee and its products. Therefore the business opportunities include supply of coffee and tea and secondly the supply of Ready to Drink products. Currently, the country does not have any company that is supplying coffee and tea and also Ready to Drink products. This therefore, creates viable business opportunities for companies that deal in coffee and related products since the demand is higher than the supply.

Opportunity Analysis

Market segment

Starbucks, the international coffee maker, intends to enter the Georgian market soon. However, before doing so, the giant American company needs to analyze the foreign market and determine if it is worth the investment. Bringing the giant coffee maker to the Georgian scene is a viable business opportunity because the country has been missing out on the good quality coffee that Starbucks is known for, among other products. Therefore, Starbucks should open up shop in the Republic of Georgia because it is an underserved European population (Ferreira, 2017). By virtue of this fact, Starbucks can achieve success if it devises effective entry strategies and create a niche for itself in the country.

Research also indicates of the increasing production of coffee in the Republic of Georgia. According to an article published in the Euromonitor International in November 2019, coffee continues to be the most popular drink in Georgia (Tucker, 2017). The fact that Georgians enjoy coffee more than any other drink presents an opportunity for Starbucks. Despite the country having a relatively smaller population compared to the US, Starbucks can capitalize on the coffee drinking culture in the Republic of Georgia. Furthermore, younger consumers of coffee in Georgia reportedly appreciate café culture, meaning that Starbucks can target this market segment so as to drive up its sales for the forecasted period.

Product

Georgians are always looking for high quality coffee since the country is known for production of good quality coffee. As a result, Starbucks penetrating the Georgian market will be expected to use high quality coffee beans in production of the beverage so as to attract the local consumers that are looking for quality products.

Price

Price to be set by Starbucks for its coffee and other products will depend on the quality of the product. As mentioned before, Georgians are looking to spend their money on high quality coffee and manufacturers are also ready to purchase high quality coffee beans to produce the drink. Therefore, Starbucks can leverage quality as a way to increase its coffee sales (Geereddy, 2013). This means that the company should ensure that it uses top quality coffee beans to manufacture its products that citizens of Georgia expect to get. It is clear that people of Georgia do not mind paying more or premium price for a product as long as the price matches the quality. This presents a great opportunity for Starbucks which is known for producing the best quality coffee in the entire world.

Promotion

Starbucks is known for its coffee with premium pricing, therefore, there needs to be effective promotional strategies when it comes to entering a foreign market. One of the ways that Starbucks can promote its products in the Republic of Georgia is use of “free” promotion. This will entail Starbucks giving out free coffee to anyone who buys coffee for someone else. In doing so, the consumer population in Georgia can be get an opportunity to obtain free coffee for their loved ones and hence increase the brand reputation. For instance, if a person gets an extra free coffee, they are likely to gift it someone else who will get to taste the amazing product and consequently spread the information about the product. Basically, if the Georgian population enjoys the Starbucks coffee, they are likely to tell their friends and family to join in the new and exciting experience (Michelli, 2006). Starbucks coffee shops in Georgia can easily become the hang-out spots for youths in Georgia. Despite this promotion strategy appearing simply as so, it has a marketing strategy behind it that can assist Starbucks to gain significant market presence in the country. Other promotional strategies include pricing, advertising and public relations.

Entry Mode

The globalization in recent times has made it possible for large multinational corporations to expand their operations outside their local country such as in European countries, Latin America and Asia. A firm seeking entrance into a global market does so after the realization that the present market is experiencing limited growth. Starbucks realized that there was limited growth in North America and as a result began expansion of its business in the overseas market. The success of a business in an overseas market is determined by the good entry mode strategy.

The firm’s size determines the modes of entry into a foreign country. The larger the firm, the higher the ability it has to control its business (Chen and Mujtaba, 2007). Starbucks is a relatively big firm with a wide range of assets and years of experience in the global scene. It has the capacity to extend its resources and make huge risks with complete control on the revenue and responsibility. The suitable mode of entry for firms is determined by the features of product and service. Given that Starbucks is a seller of soft drinks, then it is part of the soft beverage industry. The options for Starbucks to enter the Republic of Georgia are through contract manufacturing or licensing.

Starbucks require an effective entry strategy into the Republic of Georgia to surpass any existing barriers of entry. First, the company should set up a manufacturing plant in the country since Georgia is known for production of coffee. Setting up a factory in the country will spare the company costs of shipping products from the US, which may be slightly higher than the cost of local production. The company can partner will local coffee producers such as the Cherie LLC that continues to enjoy and improve its brand image of producing high quality coffee. Starbucks can partner with such a local player that is aware of the consumer preferences and trends in the country’s local scene (Geereddy, 2013).

Anticipated Challenges

Given the sociocultural difference between the United States and the Republic of Georgia can have a significant influence on Starbucks’ operation. As a result of cultural differences and challenges, geographical location, policies from local government, the best way for Starbucks to expand in Georgia is through partnerships. Starbucks is likely to face challenges with understanding the attitudes, preferences and behavior of the local people of Georgia since it is a foreign firm.

There is also the likelihood of Starbucks facing risk of venturing into a new country, uncertainty in the demand for Starbucks’ products and possible rollback of the community. The fact that Starbucks is a multinational corporation does not guarantee local acceptance in the Republic of Georgia. As a result, the coffee giant has to make considerations on how they will balance well in Georgia’s culture.

Best U.S based Company for the opportunity

As widely discussed before, Starbucks still remains the best option when it comes to U.S based companies that can seize the Georgian coffee beverage industry. Starbucks has other products in its product mix but its renowned coffee stands the best chance of success in the Republic of Georgia. Despite a few challenges already mentioned, Starbucks still has the opportunity to succeed in the small European country. The company has already entered several other nations such as India and succeeded in changing the natives’ perception of coffee (Roby, 2011) and therefore, entry into Republic of Georgia has the potential to be successful.

Starbucks remains the best option for global expansion into the already established coffee market in Georgia. It has the financial resources required for such a risky yet promising venture. The best option for the survival and eventual success of Starbucks in Georgia is through joint ventures. Reports indicate that the company is already doing so by partnering with Shay Turkey, which is a key European player. Such partnerships will help Starbucks set foot in the Republic of Georgia and start gaining control of the local market.

Furthermore, Starbucks is best suited to penetrate Georgia’s coffee market because the target consumers already match the needs of Starbucks. They are willing to pay for coffee above the market value as long it is of good quality. This is a feature that Starbucks’ products, particularly the coffee already possess. This means that as long as Starbucks continues with production of high quality coffee beverage in Republic of Georgia as it is doing in many other countries in the world, it is destined to succeed.

Starbucks is also willing to share the risk of operating in a foreign country with experienced local players that are already established in the selected country. Therefore, as long as Starbucks chooses the right company to get into a joint venture with, it is likely to overcome challenges and gain market dominance in the Republic of Georgia.

Conclusion

Entry mode is not the only aspect to be considered when a company is expanding its business operations to international markets. International marketing has its own set of challenges which can be the same or different from that of local marketing. This plays a vital role in helping the company know to carry out the business activities in the foreign country. Starbucks Company has in the recent years formed a world image by expanding to different countries year by year. Starbucks company has a world experience of the market therefore it will be able to withstand the challenges that come with opening a new branch in Georgia. The market experience has made the company be able to adapt to new market conditions of any country. Starbucks expansion to Georgia is a viable business opportunity since Georgia has a growing demand for coffee products while there is no supply in the market. The demand arises from the high economic growth rate that the country is experiencing in the recent years.

References

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