The Problem of Shrinkage Faced by Coes in Puerto Rico

Stan of Coe’s wanted Coe’s to not settle down just in the U.S. markets, but perhaps move internationally. Carl is very hesitant due to a previous failed venture at Puerto Rico. In addition, Carl explains: “But why add the complication and risk of international expansion when it’s not necessary?” The problem faced in Puerto Rico was shrinkage; they were unable to find the right personnel in the tough market.

Stan wants to determine whether it is worth it to increase its exposure to the global markets, and if so, where to focus on.

Terry suggests Europe because they have a similar regulatory and economic structure to the United States. Carl suggests Mexico, due to its local proximity and lower costs, but is also against it because it is something unknown. He wants to increase profitability and not go on risky ventures. Coe’s is already doing very well, is it really worth the risk?

In the case study, Robert Loudermilk, president and CEO of Aaron’s believes that the “only path to sustained growth in this case is expansion abroad”.

Similarly, Carlos Danel of Compartamos believes that “just because a market is large does not mean it is infinite”. For a rapidly growing company, Coe’s should dive into new markets in case the markets start become stale and the growth will not be able to keep up. According to our marketing textbook, there are various complexities in venturing into the international markets: “For example, China and India are huge markets—each with a population well over 1 billion people.

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However, because of inadequate distribution systems, most companies can profitably access only a small portion of the population located in each country’s most affluent cities” (Armstrong 345). So, there needs to be caution and careful planning before diving in.

Yum! Brands (which owns KFC, Pizza Hut, and Taco Bells), is one company that expanded from the U.S.A to China and India. They are extremely successful: KFC is currently the largest restaurant chain in China, with currently 6,900 chains (Madhani). In 2011, Yum sold off Long John Silvers to fund its expansion to the Asian markets. Rather than selling the same things in China, they sell ethnic food over there due to different cultures and cuisines. For example, they have “bacon mushroom chicken rice,” “teriyaki chicken chop rice,” and “curry pork chop rice” (Lutz). Of course, there can always be turbulence going into the unknown, but you have to keep going. Despite 15% loss in sales, Yum! intends to “double the number of Taco Bell business by 2022” and “added 25 new menu items” for Pizza Hut (Carlino).

In my opinion, businesses should always try to increase its customer base. The textbook, experts in the HBS business case, and the successful example of Yum! Brands are convincing arguments for why Stan and Carl should think about expanding abroad. Mexico, due to its close proximity, can ease the pressure on logistics and distribution. If anything goes wrong, it can be quickly rectified as well. Carl’s objections about the Puerto Rico failure is unfounded as he’s fooled by the sunken cost fallacy; losses that has already occurred should not influence any future actions/decisions because regardless of what you do, the losses will always be there.