The main argument towards investing into the UK is that the business is already established in terms of finance as well as the public image and brand. This is supported by the data shown in the case study, mainly that coffee delight managed to earn more profit despite cutting down the budget by 10%. One of the main consequences of decreasing the budget is that the quality of products and service will decline. This may have happened but the fact that coffee delight was able to increase its profits strongly suggests that their public image or brand was very strong and established something that wouldn’t have in Romania.
There are a few problems associated with establishing the business a good brand image in Romania. One of the main problems is the people, culture and market trends in Romania will be different to those of the UK. Also, the majority of the Romania population doesn’t speak English so communication will be difficult. So if Coffee Delight is to make it into the Romanian market, they will first need to acquire a lot more knowledge about the market and culture in Romania. The data given in the case study is very limited.
However it’s not all bad news, since no other competitors have yet entered into the new market Coffee Delight would have the first mover advantage. They have the chance to set the standards of quality as well as the cost of their service. They can perhaps further decrease their operating costs without worrying about competition. Coffee Delight has been able to do this in the UK whilst surrounded by completion so lowering costs in Romania is likely to be very easy to do. This would be a good point towards their objective of “keeping costs down”.
Romania is currently experiencing and economic growth. The data shows that the income per head has been increasing in the recent years so if Coffee Delight is to enter the Romanian market, now is a better time than ever. Being at the start of this economic growth will almost guarantee a good level of sales for Coffee Delight. The data also shows that the annual growth in sale of coffee between 2006 and 2009 will increase by 5. 9% (this in a average of 6 forecasters so it’s a family reliable piece of data) This will give Coffee Delight room to grow each year and take up a bigger market share.
Coffee Delight hasn’t been able to take up much of the market share in the UK and since the market is saturated, there is no room to expand their share. Investing in Romania would put Coffee Delight in a much better position to have a large market share (since they will be the first mover, they could get established before any of the competitors get a chance to) The average weekly pay – private sector is ? 46. 81. Although this may increase over the next few years, it’s still a very small amount of money. This low amount of income would have a lot of influence over the prices that Coffee Delight would have to charge.
Coffee Delight would have to charge very low prices if they are to make any sales. This will decrease the profits but this same factor counter acts this problem. Since the average income is so low, Coffee Delight can set a lower budget in the HR and employee department. This same factor is another point towards Coffee Delight’s goal of maintaining low costs. Although the initial cost for Romania would be larger, the fixed cost in Romania will be much lower than that of the UK. The data also shows that Romania will generate more net turnover than the UK. Short Term, this is not an advantage since Romania will have a big start-up cost.
Long term, the UK may continue to generate revenue, but there won’t much significant growth since the market is saturated, something that Romania will have for a longer period. Even if other competitors enter the market, it’s logical to assume there will still be more room to grow compared to the UK. Overall, I think that Coffee Delight should invest into Romania. I think this because it will help them maintain they goal of keep low costs and the first mover advantage will give them room to grow larger than their competitors, something that hasn’t been possible in the saturated UK Market.