Introduction
Manufacturing and marketing private brand food items primarily for retail, restaurant, and ingredient customers, 8th Avenue is a market-leading holding company focused on availing private brands for consumption. A merging of the personal brand companies owned by Post Holdings resulted in the creation of 8th Avenue Food & Provisions in October 2018 (Ferrreira & Ferreira, 2018). Post Holdings and funds connected to Thomas H. Lee Partners, L.P., the private investing company, both own the business. Post Holdings, Inc. is a holding company for consumer-packaged goods in the middle of the retail, refrigerated, food service, food ingredient, and convenient nutrition food categories (Miyares, 2021). THL combines extensive industry knowledge and resources to help build outstanding businesses by accelerating growth and generating long-term sustainable value in collaboration with management.
8th Avenue is an American retail operator that supplies food products to customers. It is a private company formed in 2018 to provide foodstuffs to customers hence growing into a robust operator in the industry. The company’s mission is to provide customers with fresh and high-quality products by providing an industry-wide solution that keeps them fully stocked with products. THL’s vision is to create value in its products by preferring manufacturing and distribution partners. The company must focus on extending sales to the international market by joining the Chinese market. This research expounds on the market expansion strategies 8th Avenue has to consider penetrating the Chinese market.
Market Choice
Market selection is a critical scope for businesses that aim to expand their customer base into specific regions. The market choice influences the business performance and equips the company with the appropriate information on strategies that aid in positioning in the new target market. Selecting the most appropriate market to extend operations into requires excellent business management skills and decision-making from the leaders to ensure prosperity and profitability. 8th Avenue is a retailer of food products and must consider extending operations in China to utilize the advantage of the huge growing population that increases opportunities for market expansion. There are specific factors that the company believes in before picking into international markets. These factors include the market size, target customers’ present and likely future wealth, and costs and risks associated with the target market. Below is an analysis of how these factors are critical in 8th Avenue’s decision to extend operations into the Croatian market.
Size of the Markets
A strategic business aiming to increase its market base and improve profitability must resonate with the existing market conditions to determine the market size. The extensive market size in terms of the population of the target customers is a positive indication of an opportunity to develop the brand image and positioning. 8TH Avenue identifies the Chinese market with characteristics that make it a favorable choice for an investment market. Most consumers are in China, and the demand for these products keeps increasing. There are immense opportunities in the Chinese retail industry, especially with food products, where there is a greater demand for high-quality items, despite tough competition with regional rivals (Ge et al., 2021). The expectations for the order to exceed ordinary expectations improve the company’s zeal to engage more profoundly in the Chinese market.
The social lifestyle and demographic arrangement of people within the target market are vital for developing organizational goals when expanding operations. The social lifestyle dictates the type of commodities that customers consume and helps businesses to determine the best location for their items. Conversely, the demography indicates the products the community consumes the most. Therefore, the market perceives product development by food product retailers positively and apprehends their existence in the market. The Chinese assembly comprises the majority of its population as adults between the age of 15 years and 64 years (Ferrreira & Ferreira, 2018). This group has contributed to significant demand for food products. The groups play a critical role in determining the type of commodities the company provides. 8th Avenue enjoys a considerable support base according to the market size and clearly understands its position and role in China. This will be accomplished through shop development, increased omnichannel engagement, and coffee delivery services. Therefore, the Chinese market is an appropriate opportunity for the company to enhance its sales and profit based on the information regarding the market size.
Present and Likely Future Wealth of Customers
Additionally, the firm must consider the customers’ present and likely future wealth. Economic positioning for most customers influences their preference and quantity for demand. Under the current conditions, the present customer’s net worth in the Chinese market is suitable for the continued sustainability of its operations. 8th Avenue’s management must know that its consumer base in China mainly comprises Generation Z, that is, people born in the ’90s. Hence the group is economically stable since they possess discretionary money that allows them to consume more production. The company is safe and assured that it would enjoy long-term sales increases due to the continued assimilation of more modern societies with money at their disposal to consume its commodities. In addition, the company relies on Millennials to exhaust its opportunities in the market. Millennials are already employed and have stable sources of income hence promising the company more stability and long-term existence in the market. The present and future wealth of customers in China guarantees 8th Avenue a continuously growing demand for its food items. Hence, the management must selectively determine what it provides to meet consumer demands.
Costs and Risks
The production costs and the risks are other critical factors to consider when seeking information about the international market where a company aims to initiate its services and products. Bridging the market gap may require excessive funds; hence the management has to scrutinize all the costs they are likely to incur when penetrating the market. Some of the prices the businesses are more likely to incur in operations include variable, semi-variable, and fixed costs, as direct and indirect expenses (Ferrreira & Ferreira, 2018). Prices are essential since they facilitate many businesses’ effectiveness and prosperity. Proper financial management skills require firms to control expenses while maximizing their revenues to increase the profit margin. On the other hand, businesses face specific risks as they focus on improving their market presence. These risks may be either positive or negative. Some common risks are categorized into the following categories: market, financial, operational, credit, strategic, liquidity, and event risks.
Types of Cots
Costs that vary according to how much of a good or service a company produces are known as variable costs. The total marginal costs across all units paid represent variable costs, and they may also be regarded as typical expenses. The two elements of the total cost are fixed costs and variable costs. Direct costs are expenses that are directly related to a particular cost object. However, not all variable costs are related to direct payments. For instance, variable overhead costs in manufacturing are variable expenses that are indirect costs rather than direct costs. Variable costs are identifiable as unit-level costs since they change depending on how many units are produced. Prime cost is another name people use to refer to direct labor, frequently preferable to conversion costs and overheads. Understanding how costs are split between variable and fixed costs is essential for marketing. This distinction is critical to accurately predict the revenue from specific sales units and the financial impact of suggested marketing initiatives. A cost that has both a fixed cost and a variable cost is referred to as a semi-variable cost. It is frequently used to forecast financial success at various manufacturing scales. It has to do with the business’s production size since, whereas the variable cost rises proportionately to production levels, the fixed cost is constant across all forms of production.
For example, some of the common fixed costs that the company must cater for in the new market include rent, depreciation of machinery, and set-up costs which it incurs when preparing the venue and resources to help in service and product delivery. Variable costs that change based on the production capacity include raw materials. The company must be prepared strategically on methods of separating and distinguishing these costs to ensure that recording in financial statements is by the financial organizations’ standards hence accuracy in profitability calculation.
Acknowledgment of costs aids the business in making critical decisions on attracting customers. High production through increased spending on resources, licensing, and taxation increases the production cost forcing the company to increase the prices of commodities. However, cost identification and classification aid in activities that promote cost management, such as cost leadership. 8th Avenue employs a variety of business-level techniques, including the cost leadership approach. It concentrates on boosting its profitability and competing with rivals. A cost leadership business strategy focuses on obtaining an advantage by cutting its economic expenses below all its competitors. Although 8th Avenue primarily focuses on product differentiation, they have also employed cost-cutting measures to increase profitability. The firm’s success is attributable to its strategies to contain expenses while maximizing the available opportunities to increase revenue.
Types of Risks
There are various risks that businesses such as 8th Avenue face when seeking to operate in international markets. The company must be careful not to overreact to Luckin Coffee organization despite its need as a publicly traded firm to address the new competitive challenge. The partnership with Alibaba group, the Chinese public company, ought to lessen Luckin Cofee’s dominance in on-demand deliveries. Despite the high competition by Alibaba in Chinese e-commerce, the corporate must focus on meeting the high demand and serving the customers with confidence and pride (Bertels &Desplaces, 2021). Hence, 8th Avenue faces a wide range of operational risks that prevent its effective penetration into the target market. Partnership with local firms may be another risk the company is prone to encounter. Maintaining these alliances and preventing the opposition from aligning in these channels is also crucial. It is essential to operationally keep its brand through partnerships with suppliers and other retailers, including internet merchants. Commodity pricing strategies by competing firms are necessary for 8th Avenue to consider as it operates in the new market. It is not directly exposed to changes in commodity prices. In case prices increase significantly, 8th Avenue must practice hedging through derivative contracts.
Market Entry Strategy
Time of Entry
In terms of timing choices, the research on host country characteristics revealed that nations with better investment climates are more intriguing in market decisions because it is simpler to achieve bigger profits. Additionally, increased legal and regulatory clarity attracts foreign investment to a nation. Advanced technology in China and infrastructure as the host nation is a critical contributor to the choice of the current timing to join the market (Miyares, 2021). Current demand for healthier lifestyles is vital to the company as it creates a profound base for interaction with the new market. Therefore, the company can strategically position itself as a key provider of fresh and healthier food products, increasing customer interaction. The plan for 8th Avenue to intercept the market is essential for a growing company since it will enhance understanding of the Chinese market and create a more sustainable engagement with the target audience.
The scale of Entry and Strategic Commitments
Many options are available to a company after it has decided to enter a foreign market. Cost, danger, and the degree of control over these options vary. Exporting via a direct or indirect route is the most basic entry strategy. Truly worldwide enterprises may entail joint ventures or export processing zones, which are among the more difficult types. Raw or commodity agricultural items frequently include government, agents or distributors, whereas processed materials require more organized approaches (Ferrreira & Ferreira, 2018). The business identifies with the need for more alternative food supply retailers in China hence an opportunity for expansion rather than just seeing it as a direct competitor to its current products. The Chinese market is critical in developing a robust international business. It has excellent indicators for prosperity in the retail industry due to the increased population that aids decision-making. Therefore, the company must critically analyze the market structure and examine the capital it needs to become a significant player in the market. Thorough market research enhances the quality of decisions the company must make to penetrate the market and easily meet consumer preferences.
Whether a company is a start-up or well-established, entering a new market involves thorough planning, evaluating every potential cause of success or failure, and choosing whether the possible causes are favorable to the company’s success. Timing, scope, and form of admission are just a few important elements that a corporation needs to consider. Whatever strategies and deciding features a firm opts for, the investment must have more benefits than drawbacks to be profitable for the business (Ferrreira & Ferreira, 2018). First, timing refers to the time frame that affects whether the corporation enters a foreign market first or enters a market later after other companies have already done so. An organization that enters a foreign market before other foreign competitors in the same industry is said to be an early entrant. A late entry is a delayed entrance after other foreign competitors have joined a certain call. The first person to occupy a strategic position or a niche possesses resources identifiable as the first mover advantage.
Market Entry Mode
Market entry strategies give companies a road map for breaking into foreign markets. Companies will select the best strategy based on their objectives and target market since there are several ways to sell their products abroad. The market penetration approach must be well-developed and articulated to consider the attributable benefits. 8th Avenue must know the various market entry tactics and how they differ. Market entry tactics are techniques businesses use to organize, distribute, and ship goods to foreign markets. Depending on a corporation’s approach, the price and extent of its control over distribution may change (Tsai et al., 2020). Companies typically base their strategy on the kind of goods they offer, the product’s value, and whether delivering it necessitates particular handling techniques. Marketing strategies, sourcing, and control are the main factors when determining an entry strategy to join a gap. Proper marketing creates awareness and helps customers to identify with the organization, whereas sourcing influences the business choice and aids in resource management. Conversely, controlling is essential for the company since it determines whether it will engage others in its market penetration or be independent.
8th Avenue can use joint ventures to occupy space in the Chines market. The process involves interacting with other firms to cost share on the production means. The process ensures that both parties enjoy a section of the profits. Joint ventures are appropriate for the company since they distribute the costs and risks among the partners. A joint venture is a company founded by two or more people typically distinguished by shared ownership, returns and risks, and governance (Ferrreira & Ferreira, 2018). In general, businesses enter into joint ventures for different reasons, such as to obtain access to a new market, especially an emerging one; to increase scale efficiency by integrating assets and functions to distribute risk for significant expenditures or projects; or to gain access to talents and capabilities. The joint ventures are appropriate for the business since they provide information that aids business management and protects the shareholder’s equity.
Another approach the business can utilize is franchising, where it assigns its name to people interested in using the brand to generate income while paying a specific amount. The strategy transfers all financial risks to the partner, protecting the organization’s funds. However, the process leaps the business at the chance of destroying its brand name and image. Therefore, franchising can extremely cause dangers for Starbucks making joint ventures the most appropriate strategy when joining new international markets.
Conclusion
The company’s mission is to provide customers with fresh products that meet the desired quality and provides everlasting solutions for the problems that the customers encounter when acquiring products and ensures that they are fully stocked. The company’s need to interact with international markets and gain customers in China is essential since it aims to increase the profits that the company obtains. Customer satisfaction is an essential factor that the company pays attention to when supplying products. There are many entry factors that the company must consider such as the time of entry and the level of investments to engage. The recommended strategy to aid in the market entry is the use of joint ventures and franchising to manage the risks. Therefore, these factors are essential for the company since they provide an analysis of information.
References
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