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Marvin and Smith have an amazing opportunity to compete with world-famous coffee giants such as Starbucks to extend their business into Europe. This rivalry would encourage the company to acquire new expertise to develop its quality and service standards. Marvin and Smith are expected to expand their coffee shops in Germany because the general acceptance of coffee products in the country will be a good business chance. German people consider coffee to be an expression of their domestic identity. According to the survey by Statista Consumer Market Outlook conducted in 2015, Germany was ranked number five in terms of cups of coffee consumed per capita (Balcerzak and Rogalska, 2010). On average, Germans drink approximately over 900 cups of coffee annually, with more than 86% of German adults drinking coffee on a regular basis; the majority of this percentage taking coffee daily.
In the 17th and 18th centuries, drinking coffee was reserved for wealthy traders and educated class with the poor people left to drink fake coffee made from chicory or malt. When the coffee prices plummeted in the early 19th century, the drink became affordable to many people (Balcerzak and Rogalska, 2010). Germans love to meet in social joints such as café and restaurants, and they prefer coffee to other drinks. Coffee consumption in Germany is enhanced by the fact that the rate of unemployment is low which enables Germans to adopt fancy lifestyles increasing the consumption of coffee.
The country operates as an open market without barriers to enter the market. Since Germany is a member of the European Union, its market practices are regulated by the policies of the Union. The government is obliged to treat European foreign firms as domestic firms (Balcerzak and Rogalska, 2010). Marvin and Smith should adopt practices that promote favorable trading environments such as voluntary disclosure of its financial reports and remitting taxes promptly. Also, the company will be obliged to provide safe and humane working conditions to its workforce. The country has strict conditions aimed at protecting the welfare of the workforce in the economy. Continuous adherence to these ethical requirements will enable the company to achieve acceptance among the Germans.
In Germany, Hamburg is considered as the secret capital of coffee (Balcerzak and Rogalska, 2010). The city has even a coffee museum known as Burg coffee museum and roastery, thus proving to be a strategic location where a coffee start-up company has higher chances of surviving. The city has an efficient and elaborate transportation system with smooth roads covering all corners of the town. The transportation system will also enhance acquisition and delivery of the company_x0092_s supplies as well as facilitate customer movement.
To effectively compete in the German market, Marvin and Smith should continue delivering differentiated products to customers. The entrepreneurs should continue importing Gumutindo coffee beans from Uganda so as to create a new experience to Germans. This differentiation will enable the company to serve a coffee drink which is different from what is currently available in the market. In addition to differentiated Gumutindo coffee drink, Marvin and Smith should also sell cold drinks, pastries and snacks which are East African inspired as well as the German_x0092_s espresso so as to cater an alternative for conservative consumers (Verbeke, 2013).
Promotion is done by a company to create awareness about the existence of a product in the marketplace (Blackburn, Hart and Wainwright, 2013, p.10). Marvin and Smith should conduct an aggressive campaign to create awareness among consumers about their entrance into the German market. The company should advertise their products and services in main television stations of the country explaining how their services will create a new experience for consumers. The company should be active in social media platforms informing the current smartphone generation and working class that they offer free Wi-Fi in their shop and relaxation activities such as board game and chat with Nana for advice, hence adding value to their services.
A company may develop competitive products, but if it fails to get these products to the right market, they are bound to fail. Even though Marvin and Smith will be offering their services and products in a shop, they should be creative so as to create partnerships with local enterprises. Increasing outlets will subsequently increase the company_x0092_s presence in Germany. Also, instead of the company waiting for customers to visit their premises, the entrepreneurs should bid for tenders to supply coffee beverage and other products to companies in Germany (Business, 2010). These initiatives will increase the distribution channels of the company; enhancing its visibility, revenues, and competitiveness.
Price undercutting strategy will enable an entity to penetrate the new market full of established competitors. Initially, the company sells its products at a marginally lower price than what the competitors are charging. The strategy will attract price-sensitive customers to offset its operations. As the company develops in the new market, it will gradually raise the price so that it can reflect the quality of services offered. In order to maintain the customers that the company has gained, it should rapidly differentiate its products and innovatively design new services that will add value to customer experience (Business, 2010).
Organisational culture is a set of beliefs, values, norms, and customs in an organisation. These elements guide individuals_x0092_ behaviors and attitudes in the workplace. Companies seek to cultivate an organisational culture that promotes inclusion of all employees, cooperation and good working environment. Organisational culture embraces diversity and respect in the workplace so as to enable every employee to positively contribute and freely express their opinions without intimidation (Blackburn, Hart and Wainwright, 2013, p.16). If a company cultivates appropriate organizational culture, it will lead to satisfied employees, hence improving their workplace productivity.
Marvin and Smith have cultivated certain values and beliefs in their company which are highlighted to employees during the recruitment process. The company believes in equality and promoting fair trade. As such, the company expects that employees_x0092_ behaviors and attitudes will promote these values without compromise. The firm also believes in adding value to the services that they offer consumers, as such; employees are expected to engage with customers in certain activities such as board game when they have no partner to play with (Bharadwaj et al. 2013, p.472). Such activity enhances the bond between the customer and the company which will create customer loyalty.
Germany has diverse culture and races which should be harmonised in one direction for the company to achieve its objectives. To harmonise this diversity, Marvin and Smith should develop an induction program for all entry-level employees which will nurture them into the ways of the company as opposed to just highlight the company_x0092_s beliefs and values during the recruitment process. Employees should be educated what it is like to work for the Marvin and Smith coffee shop. Effective organisational culture will ultimately culminate in effective satisfaction of needs of employees leading to increased productivity giving the company a competitive edge over its competitors (Blackburn, Hart and Wainwright, 2013, p.18).
Gaining Competitive Advantage
Intensity of competition necessitates companies to develop appropriate strategies to enable them compete effectively. The ability of a company to constantly formulate strategies will ensure its survival and enhance its profitability in the long-run. The company_x0092_s capacity to offer products and services which competitors are not offering or those of added value, will enable the entity to gain competitive advantage. Companies adopt various strategies to gain a competitive advantage, such as imitation whereby companies tend to imitate products or services being offered by other companies and design products which look exactly as that of a competitor (Verbeke, 2013).
However, the most effective strategies are differentiation, acquisition, and mergers. Once Marvin and Smith Company has settled and attracted customers in Germany, it should subsequently embark on differentiating its products and services so as to offer unique products to consumers. The firm will be able to create its own niche in the marketplace and gain customer loyalty (Verbeke, 2013). Providing free Wi-Fi, power point socket and board game evenings are practical ways of adding value to coffee and snacks they sell to their customers. These steps will attract customers; especially the current smartphone generation who will see the convenience of the company to meet and effective satisfy their needs.
To gain a competitive edge over competitors in Germany, the Marvin and Smith Company should also cater efficiently to the needs of its staff. Satisfaction of employee will be reflected in the satisfaction of customers through services and products that are tailored-made to meet their preferences, tastes, and needs (Business, 2010). Although, cultivation of an organisational culture that ensures inclusion and the good working environment enhances the welfare of the workforce, it is not enough to hand a company a competitive edge. Marvin and Smith Company should cater for material and psychological needs of their workforce through career development opportunities and competitive remuneration to improve their motivation in the workplace.
Profitability and Liquidity Ratios
Gross profit= sales _x0096_price of products sold (purchases _x0096_ closing stock)
360,000 _x0096_ (160,000 _x0096_ 8,000)
Gross earnings comprise income an enterprise gets from the sales of its products. Gross earnings is the general profit before other activities of the company are factored in. It shows the profit acquired from the selling activities only (Blackburn, Hart and Wainwright, 2013, p.22).
Net profit = gross profit _x0096_ expenses incurred during the trading period
= 208,000 _x0096_ (32,400 +34,000 +80,000 +8,400 +8,000 +6,400 +8,000 +4,000)
= 208,000 _x0096_ 181,200
Net profit is the profit gained for the trading period under consideration. This is reached at after factoring all activities and expenses of the business entity (Blackburn, Hart and Wainwright, 2013, p.25).
Return on Capital Employed (ROCE)
ROCE is usually known as the primary efficiency ratio. It indicates how efficient an entity has used its total assets or capital to create services and products which are converted into company profit (Mundial, 2013). ROCE can be said to be the gauge of profit or reward for an entrepreneur taking the risk.
ROCE = Net operating profit / Capital invested
Capital invested = long-term liabilities or borrowed assets + retained earnings + share capital
ROCE = 26,800 / 100,000 = 2.68%
This implies that for every sterling pound invested, the company is gaining back 2.68 sterling pounds. This ratio indicates the company is efficiently utilising its capital to create products and services. The end product is enhanced revenue.
The current ratio measures the ability of a company to settle its current expenses with its current resources. If the ratio is higher it implies that an entity is in a better liquidity position (Mundial, 2013).
Current ratio = short-term resources / short-term debts
= 35,400 / 6,200 = 5.71%
This relationship shows that for every one sterling pound that Marvin and Smith Company owes its short-term creditors; there are five sterling pounds to pay off.
Acid Test Ratio
The ratio shows the capacity of the company to settle its current liabilities without including unsold stock in its current assets (Mundial, 2013).
Acid test ratio = (short-term resources _x0096_ closing stock) / short-term debts
= (35,400 _x0096_ 8,000) / 6,200 = 4.42%
The value of 4.42% shows that the company can comfortably settle off its current liabilities with only the cash in hand. In the absence of unsold inventory Marvin and Smith Company, it has four sterling pounds on hand to offset any short-term liability.
In Germany, coffee drinking has been naturally accepted as an expression of national identity. Germans have accepted coffee as their traditional beverage indicating that Germany is already a mature market (Verbeke, 2013). As such, Marvin and Smith will be guaranteed of the potential customers to subscribe to their products when they set up their shop in the country. The main advantage that the company has is that Germans know and love coffee, to get customers; it will solely depend on the firm_x0092_s ability to develop attractive and appealing pricing, promotional and placement strategy. With pricing undercutting being the most applicable to penetrate the market, the company will be able to swiftly differentiate its products enabling it to gradually raise the prices of its products to reflect the value the firm is offering its customers.
The ability of the company to differentiate its products and add value to the consumer_x0092_s experience will give the company a competitive advantage, enabling it to create its own niche in the marketplace. This capacity will be enhanced by the state of the Germany market whereby there are no trade restrictions, no discriminative trade policies or threatening administration. European Union trade regulations will allow the company to enjoy the same treatment as the domestic companies. To sum it up, the size of Germany economy has a low rate of unemployment, and it remunerates its workforce competitively implying that potential customers have abundant resources to try out new and exciting products and services such as those provided by the Marvin and Smith Company. This fact is further enhanced by the value-adding services such as board game to relax customers and free Wi-Fi to allow smartphone generation explore internet as they sip coffee (Bharadwaj et al. 2013, p.476). Consequently, Germany proves to be a strategic location and the expansion plan of Marvin and Smith to Germany is viable.
Balcerzak, A. and Rogalska, E., 2010. Government_x0092_s Effectiveness in Creating Institutional Conditions for Entrepreneurship in Central and Eastern Europe in the Years 2004_x0096_2010. In: A. Balcerzak, ed., Policies for Improving Growth Potential: International Perspective. Torun: Wydawnictwo Naukowe UMK.
Bharadwaj, A., El Sawy, O.A., Pavlou, P.A. and Venkatraman, N.V., 2013. Digital business strategy: toward a next generation of insights, MIS Quarterly, vol.32, no.2, pp.471-482.
Blackburn, R.A., Hart, M. and Wainwright, T., 2013. Small business performance: business, strategy, and owner-manager characteristics, Journal of small business and enterprise development, vol.20, no.1, pp.8-27.
Mundial, B., 2013. Doing business 2013: smarter regulations for small and medium-sized enterprises. The World Bank.
The International Bank for Reconstruction and Development, 2010. Making a difference for entrepreneurs. Washington, DC: The World Bank.
Verbeke, A., 2013. International business strategy. Cambridge: Cambridge University Press.
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