Introduction
The business of coffee is considered as one of the major industries of the world. The whole world is engaged in exportation and importation of the products of the coffee. It is because the coffee products are easily available. The majority of the Asian countries are involved in the farming of the coffee so that it can be immediately accessible. The result is to create an easy going manufacturing business set-up accompanied by the exportation and importation of the various products of coffee. According to the experts, the coffee business is the only industry that will never have a decline or die down. Besides, various other factors should be kept in mind while developing an international business of export of coffee and its product to France. These factors are legal barriers, financial barriers, geographic barriers, cultural barriers, demographic barriers, and social barriers.
Legal Barriers
France is a member of the European Union, owing to it; France is following the general directives, obligations and the regulations of the European Union. There are no restrictions on the import and export of the coffee from European Union member countries. However, the tariffs, levies, and taxations are present for the international export of the coffee from the France. There is a compulsion of attaining the export license and the health certificate for the trade of the food or drink products. The regulations varied from country to country, so there is a need for an expert in this field for a new entrant. The legal barriers are more related to the high standards for the production method of the coffee that is being exported. The issue is gaining the political prominence. The market has a high demand for the fair trade coffee and the certified coffee. However, the certification and the fair trade have to face various legal implications. The return is high in term of market value (Business and Design, 2012).
Cultural Barriers
The coffee products in the France are comparatively cheaper, but it will sometimes sacrifice the quality. It is the basic cultural barrier for any start-up business of the region. The giant coffee businesses have achieved the economies of the scale such as Starbucks. Therefore, the new entrants have to deal with the low competitive prices of the coffee for the consumers in the region. The consumer base is thus, limited to the lower tiers and middle-income tiers of the region (Kolk, 2013). The small base is indeed to cover by the business of international trading. Another cultural barrier is the concerns of the society for the environmental and social costs of the businesses. The environmental concerns have increasingly changing the views and demands of the consumers. The socially responsible businesses are gaining all the worth of the market. The generation of the baby boomers is dying in the industry; it reflected that the older consumers are spending less on the coffee products at present. There are other cultural barriers such as the consumer preferences, the changing family patterns, and changing lifestyles, changing work patterns, and changing values (Business and Design, 2012).
Financial Barriers
The financial barrier is obvious in the trade of the coffee. It is the result of the general conditionality of the financial institutions and banks. The banks and the financial institutions provide funds to businesses to trade in coffee; they are contributing the risks. Resultantly, the businesses have to pay a high credit line. The degree of risk is assessed by the institutions and banks. The conditions and the cost of the credit line are decided by it (Business and Design, 2012). In addition to it, there is another financial barrier that is including the setting of the limit on the amount of the finance provided by the banks. The banks have full liberty to stipulate the circumstances and the purposes of the funds while financing the coffee business. For instance, the funds provided to export the coffee cannot be used for any other operational activity. In the international business expansion of the coffee import, there is a rule that international banks will finance the export of the coffee only in foreign currency, which is in most cases the United States dollars. There is always a set of agreed pre-conditions as well that act as a barrier for the business to trade the coffee internationally. It limits the total exposure of the coffee business. It is a dilemma that the new entrants and the small set-ups have to face more constraints and stringent financial controls of well-known and substantial companies. Furthermore, the finance provided by the bank is limited to the shorter term. The credit is self-liquidating. It will finance only for the purchase of the coffee stock up to the export. So the immediate reimbursement of the funds left the business with fewer profit margins and less credit that can buy next cycle of stock of coffee (Van Hilten, Fisher and Wheeler, 2011).
Social Barriers
The eating and drinking habits of the consumers of the France towards the coffee determines the social barriers for the industry. The market for the coffee must adapt towards the change in the attitudes of the consumers. The increased concerned of the consumers towards the lifestyle and health issues are threatening the businesses of the food and drink industry. The hot drink market had a decline of 2.3% due to this social barrier of health consciousness. The awareness of the health concerns and the improved living standards of the consumers have threatened the market. Especially the young individuals are more concerned about their health. It is making the coffee a very least attractive choice. There are some alternatives available for the coffee industry. For instance, the health drinks and energy drinks are the major competitors of the coffee industry. In addition to it, one of the major competitors of the coffee is the tea. The market of tea is a source of attraction for consumers as well. There are some types of tea available in France to fulfill the need of the individual customer (Cavusgil et al, 2014). The result is the less consumption of the coffee in the region as compared to tea. The individuals are becoming increasingly selective about the certified food and drinking items. So the coffee industry has to deal with this social dilemma as well. The soft drinks and carbonated drinks have taken the cover of the young consumers. The college and university going consumers are more addicted towards the carbonated drinks as compared to coffee. So, there is a need for the innovation in presenting the coffee business in such a market. The innovation is the demand for the time, and good marketing skills can overcome the social dilemma of the coffee business (Van Hilten, Fisher and Wheeler, 2011).
Demographic Barriers
Demographics is related to the different age groups, sex, gender, income groups, social classes and races residing within a specific population. The demographic study of France suggests that the population of France is progressive and open to the new world trends. It is a hub of international trends, fashion happenings, and tourists. The country is rich with cultural heritage and, therefore, the center of attention of tourists as well. The people of the country have their living associated with the tourism. The population matrix of the country suggests that the population of the country is comprised of the aging as well young people (Cavusgil et al, 2014). Therefore, the population consists of generation X and Generation Y individuals. The love for coffee is uniform in both these generations. Moreover, the coffee shops and the coffee are associated with the chatter and social gatherings. This trend is prevalent in generation Y and X. Therefore, the demographics of age and gender pose no hurdle in liking for the coffee. Moreover, the population of the country is expected to hit 66,175,000 by 2025 making it most populous country of the Europe. The increasing number of immigrants is one of the leading causes. The population of such size is an attractive market for any business particularly the coffee export business. The GDP per capita of France is above 35000 Euros. It suggests that the income level and consumption pattern of French consumers is attractive. It is a favorable trend for the coffee business (Business and Design, 2012).
Geographic Barriers
The analysis of the geographic factors reveals that the geographic position of the France for the coffee plant is not suitable. Therefore, the coffee cultivation in France as well as Europe is scarce. The country relies on international trade for the coffee needs of the consumers. The leading countries in the production of the coffee are South American countries and some Asian countries. The local coffee consumption of the French is met by these countries. The companies either import raw coffee plant or the finished coffee for the local needs (Needle, 2010).
Entry Method
The proposed entry method in France for the coffee business is exporting the finished coffee bags of different sizes. There are different entry choices for starting the international business namely Foreign Direct Investment, Licensing, Local Partnerships, and Franchising. Out of all these options, exporting the finished products is the most viable. The basic reason for this choice is that France has almost zero coffee plant cultivation. The coffee plant cultivation and production are highest in South American countries. Those countries have fewer labor expenses and wage rates. The business formalities in those countries are less as compared to France. If the coffee leaves are imported into the country and finished locally into the finished product, it will be expensive. The cost will be increased due to higher wage rates, tax, interest and operational expenses. If the coffee is finished and packed into the bags in the cultivating countries and exported to France, it will be much cost effective as compared to the local production in France. The exporting is inevitable; either the business chooses to set up a local manufacturing site in France or imports the finished coffee. Therefore, in this case, the most viable option is the exporting method (Kolk, 2013).
Moreover, the foreign direct investment (FDI) has an advantage that it gives the maximum control over the business operations. However, this control is gained with a huge investment. FDI will lead to higher capital costs in setting up the business and production units in France. Even in the case of FDI, the import of the goods will be inevitable. The business will have to import coffee leaves to finish them into the granular coffee or the beans. Therefore, this mode of entry is not justifiable. Similarly, the licensing and franchising are beneficial in case of the retail business. These methods are of minimum importance and consideration in the case of this business (Kolk, 2013).
Financials
This section deals with the financial projections that are vital in deciding the international business destination. These financials are in Euros and are hypothetical figures based on the secondary research
Total Capital Cost
The initial cost or the capital requirement along with the break up is given below
Profit and Loss Statements
The profit and loss statements for the first two years of operations are given below
Break Even Analysis
The break-even point gives a value of the sales volume in units at which the company is neither profitable nor at a loss. It is very important to consider before making an investment as it provides valuable insight into the future profitability of the business. The break-even analysis of the exporting business is given below. It below calculation, the price per unit of the coffee bag is 10 Euros, and the variable cost per unit is 1.5 Euros per unit
Break Even Point in Units = Fixed Cost/ Sales Price per Unit – Variable Cost per Unit
Break Even Point in Units = 201000/ 10 – 1.5
The Break Even Quantity in Units will be 23647 Units of Coffee bags
Break Even Point in Euros = Sales Price per unit x Break Even Point in Units
Break Even Point in Euros = 10 x 23647
The break even amounts in Euros will be 236470 Euros. Referring to the P&L Statement, the business will reach its break-even point in the second year of the operations. The year end of 2018 will be profitable for the company.
Conclusion
The crux of the whole matter is that France is an attractive place for the exporting of the Coffee. The entry method most suitable for the international expansion into the country is Direct Exporting as it is a most cost-effective way. France has no coffee cultivation and exporting is inevitable. Therefore, the exporting finished products will be beneficial rather than exporting coffee leafs and beans. The financial projections support the entry method and provide the notion that exporting coffee to the France will be profitable.
References
Van Hilten, H. J., Fisher, P. J., & Wheeler, M. A. (2011). The Coffee Exporter's Guide. International Trade Centre UNCTAD/GATT.
Needle, D. (2010). Business in context: An introduction to business and its environment. Cengage Learning EMEA.
Business, D., & Design, D. B. (2012). Doing Business. The World Bank. 2012a. http://www. doingbusiness. org/about—us.
Cavusgil, S. T., Knight, G., Riesenberger, J. R., Rammal, H. G., & Rose, E. L. (2014). International business. Pearson Australia.
Kolk, A. (2013). Mainstreaming sustainable coffee. Sustainable Development, 21(5), 324-337.
