INTRODUCTION The Tavazo company is a family-business which operates in the food industry. Started upon an entrepeunarial initiative in the 1930s in Iran, its business has been developed such as Tavazo now commercializes products such as dried fruits and nuts and operates in activities from growing to retailing. The development has also been geographical as it entered the Canadian market by 2010. Now considering further expansion, the company asks for recommendations to decide of its future strategy.
The Tavazos have considered two different strategy lines, which are namely geographical diversification and vertical expansion.
The first strategy consists in whether to enter new geographic markets or to focus on the current markets and expand within them as retailers. The second strategy consists in vertical integration by focusing more on the wholesale side. As a small business operating in a sector with few players, Tavazo copes with particular issues that CPH International intends to answer. Appraising the geographical expansion as the best option for the company, the report is structured as follows.
In a first part, the resources and capabilities of Tavazo Co are identified. Then, a pattern for geographical expansion (within and outside the current markets) is suggested. In conclusion, further recommendations related to the organizational issues faced by the company. THE TAVAZO COMPANY The Tavazo company is a family business started upon an entrepreneurial initiative in Iran in the 30s. Its business is vertically integrated and encompasses activities such as growing, manufacturing, wholesale and retailing.
Most of the value of the company stems from the retailing activity, which counts for 80% of the current sales. The strategy of Tavazo lies on differentiation by offering high quality products at a premium price (Porter, 1985). In Iran, the company has managed to build loyalty over time, targeting customers with quality as first priority. The demand is steady throughout the year with a peak time around March for New Year’s celebrations. Throughout the analysis of its value chain, several resources and capabilities can be identified as key strengths for strategic development.
Tavazo has established a strong network of suppliers based on long-term relationships and financial reliability. As a result, the company is provided with high quality products with low uncertainty and risk. As a family business for several decades, Tavazo has developed a strong knowledge in manufacturing processes. Everything being done in-house, the high-quality of the products is assessed and acknowledged. Focus has been devoted to the retailing activity. Tavazo has been oriented to customer satisfaction by offering a whole store concept (presentation, packaging and sales).
It has led to the recognition of the company as an influential retail brand among the industry, in particular in Tehran which stands for the main influential business area in Iran. The Iranian population is also highly receptive to the quality offered by the Tavazo’s products. Therefore, the key strengths of Tavazo are intangible- namely suppliers relationship, knowledge and reputation. By the same token, the competitive advantage of Tavazo lies on differentiation by offering high-standards products and putting emphasis on branding and services in the retailing activity.
However, the perception of Tavazo’s business is highly bound to the Iranian culture. Nuts and dried food are part of the food tradition. As a consequence, the demand mostly comes from the Iranian population in Iran as well as in foreign markets. The commercialization of the products abroad mostly relies on the diaspora such as 70% of the retail store customers around the world are Iranian. However, if Iranian customers agreed on paying a premium for the Tavazo’s products, foreign markets are less receptive and more price sensitive so that the differentiation based-competitive advantage must imply issues outside national borders.
Some other key weaknesses can also be identified. As Ward (1988) pointed it out, family business tends to have a conservative attitude and to be risk-adverse. Therefore, the family culture tends to prevent flexibility, notably geographically-wise. Combined with its small size and its lack of international experience, the company faces some management issues regarding coordination and supervision overseas. ANALYSIS & DISCUSSION As no significant competitors can be identified and in so far as its current operations engender profits, Tavazo has the opportunity to lead a strategy in order to expand its business.
Drawing upon the identification of the key resources and capabilities of the company and according to the Ansoff matrix (Figure 1. ), Tavazo may pursue two different strategies: Market penetration by which the company aims to increase share of its existing markets with the existing product range. Market development by which it offers existing products to new markets throught the development of its retailing activity. Market penetration Building on its strategic capabilities, Tavazo can aim at expanding its business within its current markets by focusing on its retailing activity.
Drawing upon conclusions about the value chain, retailing stands for the core business of the company. Indeed, retailing is the activity by which Tavazo can implement its differentiation strategy. By the same token, brand management is a key factor in the development of the company. This involves a control of the retailing activity since the perception customers have of the company mainly stems from their experience in the retailing stores. On the contrary, the growing activity cannot be relocated overseas in as much as it is highly dependent on climatic and environmental conditions specific to Iran.
Regarding wholesale, the difficulties of dealing with the retail stores in Canada attest of a lack of competencies of Tavazo in this activity, particularly regarding the preservation of branding. With only a few retailing stores (only two in Canada), the company has the opportunity to expand within Iran and Canada relying on its current success. Market characteristics are already known and the reputation of the company is already established. In addition, the absence of significant competitors prevents the risk of price wars (Johnson et al, 2008). As a result, market penetration engenders little risk.
Emphasis can be devoted to reaching new customers without the diaspora, for instance through brand management. In addition, developing in the current market fits to the family constraints. Indeed, no more mobility is implied relatively to the current situation. Therefore, the company can focus on improving its managerial competencies and notably strengthen its overseas relationships. Market development Internationalization can be supported by market drivers. By entering new markets, Tavazo can reach new customers and diversify risks related to the uncertainty regarding Iran’s economy.
By the same token, it enables to achieve growth. As stated above, the competitive advantage of Tavazo mainly lies on intangible assets and particularly on marketing capabilities through its branding and its strong reputation among the Iranian population. With a vast diaspora around the world, Tavazo can succeed in internationalizing by setting its brand as a key player in the sector. However, “the profitability of entering a foreign market depends upon the attractiveness of the market and whether the firm can establish a competitive advantage within it” (Grant, 2010).
Operating in a highly cultural bound sector, Tavazo Co may face issues on the demand side as for now, it mainly relies on the Iranian diaspora. In addition, as a small and family business, the company may also face organizational issues. As a consequence, market selection as well as focus on the value chain has to be carefully taken into consideration when designing the strategy. Market selection is crucial since several criteria need to be appraised for succesful internationalization. First, the offer has to match the key success factors of the new market in order to outperform competition (Grant et al. 008). In other words, the products have to be valued by the customers. Second, foreign countries must offer location-specific advantages. Third, the company must decide of its positioning within the new market. If nuts can be considered as a branded product and be part of a differentiation strategy in Iran, foreign countries are less receptive to these quality standards for these products. In order to achieve a successful internationalization, the entry mode chosen needs to match the strategic competencies and organizational capabilities of the company.
Drawing upon insights on its size and key resources, Tavazo should then expand through exporting. Exporting fits the capabilities of small business by offering a greater degree of flexibility and minimal resource commitment and yet limits the firm’s risk exposure (Young et al. 1989). Because of limited skills, Tavazo should then pursue a narrow market segment and focus on exploitation of a specific skill. As branding is its main asset, Tavazo should export in the frame of the first competitive pattern that small firms use in pursuit of export markets defined by Namiki (1988).
Within that framework, exporting strategy lies on competitive pricing, brand identification, control over distribution, advertising and innovation in marketing techniques and methods. In order to maintain control over its brand, exporting through an agent or distributor could be beneficial. By operating with a specific agent, Tavazo can preserve its distribution competencies and follows its strategic line by establishing a stable relationship through a consortium. According to these criteria, further research has to be done to determine which foreign market is the best to enter.
Indeed, with unfavorable national environment (e. g. exchange rate regime, domestic production of pistachios) and a demand less sensitive to the quality of the product, the United States are likely to not respond to the offer proposed by Tavazo so that performance will not be reached. On the contrary, China can present some opportunities as the most important importer of pistachios in the world and the second customer of Tavazo. CONCLUSION Based on the value chain analysis of the company as well as on a resource perspective, two main strategies can be led by Tovazo: market penetration and market development.
Implying less managerial and financial risks, the market penetration seems to be the most appropriate direction that Tavazo should take. Within the frame of market development, other entry modes for internationalization could have been considered. Alliances and cooperative agreements can also offer an effective basis for internationalization for small firms (Welch 1992). However, whatever the choice of strategy is, a strong limitation stems from the fact that the family culture of the business prevents any flexibility and capability for change.
Yet, in the context of an expansion process, those capabilities appear to be crucial. Reuber and Fisher (1997) concluded that internationally experienced management is a key ingredient in early internationalization by small firms. Difficulties for supervising and controlling overseas activities (e. g. for the retailing store and the manufacturing processes in Iran) or locally (e. g. for the retailing stores in Canada) attest of a need for improvement in the management structure.
Without renouncing on the roots of the company, Tavazo has to redefine its governance and management system in order to facilitate relationships with its future partners. Therefore, when designing an expansion strategy, focus should also been devoted to structural change. The vertical integration approach has been avoided on purpose since it has been considered as the less relevant option for Tavazo. Due to the limited resources of the company, notably explained by its small size, any future strategy needs to be focus-oriented. That is why, emphasis has been put on its core business (i. e. etailing). REFERENCES Grant R. M. , 2010, Contemporary Strategy Analysis, Wiley, 7th edition Johnson G. , Scholes K. and Whittington R. , 2008, Exploring corporate strategy, Prentice Hall, 8th edition Lu J. W. and Beamish, P. W. , 2001, The internationalization and performance of SMEs, Strategic Management Journal Namiki N. , 1988, Export Strategy for Small Business, Journal of Small Business Management Reuber, A. R. and Fisher E. , (1997), The Influence of the Management Team s International Experience on the Internationalization Behaviors of SMEs, Journal of International Business Studies Welch L.
S, 1992, The use of alliances by small firms in achieving internationalization, Scandinavian International Business Wolf A. J. and Pett T. L, 2000, Internationalization of small firms: An examination of export competitive patterns, firm size and export performance, Journal of Small Business Management Young S. , Hamill J. , Wlieeler C. and Davies J. R. , 1989. International Market Entry and Development. Englewood Cliffs, NJ: Prentice-Hall. APPENDICES Figure 1: Strategic directions for growth Source: Adapted from H. Ansoff, Corporate strategy, Penguin, 1988 PRODUCTS ExistingNew Existing MARKETS New
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