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Assess the likely benefits to Lavazza of operating in the NAFTA trading bloc - Edexcel - A-Level Business - Question 2 - 2019 - Paper 1
Question 2
Assess the likely benefits to Lavazza of operating in the NAFTA trading bloc. Extract D The US coffee market 2016 12.3% Consumers aged 25 to 39 13.0% Consumers ag... show full transcript
Worked Solution & Example Answer:Assess the likely benefits to Lavazza of operating in the NAFTA trading bloc - Edexcel - A-Level Business - Question 2 - 2019 - Paper 1
Step 1
Benefits to Lavazza
Answer
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Access to North American Markets: By operating in the NAFTA trading bloc, Lavazza can leverage its investment in Kicking Horse Coffee to enter and expand within the competitive US coffee market. This offers an opportunity for increased sales and brand recognition in a saturated market.
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No Common Tariff Structure: NAFTA provides the benefit of no common tariff structures between member states. Lavazza can export its products to both the US and Mexico without facing the tariffs that could otherwise make their products less competitive if imported from outside the bloc.
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Growth in Organic and Fairtrade Segments: Kicking Horse has established itself in the growing organic and fairtrade coffee market. Lavazza can enhance its offerings, appealing to a consumer base that values these products, thereby increasing its market share among environmentally conscious customers.
Step 2
Potential Counterbalance
Answer
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Increased Competition: The free trade advantage provided by NAFTA may be counterbalanced by the competition from established brands like Starbucks. Lavazza's efforts to penetrate the Canadian market may face challenges from aggressive marketing and promotions from these competitors.
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NAFTA Membership Implications: Although NAFTA membership provides benefits, it may not significantly advantage Lavazza in overcoming the operational challenges faced by small, specialized outlets. The competition from established players for shelf space and consumer attention may remain a persistent hurdle.
Step 3
Potential Judgment
Answer
NAFTA presents Lavazza with multiple opportunities to expand its business footprint from Canada into the US and Mexico, particularly in the organic and fairtrade coffee segment. However, the competitive landscape and focus on specific market niches suggest that while the opportunities exist, Lavazza may need to strategize effectively to leverage these advantages while handling the competition.