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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.
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
Lavazza has acquired Kicking Horse and thus has a presence in Canada. This allows Lavazza to access the US and Mexican coffee markets easily. Operating within NAFTA ensures there are no common tariffs, allowing Lavazza to import and export coffee products without additional costs that would apply if there were tariffs in place. This facilitates a freer flow of goods across borders, benefiting Lavazza's supply chain and enhancing its competitive edge in North America.
Step 2
Potential Counterbalance
Answer
While NAFTA provides free trade advantages, there is also stiff competition from established brands, particularly Starbucks, in the Canadian market. This competition may limit Lavazza's growth and promotional opportunities. Additionally, Lavazza's reliance on specialized outlets for sales might mean it misses out on wider customer reach compared to brands with broader distribution channels.
Step 3
Potential Judgment
Answer
NAFTA offers Lavazza significant opportunities to expand into the US and Mexico, particularly given their established organic and fair-trade market. However, the priority may skew towards maximizing growth in these sectors in the short term, potentially limiting access to other markets that NAFTA supports. Despite the advantages, Lavazza must navigate competitive pressures effectively to fully capitalize on the NAFTA framework.