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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. (10)
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 purchased Kicking Horse and therefore has a business based in Canada. This allows Lavazza to access the coffee market in the USA and Mexico freely as a result of NAFTA.
Furthermore, NAFTA does not impose a common tariff structure; each member state can set its own policies regarding imports and exports. This flexibility means that supplies of coffee beans can be moved across borders without the additional cost that a common external tariff would impose.
Step 2
Potential Counterbalance
Answer
While free trade under NAFTA provides advantages, it also means that US businesses such as Starbucks can pose considerable competition to Lavazza in the Canadian market. This could limit Lavazza’s growth potential due to the aggressive marketing strategies employed by other brands.
Step 3
Potential Judgment
Answer
Overall, NAFTA presents Lavazza with a range of opportunities to expand from Canada into the US and Mexico. However, the company appears more focused on organic and fair trade segments, potentially limiting its immediate concerns regarding other markets accessible through NAFTA.