Based on the case “ The Espresso Lane to Global Markets”, this memo will look into Illy's core capabilities and analyze its international strategy in light of CAGE distance, RAT, CAT, and foreign market entry mode.
Illy’s core capabilities lie in its Italian-style, focus on design and aesthetics, high quality, espresso culture. The increasing demand for coffee worldwide represents a huge opportunity for Illy to venture into global markets. I believe Illy has competitive advantages based on “VIRO” analysis. Illy is capable of creating value overseas with its unique, high quality Espresso. Its high-end restaurants and unique culture and customer experience are rare and hard to imitate. Given the success in…show more content… More importantly, it is projected to grow more than 12% annually in the next 3-5 years. Moreover, from Exhibit 3, GDP per capita in UK is $35,900, which is $5,800 higher than Italy’s. This shows big market potential for premium coffee products in UK. With mature consumers generally capable of appreciating premium quality coffee, Illy can differentiate itself by selling its core competencies such as Italian-style, and top quality product. In addition, UK has small cultural and geographic distance to Italy, and is ranked 7 in terms of ease of doing business. All of the 4 factors from CAGE analysis indicate a favorable condition for Illy to do business in the UK market. The best market entry mode in UK is direct franchising as it preserves the authenticity of Illy’s brand by providing supplies and expertise directly from Italy. Under RAT analysis, UK also seems to be a good choice due to the similarity of the two markets. Illy’s high quality coffee is highly relevant to consumer’s taste in UK, and Illy will be able to transfer and appropriate its expertise in the UK market. Furthermore, under CAT analysis, the new capabilities and expertise derived from the UK market can in turn enhance Illy’s domestic business in Italy due to the small cultural distance between these two countries.
After securing its market position in the UK, Illy can expand into the US market due to the cultural, economic, geographic and administrative proximity between the UK and the US.