Planning strategies for entering into new regions is a crucial task for most businesses since unique factors that create the conditions for entrepreneurial activities depend on specific financial legislation. In addition, particular criteria should be taken into account, which form the economic and political trends in a certain country. Much depends on the conditions of the business, its target audience, the relevance of the services offered, and other related aspects that influence entry strategies significantly. This proposal aims to describe the nuances of introducing Tropical Smoothie Cafe (TSC) in Canada and substantiating the choice of a specific strategy while taking into account the peculiarities of this company’s activities and the business environment in the region under consideration.
According to a number of crucial indicators, Canada occupies a high place in the ranking of world powers with stable and developed economies. Based on the official data, the country ranks ninth in the world list, which makes it a favorable state for life and determines its success in regulating both financial and social spheres (“Canada,” 2020). Its GDP per capita is stably high, while the negative aspects of development, for instance, the unemployment rate, are decreasing gradually. As a result, due to a competent policy of regulating state spheres, Canada occupies a leading place in the Americas, surpassing the US and Chile in its development indicators (“Canada,” 2020). As a result, the market of this state is attractive but strict for foreign entrepreneurs, and planning an implementation strategy is a crucial task.
Regarding the business that is planned to be introduced in this country, the activities of TSC will be reviewed. This company is a franchise and has been operating in the United States since 1997 when the first cafe in Florida was opened (“Our story,” 2020). This network offers public services for preparing tasty and wholesome food and drinks, and individual dishes have become a brand name, for instance, healthy rolls and fruit smoothies (“Our story,” 2020).
The franchise is known outside the United States, but so far, new outlets have been opened only within the country, which explains the importance of the careful planning of the implementation strategy. The purpose of expanding the business is the desire for the brand globalization and creation of an internationally recognized corporation. The upcoming project involves opening one or more retail outlets in Canada, assessing sales stability, and expanding the influence subsequently in case of stable demand. The analysis of the business environment in question with its competitiveness and government regulation parameters will be compiled to justify a specific intervention strategy based on real growth prospects and evaluate the target country’s domestic development indicators.
Country Evaluation
Modern Canada is a highly developed country with significant resources to develop both domestic and foreign markets. A stable economic situation is largely achieved through political control, although trade freedom is high. The analysis of the country’s profile can help determine its key features in the context of economic, financial, political, and historical development, as well as draw conclusions concerning the impact of geographical and other factors on potential business risks.
Economic Structure, Indicators, and Risk
The current economic structure of Canada is mixed, which involves the authorities’ participation in the regulation of various industries and, at the same time, allows free competition among business enterprises. The indicators of state economic development are high: it is estimated that by the end of 2020, the country’s GDP will be more than $1.8 billion, and further growth is planned (“Canada: Economic and political outline,” 2019). In Figure 1, the basic parameters are presented, which reflect the current economic development of Canada.
Regarding economic risks, trading problems may arise due to potential disagreements with partners. For instance, according to the current statistics, about three-quarters of all local exports account for the United States (“Canada,” 2020). In case trade agreements are violated or other conflicts occur, the risk for the country will be significant because the products will not be sold in the same volume, which, in turn, will shake the local economy.
Financial Structure, Indicators, and Risk
In terms of the financial structure, Canada maintains the competitive services model as the basis of its regulative practices. At the same time, foreign banking representatives can enter the local market without significant challenges because, in addition to the six dominant local banks, the country promotes the principles of free investment flows (“Canada,” 2020). Moreover, the stability of the financial sector is determined by a developed tax policy and the competent participation of the government in budget planning. According to the official statistics, at present, the tax burden has fallen to 76.5, while government spending has also decreased and reached 50.9 (“Canada,” 2020).
The parameter of trade freedom has reached 87.0, which is the highest figure over the past years (“Canada,” 2020). Among the risks, one can note some restrictions in monetary and business aspects, in particular, state control over private enterprises and their financial activities beyond the borders of the country.
Political Structure and Risk
Canada is a unique country in the form of its political rule. The state is both the constitutional monarchy with Queen Elizabeth II as the formal leader and parliamentary democracy assuming the right of choice to citizens (“Canada: Economic and political outline,” 2019). The two main parties holding the leading positions are the Conservative and Liberal Parties (“Canada: Economic and political outline,” 2019). According to the official data obtained as a result of the analysis of the situation in the country, political freedom in Canada has the highest rating possible (“Canada: Economic and political outline,” 2019). As potential risks to business development, one can note possible government interference in market relations among individual participants. However, as practice shows, the expropriation of property or other types of aggressive policies regarding business companies are not typical for Canada, which makes the country investment-friendly.
Recent History and Its Impact
The recent history of Canada has implications in various areas of the country’s development. For instance, a trade agreement with the United States and Mexico in 2018 had a positive effect on the economic situation in the country, despite the fact that the ratification of this document was not adopted unambiguously by the US Congress (“Canada: Economic and political outline,” 2019). Also, a new government cabinet was formed at the end of 2019, and this process was unexpected for the political life of the country since the current Liberal Party lost significant positions, thereby giving way to a greater influence of the Conservative Party (“Canada: Economic and political outline,” 2019).
Due to the policy of the conservation of natural resources and an emphasis on exports, the state has ensured significant growth in the financial and economic sphere and remained one of the leading countries in the extraction of water and oil (“Natural resources,” 2020). All these factors are evidence of the development and stable position of Canada in the international arena, which makes it an attractive country for foreign investment.
Geography, Natural Resources, and Existing Industries
The border with the United States is the reason for close trade and economic interaction between Canada and its southern neighbor. However, in addition to the possibility of exporting goods abroad, the geographical position of the state has a favorable effect on its numerous industries. The location in the north identifies the extraction of water and wood as the key areas of its industrial development (“Natural resources,” 2020).
In addition to the extraction of natural resources, the state develops service, manufacturing, and mining sectors, specializing in the sale of coal and oil. The geography of the country is favorable for fishing since the country has wide areas of access to water. According to existing data, Canada is the third country in the world in terms of crude oil reserves, which provides it with an opportunity to trade with major world powers and have an authoritative position (“Natural resources,” 2020). The emphasis on domestic production stimulates the development of various industries and strengthens the country’s economy.
Overall Risk Indicators
Based on the comprehensive assessment of Canada in the context of its economic, financial, and political development, one can note that the country is favorable for starting a business. Key risks may be associated with government involvement in controlling business activities and reporting requirements for foreign investors. Nevertheless, no significant restrictions are promoted as mandatory constraints, and the value of foreign capital is significant for the country due to its geographic distance from other regions. To develop an effective business implementation strategy by using the example of the Tropical Smoothie Cafe business, the key characteristics of the industry under consideration will be evaluated from the perspectives of competitiveness, financing, regulation, and attractiveness.
Industry Evaluation
The planned entry of TSC in the Canadian market should be carried out with the preliminary assessment of the unique factors that determine the sustainability and attractiveness of this industry in the target country. Local food business legislation may differ from that in the US, which explains the importance of market monitoring and the analysis of competitive factors and government involvement in controlling this sector. Any constraints and restrictions are the rationale for additional preparation for the implementation and careful planning of the strategy for entering the Canadian market to avoid risks and unreasonable financial costs.
Regulatory Structure
For Canada, the topic of healthy food is a relevant framework for government oversight. As an individual region to focus on, the country’s northern territories are controlled responsibly due to their remoteness from the mainland, and food suppliers have to follow the state public health program thoroughly and provide certificates for their products (Galloway, 2017). At the same time, according to MacRae and Winfield (2016), modern Canada demonstrates a reformist approach to food policy planning and enables participants in this market to adapt to changes and requirements.
As the authors note, numerous regulatory directives and protocols are designed to ensure the security of the sector, and any illegal or non-compliant business quality is subject to immediate termination (MacRae & Winfield, 2016). As a result, the government controls the foodservice industry carefully, which makes it difficult to obtain the necessary permits but has a positive effect on the overall value of this activity.
Based on this approach to the regulatory structure, opening a catering establishment or an entire cafe network may take a long time. Financial issues are not a key obstacle because, according to MacRae and Winfield (2016), the effects of climate change and agricultural problems explain the importance of foreign investment. Nevertheless, responsible authorities’ control is high, and compliance with the local laws is mandatory for a foreign food company to enter the Canadian market.
Major and Minor Competitors
When entering the Canadian market, TSC should take into account the activities of other major players in the industry. According to a recent rating representing the largest smoothie franchises, eight brands are either Canadian or subsidized by MTY Food Group that is located in Canada (“The 25 best smoothie and juice bar franchises of 2020,” 2019). As a result, for TSC, it is crucial to not only obtain the necessary business permits outside the US but also overcome the competitive barrier that is high due to a large number of other major and minor participants. In Table 1, a list of the most popular smoothie franchises is presented, which operate in Canada.
At the same time, most of them have a large assortment and offer not only refreshing drinks but also healthy dishes, which is also challenging for TSC due to its similar business approach. To become a major participant in the Canadian market, the American franchise needs to organize a clear implementation strategy that should include not only the interests of the target audience but also a competent pricing policy to ensure stable demand and, consequently, sustainable profits.
Table 1. Canadian Smoothie Franchises (“The 25 best smoothie and juice bar franchises of 2020,” 2019).
Local Financing Options for the Expansion
For a foreign company to establish its business in Canada, the nuances of the existing financial policy are to be taken into account, in particular, the issues of privatization. As Ryan and Young (2018) state, today, Canadian authorities do not force entrepreneurs to create public-private partnerships. In addition, the business freedom that is characteristic of this country opens up broad prospects for foreign companies since the inflow of capital is a valuable implication primarily for Canada itself. However, according to Ryan and Young (2018), the government plays a key role in enabling local market entry.
The tax system is strict, which allows it to be maintained steadily and receive funds to sponsor domestic business projects. Moreover, private investors promoting their activities in Canada have to pay special taxes as representatives of the overseas market. This option imposes significant financial obligations and defines more stringent conditions for the work of firms not under Canadian brands. At the same time, no other crucial deterrents are promoted by the authorities, and with sufficient funding and adequate reporting, foreign companies can operate in Canada successfully.
Overall Attractiveness of the Industry
From the standpoint of attractiveness, the target industry for implementation is potentially profitable and recognized by consumers. In addition, the relevance of this business in Canada is justified by the widespread prevalence of fresh fruit drinks in the country. According to the data presented in Figure 2, in 2018, the main share of smoothie consumption was in the North American region (“Smoothies market,” 2020). Moreover, based on the diagram in Figure 3, the predominant volume of smoothie drinks is made of fresh fruit, while milkshakes make up a small percentage of these drinks (“Smoothies market,” 2020). When taking into account the demand for such products, the industry is attractive for implementation and development.
One of the main conditions that TSC should follow when planning to enter the Canadian market is the uniqueness of the products sold. Local consumers have already studied this food industry in detail and have an idea of what an assortment of healthy foods and drinks can be. Therefore, the success of the proposed business depends on how successfully TSC will present its products to Canadians and whether the American franchise will surprise foreign consumers. Further, a rationale for the specific business entry strategy will be provided, and the specifics of a corresponding model will be described, including its manifestations and opportunities for establishing partnerships.
Business Entry Strategy
The assessment of all the factors that may affect the introduction of TSC’s business in Canada is a background for analyzing an optimal strategy for entering a new market. Given the current demand for the products under consideration and the financial and economic aspects of entrepreneurial activities, a specific model should meet all the conditions of the new working environment and be safe in order to preserve TSC’s assets and prevent a critical impact of competitors. Based on the above analysis, franchising is a strategy with a potentially high chance of gaining the trust of the target market and achieving sustainable sales of TSC’s products in Canada.
Mode of Entry
The proposed franchising strategy is the model that TSC promotes in the US today. The choice of this mode is due to the growing trend to create retail chains to gain market recognition and ensure demand for products through numerous outlets. According to Ayorinde and Zubairu (2018), this strategy has a number of obvious advantages: promoting renowned brands outside the country, creating a sustainable distribution system for goods, supporting each chain link through targeted interventions, and other significant benefits. Maintaining the same strategy of TSC as its basic development model is determined by the success of the entrepreneurial activities of similar businesses in Canada.
According to the results of evaluating the competitive environment, key participants in the target market adhere to a franchised approach to organizing work. Due to the fact that the share of the consumption of smoothies and fruit cocktails is high in the region under consideration, the recognized TSC brand can be perceived positively by consumers. In addition, unlike many Canadian companies operating in this field, TSC has an extensive entrepreneurial experience and strong market recognition. Therefore, the current franchising strategy is a potentially optimal implementation mechanism.
An opportunity to cover a large area is one of the key advantages of this model. Ayorinde and Zubairu (2018) argue that many owners of sales networks achieve territorial exclusivity by opening numerous outlets. As a result, brands that work on such a strategy become widely popular among customers and can count on stable growth. Regarding the issue of competitiveness, TSC should comply with the relevant conditions for entering the Canadian market, in particular, establish a reasonable pricing policy and evaluate potential areas for opening outlets. Under the local law, foreign entrepreneurs are free to invest, but a strict tax system defines a range of obligations.
Therefore, TSC needs to follow all the conventions of the local financial system and provide reports timely to exclude claims from regulatory authorities. At the same time, in case of competent work, the success of the intervention program is likely because the trend for the sale of smoothies and fruit cocktails has proved its relevance. Thus, the implementation of the franchising strategy has potential success as a convenient and safe mechanism for entering the Canadian market.
Relationships and Partnerships
Despite the fact that the franchising strategy involves a monopoly of the business and the absence of mergers with other companies, establishing partnerships is possible under this mode of entrepreneurial activities. Hoffman et al. (2016a) note that a franchisor as the main business owner has the right to interact with partners in a new territory and allocate assets to support other projects. For instance, if TSC enters the Canadian market, collaboration with individual networks can be valuable at the initial stage of development. In addition to local investors and sponsors, the brand can enter into contracts with individual companies.
One of the rationales for this measure is the need to ensure uninterrupted supply chains. For TSC, it is much more expensive to supply raw materials from the US to promote sales in Canada, and to minimize costs, local suppliers can be involved as partners. Such a solution is objective in the context of logistics optimization and can help expand the company’s trading influence in the new region.
The procedure of establishing partnerships when following the franchising strategy requires compliance with certain conditions. As Rosado-Serrano et al. (2018) state, an owner of such a business “ideally takes into account several factors such as governance choice, support mechanisms, relationship management, required capabilities, and so forth” (p. 243). These criteria are crucial because they give guarantees to both parties and safeguard the regime of cooperation by excluding any legislative or financial disagreements. Drafting contracts can take place with either one or several partners, but the resources required to maintain a sustainable business and security of interaction are to be more significant. In general, TSC can establish cooperation with individual local suppliers and other companies that are willing to invest in this business.
Justification of the Choices
The validity of the proposed strategy for entering the Canadian market is due to several factors: the demand for products, people’s acceptance of local franchises’ activities, proximity to the US, and the convenience of maintaining the existing business system. Although, according to Rosado-Serrano et al. (2018), international franchising has a number of potential challenges, which are expressed in possible cultural barriers, political disagreements, and other potential constraints, this mechanism is relatively safe compared to other strategies. Individual outlets are coordinated in a single system, and in case of low demand in one region or, conversely, too large sales, work can be coordinated and changed accordingly. Therefore, for TSC, the choice of such a regime for entering the Canadian market with an opportunity to establish partnerships with local suppliers and investors opens up positive prospects for the globalization of its business and the growth of the client base.
Recommendations
Considering all the factors and potential implications, the TSC business can expand to Canada since this market is favorable for foreign investors and may help increase the company’s share of sales due to high demand for sold products. First of all, responsible employees should analyze potential regions for opening retail outlets and establish cooperation with suppliers of raw materials. Rosado-Serrano et al. (2018) note that the position of the authorities regarding foreign investors may be demanding for the organization of entrepreneurial activities, and at the initial stage, the documentation should be prepared with a detailed business plan and entry steps.
For starters, the border areas should be explored, and if approved by the local authorities, several business trips should be made to Canada to sign agreements on renting commercial premises and settling tax issues. These preparatory measures are essential procedures and cannot be avoided.
After meetings with the representatives of Canadian trading authorities, communication should be established with landlords. Mutual agreements can be signed quickly, but a preliminary search for optimal outlets can be lengthy due to the need to assess the activities of other companies of this profile in a particular territory. The cost of analytics is minimal, but the rent should be prepared in advance because, at the initial stage, new businesses, as a rule, have to make an advance payment for the use of retail premises.
Moreover, significant expenses are required for the interior design of cafes and marketing campaigns. Canadians should be aware that the new network is opening in their country, and bonus programs and promotions are convenient incentives to attract the attention of the target audience. Social media marketing is an additional measure of promoting the TSC business.
After all legal conventions have been settled, TSC offices should be opened in Canada to monitor the activities of outlets locally and respond quickly if necessary. At the initial stage of work, demand can be large, which is explained by the interest of the population in the new franchise and its products. However, in the future, this indicator may decrease, and to maintain the brand value and increase the customer base, ongoing marketing projects should be promoted. For TSC, it is essential to learn from the experiences of other businesses in this field to avoid potential mistakes and gain market recognition.
In general, as Hoffman et al. (2016b) argue, “international expansion is related to monitoring experience” (p. 182). This means that any business project carried out outside the domestic market requires careful analysis and evaluation from different perspectives. TSC can enter the Canadian market successfully, and competent preparatory procedures, including the evaluation of the interests of the target audience and potential profits, are crucial steps to maintain a sustainable business in a new trading environment.
Conclusion
The analysis of the conditions for international investment in Canada and the characteristics of the industry under consideration proves that the entry of Tropical Smoothie Cafe in the new region is a potentially successful and feasible task. The assessment of Canadian economic, financial, and political development based on its history proves that the country is favorable for trading activities. The franchising strategy promoted by TSC can be applied to the target market. The management of the company needs to observe a number of conventions and draw up a detailed business plan for working in the new environment. This proposal is of practical importance and can be used as a guideline to analyze the factors affecting the expansion of a foreign business into the Canadian entrepreneurial sector.
References
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