Executive Summary
Success in entering the international market strongly depends on the information available to the entrant as well as being prepared for possible risk and unfavorable scenarios. Since the target location differs significantly from the company’s home country, the data required needs to be broad in scope while at the same time comprehensive enough to include all potentially important information. The following paper is a report on the entry of Jamba Juice, an American producer of beverages, to New Zealand. The report addresses the following research questions:
- What aspects of political, legal, economic, geographic, and socio-cultural environment present opportunities and threats to Jamba Juice’s entry?
- What is the main product’s target audience?
- What impediments and barriers to distribution, promotion, and pricing strategies can be expected during entry?
- Which mode of entry is the most suitable for the situation?
The data for the report was gathered using web search tools. The team handled the task by assigning specific areas of inquiry to individual members, discussing the findings, and compiling the conclusions into a coherent report. The main constraint faced by the team was imposed by secondary data sources that did not contain the necessary information and required adopting information from various sources.
The key findings suggest that New Zealand is displaying a strong orientation toward embracing international investments, and the country is constantly updating its legal, geographical, and political conditions to become more attractive to international players. The beverage market in the country is dominated by two formidable international companies, Coca-Cola and Frucor. However, neither of these companies offers products that can be considered directly competing with our company’s primary product (smoothie), and they are aimed at different audiences. Based on these findings, we recommend an early market entry through an alliance with small-scale companies such as the Better Drinks Company, whose values and image are largely compatible with those of Jamba Juice.
Economic Environment
Traditionally, New Zealand’s economy was strongly dependent on the agricultural sector, and the country dealt primarily with Great Britain as its main partner. However, starting from the late 1980s, New Zealand’s government has taken a proactive approach toward economic diversification through the introduction of a strong industrial component. As a result, in its current state, the country is a feasible player in the global economy, with a major proportion of the industrial sector currently demonstrating a high level of technological capacity.
Per capita income in terms of purchasing power parity has been increasing steadily in New Zealand for the last decade, although there was an observable setback between 2007 and 2009 (Theodora). Possibly the largest economic issue was the gradual increase in the central bank’s key rate in response to the inflation that started in 2004 and reached its peak in 2008 (Theodora). One positive outcome of the scenario was an increase in international capital inflows driven by the increasing rate. This situation led to the strengthening of some areas of the economy, such as the housing market.
Due to the strict measures imposed by the central bank, the country was able to recover from the recession in 2009 and has demonstrated a small but steady growth over the last five years. Some of the country’s economic sectors remain unstable due to a lack of robust external demand. Nevertheless, on a broader scale, New Zealand’s economy can be considered high-income in nature, partially due to consistent promotion and encouragement from the government, coupled with lax fiscal austerity. However, it should be pointed out that domestic demand and personal consumption expenditures remain the main drivers of the economy, and while the observed trend suggests a gradual entry to the global market, the country’s current international market capabilities are relatively limited. Also, despite significant advances in the technological domain, only a small fraction of the country’s R&D is developed internally. As a result, despite the steady development, the economy of New Zealand remains dependent on other countries.
Geographic Environment
According to a report issued by the New Zealand government, the majority of the country’s geographically determining factors are favorable for economic development and the comfort and prosperity of the population (New Zealand Government). The country is rich in natural resources, including coal, natural gas, iron ore, limestone, and gold. One of the region’s strengths is the availability of hydropower. The landscape of the country is mountainous, especially in the southern part of the island. Some areas of the Southern Alps contain sizeable glaciers. Most importantly, numerous rivers in the mountain territory tend to flood in certain seasons and are generally rapid-flowing. According to estimates, the area made up of bodies of freshwater, including lakes, ponds, and rivers, comprises 1.6% of the total territory of the country.
The characteristics of the rivers make them a suitable option for the construction of hydroelectric power plants, while lakes can be utilized as reservoirs. This scenario has led to the emergence of numerous projects oriented toward green energy generation. The country has a long history of establishing renewable energy sources, with the earliest examples dating back more than a hundred years. Currently, more than half of the total energy used in New Zealand is produced by hydroelectric plants. While this result is relatively modest compared to the record amount of over 80% in the 1980s, it should be noted that this prevalence of green energy has been maintained for over a decade, a result that is yet to be matched by most developed countries.
The climate of New Zealand is generally temperate and suitable for agricultural activities. The combination of fertile soils and plentiful sources of freshwater creates excellent conditions for the cultivation of various wheat cultures and livestock. It should also be mentioned that the favorable climatic and geological setting, coupled with geographic isolation, has contributed to significant biodiversity and, combined with the availability of clean air and freshwater, to the perceived quality of life, increasing the country’s value for both tourists and residents.
The majority of the population (approximately three quarters) resides on the North Island (New Zealand Government). More than 85% of the population lives in urban areas, with four major cities (Auckland, Hamilton, Christchurch, and Wellington) containing over half of the country’s citizens (New Zealand Government). Of these, Auckland is considered the most rapidly developing region in the country in terms of economic and population growth.
Demographic and Social-Cultural Environment
The demographic characteristics of the population in New Zealand are determined by European descent. Currently, almost three-quarters of the population are European in origin. The country also has several ethnic minorities, with Maori (the native population) being the most numerous (14%), followed by Asian (11%) and Pacific (7%). Recent census data suggests that all ethnic groups are increasing in number (New Zealand Government). Interestingly, the Maori group is growing at a faster rate than the European segment. At the current pace, the identified trend is insufficient for any major change in the proportions of groups making up the population. Nevertheless, it should be acknowledged that the effects of change may be observed in the social and cultural dimensions.
The overwhelming majority of the population speaks English as the main language. Starting in 1987, the Maori language has been restored to the status of an official language following a long period of discouragement. This change has resulted in the adoption of the language at a social level, with the establishment of several television channels broadcasting primarily in Maori and a significant shift toward its adoption in schools.
The country has a three-tier education model. The first and second tiers are represented by primary and secondary schools and are compulsory. Homeschooling is available as an option but requires obtaining permission from the Ministry of Education. The third tier includes tertiary education and is represented by universities. Overall, the educational system is considered successful. Currently, the literacy rate among adults is 99%, and more than half of the population has tertiary education.
The dominant religion in the country is Christianity, with almost half of the population identifying as Christians. Only 6% of the population claims another religious affiliation, and nearly 40% consider themselves non-religious (New Zealand Government). It should be noted that despite its prevalence, Christianity is not considered a state religion. In summary, a significant proportion of the country’s cultural environment is consistent with Western cultures and can thus be addressed using traditional approaches. However, the differences created by the presence of the native culture should be taken into account.
Political-Legal Environment
From both the political and legal perspectives, New Zealand can be considered a favorable environment for establishing international business activities. The country is governed by the New Zealand Parliament using a governance system modeled after the British example. The political system is considered reasonably fair and transparent. The majority of the population displays a strong engagement in political matters. It is also worth mentioning that New Zealand ranks high in terms of economic, civil, and personal freedom. These factors suggest a high degree of trust between the governing bodies and the population and, by extension, a significant degree of transparency and accessibility in the political domain. It is also reasonable to assume that said trust is indicative of a lack of governmental corruption. While cases of corruption and unfair play are not non-existent, they are relatively rare and can be considered to be an exception. The country consistently ranks high on the corruption perception index from Transparency International, with recent results placing it number one on the list.
The state government also displays a strong commitment toward creating an attractive setting for international investors. The majority of business models are made with the acknowledgment of international norms and standards. Also, the recent adoption of information technology as a tool by regulatory bodies has made the process of establishing a business in New Zealand highly streamlined and accessible. The government also runs a website featuring comprehensive statistical data that is relevant in researching market opportunities in the country. This approach provides a reasonable degree of transparency and, by decreasing uncertainty for new entrants, contributes to the overall stability of the market. Also, tax restrictions in New Zealand are sufficiently less restrictive than those of other countries. According to the Tax Foundation, the country’s international tax competitiveness index was second in the world in 2014 and has remained within the top tier since then (Pomerleau and Lundeen). Several reputable institutions including Forbes and the World Bank have named New Zealand one of the best places to start a business. In summary, the available data suggests that New Zealand is a feasible destination for entry.
Infrastructure
Fundamentally, New Zealand’s geographical setting creates a challenging environment in terms of developing infrastructure. The first obvious disadvantage is the fact that the country is situated on islands that are relatively remote from the majority of its potential business partners. Next, the two main islands comprise a territory that is more than 2,000 km in length, and the islands are separated by the Cook Strait, which introduces additional transportation challenges. Furthermore, the majority of the terrain in the country is not suited to travel and creates an additional challenge for the construction of reliable communication and transportation networks. Finally, the low density of the country’s population, combined with congestion in several urban areas, creates an uneven load on the existing infrastructure systems.
The described conditions have prompted the New Zealand government to include infrastructure in its business growth agenda as one of six principal components responsible for sustainable economic growth. The country’s infrastructure development is overseen by Infrastructure New Zealand, formerly known as the New Zealand Council for Infrastructure Development (New Zealand Trade and Enterprise). In recent decades, most of the apparent issues identified above have been recognized and addressed by the government. The government has invested in the construction of an extensive and encompassing system of roads and railways that would connect all major regions and important points such as marine ports and airports.
As a result, the current state of the transportation system allows it to be considered adequate both for the needs of the population and for most business activities. The electricity network, along with the nation’s telecommunication systems, has also been updated to the necessary degree. Thus, infrastructure reform has shifted the focus away from satisfying basic requirements and toward leveraging opportunities for improvement. The main areas identified by the organization include readjustment of land use policies and pricing to optimize resource allocation, redistribution of infrastructure responsibilities to facilitate greater involvement of local asset owners and thus enhance service delivery quality, and an increased capacity for public project procurement, which is expected to increase overall cost-effectiveness. In other words, the current state of the country’s infrastructure is sufficient for international business, and it is reasonable to expect further improvement in the coming years.
International Financial and Business Risks
The main issue related to international business activities in New Zealand is associated with its geographical placement. While reliable trade routes exist between the country and its main business partners, these routes rely on marine and air transportation and can thus be affected by natural conditions. Also, New Zealand’s economic stability relies heavily on foreign investments (Grant Thornton). It should also be mentioned that China is currently responsible for a significant proportion of the demand related to New Zealand’s international trade (New Zealand Immigration). Finally, it is necessary to acknowledge the high levels of corporate debt in some sectors of the economy, as well as the existence of the household debt. Nevertheless, the strong orientation toward international partnerships taken by the government suggests that some of these issues will be addressed in the long term.
Product and Target Market
The main product of the company is smoothies—beverages made of blended raw fruit and vegetables with the addition of other components such as water and sweeteners. In contrast to juices, smoothies are considerably thicker as they contain a significant amount of pulp. Primarily for the same reason, the product is strongly associated with a healthy diet, and by extension, an active and healthy lifestyle, in general (Global Industry Analysts, Inc.). The pulp used in the preparation of the beverage is rich in dietary fiber, which is known to have numerous health benefits when consumed regularly. Also, many smoothie recipes permit the addition of skin and seeds into the mix, significantly increasing vitamin content. Overall, the inclusive nature of smoothies allows them to be characterized as holistic nutrition, and this approach is widely used in the marketing campaign. The current popularity of the holistic approach to health, as well as the perception of smoothies as a natural product, has resulted in the formation of a distinctive audience.
The target market for Jamba Juice products can be broken down into three major categories. The first comprises young, middle-class individuals. The average age of this category is 20–30 years. The typical representatives of this target segment are entering a new domain of independent life as young adults. They can be single or newly married and typically have a medium to the high amount of disposable income. They tend to be employed in areas requiring significant creativity and a proactive social position. Most importantly, they are interested in a healthy lifestyle and seek out physical activity, sports, and appropriate diets as their preferred approaches. They readily embrace holistic concepts and pay attention to the content of their food. At the same time, they closely manage their time and are often limited in their dietary options to street food.
The second group is the millennials. Their average age is 16–24 years. This group includes both males and females and is not characterized by any specific career choices or levels of income—instead, they stand out as strongly oriented toward innovation and creativity. Millennials usually lead a dynamic life, similar to that of the previous group, but prioritize originality and authenticity over healthy dietary choices. For them, the holistic nature of a beverage is perceived as a way of communicating their personality and their values to their peers. They are mostly interested in innovative menu options and unusual ingredient combinations, as well as the general novelty of the concept of smoothies in general.
The third category is adult women with children, aged approximately 30 to 40, having medium disposable income. This group is also highly interested in healthy diets and readily embrace holistic choices based on their trendiness and recognition in the public consciousness. They are likely to buy Jamba Juice smoothies regardless of the product’s alignment with their lifestyle and prefer these beverages for their nutritional value rather than their overall image. However, this group is less likely to be attracted by the innovative recipes and menu options—instead, they tend to favor the nutritional value of the beverage’s components.
International Competitors
The country has a well-developed beverage market that features several fully operational major international players. The most prominent of these is the Coca-Cola Company, represented in the region by an Asia-Pacific licensee, Coca-Cola Amatil, registered in Australia (iFAB). The company is responsible for an overwhelming majority of the sales in New Zealand; according to the latest data provided by the Food and Beverage Information Project, 75% of the market share is comprised of Coca-Cola products (iFAB). A recent survey conducted by the Roy Morgan Research company has revealed that the majority of the respondents (25%) consider Coca-Cola their drink of choice, followed by Sprite and Diet Sprite (12%), Coca-Cola Zero (10%), Leon and Paeroa (10%), and Schweppes (9%) (iFAB). Of the drinks mentioned, only Lemon and Paeroa (also referred to as L & P) is a brand native to New Zealand. However, the production of this beverage is currently operated by the Coca-Cola Company. As can be seen, all of the drinks identified by the respondents fall into the category of soft drinks. These beverages differ significantly from Jamba Juice’s primary product, both in nutritional characteristics and public perception.
The latter is arguably the most important aspect since, in recent years, sweetened carbonated beverages have received significant negative publicity in the media due to the numerous adverse health effects associated with their consumption. Specifically, sugar is currently strongly associated with obesity in the public consciousness, which has prompted a wide range of responses from authorities around the world, such as additional taxation, discouraging the sales of soft drinks (Meadows). Interestingly, New Zealand does not currently have fiscal policies aimed at a reduction in the consumption of such drinks (Tan and Liu). However, the management department of Coca-Cola Amatil, a licensee operating in New Zealand, has introduced several initiatives intended to improve the situation. These initiatives include the introduction of new products with decreased caloric content, new packaging strategies that discourage excessive consumption, and the planned introduction of a consumer-friendly health rating. Admittedly, the identified strategies have no direct connection to Jamba Juice’s main product. However, it is important to acknowledge the possible public health-related challenges associated with sweetened beverages in general as well as the potential positive effects of the holistic nature of the product.
The second major competitor is Frucor, a Pepsi licensee initially founded and currently headquartered in New Zealand. Frucor occupies more than 10% of the market and specializes mainly in soft drinks and energy drinks (iFAB). Its most highly recognized product, V, is considered one of the main competitors of the market giant Red Bull. One notable detail regarding Frucor is the legal action taken by Coca-Cola against the company in 2009 in response to the release of a bottle that exhibited similar contours to those of Coca-Cola’s easily recognizable bottle. This fact confirms that companies are in direct competition.
The rest of the New Zealand market is controlled by several small companies. The Better Drinks Company deserves the closest attention. The company produces a range of distinct products, including juices, tonics, and bottled tea. TBDC differs from major international companies in that it markets its beverages as organic products that are independently certified. While the company does not offer smoothies, it is reasonable to view it as the closest competitor to Jamba Juice in terms of nutritional value and marketing approach.
Distribution Strategy
The government of New Zealand actively promotes international trade due to a strong reliance on global partners. Therefore, the part of the supply chain involving the delivery of goods to the country will not meet any barriers to importation. However, customs will play a part in the importing process. Customs in New Zealand are determined based on several variables. First, the customs value is determined by the goods’ purchase price. Second, customs duty is determined using the Working Tariff Document of New Zealand. Third, concessions and preferential tariffs are added. Finally, a tax for goods and services is determined by adding the value of the goods, the insurance and freight charges, and the duty (New Zealand Customs Service).
The company’s primary product relies on the availability of adequate ingredients. Therefore, a network of trusted suppliers will be necessary for the establishment of a reliable supply chain. Since a significant proportion of the ingredients are fresh fruits and vegetables, it will be necessary to verify the suppliers’ compliance with New Zealand’s regulations related to food imports. It is also recommended to introduce a mandatory audit for suppliers that will be conducted by a third party to ensure the necessary level of quality of the products.
Promotion Strategy
At least one impediment to the success of the promotional strategy retained from the company’s home country can be identified in New Zealand. Specifically, the country’s current advertising standards contain several important limitations affecting the food and beverage industries. The standards have been developed and are overseen by several regulatory actors, primarily the Advertising Standards Authority (ASA). This organization provides regulation in the form of codes that cover specific business segments and demographics. Two codes of particular interest are the code for advertising food and the code for advertising to children, both of which contain a description of general principles and overall guidelines. Currently, the authority is oriented toward addressing the issue of childhood obesity in the country based on the premise that the prevalence of advertisements of foods containing high fat, salt, and sugar and sugar-laden beverages causes higher consumption rates and, by extension, adversely impacts the state of public health.
While the theory has not been exhaustively tested, several studies have found a relatively high proportion of advertisements for unhealthy foods aimed specifically at children. In response, the ASA issued the 2010 version of codes that emphasize a high degree of social responsibility to be demonstrated by businesses in their promotional activities. In addition to the ASA, several self-regulatory entities can be identified, such as the Commercial Approvals Bureau and ThinkTV. The former aims at assessing the submitted advertisements for compliance with ASA codes, whereas the latter provides additional recommendations regarding advertising strategies during children’s programming. Since, as was mentioned above, sugar is a common component in smoothies, it would be necessary to ensure compliance in the product’s labeling and related health claims to avoid potential impediments to the promotional plan.
At this point, it is important to note that all of the identified entities are self-regulatory, which means that the guidelines they provide are not enforced by legal means. While numerous legislative elements restrict or otherwise impact the process of food advertisement, no laws are in place that directly addresses the issue. In other words, with a reasonable degree of responsibility, it would be possible to meet the requirements posed by the codes. It is also worth mentioning that the broad definitions and directions laid out in the codes are largely compatible with the characteristics of the advertising standards currently used in the company’s home country. Finally, neither the ASA codes nor the respective pieces of legislation contain limitations aimed specifically at international businesses. Therefore, while compliance with the codes will require a certain effort, it can be considered a minor impediment and will not pose a serious threat to the company’s international promotional plan.
International Pricing Strategy
To identify the main factors that influence pricing strategies in the food industry segment, current pricing trends should be assessed. In recent years, food prices in New Zealand have been rising steadily, showing an average increase of 5% per year (Shaw). The change in price cannot be attributed to any single phenomenon; instead, several interconnected factors are collectively responsible for this rise, not all of which are relevant for Jamba Juice. For instance, high grocery prices have been primarily driven by an increase in price for dairy and grain products. Neither of these factors is directly related to Jamba Juice’s main product and can thus be safely dismissed. On the other hand, the low exchange rate of the New Zealand dollar to the U.S. dollar, which drives down the revenues for exported products, is equally applicable to the company’s planned activities and may reflect in the end price of the drinks. It is worth mentioning that currently the currency is relatively independent of the U.S. dollar and is expected to stabilize in the short term.
Next, the majority of the components used for smoothies will be delivered from suppliers in other countries, which means that transportation costs will comprise a significant portion of the product’s total cost. Because the cost of fuel in the region is relatively high, especially in comparison to the cost in Australia, it is possible to expect further pricing adjustments. It is also important to understand that the size of the country’s population creates a significant restriction for the utilization of economies of scale and, by extension, eliminates the possibility of gaining a competitive advantage by maintaining affordable prices. Another important factor is the high dependence of the country’s economy on the export of goods. Recently, the growing Eastern markets have reacted to improving standards of living by increasing the quality criteria for imported products. Since New Zealand is strongly dependent on these markets, it has responded by increasing the quality of the respective goods, which, in turn, has been reflected in average food prices (Shaw). Finally, it should be mentioned that a significant share of the beverage market is already occupied by a major international actor—Coca-Cola. Due to the scope of its operations, this competitor can maintain low prices to retain its customer base. While the majority of its products are not in direct competition with juice-based smoothies, this fact can influence at least some consumer decisions.
In conclusion, the majority of the currently observed economic factors suggest a relatively high lower margin for prices. In other words, it is unlikely that low prices can be used as an approach to obtain a competitive advantage. The situation is further complicated by the presence of beverages that are more affordable and more familiar to the audience, creating an additional need for competitive prices.
Modes of Entry
As can be seen from the information above, the primary product of Jamba Juice capitalizes on health benefits as one of its selling points. For this reason, it is unreasonable to use direct export as a market entry strategy since it requires the delivery of a ready-made product to the market. Both the health benefits and the appeal of smoothies require on-site preparation, which is incompatible with exporting. Similarly, a joint venture is unsuitable for Jamba Juice since this option makes use of resources that are available to the partnering entities. In other words, few enhancements can be achieved by the introduction of a new business entity considering the relatively low equipment requirements and the need to import the majority of the ingredients.
Greenfield investment, which requires significant resource allocation, would be unnecessary for a smoothie business. Finally, a franchise requires strong brand recognition for the entry to be successful, which is not the case with Jamba Juice. Thus, the most appropriate mode of entry is an alliance. The first reason for this decision is the fact that smoothie production is a simple activity that can be performed easily and effectively. Therefore, partners will be able to reach the necessary level of quality with relative ease. Second, as was explained above, the popularity of the product is built upon its unique appeal to specific audiences, which would be impossible to achieve without an understanding of the local culture. Partnering with a local company will provide the necessary proficiency in this area. At the same time, Jamba Juice will retain the opportunity to implement its unique marketing strategies and solutions instead of delegating the task to franchisees.
International Business Success
As can be seen from the analysis above, New Zealand currently presents a suitable location for foreign direct investment. First, the country’s authorities are strongly oriented toward creating a modern business environment compatible with globally established standards. This commitment is observable both in the legal domain, where the laws and regulations are tending to become less restrictive and more streamlined and accessible for international entry, and in the infrastructure, where significant improvements have been achieved, and more are planned to be implemented shortly. Also, the country is known for its outstanding transparency and lack of corruption in the political domain, which contributes to the long-term sustainability of the business.
The country’s competitive environment makes early entry a preferred course of action. Currently, both major competitors (Frucor and Coca-Cola) offer no products that could be considered in direct competition with Jamba Juice’s smoothies. Except for The Better Drinks Company, a small-scale beverage producer that emphasizes the nutritional and health value of its products, our product will be a relatively novel option unless superseded by a similar brand before Jamba Juice’s market entry. Considering the factors above as well as the steadily growing economy of the country, it is reasonable to anticipate the establishment of a profitable business as a result of an FDI shortly.
Works Cited
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