Base Case Facts…
1. Carmién Tea is a South African company specializing in rooibos tea, operating as
both a bulk exporter and a branded product.
2. Founded in 1999 by Mientjie Mouton, the firm contributes 30% of South
Africa’s rooibos exports.
3. 98% of the company’s sales are exports, with only 16% being branded products.
4. The global tea market is dominated by black and green teas, while rooibos
represents a niche market.
5. Rooibos tea’s unique health benefits and geographic exclusivity present growth
potential.
6. Carmién Tea faces challenges in brand-building, price volatility, international
competition, and infrastructure inefficiencies.
Dilemma…
How can Carmién Tea expand its market presence for branded, value-
added products internationally while sustaining competitive pricing and
addressing operational challenges?
Strategic Focus…
Should Carmién Tea prioritize growth in existing international markets
or explore untapped regions for its branded products?
Brand Differentiation…
What strategies can Carmién Tea adopt to effectively differentiate its
brand in highly competitive international markets?
Distribution Partnerships…
How should Carmién Tea address challenges in identifying and
collaborating with reliable distribution partners in new markets?
Product Innovation…
What role can product diversification (e.g., green rooibos, rooibos-
infused alcohol) play in Carmién Tea’s international growth strategy?
Resource Allocation…
Given the constraints of human and financial resources, how should
Carmién Tea balance investment in branding versus operational
efficiency?
Market Education…
What approaches can Carmién Tea use to educate international
consumers about the health benefits and uniqueness of rooibos tea?
Operational Challenges…
How can Carmién Tea mitigate the impact of infrastructure
inefficiencies and price volatility on its international supply chain?
Sustainability and Growth…
How can Carmién Tea continue contributing to community upliftment
while scaling its international operations?
The control and evaluation
process…
The four stages of international development
1. No export: At this stage, the firm operates exclusively in its home market or
seldom and sporadically exports goods. It is important to keep in mind that
their empirical data, at the time, were primarily based on industries such as
steel and pulp and paper (Johanson et Vahlne, 1977, p. 24).
2. Indirect export: Since the firm has little international experience, it relies
on a foreign partner with proper market knowledge to handle product
distribution in the foreign market. Examples of such partners include chambers
of commerce, distributors, and licensing without direct control over the foreign
partner (Panet-Raymond et al., 2018, p. 326-327).
CONTD….
3. Direct export: The firm decides to develop a sales subsidiary in the foreign market.
Direct forms of exporting include portage (piggybacking on a bigger firm network),
hiring representatives or manufacturer agents, stricter forms of licensing, and opening
a foreign branch or a subsidiary (Panet-Raymond et al., 2018, p. 322-325).
4. Offshoring: The firm makes direct foreign investment (FDI) and manufactures
products overseas. Said otherwise, it is now exploiting a localization (L) advantage as
well as an internalization (I) advantage (Dunning, 1980, 1988).
The Uppsala model of
internationalization
the model
The postulates underlying
The importance of distance
(CAGE model)
Exceptions….
• Firms do not necessarily need to go through the four stages. For example, some firms are
born regional due to the entrepreneur’s pre-existing market knowledge and business
network (Johanson and Vahlne, 2009, p. 1420‑1423).
• Some other firms can even be born global, that is, committed to globalization from day
one (Arvidsson and Arvidsson, 2019). For example, Pandora, Rhapsody, Spotify, and
YouTube were game changers for many independent artists, and star-to-be like Justin
Bieber (Edwards, 2014, p. 34‑35).
• Similarly, the launch of Steam in 2003 completely changed the balance of power in the
industry of video games traditionally dominated by console manufacturers (e.g.
Microsoft, Nintendo, Sony). [1] Nowadays, independent video game editors can easily
distribute their games globally using online retailing platforms such as Steam.
The importance of distance
(CAGE model)
Cultural distance includes all the obvious (e.g. Indians do not eat beef) and not-so-obvious
(e.g. the essential role of Guanxi when conducting business in China [2]) rules of the game
specific to a country or a region such as languages, religions, and social norms (Ghemawat,
2001, p. 3-4).
• Other important elements of culture to consider include, non-exhaustively (Astous et al.,
2018, Chapter 8; Panet-Raymond et al., 2018, Chapter 5):
• Beliefs (e.g. the number 4 in China and the number 14 in Japan represent death and misery),
• Collective memory (e.g. the rivalry between the French Canadians, in particular in Québec,
and English Canadians, in particular in Ontario),
• Cultural dimensions (e.g. Hofstede, Trompenaars),
• Education (e.g. illiteracy),
• Holidays (Christmas in Western countries),
• Legends (e.g. Arthur and the Knights of the Round Table in Britain),
• Lifestyle (e.g. la siesta in Mexico),
• Myths (e.g. Homer’s Iliad and the Odysseus),
• Non-verbal communication (e.g. the okay sign can mean different things depending on the
culture such as referring to the butt hole)
Administrative or political
distance
• It is suggested that former colonial links between countries (e.g.
Commonwealth of Nations) boost trade by 900% and preferential trade
agreements increase trade by more than 300% (Ghemawat, 2001, p.
6).
• For example, based on a 1992 sample of Canadian FDI in 87 countries,
more than half of Canadian subsidiaries were located in the U.S., and
the British Isles (particularly the U.K.) was second (Meyer et Green,
1996, p. 232).
Geographic distance
• All else being equal, the greater the distance between two countries, the more
expensive the transportation cost can be expected. This is especially true for products
with low value-to-weight (e.g. raw material such as granite) and perishable products
(e.g. food, electricity) (Ghemawat, 2001, p. 7-8).
• For example, it is natural that the U.S. is such an important trade partner for Canada
since we share the world’s longest international border (8.890 kilometers). [4] On the
other hand, although seducing, a project such as the CANZUK - which promotes
greater economic, military, and political integration between Australia, Canada, New
Zealand, and the United Kingdom – is a pipe dream considering that those four
countries are spread at the four corners of the world…
Economic distance
• All else being equal, rich countries tend to trade primarily with one another
(Ghemawat, 2001, p. 8-9). In particular, consumers’ purchase power as well as the
ration cost/quality of local resources and labor are important factors to consider (idem,
p. 5).
• For instance, yet another reason behind Target’s epic failure in Canada was an
inappropriate pricing strategy which, when including all the appropriate and additional
costs, made the American retailer unprofitable in Canada (Megits and Schuster, 2015,
p. 4-5).
• As a final note, it is essential to note that the impact of the four distances proposed by
Pankaj Ghemawat (2001) will depend on the specificity of a given industry.
The importance of distance
(CAGE model)
International firms operate as
networks
A perspective centered around
managers
Strategic Focus…
Carmién Tea should adopt a hybrid approach:
• Short-term: Focus on strengthening brand presence in existing
markets (e.g., Germany, Japan, UK) where demand is established.
• Long-term: Strategically explore untapped markets, prioritizing
regions with health-conscious consumers, such as North America and
parts of Asia.
Brand Differentiation: What strategies can Carmién
Tea adopt to effectively differentiate its brand in highly
competitive international markets?
1. Highlight the unique health benefits of rooibos tea, such as being
caffeine-free and rich in antioxidants.
2. Emphasize certifications like organic and Fairtrade to appeal to
ethically-conscious consumers.
3. Use storytelling to market the brand’s South African heritage and its
contributions to community upliftment.
Distribution Partnerships: How should Carmién Tea
address challenges in identifying and collaborating with
reliable distribution partners in new markets?
1. Leverage government trade programs to identify potential partners.
2. Participate in international trade fairs to build a network of
distributors and sales agents.
3. Use performance-based partnerships, ensuring alignment with
Carmién’s branding and operational standards.
Product Innovation: What role can product
diversification (e.g., green rooibos, rooibos-infused
alcohol) play in Carmién Tea’s international growth
strategy?
• Product diversification can: Increase the target audience by offering
options like green rooibos and rooibos-infused alcohol.
• Address price volatility by broadening the product portfolio.
• Focus on premium packaging and ready-to-drink formats to appeal to
convenience-oriented consumers.
Resource Allocation: Given the constraints of human
and financial resources, how should Carmién Tea balance
investment in branding versus operational efficiency?
1. Allocate 70% of resources to branding in high-potential markets to
build long-term consumer loyalty.
2. Dedicate 30% of resources to operational efficiency, focusing on
mitigating price volatility and improving supply chain logistics.
Market Education: What approaches can Carmién Tea
use to educate international consumers about the health
benefits and uniqueness of rooibos tea?
• Partner with health influencers and bloggers to create authentic,
informative content.
• Launch digital campaigns showcasing rooibos benefits and cultural
significance.
• Collaborate with nutrition experts to integrate rooibos into wellness
trends, such as immunity-boosting diets.
Operational Challenges: How can Carmién Tea
mitigate the impact of infrastructure inefficiencies and
price volatility on its international supply chain?
Diversify sourcing within South Africa to ensure consistent quality and
mitigate supply disruptions.
Invest in technology-driven supply chain solutions, such as predictive
analytics for price forecasting.
Negotiate long-term contracts with producers and suppliers to stabilize
pricing.
Sustainability and Growth: How can Carmién Tea continue
contributing to community upliftment while scaling its international
operations?
Maintain a 50% ownership model for farm workers to ensure shared
prosperity.
Invest in training programs for workers to enhance productivity and
ensure long-term job security.
Highlight these contributions in marketing campaigns to reinforce the
brand’s social responsibility.
