IndexIntroductionCEI FrameworkMethodologyQuick Win MarketsChileFranceHong KongNew ZealandLong Term MarketsChinaIndiaNordic CountriesRecommendationsIntroductionIn this report we have developed a concise market expansion strategy for COSTCO Corporation taking into consideration the existing markets outlined in the case. First, we developed a framework to narrow down the countries with the greatest suitability for their international expansion. Subsequently, after selecting potential candidates, we further analyzed their market attractiveness using Porter's five forces, cultural and operational barriers to entry, key challenges and financial data. We then compared countries to select the ones we propose as their top priority. Finally, we recommend market entry strategies for the selected countries. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an Original EssayCEI FrameworkThe COSTCO Expansion Indicator is a framework that includes both food retail-specific factors and COSTCO-specific factors to rank countries based on eligibility for international expansion. The input for our framework is the top 50 countries by food retail market size in the world. We then give each country a score from 0 to 100 based on market size, country risk, market saturation, overall retail growth rate and trade activity index. We have assigned the following weight to each of them respectively: 25%, 30%, 15%, 10% and 20%. For COSTCO-specific factors for global expansion, we considered home size, cultural distance, geographic distance, operational feasibility, industry attractiveness, and risk normalization. These factors were inspired by the CAGE and ADDING frameworks for internationalization strategies. The weights assigned to each of the factors were 10%, 20%, 5%, 20%, 25% and 20%, respectively. We assigned relative scores for each factor and then ranked countries based on the total weighted average score. Finally, we plotted the results of the industry-specific weighted scores against the COSTCO-specific weighted scores. Methodology The results of the framework we followed not only provide us with the best markets to enter, but also validate the current markets in which COSTCO exists. We observe that the Nordic countries fall into a similar area of ​​great attractiveness from an industry and COSTCO perspective, while developing countries in Africa are at the other end of the graph. It is also crucial to note that the result does not only influence developed markets but also shows the potential of emerging markets such as Hong Kong, China and India. To further segment the graph, we divided the area by selecting the area with high industrial attractiveness and high COSTCO. The countries included in the zone are New Zealand, Chile, Denmark, Sweden, Iceland, Finland, France, Hong Kong, India, China and Norway. However, these countries cannot be considered the same. Markets such as India and China are fundamentally different from New Zealand and France. This is why we believe COSTCO should follow a dual strategy: Quick Win Markets and Long Term Markets. We classify Quick Wins as countries where COSTCO does not need to reinvent the wheel and can apply different concepts from an existing market. For example, New Zealand and Australia share very similar values ​​and culture. Their PPP, consumer preferences and adoption of foreign brands are similar. Given the enormoussuccess of COSTCO in Australia, the company can use the knowledge gained and build the new market based on it. Even though it will take 3-4 years to gain traction, the efforts and challenges will be much less compared to other countries. Based on this, we classify New Zealand, Chile, Hong Kong and France as Quick Win markets. India, China and the Nordic countries are classified as long-term markets given the great ambiguity surrounding consumer preferences, political and economic stability. Quick Win Markets Chile Chile is Latin America's largest market for consumer-oriented products based in the United States. It enjoys an established position as the most developed and advanced economy in Latin America. Due to strong and constant growth following the 2008 crisis, there has been a huge increase in the purchasing power of Chileans. Despite slow economic growth from 2013 to 2016 due to low copper prices, resulting in reduced domestic consumption, there has been increased spending in retail channels and high confidence among foreign investors. Chile's GDP per capita was $15,346, much higher than the Latin American average. The total size of the grocery retail market was $16.4 billion in 2017, expected to increase at an average growth rate of 3% for the next five years. Since 2013, the Chilean food retail sector has seen a huge expansion of stores, particularly hypermarkets. Major retail chains are also present in retail food stores such as Falabella and Cencosud. Walmart Chile is the largest grocery retail operator in terms of revenue, with a 42% market share and multi-format stores that cater to different types of consumers. Cencosud also has two different types of supermarkets, one aimed at price-sensitive customers and the other at quality-conscious customers. Chileans' consumption preferences are shifting from locally produced goods to imported and premium goods, especially from the United States. According to a report by Nielson, 8 out of 10 Chileans are willing to pay for premium, sophisticated imported products with high quality standards. Despite all the factors that make Chile a very attractive market, there are many challenges that COSTCO could face if it decides to enter the retail market. Firstly, it is a very saturated market, dominated by four major retail players. Although there is no availability of warehouse clubs, there are many warehouse-type hypermarkets in major locations in Santiago and other metropolitan cities in Chile. According to a CERET study, 81% of Chileans choose a supermarket based on location. This means that COSTCO could set up the first store in a prime location, but that would also imply a high cost of land. As a 3-year short-term goal, COSTCO could open 2 stores in prime locations in Santiago, Chile and achieve a market share of approximately 1.9% of the grocery retail market. COSTCO's target customer would be upper-middle class consumers who are not price sensitive and are looking for an experience-based purchase of premium products. France With a gross domestic product (GDP) of around $2. With growth of 58 trillion in 2017, France is the sixth largest industrialized economy in the world and the third largest economy in the European Union after Germany and the United Kingdom. Its food market in 2018 was $275 billion, making it extremely lucrative for new entrants. It is also a country with a high number of large urban areas and a population of high-income individuals. Hypermarkets,supermarkets and convenience stores accounted for 75% of the country's retail food market, suggesting strong demand for a store like COSTCO. Additionally, due to its geographic proximity to the United Kingdom and Spain, COSTCO's existing markets provide it an advantage over others. France, however, also faces multiple challenges. One of them is the strong presence of Carrefour and Auchan in the hypermarket space. The two players have a huge share in France and dominate the sector. The e-commerce market is also growing significantly, which is not COSTCO's key USP. There are also strict product and pricing regulations that make it difficult for foreign companies to enjoy flexibility in choosing their assortment. However, these challenges could be addressed if the right partner was chosen to enter the market. Expanding into 3 cities in the first 3 years can help achieve the target of 0.26% market share. This would translate into $765 million in annual revenue and a net profit of $8.94 million. Hong Kong Hong Kong is a major trading and financial center of the world. It is a country that has a mix of Chinese and Western cultures and, more importantly, shares cultures and values ​​with Taiwan, where COSTCO is hugely successful. Hong Kongers are known to admire and consume products from the Western world, especially the United States. The country has also attracted huge investments into its markets. According to Hong Kong government statistics, “there are 1,328 branches of US parent companies in Hong Kong, making the United States the largest source of branches in Hong Kong.” In terms of ease of doing business, Hong Kong is ranked 4th in the world, making it an attractive destination for investors. The retail market is also sizable, with an average sale of $62. 2 billion, an increase of 8% compared to the previous year. The tax rates are also interesting, with 16.5% being the maximum corporate value. All these factors combined with cultural and geographic similarities with Taiwan make Hong Kong a viable option. However, it is important to also note the challenges. The majority of Hong Kong's population does not own a vehicle and prefers to make daily purchases rather than bulk purchases. But given that COSTCO has managed to address these challenges in Taiwan, we believe the same could be done in Hong Kong. Starting with opening a store in Kowloon, Coscto is expected to build an online presence and partner with third-party delivery companies to make deliveries. In this scenario we expect to reach a market share of 0.8% in 3 years, achieving a turnover of 500 million and a net profit of 4.4 million. New Zealand New Zealand has the great advantage of being extremely homogeneous to the Australian market, where COSTCO has proved very successful, which could allow COSTCO to apply a “Six Sigma-like” (measure and analyze) approach to its entry and its operations in Australia and improve and control entry into New Zealand. Furthermore, New Zealand's macroeconomic environment is quite promising considering an 18.5 billion food market, steady 3% annual GDP growth, 5% CAGR, strong preference for US quality products, low tariffs on imported goods, flexible regulation and low corruption, which gave New Zealand first place in the Doing Business index. The main challenges are the high presence of offshore online traders, high real estate costs and market concentration, which could be mitigated by: 1) having online presence during construction and shipping from Australia; 2) enter with the leasing model to reduce CAPEX;and 3) differentiate COSTCO Wholesale from the traditional supermarket model pursued by its competitors. Furthermore, the average average disposable income of Auckland, Wellington, Christchurch and Hamilton, makes it its potential target markets to host a warehouse, through a wholly owned subsidiary as it is built in Australia and a partnership with a local courier for shipments national. Considering the 4 locations mentioned above, COSTCO could achieve revenues of 523 MUSD and a net profit of 8.34. Long-Term Markets China China is the second largest retail market in the world and will soon overtake the United States as the largest market. The food retail market is expected to reach $1.637 billion11 by 2022, higher than India, Japan and Indonesia combined. The market is expected to register a CAGR of 5.8% over the next five years. About 35.3% of total retail sales take place on online channels, making China the world's largest market for online retail. Online retail is expected to grow at a double-digit nominal rate. Retailers with a nationwide network such as Sun Art, Yonghui, Walmart, CRV and Carrefour are reaping the benefits of this expansion by entering into partnerships with e-commerce giants. Tencent and Baidu have already bought stakes in Carrefour China to enter the retail market. Walmart China has partnered with JD.com, the second largest online retailer after Alibaba. Walmart Sam's Club has a similar business model to COSTCO and has recently changed its strategies due to a trend away from brick-and-mortar stores. Due to the rapid growth of China's economy, a growing middle class has disposable income on hand to spend on premium and imported products. Despite the enormous potential offered by the Chinese market, there are many challenges that must be taken into consideration for a market entry strategy. First, Chinese consumers prefer low prices, low volumes and high-frequency purchases. Due to nationalist protection regulations, international retailers must adopt localization which can affect product quality and business model. Considering the failure of many American retailers in the Chinese market and the high uncertainty due to regulations and political risks, we believe that Chinese entry would represent a high-risk but high-reward strategy. COSTCO may start a partnership with Alibaba to promote the online-offline platform and become a supplier of high-quality imported products to wealthy Chinese customers and B2B convenience stores. The offline presence would further strengthen COSTCO.India's already existing online store With a food market of over $600 billion, estimated to grow to $1 trillion in 2020, India is one of the most attractive markets in the world in this moment. The rural FMCG market in India is estimated to grow at a CAGR of 14.6% and reach $220 billion by 2025. Foreign direct investment (FDI) capital inflows stand at $1.59 billion of dollars. Consumer spending is expected to reach nearly $3.6 trillion by 2020 compared to $1.824 billion in 2017.13 It represents more than 10% of the country's gross domestic product (GDP). Furthermore, according to the Department for Promotion of Industry and Internal Trade (DPIIT), between April 2000 and December 2018, Indian retail received foreign direct investment (FDI) inflows totaling Rs 1.6 billion dollars. Walmart Investments Cooperative U. A invested 2.75 billion.