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Karatu Coffee Company In Tanzania What Strategy Next Case Solution

Solution Id Length Case Author Case Publisher
2138 1965 Words (11 Pages) Manuel Siegrist, Gary Bowman, Colette Southam, Paul W. Beamish Ivey Publishing : W20149
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This report is an analysis of Karatu using different tools for assessment, including PESTEL, Porter's five forces, and SWOT. The internal and external factor assessment has been done using these matrices for the identification of positive and negative aspects of the business. The issues and opportunities are analyzed. The external environment seems favorable despite challenges. In the long run, though, political instability can impose some challenges. For the investment decision that the business needs to make, cost and benefit analysis have been done, and all the options have been assessed with their inherent costs and benefits. Among the four alternative options, the third option of foreign investment is most rewarding financially. However, the options of growing the farm or local expansion have strategic importance for the business based on its history.

Following questions are answered in this case study solution

  1. Executive summary

  2. Introduction

  3. Issues

  4. Analysis

  5. SWOT Analysis

  6. PESTLE Analysis

  7. Porters Five forces Analysis

  8. Cost-Benefit Analysis

  9. Alternate Investment Assessment Criteria

  10. Alternative Analysis 

  11. Recommendations

  12. Conclusion

Case Analysis for Karatu Coffee Company In Tanzania What Strategy Next

2. Introduction

The decision regarding expansions or exits is most important in the life cycles of the business. The business at the point of maturity can decide to further expand or to exit after gaining a proper premium on its brand. This report is an analysis of Karatu Coffee Company of Tanzania in detail. The issues and challenges have been discussed along with the internal and external analysis using different frameworks. Different investment options have been analyzed using criteria like ROI, payback period, and investment costs. Some recommendations have been given in the end, along with a conclusion. 

3. Issues

The Karatu Company has been in business for many years; the company is primarily doing the business of coffee production and retail. The side businesses of the company also revolve around is the main business with a Kahva lounge and the hotel. The company is also invested in the roasting and equipment for coffee processing. The company owner Fischer is facing a dilemma as he has several investing options both in local markets and abroad. Each has its own pros and cons. The owner has to make the decision considering all macro and micro factors for the best possible investment option with the highest return.

4. Analysis

The macro and micro factors a challenging yet promising situation in Tanzania's coffee market. There has been domestic growth, although political reforms are creating more hurdles than the solutions. The institutional framework seems weak. But the country is growing after adapting the policies of economic liberalization. The consumption of coffee has also grown in the country. The local coffee market is competitively dominated by a few conglomerates, and there are many local and international players. 

The premium can be derived from the harvesting of high-quality coffee beans. The vision of the Karatu owner was to build a business empire based on one strategic foundation. Different divisions of business revolve around the same foundation, which can be taken as a strength and weakness both at the same time. Expertise has led to lower costs and increased efficiency. The business is performing well without any external sources of funding and looking for options for growth. The expansion can be local or foreign; while the company s familiar with the local markets, there is political stability, which can create economic turmoil and turn the situation upside down. 

5. SWOT Analysis

SWOT is one of the important tools to analyze the company’s performance and is an important tool in strategic planning (Phadermrod, Crowder, & Wills. 2019). The SWOT of Karatu coffee company is given below;

i. Strengths

The strengths of the company have come from its experience. The company has seen many phases of growth as well as economic and political ups and downs. The financing has also remained strong, with no debt and sole reliance on equity. The company has developed expertise in the coffee business and its related businesses.

ii. Weaknesses

The complete reliance on equity means that the company is not taking any leverage on its profitability. The core business and even expansion are related to the coffee business with little diversification in other market segments.

iii. Opportunities

The company has the experience, finances, and expertise to further grow the business and enter new markets.

iv. Threats

A large number of players, as well as government policies regarding socialist management of the coffee sector, is a threat. Increased regulations can increase the cost of doing business.

6. PESTLE Analysis

PESTEL is one of the most important strategic tools use for the environmental screening process (Çitilci, T. & Akbalık, M., 2020). This tool has six dimensions, and the analysis for Kratu is given below on each dimension.

i. Political

The political outlook seems stable for Tanzania, although the policies regarding transparency and corruption issues have not yielded any significant positive results. The political environment seems challenging, though, because of high corruption rates and perception of the country internationally. The political instability in the country is because of the current government.

ii. Economic

The economic development has been steady, with a 6% to 7% increase in GDP. The purchasing power is also increasing, which means that people will have the disposable income to spend on their favorite products. Tourism is also flourishing, which can boost the coffee demand.

iii. Social

The population of Tanzania has been grown steadily, with about 20% of the population living in the cities. The demand for coffee is more in an urban area and with the trend of increasing urbanization since the country is attracting foreign direct investment. The demand for coffee can grow.

iv. Technology

The coffee production has little to do with the technological changes; however, better storage mechanisms for the coffee beans can be identified. The coffee can be stored in a better manner for boosting profits.

v. Environmental

The harvest of coffee is water-intensive and require some time before the harvest is decent and provide a good return. That makes the reliance on natural resources for a longer period of time.

vi. Legal

There are government regulations such as a coffee regulation centralized mechanism, and for the coffee export, a license is required from the government. The markets of the coffee are regulated in a socialistic manner, and there is government intervention. 

7. Porters Five forces Analysis

The porter five forces analysis is used widely for examining the strategic orientation of the companies (Zhang, Leng, & Zhou, 2020). This method is used for the analysis of the industry and market in which the company is operating 

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