Microsoft Word - 9b 10M 093. doc x X C O File | C:/Users/User/Downloads/9810M093_pcu.pdf O r Update E Microsoft Word - 9b10M093.doc 5 / 13 70% + Page 5 9B 10M093 Page 6 9B 10M093 ENTERING CANADA Notwithstanding this, the Iranian diaspora in Toronto was a proper starting point. The majority of Iranians abroad knew the brand and the quality positioning that the company had. They understood that the In the 1990s, Tavazo Co. was steadily moving forward and although it had started exporting nuts, premium-priced high quality of Tavazo products compared very well to the extant Iranian and American especially pistachios, to some countries like the United States, it had not planned any significant growth. In pistachios and nuts available in the market. Naser Tavazo noted: 1988, after their father passed away, the three brothers decided to leave Iran in search of a more stable and developed environment in which to live, and to further their children's education. They began to consider When we were in Iran, we had export orders from Canada that were very price sensitive. whether they could expand their business into a foreign market. Among the countries on their list were the They requested very low priced pistachios regardless of the size and quality. When we United States and Canada, the two major destinations for the Iranian diaspora. Due to a lower government offered higher quality pistachios, they were wondering if the market would pay for the tariff on nuts and dried fruits, they chose Canada. The U.S. government had encouraged aggressive growth d land from 5/9/2022 to 8/9/2022. higher price. It took time and effort since we entered Canada to establish a market in domestic U.S. pistachio production during the past three decades, the result of which was a tariff of receptive to higher quality and premium priced products. around 400 to 500 per cent on imported pistachios. Coupled with the increased global demand, pistachio of Newfoundland from 5/9/2022 to 8/9/2022 production had jumped from 1,179 tons of production in 1978 to around 175,000 tons in 2009." The Meanwhile, the Tavazo brothers had to consider the management of the Iranian side of the business. On Tavazo partners believed that by entering Canada, they would have access to its southern neighbor too. one hand, Tehran's retail store was still active and manufacturing facilities in Karaj needed supervision and control. With the expansion of the business, someone needed to be physically present in Iran to facilitate A friend helped the family to go to Canada and believed that the overall living conditions as well as the the day-to-day issues that could come up. Good relations with suppliers was historically a valuable asset business environment fitted their situation well. As a result, the three owner/manager partners of Tavazo for the company, but needed close supervision and maintenance. Another need for a physical presence of a Co., together with their families, immigrated to Canada in 1995 under the business immigration program. decision maker was plausible change in regulations (e.g. customs tariffs, or other restrictions) in Iran. On After their initial settlement and adjustment to life in Toronto, the brothers contemplated starting a similar the other hand, the brothers had all moved to Canada with their families. They decided to solve the need business in Canada. for managing Iran's facilities in a rotating way. Each of the three brothers would spend four months of the year in Iran and the rest in Canada. The respective brother's family had the choice of staying in Canada, or Since they did not have an already developed market in Canada, and since the majority of their products having a trip to Iran to reconnect with family and friends. were to be imported from Iran in bulk, they had to consider a warehouse to store the imported products to be sold over time. To be exported, nuts and dried fruits were to be packed, kept in industrial fridges, and Dealing with retailers had its own challenges and difficulties. Many retailers were grocery stores with a transported by ships equipped with fridges." The destination warehouse had to have refrigerators too. The variety of products and were not as specialized in the presentation and sales to customers of nuts and dried Use outside the se parameters is a copyright violation. brothers bought a warehouse facility in Richmond Hill (a suburb of Toronto) and equipped it with the fruits. Retailers' poor sales performance together with their financial weakness resulted in an increase in necessary requirements. the number of non-sufficient funds (NSF) cheques received by Tavazo. Many of the products were returned as a result. A more important factor for Tavazo that made its relations with retailers weaker was For some products, the manufacturing process was split between Iran and Canada. A major example was the harm to the Tavazo brand. Weak presentation and shelving of Tavazo products in stores made the roasted pistachios. In order for the product to be of the highest quality, the roasting process was to be done brand decline, which was not in accordance with what Tavazo had strived for over the years. as close to the point of sale as possible. Therefore, pistachios were refrigerated and transported from Iran to Canada, and the roasting process was done in the company's facility in Richmond Hill. An additional Use ou The difficulties of dealing with retailers led the brothers to think of having their own retail store, as they advantage was that raw nuts could be kept in the refrigerated warehouses for up to two years without had in Iran. They knew that they should have the store somewhere on Yonge Street near where the horized for use only by Richard George in STRATEGIC MANAGEMENT at Memo changing taste or color. Later, they could be roasted based on the demand from the market. majority of Iranians were residing and where the Iranian Plaza was located. A Thornhill store (near Authorized for use only by Richard George in STRATEGIC MANAGEMENT Richmond Hill) was chosen after an attractive offer was received. The store was decorated like the The brothers started by wholesaling the imported products and distributing them to retail stores. Although company's retail store in Iran and products were presented similarly. The company stopped distributing to the majority of the target retail stores at that stage were those with ethnic products, mainly Iranian and the stores that were harming the brand through poor sales performance and presentation. Later, in 2010, the Afghan stores in Toronto, the Tavazo brothers did their best to familiarize others with their high-quality company's second retail store in Canada was inaugurated in Richmond Hill. Iranian nuts and dried fruits as well. In 2010, on average 70 per cent of the Tavazo retail store customers were Iranians and 30 per cent were other nationalities. Naser Tavazo was surprised at the growth of the Exhibits 5 and 6 illustrate the statement of earnings and the balance sheet of the company in 2009. number of Chinese customers, who constituted around half of non-Iranian customers. We had participated in trade fairs in Canada and the United States during our stay in Products Canada. When we presented samples of Iranian high quality pistachios and dried fruits, some said they had not seen such large pistachios before and they doubted if they were Nuts, dried fruits and vegetables, spices, cookies and other Iranian ethnic food products such as saffron and really pistachios. caviar were the main products of Tavazo in Iran and Canada. Exhibit 7 includes some rough estimates of the sales contribution of each category. Among the products, pistachios were the largest contributor in the sales figures. 7 http://faostat.fao. org. The products were exported to Canada through a trading company based in Iran. Type here to search O a W 1:22 PM 199 + 24-Jul-22 123Microsoft Word - 9b 10M 093. doc x X C O File | C:/Users/User/Downloads/9810M093_pcu.pdf O r Update E Microsoft Word - 9b10M093.doc 7 / 13 70% + Page 7 9B10M093 Page 8 9B 10M093 COMPETITORS well. While the brothers were aware of the match between the company's capabilities and the opportunities for further geographic diversification, they were often concerned with the financial and managerial Retailing accounted for the majority of the Tavazo business. No significant Iranian competitor existed. Of resources required for diversification. They had the experience of entering Canada and were therefore course, the remaining Tavazo imitators in Iran sometimes attracted uninformed new customers by claiming aware that each market entry entailed initial set-up and market penetration costs. that they were the original Tavazo. In Canada, the closest retailer to Tavazo in terms of product presentation was Bulk Barn. The market and product positioning of the companies, however, was quite Recently, on a trip to visit some family and friends in Los Angeles, the city with the largest population of different. For example, in October 2010 the average retail price for natural, salted, unbranded pistachios Iranians in the United States, Parviz Tavazo had collected some data on start-up costs for a new store and was $26 per kilogram at Bulk Barn, while Tavazo sold its pistachios for $20-$30 per kilogram, depending discussed these with his brothers when he came back to Toronto. The monthly rental cost for a store in a on size. decent neighborhood and the required warehouse space cost were $2,500 and $1,500, respectively. He had estimated some $20,000 for store renovation and decoration and around $30,000 as the required financials In wholesale, there were a few companies in Canada which could be considered Tavazo's competitors." for store and warehouse inventory. Furthermore, for store management, one of the family members would Naser Tavazo, however, believed that the limited strength of the company in the wholesale area had made have to move and live in the new location. The other major restriction for Tavazo in the U.S. market was it more cooperative than competitive. In fact, North American Co. and Tavazo sometimes sold Iranian and morial University of Newfound land from 5/9/2022 to 8/9/2022. the challenge of importing Iranian products (especially pistachios) into the United States. American nuts and pistachios to each other. Having the second-highest population of overseas Iranians, Dubai was the other alternative on the table. Apart from the Iranian diaspora there, many Iranians traveled to Dubai for business, vacations, and THE FUTURE OF TAVAZO shopping. The number of Iranians travelling to Dubai was 970,000 in 2009. The generally rich Arab iolation population of Dubai could contribute to the potential target market as well. The costs and challenges of After a successful entry into Canada, the Tavazo family business was contemplating further growth. The starting and running a business in Dubai were to a great extent similar to those in Tehran. challenge was to determine the direction of future business expansion. One option was to exploit current geographic markets, expanding more inside Iran and Canada and focusing more on the upstream of its A major disadvantage of Dubai for the Tavazo family was its rather similar living environment to Tehran. value chain as a wholesaler. Alternatively, the business could pursue more geographic diversification and Although the city was famous in the Middle East for its modern infrastructure, attractive entertainment and entry into other international markets with or without Iranian diasporas. fancy shopping malls, the higher education system was no stronger than in Iran, if not weaker. No members of the Tavazo family seemed interested in moving to Dubai on a permanent basis. Use outside these parameters is a copyright violation. Iranian Diasporas rge in STRATEGIC MANAGEMENT at Memo Family Business Limitation For Tavazo, Iranian diasporas could be a solid starting point at the time of entry to a new geographic market. The Tavazo brand recognition among Iranians was an asset that differentiated the company from As in every family business, the number of family members was considered to be a limited resource. The its export and retail competitors. Iran had a vast diaspora abroad. Some had gone abroad in search of three partner brothers had four children between them, who were mostly university or college students. higher education and quality of life. Others had done so for political reasons. The United States hosted over Use ou Only one of them had a business-related education. The three others were studying law and engineering. a million Iranians, whose socioeconomic characteristics were reported to be significantly above average." Further expansion of the business would probably require the family partners to bring in a non-family The United Arab Emirates, due to its proximity to Iran and its being a convenient hub for Iranian member partner or manager. The traditional family ambiance in the business would require a radical businessmen and tourists, hosted some 400,000 Iranians. Canada was third with some 120,000 Iranians, change and adjustment to accommodate a non-family member. Authorized for use only by Richard George in STRATEGIC MANAGEMENT followed by Qatar and Germany, with numbers fast approaching 100,000 each. Other countries with large concentrations included Sweden, with approximately 54,000 Iranians; the United Kingdom, home to some The Tavazo brothers had to decide whether to enter new geographic markets, or to focus on the current 43,000 Iranians; and Israel, home to some 48,000 Persian Jews markets and expand within them as retailers. They could also vertically integrate and expand by focusing more on the wholesale side. As a family, they had to contemplate their limitations and strengths in order to Authorized for use only by Richard Geo exploit opportunities and respond to threats to the business that they had inherited from their grandfather. Candidate Cities By 2010, the three brothers had had frequent discussions about how to expand their business. Whenever they discussed more geographic expansion (see Exhibit 8 for the top pistachio importer nations in the world), cities such as Vancouver, Los Angeles, and Dubai were mentioned. Business expansion in the current geographic markets of Tehran and Toronto often had its proponents in the family discussions as "North America Co., Genesis Co. and John Vince Co. were some examples. 10 The percentage Iranians over 25 years old who had obtained a bachelor's degree or higher, for example, was 57.2 per cent in comparison to 24.4 per cent for the rest of the U.S. population. Percentage-wise, Iranian-Americans held five times the number of doctorates than the national average. Also, the per capita average income for Iranian-Americans was 50 per cent higher than that of the nation (Source: Iranian Studies Group at the Massachusetts Institute of Technology). Type here to search O a 1:23 PM 99 + W 24- Jul- 22 123Microsoft Word - 9b 10M 093. doc x X C O File | C:/Users/User/Downloads/9810M093_pcu.pdf O r Update E Microsoft Word - 9b10M093.doc 9 / 13 70% + Page 9 9B 10M093 Page 10 9B 10M093 Exhibit 1 TAVAZO CO. VALUE CHAIN PRICE MARK-UPS AND CURRENT BUSINESS FOCUS Exhibit 3 IRAN'S RANK IN GLOBAL PRODUCTION OF NUTS AND FRUITS Farms & Manufacturing Wholesale & Retail Stores Global Production Global Production Gardens Exports Rank Commodity Rank Commodity d from 5/9/2022 to 8/9/2022 (Value-based) (Value-based) Pistachios Pumpkins, squash and gourds Mark-up (in %) 10 10 15 20 Berries Sour cherries Watermelons Onions, dry % of current 2 12 80 business Apricots Grapes ers and gherkins Tangerines, mandarins Dates Kiwi fruit Cherries Oranges Exhibit 2 Apples Lemons and limes TOP PISTACHIO PRODUCER NATIONS IN THE WORLD Figs 8 Lentil Almonds, with shell 8 Spice 10 Top Production - Pistachios - 2008 Authorized for use only by Richard George in STRATEGIC MANAGEMENT at Memorial University of Newfoundland from 5/9/2022 to 8/9/2022. Walnuts, with shell Potatoes Use outside these parameters is a copyright violation. Use outside the se parameters is a copyright violation Indigenous sheep meat 10 Persimmons 700000 Peas, dry 10 Tea 600000 Hazelnuts, with shell 10 Natural honey Authorized for use only by Richard George in STRATEGIC MANAGEMENT at Memorial University of Newfound l 500000 Chick peas 12 Plums and sloes 400000 Peaches and nectarines 13 Melon seed Production (Int $ 1000) 300000 Tomatoes 13 Eggplants (aubergines) 200000 Source: http://faostat.fao.org 100000 0 merica China italy Turkey Greed Tunisia Afghanistan Syrian Arab Republic Iran (Islamic Republic United States of Source: http://faostat.fao.org/site/339/default.aspx, accessed October 6, 2010. Type here to search O a w 1:23 PM 99 + 24- Jul- 22 123Microsoft Word - 9b 10M 093. doc x X C O File | C:/Users/User/Downloads/9810M093_pcu.pdf O r Update E Microsoft Word - 9b10M093.doc 11 / 13 70% + Page 11 9B 10M093 Page 12 9B 10M093 Exhibit 4 Exhibit 5 TAVAZO COMPANY'S STORE APPEARANCE AND GIFT BASKETS TAVAZO CANADA CO. STATEMENT OF EARNINGS (2009) (in '000) Sales $495 Cost of sales $250 Gross margin $245 Expenses Administrative and selling expenses $70 Interest and bank charges $5 Depreciation $2 Total expenses $77 Net profit (loss) before income taxes $168 Note: Financial figures are estimates. Exhibit 6 TAVAZO CANADA CO. BALANCE SHEET (2009) (in '000) Current Assets Cash $80 Authorized for use only by Richard George in STRATEGIC MANAGEMENT at Memorial University of Newfound land from 5/9/2022 to 8/9/2022 Use outside these parameters is a copyright violation. Authorized for use only by Richard George in STRATEGIC MANAGEMENT at Memorial University of Newfound land from 5/9/2022 to 8/9/2022 Use outside the se parameters is a copyright violation. Accounts receivable $10 Inventory $60 Property, plant and equipment $600 Subtotal $750 Current Liabilities Favaro Bank indebtedness $400 Accounts payable and accrued liabilities $45 Subtotal $445 Retained earnings $305 Note: Financial figures are estimates. Type here to search 8 0 O a W 1:23 PM 99+ 24- Jul-22 123Microsoft Word - 9b 10M 093. doc x X C O File | C:/Users/User/Downloads/9810M093_pcu.pdf O r Update E Microsoft Word - 9b10M093.doc 13 / 13 70% + Page 13 9B 10M093 Exhibit 7 TAVAZO CANADA CO. PRODUCT SALES CONTRIBUTION Product Sales Contribution (%) Pistachios 20 Almonds 10 Walnuts 15 Seeds 10 Hazelnuts Cashews Dried fruits, vegetable, spices, etc 35 Source: Company estimates. Exhibit 8 TOP PISTACHIO IMPORTING NATIONS (2007) Rank Area Quantity (tons) China. Hong Kong 55.031 Authorized for use only by Richard George in STRATEGIC MANAGEMENT at Memorial University of Newfoundland from 5/9/2022 to 8/9/2022. Use outside these parameters is a copyright violation. WN - Germany 41.373 China 29.915 Russian Federation 20.749 Netherlands 16.729 United Kingdom 15.040 Spain 13.101 Italy 11.533 France 11.073 10 Luxembourg 10.612 11 Belgium 9.235 12 India 7.777 13 Saudi Arabia 5.426 14 Mexico 4.879 15 Lebanon 4.613 16 Japan 3.742 17 Israel 3.478 Pakistan 3.359 Canada 3.241 20 Lithuania 3.180 Source: http:/faostat.fao. org/site/342/default.aspx. Type here to search O O a 99+ W 1:23 PM 24- Jul-22 123How did Tavazo brothers decide on the list of potential countries to expand to? Which factors were most important in their decision ranking? As an advisor to Tavazo brothers, what criteria would you use to make the decision? Given the limited resources available to Tavazo, which expansion strategy would you recommend: To expand vertically, or to diversify geographically? What challenges will Tavazo face in its expansion process as afamfly business? Microsoft Word - 9b 10M 093. doc x X C O File | C:/Users/User/Downloads/9810M093_pcu.pdf O r Update E Microsoft Word - 9b10M093.doc 1 / 13 70% + Page 2 9B 10M093 Richard Ivey School of Business The University of Western Ontario IVEY business his father had years ago. After Iran's 1979 revolution, the two younger sons came back from Italy, where they had completed their higher education. The unstable institutional environment and unfavourable 9B10M093 job market in Iran led them to decide to continue their father's business, despite the fact it was unrelated to their education. TAVAZO CO. THE CURRENT SITUATION d land from 5/9/2022 to 8/9/2022 By 2010, the family business was vertically integrated as grower, manufacturer, retailer and exporter. The current mark-up figures, as well as the sales contribution of each section in the value chain, are illustrated Newfoundland from 5/9/2022 to 8/9/2022 Majid Eghbali-Zarch wrote this case under the supervision of Professor Paul W. Beamish solely to provide material for class n Exhibit 1. discussion. The authors do not intend to Mustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Historically, nuts and dried fruit had been considered commodities in Iran. The three partner brothers felt Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or on, storage or transmission without its written an advantage in continuing their ancestors' way of differentiating the Tavazo products and tried to provide permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies request permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The University nuts and dried fruits as a branded product as opposed to a commodity product. The store had loyal of Western Ontario, London, Ontario, Canada, NGA 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca. customers who came to Vali-E-Asr Street just to buy nuts from Tavazo. orial University of Newfound Copyright @ 2010. Richard Ivey School of Business Foundation Version: 2011-09-21 In mid-March, before Nowrouz , the first day of the New Year in the Iranian calendar, the nuts and dried fruits market in Iran would experience a seasonal surge in demand in addition to the steady demand throughout the year. Iranians had been celebrating Nowrouz for more than 2,500 years. Families had the In June 2010, Naser Tavazo, one of the three owner/manager brothers of both Tavazo Iran Co. and Tavazo tradition of getting together, visiting senior family members, and exchanging gifts. Guests were served Canada Co., was considering the company's future expansion opportunities, including further international mostly nuts, cookies and fruit during the Nowrouz parties. Yalda night, the longest night of the year, was market entry. Candidate cities of interest were Los Angeles, Dubai, and other cities with large Iranian he other occasion that created a seasonal demand for Tavazo. The night was celebrated by going to the diasporas. Another question included where to focus on the value chain. Should the family business use its house of the eldest person in the family, eating nuts, and reading Hafiz poems. Use outside the se parameters is a copyright violation. limited resources to expand its retailer business into more international markets, or to expand its current retailer/wholesale activities within Canada and Iran? Growing rge in STRATEGIC MANAGEMENT BACKGROUND The company grew only a small portion of what it sold, and this mainly focused on fruits. Most supplies were purchased from gardeners and farmers across Iran. The relatively strong financial resources of the Tavazo was a family business operated by three brothers: Naser, Khosroand Parviz. The business was business, as well as its insistence on high-quality products, had made the company's network of suppliers a originally started by their grandfather. He had started his career as a gardener in Eastern Azerbaijan valuable asset. The company purchased the farmers' products months in advance of the harvest season. province in Iran in 1929 when he was 18 years old. Later, he moved to Tabriz, the capital city of the This was considered an advantage against rivals who could not do so for financial reasons. Also, Tavazo Authorized for use only by Richard George in STRATEGIC MANAGEMENT province, and dried his gardens' fruits using sunlight. From his small processing site, he distributed to knew that high-quality products were not abundantly available. Farms or gardens with high-quality nuts small retail stores. Difficulties dealing with distributors led him to rent a store and sell dried fruits from his and fruits were limited. Therefore, the company did its best to develop a long-term relationship with its and neighboring gardens directly to customers. The store started with fruits such as apples, peaches and suppliers so that they would see little advantage in switching to Tavazo's rivals. apricots. Then to the store's product list he added seeds, which he roasted in a big pan at the store. As part of a heart-healthy diet, many people ate tree nuts with some regularity, either as a snack, as part of As the store's business grew, he added nuts such as pistachios and cashews, which were not the products of Authorized for use only by Richard Ge recipe or as some kind of treat. Unlike many vegetable plants, nut trees grew for a long time before their Azerbaijan. Pistachios thrived in areas with cool winters and long, hot summers. They were drought first harvest. A walnut tree, for instance, performed best after 30 years and a pistachio tree took resistant and very tolerant of high summer temperatures, but could not tolerate excessive dampness and approximately seven to ten years to reach significant production. Year-to-year production levels were not high humidity. Central provinces in Iran, such as Kerman and Yazd, were the main sources of Iranian consistent, even after a tree had reached its prime. Many nut trees that produced a large crop one year pistachio production. He purchased raw pistachios from the central provinces and displayed and sold them would have a smaller yield the following year in order to build up internal nutrients. in the store after roasting them. Their grandfather was 23 years old when he married. Later, his three sons joined him to grow the business. Meanwhile, the manufacturing site was equipped with drying machinery which burnt sulphur to dry the Nowrouz is the Persian word for new Iranian year and means "the new day." fruits, as well as roasting machinery for nuts and seeds. Hafiz was a prominent Iranian poet who lived from 1320 to 1389 AD. His poems are intriguing and complex. In addition to reading the poems, some Iranians open his poem book and use the random poem that comes up for fortune-telling In 1962, the grandfather passed away and his elder son, together with his teenage sons Naser, Khosroand urposes. Although the majority of Iranians do not believe in the ability of poems to predict the future, they still do it for fun. Parviz, moved to Tehran, the capital of Iran. He bought a store in a prestigious location in Tehran, as well as a warehouse and manufacturing site in Karaj, a city 50 kilometres from Tehran, and started the same Type here to search O a 99+ w 1:22 PM 24-Jul-22 (22)