Contents
1. Introduction
2. The soft drink industry
3. Background of the organization
4. Main Body of the Report
· International business and expansion
· Entry strategies in new markets
· Different Markets
· Entry strategies in China
· Entry strategies to the Philippines
· Entry strategies to Europe
· Appraisal of the different strategies in different markets
· Advantage and disadvantage against competitors
· Development method
5. Conclusion
Introduction
Business management is the term used to describe the techniques and expertise of efficient organization, planning, direction, and control of the operations of a business. In the theory of business management, organization has two principal aspects. One relates to the establishment of so-called lines of responsibility, drawn usually in the form of an organization chart that designates the executives of the business, from the president to the foreperson or department head, and specifies the functions for which they are responsible. The other principal aspect relates to the development of a staff of qualified executives (2005). Planning in business management has three principal aspects. One is the establishment of broad basic policies with respect to production; sales; the purchase of equipment, materials, and supplies; and accounting. The second aspect relates to the implementation of these policies by departments. The third relates to the establishment of standards of work in all departments.
Direction is concerned primarily with supervision and guidance by the executive in authority; in this connection a distinction is generally made between top management, which is essentially administrative in nature, and operative management, which is concerned with the direct execution of policy. Control involves the use of records and reports to compare performance with the established standards for work (2005). The term strategic management originates from the Greek language, where the word means the art of a general. The person who makes strategies is the strategist who is the leader of an army ( 1991). Management of a firm needs strategy, to make sure that everything goes well in the company, through the use of strategic management everything done in the company is well organized and no detail is being left out. The company needs strategic management to make sure that the company is doing well internally. The term strategic management originates from the Greek language, where the word means the art of a general. The person who makes strategies is the strategist who is the leader of an army (1991).
Strategic management decisions have multi-functional and multi-business consequences, this kind of decision require broad consideration of the firm's external and internal environments, and it may affect the firm’s chance of prosperity. The strategic management paradigm is built on the notion that strategic decision making results from intentional actions in the name of individual or collective purpose. The paradigm accords central importance to the cognitive elements of understanding and intention as basic drivers of strategic choice. Managerial thought is critical to processes of strategy formulation, for example, which require managers to envision and prioritize future states that are appropriate and proper. Similarly, managerial thought is critical to environmental analysis, which requires managers to forecast and make predictions. These tasks all depend on individual cognitive capabilities and on cognitive processes such as attention, perception, reflection, and understanding ( 1992).
For some, strategic management is just another commercial technique being foisted on an unwilling sector which is losing its soul. For others, however, strategic management has provided a useful set of tools and techniques to draw on and adapt to enable them to be more focused, to create a stronger sense of unity and direction, to understand the external environment better and to manage more effectively the development of the organization (2002). The paper will discuss the soft drink industry and the background of PepsiCo, Inc. The paper will also discuss different things that include the method if international expansion it made; the development method used by the company and if it is the most appropriate; other development method that can be suitable for the company; should different methods be used in different markets; should the development mode be combined with other expansion methods. The information acquired will be used for creating the conclusion.
The Soft drink Industry
Just three decades ago, the competitive environment of the carbonated soft drink (CSD) industry was based on a recognition of and implicit acquiescence to the dominance of The Coca-Cola Company. Beginning in the 1960s, however, Coca-Cola's dominance has been increasingly challenged, particularly by Pepsi-Cola. The new competitive environment is well publicized and intense. The Cola Wars were declared and the battle continues. Pepsi-Cola and Coca-Cola are widely recognized as being two of the premier marketing companies in the world. A great variety of new products and package types have been introduced. Celebrity advertising has been raised to a new level. Coca-Cola even changed the formula for Coke. These and other developments in the CSD industry came about from major changes in strategy by Pepsi-Cola and Coca-Cola. To some extent these strategic changes arose from Pepsi's challenge to Coke's dominance of the industry. In addition, several factors external and internal to the industry have been important catalysts for these changes. Rather than simply reacting to a changing competitive environment, PepsiCo and The Coca-Cola Company have created and implemented strategies that turned the new environment to their advantage (1993).
Although Pepsi Cola attacked Coca-Cola's dominance and achieved near parity with Coke in bottled soft drinks, both Coke and Pepsi have benefited from fighting the Cola Wars because the battle between them has stimulated continuing growth in an industry regularly pronounced by the experts for many years to be on the verge of maturity (1993). As the industry existed in the early 1970s, the reasons for predictions of impending maturity were not difficult to see. The apparent limits of the human stomach argued strongly against further significant growth of per capita consumption of soft drinks. Certainly, substantial growth in sales of the limited number of products offered by Pepsi and Coke appeared unlikely (1993). The competitive advantages of the two industry leaders were built on delivering a few unchanging, high-quality products through a distribution system that, although complicated, was effective. In the face of the predicted maturation of their domestic market, the prudent course appeared to be a holding action in the United States, with attention and resources shifted to offshore markets and diversification a classic cash cow strategy.
New strategies, such as joining the parade of product modifications and introductions of other food manufacturers, and bringing what had long been a very effective independent distribution system in-house, required basic major modifications of the competitive advantages of Pepsi-Cola and Coca-Cola (1993). Such strategies appeared to be bet-the-ranch propositions. Nonetheless, Pepsi-Cola and Coca-Cola took the bets. Each escalated the Cola Wars to new forms of pricing and promotion, and each launched a great number of new products, including new versions of their flagship brands. Finally, each company undertook a fundamental change in its distribution system from networks of independent bottlers to company-owned bottling systems. The result of these and other new strategies has been a continued, rapid expansion of Pepsi's and Coke's domestic sales. The limits of the human stomach have not yet been found, and all other liquids, from coffee to water, face continued competitive pressure from Pepsi and Coke (1993).
PepsiCo Inc.
PepsiCo Inc. is a major producer of carbonated soft drinks, other beverages, and snack foods. Its beverage division, Pepsi-Cola Company, bottles and markets several popular brands of soft drinks in the United States and throughout the world. PepsiCo also owns Frito-Lay Company, the leading snack-food maker in the United States. PepsiCo is based in Purchase, New York. PepsiCo’s soft drink products include Pepsi, Diet Pepsi, and Mountain Dew. Other beverages include Lipton Brisk and Lipton’s Brew iced teas, All Sport athletic drink, and Aquafina bottled water. Frito-Lay products include Lay’s and Ruffles Potato Chips, Fritos and Doritos Corn Chips, Chee-tos Cheese Snacks, Tostitos Tortilla Chips, Rold Gold Pretzels, and Grandma’s Cookies (2001).
PepsiCo’s leading soft drink, Pepsi-Cola, and its chief rival, Coke, have dominated the soft-drink market for decades, although Pepsi has traditionally remained behind Coke. In 1950 Coke outsold Pepsi by 500 percent worldwide. But Pepsi’s aggressive advertising campaigns aimed at young consumers and major bottling and marketing deals made Pepsi a close rival to Coke by the 1980s. PepsiCo has also enjoyed great success with its canned and bottled Lipton brand iced teas, earning higher sales than the Coca-Cola Company’s Nestea products. Also, in the United States, Pepsi had virtually an even market share with Coke in the mid-1980s, when the Coca-Cola Company changed the formula for Coke. However, as Coke regained popularity worldwide in the late 1980s and into the 1990s, it again became the global soft-drink leader. In 1996 Pepsi-Cola International, PepsiCo’s international beverage production and marketing division, suffered difficulties in Latin America, one of its most important markets. The company was particularly hurt by the loss of a bottling plant to the Coca-Cola Company in Venezuela (2001).
Main Body of the report
International Business and expansion
The degree to which business is internationalized is a function of changes and developments in the world economy. Central to these developments in recent years is the process of globalization or increased global interdependence which many think allegedly took place in the closing decades of the twentieth century. Globalization has also thrown up new challenges for the world's international economic institutions like the World Trade Organization (WTO), the World Bank and the International Monetary Fund (IMF). The establishment of the WTO in 1995 represented a more extensive and legally grounded international trading system (2003).The pressures of globalization imply a need for an even greater shift of regulation and powers to international institutions. Anti-globalization protestors singled out international institutions as the servants of international business and the cause of many of the world's ills.
Many of these ills are said to reside in the developing world which, according to globalization critics, is excluded from any benefits of greater international integration and, at worst, exploited for the benefit of wealthier countries ( 2003). International business activity does not just happen. It is the result of conscious decisions made by public and private businessmen in various countries whose usual major interest is in profiting from activities in various other countries. While virtually any firm can take part in international activities in almost any country, it is typically true that certain basic pressures and economic-political characteristics plus the desire for profitable operations on the part of the firms have led to most international business occurring under a rather narrow set of conditions. It is usually true that if the environment of the firm does not follow these conditions, relatively little international activity, particularly that requiring foreign management, will take place. However, the mere existence of these basic conditions does not automatically insure that international business firms will enter the given country. The actual decision of a firm to enter a nation will depend on the more detailed structure of the environment which directly affects the firm ( 1966).
It is typically true that doing business locally is much simpler than performing international business functions. The local firm only has to worry about its own country's law, economics, labor problems, financial constraints, and so on, while an international firm faces all of these complexities at home and in the host country, and in addition must struggle with complex international problems arising out of the present nationalistic organization of the world. One would expect that, unless compelling pressures arose at home, most firms would choose to remain local in orientation, confining their international business activities to import and export and possibly to the relatively simple patterns such as licensing of patents and processes. One major reason for considering international business activities might be that opportunities at home are getting thin. Profit rates in the sector the firm is in may be declining, even though the firm is still quite profitable. Incremental investments are likely to yield lower returns than the company finds acceptable (1966). The company is continuously reaching places it has not reached before. It is conducting expansions to reach new territories and increase its profitability and clients. The company uses new branches and subsidiaries in different countries to have more territories and reach more people more. These branches have been oriented and trained regarding company policies and procedures.
Entry Strategies in new markets
The most common methods of entering new markets are through independent sale and distribution networks or through a captive field sales organization. If the product is to be assembled or manufactured in the new market area, companies will usually form an alliance that involves basic production techniques and imported components. These entry strategies will normally generate very little risk of possible loss through counterfeiting or technical theft. A range of entry approaches is available to an internationally oriented organization. Each requires a different level of resources for its implementation (1998). The cost element is often the most crucial to the final selection of the specific strategy. In many firms the cost/risk ratio is as compelling as the risk/reward equation. A number of marketing vehicles can provide a firm with a lowered amount of costs and a limited degree of risk. These forms of entry are especially appropriate for smaller companies with an interest in new market development but only limited resources and little export experience (1998).
` One of the less demanding approaches is the use of an export marketing company ( EMC), a type of firm often referred to as a trade intermediary. A full-service EMC can handle anything for its customer, from sales and distribution to shipping and documentation. In performing these responsibilities, the intermediary functions as the exporting organization for a group of smaller companies that have non competing products. An EMC will usually operate in a single market or in a group of markets consisting of neighboring countries with similar characteristics. Another inexpensive approach to emerging market development is the use of an export trading company. This type of firm is similar in function to the EMC, but most trading companies typically take title to the product and pay the principal directly. Not all new markets, however, permit the entry of foreign-made goods ( 1998).
Some governments in developing economies are antipathetic toward imported products. In many of these countries it is the practice to restrict entry to admit only products essential to the development of the country's infrastructure or its national defense. Nonessential imports are discouraged by tariffs or other regulatory barriers to protect indigenous industries or to contain the outflow of convertible currency. Since most consumer and many industrial products fall into the nonessential category, a company may need to develop non-product oriented entry strategies to gain access to the latent demand in this type of restrictive market environment. The most common approach to entering a restricted market is through an alliance, based on technology, with an existing enterprise in the local market (1998).
In entering new markets it is best for any company to scout or get a feel of the new market. This can be done by collaborating with EMC’s. The EMC can get initial look and feel of the new market. They can have the initial knowledge of the problems that can be encountered in that market. Companies acting as EMC’s gain a better understanding of the new market. They tend to relate to the company things they discovered and learned in the new territory. The company uses this kind of entry strategy. They made use of different EMC’s to give them ideas what the new environment looks like. Another entry strategy that the company uses is putting up branches in new markets. By doing this the company gets to know better the new environment and make necessary adjustments towards it. In new branches the company acquires an understanding of the clients and what to do in certain events in the new market. Lastly an entry strategy that the company uses is licensing. Through Licensing the company gets another person/entity to use the company’s brand name, products, and services but they have to pay a certain amount for them to be allowed to do so. Licensing removes some of the company’s concern on conducting their operations but it creates other concerns relating to what the people /company will do to the name of PepsiCo. A concern maybe whether or not the name of the company is destroyed or not.
Different markets
Market is any established operating means or exchange for business dealings between buyers and sellers. As opposed to simple selling, a market implies trade that is transacted with some regularity and regulation, and in which a certain amount of competition is involved. The earliest markets in history conducted bartering. After the introduction of money, commercial codes were developed that ultimately led to modern national and international enterprise. As production expanded and became less practical, communications and so-called middlemen came to play an ever growing role in markets. Types of markets include retail, wholesale or distributors', producers', raw material, and stock (1998).
A competitive market system creates incentives for firms to vie for large market shares. Sometimes one firm is so successful in this fight, it acquires a dominant position in a market. From the firm's point of view, a large market share is good. After all, dominance implies power and control. It creates a real potential to increase profits. From society's point of view, however, dominance may not be quite so desirable. For the power that goes with dominance can be acquired and used in a number of ways. While some of these ways may promote economic welfare, others might reduce it. If the reductions are large and long-lived, people may want to reconsider whether dominance should be affirmed in all cases (1998).The company is expanding its markets on countries it has not yet completely conquered like some parts of Asia. Some parts of Asia is currently controlled by coca cola their rival company. Pepsi Co is continuously doing the best it can to match or exceed their competitors reach. The company is using everything available to reach more markets and outdo their rival. By having different markets more options can be used by the company.
Entry Strategy to China
The company has used Licensing strategies in China. In Licensing people/ businessmen from china can be involved in the sale of Pepsi Co’s products. They acquire the permission to sell Pepsi Co’s products in their own way. They are provided the company’s products and some of its promotional materials. In this situation the company and the licensee shares the earnings of the sale of the products. The income acquired from selling the products is divided between the company and the licensee. By using Licensing in China the company gets to have an idea of how the market works in this specific country.
Entry Strategy to the Philippines
In the Philippines an entry strategy that is used by Pepsi Co is it conniving with convenience stores. The company provides their products, promotional materials, and related equipment to the different convenience stores found in the country. By doing this the company and its products are known to more people. More products become more available to more people. The company gets to have a more positive identity to the people at the same time the income of the company increases.
Entry Strategy to Europe
In Europe the entry strategy used by the company is putting certain branches in there. Since Europe is a large place the company has to put branches in the said market to ensure that its products reach more people. The said market is known for its passion for football and because of that the company has to take advantage of this by using promotional materials related to that sport in this market.
Appraisal of the different strategies in different markets
Advantages
The different strategies in different markets helped the company have an initial feel of the different markets. The different strategies also helped the company have a better understanding of how the market works. The different markets help in introducing to the company the cultures and characteristics of the markets thus it became educated with how to adjust in the different setting. Lastly the different strategies helped in making sure that the company encounters lesser problems while starting up a new market. By using different strategies the company has not committed anything that will give it more problems.
Disadvantages
The different strategies on the other hand caused some confusion within the company. Having different strategies in different markets sometimes confuses the policy and strategy makers of the company. This lead to some misuse of strategy that cause some problems for the company. Another disadvantage of so many strategies used is too much focus on it and losing focus on other markets. With too much focus on other markets and what strategy to use on them; some markets are neglected causing the company to lose its control over markets thus losing their chance to gain advantage against rivals.
Advantage and disadvantage against competitors
The main advantage of Pepsi Co against its competitors is its growing popularity and being more known throughout the world. The different entry strategies help the company be known to more people. This people relates about the products to people they know then this spreads to more people and the company gains a higher degree of popularity, it then gains more clients and more income. The main disadvantage of the company against its competitors is it not having a tested brand name. It may be becoming popular among other people but for traditional soft-drink consumers they would rather have the rivals’ products. The company has not yet has a strong brand name that when people talk about soft drinks people still will mention coca cola. The company has not yet established and created a deeper niche in the industry. This event can still happen in the future if the company focuses well on its products.
Development Method
A primary factor affecting the management of an organization is the specific strategy development method employed by the management team. Strategy development methods vary from analytical to social. Analytical strategy development methods provide for very little employee involvement in strategy development. These methods tend to rely heavily on strategic planning staffs to determine conclusions to each step in their planning processes. The advantage to analytical strategy development methods is the level of control the management team can assert over strategic conclusions. The drawback is that the level of intellectual and emotional ownership among team members is low because of their lack of involvement in the process (1995). Analytical strategy development methods provide for very little employee involvement in strategy development. These methods tend to rely heavily on strategic planning staffs to determine conclusions to each step in their planning processes. Many times, the conclusions are the result of numerous interviews, reviews, and statistical analyses.
The advantage to analytical strategy development methods is the level of control the management team can exert over strategic conclusions. The drawback is that the level of intellectual and emotional ownership among team members is low because of their lack of involvement in the process. Social strategy development methods provide for a high of employee involvement in strategy development. These methods tend to rely heavily on the social and political processes to determine conclusions to each step in their planning processes. The processes tend to involve workshops, interviews, and other forms of interpersonal reaction to determine strategy. The drawback to social strategy development methods is that the low level of absolute control the management team can exert over strategic conclusions can lead to an unfocused organization. The advantage is that the level of intellectual and emotional ownership among team members is very high because of their involvement in the process. This high level of buy-in can significantly increase the organization's resolve to implement the strategies (1995).
The company uses social strategy development method. It makes use of the ideas and knowledge their employees have in creating changes and strategy development. The company values the ideas and capabilities of their employees. Through the cooperation of the management and the employees needed changes are made for the achievement of the company’s goals. The said development method is appropriate for the company. It helps them achieve their goal. The company can also use the analytical strategy development method and disregard some idea of the employee they believe are not suitable and cannot help the company achieve its goals. Since the company has different markets it is possible that the social strategy development method is used in other markets. This is done to ensure that the different markets produce well, gain more clients, raise its income and achieve the company’s goals. The development method can be used together with the company’s expansion. It can make the expansion more successful and with lesser problems. The development method can ease the difficulties the company encounters in expanding.
Conclusion
PepsiCo’s leading soft drink, Pepsi-Cola, and its chief rival, Coke, have dominated the soft-drink market for decades, although Pepsi has traditionally remained behind Coke. In 1950 Coke outsold Pepsi by 500 percent worldwide. But Pepsi’s aggressive advertising campaigns aimed at young consumers and major bottling and marketing deals made Pepsi a close rival to Coke by the 1980s. The company is continuously reaching places it has not reached before. It is conducting expansions to reach new territories and increase its profitability and clients. It also uses different expansion techniques so that no problem occurs.
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