Decision Making: of Pepsi Company - Case Study Example

Decision Making: Pepsi Company Recently, the Chief Executive Officer (CEO) of Pepsi Company decided to extend the business to some African countries such as Kenya by opening new stores and expanding the already existing deports. This move can be considered as a risk taking step, considering the high rate of unemployment and low income earning by most of the employees in the region. Besides, the infrastructure in most countries in Africa may not be up to the required standard. This would mean more expenditure on the capital input and on labor as many will be seeking jobs as opposed to buying the products. This scenario creates a paradox that demanded quite holistic considerations before the decision could be made. This paper shall explore such considerations made by Pepsi and evaluate the ultimate decision made by the CEO. Pepsi is one of the leading Food and Beverage companies worldwide. The head quarter of this company is based in the United State of America. From the USA, Pepsi reaches out to over two hundred other countries of the world and has employed almost three hundred thousand workers in these various countries. This company specializes on the production of soft drinks of different brands. The company however diversifies its production to other related products such as bottled water, savory and even the whole-grain snacks. This diversification has tremendously increased the sale and consequently, the gross profit of the company across the globe (Pepsi, 2010). Moving to Africa was not a soft nut for the management of the company. There were several factors that posed threats to the operations in Africa. On the other hand, the optimistic CEO could discern abundant opportunities for making huge profit in the fallow land of Africa. For that matter, the pros and cons had to be weighed on the same beam balance. Infrastructure is always the key consideration made by any multinational companies before opening corporate businesses in foreign countries. In this case, the target location had poor infrastructure. Bad roads may deter the product distribution and sales especially in the remote areas. The company might have to spend more on vehicle repair and maintenance. Electricity distribution in some parts of Africa is unevenly. The electricity energy is needed to preserve and cool the soft drinks would be lacking in such locations, giving the products a bad taste thereby lowering the demand. Another big challenge to Pepsi Company would be its competitors, and in this case, the Coca cola company which has deeply established its roots in the whole of the Africa regions and has retained a great customer loyalty. Changing the pre-set minds of the customers in Africa will not be a cup of tea for the new company. Furthermore, Pepsi had created very little customer awareness in most of the African nations. The biggest challenge for the company was the rate of unemployment and income levels of the customers in Africa. It was important that a company understands the financial status of its potential customers. This would enable the company to design products that best suit the needs and capability of the clients. In Africa, most individuals use less than $1 a day. This is because of the low level of income. Having considered the above potential problems, the CEO decided to open branches in Africa anyway. He had strongly believed in Africa markets, therefore, he had to consider other positive subjective factors. He had to conduct a thorough survey and market research. As Drucker says, knowledge is the major key to operating any competitive business (2009). This market research helped the company to discover the available opportunities and strategize how to exploit them. Knowledge of the continent would help the company manage and reinforce this change within the shortest time span possible and with minimum loss. Here are some of the possible reasons that compelled the CEO to make the decision: Africa is a very hot continent. The diurnal temperatures are usually unbearable and one can not go without having to stop and take a cold drink. The bottled cold water would be very ideal for any traveler and those working in the open air. The CEO, therefore, might have thought of the hot temperature in Africa and decided to take advantage of it. Another reason could have been the large populations in most nations of Africa. The high and increasing population of Africa prompted the decision about this extension. Most of the cities in Africa are densely populated and are bee hives of activities during the day. This large population offered a ready market for the drinks and snacks that go with them. With the annual growth in population, the demand for these products can only increase. By opening stores in Africa, the CEO may have thought, Pepsi would have to employ new workers from these countries thereby creating employment opportunities for the many jobless youths. By the virtue of job creation, Pepsi would have furnished its image in the region. This would also help in attracting new customers and retaining their loyalty. This was a clever thinking by the CEO. The competitors of Pepsi sell their products at relatively higher prices. Africans are low income earners and therefore would go for the commodities which are pocket friendly. Pepsi products are slightly cheaper and quantitative. Therefore they are of best fit to these customers. Definitely, pricing will always be the haul mark of Pepsi that outdoes the rest of its strength and competitors. The CEO used this factor as the main pivot. He had understood the financial capabilities of this population. However, in some parts of the world low pricing is associated with low quality. Nonetheless, this decision can still be viewed from both sides of a coin. By making an extension to more African countries, Pepsi widely opened the door for numerous challenges and threats as discussed above. To some extent, this change would negatively affect the business especially at the beginning of it. Pepsi would have to spend a lot of money and time on infrastructure renovation and creating the awareness of their products. Secondly, most people in the surrounding community would view the factory as a potential employer, not a seller. Therefore, more would be job seekers than buyers. If the company refuses to absorb the potential employees, it would negatively affect its perception in the community. However, there were many benefits than the drawbacks. One of the advantages was the readily available cheap labor from the members of the surrounding community. It means that the company would spend less on labor than it does in the US. This fact would make the company make higher profits in Africa than it does in other developed nations. Secondly, employing the locals would mean more income for the people. If the people can increase their income, it means that their buying and bargaining power also rises. Therefore, the locals will have more money to spend, including the purchase of the Pepsi soft drinks. These were some of the subjective factors considered by the CEO in his quest to open corporate businesses in Africa. Even though the decision may have met some opposition, it later proved its worthiness by gradually yielding considerable returns. Today, most of the customers have familiarized themselves with the company and its products and are embracing the new taste in the market. The locals are happy with the job opportunities as they continue to buy the products of Pepsi. The sale of Pepsi soft drink has rapidly increased following the increasing demand. The company has already recovered the loss it earlier made and the gross profit is on a steady rise (Pepsi, 2010). It can be concluded that the opportunities in this region masked the uncountable challenges: the price of the Pepsi soft drinks outdid their unpopularity. The future of Pepsi in these African nations can now be easily predicted. Change is all in the mind. This was, therefore, a plausible decision. Reference Drucker, P. (2009). The New Society of Organizations. Penguins.New York Gereffi, G. (1996). Global Commodity Chains: New Forms of Cordination and Control Among Nations and Firms in International Industries. Competition and Change. 4(1). Pepsi. (2010). Industrial Strategies: Companies Review, 5. Retrieved from http/www.compannies-review/pepsi Porter, M. (1980). Competitive Advantage. Free Press London. Read More