International Expansion Opportunities of Importing an Energy Drink Product - Essay Example

?INTERNATIONAL EXPANSION OPPORTUNITIES OF IMPORTING AN ENERGY DRINK PRODUCT FROM BRAZIL TO GERMANY CALLED "GUARANA ANTARCTICA" Taking Business AbroadInternational Expansion Opportunities of importing an energy drink product from Brazil to Germany called "Guarana Antarctica" Executive Summary One of the main characteristics of 21st century’s business environment is high globalization. Most organizations are growing and expanding into multinational corporations. A multinational corporation would demand various aspects of special attentions unlike local business. In addition, the firm’s business strategic plan requires drafting, formulation, and implementation in line with venturing business operations in new countries. A strategic management plan is an overview of different forms of activities that a firm is likely to be engaged in with an aim of competing effectively and efficient with local firms while venturing in new countries. Moreover, there is need to evaluate business opportunities for the company in question so as to be sure that once established within the new country, expanded business will still make profits. Giving the firm a name of Guantarctic Ltd Company, the following is a description of various strategies that it will employ in order to venture in the new market, Germany. This strategic planning includes amongst other things company profile, country evaluation, useful and long lasting strategies, as well as the implementation process. Company profile includes both internal and external strengths, competitors, and the industry analysis. Competitor analysis in this paper is portrayed through SWOT analysis and PESTLE whilst the industry analysis is through Porter’s five forces of management. Within the country evaluation, a profile of Germany with respect to the product to be introduced by Guantarctic Ltd Company forms part of the strategic plan. Country evaluation is also done using the PESTLE analysis. The background information gives company profile and strengths to penetrate into Germany’s food and beverage market coupled with necessary strategies and their implementation. Section 1: Background Company profile Guantarctic Ltd Company is a Brazil-based company that produces, markets, and distributes beverages especially energy and soft drinks within Brazil and the whole of South America. Since its inception in 1927, Guantarctic Ltd Company has been the main fore runner within South America’s energy market. Consequently, this has helped in expansion and growth in North America about 20 years ago. Guantarctic Ltd Company’s entrance into North America resulted into additional markets hence costs and profitability. Nonetheless, its focused human resource worked tirelessly to ensure fulfilling the increased demand resulting from expansion into South America through production of higher capacities of energy drinks compared to earlier on before expansion. Guantarctic Ltd Company has a total of approximately Internal Strengths Guantarctic Ltd Company boosts of various internal strengths that includes the following: Mission Statement: Guantarctic Ltd Company has a strong mission statement that has given direction in performing the business. The firm’s mission statement states, “From our understanding of vital role of selling quality beverage products, Guantarctic Ltd Company is a community that focuses on building customers’ needs, employees’ future, and shareholders’ wealth”. This mission statement ensures that Guantarctic Ltd Company becomes an all-round firm meeting the needs of three main stakeholders; customers, employees, and shareholders. Vision Statement: Other than mission statement steering Guantarctic Ltd Company to higher heights, the company has also relied so much on its vision as a strategic tool to meeting objectives and goals. The vision of Guantarctic Ltd Company states that: “To achieve sustainable expansion and growth, we as a family has a vision with clear goals that include the 5Ps; Profit: While minimizing costs, Guantarctic Ltd Company ensures maximum return to shareholders without forgetting its overall responsibilities. People: Encourages invention and innovation through inspiring everyone to be the best. Portfolio: Develops various brands of beverages to meet varied desires and needs. Partners: Ensures that there is a network of winning partners through loyalty building. Planet: Takes responsibility in making the world a better place to live in. SWOT Analysis SWOT analysis of Guantarctic Ltd Company will provide an insight into its external strengths. Strengths Company image especially within American Continent Quality consciousness of the business Commands a greater share in South America as compared to main competitors Large number of diversity business in American Continent Has good relationship within its franchises Weaknesses Low consumer knowledge and awareness of its existence in global perspective Decline in tastes of its products Limited soft drinks hence relying mostly on energy drinks Financial downfall due to internal factors Poor distribution channels and subsidiaries in global arena Opportunities Increasing population hence widening market Increasing number of sporting activities Diversification of both exports and markets Changing social trends in the world Venturing into other related businesses Threats High degree of competition especially from Pepsi and Coca Cola Regulations by government and other statutory bodies Competition from non-carbonated and other substitutes to energy drinks Threats arising from rampant labor strikes Competitors and Industry Analysis (Porter’s 5 Forces) From Porter’s five forces, Guantarctic Ltd Company will be able to understand its competitors and the various aspects of the energy and soft drink industry. Degree of Rivalry: The two main firms commanding the greatest market share, 73% are Pepsi and Coca Cola in Germany. Therefore, there will be need to develop high quality products to beat this level of competition (Heyder & Theuvsen, 2008, p. 12). Most customers tend to be loyal to these two companies but with introduction of Guarana Antarctica in Germany, this is likely to change. Substitutes: Like many other countries, there are many substitutes to energy drinks within Germany. For instance, other than Cola energy drinks there are others such as coffee, glucose, lucozade, and nestle that are used as substitutes to energy drinks. The effects of substitutes are therefore very high. Power of Suppliers: The main inputs for manufacturing soft and energy drinks are sugar, nutritive sweeteners, and packaging. Sugar and packaging are easily found from supermarkets and bottling companies. However, nutritive sweeteners on the other hand have been a great problem especially considering the number of suppliers. Introduction of Nutra Sweetener and Holland Sweetener have significantly reduced Searle’s bargaining power hence lowering suppliers’ power in the industry (Herrmann 1997, p. 330). Power of Buyers: Selling of soft and energy drinks to consumers in this industry is through food stores, fountain, mass merchandisers, vending, convenience, and gas. The main customers for soft and energy drinks, supermarkets are highly fragmented hence low bargaining power of buyers (Heyder & Theuvsen, 2008, p. 19). Fragmentation has significantly reduced the bargaining power of buyers. Barriers to new entrants: I would be very difficult for new firms or products to enter into soft and energy drink industry. This is because such firms or products would need to overcome the tremendous marketing muscle and presence of bigger market share commanders, Coke and Pepsi. Since these companies have very strong relationship with their retailers there will be need for new entrants to break such relationships, an activity that seems difficult (Daniels, Radebaugh, Sullivan 2008, p. 98). Therefore, there are many barriers to new entrants hence more resources will be required for Guarana Antarctica to enter into Germany’s market of energy drinks. Country Evaluation Germany is Europe’s food and beverage market leader thus offering a lot to consumers and producers. Food and beverage industry benefits from the 82 million consumers in Germany making total food retailing revenue reached the EUR 166 millionth mark during the 2010 fiscal year (Daniels, Radebaugh, Sullivan 2008, p. 74). The following table provides a brief description of Germany’s market performance regarding food and beverage industry. Figure 1: German's Food and Beverage Industry Production Value between 2006 and 2010 According to Germany’s food and beverage market, soft drinks are third placed in food innovations with this market segment commanding a higher share of approximately 10% of the total food and beverage industry. The table below shows food innovations within Germany’s food and beverage industry. Figure 2: Europe's Top 10 Most Innovative Food Scetors by 2009 From the information above it is clear that there is so many opportunities regarding Germany’s food and beverage market especially for soft and energy drinks. Therefore, the new energy drink, Guarana Antarctica is likely to perform well in this market (Daniels, Radebaugh, Sullivan 2008, p. 105). Guarana Antarctica is an energy drink with exceptional ingredients and quality that will attract many customers hence splitting the market share from existing firms. In addition to economic trends regarding Germany’s food and beverage market, there are also political and socio-cultural factors that are likely to affect introduction of Guarana Antarctica into this market. Firstly, Germany experiences a serene political climate, which is essential for establishing viable businesses and firms. In addition, government’s expenditure towards infrastructural development has been remarkable over the past years attracting more multinational companies (Heyder & Theuvsen, 2008, p. 31). Regarding socio-cultural factors, Germany’s community value different sporting activities and this provides a wider market for Guarana Antarctica since it is a product meant for boosting energies of different persons. Section 2: Strategy Before entering into an international market, there is need for Guantarctic Ltd Company to familiarize itself with various aspects of the new country such as culture, economy, people, government, and other statutory regulation. Other than understanding the new country as an entrance strategy, there is need for Guantarctic Ltd Company to define objectives of entering into the new market (Mellentin, 2003, p. 169). In this regards, Guantarctic Ltd Company wishes to achieve the following while entering Germany’s food and beverage market; To increase market share by approximately 10% within a period of 6 months To increase the general sales volume of the firm by at least 30% within 6 months To obtain a profit margin of between 4% and 8% within 6 months To attain a growth and expansion of the firm by 5% including assets and other resources (human resources inclusive) To establish a long lasting relationship with Germany’s consumers for future sales and expansion To open up at least 10 subsidiaries for purposes of distributing the energy drink. Even though the firm started earlier in 1920s when there were little or no government and statutory regulations regulating firms, it did not venture in the international arena. The first strategy was to establish a strong consumer base in Brazil and South America. With the intention of breaking into Europe more specifically, Germany, Guantarctic Ltd Company has the first objective of increasing its market share hence broadening its reach in the global perspective. The main intention for venturing into Germany is a strategic move since this is the largest market for food and beverage products (World Grains Sum 2006. p. 131). Guantarctic Ltd Company has applied their new and old strategy in reaching out to consumers in Germany. The simple strategy applied is to concentrate on the cheaper but plentiful energy drink, Guarana Antarctica. In any case, Guantarctic Ltd Company expanded its distribution system from carriages to the use of cars as well as subsidiaries developed in different parts of the world. Guantarctic Ltd Company commenced business when majority of the consumers belonged to middle class. As a result, products fitting the middle class were developed and this made the company to attract more customers within Brazil and American continent. Using this same strategy, Guantarctic Ltd Company is going to penetrate Germany’s food and beverage market. Its trademarking in America has now opened new ways for advancing into the global perspective (Mellentin, 2003, p. 169). With such a strategy in mind, Guantarctic Ltd Company has focused on Europe’s leading market in food and beverage, Germany. Nevertheless, the firm has employed different strategies in reaching out to this new market. One of the best strategies Guantarctic Ltd Company can employ in penetrating Germany’s market is through expansions whereby many other subsidiaries will be developed given the extensive nature of the new market (World Grains Sum 2006. p. 133). There is need to identify small players within Germany’s energy drinks, and make decisions to purchase them to reduce the degree of rivalry. Acquisitions and mergers are usually considered as the best way of reducing competition whilst enhancing competitive advantage of any given firm (Donnelly 2002, p. 37). In addition, Guantarctic Ltd Company should focus on introducing more products after establishing grounds for Guarana Antarctica. This will assist in diversifying exports and markets. Guantarctic Ltd Company should change its advertising strategy regarding the new product, Guarana Antarctica. Advertising is one of the ways through which firms can promote their products via various media. Guantarctic Ltd Company needs to employ more resources in promoting their new product. Advertising and other forms of promotional strategies are effective in changing buyers’ behavior (Zhuang, Koo and Mattson, 2008 p. 959). Germans have developed euphoria towards sugary drinks especially after a release of some research information that too much sugar in the blood causes diabetes. Consequently, many consumers had started turning away from using energy drinks and other soft drinks to avoid diabetic conditions (Heyder & Theuvsen, 2008, p. 39). On this perspective, Guantarctic Ltd Company needs to employ proper marketing strategy in order to change the minds of consumers and thus affect their buying behavior positively towards their products. One of the best ways of advertising and promoting the new product into the new market is through creation of challenges like Coca Cola Football Challenge and Pepsi Challenge that has worked so well for the firms. Such promotional strategies are essential ways of enhancing corporate social responsibility. Consumers will always identify themselves with firms that think about them through corporate social responsibility (World Grains Sum 2006. p. 139). In this regards, Guantarctic Ltd Company will be able to attract many consumers other than the fact that such activities will create awareness of the new energy drink, Guarana Antarctica. This marketing strategy has been applied by many firms and has worked efficiently and effectively hence Guantarctic Ltd Company should engage in the same though in a unique way. In conclusion, Guantarctic Ltd Company should apply a combination of different strategies in entering Germany’s food and beverage market. Combination of such strategies includes enhancing its channels and modes of distributing the new product, understanding the foreign environment and consumer behaviors. This will also require establishing common aspects of buyers to ensure that they adequately meet their demands and wants, addition of inventions and innovations on the product to make it more attractive, and applying vast ranges of advertisement and other promotional strategies (Daniels, Radebaugh, Sullivan 2008, p. 119). In addition, there is need for Guantarctic Ltd Company to acquire and enter into amalgamations or cartels with an intention of reducing the degree of rivalry within the industry and market. These strategies will enable the firm attain most of its objectives and aims. Implementation There are different ways through which Guantarctic Ltd Company can penetrate Germany’s food and beverage market. Three main ways through which Guantarctic Ltd Company can use to enter foreign market include direct export, indirect export, or production within the company in question. The following figure gives a diagrammatic representation of various methods applicable in entering foreign markets. Figure 3: Different modes of foreign market entry courtesy of Donnelly, 2002 Exporting This is the most traditional and easiest way of Guantarctic Ltd Company entering Germany’s food and beverage market. In addition, exporting is believed to be of well-established form of engaging in foreign markets for purposes of globalizations (Zhuang, Koo and Mattson, 2008 p. 960). Despite the many definitions of exporting, the simplest would read, it is marketing of goods produced in one country usually home country into another country, which in most cases is the foreign country. Exporting entry method does not require production or manufacturing of the product in question within the boundaries of benefitting economies (Daniels, Radebaugh, Sullivan 2008, p. 121). Therefore, Guantarctic Ltd Company may opt to enter foreign markets thus deriving various benefits such as; Manufacturing is home based hence less risks are involved unlike if production was done overseas. Exporting will offer opportunity to Guantarctic Ltd Company to understand foreign markets better hence little problems when entering a different market. Lastly, exporting helps in reducing potential risks that are involved in overseas production. Nonetheless, Guantarctic Ltd Company is likely to experience the draw back of being at the ‘mercy’ of overseas agents hence little or no control over the organization. Little or no control is likely to affect profitability of a firm resulting from increased expenses associated with hiring people from benefitting foreign countries to undertake control. In addition, this mat lead to jeopardizing the qualifications required for various personnel to effectively and efficiently manage Guantarctic Ltd Company. Nonetheless, there is need to create a distinction between passive and aggressive exporting methods, which Guantarctic Ltd Company can implement in entering Germany’s lucrative food and beverage market. Unlike in passive exporting where exporting party waits for orders or exports by chance, aggressive exporting is where an exporter develops proper marketing strategies that provide clear and broad picture regarding various activities that the firm intends to take. In this scenario, Guantarctic Ltd Company is better off going for aggressive exporting rather than passive exporting. This is why Guantarctic Ltd Company has well developed plans and strategies that include product, pricing, promotional services, and distribution of the products. Passive and aggressive exporting options are illustrated in the following diagram; Figure 4: Aggressive Exports Paths Courtesy of Donnelly, 2002 Two main branches of exporting that can be used in entering a foreign market are direct and indirect. Whereas in direct exporting Guantarctic Ltd Company may be involved in usage of agents, distributors, government agencies, or overseas subsidiary in order to ensure that its goods reach the consumers, indirect exporting may involved the use of trading companies, piggybacking, countertrade, and export management companies amongst others to help in distributing the same (Donnelly 2002, p. 51). Both direct and indirect exporting forms enjoy the advantages of exporting when used as a mechanism to enter a foreign market. Foreign production Apart from direct and indirect exporting the other method that Guantarctic Ltd Company can use to enter into Germany’s lucrative food and beverage market is through foreign production. Foreign production is the opposite of exporting where Guantarctic Ltd Company will establish its production plant with a view of coming up with high quality products for the purposes of fulfilling needs and wants of consumers (Zhuang, Koo and Mattson, 2008 p. 963). In this scenario, Guantarctic Ltd Company may get engaged in developing a production plant to assist in manufacturing the energy drink meant to hit Germany’s food and beverage market by storm. Choice of Mode to be implemented Following the above discussion, it is undisputable that indirect exporting that requires aggressive nature of Guantarctic Ltd Company will be employed. Guantarctic Ltd Company should therefore focus on aggressive indirect exporting since it will be cheaper considering that this is the first time such a firm is entering into Germany’s food and beverages market hence has not yet established itself in a more conclusive manner. Conclusion Guantarctic Ltd Company is a new firm that wishes to introduce a new product into a new market, Germany. Germany is the Europe’s leading market in food and beverages hence greater opportunities. Nevertheless, it should be noted that within Germany there are many firms providing the same hence increasing rivalry in competition. Guantarctic Ltd Company should therefore develop proper, efficient Bibliography Daniels, J, Radebaugh, L, Sullivan, D, 2008, International Business Environments and Operations" Thirteenth Edition, Prentice Hall, Upper Saddle River, NJ. Donnelly, J., 2002. Numbers never lie, but what do they say? A comparative look at municipal solid waste recycling in the United States and Germany. Georgetown International Environmental Law Review, 15(1), pp. 29-52. Herrmann, R, 1997. The Distribution of Product Innovations in the Food Industry: Economic Determinants and Empirical Agribusiness 13(3), pp. 319-334 Heyder, M., & Theuvsen, L. (2008). Strategic management in the german brewing industry: Are there still differences between east and west*. Journal for East European Management Studies, 13(1), 10-39. Mellentin, J., 2003. Five strategies to enter the market. Australian Journal of Dairy Technology, 58(2), pp. 169-169. World Grains Summit: Foods and Beverages. 2006. Cereal Foods World, 51(3), pp. 129-143. Zhuang, R., Koo, W. and Mattson, J., 2008. Growing U.S. Trade Deficit in Consumer-Oriented Agricultural Products. Journal of Agricultural and Applied Economics, 40(3), pp. 953-965. Read More