Marketing Channels and Logistics. Pepsi Cola in Ukraine - Essay Example

? Marketing Channels And Logistics Full s Full [Day Month Year] EXECUTIVE SUMMARY The case discusses the Pepsi Cola sale and the methods that they have been using to get their own business settled in Ukraine. The case overlooks a lot of issues and problems that exist in Ukraine and how they have been a hurdle in the growth of Ukraine. The case has been written when there were a lot of privatizations going on in the country and the international investors were betting about how long would this continue and actually prove to be a real gold mine for those who have invested in the country. Also at the time when the case was written Coca Cola had setup their own plant in the area and since Pepsi only had bottling plants in the area they felt threatened by their entry as earlier they had the full control of the soft drink market. The case discusses the internal and the external factors that are affecting the supply and the distribution of the Pepsi in the country of Ukraine. TASK 1 There were many problems that existed there, the problems will be discussed one by one and later the four major ones will be given. Ukraine is a very poor country, with loads of issues of their own; the people are living in utter discomfort and have hardly any money for spending on luxurious goods and even many a times they do not even possess enough to be able to afford any other goods that are counted as a necessity. There have been a lot of skirmishes amongst the people themselves who are all fighting for limited resources. In countries like Ukraine it is a norm that people fight with each other for the limited resources that exist and hence there are a lot of issues. The economic situation of Ukraine is really very bad, there is increased terrorism in the whole country and nothing is safe. The economic conditions are real worse here. There is a lot of privatization that is going on and people feel that it would turn out to be a harbinger of a positive change in the whole society; people will start having enough disposable income to spend on luxurious goods and other luxurious items. The people generally are very poor and struggling to even meet their basic needs. A cold drink beverage is a luxury, in areas where purchasing pure water is out of reach for many. The economic condition of the place is really poor. The inflation is quite high in the area. This has reduced the purchasing power of the people living there. Inflation has caused the prices of daily consumer goods to increase as well. As mentioned in the case, it is clearly mentioned that the absence of any proper supply chain has caused the Pepsi to cost far more than it would actually had there been a proper channel. The marketing channel is responsible for making sure that the produced goods reach the consumer without increasing the cost. The greatest disadvantage that Pepsi had in this regard was that they did not have a proper marketing channel, there were no campaigns and the transportation of the Pepsi was never done officially. This lack of proper transportation failed to create an everlasting image in the minds of the locals. They will stop associating it with some kind of an international brand and end up thinking of it as a local brand. Even they had to change the packaging of the whole thing as people had actually started considering it a local brand. There was a serious mishap in the understanding of the perception of the people. The promotion, placing, pricing were all at a loss here, as people got it through, at a minimum, three to four middlemen, this made the prices go up as each man wanted to earn profit. This is one very discouraging factor that was there in Ukraine. Placement of the product was also very faulty and there was no other way for Pepsi to do it until unless they started their own freight services. The logistics issue was so great that there was no proper transportation, the use of trucks was also not a good option as people weren’t learned enough to differentiate between the kind of truck that is actually needed for the transportation of the goods. It has been mentioned that the padded trucks were being used for furniture hauling while the normal trucks that were being used were very normal, hardly spacious and even had no proper space for storing and transporting the bottles. This is not the only issue that was faced by the people from Pepsi; there was no proper transport system at all. The two transports that were usable and should have been the only source of to be used by the Pepsi were train and trucks. The trains had to be booked beforehand but even then there was no surety that the goods would be able to be transferred or not. There was no proper infrastructure as well. Considering the fact that to have a proper transportation for all the goods that are being manufactured it is extremely necessary that the roads and other such infrastructures are really good so as to avoid any hurdles in the proper delivery of the goods that they have. Even if we see the docks of Ukraine they are all clogged near about the whole year and the clogging is increasing day by day. This is a huge issue for the company as they are transporting their concentrates through the port. It will hamper the production that they have and reduce their production itself. There is no proper storage facility. Though not having a storage facility is not that big an issue for the Pepsi Company as they are already not producing that much in Ukraine, but since they are now planning on increasing their production and counter the Coca Cola’s launch and make sure that they remain the leading soft drink company. When they are planning to extend their business they will surely need proper storage facilities so that they can boost their own production. The law and order system is at worst there. There is no security for the people there let alone things which could be sold for money. There have been incidents that have been reported that there were quite many lootings and especially trucks that are all loaded. This has been a norm there. It is also seen that the law enforcing authorities have not been able to put a stop to this. This is a very huge issue for the multinationals as they will be losing quite a lot of money that would have otherwise been a part of profits on their balance sheets. This way the multinationals would be facing a lot of losses in the forms of theft. Since the poor law and order situation has given a free lead to the thieves that thrive on such thefts. It has also been seen that people fear such investments for this reason too as they feel that they have no security. It is necessary that there is a proper security at least better law and order system for the country to progress economically. With such issues with all the thefts and the presence of middlemen the companies would never be able to increase their profit margins. The main reason that the company expands to international businesses is that they are looking for profits; they are not expanding business to do charity work or to incur losses. It is a norm that the international expansion is only done so as to make sure that there business expands in the positive way and reap benefits from the international land. But there are supposed to be better situations for the international company, the law and order situation of any country is a major factor that is considered. If there is no proper law and order then there will be no security for their assets and thus they would skeptical in any investments that they would be making. Due to the law and order situation of the country and it has been seen that since there were no proper initiatives from the government itself this would have seriously affected the international business expansion plan that they had. Keeping the situation in mind it was a norm there that there were no insurance companies in the area and the companies that were there were never willing to offer insurance in some areas specifically and sometimes they were not willing to offer insurance at nominal levels as well. They felt that keeping in view the current situation of the country the insurance were way above the normal rates and thus this was really costly. There were many routes of Pepsi cola that would not be covered at all and hence occur in direct loses for the company (WALTON, 1986). A major issue that was there was the fact that there was no proper legal system that existed in the country. There were many controversies that existed in the law itself, thus the main issue that arises here is that the international companies will feel that they can be cheated out of many things and they may never be able to judge the real situation. It has been a norm there that the international companies get caught up in the legislation. It is a fact that Pepsi also faced such situations and it has been said very explicitly in the case that the things that have been specified by the law are only considered accountable the rest is all in the hands of the negotiation parties and thus people lose out many benefits that they could achieve. Also, the laws laid down have quite many loopholes and thus determining a thing is quite difficult. Ukraine is a third world country, with lots of social and economic and as well political issues of its own. There has been quite a lot of political unrest lately but the things have started to settle down a bit and a lot of privatization is also going on. Despite the fact that the country is trying to progress with all its efforts but there has been quite a lot of issues with it because if a country wants to progress it is in serious need to develop its infrastructure and the technology that is being used. For the development of the economy it is a necessary factor that the technological and the use of machinery is increased. It is necessary because modernism and advancement only comes when you are in line with the world. Here there is lot of issue with the technology that they have. The plants and the machineries are all very poor in condition and hence there is a lot of wear and tear and lots of breakdowns these breakdowns hamper the progress of the whole industrial base and at the same time it hampers the rate of production. One other big issue is that the tax rate, which can be counted as an issue in the fiscal policy of the country which is in the long term affecting the macro and micro economic situation of the country. The tax rate is as high as 90% which is ultimately eating up the whole profit that any business might earn, this is the reason that there are corrupt accounting practice, this is not possible for an international company to maintain two books of accounting as this will cause them to liable to the international court for unethical practices. The only way a company earns profit is through the unethical practice of maintaining two accounting books one for the tax purpose and the other one for the sole purpose of keeping records. These unruly and unethical practices are cutting down the probable ethically earned profits as well and thus it is a difficult situation for the international company that is operating (KRAJEWSKI, RITZMAN, MALHOTRA, 2010). Another major issue that is there and is directly not influencing the productions but has an impact on the overall production and the specifically the management that is working and this is the cultural difference. They have huge score for uncertainty avoidance but since the company is American at its roots they are well prepared for the uncertain situations and they are very well with this. These cultural differences if not addressed will cause a lot of issues, and we can see it later in the case that there were management issues as well. Another main factor is that the Ukrainians are a very collectivistic group of people but the Americans are a very individualistic nature this is a very huge difference here considering the scores for individuality that they have. TASK 2 The above mentioned issues can be remedied but some of them would really need huge governmental interventions if they are to be addressed and a profitable situation worked out. The best way for the Pepsi co. to deal with the issues related to the transportation is to use its own trucks. Since an issue with relation to the probable lootings have been pointed out there is an easier way through which it can be sorted by hiring private guards who can protect the shipments that are bound for various regions. This would increase the costs of Pepsi but in the long term it can prove to be beneficent, since the whole supply chain would be in their own hands and the money that was being in between would also be reduced. There is a social factor involved here that could increase the value of the company in the eyes of the locals and make them brand loyal. Pepsi can have their trucks arrived at a secure facility. They can then hire local people as drivers and already the wages of the people there is very low, therefore even if Pepsi hires a local driver and pays him less than the international pay rate even then they will be considered as valuable employers by the locals (SCHROEDER, GOLDSTEIN, RUNGTUSANATHAM, 2011). Besides these if Pepsi wants to establish itself in the country it is really necessary to win the trust of the locals, they are a very collectivistic group of people and hence they will look kindly towards people who look kindly towards their society and when Pepsi will show its interest in building the social structure by providing jobs and helping out the locals they will trust them more and hence will also show their trust by becoming brand loyal. Pepsi can help by starting their CSR initiatives in the country. As for the security issue there is hardly that could be done about it until unless the government intervenes about it. The only thing that they could do is hire armed guards and they would readily provide this since currently the government is in the progressive mode and hence will provide incentives in a more effective way to the international business so that they can have the business running and more chances of foreign investments and as well more international companies interested in coming here (ALDERTON, 2005). There is one recommendation for Pepsi that would only involve their participation and guidance and very little amount of money. They can help the government with probable plans for social as well industrial restructuring and this would not accounted by them on their balance sheets, they can in fact help the government get international sponsors for their projects and can help boost development in the country. The transportation issues can be solved by simply starting out their own transportation trucks and solving the issue. As for the choked ports they again do anything about it. The best that they could day is to keep in mind the days that they require and order the concentrates accordingly, this way when they start accounting for the lead time they will be able to schedule their production accordingly. There are many things in the case that need to remedied by the government and hence no international company can bring about the changes that are actually required by the government to take part in. CONCLUSION In my opinion Pepsi should setup a proper plant that produces the finished and packaged Pepsi bottles as this will reduce the cost of the whole thing, and they can then ship it to Ukraine through ships keeping in mind the lead time that is taken at the ports. They can use their own trucks for transportation from the ports thus there will be no third party involvement as this will make it easier for the company in the long run. Seeing the current situation of the economy of the Ukraine in my opinion it is not advisable for Pepsi to setup proper plants there, as it is in a very dynamic and unstable state and the situation can turn into any direction and thus it would be quite a risk if they would do such long term investments, in case if there is still some issues or some sort of problem in the country then they can simply cut down the expenses that they have and as well as the supply and then they would have no further loss. In a country that has a 90% tax rate it is impossible to make profits and thus the whole purpose of doing business would die down and they will not be making profits. And if the company starts to practice double accounting practice then they would be liable to the international courts for the shoddy accounting that they would have done in Ukraine. REFERNCES ALDERTON, P. (2005). Port management and operations. London, LLP. GILMORE, S., & WILLIAMS, S. (2009). Human resource management. Oxford, Oxford University Press. WALTON, M. (1986). The Deming management method. New York, Dodd, Mead. KRAJEWSKI, L. J., RITZMAN, L. P., & MALHOTRA, M. K. (2010). Operations management: processes and supply chains. Upper Saddle River, N.J., Prentice Hall. SCHROEDER, R. G., GOLDSTEIN, M., & RUNGTUSANATHAM, M. J. (2011). Operations management: contemporary concepts and cases. New York, NY, McGraw-Hill/Irwin. Read More