Factors to consider in globalization: case study of pepsi - Essay Example

? FACTORS TO CONSIDER IN GLOBALIZATION: CASE STUDY OF PEPSI By Factors to Consider In Globalization: Case Study of Pepsi Introduction Business operations, how they are managed, and regulated differs between various countries. Marketing, advertising, promotion, and use of technical and technological skills are required in order to increase sales in any business. Every company that chooses to go global has various reasons for choosing to exploit international markets. Regardless of the reasons that may necessitate a company’s entry into a foreign market, there are hindrances that the company is likely to meet in setting up a foreign base. These factors need a scrutiny, clear analysing and verification before the company decides to start its operations in the foreign country. Such factors include social-cultural factors, economic factors, and political factors, legal and technological factors. Pepsi, a soft drinks company will have to face and deal with these problems while trying to set up base in the United Kingdom. The company that has its roots in South Africa is trying to begin operating in the country, and set up a manufacturing plant for soft drinks commonly known as Pepsi cola. A proper audit and scrutiny of the market is a guarantee to the company of succeeding in the business while a poor analysis of the same market is a failure to the company. The factors responsible for influencing Pepsi’s operations can be classified into two broad categories that include external implications and the internal factors. Pepsi can hedge itself and come up with strategies of controlling its internal factors that include land, capital, labour, and business allocation, while it cannot control the external factors affecting its operations that include demographic factors, political forces, cultural influences, technological advancement, and legal practices (Spange & Young, 2007, p. 44). External environmental factors affecting business in a global platform include legal factors, political factors, technological factors, social, and economic factors. External Environmental Factors Social Cultural Factors Social factors are factors related to the differences in social structures of different groups or individual people. A good analysis of the social factors provides insights to the company’s potential customers on their behaviour, tastes, and lifestyles of the population (Wall, 2002, p 14). People’s buying patterns largely are influenced by the changes experienced in population structures and lifestyles of consumers. Age of the population, gender of potential customers, religious and cultural belies in many occasions will affect their buying patterns. Culture is the acceptable mannerisms and ways of behaviour, customs, and values of a particular society or group of people. Proper understanding of the culture of the country’s population will greatly enhance Pepsi’s success chances. High consumption of soft drinks in the country is in the cities where the biggest class of elites and people with more money to spend are, although this is spread across the economy to all parts of the country. More learned people are likely to live in towns and cities and such information would be beneficial to Pepsi in understanding their target population. Religious beliefs are yet another consideration for the company. Although mostly in the soft drink industry business, this might not much of a concern and especially alcohol companies would worry more about the issue, it is a factor to consider. Some religeons ndo not allow their followers to consume manufactured soft drinks of any kind, while others may discourage their consumption in various seasons. Cultural factors are another class of factors that Pepsi needs to consider before beginning its operations in the country. While some cultures may term soft drinks a taboo and classify them as unreligious, others do not allow women to consume such drinks especially when they are pregnant. It is believed that this would have negative implications on the child. Although this might not be a serious worry for a country like United Kingdom, it would still be a poor assumption if the company decided to overlook it. Political Factors Perhaps this is the most important consideration that Pepsi should consider before deciding to set up station in the country. Political factors are the business regulators in any particular country which a company plans to start business. Some foreign governments are faced with political instability, where there are unpredictable changes that may take place at any time and this would greatly affect the company’s investments. Coups and political dictatorships and unrest will have big impact on the business. During unrest for example, Pepsi will have to close business for a while before peace returns. In times of political coups, the company risks losing its invested capital although these are rare in the country, Pepsi cannot rule out their possibility of happening. Recently, during the political unrest that engulfed the country, many companies reported lose since they could not make any sales. Legal Considerations For any company considering international business, it should be familiar with and obey the laws of its local country, international laws, and laws of all the countries it is planning to do business with. Pepsi, before it could decide to go global had to first understand international laws, after being compliant with the laws of its mother country that is South Africa. It should then have adequate understanding of the laws of the United Kingdom. Some countries may have different laws relating to employee protection such as minimum wages, insurance schemes, overtime, maximum working weeks, and retirement ages. There are also rules relating to product production rules or environmental laws. While some rules could be illegal in some countries, in other countries, the same set of rules could be legally accepted. Some countries may have laws that regulate the amount of a product that could be supplied to the markets by foreign countries and by local companies. Under such laws, companies are required to use the raw materials that are locally available, make use of local labour resources, local capital that is borrowed from the locals or purchase part of the materials from local suppliers. The purpose of such moves is fostering greater economic activities at the local level that creates more jobs for the local population of the host country. However, Pepsi is not guaranteed the availability of the exact raw materials for manufacture of Pepsi cola by the government, although alternatives could be available. There is no guarantee that a substitute raw material will serve the purpose that a real raw material use in manufacture in the drinks and this would easily compromise the quality of the drink. The labour force available for hire by the company could be low-skilled thus producing low and poor results. To minimize the loss of sales and subsequent revenue the company would have to loose due to inexperienced workforce, the company may opt to train the workers and this means additional costs to the company. Taxation is another consideration legal factor that the company needs to pay keen attention to. All countries have a tax system that has already been set up by the government for tax remittance purposes. There are various reasons why governments levy taxes on manufacturers and business people for example, a tax could levied on imported goods to make them more expensive, taxation is also the government’s major source of income (Pathak, 2007, p. 489). To avoid retention, lawsuits, and trouble with incompliancy, it is essential that Pepsi be aware of the taxation rules by the country. Economic Factors Globally, governments have different reactions towards international trade and thus use various techniques to encourage or discourage global transactions. The sign of a government that favours international trade is the creation of a business friendly environment that may include free trade zones, free trade agreements, and free trade blocs. However, if a country is against the idea of international investors, it try protects its economy from international competition by creating trade barriers and protectionists measures such as instituting tariffs, quotas, licensing requirements. These factors affect buying patterns of the populations and tend to increase sales of local products locally (Kerr & Gaisford, 2008 p. 30-33). Exchange Rates When different countries do business with each other across the world, a money exchange is needed to facilitate the doing of business. This need arises since each country has its own currency system. When Pepsi starts doing business with United Kingdom, they need to be paid in Rand. A company mostly preferred its payments beings settled through its home currency and because of this, Pepsi needs to convert the currencies by either buying or selling Rands against the Euro. This is possible when the exchange rates of different markets that are available such as the spot market, forward markets, and futures markets which are more dependent on the ultimate goals of the company (Al-Shammari, 2007, p. 18). The success of Pepsi is dependent on the currency of the United Kingdom. In case the currency is soft, it creates an exchange problem, while in case of a hard currency it would be easy to exchange it with a foreign currency. Economic Systems When approaching a host country, it is important to understand the trends exhibited by the economic systems of the country in order to determine the success of the company in the host country. Some economic systems value individual goals more than collective goals while others value collective goals more than individual goals. Such a tendency creates environments where certain types of business are more welcome than in that particular economy. United Kingdom, being a free market economy is easier for Pepsi to set up its camp in the country, and since it will be involved in manufacturing of soft drinks, its success would be more guaranteed. However, the company should keenly study the trends in the fluctuations of the economic conditions to be safe during times of depression and to maximize in times of boom (Al-Shammari, 2007, p. 18-26). Economic Stability The stability of the host country’s economic system is very essential for any company that is seeking to go global. Pepsi should take into account the inflationary rates in the country before setting up its base. High inflation would mean economic instability while low inflation standards would mean stable economy (Saleem, 2010, p. 26-29). United Kingdom has a relatively low level of inflation and if Pepsi was to set up a plant in the country, chances of making losses due to an unstable economy are minimal. Level of Development Management of Pepsi must put into consideration the impact its capital invested in the course of doing business in the bottom line. The management should be sure that they are not making any mistakes while choosing UK as the host country in terms of infrastructure and development. According to Saleem (2010, p.26) major indicators of a country’s level of economic growth are the levels of education, production levels, and infrastructure. Infrastructure is the internal facilities in a country that make business possible within that particular country. They act as aids to efficient trading and smooth running of business. They include factors such as communication networks, transportation networks, financial institutions, distribution networks, energy supply, and markets. Pepsi should be more concerned with these business facilitators, in ensuring smooth running of its business. Transport is essential due to distribution of the drinks in the country, financial institutions are important when the company needs to financial services when either borrowing money or banking (Kozami, 2005, p. 184-188). International financial institutions present in the home country are more attractive, while strong financial institutions would give the company confidence while doing business in the country. Energy is essential in any production process, and a company involved in manufacturing would have to put the availability of energy and its costs as a key factor before starting operations in the country. High-energy costs would increase the operating costs of the company while unreliable energy supply would mean disruptions in the company’s production process leading to delays and loss of revenue (Kozami, 2005, p. 184-188). Education Levels It is crucial for Pepsi to determine the host country’s literacy levels of the population since countries with better educated people can produce better goods and services. Pepsi would highly benefit by hiring employees from the host country with the same level of education as those employees from the home country for a lower compensation package. Technological Factors Technology is essential by making it easy, fast, and cheaper for a company to do business in a particular country. Communication systems are a key determiner of technological advancement of a country. United Kingdom is technologically advanced, making it very cheap and easy for any company that has embraced technology uptake to do business (Kozami, 2005, p. 189). Most of the United Kingdom businesses have taken the advantage of the difference in time zones and have taken to transmitting data to India where skilled labour is cheap. Contracted data handlers input the data, return the aggregated data, and run it via satellite before the start of a UK working day. Pepsi should consider whether to adopt such a model of doing business or whether it would settle for the ordinary way of doing business. Internal Environment Implications Internal environmental factors affecting globalization are centered on how the company changes its practices to compete on a global platform. These factors include production strategies, development, customer service and marketing strategies (Nieuwenhuizen, Rossouw & Badenhorst, 2008, p. 54). . Company Branding Pepsi should internally develop branding strategies that will align its logo and external presence in the new market with the global image. Company branding should spark interest in the company itself, and one approach of the company doing this would is the companies’ association with quality products and services. Customers have varied perceptions regarding a company and its brands, and this plays a prominent factor of the company globalization strategy since the products and its brand since the brand is what customers associate with. Thus, for Pepsi to have a competitive edge and advantage over other soft drinks manufacturers, its brand should be of a high quality. Employee Capabilities To compete in a worldwide market, Pepsi must evaluate its employee’s individual capabilities. Primarily, the company should assess each employee’s strengths and weaknesses, their problems, uncertainties, constraints or performance uncertainties that global competition might create (Brumfitt, 2001, p. 22-29). Identifying the strengths and weaknesses permits the company to make its plans for maximizing efficiency. This boosts the company’s efforts in negotiating the world economy and ensuring supremacy in the new established markets. Potential Customer Base The UK economy has a high consumption of soft drinks and especially in the urban areas where people tend to consume more of the drink. Analysts attribute this to the economics of the people living in towns, pointing out that such populations have a high level of disposable incomes, their lifestyles and education levels contribute largely on their eating and feeding mannerisms. Pepsi should target this class of people, by investing more in promoting its products in the urban areas. The increasing demand for energy drinks is yet another potential customer base. People are working more, their levels of fatigue are higher by the day, and this has led to a rise in demand for energy drinks (Nieuwenhuizen, Rossouw & Badenhorst, 2008, p. 53-56). Providing energy drinks for such customers would contribute to Pepsi’s increase in revenue. This customer base would also grow with special modifications of energy drinks for athletes and sportsmen. Competitive Pressures Encountered The wide UK soft drinks market has many players due to its high returns and increasing growth. The number of manufacturers is close to a hundred, creating a highly competitive industry. Some of the manufacturers who have been in the industry for quite a long time have won customer loyalty that has led to market dominance (Madura, 2010, p.39). Convincing this type of a customer base to try a very new product will be a hard task for Pepsi, while winning their trust will not be easy. Price wars are imminent, with market heavy brands running promotions and Pepsi should be prepared to counter this as it prepares for an entry. It is likely that in order to make a substantial impact in the market, the company will give promotional offers, run an aggressive campaign, and ensure that Pepsi is available in all parts of the country. Competition is likely to be experienced from other types of drinks not necessarily from the soft drinks class. Alcoholic drinks such as bear and wines are a competitor in the beverages market, so is coffee and tea. People tend to consume bear in larger quantities in a single sitting in social drinking places, while couples and business people meet for coffee (Madura, 2010, p.33-39). These contribute to the number of competing drinks and manufacturers that Pepsi is likely to witness once it sets up operations in the country. Making prior plans on the ways and means of countering these competitors will mean increased sales and thus high revenues for Pepsi. Conclusion Pepsi would reap plenty of benefits by opening up a manufacturing plant in the country due to increased markets, low productivity costs, good government policies, and stable economy. However, there are a number of problems that the company will encounter and should hedge itself against in order to be successful in the new market. Different countries have different forms of challenges that the company will witness, and a good analysis of the particular market will be very important since similar problems encountered in one market requires unique methods of hedging. Works Cited Al-Shammari, N 2007, Exchange rate policy and international trade linkages and impacts, Syracuse University. Brumfitt, K 2001, The competitive business environment. Cheltenham, Nelson Thornes. Kerr, W A & Gaisford J D 2008, Handbook on international trade policy. Cheltenham, Edward Elgar. Kozami, A 2005, Business policy and strategic management. New-Delhi, McGraw-Hill Published. Madura, J 2010, International financial management. Australia, South-Western Cengage Learning. Nieuwenhuizen, C Rossouw, D & Badenhorst, J 2008, Business management: a contemporary approach. Cape Town, South Africa, Juta. Pathak, A 2007, Legal aspects of business. New Delhi, Tata McGraw-Hill. Saleem, S 2010, Business envirornment. New Delhi, Pearson. Spange, M & Young, C 2007, "The macroeconomic impact of globalisation: theory and evidence", Bank of England.Quarterly Bulletin. Wall, N 2002,  External influences. Oxford, Heinemann Educational Books - Secondary Division. Read More