The Business Internationalization Process of Innocent Drinks - Essay Example

Global Marketing Contents 3 Introduction 3 Selected Target Market and Rational for Selection 4 Method of Market Entry 5 PEST 6 Competitor Analysis 10 Position Map 11 Segmentation and Targeting 12 Market Appraisal 13 Marketing Mix 14 Conclusion 18 Reference List 20 Introduction The essay will concentrate on the business internationalization process of Innocent Drinks; an U.K. based Juice Company that started its business in the country since 1999. The company produces and sells fruit juices, flavoured spring water and fruit smoothies. The company does not own its personal direct retailing outlet. It distributes its products for selling in various coffee shops, departmental stores, retailing outlets and supermarkets (Mennillo, Schlenzig and Friedrich, 2011). At present the company primarily trades in the countries located in the European Union. The company primary founders of the organization are John Wrigh, Adam Balcon, Richard Reed and Maurice Pinto (Wiggins, 2005). At the time of inception, the company had begun to operate with very few employees and possessed limited hierarchy in business. It should be noted that the organization does not own any personal juicing facilities. The corporation just contracts the vocation of mechanized smoothies to different sites. The founders of the company had commenced the business only after analyzing the emerging market demand of smootheis across all economies. With the essence of its superior products and marketing skills, the Innocent Drinks have experienced rising revenue from both its domestic and foreign markets. It at present owns the widest market demand share for smoothies in London. However, the organization is facing monetary crunches in business and has hence joined hands with Coca Cola only for financing purposes. At present Coca Cola owns 90% stake of Innocent Drinks but its commercial strategies and policies for international are considered and determined by its own senior management officials (Lucas, 2013). Thus, the marketing official of the company ensures that any new foreign business expansion program is viable and rational. This is because; raising money for unproductive projects would become non feasible and challenging for the officials. Selected Target Market and Rational for Selection Innocent Drinks had never resisted expending its business in new markets, despite of facing numerous financial problems in commerce. Previously, the company had expanded its trade in some international markets by distributing its products in the new marketplaces through giant multinational supermarket chains like Tesco and Sainsbury. The main markets of the company are Ireland and U.K. Almost 90% revenue of the firm is acquired from the sales in these two economies. However, overtime the company has successfully entered within the markets of Netherlands, Belgium, France and Luxembourg (Wiggins, 2005). Recently, the company has claimed that it desires to expand its business outside Europe (Neate, 2013). It has already acquired the registered trading trademarks for conducting business in countries like India, China, New Zealand, U.S., Australia and Brazil. Innocent Drinks can productively plan to expand its business in China. This is because; China experiences the largest population in the world. By trading in the Chinese economy, Innocent Drinks would be able to capture a wide base of potential customers. Moreover, it is an emerging economy in the global forum and has recently proved to be one of the best markets for foreign trade. The rationality of conducting business in China can be analyzed in greater details with the help of PEST analysis model. Method of Market Entry Figure 1: Modes of Entry (Source: Jana, 2008) The above flow chart shows the various methods through which a company can enter and conduct trade in a foreign market. Innocent Drinks would launch its product in the Chinese market through the process of direct exports. By entering the country through this method, the company would be able to control all its marketing activities in China by its own. At the same time, this method would involve fewer costs relative to the other processes like direct investments and franchising. Innocent Drinks would directly offer its products for sales in the supermarkets, coffee shops and departmental stores in China. The profits accrued by the organization through this method of entry would be high, as the process would eliminate the costs of intermediaries. These costs are high in case of contract manufacturing and franchising (Besanko and Braeutigam, 2010). PEST The states of commercial affairs of a multinational company are substantially influenced by the political, economical, social and technological changes in the external world. Political The political authorities of China have started encouraging foreign investments within its economy since 1978. Since that time the country adopted open door policies in trade for stimulating economic growth. The competitive power of Innocent Drinks in the market of China would depend on its product selling prices. Moreover, the selling prices of its products will be settled according to its exporting costs. The existing tax refund system in China would determine the cost of product trading of Innocent Drinks. The company needs to follow all the legal regulations imposed on it by the institute of Economic Laws and Regulations of China. The five normal tax refund rates (imposed on foreign companies) in China are 17%, 13%, 11%, 5%, 8% and the corresponding degrees of tax rebates (Wiggins, 2005). Thus, before commencing business in China, Innocent Drinks must refer to the exact tax refund rates faced by all its product lines in the Chinese market. The government of China encourages fresh foreign Greenfield and Portfolio investment within its economy. This is because, these investments generates employment opportunities within its economy. However, Innocent Drinks does not trade its products through its personal retailing outlets. Its products would be sold in the different coffee shops, supermarkets and departmental stores in China. Thus, the company’s trade in the Chinese market would less preferably generate higher employability (Jana, 2008). Moreover, its products would be threatening the market demand of the domestic fruit drink companies of China. Thus, in order to protect the interests of the domestic firms, the Chinese government might be hostile towards Innocent Drinks business expansion. Economical Since, the last few years China is experiencing an average domestic income growth rate of 9.6%. It is estimated that almost 38% of the gross domestic product (GDP) in China is composed on the income generated from foreign trade. Since 2004, countries of European Union (including U.K.) have been the biggest trading partner of China. In terms of international trade integration, it is estimated that China was in the rank 28 in 1978 and have reached at the stage of 5 in 2012 (Jana, 2008). In 2002, the gross foreign investment in the Chinese economy was as high as US $66 billion. It is estimated that since the last 10 years approximately 150000 foreign companies have penetrated in the Chinese market, either through joint ventures or through their wholly owned subsidiaries (Jana, 2008). Due to such factors the aggregate employability of the Chinese economy has improved over time and thereby facilitated rise in its per capita income levels. Figure 2: Rising Purchasing Power of Chinese Consumers (Soure: Author’s Creation) From the above graph it is found that the disposable income thresholds of the Chinese consumers are improving with time. This is responsible for enhancing the discretionary spending powers of the consumers in the county. If Innocent Drinks spreads its business in China, then it would able to tap the booming market demand of the Chinese market. Moreover, since the current value of Chinese economy is lower than that of U.K., Innocent Drinks would be able to experience lower operational costs in China. Social Chinese social environment experiences diffuse cultural setup. Under this regime the Chinese consumers are very aware about their professional relationships. Wining and dining is an important component of Chinese business culture. Certain research studies have claimed that the Cheese individuals spend enormous energy in nurturing personal and professional long term business relationships. Almost 90% individuals in the country speak local languages and 57% individuals are not comfortable with speaking British English (Jana, 2008). However, English is the first foreign language considered in the urban region of the nation. Islam, Buddhism and Christianity are the three primary religions of the country. Figure 3: Cultural Diversity in China (Source: Jana, 2008) From the above graph it can be stated that Chinese individual are highly traditional and possess less global liking features. Thus, Innocent Drinks needs to conduct its business in China on the basis of differentiation, where it should satisfy the local taste and preference patterns of the country (Czinkota and Ronkainen, 2007). Moreover, the officials working in China must be aware of the local languages in the country. Technological Science and technological state of China have rapidly improved since the last few years. The government of the country makes huge investments to improve the technological base of the nation. With rapid improvement in terms of aggregate literacy, high-tech manufacturing and infrastructure status of China has shown significant improvements since the last few years. The country at present is targeting to achieve indigenous innovation within its market. Almost 2 % of the aggregate GDP of China is spent over research and development purposes. New technological innovations are tackled by the Ministry of Science and Technology of the Peoples Republic of China. National High Technology Program, Engineering Research Centres and Innovation Fund for Small and Medium-Sized Enterprises are some of the most popular technological improvement programs introduced in China (Baker and Hart, 2007). Innocent Drinks can reap the improving technological knowhow of China within its own product, pricing, place and promotional strategies. Such inclusion would help to lower the operations costs of the company in China. Competitor Analysis The fruit smoothie market in China is highly competitive in nature. Since, the emergence of globalization, the extent of commercial rivalry has significantly increased across all the industrial segments in China. Companies as GlaxoSmithKline, The Juice Company, Unilever Bset Foods and Drinks Express are popular multinational companies providing close substitute products like that of Innocent Drinks (Jana, 2008). Thus, the extent of rivalry within the fruit smoothie market of China will be high. High competition would generate infinite difficulties to the company in China. The bargaining powers of the buyers within the market will be high subjected to their low switching costs (Porter, 2011). In order to lead within the competitive market, Innocent Drinks would need to implement strategic positioning, segmenting and targeting strategies in China, for capturing a wide base of loyal customers. Position Map Since, the market of fruit smoothie is becoming more competitive over time; Innocent Drinks should not introduce premium prices for its products in the Chinese market. Figure 4: Position Map High Quality Low Price High Price High Quality (Source: Author’s Creation) According to the above position map, Innocent Drinks would claim to sell high quality products at moderate prices in the Chinese markets. The prices should be settled on competitive pricing grounds. Segmentation and Targeting Innocent Drinks will implement the method of demographic market segmentation in business to target most potential customers for its products in China. The segmentation process would be executed on the basis of age and income demographics. The target customers of the company would be the young consumers of China (between 5 to 30 years old). These young individuals should lie within the middle and upper middle income strata of China (Atikian, 2013). Market Appraisal Market appraisal is the process through which a company tries to evaluate and assess the characteristic features of its target market. The product, pricing, placement and promotional strategies of the firm are formulated on the basis of the results acquired from a market appraisal analysis. The target market of Innocent Drinks in China was the middle and upper middle income group of young individuals. This income group of individuals are primarily found in the urban localities China like, Hong Kong, Shenzhen, Taipei and Guangzhou. Thus, if Innocent Drinks distributes its products in the supermarkets or coffee shops in these cities, then it would be able to reach up to a wide base of target buyers. The young consumers of the modern era are highly health conscious people (Andersen, 2002). While promoting its brand in China, Innocent Drinks should emphasize on the purity and nutritional benefits of all its drinks and smoothies. Moreover, the company should claim that its drinks and smoothies contain no traces of artificial colours and preservatives. Such facts would enhance the loyalty of a wide base of target customers towards the brand. The official logo of the company (resembling an apple) should be popularized in the market of China for augmenting the brand awareness among its buyers. Figure 5: Evaluation Factors (Source: The Independent, 2013) Before beginning its trade in China, Innocent Drinks should consider the above factors of relating to supply and marketing management. As, the disposable income levels of the Chinese consumers are increasing with time, the natives of the country are improving their life style and eating habits. The demand for fruit drinks and smoothies are found to substantially increase in the Chinese market. Thus, purity and quality should be the primary agenda through which Innocent Drinks would penetrate in the market of China. Marketing Mix Product Innocent Drinks should diversified products in the market of China. In general the company sells smoothies, super smoothies, juices, extra juicy smoothies, noodle pots kids’ smoothies and kid’s juice. These products are prepared with real fruits, vegetables, seeds and vitamins. The company must convey to its target customers that its products are pure and made up of good quality. By offering drinks of specialized flavours and states, the company can park a wide base of potential customers. The drinks of the company sold in Chinese market should not contain any added sugar or carbohydrate. The newly launched veg pots and fruit tubes of the company should also be sold in the market of China. Buyers’ utility can only enhance through delivery of diversified products (Richter, 2012). The organization should not compromise with the quality of its drinks and smoothies in China. Moreover, it should allocate specific funds for product innovation purposes. The company can specifically launch some new flavoured smoothie or drink in China, according to the local taste and preference patterns of the Chinese customers. It is found that almost all the products of the company are perishable in nature. It can try to make some of its drink non perishable in nature (Spitzeck and Hansen, 2010). This would make the product supply chain management easier for the concern. However, quality and taste are the two main attributes through which Innocent Drinks can enhance its products popularity in the market. Figure 6: Product Development Process (Source: Abbing, 2010) If Innocent Drink decides to launch a new fruit drink in China, then it should follow the above conventional product development steps in business. Price The drinks and smoothie’s of Innocent Drinks are claimed to be sold at slightly inflated prices. Perhaps, this is the reason for which the company’s target customers in most markets are affluent upper middle and rich urban individuals. Every 100 millilitre bottle of drink or smoothie sold by the company costs £1.70 to £1.80 in U.K. However, researchers have claimed that the products of the firm are expensive compared to that of many of its market rivals. The extent of rivalry within the fruit smoothie and juice market of China is high. With such premium pricing strategies, the products of Innocent Drink would become less competent. Thus, it is highly rational for the company to introduce penetrating pricing strategy in the market of China. By charging products lower than many potential competitors, Innocent Drinks would be able to park many loyal customers in business. Once its brand becomes popular in the market, it can enhance the price of some products, that experiences relatively inelastic demand in the market. Place Innocent Drinks would not sell its products in China, from its own retailing outlets. The company would export bulk quantities of its smoothies and drinks to popular multinational retailing chains in the country. Some of these retailing changes can be RT-Mart Shanghai, WalMart, Carrefour China and Metro Jinjiang Cash and Delivery (Schmidt, 2010). Figure 7: Growing Retail Trade in China (Source: Fung Business Intelligence, 2013) The above graph shows that the gross revenue generated by the retailing firms in China is increasing with time. Hence, it would be highly rational for Innocent Drinks to distribute its products in the popular retailing firms of the country. The drinks and smoothies of the company can also be sold in popular coffee and ice cream shops of China. Star Bucks and Costa Coffee can be some of these companies. These firms acquire wide network of outlets around different urban regions of China (Rao, 2004). If Innocent Drinks sells its products through these companies, then its business would experience high sales as well as brand recognition from the Chinese market. Promotion The biggest drawback of the products of Innocent Drinks is its short life span. The marketers of the organization in China can resist this shortcoming by stating that the drinks and smoothies offered by the company contain no added preservatives. They should proclaim that drinks are 100% natural like fruits and hence are perishable in nature. The company should enhance the quality of its product packaging systems. Figure 8: Proud Facts about the Products (Source: Innocent Drinks, 2014) The above list shows the various types of additional nutrients present in all the drinks and smoothies of Innocent Drinks. The brand name of the organization can be enhnaced in the Chinese market, by clearly stating the nutritional facts of the products on packages. Moreover, the company can advertise its products through different means of communication in China, such as social media, television and newspapers. Special price discounts can be provided to the loyal customers on occasions of bulk purchases (OBrien, 2011). It should introduce special delivery vans through which it would distribute its products across different selling points in China. Conclusion This is the era of “consumerism” where companies aim to enhance satisfaction levels of consumers by simply providing differentiated services. Differentiation in services can only be effectively practiced by a multinational company with the assistance of a superior marketing plan. From the above research it would be correct to state that Innocent Drinks have become a popular fruit drink and smoothie company in U.K., with the help of special marketing skills. Despite of possessing limited financial resources, the organization has achieved stunning growth rates in terms of revenue. However, in order to experience stable growth in future, the company must expand the scale and scope of its commerce in some emerging economies of the world like China and India. By conducting business in these countries, the firm can tap its growing market demand of middle income classes. Even so, it must realize that the market for fruit smoothies is becoming more competitive over time and hence it should accordingly modify its marketing mix strategies for gaining higher competencies in business. 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