Paper Outline
Introduction
II. PepsiCo Inc.
III. Economy of Namibia
Global macro environmental variables affecting PepsiCo
Development of a marketing information system by PepsiCo
Conclusion
Global Marketing Assignments: PepsiCo. Inc in Namibia
Introduction
In the modern economic environment, many companies are adopting the strategy of expanding their global operations by opening subsidiaries in different countries. Multinational operations require the management of a company to come up with strategies which are acceptable in different countries and which will promote the image of the company in domestic as well as foreign markets. It is important for companies expanding their operations globally to focus on all macroeconomic elements that may affect their business activities. In this paper, I will discuss global marketing strategies of PepsiCo Inc. while focusing on strategies by the company to start operations in Namibia. Background information about PepsiCo Inc. and the economy of Namibia will be provided while explaining global macroeconomic factors affecting the company. The paper is a report by a team of marketing experts of PepsiCo Inc. seeking to find out viability of operating in Namibia.
PepsiCo Inc. PepsiCo Inc. was founded by Donald M. Kendall and Herman W. Lay in 1965 by merging Pepsi Cola and Frito-Lay. During this time Pepsi Cola Company manufactured brands such as Pepsi Cola, Diet Pepsi and Mountain Dew. On the other hand, Frito-Lay manufactured Frito’s corn chips, Lay’s potato chips, Cheetos, Ruffles and Rold Gold pretzels. Soon after establishment of the company different beverages were produced, and the company diversified in creating snack food companies as well as restaurants (U.S. Security and Exchange Commission (2010a). The company acquired other companies in the industry, for example Pizza Hut, Taco Bell and Kentucky Fried Chicken. Pepsi carried out effective advertising strategy by using celebrities such as Jay Leno and Michael Jackson (PepsiCo, 2010). Globalization strategy was adopted in 1966 when PepsiCo penetrated Japan and Eastern Europe. Later, the company established its operations in USSR, China, Mexico, India, Vietnam and Africa. Today the company operates in more than 200 countries world wide. Currently Pepsi has the largest market share in sale of snacks. PepsiCo has an independent chain of supply where it has its own bottlers, distributors and retailers. Some countries have their own bottling plants and distribution centers. The major competitor for PepsiCo Inc is Coca-Cola Company which has dominated most of the global markets. Coca-Cola has taken a lead in the sale of beverages (PepsiCo, 2010).
Economy of Namibia
Namibia is an African country with a growing economy which is mainly comprised of agriculture as the main economic activity. In addition, there are other economic activities in both formal and informal sectors. It is important to note that there are a number of people involved in extracting and processing minerals such as, diamond, uranium, lead, zinc and others, which are exported to foreign countries. The agricultural sector provides employment to more than a half of the population while the mining industry employs about 3 percent. The GDP of the country is approximately $14 billion, with a growth rate of -0.7, inflation of 9.1 percent and more than half of the people live below poverty level (World Bank, 2009). Unemployment rate is estimated to be 52 percent and the country imports most of its products from South Africa (about 85.2 percent) (World Bank, 2009). Namibia has advocated for regional economic integration and has joined several economic organizations such as SADC, SACU as well as other global organizations such as WTO and others. Even though the country has a small domestic market, the transport and communication systems are good (World Bank, 2009). The political climate of Namibia is favorable for conducting business since the country is politically neutral. The legal environment is also good and adequate support is provided to all business organizations. Domestic and foreign companies have the freedom to compete equally in the market and there is minimal discrimination. The country has a diversified cultural framework which integrates social values with economic activities of the people.
Global macro environmental variables affecting PepsiCo
The global environment provides favorable conditions for the food and beverages industry. In some countries, the social, economic, political and legal factors have hindered operation of multinational companies whereas other countries have been very supportive. There has been economic downturn in the global markets and this has affected the beverage industry. Legal regulations have increased and this has been a major challenge in the industry (West, 2010). However, the conditions are predicted to become favorable after the ongoing regulations are minimized. Economic recession is expected to have minimal effects in the near future because countries have created strategies to remove trade barriers for a favorable trade environment (Drinktec, 2009). More opportunities are being realized in the global markets due to changes in demographic, socio-cultural and technological environments. More markets are emerging due to high population growth rates in many countries (Wilson, 2001). There is a large number of people being registered in the world and this trend provides potential for an increase in the number of consumers. As world population increases companies achieve higher levels of operation since the market size for their products continue to increase. Cultural systems are shifting from traditional systems to modern systems whereby people are becoming modernized. As such, traditional foods are being neglected and adoption of processed foods is a common scenario. Socio-cultural patterns are shifting towards healthy products. Energy efficient technologies are being developed and this will reduce costs of production. The beverage industry and global markets are expected to expand due to the above mentioned factors (Donald, 2002).
The market share for the beverage industry is concentrated in the United States and other countries of the world. Product portfolio has increased due to advancement in research and development, new patents & Intellectual Property Rights which protect producers, ethnically diverse products, health conscious product lines, land laws and cost options available in the market. The financial structure of the industry provides high profit margins for the companies and high financing requirement to establish and operate a company in the industry. To capture a large audience in the industry a company should carry out extensive market campaigns, effective promotions and mobile advertising. Due to high competition in the market, companies carry out intensive promotional strategies to capture as many customers as possible. Customers are very loyal to brands provided by companies in the market and brand shifting is relatively low. Brands and recognizable in the market since they are conspicuous and customers easily identify their brand choices (Marritz, 2009).
There is a global change in the approaches used by companies to improve their public image. Corporate social responsibility activities are extensively carried out by companies in the market to promote their image. Such activities involve sponsoring sports events, philanthropic activities, and others. Cost structure of the industry indicates that companies require operating at a large scale to enjoy benefits from economies of scale. Productivity of the manufacturing processes is an essential aspect that companies maintain to improve their output (Foreign Affairs and International Trade Canada 2009). Supply chain systems are very important since the industry requires a lot of participants in the production marketing and distribution of products. Many suppliers are involved in the chain of production. Distribution channels are many and companies use their own channels of distribution as well as independent distribution firms. Mergers and acquisitions have been many in the industry because companies strive to integrate horizontally and vertically. Other strategies pursued by companies in the industry include partnerships and strategic alliances. To improve market share companies in the industry have used competitive strategies to capture as many customers as possible (U.S. Security and Exchange Commission, 2010b)
There are many private brands in the beverage industry. Private label brands account for 16% of the market share for liquid refreshments beverages, which do not include carbonated beverages (PepsiCo, 2009). Retailers have been giving increased shelving space to private label brands, and consumer loyalty to the nationally recognized brands has decreased. This has affected the industry but the financial stability of the companies has sustained them for a long period despite the turbulent market conditions (Euromonitor International, 2009). Consumer demand in the industry fluctuates often and dominating the market is a major challenge that companies in this industry encounter. Consumers are seeking healthy products and this has influenced the consumption trends in the industry (Smart Choices Program, 2009). Consumers need to know the sources of products offered in the market and their effect on their health. Health programs have been initiated to cater for the needs of consumers. To respond to the need for healthy products companies have started using natural materials, such as Stevia in the production systems. Stevia is a “South American herb that has been used as a sweetener by the Guarani Indians of Paraguay for hundreds of years” (Stevia, 2010). Many of the major players in the industry have joined with other companies like Cargill Inc and Whole Earth Sweetener Co. in order to provide an increased beverage product lines using natural sweeteners (Standard and Poor’s Industry Surveys, 2009). Eco-friendly packaging materials are used to create environmental-friendly system. Such programs include recycling cans and other wastes from the products manufactured from the industry (Standard and Poor’s Industry Surveys, 2009). Marketing, advertising and promotions have been intensified to capture many customers. Commodity costs have been fluctuating due to changes in the global economies (Standard and Poor’s Industry Surveys, 2009).
Development of a marketing information system by PepsiCo
According to Pride, Hughes and Kapoor (2009, p. 352), “marketing information system is a system for managing marketing information that is gathered continually from internal and external sources.” Computer-based information storage is a modern method of accepting, storing, sorting and retrieving information about a particular market. Data about a particular market should be collected continuously to ensure there are no gaps in the available information. Up-dating market information is an important aspect of MIS since changes are experienced regularly and the management requires the most recent information to come up with better strategies to maintain their performance in the market (Pride, Hughes, & Kapoor, 2009). Data that is collected from internal sources relates to the costs of marketing products, sales values, the level of inventory and other information collected from daily operations of a company. External sources of data include suppliers, customers, competitors and others. Both internal and external data are collected, processed and stored when implementing strategies. Managers use these sources of information to develop a marketing structure especially when penetrating new markets (Pride, Hughes, & Kapoor, 2009).
The management of PepsiCo will require information about the best strategies for global market penetration. Since each country is unique, the management should apply specific strategies when penetrating each foreign market. Namibia is a developing country with a free market and PepsiCo will have to come up with a strategy of massive capital investment in order to penetrate the market and overcome other competitors in the market. MIS will also provide the management with adequate information about product development. Consumers have different tastes and identifying the appropriate taste for a particular market is very important. Research about market demand will be possible by developing a strong Market Information System. The R&D department of the company does market research to identify changes in demand and other market forces affecting the company in the global markets. PepsiCo conducts Research and Development (R&D) to identify the best products which match consumer demand. Advertising and promotion strategies are best applicable when introducing new products in a country. Effective promotions will have to be conducted in Namibia by use of different media for communicating the brand, product and company aspects of PepsiCo in the country and other global markets.
Growth strategy has been adopted by all companies in the industry and the management of PepsiCo should develop information systems which capture changes in strategies being adopted by other companies in the industry. To achieve this, companies use strategies such as acquisitions as well as introduction of new products to expand the market and meet consumer demand. As such, PepsiCo will be required to merge with other small companies in Namibia or acquire other firms in order to penetrate the market easily. Acquisitions and mergers are better strategies for penetrating new markets since existing companies have a good image in the market and have all information about the market trends. To reduce competition from existing competitors, the management should consider restructuring the market to create a better system of marketing its products in Namibia. Appropriate information about differentiating products will be required to provide a wide variety of products. There is need to liaise with government organizations to collect relevant data about the beverage industry in Namibia. Since the government has almost all the information about the market trends as well as other legal data that may be of use to the company, the management should use this information to identify the best products and marketing strategies to apply in the country.
Identifying the potential of Namibian market by PepsiCo. Inc
Since Namibia is a growing country, PepsiCo Inc should use better strategies to identify the potential of this market to purchase the products sold by the company in the global markets. Since the Namibian economy exercises a free market policy, it will be possible for PepsiCo to enter the market and introduce its brands to the consumers. Introducing operations in the country will be profitable since there is a large number of unemployed people who will provide with cheap labour. PepsiCo adopts the strategy of establishing independent branches in each country of operation. This strategy will provide opportunities to exploit the wealth of natural resources available in the country. According to World Bank (2009), Namibia is a capital intensive economy and this means that PepsiCo will have to invest a huge amount of capital to penetrate successfully in the market. Since there are other beverage companies in the country such as Coca-Cola, the management of the company will have to apply better strategies to overcome the stiff competition in the market. The existence of other beverage companies in Namibia indicates that the country has a great potential for investment and the management of PepsiCo should consider taking the risk of investing in the country.
Namibia is a neighbor to South Africa and this is a great opportunity for the company to access the market. South Africa has a better economic systems and this should be used as a stage for accessing Namibian economy. In the introduction part of this paper it was established that Namibia relies on agriculture as an economic activity. This fact provides a basis for explaining the availability of raw materials to manufacture products of PepsiCo. The company will therefore not be required to import raw materials from other countries. The political environment of the country is peaceful and establishing business activities are not affected by political conflicts. The government of Namibia has joined several regional and global economic integration organizations such as SADC, SACU and WTO. Therefore, establishing operations in the country will be a gateway to accessing other countries in the region. As such, the company will be able to expand its operations in the African region since there are few barriers to penetrating the economic region. Being a member of WTO provides a global protection to the company such that there will be few restrictions for exporting and importing raw materials and finished products.
Conclusion
PepsiCo Inc has been expanding its global operations and there is need to come up with better strategies to open up operations in Namibia. The economy of Namibia is good for establishing a beverage company since all macroeconomic elements are favorable. Product diversification strategy adopted by the company should be applied in Namibia to ensure consumers readily accept the products of the company. Since the economy of Namibia is viable, the management of PepsiCo should come up with good strategies of opening a subsidiary in the country. This report recommends that the marketing department team should approve the proposal of expanding the operations of PepsiCo to the Namibian economy.
Bibliography
Donald, H. (2002, July 1). Global perspectives: world snack market reaches $55 billion annually while U.S. export growth slows in 2001. Retrieved February 25, 2010, from All business database website http://www.allbusiness.com/retail-trade/food-beverage-stores-specialty-food/244111-1.html.
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Marritz, I. (2009, September 8). Coconut Water — A World Cup Sort of Beverage. Wnyc Organization. Retrieved February 28, 2010, from http://www.wnyc.org/news/articles/140235.
PepsiCo (2010). Our mission and values. Retrieved March 3, 2010 from http://www.pepsico.com/Company/Our-Mission-and-Vision.html
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Appendix
Table 1: PESTEL analysis for PepsiCo Inc
Macro-economic factors
Explanations
Political
The political environment of Namibia is peaceful and business activities are not affected by political conflicts.
The government of Namibia has joined several regional and global economic integration organizations such as SADC, SACU and WTO.
Economic
The 2007-2009 global economic downturn affected the beverage industry leading to a reduced market operation
Namibia uses a free market economic policy
Consumer demand in the beverage industry fluctuates often and there is a tendency to shift from one brand to another.
Social
People are adopting healthy living standards to avoid health risks; manufacturers of food products should come up with brands which focus on the health of consumers.
People are adopting processed foods and are neglecting traditional foods.
More markets are emerging due to high population growth rates in many countries
Companies are being more responsible by adopting corporate social responsibility strategies to improve the living standards of their consumers as well as communities in which they operate.
Technological
New manufacturing technologies are being developed to minimize the cost of production
Companies have intensified research and development activities to come up with products which capture demand in the global markets.
Extensive campaigns about product promotion and advertising have been adopted to increase market demand for beverage products in the global markets.
Legal
Regulations about global economic activities has been increased to avoid repetition of the global economic crisis that affected the global economies.
The international law has established Intellectual Property Rights have to protect products specific brands of companies in the global markets.
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