Introduction
Global marketing has recently become a household name as most major companies expand their markets across international borders. This quest for economic progress across the borders has increased competition in the global trade market. The United States in particular has seen most of its domestic companies investing outside the country hence becoming one of the leading benefactors of global marketing. This paper will focus on a case study of two beverage rival companies that have dominated the global market for years; Coca-cola and PepsiCo. It will further expand on the understanding of global marketing and joint venture as a strategy to penetrate global trade and the challenges associated with it.
Domestic Marketing Vs Global Marketing
Case Study: the United States records the biggest market for these two rival companies with an estimated consumption of 700 bottles per capita annually. With the high consumption rate, PepsiCo and Coca-cola companies are fighting to increase their market share by introducing more soft-drink versions. Coca-cola records a much higher market share in the US with an estimate of 40 percent compared to PepsiCo’s 32 percent in 1990. On the other hand, Coca-cola’s profit margin doubles that of Pepsi Cola in total global sales hitting an 80% profit margin while their rival PepsiCo only achieved 15% in 1989. Other small global players such as Cadbury Schweppes based in the United Kingdom record a larger share in their regional markets.
From the case study, it is obvious that big companies command a large market share in their domestic company. This can be attributed to various factors such as the ability to connect with the locals and the flexibility of trade laws available in the domestic country. The companies can conduct the appropriate survey to establish the most outstanding marketing strategy to enter the market with. The rivals are able to play against each other while in the domestic market hence achieving an almost equal market share. This however is not the case when the same two companies shift to global market penetration.
Despite doing well in the domestic market, there are many reasons why companies choose to explore global markets. The main reason is of course the need to maximize profits by making more money in the global market. Another main reason adopted by some companies is to respond to unsolicited orders placed by consumers in the foreign market.
According to Rhinesmith (1996), the need by major companies to tap new markets in the global trade market has led to intense international competition. However, not all companies are able to withstand the competition and without proper marketing entry strategy, they collapse. Others record much lesser sales than their competitors like in the case of PepsiCo. Global communication and technology have enabled companies to penetrate global markets more easily. Penetration in these international markets can either be a success or failure for the company, a factor that most companies fail to understand. Coca-cola has become successful in its global business venture as compared to PepsiCo by dominating major countries. Domestic market shift to the global market has its own benefits and disadvantages. The advantages include the company being able to maintain consistency in its brand image. A good example is the brand names associated with Coca-cola and PepsiCo. Global marketing also helps the market to maintain standard marketing practices worldwide leading to low marketing costs. It also boosts the power and scope of the company and helps to establish relationships in the foreign country. Shift to global marketing also faces some obstacles like the inability to meet different consumer needs and wants hence facing consumer rejection in the foreign market. Hodgetts and Fred (1994) argue that competition from similar companies which have already taken the large market share can also be an obstacle. Conflicting legal requirements and administrative procedures in the foreign market can also make global shifting very difficult if not taken into consideration.
Global Marketing Strategies
Case Study: Marketers always believe that an early entrant in a market serves a tremendous advantage, especially to soft drink companies. This is because the consumers become loyal to the products of the early company and the culture entrenched becomes difficult to change. Other new competitors find it difficult to penetrate the market already dominated by this company. Coca-cola penetrated Western Europe, Latin America and Japan before PepsiCo making it difficult for PepsiCo to compete for the market shares in those countries. PepsiCo has clearly failed to beat Coca-cola and was recorded to have lost its market share in France to Coca-cola in the 1980s. PepsiCo’s brilliant strategy of using Cadbury Schweppes as its distributor in the United States was thwarted by Coca-cola who stole the distributor company. However, PepsiCo gained its first entry into Soviet Union in 1974 and dominates the market share. This achievement has seen PepsiCo push forward to gain first entrants in other markets that Coca-cola has not penetrated such as Myanmar.
Most companies fail to penetrate the global market due to lack of correct marketing strategy. This favors the early competing company hence making it difficult for any other company to take up the market share. The less dominant company must adopt a strong marketing strategy if it were to compete with the dominant company in the foreign country. In most cases, PepsiCo attempts to penetrate a market without a plan with the hope that they will beat Coca-cola to acquire a larger or the same market share has failed. Though global market strategies take many forms, there are two recognized strategies that are adopted by most companies. These are the Individualized Market Strategy (IMS) and the Global Marketing Strategy (GMS) (Schneider and Jean-Louis 1997).
The IMS strategy requires the market to individually learn the target market before making entry. This entails conducting a detailed market survey to establish the taste of consumers in the country and their possible reaction regarding its product. They also research the competing company already established in the country and get to know the untapped areas by the company. The company takes into consideration the political, social and economic factors of the country and their effect on the marketing process. The GMS on the other hand is a strategy adopted by large companies with the notion that consumers all over the world are developing similar tastes every day. They therefore do not see the need to conduct individual market research on the target market. They depend on their huge capital base to conduct massive advertisement campaigns once in the target market and to further back it up in case it suffers losses in the process. The company adopting this strategy disregards any dominant market already in the target market and enters with the confidence that it will win a portion of the market share too.
PepsiCo should adopt the IMS as its main strategy to penetrate a market. With the ability of Coca-cola to dominate almost all the market, PepsiCo should first conduct a market survey and establish a market niche that would allow it to compete with Coca-cola. PepsiCo however tends to adopt the GMS approach hence their quick collapse due to unavailability of funds to support any delays or losses.
Factors to Consider In Foreign Investment
Case Study: Investing in India for both soft drinks companies has proved challenging due to various reasons. In the mid-1950s, PepsiCo failed to manage its market hold in India due to lack of adequate profit sustainability. Coca-cola on the other hand left the country in which it was dominant for 27 years due to disagreement with the government in 1977. Coca-cola’s departure gave PepsiCo an upper hand to fill in the void left but they took long to start formal negotiations with the Indian government. An Indian firm, Parle Export became the dominant company in India taking over 60 percent of the market share. Investing in India by foreign companies is tedious due to the strict legal requirements of the Indian government. Besides PepsiCo and Coca-cola, other big companies such as Gillette and IBM have found it challenging to invest in India blaming the strict operating restrictions. IBM pulled out at the same time as Coca-cola. The Indian political arena runs foreign investment.
From the case scenario, it is important to understand the important legal requirements for foreign investment. The political environment of the foreign market should first be researched to avoid future misunderstandings (Keegan and Green 2008). The political environment check can be based on a country’s ideologies which entail capitalism or socialism, international relations ties and nationalism. Though there are many challenges that a company investing abroad faces, the major obstacle is the uncertain reception of the host country. Research should be done regarding some of the key aspects of the new environment to avoid major losses.
The physical and demographic environment is one of the key factors that should be determined when preparing to enter the international market. It shows the actual population of the country thereby helping the company to estimate the actual growth and the rate of distribution. Climate factors, shipping distances and the available natural resources also fit in this category. The economic environment of the country should also be determined. Research should be conducted on other foreign companies already established in the country to determine their per capita income and their rate of expenditure. The country should also have a stable currency and acceptance of foreign investment. This is important because an unstable country will make it difficult for a foreign company to invest as there will be limited channels of distribution. The social and cultural environment should also be considered before venturing into an unknown market. The levels of literacy among the nationalities are an important factor to consider as this determines the level of development in a country. This degree of literacy affects the mode of promotion strategy that the company will adopt to market its products. The cultural beliefs or norms and religion can also affect the market of the company if not well researched on.
The legal environment should also be understood to avoid loss of time and money negotiating with the government. Lengthy legal documentation and strict import regulations can serve as a major hindrance to a company. Research should be conducted on the tariffs and quotas of the country that serve as a limitation to trade. Various laws such as taxation, trademarks, patents and other restricting laws such as employment law should be considered. Some countries are not signatories to some preferential treaties such as General Agreement on Tariffs and Trade (GATT) that protects the company from numerous trade barriers put in place by a particular country.
The last key factor in determining the political environment of the country. The political atmosphere of a country shapes the market stability and acceptance of a company and should be well studied before investing. The Government system and stability in the political arena is very important determinant as it can influence the stability of the market in the country. A good example is a country whose politics are against foreign investors taking over their domestic market control. In this case, the politicians may make it difficult for an investing company to enter their country by erecting strict legal barriers.
International Business Diplomacy
From our case study above, the main challenge that faces PepsiCo and Coca-cola from penetrating the Indian market is the lack of proper business diplomacy. Negotiations with a country serve as a very important platform to clear out some major misunderstandings. It solves major differences and therefore a company is encouraged to start negotiations before it begins its operations in a country to avoid disappointments. During the negotiation stage, it is important to come up with bilateral treaties to ensure that a company is compensated by the host country in case of expropriation, devaluation of its currency, or in cases of a civil war. A mechanism of handling trade disputes that are likely to arise should also be put in place.
International business diplomacy is vital between two companies that have entered into trade partnerships. This is important if the partnership is through a joint venture. In our case study, PepsiCo entered into a joint venture with two other prominent companies in India. A joint venture is a market entry strategy besides licensing and ownership. Failure to negotiate before venturing into the target market may pose a challenge to the investing company and should therefore be taken seriously.
Conclusion
Global marketing has become a major boost to the economy and major companies are taking the opportunity to invest in other countries. However, if the global shift is not well planned, the companies may stand to lose a lot of money and time. Learning the host country’s environment should be a key factor for the company to avoid misunderstandings that may arise. Entry into a new market that is already dominated by a major competitor should be done with caution and with the most appropriate strategy to avoid losing to the dominating company. A market survey on the country is very important to the new company to be able to establish a unique entry that will capture a considerable market share. This will help maintain its profitability and stability despite the presence of the dominating company.
References
Hodgetts, R and Fred, L (1994) International Management (2nd ed). New York: McGraw Hill.
Keegan, W and Green, Mark (2008) Global Marketing. New York: Pearson/Prentice Hall.
Rhinesmith, S (1996) A Managers Guide to Globalization. Chicago: Irwin Professional Publishing.
Schneider, S and Jean-Louis (1997) Managing Across Culture. New York: Prentice Hall.