Internal and External Environment of PepsiCo: Company Analysis

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PPepsiCo is a large multinational company that operates across the globe, mostly in the US and other developed nations. Its main products are soda drinks, which are known to be linked with certain chronic diseases. The latter manifests itself in the major social changes among customers, who are becoming more aware of their health and well-being. The company’s largest competitor is Coca Cola Company, which also takes the biggest market share in the soda drinks market. However, PepsiCo can effectively respond to political and social changes by investing in the research and development of healthier alternatives. The latter process can be enhanced by the company’s strong marketing team and leadership.

The given report will apply some effective tools to analyze the external and internal environment of PepsiCo. The main goal of any industrial enterprise is to obtain a stable income through the sale of manufactured products to consumers. Important factors contributing to the achievement of this goal are the sustainable development and stable functioning of the enterprise, achievement of the planned production, financial and other results, timely fulfillment of social and economic obligations of the enterprise to the labor collective, owners, and the state as a whole. For effective enterprise management, analysts use financial, managerial, as well as integrated economic analysis tools, which include the strategic analysis tool among other things.

The purpose of the strategic analysis is to study the state of the external and internal environment of the enterprise in the interests of identifying critical factors for strategic success in general and an informed choice of the development strategy of the enterprise in particular. The economy has developed a variety of strategic analysis models, the most common matrices being such as Porter’s model, SWOT, and PEST.

Strategic planning in the soft drink industry is long-term, due to the long production cycle. In this regard, it is safe to consider that it is appropriate to take the thesetools of analysis as the basis of this report, since it is a flexible and highly informative instrument for strategic planning, which allows obtaining an objective eventual picture of current processes, identifying strategic risks based on an assessment of political, economic, social and technological aspects of the external environment and the major elements of the internal environment of the enterprise.

Porter’s Five Forces

In order to thoroughly analyze PepsiCo, it is important to apply a number of framework models. The Porter’s Five Forces model consists of five major components, such as supplier power, threat of new entrants, buyer power, threat of substitutes, and degree of rivalry (“Porter’s five forces: A model for industry analysis,” 2010). PepsiCo’s supplier power is highly accessible, which means that one cannot monopolize the supply chain to the company, because the product itself uses simple and non-scarce raw materials. The latter statement can be supported by the operational and financial data from 10K report (“Form 10-K,” 2018). Threat of new entrants is low due to the fact that PepsiCo possesses a strong brand image and most of the market share alongside its main competitors, such as Coca Cola Company.

Buyer power is strong mainly due to the fact that a vast majority of population can purchase PepsiCo’s products, because its cost is not large. There is a major threat of substitutes coming from its few largest competitors, and soda drinks are under threat from healthier liquid products. The degree of rivalry also comes from its largest competitor, such as Coca Cola Company. However, there is a low level of threat from new entrants, because the latter lack a strong brand image. PepsiCo spend significant sums of money on marketing, which means that new companies can find it difficult to compete with it (“Form 10-K,” 2018). Porter’s model is an outstanding tool, which can increase a firm’s overall profitability (“Porter’s five forces: Understanding competitive forces to maximize profitability.”). Therefore, it is clear that PepsiCo’s main concern is its competition.

PEST Analysis

Furthermore, the critical part of evaluating a company’s macro environment is applying PEST analysis. PEST approach consists of four main components, which are political, economic, social, and technological factors (“PEST analysis,” 2010). The main political element for PepsiCo is the economic stability of its nation of origin. New changes in the political arena can bring heavy tax policies, which can decrease the company’s profitability. Economic factors are political aspect, where a nation’s economic growth and inflation rate can influence PepsiCo’s finances. There is an expected rate of salary increases of 3.2%, which can raise the operational expenses (“Form 10-K,” 2018). In addition, wage control can be a major determining factor in this regard (“Carrying out a PEST analysis,” 2020).

Social aspect is primarily manifested in the changes of social awareness about health and well-being. More people might consider the health-related ramifications of soda drinks, which can decrease the demand. Technological factors can both boost and hinder PepsiCo’s performance figures. The development of new technologies can lower the barrier of entry, but it can also reduce the production costs.

External Analysis

According to Porter’s model mentioned above, the supplier power is low, threat of new entrants is low, buyer power is high, threat of substitutes is moderate, and degree of rivalry is moderate. By combing the results of PEST and Porter’s model analysis, it can be concluded that the primary threat is manifested in the current political and social changes, which can reduce the profitability and demand for the products. However, the main opportunity for PepsiCo is to use its size and economies of scale to further reduce the production costs through technological innovations, and aggressively introduce healthier alternatives with proper marketing.

Internal Analysis

PepsiCo is a multinational corporation with market interests spreading across the globe, and it would not be possible with an effective internal structure. The main threat, according to the 10K report, is the fact that some ingredients in the products contain elements, which can damage a person’s health (“Form 10-K,” 2018). This means, the main internal weakness is that new investments are needed to adjust to the social changes. This can result in restructuring its organizational structure and setting up new divisions. In addition, another internal weakness is an increase of medical and retirement expenses (“Form 10-K,” 2018).

It can have an influence on PepsiCo’s financial statements, such as operation costs. However, the primary internal strength is its strong and effective marketing team, which has already achieved significant results in appealing to the younger part of population. PepsiCo also possesses a strong management with an outstanding leadership, which can be a determining factor in responding to external changes.

Discussion

Strategic management is an active transformation of the enterprise from the actual situation to the desired state. The desired state of the enterprise is determined by the strategic vision of the management and the goals emanating from it. The actual situation is determined by the current state of the internal and external environment of the enterprise (“External environment analysis,” 2019).

The internal environment contains the strategic strengths and weaknesses of the company, and the external environment offers the business strategic opportunities or exposes the company to strategic threats, and the campaign strategy depends on the balance of these conditions (“The internal environment: A resources-based review of strategy.”). Strategy is the way of the enterprise from the actual state to the desired. In order to choose the shortest path, it is necessary to understand where the company is now and in what environmental conditions it has to move towards its goals.

Strategic analysis is a systematic process of gaining knowledge about internal and external conditions that can affect the choice and implementation of a strategy, as well as the market position of an enterprise. Strategic analysis tools include formal models, quantitative methods, and analysis that takes into account the specifics of the enterprise. One of such tools may be the method of SWOT analysis used to analyze the environment of the enterprise (“SWOT analysis,” 2019). This method is quite widely recognized and allows for a joint study of the external and internal environment of the enterprise. It can also be applied for small firms, which means the approach is universally useful (Zahorsky,2017).

Therefore, it is safe to conclude that there is a tight relationship between PepsiCo’s internal and external environment. The strength of the company is its management and leadership alongside with its marketing team. Other strengths are the company’s economies of scale, reduced production costs, resources, and an established brand identity. However, the weaknesses are social and political changes, and the lack of adjustability to customers’ new demands, and health effects of the product.

SWOT Analysis

Complete SWOT table can be seen in the Appendix section of the given report. The main strength of PepsiCo is its resources and size, brand image, leadership, and marketing. Due to its large scale, the company can safely invest in big research and development projects in order to adjust to social changes. Strong brand image can be capitalized, especially among younger segment of the population. Marketing can significantly boost PepsiCo’s ability to introduce new products and promote the existing ones.

PepsiCo’s leadership and management are outstanding, which is determining factor of its success. However, the company’s weaknesses are inflexibility, which is a common attribute of large corporations, and thus, the company might find it difficult to quickly respond to drastic changes. Soda drinks’ health ramification will inevitably lead to the reduction of demand, because the customers are becoming more concerned about their health. Competition with its main competitor puts a pressure on PepsiCo, because it also needs to allocate resources in order to maintain its market share.

It is important to note that there is a number of opportunities for PepsiCo. The company can use its resources to introduce healthier alternatives, which will partially eliminate its weakness. It also possesses a strong marketing team, which will make the overall introduction more effective. Its large size and investment in technological advancements can reduce the production costs. In addition, it is important to consider the economies of scale, which can further increase efficiency of production.

The primary threats are manifested in political and social changes alongside operation expenses. A major shift in the political arena can affect the taxation rates, which will influence the company’s profitability. Social changes can reduce the demand for the products due to its health ramifications. In addition, an increase in the rate of medical and retirement expenses can increase operational expenses.

Recommendations

The main recommendation for PepsiCo is to allocate a sufficient amount of resources for research and development of healthier products. In addition, it should also invest in technology to reduce its production costs and further capitalize on its economies of scale. The company should gradually restructure itself by creating separate divisions for its new products. It should preserve its brand image by not resisting to an increase of operational expenses. The marketing team should aggressively market its new products in order to outcompete the rivals, which can also introduce new alternatives. Lastly, a company should address health ramifications of soda drinks and actively work with its customers to assist the development process.

Conclusion

In conclusion, PepsiCo is a multinational corporation with a number of advantages, which can be used to partially eliminate its weaknesses and threats. Porter’s model and PEST analysis provide an effective framework to establish major components for further SWOT analysis. It is clear that PepsiCo’s size and influence can be both hindrance and boost for the company depending on its strategic approach. By properly utilizing its assets, PepsiCo can both increase its current market share and invade new markets. However, the company needs to be aware of potential social and political changes, which can directly impact its overall performance.

References

Carrying out a PEST analysis. (2020). Web.

External environment analysis. (2019). Web.

Form 10-K. (2018). Web.

PEST analysis. (2010). Web.

Porter’s five forces: A model for industry analysis. (2010). Web.

Porter’s five forces: Understanding competitive forces to maximize profitability. Web.

SWOT analysis. (2019). Web.

The internal environment: A resources-based review of strategy. Web.

Zahorsky, D. (2017). SWOT analysis: A small business owner’s secret weapon.The Balance Small Business. Web.

Appendix

SWOT Table

Strengths
  • Resources.
  • Brand Image.
  • Marketing.
  • Leadership.
Weaknesses
  • Inflexibility.
  • Health ramifications of the product.
  • Competition.
Opportunities
  • Introduction of healthier alternatives.
  • Production cost reduction.
  • Technological enhancement of production.
Threats
  • Political changes.
  • Social trends.
  • Increase in operational expenses.

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