Pepsico Inc. Internationalization Writing Assignment Paper

PEPSICO INC. INTERNATIONALIZATION
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Pepsico Inc. Internationalization
Abstract
The company selected for this report is PepsiCo Inc. to study and establish its entry modes into various foreign countries. The topic is significant in understanding the strategies that business utilize to enter into international markets, but the available literature on internationalization is theoretical. This report considers various aspects such as political, economic, social and technological factors in the markets that PepsiCo can successfully enter in some of the potential markets. The analysis of these factors provides a framework for deciding which entry point can work effectively. Moreover, the relation of the eclectic internationalization theory also helps in providing a framework. Based on these three aspects; eclectic theory, potential markets and entry modes, the report explores PepsiCo Inc.’s internationalization and gain insights into the food and beverages industry.
Content
1 Introduction ……………………………………………………………………4
2 International Business Theory: Eclectic Theory ………………………………5
1 Ownership advantage ………………………………………………….6
2 Location advantage …………………………………………………….6
3 Internationalization advantage …………………………………………7
4 Summary ……………………………………………………………….7
3 Potential Markets ………………………………………………………………7
5 Saudi Arabia Market …………………………………………………...9
1 Analysis ……………………………………………………9
1 Political Factors ……………………………………10
2 Economic Factors ………………………………….10
3 Socio-Cultural Factors ……………………………..11
4 Technological Factors ……………………………...11
2 Entry Mode ………………………………………………....11
6 India Market …………………………………………………………….12
3 Analysis ……………………………………………………..12
5 Political Factors ……………………………………..12
6 Economic Factors …………………………………...13
7 Socio-Cultural Factors ………………………………13
8 Technological Factors ……………………………….13
4 Entry Mode
7 Summary ………………………………………………………………...14
4 Conclusions ……………………………………………………………………...14
5 Recommendation ………………………………………………………………...14
6 Bibliography ……………………………………………………………………..16
1.0 Introduction
With the current changes in the dynamic business environment, globalization is becoming the norm due to various factors with advancements in technology and fall in trade barriers being the major ones. Due to this factors, internationalization has emerged as the focus not only for scholars but also for businesses which are taking up the emerging opportunities to do business in foreign markets. Companies go international in order to compete for the limited resources that they cannot find in their domestic markets, increase the revenue by enlarging their market share among others (Paliwoda and Thomas, 2013). However, the international business environment has various challenges. In order to overcome these challenges, there are various factors that the company that is going international should consider to succeed. Some of the most important factors include; political and legal, economic, social and technological factors. The organization deciding to go international must develop itself in such a manner that it follows the set rules and regulations of the foreign country in order to conduct their business activities successfully (Forsgren, 2015).
The food and beverage industry contributes much to the development of the economy. To expand its operations, internationalization is becoming the norm of the food and beverage enterprises (Spowart and Wickramasekera, 2012). PepsiCo Inc. is the second largest organization in the industry sector and due to the economic stability it enjoys in its domestic market, it actively participates in the international business environment. It is evident that PepsiCo’s performance contributes to its internationalization progress. But with globalization and other factors such as technological advancements, more food and beverage companies are getting into the international business environment making it more competitive (Lang and Heasman, 2015).
This report will focus on PepsiCo’s international strategy, potential markets and entry modes based on the eclectic internationalization strategy. The report will finally conclude with a summary and recommendations that will enable the company strengthen its entry into foreign markets.
2.0 International Business Theory: Eclectic Model
There are various economic theories that explain the internationalization process of businesses. The most relevant one in this report is the Eclectic model that was developed by Dunning in 1974. Dunning explains how organizations internationalize the operations towards foreign direct investments. His framework does not address the issue of creating alliances, mergers and acquisitions or joint ventures (Rugman, 2010). In my view, Dunning’s model is the most suitable one in explaining PepsiCo’s internationalization process. The framework explains the various steps involved in internationalization process that organizations must comply in order to venture successfully into the foreign markets. The steps are necessary and are interrelated beginning with internal factors and ending with the external factors of the company.
Based on the above reason, this report is based on Eclectic Model to explain PepsiCo’s internationalization process. Dunning’s hypothesis is that for companies to venture into international business environment, the following conditions must be available:
* Ownership advantages (O).
* Location advantages (L).
* Internationalization advantages (I) (Kumar, 2013).
1 Ownership advantages
According to Dunning, there are various types of ownership advantages that internationalization process can transfer within the international business that is established abroad at low costs. The organization has to focus on its competitive advantages. Some of them include the monopolistic advantages the organization has in various forms such as patent rights and brand name. Additionally, some of the advantages arise as a result of innovation activities. These advantage are different and provides the organization with the ability to compete in the international market. Moreover, they must be transferable within the company and between the foreign countries.
2 Location Advantages
In connection with the ownership advantages, location advantages plays a significant role when companies are deciding which country to venture into. The relative attractiveness of different countries tend to change with time so that they can facilitate their competitive advantage as a location for FDI. Dunning differentiates these factors by grouping them into various groups. They include:
* Economic advantages – they involve production costs, market size, transport and communication costs among others.
* Social and cultural advantages – consist of the language as well as cultural diversities of the host countries, and attitudes of the residents towards foreign enterprises.
* Political advantages – includes the government policies that affects international production and co-operation.
3 Internationalization advantages (I).
Internationalization advantages is concerned with the comparisons of market costs and costs incurred by the firm to run its operations in the foreign market. The bottom line, these are the benefits the firm derives from operating offshore. Based on this, the firm believes that its competitive advantages are best exploited when they are operated internally than when they are offered to other organizations in terms of contractual arrangements such as establishment of joint ventures or licensing. This advantage arises from the difficulties involved in the development of enforceable and controllable contracts with partners in the foreign country that is likely to generate an income that reflects the true worthiness of the advantage that is being traded.
2.4 Summary
Dunning’s framework provides a framework for the development of foreign direct investments. He provides three conditions that a firm must satisfy to succeed in going international. Based on Dunning’s framework, the propensity of an organization establishing its operations in a foreign country will vary according to the political and economic factors of the foreign and domestic market. However, it also depends on the features of the industry and that of the company itself specifically the considerations that will influence its internationalization decision.
3.0 Potential Markets
The food and beverage industry has been experiencing a steady growth for the past four years with sales increasing by an average of 4% each year. With the growth, the competitive nature of the industry continues to intensify as well due to various factors such as weakening demand for carbonated drinks in developed countries (Rodtook and Altinay, 2013). Consumer trends and behaviors are changing in the...