Strategic imperative. Environmental factors. Strategic imperative to leverage core competence. One of the major motives for globalization is the opportunity to leverage core competence that the firm has developed in its own market. By utilizing its core competence in the new market the firm will be able to increase its revenue and profit.to seek new market(peters,1982).
This is a common motive for international expansion. When a firm domestic market matures it becomes increasingly difficult to generate high revenue and profit growth to better compete with rivals. Coca cola expanded aggressively around the world and rival Pepsi cola has little chance but to follow and try to keep up. Should Pepsi allow coca cola to dominate important market then coca cola could use profit from the market to finance attack on Pepsi in other market (ohmae, 1982) As peter drucker (1954:68) theory of management by objective compared an organization without objective as a ship without a ladder then the management should ensure that objective set should be specific, measurable, attainable, realistic and time bound.
It is also vital that the management of Pepsi utilize the Igor ansoff (1965) gap analysis in understanding the gap between where they are and where they would like to be and then develop a gap reducing actions. Management by walking around is a style that can be adopted by management in creating direct contact with customers, employees and supplies providing a solid ground upon which viable strategy can be crafted. The intention of Pepsi cola to be the market leaders in soft drink industry globally requires a better strategy in determining how the firm will enter the foreign market.
There are various methods of market entry and the criteria for selecting the best is determined by overall corporate strategy and the extent, depth and geographical coverage of its present and its intended foreign operation. The firm’s management needs to determine whether it wishes the firm to have long term involvement with international market or merely to exploit opportunistic export sales. Pepsi cola can use one or more of the following market entry method; distributors, use of agent, franchising, licensing, joint venture, exporting, contract manufacturing or foreign direct investment
The best choice is influenced by the following factors. -the level of competition in a given industry. Strategic management 2 -Degree of penetration desired- Where the management wishes to cover a wide area in a given market then they require a permanent presence in a specific country. -the firms financial resources which determines its ability to purchase or set up foreign establishment (schonberger, 1982). -the firm expertise and experience in selling and operation abroad. if business lack better knowledge it is advisable that they use agent or consortium buyers in specific country.
-quotas, tariff barriers and other non-tariff barriers to market entry. -the ease with which marketing, financial and other general business services are available in the market -political stability and local constraint on foreign ownership of business involving foreign firm. It is not possible to sue a single method of market entry in the entire region therefore multinationals should adopt a variety of them based on suitability in a certain region. Some of the key strategic decision that the company will make include issues like acquisitions, mergers, foreign direct investment and the marketing strategy to employ.
Before the company takes step to enter the global market then it is vital that they carry out a detailed SWOT analysis. This is used to assist managers to better scan the environment and identify factors that might create opportunities to business, those that bring threat and identifying strength and weakness of the business. The organization need to compare its own strength with those of competitors e. g. sound management, competent employees, up to date technology and strategic location. Weaknesses may include the presence of untrained employees outdated technology, lack of infrastructure and Strategic management 3 Leadership problem.
Opportunities available include unexploited market while threat creates failure to the business therefore avoid them (Barney, 1991). In choosing the best strategy to employ then the management may use the help of a BCG matrix If a product has a high growth rate and low market share it follows on?? and management can use growth, retrenchment or stability strategy. They can also employ a combination of strategy. If it has a high growth rate and high market share it fall under contract star and the management should use the growth strategy. If it has a low growth rate and low market share it fall on contract cash trap and need to be retrenched.
If a product has a low growth rate and high market share it fall on contract cash cow and you need to adopt stabilization strategy. For Pepsi cola with a high growth rate but low market share the best strategy for management to adopt is growth strategy. Therefore the managers should continue with their plan to expand in the global market. The management may also use a business planning matrix in identifying the best strategy. If the industry is very attractive and has a lot of strength then it falls on contract A (green). This means that the business is doing very well and you need to continue with the business and adopt a growth strategy.
Where the industry is not attractive and business strength low this fall on contract red and you need to withdraw resources. Where the industry is attractive and business has little strength it fall on contract yellow and you need to adopt stability strategy. Where industry not attractive and the business has a lot of strength use combination of strategies. Incase of Pepsi cola since the soft drink industry in the global market is growing and also the company is financially stable with competent employees it should adopt growth strategy and should take steps to invest abroad and establish permanent residence.
The implementation challenges encountered include; unexpected changes in the environment, misappropriation of resources, lack of resources, time constraint, conflict of interest, lack of motivation especially where communication is not effective and mismatch of variable between combination and choice of strategy. Through the use of porter model of industrial analysis then the five forces the firm will encounter include; competition the level and intensity of competition in a given industry depend on -the number of firms in a given industry.
Where the number of firms is high competition increases the market growth. Where the market growth is low then competition become stiff. -low switching cost- where buyers are able to shift to other supplies at minimal cost then firm must compete vigorously to win the affection of customers. Level of product differentiation-where product exhibit qualities which are hardly distinguished by customer then this make competition stiff (hamel, 1990). High exit barrier- this limit the possibility of firms moving out of the industry therefore creating more competition in the industry.
2. Threat of substitute Substitutes are product which can be used in place of the other or can be used by consumers to satisfy the same need. Incase of Pepsi cola then there are more hot drink in the market which consumers prefer to use. 3. Buyers power When buyers are concentrated to a single point or region or when you have few buyers who buy in large amount then they have more bargaining power. 4. Supply power This occurs where supplies are few e. g incase of monopoly such that they are able to dictate price. 5. Barriers to entry Strategic management 6
These barriers can be created by government legislation, patent or where existing firms enjoy economies of scale. The other implementation challenges are related to international business environment. Virtually all decision facing international managers e. g. whom to hire how to market their company goods in host market and which technology to adopt. Are affected by national environment of the country in which the transaction occurs. The following factors must be confronted by an international business in developing its strategy. 1. Legal environment
A domestic firm must follow the law and custom of its own country while an international business faces a more complex task I. e. It must obey the law not only of its own country but also the law of the entire host country in which it operate. These laws determine the market share they serve, the price they can charge for their goods, the cost of necessary input such as labour laws, raw material and technology. It also affects the location of economic activities. Domestically oriented laws These are law primaly designed to regulate the domestic economic environment.
They affect all facets of firm’s domestic operations. They deal with the following issues - Managing the work forces which include compensation of workers, labour relation laws and recruitment. - Financing the operation. This involves banking, credit laws and dealing in marketable securities. - Strategic management 6 - Marketing your product-deals with issues of advertising, consumer protection laws and distribution of product - Developing and utilizing technology- this involves patent, copy right and trademark laws (hamel, 1994). Technological environment
The availability or unavailability of resources affects what products are made in a given country. Some countries have altered their technological environment by promoting technological transfer and by encouraging foreign direct investment. Another determinant of technological environment is the willingness of foreign firm to transfer technology and degree of protection that the host country offers in regard to intellectual property right and other laws. Social cultural forces Culture is the sum total of belief, rules, techniques, institution and artifacts that characterizes human population.
Culture affects all business function e. g. in marketing the wide variation in altitude and values require that many firm uses different marketing mix in different market (keegan, 2000). Political forces Laws and regulation passed by any level of government can affect the viability of a firms operation in the host country. Minimum wage laws affect the price a firm must pay for labour zoning regulation affect the way it can use its property. Environmental laws affect the production technology it can use as well as disposing waste material. Strategic management 7
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