Pepsi's Entry Into India - a Lesson in Globalization
International Economics Assignment | Case – Pepsi’s Entry Into India – A Lesson in Globalization | Ankur Sikka
PGDM – IBRoll No. 007 |
ANSWER 1. A. NEED FOR GLOBALIZATION
Depending on the strategy that a company follows, there are three primary reasons a company like Pepsi engages in international business: 1. To Increase sales/ Sales Expansion a. Economies of Scale
A company like Pepsi usually operates on the principle of Economies of Scale. In order to achieve a larger market canvas and operate on this minimum efficient scale of operation, it is very essential that the company covers more market and potential customers by moving from a saturated market to an unsaturated one. (E.g. Pepsi shifted its focus from saturated U.S. market to nascent Indian market in order to expand) b. To leverage International Product lifecycle
A product in one country maybe at a different phase of its lifecycle in another country and this difference can be exploited by a company to direct their product supply to a more demanding market.
(E.g. Pepsi looked at the extremely low per capita consumption of soft drinks as a great opportunity to create a new growth phase for its soft drinks rather than exploiting the mature markets in other countries)
2. To acquire resources a. Companies like Pepsi need a lot or resources at lower cost in order to have more profitability while keeping up with the demand for raw materials. These companies thus target those countries which can provide the production, extraction or cultivation of these resources at a much lower cost than the current ones (in operation) with minimal tariffs and other barriers. b. This also helps them to procure materials and components from other countries in case if sourcing from one country is badly affected due to certain reasons, thus allowing global sourcing.
3. Reducing Risk c. Most of these companies tend to diversify when entering other countries in order to
PGDM – IBRoll No. 007 |
ANSWER 1. A. NEED FOR GLOBALIZATION
Depending on the strategy that a company follows, there are three primary reasons a company like Pepsi engages in international business: 1. To Increase sales/ Sales Expansion a. Economies of Scale
A company like Pepsi usually operates on the principle of Economies of Scale. In order to achieve a larger market canvas and operate on this minimum efficient scale of operation, it is very essential that the company covers more market and potential customers by moving from a saturated market to an unsaturated one. (E.g. Pepsi shifted its focus from saturated U.S. market to nascent Indian market in order to expand) b. To leverage International Product lifecycle
A product in one country maybe at a different phase of its lifecycle in another country and this difference can be exploited by a company to direct their product supply to a more demanding market.
(E.g. Pepsi looked at the extremely low per capita consumption of soft drinks as a great opportunity to create a new growth phase for its soft drinks rather than exploiting the mature markets in other countries)
2. To acquire resources a. Companies like Pepsi need a lot or resources at lower cost in order to have more profitability while keeping up with the demand for raw materials. These companies thus target those countries which can provide the production, extraction or cultivation of these resources at a much lower cost than the current ones (in operation) with minimal tariffs and other barriers. b. This also helps them to procure materials and components from other countries in case if sourcing from one country is badly affected due to certain reasons, thus allowing global sourcing.
3. Reducing Risk c. Most of these companies tend to diversify when entering other countries in order to