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Multinational corporations are transnational corporations which has facilities, offices and other assets in at least a country other than its base or home country. PepsiCo is an example of a multinational corporation which has survived for decades and is still successful until today. Pepsi was created by Caleb Bradham in 1898 who is a pharmacist in North Carolina (Andy’s Pepsiholic Haven, 2002). The Pepsi-Cola Company was launched in 1902 and patented. By 1910, the company has expanded through franchises in 24 states (Andy’s Pepsiholic Haven, 2002). Then, in 1965, PepsiCo Inc. was founded by Donald M. Kendall and Herman W. Lay forming a merger with the Frito-Lay company (Pepsico Inc., 2012).
Success of Pepsi
According to PepsiCo Annual Report (2010), it success depends very much upon the ability of the company adapt to the community and plan accordingly. With sales exceeding $2 billion and having more than 49,000 employees worldwide, Pepsi was once voted as the best tasting cola in 1975, (Pepsico Inc., 2012). It is now one of the largest food and beverage company in the world (Berch et al., 2010). Today, it produces a variety of beverages and snack foods, generating more than $98 billion of sales world, operating in more than 200 countries worldwide. Many awards have been given to PepsiCo over the years, including one of it being the top 25 of best global brands (Berch et al., 2010).
Challenges faced by Pepsi
Although Pepsi has acquired tremendous success, it is not without challenges. It is especially challenging because PepsiCo, being a multinational corporation, has to face different challenges in each country it operates in (Ekrete, 2001). One of the major challenges for multinational organization like PepsiCo is how to penetrate the market in other countries especially when laws in every country are different. PepsiCo has taken a great care in doing research on the potential markets but the company still has to face several problems which have caused stress and tension with different political and cultures scenario. One of the major criticisms which the multimillion dollar company has to face is that the products are unhealthy while the packaging of the food and beverage products has contributed to a large amount of waste (Berch et al., 2010).
In addition, the company was highly criticized when it comes to the negative effects of its products on general health and the waste it generates from the product packaging (Berch et al., 2010). Diversity of its consumers due to the multinational status of the company adds to the complexity of maintaining its success (Zekiri & Angelova, 2011). Managing the business of Pepsi should be dynamic in that changes should be made constantly to adapt to the changing preferences of its various customer base. The reasons are that customer preference changes and include social trends, weather, economic conditions, and other factors PepsiCo Annual Report (2010).
The growing awareness towards health has led to a decrease in the consumption of soft drinks (Berch et al., 2010). This development is not very encouraging for PepsiCo as its main attraction would be the Pepsi-Cola soft drink. It was reported by White, Nitzke and Peterson (2004) that the prevalence of overweight school children is more or less contributed by the consumption of soft drinks. The study even suggested limiting the access of soft drink in schools so that children are not able to consume it freely. Mashman (2010) also claimed that many diseases are the result of soft drink consumption such as obesity, heart disease and diabetes. This development can have adverse impact on the profit of PepsiCo.
The human resources department of PepsiCo in India adapt to the country by employing the local people who work closely with the company to allow the company to learn its culture. Corporate Citizenship Report (2010) reported that the PepsiCo in India encourages diversity by the creation of a workforce that reflects the local communities. Specifically, the company pays attention to the different needs of its female employees by organizing workshops to actively engage its female employees (Corporate Citizenship Report, 2010). This is because the women in India may be more susceptible to unequal treatments at home and other place. The report also mentioned provided counseling support to women who face personal problems and other issues. This step is reflective of PepsiCo’s care towards its employees in India. This step is crucial to retain its employees in India as the labor cost in the country is relatively low. In this way, the employee benefits through the emotional support the company provides while the company benefits by obtaining more profit with less labor cost.
In addition, the reputation of the company being a significant contributor to waste, pollution, and other negative effects in India pose a serious threat to the company. The negative allegations towards Pepsi may include product contamination, low product quality, and other matters related to the product. The damage caused by negative reputation will be reflected in the financial condition and operations of PepsiCo (PepsiCo Annual Report, 2011). Thus, it is of utmost importance for PepsiCo to maintain a good relationship with the local community and media as a marketing communication tool for public relations.
Differences between Countries
Issues in China
For almost two decades, PepsiCo has ventured into China .In china, Pepsi has to deal with several issues related to the policies of the government and its culture of business. PepsiCo faced several problems such as failure relationship between the foreigners with Chinese joint venture partners, serious corruptions, trustworthy and transparency dealing the business. Pepsi had invested over $500 million in China but did not make any profit yet. The bureaucratic challenges and corruption of the agencies involved in the business process makes it even more difficult to deal with business. Because of that, PepsiCo is trying to end the joint venture and applied for arbitration to take place in Stockholm. It is mainly because the company believes that they can have a fair hearing rather in China because according to The Economist, China has the world legal system in the world because of the corruption involving the judges. Hence, the laws and regulations involving business are relatively unclear (Yallapragada et al., 2005).
In addition, the country also has a less advanced infrastructure compared to the other countries Pepsi operates in (Yallapragada et al., 2005). It was reported by Zhao (2000) that Western companies which are interested in forming joint ventures with Chinese partners in China face problems whereby the Chinese would negotiate unfairly so that the Western people will obtain relatively less advantage.
Issues in India
PepsiCo in India was established in 1989 and currently has expanded to be one of the largest food and beverage companies in the country (Berch et al., 2010). In India, the issue faced by the company is related to the quality and the quantity of water used in its beverages. It was reported by the Centre for Science and Environment (CSE) that the level of pesticide in the beverage produced by PepsiCo was unsafe (Centre for Science and Environment, 2012). These toxins may cause cancer, nervous system and reproductive system damage, birth defects and negative effects on the immune system. The government of India is still investigating the claim although it was denied by the company (Berch et al., 2010). After a few years, the same complaint was still reported, thus, forcing the Kerala in India decided to momentarily ban the drink, followed by other states in India (Berch et al., 2010). From this case, it is apparent that it is a very serious issue which needs the utmost attention on the part of the company if it wishes to succeed and expand in India.
In addition to the pesticide level in its beverage, another problem faced in India is the pollution generated from its operations, affecting the farmers’ livelihood (Berch et al., 2010). Nevertheless, the plastic waste generated from the packaging of its products is equally important. The severity of the cases mentioned showed that PepsiCo reputation may have been damaged by these allegations. Thus, urgent steps are needed to overcome this.
Comparison with Coca Cola Business Strategies
The rivalry between Coca Cola and PepsiCo has become legend in the business world as proven by the availability of various studies concerned with the subject (Enrico & Kornbluth, 1986). The two companies mostly compete for market share, profits and image. It was claimed that in recent years, Coca Cola (Coke) has fallen behind PepsiCo in terms of product development due to the company’s lack of competitive advantage (Deogun, 2006). According to Nair and Selover (2012), Coke sometimes follows PepsiCo in its strategies. However, it is not exclusive as Coca Cola may only be influenced by PepsiCo and does not replicate the strategy of PepsiCo.
In China, Coke and PepsiCo became fierce competitors as PepsiCo try to obtain the market share dominated by Coke. PepsiCo was able to penetrate the youth market as its prime target market in China, making it trendy for young people to consume Pepsi rather than Coke. However, Coke still dominates a large percentage of the soft drink market share in China by targeting a larger population (Yallagrada et al., 2005).
Coca-Cola managed to penetrate India in the 1970s in its expansion strategy (Hadiya Faheem, 2009). However, political issues in 1977 forced the company to back out of the country. The Janata party which ruled India at that time was responsible for this move because it was more in favor of locals and made rules which put international companies such as Coca-Cola at a disadvantage (Hadiya Faheem, 2009). However, as reported by the researcher, the year 1993 saw a turning point in India as the liberation policy improves the condition for international companies to establish their business in India. That year, Coca-Cola re-entered the market while forming a beneficial alliance with ParleExports, making Coca-Cola the owner of its other popular brands; namely the Thums Up, Limca, Maaza, Citra and Gold Spot which holds 60 percent of the market share (Hadiya Faheem, 2009). This arrangement seem to benefit Coca-Cola greatly as the percentage of market share is huge, which may result in increase in its profits. However, there are other issues that Coca-Cola has to face in the country which relate to the local community and its business operations.
In India, Coca Cola also faces some of the same problems with PepsiCo such as the pesticide concentration in its beverages and the usage of water. In dealing with these serious allegations, Coca-Cola denied the charges, preferring to mend the trust of society by being involved with more Corporate social responsibility programs such as watershed protection and rainwater harvesting as well as many other activities (Hadiya Faheem, 2009). Nevertheless, the image of the company was tarnished and it was difficult to gain the society trust again. However, the Coca Cola Company remains active in its water sustainability initiatives as well as the activities related to improving the environment. For example, the company organized rainwater harvesting projects in various places in India, improve efficient treatment of wastewater, and usage of coolers which reduces the emissions of hydro fluorocarbons which are pollutants of the air.
Other than that, Coca Cola also faces the same issue as PepsiCo in regards to the health concern of its consumers. The company in India deals with this problem by organizing health camps, providing medicine and teaching about health related to hygiene and sanitation in rural parts (Hadiya Faheem, 2009). Plus, the article also mentioned that Coca Cola organized blood donation camps and free medical checkups.
Although Coca-Cola India claims that it has conducted various efforts to counter the negative effects of its operation towards the environment and local communities, the company still faces huge criticisms from the local communities. In 2008, there was a protest held against Coca-Cola through mass demonstration which insisted that the company stop its operation due to the reduction in groundwater supply, limiting the access to water for local communities (Hadiya Faheem, 2009). The report also said that the company faced several other allegations such as confiscating the land of farmers and discharging dangerous materials to the soil. Hadiya Faheem (2009) also said that the critics disregard the positive efforts made by Coca-Cola towards local communities and environment as a move to keep the critics silent.
In dealing with these allegations, Coca-Cola India responded by creating a website named www.cokefacts.org to counter the allegations made (Hadiya Faheem, 2009). The facts in the websites are backed up by expert testimonies such as professors and research studies. Although various efforts are made to remedy the situation, the image of the company has been greatly affected by the various issues in India. Therefore, the company has to make extra efforts to clear its reputation and improve its brand image in the eyes of the people of India as well as the global market.
Pepsi Strategies in Adapting Cultures and Theoretically Informed Strategy to Enhance Organizational Success
Brown (2004) said that the need for developing and planning business through detailed procedures and regulations will be eliminated when the business focuses on the culture of the local community where it operates. The reason is because since the culture is already existent in the marketplace, companies should just adapt to its surroundings. McShane and Glinow (2010) defined adaptive culture as an organizational culture whereby the employees respond well to changes in the environment and the company aligns the culture of the organization with the locals to achieve improvements in its internal processes. PepsiCo is one such company which practices adaptive culture in its business operations. In 2006, the new CEO of Pepsi, Indra Nooyi began to change the strategy of PepsiCo by focusing on the development of the company in its subsidiaries countries, focusing on product development of healthier foods and beverages, taking into consideration the environment factor in conducting business and improving work conditions (Berch et al., 2010). Plus, PepsiCo Annual Report (2010) reported that the company has done several steps for health awareness such as reducing the calorie count and sodium per serving, introducing more healthy foods in its product ranges like fruits, nuts and seeds, and using low fat dairy.
Understanding the cultural dimension of its host country is also important for PepsiCo. Hofstede and Hofstede (2005) introduces the cultural dimensions of individualism, power distance, individual vs. collective, uncertainty avoidance and masculinity. McShane and Glinow (2010) reported that India has a low individualism, together with Singapore while United Kingdom and Spain has high individualism. McShane and Glinow (2010) defined individualism as the “degree to which people in a culture emphasize independence and personal uniqueness” (p.50). The low individualism in India makes it easier for PepsiCo to instill an international organizational culture in India because the employees may be able to tolerate the company rules and regulations. In addition, India has a high power distance, which is defined as “the degree to which people in a culture accept unequal distribution of power in a society” (McShane & Glinow, 2010, p. 51). The high power distance means that employees in India will perceive more power of its superiors, making it easier for the company to implement rules and regulations.
Due to the nature of the international market, it is important for PepsiCo to realize that not all of its subsidiaries will react the same to its business practices and operations (USC Marshall, n.d.). For instance, several countries may be more receptive towards novel products. On the other hand, there are countries which are skeptical towards the introduction of new products such as countries with high uncertainty avoidance. Uncertainty avoidance is a “cross-cultural value describing the degree to which people in a culture tolerate ambiguity” (McShane & Glinow, 2010, p. 51). For example, the introduction of Pepsi Azuki in Japan which is pepsi flavored with Azuki beans may not be acceptable to the Malaysian palate due to the community not being able to tolerate new products. Therefore, it is up to the company to determine and research on what will work best for its subsidiaries located in different countries (Yan & Chung-Hsing, 2012). Firoz, Maghrabi and Ki (2002) claimed that the slogan of successful international companies is “Think Global, Act Local”. This statement clearly indicates the willingness of PepsiCo to adapt to local culture which is paramount to its survival and success in the international market.
Consequently, according to Sethi and Guisinger (2002), understanding the local culture is pivotal for companies which have broad international operations country such as PepsiCo. Culture has been defined as the type of a specific group of people, focusing on their adopting language, religion, social habits, cuisine, arts and music (Zimmermann, 2012). From this definition, obviously, it is not easy to fully comprehend the cultural differences which exist between different groups of people due to the variety of aspects involved. Culture is viewed as the total way of life of people living together (Beaumont, 2005). If PepsiCo fails to understand the local culture and adapt to it, this will lead to negative consequences. The process of learning and adapting to the local culture can be a complex process as PepsiCo involves a large variety and culture base of its subsidiaries, making it difficult to fully adopt standardized practices.
Related to the issue faced by PepsiCo in China, the company is trying to terminate the joint venture and apply for arbitration in Europe rather than China in order to obtain a fair hearing (Yallapragada, n.d). Thus, the company has to adapt to this situation by making well-informed decisions regarding the pros and cons of doing business in the country. Serious actions should be taken by the company if it was found that the government or related agencies are corrupt in the dealings.
Moreover, the target market is narrow compared to the broad target market of the Coca Cola Company. This makes it more difficult to obtain a larger market share and reap the benefits of operating in China with a large population base. Therefore, it is imperative that PepsiCo try to change its marketing plan to include potential customers who are older. The marketing strategy may include creating advertisements which portrays Pepsi beverage as being trendy for adults.
In India, the reputation of PepsiCo has been tarnished by the allegations of various parties regarding the unethical practices of the company relating to its beverage content and environmental issues. In order to regain its success in its Indian subsidiaries, the company has to be relentless in its denial of the charges and emphasize more on its activities which relate to the environmental improvements of the country. In addition, a quality assessment should be done to assure the public of the safety of its product in India. The high quality of its products should be emphasized, unfailingly meeting international-that is not merely Indian-standards. This can lead to increasing performance of the company.
Initiatives Taken to tackle Health Awareness Issues
In dealing with the growing concern towards health, PepsiCo has taken the initiative to develop product which caters to the preference of its health conscious consumers. These products include Muscle Milk, Honest Tea, and vitamin water. The steps that Pepsi has taken to adapt to the concern for health have began early in the 1964 when Diet Pepsi and the Mountain Dew brand was introduced (Berch et al., 2010). In 1997, PepsiCo introduced the Aquafina bottled water which is also a step taken to target the health conscious population. Other than developing various products to cater to the health conscious, PepsiCo can try to gain the trust of consumers by organizing charity events related to health such as providing education related to nutritional information while at the same time promoting the health benefits of its healthy product range.
Conclusively, it is not easy to maintain a successful business when many countries are involved (Pederson, Peterson & Sharma, 2003). The most important thing is to keep abreast with the preferences of the global market as well as the local market and adapting to these changes accordingly. For Pepsi, despite of its history that will go a long way to its success or failure, taste of Pepsi also plays a crucial part. Therefore, the profit of PepsiCo can be maximized and its success will remain for years to come.
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