Global Market Relationships
This is an arrangement between two unrelated parties who combine or exchange resources in undertaking a particular project but remain separate and independent legal entities. Joint ventures are of two types equity and contractual. They are usually formed to undertake a specific project which has to be completed within a set period. The choice of market entry depends on the organizations corporate strategy and the extent, depth and geographical coverage of its present and intended foreign operation.
It is upon the management to decide whether the company will have long-term involvement or merely need to exploit opportunistic export sales. Various factors which influence management choice include how quick the organization wish to start operation, intensity of competition in host country, degree of market penetration desired, firms expertise and experience in foreign operation, quotas, tariff levels and other non- tariff barriers to market entry, political stability of foreign country, firms financial resources and local regulation on foreign ownership of business.
Analysis of PepsiCo entry into Ireland through joint venture Where PepsiCo choose to establish a joint venture in Ireland there is a need to first analyze whether the environmental factor in Ireland are conducive to business. These factors include political, economic, social and
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Minimum wage laws affect the price of labour while zoning regulation affect the ways it can use it property. b. economic This involves levels of economic development, distribution of income, labour cost, exchange rate, inflation rate and interest rate. c. social Total population determines the potential market size while age distribution will help in identifying the target market. Population density and distribution affect product distribution and communication in the country. d. technology The foundation of a countries technological environment is its resource.
The availability or unavailability of resources affects what product can be produced (Murphy, 2004). In identifying a suitable candidate to form a joint venture then PepsiCo should evaluate their proven knowledge, expertise and experience of local business conditions and practices. Such a partner should be able to carry out market research and should have extensive contacts with local businesses, banks and provider of specialist services and above all they should have enough resources which include physical, reputation, organizational, financial, intellectual and technological.
Further selection criteria include the firm’s track record, complementary skills such as technological know-how and marketing expertise. Finally PepsiCo has to carry out a due diligence process which involves determining the partner credit worthiness, verification of business account and assessment of both technical and managerial competence.
The benefits derived from such a joint venture include expansion into foreign market simultaneously at low cost, avoiding the need to purchase local premises or hire employee, shared risk of failure, less costly compared to acquisitions, high return than licensing or franchising, instant access to partner distribution systems and local expertise, better relation with national government and available in countries where outright take over is not allowed (Mazzarol & Soutar, 2001).
The draw back with this method is disagreement over organization control, under performance by one partner, problem of coordination, differences in management culture, conflict of corporate objective among partner and the importance of joint venture to each partner may change over time. Recommendation Based on political, economic, technological and social environment in Ireland and the benefit derived from formation of joint venture as compared to other form of market entry then the best form of market entry to be adopted by PepsiCo in Ireland should be through joint venture.
References Hill, C. (2009). Global business today. New York: McGraw Hill. Kelly, E. (2006). Powerful times: Rising to the challenge of our uncertain world. Upper Saddle River, NJ: Warton School Publishing. Mazzarol, T. , & Soutar, G. N. (2001). The global market: Sustainable competitive Strategies for the new millennium. New York: Free Press. Murphy, J. (2004). Intermarket Analysis: Profiting from Global Market Relationships. Hoboken: John Wiley & Sons