Multinational corporation: red bull Essay
MULTINATIONAL CORPORATION: RED BULL
One of the most successful multinational companies in the international market, Red Bull GmbH has been maintaining a good market performance for the past 24 years of its operation. With its flag-product, Red Bull Energy Drink, Red Bull GmbH included itself to top producing energy drink companies in Northern American and Europe, with significant market shares on Asia. Most people claims that Red Bull GmbH’s corporate values are made from the West-East Cultural integration which enables the said company easily cope up to new cultures and corporate values. Every year, Red Bull GmbH can sell billion cans of energy drinks in nearly 100 countries with emphasis on the American and European countries.
Furthermore, more than 70 percent of the total world market for energy drinks belongs to Red Bull GmbH with sales equal to around $1.3 billion in 2002 which strongly supports the volume of its sales and extent of its operation on the world market (Fundinguniverse.com 2008) & (Ingram 2003).
One of the main reasons behind the successful operation of Red Bull GmbH in the international market is rooted on the fact that it has an efficient production scheme and strategically located manufacturing firms across the globe. Meaning, Red Bull GmbH has been investing to different countries that can provide them with competitive advantages over their competitors in the market. Business environment could also provide comparative advantages to many multinational companies just like Red Bull GmbH aside from the factors of production like labor and technology. In essence, there are allot of potential sources of competitive advantages in a given country and a few of them will be tackled by this paper as the discussion proceeds, while considering the case of Red Bull GmbH.
Therefore, this paper aims to determine the various market entry strategy of Red Bull in penetrating different global market as well as on how the said company it changed its management structure just to penetrate new markets. The thorough analysis of Red Bull will be done through the use of two main models in explaining multinational company corporation, specifically the Dunning’s Eclectic Paradigm & Global Integration and the Integration Responsiveness.
Dunning’s Eclectic Paradigm
Red Bull GmbH, being one of the most successful energy drink producer in the international market, proud itself for being knowledgeable on caffeine due to its significant amounts of investments that it allot on its research and development program (St. Pierre 2000). Given the tight market competition, Red Bull GmbH has able to maintain good position in the global market through allotting significant amount of its resources to research and development considering the its line of products are energy drinks. Bulk of the foreign investment of Red Bull GmbH is concentrated on American and European Region since these regions has been the forerunner of research and development studies due to the availability of facilities and technologies needed for the development and innovation of product line of Red Bull GmbH. Keeping in mind that most of the developed nations belongs mostly to the European and American Region, Red Bull GmbH has been able to utilize the technological advancement in these regions and incorporate them on its production processes to further improve its product lines in the market.
In other words, the concentration of investment of Red Bull GmbH in European and American Region aims to further develop their competitive advantage in research and development. Red Bull GmbH uses the technological advances of European and American Region as part of its production inputs, which later one would transform to a more attractive product line especially to health conscious target customers in the market. Between the European and American Region, Red Bull GmbH is relatively more successful in the former than the latter considering that it is an Austrian-based company and it is already familiar with the European market, though there is only a small margin between the level of success of Red Bull GmbH on Europe and American Region.
On the other hand, Red Bull GmbH is still on its preliminary stage of penetrating the Asian market. Red Bull GmbH saw the potential contribution of cheaper labor cost in most Asian countries and turn it into one of the sources of competitive advantages of the company against its competitors.
As the present trend nowadays, consumers are not just quality-conscious customers; rather, they are now both quantity and quality-conscious customers. Given a tight budget constraint, consumers nowadays opted to buy cheaper yet high quality products in the market; and existence of cheaper products in the market means that they can buy more of that product as compared before when its prices are relatively expensive.
In other words, Red Bull wants to expand its target market by including price-conscious-customers/quantity-conscious-customers through lowering down their production cost to give them enough room to cut down their market prices. By investing into Asian countries with cheaper laborer such as in China, India, Philippines and Indonesia, Red Bull GmbH has already the capability of offering their product lines in the market on a much cheaper price relative to their competitors.
For many years, Red Bull GmbH finds it more comfortable on using direct investment as a medium for entering a given market. It has provided Red Bull GmbH with enough market opportunities to gain more competitive advantages or further improve the competitive advantages of its existing product lines. In addition to this, Red Bull GmbH has able to internalize the market of its host country through direct investment. Meaning, Red Bull GmbH has able to successfully penetrate, exploit, and dominate a foreign market on itself compared to making joint business venture with a foreign company.
Therefore, this case of Red Bull GmbH conforms on Dunning Eclectic Paradigm since Red Bull GmbH has considered the major conditions such as availability of resources that will provide the company with comparative advantage, and market internalization to name a few, in making decisions on whether or not to invest in a foreign market through direct investment (Gray 2003:5).
Considering the fact that most of the developing countries are situated in Asia, another source of competitive advantage of Red Bull GmbH, aside from its significant investment in research and development studies, would be the political stability in the European Region compared to the American and Asian Region. Since most of the investment of Red Bull GmbH is concentrated in European Region, while Red Bull GmbH is relatively more successful in the European than in the American Region, it has been able to enjoy large amounts of political benefits in terms of government policies and regulations.
The establishment of the European Union provided an avenue towards the strengthening of political conditions in the European Region as compared to the United States wherein it has been experiencing series of political issues and instabilities that eventually adversely affected the profitability of foreign investors operating on the said region.
The political stability of the European Region has been successfully utilized by Red Bull GmbH to operate in the market efficiently relative to those energy drink companies that operates in Asian and American countries that, in the recent years, has been experiencing political issues and instability. Having a stable political condition would be tantamount to having fewer cases of bureaucratic rent, graft and corruption, and optimal policies and regulations, which eventually provided Red Bull GmbH enough avenues to minimize its production/operation cost. In addition to this, infrastructure development in Europe, which is vital for foreign investment to earn higher profit, is relatively higher compared to Asian countries due to stable political conditions of European countries as compared to Asian countries.
Furthermore, in terms of culture and social environments, since most European countries are member of the European Union, it has provided Red Bull GmbH with enough flexibility which eventually led on its efficient operation in the market. The cultural and social differences of member countries of the European Union enable Red Bull to generate more productive ideas and market strategies that in turn led Red Bull GmbH in having competitive advantage over its competitors in the market. Like for instance, Red Bull GmbH, has been one of the multinational firms in Europe that spends allot of capital for advertisements since it covers different and large scope of customers from various member countries of the European Union. Red Bull GmbH has been extensively sponsoring different sports events or competition that successfully developed its product name in the market (Hein 2001).
Just recently, Red Bull GmbH is already making collaborations with gaming developers and start providing “Red Bull Games” in the market to further boost the publicity of the said company (Ivan 2007) & (Radd 2007). Yet, despite of the high budget allotment of Red Bull GmbH on advertisement, almost all of its advertisements successfully attracted more customers to the said company.
Moreover, like any multinational companies on the international market, Red Bull GmbH has been able to maintain a centralized management flow which made it allot easier on the part of the said company to make deals with other people on a fast and efficient way. Most of the investors at present firmly believe that a centralized management flow is relatively more efficient and effective compared to a decentralized one. In addition to this, the centralized management of Red Bull GmbH enables it to easily manage its international branches (Todd 2003). It also caused the minimization of ambiguity on the roles and responsibilities of every employees working in Red Bull GmbH which positively affects the level of quality of each employee’s performance.
In this regard, it is therefore clear that centralization, cultural and social differences, and political stability in Europe provided enough market influence on Red Bull GmbH to have comparative advantage against its competitors and further gain larger share on the international market. To make thing simpler, Red Bull GmbH does not only consider the availability of resources that could provide comparative advantage before directly investing in a given country, rather, it also consider the political, social, cultural environment of a given country as stated under the Integration-Responsiveness Model. At the end of the day, Red Bull GmbH remains formidable amidst to the tightening market competitions and liquidity of the international market which makes it one of the successful and influencing multinational companies across the globe.
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Given the above discussion on how Red Bull GmbH decides on whether or not to pursue direct investment in a given country or market, it is therefore clear that the main factor that influences the decision process of Red Bull GmbH would be the existence of resources that would provide them with comparative advantage or could at least further improve their existing comparative advantage as well as the political, social, cultural environment of a given country. The centralization of its management structure, provision of cheaper products in the market, knowledge on the uses of caffeine, has provided Red Bull GmbH enough comparative advantage over its competitors and gain significant market share improvement in the global market.
Considering the multinational companies as a whole, given the said identified models above, MNC’s made decisions regarding their foreign investments depending on how much comparative advantage that they could get from investing on a given country. At present times, most of the reasons behind the influx foreign investment on many countries are rooted on the availability of sources of comparative advantages, e.g. technology, cheaper labor. The race towards the attainment of comparative advantage over their respective competitors in the market has been fueling the volume of foreign direct investment that moves from one country to another. Therefore, it is not just the existence of potential market that is presently important to foreign investors when considering a country to invest with, rather, they now also consider the comparative advantages that they can generate from investing on that given country.