PepsiCo entry into the North Korean Market
Introduction
PepsiCo is a leading manufacturer and distributor of foods and beverages across the world. The company operates and sells its products in many countries across the globe. However, the company does not offer its products in the North Korean market. The North Korea market is significant and therefore provides a good expansion opportunity for PepsiCo. The soft drinks industry in the country is not well developed and is not dominated by major distributors, and therefore PepsiCo should take advantage of this situation. This report seeks to analyze and develop an international market plan for PepsiCo entry into the North Korean market.
Company Analysis
PepsiCo Inc. (PEP) is among the leading food and beverage companies that operate in almost all countries in the world. The company was established in 1965 through the merger of Pepsi-Cola Company and Frito-Lay, Inc (Aguirre-Mar, 2013). The company manufactures and distributes its products in 200 countries across the globe. However, PepsiCo products are not sold in North Korea. Some of the products manufactured and sold by the company include carbonated soft drinks, bottled water, sports drinks, ready to drink coffee and tea, juices, flavored snacks, chips, cereals, pasta, and dairy products. The company’s headquarters are based in Purchase, New York, in the United States. The company employs about 274,000 employees in different parts of the world. Pepsi operates under different brands in different countries and owns nine of the top 40 packaged food trademarks in the United States. Examples of brands under PepsiCo include Pepsi, Gatorade, and Lays. The estimated company’s revenues in more the $1 billion for each of the brands (PepsiCo, 2019). The total company revenues in 2019 were $67.161 billion and increased from $64.661 billion in 2018 (see appendix 1). PepsiCo’s strengths include a strong and comprehensive product portfolio that has over 100 different brands. Out of the 100 brands, 22 of the brands have their revenues surpassing $1 billion, with ten brands surpassing the $500 million market. Strong brand image and well-established distribution networks also work to the advantage of the company. However, the company also has some weaknesses. Weak penetration outside the United States and high level of competition from competitors such as Coca Cola limits the growth of the company.
International market segmentation and selection
International market segmentation and selection is necessary to understand the markets better and gain maximum market share. PepsiCo operates under six market segments in different parts of the world (see appendix 2). Frito-Lay North America (FLNA) is the first market segment and includes brands, snacks, and foods in the United States and Canadian markets. Quaker Foods North America (QFNA) segment, on the other hand, provides pasta, rice, cereals, and other brands foods to the United States and Canadian market (Bailey, 2014). Latin America segment offers foods and beverages in Latin America. North America Beverages (NAB) segment covers the beverages business in Canada and the United States market. Asia, the Middle East, and North Africa (AMENA) segment sell foods and beverages in the North African, Asian, and Middle East market. The last segment is the Europe Sub-Saharan Africa (ESSA) segment, which concentrates on selling foods, snacks, and beverages to the European and Sub-Saharan African Markets. Based on the six segments, it is evident that the company’s international segmentation and selection are based on regions and products. For the regions, the company has three market segments. The company has also divided their the United States and Canada market based on products, with three different market segments dealing with foods, beverages, and snacks (Rama, Han, and Hessels, 2018). The company’s market segmentation is mainly based on the region’s different characteristics. Due to the geographical differences and socio-economic differences, the company has segmented its market into different segments, which include the United States and Canada segments, the European and Sub-Saharan Africa segment, and the North African, Asian, and Middle East segment.
Strategic Plan
Entry strategy
There are different market entry strategies that are based on company and market characteristics. The strategies include direct exporting, franchising, acquisitions, joint ventures, and licensing, among others. All these strategies can be adopted by PepsiCo in its entry to the North Korean market. Kang (2018) analysis different entry strategies into the North Korean market based on a report published by North Korea’s Kim Il Sung University. Based on the University’s guideline, there are three entry strategies that are viable for the North Korean market. The first option is a joint venture between the company and the North Korean government, where the company has equal control of the business and profit share with the Korean government. There is also another form of joint venture where the foreign company and the North Korean government invest jointly, but the foreign company has control over the business. In this form of venture, the foreign company and the North Korean government also equally share profits and losses from the business investment. Further, based on the University’s guidelines, the third entry option for PepsiCo would be “foreign company.” Under this option, the foreign company invests 100% in the business, and the North Korean government, in this case, have no right to share profits or have to control over the management. However, such companies are only allowed to operate in special economic zones in the country.
According to a report by Economic Freedom (2019), North Korea is controlled by an autocratic state that controls of business activities. The country has no effective tax system, and the judiciary is not properly functioning. The government dictates and commands the economy and directs almost all economic activities in the country. The state-owned industries account for almost all the country’s GDP, and the government sets the production levels. Diplomatic issues and high levels of corruption in the country makes the business environment hard and unpredictable (Soo-Am, Keum-Soon, Kook-Shin, and Min, 2013). These make full venture risky, and therefore PepsiCo should consider a joint venture with the Korean government. PepsiCo should consider the joint venture where the company and the government invest equally, but the government has less control over the management of the business. Under this entry strategy, PepsiCo with receive protection from the government given that economic activities and production levels are set by the government. The joint venture with government increases the interest of the government in the business, a factor that reduces risks for PepsiCo in case of diplomatic challenges between North Korean and the United States, where the headquarters of PepsiCo are situated.
Analysis of potential competitors in the market
Fruit-flavored carbonated drinks market in North Korea is significant, and there is a considerable amount of competition in the industry. The country only developed domestic beverage manufacturing companies in the 2010s, with the previous supplies only jointly owned with foreign companies. In the current market, various North Korean companies are able to produce carbonated soft drinks for the local market. The main competitors in the industry include Nagwon Gunhung Exchange, Munsu Foodstuff Factory, Kumkop Combined Foodstuff Factory, Air Koryo Beverage Factory, and Taedong River Fruit Processing Plant, among others. Due to less Western influence, the countries beverage market is mainly dominated by local tastes and styles. The mainly traded soft drinks include North Korean Coca-Cola, North Korean Fanta, and Suspect Peach Lemon. They take the biggest market share of the North Korean soft drinks market. There is no dominant soft drinks company in the market, a factor that presents a great opportunity for PepsiCo. North Korea, soft drinks makers, produce beverages with local fruit flavors, which include grape, apple, strawberry, peach, and pear. Exotic flavors also produce in the domestic market include pineapple mango, kiwi, and clementine, among others.
Marketing Plan
Product strategy
In its current market, PepsiCo deals with a variety of products, which include soft drinks, energy drinks, rice snacks, cereal, snacks, sports nutrition, breakfast bars, and bottled water, among many other products (Kayaba, Boyraz, and Derdiyok, 2017). The offering of a variety of products, which are in over 100 different brands, helps the company access a wide variety of customers who have different tastes and preferences. The company should approach the North Korean market with a slightly different strategy. The countries ease of doing business is rated at 4.2, which is significantly low. Therefore, the company should be conscious of the investment in product development, given the risks involved in the market. The high corruption levels and excess government country makes the business environment less favorable. Therefore, the company should approach the market with a single product line and expand with time. Due to the socio-economic characteristics of the market, the company should start with soft drinks since there are cheaper compared to other products. The company will then expand its product range as it gets used to the business market. As part of their product strategy, the company should employ cost leadership where the products offered are of the highest quality possible based on the lowest cost possible.
Promotion strategy
The main promotional techniques include advertising, sales promotion, direct marketing, and public relations. PepsiCo uses a mix of these strategies in different markets in which the company operates ((Kayaba, Boyraz, and Derdiyok, 2017, p. 358). Advertising is the primary strategy of marketing communication. In North Korea, by 2010, there were 1.2 million televisions receivers. According to Gause (2016, p.35), the majority of the people in North Korea have no access to the internet but have access to televisions. Further, due to the economic conditions of the country, radio is the most used form of media in the country. Therefore, advertising, through television and radio, should be the primary marketing strategy employed by PepsiCo. Although PepsiCo rarely uses sales promotion in terms of free products and discounts in already developed markets, the strategy is necessary for emerging markets. Direct marketing, which includes a partnership with local companies, is also necessary for promoting products. Public relations, which include sponsorship of sports events and financial assistance, would be necessary for penetrating the North Korea market. PepsiCo sponsors the European Champions League and should also employ the strategy for local sporting events in North Korea. To effectively enter and gain market share in North Korea, PepsiCo should use a mix of advertising, direct marketing, sales promotion, and public relations as part of their promotion strategy.
Price strategy
North Korea has a $1,300 per capita income, a factor that shows that the purchasing power of the country is low compared to other PepsiCo market segments such as the United States, Canada, and European markets. Therefore, the pricing factor is significant in such a form of market, and especially when dealing with non-essential goods. Pepsi employs a pricing strategy based on the geographical and social-economic features of the market the company is targeting. PepsiCo has a wide range of brands that significantly differ in prices. The prices are mainly driven by cost factors (Morgan, Feng, and Whitler, 2018). The company should employ a market-oriented pricing strategy in the North Korean market to beat stiff competition from the local producers. According to Pels and Sheth (2017, p. 381), countries with lower incomes levels are more concerned about prices rather than quality, and therefore PepsiCo should lower their costs as much as possible to allow setting of lower prices than average soft drinks prices of already existing brands in the market. In other markets, PepsiCo employs a strategy that closes the gap between the daily prices and holiday prices. This is to ensure that their products are bought all the time and not just during the holidays. The company should employ this strategy in North Korea.
Distribution strategy
In the United States, PepsiCo uses retailers such as Walmart to distribute its products (Kayaba, Boyraz, and Derdiyok, 2017). Walmart accounts for a significant part of the company’s distribution systems. Pepsi uses a global network as part of its distribution strategy. The network includes retailers and online merchandisers. Certified retailers are used to distributing the products on behalf of the company. Due to low internet access in North Korea, the user of online merchandisers as part of the supply strategy of PepsiCo would not be viable. The company should establish production bases in North Korea and use already existing supply systems to distribute its products. The cost of establishing a distribution system is significantly high, and therefore the use of already existing systems is the best strategy for this case (Morgan, Feng, and Whitler, 2018). The company should contract retailers such as supermarkets, chain stores, departmental stores, and small retailers to help in distributing the products. This will reduce costs of distribution through reduces the capital required to establish such systems and lower risks associated with new distribution channels.
Conclusion
PepsiCo operates many parts of the world but does not have operations in North Korea. The reason is due to the trade restrictions between North Korea and the United States. With increasing trade between the United States and North Korea, PepsiCo should consider expanding to the North Korean Market. The company segments its markets based on regions and products. The most appropriate entry strategy in the North Korean Market is a joint venture between the company and the government of North Korea. The major competitors in the market include Nagwon Gunhung Exchange, Munsu Foodstuff Factory, Kumkop Combined Foodstuff Factory, Air Koryo Beverage Factory, and Taedong River Fruit Processing Plant, among others. The company should enter the market with a single product and then expand its range of products as it gets used to the country’s market. To effectively gain and maintain market share in the country, the company should adopt a mix of advertising, sales promotion, direct marketing, and public relations as part of the company’s marketing communication technique. Due to the economic conditions of North Korea, the majority of the people have low purchasing power. Therefore, the company should focus on reducing costs to provide cheaper drinks compared to the average prices for the existing beverages. The company should use the already existing distribution channels to reduce costs and risks associated with new systems.
References
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Economic Freedom, 2019. North Korea Economy: Population, GDP, Inflation, Business, Trade, FDI, Corruption. [Online] Heritage.org. Available at: <https://www.heritage.org/index/country/northkorea> [Accessed 18 April 2020].
Gause, K.E., 2016. North Korean political dynamics of the Kim Jong-un era. International Journal of Korean Unification Studies, 25(1), pp.33-63.
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Pels, J., and Sheth, J.N., 2017. Business models to serve low-income consumers in emerging markets. Marketing Theory, 17(3), pp.373-391.
PepsiCo, 2019. PepsiCo Reports Fourth-Quarter and Full-Year 2019 Results. [Online] < https://investors.pepsico.com/docs/album/investors/q4-2019/q4-2019-earnings-release_wbd7hukqd1j919z3.pdf>
Rama, Z., Han, H., and Hessels, E., 2018. When Brands Go Political: A PepsiCo Case. LBMG Corporate Brand Management and Reputation-Masters Case Series.
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Appendices
Appendix 1
Appendix 2
Appendix 3