Macro environment and business operations Essay

The macro- surroundings consists of larger societal forces that cloak entire micro-environment. The six forces making up the fellowships macro-environment include demographic, sparingal, natural, expert, political/sound, and companionable-cultural forces. Companies moldiness ever watch and conciliate to the selling environment in order to try on opportunities and ward off nemesiss. The merchandise environment comprises all the actors and forces influencing the corporations ability to transact trading effectively with its target marketplace place (Arm crocked and Kotler 2003, p.149). In this report, do PEST to analyze macro-environment forces how to adjoin on PepsiCo in mainland mainland mainland mainland mainland china. As we know, the PepsiCo was the first U.S. company to distribute its yields in China after China implement reform and gap up policy in 1979. by dint of many years tune operation in China, the company fully understands their cultivation adu lt malewide moldiness(prenominal) adapt Chinas macro-environmental mixed forces and must put into practice their localization schema Think local, execute local.In this report, by serious study and literature review, with constitute to relevant books, journals, search information from internet. First, the companys background is existence showed. Followed by macro-environment impact on merchandise activities of PepsiCo in China and macro-environment forces on PepsiCos marketing activities, finally, unitary conclusion is presented.Our conclusion that the best products and technology may analyze to meet with acceptance in markets around the conception because of lack of local macro-environmental awargonness.In economic world-wideization, all companies must identify, analyze, and reminder external environmental forces and assess their current and potential impact on their business activities. middleman (2001) stated clearly that macro-environment consist of a image of broade r forces that chance upon not only the company but besides an in the buff(prenominal)(prenominal) actors in the microenvironment. These keep be grouped under demographic, economic, social-cultural, political-legal, natural and technological forces.According to Kotler and Keller (2005), in the demographic environment, marketers must be aw atomic number 18 of oecumenic population growth, changing mixes of age, ethnic composition, educational levels and the move to micromarketing and away from band marketing. In the economic arena, marketers inquire to focus on income distribution and levels of savings, debt, and breed availability. In the social-cultural arena, marketers must understand races views of themselves, organisations, society, nature and the universe. They must market products that correspond to societys core and secondary quantifys, and resumeress the needs of different subcultures within a society.In the natural environment, marketers need to be aware of raw substantives shortages, increased energy costs and contaminant levels, and the changing occasion of g e precisewherenments in environmental protection. In the technological arena,marketers should fasten on account of the accelerating pace of technological change for innovation, varying R&D budgets, and the increased governmental regulation brought ab turn out by technological change. Finally, in the political-legal environment, marketers must work within the many laws regulating business practices and with unhomogeneous special-interest groups.In this report, use PEST to analyze macro-environment forces how to impact on PepsiCo in China leave be presented. Through many years business operation in China, the company understands their development worldwide must adapt Chinese macro-environmental various forces and must put into practice their localization st countgy Think local, Act local.2.0 COMPANY PROFILEPepsiCo was founded in 1965 d champion the merger of Pepsi-Cola and Frit o-Lay. Tropicana was acquired in 1998 and PepsiCo merged with The Quaker Oats confederation, including Gatorade, in 2001. PepsiCo is a world needer in convenient foods and beverages, with 2006 revenues of more than $35 billion and 168,000 employees.PepsiCo front in China dates back to the earlier days of the communitys reforms. In 1981, Pepsi-Cola became one of the first American investors in China by signing an agreement with the Chinese government to build a bottling sic in Shenzhen. To date, PepsiCo has effected more than 40 joint or all owned ventures in China with a total investment over US$1 billion, directly employing 10,000 staff (Official website of PepsiCo).MACRO-ENVIRONMENT IMPACT ON merchandise ACTIVITIES OF PEPSICOIn analyzing the macro-environment, it is historic to identify the portions that might in turn affect a number of vital variables that are likely to influence the organizations supply and bespeak levels and its costs. A PEST abridgment is one of t hem that is merely a framework that categorizes environmental influences as political/legal, economic, social/cultural and technological forces. Such external factors usually are beyond the firms keep back and sometimes present themselves as threats. do PEST tool to analysis macro-environment influence on PepsiCo in China is inevitable.The political-legal environmentBefore you play the game, learn the rules. Some business throng designate a remarkable lack of knowledge just about marketings political-legal environment. Ignorance of or noncompliance with laws, ordinances, and regulations can lead to fines, embarrassing negative publicity, and maybe expensive civil damage suits. As a foreign company, PepsiCo delimitate to invest in Chinas beverage patience which is tightly controlled and subject to government approval. According to Chinese governments regulation, a new bottling plant before long requires about three-year wait for government approval, and bring down production volume must be re-authorized annually.In addition, PepsiCo has a global outline of TV advertising, PepsiCo has included everything from Chinese zodiac animals to Spring Festival couplets in its television commercials. This approach, combined with relatively long advertising score in the country has made Pepsi Cola the most recognized wanton-drink brand in China. However, governments policy and regulation can also impact on the companys market strategy. Being a commie country, in China, although flock now are very often drop of expression in ordinary life, there is still no large-minded media. The media is still very controlled by the government and there is always the gamble of having more regulations especially to foreigners.The economic environmentThe health of the economy influences how much consumers spend and what they buy. Consumer buying plays an important role in the economys health-indeed, consumer outlays feign up some two-thirds of overall economic activity. Ac cording to Boone and Kurtz (n.d.), economic environment consists of those factors that influence consumer buying power and marketing strategies. They include the be of business cycle, inflation, unemployment, resource availability, and income. As we know, Chinas economy grew at an averagerate of 10% per year during the period 1990-2006, the richlyest growth rate in the world. However, Chinese inflation ran at 5.3% for the second consecutive calendar month in August in 2006, according to official figures. PepsiCo has already met long challenge because inflation is a general rise in impairment resulting in decreased purchasing power. largeness utilise increase the companys costs like expense to purchase materials for production, and may lead to declining sales.Marketers of PepsiCo understood clearly that inflation lead cause consumers to react in two ways1). Decrease their brand loyalty. In a young research, most Chinese consumers are involuntary to use cheaper brand, and ho nesty, because it works exclusively as well.2). Stockup. Many consumers take advantage of coupons and sales to stock up ( pilus et al. 1992, p.52).In addition, income is another important factor in marketings economic environment because it influences consumer buying power. The bell of the product has to be affordable however there should be a premium that consumers are willing to pay for the health benefit as well as for the ultramodern and higher status image it will offer. The risk here is to fail in selling the value of the product and to set the premium to be higher than consumers are willing to pay.The social-cultural environmentComponent of the marketing environment consisting of the relationship between the marketer, society, and its culture. Doing business in China masteryfully requires an concord of China as a nation and of the culture of the Chinese people. A societys culture determines how it members communicate and interact with each other ( wire-haired pointing g riffon & Pustay 2003, p.85). A nations culture can impact on foreign countrys products and service. In China, many people are very interested in subdued drinks. A result of this has been emergencerates of obesity both Chinese adults and children. Due to Chinese culture, it is necessary that what they drink offers some benefits to their health. Nowadays, more and more Chinese people catch already pay attention to obesity problem. If soft drinks can not attend healthy, although increasing their market share, this is the risk the PepsiCo allow to face.In addition, an sympathy of the cultural practices in both the business and social environments is essential for be successful when doing business with Chinese companies (Patworks LLC. 2003). Initially when PepsiCo entered into Chinese market, the company has already lost some business opportunities in China because they evaluate the Chinese people do it my way. The Chinese culture is long accomplished and does not adapt quickly. For example, doing any business in China will require negotiation of contracts, impairments, and terms, etc. The negotiation process in China, compared to horse opera standards, will be very slow and deliberate. One difficulty in negotiation with Chinese companies is knowing what means no. Culturally, saying no directly is seen as rude and unacceptable. Many times when the company hears we will consider it, it really means no.The technological environmentThe technological environment represents the application to marketing of knowledge based on discoveries in science, inventions, and innovations. Major developments in technology can have enormous marketing implications because they can drastically alter industries. Despite the technological promise of this new product, the development stage of such innovations is lengthy and entangled. Company must often gamble on technology to attain success, and many companies have gambled and lost.PepsiCo had pass millions of dollars working on growing salad vegetables market to fast food concatenation in China. Technically the venture was sound-the infrastructure was set and the product was of high quality. The company had even arranged a machine to process and packages the zippy vegetables to give them a shelf life of two weeks, therefore opening up the Chinese market. However, the quality of the companys marketing did not match that of thetechnological planning stages. The fast food chain chosen not to buy the stock and the company had nowhere to off-land its vast standard of ripe vegetables- it had lost its markets.4.0 MACRO-ENVIRONMENT FORCES ON PEPSICOS MARKETING ACTIVITIESAs mentioned above, in business arena, one of the difficulties facing marketing managers is that environmental forces are chiefly beyond their control. merchandise organizations must try to adapt changing environmental conditions. Not only can environmental opportunity become threat environmental threat can also become opportunity (1989, p .55). Marketers must overcome various macro-environmental clash and barriers between Chinese macro-environment and international business.The political-legal environmentLaws and regulations affect all aspect of marketing operation and decision making-designing, labeling, distributing, advertising, and promoting goods and services. The focus of PepsiCo realized that major regulation has already impact on their marketing activities. To cope with the vast, complex, and changing nature of the political-legal environment, many larger companies maintain in-house legal department like PepsiCo. In addition, as a foreign company, marketers must comply with Chinas laws and regulations, however, noncompliance can scar a companys reputation and hurt profits.Marketers should take steps to control forces in political-legal environment. PepsiCo has invested heavily into adapting its operations and business strategies to the local culture and practice. It currently has 24 bottling joint-ventures i ndirectly through two Hong Kong-based companies that it partly owns and maintains a strong market presence through partnerships with the Chinese government and domestic companies. PepsiCo has established its Asia-Pacific headquarters in Shanghai running its operations for many countries.The economic environmentCompanies must scan, monitor, forecast, and assess the health of economies outside their host nation because nations are interconnected as a result of the global economy.Inflation rate is currently reaching to 5% in China, inflation pressures consumers to clear up more economical purchases. PepsiCo should realize that despite what happens to the sells cost, the purchaser is not going to pay more for a product than the value he or she places on it. When the economy is characterized by high inflation, a series of special pricing tactics are often necessary. Marketing managers should develop an effective cost-forecasting system and use anticipatory pricing. According to Hair et al. (1992), these tactics can be subdivided into cost-oriented and demand-oriented.Cost-orientated tactics consist of delayed-quotation pricing and moving stairway pricing. Delay-quotation pricing is a very popular pricing tactic that price is not set on the product until item is either undone or delivered. Demand-orientated pricing methods include price shady and increasing demand through increasing selected demand, unique offering, and system selling.As we know, the Chinese people are still to well-off life and their income are not very high. The pricing strategy is a very important part of the marketing mix, because it can affect both supply and demand for a company such as PepsiCo. Therefore the companys pricing strategy must adapt economic environment. One of the most important price factors of PepsiCo is customers affordability. If the price is too high, consumers will spend their cash on other goods. As a multinational company, it always must appeal to Chinese consumers, e specially in the era of globalization. The company have had adapt to the local economic environment in order to success. almost Chinese can afford an occasional soft drinka can of Coke cost RMB1.90($0.24) in Shanghai today. Due to reasonableness of Cokes price, their products currently reach about 60% of Chinas population.The social-cultural environmentThe social-cultural environment is made up of institutions and other forces that affect a societys basic value, perceptions, preferences, and behaviors. Product decisions are also affected by cultural variables. As mentioned onwards, increasingly Chinese people have already focused on obesity problem. If soft drinks can not consider healthy, this is the risk the PepsiCo have to face. So, PepsiCo decided to carry out a feasible solution that reduce calorie intake from soft drinks.At the same time, PepsiCos decision-making for product and service should also consider local customers purchase habits. It will also radiate a nations cul ture. For instant, the Chinese like hot, noncarbonated soft drinks with nature ingredients or herbs that they believe are good to human health, in particular, they like hot teas. Tea is so popular in China that people call it Tea Culture. PepsiCo realized Chinese peoples drinking habits, then they introduced Lipton Tea quickly, a line of noncarbonated drinks through cooperate with local partner. PepsiCos long-term strategies of localizing production embolden their market share.In order to avoid lost opportunities and bring about misunderstandings, businesspeople have to realize anothers cultural background. taste manners and customs is especially important in negotiations. If the company expected the Chinese people do it my way, they will lose more chances. China has a unique culture that dates back to thousands of year, combined with the factor of about 60 years ruling of communist one-party totalitarianism. irrelevant business people and companies should try to adapt quickly. Consequently, you need learn do it their way.The technological environmentTechnological trends are critically important in identifying marketing opportunities. These trends include new directions in research and development (R&D) that might lead to new products or even to new industries (Assael 1990, p.72). For the live on of failure in new product development the company trunk undaunted, they plan to return to the fast food market with salad vegetables. This time, the company promises it willnot forget the importance of inventory. PepsiCo fully understand that in the low-margin soft-drink business, one of the key competitive advantages lies on the efficiencies in every aspect of business process, from procurement of raw and semi-finished material to inventory management, from production planning to material requirements planning, from distribution to service, etc.As the leader in this industry, PepsiCo knows how critical role information technology plays in its success. In fact, it has a long history of employing advanced information technology to support its direct-store-delivery business model and management. In China, PepsiCo China use Enterprise Resource Planning (ERP) implemented by UFIDA.Moreover, PepsiCos ultimate weapon in maintaining its market leadership is seek and Development. Since product formulations are kept as trade secrets most of the patents are related to technology that supports beverage industry. PepsiCo will use its patents to increase its market share in each and every market it serves R &D delivers true value to coke consumers worldwide.The key areas of technologies where most of the patents filed are Packaging, peddling Equipment, Fountain Equipment, Water Treatment and alternative refrigeration technologies. In China technologies related to water treatment and vending equipment will come clever in gaining market share. The company will also be agonistic to develop new technologies for Chinas country specific use. some(prenomi nal) new technologies will be used in designing and backpacking new products. Research and Development will also try to add local herbal products to add more energy to the drink and give a local flavor to the product. Research and Development will use a small-scale bottling system to test bottling runs of new product. It will thrust sure that the new drink can be produced and bottled in a massive scale. PepsiCo will also take its testing of new product on road and test it in various regions of China to seduce sure that it will be acceptable in all regions of China.5.0 decisivenessMost films face external environment that are highly turbulent, complex, and global-conditions that make interpreting them increasingly difficult (Ireland and Hitt 1999, p.43). In todays complex and rapidly changing environment, marketing managers need use PEST analysis to make effective and timely decisions. Understanding one nations macro-environment diversity that could positively impact your business relationship is the key to success in this country. The PepsiCo is a good example in this report.The PepsiCo entirely understands Chinas various external environments, consumers behaviors and practices that localization is their long-term market strategy. As Porter (1985) stated the importance of analysis the macro-environment every industry has an underlying structure or set of fundamental economic and technical characteristics. The strategist must learn what makes the environment tick. It can be reason out that the best products and technology may fail to meet with acceptance in markets around the world because of lack of local macro-environmental awareness.LIST OF REFERENCEJobber D. 2001, _Principles and Practice of Marketing_, 3rd edn., McGraw-Hill Publishing Company.Philip Kotler and Kevin Lane Keller 2006, _Marketing Management_, 12nd edn., Pearson Prentice Hall CompanyPepsiCo 2006, viewed 26 July 2007, .Louise E. Boone and David L. Kurtz n.d. _Contemporary Marketing plus_, 8th edn., The Dryden Press.Joseph F. Hair, Jr. and Charles W. Lamb, Jr. and Carl McDaniel 1992, _Principles of Marketing,_ South-Western Publishing Company, p.52.Ricky W. Griffin and Michael W. Pustay 2003, _International Business A managerial Perspective_, 3rd edn., Pearson Education Inc., p.85.Patworks 2003, Doing Business in China, viewed 27 July 2007, .Eight Ways to Avoid Marketing floor, _Sales & Marketing Management,_ April 1989, p.55.Henry Assael 1990, _Marketing Principles & Strategy_, The Dryden Press, p.72.R. D. Ireland and M. A. Hitt 1999, Achieving and Maintaining Strategic Competitiveness in the 21st century the Role of Strategic Leadership, _Academy of Management Executive,_ p.43.Michael E. Porter 1985, _Competitive Advantage Creating and Sustaining Superior_ _Performance_, rationalise Press.Gary Armstrong and Philip Kotler 2003, _Marketing An Introduction_, 6th edn., Prentice-Hall Publishing Company, p.149.