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BUS3003 Global Business Development

Solution:

1. Introduction

The WTO defined FDI as the process by businesses in one country—the country of origin (occasionally referred to as the ‘home country’) acquire assets with the stated aim of regulating a company’s production, dissemination, and other operations in some other country—the host nation (occasionally known to as the ‘foreign country’). Economically, FDI is a technique for diverting power across geographical boundaries, including financial capital, knowledge, and human capital, while maintaining management of the parent firm (Kukaj and Ahmeti, 2016). Foreign market participation has been progressively become gained attention in the recent past few years. International businesses are paying proper attention to entry decisions. Entering an international market can conceivably provide enterprises with a plethora of benefits in the area of global branding and advertising. When deciding to join a foreign market, numerous decisions must be made. These choices include which overseas markets to enter, when and how to enter them, the magnitude at which to enter, and the mechanism of entry (Narula & Verbeke, 2015). Thus, this report intends to present a strategic proposal of Fritz Kola to make a move to the Indian market.

The report is divided into eight major parts; Part-1 provides a brief background on the company and the product selected to start its business in the Indian market, and Part-2 offers an analysis on the viability of Indian as the chosen country while Part 3 inspects the existing beverage landscape in India. Part-4 briefs about a suitable market entry strategy and organizational structure. This is followed by a brief on FDI Entry mode and a profitable strategy, and a discussion on the learning’s acquired.

2. Background  

2.1 Company Background

Fritz Kola is a German brand founded in 2003 by two Hamburg students, Lorenz Hampl and Mirco Wolf Wiegert. The two students founded the company to introduce a beverage to the marketplace that tastes considerably different from current Coca-Cola or Pepsi products. Fritz Kola was less flavored and contained a higher concentration of caffeine. The company placed more importance on marketing through cafés, bars, and other restaurants, and the brand quickly established popularity amongst party guests (Fritz Kola, 2021a). By 2010, the company has expanded to 2.7 million Euros in revenues. The company’s brand strategic vision has resulted in the massive development of the product line. Apart from monetary gain, the group was started to increase consumption of sugar-free refreshments. In Germany, the Poland, Netherlands, Switzerland, Spain and Austria already had Fritz-Kola with distribution in Poland scheduled to begin in the coming months. Due to Fritz Kola’s exclusivity in Germany, Indians can purchase it exclusively from a unique Fritz Kola manufacturing plant owned by a specific Fritz Kola Corp. The company’s prime objective is to offer a distinct and viable alternative to Coca-Cola and PepsiCo. as standardized beverages. To do this, the firm works diligently to build a diverse product line under the Fritz-Kola Cola brand name, which encompasses lemonade and limeade (Buse, 2012).

2.2 Product Background

Fritz Kola, sugar-free priced 12.38 £ per bottle, has been selected to be launched in India. Fritz Kola sugar-free contains a high amount of caffeine to keep the user awake and active for a longer time and is professed to be a healthy alternative to other cold beverages available in the country. The use of high quality yet natural ingredients along with the prevailing brand image in the global scenario will help the brand in gaining a competitive edge over other beverage players (Fritz, 2021b).

2.3 Country Analysis: PEST Analysis

The importance of a macro-environment evaluation when expanding should never be ignored and is a process that a company takes to effectively comprehend the marketplace, develop, and then internationalize (Porter, 1985).

PoliticalIndia, the world’s biggest democracy, maintains a generally stable political environment. India’s disagreement over Kashmir with Pakistan, however, was only a serious political problem. Similarly, the Citizenship (Amendment) Act 2019 has sparked widespread demonstrations and fatalities in several countries. Citizens’ political ideas will be expressed through universally acknowledged and acceptable municipal and presidential elections. This tolerant political climate contributes to the maintenance of a stable political system, which is critical for attracting (FDI). In India, fraud is a significant issue. It has a detrimental effect on the country’s corporate and political environments, impeding the nation’s economic advancement. Also, India’s score on the 190-country World Bank Doing Business Report (DBR) rose from 142nd in 2014 to 63rd in 2020. For the third consecutive year, it has been ranked among the world’s top 10 motivators. These scores have probably increased substantially of infrastructure improvements being put into effect to strengthen India’s ports, rendering it even faster to trade across nations. Another factor contributing to Ease of Doing Business rating improvement is the Indian government’s recent decision to allow 100 percent FDI in the f&b industry. Moreover, foreign enterprises are excluded from export customs and value-added tariffs on food suppliers, and the instant local supply criteria of 30% have become necessary after five years of business in India (World Bank, 2020).   
EconomicalIndia is the world’s most significant nominal GDP economies. According to the IMF’s April 2021 forecast, the economy is expected to grow at 12.5 percent in 2021 and 6.9 percent in 2022, subject to global economic recovery following the pandemic. India is a market leader in a range of industries. For illustration, the seventh-largest coffee exporter on the planet.  Additionally, it is among the largest agricultural producers on the planet. Foreign direct investment of $120-160 billion per year is anticipated by 2025. (IBEF, 2021). Indian market is the fastest growing in the world. It has a sizable domestic market, which indicates that both domestic & global organizations can profit from multiple chances. FMCG is India’s fourth biggest industry, and together with foodservice, it accounts for over 19 percent of the industry’s revenue. The GDP contribution of this sector has reached $103.7 billion in 2020. It is regarded as one of the most profitable businesses in India (Makan et al., 2020). Moreover, India’s ever-increasing population is yet another significant factor signifying the growth of Fritz beverages in India. Moreover, nearly 90% of the working-age population or younger. Therefore, it may be stated that a large proportion of the population will have extra income in the coming years to spend on healthy alternatives (Krishnan and Hatekar, 2017).
SocialIndia has a large customer base of around 1.3 billion people (Worldometer, 2021). This vast market holds enormous potential for multinationals. No wonder many such multinationals operate in India.  In the next 10-15 years, India is predicted to become one of the world’s economic superpowers (IBEF, 2021). An accessible, inexpensive workforce led numerous multinationals to shift portions of their operations to India. Communal harmony is the country’s most prominent force. Country culture is easy to move where people engage in activities throughout the year. This creates a significant market factor for soft drinks. But resolving social disparity and racial discrimination, as they are some socioeconomic tabous that are critical aspects of the nation’s work, is crucial.

2.4 Market Analysis: Competitive landscape and Porter Five Forces

India Energy Drink market is estimated to increase at 9.22 percent CAGR over 2019-2025. Energy drinks are advertised as energy-intensive non-alcoholic beverages. Increased youth desire for energy boosters in parties and clubs boosts Indian demand for energy drinks. According to Euromonitor International, with demographic shifts and increased time shortages, urban customers rely on energy beverages to deal with fast-paced lives. Most would take caffeine to enhance stamina and activity levels. At the same time, lengthy and inconsistent working hours and rising social activities drive Indian consumers to drink energy drinks. With energy drinks on the horizon, athletes and consumers who are not athletes look forward to distinct flavors. Red Bull is the market’s colossal leader, followed by Coca-Cola, Hector Beverages, Bisleri, and PepsiCo. Looking at the boom in this niche space, there is enormous scope for developing new goods targeting Indian teenagers (PRNewswire, 20020).  Figure 1 demonstrates the growth in the consumption of energy drinks in India.

Figure 1 India’s Energy Drink Market

Threat of New EntrantIt is relatively easy to start a business in India. It is only the brand image of Fritz Kola which can protect the brand from the risk of new entrants.
Threat of SubstitutesThe Fritz sugar-free contains a high amount of caffeine and can be easily substituted by coffee and other cheaper beverages available in the market.
Threat of RivalryThe Indian energy drink market is budding up the sector, and hence, Frtiz will face very little competition from wide-ranging small and big players in India and can exploit its brand image for establishing a unique competitive position in the market.
Bargaining Power of BuyersThis market is highly competitive, and there are wide ranges of options available for the consumers. The buyers in this market do not have the power to bargain.
Bargaining Power of SuppliersFritz Kola’s sugar-free product does not require any specific ingredient, and thus, suppliers do not hold the potential to drive the prices of the raw materials.

Consequently, Fritz needs to adopt a differentiation strategy to gain a competitive edge over other players, stand out in the competition, and build a unique brand image. This will significantly reduce the risk inhibiting customers from trying the newly launched product in the market.

3. International Strategy

International strategy refers to a business’s efforts to sell goods or services outside of its home market. Amongst the four internationalizing systems Fritz and Kola can utilize transnational strategy; to establish coordination between its global market division and internationally located subsidiaries and retail divisions. The most significant advantage of this strategy is that the firm tries to balance the degree of personalization and the magnitude to which they can inculcate country-specific requirements for addressing customer concerns. This encompasses intra-organizational exchange, tactical coordination, and knowledge sharing between headquarters and subsidiaries/retailers.  The affiliates are, therefore, both strategically and interdependent (Harzing, 2009). Such a system is more versatile in all its activities. These activities include product design or aggressive client demands from diverse geographical regions (Ahrens and Guetz, 2015).

4. Organizational Structure  

To establish a renowned brand image in the Indian economy, the company can adopt a hybrid organization model, enabling the brand to distribute activities across the departments, ensure optimum resource usage, and avoid unnecessary wastage. By combining two or more structures, the hybrid structure promotes productivity and efficiency by enabling staff to feel highly invested. It also provides a shared vision and improves collaboration across projects or teams. Flexibility is the most significant advantage of using this kind of structure. Significantly, in the context of translational strategy, when the need for coordination between the head office and subsidiaries is high, a hybrid structure will contribute (Zhou, 2017).

5. FDI Entry Mode

To stay ahead of competitors, the company should implement a multi-channel approach, wherein the company can begin selling its products on other online marketplaces such as Amazon and Flipkart in order to reach a larger audience. Additionally, the brand should prioritize the use of pertinent digital media to increase brand recognition. The brand may enter international markets via the following channels:

• Exporting: Goods produced in one country may be transported over international borders.   Indirect exports are the safest way of entrance, as there is very little exposure to the worldwide market and dangers are extremely low. They sell the goods to an international market agency, and then redistribute it to other middlemen. Exporting is the favored strategy of young entrepreneurs. Using trade groups as enterprise is another strategy to expand the foreign market. Other organizations employ this sort of delivery system by agreeing to use their distribution network with a foreign or domestic company. This distribution mechanism decreases associated risks for worldwide market ventures.

• Licensing: Transnational licensing permits other countries to use licensor possessions. Markings, marks, and manufacturing procedures are among its qualities. The parties specified a cost to enter into this arrangement. Licensing is viewed as low cost, with good investment returns, and is encouraged by local governments. This will help Fritz.

6. Profitability Strategy

For generating profits and establish a foothold in the Indian economy, Fritz Kola should focus on Market penetration for increasing sales and brand awareness of the Fritz product in the market. This can be obtained by promoting the brand, decreasing product prices, multi-distribution network. And after acquiring a reasonable market share, the company can increase the costs. Moreover, Fritz can utilize its sustainable approach to increase profitability.

7. Conclusion

Soft drinks compete in all parts of the world; nevertheless, market penetration is still a challenge. The Indian market has offered Fritz-Kola an excellent opportunity to sell and promote the region’s sugar-free drinks. The increased market share and demand for healthy drink options contribute to market expansion. Fritz-major Kola’s problem is a tough competition with dominating businesses such as PepsiCo and Coca-Cola, yet with effective marketing methods, Fritz-Kola would generate a competitive marketplace and fulfill its goals. Also, Fritz Kola is suggested to enter India either through Exporting or through licensing business model and then is recommended to adopt a market penetration strategy followed by price differentiation to stay ahead of the competition.

8. Personal Reflection

I always had a passion for FDI and globalization, so I chose this program at my university. The Worldwide Business Development module has enabled me to develop my understanding of the subject matter further and let me comprehend from an organization’s position several of the opportunities and threats associated with operating an organization in a global market. A challenge I confront with assignments is applying applicable theory to legitimate business scenarios. In particular, however, I feel this module and work have enabled me to overcome this through the considerable research required for this task. In addition, the key activities performed in this module and the in-class conversations taking place led me to realize that there is no fixed strategy for organizations to internationalize. The challenges and environments vary, and all of this should be taken into account when a firm attempts to expand. These hurdles vary according to industry, region, organizational size, external environment, and other aspects, whether cultural or social; it is obvious that there are numerous distinct problems to consider, and I did not disclose the number of issues and contexts to consider. This has enabled me to develop my analytical skills besides my capacity to appraise actual events.

9. References

Ahrens, I. and Guetz, T., 2015. Transnational Strategy Shift: The Importance of Cultural Awareness:-Case Study: IKEA.

Ahrens, I. and Guetz, T., 2015. Transnational Strategy Shift: The Importance of Cultural Awareness. Textile Management, University of Borås: The Swedish School of Textiles.

Buse, T. (2012). International Marketing Report: Fritz Kola. GRIN Verlag.

Fritz Kola, 2021b. About us, Products. Available from < https://www.fritz-kola.de/en/about-us/>. [Retrieved on 14 June 2021].

Fritz-Kola, 2021. Fritz-Kola – Eine weitere WordPress-Seite. Retrieved 14 June 2021, from https://www.fritz-kola.de/en/.

Harzing, A.W., 2009. Knowledge-sharing and social interaction within MNEs. Journal of International Business Studies, 40(5), pp.719-741.

IBEF, 2021. About Indian Economy Growth Rate & Statistics, available at: https://www.ibef.org/economy/indian-economy-overview (14 June 2021)

Krishnan, S. and Hatekar, N., 2017. Rise of the new middle class in India and its changing structure. Economic and Political Weekly, 52(22), pp.40-48.

Kukaj, H. and Ahmeti, F.B., 2016. The importance of foreign direct investments on economic development in transitional countries: a case study of Kosovo. European Scientific Journal, 12(7).

Makan, K., 2021. 5 Profitable Industries in India. Available from< https://www.frankartglobal.com/5-most-profitable-industries-in-india > . Accessed on 19th May 2020.

Narula, R. and Verbeke, A., 2015. Making internalization theory good for practice: The essence of Alan Rugman’s contributions to international business. Journal of World Business, 50(4), pp.612-622.

PRnewswire, 2020. India Energy Drink market is projected to grow at a CAGR of 9.22% during the forecast period, 2020-2025. Available from< https://www.prnewswire.com/news-releases/india-energy-drink-market-is-projected-to-grow-at-a-cagr-of-9-22-during-the-forecast-period-2020-2025–301073097.html > . Accessed on 14 June 2021

World Bank, 2020. Key Highlights of Economic Survey 2019-20. Available from< http://documents1.worldbank.org/curated/en/688761571934946384/pdf/Doing-Business-2020-Comparing-Business-Regulation-in-190-Economies.pdf > . Accessed on 14 June 2021

Zhou, W., 2017. Institutional environment, public-private hybrid forms, and entrepreneurial reinvestment in a transition economy. Journal of business venturing, 32(2), pp.197-214.

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