Introduction - Analyzing Market Entry Challenges in Russia
An international beverage firm, The Coca-Cola business sells its products in approx 200 countries. The purpose of the business is to help people live better lives, and also to rejuvenate the humanity. The Coca-Cola Corporation creates Coca-Cola, occasionally recognized as Coke, which is a carbonated soft drink (Brondoni, 2019). According to the Brand Finance Global 500 ranking for 2021, Coca-Cola is the fourth strongest brand in the world. The report will highlight coca cola international strategy for the Russian market. In 1980, Coca-Cola products made their debut on the Russian market. In 1992, Russia established its first Coca-Cola product manufacturing facilities.
Procter gamble is one of the biggest manufacturers of consumer goods. P&G is ranked 41 by Forbes on the record of the World's most reputable business. The company is also admired as the most successful company in the cosmetics and soap industry. In 1837, James Gamble and William Procter established P&G in Cincinnati, America. The company started in a small town in America and now it is operating in more than 180 countries across the world. The international strategy of the company mainly includes the acquisition of regional manufacturing companies.
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The Two MNE Coca-cola and P&G selected the Russian market to which they have internationalized which was or became HIGH-RISK and do the following analysis:
Market and the original motivations for entering that market with rationales and theories
Between the political and economic disturbances in 1991 in Russia, there was a great business opportunity for beverage companies. Coca-cola recognizes this opportunity and taps into the Russian market. The country was considered a risky place to set up a business but coca-cola enters the market to establish a long run successful business.
Coca-cola enters the market with a philosophy to be successful; the company has participated in the economic development of Russia. Coca-cola first gained the support of the government to enter the market (Bekimbetova et.al. 2021). Coca-cola sent a team to establish a proper infrastructure for the company in Moscow, and after the six-month company started its operation. The company's biggest motivator was getting into an untapped market and there are chances of high growth for the beverage industry.
P&G entered the Russian market in 1991 through joint ventures and foreign direct investment. The company was motivated to invest because the Russian market was free from the communist dictatorship and an attractive market to earn more income (Zemtsov et.al. 2019). The biggest motivator for P&G was incentive and freedom to enter into the new market.
Both companies were attracted to natural resources, a capable workforce, and a large number of consumers available in the Russian market. Both the MNE can increase their revenue by offering a variety of products to the Russian market.
The rationale for the choice of mode of entry
Coca-cola used heavy investment to enter Russia; the company enters the market with an optimistic view of the consumer market (Bartlett and Ghoshal 2017). The company also used foreign direct investment as a mode of entry into the Russian market. A stake in a foreign firm or project acquired by an entrepreneur, company, or gov't from another nation is recognized as a foreign direct investment (FDI).
The word is usually used to distinguish a company's choice to spend greatly in, or possibly purchase, a foreign business to expand its actions into an original geographic region. Investing solely in the stock of a foreign company is hardly ever referred to be "international." Foreign direct investment (FDI) is vital to international economic integration as it promote everlasting ties among economies.
Coca-cola also uses joint ventures to enter the Russian market. Third-party company formation with an existing business partner is a common strategy for breaking into new markets. By forming a joint venture, a business can leverage the resources, expertise, and brand reputation of another business (Ottman, 2017). Coca-cola made partnerships with many private companies in Russia; it also made strategic alliances with international firms such as Inchcape group and Leventis group.
P&G also used joint ventures as the first step to entering the Russian market. The company agreed with st. Petersburg University to employ local talent and understand the business environment. This was the most important step for P&G, it helped build the distribution system of the company which is the main element of P&G's success.
Alan Rugman’s matrix on Country specific advantages vs. firm-specific advantages
& Alan Rugman's matrix focuses on the internationalization of MNE for control and guidance which is also known as internalization theory. From the intellectual perspective, Rugman developed a wide range of knowledge for the productivity of international business. It's common knowledge that the elements that give MNEs their competitive edge on the result of the interplay between two groups of factors. Firm-specific advantages, or competitive advantages that cannot be gained by any other means, are the result of several variables, the first of which are those that arise from within the company itself (FSAs). The second category consists of so-called "country-specific advantages," which are external to the firm and provide complementary assets for the discovery and/or development of FSAs in international markets (CSAs). Rugman has devised a simple FSA/CSA framework to examine the actions and results of MNEs based on the characteristics of FSAs and CSAs and their interactions.
The classic FSA/CSA matrix can variously be used to explain, predict, or prescribe the optimal organization of an MNE’s international operations.
CSA FSA
Strong&
Weak&
Strong&
Brand equity Global presence
Pricing strategy Health-related controversies&
Weak&
Inflation& Corruption& FDI
The international business strategy followed by each MNE
It is a strategic method used by Coca-cola for gaining a competitive advantage in the international market. The company produced unique products based on the demand of the purchasers of each country. Coca-cola offers different products under the same brand to meet the demand of its Russian purchaser (Renz 2016).
Global strategy: Coca-cola also used a global strategy in this company focused on international marketing strategies and at the same time considered localization. Coca-cola created a brand image in the local market of many countries by using this international business strategy.
Distribution strategy
The distribution channel of P&G remained the main strength of the company in the international market. But in Russia after the fall down of the Soviet Union, there was no distribution system in Eastern Europe (Gurova et.al. 2015). The company created its distribution system and called it the McVan framework.
Porter’s diamond
It is a strategic tool developed by Michael porter under the name of national competitive theory. It is used to understand how a company can build a competitive advantage for global success and development.
The planned representation is formed similarly to a diamond as well as contains the element which helps to determine competitiveness in a specified country or industry. All the elements of the model are interrelated and connected for the strategy building in the case companies, these elements are:
Firm Strategy, Structure, and Rivalry;
Factor Conditions;
Demand Conditions;
Related and Supporting Industries
Figure 1 porter's diamond
The strategic importance of the market under analysis in the overall activity and performance of the MNE
Coca-Cola lost 190 million Euros due to the termination of transaction in Russia. Coca-Cola HBC's losses from discontinue business of goods in Russia in the first quarter of the 2022 amounted to 190 million Euros (Apokin et.al. 2015). The soda manufacturer announces this as division of its monetary statement available on August 11, 2022. The coca cola expect more losses in the second half of the year; these losses are expected to amount to 82 million Euros. The reason of this is the stock of goods is totally exhausted and for the second half of the year production of drinks is not scheduled.
Coca-Cola HBC also shows a reduction in trade in the Federation of Russia by 17-19% owing to the reduction of stocks. The company has performing poorly in the Russia from the last few time and it also reduced work force by lay off employees of Russia (Kulikov, and Minakov, 2019). The company stopped its operation in Russia because of Russia Ukraine war. Chernogolovka Company is planning to acquire more than 50 percent of market share after the Pepsi and coca cola left the market. The soft drinks marketplace in Russia is predictable at approximately $9 billion. Within Russia, the company may not be capable to continue its decreased scale of operations at present levels because of sanctions and counter-sanctions, financial, currency or imbursement controls, limits on access to monetary institutions providing shipping challenges.
March 7 2022, the company announced it was considerably dropping its actives in Russia and its collection of products to center on basic fitness, cleanliness, and individual care substance. The company also reduced new capital investment in the Russia, it significantly withdrawn money from promotional activities including advertisement by media.
P&G employs 2,500 people in Russia at two production facilities with an estimated value of $250 million. According to the corporation, the war is having an effect on its Russian suppliers, distributors, and retail consumers, which could have an impact on business operations and product sales (Medvedev, 2015). According to the corporation, less than 2% of net assets and less than 1% of net profits are attributable to Russia.
Market is or has become, high-risk and the different types of risk that contributed to that situation
The market is become risky mainly because of political risk. The government did not support coca cola in patent infringement cases and other things. Another major risk in the market is worker satisfaction; the employees at coca cola were not satisfied with the wages given by the company.
Another major risk factor emerged after the Russia-Ukraine war are that both companies are facing heavy sections from other countries in the world.
The following are major risks of the Russian market:
Political risk: the Russian government is very partial and didn't support the company; coca cola also faced trouble related to protecting its patent as an intellectual property right.
Economic risk: High inflation is one of the main economic risks of the Russian market. It was very high when coca cola entered the market. At present, Russia reached almost 12 percent in the rate of inflation (Hillemann and Gestrin, 2016).
Operational risk: These are the main risks in all risks faced by both companies. Russia does not have a proper transportation facility and distribution network for the company. Coca-cola invested and tried to build an infrastructure for the production of soft drinks.
MNE had to change its organizational design
Yes, coca-cola has made changes in its organizational design to stay in the Russian marketplace. The company has done major changes in operating units, global category leads, and the priorities of its employees (Rugman and Verbeke, 2017). The company had introduced many new operating units to cover the main two regions that are Moscow and St. Petersen. Coca-cola focused on the categories which are liked by the target market, it also launched its local brand to deal with the situation and increase its revenue.
P&G also made strategic changes in its overall business practices but the major changes are made in the distribution system of the company. P&G's distribution network continues to be its major competitive advantage in the global market. But there was no distribution network in Eastern Europe after the Soviet Union collapsed in Russia. The business developed its distribution architecture, which it dubbed the McVan framework.
Information about the entrepreneur(s)
Coca-Cola employs this tactic strategically to obtain an edge over rivals on the global market. Based on the preferences of the consumers in each nation, the corporation created distinctive items. Coca-Cola provides a variety of goods under a single brand to satisfy the needs of its Russian customers (SERGI, 2018). Coca-Cola similarly employed a global approach in this business, focusing on global marketing tactics while also taking localization into account. Through the use of this international business approach, Coca-Cola established a brand identity in the domestic markets of numerous nations.
The P&G Company’s primary competitive advantage on the global market continues to be its distribution network. Eastern Europe has no distribution system in Russia after the collapse of the Soviet Union. The McVan framework was the name given to the company's distribution system.
Conclusion
There are two MNE Coca-cola and P&G chosen for the Russian market they've stepped up internationalization, which was HIGH-RISK. Coca-cola and Procter & Gamble entered the Russian market at the same time that is post-communist time. At this time the market was very risky and involved high turbulence in the operating environment. Coca-cola and P&G used mitigation and preventive strategy while entering into this heavy-risk market. Both the company tap into the market in 1991, and they faced similar difficulties related to the high-risk Russian market. The main risk faced by both companies is political risk, and operational risk because of bad infrastructure. Companies faced very problems while dealing with the Russian market, P&G used joint ventures to enter the market and Coca-cola used foreign direct investment as the first step to enter the market. Both companies focus on producing goods in Russia, and for the same reason, they have established their regional subsidiaries.
The high-risk situations could have been foreseen and measures
Both companies had known the high-risk situation in the Russian market and they tried to mitigate this risk. Both companies used specific entry modes and prevention strategies. The companies used different strategies to deal with the high-risk situation including a defensive strategy, global strategy, differentiation strategy, and distribution strategy. The defensive strategy included the gaining support of the government and dealing with the very problem legally.
The impact of the entrepreneur managing the MNE in the host market
There was a positive collision on the capitalist organization the MNE in Russia. The moment when the high-risk situations were put in place was a great opportunity for the company as well as different stakeholders. The strategic changes made by both companies had a positive impact on society. Both companies entered the market with the objective of long-term success, so they invested heavily in the Russian economy. This investment is very good for society as it will improve the GDP of the country. Both companies benefited local firms as well. P&G developed McVan with local companies to make its distribution system strong. Coca-cola made a contract with a local firm for producing bottles. All the strategies followed by the companies have benefited their stakeholder, but with time the company started facing same risk again.
References
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