Product plan to Cuba
Introduction
The world is globalizing and so many businesses are globalizing by expanding their operations to other countries. In this case, the business must have a proper and well enabling selection process that will ensure that the company is able to select the product which will enable it to meet the international market goals. Therefore the business must make some considerations before expanding their businesses to other countries. Diplomatic relations is one of the considerations that are usually made so as to ensure that there are signed treaties with the foreign country so as to carry out business. Environmental regulations are another consideration that foreign investors consider so as to be able to plan on the way to overcome these regulations. Import and export regulations are also elements to be considered so as to effectively plan on the exit and entry of the products. There are two approaches that a company may use that is the systematic approach where the selection of the product depends on the overall demand in the market. The reactive approach is used when selecting a product depending on the instant market need. The coca cola company is the global biggest company that produces drinks controls more than half of the worldwide carbonated soft drinks.
The target market for the introduction of Coca-Cola into Cuba amidst the current embargo regulations change is strategically advantageous (Davis 2016). The company has a well-established product in most world markets. Previous markets have led to marketing challenges and solutions to social and cultural issues that must be met for our marketing strategy to succeed. This paper, therefore, will discuss the internal and external environment, the entry mode of selection, the international function and the analysis of the cost benefit.
Internal Environment
The internal environment is essential in any business as it represents the factors that affect a business from within, this may include the finances, the human resources and the management in general. All these factors determine the strength or the weakness of the business. We have control over internal factors and have less or no control over external factors to the product introduced into the international market. The preparation of the market study involves four aspects, planning, leading, organizing, implementing and controlling.
Planning:
Planning for a new market involves making decisions on similar markets where success and setbacks have to be considered. The product manufacturing and distribution (M&D) processes are efficient for a U. S. market, hence Manufacturing processes will remain in the U.S initially until market support and security of brand can be maintained and limited to reduce risk in the emerging market. Future manufacturing processes can be considered upon the stability of the investing opportunity. Future manufacturing processes will be in a step approach as the market proves support to the product and can sustain stability.
The target market has the probability of a new direct market distribution; some products may be distributed into the target market by a third party distributor or direct ship. Establishing a direct market with the country may involve political permissions on tariffs and taxation and this will be done by obtaining all information to third party distribution as it exists and deciding whether to incorporate or directly compete with third party companies in the cost comparison.
Political and social planning will be addressed with legal and governmental systems to allow the export of the product to the region. Political cost determination on taxation requirements and fees to the import of goods for sale is required for a cost analysis to determine if direct product import is cost effective. A cooperative political environment is essential for direct U.S. export / import, hence planning can be considered for third party market export if there is support from the political environment.
Product branding is worldwide and acceptance into the new market will be based on social and cultural perceptions of the U.S feelings and branding of our product as a world brand not just as a US brand. Marketing and Distribution processes will address the export of the product to test markets as the market allows and it will as well focus on the Market success for the acceptance of social branding and product distribution processes which will be the indicator for full market import.
Leading:
An office will be established to coordinate and represent the executives and stockholders. A Vice president and a board of marketing sales, market public relations liaison, financial affairs, legal affairs and M&D will be represented to establish a guiding foundation for the new market and report to the executive board. This office will have the responsibilities, interests of the company and the shareholders at hand.
Organizing:
Internal departments will be established for the new market to manage external distribution, legal, political, and social environments. Manufacturing and distribution (M&D) will remain organic and product volume can be absorbed for an initial market size until established. Future M&D processes may be moved locally in future as market and political barriers supports. New organic sub-departments will be established within normal departments to focus on target market needs, marketing solutions, political and social considerations, norms and legal issues as they arise.
A separate financial department will be established and develop financial channels and banking for monetary exchange, credit issues, and debt collection. Cuba may not have an exchange agreement direct to the U.S. and third party system may have to be established. World banking systems or third party exchange agreements may have to be arranged. Separate balance sheets are to be maintained for the target market and consolidated by the leading financial division upon review.
Implementing:
A two-tier approach will be accomplished for entry into the new market. Tier one will be limited to a limited pricing strategy, marketing approach, and shipment that can be established through drop ship containers or third party connections and with limited local liaison company establishment. Local team representatives will be established in the country to liaison with and to the governmental system and provide guidance for navigating regulation hurdles and barriers to local governmental agencies. The target market is governmentally limited in access to electronic communication and will be subject to limitation. Marketing will be implemented locally but limited by governmental barriers; local advertising will generally be through primitive signage art and postings will be a primary requirement. Financial agreements will be established as regulation permits.
Tier Two approach will address a more open market approach as assets and an opportunity presents security to product and production. Establishment of a local office for marketing, manufacture, and distribution is required as permits are granted by the countries government. Establishment of manufacturing process plant and direct ship of product in concentrated form to produce locally as market and political regulation permits. A future local distribution branch will also be established to provide local distribution directly to wholesale consumer distributors as market and governmental permits are accepted.
Controlling:
The office established for the new market management will provide responsible reporting regarding the progress of achievement of company objectives and goals. Reporting factors include:
- Establish a Plan of Actions and Milestones (POA&M).
- Maintain branding through marketing consistent with current company objectives.
- Efficiency and competence of operations.
- Reliability of monetary reporting.
- Acquiescence with appropriate laws and code of practice.
This office will monitor the quality of performance over time, direct adjustments, and report to the executive office monthly for the first six months until six months of product distribution in the new market is established. Reporting may be reduced to quarterly as the executive office permits.
External environment
Political and legal environment
Coca-Cola Company being the leading soft drink producers’ worldwide, their sales must oblige to the rules as well as the regulations of that given country in which they are selling their products. For instance, some of these countries have some policies that limit the sale of the coca cola products. For instance, Canada has a policy that states that the maximum amount of caffeine that is permitted in a soft drink can only amount to 200ppm. Hence the company must oblige to the country’s rules and regulations so as to be able to sell their products. Thus, Coca-Cola has been unable to trade their products officially to two countries worldwide that are Cuba and North Korea due to the legal trade restrictions (Davis 2016). Thus according to the coca cola company, if their products are to be sold in these regions they must be able to overcome all these restrictions so that they can be able to export the products to Cuba. However, if the products are available in these places, then it means that the products are being smuggled without authorization (Hnatko et al 2014).
Economic segment
According to the research that has been carried out, the rate of inflation since 2006-2012, there has been a higher rate of food and beverage inflation in the United States. This has also been evident in Cuba and this has translated into customers having less money to dispose and to spend on the purchase of these products. This is also accompanied by an increase in the transportation cost globally due to the fluctuations in the oil prices hence the cost of transporting the products by the company will be higher. As a result of the economic instability, the profit margins have reduced due to the increment in the cost that is associated with doing business in Cuba. The company is looking forward on cost saving operations that would enable the saving of finances that would be used during the economic crises. Therefore in order to increase their revenue, the company is required to sell their products to those new geographical regions that they have not been officially supplying to and also they should also be able to expand on the production of their products so as to meet the consumers changing preferences and conduct (Hnatko et al 2014).
Demographic environment
Coca cola is non-alcoholic and therefore it targets on a wide range of consumers across all age groups with the largest group of the target being the teenagers and the middle-aged adults. According to the demographics in 2013, the worldwide population target lies between the 15-54 years hence the company is focusing on the largest population in the world similar Cuba (World Demographics Profile 2013). These potential customers of the coca cola products are viewed as a suitable strategy of the Company towards a sustainable growth.
Social-cultural environment
Currently, most of the people are looking forward to healthy lifestyles due to the increase in the health awareness that has led to social cohesion towards healthy living. To be specific, the consumption of the soft drinks has been linked to the cause of diabetes and this has resulted to the frightening off of the consumers as they move towards healthier alternatives (Hnatko et al 2014). This has thus resulted to the Coca-Cola Company to lose the market as the demand for their products have reduced as the customers are substituting the soft drink with healthier beverages. They have thus developed products that they have innovated with an intention of meeting the healthy needs of the people such as the diet coke and the zero coke so as to put up with their market share.
Technological environment
The company has been increasingly been using technological platforms so as to create awareness to the people and to advertise all their products. Through the use of these advertising platforms the company has been able to expose their brands to a wide population effectively and efficiently.
With this, the company has developed the total quality that can be able to be accepted in foreign countries hence allowing the industry to be efficient in their operations and their supply chain management. However the access of the internet is relatively expensive due to the restrictions hence the Coca-Cola should ensure that they establish a good way to create awareness in Cuba and the technological development to adopt (Lobst 2016).
Competitor environment
The Coca-Cola Company is facing a lot of competition globally and this, therefore, calls for the proper business planning of the company so as to meet their objective. The company’s main goal is to continue with the sales of its diet carbonated beverage in developed markets. This is to mean that the company will be able to introduce the product in Cuba since there is the increase in the demand for the carbonated beverages in the emerging markets (Hnatko et al 2014). Also as the arising issue of health and the wellness is increasingly shaping the soft drinks industries, the Coca-Cola organization is working hard to ensure that they increase the production of the non-carbonated beverages so as to increase the sales in the market by conquering the other companies. The company, therefore, has to strengthen their brand loyalty, invention and expansion of their products into other product categories in the beverage industry.
Entry Mode Selection
Distributions channels are basically run by the State. The retail network is established into three primary channels Liberta (ration system), Government owned chains (non-ration) and Very small private retailers (locally made product vendors). Licensing with the US and Cuban government is critical and once obtained, process controls are organized with Cuba’s Ministry of Trade. Internal channels of Logistics are much undeveloped in terms of abilities.
Since Cuba has such a harsh business climate, care should be taken for how costs are returned to the company. Lobster stated that “Cuban companies are state run and the government retains majority ownership in the holding company” (Periu 2015). The average people in Cuba earn about $20 per month not leaving much for luxury items and have a “resolver” as American Express explains it in their open forum website (Periu, 2015). The black market is alive and thriving and demand for luxury items is lower than some. However, a market will exist and options are available for entry into the market.
On 26th of January 2016, the New York Times reported that the revised rules for export will allow banks direct financing export of any product. US banks are sanctioned to “receive, process and provide value to” US dollar “financial instruments” existing indirectly by a Cuban bank that is, by a third-country bank (Lexology, 2016) Currently we will have to set up a correspondent account with Stone gate for monetary transfer of funding in compliance with current regulations and Cuba.
International Operations is a planned and progressive endeavor in the new market. Initially, a complete all rounded product will ship from a third world plant which will be authorized to be received in Cuba upon acceptance of payment.
Distribution and marketing will be limited to government-controlled distributors in Havana (Tracy, 2016). As sanctions and restrictions are changed, if advantages exist, future holdings and joint ventures could be obtained in local bottling and distributions plants.
International functions
As hotel and tourist industry breaks the barriers into Cuba, product availability will be a factor in providing the experience to consumers. The industry can cater to international travelers who have accustomed to safe and familiar products such as Coke a cola product. Operationally, we can provide safe and familiar product placement within the hotel industry by providing a worldwide known product. Operations will be focused on the input of a distribution chain with well-known hotel chains such as Marriott, Ibis, and Shangri-Labor and cruise industry partners. These operations are established with restaurant and bar provisions and can be a lucrative investment for initial product distribution. As these partners are world widely known and established financing and contracting can be garnered with international agreements and distributions channels will be two tiered.
Initial input of materials and sustainability consumer goods will be established locally for the hotel chains and duty-free areas the hotel's service. Airport and an international site can be established with similar customs agreements to other countries we service allowing for the unique regulations Cuba might offer. The second tier outside customs and duty-free distribution channels can be established separately as described in future operations goals. Hotel chains may manage product internally or as operations and logistics channels are established with the state government be developed for normal deliveries as established with partners (Czinkota 2007).
Financing will be approached from the most efficient means available while the internal product distribution with international partners will be established in tier one. This is a normal distribution and state regulations and financing can be resolved with our Southern American subsidiary. However, direct distributions will be more complex.
Cost-benefit discussion
There should be implementation of startup and establishment of carries inherent risk and the potential to produce long-term profits. Teams established will have to evaluate the cost of capital and the inherent risk of asset loss. Establishing an early foothold with consumer base is a strategic move to gain market. The tourist industry is an early and new market to gain an initial growth potential with the added bonus for business to resist change in this limited market. The tourism and hotel industry will establish a market for initial product placement.
The initial goal is to establish contracting and shipping channels for the products within the industry. Startup cost assesses to host country and initial product distributions introduction will carry initial cost and risk. Startup distribution can be established at direct cost for the hotel industry to provide product to consumers of the tourist industry. The second phase is to create distribution channels to startup for direct cost introduction as channels are approved for public consumption distribution. Phase three will be for direct market distribution as bottling facilities are established either through Greenfield establishments or acquisitions. Cost increases and risk increases with Greenfield established enterprises, depending on state-run regulation and requirements. Acquisitions of bottling manufacturing will have to be assessed for upgrades and new modern equipment.
In Cuba, land and buildings are not considered assets of the corporations. Established markets have a minimal approach to modern facilities and Greenfield establishments as compared to new acquisitions hence this may not be economical cost saving. Greenfield investments have a higher risk and loss ratio in the initial phase of entry.
Exporting through partnerships is desired in the first phase, and future joint ventures may produce possible channels as relations with the US and Cuba is established.
Distributions channels are similar to what is already established in that region of the world. Cost increases will be dependent on the state’s regulations and facilitate fees required to pass customs processes and agreements. Distribution channels cost for planning and establishing reliable channels of shipping and receiving facilities is paramount to stability and customer satisfaction. The largest benefit is long term market share in establishing a foothold in the country before the competition. Once distribution channels are established and stabilized the strategic advantage is gained and resistance to change. The initial lack of competition with major U.S. branding will gain advantage long term benefits.
Reference
"World Demographics Profile 2013." World Demographics Profile 2013. N.p., n.d. Web. 16 Mar. 2014. Retrieved from: http://www.indexmundi.com/world/demographics_profile.html
Davis, J. (2016). U.S. Eases Restrictions on Financing Exports to Cuba. Nytimes.com. Retrieved 10 July 2016, from http://www.nytimes.com/2016/01/27/world/americas/cuba-us-trade-embargo-exports.html?_r=0
Czinkota, M. R., & A, R. I. (2007). International marketing. United States: Thompson.
Hill, Charles W.L. (2015). International business: competing in the global marketplace (10th ed.). New York, NY: McGraw-Hill.
Hnatko C, Sidhu R & zhang L. (2014). The Coca-Cola Company: case synopsis.
Lexology.com. (2016). Partial Opening of US Financial System to Cuba and Easing of Other Trade Restrictions | Lexology. Retrieved 10 July 2016, from http://www.lexology.com/library/detail.aspx?g=c08e7906-a981-4eb0-913f-712cafb454f7
Lobst M. (2016). Dream of doing business with Cuba may be a nightmare | LVB. Lehigh Valley Business. Retrieved 27 July 2016, from http://www.lvb.com/article/20151012/LVB01/310089994/dream-of-doing-business-with-cuba-may-be-a-nightmare
Periu, M. (2015). What you should know about doing business with Cuba. Retrieved 10 July 2016, from https://www.americanexpress.com/us/small-business/openforum/articles/evaluate-cuba-opportunity/
Tracy, F. (2016). U.S., Cuban Banks Agree to Form Financial Link. WSJ. Retrieved 10 July 2016, from http://www.wsj.com/articles/u-s-cuban-banks-agree-to-form-financial-link-1437554458
