1.0. Market Entry Strategy
1.1. Theory
According to the resources-based view (RBV), every entry mode plays a significant role for multinational corporations (MNCs) in order to enter the foreign markets with the intention of making use of the capabilities or resources in the host country (Ekeledo & Sivakumar, 2004). Foreign Direct Investment (FDI) involves Wholly Owned Subsidiary (Greenfield and Acquisition) and Joint Venture (minority, 50%/50%, and majority) (Bitzenis, 2012). According to information provided by the KPMG (2013), there are no minimum requirement of ownership and share of foreign equity investment in any sector. In order for Kraft to enter the unfamiliar soft drinks industry and take advantages to the natural resources in the Pakistan, the entry mode that recommended to the Kraft group is Joint Venture (JV). JV is defined as the collaboration by two or more entities, which devote their resources for a common goal (Campbell, 2009). Vivek and Rickey (2013) study the three major theoretical lenses to understand alliances’ performance in transactional cost, contingency relationship and perspectives. They will share profits, business risk, cost and looses, and aiming for a long-term cooperation with a common goal (Bitzenis, 2012). 1.2. Justifications The recommended JV partner in Pakistan is Mehran Bottlers (PVT) limited. It produces the national soft drink (Pakola) from year 1950 (MBL, 2015). It also won the Export Brands of the year in 2006 Award in Carbonated Drinks Category (MBL, 2015). According to its corporate profile (2015), the company’s products have meet Quality Food Safety and Environment Standards as well as manufactured under strict CGMP and hygiene controls. Mehran Bottlers has well trained people with full experience in the technical side (MBL, 2015). Therefore, 50%(Kraft), 50%( Mehran Bottlers) JV is recommended. Kraft is recommended to provide capital, whereas Mehran Bottlers provides technology. Hence, both Kraft and Mehran Bottlers have equal control and cash flow. The place that is chosen for Kraft to set up the plant with Mehran Bottlers is Rawalpindi, which is near to the capital of Pakistan - Islamabad. As Rawalpindi is near to Islamabad, it forms a huge consumer market with the combination of population is 3.5 million (South China Morning Post, 2015). It is a huge soft drinks market for Kraft and Mehran Bottlers. Also, the huge combination of population in Rawalpindi and Islamabad provides sufficient manpower for the new factory. Hence, it will reduce the concern on insufficient workers for the new factories. The external environment influences the implementation of companies’ strategies (Lu & Hébert, 2005). The reason of choosing Mehran Bottlers as JV partner is because of the lack of knowledge about the Pakistan markets and culture. Kraft is an US company, who has total different market and culture with Pakistanis. The lack of knowledge about the information as well as the cultural differences about Pakistan might lead to have misunderstanding or even …show more content…
Limitations
There are so many advantages for Kraft to receive from Mehran Bottlers in order to enter soft drinks industry in Pakistan. However, there are some limitations for JV strategy. Thus, Kraft should take into account in the planning, consideration and preparation before entering Pakistan and having partnership with local company - Mehran Bottlers.
First of all, it is high chance that the two partners will have argument over control as each of them has used to have control over their companies. To explain this, different directors from both companies have to make decisions about how to run the venture. There is high chance that internal conflict will happen over two partners. Therefore, more time consuming in terms of negotiation on different perspective.
Besides that, there is high chance that the cultural war will happen between two partners. Moat companies are proud about their culture built in their company. However, when two companies’ culture are merged into one enterprise, company pride will form arguments and conflict about using one company’s systems over another. For example, U.S is more likely in low-context culture, whereas Pakistan is high-context culture. The directors from Kraft will be straight spoken when it comes to meeting, whereas the directors from Mehran Bottlers will communicate with unspoken context. Hence, there will be misunderstanding or conflict happened during the meeting due to the different opinion about the
1.1. Theory
According to the resources-based view (RBV), every entry mode plays a significant role for multinational corporations (MNCs) in order to enter the foreign markets with the intention of making use of the capabilities or resources in the host country (Ekeledo & Sivakumar, 2004). Foreign Direct Investment (FDI) involves Wholly Owned Subsidiary (Greenfield and Acquisition) and Joint Venture (minority, 50%/50%, and majority) (Bitzenis, 2012). According to information provided by the KPMG (2013), there are no minimum requirement of ownership and share of foreign equity investment in any sector. In order for Kraft to enter the unfamiliar soft drinks industry and take advantages to the natural resources in the Pakistan, the entry mode that recommended to the Kraft group is Joint Venture (JV). JV is defined as the collaboration by two or more entities, which devote their resources for a common goal (Campbell, 2009). Vivek and Rickey (2013) study the three major theoretical lenses to understand alliances’ performance in transactional cost, contingency relationship and perspectives. They will share profits, business risk, cost and looses, and aiming for a long-term cooperation with a common goal (Bitzenis, 2012). 1.2. Justifications The recommended JV partner in Pakistan is Mehran Bottlers (PVT) limited. It produces the national soft drink (Pakola) from year 1950 (MBL, 2015). It also won the Export Brands of the year in 2006 Award in Carbonated Drinks Category (MBL, 2015). According to its corporate profile (2015), the company’s products have meet Quality Food Safety and Environment Standards as well as manufactured under strict CGMP and hygiene controls. Mehran Bottlers has well trained people with full experience in the technical side (MBL, 2015). Therefore, 50%(Kraft), 50%( Mehran Bottlers) JV is recommended. Kraft is recommended to provide capital, whereas Mehran Bottlers provides technology. Hence, both Kraft and Mehran Bottlers have equal control and cash flow. The place that is chosen for Kraft to set up the plant with Mehran Bottlers is Rawalpindi, which is near to the capital of Pakistan - Islamabad. As Rawalpindi is near to Islamabad, it forms a huge consumer market with the combination of population is 3.5 million (South China Morning Post, 2015). It is a huge soft drinks market for Kraft and Mehran Bottlers. Also, the huge combination of population in Rawalpindi and Islamabad provides sufficient manpower for the new factory. Hence, it will reduce the concern on insufficient workers for the new factories. The external environment influences the implementation of companies’ strategies (Lu & Hébert, 2005). The reason of choosing Mehran Bottlers as JV partner is because of the lack of knowledge about the Pakistan markets and culture. Kraft is an US company, who has total different market and culture with Pakistanis. The lack of knowledge about the information as well as the cultural differences about Pakistan might lead to have misunderstanding or even …show more content…
Limitations
There are so many advantages for Kraft to receive from Mehran Bottlers in order to enter soft drinks industry in Pakistan. However, there are some limitations for JV strategy. Thus, Kraft should take into account in the planning, consideration and preparation before entering Pakistan and having partnership with local company - Mehran Bottlers.
First of all, it is high chance that the two partners will have argument over control as each of them has used to have control over their companies. To explain this, different directors from both companies have to make decisions about how to run the venture. There is high chance that internal conflict will happen over two partners. Therefore, more time consuming in terms of negotiation on different perspective.
Besides that, there is high chance that the cultural war will happen between two partners. Moat companies are proud about their culture built in their company. However, when two companies’ culture are merged into one enterprise, company pride will form arguments and conflict about using one company’s systems over another. For example, U.S is more likely in low-context culture, whereas Pakistan is high-context culture. The directors from Kraft will be straight spoken when it comes to meeting, whereas the directors from Mehran Bottlers will communicate with unspoken context. Hence, there will be misunderstanding or conflict happened during the meeting due to the different opinion about the