Foreign Market Assessment and Nova Energy Entry Business Plan

Executive Summary

The soft drinks market is one of the food market segments, which occupies a significant place in terms of production among other segments of this market. The demand for soft drinks, especially in hot countries, is increased. This fact contributes to a more successful and effective introduction of foreign products. Currently, the soft drink industry in Argentina generates 259,204.0 ARS million annually. The company should sell one pallet for 15 ARS medium customers and 18 ARS to large customers to make a revenue of 233737.4 ARS million. Therefore, the company should concentrate on the juice sector, which is expected to grow more than the other two target sectors in the next five years.

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However, this does not mean that the company should neglect any target market considering that they all have a significant market share which can help further the goals and objectives of the company. In the context of Nova Energy Drink, this organization claims to provide health benefits to the local population as well. Subsequently, the potential regulatory barrier for the Energy Drink is that it is essential to get it approved by the European Food Safety Authority. In order to achieve this goal, the company’s representatives should make appropriate requests and submit documents with the purpose of conducting the tests advised by the authorities.

For example, Nova Energy Ltd. should utilize its present staff in the USA to deal with the initial steps of the internationalization of Brazil and Argentina. For example, building up the main contacts in the nation, dealing with sales representatives, and enrolling the brand through Argentinian and Brazilian INPI should be the priority directions in terms of entering a foreign market. Nova Energy Ltd. ought to likewise employ a legal advisor in Brazil and Argentina, under a period retainer contract, to draft the contracts to be marked amongst Nova Energy Ltd. and a neighborhood accomplice for circulation. Maintaining the relevance and carrying out an active policy is extremely necessary for the company after investing to cultivate income.

Some of the essential ways through which it can create and manage profits include changing operating procedures to generate more sales and reduce operating costs, staying visible, as well as improving the marketing bar to get to more customers. At the same time, appealing to customers is vital for the company to win over customers as it contributes to its growth and expansion. The company can identify buyers by purchasing through three factors that include spendthrifts who do not feel pain purchasing large quantities, tightwads who are hurt by much spending, and average spenders who spend when necessary and do not mind when spending responsibly.

The Nova Company is expected to participate in launching eco-friendly initiatives, donating a portion of the income for noble causes, and attempting to fuse social duty into the general business system. Thus, assembling a positive association with clients and their groups can prompt expanded deals and raise benefits. The decision of an entry mode, it should rely upon two measurements: the investment intensity and ownership. Because of the high venture required for Nova Energy to have full responsibility and ownership in Brazil and Argentina, it is not possible to enter the market through a subsidiary.

Introduction

Numerous organizations aim to enter foreign markets due to emerging operational opportunities by developing international operations. In order to succeed in internationalization, business owners usually take into consideration effective strategies, structures, and efficient management. When it comes to researchers, view internationalization as the process that helps firms extend their operations from local to international level through the provision of products and services to the international markets. For instance, a variety of local organizations partner with other non-competitive firms from other countries to promote their products in new markets in both countries (Basaez et al. 2020). Some companies have consolidated their production processes in their home countries and put the effort into exporting their products and services to identified markets. Other firms have taken the risk of directly investing in foreign markets. Currently, the existence of improved technology, availability of materials, and affordable labor may encourage the company to directly invest in a given economy and export their products to new markets. However, this goal can only be achieved with the help of appropriate business visions, resource capacity, and market conditions.

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Internationalization considerably contributes to the firm’s awareness of the direct and indirect influence of international transactions on their failure. Moreover, this process is beneficial for establishing and conducting transactions with other countries. At the same time, companies that are involved in international transactions may fail due to differences in the market economies that are influenced by different factors. When an organization decides to have direct investments in a foreign country without necessarily investing in the home country, the enterprise might be exposed to failure in case unplanned forces erupt. For instance, civil wars and calamities have exerted huge losses to foreign investments in nations experiencing wars and calamities, such as earthquakes, storms, and drastic changes in harsh weather conditions. Apart from this, a drastic loss in the strength of foreign currency against local currency results in huge financial losses to the business.

With the recovery of the economy towards the end of 2019 as well as a fall in the overall inflation, the demand for soft drinks in Argentina is expected to rise significantly. According to the current market statistics, the current demand for soft drinks stands at 13,782.5 million liters annually (Alberi & Moralli, 2020). However, the demand will increase in 2020 to 14,110.3 million liters, 14,408.7 million liters in 2021, 14,684.1 liters in 2022, and 14,933.7 in 2023. At the same time, carbonates lead sales in the soft drink industry in the country as it sells 5,045.3 million liters, sports drinks come fifth with 63.7 million liters, energy drinks follow with 21.3 million liters, and finally, RTD sells 0.5 million liters annually (Alberi & Moralli, 2020). In the next few years, carbonates are predicted to increase by 1.8 % CAGR, concentrates by 2.5 % CAGR, a juice by 4.3 % CAGR, RTD tea by 6.0 % CAGR, energy drinks reduced by 11.6 % CAGR and sports drinks increase by 6.8%.

Over the past few years, the soft drinks market has demonstrated high and steady growth rates. This success is associated with the recent trend of shifting consumer preferences towards drinks that are healthier than the usual soda, namely, mineral water and juices. Articles and programs that present the issue of consumption of high-quality soft drinks as a necessary condition for a long and healthy life are increasingly found in the mass media. If earlier mineral water was bought mainly for the purpose of quenching sudden thirst, now it is increasingly being chosen as the main drink at home, at work, when doing sports, used for cooking at home, and in suburban areas.

Market segmentation base is comprised of the factors that are used to overall market up into individual market segments. The significant segmenting base in the Argentinian market includes behavioral segmentation, demographic segmentation, and benefit segmentation. For instance, behavioral segmentation focuses on grouping consumers based on their relationship with the company or product. For example, there are those companies that are loyal to other consumable plastic “film” producing companies in the country and cannot use any other product, and there are light users who buy from time to time and heavy users who buy his product frequently.

In turn, benefit segmentation is based on the benefits that the consumer gets from the products, such as value or status. For example, there are those who want to get value for their money and will buy high-quality products irrespective of the cost incurred. At the same time, demographic segmentation is based on identifiable population characteristics such as age or occupation, or industry. For example, there are those companies that have invested in the sports industry and provide energy drinks and sports drinks and those that have invested in bottled water that is used across all industries.

Internationalization Methods

There is a variety of different methods of internationalization that depend on the products and services offered, as well as the entire working environment where certain organizations operate. The most widely used ones in Argentina are export methods, non-equity-based, and equity-based methods (Basaez et al. 2020). However, there are numerous other local internationalization methods that can be successfully used under the circumstances of unstable market trends.

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Export method

Many organizations prefer exporting their products to foreign markets in case the home production is more economical compared to production in a foreign country. If production policies imposed on foreign industries by the government seem to be a burden to the business, then business owners usually prefer producing in their home country and exporting to the targeted market. It is essential to note that the export-based method of internationalization is divided into direct and indirect export. In turn, conforming houses act on behalf of buyers and make connections between the buyer and the seller based on a commission by both parties and payment made by the end-user. Finally, buying houses connects buyers to the sellers by seeking the seller offering particular products that match the buyer’s specifications.

When it comes to the direct export method, the company is fully involved in the transportation and distribution of its products into the targeted global market. Firstly, the organization uses market research by monitoring development and competition existing in the market. Secondly, this company selects the best marketing strategy used to remain operational in the market (Alberio & Molarri, 2020). The firm interacts directly with the consumers of its product, thereby creating positive producer-consumer relations.

Non-Equity-Based Methods of Internationalization

Some corporations have opted for non-equity-based methods of internationalization, which include licensing and franchising. Licensing can be described as the process when a corporation gets into an agreement with the local firm to get special permission to use its patent or copyright at a fee. The main goal of this activity is to push the company’s products into the market for a certain period of time (Liu & Atuahene-Gima, 2018). Licensing provides the opportunity to access markets that have restrictions in the context of foreign products and operate under minimal chances of risk occurrence. However, if the corporation is licensed by an incompetent foreign partner, the business is at risk of facing considerable financial losses. Some business owners cooperate with franchisors with the purpose of getting a license privilege of carrying business in a global market while seeking assistance in organizing, merchandising, training, and marketing products. Franchising gives the company the opportunity to avoid unnecessary costs and risks that may be caused by opening its own market. In addition, the organization may have the advantage of working in an existing environment filled with a variety of opportunities.

At the same time, expanding the business in a foreign market is usually perceived as a less costly method of business compared to operating in the local market. However, the business is not entitled to control quality since it operates under another firm. In case of inconsistency in the quality of products of the franchiser, the company risks suffering from financial losses and losses of potential customers (Tolstoy et al., 2020). In this way, the business lacks freedom of operations since most of the operations are restricted by the franchiser. This may cause conflict between the franchisee and franchisor over going against regulations and agreements by a franchisee. As a result, it can contribute to the creation of division, which can also lead to rivalry and thus competition in the near future. In other words, a franchisee’s ability to make profits and increase market share is limited since it operates under regulations that do not suit its marketing strategies and management approaches.

Equity-Based Method of Internationalization

Some companies implement a foreign direct investment approach to get into developing economy markets globally. It opens up profit-sharing amongst the firm and agents, distributors, and licensees. There are many commonly used methods including; joint ventures, acquisition and greenfield investments, and alliances. However, it is essential to take into consideration joint ventures in the first place since it is the most commonly used method by both small business enterprises and corporations. In joint ventures, two or more businesses come into an agreement by creating a new market identity and playing an essential role in formulating effective strategies. Joint ventures are formed to share and lower costs associated with technology and implementation of joint ventures as an equity-based method of internationalization.

Impact of Foreign Market Internationalization

The market currently produces more than a 13,782.5million liters of soft drinks and the production is expected to increase in the future. All these products need to be wrapped with consumable plastic “film” used to wrap products for storage and transportation on pallets, thus providing an investment opportunity for APMC. The non-alcoholic beverage industry was valued at 967,3 billion USD in 2016 (Non-alcoholic beverage, 2017). Therefore, APMC can make about 233 ARS million in revenues by investing in the above-named sectors and selling one pallet for 15 ARS the medium customers and 18 ARS to large customers.

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Diversification

The global market experiences competition, thereby encouraging existing corporations to produce more than one unique product to remain operational and sustain their market share while attracting new customers. International competitions drive businesses to produce effectively and efficiently depending on the availability of resources used in production. Local businesses expand their operating environment by getting into international markets either through the production of excess products for exportation to the identified markets.

Competitive Advantages

Businesses are always keen on the type of competition that they experience in the market. Some business owners invest in markets where their competitors do not operate to expand their market shares. In foreign markets, pioneers build strong brand awareness to capture the market with the aim of remaining ahead of their competitors and maintaining the leading in the market. Access to new markets provides businesses with the opportunity to adopt new effective technology used in production and other operation processes (Kraus et al., 2018). Businesses with strong international brand recognition face healthy competition which is essential to business existence in the market.

Foreign Investment Opportunities

Companies exploring international markets tend to find business gaps that are essential for investments. In fact, these organizations identify new resources suitable for the production of unique products attracting customers. Some investment opportunities do not exist in the home country thus enabling the business to take foreign direct investment strategy boosting the business income (Chen et al., 2018). Incentives offered by the foreign governments to foreign direct investments existing or entering their countries lower the cost of investment to foreign businesses.

Access to Talents

Numerous organizations benefits from a diversified workforce due to different professional skills and experiences presented by individuals with diverse educational backgrounds. According to Alves et al. (2019), corporations mainly pay attention to employees who have well-developed professional skills. In fact, employees with different cultural backgrounds provide the business with opportunities to access new market segments. It can be explained by the fact that they provide market information that is used by the marketing department to develop effective marketing strategies.

Size of Market

At the present time, Brazil can be considered one of the best candidates in terms of internalization prospects, as it includes the fourth largest Soft Drinks market in the world. Moreover, this country is widely known as a gateway to the Latin American market with strong and rising economic conditions. This region is occupied by both middle-class families and individuals with high financial status, which is why there is a great opportunity to develop business. When it comes to the USA, Nova Energy Drink is approved by the FDA. However, there is one complication, the potential regulatory barrier for the product must be approved by the European Food Safety Authority. In Brazil, every dietary product is regulated and approved under the Decree-Law implemented on June 28, 2003 (Lee & Malerba, 2017). Nova Energy Drink stands that its product has health benefits for every consumer. Moreover, to have the approval of EFSA the company should submit specific paperwork with the request to conduct the necessary tests advised by the authorities.

Sociocultural Acceptance of Product

From the perspective of Brazilians, they believe in strong, long-term, and trustworthy relationships; also, they tend to be tremendously conscious about each other’s well-being. The cultural barriers that might exist there are due to the language. Brazilians normally communicate in Lusitanian and very few people can speak German, Spanish, or Italian. They are also very concerned about the company’s or any person’s reputation before starting working with them due to the well-being concerns. Furthermore, Brazilian people feel comfortable with unequal power distributions and, unlike the USA, they have hierarchical organizational structures. This problem can also be resolved by interacting with their executives, as most of them have studied abroad where they learned English. It will help us to understand their social culture, business, and organizational ethics. Other than that, despite having tall organizational structures, the communication patterns between the employee and employers are often informal.

Argentina is a perfect choice for internalization prospects, as this country is tremendously similar to Brazil. Therefore, in case the entry plan for Brazil is developed to the fullest extent, then nearly 80% of this can be used for launching our Energy Drink into Argentina. Based on the information from some research studies, the revenues of the Argentina Food and Drinks market are likely to hit 99 million US dollars in 2018 (Elango & Pangarkar, 2020). Taking into consideration that Argentina segregated itself from the world’s capital markets, the business in this country is associated with poor outside direct venture.

Legal/Bureaucratic Environment

Furthermore, in the course of recent years, it has been very hard to move cash out of Argentina. Most frequently, it is expected that the organizations will adjust their imports with a proportional measure of fares. For instance, organizations like Porsche turned to trading a few hundred red wine bottles for every car that was imported. As a result, it can be considered a significant problem for the whole business area.

Financial Viability

The US currency is stronger than both currencies in Brazil and Argentina. According to the latest currency rates, one Argentine Peso is 0.041 USD and 1 Brazilian Real is 0.27 USD (Elango & Pangarkar, 2020). As per Hofstede’s cultural dimensions, Argentinian people are usually attracted by those things that infer power or status. Therefore, having a stronger currency is expected to give the company a benefit. In the same way, Brazilian people prefer quality over quantity and their currency is very low as compared to American dollars. It will give the organization significant advantages in both countries because the local population prefers the best quality.

Economic and Political Climate for Foreign Business

Furthermore, labor laws are very tricky and complex in Brazil and heavy tax burdens on salaries pose a great danger for USA businesses. On the other hand, Argentina is ranked 117 globally with respect to doing business there (Dominguez & Mayrhofer, 2017). Overall, doing business in Argentina is 51% cheaper than doing it in the United States because Argentina is a rich country with lots of natural resources and has a 12,449.22 USD per capita GDP (Dominguez & Mayrhofer, 2017). Corporate Social Responsibility has turned out to be progressively critical to organizations in the course of the most recent quite a long while. The Nova Company, like all progressive modern organizations, plans to take environmentally friendly initiatives. To do this, the organization is ready to donate part of its income to charity and bring social obligations concerning all employees into its business system.

In the context of social issues, they might be national or worldwide, yet all of them should be taken into account by the organization. In fact, being a socially responsible organization is a significant initiative that can support an organization’s picture and construct its image. The public view of an organization is basic to client and investor trust in the organization. Building associations with clients is the foundation of an effective organization and having a social responsibility plan can affect the purchasing choices of clients.

Company % share Production Price in ARS Revenue in millions
Coca-Cola Argentna SA 27.7 3817.7525 18 68719.545
Aguas Danone de Argenth… 8.7 1199.0775 18 21583.395
Cerveceria y Malteria 7.4 1019.905 18 18358.29
IVESS 6.1 840.7325 18 15133.185
Retres Now SA 4.4 606.43 18 10915.74
Cimes ChP 3.8 523.735 18 9427.23
Prity SA 2.9 399.6925 18 7194.465
Eco de los Andes SA 2.8 385.91 18 6946.38
Carrefour Argentna SA 1.6 220.50 15 3307.8
RPB SA 1.4 192.955 15 2894.325
Coto CICSA Oeste Embotelladora SA 1.1 151.6075 15 2274.1125
Cepas Argenthas SA 1 137.825 15 2067.375
Produnoa SA 0.9 124.0525 15 1860.6375
Nutreco Alimentos SA 0.8 110.26 15 1653.9
Frutahel SA 0.5 68.9125 15 1033.6875
Salvador Marinaro & Hijo… 0.4 55.13 15 826.95
El Carmen SA 0.4 55.13 15 826.95
Private Label 0.3 41.3475 15 1447.1625
Others 0.7 96.4775 15 56646.075
total revenue 233737.4175

Competition in Market

A few clients will pay more for an item in the event that they know a bit of the benefit is going to admirable causes. Additionally, if an organization is dynamic in the neighborhood group, for instance, a bank that offers credits to low-salary families, the company is expected to be successful among the specific population group. Establishing contact with the client is a mandatory and unchangeable stage of any sales. If this step is completed successfully, the clients can already be considered warmed up, which means that they are more than half ready to buy products. It remains only to delicately but persistently bring to a positive decision. Nova Energy needs to enter the market independently, without becoming a subsidiary. Such actions will help to avoid risk and will give the company the opportunity to have ownership and bear full responsibility in the market in Brazil and Argentina.

Penetration of Private Label in Off-trade Soft Drinks by Category: % Value 2013- 2018

% retail value rsp 2013 2014 2015 2016 2017 2018
Bottled Water 0.6 0.7 0.8 0.9 0.9 1
Carbonates 1.5 1.4 1.5 1.7 1.7 1.7
Juice 1.2 1.2 1.3 1.5 1.5 1.5

Today, the economy is more competitive than ever. That is why it is necessary to maintain relevance and activity in order to maintain the profit of the organization. Since the consumer wants information before making purchases, the goods should give the impression of being useful and modern. To increase profits and maintain the company’s place in the market, it is possible to take such steps as changing operational procedures and improving the marketing panel.

Customer orientation is becoming a necessary condition for business survival today. So, if the client does not find you have a proper attitude to himself and his needs, he will go to competitors. The lack of customer orientation will sooner or later lead to negative consequences. The company will regularly receive less profit and invest in marketing activities in vain if the customers attracted by advertising leave due to insufficient professionalism of employees.

Conclusion

Competition impacts both small enterprises and large corporations in different industries, which is why business owners seek new opportunities in other nations apart from the home market where the business is located. Additionally, the advancement of innovative technologies enhanced the globalization of firms in the past two decades in different parts of the world. At the same time, enhanced foreign direct investment policies across the globe provided opportunities for corporations to explore new markets and benefit from competitive advantage. The entry of competitive corporations into new markets has enhanced quality in production, as well as the emergence of unique products and services to customers by the local companies. For instance, improved technology and enhanced innovation in developing countries can be considered the result of the internationalization of different firms. In the near future, more firms are expected to operate internationally due to the emergence of developing economies in different nations.

In Brazil and Argentina, the culture of drinking drinks is at a very high level. This fact determines the possible effectiveness of the introduction of foreign soft drinks on the market. Nova Energy Ltd. should establish particularly important ties in the country. This can be achieved through interaction with sales representatives and brands through INPI with the prospect of entering the foreign market. Legal advice is also important in accordance with the deferred payment contract for drafting contracts of Nova Energy LLC. The decision to enter the business into the foreign market also entails additional financial investments, which must be taken into account.

References

Alberio, M., & Moralli, M. (2020). Social innovation in alternative food networks. The role of co-producers in Campi Aperti. Journal of Rural Studies, 82(2), 447-457. Web.

Alves, D., Dieguez, T., & Conceição, O. (2019). Retaining talents: Impact on innovation. In ECMLG 2019 15th European Conference on Management, Leadership and Governance (p. 36). Academic Conferences and Publishing Limited.

Basaez, M. O., Cantín, L. N., & Granados, J. A. C. (2020). Does distance really matter? Assessing the impact of KIBS proximity on firms’ servitization capacity: Evidence from the Basque country. Journal of Regional Research, (48), 51-68.

Chen, D., Yu, X., & Zhang, Z. (2019). Foreign direct investment comovement and home country institutions. Journal of Business Research, 95(2), 220-231. Web.

Dominguez, N., & Mayrhofer, U. (2017). Internationalization stages of traditional SMEs: Increasing, decreasing and re-increasing commitment to foreign markets. International Business Review, 26(6), 1051-1063. Web.

Elango, B., & Pangarkar, N. (2020). Home country institutional impact on the choice of direct vs indirect exports: An emerging markets perspective. International Marketing Review, 38(2), 387-411. Web.

Kraus, S., Palmer, C., Kailer, N., Kallinger, F., & Spitzer, J. (2018). Digital entrepreneurship. International Journal of Entrepreneurial Behavior & Research, 32(2), 1-15. Web.

Lee, K., & Malerba, F. (2017). Catch-up cycles and changes in industrial leadership: Windows of opportunity and responses of firms and countries in the evolution of sectoral systems. Research Policy, 46(2), 338-351. Web.

Liu, W., & Atuahene-Gima, K. (2018). Enhancing product innovation performance in a dysfunctional competitive environment: The roles of competitive strategies and market-based assets. Industrial Marketing Management, 73(2), 7-20. Web.

Non-alcoholic beverage market size, share & trends analysis report by product (CSD, fruit beverages, bottled water, functional beverages, sports drinks), by distribution channel, and segment forecasts, 2018-2025. (2017). Grand View Research.

Tolstoy, D., Nordman, E., Hånell, S., & Özbek, N. (2021). The development of international e-commerce in retail SMEs: An effectuation perspective. Journal of World Business, 56(3), 101-165. Web.

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NerdyRoo. (2022, July 29). Foreign Market Assessment and Nova Energy Entry Business Plan. Retrieved from https://nerdyroo.com/foreign-market-assessment-and-nova-energy-entry-business-plan/

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