rewriting work (2700 words except reference)

Running Head: FOREIGN EXPANSION CHALLENGES 1

FOREIGN EXPANSION CHALLENGES 14

Foreign Expansion Challenges

ECO/561

Introduction

Many challenges and problems can occur when a business is expanding into a foreign land. While some of these challenges can be broken down into business-related issues, they can be subdivided into economic, political, social and environmental problems. When these factors are put into consideration, they in many cases affect the market performance of the business in that region leading to a loss of dominance. The most common factors can include the barriers to entry, the market conditions, the expansion challenges, the stability of the country politically, the availability of government financing, the incentives offered by the government, threats of market controls and the rivalry in that foreign market. Some countries also have closed market economies, which make it difficult for these businesses to survive in these markets (Stoneman & Bartoloni, 2018).

The focus of this paper is the expansion of Coca-Cola business into the Democratic Republic of Congo (DRC). Being one of the largest soft drink manufacturing and producing firms in the world, Coca-Cola needs to expand to this African republic. Entering into the DRC market has many challenges for the company (Barnett, 2014). There are so many issues the management of Coca-Cola needs to consider to be accepted into the DRC. Some of these challenges are economical while others are business related. Therefore, the focus is on highlighting these challenges and the solutions that can be adopted by the management to ensure that Coca-Cola remains a competitive company in that region. The macroeconomic and microeconomic conditions that the Company is expected to face have been discussed in detail. In the end, a recommendation is provided for the business and corporate strategies that need to be adopted by the Coca-Cola Company to ensure that it has become a competitive firm in the region.

Macroeconomic indicators in the Democratic Republic of Congo

The following chart is a proof of some of the most important economic indicators of the Democratic Republic of Congo.

GDP per capita in (USD)	35.9%
Population	80%
Annual Variation of Economic Growth	9.5%
Public Debt	16.8%
Exchange Rate Percentage	1600%
Interest rate	20.0%
Trade Balance	-0.2%
Export Growth	10.3%
Imports variation	-3.5%

(Trading Economics, 2018)

(Worldo Meters, 2018)

(Trading Economics, 2018)

It is evident that the economic indicators in the Democratic Republic of Congo are not favorable for business. These economic indicators have been associated with the crippling and the increase of the economic uncertainties that have affected the country over the years. The growth of the GDP in the country is estimated at 3.3 % in the financial year 2018. This growth is due to the increase in the foreign direct investments into the region that accounts for the massive growth of the company’s performance over time. The international reserves that have been kept by the Central Bank stand at USD 1.4 billion in 2016 which is higher than most of the African countries. The results show that the country has an increasingly favorable climate for doing business and engaging in activities that lead to increased growth over time (Stoneman & Bartoloni, 2018).

(Trading Economics, 2018)

The purchasing power parity in the DRC still stands at $70.4 billion, which is a higher rate as compared to most of the African countries in the region. The higher rate has contributed to more divergent growth over time and will ensure that the country continues to achieve development in its purchasing power. The exports growth was achieved at 10% which demonstrates the need for the country to increase its demand for foreign reserves and the dollars which would stimulate the fairness in the exchange rate policies. These policies will ensure that the country has achieved tremendous performance in its growth rate and contribute to more development of its production sectors (Stoneman & Bartoloni, 2018).

Competitors in DRC

The main rivals of Soft Drink in the Democratic Republic of Congo are Pepsi and other local competitors. The management can fight off this type of competition by adapting to strategies that promote market performance and ensure that the company has attained growth with time. For instance, providing healthier drinks would beat the rivals in the market. Since most of the consumers in the modern marketplace have become more concerned with their health habits, it is expected that the engagement of Coca-Cola in the region will help to overcome any form of competition that can have an impact in the company with time. Knowing the competitors is also a good way of dealing with them. Before venturing into the DRC market, Coca-Cola needs to conduct market research aimed at identifying the market performance and the factors that contribute to the growth and development of this sector (Stoneman & Bartoloni, 2018).

In the global market, forming a negotiation alliance, distribution programs and also partnerships are the best ways to ensure business survival. These relationships are vital for ensuring that the legal and financial risk has been minimized. The business should always be keen on developing an ecosystem strategy and a model that would support the operation of the business on a positive trend. Successful global managers usually develop an ecosystem strategy and a model that promotes the competitive performance of the business, which helps to ensure that there are outsourcing functions catered for by the business. These strategies and models not only fosters strategic alliances but also ensures that the company has operated in a manner that is effective and that enhances mutual understanding among people (Franzoni & Veugelers, 2015).

Expected Sales Forecasts

Coca-Cola should expect the engagement of the International Monetary Fund and the World Bank in the financing of its activities. This financial assistance would significantly contribute to the growth of the economy and also ensure that most of the economic functions in the country have been improved. The expected sales forecast for the Coca-Cola soft drinks is $11.55 billion at the end of 2018 financial year.0.5% of this would come from the Democratic Republic of Congo to ensure that there has been improved financial output from the revenues and the sales sold in the market (Stoneman & Bartoloni, 2018).

Type of Economy

The management of Coca-Cola should expect to venture into a mixed market economy. There are many players in the DRC economy. While there are local investors, it is clear that the government of the region has allowed foreign companies to enter into this market to ensure that they have improved their business performance. Regarding the ease of doing business, the World Bank has ranked DRC as one of the countries that are difficult to conduct business; as a result of the existing business challenges that affect normal performance and functioning of the economy. DRC is affected by the rampant corruption which is proved by its low ranking in the corruption index and also the focus on agriculture as the main economic industry. Due to war and the rising political tensions, it is clear that one usually finds it difficult to conduct their business within the Republic of Congo, which is a significant problem to the region (Franzoni & Veugelers, 2015).

When a company is going global, it needs to establish its financial sources right to ensure that there are no challenges that occur in the marketplace. Building a proper economic infrastructure and also a tax plan is essential for a timely reporting procedure and also having a foreign entity to adhere to the corporate procedures that have been established. The primary challenge in the global business is the accounting for taxes. Accounting should always be done properly to avoid the company getting into the problems of tax non-compliance. An organization needs to establish effective policies for banking and also plans to manage any financial risks that can occur. In the global market, financial risk should always be taken seriously. For this reason, developing a cash repatriation procedure and transfer pricing studies are the most effective ways of ensuring that a business has an effective market. After having sufficient financial data, the business can plan a long-term financial budget. The business should have a five-year budget which also contains real-time reviews. The benefit is to ensure that the business is kept in line with the demands that arise (Stoneman & Bartoloni, 2018). 

Credit Market Conditions

The Capital Market in DRC’s is one of the most underdeveloped in Africa. Meaning the Coca-Cola Company would seek financing for its projects through the treasury bonds and money papers that have been issued by the government. Seeking loans and debts from the international bankers situated in the region. It is evident that the institutional investor’s foundation has been poorly developed. It is evident that the Central Bank of Congo has established short-term bonds markets that are usually held by the local banks. While these short-term loans are helpful in ensuring that the Coca-Cola business is viable, it is evident that their government can help business people by offering the fixed rate market bonds. Some of these bonds are helpful in ensuring that the government has achieved transformations and increased performance over time (Stoneman & Bartoloni, 2018).

Commercial banks in the DRC have controlled the investor base hence affected how business functions in the region. Any foreign business is always managed through the commercial banks that have been listed in the region over time. Since Coca-Cola has a strong capital base, it is difficult for the company to be controlled through the local commercial banks in Africa. This strong capital base gives a competitive edge to the company to face its market rivals and be able to deal with the challenges that have affected its business over time. The company needs to seek alternative means of financing that will ensure that there are improved production lines. The brands in the company can also be diversified and increased to different segments to provide that the firm has become competitive (Shelton, 2007).

Role of the Central Bank in DRC

While the financial system in the DRC is growing due to the monetary policies established by the government, it is still fragile. The financial system contains many gaps and challenges that need to be addressed in a formidable manner. The central bank in Congo usually controls the finances that are used by institutions in the country. Through its policies, 16 foreign exchange offices have been created with the aim of expanding the financial capabilities in the region. It is evident that there is no debt or equity market. Over time DRC has more than $3.6 billion regarding the deposits the country has made over time. Foreign exchange reserves have also been non-regulated, and the market has been dollarized over time.

Production Challenges

The Democratic Republic of Congo has high levels of unskilled labor as most of the youth, and young men are not educated. The few who have received an education have been employed in white-collar positions leading to three-quarters of the population that lacks job opportunities such as other people in the region. Coca-Cola might face a challenge in the production sector as most of the individuals are not educated. For the company to compensate for this challenge, it would need to employ expatriates and foreign to operate its processing plants. The region is filled with increased levels of political instability that affects the operations of the country. These affects has significant impact on the company’s performance as it would be affected by the lack of skilled labor to drive its markets forward (Hess, 2011).

Coca-Cola can take advantage of the tax incentives offered by the government of Congo to employ the locals and train them for the labor force they expect. These tax incentives would not only maximize the company’s performance with time but will increase the ability of the country to contribute to its growth over time. However, the company can run the risk of capital controls and also its government control. These risks can affect the company’s bottom line for many years and have a significant impact on the financial performance of Coca-Cola with time. Upon expanding into the Congo region, the company also faces the transaction risks related to the exchange rates. The currency in Democratic Republic of Congo has been reduced over the years hence affecting the growth of the company with time (Clark, 2004).

Supply Chain Challenges in the Region

Coca-Cola will be faced by various supply chain issues after it has established its control in DRC. As a result, the complex nature of the demographics and the social dynamics that exist in the region. These factors play a critical role in affecting the economic performance of the region in many aspects. Regulations can have a negative impact on how the business process is done. It is always advisable to ensure that the business has planned for litigations, tax issues, and also competitive litigation. Some governments usually have strict requirements as compared to others. The management needs to weigh the liabilities and the risks involved in the business. The primary purpose is to ensure that the risks are calculated enough to promote positive changes. The business needs to create agreements that are localized; ensuring that litigations are mitigated. Reviewing compliance, regulations and immigration policies helps to improve the performance of the business among its competitors (Hess, 2011).

Conclusion and Recommendations

To sum it up, Coca-Cola needs to adapt to both price and none price business strategies to succeed in a foreign market. The engagement of business strategies such as focused differentiation and segmentation would ensure that the company has held a glimpse of the customers in the region. The global customer has new needs that are different from those of the local business. Meaning that the management needs to identify the unique requirements to satisfy them. The needs of the customers should always be met first to maximize business performance over time. The business would need to diversify its brand to improve performance and also maximize how business is done. This creates an opportunity where the business would be operating efficiently. The business should focus on partnerships that would increase its customer base while at the same time ensuring that the business is profitable over time. By being focused on the bigger picture, it would be easy to achieve competitiveness and also improve its skill performance (Clark, 2004).

The product lifecycle can be influenced by global expansion. However, the management of the company has the responsibility of conducting a gap analysis to identify the needs of the company and the business. The main aim is to identify a high impact product that would stand out in the global marketplace. For the business to attain its optimum level of performance, there is also a need for conducting a proper valuation of its competitive barriers, manager and business operations. Additionally, the main benefit of establishing this performance is to ensure that the business has attained its optimum performance while at the same time accomplishing improved performance over time. The brand also needs to have improved performance with the aim of ensuring that the business has performed well. The Coca-Cola Company should adopt a focused differentiation strategy for marketing its products. This strategy would not only target the customers but also ensure that the business can reach as many customers as possible (Hess, 2011).

There are many risks and challenges for a company that wants to expand globally. However, these risks can be mitigated when the management conducts due diligence about the global market. In the process of change management, the leadership should consider a gap analysis, a SWOT analysis, and a PEST analysis. The main aim is to ensure that the company has satisfied the local demand before going internationally. Secondly, the management needs to develop a business plan and strategy that would help to deal with the economic, cultural and also governmental conditions in the new strategy.  Thirdly, organizational readiness needs to be conducted to ensure that the employees are aware of the regulations, language, and customs through flexible policies. Financial budget preparation and a go to market strategy also need to be implemented. Legal risks should also be implemented to ensure that the organization has solved any challenges that have risen in the market. Upon implementation of these measures, the company would be ready for entering into the Democratic Republic of Congo market (Shelton, 2007). 

References

Top of Form

Clark, J. F. (2004). The African stakes of the Congo War. Kampala: Fountain Publishers.

Barnett, M. L. (2014). Why stakeholders ignore firm misconduct a cognitive view. Journal of

Management. Peer reviewed Article, 40(3), 676-702. Retrieved from http://journals.sagepub.com/doi/abs/10.1177/0149206311433854Bottom of Form

Top of FormDeibert, M. (2013). The Democratic Republic of Congo: Between hope and despair. London:

Zed Books.Bottom of Form

Franzoni, C., & Veugelers, R. (2015, August). Going radical: producing and transferring

disruptive innovation. Journal of Technology Transfer, 40(4), 663-669. ProQuest.

Hess, E. D. (2011). Growing an entrepreneurial business: Concepts and cases. Stanford, Calif: Stanford Business Books.

Shelton, R. D. (2007). The creative enterprise: Managing innovative organizations and people. Westport, CT: Praeger.

Stoneman, P., & Bartoloni, E. (2018). The microeconomics of product innovation. Armonk: Sharpe

Trading Economics. (2018). Congo. Retrieved from Trading Economics: https://tradingeconomics.com/congo/gdp

Worldo Meters. (2018). DR Congo Population (Live). Retrieved from Worldometers: http://www.worldometers.info/world-population/democratic-republic-of-the-congo-population/

Population Growth of the DRC

2018

Population 84004989 2017

Population 81339988 2016

Population 78736153 2015

Population 76196619 2010

Population 64523263 2005

Population 54751476 2000

Population 47076387

Population