Strategic Management Paper: Pepsi-Cola Products Philippines, Inc. PDF

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Pepsi-Cola Products Philippines, Inc.: Strategic Management Paper   TABLE OF CONTENTS MODULE 1- BACKGROUND Acknowledgement 2 Introduction 2 Significance of Topics 3 MODULE 2- EXTERNAL ENVIRONMENT ANALYSIS Industry Definition 5 Present Task Environment Analysis 6 Potential Changes in Macro Environme...

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Pepsi-Cola Products Philippines, Inc.: Strategic Management Paper   TABLE OF CONTENTS MODULE 1- BACKGROUND Acknowledgement Introduction Significance of Topics

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MODULE 2- EXTERNAL ENVIRONMENT ANALYSIS Industry Definition Present Task Environment Analysis Potential Changes in Macro Environment Analysis Threats and Opportunities Industry and Competitive Analysis- Strategic Map Broader Societal Expectations- CSR

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MODULE 3- INTERNAL ENVIRONMENT ANALYSIS Company Overview Financial Analysis- Financial Ratios Value Chain Analysis Strengths and Weaknesses- description and basis of each Personal Values

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MODULE 4 – STRATEGIC PLAN Vision & Mission, Statement of Financial & Strategic Objectives (smart & balanced) Evaluation of Present Corporate Strategies (actual) Proposed Corporate Strategies – strengths to be developed & weaknesses to be overcome) Objectives to be attained by the proposed strategies & Foundational Basis for the strategies) Competitive Advantage – Present Adv, Proposed Adv, - Wharton model, Value chain)

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MODULE 5 – FUNCTIONAL AREA STRATEGIES Relevance of each to the strategic plan and competitive advantages Marketing Strategy – Identification of target mtkg segments, mktg objectives, mktg plan Operations Strategy – Operations objectives, Operations plan Finance Strategy – Financial Objectives, Finance plan Info Technology Strategy – IT Objectives, IT functional Plan Human Resources – HR Objectives, HR plan Other Key Areas – Area Objectives, Area plan

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MODULE 6- STRATEGIC IMPLEMENTATION Analysis of company’s capabilities to implement Strategy- 7S Framework analysis 81 Managing Internal Organization for Strategy Execution- 8-SIT Framework, Action owners/timeline Managing Strategic Change- Letter to CEO- explaining 8-steps framework for Leading change) 86 MODULE 7- FINANCIAL PROJECTIONS Financial Ratios & Balanced Scorecard Audited Financial Statements

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Pepsi-Cola Products Philippines, Inc.: Strategic Management Paper  

MODULE 1  Acknowledgements  Introduction  Significance of  Topics    

   

Acknowledgements This strategic management paper, though its bears my name, took a community’s efforts. I would like to express my gratitude to the faculty of University of St. La Salle’s Graduate of School Business for providing the theoretical backgrounds that you will be encountering as you go along the paper. I would like to thank our Strategic Management professor, Engr. Gerald Poblador for his guidance and reminders. His availability to answer questions has kept our motivation alive. I give my sincerest gratitude to my classmates in the class, particularly to the graduating Class of 2017, for their spirit of teamwork. This paper was formed in the week leading to Holy Week and finalized during Maundy Thursday and Good Friday. Thank You, God for Your Spirit, wisdom, and intelligence. I will continue, O my God, to do all my actions for the love of You. Animo!

Introduction

Michael Hitt defines strategic management process in his book titled Strategic Management: Concepts and Cases as “the full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns.” The process begins with strategic inputs, which is a result of examining the internal and external environments of the business firm. This is followed by the formulation and implementation of strategic actions and concluded by strategic outcomes. The desired outcome is competitive advantage, measured by above-average returns.

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Pepsi-Cola Products Philippines, Inc.: Strategic Management Paper   This strategic management paper aims to apply the strategic management process to Pepsi-Cola Products Philippines, Inc. PCPPI is the bottler and distributor of PepsiCo beverages and snacks in the Philippines, with headquarters in Muntinlupa, Metro Manila. It is a public company, trading on the Philippine Stock Exchange with the abbreviation PIP. The company is involved in the manufacturing and sale of carbonated and non-carbonated drinks. In addition, it is also involved in the manufacturing and sale of food and food products.

The strategic management process in this paper aims to target PCPPI’s operations, marketing, financial, information technology, and human resource strategies. It also aims to provide frameworks in the management of strategies in these areas.

  Significance of the Topic      The cola war between Coca-Cola and PepsiCo is very much present in the Philippines, as it is also present in other countries. Coca-Cola is locally bottled and distributed by Coca-Cola FEMSA Philippines, Inc., founded in 1981. Pepsi-Cola Products Philippines, Inc. was founded eight years later in 1989. The cola war in the Philippines was not always in favour of Coca-Cola. The country used to be dominated by Pepsi with 60% market share while the 30% was Coca-Cola’s and 10% belonged to Sarsi, RC, and other brands (Gonzales, 2013). The turnaround was attributable to Edward Neville Isdell, who saved the Philippines for Coca-Cola.

In addition to losing its former no. 1 spot in the Philippines, stakeholder issue is also another issue to be tackled by its horns. Sugarcane producers in the Philippines, particularly in Negros Occidental have accused beverage companies such as PCPPI for its overt dependence on high fructose corn syrup or HFCS. The sugar producers said that these beverage companies imported 800,000 metric tons of HFCS into the country, displacing them of potential income amounting to P35.2 billion. HFCS imports have

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Pepsi-Cola Products Philippines, Inc.: Strategic Management Paper   been reported to decrease sugar prices from P1,800 per bag to P1,300 per bag, which translates to revenues losses of P20 billion (Simeon, 2017).

This strategic management paper is significant to the following sectors:

PCPPI – This strategic management paper aims to present strategies in operations, marketing, finance, information technology, and human resources with accompanying frameworks in order to provide them with ideas on how to achieve competitive advantage and above-average returns.

Stakeholders – This strategic management paper aims to provide stakeholders with issues and prospects that may be deemed impactful to their stakes and interests in PCPPI as a business firm.

Researchers – This strategic management paper collates information, statistics, and news articles that will help future researchers assess the status of PCPPI as of publication date. The sources cited in this paper may also help future researchers in their own pursuit of relevant frameworks to be used for the same or for similar business firm.

Academe – This strategic management paper may add theoretical knowledge to the vast body of information made available for discussion, for case analysis, or for reference. This paper aims to help professors in their lecture as material for discussion or analysis. This paper may also serve students who are studying strategic management courses either in undergraduate or graduate school level.

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Pepsi-Cola Products Philippines, Inc.: Strategic Management Paper  

MODULE 2  Industry definition  Present task environment analysis  Potential changes in  macroenvironment analysis Threats and opportunities Industry and  Competitive Analysis Broader Societal Expectations (CSR) 

  

     

Industry Definition

Pepsi-Cola Products Philippines Inc. belongs to the “Food, beverage, and tobacco” (Bloomberg, 2017) industry.

The North American Industry Classification System defines the beverage and tobacco industry as follows:

“Industries in the Beverage and Tobacco Product Manufacturing subsector manufacture beverages and tobacco products. The industry group, Beverage Manufacturing, includes three types of establishments: (1) those that manufacture nonalcoholic beverages; (2) those that manufacture alcoholic beverages through the fermentation process; and (3) those that produce distilled alcoholic beverages. Ice manufacturing, while not a beverage, is included with nonalcoholic beverage manufacturing because it uses the same production process as water purification. The industry group, Tobacco Manufacturing, includes two types of establishments: (1) those engaged in redrying and stemming tobacco and, (2) those that manufacture tobacco products, such as cigarettes and cigars.”

The same classification system defines the food industry as follows:

“Industries in the Food Manufacturing subsector transform livestock and agricultural products into products for intermediate or final consumption. The industry groups are distinguished by the raw

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Pepsi-Cola Products Philippines, Inc.: Strategic Management Paper   materials (generally of animal or vegetable origin) processed into food products. The food products manufactured in these establishments are typically sold to wholesalers or retailers for distribution to consumers, but establishments primarily engaged in retailing bakery and candy products made on the premises not for immediate consumption are included.”

Present Task Environment Analysis

  The business environment includes “all of the things that can affect how a business operates.” This includes both internal and external forces. The task environment, however include those “events and influences that come from outside of the company” (Aparicio, 2017).

Below is the task environment analysis of McDonald’s Corporation (Houghton Mifflin Company, 2016). The same model will be used to analyse the task environment of PCPPI.

Figure 1 Task Environment of McDonald's

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Pepsi-Cola Products Philippines, Inc.: Strategic Management Paper   a. Customers

Customers are defined as those who “create demand for products and are the source of income for the business” (Aparicio, 2017).

The customers of PCPPI are authorized bottlers and independent distributors, including foodservice distributors and retailers. PepsiCo granted PCPPI an exclusive contract to sell and manufacture certain beverage products bearing their trademarks within a specific geographic area.

b. Suppliers

Suppliers are defined as “the ones that make the products that a company buys to produce their parts” (Aparicio, 2017).

PepsiCo provides its own SCoC or Supplier Code of Conduct. Because of its wide operations, suppliers of PepsiCo are extremely diverse. As a result, the formulation of the SCoC establishes a guiding principle for their dealings with their suppliers. This Supplier Code of Conduct is “based on the International Labor Organization, the United Nations Global Compact and other internationally recognized standards” (PepsiCo, 2017). This code includes 13 standards, which encompasses human rights and child labor.

What is commendable about PepsiCo’s relationship with its suppliers is its SCoC strategy, which includes four levels of engagement, presented in Figure 2 below.

Baylosis, 2017   Figure 2 PepsiCo's Four Levels of Engagement

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Pepsi-Cola Products Philippines, Inc.: Strategic Management Paper   Locally, for PCPPI its suppliers include domestic sugar planters due to import restrictions in the country. Beverage concentrates are supplied by PepsiCo and Pepsi Lipton through Pepsi Cola Far East Trade Development Co., Inc. (PCFET) and seasoning are from The Concentrate Manufacturing of Ireland. Its packaging materials are purchased from suppliers both in the Philippines and in other parts of Asia.

c. Competition

Competition refers to “other companies may be offering similar (or better) products and competing for the same customers” (Aparicio, 2017).

In the Philippines, the global competitor of PepsiCo is also its local competitor. Coca-Cola FEMSA Philippines Inc. remains to be the biggest competitor of Pepsi locally. PCPPI also lists Asiawide Refreshments Corporation as a competitor.

A report by Euromonitor International entitled “Soft Drinks in the Philippines” states:

“While domestic companies registered promising growth towards the end of the review period, The CocaCola Export Corp maintained its leading position in the Philippine soft drinks industry in 2016. The strong product mix and wide distribution network of the company has enabled it to maintain dominance in carbonates and compete in other categories such as concentrates and juice.”

In addition, there are many other popular carbonated drinks in the Philippines, which include Sarsi, Jaz Cola, Pop Cola, Cheers, Lemo-Lime, RC Cola, Sparkle and Lift.

Competition may also come from other non-carbonated drinks such as the popular Kopiko 78, and bottled water such as Nature’s Spring. Major competitors in the non-carbonated beverages market include Del Monte Pacific Limited, Universal Robina Corporation, Zesto Corporation, The Coca-Cola Company, and Asia Brewery Incorporated 

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Pepsi-Cola Products Philippines, Inc.: Strategic Management Paper   PCPPI’s food business sector also has competition from popular local brands such as the Jack n’ Jill and Oishi products.

Figure 3 PCPPI competitors in NCB and snacks market

d. Strategic Partners

PCPPI is notable for some of its strategic partnerships in the Philippines. Before looking at these local strategies, it is first worth noting that both Coca-Cola and Pepsi-Cola are in the business of forging exclusive partnerships with certain restaurant chains. There is no comprehensive list of these partnerships in the Philippines, but Business Insider was able to make a comparison of these partnerships in the United States (Lutz and Nudelman, 2015). This is seen in Figure 4 below. Some of these brands are locally recognisable. In addition to restaurant chains, PCPPI also has partnerships with convenience stores, sarisari stores, tiangges, among other retailers.

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Pepsi-Cola Products Philippines, Inc.: Strategic Management Paper  

Figure 4 Coca‐Cola and Pepsi‐Cola restaurant partnerships

More recently, PCPPI and Philippine Seven Corp. have formed a partnership wherein 7-Eleven consumers may get a taste of Pepsi-Flavoured Slurpees. Last year, PCPPI was able to form an exclusive partnership with popular bakeshop chain, Julie’s bakeshop. Two years ago, PCPPI and its international partners, PepsiCo Inc., formed a partnership to manufacture and distribute PepsiCo’s popular snack products such as Cheetos. This marks the second PepsiCo snack franchise in the world, next to Bangladesh.

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Pepsi-Cola Products Philippines, Inc.: Strategic Management Paper  

Figure 5 PCPPI partnerships with 7‐Eleven and Julie's Bakeshop 

  e. Regulators

There are many rules and regulations implemented by the Philippine government as part of the regulatory system to ensure safety among consumers of food and beverage producers. This includes Republic Act No. 10611 entitled “Food Safety Act of 2013.” This is in addition to other compliance requirements by the Food and Drug Administration of the country.

What is worth noting in this paper however is the Sugar Order No. 3, which regulates the imports of high-fructose corn syrup (HFCS) into the country.

As of this writing, both Coca-Cola FEMSA and PCPPI are seeking to accesses local sugar classified as “D” because it is P200 cheaper than the sugar classified as “B.” Unfortunately, “D” sugar is not within their access because this classification is for export (Lim, 2017).

PCPPI is subject to regulations by the Food and Drugs Administration (FDA) of the Philippines, which grants the, License to Operate as a Food manufacturer of Non-Alcoholic Beverages. It is also being regulated by the Department of Environment and Natural Resources (DENR) and the Laguna Lake Development Authority (LLDA).

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Pepsi-Cola Products Philippines, Inc.: Strategic Management Paper   PCPPI complies with environmental laws such as the Environmental Impact Statement System, the Pollution Control Law, the Laguna Lake Development Authority Act of 1966, the Clean Air Act, and the Solid Waste Management Act.

  Potential Changes in Macroenvironment Analysis

Macroenvironment analysis is the first step in strategy analysis, serving as the precursor for the strategic management process. Microenvironment analysis may be termed as PEST analysis or PESTLE analysis (What makes a good leader, 2017). In this paper, the PEST analysis template will be used.

Figure 6 Macroenvironment analysis framework

1. Political/Legal Factors

For a multinational like PepsiCo, its local distributors must address issues such as political stability, intergovernmental cooperation, and government initiatives against carbonated drinks (Meyer,

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Pepsi-Cola Products Philippines, Inc.: Strategic Management Paper   2017). In the Philippines, PCPPI will continue to enjoy the stability of the political climate that is conducive for business. The current administration seems to continue the past administration’s strong foothold on its economic policies. Likewise, the Philippines is improving and realigning its intergovernmental cooperation. What is definitely most important to keep watch on the political level would be government initiatives on carbonated drinks, particularly sugar. As previously discussed, the Sugar Board has issued Sugar Order No 3, which regulates the importation of HFCS into the country. Recently, Agricultural secretary Emmanuel Piñol held the order in abeyance. Also, adjustment of government regulations may finally grant PCPPI access to local sugar, which is currently allotted for export only (Arcalas, 2017).

2. Economic factors

PCPPI will also continue to enjoy the healthy economy of the country. Last year, it was reported that PCPPI earned net profit of P739.08 million, higher than the previous period. According to the reports, this meant a growth on its nine-month net profit by 4.6 percent (Abadilla, 2016). This is fuelled by the strong consumer behaviour of the Filipinos and their increasing disposable income. In the same report, PCPPI president Furqan Ahmed Syed was quoted to have said, “We strongly believe in the future potential of Philippines as a country and our bond with the Filipino people keeps getting stronger with every passing day. We have evolved a compelling 10 year vision for the business and we will continue to transform PCPPI into a world class food and beverage organization of the future.” Nonetheless, high sugar prices and other raw materials still pose a challenge to the business firm (Camus, 2016).

3. Socio-cultural factors

The consumer behaviour of Pepsi products relies heavily on socio-cultural factors....