Pernod Ricard Group International Strategy

Introduction

From the Era of 1950, the growth in the international trade and exchange has been more than the domestic growth. Technology has enabled the growth and expansion of the international business. Hence combining international and domestic business would lead to more opportunities of progression, development and income as compared with only the domestic business. Through internationalization we can attain a flow of capital, ideas and skills across the world (Kang, 2011). The outcome is that innovations take place, Human capital resource is shared and financing is taken care of. For a company like Pernod Ricard group this provides an opportunity for acquiring a wide range of products with respect to quantity and quality. For a country this leads to development and utilization of skills, Knowledge transfer and provision of employment opportunities for professionals.

International business can be defined as transaction carried out across the national borders to fulfill the purpose of individuals, businesses and organizations. Initially international business was carried out through foreign direct investment and import & exports. Later it was carried out through forming wholly owned subsidiaries or joint ventures. (Johanson & Wiedershem, 1975)

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When Pernod Ricard Group (PRG) decided to go international, the policy makers and executives were able to translate the business into success when they were able to incorporate the different characteristics of the international business into their plan and strategy. (Czinkota, Ronkainen and Moffett, 2011)

The firm has to consider the international adversities and issues and answer the questions like:-

-          Would the product or service correspond to good business in the international market?

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-          How should the firm enter the market for instance through investments or trade?

-          The supplies need to be obtained domestically or should it be imported?

-          What would the adjustments be required for product to be locally accepted?

-          What threats would be faced from the global competitors and how to counter these threats.

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FDI (Foreign direct investment) is the key foundation of the EU- US economic association. It is estimated that almost half of the world’s FDI from US is dispensed into EU whereas almost two third of worlds FDI from EU dispenses into the US. It was confirmed by the US department of commerce that an estimate of US$326 Billion of FDI was conducted between US and the EU in 2005. (Czinkota, Ronkainen and Moffett, 2011)

China has implemented a policy of open doors and trading across borders after becoming a member of WTO since 2001 which helped open its market towards the foreign trade.

The goal of any firm including Pernod Ricard Group remains the same which is to sell the product for profit in foreign markets and with countries opening their borders for trade this provided an opportunity for Pernod Ricard to enhance their business and profit margins.

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Pernod Ricard decision to conduct international business

When a firm decides to move across borders they might be seeking to obtain one of the below mentioned opportunity or advantage

Seeking resources: In eighteenth and nineteenth century most if the FDI was an outcome of firms seeking unique natural resources.

Factor advantages: Cheap labor or human resources are an incentive for firms to move across the border. This advantage is merged with the resources needed for production.

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Seek out Knowledge: Firms strategize to gain technical and viable skills possessed by other firms through acquiring them.

Obtaining security: firms globalize for obtaining political security

Penetrating markets: This is the most prominent reasons for firms to expand, having access to markets which would enhance their growth potential. (Czinkota, Ronkainen and Moffett, 2011)

In case of Pernod Ricard it entered different markets seeking different opportunity or advantage For instance it pursued countries either seeking knowledge through acquisition as in case of Great Britain for acquiring Seagram spirits , Sweden for acquiring V&S(absolut), Penetrating markets as in case of European nations like Belgium, Austria, Croatia etc. Seeking resources or factor advantage as in the case of China & India

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Pernod Ricard’s decision of entering a Market

Theory of Absolute advantage: A company like Pernod Ricard deciding to enter a market could be based on the theory of absolute advantage which states that certain countries basis the skills of their workers or owing to the superiority of their resources could produce the same goods or commodity as compared to other in lesser time. This state of efficiency is known as absolute advantage. As compared to earlier times through industrialization the production is split into various stages which are termed as division of labor. Smith (1776) then stated that every country would specialize in a product which was best suited for providing it a unique value. Later it was developed by David Ricardo that even though a country possessed absolute advantage still it would further differentiate itself by being more efficient than another country which would develop its competitive advantage. Hence this country would then specialize in one or two products (Seretis and Tsaliki, 2016). For instance India is encouraging foreign direct investment and manufacturing in the country, this could stand as an absolute advantage for Pernod Ricard considering the low cost labor. Hence PRG has developed manufacturing facility in India for more than 30 bottling plants.

Gains of trade: Trade is established by a nation or an organization so that it could achieve and gain consumption stage which would be greater than what it could achieve domestically.

Further an organization depends on the economies of scale which could be classified as either internal economies of scale or external economies of scale.

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Internal economies of scale states that the bigger the firm the greater will be production at a lower cost whereas external economies of scale states that a country can gain economic advantage even if it does not have one big firm but many small firms which would work together for creating a competitive advantage for instance France has many small wine producers thus gaining external economies of scale.

Each nation will have a different pattern of competitiveness which would enable the country to flourish in a particular industry. Porter defined four dimensions for obtaining national advantage.(Porter, 1990)

Factor condition: This determines the nation’s suitable factor of production in a market for obtaining competitive advantage.

Demand Condition: Firms which survive and thrive in their domestic markets would gain a competitive edge. For instance Pernod Ricard Group can take advantage of growth in the Wine market in Europe (Marketline, 2016)

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Related and supporting Industries: A firm which flourishes by maintaining close working relations with its supporting industries like suppliers enables it to obtain timely knowledge and product flows.

Firm strategy structure and Rivalry: Porter establishes that there is no fixed strategy for achieving competitive edge. Success of a firm depends on what works for it in which country and the accuracy of the timing. As seen in the case PRG adapted different strategies for entering different markets. It adapted acquisition for entering developed markets whereas Greenfield investment for penetrating into emerging markets. (Jensen & Zamborsky, 2018)

Decision making for FDI

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