BACKGROUND

Bundaberg Brewed Drinks Pty Ltd is a broad brewer of non-blended refreshments (pop) arranged in Bundaberg, Queensland. The business is guaranteed by an Australian family. Since 2006, Bundaberg has been conveying its mixed drinks to more than 32 countries. The association was developed in 1960 by Kieth Nielsen. Later on, it was gained by the Flemming family in 1968 whose tyke (Cliff Flemming) remains the official of the company. The present CEO is John McLean.

Bundaberg Brewed Drinks Pty Ltd is considering options to enter a new market and has decided to consider Indonesia for expanding its operations internationally. This report is written to provide a detailed analysis on external environment and competitive environment of Indonesia for which PESTLE framework and Porter’s Five Forces will be used respectively. Based on the detailed analysis of external landscape in Indonesia and the competitive forces, a right international marketing strategy will be suggested

 

PESTEL ANALYSIS 600

In order to develop sustainable competitive advantage, environmental analysis of a country within which the organizations operate is important (Yüksel, 2012). There are several approaches that aid the management personnel to conduct an environmental analysis one of which is known as PESTEL (political, economic, socio-cultural, technological, environmental and legal). PESTEL analysis allows the companies to identify the environment within which it has to operate. Moreover, it provides vital data and informational that enables the company for predicting positive and negative circumstances and situations that might incur in future (Bivolaru, et al., 2009).

In order to analyze the external analysis of the Indonesian beverages industry, PESTEL framework is used. The detailed analysis is provided below.

POLITICAL

The political status of Indonesia is democratic in which the president and vice president of the country is elected through parliament. The rules and regulations in Indonesia are developed strictly under the Roman-Dutch law. Overall parameters of Indonesian democracy has stayed sound while the competitiveness of the elections in Indonesia is high. After 2014 election campaign, the political conflict dampened and brought in stability. The political stability index of Indonesia has been improving over past decade. It has significantly improved from -2.11 in 2003 to -0.6 in 2015 (see figure below). This shows the stability trend of Indonesia and its growth prospects.

Figure 1: Political Stability Index of Indonesia

Source: (Global Economy, 2017)

According to a report by Market Line (2015), Indonesia is facing a constant problem of corruption with number of politicians, policemen and members of the judiciary. Moreover, currently Indonesia is facing a threat of terrorism from domestic and international militant groups (Market Line , 2015). On International footing, Indonesian political landscape is improving as its relations with ASEAN countries is on its peak. The table below provides a brief analysis of political strengths, challenges, risks and future prospects of Indonesia.

TABLE 1: ANALYSIS OF POLITICAL LANDSCAPE
Strengths	Challenges
Solid defense policy	Corruption
Democratic political regime	Opposition coalition dominating the parliament
Future Prospects	Future Risks
Strong allies and integration with ASEAN countries	Terrorism threat trolls

 

ECONOMIC

Indonesian economy has been showing signs of fluctuating volatility between 2013 and 2015 (Bertelsmann Stiftung’s Transformation Index, 2016).  The GDP fell below 5% as a result of global commodity boom in late 2014. Local currency depreciated by 25% between 2013 and 2015 while current account deficit also increased (Bertelsmann Stiftung’s Transformation Index, 2016). On the positive side, the unemployment levels and inflation rates in Indonesia remained to be low due to which consumer spending is high. According to Trading Economics (2017), the consumer confidence has improved from 123.70 in 2016 to 125.90 in 2017 while consumer spending has increased to 1309070.90 IDR Billion which is all time high. (Trading Economics, 2017). High consumer confidence, increasing middle class and rising personal incomes in Indonesia have made the private consumption a most important part of Indonesian economy.

FIGURE 2: CONSUMER SPENDING AND CONSUMER CONFIDENCE INDEX OF INDONESIA (2016-2017)

Source: (Trading Economics, 2017)

According to a report by MarketLine (2015), the major challenges affecting the economic growth in Indonesia has been lack of investment in infrastructure and over-reliance on the commodity exports. Moreover, underdevelopment of financial markets in Indonesia have also been creating funding problems for the start-up firms that deters their ability to withstand any global financial shock. According to Dewi (2016), an industry analyst in Bank Mandiri of Indonesia, the expected inflation rate in 2017 will reach 4.2% while providing a supportive environment for the increase in consumer spending.

TABLE 2: ANALYSIS OF POLITICAL LANDSCAPE
Strengths	Challenges
Strong banking sector Low levels of public debt	Underdeveloped financial sector Underinvestment in infrastructure
Future Prospects	Future Risks
Increasing investment from abroad AT Kearney GRDI (2016) ranked Indonesia as 5th amongst 30 developing nations in the list of most attractive investment destination Vast labor pool	High levels of current account deficit

 

SOCIO-CULTURAL

The Indonesian Government has been working towards improving the standard of living of its public by providing social insurance. The analysis of social environment of Indonesia reveals that it is a multi-cultural and religious country where people from different religions come together in workplace. Majority of people (86.1%) are Muslim in Indonesia. In Indonesia, domestic market is considered to be vital as it is the fourth populous country whereas most of the population is consumer class. The country is slowly transiting from lower to middle class with increasing literacy rate trends that rose from 81.52% in 1990 to 92.81% in 2011.

FIGURE 3: LITERACY RATE IN INDONESIA

SOURCE: (The Global Economy, 2015)

The Government of Indonesia has also introduced the cash transfer programs for poor households in order to reduce the adverse impact of fuel subsidy and for providing health and educational facilities of people (Market Line , 2015).

TABLE 3: ANALYSIS OF SOCIAL LANDSCAPE
Strengths	Challenges
Cash transfer programs	Trafficking of human
Future Prospects	Future Risks
Social security programs and systems	Religious disputes due to intolerance

 

TECHNOLOGICAL

Recently, Indonesia has recorded remarkable improvement in the innovation and technological parameters despite of low base. In Global Competitiveness Index, Indonesia moved from 55^th ranked in 2009 to 41^st in 2016 due to its technological improvement (Trading Economics, 2016). However, lower rates of research and development and high levels of software piracy have posed challenges for the government (Market Line , 2015).

FIGURE 4: GLOBAL COMPETITIVENESS INDEX OF INDONESIA

Source: (Trading Economics, 2016)

The technological development has posed both opportunities as well as few challenges for the consumer sector such as beverages industry. The online shopping behavior of Indonesian consumers is low, however, the e-commerce has been expected to expand with advancement in technology (Dewi, 2016). By 2020, it is expected that Indonesia will become biggest digital economy (Dewi, 2016). This opportunity could be used by the beverage industry by developing mixed marketing strategies and appropriate branding.

TABLE 4: ANALYSIS OF TECHNOLOGICAL LANDSCAPE
Strengths	Challenges
Improving global competitiveness index and increasing technological development	Poor research and development expenditure
Future Prospects	Future Risks
Increasing trend of e-commerce and online shopping Set to achieve the title of biggest digital economy by 2020	Increasing software piracy

ENVIRONMENTAL

Biodiversity in Indonesia is its major asset. However, a recent case of massive clearing of Sumatra Forest for by palm oil makers has gained international critical claims. With international critiques of massive deforestation (Market Line , 2015), the environmental agencies are screening all the consumer product companies that have any connection with Sumatra Forest deforestation and Riau Deforestation (Market Line , 2015). This has made Indonesian consumer market to be sensitive to environmental issues.

TABLE 5: ANALYSIS OF ENVIRONMENTAL LANDSCAPE
Strengths	Challenges
Rich biodiversity	Massive deforestation
Future Prospects	Future Risks
Wildlife conservation and steps towards sustainable development	Active environmental agencies

 

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LEGAL

The legal environment of Indonesia is dominated by effective competition laws and low tax rates. The country’s legal environment has been detached from inefficient bureaucracy or political issues. However, foreign companies face risks due to intervention by government that has been creating problems for the foreign entities by imposing new conditions. There is rigid labor law in the country while business environment is attractive. According to Loys & Co (2017), the unattractive legal system in Indonesia might affect the investment enthusiasm as there is lack of regulatory and legal framework for foreign investors. However, in 2007, a new investment law was issued by Indonesian Government to improve and strengthen clarity and comprehensiveness of foreign investment (Loys & Co, 2017).

TABLE 6: ANALYSIS OF LEGAL LANDSCAPE
Strengths	Challenges
Effective competition law Investment law of 2007	Week judicial and labor laws
Future Prospects	Future Risks
Better business landscape and investment opportunities	Nationalism

 

Upon the analysis, Indonesia appears to be an attractive investment destination. Inspite of the huge market prospects, the market competition is still a main and vital risk factor that is needed to be considered by any consumer company trying to enter the consumer goods sector. For this reason, the producers and retailers of consumer products must have an excellent business strategy which can capture the tastes and changes in consumer’s consumption patterns easily. In medium to long-term, the business potential in beverages industry is quite promising in Indonesia with its high base of middle class and strong consumer spending patterns (Dewi, 2016).

COMPETITOR ANALYSIS

Porter’s five forces is a strategic tool that is used for analyzing the competitive landscape affecting the marketing of a new product in new market (Porter, 2008). The five forces differ by the industry type in which set of economic and technical characteristics determine the strength of each competitive force. Porter’s five forces include threat of entry, bargaining power of buyers, bargaining power of suppliers, threat of substitute and rivalry amongst existing competitors (Porter, 2008).  Five forces analysis for Indonesian beverage industry is given below.

Threat of Entry

Main barriers to entry being faced by competitors (foreign manufacturers like Bundaberg Brewed Drinks Pty Ltd) are the cost of adapting to local business culture, ability to achieve the efficient distribution and gaining economies of scale. In Indonesia, soft drinks can be found in almost all local groceries and convenience stores. So the main challenge for new entrants is to gain local popularity and shelf space while driving the associated costs lower. The direct supply and distribution channels setup along with large capital expenditures, can pose significant barriers for new entrants. Moreover, soft drink industry is highly competitive and prices fluctuate depending on the transportation and demand. With strong distribution channels, relationships with suppliers, brand value to consumers and relationships with retailers, the barriers to entry for new firms is high.

Bargaining Power of Buyers

The soft drink market is considered to be the largest group in the beverage industry. In Indonesia, the beverage industry is dominated by Nestle Indonesia, Indofood Sukses Akmur Terbuka, Unilever Indonesia, PT Charoen Pokphand Indonesia, Mayora Indah TBK etc (EU-Indonesia Business Network, 2014). Because soft drink market is very competitive, so switching suppliers is relatively easier and the price difference is small. Moreover, the nutritional facts and ingredients are listed on the label and buyer does not require additional information. Customers are highly sensitive to the soft drink prices and are willing to switch brands from expensive to cheap ones. Taste is preferred by consumers and brand loyalty is high. Due to low switching cost, availability of information and low differentiation, the bargaining power of customers is high (Porter, 2008).

Bargaining Power of Suppliers

The raw materials are differentiated and firms usually have different formula, color and flavor for their beverages. Product innovation is mandatory to attract buyers (Kotler & Armstrong, 2010). The firms can easily switch between the suppliers and there is low competitive pressure. Main suppliers of the industry are bottling manufacturers and packaging companies. Usually, the bottlers are not in short supply in Indonesia, so suppliers bargaining power is low.

Threat of Substitute

Customers have no switching cost attached with substitutes. The substitutes for carbonated drinks include sports drinks, tea, water etc. Due to high brand name loyalty, customers are not likely to substitute their favorite beverage. Hence, the available substitutes have low level of threat for Bundaberg Brewed Drinks Pty Ltd.

Rivalry amongst Existing Competitors

The beverage industry in Indonesia is estimated to be comprised of over 6,000 companies of which 90% are considered to be large or medium sized. The Food and Beverage Industry of Indonesia is influenced by large local companies as well as international and foreign companies like Nestle and Unilever. The local leading companies include Wings Group, Mayora, Garuda and Rekso. Whereas, international companies are Nestle Indonesia, Danone, Unilever and AJE (EU-Indonesia Business Network, 2014). Food and beverage industry of Indonesia has remained to be a lucrative sector for foreign direct investment in Indonesia (Lukman, 2017).

INTERNATIONAL MARKETING STRATEGY

Food and beverage industry in the FMCG (fast moving consumer goods) sector is growing considerably in Indonesia (Pamudji, et al., 2015). With intense rivalry landscape and competition, new firms are required to utilize effective marketing techniques. Proactive marketing has become essential for the beverage industry for targeting Indonesia’s escalating middle class trends and enhanced youth segments (Pamudji, et al., 2015). The successful marketing techniques include innovative advertisements through mass media along with co-branding with retailers and the mobile phone service operators. Moreover, social media campaigns and partnerships with credit card companies are also being used by the companies in Indonesia (Pamudji, et al., 2015). Few of the marketing strategies are discussed below:

Social Media

Social media marketing has proven out to be an excellent vehicle for fostering and building relationships with customers (Vries, et al., 2012). Bundaberg Brewed Drinks Pty Ltd. can utilize social media for marketing its beverages in Indonesia. The trend of internet users in Indonesia is constantly rising since past two decades (refer to chart below) (Internet Live Stats, 2017).

 

Several methods can be used by Bundaberg Brewed Drinks Pty Ltd. for marketing the beverages through social media. One specific way to create the brand awareness in new market is through building a fan page on social networking websites like Facebook and Twitter. Bundaberg’s marketing manager can also place the brand posts including videos, quizzes, information, messages and other informative material on the fan pages. Customers gradually like the fan pages and then post comments on it. This process of liking and commenting on social media reflects the brand post popularity.

Another recent yet popular usage of social media advertisement has appeared out to be advergaming (Okazaki & Taylor, 2013). By offering free online games on social networking sites, Bundaberg Brewed Drinks Pty Ltd. can extract greater popularity and build brand image more easily. Advergaming are solely created by firms for promoting their brands via brand websites or other corporate social networking partners. It also allows the firms to increase the entertainment value of a partner’s website and enhance the stickiness factor (Okazaki & Taylor, 2013). Due to enhanced stickiness, an e-word-of-mouth advertisement cycle starts that helps both the brand and the website to gain attention. Moreover, flash banners and static advertisement posts can also be used for marketing of the beverages online.

Search Engine Marketing:

Google Adwords can also be used for promoting beverages to huge base of online internet users in Indonesia. It is a form of search engine marketing in which firms pay in form of bids on gaining advertisement space on the search engines like Google and Ask.com (Pan, 2011). Bundaberg Brewed Drinks Pty Ltd can utilize this form of marketing to gain attention of the online active internet users.

Celebrity Endorsement

Celebrity endorsement is considered to be an effective marketing strategy used by many marketers worldwide. According to Spry et al. (2009), every one out of four advertisements use celebrity endorsement for marketing their products. As celebrity endorsement can influence the advertising effectiveness, purchase behavior, intentions, brand recall and brand recognition. Bundaberg Brewed Drinks Pty Ltd. can endorse different celebrities worldwide from sports as well as entertainment industry to market the beverages being introduced in Indonesia. It can be a very successful strategy if endorser credibility is high.

Event Promotion

Event marketing is a tool that is used for experiential marketing while focusing on the consumer’s expectations and experiences. It treats the consumption driven by emotions and rationality of consumers (Close, 2010). By sponsoring the major sporting events around the world, Bundaberg Brewed Drinks Pty Ltd can promote its brand internationally by sponsoring Olympics, ICC Cricket World Cup, Rugby Matches and Football Premiere Leagues. Sponsoring a sport event is an important and most widely used promotional method. Furthermore, event promotion can also be done through engaging into social cause events as it can also enhance the credibility and brand image within consumers’ mind.

 

References

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