Nova Energy Drink: Analyzing Market Entry for Latin American Expansion

This report analyzes the potential market entry of Nova Energy Drink into Mexico and Guatemala. It begins with an introduction to the competitive business environment and the need for international expansion. The report utilizes Hofstede's Cultural Dimensions to assess cultural differences and barriers in the target markets. It then explores cultural and legal challenges, including informal relationships, time management, and property registration complexities. The impact of currency exchange rates on business operations is examined, identifying positive and negative factors. The report further discusses maintaining social responsibility through a Triple Bottom Line approach and outlines the required management infrastructure for successful market entry and maintenance. Finally, it concludes by summarizing key findings and recommendations for Nova Energy Drink's expansion strategy. The report considers the impact of currency fluctuations, and the importance of adapting to local cultural nuances to ensure a socially responsible and sustainable business model.

Nova Energy Drink

Table of Contents
INTRODUCTION...........................................................................................................................1
1. Hofstede's Cultural Dimensions.............................................................................................1
2. Cultural and legal barrier in Mexico ......................................................................................2
Impact of currency exchange rate...............................................................................................3
3. Identifying the positive and negative factors that are based on currency change...................4
4. Discussion on maintaining social responsible company in foreign market with social
responsibility plan.......................................................................................................................5
5. Requirement of management infrastructure for entering and maintaining in new market.....6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
In the present competitive business environment, expansion of business in foreign market
is need for every company in order to attract more customer base and achieve more profitability.
The present report is based on beverage manufacturer of U.S. , who planned to introduced its
primary product Nova Energy drink in Latin American countries. The report will include
strategies in order to find the appropriate market through Hofstede's Cultural Dimensions and
various barriers to enter the foreign market. Report will analyse the effect of currency on
business operations and need to maintain social responsibility in new markets.
1. Hofstede's Cultural Dimensions
Hofstede's Cultural Dimensions is a framework, which provide idea of cross cultural
changes from one place to another. Also, it helps in measure the impact of culture on its value
and behaviour of members. It's key dimensions are Power distance index, Uncertainty
avoidance, Long-term orientation vs. short-term orientation, Masculinity vs. femininity,
Indulgence vs. restraint etc (Hofstede, 2011). Following is the Hofstede's examination of
Guatemala and Mexico along with Average index score.
Latin America scored high average points in Uncertainty Avoidance dimension, which
indicate the low of uncertainty among people. Here, people wants to control everything to avoid
uncertainties. People are not conformable with change. To keep away the unpredictability they
practice strict rule, regulation and policies. Mexico remains at second position in Masculinity
index with 69th rank. Its represent higher gender distinction, country has more male dominate
society. Mexico surpasses many neighbour countries in Power Distance index with 81 rank.
Latin America countries has low average Individualism, this state people prefer
collectivism in society (Minkov and Hofstede, 2011). They give importance to family,
relationships, extenuated relationships and loyalty. Even, they take responsibility of fellow
member's actions. Guatemala got the lowest point individualism index (Rank- 6), in comparison
of average score (Rank- 21), but it has the highest points in Power Distance index(Rank- 95). It
shows there is high unequal distribution of wealth and power distribution in economy.
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Illustration 1: Individualism index in Latin America
(Sources: The cultural dimension of doing business in Latin
America, 2018)
2. Cultural and legal barrier in Mexico
Mexicans give more importance to informal relationships over business relationship. It
forces an outsider to make healthy and long term relation with them, apart from business deals.
Even they try to avoid weekend meetings as this leisure time is reserved for family. Mexican
business persons are poor in time management, they tend to arrive late and cancel planned
schedule at last moment. These people like to share close space with another person, if anybody
stand far from them, they find it rude. It a male dominating society, where major decision are
taken by men only.
Mexico has some serious legal challenges ,which demotivate the foreign business persons
Like registration of property is a headache to business person as it takes just double time to get
property registration number, in compare of OECD countries. In case of inslovancy, exits
process also not an easy task. Organisation has to go through to 38 procedures and 350 days, in
order to wind up the business (Manrai and Manrai, 2011). Apart from it, there is complex and
time taking process to get Construction Permits, IPR number, tax payment etc.
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Cultural and legal issue in Guatemala
Guatemala is more like a conservative society, here men are dominating in business.
Business people are more punctual for time. People tend to speak slowly but sweetly. They give
weight age to social conversation over business talks. Also, there are so many religion live
together. Company is located in highly petrographical sensitive zone, so they like to talk about
environmental and geographical feature. Corruption and red-tape, enhance the business set up
cost. When it comes to legal barrier, Guatemala really owns rigid lobar regulation. Foreign
investor and entrepreneurs has to meet certain conditions which are: contact to local Guatemala
lawyer for submit the legal documents of mother country. Also, there are strict rule and
regulation for foreign company's marketing strategy, wide range of tariff rate for external
business.
Impact of currency exchange rate
Business will get direct and indirect advantages, when domestic currency has high value
in compare of host country. Increased currency render more money in hand to spend. For
instance, currently one Mexican Peso is equal to 0.052 United States Dollar. It means Mexican
currency is weaker than dollar (Minkov and Hofstede, 2012). In such case, Nova can avail raw
material, wages in less price.
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It also has to pay slight less amount for interest payment, if it borrows money from host country.
Company also able to get earn higher revenue, as it can earn high amount with less sale quantity.
In weak currency value, firm has to spend more money to avail business amenities. Strong
currency render sense of wealth to host country. Nova also has more acquisition opportunities as,
it can purchase more raw material in less price. Guatemalan quetzal is equal to 0.13 United
States Dollar. It clearly states the strong position of USA in front of Guatemalan. Here, also
Nova is at strong position.
In case of weak currency, Nova can face high import cost but less benefit by import. Like
if Nova sale its product in UK, it has to give higher amount to purchase raw material. Nova has
to pay high exchange fees, to exchange the currency from bank. It will happen because
government tries to reduce some gap by charging heavy exchange transaction charges. Also,
company has to pay some transaction amount, when it will transfer the amount in home land.
3. Identifying the positive and negative factors that are based on currency change.
In order to expand the business in new country with the same product, the beverage
owner has adopted the penetration strategy in order to expand its business in Latin American
Country, Mexico aid Guatemala (Alexy and George, 2013). It can be said that, the change in
currency rte in both host country as well as the home country would have great impact on the
revenue and business operation.
Positive factor of currency exchange:
As it is identical that Mexican Peso and is quite weaker than US dollar, it will assist the
business owner to successfully outsource the business operation in Mexican and Guatemalan
market in lower rate (What is Market Penetration? , 2019). The raw material, infrastructure,
labour rate will be available in low rate, which ultimately leads the business owner of Nova to
achieve the cost efficiency in more successful manner, which results in making more profit to
business owner.
Negative Impact of currency exchange:
The changes in current rate, has some negative impact also which can leads to impact the
revenue earned from, these new markets. Due to the lower currency rate in these new market,
there is likely possibility that even if the company is successfully achieve the sales target, the
revenue of the business will still remain lower in terms of money (Bansal and Shaliastovich,
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2013). It is one of the negative factor, that the lower currency rate will leads to hit the amount of
revenue because of the weaker currency of Mexico and Guatemala.
Because of the lower currency rate, the market penetration strategy will also get affected
as it leads to affect the cost of business in each country and in Unites states.
Cost of doing business in host country:
If the beverage owner company plans to start business operation in Mexico and
Guatemala, the company has to invest less in infrastructure, raw material and because of the low
currency rates which leads to save the cost of the company. If the product success in achieving
greater customer base, it assist the Nova owner in order to make profit. However, due to to the
low currency rate in each market, business owner will leads to get lower return. But in the long-
term it can achieve more profit if the demand of Nova will raise in future.
Cost of doing business in United states:
On the basis of present scenario, it can be said that, continuing the business operation in
US will affect the revenue of the business which also leads to heavy investment of the company
(Du and et.al., 2011). The cost of labour, raw material and marketing is quite high in UK, which
affects the overall profitability off the company. Whereas, if company imports the beverages to
these new market it will also affects as the cost of imports is higher and the revenue will be less.
4. Discussion on maintaining social responsible company in foreign market with social
responsibility plan.
In the current world scenario, for each and every business, it foremost essential to
become a socially responsible through reaching at the bottom of pyramid which the lowest socio-
economic level. It is significant of Nova business owner in to expand its business in socio-
economic weak countries in order to acquire more customers it has to maintain the corporate
social responsibility, in order to create business value and promoting social change. Such CSR
activities of business owner of Nova will assist in giving the companies a competitive advantage
in Mexico and Guatemala.
It can be said that in order to be a social responsible company in these new market,
business owner of Nova is intended to use Triple bottom Line in its business practices whose
goal is to achieve sustainability. Under TBL, company will ficus on many aspects of society
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other than profit, which will include social and environmental issues. Triple bottom line c is an
effective way which will assist the Nova's business owner to operate on these foreign market
which not only earns profit but also works in order to make the society of Mexico and
Guatemala, a better place for its citizen to live and helps the planet
5. Requirement of management infrastructure for entering and maintaining in new market.
In order to enter and expand the business operation in new countries, infrastructure
management plays a significant role. Infrastructure management an effective process which
assist in transforming the business operations. IM is essential in operation components, such as
policies, process, equipment, data, human resource and external contact which assist in overall
business effectiveness (Lapavitsas, 2018). Infrastructure management is required in order to
effectively enter and established in new market, IM has different purposes, such as:
 it assist in reducing the duplication of efforts.
 It helps in ensuring to achieve high business standards.
 Effectively maintain the communication through information system.
 It leads to promote adaptability of the changed environment of new countries.
 It is requires for Nova's business owner in order to effectively enter and maintain the
business operation in new countries.
CONCLUSION
By summing up the above report, it can be analysed that in order to enter the new market
for expansion, proper strategies for the business environment has to make. New country's market
has different political and economical factors that can affect the business operations and overall
profitability.
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REFERENCES
Books and Journals
Alexy, O. and George, G., 2013. Category divergence, straddling, and currency: Open innovation
and the legitimation of illegitimate categories. Journal of Management Studies. 50(2).
pp.173-203.
Bansal, R. and Shaliastovich, I., 2013. A long-run risks explanation of predictability puzzles in
bond and currency markets. The Review of Financial Studies. 26(1). pp.1-33.
Du, H. and et.al., 2011. CO2 emissions embodied in China–US trade: Input–output analysis
based on the emergy/dollar ratio. Energy Policy. 39(10). pp.5980-5987.
Hofstede, G., 2011. Dimensionalizing cultures: The Hofstede model in context. Online readings
in psychology and culture. 2(1). p.8.
Lapavitsas, C., 2018. The redenomination risk of exiting the Eurozone: An estimation based on
the Greek case. European Law Journal. 24(2-3). pp.226-243.
Manrai, L.A. and Manrai, A., 2011. Hofstede’s cultural dimensions and tourist behaviors: A
review and conceptual framework. Journal of Economics, Finance & Administrative
Science. 16(31). p.23.
Minkov, M. and Hofstede, G., 2011. The evolution of Hofstede's doctrine. Cross cultural
management: An international journal. 18(1). pp.10-20.
Minkov, M. and Hofstede, G., 2012. Hofstede’s fifth dimension: New evidence from the World
Values Survey. Journal of cross-cultural psychology. 43(1). pp.3-14.
Online
What is Market Penetration? . 2019 [ONLINE] Available
through:<https://go.smartling.com/market-penetration/>.
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