STRATEGIC COMPETITIVENESS REPORT OF PEPSICO INC.

Business Management Group Activity

Offer code: 3336

Group No. 3
Minoza, Evan Kaye
Jandayan, Ellah Mae
Maglines, Trisha
Milano, Maria Jezel
Nerves, Ruffamae
Kiseo, Denise
Madis, Ellah Marie

Date completed: March 16, 2021

 I. Company Background
PepsiCo, Inc. is an American multinational food, snack, and beverage corporation and has
interests in the manufacturing, marketing, and distribution of grain-based snack foods, beverages, and
other products. PepsiCo was formed in 1965 with the merger of the Pepsi-Cola Company and Frito-Lay,
Inc.

Back in 1880’s, the recipe for Pepsi was developed by Caleb Bradham in New Bern, North
Carolina who had renamed it “Pepsi-Cola” in 1898. As the Cola industry develop in popularity, Caleb
created PepsiCola Company in 1902 and registered a patent for his recipe in 1903. As Pepsi-Cola
Company went bankrupt in 1931, Charles Guft who owned a syrup manufacturing in Baltimore Maryland
acquires the trademark and recipe to Loft Inc.

In the year 1941, Pepsi was formally absorbed to Loft, and Loft Inc. rebrands its company name
to Pepsi Cola Company. Up until today, Pepsi Cola Company – further will be mentioned as PepsiCo – has
successfully expanded it area of products through mergers and acquisition of other companies, such as
Frito-Lay Company, Quaker Oat Company and other companies.

Pepsi has become the world's most popular soft drink, and is enjoyed by people of all ages,
despite its key rivals being a strong second opinion against Coca-Cola. As a result, this study examines
PepsiCo's competitive strategies as well as the effectiveness of its internal environment.

II. PROBLEM STATEMENTS

Due to company’s background and strategic management approaches, problems that appeared
which will be analyze in Chapter III and IV are the following:

 The effectiveness of company’s vision and mission statements;

 Company’s assessment toward its internal operation (Analysis using Company Value Chain)
 Increase awareness of the current soda lines in an effort to respond to consumer concerns
about healthier drink alternatives
 Expand use of eco-friendly, sustainable packaging materials for soda cans and bottles
 Strategies implemented by the company to reach its long-term objectives;

III. ANALYSIS
(VISION AND MISSION STATEMENT)

I. Vision

PepsiCo’s vision statement is “to deliver top-tier financial performance over the long
term by integrating sustainability into our business strategy, leaving a positive imprint on
 society and the environment.” PepsiCo adds that this vision statement is built on the idea of
“Performance with Purpose.”

Main points:

 Top financial performance

 Sustainability
 Corporate social responsibility

One of the goals mentioned in PepsiCo's vision statement is to achieve high financial
results. This is a standard business expectation. Furthermore, PepsiCo's mission statement
suggests that sustainability is an integral part of the company's operations. Sustainability
improves the reputation of a company or a brand. PepsiCo's mission statement also contains a
section on corporate social responsibility. This aspect has a significant impact on the company's
organizational development policies and strategies, especially in terms of its impact on
stakeholders. PepsiCo is motivated to achieve high success by all of these points in the vision
statement.

II. Mission

PepsiCo’s mission statement is “to provide consumers around the world with delicious,
affordable, convenient and complementary foods and beverages from wholesome breakfasts
to healthy and fun daytime snacks and beverages to evening treats.” This mission statement
highlights PepsiCo’s desire to satisfy customers. In conjunction with the mission statement,
PepsiCo also states, “We are committed to investing in our people, our company and the
communities where we operate to help position the company for long-term, sustainable
growth.”

Main points:

 Consumers around the world

 Delicious, healthy and fun products
 Affordability
 Convenience

PepsiCo's mission statement stresses the importance of customers and product attributes.
The company's mission statement, for example, states that it caters to all customers worldwide. This
means that PepsiCo strives to create goods that appeal to all customers, regardless of their
backgrounds, cultures, or other factors. PepsiCo's basic product characteristics are also specified in
the mission statement. The argument about affordability alludes to PepsiCo's pricing strategy.
Furthermore, based on the convenience argument in the mission statement, PepsiCo makes its
goods readily available, suggesting the company's business strategy.
 Analysis No. 2

Pepsico.’s statement lacks in factor that should be included in a mission statement. With the
existing statement, Pepsico. has only included Product, Concern for Survival, Growth and
Profitability and also Concern for Public Image. This statement doesn’t include customer,
market, philosophy, technology, self-concept and concern for employee’s factors.

Because of the observation stated above, a new proposed mission statement has been created:

“To be the world's leading consumer goods company, specializing in the sale of high-quality food and
beverage products to consumers all over the world. We are compelled to use the most effective methods
and the most sophisticated machinery available. We hope to provide healthy financial returns to
investors while also providing opportunities for development and development to our employees,
business partners, and other stakeholders, and the communities in which we operate. And everything we
do, we strive for honesty, fairness and integrity.”

IV.INTERNAL ANALYSIS USING THE COMPANY VALUE CHAIN

 Value chain analysis is an analytical tool used to identify the ways in which businesses create
value for customers. The essence of value chain analysis is illustrated in Figure 1 below:

Primary Activities
1. Inbound logistics

PepsiCo portfolio comprises 22 brands including Pepsi-Cola, Tropicana, Gatorade, Mountain

Dew and Diet Pepsi and each brand belonging to PepsiCo generated at least one billion USD in retail
sales in 2015. Inbound logistics practices of each brand within PepsiCo portfolio reflect the nature
and quantity of raw materials used, the proximity between the location of suppliers and
manufacturing plant and other set of factors.

The economies of scale can be specified as the main source of value for PepsiCo derived
from inbound logistics primary activity. PepsiCo also benefits from locating its production sites
within close geographical proximity to the main sources of raw materials in order to save on
transportation costs.

Technology is another driver of innovation that provides advantage to PepsiCo’s supply

chain. One of the innovations that PepsiCo is exploring is 3D printing.

2. Operations

PepsiCo operations are divided into the following the following six operational
segments:

 Frito-Lay North America (FLNA). This segment engages in manufacturing, marketing,

distributing and selling branded snack foods.

 Quaker Foods North America (QFNA). This segment is assigned with producing, marketing,
distributing and selling cereals, rice, pasta and other branded products.

 Latin America segment produces markets, distributes and sells a several snack food brands for
Latin American market.

 Asia, Middle East & North America (AMENA). AMENA segment makes, markets, distributes and
sells a number of leading snack food brands including Lay’s, Kurkure, Chipsy, Doritos, Cheetos
and Crunchy through consolidated businesses, as well as through non-controlled affiliates.
  Europe & Sub-Saharian Africa (ESSA). This segment engages in manufacturing, marketing,
distributing and selling a number of snack food brands either independently or in conjunction
with third parties.

 North America Beverages (NAB). Operations in NAB segment revolve around producing,
marketing, distributing and selling concentrates, fountain syrups and finished goods under
various beverage brands including Pepsi, Gatorade, Mountain Dew, Diet Pepsi, Aquafina, Diet
Mountain Dew, Tropicana Pure Premium, Sierra Mist and Mug.

As it is illustrated in Figure 2 below, North America Beverages and Frito-Lay North America
segments are the biggest sources of PepsiCo revenues and they account for 55 per cent of the total
revenues.

PepsiCo conducts its productions operations with use of sophisticated operational systems and
advanced technologies. A particular focus on sustainability issues as an integral part of its CSR strategy is
an important feature of PepsiCo operations and a solid source of value addition. Moreover, PepsiCo
adjusts its products to local tastes and preferences and this is reflected on operations. For example,
PepsiCo has tailored its products to suit the Chinese palette and introduced various local flavors to the
Lay’s brand. The current flavors available in the market are fresh cucumber, baked lobster, peking duck,
hot and sour fish soup, fried prawn and little tomato.

3. Outbound logistics

PepsiCo distribution costs amounted to USD9.4 billion in 2015, USD9.7 billion in 2014 and
USD9.4 billion in 2013. PepsiCo creates value in outbound logistics via using multiple product
distribution formats. Specifically, PepsiCo outbound logistics integrate the following three formats of
product distribution:
  Direct-Store-Delivery. This distribution format is especially popular with product categories that
are re-stocked very often. Direct-Store-Delivery provides PepsiCo the advantages of
merchandizing with maximum visibility and appeal within stores.
 Deliveries to customer warehouses. Mainly less fragile and perishable products are distributed
in this format and this is the most cost-effective distribution format.
 Using distributor networks. Third-party distributors are needed in order to facilitate the
distribution to locations far from PepsiCo manufacturing plants and warehouses.

4. Marketing and sales

PepsiCo has a solid advertising budget of about USD 2.4 billion and PepsiCo marketing strategy
makes an extensive use of print and media advertising, social media marketing, celebrity endorsement
and product placement. The marketing message attempts to associate the consumption of PepsiCo
products with the perceptions of enjoying life to the full extent, staying active and spending quality time
together with friends and loved ones.

5. Service

PepsiCo sells its products to final consumers only via re-sellers and intermediaries such as
supermarkets, grocery stores of various formats, restaurants, fast-food chains and other catering
business. Therefore, PepsiCo does not provide customer services to the final consumer directly at the
point of purchase. Nevertheless, PepsiCo deals with customer service inquires and questions related to
its brands and specific products via customer service phone numbers and online contact forms available
on its official website.

6. Direct Store delivery

Pepsico operates the direct store delivery systems with the help of its bottlers and distributors. The
DSD systems deliver beverages, foods, and snacks to the retail stores where they are merchandised by
Pepsico employees or the independent bottlers of the company. The DSD system allows Pepsico to
merchandise its products with higher visibility and appeal which is profitable for the company. This
system is most suited for the distribution of the products that are restocked more often.

7. Customer warehouse

Some of the Pepsi products are delivered from manufacturing plants and warehouses to customer
warehouses. The less fragile and perishable products with lower turnover are mainly distributed through
this channel.

8. Distributor network:

Pepsico also utilizes third-party distributors for the distribution of several of its products. The
company uses them when it has to distribute a large range of products and include them on the
same delivery vehicle. The food service and vending businesses of Pepsi use third party distributors
and operators to distribute beverages, food, and snacks to restaurants, businesses, schools, and
stadiums.
Value Chain of Pepsico: Support Activities
1. Technology

Pepsi heavily uses technology to maximize the efficiency of its global operations. Apart from
that, it has continued to grow its investment in digital technology and sustainability to improve the
efficiency of its supply chain, manufacturing, marketing as well as sales and distribution network.
The company also uses technology for employee training as well as inventory management and to
grow customer relationships. Apart from operational efficiency, the focus of the company is on
sustainable business operations and therefore it invests in technology to develop environment-
friendly solutions, minimize its carbon footprint, and leverage data and analytics for serving
customers better.

2. HRM

HR management is one of the key areas of strategic focus for the company. Employees are a
source of competitive advantage in the industry and therefore apart from attracting talented
people, the company has to focus on their training, retention, and continuous growth. As of
December 29, 2018, Pepsico and its consolidated subsidiaries employed approximately 267,000
people worldwide, including approximately 114,000 people within the United States (Annual report,
2018).

3. Infrastructure

Pepsi has divided its business operations into divisions based on geographical regions.
However, the company also manages its global business operations on a functional basis, and the
management of its global business is handled through various departments and functions. This has
helped the company with efficient management and a leadership model which ensures higher
success and organizational productivity. Each of the various functions has a Vice President leading its
global operations. The board of directors that includes two executive directors and 12 independent
directors also plays a central role in guiding business strategy and decision making at Pepsico.

4. Procurement

As a leading manufacturer of soda beverages, snacks, and food products, the company
depends heavily on its suppliers globally for the supply of good quality raw material. The company
places a special focus on managing suppliers, supplier relationships, and sustainability in its supply
chain. Apart from product quality, the procurement team at Pepsico also oversees other areas
related to the supply chain like the Code of Conduct as well as supplier audit and training. This
ensures a continuous supply of good quality raw material to the company for its manufacturing
operations as well as ethical supply chain operations. The procurement team also evaluates supplier
 performance continuously through the help of supplier’s scorecards for improvement and to achieve
higher efficiency.

V.SWOT analysis of PepsiCo in detail

Strength:

Realizing one's strength is critical for any company wishing to retain a global presence. It will
assist them in understanding why consumers prefer their brand to that of their rivals. Top-rated firms,
such as PepsiCo, have many strengths –

 The company has a comprehensive portfolio of 100 brands. PepsiCo also has a highly diversified
brand portfolio. It attracts many customers towards them.

 PepsiCo is financially stable. They got equipped to satisfy the needs of the customers with a
wide variety of successful products. Their classic Cola is still one of the most preferred beverages
worldwide.

 PepsiCo owns and markets some of the most recognizable global brands. The company has
mastered the way of selling their products. Hence, all of their products are known to all.

 PepsiCo has successfully created strong brand awareness. Their logo is one of the symbols that
is widely recognized all over the world. It also helped them to have a loyal customer base.

Weakness:

Every brand has some weaknesses. Although a brand should strive to maintain its strengths, it
should also strive to eliminate its weaknesses. Then they will be able to take advantage of more
opportunities that will support their company –

 PepsiCo mainly produces carbonated drinks. Due to increasing health concerns, the customers
are more interested in the non-carbonated beverages that use fewer sweets in their products.
The competitive brands are bringing in several health food alternatives. The bitter after-taste of
diet coke and carbonated drinks is why many customers switch to other healthy options.

 The company is failing to meet the demand of the market. This untapped market is one of its
most significant weaknesses.

 The brand needs more acquisition that will help them to expand their business.

 The company's niche marketing and products are also one of its weaknesses. They only market a
few particular products of themselves. The company needs a more comprehensive marketing
plan for their new products and less-known products.

Opportunities:

If a company wants to grow, they need to look for opportunities and use them properly. Since
PepsiCo has a worldwide presence, there are ample opportunities for them to expand their sales -
  For a company that has product diversification, it is easier to expand their business. PepsiCo has
a diversified profile. Hence it is easier for them to plan about more diversification that will lead
to their expansion.

 They can also look for introducing new products. Though their classic Cola is a high selling
product, the company needs to bring in innovation. They can increase Consumer-Driven R&D for
the expansion of their business.

 PepsiCo can try to expand its operations in the emerging market. Many customers use digital
platforms for online shopping. PepsiCo can have its platform for online business.

 PepsiCo can extend their current partnership with Starbucks into other areas where both the
chains have rooted themselves. It will be beneficial for both the business.

Threats:

A brand like PepsiCo should always cushion its threats if they want to concentrate on opportunities.
While analyzing the threats, a company can negate the impact and learn what is threatening its goals.

 Competition from another top-rated beverage brand, Coca-Cola, can be a possible threat to
PepsiCo's profitability and market share.

 The Economic recession is another hindrance to their expansion. The post-pandemic situation
has also slowed down the economy. Moreover, the changes in demographics and economic
status have also transformed the pre-existing market. Hence the companies' target market has
also changed.

 The company's competitors are adopting technologies more effectively. Taking the aid of
technology can be profitable for any company.

 The increasing health consciousness is driving many customers towards healthier products. It is
the reason carbonated or sweet drinks are gradually losing their market. It is a significant threat
posed in the way of PepsiCo.

(THE FOLLOWING MATRIX AND DATA ARE JUST A SAMPLE THAT WILL SHOW HOW AN INTERNAL
FACTORS EVALUATION (IFE) MATRIX WORKS IN ASSESSING A COMPANY’S STRENGTHS AND
WEAKNESSES)

INTERNAL FACTORS EVALUATION (IFE) MATRIX

Key Internal Factors Weight Rating Score

Strengths

1. Strong brand 0.09 4 0.36

2. Strong marketing and advertising of products around 0.07 3 0.28
globe
 3. Products availability 0.08 3 0.24
4. Revenue and profits 0.08 3 0.24
5. Market share 0.07 3 0.21
6. Competent workforce 0.05 3 0.15
7. Wide variety of products 0.05 3 0.15
8. Earning per share 0.02 4 0.08
TOTAL 0.51 1.71
Weaknesses

1. High debts 0.07 2 0.14

2. Health Issues 0.08 1 0.08
3. Low sales in some products 0.09 2 0.18
4. Negative impact on brand image due to product 0.10 1 0.10
recall
5. Lack of product focus 0.05 1 0.05
6. High operating expense 0.10 1 0.10
TOTAL 0.49 0.65
GRAND TOTAL 1.00 2.36

Internal Factor Evaluation (IFE) Matrix holds the information about the internal position of a
company. This internal position consists of Strengths and Weaknesses. These factors inside this matrix
are rated from 1 to 4, where 1 is the lowest and 4 is the highest.

Like its EFE Matrix, PepsiCo is also below average with the score of 2.36. This means that
PepsiCo doesn’t really know their current Strengths and Weaknesses, although they know, they didn’t
use them effectively.

Vertical Integration
Since 1999, PepsiCo has been looking for a choice of vertical integration to spun off repurchase
bottlers. The company focused on marketing and left most operating decisions to bottlers. As the
consumers flocked to non-carbonated beverages/soda industry, PepsiCo has gained more control over
the distribution to expand their offerings. PepsiCo concentrates more to gain authority towards
distribution. The competing firms, PepsiCo and Coca Cola are also called as Upstream Manufacturing
Companies that sell their products to downstream bottling and distributing companies. Eventually, a
change in strategy through Pepsi Americas and Pepsi Bottling Group acquisitions resulted a higher
flexibility in pricing model and products.

Coca-Cola begun to implement ‘forward vertical integration’ by buying its previously franchised
independent bottlers, Coca-Cola Enterprises. By implementing vertical integration strategy, PepsiCo
eradicated a certain percentage of profitability conflicts between two new acquisitions i.e., Pepsi
Bottling Group and Pepsi Americas. As the imitability of vertical integration has already occur, firms’
competitor entered both direct duplication and substitution for vertical integration. Due to this move,
small-scale bottlers and business gained long-term perpetual contracts distributing the sodas. PepsiCo
turned to be very responsive to retailers and end consumers’ demands. The company’s latest range of
healthy products including beverage, food and snacks has already increased the bargaining power for
retailers from both pricing and shelf-pace strategies.

As a conclusion, vertical integration comes with a package of both benefits and risks. It has the
impact of tacit collusion, which leads to higher prices and lower output. PepsiCo and Coca Cola seem to
be maintaining a balanced relationship with other independent bottlers to drive sales and efficiency in
the corresponding distribution systems. However, economic forces may induce low profit margins due
to promotional service providers and also introduce contractual incentive conflicts due to increased
transactional costs. On other side of the coin, vertical integration would increase consumer surplus and
reduce dead-weight loss by decreasing retail prices

VI. Sustainability of Competitive Advantages of PepsiCo

 Innovative Marketing Initiatives of PepsiCo

PepsiCo is always one step ahead and spontaneous based on its marketing strategies. It is
always trying to develop new themes to connect more people with their brand. This brand also does
promotion cross-culturally with catchy headlines and messages, which helps to create a loyal customer
base regionally. It always puts importance on engaging with more people, so enjoy more market share
among other companies.

 PepsiCo Direct Store Delivery

The company uses the Direct Store Delivery (DSD) system and distribution network through
which it directly supplies its product to retail stores. By this, the company has reduced the cost of the
middleman and now can ensure maximum visibility of their product on several stores. It also helps
them to create a substantial in-store promotion. As a result, customers will not have the scope of
choosing another product because of the shortage. DSD helped this company to run short in supply and
building an engaging relationship with leading retail industries such as Wal-Mart.

 PepsiCo’s Formation of Strategic Alliances Globally

To make this global business more successful, this brand uses the strategy of forming alliances
globally. It has established a partnership with Tingyi in China, with Tata in India, with Almarai in Saudi
Arabia and so on for capturing the market, enhancing manufacturing capabilities etc. PepsiCo and other
companies in the market have already done mergers or acquisition with other companies, but
creating a partnership with different companies in different countries has made a distinct impact on
this company. As a result, PepsiCo is enjoying competitive advantages regionally with the assistance of
big companies.

 PepsiCo Diversification beyond Drinks

PepsiCo has an extensive portfolio of food and drinks with 100 brands serving. And it
continually uses diversification into snacks over soft drinks. The success in this area is something which
other rival companies couldn’t be able to balance with. Its Frito-Lays product line that owns Doritos,
Cheetos and other snacks like these, has been contributing to considerable growth in this brand’s sales
and profit margin over the last few years. Also, it has entered into the water business, which has added
another momentum in the company’s success.

 Iconic Youthful Brand Image of PepsiCo

PepsiCo has a brand image which represents the society of the future or youth generation.
And this brand focus has helped PepsiCo to gain a more extensive loyal fan base among the youth.
This brand is always one step ahead to engaging with youths through festivals, sports and games. This
kind of sharp brand image plays a constant role on the part of the target group, which can’t be altered
by another brand easily.

 Pricing strategy

Pepsi’s pricing strategy is also a major strength. It has priced its products affordably. This has
helped Pepsi reach a large customer group throughout the globe. Affordable pricing has also led to
higher sales and revenue as well as popularity. The company has made its products available in all
corners of the world in various packs and sizes. From small one serving packs to large family packs, its
products are available in sizes that suit varying needs. Pepsi also offers attractive deals from time to
time to attract customers.

VII. CONCLUSION AND RECOMMENDATIONS

Strategy Recommendation and Implementation for PEPSI CO.

In the food and beverage industry, Pepsi Co is currently a clear global leader. It has remained true to
its mission and objectives throughout its growth, becoming a powerful force both in the United States
and abroad. Pepsi Co need not make any significant strategic changes to its strategy because it is known
around the world for high-quality goods and outstanding customer service. However, like in any
business situation there are areas that Pepsi Co can improve upon. Some of the recommendations are as
follows:
  Continue to expand with their “Human Sustainability”. The healthy eating market is a
demographic that will continue to grow in the future, and will provide generous profits if Pepsi Co is able
to obtain a large market share.

 Expand more into social benefits, especially for those in developing nations. Pepsi’s main
competitor Coca Cola has implemented a water purification program for African Villages, which provides
a valuable need and at the same time introducing their brand name where it was before unknown. If
Pepsi followed this same ideology with food products and water purification it too would significantly
increase brand recognition

 Capture more of the aging population’s market share. Pepsi is a company focused on a younger
market hoping to repeat the worldwide success of Coca Cola in regards to brand loyalty with the
generations born after 1980; however, there is still a large market with the Baby boomer demographic
that they could break into.

 A minor yet still important change that needs to be made is to their website. After comparing it to
competitors we feel that it needs to be simplified.

Overall PepsiCo is a successful company with substantial revenue, and a large footprint in the
marketplace. PepsiCo should continue to expand their growth and take advantage of potential
opportunities by continuing to improve on areas at the corporate top level, in the markets that they
currently are in, and in new markets and market segments that they wish to expand into.

 PepsiCo should improve their employee relations in order to create employees all over the world
that will promote the product both during their work day and in their personal life in order to create
“word of mouth marketing”.

 PepsiCo should look to cut some of their expenses

 PepsiCo needs to continue to expand their market share in the markets where they currently have
a strong presence in order to maintain their market share and their footprint in the marketplace.

 PepsiCo should become more proactive in the health food/product marketplace rather than being
reactive to the market trends. They need to improve their responsiveness and future projections to
market trends and changes that can therefore allude to different product segments and target markets.

Strategy Evaluation and Control.

 PepsiCo should expand into markets and market segments that they are currently not in, such as
Asia, India, and South America, in order to 23 expand their market share at the global level and to
increase their overall revenue. In doing so, they should increase the revenue percentage above the
current below 20%. They should evaluate the situation and growth again in one calendar year, and
analyze the total effect.
  PepsiCo should do market surveys of their target market segments in order to analyze the existing
brand awareness in the marketplace every two quarters and then analyze the overall change and trend
on the calendar year.

 PepsiCo should cut their expenses by a set percentage every quarter in order to increase their Net
Income each quarter and year. This would increase the bottom line and benefit the stockholders. It
would be advised to reduce costs by 10% as an original amount, and then potentially increase the
percentage after a few trial quarters.

 PepsiCo should position themselves on the cutting edge of the health trend in the marketplace by
increasing funds for R&D in order to research potential new product ideas. Funding should be increased
significantly and then the ROI on the positioning should be analyzed after multiple quarters of study

Sources/References:
https://www.slideshare.net/nandanraj5/value-chain-analysis-of-pepsi-co
http://panmore.com/pepsico-vision-statement-mission-statement-analysis
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https://logisticsmgepsupv.wordpress.com/2018/05/05/pepsico-the-problems-of-a-wrong-distribution-
strategy/

https://www.academia.edu/9365531/STRATEGIC_MANAGEMENT_FINAL_PAPER_PEPSICO_CASE_STUDY
_ANALYSIS_LECTURER

https://www.edrawmax.com/article/pepsico-swot-analysis.html