Multinational Strategy adopted by Coca Cola - Essay Example

? Multinational Strategy adopted by COCA COLA Contents Introduction 3 Analysis of multinational strategy 4 Significant drivers and financial factors 4 Strategic actions 5 Evidence from case studies 10 Conclusion and Recommendation 12 Reference 13 Bibliography 15 Introduction The international strategy of the multinational companies has occupied many researchers. However there are no widely accepted definitions of international business strategy. One approach adopted in the study of international business strategy is basically from the perspective of strategic focus. When companies become multinationals they tend to experience high degree of strategic tension. The MNCs drive for economic growth as well as success tends to pull the companies towards exploitation of the global economies of scale and scope through various operations that gets integrated on the global basis. In addition, the need of acceptance of the companies in its local country tends to make them more responsive towards national differences and policies (Root & Visudtibhan, 1992, p. 42). The multinational enterprise also known as MNEs owns as well as control the income generating assets globally and at least one fifth of the global output. In UK, one third of the company’s profit is derived from overseas operations. MNEs usually comprises of a relatively small number of large enterprises. The growth of the multinational enterprises is seen as a genuine activity of multinationals which included countries like United Kingdom, Japan, Switzerland, Germany, France and Netherlands (Sutton, 1980, p. 86). It is the pressure of globalization which has led companies to manufacture, design and market its products on a global basis. Pressure with respect to globalization generally arrives from company’s domestic and also foreign competitors who tend to challenges the company in each and every segment of the market where it operates. When the pressure is high, companies need to build facilities in the international countries and thus create an international network in those countries (Miltenburg, 2005, p.165). The company chosen for analyzing the multinational strategy is the Coca Cola Company. The company has been widely recognized as being one of the biggest multinational companies. The mission statement of Coca Cola states that the company strives to refresh the globe, inspire the moments of happiness and optimism and hence create value with an intention to make a difference (The Coca Cola Company, 2012). Analysis of multinational strategy Multinational strategies are mainly used when there exists a high pressure due to local responsiveness and globalization. Companies establish factories in those countries where the demand for its product are relatively high as compared to other countries. Mainly joint ventures and acquisitions are used to gain entry to the foreign country. Therefore when pressure due to globalization is high companies follows a special form of multinational strategy known as the transnational strategy (Miltenburg, 2005, p.166). Significant drivers and financial factors The significant drives for multinational strategy of companies can be categorised into various drives which leads to globalisation. Drivers are the factors, which has the ability to give rise to the required needs in the process of global strategy and they are divided into four main groups (Jane, et.al, 2005, p. 283). The drivers include, market drivers, cost drivers, competition drivers and government drivers. The market drivers for coke, which belongs to the soft drinks industry, would be medium in case of global strategy as Coke tends to have global customers and the customers need are also high for its products. Government globalisation drivers can be regarded as high in case of Coca Cola, because it is related with the political conditions of the operating countries. If the government policies and the company policies do not match, it would prove to be a big problem for the firm to operate internationally. Cost drivers for Coke would be low due to the existence of global customers as well as suppliers. Again the competition drivers for Coke can be said to be high due to globalised competitors. With the expansion of Coke into various different countries, its rate of competitors also increased to a very large extent (Nankervis, 2005, p.46). Coke has entered the emerging countries, as the developing economies tends to be a huge market for Coke to increase its profits and has immense opportunity to expand and survive in the market (Aswathappa & Dash, 2007, p.3). Coca Cola manages about 90 emerging markets and maintains its global branding strategy through collaborative practises (Holstein, 2011). Strategic actions Coke in order to survive in the competitive world, has adopted some significant strategies which has helped it become the biggest multinational companies and stay ahead of its competitors such as Pepsi co. According to Porter, in the context of multinational strategy, Porter has proposed the diamond strategy for the multinationals in order to deal with the international environment. The four elements associated with Porters Diamond strategy includes, Figure 2: Diamonds Porter Model (Source: Botten, 2007, p.63) Factor condition Demand condition Firm’s strategy and structure Customer characteristics (Walker, 2003, p.177). Coke in the process of going global has made changes to its factor conditions according to the needs and requirements of the specific country. Basic factors such as the raw materials, labour and other essential factors were changed and plants were set up in the country of its operation so to fit the localisation strategy. As seen in the above figure, Coke has changed its factor conditions in order to suit the firm’s strategy, international structure and to stay ahead of its competitors. The demand condition for Coke in its home market is also high; this has helped Coke to obtain economies of scale and helps it to experience the effects which it requires to compete in the global market. In addition to the diamond strategy, Porters generic strategy is presumed to be widely applicable to various competitive situations. According to Porter, company tends to peruse either cost leadership, leadership strategy or the focus strategy to achieve a competitive advantage (Griffin, 2010, p.244). Figure 1: Porters generic Model (Source: Bord Bia, 2010) Out of the three generic strategies proposed by Porter, Coke has adopted the differentiation strategy to achieve a competitive position in the world market. With the differentiation strategy, Coca Cola has managed to reach all its customers across the globe (ICMR-a, 2005). The differentiation strategy is used in situation when a unique attribute of the product or services which are highlighted and are similar to alternatives presented by the competitors. The differentiation strategy allows company to charge a higher price to increase its customer loyalty. The strategy is mainly is used when company think that their product provides a competencies and a profitable advantage than the cost leadership strategy (Stone house & Campbell, 2004, p.177). Coke differentiated its product through its strong brand name and a wide range of product in its product portfolio. Coke spends a huge amount of its total advertising budget in order to maintain the differentiation strategy adopted by Coke. Coke has created the differentiation through the adoption of an approach, the soft sell. Coke has been able to position itself on behalf of innovation and quality. Innovation is one of the greatest elements for coke. Coke spends a huge amount of money on its R&D. Coca Cola has been able to isolate its competitors from the beverage market because of its innovation techniques and brand name and loyal customer base. Its advertising also tends to create different image in relation to its product which provides Coca Cola with an advantage over its competitors like Pepsi Co and others. Coke’s Yangtze River project, can also be regarded as more of a multinational strategy rather CSR. Yangtze River project is one of the sustainability project undertaken by Coke and the Chinese government. Coca Cola has provided more than $5miilion in its partnership program (Environmental Protection, 2011). But this initiative can be regarded as a multinational strategy adopted by Coke. As Coke have big plans with respect to China, and with its stagnating growth rate in North America, Coke expanded its market share in China. The Yangtze River also had an advertising effect so to target the tier 2 cities which are the potential market for Coke (Wenzhe, 2012). Localisation strategy Douglas Daft, the CEO of Coca Cola, in the year 2000 had announced that the next evolutionary step of Coke would be to “go local”. The company was operating as a big organisation but at the same time was slow and insensitive “global” brand at that point of time when the market was demanding a more flexible, local and responsiveness Company (Schuiling, 2001). Coke has adopted the localisation strategy which revolves around the concept of “Think Local, Act Local”. Coke has adopted this strategy while re-entering the Chinese market and has now became the most popular band in China. Coke thinks that with local mindset, the company would be able to handle the functioning of the company in the international market as the managers and the local teams were more comfortable with the local market (Weisert, 2001). This was the reason why Coke has provided the responsibility to the local managers and the local team members so that the brand can get close to its target customers. The local managers would be able to develop local advertising and promotional methods in the process of launching new products in the market. However Coke has adopted new ways to manage its business. The company believes that needs of the local people are mainly important and in order to cater them Coke has developed a localised approach (Schuiling, 2001). Later the company, under the leadership of Roberto Goizueta adopted the strategy of “Think Global, Act Local”. The reason behind the strategy was that the key for global companies as to find the right kind of mix both for local and global into their operation. Coke is global, but at the same time it should be locally accepted. Thus Coke intends to provide the same happiness, brand architecture but communicated differently in different countries (Holstein, 2011). Evidence from case studies Coca Cola, has adopted the multinational strategy to become the most recognized brand in the world. Coca Cola has expanded its mode of operation globally as compared to any global enterprise. The overseas operation which generally accounted for about 90% profits contributed nearly two thirds of its earnings, amounting to $19.6billion in the year 2002 (IBS, 2010). The case study below shows the multinational strategy adopted by Coca cola in re entering the Chinese market. This case deals with the mode of entry and growth strategies of Coca Cola in China. The case aims to discuss the strategy that the company has adopted for re-entering the Chinese market along with its long term localization strategy. Coke had entered the Chinese market in the early 1920s with bottles imported from Philippines. In an effort to localize the production, Coke opened two plants in 1927. But due to the World War II, Coke faced a severe setback as the Japanese occupied China and took over the plants. But in the year 1946, after the end of the war Coke again opened a plant in Guangzhou. The plant located in Shanghai, became the fastest and the most up to dateline in China and gradually became the overseas plant to record an annual sales of about 1million cases. But with the setting up of PRC i.e. People’s Republic of China, where all the international companies were ceased and were asked to leave China, Coke shutdown its operation and the bottling plants of Coke were nationalized by Chinese government. After almost 30 years, in December 1978, China announced its “open door policy”. This policy was a part of Deng’s plan for economic reforms; this meant that China was ready to allow foreign trade and investment. However with the help of this policy Coke entered the Chinese market again in the year 1979. According to a survey conducted by the Far Eastern Economic Review (FEER) it was founded that Coke has over the years have become the most trusted brands in China. Coke was ranked in the fifth position, among the top 10 multinational companies who are operating in Asia. Since 1990, Coke has making profits and as per report of AC Nielsen, Coke was able to capture a market share of 50% of the beverage industry in China by 2002. Coke managed to achieve the success by applying its winning approach “Think local, Act Local” which has enabled the company to capture a huge market share not only in US but also outside US. This concept has particularly worked well in the Asian market because of the diversity in culture as well as income level which makes up for the consumer base in the Asian market. Coke allows the local managers to actively take part in the strategies and has the freedom to approve the local initiatives of the concern country. Coke’s strategy in re-entering the Chinese market was based on the localization strategy. Coke has worked very closely with the Chinese stated owned enterprise and developed a strong relationship with the government. Coke formed joint venture with the local companies in china, and sources inputs from them. The strategy of localization has proved to be a success in the Chinese market and it became the second largest market for Coke in 2003. According to the annual report, Coke operation in the Asian market boosted its revenue mainly during times when growth in US was slow. Coke encouraged and motivated with the growth rate in China, it further aimed to reach more customers in the rural areas. Rather than only focusing on the competitive areas, coke pushed itself into other parts of China and also India (ICMR, 2004). Therefore from the above case study it has been proved that Coke has been able to apply its globalization strategy into the Chinese market and has captured a decent amount of market share. With its localization strategy, Coke has been regarded as the most trusted beverage brand in China and in the Asian market and most of it revenue are generated from these countries. Conclusion and Recommendation After analysing the multinational strategy of Coca Cola, it can be recommended that Coke has been using the strategy of “Think Global, Act Local”, but now with an increased pressure from due to globalisation, Coke can adopt the strategy of “Think Global, act Global”. According o the Asian Wall Street journal, the mantra of “think local, act local” is gone. The world where the MNC operates has changed drastically and the MNCs must change in order to succeed as “No one drinks globally, local people gets thirsty and buy a locally made Coke”. Thus it becomes increasingly necessary for Coke to adopt the new strategies and succeed. However at the current date, China is the seventh largest market for Coke where it supplies, sells and produces its product in China and also employee’s Chinese people to fill up the positions. Coca Cola is very much optimistic about its future and aims to doubles its sales figure in the upcoming five years. 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