The Concept of Distribution Processes of Coca-Cola Company - Essay Example

?The Global Trade Distribution Processes of Coca-Cola Company Introduction Top managers in leading multinationals particularly in the U.S and Europe have conceded that globalisation is their greatest challenge in the business world today. Furthermore, recent days have become difficult in identifying which internationalisation strategies to implement as well as the type of people to conduct business with (Krishna, 2005). Entry into a foreign market marks the discovery of a new territory for business entrepreneurs. These foreign markets are associated with different laws, business strategies, currency, cultures and economies which sometimes impede the success of a given country. Entry into a new market may require products to be changed in order to suit the preferences and tastes of the new foreign market. Multinationals are to be aware of the best stores for their products, the features most valued by the foreign audience, and the right prices to set for the products. This document covers Coca-Cola Company (from here on known as Coke); a beverage company that sells and distributes more than four hundred brands in two hundred countries around the globe (Coca-Cola, 2011); critically analyzing its success with respect to its international distribution strategies and processes while evaluating the issues involved in its quest for global dominance in the soft drinks and beverages industry. Distribution is defined by Daniels, Radebaugh and Sullivan (2011) as “the course, physical path or legal title that goods take between production and consumption. In international marketing, a company must decide on the method of distribution among countries as well as the method within the country where final sale occurs.” The choice of a distributor and channel is the first step towards foreign market distribution. According to Daniels, Radebaugh and Sullivan (2011), a new company in a new market should rely entirely on external distributors as it is economical. This is a case where the new company distributes its products via other local distributors due to an under-developed market. However, the company can assume in house distribution once the market share is large. In Belarus, the market is not large and as a result, Coke relies on local distributors to handle transportation of products to retailers and final consumers in order to cut on their transportation costs (Daniels, Radebaugh and Sullivan, 2011). The US is one of the largest markets for the company’s products and as a result, the company has developed a business model that is mature and with distribution. Here, the company has outsourced its distribution and production to its distribution and bottling companies. The process involves marketers distributing Coke products (syrup) from Coke plants to bottling plants from where the canned and bottled products are distributed to centres and later they find their way to the final consumer or retail outlets (Kant, Jacks and Aantjes, 2008). Reports reveal that China will eventually surpass the U.S to become the Coke’s largest market (Chung, 2003). In China, Coke operates its own direct-to-retail distribution but the operation is faced by a slow growth accounting for just a fraction of the country’s Coke sales. The company has at least one sales centre in most Chinese cities housing more than one million people but most are owned by bottling companies (Weisert, 2001). The poor distribution of these stores in the country can be associated with inaccessibility and the culture of the Chinese people. A company looking for foreign distributors will typically opt for potential distributors. Among the common criteria followed when choosing these distributors is the financial strength of the company as well as its well-established connections. Since the relationship between the producer and the distributor is expected to be long lasting, the financial strength of the distributor is vital. In addition, the relationship will involve maintenance of certain things like inventories and as such assurances need to be made with respect to availability of money (Daniels, Radebaugh and Sullivan, 2011). Coke’s distribution and reach into developing markets is hampered by the relatively low financial power of most small companies and or enterprises. In India, for instance, Kaye (2004) reports that most of the company’s products are sold via wholesale distributors with other partners being large government owned tobacco, sugar and wine enterprises with a rich experience and equipment for product distribution. The best distributor a company can get hold of is that with vast and good connections (Niezen and Rodriguez, 2008). Such distributors are important due to their abilities to access rich information and their well-established relationships within their markets and with their customers. In Middle East nations where mutual loyalty has more importance than the product and its price in making of sales; Cateora and Graham (2007) reveal that establishing business relationships with well connected distributors makes the distribution of new products in such markets much easier. In most countries, the local enterprise enjoys extensive and good relations and or connections with the customers and the local market as well (Coca-Cola, 2011). As a result, in excess of 70percent of Coke’s - Belarus for example - manufacturing and sales/distribution activities are guided by the local market. In addition, a large amount of the services and supplies used in the whole manufacturing process in the company belongs to the country’s enterprises (Bielaszka-DuVernay, 2008). Matrix and Strategies SWOT Analysis Strength (S) i. Coke has a good reputation and with a name that is already established in the global market ii. Being a multinational, the company has a very strong position in the international market. iii. Coke’s distribution system is vast and easily available. Weaknesses (W) i. Coke has little consideration for outlets with potential like college canteens, hotels etc. ii. Unavailability of Coke’s products at the same time and at the same outlet. iii. The company offers small margins to its retailers. Opportunities (O) i. The demand of Coke and its products is higher than that of its competitors. ii. The company may also open up to rural areas. iii. The changing trends in social lives. iv. Distribution of snacks. Threats (T) i. Tough competition from competitors like Pepsi. ii. The public’s health awareness level is slowly increasing yet some of Coke’s products are not good for health. iii. Damages from economic instabilities. iv. Shortage of resources. TOWS Matrix In order to construct strategies to account for the SWOT analysis, a matrix of the above factors can be developed. This matrix is called the TOWS matrix and is as shown in the table below. Strengths Weaknesses Opportunities The capacity of Coke’s budget is sufficient enough to avail or maintain the demand for its products. The company should develop promotional strategies suitable to maintain or increase its current demand. In addition, the company’s distribution channel is vast to and this can help in placing its products in new markets. The company can go into snack food business in order to provide higher margins to its retailers. Devising effective pricing strategies is essential in ensuing that the interests of the retailers to stock snack products from the company are enhanced. In addition, the company should develop suitable placement strategies to ensure that the company’s products are available in one outlet at the same time since its demand is higher than that of competitor’s products. Threats Coke has a huge advertising budget which can effectively be used to position it ahead of its competitors via the creation of suitable promotional strategies. Furthermore, carrying out awareness campaigns to increase the awareness of the people about the products’ benefits can be beneficial to the company. To deal with the company’s shortage of resources, implementation of backward integration will result in own generation of power. Its strong market position means it has a wide target market plus huge segmentation of market. These are essential in maintaining profits during times of crisis. The company’s little consideration for potential outlets like colleges could be exploited by competitors thus toughening the competition in the market. Coke should expand its stores to cover these targets. In addition, the unavailability of products of Coke at the same time and in the same shop could also be exploited by potential competitors and pose a threat to Coke’s International market share. With the help of its vast distribution channel, the company should devise strategies to that ensure products reach all market segments. The Distribution Challenge Selection of a potential distributor does not just stop there. After a company selects a suitable distributor for the foreign products, it is essential that the company assess the challenges that might be associated with that channel as well as the distributor. In majorly developing nations, Coke has experienced troubles with distributors, for instance retailers and wholesalers having limited facilities for secure storage of products, limited space for display of the products, finances to account for inventories, personnel to sell the products as well as the transportation of the products to the final consumer. In order to gain a potential distributor’s loyalty, a company may identify and offer to assist with the distributor’s problems (Daniels, Radebaugh and Sullivan, 2011). Furthermore, distributors in these nations are faced with inefficient management and to deal with this situation, Coke employs three strategies that help improve the distribution activities of its products (Kwon, 2008). According to Kwon (2008), Coke outsources its distribution system to wholesalers which defines the precise routes of sales, teaches the wholesaler the correct practices for sales management, and assists them with their information technology infrastructure as well. In addition, the system demands that the distributor use their information technology systems so that real time sales information can be obtained. This strategy; with the data gathered that gave them the percentage of visits to each distributor that yields a sale; enabled the company to single out unproductive distributors and substitute them. A third strategy involves the use of a handheld gadget that displays the number of items in their storehouse to help in the identification of whether sales targets have been achieved as well as the types of promotions and products that are successful in given locations (Niezen and Rodriguez, 2008). Any company with the aim of making profits must pay close attention to details. In most countries, facilities for warehousing and roads are very poor making the timely delivery of products to customers at fairly reduced costs and with no or minimum damage quite problematic (Daniels, Radebaugh and Sullivan, 2011; Coca-Cola, 2011). Coke has no exception from this problem with respect to distribution of its products up to the final consumer. However, the company has devised means to curb these transportation problems in the US via the implementation of the ORTEC's vehicle-routing software to help with the planning of truck routes. The software helps Coca-Cola Enterprises assign sequential trips for all the delivery orders for them to be carried out by the vehicles available at the lowest cost possible. Through this new implementation, the largest bottler and distributor of Coke products in the world realised an annual cost saving averaging forty five million US dollars as well as recording an improved customer service (Kant et al., 2008:41). Conclusion The success of the company can largely be attributed to its campaign dubbed think global act local. In developing nations, the company tries to gain dominance into the local markets through local enterprises that sell and distribute their products in the low markets. Most countries have different legal set ups, cultural backgrounds and beliefs and as a result development of stores and related distribution channels is no easy task. In addition, acquisition of licenses in foreign markets is quite a huddle for foreign companies like Coke due to the existing trade barriers and state policies. However, through trade agreements, the company has managed to enter many markets across the globe with its world-class products. References Bielaszka-DuVernay, C. (2008) ‘How Coca-Cola built strength on diversity,’ Harvard Management Update, pp. 71-74. Cateora, P. R. & Graham, J. L. (2007). International Marketing 13th (Ed.). London: McGraw-Hill Irwin. Chung, H.F. (2003) ‘International standardisation strategies: the experiences of Australian and New Zealand firms operating in the Greater China markets,’ Journal of International Marketing, vol. 11, no. 3, pp. 48-82. Coca-Cola Hellenic Annual Report (2011). Winning in the Marketplace. Retrieved from http://annualreport.2011.coca-colahellenic.com/downloads/ar2011.pdf. Daniels, J.D., Radebaugh, L.H. & Sullivan, D.P. (2011) International business environments and operations, New York, Prentice Hall. Kant, G., Jacks, M. & Aantjes, C. (2008) Coca-Cola enterprises optimises vehicle routes for efficient product delivery. Interfaces, vol. 38, no. 1, pp. 40-50. Kaye J. (2004). Coca-Cola India. Tuck School of Business. Trustees of Dartmouth College. Retrieved from http://mba.tuck.dartmouth.edu/pdf/2004-1-0085.pdf. Krishna, G. (2005) ‘Strategies that fit emerging market. Risk and reward in world market,’ Harvard Business Review spotlight. pp. 63-76. Kwon, E. (2008) ‘Coca-Cola: A Powerful Brand,’ Business Week Online, p. 12. Niezen, C. & Rodriguez, J. (2008) ‘Distribution Lessons from Mom and Pop,’ Harvard Business Review. Weisert, D. (2001) ‘Coca-Cola in China: Quenching the Thirst of a Billion,’ China Business Review. Read More