International Business of Coca Cola Company - Term Paper Example

Executive Summary Coca Cola, which is the symbolic American soda company, is among the companies that have operated internationally for long. The company currently is a market leader in terms of soft drinks sales worldwide given that its products sell up to one and a half billion servings daily. Until the 1980s, Coca Cola’s business strategy could be summed up as one of substantial localization as seen in its local operations with high levels of independence. The company operates with a flexible organizational structure whose top is the corporate segment. The corporate segment not only makes all of the company’s top decisions but also provides direction and support to the other sectors. Currently, Coca Cola faces competition from other soft drink producers that is not all that substantial but the threat from substitute products is growing. These are only but a few o the challenges that the company may have to face – both now and in the future. The soft drink industry may be strong for now but this does not mean the consumers will remain marred to it. Coca Cola should pursue a strategy that will reduce the overall cost of its products. This strategy will give Coca Cola a much competitive advantage over its rivals who have already adapted methods of lowering the cost of their products. This is one of the many recommendations that the company should adopt if it has to enjoy continued success in the international market. International Business: Coca-Cola International Business is the terminology that generally describes the business activities that occur across the boundaries of countries for both profit making and political reasons (Daniels & Radebaugh, 2007). This article will explore one such company doing business internationally namely the Coca Cola company, and identify a few significant issues related to its international operations. Overview of the Coca-Cola Company Coca Cola, which is the symbolic American soda company, is among the companies that have operated internationally for a lengthy time period, having first gone international in the year 1902. It is currently a market leader in terms of soft drinks sales worldwide given that its products sell up to one and a half billion servings on a daily basis. The company can also boast of having the world’s largest production, distribution and marketing system of syrup and non-alcoholic beverage which is in fact double in size of its nearest competitor. For numerous reasons, the Coca Cola Company holds the belief that it will maintain its international growth. Among these reasons are its rising disposable income and the global reduction of trade and political barriers. Another major boost to its growth is the sharing of cultures, news and ideas around the world which has created good marketing opportunities for companies seeking to expand globally. Part of the company’s mission is to maintain its trademark status of being the world’s most powerful and to also effectively and efficiently utilize its pervasive distribution system (Black, 2009). Coca Cola’s International Business Strategies Until the 1980s, Coca Cola’s business strategy could be summed up as one of substantial localization (Hill & Jones, 2009). This localization strategy is shown by the company’s handling of its local operations with high levels of independence and also the granting of its county and regional leaders with the independence to manage their country businesses whatever way they see as fit. The business at any of its regions is therefore managed like the business belongs to the particular region. This means that the competition in each country is handled independently of competition in other regions of countries. Coca cola’s recognizes the need to integrate its international business operations with its integration versus responsiveness strategy and has even put in place structures to support this. Each market that Coca Cola operates in is unique in its own different ways, for instance, comparing Coca Cola’s US and Chine market, the US consumers seem to prefer a much sweeter Coca Cola than the Chinese. The company’s organization strategy supports this trend by letting each regional branch respond to the needs of its clients independently (Hellriegel & Slocum, 2007). This strategy took a different turn in between the 1980s and 1990s when Roberto Goizueta, the then company’s chief executive officer, renewed the company’s emphasis on its flagship brands, which were further extended by the introduction of brands like cherry coke, diet coke among others. The company’s localization strategy did not result in much growth as had been anticipated and as such, the company begun swinging back towards to centralized coordination that saw the company’s headquarters, which is in Atlanta, oversee both product development and the marketing of all of the company’s products in the different nations that the company operated in (Hill & Jones, 2009). Wanting to get out of the doldrums, the company persuaded one of its former executives, Isdell Neville, out of retirement so he could steer the company’s strategic mission towards success. Over the years, the company has applied different strategic paradigms changes including offload of bottling debts, financial re-engineering and product diversification, mentioning but a few. The financial re-engineering in the 1980s saw the company spun off its bottling operation but retained a minority shareholding. This has continued to date and whenever Coca Cola starts operations, it always ties up its operations with local bottling partners, maintaining an interdependent relationship with them. Coca Cola has adopted the diversification strategy as part of its international business strategies in an effort to satisfy the different market needs of the different markets it operates in. Coca cola continues to adopt product diversification by exploring new beverage categories in its tradition of portfolio expansion in terms of brands and products. The company currently produces over 300 beverage brands but keeps its primary focus on the Coca cola, Fanta, Sprite and Diet Coke brands (Hitt, Hoskison & Ireland, 2003). The company originally produced only carbonated soft drinks but has since diversified to non-carbonated and sports drinks. This strategy however, has not resulted in much gain due to what is seen as the consumers’ lukewarm response. Nevertheless, Coca Cola still moves the direction of being a beverage and snack company. Coca Cola, which has its operations divided into six units of operation, has in addition adopted the strategy of developing new alliances in line with its expansion plans. Coca Cola has over the years joined forces with numerous well established companies with the aim of furthering its diversification strategy. For instance, its joint venture with businesses like Nestle has enabled it to venture into production of iced tea, fruit juices and coffee (Stahl, 2007). The company’s buyout of Mad River Traders was seen as a diversification strategy aimed at reducing over-reliance on core products as this move enabled it to gain access a variety of Mountain Style juice cocktails, lemonades and teas (Sarkar, 2007). Apart from stimulating the company’s sales, these diversification ventures reflect an increasing and continuing tendency towards finding suitable product range that will be more appealing to the market, especially the youth. Coca Cola has launched several products that especially target the young in the society and still continues with plans of coming up with more products for this market. Coca Cola’s broad diversification strategy has enabled the company effectively counter the fast and ever-changing consumer tastes, preferences and lifestyles. The diversification strategy has also assisted in capturing the various markets within the soft drink industry which has in turn enabled the company charge a premium low price on its products and therefore maintain a loyal customer base. The company’s distribution system reached over 200 countries worldwide (Mooij, 2005) and, with such a spread out and enormous consumer base, Coca Cola has renewed its focus on enabling its clients regularly access their products and therefore make them (the products) a component of their daily lives. Coca Cola, additionally, has even ventured into economies which were once viewed as closed, such as the Soviet Union, East Germany, and Chinese markets. As it ventured into these new markets, Coca Cola applied its strategy of partnering with the respective market’s local bottler. Coca Cola’s Organization of International Business Operations All businesses require an organizational structure in order to functional properly. Coca Cola, being a large multinational firm, has to satisfy both the local and global needs and therefore operates with a flexible organizational structure whose top is the corporate segment. The corporate segment not only makes all of the company’s top decisions but also provides direction and support to the other sectors. The company runs five strategic business units that are spread around the world (Mennen, 2010). The units are further divided into smaller regions and at each level, the management is further divided according to functions for instance finance, marketing, production, human resource and others. The company realizes the importance of being able to satisfy the ever changing customer needs and this was seen as the major cause of its decentralization move not only in the 1990s but also in the recent times. Coca Cola’s has two operational groups namely the corporate group and the bottling investments group. These groups are further divided according to their regions of operations namely North America, Latin America, pacific, Eurasia, Africa and the European union which are each also divided into various geographic regions. The decentralization of the company’s operation is targeted at quickening the decision making process at the local level which in turn helps the company efficiently and effectively respond to the ever changing market demands (Griffin, 1993). Since most operational decisions are made locally, the higher level management is left with more time to focus on the company’s long-term planning. Certain company divisions, for instance, the marketing, human resources, innovation, finance, planning and strategy are located centrally within the respective divisions of the company. Most decisions are usually arrived at by the top management level though there are a few decisions that are left for the lower level management levels. A good example of the company’s decision making process was illustrated in 2002 when the corporate headquarters made the decision to sponsor the world cup but allowed the local units to decide on advertisement issues. This enabled each division to customize their commercials and advertisements so as to appeal to their respective local markets. Internationalization Challenges Faced by Coca Cola It is with no doubt that carrying out businesses at a local level is much simpler than going international. Businesses operating at local levels have to only worry about their country’s legislations, labor problems, economics among other local concerns but firms operating at an international level, like Coca Cola, face both the complexities of their home and host countries. Additionally, these companies must tackle the complex international problems that occur every now and then. During Coca Cola’s move to go international, the company has gone through various challenges of adjusting to the uncertainty of every new environment they ventured in. Going international means also means more exposure to competitors for the same clients. Its main source of competition is PepsiCo whose competition is mostly felt in the Middle East. Pepsi’s strong Middle East presence is a major challenge to Coca Cola. The pie chart below shows how the American non-alcoholic beverage market is shared among the major players as per 2007. Source: www.wikinvest.com The not so strong presence of Coke in the Middle East could has been a result of the Arab league’s actions against Coca Cola, some decades ago, for showing interest in doing business in Israel (Donovan, 1974). Of the many challenges the company has experienced in its international operations, the accusations of its ground water depletion and pollution in India seem to have been the worst, resulting in the shutting down of one of its bottling plants. According to India Resource Center (2010), it will not be long before the Coca Cola Company is made to pay for worsening the water situations in parts of India, particularly in the Plachimada area. Apart from depleting the water in Plachimada, the Coca Cola Company is further accused of also contaminating the soil, causing heath problems and other complications to the surrounding communities from the pollution of water resources. The coca cola plant in Jaipur, India has also faced similar accusations. Still in India, the company is implicated of being involved in a bribery scandal in which a member of a local pollution control board was in 2003 alleged to have received bribes to announce that the Coca Cola’s pollution problems was of acceptable standards. Soon after, BBC’s face of facts program aired a show in which it highlighted the problems and struggles of the Plachimada people. BBC then proceeded to send a few samples of sludge from the local Coca Cola factory together with samples of ground water to the University of Exeter for analysis. The scientists at the university found that the samples contained high chloride and sodium minerals and also found some traces of toxic metals like lead and cadmium in the samples. Several other tests by government and independent agencies confirmed that the ground water was not fit for human use, not even washing or bathing (Bhavnani & Foran, 2009). This was followed by a cancellation of the Coca Cola’s bottling license and a year later, in 2004, the company halted its production, though not permanently. There since have been lobby groups declaring that they would not allow the factory to reopen and several law suits challenging the company’s license cancellation. Coca Cola’s reputation was further worsened by some media reports that claimed that numerous laboratory tests carried out randomly on certain soft drinks in the Indian market have revealed that the products from Coca Cola and few other soft drink companies contain disturbingly high amounts of pesticides. Coca Cola has however denied all the charges against it and maintained that all its products comply with all the statutory requirements and are very safe for consumption (Singh, 2005). The dossier on the company is widespread and there have been similar allegations together with allegations of safety and health violations against both workers and local populations in Coca Cola’s manufacturing and bottling plants in Panama, Turkey, Indonesia, numerous African countries and even within the US. In 2004, the multinational monitor named Coca Cola as being among the worst corporations and the company name was added into the list of the companies that are accused of committing rampant violence against unionized workers. As of 2004, Coca Cola was accused of committing 179 major violations of human rights against its workers, which included nine murders (MacDonald, 2007). The most disturbing of these accusations were the continuous allegations of the company management giving directions to paramilitary personnel to commit violence against workers. On being asked about these allegations, the company’s officials shockingly admitted that they had never probed the connection between paramilitaries and its plant managers. The other problems that the company’s internationalization faces include political and legal issues. The above mentioned problems in India make it difficult for the company to gain a good market share in the country. Its operations to the once closed Chinese market presents Coca Cola with an opportunity to dominate that market but the company has to look for ways of dealing with China’s political, cultural and currency challenges. Coca Cola has also faced several other challenges that have threatened to ruin its reputation like the 1999 complaints in Belgium which involved over 900 people, mostly children complaining of developing various symptoms after consuming Coca Cola. This resulted in the withdrawal of millions of bottles from the market and this cost the company over 100 million USD (Goldfrank & Flomenbaum, 2006). From these few cases covered, it can be observed that Coca Cola has performed well in terms of damage control. All the challenges that have happened in the past have been addressed well in an effort to stop these occurrences from interfering with future challenges. This is proved by the fact that the average Coke drinker does not even know about these complaints and coke is still the number one soft drink to many a people. Coca Cola’s Future Challenges Understanding the dynamics of the international business environment is a complex process since there are so many factors that can impinge the operations of an international business. The business environment is ever-changing and its vitality is also on the increase due to the threat of competition and the changing business cultures. International businesses therefore need to have strategies that are in line with the motives of individual governments and investors both at broad and more specific levels. Currently, the competition challenges that Coca Cola faces from other soft drink producers is not all that substantial but the threat from substitute products is growing. The soft drink industry may be strong for now but this does not mean the consumers will remain marred to it. Will the awareness about the disadvantages of fizzy drinks growing, consumers may soon prefer substitutes like milk, coffee, fresh juices and hot chocolate drinks. The company has made efforts towards diversifying into other products but most of its revenue still comes from its soft drinks. Majority of Coca Cola’s products can be associated with obesity especially with those consumers who have rather inactive lifestyles. As health concerns grow, public backlash and industry regulation may soon harm the sales of its products. By addressing these challenges and the other challenges that Coca Cola is going through, Coca Cola would have put itself in an a position to ensure its growth in revenues. This would also ensure it maintains a competitive advantage over rivals if it can find solutions to these challenges before the competition. Recommendations As the company continues to ventures into different markets and diversifies its product range, it is recommended that Coca Cola pursues a strategy that will reduce the overall cost of its products. This strategy will give Coca Cola a much competitive advantage over its rivals who have already adapted methods of lowering the cost of their products. The company should also seek better ways of recycling and reusing its waste water so as to reduce the depletion of ground water, which already has caused some problems for the company as earlier covered by this article. The company has already made impressive progress in packaging some of its products in recyclable containers to reduce the depletion and pollution of the environment. Industries and markets are both dynamic and are always changing with time. They operate in life cycles and draw competitors in different sizes and numbers depending on what stage they are at in their life cycles. Coca Cola has been in existence for over a century and still wants to be around for long, and as such, the company has to seek ways of straightening its profitability fluctuations. This can be achieved by constantly reassessing the product market position and researching on better ways of satisfying its survival strategies. If Coca Cola is to boost its occupancy and profitability, then it must adopt new advertising methods that will capture the attention of its clients. The company could try increasing its use of newspapers and television to advertise its products to both showcase its variety of products and to illustrate the positive effects that result from the utilization of their products. The internet, in particular, e-commerce has recently turned out to be popular with companies seeking to get their messages across to as many people as possible with minimal costs. The company could collaborate with internet service providers to create, place and post reminders on the websites of other business so as to boost outreach. The company should in addition streamline communications with international customers with the view of boosting its camaraderie with them. This is important because international clients bring in more of the revenues and it is them who determine the success or failure of international expansions. The company could also utilize special promotion techniques to boost sales in seasons of low purchases. This can be done by lowering rates, running promotions, or offering special discounts so as to take their products even closer to the consumers. References Baran, R., Pan, Y. and Kaynak, E. (1996), International Joint Ventures in East Asia, Routledge: New York. Bhavnani, K. and Foran, F. (2009), On the Edges of Development: Cultural Inventions, Taylor and Francis: New York. Black, K. (2009), Business Statistics: Contemporary Decision Making, John Willey and Sons: Hoboken, NJ. Daniels, J.D., and Radebaugh, L.E (2007), International business: environments and operations, Prentice-Hall: Massachusetts. Donovan, J. (1974), U.S. & Soviet policy in the Middle East, 1957-66, Facts and File: New York. Goldfrank, L.W. and Flomenbaum, N. 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