Analysis Of Business Environment For Coca-Cola Company - Research Paper Example

Running head: Business Environment Analysis of Business Environment for Coca-Cola Company 29 July 2012 Background The Coca-Cola Company is the largest beverage company in the world and the leading producer and maker of soft drinks. It is surely a global brand known by anyone because of its popularity through publicity and marketing. The firm in the beverages industry1 whose business idea was first conceived in downtown Atlanta on May 8, 1886 when only one product called the ‘Coca-Cola’, a mix of Coca-Cola syrup and carbonated water existed. The price of one glass of coke back then was five cents a glass and only 9 drinks per day were sold. Today, the company is more than 126 years old with a client base around the world in more than 200 countries from just one city in one country back then (Coca-Cola Bottling Co., 2012, p.5). The company currently estimates the average drink sales per day at about 1.8 billion with more than 500 brands by 2011, four2 of which are the world’s top-five sparkling brands. Coca-Cola is one of the only trademarks with the universal presence and became a billion dollar brand in 2010. It has sponsored the biggest sporting events in the world, the Olympic Games and the FIFA world cup for more than 80 years (The Coca-Cola Company, 2012, par.2). The Company has undertaken many social responsibility initiatives including the Haiti Hope Project in 2010 which aimed at developing a sustainable mango industry in Haiti. The company attributes its business success to five main factors which are unique and recognized brand3, quality, marketing, global availability and ongoing innovation. This paper will explore the business environment in which Coca-Cola Company operates focusing on among other things its SWOT, competitiveness and value chain. Assessment of the General Environment The general environment consists of the external factors which affect any business. These factors are dynamic and range from Demographic, Economic, Political/legal, Socio-cultural, Technological and Global. All these affect the business of Coca-Cola Company in one way or the other, but two of the most important factors for the Coca-Cola would be the economic and technological factors. The behavior of economies of the countries in which the company transacts business has a great influence on the performance of company products in those countries. Rise in inflation and interest rates trends increases operating costs and reduces production within the industry as well as affecting demand for beverages sold in those markets. When the countries face trade deficits or surpluses, it has an impact on the exchange rate which may be favorable or unfavorable thus increasing or reducing costs of raw materials and products because of increases or decreases in the value of exports/imports. The company’s products in those markets are affected accordingly. Economies facing budget deficits, as opposed to surpluses, may increase taxes in order to make up for the deficits, again impacting on Coke’s business in terms of increased business costs. Increase in rates of consumption may favor the uptake of beverages sold by Coca-Cola, but increase in savings by the populace will be detrimental to the company’s business. Changes in GDP levels, as well as business cycles are additional aspects that have an influence on the industry and business in which the company operates under the economic factor. Technologically, industry as well as firm benefits and/or vulnerabilities would be associated with taking or failing to take advantage of new generational purpose technologies, research and development, converging technologies and process architectures as part of the aspects of technology. In addressing business environment, competition is a key element that always comes to mind. The five forces of competition that are employed to establish the position of the company relative to its competitors in the industry as given by Porter are potential of new entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitute products and rivalry among competitors. The Coca-Cola Company has taken advantage of all these forces to increase its competitive advantage around the globe but may be said to have keenly focused on two of these namely; bargaining power of buyers, bargaining power of suppliers. The company has managed to maintain a large customer base throughout its existence in business because of its wide range of products that are fulfilling to customer needs. There is strong bargaining power of buyers as evidenced by large purchases of industry output, high proportion of sales, ease of switch to other alternative coca-cola beverages (Coca-Cola Bottling Co., 2012, p.6). As for its suppliers, Coca-Cola Company has a strong bargain because it is the dominant firm in the beverages industry and suppliers do not view other independent firms in the industry as main customers in their supply business. The firm can leverage on the bargaining power of its buyers and suppliers to grow its business further in the future. For supplier power, it can continue to ensure and promote: its dominancy in the industry, better range of products such that satisfactory substitute products are not available to industry firms, criticality of suppliers’ goods to Coca-Cola’s marketplace success, high switching costs as a result of effectiveness of suppliers’ products, On the other hand, Coca-cola can address buyers bargain by: maximizing on the current benefits of large portion of purchases out of industry’s total output, ensuring easy switch to other products in its range, Minimize the threat of buyers integrating backward into the seller’s industry. A SWOT4 analysis of Coca-Cola Company would give a number of strengths, weaknesses, opportunities and threats (Gregory, 2004). Strengths include vast experience in the industry and a wide range of products for different market segments, global presence and customer base, strong branding and association with customers through social events such as sports, a known market share given that the company has been in business for long, market leadership and strong competitive advantage, good insight for planning market strategies, and better customer care because there are market segmentation that has been established. Among the weaknesses are unbalanced market segregation with some segments receiving lower attention and concentration, branding has concentrated on one or two products with a majority of the others not popularized and management structure may be improved to strengthen grass root market presence and better understand the needs of customers in certain regions of the world. Some opportunities that the company has include entering new markets, rebuilding financial and training systems, and further increase and sustain competitive advantage. The company can leverage on existing competitive advantage as a most popular brand to increase market share and become even a much stronger global leader in the soft beverages market. Threats include but not limited to; effects of global economic downturn, country law and regulations both on nutritional concerns – banning soda as a beverage on nutritional grounds, and on foreign investments – some are restrictive thus limiting expansion strategies, barriers and/or limitations associated with cultures, beliefs, regions and religion, expectation to contribute substantial resources to corporate social responsibility initiatives, risks coming with venturing in new markets, increasing range of substitute products, increased overhead costs to sustain the presence in the market through advertising, technological advancements and heavy wage bill for high level human resource, and increasing competition. The greatest global threat the Coca-Cola faces is with regard to nutritional value of its beverage brands. There is a lot of speculation that soda has inputs that increase the incidence of obesity among other health concerns. A ban on consumption of soda or even limitation on the amount that can be sold will have a huge impact on the business of the company globally. The company can deal with this problem by carrying out global campaigns on the health benefits of its products if any and sensitizing the market against negative publicity about its products (Egeihoff, 1982. p.437). The company has a ten year vision that is purposed to position the firm to embrace a forward looking business perspective in the ever changing world circumstances, understand forces and developments that will sway trade in days to come and offer swift preparation for tomorrow. Coca-Cola Company vision is to be the world’s leading provider of branded beverage solutions, to deliver consistent and profitable growth, and to have the highest quality products and process. The vision is all about getting ready for tomorrow today and creates a long term purpose for the firm’s business as well as acting as a roadmap to successful business performance. The vision statement is packaged in six different dimensions of people, portfolio, partners, planet, profit and productivity. The mission, on the other hand, is one that aims to proclaim the purpose for which the company is in existence and provide a benchmark for evaluating decisions and actions made by the management. The mission is stated in three sentence statements as follows (The Coca-Cola Company, 2012, par.1); “To refresh the world”, “To inspire moments of optimism and happiness” and, “To create value and make a difference”. The firm can focus its growth strategy aggressively to achieve its vision by taking maximum advantage of its strengths and opportunities and minimize weaknesses to effectively fight and avoid threats. In terms of strengths and Opportunities (SO), Coca-Cola company can use strengths to take advantage of its opportunities and strategy include taking advantage of existing market presence and strong branding to penetrate new markets and win wider customer base around the globe and utilize good insight about the market to foster customer satisfaction and improve financial and training systems. For strengths and threats (ST), it can take advantage of its strengths to avoid real and potential threats and use existing market experience to increase competitive advantage and reduce risks of venturing into new markets. Under weaknesses and Opportunities (WO), it can use its opportunities to overcome its weaknesses to improve staff management through motivation by rebuilding financial and training systems, venture into new market, improve work processes through technology and increase firm size as a result of business growth. Finally, weaknesses and threats (WT) – company can minimize weaknesses and fight threats to improve financial and training systems and undertake staff motivational initiatives to minimize risks associated with new markets and increase competitive advantage as well as constantly build expertise in the firm to minimize chances of the firm undertaking risky business internationally such as the experiences seen during the global financial crisis. Also, technological advancements in the industry may be useful to increase competition (Davis, Eisenhardt and Bingham, 2009, p.432.). Using SWOT analysis, the company should be able to focus on its strengths, curtail threats, and take the utmost possible gain of opportunities available, and trigger aggressive strategy formulation. With SWOT, the firm has a better understanding of its competitors which can provide insights to craft a coherent and successful competitive position. To maintain and/or increase customer loyalty, the company should employ strategies that jealously guard its existing market share and also explore ways of expanding the customer base to grow revenue and increase business performance. Product differentiation based on customer segments is one of the strategies the company can use. The company should also explore the strengths and limitations of its competitors by interrogating the soft spots of alternative products to strengthen its products. Other strategies may include going an extra mile to know its customers better, meet and exceed customer expectations, increase value derived by customers from its products and endeavor to distinguish between needs and wants. References Coca-Cola Bottling Co., (2012). Coca Cola Bottling Co. Consolidated SWOT Analysis. Coca Cola Bottling Co. Consolidated SWOT Analysis; p1-7 Davis, P., Eisenhardt, K., and Bingham, C. (2009). Optimal Structure, Market Dynamism, and the Strategy of Simple Rules. Administrative Science Quarterly; Vol. 54 Issue 3, p413-452 Egeihoff, W. W. (1982). Strategy and Structure in Multinational Corporations: An Information-Processing Approach. Administrative Science Quarterly; Vol. 27 Issue 3, p435-458 Gregory, J. R. (2004). The Best of Branding: Best Practices in Corporate Branding. New York: Professional Publishing. The Coca-Cola Company, (2012). Our Company: Mission, Vision & Values. Retrieved from http://www.thecoca-colacompany.com/ourcompany/mission_vision_values.html Read More