Organisations Management at Coco-Cola - Case Study Example

Review of an organisations management – a case study on Coco Cola Introduction to the business The production of soft drinks was mainly started in 1830. From that time experimental evolution started with soft drinks and there was an evolution in 1781 where the first cola flavoured beverage was manufactured and introduced to the world. This type of drink is called soft drink or beverages which has regulated carbonate. This drink does not contain alcohol. In today’s world soft drink is very popular. There is a huge demand and supply of soft drink which results into a tough competition. One of the big players of soft drinks is Coco cola. The company started in 1886 in US. From that time it has become one of the dominant players among the three big giants of the soft drink industry. It has become the most valuable brand in the world. Not only coke it also manufactures many other flavour of soft drinks like Fanta, Sprite, ready to drink coffee, juices etc. The company has its setup in all over the world with largest distribution system of beverage. Legal requirements for the business There are many legal issues involved with the business of soft drinks and water based beverages. As one of the manufacturer of soft drink Coco Cola also has to maintain the legal issues. The company has to maintain a certain standard for the composition of package water and other beverages, soft drinks etc. Labelling of the drink and the water the mixed in the drink are also included in this standard. The composition of the drinks has to be mentioned on the bottle. The date of manufacture and expiry should be written on the bottle. Nutritional value of the product has to be mentioned on its packet or bottle. Coco Cola has to pay a certain amount of tax to the government of different countries do doing the business. Apart from maintaining these general laws of soft drink industry Coco Cola Company has laws of their own to. Those laws always are related to company policies, shareholder, board of directors, officers, recruitment etc. Date, time & place of the annual meeting of the shareholders shall be designated by the Board of Directors from time to time. Regular meeting of board of director are to be held. The number of board of director should not be less than 10 and more than 20. Every year in the annual meeting of the company the shareholders elects the board of director. The Officers are selected by the Board of Directors. The Company can have Chief Financial Officer for supervising the financial affairs. He is elected by the Board of Directors. These are some major legal issues involved in Coco Cola. Market specific legislation as applicable A legislative issue happen with coco cola in US. There Coco Cola sell a beverage blend “Blueberry Pomegranate” which contain blueberry juice and pomegranate less than 1%. A specific guideline is provided by Food and Drug Administration (“FDA”) for juice labelling. A competitor of Coco Cola, Pom Wonderful LLC alleges that the label of Coco Cola juice constitute the practice of unfair trade. The company sued Coca Cola under the Lanham Act. Coco Cola denied that Lanham Act can’t be applied on food labelling issues. In India, Coca Cola had faced health related issue which became a major legal challenge for the company. India farmers were using Coca Cola as pesticides for their farming’s as this drinks works as pesticide and is also cheaper than pesticide. This meant that Coca Cola contains pesticides in it. The company was sued and many researches were done on that which establishes the absence of pesticide in the drink. Core financial requirements of the business and the owner Coca Cola is the American multinational beverage company. The financial objectives of this company are to improve in economic profit and cash flow maximisation for long term. The company wants to invest in such opportunities which will enhance their cash return. The requirement of the business is to generate high return on capital in an attractive area of investment. The owners are required to do a bulk of investment on infrastructure, distribution network, facilities, technology etc in the emerging market to increase the profitability and financial growth of the company. Huge investment is required to increase the production and net revenue of the company. Good financial strategies are required to implement in order to optimize the cost d capital of the company. Debt financing is required to maintain the debt level based on the company’s cash flow, percent of the debt in total capital and the interest covered. In the business policies of financial risk management are important for estimating and overcoming the risk involved in it. Derivative financial instruments are required to use for reducing the exposures to the financial risk. Exposures of foreign currency should be managed on the consolidate basis. It will allow the company to take advantage of some natural offsets. Measures to adjust the current mix of assets and liability require using by the company for some exchange contracts. It will reduce the expose from fluctuation of exchange rates. Strong dividend policies are required to make for having high earning growth continuously. Pricing of the product is required to done in such a way that it will cover all the expenses of the company for manufacturing it and will also include profit in it. The price should not be more than the general price of the soft drinks in the market. The company need to focus on the gross margin and the net operating revenue of the business for making financial decisions. Acquisition and merges is required to done by the company for growing financially throughout the world and expanding its business. The owners of the Coca Cola need to take very important financial decisions to according to the resources of the company (Vellani 70-72). Tax requirements, timescales and relevant Coca Cola has to pay a number of taxes to the government of different countries for doing its business. In 2006 an accounting guidance was issued by FASB on taxes that the company has to pay. For this Coca Cola had been required to change their accounting policy in 2007. The tax rate to this company is based on tax planning company’s income, statutory tax rate etc. For evaluating tax positions and determining the tax expenses annually important judgement is required. It is required to establish the reserves for removing the benefit of tax of the company’s tax position on the time when the company finds that there is an uncertainty of the position based on the position of the tax is not same that it cannot be sustained. The company needs to evaluate the uncertainty of the tax position. As the progress of tax audit it required to adjust the reserves including the impact related to penalties and interest in changing circumstances and facts. By the tax law, at different times many items are required to be added in the tax return of coca cola. The company finds out future tax benefits based on all the information available. The company need to evaluate the tax benefit involved in assets of deferred tax by analysing its taxable income using projected historical and future results of operations. Coca Cola also needs to develop tax planning strategies (Cross & Miller 51-54). Allowance valuation is required to be developed by the company unless the management decide that it is not so likely that Coca Cola will realize the benefit of tax related to defer tax asset. It needs to maintain the records of its subsidiaries on all over the world for calculating its taxes. The company requires formulating plans for reinvestment of the earnings from foreign subsidiaries. It means that this type of earnings will be surely reinvested in the jurisdiction of applicable tax. The tax rate which shows the deferred tax liabilities & assets is the annual enacted tax rate. It is the requirement of the company to record the valuation allowance for reducing deferred tax assets to such an amount which will not be realised. Coca Cola also needs to pay sales tax, service tax to the government of different countries (Shachman 61-64). Recommendations for the business to maximise its efficiency and minimise risk for the organization The sale of carbonated drink decreased in a huge amount from 2005 with the increase of the health consciousness of the people.US, the major market of Coca Cola had faced a drop of more than 8% in the volume of sale of Coca Cola in 5 years and still now it is decreasing. The main recommendation this company is that not to focus mainly on the carbonated soft drink. Rather it can give more focus on its other products like bottled water, energy drinks, non carbonated drinks etc. in 2006 the market of energy drink faced a rise of 50% and still now its growing a lot. Health drink and energy drinks is the latest beverage for the new generation and health conscious people. This will help to minimise the risk of the company of facing loss and will also help the company in diversification of its product range (Ashurst & Hargitt 47-51). Coca Cola can be said as a market leader in soft drink industry. As this industry is facing a negative growth so Coca Cola can provide its serve in wellness & health area also. It can manufacture water beverages, tea which contains les sugar and sodium. For younger people it can produce organic beverage. This will lead to the maximization of the company’s efficiency in the changing market scenario. Pepsi is a strong competitor of Coca Cola. They have a cold war with each other. Pepsi is continuously diversifying its product range especially to healthy food In terms of market capitalization Pepsi had once overtook Coca Cola in 2006. In 2010 Pepsi’s gross profit was also more than Coca Cola in US. Thus Pepsi gives a tough competition to Coca Cola with its wide range of products. With the rapid changing environment Coca Cola should have both vertical and horizontal expansion. The company have to be sensitive about the new trends and have to position itself as a unique brand to lead the competition. The company needs to develop more flexible advertising strategy for attracting more customers. It is also recommended to the company to do some major social activities for doing corporate social responsibility (Twomey& Jennings). Summary Coca Cola is one of the leading manufacturers of the carbonated soft drinks in the world. It is the brand which can inspire and influence its customer throughout the world. It has international presence in more than 200 countries. The business is running for more than 127years. It is a global brand. It has standardised with many adaptations with the changing market scenario. As the company is very big strong legal and financial policies are there to maintain the management of the company in an effective and efficient way. The company has to maintain different legal rules both in the organisation and with the product. The internal legal rules like related to stakeholders, Board of Directors, officers etc are formed by the company itself. The legal rule related to the production, packaging and selling of the product by the company is decided by the government or food department of the country. For selling its products Coca Cola have to pay different types of taxes to the government. This includes income tax, sales tax, service tax etc. For minimizing the company’s risk Coca Cola has taken a number of measures and used much strong financial policies. The company has a number of soft drinks, beverage, of different flavours. It faces a strong competition with Pepsi, another soft drink company. The market of the soft drink has huge demand & supply in all over the world. So day by day the competition is increasing. But now a day the people are becoming health conscious. So the soft drink companies are diversifying its business in other healthy food products. Works Cited Ashurst, P. Hargitt. R, Soft Drink and Fruit Juice Problems Solved. London: Elsevier. 2009. Print. Cross, Frank. Miller, Roger. The Legal Environment of Business: Text and Cases: Ethical, Regulatory, Global, and Corporate Issues. Cambridge: Cengage Learning. 2011. Print. Shachman, Maurice. The Soft Drinks Companion: A Technical Handbook for the Beverage Industry. New York: CRC Press. 2004. Print. Twomey, David. Jennings. Marianne. Andersons Business Law and the Legal Environment, Comprehensive Volume. New York: Cengage Learning. 2010. Print. Vellani, Karim. Strategic Security Management: A Risk Assessment Guide for Decision Makers. London: Butterworth-Heinemann. 2009. Print. Read More