External Environments of Coca-Cola - Coursework Example

External Environments of Coca-Cola [Institute] External Environments of Coca-Cola Introduction External environment encompasses all factors present beyond the boundaries of an organization and having the tendency to impact the organization (Daft & Marcic, 2011). It includes the competition the company faces and resources, such as skilled workers and raw materials, technology, laws and regulation (Gupta, 2009). External environment is further classified into a task environment and a general environment. The general environment signifying the outer layer of the external environment includes factors that do not have a direct impact on the organization. These factors generally influence all organizations and include elements, such as inflation rate and socio-political conditions. On the other hand, task environment is made up of factors which have transactions or interactions with the business on a daily basis and so have a greater impact on the functioning of the organization than the general environment. It specifically includes competitors, work force and customers (Daft & Marcic, 2011). The definition of environment is not clear-cut and is interpreted differently from member to member. Managing these factors well is essential for the success of the organization. In order to adapt to its external environment, the organization needs to prioritize factors which are important. This paper will explore three external environments of Coca-Cola Company and how Coca-Cola has been able to deploy them effectively for its growth. A well-established global brand, Coca-Cola is famous for its happiness and emotional appeals. It started in 1886 as a producer of soda fountain beverage and quickly rose to heights. From a five cents soda glass to well-known red and white flared, contoured bottle, Coca-Cola has come a long way to become global beverage business. Coca-Cola was initially sold in a small candy store in Mississippi when the owner realized the potential of packaging the beverage in a bottle. It was five years later that a bottling agreement was signed with two attorneys who believed that the business had a lot of potential. As the supply of the beverage increased over different districts, so did the sales and it was in 1916 when Coca-Cola was again given a packaging makeover and the contoured bottle was born. Subsequent decades saw the beverage company expanding not only in the country but also crossing national borders. A boost in sales came after another market was realized for its growth in the 1940s, i.e. the postwar market. 1960s saw the development and production of new brands. 1990s was another period whereby the external environment, particularly the reformations coming at the political and economical front created growth opportunities for the brand. Currently, Coca-Cola has expanded to inculcate worldwide mega-chains, tailored to suit the needs of its particular target community (The Coca-Cola Company, 2012). An integrative analysis of the factors that encompass the external environment allows managers to gain an insight into the dynamics of the organization and aids them in the decision-making processes and implementation of corporate strategies. For example, the current economic and social conditions can direct the company towards the type of marketing strategy it needs to employ. When considering socio-cultural factors in countries, such as the US, for example, Coca- Cola Company needs to decide which factors have major impact on sales and profits and thereby address issues that are leading to a fall in sales. Off late, there has been a shift in the values of people. As knowledge regarding global warming, biodegradable and non-biodegradable products become common, more and more people are becoming aware and moving away from consumerism which contributes to the development of these phenomena. Concerns have also been raised against the unhealthy ingredients that are used in Coca-Cola. Aspartame and phosphoric acid have both been shown to reduce the net calcium present in the body and to drain calcium reserves in the bones, as well as increase the risk and are contributing factors to the development of diseases, such as stroke, obesity and diabetes mellitus. Moreover, reports have shown that aspartame is also a causative agent of many side effects and reactions to food additives (Killer Coke, 2012). Furthermore, there has been a serious campaign against the operations of Coca-Cola Company in India for using up groundwater and discharging non-biodegradable waste products from factories, which has resulted in depletion in water reserves, as well as increased pollution (India Resource Center, n.d.). Coca-Cola Company has responded to allegations of pollution and using up groundwater by denying such claims. According to spokesmen in India, the charges are without any evidence and are in fact the products of conspiracies against the Company. Moreover, Coca-Cola has also launched a full-blown sustainability campaign that projects an environment-friendly image of Coca-Cola. Nevertheless, these socio-cultural factors are important in determining the final sales and profits. Changes in the economic milieu of the country also reflect on and affect the Company. During the times when the world was facing an economic recession in the late 2000s, there was an increase in the inflation rate, coupled by increased worker lay-offs leading to unemployment and higher costs of living. The fall in the value of money led to lower consumption. North America particularly suffered a major fall in its demands. The fall in beverage consumption lead to poor performance. In the third quarter of 2008, Coca-Cola reported almost 15% decrease in its sales. However, when the Western part of the world suffered a drop in sales, sales increased in the Eastern markets. Sales increased by more than 10% in China. Moreover, volume consumption of Coca-Cola also increased by more than one-third in India (Commodity Online, 2008). According to Muhtar Kent, the Chief Executive at Coca Cola, it was because of the boost in sales in emerging economies that balanced the sales offset the Company faced in North America. External environment was also seen to create further potential for growth for Coca-Cola. According to an analyst, in fact, the recession made the company emerge as a much stronger brand than before. The recession made it realize the growth of opportunities in emerging markets, such as China, since there was a 5% increase in international market volume in 2008 (FP Trading Desk, 2009). The changes in the economic condition of North America also allowed the Company to plan ahead attesting to the fact that the external environment does play a crucial role in driving sales and profits. Coca-Cola has also responded by extending its product category to bolster its presence in the beverage industry and to develop products, such as Vitamin Water that can cushion the decrease in sales caused by decreased consumption of carbonated drinks (Commodity Online, 2008). Another important determinant of the external environment is competitors. With change in consumer preferences, Coca-Cola has had to extend its product category from the classical carbonated drink to healthy beverages. This has largely been due to greater awareness in consumers regarding the health effects of Coca-Cola, as well as a desire to maintain a healthier life style. With obesity and diabetes mellitus becoming endemic in developed countries, focus has shifted from carbonated, high-caloric beverages to energy drinks and mineral water. Consumers are also starting to prefer juices and related healthy beverages rather than Coke. Therefore, with the launch of products, such as Vitamin Water, Coca-Cola has increased its competitors. Earlier, its main competitor was Pepsi Co. but now it also has to establish a strong brand image amongst renowned brands, such as Nestle and Kraft Foods, who are deemed to be amongst the top product suppliers in their respective industry. This entails that Coca-Cola must invest greatly in the marketing of its non-carbonated products. In order to market its tea, Femsa, in Mexico, pitched in competition against Nestle, Coca Cola put up more than 5000 new coffee machines in the region. A financial officer of Femsa claimed that it was due to their direct interaction with customers that they will be able to establish themselves against Nestle as a tea provider in Mexico (Webster, 2010). Conclusion In conclusion, the external environment of an organization operates in as either a direct, or an indirect, influence on the functioning and sales of the business. The essay discusses three external environments which have impacted sales of Coca-Cola Company. Being indifferent to these factors can significantly damage the sales, profits, brand image and consumer base of the business. Therefore, an analysis of the external environment is important, since it allows managers to tailor their marketing strategies to the demands and preferences of consumers and the changing economic, socio-cultural and political conditions. For Coca-Cola this has meant dealing with negative publicity and brand image, as was the case in India, by stressing more on sustainable production. Moreover, extending into a product category which is starting to garner the attention of greater number of consumers also represents a response to changes in the external environment. Tapping emerging markets and focusing on greater advertising there is depictive of another important use of analyzing the external environment. However, the importance of factors varies among organizations and greater focus should be placed on those factors which have the most effect. References Commodity Online. 2008. Recession takes the fizz out of Coke, Pepsi in USA. Retrieved from http://www.commodityonline.com/news/recession-takes-the-fizz-out-of-coke-pepsi-in-usa-12231-3-12232.html. Daft, R. L., & Marcic, D. (2011). Understanding management. Cengage Learning. FP Trading Desk. (2009). Coca-Cola not slowed by recession. Retrieved from http://seekingalpha.com/article/153106-coca-cola-not-slowed-by-recession. Gupta, A. (2009). Organization’s external environment. Retrieved from http://www.practical-management.com/Organization-Development/Organization-s-External-Environment.html. India Resource Center. (n.d.). Campaign to hold Coca-Cola accountable. Retrieved from http://www.indiaresource.org/campaigns/coke/. Killer Coke. (2012). Coca-Cola beverages = colossal health hazards. Retrieved from http://www.killercoke.org/health_issues.php. The Coca-Cola Company. (2012). History of bottling. Retrieved from http://www.thecoca-colacompany.com/ourcompany/historybottling.html. Webster, J. (2010). Nestle faces coffee competition from Coca-Cola in Mexico. Retrieved from http://www.ingredientsnetwork.com/story/full/nestle-faces-coffee-competition-from-coca-cola-in-mexico. Read More