Business Environment of Coca-Cola - Case Study Example

Business Environment of Coca-Cola Contents Contents 2 Introduction 3 1 The purposes of different types of organisations 3 2 How Coca-Cola meets the objectives of different stakeholders 4 1.3 Responsibilities of Coca-Cola and strategies employed to meet them 4 2.1 How economic systems attempt to allocate resources effectively? 4 2.2 Impact of fiscal and monetary policy on Coca-Cola and its activities 5 2.3 The impact of competition policy and other regulatory mechanism on the activities of Canon 6 3.1 Market structure of Canon and the pricing and output decisions of Canon 6 3.2 Illustration of the way in which market forces shape organisational responses using a range of examples 8 3.3 Business and cultural environments shape the behaviour of Coca-Cola 8 Formation of European Union and its policies 9 Conclusion 9 Reference List 10 11 Introduction The scale of business activities have increased exponentially since the emergence of globalization. This assignment considers the case of American based beverage multinational company, Coca-Cola and discusses its business activities in the U.K. Coca-Cola is engaged in marketing, manufacturing and retailing of non-alcoholic beverages. The company was originally incorporated in 1892 and is best known for the carbonated beverage drink, Coca-Cola. This assignment elaborates on the purpose of organizations and the ways that they adopt for managing the stakeholders in order to maintain competitive advantage. The monetary and fiscal policies undertaken by the government and its possible impacts on profitability of the company have also been explained. The overall competition policy of the U.K. and the ways in which the government decisions impact the overall business environment have been evaluated in the paper as well. 1.1 The purposes of different types of organisations There are different types of business organizations and the purpose of each type depends on the nature of its ownership. The purpose of a business organization may be either to earn profit and market share (commercial organizations) or conduct charitable work (not-for-profit organizations). Business organizations can belong to either the private sector or public sector. Private sector business organizations are run by individuals and the ownership can be in the form of private limited company, public limited company, franchise or sole trader (Klenowski, 2012). Public sector companies, on the other hand, are state-owned. Coca-Cola is definitely a private sector company that operates with the objective of maximizing profit. Coca-Cola has multiple offices around the globe, which are connected by common business culture. The offices in each of the country have its own CEO who manages the company affairs independently. However, they are bound by a corporate strategy framed at the headquarters at the U.S.A. The operations in each of the offices are guided by the company’s strong corporate culture and business regulatory measure. The profit earned overseas is directed to the headquarters (Thomas, 1992). 1.2 How Coca-Cola meets the objectives of different stakeholders In order for a company to be successful, it is important to manage the stakeholders in a proper manner. Power of a stakeholder is defined as his/her ability to influence the projects undertaken. Companies address the stakeholders issues by reacting to their problems and needs. Majority of the multinational companies are engaged in stakeholder analysis in order to devise alternate strategies, which in turn provide the company with competitive advantage (Rosso, et al., 2014). Stakeholders of Coca-Cola include civil societies, employees, suppliers, investors and customers. Coca-Cola uses a host of policies to engage its stakeholders (Coca Cola Enterprises, 2011). For instance, Coca-Cola had formed joint initiatives with the local governments to reduce its environmental impact and introduce cleaner packaging systems. The company has made its strategic business decisions transparent to the investors and publishes annual sustainability reports to keep them informed about important events taking place in the business culture. Coca-Cola has become the world’s largest beverage company owing to effectively management of the stakeholders. In 2012, estimated net operating revenue of the company was $48 billion and operating income was determined to be approximately $11 billion (Coca Cola, 2013). 1.3 Responsibilities of Coca-Cola and strategies employed to meet them Coca-Cola has successfully established itself as a global corporate citizen by meeting its responsibilities towards the stakeholders and broader community. The company has effectively included sustainable practices in water resource management, packaging technology, energy efficiency and climate protection. These actions were specifically taken to minimize environmental impacts as the manufacturing process of Coca-Cola puts a formidable pressure on the environmental resources. Coca-Cola has also realized the importance of its human resource so as to gain competitive advantage. Management of human resource is done by creating a favourable work environment for the employees and ensuring a rewarding work experience by way of providing financial benefits and work accolades. The company has introduced flexible working hours and secured employee rights. 2.1 How economic systems attempt to allocate resources effectively? Theories in the economics discipline states that allocation of the resources in an economy depends on the way in which its governmental structure is aligned. At one end is centrally planned economy, where the government takes all necessary actions in allocation of resources. The opposite end of the spectrum is free market economy, which is primarily dominated by the economic theory of demand and supply, which are known as market forces. The third type is the mixed economy, where resources in the private sector are allocated by the market forces and that of the public sector is allotted by the government. In case of the United Kingdom, the country appears to follow a mixed economic system. The U.K. government regulations regarding Food Standards Agency influence upon the business of Coca-Cola. Policies framed by the European Union through General Food Law Regulation also regulate the corporate taxes therein. These regulatory bodies dictate the laws relating to transportation, hygiene, maintenance, advertising and selling. Ongoing tax reforms in the U.K. in order to raise corporate taxes may impact the level of company’s profitability. Recently, the government had passed legislation to raise taxes on fizzy drinks by 20%, which had significantly affected profitability of Coca-Cola. Overall; the government maintains a positive business environment for smooth operations of the businesses functioning in the U.K. The U.K. government had reduced the level of corporate tax by 21%, thereby enabling the foreign companies to earn higher return on their investments. Coca-Cola has employed more than 4000 people in the U.K. by running six factories. The company has a contribution of £200m. Additionally, it supports 34,500 high quality workers, which is estimated to be around £2.4 billion (Milmo, 2012). The government policies have been quite successful in drawing inward investments and the number of exports has also been rising, thereby supporting both domestic and international business (BIS, 2011). 2.2 Impact of fiscal and monetary policy on Coca-Cola and its activities The impact of monetary or fiscal policy on the business aspect of an organization is profound. Monetary policy pertains to money supply in an economy and organizations’ policy is influenced by choices that the government make regarding following an expansionary or contractionary monetary policy. Fiscal policies in the form of tax or tax incentives have the highest influence on consumption of the individuals and guide the organisational managers in altering their policies. Monetary policy in the U.K. is undertaken by the Bank of England’s monetary policy committee. Post-recession, the Bank of England has maintained an expansionary monetary policy and strived to keep a low interest rate. As a result, the level of individual spending in the economy could be boosted by allowing them to borrow at lower costs. Similarly, corporate houses in the economy such as, Coca-Cola, found it easier to borrow money for the purpose of expansion. When the government fails to maintain the interest rates any lower, it begins to inject liquidity in the economy. The same had benefitted Coca-Cola. In terms of the fiscal policy, the taxes charged on a business severely undermine profits that can be earned. Tax incentives, on the other hand, enhance profitability of the business. Post-recession, the government has tried to reduce corporate taxes in order to attract newer business and improve profitability of the current one. 2.3 The impact of competition policy and other regulatory mechanism on the activities of Canon The competition policy refers to a host of policies adopted by the government in order to ensure that companies operating within the economy are not subject to discretionary pressure. The role of the European Commission is also important in determining the level of competition by regulating prices, ensuring customer quality and opening up markets for newer competition. Anti-competitive practices preventing predatory pricing and collusive practices are also banned in the economy to prevent market leaders from establishing monopoly. Illegal formation of cartels and imposition of minimum prices are also prohibited. Coca-Cola is already a market leader that uses both legal price and non-price competition to upkeep its position. Coca-Cola cannot raise its price beyond a threshold level or else its main rival, PepsiCo, will capture greater market share. Hence, the former maintains a competitive pricing strategy. Coca-Cola uses extremely creative marketing strategies to capture attention of the audience. For instance, in Japan, it had introduced a new advertising campaign of “drink, twist, re-cap and recycle.” The company has won an award in Cannes Lions International Festival and Creativity. In 2010, the company had spent more than $2.9 billion in advertising. A regulation of the European Union that has particularly impacted Coca-Cola was an investigation undertaken by the European Union, which had revealed that the company is stifling competition in the market (BBC News, 2005). The laws imposed by the European Union are often challenged on grounds of cost to benefit analysis. The benefits estimated from the regulations are £57.1bn, even though these numbers are contested (Open Europe, 2013). 3.1 Market structure of Canon and the pricing and output decisions of Canon The following chart shows different types of market structure in the economic theory. Table 1: Market Structure (Source: Jbdon, 2014) It can be argued that the market structure for Coca-Cola is oligopolistic. Under oligopolistic market structure, determination of price and output is a relatively difficult task, which depends on whether the nature of oligopoly is collusive, non-collusive or determined by price leadership. Working in an oligopolistic market structure also makes the determination of demand curve difficult. There are a large number of carbonated drinks in the U.K. market, but they have no market dominance. PepsiCo is the only company whose pricing strategies affect Coca-Cola. The latter enjoys huge economies of scale and its cost of production is significantly low, which enables charging low price. Direct price cutting competition does not occur in an oligopolistic market structure. Consequently, Coca-Cola strives to improve its image through sustainable practices so as to maximize sales. Environmental friendly packaging technology and lower carbon emission have significantly improved the brand image and improved sales. Raising prices will lead to loss of market share as demand for the product is highly elastic. 3.2 Illustration of the way in which market forces shape organisational responses using a range of examples Market forces of demand and supply can have significant impacts on price and output in the oligopoly markets. The retail sector of the U.K. can be treated as an oligopolistic market, where the key players introduce newer products with reasonable value to meet the rising consumers’ demand. In an oligopoly market, actions undertaken by the rivals influence the business decisions. Oil demand and supply can be regarded as a classic example of oligopoly, where key players set the price bar and the rising demand results in fluctuating oil prices. The automobile sector is also influenced by the oligopoly and the decision to increase production is dependent on market forces. For example, the decade of 2000 had witnessed an exponential rise in the Chinese automobile sector as the people bought more cars. Automobile companies operating in the U.S.A. and Europe immediately reacted by raising their levels of export. One of the recent examples of Coca-Cola’s reaction to the market forces is re-launching of its product, Vanilla Coke, due to rise in demand. 3.3 Business and cultural environments shape the behaviour of Coca-Cola According to Litwin and Stringer (1968 cited in Yoo, Huang and Lee, 2012), organizational behaviour can be defined as “a field of study that investigates the impact that individuals, groups and organizational structure have on behaviour within the organization, for the purpose of applying such knowledge towards improving an organizational effectiveness”. The connection between organizational behaviour and culture has been studied by eminent researchers. For instance, the research of Fischer and Mansell (2009) had revealed that national culture of a country has a significant impact on organizational behaviour (Fischer and Mansell, 2009). The research of Ashkanasy, Wilderom & Peterson (2000) had suggested that organizational culture has an influence on work behaviour and attitude of the employees at an individual level. Coca-Cola is a multinational organization, which employs workers from different ethical backgrounds. It also ensures that the employees are protected and endowed with appropriate remuneration, insurance benefits, healthcare benefits and so on and so forth. The cultural difference between the U.S.A. and the U.K. is not very strong, which is why adjusting to the British culture is easier for Coca-Cola (Ashkanasy, Wilderom and Peterson, 2000). Formation of European Union and its policies The main reason for the formation of European Union was to promote the level of unity among the member countries. Presently, there are 27 member countries of the European Union which shares common monetary and fiscal policies. Additionally, the European Union is also responsible for framing the trade laws for all its member countries that is expected to improve the flow of goods and services between the nations. The European Union tries to integrate a common market between the regions and use a common currency to simplify the trading laws. European Council and European Central Bank are the two most important bodies of the European Union that dictates the pattern of trade and investment between the member regions. The trade and the commercial activities of the European Union are framed in such a way which maximizes the benefits of the member countries. Directorate-General for Trade guides the trade and investment policy of the European Union by channelizing investment in the member countries. The EU supports the efforts of World Trade Organization to promote free and fair trade among nations and insists that the members sign Free Trade Agreements to ensure no unfair trade practices are practiced. The EU takes policies to devise the imports and exports in such a manner so that the interest of the producers and the investors into the continent are not hampered. EU also ensures that the policies framed by it take into account about the sustainable practices in trade. This is done to ensure long-term development. Conclusion It can be concluded that the purpose of a business organization is heavily impacted by the nature of external environment wherein an organization operates. The type of economy in which an organization operates is also crucial for running the business. Coca-Cola has been found to operate with a profit maximizing objective in mixed economy of the U.K. Additionally, being a market leader, it operates in an oligopolistic market structure. Price decisions of the company are influenced by its strongest rival, PepsiCo. Reference List Ashkanasy, N. M., Wilderom, C. P. and Peterson, M. F. 2000. Handbook of organizational culture and climate. London: Sage. BBC News, 2005. EU makes Coke throw open fridges. [online] Available at: [Accessed 16 July 2014]. BIS, 2011. International trade and investment - the economic rationale for government support. [pdf] BIS. Available at: [Accessed 16 July 2014]. Coca Cola Enterprises, 2011. Our sustainability plan. [pdf] Coca Cola. Available at: [Accessed 16 July 2014]. Coca Cola, 2013. Sustainability Report 2013. [pdf] Coca Cola. Available at: [Accessed 16 July 2014]. Fischer, R. and Mansell, A., 2009. Commitment across cultures: A meta-analytical approach. Journal of International Business Studies, 40(8), pp. 1339-1358. Jbdon, 2014. Classification of market structures. [online] Available at: [Accessed 16 July 2014]. Klenowski, V., 2012. Developing portfolios for learning and assessment: processes and principles. London: Routledge. Milmo, D., 2012. Corporation tax rate cut to 21% in autumn statement. [online] Available at: [Accessed 16 July 2014]. Open Europe, 2013. Top 100 EU regulations cost the UK economy £27.4 billion a year – and costs outweigh benefits in a quarter of cases. [online] Available at: [Accessed 16 July 2014]. Rosso, M., Bottero, M., Pomarico, S., La Ferlita, S. and Comino, E., 2014. Integrating multicriteria evaluation and stakeholders analysis for assessing hydropower projects. Energy Policy, 67, pp. 870-881. Thomas, G. P., 1992. Government and the economy today. Manchester: Manchester University Press. Yoo, S. J., Huang, W. H. and Lee, D. Y., 2012. The impact of employee’s perception of organizational climate on their technology acceptance toward e-learning in South Korea. Knowledge Management & E-Learning: An International Journal (KM&EL), 4(3), pp. 359-378. Read More