Coca Cola Amatils Operations in Indonesia - Case Study Example

Coca Cola Amatil Indonesia Operations Name Subject ---------------------------- Professor ---------------------------- Date ---------------------------- Part I: Summary of Report Coca Cola Amatil plans an investment of A$100 million in its Indonesia operations to be utilized through the next 3 years. That is, actually, double than the previous terms. Given the bold move that the company has taken, this report summarizes the company with respect to its Indonesian landscape on political, economic and social front. The report also looks into the legal and regulatory angles of its operation in Indonesia, while trying to understand potential and emerging areas for the company to gain from in the near future. It also looks into potential threats that the company may face on account of existing players in the soft drinks market and emerging ones that could make potential impact on its business. Part II: Introduction to Report This report is about Coca Cola Amatil’s operations in Indonesia, which is one of 4 countries, namely New Zealand, Papua New Guinea, and Fiji. Australia being the home country, where the company’s key sites are at North sydney (NSW), Northmead (NSW), Moorabin (VIC), Richlands (Qld), Kewdale (WA), and Thebarton. Last year, in 2010, it was announced that the company would invest A$100 million over the next three years in the country, a move that would actually see the investment in Indonesia being doubled over these years. The announcement was made in Indonesia itself during the annual investor presentation (Eckersley, 2010). Since doubling the investment in that nation has been a very strategic decision, which calls for higher level of responsibility, it is important to read this report, which has been prepared with the help of company notes, presentations and media reports. Part III: Part III (a) POLITICAL ECONOMY ENVIRONMENT ISSUES Political, Regulatory and Legal Political The nation is faced with issues on all three fronts – political, regulatory and legal. Indonesia ceased to be an OPEC member in 2008; even though it is open to being an OPEC member once more, its current status makes it politically risky. Natural disasters along with political instability make investments in the nation jittery. According to a 2010 report by Economist Intelligence Unit, the political outlook for the next one or two years look optimistic and more or less stable. December 2010 report, Indonesia's political outlook for the immediate short-term seems relatively stable. President Yudhoyono retention of vote of confidence and his reelection for another term in 2009 is seen as one reason for this. Though, it cannot be denied that political landscape, run by a six-party coalition, is still being dogged by some controversies as the parties seem to be divided in certain issues pertaining to reforms (EIU, 2010). Regulatory Indonesia’s government looks into foreign business investments in the country through an Investment Board which is known as Badan Penanaman Modal (BPM). BPM has been entrusted with a number of functions that include formulation of investment policies which are finally approved by the President of the Republic of Indonesia, synchronize investment planning and coordinate it within the framework of Law No. 1 Year 1967 and Law No. 6 Year 1968 and other allied subsections, develop guidelines on investment sectors, act as a hub of communication for all investors in the country, monitor investment and ascertain that they are conforming to the nation’s stipulation and policies, and supervise, from time to time, investments already approved to ensure the same are conforming to the current laws pertaining to licensing , deviations and sanctions, if any. Subsequently, the government issues, in a periodic manner, what is known as Daftar Negatif Investasi or DNI, which means Negative List of Investments. DNI outlines foreign investments that are either prohibited or restricted for approval. Legal In the same manner these investments are governed by Indonesian laws, some old with recent amendments and some relatively new, specifically passed with regard to investments in Indonesia are. The notable ones are Law No. 1 Year 1995 pertaining the Limited Liability Company, Presidential Decree No. 96 Year 1998 pertaining the Negative List of Investment, Government Regulation No. 20 Year 1994 pertaining the Share Ownership in the Foreign Investment Company. BKPM Decree No. 15 (Year 1994), No 12 (Year 1999), and No. 38 (Year 1999) pertaining respectively to Implementation Guidelines on the Share Ownership in the Foreign Investment Company, Foreign Investment in Holding Activity, and Procedure of Foreign/Domestic Investment in Indonesia (FNPFIRM. Com, 2011). Economic Dotted with 17,508 islands, and spread over 33 provinces, Indonesia’s population of 238 million people makes it the world’s fourth most populous nation. Coca Cola Amatil has a potential customer base of 215 million (in combination with Papua New Guinea), catered by 11 plants and employing around 10,000 people. This figure is encouraging, and the best part of this scenario is that the country’s economy is balanced, driven mostly by agriculture, services and manufacturing sectors. The country’s export sector is huge as well relying mostly on oil, nickel, gas, textiles, wood, garments, and wood products. The economic growth in the full year of 2012 is expected to be around 6% or higher, while it upgraded its sovereign credit rating one level below investment grade (CCA, 2006). It is noteworthy that Indonesia was able to weather the global recession ; thanks to its strong policies and initial conditions that were favourable (AMB Country Risk Report, 2011). Social Foreign direct investment is considered as a fuel to economic globalization and independence. A linkup is being established by governments between businesses and social responsibilities, mostly targeted around environment and labour conditions. More often than not, social clauses do not form a serious part in international investment agreements. Even World Bank’s Bilateral Investment Treaties (BITs) rarely mention investor social obligations (The International Centre for the Settlement of Investment Disputes, 1983). However, in case of Australia, other than United States and Canada, investment agreements do contain provisions to address employment and labour issues. But there are issues, particularly in Indonesia that could be beyond that. Indonesia is a pluralistic society and often in the news on account of social unrest and tensions triggered on the basis of ethnicity, race and religion. The local population is becoming highly intolerant to other religions and faiths, which most of the Australia follows. As a result of this religious pluralism is taking center stage in the country and that could snowball into a major issue in the future. Part III (b) BUSINESS ENVIRONMENT ISSUES Emerging opportunities for the company in this country Indonesia is passing through a phase of higher disposable incomes, triggering people's power to spend more, particularly on wellness and health in order to enjoy better lifestyles. Coca Cola Amatil can take an advantage of this trend through strategic marketing and wellness campaigns. It has already been observed in 2010 how such campaigns can help companies register higher off-trade volumes. Indonesian society i fast catching up with globalization and multicultural influences that it brings along with and this can be used by Coca Cola Amatil to attract more clientele for its product. Furthermore the mushrooming of hypermarkets and supermarkets means added value to business since these locations outperform other outlets in soft drink sales. Teenagers, children and young adults are supposed to be born clients for soft drinks which, again, is a trend influenced by the inroads of international media and flashy ad campaigns. This, in association with better economic outlook and population growth can be seen as an opportunity by Coca Cola Amatil in Indonesia. At the moment, soft drink market trends in the country are very predictive for its future trends. The market has seen compound annual growth between 2004 – 2009 at the rate of 7.2% (Datamonitor Research Store, 2011). Another opportunity in Indonesian market could be Coca Cola Amatil’s nearest competitor Groupe Danone. There were rumours in 2010 about Danone’s possible partial or complete divestment from its business, specifically which forms its bottled water unit (Lee, 2011). Danone is a French giant its Aqua held on the 7th rank in term of off-trade volume in world soft drinks market. If rumours about Danone are true, Coca Cola Amatil has an opportunity to seize. Emerging threats for the business in this country Its competitor Groupe Danone, again, can be a threat in case it gives up its plans to divestment. On the other hand, the soft drinks market is becoming excessively complex and competitive, while the competitive landscape is undergoing major changes. There are a few players, those which are top five in the line, who might be willing to diversify, and that could emerge as a threat to Coca Cola Amatil. Tata Globa Beverages, an Indian giant, has plans to diversify into Indonesia with soft drink products. Known for selling things well, it could be a headache for Coca Cola Amatil to handle. In order to enter Indonesian market, the resource-rich company might either set up its own facilities or acquire those of smaller players in the country. Other threat that is emergent would be natural disasters, unpredictable in nature, which would need to be handled by the company if and when the same strike. Part IV: Conclusions In conclusion Coca Cola Amatil’s operations in Indonesia are going on through a positive phase, and the company has earmarked doubling its investment through the next three years. In order to utilize the plan in the right earnest, it is imperative to learn about the several issue in the country with respect to it political, economic and cultural front. The pros and cons need to weighed before each investment is made. A clear understanding on the Investment Board is needed to be able to understand laws pertaining to foreign investment in the country clearly. The country social set up is also vital to running a business there since recently certain sections of the nation have become intolerant towards some faiths. References Datamonitor Research Store. (2011). Soft Drinks Market in Indonesia to 2014. Available at http://www.datamonitor.com/store/Product/soft_drinks_market_in_indonesia_to_2014?productid=DBCM8022. Accessed on December 12, 2011 Eckersley, N. (2010). Coca-Cola Amatil invests $100 million in Indonesia. Available at http://www.ausfoodnews.com.au/2010/11/25/coca-cola-amatil-invests-100-million-in-indonesia.html. Accessed December 12, 2011 The Economist Intelligence Unit for December 2010. (2010). Indonesia Political and Economic Outlook 2011-2015. Available at http://ecoggins.hubpages.com/hub/Indonesia-Political-and-Economic-Outlook-2011-2014. Accessed on December 12, 2011 Foreign Investment in Indonesia. (2011). Fnpfirm.com. Available at http://www.fnpfirm.com/lib/Foreign_Investment_in_Indonesia__writeup_.pdf. Accessed on December 12, 2001 AMB Country Risk Report. (2011). Indonesia. Available at http://www3.ambest.com/ratings/cr/reports/Indonesia.pdf. Accessed December 12, 2011 The International Centre for the Settlement of Investment Disputes, of the World Bank) in Investment Promotion and Protection Treaties. (1983). (New York: Oceana). Lee, H. (2011). Preview of the Year - 2011 – Part VI: Soft Drinks & Water II. Available at http://www.just-drinks.com/management-briefing/soft-drinks-water-ii_id102809.aspx. Accessed on December 12, 2011 Read More