Coca-Cola Company Internationalization - Case Study Example

Coca Cola Company Internationalization business report Student’s Name: Instructor’s Name: Course Code: Date of Submission: Executive Summary Coca Cola Company is the leading brand in the manufacture of soft drinks and it operates in more than 200 countries. Founded in the year 1886, the company manufactures variety of soft drink products like Fanta and Spirite. This report found out that differentiation and cost leadership are the strategies which have enabled the company to sustain their competitiveness and this is achieved through innovation. The strengths of the company according to this report include strong brand name and effective distribution strategies while the weakness is decline in the exportation. The opportunity includes increased market while competition is the main threats. There are few entrants to the industry due to high competition while the customers have strong bargaining power. The suppliers’ bargaining power is weak due to brand name of the company and there is no rivalry competition in the beverage industry. The entry strategies include direct entry, licensing and partnerships which can be adopted by the company to enter into the global market. The main challenges facing the company as discussed in this report include cultural issues, environmental issues and ability to maintain its positioning. These issues can be managed by direct foreign investment, reducing the sugar level in the products, water recycling and local sourcing as well as corporate board diversity. Table of Contents Table of Contents 3 Introduction 4 Coca Cola Company’s business model 4 Environmental analysis 5 PEST factors 5 SWOT analysis 6 Beverage industry analysis 7 Internationalization strategy 8 Differentiation and cost leadership strategies implemented by Coca Cola Company 8 Internationalization strategies 9 Strategies for managing the cultural differences 10 Foreign direct investment 11 Challenges of internationalization 11 Recommendations 12 Conclusion 13 References 14 Introduction The company that was selected for this report is Coca Cola Company which is among the best recognized brand in the global beverage manufacture. The company was founded in the US in the year 1886 and currently the company operates in more than 200 economies on the globe. This company was selected because it has global reputation (Christopher et al 2014). Despite the competition in the global beverage market, Coca Cola Company has managed to be the market leader and that is why I was interested to research on the company. Internationalization has been the trend in the global business since companies want to achieve required return on their investment. Companies are going global so that they can achieve the competitive advantage with the aim of increasing the shareholder value. In this case, Coca Cola Company is the leading brand in the global beverage industry and the company applies various strategies to enter into the global market (Christopher et al 2014). In this regard, this report focuses on the international business report of Coca Cola Company and the issues to be discussed include FDI and entry strategies as well as the current position of the company in the market. The report will also discuss the global issues facing the company and the strategies employed to manage them. Coca Cola Company’s business model The success of Coca Cola Company is based on the ability to be innovative which helps to develop new products bin the market to meet the customer demands. The main competitor of the company is Pepsi Company which also specializes in the manufacture of the beverage drinks. When the company was founded, it was concentrating on the manufacture of fizzy drinks but later due to innovation the company is currently manufacturing many drinks like Fanta. In addition, the company focuses on effective packaging with the aim of upholding the environmental policies as well as considering the needs of the customers. The company developed plastic bottles which are portable and can be disposed easily without polluting the environment. Besides the innovation and market research business model, the company has managed to effectively implement the internationalization plan (Time Magazine 2010). This has enabled the company to extend its operations in many economies. The top management of the company supports the strategic business units so that they can be able to manufacture the products to meet the demand in the local market. For instance, the Coca Cola Company financed the manufacturing plant in Romania with $30 million to serve the local market and meet the market demand. This business model has enabled the management of the company to increase its market share as well as the competitiveness. Environmental analysis PEST factors The political factors have influenced the operations of the company positively. Many government policies monitor the manufacture of the food products to ensure they meet the required standards. For instance, in the US, the government has an organization which s concerned with the food standards. The Food and Drug Administration act requires that the food manufacturing companies should meet the set standards so that they can be allowed to manufacture food fit for human consumption (Time Magazine 2010). As a result of this, Coca Cola Company has managed to create a competitive advantage since it manufactures food which meets these regulations. This implies that there are few entrants to the global beverage industry, thus the company will continue enjoying the market share. The same case applies to other economies like UK where food manufacture is regulated. Moreover, the economic factor influences the operations of the company by investing in the economies where there is stable economy. According to the global financial crisis which hit the globe in the year 2008, various governments took measures to stop the occurrence of the crisis again. Despite the company experiencing some challenges in the financial management in the same year, the management of the company focused on the likelihood of the rise of interest on loans and raised revenue from loans to expand its global business (Time Magazine 2010). The company financed projects like the Romanian plant with $30million and this helped to improve the performance of the company. The social factor on the other hand has improved the competitive advantage of the company. This is in the context that the global population has been increasing, creating more market for the company products. Furthermore, the research which has been conducted indicates that health conscious people do not consume drinks with alcoholic contents (The Coca Cola Company 2012). This health conscious people range from the age between 37 and 55 and since the company manufactures nonalcoholic drinks it has been able to meet the needs of many customers leading to competitive advantage. Finally, through technology the company has been able to be innovative and developing new products in the market. The marketing is done online applying social sites like Facebook where the customers are made aware of the new products in the market (The Coca cola Company 2012). The development of the plastic bottle packaging is as a result of the technology and innovation which focuses o cost reduction and customer satisfaction. SWOT analysis The sustainable competitive advantage of the company has been influenced by the strengths and opportunities facing the company. The first strength of the company has been achieved through the distribution of its products to consumers. The middlemen like retailers and company stores are the main distribution channels. Currently the company has 700,000 retailers who distribute the products to the consumers for convenience (The Coca Cola Bottler Magazine 2013). The strong brand name of the company also influences the loyalty of the customers. Due to strong global reputation of manufacturing a variety of products like Fanta and Sprite, the company has managed to attract and retain customers thus maintaining its competitive advantage. The company on the other hand faces some weaknesses which it should improve to be able to develop sustainable competitive advantage. Declining export levels are the main weakness which faces the company. This is because the company has plants in each economy, which produce the same brands, thus export of the products has declined (The Coca Cola Bottler Magazine 2013). For instance, there is a manufacturing plant in India and Malaysia which manufacture the same products hence exportation is declining. The main opportunity the company is enjoying is through increasing market levels due to global population increase. For instance, in India, the company has a market share of 42% in the beverage industry. This is due to high population in the country. Through innovation strategy, the company is likely to continue enjoying the global reputation due to the development of products as compared to the competitors like Pepsi Company (The Coca Cola Bottler Magazine 2013). The main threat the company is experiencing is high competition and cultural changes in the global market. For instance, the Indian culture is different from the Asian culture, thus the manufacturing formula has to be adjusted to meet the needs of the local customers in terms of the sugar level in the beverage products. Beverage industry analysis In any industry, there are factors which influence the competitiveness of an organization. In this case, Coca Cola Company and its strategies have been influenced by the threat of new entrants. The entrant into the beverage industry is regulated by the Food and Drugs Administration which ensures that the new entrants need to meet the set regulations before they are allowed to manufacture food for consumption (Maynard 2001). Due to high competition in the beverage industry, new entrants are not able to cope with competition and they are likely not to attract customers. PepsiCo and Coca Cola Company spent $2.58billion in marketing which is too high for any entrant to compete in marketing. Therefore, there are barriers to entry thus the existing firms including market leader Coca Cola Company will continue enjoying the market share. In addition, the customers’ bargaining power is strong than the organization. This is because there are many beverage manufacturers than the consumers which imply that they will have their say on strategies like pricing which affect the profitability of the company. However, due to strong brand name of the company it is likely to continue enjoying the large market share (Maynard 2001). On the other hand the company has strong bargaining power than those of the suppliers. This is associated with the strong global brand name which is helpful in attracting and retaining customers. Substitute products in the beverage industry influence the sustainable competitive advantage of the company in that the customers have shifted their demand to the available substitute products like coffee and energy drinks (Maynard 2001). The demand for the company’s product has declined since the demand of the customers can be satisfied with the substitute products. Finally, there is healthy competition in the beverage industry since the operations of the companies are regulated by the policies of World Trade Organization. This organization advocates for healthy competition which benefit the consumers in terms of quality of products and services which are offered. Competition with PepsiCo is healthy and since there are few entrants into the industry there is no rivalry competition (Maynard 2001). In this effect, Coca Cola Company is likely to continue dominating in the global beverage industry due to its strong brand name. Internationalization strategy The internationalization strategy for the company started when the company sponsored the Olympic Games in Amsterdam in the year 1928. This is the time when the company started to build strong brand name in the global context. This was the first marketing strategy that was implemented by the company to enter into the international market. The internationalization strategy that is implemented by the company is the multi domestic strategy. The Coca Cola Company has many subsidiaries in various countries which have the responsibility of manufacturing the beverage products and distribute them to the customers. For instance, there is Coca Cola India which has the responsibility of manufacturing the Coca cola products and distributes them to the local customers (The Coca cola Company 2012). This strategy has enabled the company to enter into the global market by meeting the needs of the local customers since the distribution and manufacturing systems both focus on the needs of the local customers. Differentiation and cost leadership strategies implemented by Coca Cola Company The Coca Cola Company has been successful in the global market due to the differentiation strategy. In the first place, the company manufactures quality products like Fanta and Spirite which meet the needs of the local customers. The products of the company can also be differentiated from those of the competitors due to the brand name of the company (The Coca cola Company 2012). Finally, the packaging system which is adopted is unique as compared to the competitors like PepsiCo. The company uses plastic bottles to package its product which is portable and it uses the contoured bottle design which is unique from those of the competitors. The cost leadership strategy has implemented by the company is through economies of scale. The raw materials are bought in bulk, thus quantity discounts as well as transportation is made easy. This strategy helps to lower the cost of production, which benefits the customers. In addition, the cost leadership strategy of the company is achieved through innovation like packaging the products in plastic bottles, which are recyclable thus lowering the cost of the company’s production which is important in effective pricing (The Coca cola Company 2012). Internationalization strategies The first internationalization strategy that can be implemented by Coca Cola Company is the licensing strategy. A local company interested in the manufacture of the soft drinks can be licensed to manufacture and distribute the products on behalf of the company. This strategy enables the company to understand the local needs of the customers as well as communicate with the local government relating the manufacturing policies (Rugman & Hodgetts 2001). The benefit is that it helps to build the strong brand name of the company in the local market. However, the confidential manufacturing system can be leaked to the licensed company and this could increase competition once the company decides to manufacture its own products since they have acquired the knowledge. The company can also enter into strategic partnership with competitors like PepsiCo to venture into the new market. The aim is to minimize the risks of entering new markets like product failure and cost of conducting market research. The drawback of partnerships is lack of trust since the competitors will not disclose their performance to the other partner and this ruin the strategic partnership (Rugman & Hodgetts 2001). In addition, there is the direct entry strategy. The products are manufactured in a different market and then exported to the new market using the agents. This strategy enables the company to come into direct contact with the local customers which is helpful in determining their needs. The drawback of direct marketing is the risk of suffering the losses alone (Rugman & Hodgetts 2001). The company can make losses which are not shared with anybody thus affecting its performance. The best strategy that can be implemented by the company is the licensing strategy. It is possible to practice multi domestic strategy when this strategy is implemented (Yeung & Mok 2006). Through licensing the cultural issues can be managed appropriately since the local company understands the needs of the customers. Strategies for managing the cultural differences The cultural issues facing the company can be managed by sourcing the employees locally. The local sourcing strategy helps to include the local employees who understand the culture of their people as well as the policies and regulations of manufacturing (Yeung & Mok 2006). The marketing process will be done according to the suggestions of the local employees. Corporate board diversity is another strategy which can be implemented by the company to manage the cultural issues. Diversified board will help to provide diversified ideas regarding the cultural issues and the strategies to manage them (Yeung & Mok 2006). The customer needs can be represented by the diversified corporate board. Foreign direct investment will be another strategy to manage the cultural issues. This is the strategy that has been implemented by the company as its internationalization strategy. The company establishes manufacturing plants in various countries which manufacture and distribute the products to the customers. The manufacturing process will be done according to the local standards and policies as well as culture thus managing the cultural differences (Yeung & Mok 2006). Foreign direct investment The foreign direct investment is the strategy which has been implemented by the company in its internationalization strategy. The multi domestic strategy has enabled the company to enter into the global markets with ease. For instance, the Coca Cola Company invested $500 million in Egypt to construct a manufacturing plant which could help to manufacture the company’s soft drinks and distribute them to the customers (Hill et al 2014). In addition, the company supported the Indian manufacturing plant with $2bilion as one of its five year strategic plan so that the market demand in India can be met. These are just but examples which show how the company has invested in the foreign direct investment. Challenges of internationalization The first and most adverse challenge facing Coca Cola Company in its internationalization plan is the health issue. The research has indicated that excessive consumption of the coca cola drinks which contain large amounts of sugar lead to obesity. The conducted research in US shows that children of age between 2 and 19 about 175 of them suffer from obesity due to excessive consumption of the soft drinks. In this effect, there have been criticisms that the company’s products affect the health of the people hence affecting the brand of the company (Hill et al 2014). In India, there is the challenge of exploiting the environmental resources like the water. The local community in India was campaigning that the water sources are being exploited by the company and this could lead to environmental problems if measures are not put in place. The local community also complained that the soft drinks contain some toxins which could lead to health issues like cancer and the water was tested and proved to contain the substances (The Coca Cola Bottler Magazine 2013). The allegations were denied by the company. Due to the issue of exploiting the underground water, the Kerala plant was closed down and it took a long process for the company to get the manufacturing license thus affecting the operations of the company. It has also been challenging for the company to maintain its reputation globally due to intensity of competition from competitors like PepsiCo. The competitors are scrambling for the market thus reducing the market share of the market leaders (Czinkota et al 2005). The challenge for the company is developing sustainable business strategies to help in maintaining the positioning of the company in the market. The challenge of introducing the products of the company into new markets like Cuba is challenging since the market has already been invaded by the competitors. Finally, the internationalization plan of the company is facing the challenge of cultural diversity. Since the company has global reputation, there are many cultures globally which should be considered in formulating policies for the company (The Coca Cola Bottler Magazine 2013). For instance, the Asian culture of conducting business is different from that of the Western culture. This implies that the cultures are different and it is complicated to develop sustainable strategy to meet the needs of the customers Recommendations Concerning the claims which were raised by the Indian people, the company responded by ensuring effective water management. The water management team of the company developed appropriate measures to ensure no water waste. In addition, water recycling strategy was formulated by the company to recycle the used water thus stopped exploiting the exploitation of the water resources (McDonald & Burton 2002). The company also responded by reducing the sugar level in the carbonated drinks in its manufacturing process. The food measures and standards which were set by Food and Drugs Administration set standards which should be met by the company to manage the health issues. The company also tests its ingredients to ensure toxic substances are eliminated (McDonald & Burton 2002). This helps to manage the health issues which are raised by the parents of the young people who consume soft drinks excessively. The Coca Cola Company can be able to maintain its strategic positioning in the global market by expanding its operations to developing economies like Cuba where it is not operating currently. In this way, the company will be able to attract and retain more customers which will help to maintain its position in the market (Mahoney et al 2001). Finally, foreign direct investment strategy can be maximized and implemented in all the markets so that the cultural needs of the customers can be met. Through FDI, the company will practice multi domestic manufacturing strategy where each manufacturing plant serves the local customers (Mahoney et al 2001). With the foreign direct investment strategy, the company is able to manage the cultural issues in the different markets. Conclusion Internationalization plan helps an organization to achieve the desired return on investment so as to improve the value of the shareholders. Internationalization plan has enabled Coca Cola Company to achieve the desired outcome as well as improving the competitiveness of the company in the global market. Cost leadership and differentiation are the strategies which have been used by the company to be the market leader. However, the company can expand its internationalization plan by using strategies such as strategic partnerships, direct marketing and licensing to expand its operations to new markets such as Cuba. This report discussed the SWOT analysis of the company, environmental factors and industry analysis as well as the reputable current position of the company in the global beverage market. Therefore Coca Cola Company stands a better chance of expanding its operations by entering into new markets. References Czinkota, M. R., Ronkainen, I. A & Moffett, M. H 2005, International Business, (7thed), South Western/Thomson. Mason, Ohio, USA. Christopher, H., Romita, S & Li, Z 2014, The Coca Cola Company, retrieved on 18th October 2014 from http://www.sfu.ca/~sheppard/478/syn/1141/Group_F.pdf Hill, C.W.L., Cronk, T & Wickramasekera, R 2014, Global Business Today: An Asia – Pacific Perspective, 3rd edition, McGraw Hill, Australia. Maynard, M.L 2001, "Policing transnational commerce: Global awareness in the margins of morality", Journal of Business Ethics, vol. 30, no. 1, pp. 17-27. McDonald, F & Burton, F 2002, International Business, Thompson Mahoney, D., Trigg,M., Griffin, R & Pustay, M 2001, International Business A Managerial Perspective, (2nd ed.), Frenchs Forest, NSW, Pearson Australia Rugman, A., & Hodgetts, R., 2001, “The end of global strategy”. European Management Journal, vol. 19, no. 4, pp. 333-343. Time Magazine 2010, Coca Cola Bottles, available online at http://www.coca- cola.co.uk/125/coca-cola-bottles-history.html The Coca Cola Bottler Magazine 2013, The Coca-cola Company, retrieved on 18th October 2014 from http://www.coca-colacompany.com/press-center/image-library/the-coca-cola- bottler-magazine The Coca cola Company 2012, 2011/2012 Sustainability Report, retrieved on 18th October 2014 from http://www.coca-colacompany.com/sustainabilityreport/global- challenges.html#section-we-know-its-not-all-about-us Yeung, G & Mok, V 2006, "Regional Monopoly and Interregional and Intraregional Competition: The Parallel Trade in Coca-Cola between Shanghai and Hangzhou in China", Economic Geography, vol. 82, no. 1, pp. 89-109. Read More