Management and Organisational Structure of Pepsi Cola and Coca Cola - Term Paper Example

Comparison of PepsiCo and Coca-Cola Table of Contents Introduction 3 Brief Overview of Pepsi and Coca-Cola 4 Missions and Objectives 5 Management andOrganisational Structure 5 Global Business of Pepsi and Coca-Cola 6 Internal Analysis of Pepsi and Coca-Cola 8 Global Strategies of Pepsi and Coca-Cola 10 Rivalry and Performance Analysis of Pepsi and Coca-Cola 11 Conclusion 15 Reference 17 Introduction The concept of international business gained momentum with the advent of globalization. Globalization has been instrumental in accelerating international trade and business. Technological and communication development has been a natural consequence of globalization that has helped trade and business to gain international stature. International trade and businesses had manifold effect on the contemporary world. Primarily, multinational corporations became increasingly engaged in international trade and business. They stated constructing several offices and factories in different parts of the world with a centralized head office in their country of origin. Often the treatment received by these multinational corporations in the foreign land is similar to that of the host country. In order to find new markets and resources, companies expand their business operations in the potential markets of the third world countries. However, for sustaining in the new markets, they are often compelled to formulate a new set of strategies that is completely different from that of their home countries. In the course of their operations in foreign market, multinational companies face various impediments in the form of alien culture, varied buyers’ taste & preferences, different political, legal and economic conditions. To sail through these menaces, the foreign companies often undergo mergers with their national counterparts as the latter is more equipped in dealing with local issues. This paper will attempt to analyse the behaviour patterns of multinational companies in the light of different strategies implemented by them in different countries. For this purpose, Pepsi and Coca-Cola have been selected as they are respected names in the world of MNCs. A brief introduction will be given in the beginning of the project which will attempt to analyse its objectives and organisational structures. It will be followed by a discussion on their global business and internal analysis which will not only help to identify their basic nature but will also provide an overall idea of their situation in the world market. Brief Overview of Pepsi and Coca-Cola The rapid change in lifestyle has suddenly made the beverage industry one of the most profitable in the global market. The two undisputable rulers are PepsiCo and Coca-Cola especially in the ‘cola soft drinks’ section. PepsiCo is a celebrated brand in the international beverage industry. Formed in 1890s by Celeb Bradham, its main objective was to develop digestive syrup that would be delicious as well. Though it has diversified itself to include convenient snacks and foods along with soft drinks of various kinds and flavour, its brand image chiefly rests on its cola soft drink called ‘Pepsi’. PepsiCo, the brand name, has under it various products like SoBe, Sierra Mist, Slice, Tropicana, Aquafina, and Seattle’s Best Coffee etc. Its business has expanded in all the major countries of the world (PepsiCo, 2010). Coca-Cola is another brand name in the international beverage industry. The cola drink, Coca-Cola was discovered by Doctor John Pemberton, a popular pharmacist of Atlanta during 1886. Like PepsiCo, its presence is conspicuous in the world market and its products are sold in over 200 countries. Currently, it employs around 92800 employees worldwide. It offers a vast range of products under different brand names. Nearly 3300 types of beverages are sold under its brand name (Coca-Cola, 2009). Missions and Objectives Both the companies are trying to improve their business by providing quality products to their consumers. PepsiCo’s mission is “to be the world’s premier consumer products company focused on convenient foods and beverages” (PepsiCo, 2010). It also aims to create investors’ wealth by providing the opportunity of growth to its stakeholders. Coca-Cola has developed certain objectives to fulfil its mission statements. Its missions are “to refresh the world, to inspire moments of optimism and happiness’’ and “to create value and make a difference” (Coca-Cola, 2009). In order to fulfil the mission statements, the company focuses its attention on the driving forces that shape world business. Management and Organisational Structure The two companies are multinational in nature and generate huge revenues from foreign operating countries. Both have factories in each operating county and are therefore required to manage all the regional departments. They have thereby decentralized their organisational structure to make it more flexible to the worldwide operations. The decision making styles have been modified according to the diverse needs of each country. India is one of the major markets for both the company where they have developed decision makers’ team in different regions. The management teams of both the companies have efficiently developed the brand image among the target consumers. Superior customer satisfactions and values are delivered for building effective customer relationships. Global Business of Pepsi and Coca-Cola The market of Pepsi and Coca-Cola has expanded in most of the countries and their financial reports have been segmented into major regions according to their scale of operations. The financial reports of both companies declare their division wise net earnings that depict their area of operations. According to the financial reports of PepsiCo in 2009, its business units are divided into six segments. These segments are ‘Frito-Lay North America, Quaker Foods North America, Latin America Foods, PepsiCo Americas Beverages, Europe and Asia, Middle East & Africa.’ PepsiCo provides a wide range of soft drink, energy drink and conventional food items. The product types and categories vary according to the market segment. For example, in Asia, Middle East and Africa along with the cola soft drinks, the snack food brands like Kurkure, Lay’s, Chipsy, Smith’s, Cheetos, Doritos etc are prominent; whereas, in Frito-Lay North America, Lay’s potato chips, Cheetos cheese flavoured snacks, Doritos tortilla chips, Tostitos tortilla chips are very popular. Figure 1, represents its operating profit from these market segments. Figure 1: Operating Profits (in Millions) (Source: PepsiCo, Annual Report, 2009) The financial report of Coca-Cola depicts five different operating groups around the world. These five major regions include Eurasia & Africa, Europe, Latin America, North America and Pacific. The total operating profit of Coca Cola comes from these major five regions. Figure 2 shows its net operating revenue for the year 2009. Figure 2: Net Operating Revenue (in Millions) (Source: Coca-Cola, company report, 2009) Internal Analysis of Pepsi and Coca-Cola The internal analysis of a company helps it to figure out its strengths and weaknesses. SWOT is an ideal tool for analysing a company’s strength and weaknesses. It also points out the company’s areas of opportunities and threats. Coca-Cola and PepsiCo share similar features as both of them are from the same industry offering same types of products to more or less the same kind of target audience. One of the most significant strength of PepsiCo is its conspicuous presence in the conventional food items along with the soft drinks. It has successfully created its brand images for these product lines. Its major profits generating brands are Pepsi-Cola Brands, Frito-Lay Brands, Tropicana Brands, Quaker Brands and Gatorade Brands. It has merged with Quaker Oats that has helped it to gain synergy for the company. According to its annual reports, its market share and operating profits have been increasing at a steady rate. Since it has huge earning, it does not face much capital constraints for its future development plans. It major weakness includes it inability to enter those market that are already occupied by Coca-Cola. Its strategy in those regions has failed to attract the customers. It has a large market share in North America; however, the sales of its carbonated soft drinks are decreasing in this market. Good relationship with distributors is mandatory for selling and promoting its products to the final consumers. However, PepsiCo does not provide financial incentives to encourage their performances (Sparks et al, 2008). Some of the brands of PepsiCo are not sold under the name of companies like Quaker brands. However, using the name ‘PepsiCo’ would perhaps help to attract more consumers. Like PepsiCo, Coca-Cola too has many product lines under its brand name. It includes energy drinks, soft drinks, juices, tea & coffee under different brand names like Andina light, Eight OClock, Aquarius Active Diet, Barqs French vanilla creme soda etc. These recognisable brand names are the greatest source of strength for Coca-Cola. The bottling system of the company is another aspect to be proud of. The companies of Coca-Cola are owned by different local independent business units. These independent business units sell the products of the company and generate profits. The weaknesses of Coca-Cola Company include decreasing sales in some of the East Asian countries like Indonesia, Thailand and Japan. In the North American regions, the dominance of PepsiCo in conventional foods and beverage industry has stunted the growth of Coca-Coca. The sales in North American market has lower growth rate as compared to the other regions. In India, Coca-Cola soft drinks are criticised as many have claimed that contains excess pesticides and insecticides. It has been also been criticised for polluting the environment. For example, “in May 2003, Coca-Cola de Panama was fined US $300,000 for polluting Matasnillo river in that country” (Sen, 2003). Since both the companies are operating in the same industry and market, they have common opportunities and threats. The changing lifestyle of people has popularized the use of conventional foods and beverages. Acquiring small fast food chains could pose as a major opportunity. PepsiCo and Coca-Cola are engaged in aggressive acquisitions of these potential companies. However, the slow growth of carbonated soft drink is a vital threat for both the companies. Both of them are excessively dependant on their bottling partners who use their own strategies for marketing their product. This might pose as serious concern since wrong strategies can tarnish the brand image of the company. Global Strategies of Pepsi and Coca-Cola PepsiCo and Coca-Cola are the world’s most popular brands in conventional foods and beverages industry. Both have decentralized themselves to include all the operational areas in different countries. These have helped them in two ways. Firstly, it helps them to take the most suitable decisions as per the global scenario; secondly, they are able to realize the difference between the host countries and their home countries. The most important aspect of their strategies is ‘effective advertising’ which is framed keeping in mind the prevalent culture and custom of the country where it plans to penetrate. Both the companies have increased their product line as the demands in different markets vary according to taste and preferences of that particular market segments. Their product strategy focuses on their mission statements. PepsiCo aims to be the premier conventional food and beverage provider; whereas, Coca-Cola aims to refresh the world through its refreshing drinks. Moreover, PepsiCo and Coco-Cola are trying to introduce new conventional foods and beverage items and are investing significantly on research and development. For example, PepsiCo is now introducing sugar free soft drinks; whereas, Coca-Cola has introduced Coca-Cola Zero, Vanilla Coke etc. Their promotional mix must take into consideration the culture and demography of the particular market. They promote the same product in different markets in a different manner to attract the target customers. For example, Coca-Cola uses different promotional strategies to promote ‘Coca-Cola Zero’ in US and in Australia. Similar promotional policies are used by PepsiCo. The primary objective of their promotional mix is to develop their brands in the target market. The packaging of the products also portrays the prevailing culture in a particular market so that the consumers of the host country can relate with them. Rivalry and Performance Analysis of Pepsi and Coca-Cola In the global conventional foods and beverage industry, the rivalry between the two leaders (Coca-Cola and PepsiCo) is one of the most discussed topics. “Pepsi is Coca-Cola’s biggest rival in the beverage industry and they are in a constant power struggle” (Mennen, 2010, p.27). The rivalry between these two MNCs is becoming fiercer with time which is aggravated by the co-existence in similar markets. The war between these two companies can be easily recognised from their advertising and promotional strategies. In the North American region, PepsiCo has gained the upper hand position in the beverage industry as it has successfully utilized the US culture in its promotional and product mix strategy. However, in the international arena Coca-Cola has gained more market share especially in Asian countries like India and China. Both MNCs have maintained similar product lines for competing with each other. For example, both PepsiCo and Coca-Cola offer mineral water, energy drinks, juice, tea & coffee etc. Moreover, the prices of their products are same. Therefore, consumers do not have any switching cost; hence their loyalty is the main factor for generating profits. The performance of both companies should be analysed by comparing their financial score cards. Figure 3 and 4 show the consolidated financial income statements of PepsiCo and Coca-Cola respectively. Figure 3: Consolidated Statement of Income of PepsiCo (in Millions) (Source: PepsiCo, Annual Report, 2009) Figure 4: Consolidated Statement of Income of Coca-Coca (in Millions) (Source: Coca-Cola, company report, 2009) The above figures show that the growth rate of Coca-Cola is higher than that of PepsiCo. However, PepsiCo seems to be more efficient in generating profits. Positioning map is a useful tool to analyse companies’ position in the market according to their products. PepsiCo and Coca-Cola both are leading conventional drink and food companies offering wide ranges products including cola drinks, juices, energy drinks and conventional food items. Figure 5 portrays the positioning map of PepsiCo and Coca-Cola according to their major product brands. Figure 5: Positioning Map of PepsiCo and Coca-Cola Brands Conclusion The global conventional foods and beverage industry is a perfect example of oligopoly market structure where PepsiCo and Coca-Cola are the prominent players. Both the companies have a significant amount of market share in the global market. These two companies not only offer similar products but their prices are also kept at similar level. The above sections have attempted to excavate all the possible information regarding the structure of the two companies. The differences between these two companies are found to be marginal. However, in order to acquire larger market share, both of them are focusing on brand building strategies through promotional mix. Their multinational strategy deserves a special mention in this context. Their success can be attributed to their relentless quest in gaining a comprehensive understanding of the different cultural aspects of their host countries. Reference Coca-Cola. 2009. Our Company. [Online]. Available at: http://www.thecoca-colacompany.com/ourcompany/index.html. [Accessed on August 04, 2010]. Coca-Cola. 2009. Mission, Vision & Values. [Online]. Available at: http://www.thecoca-colacompany.com/ourcompany/mission_vision_values.html. [Accessed on August 04, 2010]. Coca-Cola, 2009. The Coca-Cola Company Reports 2009: Fourth Quarter and Full Year Results. [Pdf]. Available at: http://www.thecoca-colacompany.com/presscenter/pdfs/ko_earnings20100209.pdf. [Accessed on August 05, 2010]. PepsiCo. 2010. Company. [Online]. Available at: http://www.pepsico.com/Company/The-PepsiCo-Family/PepsiCo-Americas-Beverages.html. [Accessed on August 04, 2010]. PepsiCo. 2010. Our Mission and Vision. [Online]. Available at: http://www.pepsico.com/Company/Our-Mission-and-Vision.html. [Accessed on August 04, 2010]. PepsiCo, 2009. Annual Report. [Pdf]. Available at: http://www.pepsico.com/Download/PEPSICO_AR.pdf. [Accessed on August 05, 2010]. Sen, A. 2003. Heat On Cold Drinks. [Online]. Available at: http://www.countercurrents.org/glo-sen190803.htm. [Accessed on August 05, 2010]. Mennen, M. 2010. An Investigation into the Role of Emotional Branding in the Cola Market with Particular Reference to Coca-Cola. GRIN Verlag. Sparks A., Meack, C., Hillstrom, E. and Cervantes, S. April 11, 2008. PepsiCo International: Marketing Exemplar Firm Report. [Pdf]. Available at: http://www.aaronksparks.com/portfolio/mktg360pepsireport.pdf. [Accessed on August 05, 2010]. Read More