Management of International Business: Coca Cola in Malaysia - Term Paper Example

 Management of International Business: Coca Cola in Malaysia Table of Contents 1. Executive Summary : page 3 2. Introduction : page 4 3. Coca Cola and its corporate social responsibility : page 5 4. Characteristics of soft drink industry : page 6 5. Evaluation of Malaysia for the expansion of Coke : page 7 6. Conclusions : page 10 7. Recommendations : page 11 8. References : page 13 Executive Summary International business or cross cultural business is growing across the world as a result of globalization. The importance of foreign direct investment for the economic growth has been realised by the countries more than ever now and the trade barriers or the barriers to entry has been reduced immensely at present. Malaysia is one of the prominent emerging countries in the South East Asia. Malaysian holds the third place in the South East Asia and twenty ninth place in the global economy as per the recent statistics. Malaysia is an Islamic state even though Malaysian Muslims are more civilized and educated compared to Muslims in other parts of the world. Coke needs no introduction in the international market. They are the biggest soft drink manufacturers in the world. Even though Coke was keener in protecting the environment and demonstrating their corporate social responsibility, some of their tactics were criticized heavily by the neutral observers. Injudicious underwater exploitation is the major criticism labelled against Coke from many countries. Coke is currently trying to expand their wings in Malaysia. They are facing severe challenges in Malaysian market because of the anti-American feelings developing across the Muslim community all over the world. Moreover, health concerns about the soft drinks are also growing everywhere and the increasing popularity of bottled water is another major threat for the ambitions of Coke. This report analyses the opportunities and threats waiting for Coca Cola in Malaysia. Introduction International business is growing across the world because of the globalization, liberalization and privatization policies implemented by different countries. Traditional business concepts were redefined or restructured in order to accommodate the new revolutionary business concepts and to exploit the current opportunities as much as possible. Organizational culture, climate, behaviour and theories have changed a lot as a result of internationalization of business. Outsourcing and offshoring like new business concepts entered the business world because of the growing cross cultural business activities. Corporate companies and other big organizations have already experienced saturation in their domestic countries and they were waiting for an opportunity to internationalise their business. Liberalized rules and regulations for the entry of foreign direct investments (FDI) by many of the countries made the path easy for the multinational companies to exploit the possibilities of Globalization. Even though, the popularity of international business is unquestionable, many of the big organizations are facing stiff challenges in doing international business because of the improper business strategies. Domestic business strategies are not suitable for international business because of the extreme diverse business environment in the target country. Coca Cola is the world’s largest non-alcoholic beverage company. “Coca Cola products are consumed at the rate of one billion per day” (Bellis, 2009). “Invented by Doctor John Pemberton in May, 1886, Coca Cola is currently operating in more than 200 countries with over 50,000 employees and more than 800 production and distribution centres and 300 worldwide bottling partners” (The Coca-Cola Company: Growth, Leadership, Sustainability, 2009). Innovative business strategies keeping in pace with the needs of the changing world made Coca Cola one of the all time great companies in the world at present. Coca Cola and its corporate social responsibility Corporate Social responsibility (CSR) is one of the major business term talked loudly in the business world at present because of the huge popularity of international business. Crane et al (2009) has pointed out that CSR has appeared in the history along with the evolution of business activities itself (Crane et al 2009). Nexen (2009) has defined Corporate Social responsibility as the “commitment to behave ethically and contribute to economic development while improving the quality of life of our workforce and their families as well as the local community at large” (Nexen, 2009). In any case, CSR is a business strategy which was established in the corporate world only at the beginning of the twenty first century. Apart from making products useful to the society and keeping good relationships with the employees and the community, it is the responsibility of the big companies to give something in return to the community since they are exploiting the community resources very much. CSR has gained prominence in the current business circle since big companies realized that they cannot survive in a community for a longer period if they fail to do something for the community. Coke is a socially responsible company in the world even though there some controversies associated with its underwater exploitation efforts in some countries like India. Spain is a country in which over 21,000 fires happening every year and “coke recently helped to restore some of the forests around Madrid that have suffered badly from forest fires, planting indigenous species and building dams” (The Coca Cola Company: Spain, 2009). Moreover, Coke helps the countries to develop new environmental legislation and protection with its waste recovery or recycling operations. In order to demonstrate their corporate social responsibility, coke has taken measures such as rainwater harvesting, restoring groundwater resources, going in for sustainable packaging and recycling, and serving the communities where it operated (Coca-Cola India's Corporate Social Responsibility Strategy, n. d). Coke has taken many measures to demonstrate their commitments to the communities in which they operate. They are doing everything possible to recycle the empty cans in order to protect the environment. Environmental protection and the fight against the climate change are some of the things given top priority by the Coke Company. However, Coke has faced severe criticism in most of the countries because of their alleged exploitation of ground water resources. Fresh water resources or the drinking water resources all over the world are exhausting at present because of the water contamination happened due to heavy industrialization and the toxic fertilizers and chemicals used in the agricultural lands for increasing the yield. Coke’s track record of over exploitation of ground water resources is a major concern for the Malaysians while they allow coke to expand to their territories. Characteristics of soft drink industry The major customers for the soft drink industry are the youths even though soft drinks are consumed by all the people irrespective of age differences. Youths often consider the drinking of soft drinks as a status symbol. Moreover, youths are often engaged in lot of activities which need physical workouts. The energy loss after the physical workout session is often compensated by having a soft drink by most of the youths because of the impeccable taste and energy it provides. Today, about 1,300 soft drink manufacturers, employing more than 100,000 workers, compete in a $25 billion market for nonalcoholic beverages. In response to changing consumer tastes and needs, the soft drink market offers a broad selection of products in various shapes and sizes. Diet drinks, for example, were about one-fourth of all carbonated soft drinks shipped in bottles or cans in 1987-double their share 20 years earlier. Also, the popularity of noncarbonated beverages (such as fruit drinks and bottled water) is on the rise, with such shipments in the soft drink industry valued at nearly $2.5 billion in 1987. And used as soft drink packaging, cans surpassed glass and plastic bottles as the container of choice in the late 1980's (Personick & Harthun, 1992) Even though, the popularity of soft drinks is growing, many health professionals warned the public against taking too much soft drink because of the suspected toxic contents in it. Soft drink manufacturers use some toxic ingredients in order to increase the taste and to preserve the drinks for a longer period. These ingredients can affect the human health in the long run and hence many health experts expressed their views against taking too much soft drink. Evaluation of Malaysia for the expansion of Coke The Coca-Cola Co is setting up a 123,024 sq m bottling plant at Bandar Enstek’s techpark in Nilai due to attractive logistics costs and a “tight timeline.”In an e-mail to StarBiz, Coca-Cola Pacific Group communications director Kenth Kaerhoeg said: “Our selection of location was mainly driven by a list of criteria, including transportation/logistics costs for raw materials and finished products and ready to develop freehold land with a tight timeline to have the plant operating by end-2011 (MAHALINGAM, 2010). Malaysia is one of the prominent countries in the South East Asia. In fact they are the third largest economy in this region and one among the top 30 economies on the world. When most of the Americana and western countries struggled to counter the challenges raised by the recent global financial crisis, Malaysia is one country which escaped from the recession problems without many injuries. The favourable political climate or stability in politics and the strong economy are some of the encouraging factors for the Coca Cola Company to invest more in Malaysia. Suitable environment, good water and electricity sources etc are some of the other encouraging factors for Coke in Malaysia. “More than 60% of the population is under 30 years old and this is an important indicator for a beverage market that is still underdeveloped” (MAHALINGAM, 2010). As mentioned earlier, youths are the primary consumers of soft drinks and the demography of Malaysia is an encouraging sign for Coke. Muslims constitute the majority of the population in Malaysia even though different ethnic groups like Chinese, Indians, Malays, Bumiputera groups etc are also there. “According to a 2000 government census, about 60% of the population are Muslim, 19% Buddhist, 9% Christian, and 6% Hindu. About 3% practice Confucianism, Taoism, or other traditional Chinese religions. Other faiths include animism, Sikhism, and the Baha'i Faith” (Malaysia - Religions, 2011). Malaysia is officially a Muslim state; however, Malaysian Muslims are more advanced and educated compared to Muslims in some other parts of the world. Malaysians do not have hesitation in imitating western culture or life styles. They are not much adamant about their religious beliefs unlike Muslims in some other parts of the world. The Coke Company has used the merger and acquisition strategies effectively in different countries in order to reduce competition and also to increase their market share across the world. For example, when they entered the Indian market they have realized that a small company soft drink called “Thumps Up” was more popular in India. Immediately they have acquired that company and currently it is working under the label of Coca Cola. Same way Coke can think in terms of merging and acquiring strategies in Malaysia as the mode of entry or expansion in Malaysia. Malaysian soft drink industry is filled with diverse suppliers like energy drink, herbal drink, fruit drink, chocolate malt drink, carbonated drink etc. Coke can think in terms of acquiring some of these local soft drink manufactures in order to compete more effectively in the Malaysian market. With the number of working Malaysians expected to reach 13m by 2013, and the economic slowdown early in the forecast period putting more demands on workers, consumers are likely to increasingly demand fast and easy drink options. However, the cost of soft drinks is likely to remain a key concern for consumers, as well (Just the facts - Malaysian soft drinks market, 2010) As mentioned earlier, working youths are the major consumers of non-alcoholic beverages in Malaysia. The number of working youths is going to increase in the future; however, it is not necessary that the soft drink consumption may also increase along with that because of the increasing concerns about the health problems soft drinks can generate in future. Soft drink manufacturers need to find some ways to decrease the health concerns of the soft drink users in order to regain their lost market shares. In many of the countries people started to use bottled water in place of soft drinks because of the increased health concerns about the use of soft drinks. As stated earlier, Malaysia is a Muslim country and hence American products are generally not much welcomed in Malaysia. America’s foreign policies are not much acceptable in the Muslim world. The Muslim community generally believe that America has a strong bias towards Israel in the Middle Eastern problems. Moreover, America’s war on terror is perceived as a strategy to destroy the Muslim world by many of the Muslims. All these beliefs and concerns may have detrimental effect on Coca Cola’s ambitions in Malaysia since it is an American company. Culture plays an important role in determining the success and failures of international business. It is difficult for Coca Cola to implement their successful American business strategies in Malaysia even though they are marketing the same product all over the world. Malaysia is a country which is different from America, politically, economically, socially, culturally and legally. Coke needs to devise strategies suitable for the Malaysian conditions. For example, Tiger Woods could be a better brand ambassador for Coke in America; however in Malaysia, he may not cause any impacts. A Malaysian celebrity is ideal for the marketing activities of Coke in Malaysia. Conclusions Coke has adopted diversification in almost every segment of their business. They have realized the fact that it is not possible for them to market their soft drink everywhere using same marketing strategies. Social, economical, political and cultural backgrounds are different in most of the countries and hence unique marketing strategies may not succeed everywhere. Customization of product is the order of the present world and Coke has realized this fact very well. Coca Cola expansion prospects in Malaysia are bright considering the strong economic growth and the growth of youth workforce in Malaysia. However, the political developments in across the Middle East regions and the American war on terror in the Asian region are some factors which causing problems to the ambitions of the American soft drink manufacturing giant in Malaysia. Even though, Coke is doing many things to protect the environment and to demonstrate their corporate social responsibility, underwater exploitation by Coke is a major concern for many countries. The increasing concerns about the health problems associated with soft drink usage, is another problem faced by Coke in Malaysia at present. Recommendations Coke should take extreme care while operating in Malaysia as far as ground water exploitation is concerned. Drinking water shortage or water scarcity is one of the major problems faced by the world at present and Malaysia is also not an exception. In my opinion, Coke must think about in terms of developing technologies to make drinking water from sea water or rain water. Most of the soft drinks available in the market are treated suspiciously by health professionals because of some of the ingredients of such drinks, which were harmful to the health. Coke must take more care while preparing their soft drinks since the human life is the most precious thing in this world. Coke must realize that people when they are tired or feeling thirsty, they will accept whatever the drinks available in the market trusting on the manufacturers. Such confidence of people in trusted brands should not be exploited by Coke like socially committed companies, just for making profits. Being a socially committed organization, Coke should take extreme care while expanding their businesses to overseas countries like Malaysia. Coke has already got some bad reputations in some countries and hence their expansion processes must be evaluated more carefully by the countries like Malaysia. Environment pollution is one of the major factors of concern in the current world. The Coke bottles made of plastic is definitely a major threat to the environment when we consider the huge volume of plastic bottles produced worldwide for bottling Coca Cola products. In order to save the future generation from environment problems, Coke must try to avoid the usage of plastic bottles as much as possible and also they must formulate strategies for recycling their plastic products or the safe disposal. References 1. Bellis, M. (2009). The History of Coca Cola. [Online], Available at: http://inventors.about.com/od/cstartinventions/a/coca_cola.htm [Accessed on 17 January 2011] 1. 2. Crane A.Andrew Crane (Editor) 3. › Visit Amazon's Andrew Crane Page 4. Find all the books, read about the author, and more. 5. See search results for this author 6. Are you an author? Learn about Author Central 2. , McWilliams A., Matten D., Moon J & Siegel D.S. (2008) The Oxford Handbook of Corporate Social Responsibility Publisher: Oxford University Press, USA (October 18, 2009) 3. Coca-Cola India's Corporate Social Responsibility Strategy, (n.d), [Online], Available at: http://www.icmrindia.org/casestudies/catalogue/Business%20Ethics/BECG093.htm [Accessed on 17 January 2011] 4. Just the facts - Malaysian soft drinks market,( 2010) [Online], Available at: http://www.just-drinks.com/news/just-the-facts-malaysian-soft-drinks-market_id100281.aspx [Accessed on 17 January 2011] 5. MAHALINGAM, E. (2010). More sales of Coca-Cola in Malaysia seen, [Online], Available at: http://biz.thestar.com.my/news/story.asp?file=/2010/3/17/business/5875965&sec=business [Accessed on 17 January 2011] 6. Malaysia - Religions, (2011). Encyclopedia of nations [Online], Available at: http://www.nationsencyclopedia.com/Asia-and-Oceania/Malaysia-RELIGIONS.html [Accessed on 17 January 2011] 7. Nexen (2009). Glossary, [Online], Available at: http://www.nexeninc.com/Sustainability/glossary.asp [Accessed on 17 January 2011] 8. Personick M.E & Harthun L.A.(1992). Profiles in Safety and Health: The Soft Drink Industry, [online], available at: http://www.questia.com/googleScholar.qst;jsessionid=8B867B9B33E1E16CBF8DF5CE275A36A5.inst1_2b?docId=5000140129 [Accessed on 17 January 2011] 9. The Coca Cola Company: Spain. (2009). [online], available at: http://www.europeancareers.coca-cola.com/en/home/locations/spain.aspx [Accessed on 17 January 2011] 10. The Coca Cola Company: Growth, Leadership, Sustainability. (2009). [online], available at: http://www.thecoca-colacompany.com/ourcompany/index.html [Accessed on 17 January 2011] Read More