Corporate Strategy - Coca-Cola Company - Case Study Example

Corporate strategy The Coca-Cola Company (Name) (Institution) (Course) (Name of tutor) May 28, 2009 Introduction The coca-Cola Company currently the company operates in more than 200 countries and markets nearly 500 brands and 3,000 beverage products. Beverages are mainly categorized into tow; sparkling and still beverages. Still beverages include water, juice, tea, coffee, sports drinks and energy drinks while the sparkling drinks include Coca-Cola, Diet Coke, Sprite and Fanta. These four sparkling drinks are among the top five nonalcoholic beverages globally. This just points at what the company has achieved as a marketer in the global platform. In recognition of this, this paper will thus analyze the global strategy adopted by the Coca-Cola Company in order to achieve such phenomenon success. Company background The company was established in 1886 in Atlanta Georgia as a fountain soft drinks outlet by Dr. John Styth Pemberton in a pharmacy store. As of 2008 according to the company’s financial report for the same year, the company reported a gross profit of US$ 20.57 billion with revenues of US$31,944 billion (Coca-Cola). Mission statement To refresh the world... To inspire moments of optimism and happiness... To create value and make a difference. The company’s vision to achieve sustainable, quality growth is guided by the following aspects People: Be a great place to work where people are inspired to be the best they can be. Portfolio: Bring to the world a portfolio of quality beverage brands that anticipate and satisfy people's desires and needs. Partners: Nurture a winning network of customers and suppliers, together we create mutual, enduring value. Planet: Be a responsible citizen that makes a difference by helping build and support sustainable communities. Profit: Maximize long-term return to shareowners while being mindful of our overall responsibilities. Productivity: Be a highly effective, lean and fast-moving organization. Global business management: literature review Multi national corporations have pegged their success on globalization. However, many corporations want to have an international presence and a local presence in the various markets. This sets them in contras with the teachings of globalization that tens to generalize the marketing thus ignoring the importance f market segmentation. Nevertheless globalization allows them to retain their size which according to Gooderham & Nordhaug (p 14) allows them to enjoy the economies of scale and scope and their global reach which facilitates exploitation of new opportunities wherever they arise. Global presence on the other hand poses a new challenge to the players on the other hand as they have to maintain a local presence that will enable them to negotiate with their host country’s government in order to ensure flexibility in sourcing their products and meeting government policy. Multinational corporations such as Coca-Cola and Pepsi face another challenge in their management structure. Goderham & Nordhaug (p 14) say that “globally distributed companies can easily become bureaucratic and therefore non entrepreneurial and insensitive to the many different environments in which they operate.” As a result various studies have been conducted to reveal that there could be a no-linear U-shaped relationship between international expansion and performance (Goderham & Nordhaug p 14). Yoffie (2004) counters this argument and says that international presence lowers risks and facilitates cultural diversity which if managed strategically is converted into a core competence once incorporated in the organizational culture. Former Coca-Cola CEO, the late Roberto Goizueta once adopted a standardized international approach in the market that could not last long in the mid 1990’s. His approach was based on the idea “think global act global” (Ghemawat 2003). By 1999, the company was in trouble due to the generalization policy. Thus the new CEO adopted an entirely different approach based on the idea that no one drinks global but more drink local/domestic. The new head opinioned that “A Coke is a Coke is a Coke no matter what country you go to, however the local activation is different so you won’t see exactly the same advertising.” (Coca Cola) Demographic factors The coca-cola company is faced with a wide market of varying characteristics globally. The issue of culture has had to be incorporated in various markets in order to attain local appeal, something that has proved costly to the company. Again the company has had to segment its market according to age in order to address the various age groups effectively. Political Its presence internationally exposes the company to varying political climates which the company has to follow. As such this affects the harmony of the company and uniformity in management in different markets. This maybe a threat to the company in that its management structures will have to configured to fit in the requirements of that political region. Its share in foreign markets has led to politicians being concerned about taxation and reinvestment in their domestic markets (countries). Another general political issue is political instability in given regions. This interrupts distribution and even marketing of products. Economic factors The current financial crisis has reduced the company’s market share relatively as consumer demand falls. In addition, unavailability of credit has limited company operations. For instance, the total market value of common stock dropped from $142.2 billion in 2007 to $104.6 billion in 2008 (Coca-Cola financial report, 2008). Socio cultural factors More health conscious individuals are shunning these conventional fizzy drinks for more natural products in a fashion euphoria sweeping in many industries globally. Again the company has been forced to market its Coke brand as a refreshment drink other than a tonic as it was before. This was in response to changes in fashion and trends. The company’s brand long presence in the global market does not signify change which seems to be a new marketing idea in recent times. Nevertheless, the company has been quick in introducing new marketing slogans as a way of reintroducing its products in the market. The advent of green production globally has forced to incorporate more efficient production methods. Technological factors Technological innovations have enabled some companies have foregone bottling and sell CSD concentrate directly to consumers. Again efficiency has increased among bottlers thus reducing their number and thereby giving them more bargaining power over the marketers. Legal factors The company has to abide by legal issues pertaining to contracts with bottlers and advertising agencies. This increases the workload for the management and also limits company strategies such as market segmentation as discussed later under globalization. The company has to abide by competition laws in different regions and markets. Globalization Another challenge that faces multinational corporations and more Coca-Cola is the geographic segmentation of markets. Steers and Luciara (p 219) highlight the case of the Coca-Cola Company with its partners in Mexico. While the company has offered exclusive rights to its partners in the Mexico market to produce the drink, they use a different formula that uses cane syrup that is in higher demand in Georgia than the American Coke. In fact Steers and Luciara (p 218) say that the American Coke is cheaper that the imported Mexican one but consumers go for the sweeter but more expensive imports. Unfortunately, these imports do not benefit the Coca-Cola Company but instead compete with the company as the Mexican Coca-Cola bottlers operate independently in Mexico but distributors who import the drinks are not bound by the contract between Coca-Cola Company and its partners. This is indicative of the extent of globalization among distributors a factor which is not being fully addressed by the company in this respect. Five forces analysis Supplier’s bargaining power Suppliers in any industry are in four main categories as labor, raw materials and parts and services. The cost of inputs has a very significant role to play in determining the attractiveness of the industry to investors and the profitability of the players. Conventionally, suppliers would want to sell their supplies at the highest price possible with the most minimal services possible. Their bargaining power rests on their ability to influence the terms and conditions of the transaction in their favor. If they have great influence on the transaction then they are powerful and thus the more difficult it is for doing business in such an industry. The soft drinks market is basically divided into two; the concentrate manufacturers and the bottling plants. The concentrate manufacturers in most occasions own the brand and are thus responsible for the marketing. Bottlers on the other hand are contracted by the concentrate manufacturers to bottle and package their brands in various markets. In the case of concentrate manufacturers, they have to contend with the terms and conditions of the bottlers as their suppliers. This is because the cost of setting up a bottling line is high and hence few players in the industry (Yoffie, 2004). In fact players in the concentrate industry outnumber bottlers. The company has integrated vertically by installing vending machines The market is segmented into regions and countries since the economic conditions of these markets vary. Corn syrup suppliers as an ingredient for the concentrates have limited power on the Coca-Cola Company. This is because corn syrup market is highly competitive and hence the terms and conditions in the market are also competitive. Competition As earlier said, concentrate producers in the soft drinks market outnumber the bottlers. However, their large number does not offer relatively enough room for product differentiation. As a result, the two dominant players, Coca-Cola and Pepsi have been locked in legal battles over infringements and trademarks for a long period (Yoffie, 2004). Though the company has created an entry barrier through high investments budgets and strategic alliances, the competition between the Coca-Cola and other companies still exists. Other competitors in the market are sprouting up with their eyes trained on imitating the company’s product. This resulted into the registering of the curved Coke bottle shape and the characteristic curled ribbon as trademarks (Yoffie, 2004). In a vertical integration process, Coca-Cola is buying out franchises formerly held by Cadbury’s more so in Canada. Levy, Salman and Hilke (2004) say that since the 1980’s the FTC has stopped any major concentrate mergers in order to uphold competitiveness of the industry. Therefore the company is seeking to amass bottlers rather than buying out concentrate competitors. However, excessive horizontal integration through acquiring competitors has to some extent been limited by the Federal Trade Commission (Levy, Salman and Hilke 2004) Power of buyers For the consumers, their power has been capped by offering a wide range of products. Such products tend to target various market segments divided on a given criteria such geographic location, demographics and the income scale. Distribution channels, as buyers, are also faced with the challenge of vending machines. Vending machines are easy to put up and require minimal space and start up capital than for other conventional retailing outlets. On the other hand, bottlers act as buyers of the concentrate from the various concentrate makers. They are bound by contracts with the concentrate makers and more often than not, the contracts encompass marketing and promotion of the final products. The Harvard Business review writes that due to the high costs of establishing bottling plants, there are few players and hence the concentrate makers have little bargaining power. In fact technology has splayed against the concentrate makers whereby bottlers have increased their efficiency and thus locking out small players. As a consequence, the number of bottlers in the US has dropped from a high of 2000 in 1970 to only 300 by 2000 (Yoffie, 2004) The company has had to increase product prices in a small margin other than the appropriate one due to inflation and increased cost of production resulting from high energy prices. In the case of bottlers being buyers of their company’s concentrate, Coca-Cola realizes that the benefits extended to the bottlers and distributors lock them to their contracts hence they have very little bargaining power. In fact, bottlers have to consult and receive approval from the company in pricing the products. Threat of substitutes The Carbonated Soft Drinks market is quickly due to health concerns by households. While water has remained the healthiest and most abundant beverage, it can be termed as a traditional and natural competitor to bottled beverages. However, the introduction of bottled water in the beverages market has provided another opportunity for the CSD players. Unfortunately, bottlers who are not bound by contracts to make other non cola products are taking up bottling water. In response, the industry players are moving back into franchising bottlers. The main CSD players are also forming alliances and mergers or acquisitions with other non carbonated drinks manufacturers. This happens most in new markets where the multinational firms seek to merge or form an alliance with a local player. A good example is the Coca-Cola’s acquisition of Huiyuan Juices of China. As a substitute for carbonated drinks and competitor for the non-carbonated drinks, Coca-Cola realized that Huiyuan Juices had the local appeal and hence was a good market entry strategy in the very potential Chinese market (Yoffie, 2004). The threat of product substitution by conventional beverages such as non bottled water (tap water), milk and alcoholic beverages is high. For instance the company has been forced to lower their prices the African region in order to retain competitiveness (Coca-Cola). Again harsh economic times have seen the substitution of expenditure on leisure beverages for more pressing needs that vary from one household to another. Barriers to entry The success of players in the CSD market has attracted new entrants. However, not all of them have been successful in making it in the industry. The CSD market has no natural barriers and hence the players themselves or the nature of the industry creates the barriers. The new entrants have a desire to gain market share and often have significant resources and may introduce very competitive market entry strategies. Their presence may force prices down and put pressure on profits. In realization of this, concentrate makers have in their contracts with bottlers ensured that a bottler does not handle two competing products simultaneously. Economies of scale and the high capital investments required for starting a new company means that Coca cola is relatively protected against new entrants in the market. Yoffie (2004) says that the cost of laying out a new typical concentrate manufacturing plant lies between $25 and $50 where such a plant could effectively serve the US market. Such an amount of money is not available to the every day investor who could think of the CSD market. The relationship between the company and its competitors in this case Pepsi Inc seems to have been accepted and the market already shared out. The franchise relationship with distributors/bottlers locks them to their services and makes them unavailable to competitors, a relationship that has worked for the company in shielding its market share which is over 50% globally from predation (Richard et al 2008). References Coca-Cola website www.coca-cola.com, (Accessed on 25th May 2009) Coca-cola company report at http://academic.mintel.com/sinatra/oxygen/display/id=226505, (Accessed on 25th May 2009 “Coca-cola rises 14% on international sales” Atlanta business chronicle, Oct 2008 Gooderham, P. and Nordhaug, O. (2003) International management: cross-boundary challenges Wiley-Blackwell, (New York: Wiley-Blackwell) Ghemawat Globalization: The Strategy of Differences http://hbswk.hbs.edu/item/3773.html (Accessed on 25th May 2009) Hays, C. (2005), The Real Thing: Truth and Power at the Coca-Cola Company, (New York, Random House) International brands at, http://www.adbrands.net/sectors/sector_softdrinks.htm, (Accessed on 25th May 2009) International brands at, http://www.adbrands.net/sectors/sector_softdrinks.htm, (Accessed on 25th May 2009) Richard, L. et al (2008), Global marketing, (London, Penguin) John, H. and Williams, C. (2006), Modern Corporate strategies, (London, Prentice Hall) Levy, Salman and Hilke (2004) Transformation and Continuity: The U.S. Carbonated Soft Drink Bottling Industry and Antitrust Policy Since 1980 Mikel, L. (2007), Marketing and management basics, (Birmingham, Soul) Max, V. (2008), “Management across oceans” International Journal of Cross Cultural Management, Vol 232, No. 4 Steers, R. and Luciara, N. (2005) Managing in the global economy, (London: Sharpe) Pendergrast, P. (2000), For God, country and Coca-cola: The Definitive History of the Great American Soft Drink and the Company that makes it, (New York, Basic Books) Yoffie, (2004) The Cola war Continues: Pepsi and Coke in the 21st century, (Harvard Business school) Read More