Coca-Cola Company Globalization Trend - Case Study Example

Name : xxxxxxxxxxx Institution : xxxxxxxxxxx Course : xxxxxxxxxxx Title : Coca Cola Company Tutor : xxxxxxxxxxx @2010 Table of Content Title : Coca Cola Company 1 2. Coca-cola’s Globalization Trend 4 Demographic aspects 5 Economic segments 5 Political/legal segment 7 Socio cultural segments 7 Technological segment 8 Global Segment 9 The Soft Drink Industry and the Five Forces Analysis for Coca-Cola Company 10 3 Supplier’s Bargaining power 11 Rivalry among the competing sellers 12 Substitute products 13 Potential New Entrants 13 Conclusion 14 1. Introduction 2 2. Coca-cola Globalization Trend 3 Demographic aspects 4 Economic segments 4 Political/legal segment 5 Socio cultural segments 6 Technological segment 7 Global segment 9 The Soft Drink Industry and The Five Forces Analysis For Coca-Cola Company 9 3 Supplier’s Bargaining power 10 Buyers’ bargaining power 10 Rivalry among the competing sellers 11 Substitute products 12 Potential New Entrants 12 Conclusion 13 Bibliography 14 1. Introduction The Coca-Cola Company was founded in 1886 and has its headquarters in Atlanta, Georgia, in the United States. It has distribution points in a number of countries in the world and about 74% of its products are sold outside the United States. The coca- Cola Company is beverage producing company that manufacturers, distributors and markets non alcoholic drinks concentrates and syrups. The main function that the company does is production of the concentrates and syrups which are then sold to bottlers who in turn add carbonated water and sweeteners on the concentrates; they bottle the products and sell it to the retailers or the whole sellers. Its largest bottler is based in Australia and is called The Coca-Cola Amatil. The company sells several types of soft drinks, sports drinks, juices, teas, and water (Staff of Vault 2002). Coca-Cola has a wide market in Australia that is attributed to the high population in Australia and the technology in Australia. From the mission of the Company, their main aim is to refresh the body, mind and spirit of people in the whole world. This means that most of their drinks are for refreshment. The vision of the company is to maximize the gains and returns to their share holders. The company is guided by its values which are leadership, integrity, quality, innovation and accountability. These are the values that guide the decision making processes in the company. The success of the company has been contributed to by their efforts to maintain their vision, mission and to observe the values (Icon Group International 2000). 2. Coca-cola’s Globalization Trend Coca-cola is highly moving towards achieving global market a move that is enhanced by the change of its focus to the global market and the health mindful market. There are many segments of the market environment that have enable the Coca-cola company to reach the heights it has and that will enable it to move further globally. These factors have been observed in many countries globally and especially in Australia. Such factors of the environment are demographic, economic, political/legal, socio cultural, technological and the global aspects of the business environment. These have been observed in most of the countries where the country has ventured especially in the Australia (Foster 2008). Demographic aspects The population of most of the countries in the world is largely composed of the younger generation who are yearning for refreshment through the carbonated drinks. The older people are however turning to the more healthy drinks such as milk and the non carbonated drinks. Coca-cola has a wide market among the young people unlike with the older people. For example in Australia where the company is so established, the population of those aged below 60 years are more than 60 percent. Coca-cola therefore enjoys the large market offered by the majority of the population. The older people are however a challenge to the company and its therefore working towards their concerns. The company has also introduced the Diet Coke in response to the demands of the older people (Institute of Medicine (U.S.) 2006).In Australia, the company has introduced a nutrition labelling program that is aimed at helping the consumers to make knowledgeable decisions choices on the drinks. The Australia’s National Health and Medical Research Council has given out information that indicates the amount of the drink that contributes to the total energy requirements for a particular age of a person. This is a weakness for the company since it was initially a refreshment producing company but the demands of the population are turning it into nutritional considerations. Economic segments Coca-cola has ventured into many of the developed nations that are economically stable. Those countries have low inflation rates and low rates of unemployment. Most of the nationals are therefore financially stable thus offering a strong market for its products. For example, Australia has enjoyed economic stability for the past decade and this has med the county withstand the current global economic crisis. This has also enabled coca-cola company to grow economically as the economy grew. In countries that experience economic crisis, most of the consumers would go for water instead of the carbonated drinks as a means of fitting in the hard economic times. For example, at the beginning of the year 2010, the company stats that the business in Australia has offered it a solid start for the year and is expecting to generate high profits for the first half of the year. However, coca-cola drew a strategy to respond to this and to cope with the economic situation. The company reduced its costs as low as possible so that the selling process of its drinks could also go down. This therefore reduced the extent of the effect of the economic crisis on its products. When the economy recovered in most countries, most people got employment and the demand for the coca-cola products became higher. The prices of the coca-cola products are sold according to the brand and the size. Most of their prices are reasonable and low as compared to those of their competitors; this has made people to have a positive attitude and strong passion for the drinks. The company however felt a weakness due to the economic recession in most of the developing countries that affected its performance. Nevertheless, the company is now taking on expansion strategies that will increase on its production capacity. Political/legal segment Australia has a corporate rate of 30% and therefore there are pressures on the businesses regarding the exercise and the company tax. The law in those countries is also well defined and offers protection to private and public property. The country also works hard to protect the investments in the country since they are her sources of revenue. Political stability is also better in most of the countries where Coca-cola has ventured. Most countries also have policies that govern the sale of foods and drinks to the consumers. In Australia, the Australia’s National Health and Medical Research Council requires that all consumer foods be labeled with information concerning the nutritional value of the drinks. The labels are supposed to contain information is simple terms that will assist the consumers in calculating their daily energy intake and be able to balance it with the physical exercise they engage in. Socio cultural segments After the world turned global, restrictions that hindered people from venturing into foreign markets were loosened and this made global businesses possible. People have therefore been able to embrace foreign products and not restricting on the local products. People’s feeding styles have also changed and people are able to accept a wide variety of products. This has been contributed to by the people’s movements all over the world and is therefore able to adapt to what comes their way (Mooij 2005). In the past few years, calls for anti-Coca-cola had prevailed in some parts of the world including Australia. Some of those negative reactions were due to a serious water shortage and pollution noted in the underground water that was related to Coca-cola’s production activities. The Company’s harmful wastes were also distributed to farmers as fertilizers. The Worldwide Environmental Protectionism required that the Company should adopt environmental friendly methods of production and use recyclable products in the process of production, bottling, and packaging. To overcome the sociocultural challenges, coca-cola is adopting policies and strategies to help it maintaining the required standards (Cramer 2000). Technological segment For a manufacturing company such as Coca-cola, technological advancements and innovativeness are major aspects. The current advancements in the areas of raw materials, production and ICT have a great impact on the performance of the Coca-Cola Company. A variety of soft drink ingredients have come into the market and this has enabled the Coca-Cola Company to produce a variety of soft drinks. The developments that have taken place in the information technology has enabled the company to occupy the new generation of people consuming soft drinks by introducing the new feature of downloading songs. The development of a company’s website has also linked people from all over the world with the company. By the use of multimedia technology, there have been developed the digital story telling videos at Las Vegas that tells stories of Coca-cola. This creates more awareness to people about the Coca-Cola Company. Technology is high in Australia and by venturing into that country, Coca-cola is able to develop technologically and help in spreading globally (Australia. Dept. of Science and Technology 2004). Throughout its system, the company is enhancing its bottling and manufacturing activities to incorporate means of transport that are fuel efficient. They are also changing towards the use of renewable energy sources from the biodiesel energy and electric powered tracks in transportation of the products and also in reducing the emissions into the environment. Technological advancements in an industry can help in eliminating cost barriers by ensuring a wide variety of products, low production costs, inventory control and improved technical skills. In Australia, Coca-cola enjoys the country’s good technology that includes electric powered means of transport and good infrastructure, availability of raw materials such as carbonated water, sugar and flavourings that are produce in Australia, and logical cost for money (Silberglitt & Wong 2009). Global Segment Coca-cola has achieved efficiency in production of drinks in all regions of the world. The company is able to make use of the recycled materials and at the same time conserve the environment. Its bottling system is a major strength for the company. This has enabled it to do business at a global level and at the same time maintains the local markets. Its global production trend also helps the company to operate on bigger economies of scale since it does mass marketing. It therefore enables the country to cut on the production costs and gain the competitive advantage from its high quality products. The company adjusts to the prices of the country where it is manufacturing its products and therefore reducing on the transportation costs, import tax as well as expert taxes. The global investment also helps the Company to remain stable in that it is established in countries of different financial stability. Therefore, economic stability in one country cannot stop it from developing in other countries. This may happen in the developing countries but since it is well established in countries such as Australia and China, it can withstand any form of economic crisis (Peng 2008). The Soft Drink Industry and the Five Forces Analysis for Coca-Cola Company The two constituents of the soft drink industry are equally profitable. These are the concentrate production and bottling. They both share some aspects in the industry where the concentrate produces can do some bottling and the bottlers can do promotion activities. Entry into this industry would therefore require developing operations in the two areas. The market environment for the two is also similar since they face similar challenges. This industry generally generates positive benefits to the economy (Tremblay 2007). 3 Supplier’s Bargaining power The inputs from Coca-Cola and Pepsi for their products were basically sugar and the packaging. Sugar could be obtained from many other sources in the market and if it could become very expensive, the firms could turn to corn sugar. Therefore the suppliers of nutritive sweeteners did not have much bargaining power against Pepsi and Coca-Cola, or on their bottlers. Meanwhile, NutraSweet had entered the market as a copyright adding to another supplier in the industry. Holland Sweetener was another company that came up to the industry reducing Searle’s bargaining power and producing aspartame at lower prices. The increase in the number of suppliers of the soft drink ingredients led to Coca-Cola and Pepsi into reducing the number of can producers through a negotiation with their bottlers. Since Coca-cola and Pepsi were competing in the same field, they ended up negotiating further for favourable terms. In the plastic bottle industry, there were more suppliers that the available contracts. Therefore, direct negotiations by Coca-cola and Pepsi further reduced the suppliers bargaining power. Power of buyers The principle buyers of the Coca-Cola Company were the supermarkets which was a very fragmented industry. The supermarkets expected that the products from Coca-cola will generate customer traffic so they really went for them. But due to the high level of their fragmentation, the stores did not have a strong bargaining power. They were fragmented with 6% of the store being occupied by the food retails and the largest chain in the region could control 25%. The customers therefore expected to pay less through this large chain of stores, so prices were reduced leading to low profitability. On the other hand, Wal-Mart, the national mass mechanising chain had more bargaining power but was less profitable to the soft drink makers. The least profitable was fountain sales. The companies therefore found this as negligible. This was because the buyers in the fast food kiosks wanted a stock form the same manufacturer so that they could negotiate on pricing. The most profitable was vending. Basically, there were no buyers to bargain at theses points and the products could be sold directly to the consumers. In this case, the customer was the consumer who was limited by the alternatives to quench the thirst. Due to the switching costs of the drinks, most customers sought the alternatives considering the hard economic situation that prevailed.. Another driving force was the uniqueness o the Coke drinks where the tastes was not changing and some customers were seeking variety. The customers who remained were loyal to the company. Rivalry among the competing sellers Rivalry has existed in the soft drink industry is mainly between he two giants of soft drink production, that is, Coca-cola and PepsiCo. The two companies provide the flavors for soft drinks in the industry and also owned most of the market shares within the industry. In Australia, the only known soft drink companies are Coca-cola and Pepsi. However, there are others such as Berts Soft Drinks and OHM Beverages both in Sydney. However, Coca-Cola and PepsiCo have dominated the minds of most people in the population. Rivalry also exists between the two giant companies. For example a recent move by PepsiCo of buying the Seven-up’s with the aim of expanding its product line. After Coca-Cola got informed of the move, it is also planning to purchase Dr Pepper, an idea that it dropped after the Federal Trade blocked the move by PepsiCo. For the Coca-Cola Company, it was taken as a weakness since it responded wrongly to the threat. This is rivalry that exists between the two major companies. There is a strong fight between the two giants both fighting for expanding in the major markets (Penzkofer 2007). Substitute products The soft drink is an unstable industry that cannot maintain one product line. This is a major weakness and is seen with the Coca-Cola Company. The company failed to acquire uniformity of taste for its consumers and due to this fact; substitutes are entering into the market at a very high rate that is trying to win the taste of the consumers. The substitutes are coming with very low process and varied tastes. Since the are no barriers to winning the tastes of the consumers, most of them are turning to the substitutes and are changing their loyalties form Coca-cola. For example, Pepsi came after Coca-cola with drinks that were almost like the Coke and gained a portion of the market (Evans & Lindsay 2002). Potential New Entrants The soft drink industry is highly dominated by the strong giant companies. Entry into such market is therefore very hard. New entrants must be very unique and attractive to win the attention of the consumers especially from the Coca-Cola drinks. It is therefore very important for the company to maintain uniqueness throughout. However, once the new entrants succeed, they will easily take away the buyers who have low bargaining power especially on the prices of the ingredients that they require. Once they get the buyers, who are the bottlers in this case, they will have high chances of success. Coca-Cola’s supply chain The main products that is produced by Coca-cola is the concentrate and the syrup for making the drinks, which is then sold to the bottlers and then to retailers. This was the chain initially. However, complains arose later that the bottlers were not efficient and could let the shops finish their stocks without replacement. The company then changed the supply chain that they had used for centuries. Coca-cola then started delivering the good in a warehouse of Wal-Mart in United States form where they could be procured. Following this move, the bottlers filed a law suit since they were not happy with the new decision but the company insisted that the decision lies on them. The company is now having an advantage because this new supply chain is under the management of the Coca-cola supply chain management and they will be able to control the supply of stock to the retailers. However, there is a disadvantage since the company was required to change its procurement procedures that will involve the program of Wal-Mart. They could therefore not do it independently after incorporating Wal-Mart in their procedures. Conclusion Coca-Cola has enjoyed many benefits in the soft drink industry that no other soft drink company has ever enjoyed. It is due to its increasing benefits that the company is achieving global expansion and is about to take over in the global market. With its good reputation, the company will achieve this and will continue expanding. The company is also stable enough to face the aspects that might affect its penetration into the global markets. It is economically stable, meets legal requirements of the global market and it technologically updated to meet the global technological requirements (Silberglitt 2006). Bibliography Tremblay, V., & Tremblay, C., 2007, Industry and firm studies, M. E. Sharpe, New York. 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