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The Experience of Coca-cola in China - Essay Example

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Coca-cola is one the earliest foreign companies to operate in the Chinese economy. IT can be recalled that the multinational's first bottling plant in China was built after the World War I. However, Coca-Cola was forced to close its operations on the onset of the World War II…
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The Experience of Coca-cola in China
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Download file to see previous pages As with other multinational corporations, Coca-cola was only able to establish its presence the Chinese market through joint ventures. It should be noted that the government of the Republic of China favors the formation of joint ventures between a foreign firm and a local business entity. All over the country, Coca-cola has 24 bottling and two concentrate plants, the former being joint ventures with other organizations. Each of the bottling facilities is co-owned with one of the three state-owned agencies: State Light Industry Bureau, China International Trust and Investment Corp., and China National Cereals, Oils, and Foodstuffs Import and Export Corp. (Weisert, 2001). Coca-cola is also allied by two primary multinational key partners-Swire Pacific and Kerry Beverages Group. These Hong Kong based business institutions serve as the foreign majority partners of Coca-cola of 19 out of 24 bottling facilities. While Swire Pacific is involved in the bottling and distribution of Coca-cola's product in the Southern and Interior China, Kerry Beverages Group focus on Northern and Interior China (Economic Impact of the Coca-cola System in China, 2000).
The success of Coca-cola's operation in the Chinese market is recognized by other international business organizations. Currently, the beverage company accounts for 35% of the total carbonated beverage market. From 1990, Coca-cola reports huge gross profit from its estimated $1.2 billion annual sales. Looking at the economic impact of the multinational's operation in China, Coca-cola is seen to generate employment for 15,000 local workers, provides a $1.1 billion total investment, and augmenting the national income by purchasing $600 million worth of materials from domestic producers and suppliers (Coca-cola Will Plant 1 million Trees in Beijing, 2006).
However, the success of Coca-cola is not without a price. For one, the Chinese beverage industry is relatively underdeveloped evidenced by the decrepit bottling facilities. This is even worsened by the tight control of the government on the beverage industry (Weisert, 2001).
Initially, Coca-cola is only allowed to import its product and sell them only to foreigners at designated retail outlets. This is a strict policy implemented by the state as it wants only Chinese owned, wholly or partially, business to provide products and services to domestic customers. In 1980, Coca-cola decides to establish its own five bottling plants. However, the Chinese government holds the ownership of these facilities giving the sales and distribution rights to Coca-cola (Weisert, 2001).
Technologically speaking, Coca-cola was faced with the dilemma of finding the right suppliers with the high level of technology to suit the company's supply needs. This led to a problem in the domestic network development. Coca-cola was burdened with the problem of finding suppliers for packaging materials, drink ingredients, bottling-line equipment, and construction services. Initially, the multinational opted to import basic materials such as glass and aluminum. Later, the company provided financial and technical assistance to local businesses in order for them to develop their technology. These supports help local suppliers to develop their equipment and enhance quality standards (Weisert, 2001). ...Download file to see next pagesRead More
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