Global Strategy for Coca Cola’s International Expansion

 

The growing market depends upon the foreseeable integration of markets, technologies, knowledge and nation-states among countries, it clearly demonstrates the flow of goods, capital, services and knowledge through nations and in which creating the competition on a world-wide basis creating an integrated global space is called globalization (Porter, 1986; Albrow, 1997; Friedman, 1999; Gupta, Govindarajan and Malhotra, 1999). According to Yip (2003), it’s a challenging task to move from domestic market to international market, specially for the firms which are facing fully saturated market in their home country. The process of globalization is interdependence and integration of countries exchanging different trade, culture, outsourcing, capital investment and the growth of the nation’s relationship. Business systems, knowledge and unification of culture have led to globalization (Daniels and Krug, 2007). To make more money is the main reason for companies to venture into other countries. If it’s international venture is successful then the brand name and the brand value increases for the company. The main reasons for the global venture are cheap labour, distribution and transportation, communication and information technology, cultural convergence, increasing disposable of the global middle class, extension of IP rights, reduced trade barriers, privatization programs and development of international standards ( Stonehouse et al., 2000;Denton and Al-Shamali, 2000).

This essay will focus on the global strategy adopted by Coca-Cola for its international expansion. Then it will focus on the I-R framework and the Porter’s Five Forces, finally concluding with some recommendations.

Literature Review

Many Scholars like Porter, Prahalad and Doz, Ansoff, Edward Hall, Hofstede and many others have contributed a lot in various aspects of International Business. International Business is integrally a part of the business culture. Porter’s five force analysis approach to the industry plays a very crucial role, according to him international business has lot of competition in the international arena (Porter, 1986). Porter’s Five Forces is utilized to critically evaluate the international strategy adopted by Coca-Cola.

Prahlad and Doz (1987) contribution is crucial on the study of internationalization, their IR framework created a big platform for the study on global business which helps to form an international strategy that has multi dimensional contextual setting. IR framework has limitations for the global industrial competition specified only for the first stage, vagueness in the concept that defines the bond between industry forces and finally lack of proof for supporting the framework (Rugman, Collinson and Hodgetts, 2006). Bartlett and Ghoshal (2008) further improvised IR framework and came up with 4 strategies that are international, global, transitional and multidomestic approaches to the foreign market. The Global Stratergy adopted by Coca-Cola can be critically analyzed using the IR (Integration/ Responsive) framework proposed by Bartlett, Ghoshal and Beamish (2008) and Hill(2009).

Figure 1: IR- Framework

Adapted from (Bartlett, Ghoshal and Beamish (2008) and Hill(2009))

The global standardization products and services focus on huge profit, but they compromise on their products price. The marketing research, production and research are done in precise regions with some certain standard and it is sold globally. So those type of products face a huge pressure in reducing the price according to the place where it is sold for example Intel, a chip company (Hill, 2009). According to Bartlett and Ghoshal (2002), a solution for the cross border business is Transnational, which is considered as the important approach for the international market. The transnational strategy gives a lot of pressure to the company for cost reduction and local responsiveness. This could be achieved by transferring the precise skills and expectations of the company from the home country to the needs of the foreign country, where they compete with the local market with reduced price for example Caterpillar. The internationalization of products is very flexible and profitable as there is low pressure on local responsiveness and cost production. A standard and distinct model can be sold at high cost across the world for example Xerox. The localization of products is high demand in customization and less pressure on price reduction. The company should be adapted to the cultural and taste preference of different country. The customization adds value to the product and the company can keep the price high for example MTV (Hill, 2009).

Global Strategy of Coca-Cola

A simple strategy of 3 A’s, i.e. acceptability, affordability and availability have contributed towards the success of coca cola besides the other factor. According to Gould (1995), coca-cola has become a part of people’s daily meal, a price at which anyone can buy and it is available to people in any part of the world. As per Palazzini (1989), since its launch in 1885 in Atlanta, Georgia in USA, it has become America’s most popular drink sold all over the world and Coke is most successful among the wide range of soft drink products available. Coca-cola enters all the markets rich and poor (Rodrigues, 2009). The IR framework has been used to critically analyse the global strategy of Coca-Cola.

Coca-cola has been successful in the global market because it follows the local strategies and is able to deliver as per the needs of the local people (Hill, 2009). Also coca-cola adopted the standardisation strategy to produce and sell its standardised products globally (Rodrigues, 2009). The company have an approach where in, their business does not get influenced by the area of sales. To globalise further they also created a post of Chief Learning Officer (CLO), who will be responsible for the global development of the company and acquiring the human talent, while also focusing on exploiting the knowledgebase resources that is available in the company (Rodrigues, 2009).

With Globalisation Coca-cola also learned the importance of labelling on cans, for instance when Coca-Cola was introduced in China, since it was not possible to translate Coca-Cola to Mandarin, the vendors used Mandarin characters to phonetically spell sound Coca-cola which actually meant “bite the wax tadpole”. To deal with this problem Coca-Cola selected the characters that meant “may the mouth rejoice” and added that to the title of Coca-Cola (Rodrigues, 2009). Rodrigues (2009), states that Coca-Cola pursues the global strategy of producing diverse products as per the local culture. For instance in Asian countries people prefer sweeter coke. Also Coca-Cola launched Georgia, a canned coffee specially intended for Japanese market which captured 40% of the market soon after its launch (Hill, 2009). According to Cokecce.com (2007), Coca-Cola trains their managers in their management school, to make them aware of the global perspective of their operations.

Figure 2: IR-Framework

Adapted from (Bartlett, Ghoshal and Beamish (2008) and Hill(2009))

Porters Five Forces

It’s a framework for the analysis of the industry and for the development of business strategies (Porter, 1986). According to Morrison (2006), the five forces can be applied to any industry to gauge competition between different companies. The five factors that lead to the efficient competition for any global business are:

Entrants.

Buyers.

Suppliers.

Substitutes.

Rivalry among existing competitors.

Figure 3: Five forces of Porter Competitive model

(Source: Porter, 2008)

Rodrigues (2009), states that Porter’s five forces is considered to be an analytical tool which can be used to analyse the competitive position of any industry in the market.

Threat of New Entrants:

The easier is it for other companies to enter an industry the higher the competition will be. In a situation like this the new entrant can change the major determinants of the market i.e. customer loyalty, price and market share, anytime. Coca-cola penetrated the Indian market in the early 1990’s with high focus on improving the Indian economy, generating employment and providing the best soft-drinks. As per Cokefacts (2009), Coca-cola is one of the top international investors in India, with Indian youth as their primary focus for the company’s international business by making an investment of U.S $1.1 Billion till date. Also according to Cokefacts (2009), since its first launch, total revenue of $7.33 billion has been generated from Asia, Latin America and Africa. Gould (1995), states that PepsiCo also adopted the same strategy as Coca-Cola by shifting their focus on younger generation.

The bargaining power of buyers:

The purchasing power of customers establishes how much pressure can be imposed on the price and volume. According to Wright (1987), customer’s preference for buying colas is almost the same except for the choice of flavour. To overcome this barrier Coca-Cola has adopted a marketing strategy by way of advertising and the company spends approximately U.S $2 billion in advertisements (Thomas, 2007). As per Coca-Cola India (2009), most of the rural and sub-urban areas have been covered by coke. Gould (1995), states that McDonald’s is one of the biggest customer for Coca-Cola.

The bargaining power of suppliers:

Suppliers consist of all sources of inputs that are required to provide goods and services (Porter, 1986). According to Morrison (2006), ‘suppliers exert power by being the only source of a particular product with unique characteristics which the buyers prefer’. Since Coca-Cola is dependent on the bottling partners for its packaging, they strictly monitor the bottlers, to check if they are meeting standards to make sure that bottles are manufactured consisting of PET, aluminium and glass which is recyclable and also to check if they are producing light-weight eco-friendly packaging (Cokecce.com, 2008). As per Cokefacts (2009), Coca-Cola owns 24 companies and 25 franchisees for their bottling operations in India.

Threat of Substitutes:

Threat of substitutes exists if there are alternate products with lower price and better performance available for the same purpose. According to Porter (2008), it’s a product with unique feature at lower cost. Morrison (2006), states that the buyers prefer either a product with lower cost or a product which can differentiate itself from other products. Coca-Cola achieved this by introducing products like Diet-Coke, Coke-Zero which helped them gain customer satisfaction. According to Hill (2009), Coca-Cola has achieved this through counter-differentiation focus strategy and the company has now shifted its focus to producing non-carbonated vitamin enriched drinks, which is predicted to contribute to its future growth. This strategy has also benefitted Coca-Cola in India as it met the need of the masses by offering sugar free products (Wright, 1987). According to Rodrigues (2009), Coca-Cola has been more successful as compared to the other local substitute drinks because the company have been able to understand the needs of the local people.

Figure 4: Products of Coca-Cola

(SOURCE COKECCE, 2008, P.5)

Rivalry among Existing Competitors:

It describes the intensity of competition between the existing companies in an industry (Porter, 2008). Hill (2009), states that Pepsi is one of the top rivals for Coca-Cola. Thomas (2007), pointed out with the help of a documentary “Dispatches” that people prefer Coca-Cola to Pepsi mainly because of localisation and flavour. Porter (2000, cited in Hill (2009)), specified that differentiation and low-cost are the two prime factors that help in achieving competitive advantage in the market. According to Hill (2009) Coca-Cola focuses on creating an exclusive product and approach differently in its brand-building process, which makes Coca-Cola stand out amongst its rivals.

Quantitative and Qualitative measures

Figure.5: Quantitative and Qualitative Performance

The above figure 5 shows the Coca-Cola operating framework from which the performance of qualitative and quantitative is measured.

Qualitative measures

The plants of the Coca-Cola Company and supplier meet the international standard. Every year Coca-Cola produces a report on ‘Corporate Responsibility and Sustainability’ to the customers worldwide, that it follows the reporting guidelines of the GRI (Global Reporting Initiative) and calculating the carbon footprint of certain products using World resources institute Greenhouse Gas protocol (cokecce, 2008, p.2). TCCMS (The coca-cola management system) is internationally recognized for quality standards for ‘quality (ISO 9001), environment (ISO 14001), health and safety (OHSAS 18001), and food and safety (ISO 22000)’ (cokecce, 2008, p.9). For example when there was a concern on water management practises in India, Coca-Cola agreed Michigan University enquiry for the third party assessment by TERI (The Energy and Resource Institute) in New Delhi and TERI assessed the quality checks and proved the Michigan university that Coca- Cola met their quality standards according to the Indian government rules and regulation (TERI, 2007).

Coca-Cola has given a variety of courses for their managers and employees to give new business skills, build awareness of CRS issues such as inclusivity, diversity, health and safety (cokecce, 2008, p. 39). Coca-Cola China had a management school in China for the training of their staffs (Rodrigues, 2009)

According to Coca-Cola enterprise (2008, p.11), CRS has Five Strategic focus and goals, they are

Energy conservation and Climate Change:

Coca- Cola is working to reduce carbon emissions on manufacturing, Fleet, sales, facilities and marketing equipment. And reduce the overall carbon foot prints by 15 percent in 2020 compared to 2007.

Water Stewardship:

To establish a water-sustainable operation in which they minimize the water use and have a neutral impact on the local communities by safely returning the amount of water equivalent to the usage in beverages.

Sustainable Packaging / Recycling:

Maximise the use of renewable, reusable and recyclable materials for packaging as shown in the figure 6.

Figure 6: Recycling process

s

(Source: Cokecce, 2008, p.29)

Product portfolio / well-being:

For every lifestyle and occasions providing refreshing beverage with variety of choices.

Diverse and inclusive culture:

Creating a culture where diversity is valued. Respect is given to all the employees in the team. The workforce is a reflection of the community in the company operates.

QUANTITATIVE MEASURES

Figure 7: QUANTITATIVE PERFOMANCE

(Source: cokecce, 2008, p.7)

The figure shows the manufacturing and distribution process of the quantitative performance of Coca-Cola. In eight countries there are 440 production, distribution and sales where they follow the same process and strictly operate according to the international standard. In 200 countries there are more than 300 bottling plants and from that 2 billion cases of wide range of beverages are sold in the year 2008 as shown in the figure, approximately 16% of the worldwide volume. This generated revenue of $21.8 billion with a cash flow of $655 million for the year 2008 (cokecce, 2008).

Figure 8: Comparison of North America and Europe quantitative performance

(Source: cokecce, 2008, p.6)

The above figure is the comparison of two continents North America and Europe on quantitative performance, where North America out performed Europe.

Recommendation

Coca-Cola should try to bring out new innovative products like snacks, cereals and healthy foods or try to acquire some companies.

Tucker (1964), states that Coca-Cola can also increase its brand loyalty by introducing club cards which can benefit its regular consumers.

Promoting health drinks than carbonated drinks.

Should avoid negative advertising, i.e. attacking the competitor’s brand via an advertisement.

Sponsor more events for colleges and universities.

Conclusion

The international strategy of Coca-Cola is effective and efficient across the world which has brought huge success for the company. They have done their detailed study before venturing into new countries which has brought them success after venturing into the markets, by changing the formula for their drinks and having a celebrity as brand ambassador for that country. CRS report produced every year by Coca-Cola runs a regular quality checks and meets the international standard. The diverse range of products produced by Coca-Cola has kept competitors at bay. Moreover, Coca-Cola can further improve its global business by foreseeing any future changes in culture, technology or environment globally.