Coca-Cola: International Risks and Opportunities

Coca-Cola Company

The Coca-Cola Company is an American multinational beverage company with its headquarters in Atlanta, Georgia. According to Turban, Bolloju & Liang, (2011), the company is a manufacturer, retailer and as well a global marketer of nonalcoholic beverages. It is known globally for its unique coca cola brand, invented in the year 1885 by pharmacist John Stith Pemberton in Georgia. It has since been established that the Coca-Cola formula and its brand was founded in the year 1889 by Asa Griggs Candler, who later in the year 1892 incorporated the company. It operates a franchised system of distribution since the year 1889. The Coca-Cola Company produces the ingredient syrup, which it sells to numerous bottlers across the globe. The essay will focus on the global risks facing the Coca-Cola Company and will propose potential strategy for the management of these identified risks.

Company’s Vision and Mission

A company’s mission statement declares its purpose and further serves as a core standard against which the company weighs its actions and decisions. Coca- Cola’s mission is, “To refresh the world, To inspire moments of optimism and happiness, to create value and make a difference” (Armus, 2005).

The Vision, in as far as business is concerned, has been argued to serve as an essential framework for the company’s roadmap which further guides the company by describing whatever it wishes to accomplish. The Coca-Cola’ company’s vision is:

“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” (Armus, 2005).

Branding and Marketing Strategy

The Coca-Cola Company has strong brand recognition globally. It has been established that approximately 94 percent of the global population is aware of the Coca-Cola Company (Anderson-Fye, 2004). Using segmentation, Coca-Cola has been able to define potential customers. The company does not specifically target any given segment of the population, but it adapt its marketing strategies through the production of new brands. Additionally, the company has developed a mix of highly undifferentiated, niche strategies which have enabled it to drive its overall sales within the beverage industry. The coca cola brands are famous globally, but the diet coke tends to target a specific niche segment, more specifically that which can be considered to be health conscious. Competitive positioning strategy was adopted by the company, and this has enabled the company to gain competitive advantage in the industry. Coca-Cola adopted an effective sales and distribution model based on the nature of the market and on customer profiles.

The Company's Organizational Structure

The company is believed to have a separate, internationally-divided structure since its global employees operate independently and in isolation from the main head office. Furthermore, Coca-Cola has various divisions globally, with a president to control each one of its continental divisions. “The major continental division for Coca-Cola Company include Eurasia & Africa Group, Europe Group, Latin America Group, North America Group and Pacific Group” (Anderson-Fye, 2004). Additionally, each of the continental divisions has a vice president who controls the subdivisions, and this is often on a country to country basis. The company’s structure is as shown below:

Finances

Coca-Cola Company is considered one of the most successful and profitable multinational companies across the world, therefore, the company has a huge financial pool which helps it offset its costs both of operations and productivity. The company revenue for the year 2014 was $45998.0 while in 2015 it was $44294.0. The gross profit in the year 2014 was $28109.0 and was a further $26812.0 in 2015. Further focusing on operating incomes, the Coca-Cola Company in the year 2014 had $9708.0 and in 2015 it had $8728.0. The net income in 2014 and 2015 was $7098.0 and $7351.0 respectively. Lastly, “diluted EPS for Coca-Cola Company in 2014 was $1.6 and in 2015 was $1.67 “(Taylor, 2000).

Competitive Advantages

The Coca-Cola Company for many years, has been able to gain the competitive edge that it enjoys over its business rivals within the beverage industry in terms of its operations, the company’s brand portfolio, and cost control in addition to highly effective channel marketing. Focusing on the company’s operation, Coca-Cola outsources bottling operation to FEMSA which is considered a franchisee. FEMSA is considered the largest global bottling franchisee for the company. It has played a critical role with respect to enabling the Coca-Cola Company to attain global growth opportunities in potential segments. Secondly, the company has a competitive advantage with regards to cost control. The company has a highly diversified product portfolio, therefore, accrues extensive economies of scales which enable it to cut the cost of operations while at the same time increasing the company’s profitability (Taylor, 2000). Thirdly, Coca-Cola has a strong brand portfolio available to its customers globally including; teas, bottled water, energy drinks, beer, carbonated soft drinks and even orangeades. This strong brand portfolio has enabled the company position strategically within the beverages industry globally. Further, the company has been successful in the development of a collaborative, interactive customer relations framework. It believes firmly in participative marketing which has enabled the company develop shared values for its stakeholders.

International Risks and Opportunities

Numerous global risks and opportunities affect the operations of the Coca-Cola Company. First, focusing on the potential opportunities, there has been an increasing market demand for soft drinks across the US and also globally (Taylor, 2000). This provides an opportunity for Coca-Cola as a company to increase its production to meet the increasing demand for brand beverages. Secondly, there are numerous emerging markets especially in the developing world that provide a potential market for Coca-Cola brands. The company can thus, expand its operation into the developing countries in order to exploit the market available there.

Focusing on the risks facing the Coca-Cola Company internationally, there has been an increasing reduction of consumption levels in as far as carbonated drinks are concerned, and this affects the sales volume of these brands. This is probably as a result of increased health concerns in recent years, which consequently, have compelled people to cut down their consumption of Coca-Cola brands. Globally also, some areas have been experiencing water shortages, and this is expected to worsen in the future, affecting the operation and productivity of the Coca-Cola Company. There continues to be very stiff competition within the beverage industry, reducing the profitability and sales volume of Coca-Cola Company. Consumer Preferences continue to evolve rapidly, meaning consumers now demand more choices. This has forced the company to increases the varieties of its choices. The shift in customer demography in terms of aging populations and needs, influences Coca-Cola Company sales volumes. (Armus, 2005).

International Presence

Coca-Cola Company operates in more than 200 economies across the globe. It operates in the international market, in that it runs several continental division structures including the Eurasia & Africa Group, Europe Group, Latin America Group, North America Group and also the Pacific Group. There are numerous retailers across the globe who supply Coca-Cola brands to potential consumers (Armus, 2005). This has enabled the company to intensify its operation in the global markets.

Industry Structure

For many years, the global narrative within the nonalcoholic beverage sectors was focused on power struggles that existed between Pepsi and Coke. Recently, within the soft drink industry, these two giants have relied more on various product flavors. In order to understand the soft drink industry in in-depth, there is the need to consider the available market size, profitability alongside the growth rates. It has been shown that the market size of the soft drink industry has been rapidly changing and currently, Coca-Cola has a market share of about 46.8 percent (Armus, 2005). Research has shown that the soft drink industry is highly lucrative, with the incentive of higher profits, however; it is equally challenging to capture considerable global market share. In recent years, the growth rate, especially in the US, has been decelerating as a result of the increased growth of an alternative non-alcoholic industry such as that of tea and coffee. Profitability in this industry is very solid. 

Furthermore, most of soft drink industrial leaders have established operations in other markets that include, bottled water, snacks, and energy drink. The bevarage industry has three major competitors. These are coca cola with about 50 percent of the market share, PepsiCo with about 21 percent and Cadbury Scheppes with about 7 percent (Armus, 2005). There are other small players within this industry including Cott Corporation and the National Beverage Company. It is very difficult for new entrants to penetrate this industry because the level of competition is very stiff from the giant companies whose brands, financial capabilities and marketing channels are relatively better formed

Currency Exchange Fluctuations

According to Turban, Bolloju & Liang, (2011), the Coca-Cola company earns revenues, owns assets and pays off various expenses using different currencies other than the dollar including, the Mexican peso, the Japanese yen and the euro. Studies have pointed out that in the year 2014, Coca-Cola Company used about 70 functional currencies across the globe in addition to the common dollar, and as a result, they derived approximately $26.2 billion of their total net operating revenues from its operations outside of the US (Turban, Bolloju & Liang, 2011). It is important to note that, the company’s consolidated financial statement is normally presented with respect to the US dollar, therefore, all of the firm’s revenues, assets and liabilities must be converted into dollar units at the prevailing exchange rates during the reporting period. 

As a result of this, it is evident that an increase or a decrease in the dollar value against the major global currency, significantly affects the overall net operating revenues, balance sheets values and even the firms operating incomes which are denominated regarding foreign currencies. It has also been established that unexpected or dramatic devaluation of currencies, especially in the emerging markets, has significant impact on the value of the beverages offered by the company and also of all the assets that are located in such markets. Due to the Coca-Cola Company’s diversity, it has been argued that currency weakness can be offset and balanced by strengths in others. The Coca-Cola Company uses derivative financial instrument that helps the business to reduce its overall net exposure to foreign exchange rate fluctuations. However, studies have shown that the company cannot fully hedge itself from the foreign exchange rates fluctuations.

Sustainability Information

Coca-Cola Company has a well-established sustainability commitment. First, the company has a well-established sourcing strategy for its agricultural raw materials. The company advocates for women economic empowerment and observes their workplace rights, for instance, it has economically empowered about 5 million women throughout its global value chain. The company participates in sustainable community development, investing 1% of its annual operating incomes on corporate social responsibility projects. “In the year 2014, Coca-Cola Foundation and the Company gave about $126 million to the community” (Armus, 2005). The Coca-Cola Company offers low- or no-calorie beverage options to its consumers and further provides transparent nutrition information on their packages. In the year 2014, it supported approximately 330 healthy living programs in about 112 markets. The company also exercises market responsibility whereby it does not advertise directly to children who are under the age of 12 years old in any part of the world. It also exercise sustainable packaging aimed at preventing environmental pollution. The company also exercises climate protection through collaborative efforts with its partners to recover and further recycle about 75 percent of the bottles. It has also been able to reduce carbon footprint by about 25 percent (Anderson-Fye, 2004)

Human Resources Information

Human resource management is considered an essential part of the Coca-Cola Company. The development of human resource is the first step towards an effecting sound business culture. The workforce ensures sustainability of the Coca-Cola brand, therefore, plays a very central role in market operations. The Coca-Cola management is founded on the principled acquisition, and retention of skilled personnel ensuring that it maintains its market leader position within the soft drink industry. Human resources are its most vital asset. The company offers a conducive workplace environment in form of procedural labor sensitive mechanisms. Coca-Cola also offers utmost job security to its employees to avoid potential distractions by future uncertainties. According to Turban, Bolloju & Liang, (2011), its human resource department is mandated with the role of identifying, recruiting and training new employees to replace those who have retired or those whose contracts have been terminated and also to fill newly created positions within the company. The human resource department prepares job descriptions and conducts job analyses. The department applies the information gathered from these analyses to recruit, select, compensate, train and appraise employees. It also performs the role of planning and forecasting in that it decides the positions to be filled and ways to fill them. Therefore, the human resource department engages in strategic planning to hire new staffs far into the future. It forecasts potential employee needs within the company and is mandated with carrying out the recruitment process. For the Coca-Coca human resource department, filling up vacant positions is usually a tall order. This is because; the human resource manager must comply with the rules and regulations of the country where they operate and take into consideration the aspect of cultural diversity.

Major Risks Faced by that Company Internationally

Political

There are various political factors that pose considerable challenges to the Coca-Cola Company. Political instability affects Coca-Cola operations, especially in the developing countries most which are under a state of prolonged political tensions. Political changes in terms of ruling governments, government regulation and policies sometime impact the company’ market approaches (Armus, 2005). In addition to this, international pressure and lobby groups exert massive pressure on the company to tailor its operations in manners that may sometimes be biased against it. Other political factors that pose a challenge to Coca-Cola Company include increased income taxes alongside rigid import and export regulations within the countries where it operates.

Cultural

According to Armus (2005), the Coca-Cola Company operates globally and has to deal with diverse cultures which limit the standardization of its market outreach programs. It is difficult to provide a product and promote it within multicultural markets with diverse, sometimes conflicting needs and demands. Therefore, it becomes tough for the company to take into consideration the diverse cultures of its customers and meet the needs of these potential consumers. The company, therefore, has to analyze the market to understand people rich cultures before developing an effective marketing strategy and introducing the product to the market.

Legal

Legal considerations are considered another challenging aspect of the Coca-Cola Company operational environment. All countries within which the Coca-Cola Company operates have rules and business regulations that are specific to them. The businesses are required to operate within rigid established rules and regulation. Some countries have strict regulation focusing on workforce recruitment and labor relations while others have administrative hindrances to setting up new businesses. Some of the rules and regulations might force the company to close down while other might make it difficult for Coca-Cola Company to make profits. Corporate behavior is determined by rules and regulation established by the federal and local government, and Coca-Cola Company is required to operate within the state’s legal framework. When the company compromises the established rules and regulations, they can be suited by the country’s regulatory bodies. Some common laws and regulations that might impact the operation of Coca-Cola Company include; child labor law, discrimination law, administrative policies and even International financial reporting standard (Turban, Bolloju & Liang, 2011).

Economic

Numerous economic factors pose challenges to the Coca-Cola Company international operations. One the major economic challenge is increasing rates of inflation which will make the cost of production very high affecting the company’s profitability. Further, the exchange rates are highly fluctuating, and this affects the company’s profitability greatly. The increasing rates of unemployment are also considered a major challenge for potential customers with a permanent income will not be able to purchase brands offered by Coca-Cola Company in the market. Economic factors tend to differ significantly from one country to another where Coca-Cola Company operates. During inflation, Coca-Cola Company pays their employees higher wages and salaries in those countries that are affected to enable them to cope effectively with those conditions (Taylor, 2000).

Financial

Financial challenges facing the Coca-Cola Company include among others, high inflation rates which makes the cost of production really expensive, affecting the company’s profitability. High interest rates affect the lending rates of banks hence making lending and borrowing expensive even for the Coca-Cola Company. Fluctuating currency exchange rates are considered one of the major challenge affecting finance at the Coca-Cola Company (Anderson-Fye, 2004). This is because, the company usually has to convert all of its revenues, assets and liabilities from various economies and currencies into US dollar units and this is significantly be affected by increasing fluctuations in the exchange rates.

Strategies to deal with major risks

There are various strategies that can be applied by the Coca-Cola Company to address the major risks facing it. The first challenge is the heat issue related to obesity which has been associated with increased mortality rates and cost of medical care. To address this risk, the company must focus on producing healthy products that have a low calorie content and as well should consider undertaking market awareness campaigns to promote responsible consumption of its range of products. (Anderson-Fye, 2004). To address the risk of water shortage, the company must implement water preservation mechanisms. Water should be saved on where possible and also recycled. To be competitive, the company must ensure it produces quality brands, diversifies its brands and further, conducts extensive marketing and promotion within the global market. To avoid frictions with the government, the company must ensure that they strictly adhere to the regulations and rules set within the countries where it operates. The company must undertake extensive market research to ensure its products are tailored to meet market demands. To manage economic risks, the company should put in place measures to address issues of inflation and fluctuation in exchange rates so as to ensure that it remains operational in the industry.

Conclusion

The essay has critically focused on various international risks that the Coca-Cola Company faces in its operations globally. The company operates extensively in various economies across the globe and as a result, faces various challenges including economic, social, cultural, political and financial risks that might affect their operation and productivity negatively.

References

Anderson-Fye, E. P. (2004). A “Coca-Cola” shape: Cultural change, body image, and eating disorders in San Andres, Belize. Culture, Medicine and Psychiatry , 28 (4), 561-595.

Armus, S. (2005). Coca-Cola Company. France and the Americas: Culture, Politics, and History: a Multidisciplinary Encyclopedia , 1 , 273.

Taylor, M. (2000). Cultural variance as a challenge to global public relations: A case study of the Coca-Cola scare in Europe. Public Relations Review , 26 (3), 277-293.

Turban, E., Bolloju, N., & Liang, T. P. (2011). Enterprise social networking: Opportunities, adoption, and risk mitigation. Journal of Organizational Computing and Electronic Commerce , 21 (3), 202-220.