The Coca-Cola Company, the leading soft drink producer globally, sells about 400 brands of non-alcoholic drinks and operates in over 200 countries (Coca-Cola Company 2020). Currently, the company is widely believed to be the most valuable brand globally. Okal (2012) mentions that Coca-Cola was founded by John Pemberton in 1886 in Atlanta as a small business venture and gradually evolved into a globally recognised successful corporation. Coca-Cola has one of the strongest presences in the international market and is constantly pushing for a bigger global market share. However, like any other company trying to keep up with globalisation, Coca-Cola has faced some challenges in developing and maintaining its global presence.
Today’s reality is that the degree of globalisation of economies, industries, markets, and companies is constantly increasing. For corporations operating on a global scale like Coca-Cola, it not only offers numerous benefits but is also a source of much higher complexity and increased challenges compared to operating in a single market. The challenge of doing business on a global scale is further increased because traditional business tools and approaches rarely function in this atmosphere (Amin 2000; Porter 2008). This paper examines some of the challenges impacting Coca-Cola’s management in the company’s international operations. PEST analysis will be used as a framework to identify the dimensions of the global business environment that present challenges to Coca-Cola in its global operations.
Background: International Business and Globalisation
International business refers to any situation where the distribution or of services or goods crosses country borders. Globalisation involves transformation towards a more integrated and interdependent global economy (Porter 2008); this process generally creates more opportunities for international commerce. “Globalisation can take place in various ways: it can happen in terms of markets, where buyer preferences are shifting, and trade barriers are decreasing Giroux 2002, p.32). It can also occur in terms of production, whereby an organisation can source services and goods straightforwardly from other countries.
The entities that participate in international business range from small companies doing business (such as importation and export) to large multinational companies with thousands of staff doing business in several countries globally. This wider description of international business also includes for-profit border-crossing businesses and transactions driven by nonfinancial gains (such as corporate social responsibility, political favour, and triple bottom line) that impact a business’s future.
During the past four decades, the business world has experienced a gradual shift toward globalisation. Companies are increasingly seeking to expand across borders to provide services and products to new markets. Hill and Jones (2012) suggest that, due to global expansion, the role of managers has transformed from the traditional responsibility to only meeting quotas, to including new responsibilities like promoting good cross-cultural consumer relationships. Although there is evidence of the benefits and success of a global approach to doing business, especially for large multinationals, corporations face unique challenges linked to globalisation that significantly influence their business decisions (Lan and Unhelkar, 2005). These challenges affect companies in almost the same way; what differs is how each company responds. In other words, global trends and different market characteristics affect both the substance and style of management in companies.
International business has been growing in line with the prevailing globalisation trends. It is becoming increasingly easier for economic systems and businesses to interact within the global economy because of the ever-decreasing interaction obstacles (Pitts and Lei 2000). Some companies are shifting their production activities to the international environment to take full advantage of the immense opportunities international business creates. Other companies are exploiting the global market to enable them to maximise sales. International business presents both threats and opportunities. The numerous opportunities have attracted several businesses resulting in a sharp rise in the number of multinational companies. Coca-Cola is one of the leading companies that has been involved in international business for many years.
Coca Cola’s Journey to Globalisation
Globalisation is the development and expansion of a company from its domestic market into foreign markets. Most of the company’s revenue growth now comes from its operations outside the U.S. Coca Cola, like several successful global organisations, focuses on the regions with the highest potential for growth (Brand directory, 2013). Coca Cola began branching out globally during the 1920s but started its global growth during the 1980s when the company implemented its strategic plan to venture into underdeveloped, previously hostile, or untapped environments.
Coca Cola began with broadening its production, mainly bottling plants, in friendly regions like Europe and Guam. As people became increasingly familiar with Coca-Cola’s products, its management decided to expand to Norway, Austria, South Africa, and Australia (The Coca-Cola Company, 2017). They selected these countries because they had good relationships with the U.S., which meant carrying out communications networks, transportation, and trade went much smoother.
Unexpectedly, even the Second World War brought a rise in demand for Coca Cola’s products. The U.S. federal government struck a deal with the company to supply American soldiers with its products at a minimal price of a nickel a drink (Jitpleecheep, 2013). In preparation for expanding its base, Coca-Cola focused on building relationships with global stakeholders, such as the United Nations and the Olympics. For example, the Olympics took Coca Cola’s name wherever the event was held.
By the 1970s, Coca Cola’s also formed partnerships with the Tour de France, FIFA, and Special Olympics. As these sports events increased their fan base globally, Coca Cola followed. Expanding its consumer base during the 1980s and 90s required more planning from the company. Consequently, Coca-Cola introduced its production operations in countries that had previously been considered unfriendly, like Germany, Vietnam, India, and Russia.
The 2000s ushered in Coca Cola’s participation in social matters with new and different marketing approaches for the company’s international team. Coca Cola provided relief linked to AIDS initiatives under the umbrella of the United Nations (Lobe, 2002). The company also got involved in other social initiatives like the earthquake relief effort in Haiti and the September 11th terrorist attacks. Since then Coca Cola has participated in many other philanthropic ventures, co-marketing with popular TV programs like American Idol, and sponsorships with sporting organisations (like the NBA).
Despite its remarkable marketing and financial achievements in the global business environment, Coca Cola’s path to success has not been easy; the company has faced different challenges in increasing and maintaining its brand in the different markets. For example, some countries have heavily restricted or banned the sale of Coca Cola products, arguing that some of the company’s products have adverse effects like encouraging obesity and threatening public health. Furthermore, many lawsuits claiming labour abuses have been lodged against the company with allegations relating to issues like denying health care benefits to employees based on different types of discrimination and running child labour sweatshops. Globally, the beverage industry has experienced an influx of new competitors introducing diverse alternatives to the mainstream soda brands made by Coca-Cola (Te et al. 2019).
Applying the PEST Method to Assess Coca Cola’s Globalisation
The PEST analysis method identifies shifts in the market resulting from political, economic, social, and technological (PEST) influences. Coca Cola’s PEST evaluation can be used as a strategic tool to scrutinise the macro environment the company operates in and the common challenges it faces. Specifically, PEST analysis offers great detail concerning the operational challenges Coca-Cola faces in a prevalent macro environment, excluding competitive forces (Kotler, 2009). For example, an industry might be extremely profitable with a robust growth trajectory. However, it will not benefit Coca Cola if the industry is located within a volatile political environment. This PEST analysis examines challenges Coca-Cola faces in its global operations caused by Political, Economic, Social, and Technological reasons.
Political dynamics play an important role in influencing the issues that can positively or adversely affect Coca Cola’s profitability within a particular market or country. Coca Cola’s main area of specialisation is beverages; selling soft drinks in countries with diverse characteristics can expose the company to different political system risks and political environments. Some of the political challenges that Coca Cola’s management has to take into account and mitigate if necessary when operating in different global markets include:
- The level of corruption, particularly levels of government regulation in the consumer goods sector.
- Intellectual property protection.
- Trade tariffs and regulations associated with consumer goods.
- Bureaucracy and government interference in the beverages industry.
- The legal structure for contract enforcement; are the legal systems strong or weak.
- Pricing controls; are there any pricing controls mechanisms for consumer goods. If they exist, how do they affect the company’s operations and finances?
- Taxation – the effect of incentives and tax rates on business operations and resources.
- Wage legislation – for example, overtime and minimum wage.
- Product labelling, as well as other legal requirements in a country’s beverages industry.
- Mandatory employee benefits
The Macro environment factors like interest rate, economic cycle, foreign exchange rate, and inflation rate significantly affect the aggregate investment and aggregate demand in an economy. Furthermore, microenvironment factors like competition standards affect a company’s competitive advantage (Hutt and & Speh, 2007). Economic characteristics of a country’s economy (like growth rate and inflation) and specific dynamics of the beverage industry directly impact Coca-Cola’s operations and performance. For example, high inflation in a country adversely affects consumer spending leading to reduced company revenues. Some economic characteristics of a country that could create a challenge for Coca Cola include:
- Government intervention within the free market.
- Infrastructure quality in the soft drink or beverages industry in a country.
- Economic growth rate.
- Inflation rate.
- Discretionary income.
- Skill level of the workforce.
- Beverages – Soft Drinks industry.
- Productivity and labour costs in a country’s economy
- The efficiency of financial markets.
- Exchange rates and stability of the host country’s currency.
A society’s culture directly affects how a company’s culture and business model. The shared attitudes and beliefs of a society play a significant role in how managers and marketers at Coca-Cola understand the customers within a particular market and how they design the company’s marketing strategy and messaging. Some social issues that could create a challenge for Coca Cola’s operations in a given market include:
- The skill level and demographics of the population.
- Culture (social conventions, gender roles, and so on).
- Attitudes (environmental consciousness, health, and so on)
- Class structure, power structure, and hierarchy in a given society.
Technology is rapidly disrupting different industries across the board. A company should not only carry out a technological evaluation of a specific market also the rate at which technology interrupts that industry. Some technological factors that affect Coca Cola’s actual results and can cause some challenges for the company include:
- Rate of technological diffusion: Low rates increase the company’s operational costs
- Recent technological developments; for example, the technological capacity of competitors and availability of advanced technologies in a market.
Globalisation has significantly influenced the interaction between economies, stimulated the operation of multinational companies, and reduced the economic barriers for businesses. Due to the strategic (like new markets) and financial (access to more customers) advantages made possible by a globalised approach to doing business, multinational companies like Coca Cola are constantly looking for innovative ways to internationalise their products and activities to maintain competitiveness and viability within the global environment. However, internationalisation is a risky and complex business model for companies because they undertake increased risks, as they work in sometimes unfamiliar and more uncertain environments.
For most companies, globalisation is a source of increased complexity compared to the traditional aspects of doing business. For a company to globalise, there must be a shift in how its management deals with operational aspects such as functions, products, and customers. This plan enables the company to sell the same product in markets that may have different characteristics (Hair et al. 2003). There is a lot of complexity associated with operating in a global environment, such as the local standards and cultural barriers. Coca-Cola has managed to achieve significant success in its global operations by building new competitive advantages by choosing very attentively the creating ways for communicating that are market sensitive and responsive, and by operating mechanisms that guarantee high efficiency and performance at the world level.
To mitigate the challenges associated with globalisation, Coca Cola has put in place different marketing strategies and a marketing mix to meet the needs of different demographics around the world. Coca-Cola’s marketing strategies play an important role in effectively globalising the company. For example, to penetrate different social groups, the company uses catchy jingles and popular advertising slogans that are tailor-made and targeted towards the preferences of a specific group or culture. The company advertises in a way that conforms to the norms and values of a given culture or society.
First, Coca Cola has managed to thrive globally through price differentiation. As part of its global strategy, the company endeavours to customise their different products to meet the wants and needs of individual markets, taking into great consideration factors like the purchasing power of a specific society. The company factors this into its production process to ensure that it can accommodate a specific society’s purchasing power while ensuring that production costs or product offerings are still profitable and viable.
To ensure that Coca Cola’s globalisation is optimally functional and seamless in terms of the different processes, it has incorporated the latest technology. Technology advances have contributed significantly to Coca-Cola’s capacity to globalise fast throughout the 21st century. For example, by embracing new technologies, its product transportation has become more cost-effective and efficient (Te, Ford, and Schubert 2019). Increased reliance on computerisation has also led to improved efficiencies and reduced product costs. Automated and computerised manufacturing equipment has greatly increased the volume and speed at which products are produced and distributed (Kumra 2007). Coca Cola has been able to thrive in this era partly by integrating new technologies into its globalisation strategy. This approach has helped the company thrive globally and sell its well-known brand of products globally at competitive prices.
Today’s reality is that the degree of globalisation of economies, industries, markets, and companies is constantly increasing. Coca-Cola is a leading company in its approach to integrating a global approach to doing business. By embracing robust approaches, the company has continued to gain growth and momentum, capitalising on the fast-expanding beverage industry and ranking as the biggest beverage company globally. This study analysed Coca Cola’s approach towards globalisation to understand the threats and opportunities facing international companies. The PEST framework has been used to examine some of the challenges Coca-Cola faces operating in a global environment. PEST offers an appropriate methodology to assess some common and important issues affecting international businesses. Strategies used by Coca-Cola to address some of the challenges of operating in a global environment are also discussed. The analysis revealed that the corporation ought to maintain its products’ mark of quality to remain competitive in the international arena.
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