international business and finance

Coca-Cola Company

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International Business and Finance

CATEGORY 1. MULTINATIONAL ENVIRONMENT

 

 SCENARIO 2 (25 MARKS)

Your MNE’s main competitor suddenly decides to invest massively in environmental inputs and outputs, turning environmentalism into a massive marketing tool it hopes to use to expand its share of existing markets and dominate the new markets that your MNE was hoping to enter in the near future. Your MNE is aware that green business has both costs and benefits. How does it respond to your rival’s green focus? Why do you think it will respond in this way?

Throughout the history of the company, the Coca-Cola Company has seen many issues arise revolving around healthy, monopolization as well as environmental sustainability. The Coca- Cola mindset has always been that a company going against social factors will never prosper. Social factors, such as environmental awareness, are not something that a company should focus on changing, but rather something that a company should strive to adapt to and adjust. For simplicity, in this essay, Coca-Cola will be referred to as KO- their foreign exchange initials. This essay will look at the environmental awareness that KO has established throughout its existence as well as analyze how it will go forward.

In previous years, KO, has had many issues with environmental sustainability. Although the company can measure its impact on the world through the financial aspect, it is very hard to fully predict the impact that the global company has had on the environment. Based on issues that have been throughout the company’s existence such as water pollution, land degradation (through the production of the products) and recycling issues, KO has managed to re-invent itself as a globally environmentally conscious company. Currently KO has partnerships with companies such as the UNDP (United Nations Developmental Program) and GEF (Global Environmental Facility) to not only enable the company to adjust their manufacturing to become more environmentally sustainable, but also to invest into environmental awareness through different projects.

The main competitor for KO is Pepsico Inc., the producer of Pepsi. The two companies have been in rivalry for many years, but currently KO dominates the market share of the non-alcoholic beverage industry with 48.6% of the market share, with the global market estimated to be worth $341.6 billion (Statista, 2016).

In the scenario that Pepsi starts to invest heavily into environmental inputs and outputs, KO will do a further push to stay ahead with environmental awareness. Due to KO having developed into a truly global company, with more than 90% of the population recognizing the iconic red and white Coca Cola logo, environmental awareness will be dealt within certain regions. KO operates a geographic organization management scheme, highlighting the responsiveness to local circumstances through the empowerment of subsidiaries. Having the headquarters in Atlanta, Georgia in the United States of America, KO has expanded to every single country in the world except Cuba (which will be changing very soon) and North Korea. There are regional offices set up in 5 regions of the world, Euroasia and Africa Group, Pacific Group, Europe Group, North America Group and South America Group, which prepares the company for control on a global scale. Due to this structure, KO will invest in environmental awareness on a regional level depending on the issues at hand.

From research about KO, specifically in rivalry through environmental awareness, I predict that the company will keep developing their environmental sustainability, while keeping the leading market share in the industry. KO has developed so broadly and globally that competitor’s trial to supersede them in environmental sustainability will not be affective.

Currently, KO has many projects throughout the world including the Water Replenishment project (Coca-Cola, 2016). KO has set up 248 water partnership projects in 2000 communities across 71 countries. (Coca-Cola, 2016) Due to KO being well recognized as an environmentally aware company, the projection for the future is that KO will keep dominating the market share through environmental sustainability. For example, currently, KO provides 2 million people with ‘sustainable, safe water access in Africa through the Replenish Africa initiative (RAIN)”, “187,000 Hectares of forest resorted with native species and conserved in 20 countries”, as well as “$300 + million invested in community water projects globally” (Coca-Cola, 2016).

If we focus on the supply chain aspect of environmental awareness, KO is already using their technological advancements to provide the most efficient way of producing their products, while at the same time keeping their costs at a very low cost. This has forced competitors to fight KO in the fight in regime arbitrage to be able to even be called a competitor. KO is the model-child for presenting the world with the ideal balance in triple bottom line accounting. The company has not only expanded financially in the past 100+ years, but has also significantly invested in both Social and Environmental costs around the globe.

  For the future, based on past activity, KO will keep investing into environmentally sustainability as well as R&D to increase their goal to become as efficient as possible. The development of recycling will be inevitable, as the company has a high number of plastic goods not being recycled. If the competitor were to focus on recycling, KO will step forward to beat them in this as well. In certain countries, such as Japan, KO has set up campaigns for re-using the plastic bottles that are purchased with the simple addition of “screw on tops” for the bottles, turning them into storage containers, gardening water sprays, bubble blowers for children as well as salt and pepper shakers. Based on how KO has been advancing in environmentally sustainability, it will keep repeating the fact that Environment is most important within their business. Their priority, along as providing the world with their drink of choice, will always be environment, as they have demonstrated in the past years.

Overall, if Pepsico, KO’s biggest competitors will invest more money into green business, they will still not catch up with the massive advantage that KO has established in the food and beverage industry. But, of course, the mere idea of Pepsico developing their environmental campaign for marketing and market-share purposes, will cause KO to invest even more of their earnings into their environmental awareness projects to show the world once and for all that they are the leaders.

CATEGORY 2. MULTINATIONAL STRATEGIES AND OPERATIONS

 

 SCENARIO 2 (25 MARKS)

The collapse of the European Union leads to the collapse of NAFTA and ASEAN. The end of regional associations leads to a rise in protectionism at the national level, translating into higher duties on the import of components and finished products. How do these changes affect the way your MNE structures its international operations? Why do you think it responds as it does?

 

In the horrible possible scenario of the collapse of the European Union, leading to the collapse of NAFTA and ASEAN, Coca-Cola Company (KO) will face a point of either prospering immensely or staying at the same level. Current statistics show that more than 90% of people globally recognize the iconic white and red logo of Coca-Cola. When a company and a brand develop so dramatically throughout the world, it will be very hard for governments to put in legislations onto the company.

When starting as a company, KO only operated in the United States. In the early 1900’s, KO started to develop globally. They expanded into Cuba and Panama by establishing bottling plants that would produce the products for that region. Although the psychic distance is vast between the USA and Panama and Cuba, they developed there due to the US military expansion into these regions and the rise in demand of the Coca-Cola brand. Relating to the Uppsala modal, it is clear why the USA developed into those 2 countries first. Also given the fact that they are considered global south countries with lower labor costs, it was the perfect place for KO to develop to. Currently, KO operates in all countries excluding North Korea and Cuba, which makes the most global company in the world. Throughout its development, KO has made it clear that their priority is to adjust to the wants and needs of people. Although KO started off as a push-paradigm company, providing the world with a product that was very US-based, it has shifted into a pull-paradigm due to the high demand of the product throughout the world. The rise of globalization has helped spread the products and brands that KO produces and has developed the company immensely. KO operates through both acquisitions and franchising. Expanding through acquisitions has helped them work with experts from foreign markets to understand that mindset of their consumers. Due to many parts of the world being very “natinonalistic” and focusing on local products and producers, KO has taken this into account and has expanded through the buying of these companies. Furthermore, KO has set up manufacturing facilities as well as partnered with bottling companies throughout the world to develop the company into a worldwide producer.

In the event of the rise of protectionism, due to the sheer volume if KO’s expansion, they will not be affected. Coca-Cola is no longer a US company; it is a global company. Coca Cola currently generates 72% of its operating profits outside of the United States due to the outsourcing they have to bottling companies. They have ultimately developed their marketing, sales and products to make every market that they are in, tailoring into account all social, religious, technological, legal and environmental factors. KO has already established FDI in almost the whole world, so it will be very hard to remove them from a country.

KO operates mostly through bottling companies, in which KO has very limited control power over. These bottling companies hold a Coca-Cola franchise license, with which they buy the syrup concentrate and other ingredients from the Coca-Cola Company and then focus on production and distribution themselves. Due to this operating system, KO is not known specifically as a US-based company. Every country in the world (except the ones that I have previously mentioned), has infiltrated coca-cola products into their stores, restaurants and culture. It will be 100% impossible for countries to take away any coca-cola products from their countries. Currently KO owns more than 200+ brands which all lie under the umbrella corporation. KO has reached economies of scale, which enables them to invest into R&D, environmental awareness as well as social/ethical causes without having to raise the price of their product.

Thus, in the event of the fall of the EU, NAFTA and ASEAN, Coca-Cola will not be affected. They will invest money into R&D per specific region to make sure the tailor their marketing and strategy to fit the desired markets. I predict that if protectionism continues for a long time and countries isolate themselves after the fall of the EU, Coca-Cola will develop where they have their global headquarters. I think more headquarters will be built around the world to compensate for the diminishing “globalization” of the world. Also, due to the company relying mostly on horizontal integration, through the buying out and owning various local brands, it will make profits even when protectionism rises.

Through its development, KO has adjusted their development depending on the country that they are going to. In some cases, it was Brownfield, because they bought existing companies to penetrate that market, while in other cases, Greenfield. Due to the development of KO, I think that in the future of this scenario, they will ultimately come out as the most glocal product. They will continue to be in every single market and will help with development of economies that will struggle after the fall of the EU. KO will take over environmental awareness, economic growth as well as other ethical issues such as woman empowerment. Currently, KO has the 5by20 campaign which aims to “reach 5 million women entrepreneurs through the Coca-Cola value chain by 2020” (Coca-Cola, 2016). This drive to be socially, ethically and environmentally aware is what makes Coca Cola the driving force in the business world. Many people don’t know all of the time, research, innovation and money that KO invests to make this world a better place, including partnering projects that promote a ‘healthy’ lifestyle. Although this can be considered controversial, KO keeps developing their products to match the market demand. This will ultimately help them adapt to anything that comes their way, which in this case is the fall of the EU.

CATEGORY 3. MULTINATIONAL FINANCE

 

 

SCENARIO 2- (25 MARKS)

After years of stability and even weakness, your MNE’s domestic currency strengthens significantly. Managers feel that the factors explaining this rise will continue for many more years. How will this stronger currency affect their basic “configuration” decision (where they decide to make things and sell things)? Why do you think they respond as they do?

 

Coca Cola Company (referred to as KO in these essays), started in 1886 in the USA, and today operates in all countries of the world, excluding North Korea and Cuba (the latter changing very shortly due to the re-established relations between Cuba and USA). The company has seen many hard times, including 2 world wars, many natural disasters and a handful of difficulties with expanding into specific countries. Throughout all of this KO has persevered. Due to KO operating around the world, it has established regional headquarters, which then deal with the countries in their region. KO developed through both acquisitions, including Minute Maid in 1960, Thumbs up in 1993 and ZICO in 2013, as well as through franchising.

The company, along with its subsidiaries works on producing the syrup concentrate that is then sold to various bottlers throughout the world. These bottlers hold a local Coca-Cola franchise, which then distributes the final products to wholesalers, restaurants, shops, vending machines, etc. Through the supply chain, every part including development of the syrup, bottling, and distribution are all done by different places. This model that KO has set up has effectively minimized the risk of failure, creating a company that, in my opinion, will never see bankruptcy in their future. KO works with more than 900 bottling companies around the globe, as well as many manufacturing facilities. Throughout these “outsourced” companies, KO owns shares in almost all of them (Coca-Cola, 2016). This so called distribution of the supply chain has created a safe guard for the Coca Cola Company to work solely on marketing and R&D.

In the scenario where after years of stability and even weakness, the domestic currency strengthens significantly, KO will prosper. Due to the fact that Coca-Cola has established itself as a global company, it operates in much different currencies that are constantly relying on each other. If we focus on KO being originally a US brand, and its “home currency” being the dollar, it is clear that the company will focus on global development outside of its “home country” to compensate for the increase in currency strength. To deal with foreign exchange risk, KO says, “our treasury policy requires the hedging of rolling 12-month forecasted transactional exposures within defined minimum (25%) and maximum (80%) coverage levels. Where available, we use derivative financial instruments to reduce our net exposure to currency fluctuations” (Coca-Cola, 2016). KO predicts changes in currency to be able to understand how to financially develop in the future.

Due to the widespread production cycle around the world, KO will ultimately not be dangerously affected by the strengthening of the dollar. If the dollar strengthens, and stays at that price, KO exports will decrease, and the other global headquarters will increase their exports to compensate for the change in currency value. As the US dollar will strengthen, the value of it compared to other currencies will increase. Through economic terms, as the price increases, the demand decreases. This would not affect KO, because they will project this increase in currency and focus their production in a country that has a lower currency rate. Global headquarters in other regions will pick up the “slack” for the US market and move forward. The decentralized market strategy that KO has developed is their safety on which they can fall back on. No one location, company or franchise can offset the success of the whole Coca-Cola Company. If the US$ strengthens, and payments for the company were made in $, the rest of the world which sells in different currencies would have an operation risk, but due to KO operating in many different currencies, it will minimize the risk.

Due to KO setting up such a wide network of distribution, in the future, the company will not be affected. KO deals with currency problems, including interest rate fluctuations through derivative instruments. “In the case of inflation, the Coca-Cola Company sort their employees with higher wages and salaries in countries with high inflation rate so as to enable them to cope with the situation. This increase in wages increase product cost and couldn’t be reflected on the product price due to the competitiveness and risk of the market” (Umar, 2016).

 Bibliography

The Coca-Cola Company. 2016. Coca-Cola Journey Homepage: The Coca-Cola Company. [ONLINE] Available at: http://www.coca-colacompany.com/ . [Accessed 07 December 2016].

Corporate Rap Sheet: Coca-Cola Company. Corporate Research Project. 2016. Coca-Cola Company: Corporate Rap Sheet | Corporate Research Project. [ONLINE] Available at: http://www.corp-research.org/coca-cola-company . [Accessed 07 December 2016].

Foreign Currency Management for Coca-Cola_Company (KO). 2016. Foreign Currency Management for Coca-Cola_Company (KO). [ONLINE] Available at: http://www.wikinvest.com/stock/Coca-Cola_Company_(KO)/Foreign_Currency_Management . [Accessed 07 December 2016].

Statista. 2016. Coca Cola: beverage market share 2015 | Statista. [ONLINE] Available at: https://www.statista.com/statistics/387318/market-share-of-leading-carbonated-beverage-companies-worldwide/ . [Accessed 07 December 2016].

Umar, Fahad. 2016 Global Business Strategy. Stratford College of Business and Mangement UK