1
Foreign Direct Investment Entry Mode and Strategy Evolution in Transitional Enterprises:
A Case Study of the Coca-Cola Company in China
ASU
OMT 440 - International Business
Summer 2018
Coca-Cola’s Foreign Direct Investment in China
Over the years, the multi-national corporation’s (MNC) Foreign Investments have been
regarded as a business endeavour characterized by deliberate strategic and objective goals based
on the investor’s resources and strengths. Due to globalisation, firms and industries are moving
into the international markets (Alon & McIntyre, 2018). These firms must possess strategies and
entry modes that will result in a successful investment. In most cases, companies use joint
ventures, mergers, acquisitions and wholly owned subsidiaries to create a global presence.
Political stability, regulatory climate, and cultural forces affect these modes of entry within a
host country. Besides, MNCs must juggle risk management and maximise profits to maintain
their investment in competitive markets. According to Dunning (1993), according to the eclectic
paradigm, the ownership, location, and internalisation benefits are determinants of foreign direct
investment success. Thus, it is possible to integrate the aspects of strategic decision making, the
contexts of the host markets, and the firm-specific benefits to guarantee long-term growth and
strength in MNCs.
In China, the inflow of FDI is noted to have continued to grow between 2015 and 2017,
with an estimated increase from $150 billion to $167 billion in 2017. Wang (2016) indicates that
one of the reasons why this has been on the rise is because of the favours from the liberalisation
plan by the Chinese government, the creation of the free trade zones in the country, as well as the
speedy development and establishment of the high-tech sector. The reason why the Chinese
government has adopted these strategies is to ensure that China is opened up to foreign
investment for the benefit of the Chinese people through the creation of a better and enabling
business environment, distribution of goods and services and structure by the transitional
enterprises (Wang, 2016).
The Chinese Ministry of Commerce, in February 2018, reported that 35,652 firms funded
by foreign multi-national corporations were set up in 2017. It further stated that this accounted
for a 28% increase since 2016. It further indicated that some corporations, such as Coca-Cola,
one of the largest multi-national corporations in the country, contributed a whopping $16 billion
increase of 16.8% since 2016. It is also stated by Latorre et al. (2018) that the FDI stock in the
country went up by 10% between 2016 and 2017, reaching an enormous value of $1490 billion.
The chart below shows the FDI inflow in China between 2016 and 2017.
Figure 1: Illustrates the Trend of FDI inflow in China (Source- Wei, 2017)
Coca-Cola, in China, was chosen as the best case study for this research because, first, it
is considered by Kraus (2018) as one of the biggest Cola producers in the whole globe and the
largest MNC in China and the world. The researcher chose this MNC because the company has
been running its investments in the country for as long as 40 years. Therefore, it has a relatively
long history in the country, operating under various economic reforms (Kraus, 2018). This makes
it a case study whose implications can be used to examine MNCs’ entry modes and strategies in
foreign direct markets.
Coca-Cola’s entry mode in the Foreign Direct Market in China
The high growth rate of China since 1979 as well as its large population is one of the
reasons that made Coca-Cola invest in the country. These aspects have made China a target for
most of the MNCs around the globe. Ma, (2015) says with the need for the achievements of the
unprecedented in regards to the market accessibility, Coca-Cola Company adopted various entry
modes since it began its operations in 1979. Over this period, to date, it has adopted three entry
modes depending on the three phases of its operations in the country. The figure below illustrates
Coca-Cola’s entry modes in China.
Figure 2: Illustrates Coca-Cola’s entry mode in China, Source -Ma, (2015)
i. Exporting
Before its establishment in the country, prior to its settlement in China early 1979, the
company involved itself in the exportation of goods into the Chinese market. It sold its goods
directly to the local markets in China from other nations it had already developed its operations.
Hollender, Zapkau and Schwens (2017) say that this was the traditional method that and one of
the most well-established ways in which Coca-Cola reached the local markets in the country.
This was the only way it could sell its Cola drinks in China since the Chinese policies had
blocked MNCs from commencing any form of operations in the country. What made this entry
mode easier for Coca-Cola to operate in the country at the time, was the fact that the Cola drinks
were not directly manufactured in China. There were no facilities needed that could hinder it
from operating. There were no investments needed for the facilities development since it was
already operating in other countries such as the USA (Ma, 2015). Therefore, the company’s
expenses in exporting its products to China were treated as marketing expenses.
Besides that, exporting allowed Coca-Cola to explore the Chinese market and learn
consumer preferences before committing to more resource-consuming entry modes. This step-
by-step strategy reduced risks while allowing the company to create brand awareness and
develop distribution channels in a very controlled business environment. Alon and McIntyre
(2018) reveal that exporting is the most prevalent entry mode to foreign markets among multi-
national corporations because this approach enables the companies to learn demand, adjust to the
cultural environment, and reduce risks without significant investments. In the case of Coca-Cola,
this has not only avoided the policies limiting its conduct but also prepped it to carry out greater
operations as China commenced opening its markets to foreign direct investments. Therefore,
exporting played a key role that enabled the effective entry of Coca-Cola into the Chinese
economy in the long term.
ii. The Franchise mode of Entry
During its inception in the country, around 1979, the company adopted the franchise
mode of entry because of the nature of things at the time. According to Ma, (2015) all the
bottling companies in the country were owned by other state-owned companies. The
establishment of the open door policy in the country in 1979 prompted cola-cola to negotiate for
an opportunity to operate in the country’s market which allowed it to sell imported cola drinks to
foreign in three cities in the country that included Beijing, Shanghai and Guangzhou. By 1984,
the company has established three factories in the country; however, the rights were transferred
by the company to those firms that were state-owned which bought the concentrate for cola
manufacture from the Coca-Cola. In this strategy, the Coca-Cola Company operated as the
wholesaler while the state-owned companies became the market agents. However, the profit was
quite limited.
Coca-Cola was also able to be more flexible to the local political and economic environment
of China in the late 1970s and early 1980s because of the franchise mode of entry. Even though
this approach provided Coca-Cola with an entry point into the market, there was a need to act
under systemic influences of socialism and prevalence of governmental enterprises in China. By
licensing its rights to bottle its products to local firms, Coca-Cola could penetrate the
government policies and at the same time, making sure that the products reached millions of
consumers in Beijing, Shanghai and Guangzhou. This strategy also implied that the company
Coca-Cola had removed its main business in producing concentrate and left the bottling and
distribution activities to local companies. Nevertheless, this system, as Xu (2018) grounds,
reduced the profitability of Coca-Cola and its direct influence on the quality of production, but,
at the same time, strengthened its image worldwide. Furthermore, expansion of Coca-Cola in
China by franchising had obstacles of emerging feelings of nationalism and doubt of foreign
products. Yao (2017) notes that the anti-Coca-Cola sentiment was associated with the
nationalistic movement that existed before that, which question the existence of foreign firms in
Chinese markets. This relationship can be used to explain how political and cultural perception
influence consumer acceptance. Nonetheless, franchising played a strategic role of offering
Coca-Cola an entry point into China, as it could lay a ground in the country as it was strategizing
to penetrate further into the local economy.
iii. Joint Venture Mode of Entry
This mode of entry was utilized by the company from 1985 to 1992. The reason why this
happened was that Coca-Cola wanted to have the rights to the management of the business.
Therefore, it made agreements for joint ventures with the state enterprises. This step was
favoured by the liberation policy in the country which gave the company the permission to
partner with the bottling companies in the production of Coca-Cola drinks. It formed its first
joint ventures with companies in Zhuhai and Macau and began to participate actively in the
management and production processes. In 1986, the company built its first concentrate factory in
the city of Shanghai which was established in the as a WOS which was its strategy and formula
of safeguarding its concentrate (Mok, Dai & Yeung, 2017). It was a strategy also to ensure that it
gets the permission to be the sole proprietor of the plants.
The introduction of the joint venture model has enabled Coca-Cola to achieve growth and
to abide by the Chinese policies (Chowdhury, 2016). This was a strategy to allow Coca-Cola to
weigh its international strategies against the local constraints. The company shared risks,
resources and responsibilities by collaborating with state-owned enterprises, which has
guaranteed its legitimacy in the Chinese market (Panzavolta, 2016). These enterprises also
assisted Coca-Cola to overcome political and cultural burdens and expansion was made more
sustainable. Instead of being viewed as an alien force, which takes over the domestic market, the
company has been slowly gaining ground in management and distribution. According to Xu
(2018), these alliances were crucial in ensuring that Coca-Cola is accepted in China. By forming
partnerships, the company earned the people the trust in which they were generally uncertain
about the foreign brands because of the feeling of nationalism. Xu (2018) adds that joint ventures
served as an interface between the multi-national company and local stakeholders that smoothed
the opposition and promoted collaboration. Coca-Cola on the other hand benefited by having
access to good systems of distribution and production networks that fortified its position. Xu
(2018) states that the joint venture arrangement also provided the company with the flexibility in
the time of economic transformation of China. Implementing itself into the processes of reform,
Coca-Cola fitted the process of modernization in the country, preserving its international
character and managing to fit in the local environment well.
The product innovation and brand development was also significantly done using the
joint ventures of Coca-Cola. The formation of partnerships served as chances to make the
beverages of global quality and local tastes. Panzavolta (2016) underlines the importance of the
cooperation with the Chinese companies that made adaptation of the product successful. This
innovation was not only in terms of taste alone but also packaging and branding. The approach
enabled coca-cola to reach new consumer segments in the country. Joint venture assisted the
company in comprehending the cultural requirements and the market needs better. The same was
applied by Starbucks in its entry into China. Chowdhury (2016) explains that Starbucks used
joint ventures to make it through the labyrinth of regulations. This model was also applied in a
similar fashion by Coca-Cola that combined international knowledge with local understanding.
Such partnerships as well ensured the presence of stable raw material and packaging supply
chains. According to Xu (2018), the joint ventures of the company helped Coca-Cola pursue its
long-term agenda of establishing local legitimacy. The alliances helped the firm to build brand
commitment among the Chinese customers. Simultaneously, Coca-Cola guarded its formula of
concentrate entrusted with the actual management of the manufacturing process. This made the
brand name in the global markets to be consistent. The joint venture model was thus a medium of
transition which ensured growth, as well as the guaranteed security.
iv. Hybrid mode of Entry
Coca-Cola adopted this mode in its third phase of existence in the country. This mode
has been used by other company from the 1990s to date. The reason why the company decided to
use this mode of entry was to ensure that it acquired full management rights in the running of its
business and to reduce the problems it was encountering during the second phase. Through mode
of entry, it internalized all the transactions in the market and controlled the production by
strategies such as the long-term investments and domestic distribution channels. Further, it also
strategized to internalize the labour market as well as the procurement transactions of its bottling
activities (Mok, et al., 2017). It then gave some of the Chinese suppliers a chance to produce
quality packaging services.
The fact that Coca-Cola chose the hybrid mode of entry was also an indication of the fact
that it is aware of the dynamics of the Chinese regulatory and cultural environment. Combining
the elements of direct investment with the local cooperation, the company created the balance
between the benefits of independence and the chances of adapting to the local tastes. This model
placed Coca-Cola in a good position as it was able to make all decisions concerning its
operations. Umar (2016) states that it did not exclude the possibility of involving Chinese
partners into the most important processes, such as the development of the supply chain,
distribution, and packaging of the product. According to Tian (2016), such alliances offered the
multi-national some strategic cushioning against political risk because they could ensure that
they were considered lawful by the state policies and retained their interests in the international
business. Further, the hybrid design allowed Coca-Cola to incorporate its international values of
quality and branding with the demands of the local customer who were actually becoming more
aware of prices as well as culture in the international products. This two-tiered strategy enhanced
the company to gain long-term sustainability in market, which was highly regulated and
nationalistic to the end. Through the strategy, Coca-Cola managed to fit in the modernization
agenda of China and simultaneously created a perception of being not merely a foreign investor,
but a stakeholder in the development of the national economy (Tian, 2016).
Moreover, the hybrid entry mode made Coca-Cola have a special competitive advantage
by strategically consolidating mergers and acquisitions with organic growth strategies. Coca-cola
by buying local bottling, integrating them gradually as part of their global production and
management system, developed effective structure that would guarantee the same quality of their
products in various parts of China. With this integration, inefficiencies were minimized,
economies of scale were enhanced, and the company had complete control as far as prices,
branding, and product innovation were concerned. Concurrently, the connections with the local
companies allowed Coca-Cola to don local networks, consumer localization, and network
logistics to facilitate its activities in developing more robust and reliable distribution channel
(Yao, 2017). The hybrid approach enabled Coca-Cola to remain at the forefront of both
international market rivals like Pepsi and domestic rivals who were also changing swiftly
according to the consumer needs. The ecosystem of global effectiveness and local
responsiveness was developed by Coca-Cola which incorporated foreign investment alongside
local collaboration. In the long term, this learning first allowed it to experiment with new flavors,
localize its packaging to fit local tastes, and create a customized pricing strategy that won loyalty
to the brand, but also improved its overall performance in sales in China (Umar, 2016; Kiiru,
Makokha & Gichuhi, 2017).
The entry mode change, evolution in Coca-Cola’s FDI approach decisions in China
Entry modes and strategies, just like any other aspects of an economy are subject to
change. Over the past years, what has appeared from various researches is that there have been
enormous changes in the entry mode strategies in the FDI. Manufacturing firms such as Coca-
Cola have adopted various entry modes over time. The change in entry modes depends on what
the company intends to meet in its operations in foreign markets (Pan & David, 2010).
Therefore, over time, entry modes have changed due to the decisions that Coca-Cola had to make
through the foreign market analysis.
The strategies evolve due to the influences of policies. For instance, Coca-Cola used the
Franchise entry mode during its first phase in China because of the state policies that restrict
ownership of businesses in the country. According to Ketata, (2016) the best way in which the
company could operate in the country was through giving the stated enterprises the rights to
bottling. However, Pan and David, (2010) say that various policy changes and lobbies between
the company and the government made it able to use hybrid entry mode which gave it more
rights in its operations. Therefore, entry modes have evolved from the most rigid and limited
entry modes into kore hybrid and freedom based entry modes.
During the second and the third phase, Coca-Cola strategized on how to increase its
involvement in the Chinese market without the intervention of the state enterprises. It is during
the third stage that it approached the government and the enterprises who granted them the
permission to operate in the country (Ketata, 2016). It was this step that was favoured by the
liberation policy in the country which gave the company the permission to partner with the
bottling companies in the production of Coca-Cola drinks. It formed its first joint ventures with
companies in Zhuhai and Macau and began to participate actively in the management and
production processes.
During the fourth stage, it strategized on how to fully operate in the country enjoying the
rights to management, production and bottling rights. Ketata, (2016) says that during company
also wanted to strategize on how to make profits so it internalized all the transactions in the
market and controlled the production through the use of strategies such as the long-term
investments in the country and the establishment of domestic distribution channels. Additionally,
the Coca-Cola also strategized to internalize the labour market as well as the procurement
transactions of its bottling activities. This entry mode allowed it to establish its operations in the
country to encompass all aspects of the market and to increase its profits (Ketata, 2016).
In the recent years, recognition of the entry mode decisions has changed the way
companies chose entry modes. Critical decisions are made by companies before making FDI
entry decisions. These evolutions, therefore, are based on the entry mode evolutions and are
geared to serving various needs. Hollender, et al., (2017) says the reasons why entry modes
change over time is because of the changing international market sizes which demand
comprehensive entry modes. This is part of the reasons why Coca-Cola evolved from the
franchise to the hybrid mode of entry. The other reason is that there is a need to make a decision
based on the market growth and the need potential in regard to demand. The changes are also
based on the strength of the company in regard to accessibility and brand. Also, other factors that
led to the improvement in entry modes are customer responses. Companies have to use entry
modes that meet the customer’s need best (Hollender, et al., 2017). Finally, the situation of
competition also affects the choices of entry modes and companies tend to modify these entry
modes to gain a competitive advantage.
Another factor of significance that contributed to the adoption of entry mode in China by
Coca-Cola is the fact that there was a necessity to adjust towards the host country cultural
environment and business environment. The knowledge in the culture regarding partnerships,
negotiations and consumer behavior helped Coca-Cola to perfect its hybrid strategy and gain
more acceptability within the local market. According to Gao (2018), foreign companies in
China have to work around well-established cultural tenets, which tend to emphasize trust, long-
term relations and the correspondence of foreign brands with the values of the locals. Coca-Cola
reacted to this change by developing partnerships that focused more on the win-win approach
and tailoring its marketing strategies to appeal to the Chinese consumers. According to Liu
(2018), this move has not only increased legitimacy of the company, but also decreased
opposition to the company by the government and the domestic rivals. Therefore, the change in
the mode of entry at Coca-Cola was not only an economic choice, but a process of cultural
adaptation, that solidified its survival in the long term perspective.
Coca-Cola hybrid entry strategy is one example that highlights the increased role of multi-
national enterprises as institutional entrepreneurs in changing the host-country markets.
According to Garcia-Cabrera and Duran-Herrera (2016), in many cases, MNEs are agents of
institutional transformation and that over time, they transform regulatory and operating standards
to fit international standards. The case of Coca-Cola and its negotiations with the Chinese
government and state-owned enterprises show that such a process of co-evolution can be
observed. As the company overcame the restrictive regulations in the formative years, it also
over the years lobbied to have the regulations changed so that foreigners can be more involved in
the bottle packaging and distributing processes. Coca-Cola managed to shift away the confined
franchise activities to a more liberalized mode offering greater autonomy and control by
impacting institutional structures. This process was rather beneficial to the company and helped
to make the Chinese environment of investment gradual. Therefore, the transformation of the
FDI strategy of Coca-Cola is indicative of its sensitivity to the existing regulations as well as the
way in which it influenced its operating environment by modifying the regulatory frameworks.
The national policy changes affecting the multi-national ones can also be applied in light of
the dynamics of the foreign direct investment decision. It is also interesting to note that Li and
Bian (2016) assert that a modification of the foreign investment rules and the evolving national
security review systems by China influenced the manner in which such companies as Coca-Cola
have structured their entry. At its earlier development stages, the company was restrained by
strict regulations of the state, but as China relaxed some of the regulations, the coca-cola product
adopted schemes of hybrid and joint venture in an attempt to establish a firmer presence. This
progress indicates that the regulatory flexibility could help the MNEs to transform the limited
involvement into the stage of greater involvement of the market. Furthermore, the adaptation of
Coca-Cola reasons why the consistency between the entry strategies and the developments in the
legal structures, either liberalizing or suppressing the freedom of operation, is a significant
factor. Coca-Cola has not merely thrust itself to fulfill the needs and demands of the policy
changes, but also positioned itself strategically to leverage opportunities that have come with the
reforms due the introduction of changes on regulations. This highlights the importance of law
and policy in the option of entry mode in dynamic markets.
As explained in the global competitiveness and firm-specific capabilities Muya and
Mugambi argue that the experience of Coca-Cola in China has shown the effects of the entry
mode evolution within the global competitiveness and capabilities of firms (2015). According to
Grosse (2016), the new market settings usually present both threats and opportunities to the
multi-national corporations which intend to achieve a dominant position in the long-term. The
global brand power, financial capabilities, and managerial capabilities enabled Coca-Cola to
ensure that it attains competitive advantage, but the company also needed to localize its
strategies in order to counter challenge posed by local and other international rivals. According
to Muya and Mugambi (2015), the business venturing abroad needs to balance internal and
external threats, and therefore ensure that its modes of entry should be malleable enough to
adjust to competition without foregoing special competencies. This balance is present in Coca-
Cola scheme through its hybrid strategy: it centralized key processes to ensure efficiency and
quality and cooperated with local companies to increase its distribution and market. By so doing
it not only ensured that it kept leading the pack in the Chinese beverage industry, but also created
a model of entry mode adjustment that other multi-national corporations can emulate.
The benefits for Coca-Cola and China due to the entry mode evolution in FDI
The evolution of entry modes in FDI has numerous advantages to the hosting country as
well as the company. First, it is clear that Coca-Cola benefited from the evolution of entry
modes. Chung, (2009) says when such changes occur, companies become very proactive in its
operations. When the Coca-Cola case is applied to these evolutions, it is evident that during the
first stages when the company used the Franchise entry mode, it has various restrictions. The
company had no freedom in its operations in the country and most of the profits went to the
state-enterprises. Therefore, one benefit is that the evolution, for instance, from the franchise to
the hybrid entry method gave the company specific advantages such as the rights to manage
operations and it made large profits as well (Chung, 2009). The company also had an opportunity
to make a unique brand since it owned most of the transactions and distribution of the product.
The financing of the business was also made possible leading to further expansion. The other
advantage is the increase in the economies of scale as well as the bargaining power. China has
been ranked second after the USA in regard to FDI growth as shown in the chart below.
Figure 3: China’s Ranking in FDI Inflow (Source-Wei, (2017)
As for the hosting nation, the liberalization opens the country to international trade. The
operations of the Coca-Cola Company in China for instance, have opened up opportunities for
economic growth. Since the entry of Coca-Cola in the Chinese market, Wei, (2017), says the
company has contributed to about 7% of the economic growth in the country. The company,
through the evolution of entry modes has been able to create economic connections between
China and other nations it operates. Ahsan and Musteen, (2011) say the other benefit of the
evolution is that it allows for more MNCs to operate in the country leading to the establishment
of operational and offices and manufacturing plants that creates employment for the citizens in
the same way that Coca-Cola has done in China and other parts of the world.
The history of entry mode has allowed Coca-Cola to achieve a higher match between the
global strategic goals and the local institutional context of China. The ability of the subsidiaries
of multi-nationals functioning within the framework of the transition economies to perform both
transactional and institutional adaptation, as Meschi, Phan and Wassmer (2016) note, is one of
the most crucial factors in the survival and success of MNEs. The shifts in the Coca-Cola
situation, where the franchise model was replaced by joint ventures and further on by the hybrid
ownership model, provided the company with the possibility to act in accordance with the
Chinese legal demands and retain the best practices that the company developed throughout the
world in the domains of production and management. This also implemented the dual strategy
which increased the operating efficiency of the firm and ensured the long term stability of the
firm in the competitive market of China. At the same time, China was given an advantage of the
migration of management talents and world business ideals, thus promoting the empowerment of
local businesses. These evolutionary stages of the entry modes allowed the firm and the policy
makers to have a strong learning platform and this shows the relevance of agile methods in an
environment that sees institutional flux. The entry-mode approach employed by Coca-Cola may
be considered an example of other companies with multi-national status that would like to
achieve sustainable success in emerging markets.
The substantial investment by Coca-cola has contributed to the development of the
infrastructure and industrial ability of china. According to Enright (2016), foreign direct
investment (FDI) to China has had a significant impact on transforming the economy of this
nation since it has connected the multi-national companies to the domestic suppliers. Coca-cola
made investments in bottler plants, distributors and packaging producers, which developed
spillovers, increasing local technology (Moon, 2015). These spillovers were not only generating
employment but they also assisted in the expansion of other related areas such as logistical
systems, advertising as well as agricultural supply chains. These advantages triggered the shift in
the attitude of the government towards opening markets to foreign investors, including in such
sections of the economy as food and beverages that were highly restricted (Zhao, 2015). The
inclusion of Coca-cola into the local supply chains increased both the production and the quality
standard. It also provided local companies with opportunities to unite and compare themselves
with international standards. According to Zekiri (2016) and Svetiev and Wang (2016), the
synergies over time improved the position of the Chinese in the world supply chain, making it a
critical location in the production and supply of drinks.
The development of the entry modes also made Coca-Cola pursue more aggressive brand
position and market penetration. According to Williams (2015), the spread of giant soft-drink
companies to the middle-income nations, like China, was met with a huge marketing campaign
and localization policies. Coca-Cola supposedly gained the ability to tailor its products to the
tastes of the specific market through its hybrid approach, such as offering smaller packaging
options and creating flavors that would be willing to taste among Chinese customers. Not only
did these strategies improve the profitability of Coca-cola but they also diversified the consumers
choice in the Chinese beverage market. At the same time, the nation witnessed both increases in
tax income and expansion of its consumer society, provoked by such marketing development of
multi-national companies as Coca-cola. Localization of products enhanced brand loyalty among
the Chinese consumers hence, creating a stronger anchor to Chinese market. Antons and Wang
(2015) indicate that Coca-Cola responsiveness to cultural peculiarities contributed to the
improvement of its reputation of a flexible and consumer-responsive company. This flexible
position also increased its brand equity in the domestic market. Meschi, Phan and Wassmer
(2016) conclude that collaborative reinforcing of the strength of the brand and consumer
satisfaction provides the example of how the development of entry modes led to the continuous
benefits of both Coca-Cola and China.
The other advantage of modifying entry modes is that the legal and policy environments
of foreign investment have been improved. According to Bian (2015), slow adjustments to the
foreign investment law in China were based on the requirements of the country and desire of
large enterprises to receive greater guarantees. Lobbying by Coca-Cola and its previous presence
encouraged the policymakers to better the laws that offer greater safeguards to foreign
intellectual property and established known trademarks (Antons and Wang, 2015). The changes
boiled the confidence in Coca -Cola to pump more money and simultaneously made China
attractive to other investors. The evident alignment between legislative changes and major
corporate interests reveals a mutually advantageous relationship: foreign firms find their
investments better protected, while the host state can maintain oversight of domestic priorities.
According to Greer (2018), reforms of this nature essentially serve as pragmatic case studies,
offering insights into potential frameworks for future international investment agreements. Taken
together, these developments suggest a deliberate openness in China’s regulatory environment;
willing to adapt existing norms when high-quality foreign investment is at stake. Due to this, the
example of Coca-Cola demonstrates the relation and mutual impact of changes in policy and big
companies.
The change in entry modes has largely boosted the level of rivalry and propagated the
China’s beverage industry innovation. Zekiri (2016) stresses that foreign direct investment (FDI)
is generally targeted at achieving the competitive advantages in the fast-growing markets. The
hybrid entry strategy of Coca-Cola gave the company a lot of freedom for its daily operations
and at the same time forced the domestic enterprises to act in the way of innovation in order to
keep up with the competition. This increase in competition led to better market efficiency and
wider variety of high-quality products for Chinese consumers. As Moon (2015) states, the effect
of FDI is very often beyond only financial returns and this reshaping is very frequent for the
sectors in the host economy. The presence of Coca-Cola was a new standard for the operational
and the consumer interaction, thus local firms had to improve their technology and revise their
business strategies accordingly. Enright (2016) concludes that such fierce competition facilitated
continuous development and raised the overall standards of the Chinese soft drink market.
Challenges and Future Prospects of FDI Entry Modes in China
One of the primary problems that multi-national enterprises face when dealing China is
the continuously changing complexity of the institutional and regulatory systems. Although there
has been a significant opening of many industries, China still maintains restrictions in sectors
identified as sensitive, which in turn severely limits the flexibility of the mode of entry. For
instance, companies like Coca-Cola are not always allowed to just go ahead with the
establishment of wholly owned subsidiaries or take the equity route without going through
several layers of approval processes. Niñerola, Sánchez-Rebull, and Hernandez-Lara (2017) in
their paper argue that bureaucratic-hurdle-caused delays are among the top obstacles for
international firms doing business in China. Zhang, Luo, and Toppinen (2015) indicate that
occurrence of state involvement in equity-based entry usually leads to the limitation of
managerial autonomy thereby making investment strategies more complicated. In the same vein,
Chung, Xiao, Lee, and Kang (2016) maintain that firms in transitional economies have no choice
but to juggle state requirements with their own organizational goals, which, in turn, affect
strategy and performance. To begin with, institutional rigidity implied for Coca-Cola a slow
transition from exporting to hybrid entry modes. Consequently, this situation dictates that multi-
national companies must not be rigid in the way they plan their activities in China. Institutional
adaptation is a continuous process that comes with new government policies and changing
priorities and hence the MNEs have to keep on realigning their operations.
Over and above, cultural and market-related issues also changed the direction of foreign
investment in China significantly. Tuning (2016) explains that the 2-ND Normal concept brought
about by China is redefining consumer behavior, which is moving very fast and being driven by
such factors as nationalism, authenticity demand, and health and sustainability concerns that are
getting stronger. The trend, in this respect, is more referred to the food and beverage industry,
where brand perception and lifestyle association are greatly influencing purchasing decisions.
Luo and Lemański (2016) put forward that cultural embeddedness can be the very heart of long-
term market penetration, thus they think that the companies which are not able to adapt will be
the ones excluded from the market even though they are the ones offering the best products.
Niñerola, Sánchez-Rebull, and Hernandez-Lara (2017) corroborate the idea of services industries
setting similar barriers where the managerial approach has to be compatible with the local habit
and customs. The case of Coca-Cola is that it must abandon the traditional way of using the
hybrid model and accept new marketing campaigns, modifications in product, and even in the
packaging that coincides with the users’ expectations and; therefore, this would be a small
change of the product besides others, including local flavor innovation (co-branding, different
culture, among others). Besides, these changes made in companies open the door not only to new
market opportunities but also risks if the cultural aspect is misinterpreted by foreign firms or they
fail to react rapidly enough to changing consumer values. The success of Coca-Cola’s future
entry strategies in China will hinge on its ability to stay in tune with the ever-changing cultural
landscape.
Besides domestic cultural and institutional barriers, geopolitical and macroeconomic are
other significant challenges to foreign direct investments (FDI) entry modes in China. Dollar
(2017) states that the U.S.-China tensions have created a cloud of uncertainty over two-way
direct investment, thus, affecting enterprises’ long-term planning. Buckley et al. (2018) suggest
that resistance to Chinese outward FDI abroad may lead to the implementation of reciprocal
measures, thus triggering China to reassess how it treats foreign companies. Hanemann and
Huotari (2015) also point out that global criticism of China’s economic clout has facilitated the
tightening of FDI reviews, which can also result in the issuance of retaliatory or protectionist
policies by China. In the case of Coca-Cola, this atmosphere is turning the gamble associated
with long-term investment decisions and it is also making the use of strategies that rely on hybrid
ownership complicated. Geopolitical developments have the power to reshape consumer
perceptions as well, since the meteoric rise of nationalism or aversion towards foreigners could
lead to the calling of boycotts for international brands. This situation is a reminder of the
importance of building up Coca-Cola and companies alike to not only withstand but also to adapt
when external shocks hit. According to Hanemann and Huotari (2015), one option is to spread
the risk by doing business in several regions of China and thus, getting more local partners with
whom to establish better and stronger relationships. So, the decision regarding FDI in China will
be influenced not only by the level of internal reforms in China but also by the state of political
and economic relations worldwide.
Future FDI in China will be dependent on how multi-national corporations tailor their
strategies to China’s constant reforms and changing role in the world economy. Paul and Benito
(2018) make it clear that FDI going in and coming out of emerging economies are now more
interdependent than ever before, thus they are the major factors in the current scenario of the FDI
subject matter. Alon, Anderson, Munim, and Ho (2018) state that the process of Chinese firms
going global has not only intensified the competition among foreign companies but compelled
them to also adopt new entry modes. Bickenbach and Liu (2018) comment that the economies of
host countries around the world are re-configuring their policies as a result of China’s growing
FDI presence, which is indicative of the fact that China could be one step ahead in rolling out
new frameworks to handle foreign firms. Consequently, Coca-Cola and its counterparts cannot
afford to disengage from being on top of their game as regards revising their hybrid entry
methods to fit regulatory changes. On the other hand, these foreign firms will have to strike a
balance between global efficiency and local responsiveness so as to maintain their vitality in
such a volatile market. Winning will require not only leveraging the power of one’s current
brand but also forecasting reforms in competition policy, intellectual property protection, and
investment regulations. It is extremely likely that the future program of Coca-Cola will be
centered on the combination of the maintenance of the flexible operational approach and the
assurance of policy compliance whereas there is a shift in policy frameworks.
In the end, the future of the foreign direct investment (FDI) entry in China might depend
mainly on the way the country chooses to move towards an innovation-driven and regionally
diversified growth. Shen and Puig (2018) claim that dependence on the location is an essential
factor in the decision of the FDI entry mode, considering areas to be extremely different with
regard to infrastructure, industrial clusters, and openness to investment. Thus, Coca-Cola is not
allowed to take the same way across the country but to customize tactics according to the
specific provinces and cities. In their work, Abodohoui, Su, and Da-Silva (2018) point out that
Chinese investments abroad are a very relevant case reflecting the need to adjust to different
institutional environments, and, in fact, a signal for the foreign companies getting into the
Chinese market. Buckley et al. (2018), on the other hand, emphasize that the future FDI will be
characterized by the changed, mutual, and interactive relations between the host and the home
countries rather than the traditional one-sided flows. For the case of Coca-Cola, it is translated
into the necessity of becoming part of the local innovation ecosystems to a greater extent, for
instance, collaborating with the Chinese tech and logistics sectors. Furthermore, consumer health
consciousness will probably lead beverage companies to go beyond the mere soda business to
grow the portfolio with healthier alternatives. It means that the potential FDI entry modes in
China are deeply dependent on regional disparities and global trends, which constitute
continuous adaptation and proactive engagement.
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Appendix
1. Figure 4: Illustrates the Trend of FDI inflow in China (Source- Wei, 2017)
The figure above is a chart showing the trends of FDI inflow in China from March 2016
to March 2017. It shows the variations in inflow each month of the one year in the chart. June
2016 was the point in the country’s FDI that experience an increase in the inflow.
2. Figure 5: Illustrates Coca-Cola’s entry mode in China, Source -Ma, (2015)
The figure above is a table showing the entry strategies used by companies in China and
specifically the Coca-Cola Company. It shows its first entry mode, Franchise, Joint Ventures,
and the hybrid entry mode. It also gives the advantages and the disadvantages of each entry
mode.
2. Figure 6: China’s Ranking in FDI Inflow (Source-Wei, (2017)
The figure above illustrates the FDI ranking among countries such as USA, China,
Ireland, Netherland, Switzerland, Singapore, Brazil, Canada and India. From the figure, China is
positioned at the second position after the United States of American which shows its FDI inflow
ability as per 2017.
