International Strategy of Coca-Cola Company for Indian Markets

In this essay we are going to study about the international strategy of Coca-Cola Company using the IR framework for the Indian market. Coca-Cola Company is world known organisation. The growing market around the world mostly depends upon the technologies, knowledge and integration of market, it clearly demonstrates the flow of knowledge, services, goods and capital through different nations and in which creating the competition on a world-wide basis creating an integrated global space is called globalization (Porter, 1986; Albrow, 1997; Friedman, 1999; Gupta et al, 1999). It’s a very challenging task for any organisation to move from domestic market or home market to international market, especially for those organisations which are facing saturated market in their home country (Yip, 2003). The process of globalization is interdependence and integration of countries exchanging different trade, culture, outsourcing, capital investment and the growth of the nation’s relationship. Business systems, knowledge and unification of culture have led to globalization (Daniels and Krug, 2007).

Coca-Cola was invented in 1886 by Dr. John Stith Pemberton in Atlanta, Georgia (Palazzini, 1989). The main reasons for the global venture are cheap labour, distribution and transportation, communication and information technology, cultural convergence, increasing disposable of the global middle class, extension of IP rights, reduced trade barriers, privatization programs and development of international standards (Stonehouse et al., 2000;Denton and Al-Shamali, 2000). India was rated the top international investment opportunity among 30 emerging markets for mass merchant and food retailers looking to expand globally (Business Credit, 2006).. After losing the Indian market previously the company re-entered in the Indian market in 1993 and now have 7000 distributors and more than 1.3 million retailers in Indian market. Today the Coca-Cola Company is the leading non-alcoholic beverage company with ten different products. Coca-Cola Company is now the largest distributor, manufacturer, marketer of non-alcoholic beverage concentrates and syrup which operate in around 200 countries (coca-cola, 2010). If its international venture is successful then the brand name and the brand value increases for the company.

Literature review:

A Company operating internationally faces two forces of pressure of local responsiveness and pressure of global integration (Daniels et al, 2009). In 1987 Prahlad and Doz came with a IR framework on internationalization, their IR framework created a big platform for the study on global business which helps to form an international strategy that has multi dimensional contextual setting. IR framework has limitations for the global industrial competition specified only for the first stage, vagueness in the concept that defines the bond between industry forces and finally lack of proof for supporting the framework (Rugman et al, 2006). Bartlett and Ghoshal (2008) further studied and came with some additions in IR framework and came up with 4 strategies that are international, global, transitional and multi-domestic approaches to the foreign market. The Global Strategy adopted by Coca-Cola can be critically analyzed using the IR (Integration/ Responsive) framework proposed by Bartlett, Ghoshal and Beamish (2008) and Hill(2009).

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The global standardization products and services focus on huge profit, but they compromise on their products price. The marketing research, production and research are done in precise regions with some certain standard and it is sold globally. So those type of products face a huge pressure in reducing the price according to the place where it is sold for example Intel, a chip company (Hill, 2009). According to Bartlett and Ghoshal (2002), a solution for the cross border business is Transnational, which is considered as the important approach for the international market. The transnational strategy gives a lot of pressure to the company for cost reduction and local responsiveness. This could be achieved by transferring the precise skills and expectations of the company from the home country to the needs of the foreign country, where they compete with the local market with reduced price for example Caterpillar (Hill, 2009).

Entry Modes:

Every organisation looks for the opportunity to expand their business across borders, and finding the appropriate entry mode is an intricate task for international business. Different organisation chose different entry modes, to control foreign operation with strategic decision making and which are compatible with the laws of government and culture of the country. There are various modes for entering in the international market like exporting, licensing, franchising, joint ventures with the host country firm, acquisition, and wholly owned new subsidiary in the foreign Country (Hill, 2009).

Joint Venture: it is one of the method of entering and sharing of ownership between two or more firms. The percentage of the ownership varies according to the organisations. The firms holding majority of share will have a tight control on the strategy (Hill, 2009). International joint venture benefits the firm from the use of local market knowledge of the host country, culture, competitiveness, legal and political system and development. From International Joint Venture the risk can also be shared with the local partner. Joint Venture has disadvantages also when a firm enters into a joint venture it risk giving control of the technology to its partners. Another disadvantage is if the share of joint venture is not that high or 50-50% then it does not give a firm the tight control over subsidiaries that it might need to realize experience curve or location economies (Hill, 2009). Used by PepsiCo to enter in the Indian Market.

Acquisition: it is another method of entering into the international market by acquiring or buying and combination of different companies that can aid, finance, or help a company in a given industry without creating a new business entity (Hill. 2009). Used by Coca-Cola to enter Indian market.

It is important for the organisation to consider factors such as the nation’s long run profit potential, the economic benefits of that country, the market size, and purchasing power of consumers and customers which is linked to the economic growth rate when entering in the market (Hill, 2009).

Global Strategy of COCA-COLA:

Indian market is one of the major developing economies in the world. The Indian economy is one of the world’s fastest growing, with gross domestic product (GDP) expanding at an average annual rate of about 7.5 percent for the past three years (Choi, 2006; The Economist, 2006) and the retail market expanding 10 percent on average (Business Credit, 2006) (anon). The Indian retail market, an estimated $250 billion annually, is the world’s eighth largest market and is projected to grow by more than 7 percent annually (Embassy of India, 2007-Cited in Halepete, 2008). The Coca-Cola Company is mentioned as a global company with global products and global activities. In 1980 the company was moving towards centralised control. At that time the motive of the company are to be global in order to expand geographical wise into many of the countries in which the company does business today. In 1990 the world began to start smaller and smaller as a town for the global companies. Globalisation forced changes to appear so fast that many countries could hardly manage the new global environment. “As a result, the very forces that were making the world more connected and homogeneous were simultaneously triggering and preservation of unique culture identity. The world is demanding greater flexibility, responsiveness, local sensitivity, nimbleness, speed, transparency and local sensitivity had become essential to success” (Draft, 2000). Coca-Cola Company sees itself not as a global organization, but as a multi-local enterprise (Svensson, 2001).

Coca-Cola Company historical strength came from operating as a “multi-local” business that for a very long time relies mostly on the insight of local bottling partners. That’s why the global strategy of coca-cola allows its business in more than 200 countries to act according for local laws, local culture, and local needs and so on. Coca-Cola pursues an assumed global strategy, allowing for differences in packaging, distribution, and media that are important to a particular country or geographical area. Hence, the global strategy is localized through a specific geographic marketing plan. Instead of applying a global strategy, it is likely to be a strategy of thinking globally, but acting locally. “The global success of Coca-Cola is the direct result of people drinking it one bottle at the time in their own local communities. So we are placing responsibility and accountability in the hands of our colleagues who are closest to those billions of individual sales” (Draft, 2000). This signifies that if their local colleagues develop an idea or a strategy that is the right thing to do locally, and it fits within fundamental values, policies, and standards of integrity and quality of the Coca-Cola Company, then they have the authority and responsibility to do so. At the same time, they will be accountable for the outcomes of the idea or strategy. It is apparent that a company such as the Coca-Cola Company has realized the weaknesses and the deficiencies of applying a genuine or true global strategy approach in their worldwide business activities. To be in high favour of local ultimate consumer adaptations is emphasized as crucial for their business activities to be prosperous.

Therefore, their multi-local strategy approach is still going strong and adequately for the company’s worldwide business activities. In addition Gould (1995) states that coca-cola has become a part of people’s daily meal, a price at which anyone can buy and it is available to people in any part of the world. The IR framework has been used to critically analyse the global strategy of Coca-Cola. COCA-COLA COMPANY saw that there is an opportunity in Asian market and their home market situation is saturated. COCA-COLA COMPANY decided to re-enter in the Indian market in 1993. Indian government plays a major role in every international company and had a law that any international company have to become a partner in Indian market with an Indian company. To overcome this problem COCA-COLA COMPANY acquisition of local Indian popular brands including the THUMS UP (the most trusted brand in India), Mazza, Gold Sport, Citra and Limca providing a good base not only in bottling, manufacturing and distribution assets but also very good strong consumer preference(Kaul, 2003). From this acquisition the leading Indian brands join the family of global brand and its products like coca-cola, diet coke and others. From this acquisition Coca-Cola enables to exploit the benefits global branding and global trends in taste while also tapping in other domestic markets (Lane, 1998). Coca-Cola adopted the standardisation strategy to produce and sell its standardised products globally (Rodrigues, 2009). Coca-Cola Company do franchise with the local manufacturing bottling companies through which they have a local response and local touch.

In India COCA-COLA COMPANY have 46 bottling plants from which 22 are company own and rest are the franchise operated plant (Coca-Cola, 2010). After re-entering the Indian market in 1993 the COCA-COLA COMPANY operations grown rapidly through a model that supports local business which includes over 1.3 million retailers and over 7000 distributors across the country. Coca-cola has been successful in the global market as well as Indian market because it follows the local strategies and is able to deliver as per the needs of the local people by manufacturing and distribution by the local company (Hill, 2009). In manufacturing the product the water which is used is local from which the customers get the local taste. The company have an approach where in, their business does not get influenced by the area of sales. Rodrigues (2009), states that Coca-Cola pursues the global strategy of producing diverse products as per the local culture. For instance in India people prefer sweeter coke. Also Coca-Cola launched Georgia, a canned coffee specially intended for Indian market which captured 40% of the market soon after its launch (Hill, 2009).

According to Cokecce.com (2007), Coca-Cola trains their managers in their management school, to make them aware of the global perspective of their operations.

Marketing is one of the back bones of any global industry in any country. As to stay in the market ahead from the competitors, marketing plays the major role in Indian market for soft drinks. The post- liberalization period in India saw the comeback of Cola but Pepsi(one of the major competitor India) had already beaten Coca-Cola to the punch, creatively entering the market in the 1980’s in advance of the liberalization by the way of joint venture. Coca-Cola Company benefited from Pepsi creating demand and developing the market for soft drinks. (Kaul, 2004)

Coca-Cola Company marketing strategy is based on 3 A’s that are Availability, Affordability and Acceptability. The first ‘A’ is for availability of the product to the customers. The second ‘A’ is for affordability is for pricing and the third ‘A’ is for acceptability which stands convincing the customer to buy the product.

In 2001 Coca-Cola CEO Douglas Daft set the new direction for next generation of success for global brand with a “Think global, act local” mantra. Recognizing that a single global strategy or single global campaign wouldn’t work, locally relevant executions became an increasingly important element of supporting Coke’s global brand strategy. Coca-Cola Company re-examined its approach in an attempt to gain leadership in the Indian market and capitalize on significant growth potential in the rural markets. The foundation the new strategy grounded brand positioning and marketing communications in consumer insight, acknowledging that urban versus rural India were two distinct markets on a variety of important dimensions. (Kaul, 2004) In rural market, where both the soft drink category and individual brands were undeveloped, the task was to broaden the brand positioning while in urban markets, with higher category and brand development, the task was to broaden the brand positioning while in urban markets, with higher category and brand development, the task to narrow the brand positioning focusing on differentiation through offering unique and compelling value. (Kaul, 2004)

Coca-Cola used two different marketing strategies for each urban and rural market. The first marketing “life ho to aisi” means life as it should be for urban market and the other was “thanda matlab coca cola” which means cool or cold is coca cola which hit the rural target very highly and gain the market very efficiently because the 96% of the population are in rural and developing cities. Coca-Cola Company reduced its rate for the rural market by providing 200ml bottle so that those customers and consumers whose wages are not so high can also have it. (Kaul, 2004) At the same time, Coke invested in distribution infrastructure to effectively serve a disbursed population and doubled the number of retail outlets in rural areas from 80,000 in 2001 to 160,000 in 2003, increasing market penetration from 13 to 25%. As a result of the marketing campaign, Coca-Cola won Advertiser of the year and Campaign of the year 2003. (Kaul, 2004)

Swot analysis of Coca-Cola Company:

Strengths:

The brand image of coca-cola is very strong around the world and have a strong brand portfolio. Cola-cola brand value was increased by 2% from 2007 to 2008 and it is $66,667 million. Coca-Cola owned top five brands of soft drinks market around the world. Strong brand image allows the company to introduce new flavours in the market like vanilla coke, cherry coke and coke with lemon. The company’s strong brand image facilitates customers recall and allows company to penetrate new markets while holding the old ones. Coca-cola Company offers more than 3000 products across the world. Coca-cola Company is running business in more than 200 countries in the world which provide it a strong global image. Due to the strong business model across the world company is able to generate significant cash flows up to $50 million a day. (Data Monitors, 2009)

Weakness:

Pension assets effect the company liquidity position of the company due to financial market volatility. Coca-cola Company is very mature having significantly more pensioners than active participating members. (Data Monitors, 2009)

Opportunity:

Globally the non alcoholic ready to drink market is increasing by 6% every year for the next 12 years. (Data monitors, 2009). This project growth is due to the increase in middle-class consumers and fast growing urban societies expected to form in the future. The company can capture this growth with innovative new products with old products. (Data Monitors, 2009)

Threats:

Coca-Cola Company is largely dependent on the bottling partners across the world. Approximately 78% of its worldwide production was produced and distributed by its bolting partners in 2008. Due to independent bottling partner companies make their own business decision that may not always align with Cola-Cola Company interest. Many of its bottling partners have a right to manufacture or distribute certain products of other beverage companies. In soft drink market there is intense competition and one of the major global competitors of Coca-Cola Company is PepsiCo. Competitive factors impacting company’s business include advertising, product innovation, sales promotion programs, brand and trademark development and pricing. Decline in the market share of the home country which means the consumers have started to look for greater variety in their drinks and are becoming health conscious. Other major threat for the soft drink companies is reducing level of water for which the government and WHO is forcing the companies to reduce the level of water used in manufacturing the products. (Data Monitors, 2009)

Competitor Analysis:

The one of the major competitor in India and in global market is Pepsi. Pepsi entered in the India market in 1980’s through joint venture. As early as 1985, Pepsi tried to gain entry into India and finally succeeded with Pepsi foods limited project in 1988 as a joint venture of PepsiCo, Punjab government owned Punjab agro industrial corporation (PAIC) and Voltas India limited (Singh, 1997). Pepsi was marketed and sold to Lehar Pepsi until 1991 when the use of foreign brands was allowed under the new economic policy and Pepsi ultimately bought out its partners becoming a fully owned subsidiary and ending the joint venture relationship in 1994. While the joint venture was only marginally successful in its own right, it allowed Pepsi to gain precious early experience with the Indian market and also served as an introduction of the Pepsi brand to the Indian market and also served as an introduction of the Pepsi brand to the Indian consumer such that it was well poised to reap the benefits when liberalization came (Kaul, 2004).

SWOT analysis of PEPSICO:

Strengths:

The PepsiCo brand is figured at the 27th position in the top 100 global brand rankings of Business Week. The brand value of PepsiCo is $13,249 million in 2008. PepsiCo owns 18 mega brands which are recognise globally and generate annual sales of $1 billion each. In some countries PepsiCo is allowed to manufacture, sell and distribute soft drink products other than PepsiCo, including Dr Pepper and Squirt. PepsiCo have a strong manufacturing and distribution channel having 591 facilities till the end of 2008 and half of it is in USA and Canada. (Data Monitors, 2008)

Weakness:

The company operates 74.4% of its revenue from its home country USA and the USA market for soft drinks is decreasing. The net profit margin of the company is reduced by 3.9% as compare for the last year. The weak operational growth of the company will affect its future growth plan and can affect the investor confidence. (Data Monitors, 2008)

Opportunities:

Bottled water is one the fastest growing market globally. PepsiCo has the leading manufacturer and distributor in this market and can capture more market by developing new brands and making better the existing ones. PepsiCo made significant acquisition including two of the other Pepsi bottlers in which one is the eight largest Pepsi bottler in the Pepsi Bottling Group from which they are reducing the partner’s power slowly. (Data Monitors, 2008)

Threats:

PepsiCo is facing problem in the home country from where the company is generating the maximum revenue. The consumers are becoming more health conscious. The company is facing intense competition from its competitors mainly the Coca-Cola Company which is one of the major competitors globally. Competitive factors impacting company’s business include advertising, product innovation, sales promotion programs, brand and trademark development and pricing. There are new laws from government and World Health Organisation(WHO) to reduce the usage for water in the manufacturing and for labelling, employment, and recycling and product safety.

Conclusion:

By using the IR framework tool it is evident that Coca-Cola is a global company and doing business in more than 200 countries with a global strategy and a local response. It entered in Indian market due to saturation in the home country market and the growing economies of India. Coca-Cola Company entered the Indian market by acquisition entry method by acquiring Local soft drinks brand like Thumsup, Limca from which gain knowledge about the country soft drink market. The company captured the Indian market majorly through marketing and targeting the rural market which contains the 96% of the population. The company use three ‘A’ strategy to be to gain more market share. In Indian market Coca-Cola have 46 bottling plants some of them is owned and others are in partnership from which they share the risk, 1.3 million retailers and over 7000 distributors which gives the company a strong base.

References

Business Credit (2006), “India tops annual list of most attractive countries for international retail expansion”, Business Credit, Vol. 107 No. 7, p. 72.

Choi, A. (2006), “Eyeing India’s riches: as barriers come down, luxury brands go slow”, WWD, March 13.

“Broken commitments: The case of Pepsi in India.” Kavaljit Singh, PIRG Update, May 1997.

Interview with Nymph Kaul, 9/20/04

Halepete, J., Iyer, S., and Park, C., S., 2008. Wal-Mart in India: a success or failure: International Journal of Retail and Distribution Management, 36(9), pp.701-713

Zhang, M., 2010, International Business Management, Nottingham, Nottingham Trent University

Kaul, Nymph. Rai University, “Coca-Cola India.”

Keller, Kevin Lane. Strategic Brand Management. Prentice Hall, 1998

Svensson, G., 2001 ‘Glocalization of business activities: a glocal strategy’ management decision 39/1 pp. 6-18.

Kaul, Nymph. Interview of Sanjiv Gupta, President and CEO of Coca-Cola India, June 2004.

Gupta, A. K., Govindarajan, V., & Malhotra, A. (1999). FEEDBACK-SEEKING BEHAVIOR WITHIN MULTINATIONAL CORPORATIONS. Strategic Management Journal , 205-222.

Rugman, A. M., Collinson, S and Hodgetts, R. M. (2006). International Business. Financial Times Management; 4th Revised edition edition

Bartlett, C., S. Ghoshal, and P. Beamish. 2008. Transnational Management. New York: McGraw-Hill Irwin.