Assignment:

Select a multi-national company of your choice and conduct and in-depth analysis using
the country diamond for
your company’s international expansion.

i.e., the company of your choice entering a foreign country.

Coca-Cola Company

International strategy of Coca-Cola Company

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 organization. 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 organization to move from domestic
market or home market to international market, especially for those organizations 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 an 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).

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 organization looks for the opportunity to expand their business across borders, and finding
the appropriate entry mode is an intricate task for international business. Different organization
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 methods of entering and sharing of ownership between two or
more firms. The percentage of the ownership varies according to the organizations. 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 organization 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:

(Zhang, 2010)
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 Hale Pete,
2008). The Coca-Cola Company is mentioned as a global company with global products and
global activities. In 1980 the company was moving towards centralized control. At that time the
motive of the company is 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. Globalization 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 (Svenson, 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 favor 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 analyses 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 Lima 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 standardization strategy to produce and
sell its standardized 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)