Changing Business Environment of Coca-Cola over the Past Five Years

Summary

The objective of this research is to study and evaluate the changing business environment of Coca-Cola over the past 5 years. To understand what business environment is one should have a clear idea initially about business. Business can be referred to as an economic act performed by an organization to attain its goals regarding profit, production etc. Any company would be affected by the environment surrounding it. PankajMehra (2008) defined Business Environment as “The set of external factors such as the economic factors, socio-cultural factors, government and legal factors, demographic factors, geophysical factors, which are uncontrollable in nature and effects the business decisions of a firm or company.” The research thus conducts a PEST analysis of Coca-Cola as well as identifies the environmental and ethical factor affecting the company. After the analysis, suggestions were given that would help the company to cope up with the challenges and changes that is being faced in the current business scenario.

PankajMehra, Aspects of Business Environment, 2008, Omega Publications

INTRODUCTION

During the recent years, there has been a tremendous increase in the number of people who are interested in ‘Business’. This was triggered by the flourishing of Far Eastern economies and especially the progress of China. So it is quite important for students to have an idea about business environment so that they can easily understand how business decisions are made and what the impact of each decision is. Generally business environment is divided into two- Micro environment and Macro environment. Another way is to categorize business environment into General and Specific environments. However there exists only minimal difference between these categorizations. There is another approach which views an organization as open system. This is referred to as Systems Model of organization and its environment.

Thus business of an organization is thus influenced by a number of external factors which include political, social, and technological and many more. Hence every organization is keenly observing these dynamic forces in order to equip themselves against contingencies. There are a number of methods that help an organization to analyze its surrounding environment. This includes SWOT, PEST, SLEPT etc. PEST analysis has been used in this study and also the ethical and environmental factors are identified.

This report looks at the Multi-national beverage company Coca-Cola, the world’s most recognized brand. Coca-Cola is a multinational company operating in almost 200 countries or territories. It is a beverage company and is into the production and distribution of non-alcoholic drinks. The main brand of the company is the aerated drink Coca-Cola or Coke. The company at present owns more than 400 brands across seven continents. Due to this fact, the company is likely to be affected by the fluctuations in the business environment, globally as well as on each country. The company hence introduces innovative strategies and takes business decisions in order to cope up with the turbulent environment.

http://en.wikipedia.org/wiki/The_Coca-Cola_Company

John Kew, John Stredwick, (2005), Business environment: managing in a strategic context, CIPD Publishing

ORGANIZATION DESCRIPTION AND BACKGROUND

SOME FACTS

Founded: 1886

Headquarters: Atlanta, Georgia, USA

Chairman and CEO: Muhtar Kent

Revenue: USD 31.0 Billion (FY 2009)

Employees: 92,400 (Oct 2009)

Operations: 200 Countries

http://en.wikipedia.org/wiki/The_Coca-Cola_Company

CORPORATE VISION & MISSION

Vision

People: Be a great place to work where people are inspired to be the best they can be.

Portfolio: Bring to the world a portfolio of quality beverage brands that anticipate and satisfy people’s desires and needs.

Partners: Nurture a winning network of customers and suppliers, together we create mutual, enduring value.

Planet: Be a responsible citizen that makes a difference by helping build and support sustainable communities.

Profit: Maximize long-term return to shareowners while being mindful of our overall responsibilities.

Productivity: Be a highly effective, lean and fast-moving organization

Mission

To refresh the world…

To inspire moments of optimism and happiness…

To create value and make a difference.

http://www.thecoca-colacompany.com/ourcompany/mission_vision_values.html

DESCRIPTION

The journey of Coca-Cola started when the syrup of Coca-Cola was mixed with soda. It was done in a pharmacy in Atlanta, USA. Even today, the company I headquartered in Atlanta. Thus the company began as a soda fountain beverage selling firm. It sold a glass of drink for five cents. The initial progress of the company was quite remarkable, but only when a solid and strong bottling system developed could it emerge as one of the largest corporations as of today.

Coca-Cola functions as a franchised distribution system. Thus the company only produces the syrup and it is then sold off to thousands of bottlers around the world. As per the annual report of 2005, the company operates in more than 200 countries. The beverages which bear the trademarks or licenses of Coca-Cola account to almost 1.5 billion. It was declared that Coca-Cola became the first brand in United Kingdom to cross £1 billion in yearly grocery sales in the year 2010.

Coca-Cola today is the world’s most popular brand. The annual company report of 2006 stated that the second most recognized expression in the world after ‘OK’ is Coca-Cola. The strength of the company lies in it branding. Coca-Cola’s branding strategy lies on three A’s- availability, acceptability and affordability. The company competes not only to every carbonated or soft drink available in the world but even considers water as its competitor. For it, every product that has a share in human liquid consumption is its rival.

At present Coca-Cola serves almost one billion servings per day. That means every second 12500 bottles are being consumed. The company was able to achieve this only because they made use of the most finest and innovative technologies available. During these 125 years of existence, the company has gone through different strategic paradigm shifts that involve financial re-engineering to debts on offload bottling and from product expansion to progress through distribution.

http://en.wikipedia.org/wiki/The_Coca-Cola_Company

Brand Spotlight: Coca-Cola

http://www.thecoca-colacompany.com/ourcompany/historybottling.html

http://www.scribd.com/doc/14306067/Coca-Cola

Business Environment

The business environment of an organization is situational. That means every organization have a unique environment of its own. Due to this fact, the external factors influencing the company would also be different. The systems model of an organization and its environment views the organization as an open system. This model advocates that there are two ways in which an organization communicates with its environment. It acquires inputs/ resources from the environment, transforms it into finished product/services and distributes the outputs back. These outputs are meant to meet the needs of customers (Figure 1.1).

Environment Organization Environment

Money

Machinery

People

Technology

Materials

Conversion

Goods

Services

Information

Waste

Figure 1.1: Systems Model

John Kew, John Stredwick, (2005), Business environment: managing in a strategic context, CIPD Publishing

Analyzing the environment

It is not a difficult task for the organization to analyze the task environment as they will have good knowledge about their customers, suppliers etc. But analyzing the general environment is more complex. The different factors in the general environment will have to be first identified.

One of the most popular tools for analysis is PEST. This method segregates the environment into four components:

Political/legal

Economic

Socio-cultural

Technological

PEST analysis was later modified into PESTLE analysis. This was done by splitting the political and legal factors as well as by adding a new factor i.e. environment. The major reason behind this addition was the increasing concern over global warming and other ecological issues.

By the year 2000, another method was introduced which was named STEEPLE. This method have a new factor i.e. ethics. This factor was added due to the growing awareness about corporate social responsibility and business ethics.

John Kew, John Stredwick, (2005), Business environment: managing in a strategic context, CIPD Publishing

Analysis of the environment of Coca-Cola

Social Factors:

Over the past 5 years the numbers of people who are conscious about their health have increased exponentially. This is especially true in USA where more and more people are practicing healthier lifestyles. Researches indicate that soda and other sweetened drinks are the chief calorie sources in the diet of an American. Due to this fact, doctors and nutritionists advice people to reduce the daily consumption of drinks like Coca-Cola since they can be harmful to their health. In USA, drinks like Coca-Cola and Pepsi were found to be the main reason for obesity among young children and women. Studies have also revealed that regular intake of Coke and the like products reduce the absorption of minerals like Calcium, Magnesium, Ascorbic acid, Riboflavin and Vitamin A. Thus the company is facing a setback from the home country itself. In 2005, many lawyers and environmentalists charged a lawsuit against Coca-Cola and other soft drinks industry for excessive selling of their brands in schools.

Coca-Cola also faced much resistance from the Eastern countries where there was a high consumption of tea and other milk fermented drinks. So the company in 2010 introduced a new drink named Sprite Tea which was a mix of sprite and tea. Before that in 2008, it launched a tea brand named Yuang Ye and Jackie Chan was the brand ambassador of the product. This was launched in China and other eastern countries. In 2004, the company also launched a wellness drink in Japan for women.

Apart from that there are number of social ventures into which the company is into. It is providing resources like books and scholarships to needy children. Apart from that it has introduced a program in Pakistan that is into providing basic education to children. In 2004, the company donated €50,000 to SOS Kinderdorf, a children’s charity organization in Austria. A sum of 1 million USD was also donated for awareness against HIV/AIDS in 2007.

www.thecoca-colacompany.com/…/10…/Coca-Cola_10-K_Item_01a&b.pdf

http://www.virtualvender.coca-cola.com/ft/index.jsp

www.thecoca-colacompany.com/…/eu_business_social_review2005.pdf

www.thecoca-colacompany.com/…/2007-2008_sustainability_review.pdf

http://blog.7xpub.com/2010/02/heaven-earth.html

http://www.docshare.com/doc/8487/An-Analysis-of-The-Coca-Cola-Companys-Markets

Technological Factors

Coca-Cola is always a pioneer institution in bringing out innovative technologies.

In 2007, it came up with a new technology that would help customers to have ice-chilled coke wherever they want. This technology will work in such a way that when the cap of the bottle is opened, the mechanism inside will make ice out of the drink inside. The company also introduced this technology in 2008 with a new product called Sprite Super Chilled.

In the same year, the company announced to use coolers and vending machines free of HFC in the venues of 2008 Olympic Games to show its commitment towards environment protection. The company developed this technology together with Green Peace.

In the year 2009, the company introduced another technology into their vending machines. These Freestyle machines will be having touch screens and the customer can mix up to a variety of 100 drinks at a single time. Popsci.com has named this as the “Most Advanced Soda Fountain Ever”.

In 2009 itself the company introduced bottles which are partially made from plants and hence can be recycled completely. This bottle also has a reduced carbon emission when compared with ordinary plastic bottles.

The company has also introduced innovative technologies in the entertainment field. In 2006, the company installed Dhoom 2-Juke boxes in and around Delhi (India). A limited series of Coke bottles were then brought into the market whose labels contained specific codes. When these labels are swiped into the Juke boxes, the customers could see the exclusive visuals of Dhoom 2 movie.

http://www.techdigest.tv/2007/09/new_technology_1.html

http://www.associatedcontent.com/article/1973430/cocacola_meets_technology_touch_screen.html

www.greenpeace.org/…/en/news/…/coca-cola-to-champion-our-cool/

http://www.greentechnolog.com/2009/09/cocacolas_new_plant_bottle.html

http://www.coca-colaindia.com/media/media_news_releases_detail.aspx?id=189

Economic Factors:

The company went through a major economic phase in the past five years.

The income tax payment has increased from 1.5 billion USD in 2006 to 1.9 billion USD in 2007. But the capital expenditures have also increased from 1.4 billion USD in 2006 to 2 billion USD in 2008. Still the company managed to have revenue of 31.9 billion USD in 2008.

The above graph shows the fluctuations in the stock prices of Coke from September 2009 to February 2010.

In 2008, the world faced the global economic crunch and this naturally had an impact on the company. The main reason for this was that 75% of company’s sales is derived outside of North America.

But, reports revealed that the company was not much affected by the economic downturn. The first quarterly results of 2009 showed that the sales have increased by 2 percent in USA and by 3 percent around the world. This was because the company positioned it well in the international markets.

The company also had a remarkable increase in business in India. In 2009, the company’s business increased by 31 percent in this country despite the various environmental protests against it. But the final quarter results of 2009 showed a decrease of 18 percent in the company’s profit worldwide.

In 2010, the company registered revenue of 7.53 billion US dollars in the first quarter. This shows that the company expects to have a bright year ahead.

http://www.theepochtimes.com/n2/content/view/16128/

http://www.msnbc.msn.com/id/29161172/

http://www.wikinvest.com/stock/Coca-Cola_Company_(KO)

http://equityclock.com/pictures/CocaColaEnterprisesInc.TechnicalAnalysis_3A38/image_thumb_3.png

Environmental Factors:

The company has been accused of a number of environmental issues around the world.

In India, Coca-Cola has been nicknamed even as ‘Killer Coke’ in certain areas. It was feared that Coke contains hazardous levels of pesticides that could cause numerous health issues. A study conducted by Centre for Science and Environment (CSE), New Delhi, revealed that Coke and Pepsi contains toxins like lindane, DDT, malathion etc. These pesticides if consumed could even result in Cancer or irreparable damage to immune system. CSE also found that the Coke that is sold in India contained 30 times the permitted level of pesticide residues as per European Union regulations.

1n 2005, the Kerala State government banned the production and selling of Coke but it was overturned by the state high court in the same year itself.

The company was also blamed for over use of water resources and thus depleting the ground water table. The 16$ bottling plant in Kerala was shut down in 2004 due to severe decay in both quantity and quality of water in the surrounding areas. The plant there uses almost 900,000 litres of water every year for its purposes. According to the renowned environmentalist Vandana Shiva, it takes almost 9 litres of water to produce one litre of Coca-Cola. In the holy city of Varanasi, India, the Coca-Cola plant near the Ganges has been accused for emitting waste water which contained toxins into the river. The packaging of the bottles has also been a cause of concern to the public and alleges to have serious environment impact. The company still claims to be environmental friendly in all its ventures. The Coca-Cola environmental foundation is said to be actively participating in environment issues like waste management, recycling etc.

http://en.wikipedia.org/wiki/Criticism_of_Coca-Cola

http://www.thecoca-colacompany.com/citizenship/foundation_local.html

http://en.wikipedia.org/wiki/File:CocaColaIndia.gif

Political Factors:

As far as the political factors are concerned, they affect the company in meager way. It is because the governmental activity which is the major part of political environment has a little impact over the company.

Over the recent years the company met with a lot of protests in India and Middle East. Still it was able to outrival PepsiCo by a small percent. In the last century there have been issues in Israel regarding the construction of a plant over there. The company was accused of boycotting Israel in order to appease the Arab League. These still had an impact over the market of Middle East.

The environmental laws have some impact over Coke and other companies operating in the same industry. Over the past two years, the government of India has introduced some modifications to the existing laws that are likely to affect Coke. But the company is introducing changes in the plants as well as implementing proper wastage handling system and this would reduce the impact of these laws.

Tax system in India is a little complicated because it involves a variety of regulations. The license needs to be updated every time the production capacity is increased. This can pose certain problems to the company.

http://en.wikipedia.org/wiki/The_Coca-Cola_Company

Ethical factors:

The Coca-Cola Company has been involved into a number of ethical issues over the past. The major controversies include those like violation of human rights and following unethical business practices. The company has been charged of monopolistic and other discriminatory practices which affected its goodwill.

In 2005, the European Union found that the company’s business methods suppressed competition and hence the company had to end its dealings with bars and shops for stocking its drinks. In the same year itself, Coca-Cola Export Corporation was charged a fine of 68 million dollars for unfair commercial practices.

In the early 2000s the company was also criticized for racial discrimination in its US offices and had to pay a hefty fine of 192.5 million dollars.

The company is also involved in a number of cases related to environmental degradation, ground water depletion, overuse of pesticides etc. in India. This had affected the reputation of Coca-Cola in India in a major way.

http://www.thecoca-colacompany.com/citizenship/foundation_local.html

http://en.wikipedia.org/wiki/Criticism_of_Coca-Cola

Conclusion

To summarize it can be said that Coca-Cola Company has gone through a number of challenging situations in the past five years. The major challenge was the protests from the environmentalists for exploiting the resources. The company has tackled this issue to an extend by agreeing to the demands of the protesters and the governments. But it should put in more effort to get back the reputation it had in third world countries. Innovative technologies that are eco-friendly must be introduced.

The company is now into more and more green initiatives which are a very positive sign. If such efforts continue, it would undoubtedly be the most reputed and recognized brand in the world.

Recommendations

In this current dynamic world scenario, it’s always best if the organization is well informed about the changes that are being taken place in its business environment. By this way the company can foresee the trends and come up with new strategies to cope up with them. It is recommended that Coca-Cola Company gives importance to some factors. These include:

Introduce new programs aimed at public welfare and thus show their true concern for the society. Through this way try to be a model for other companies in following CSR activities.

Follow the environmental regulations and norms properly. Make the public aware that the company has and is following strict environmental ethics.

New technologies that produce superior quality products and that do not affect the environment must be invented.

Understanding the exact needs of customers and try to find solutions to them in a harmless way.

References

Bibliography

PankajMehra, Aspects of Business Environment, 2008, Omega Publications

John Kew, John Stredwick, (2005), Business environment: managing in a strategic context, CIPD Publishing