The Coca Cola Company: Changes and Challenges
The main objective of this work is to provide necessary knowledge about the business environment. To elaborate the demographic, cultural, political, social, environmental, technological, economical and legal environment where business functions. It also seeks to explain the relationship among business, environment and society; as well as how to adopt to the changing environment in the organisation. This paper will analyse the changes and challenges within the Coca Cola Company in last five years, and look into how the company deals with them.
Environment means the influences, circumstances, constraints and opportunities that surround and affect a business organisation. There are two kinds of environment: micro environmental factors and macro environmental factors. Internal factors close to the organisation is the micro environment. These can be controlled by the organisation. Micro environmental factor affect the company's decision making process and performance. These factors include consumers, suppliers, and competitors. On the other hand, the external factors which affect an organisation's plans and strategies are part of the macro environment. These are uncontrolled by the business organisation and include political, economic, technological, social, environmental and legal factors. New laws, demography changes, tax changes and government policy changes are all examples of a macro change. The successful management must be capable of adapting to the new environment. It is important for an organisation to know about the business environment it helps the business to develop strategies and long term policies, knowing about the changing environment will keep the organisation dynamic in its approach. (Saikh 2006).
It is important for an organisation to analyse the business environment and the changes in different factors of environment; such as the changes in the technological environment and the economical environment. In the decision making process, organisations analyse various alternatives and choose the best one. It gives information to decision makers. It helps an organisation to develop strategies and policies. Having an understanding about the changing environment can help to diversify the business in a new area and keep the company dynamic (Jain et al, 2009). In addition, changes in the business environment can impact on the organisation by making effective use of PESTEL. The business organisation can take advantage of the changing environment and make strategic plans for threats. PESTEL analysis is the most popular method which focuses on the external factors affecting a business. It is a beneficial tool for understanding the growth and decline of the market, direction for the operations, opportunities; and business position. SWOT analysis is a tool that recognises the strengths, weakness, opportunities and threats of a business organisation. This analysis answers the two questions: ”where is organisation at present?' and 'in what direction is the organisation going?'. SWOT analysis is important for a business organisation because it can help the business to succeed if it is incorporated into the planning process.
Organisation description and background:
The Coca Cola Company is the most valuable brand name and the world's largest non alcoholic beverage company. Founded in 1886 in United States of America, it now operates in more than 200 countries. Coca Cola also distributes juice, energy drinks, water and coffee. The company has partnerships with more than 300 bottling and canning companies that produce and sell Coca Cola beverages worldwide. The bottling partners are responsible for consumer brand and marketing initiatives, and handle the manufacturing and merchandising.
John Pemberrtion invented the original recipe of Cocawine. This was inspired by Vin Mariani, a popular Cocawine invented by Angelo Mariani. Pemberton developed Coca Cola which was a non alcoholic version of Cocawine. When Pemberton was making drinks for his friend he accidently added carbonated water. His friend liked the taste and he adjusted the formula. In 1888, the company was sold into three companies. Calder purchased one company with exclusive rights to the Coca Cola formula from Woolfolk Walker, Margate Dozier and John Pemberton. In 1982, the company started marketing the product and achieved status of national icon for the USA by its 50th anniversary. Coca Cola started selling bottles in 1894 and cans in 1955. In 1899, the Coca Cola Company made their first bottling agreement with Chattanooga and Tennessee. In 1985, the company introduced new Coke by changing the original formula. Most consumers preferred the taste of the original Coca Cola. Many people stopped buying the product so the company has to revert back to its original formula.
Coca Cola business environment
In past years, the Coca Cola Company has faced lots of changes in the business environment. The company created counterparts with an American sweet taste product, however it was a commercial failure and the company had to change its strategy and return back to the old formula. As consumers became more health conscious the company lunched new products to address consumer needs, such as Diet Coke and Coca Cola Zero. Additionally, the company bought a bottling business in South Korea which allowed easier access in retail stores; as well as making it easier to enter in Japan, Malaysia and China.
China is now largest coke consumer in world. In 2007, Coca Cola output of coke in China was 3.6bn tons and it was exporting 15.3m tons. By the end of 2007 total production of coke in China was 360m tons. In addition, from 2008 to 2009 the company introduced a new plant with a capacity of 20 million tons. The target of China's coke industry is to export large quantities of production to countries such as India, Brazil, Belgium and Japan. In 2007, China exported to Japan 22% of its total production. This shows development and positive change in the environment of the coke industry in China. (China daily, newspaper website)
As Coca Cola is as a seller of non alcoholic beverages, it is bound by law under the FDA (Food and Drugs Administration) act. The government has the power to set fines against the company when they don't meet the standard law requirements. These charges in laws and regulations, such as taxation requirements, environmental laws and foreign jurisdictions can affect their entry into foreign land. The changes in a non alcoholic beverage business company might get pricing pressures, competitive products and constraints in the ability to maintain their share in the global market. In the international market if the government change frequently then the company might be restricted from transferring funds between one country and another. However the Coca Cola Company are following the rules and regulations set by the government. In the last two years the government have become so conscious about the environment. Company adjustments in plans such proper ways of disposing wastage reduce the chance of being in breach of the law, Political conditions are overall leaving natural effects on the Coca Cola industry. It's impact is good for the coke's reputation.
Economic analysis explores national and world economy impact as well as inflation and recession. Economic factors are those factors that affect the production and sales of the company. If the economy condition is not good at that time coke decide to increase its price it would impact very negative in the production of coke. The non alcoholic beverage industry has high sales outside of the USA. There have been improvement in soft drink companies in major international markets like Brazil, Germany and Japan. These markets play a great role in the growth of non the alcoholic industry.
In the country Pakistan, where the unemployment rate is very much high, the Coca Cola company employs 1800 people. During the last two years, the company in Pakistan has involved $130 million. If the economic variables are positive then it impacts good on the country, otherwise the impact is bad.
Many people are leading healthier lifestyles. Change in lifestyle, population growth rate and carrier attitudes affect the non alcoholic industry. Many people like to have a bottle of water and cola instead of beer. The need of healthy products, bottled water, and juice is more important in the daily life.
Consumers from the age of 37 to 55 are more concerned with nutrition. Older age people are becoming more concerned with increasing their long life. This kind of social trend can affect the demand of non alcoholic beverage industry. An increase in awareness among consumer and modern life style might be a challenge to the Coca Cola company. However, the company recognised the consumer's needs and began to produce Diet Coke, light beverage, juice and sport drinks. Many nutritionists advise that maximum consumption of Coca Cola might be harmful to health especially to young children. Drinking of Coca Cola daily can have an affect on health after a few years.
The technology of television and internet can affect a companie's advertising, marketing and promotional programs. If the media advertise a product attractively then it helps to increase sales of the product. Introduction of plastic bottles and cans have increased the sales of Coca Cola. It is easy to use and bin them. The advancement in technology led to the company creating new products like Cherry Coke in 1985, but the consumer prefers the original taste of Coca Cola so sometimes technology can affect sales badly.
The Coca Cola Company introduces new technology all of the time. Due to the introduction of the machine; the company's production level increased tremendously. Ardagh glass is the latest technological achievement by the Coke Company which is environmentally friendly bottle. It has won several awards for its light weight.
Coca Cola focused on energy management, water stewardship and climate protection. The company made progress in these areas but the company had lot of things to do. In 2007, the company used approximately 300bn litres of water to produce the beverage coke, and is among the world's largest purchasers of fructose corn syrup, sugar, coffee and citrus. It has the largest consumers of cans and bottles. At the same time company announced to return to communities and nature. The company has three objective 1. Recycle the water so it can be return safely to the environment. 2. Reduce the water consumption level in manufacturing process. 3. Refill the water in communities through a global network of local partnership.
While the Coca Cola Company came up with advanced recycling programs thecompany decided through education they can prevent Litter. Company support help keep Australia beautiful in Australia, keep America beautiful in USA and tidy Britain group in Britain. Weather and changes in temperature can affect many industries such as coke. The company also invested in fashionable outfits which are made by recycling polyethylene terephthalate bottles.
Laws and political changes affect a firm's behaviour. An increase in the minimum wage of labour and more requirements for firms can influence organisational productivity. Sometimes change in laws also create new opportunities for the company. There are some legal issues that Coca Cola Company have faced in recent years. In 1970, the Coca Cola company refused to share its formula with India, therefore the company stopped importing the product locally for 16 years. EU-member countries banned Coca Cola due to the poisoning of 100 children in Belgium (the cause seemed to be the wrong carbon dioxide which was used in Coca Cola). In 2003, non government organisations in India said Coca Cola contained toxins such as lindane and malathion that may cause a breakdown of the immune system and cancer. In India (kerala), the production of coke along with other soft drinks was banded.
Changes and Challenges:
The non alcoholic industry is competitive. A company should carefully consider the below factors which affect financial condition and its future results.
Awareness may reduce demand of coke:
Government officials and consumers are more concerned and aware about health. Many press reports indicate that lawyers and consumer advocates have threatened the company. Furthermore, people are aware of the misleading exercise related contracts to sell soft drink in school. Consumers are more aware about these issues and negative publicity in the media may reduce the sales of carbonated beverage.
Increase in competition:
The non alcoholic beverage industry is highly competitive. Coke have to compete with international companies. In many countries where coke operates; including USA, Pepsi is a primary competitor in the market. Coke's capability to maintain the sales of share or get profit in the global market or various local markets may be limited because of competitors.
Water scarcity and poor quality:
Water is a main ingredient for the Coca Cola Company. Many parts of the world it is also of limited resources. The company consumes huge amounts of water per year. Demand of water increase around the world and quality of available water decline this will increase the production cost of the company and affect on profit.
Change in non alcoholic beverages business environment:
The business of non alcoholic beverage has been changing because of the consumer's life styles, emerging views of health and nutrition, changing consumer needs and preferences, increase in similar products and price factors. Furthermore, the beverage industry is being affected by the intermediates, especially in USA and European countries. If the Coca Cola Company is not able to change along with the changing business environment it will effect on company's profit and sales of share.
Increasing in cost of energy:
The Coca Cola Company's bottling partners operate huge numbers of trucks and other vehicles as well as using large quantities of electricity, gas and other energy sources to function the bottling company. Day by day the price of fuel is increasing and will increase the production cost of Coca Cola company. So it will affect the company's profit.
Weather influences the sales of Coca Cola. In the summer, more people prefer cold drinks such as juice and sprite however, in winter the demand of product decreases. In some parts of world where most of month's temperature is always high consumption of Coca Cola is at its maximum.
Change is important, long-lasting and disruptive:
Changes in the company create some opportunities as well as challenges in a new areas of business. Such as launching a fresh product in the market, the company might encounter an economic crisis and change the direction of the organisation.
Change is a continuous process of adjustment:
Change in plans, strategies and operations are important for a company. Furthermore, sharing these changes to managers, supervisors and all level employees make it able for them to adjust properly and face the changing environment. Moreover, change is an essential phase in the business world, mainly in technology. Use of different technologies in the Coca Cola Company reduces the operation cost and increases the profit of the company. There are so many situations where the company need to change, such as advancements in technology that is being used by other similar companies to compete with them, the company should adopt these too.
In 2007 Coca Cola modified their product due to people being more concerned about health and fitness. Many people are investing more money in their health, in order to cope with that trend coke launch their new product named Enviga, which is calorie- burning drink. In addition, the Coca Cola Company tied up with Nestle. Both companies are dealing with innovation and change. In the same year, the company changed in organisational structure to fulfil the demand and need of the consumers through assimilating with North American can, bottle and juice companies.
The Coca Cola Company keeps on refreshing its touches. The company has multiple approaches to cultural gratitude and understanding, this is a main key factor in being able to introduce its product worldwide. The company entry and development in international markets will be faster. Coke's commitment to remain a changing environment proved that they are the superior among other non alcoholic products. Awareness of environmental issues and health care might impact on the sales of the company however; creative ideas and strategy also help to grow the business. Coke has developed the entire vital component to expand their business in long term.
A reward system is an effective technique to motivate employees in the changing environment of the organisation. The Coca Cola Company should apply a reward system to its employees so that it will increase in productivity and sales. Reward system can be financial or non financial nevertheless, company have to give fair importance to all level employees. Reward system of coke must be functional to make employees devoted to the organisational goals. In addition, a training and development programme must be used to improve careers of their employees at top to bottom level. The Coca Cola Company has to declare some amount of money for training and development purpose. Monthly training sessions raise the productivity of the organisation.
Relationships with consumers are vital for the Coke Company in some countries where business is controlled by the authorities. In these countries there is a lack of consumer relationship which needs to be improved. Coke also need to market segmentation in new countries where the company is planning to introduce the product because the consumer's taste may be different from another country. By doing market segmentation the company can serve effectively its consumers. Demographic factors should be considered by the Coca Cola Company. Culture, tradition and characteristics of a consumer in new country might be different; it gives information to the company to change certain plans. There are some factors such as climate, taste and culture that affect the company directly or indirectly so individual companies need to apply their own strategy and management style to increase the sales of Coca Cola. 'Dividing a market in to direct groups of buyers who might require separate marketing mixes; the process of classifying consumers into groups with different needs, characteristics and behaviour' (Kotler, 2001).
Sheikh, S (2006) 'Business environment' Press Sanat Printers New Delhi.
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China Daily (2009-07) 'China Daily' Available at: www.chinadaily.com.cn/business/200907/13/content_8420666.htm
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