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A multinational enterprise (MNE) or multinational corporation (MNC) is a company that has headquarters in one country but has operations in other countries. Dunning (1993 cited in Wall, S. Minocha, S. & Rees, B., 2010), defines a multinational as a firm that engages in foreign direct investment (FDI) and owns or controls value-adding activities in more than one country. Table 1 below shows the top ten multinationals according to the value of foreign assets they control.
Table 1: World’s top ten multinationals ranked by foreign assets
Electrical and Electrical Equipment
Ford Motor Company
Vodafone Group plc
Electricite de France
Electricity, Gas and Water
Source: Wall, S. Minocha, S. & Rees, B., 2010, p29
1.2 Is Coca-Cola Company A Multinational Enterprise?
The Coca-Cola Company indeed is an MNE because it operates a headquarters in Atlanta, Georgia with other local operations in nearly 200 countries around the world. Coke succeeded as a multinational because of its understanding and appeal to global commonalities (Rugman, A. M. & Collinson, S., 2006). The firm has implements three principles that are assigned to make it more locally responsive, the three principles are:
Table 2: Coca-Cola’s three principles
Operates on a local scale
The company modifies its operations to meet local need and institutes a strategy of “think local, act local”.
It focuses itself as a pure marketing company and pushing its brands on a regional basis and local basis rather than a worldwide basis.
Integrates with local environment
Coke is now working to become a model citizen by reaching out to local communities and getting involved in local activities
Source: Rugman, A. M. & Collinson, S., 2006
1.3 Background of The Coca-Cola Company
A carbonated beverage called Coca-cola or often referred as Coke is the world’s largest beverage company and the best-known brand in the world.
Coca-Cola Company has operated for 124 years since 1886. Coca-Cola was invented by a pharmacist in Atlanta, John Pemberton and he has become one of the global market leaders in the beverage industry (iloveindia.com). The Coca-Cola Company offers over 400 different brands in more than 200 countries worldwide (Reference for Business-Company History Index, 2010). Coca-Cola serve a wide range of beverages, including diets and light soft drinks, water, juice drinks, teas, coffees, sports drinks and energy drinks (The Coca-Cola Company-2004 environmental report). The operating global business was organized into five geographic Strategic Business Units: Africa; Asia; Europe, Eurasia and Middle East; Latin America; and North America (The Coca-Cola Company-2004 environmental report).
Coca-Cola has set a standard mission and vision as a roadmap to guides every aspect of the business in order to continue achieving sustainable and quality growth (The Coca-Cola Company, 2006-2010).
Table 3: Coca-Cola’s mission and vision
To refresh the world
To inspire moments of optimism and happiness
To create value and make a difference
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 to create mutual and 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 the company overall responsibilities.
Productivity: be a highly effective, lean and fast-moving organization.
Source: The Coca-Cola Company, 2006-2010.
The company uses logistics and value chain strategy to accomplish its mission and vision.
2.0 Logistics strategies
According to the Council of Supply Chain Management Professionals a professional organization for logistics and supply chain management (SCM) professionals, logistics is defined as:
“the process of planning, implementing and controlling the efficient, effective flow and storage of goods, services and related information from point of origin to point of consumption for the purpose of conforming to customer requirements”
Supply Chain Asia, 2006
Logistics plays a crucial role in getting the right amount of the right products to the right place at the right time and at the lowest possible cost to the customer (Rosenbloom, B., 2004). The activities include transportation, materials handling, inventory management and warehousing.
Transportation is the main component in logistics. Each mode of transportation is different in terms of its speed, reliability, cost, route flexibility and the products it can carry efficiently and effectively (Reference for Business-Encyclopedia of Business, 2010). Coca-Cola uses trucks as their primary delivery mode for their finished products in every country they operate because it has the greatest route flexibility, could deliver faster at a lower cost and can carry a wide range of products. The company has their own trucks which provide unique distribution that cannot meet by the common carries.
The type of distribution mode employed depends on the complexity of the market. For instance, the India market is complex. As such the distribution fleet include different distribution mode is required, from 10-tonne trucks to open-bay three wheelers that can navigate through narrow alleyways of Indian cities, such as tricycles and pushcarts (Hindustan Coca-Cola beverage private limited, 2007). In Uruguay, a small, efficient ZAP trucks for delivery in urban areas because large vehicles are challenging with parking shortage and traffic congestion (Marketwire, 2010).
2.0.2 Warehousing and material handling
Coca-Cola warehouses were built close to the retailers as a strategy to reduce transportation costs. Customers also can be served quickly from stock located in a nearby warehouse.
In the past, China warehouses usually designed were big but waste of space and low efficient (Logistics in China: Theory and Practice, n.d.). Large handling equipment such as forklifts are not popular in China because most managers think manpower as handling and it is cheaper. China lack of labour supply hence it will take a long way for the automation of material handling. (Logistics in China: Theory and Practice, n.d.) Nowadays, modern logistics center began to build in China. Warehouses were built with high racks, pallet and forklift system; distribution become much higher in efficiency (Logistics in China: Theory and Practice, n.d.).
Due to high pallet storage requirement and limited on-site space in Australia, a 32m tall high bay was designed and a crane fed automated storage and retrieval system was installed (Case Study-Coca-Cola Amatil, Australia, n.d.). The automate docks with an automated conveyor-driven delivery system used to perform all the loading and unloading, thereby eliminating safety issues associated with manual handling and enhanced material handling efficiency (ICA, n.d.).
2.0.3 Inventory control
Ideally, firms want to keep inventory at the lowest possible level and place orders for goods in large quantities. Placing the fewest possible orders enables the firm to minimize ordering costs. (Rosenbloom, B., 2004.) Companies make sure it has the right amount of inventory to meet customer requirements and avoid problems such as out-of-stock.
In China, lack of concept about inventory cost causes companies to keep inventory as much as possible to avoid short of supply. Coca-Cola in China try to avoid this situation by practicing just-in-time (JIT) inventory system as practiced by Great Plains Coca-Cola Bottling Company in North America; it successfully reduced the inventory costs and improved the efficiency of product distribution process. (Logistics in China: Theory and Practice, n.d.)
3.0 Value Chain Strategies
Value Chain is a series of activities whereby a company converts inputs to finished products by adding value at each stage. Coca-Cola used the concept of value chain analysis introduced by Michael Porter as a tool to analyze the sources of competitive advantage and to identify ways to create more customer value (Outsourcing direct, 2006).
Diagram 1: The Value Chain Framework
Source: Outsourcing direct, 2006
Diagram 2 shows the manufacturing process in the Coca-Cola Company which consists of suppliers, the coca-cola system and distribution.
Diagram 2: Coca-Cola’s manufacturing process
Source: 2008/2009 sustainability review.
3.1 Primary Activities
3.1.0 Inbound logistics
Inbound logistics are the beginning of Coca-Cola’s value adding inputs. All beverages are made of high-quality ingredient and it adds value to the products through enhanced taste and nutritional value. The majority of inputs for Coca-Cola products are from local suppliers because there are certain food ingredients are not allow in the country. For example, with implementation of the Canada-United States Free Trade Agreement, ingredient such as caffeine and saccharine is not allowed to ship across the Canada-United States border because of differences in ingredient regulations. (Strategic Analysis Of The Coca-Cola Company, 2007).
Operations are activities that transform inputs into finished products. An appropriate level of automation is on of the strategy taken to minimize costs in the operations. Coca-Cola in home country sent their expertise to other countries so that it meets the minimum standards. For instant, in the early 1980s, Coca-Cola was unable to locate any plant in China that produced glass bottles to the standards required by the company. So Coca-Cola’s headquarters in Atlanta sent a small team of glass technologists to China to improve the quality of the bottles with high technical levels. (Economic Impact of the Coca-Cola system on China, 2000)
All production plants frequently meet local regulatory requirements and undergo regular audits in the areas of quality control, environmental, health and safety practices (Coca-Cola Bottling Indonesia, 2004). To align with Food and Drug Administration (FDA) safety and quality requirement, quality control technicians checked and tested the water frequently to make sure the beverages are safe to drink. All bottles are washed, rinsed electronically, filled automatically and seal automatically to keep hygiene in every processes (Coca-Cola Bottling Indonesia, 2004).
Considering the environmental protection regulations, China restricts the volume of packaging material to save resources and decrease pollutions. Therefore, most of the packaging is returnable and is made from recycled materials. At the same time reduce the costs of packaging.
3.1.2 Outbound Logistics
Outbound logistics focus on managing the flow and distribution of finished products to consumer. The outbound logistic department performs an exceptional duty in Coca-Cola which includes effective shipping process to provide quick delivery and minimize damages, efficient finish goods warehousing processes, shipping of goods in large pallet to minimize transportation costs and quality material handling equipment to increase order picking (Strategic Analysis of The Coca-Cola Company, 2007).
In China, Coca-Cola handles distribution primarily through “direct store delivery (DSD)” as a strategy to increase inventory turns and to reduce operating expenses as products are delivery directly to retail store. Besides that, it often reaches consumers through local Chinese distributors, who have greater knowledge of wholesaling in China and deep familiarity with the localities (Economic Impact of the Coca-Cola system on China, 2000).
Furthermore, Coca-Cola tends to increase the fuel efficiency of the system’s fleet by using electric-powered trucks in Uruguay, powering delivery truck in Mexico and diesel-electric hybrid truck fleet in North America (The Coca-Cola Company, 2006-2010).
3.1.3 Marketing and sales
Marketing is vital in helping Coca-Cola to determine the competitive scope of its value adding activities (Strategic Analysis of The Coca-Cola Company, 2007). In the long term, cultivating local sales and marketing knowledge is a key success for any international business in foreign country where they operate (Economic Impact of the Coca-Cola system on China, 2000). ‘Think local, act local’, is the mantra that coca-cola follows. Consumer demand and characteristics is changing, thereby constantly re-evaluate is a strategy used to analyse how the distribution system will bring the brands to where consumers are able to make their purchases. In China, Coca-Cola has given the local mangers to control over the marketing and service operation who knows the company bottling system and the regional market so that products could be better tailored to the local tastes. For instant, the greatest opportunities for distribution of consumer goods may be in supermarket. However supermarkets in China are often far from consumers and not nearly important as they are in developed economies. Nevertheless, consumption in bars or restaurants are much faster than other channels. (Economic Impact of the Coca-Cola system on China, 2000)
Coca-Cola attempted to support local activities as strategy to succeed and increase sales. For example, Coca-Cola Japan’s new product I LOHAS was launch with an innovative campaign called CRUSH ECO that demonstrates how consumer choice can affect carbon footprint and increasing desire to help solve environmental issues (The Coca-Cola Company, 2006-2010).
Customer service is part of the value adding activities and Coca-Cola strive to improve their customer service. The integration between the local bottlers and delivery to customers is crucial to the company’s overall efficiency and keeping the customers satisfied (Coca-Cola Case Study, 2010). Therefore, an e-commerce system is taken into account of all the local bottlers in the world. Direct Store Delivery (DSD), full-service vending and equipment services are key components of bottlers operations in North America (Coca-Cola Case Study, 2010). DSD allows specific sites to transmit customer information to distributors and with the specific data it helps to improve delivery productivity and reduce cost. With the integration, stores can more easily respond to their comprehensive range of customer requests (Coca-Cola Case Study, 2010).
3.2 Support activities
3.2.0 Firm infrastructure
The legal system in each country brings a major impact to company when preparing the financial statements. Different accounting standard is used in different country. However, Coca-Cola has a single environment for making financial data readily accessible to executive management worldwide (Strategic Analysis of The Coca-Cola Company, 2007). Coca-Cola has implemented mySAP financials and mySAP Business Intelligence into their business in order to handle the financial processes of the corporation (Strategic Analysis of The Coca-Cola Company, 2007). These IT is fully implemented in the company’s headquarters, and every field location is equipped with internet capabilities so that information can be given to and looked up from the centralized site (Coca-Cola Case Study, 2010).
3.2.1 Human Resource Management
People are the important asset to the company. To prevent the host government from interfering, Coca-Cola fully integrated with the local economy by developing good relations with the government, carrying out extensive local research and development, and hiring local people (Wall, S. Minocha, S. & Rees, B., 2010). For example, the company has partnerships with the Chinese government and domestic companies to generate a strong market presence.
There are also a number of local training initiatives catering to particular regional needs. In China, cultivating human resources means supporting the education system and therefore Coca-Cola has established a Soft Drink Training Center which cultivated both technical and business skills throughout the Chinese industry (Economic Impact of the Coca-Cola system on China, 2000). In India, preparing for future leaders would be the key challenges within the organization. Graduate Trainee Program is developed for young professional in order to prepare competent, dynamic and dedicated future leaders (Coca-Cola Bottling Indonesia, 2004).
3.2.2 Technology Development
Technology development is important as it supports the entire value chain. The rapidly changing technology such as automation, supply chain management and packaging technology has a tremendous impact on the way Coca-Cola does their business worldwide (Strategic Analysis of The Coca-Cola Company, 2007). Research and development (R&D) is the core commitment and strategies are being modified in efforts to allow more freedom to local operating divisions (Thinking Made Easy, 2010). Coca-Cola is investing in technology product and process as new sources of competitive strength (Strategic Analysis of The Coca-Cola Company, 2007). Coca-Cola developed more new products to suit the customer needs and adapted new techniques to improve the existing methods of conducting value added activities (Strategic Analysis of The Coca-Cola Company, 2007)..
4.0 Future changes in logistical and value chain strategies
Future is always unpredictable however there are some key developments that can be identified for the next few years. Changes in the macro-environment such as new government policies, economic development, new technology and demographic changes will affect the organization process system. Hence, Coca-Cola needs to constantly analyze the business environmental and respond to the changes.
Companies have to adapt the new laws or policies create by the government. For food and beverage industry, governments might pressurize firms to follow the law on food safety. In China, new law stipulates that all food has to reach the safety standards and start adopt new food license. There have been cases reported in India that Coca-Cola beverage was contaminated with lead, pesticides and benzene. To address these food safety and regulatory issues, Coca-Cola has to continue check and test the content of the drink and implement The Coca-Cola Quality system throughout the system to increase the awareness of the importance of food safety, not only in manufacturing but also throughout the entire supply chain. (Strategic Analysis of The Coca-Cola Company, 2007)
Besides that, on-going inflation has affected the costs of operation as well as the spending power of consumers. Consumers may buy less or switch to cheaper substitutes. In order to maintain sales and to keep the customers, the company has to allot a bigger budget for innovative advertising, promotion and marketing activities.
High percentage of revenues came from outside of the United States. Hence, foreign-currency changes may impact on the reported earnings. Translation exposures arise as many of the operations have functional currencies. To overcome this problem, Coca-Cola may adopt operational or financial hedging strategies which involve forward-exchange contracts and currency options in several countries.
Trends in beverage consumption might change as more and more consumers are adopting a healthy lifestyle. Sweetener drinks are the main source of calories and it will be harmful if consumed excessively. Nutritionist advice consumer not to consume too much soft drink such as Coca-Cola because sugar contained is high. The coca-cola company has to respond to this trend by reformulating their products. For instance, it has to reduce the sugar content in its products or integrate it with fruit juice.
There are some complains claims that the bottles operation cause local water polluted and serious water shortage in India. Therefore government will restrict the amount of water used in the bottling company. The company used approximately 300 billion liters of water in their plants to produce beverages. To meet their water needs while helping to conserve water shed and improves community water access; planning use of water efficiency is needed to manage the water resources wisely.
Technology is getting advanced hence make great changes to logistics and value chain. It is an importance source of competitive advantage. The company has to keep update with new technologies and seek to initiate technical changes. Changes in technology will bring major improvement in the logistics and manufacturing operations. For example, MileMaker, a trucks routing system that generate accurate point to point routes, mileages and maps across the world. With this MileMaker, Coca-Cola can minimize operating costs while maximizing on-time delivery. (Rand McNally, n.d.)
The Coca-Cola Company has applied a multinational strategy and has shows a great success. “Think local, act local” is the mantra that Coca-Cola follows and has designed a value chain that gives each country’s operations the discretion to respond to its local cultural, legal, political and economic environments. Coca-Cola creates value through proactively engaging its retailers at technically every level of the value chain from raw materials down to end-products (Thinking Made Easy, 2010). There will be more challenges in today’s marketplace due to internal and external environment changes. The world is changing and Coca-Cola must look ahead, continuously look for new ways of doing business in the coming years; understand the trends and analyze areas to be concern hence add value beyond the products in order to survive over the next ten years and beyond (The Coca-Cola Company, 2006-2010).
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