The Beginnings of Coca Cola in America
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The Coca Cola drink was originally created in Atlanta, USA in 1886 by John Pemberton, the pharmacist and owner of Jacob's Pharmacy. Originally sold in the pharmacy from the soda fountain for 5 cents a glass, and in year one sales were only 9 glasses a day as compared to 23.7 billion unit cases worldwide in 2008.
Only after John Pemberton's death, Coca Cola started its growth. Taken over in 1888 by Asa Griggs Candler, an Atlanta businessman, who "transformed Coca Cola from an invention into a business" and secured the rights. He became the company's first president, and through advertising and promotion he introduced the drink to the rest of the United States. By 1895 there were three syrup plants: in Chicago, Dallas and Los Angeles.
Through innovation of a bottle, Coca Cola changed its way of serving the drink from a soda fountain to bottled drink, and in 1916 the contour bottle has been developed and till this day it is the signature shape of Coca Cola.
By 1923 Robert Woodruff has become the new president, and for over 60 years worked hard to introduce Coca Cola to the rest of the world.
2.2 Coca Cola going global
By 1895 Coca Cola had managed to expand all over the United States and its Territories. Soon after, the company started to set first steps outside its home country. In 1905 Coca Cola was first bottled in Cuba, Canada and Panama, and the expansion continued rapidly. After World War I the company set up two bottling plants in France, from which they served the European market. By the 1940s Coca Cola was operating in 44 markets outside the United States and even during the Second World War it continues to expand, as it promise that "every man in uniform gets a bottle of Coca Cola for five cents, wherever he is and whatever it costs". As a result Coca Cola spreads its operations to every place where American soldiers were based.
Peter Dicken says in his book Global Shift that companies need to feature three characteristics that make them a Transnational Cooperation:
"its ability to coordinate and control various processes and transaction within transnational production networks, both within and between different countries;
its potential ability to take advantage of geographical differences in the distribution of factors of production networks (for example, natural resources, capital, labour) and in state policies (for example, taxes, trade barriers, subsidies, etc.)
its potential geographical flexibility, an ability to switch and re-switch its resources and operations between locations at an international or even a global scale".
Comparing Coca Cola at the end of World War II with these features, it is certain, that the company does not cover them completely, but it can be said that Coca Cola has already been on the way to match these characteristics, at a time, when the terms of "Transnational Cooperation" and "Globalization" had not been used at all. To understand how Coca Cola managed to expand in such a quickly way the organizational structure developments is going to be examined before the companies development towards a TNC is going to be analysed in chapter 3.
2.3 The Coca Cola system
A really important step for the Coca Cola Company in their development to a multinational company was the establishment of the first bottling franchise system in 1899, which has contributed significantly to the company's overall success over the past century. Benjamin F. Thomas and Joseph B. Whitehead signed the first bottling agreement with Asa Candler, president of Coca Cola Company, which gave them exclusive national rights to bottle Coca Cola across most of the United States for the sum of one dollar. By 1916, more than 1,000 Coca Cola bottling plants were operating in the United States, most of them small family-run organizations. In the 1920s and 1930s bottling operations were established outside the United States, in approximately 44 countries worldwide. Ernest Woodruff, the CEO, was responsible for this international expansion of the today's world's largest beverage company Coca Cola. During World War II, 64 bottling plants were opened around the world to supply the troops and the international expansion of Coca Cola's bottling system gained strength.
Because of the permanently enlarging bottling system and accelerating growth of the company's worldwide business, in the 1970s and 1980s a strong bottler consolidation was necessary to reduce the number of independent franchise ownerships. With the consolidation of the many small and medium size bottler, the company gained more control over the bottling network. Today there are more than 300 bottling partners worldwide ranging from international and publicity-traded businesses with independent share-owner structures to small, family owned operations.
In general, the Coca Cola Company owns the brands, is responsible for consumer brand marketing initiatives and produces concentrates, beverage and syrups, which are sold to various authorized bottling operations throughout the world. The bottling partners, who hold territorially exclusive contracts with the company, are responsible for manufacturing, packaging, merchandising and distributing the final branded beverages to customers, like grocery stores, restaurants, street vendors, convenience stores, movie theatres and many others around the world, who sell the product to consumers.
This business system, consisting of the Coca Cola Company and its 300 bottling partners worldwide, is known as the "Coca Cola System" or just "The System". While the Coca Cola system is not a single entity from a legal or managerial perspective, the sustainable growth of the system as a whole depends on the collaboration, support and shared values and goals of the company and its bottling partners. This unique source of strength of the closely and collaborative relationship between the company and its bottling partners, allows the beverage company to conduct business on a worldwide scale while still maintaining a local approach.
The four most important bottling partners, which make up the world's largest and most powerful and extensive beverage distribution network, provided the company several benefits including increased geographical reach, increased scale of operations, more coordination of the distribution system and centralized negotiations. Finally this system is a century-old alliance and a key strength of the Coca Cola Company.
2.4 Growth strategies
The recent years and the changing global economic conditions brought about new challenges and opportunities for the Coca Cola Company. In order to maintain its market share and keep ahead of innovation the beverage company developed a multi-faceted domestic and global innovation strategy. This growth strategy focuses on strong organic growth supported by product innovation, geographic expansion, particularly in developing and emerging economies, strategic alliances and acquisitions and joint ventures.
This strategy, focusing on organic growth and expansion, was very important for the development to a multinational company and plays also until the present day and the future an essential role. The key of the success of the world's largest soft drink producer is to reach and meet its long-term targets by growing its existing business. Nevertheless, the company will grow organically as well as through targeted acquisitions, which have to be done in a disciplined manner.
Coca Cola made already acquisitions around the world in the last years and will seek more acquisition opportunities in the fast growing soft drink market to expand its revenue sources and its portfolio. This results from recent acquisitions, where Coca Cola has benefited from. These helped boost the company's sales at a time, where traditional carbonated soft drinks experienced sluggish sales. Finally acquisitions strengthened Coca Colas international operations and gave it an opportunity to grow through new product launch or to increase the capacity to penetrate existing international markets and to diversify its revenue stream.
Another important aspect in an increasingly complex and evolving environment to accelerate sustainable growth for the Coca Cola Company were and still are Joint Ventures and Partnerships. Coca Cola has joined forces with a number of well established businesses such as Nestlé, P&G, Illycaffé to further its diversification efforts. These joint ventures allowed Coca Cola to enter related businesses or new geographic markets, that would be inaccessible without the partner, and to develop new markets of iced tea, coffee and fruit juices. Furthermore it provided the opportunity to gain new technological skills and knowledge, to gain new capacity and expertise, to access greater resources and to share risks with the venture partner. Therefore international joint ventures were extremely advantageous for Coca Cola.
3. Globalization Process of Coca Cola
3.1 Entering new difficult markets: The Coca Cola Company in China and Russia
3.2 Coca Cola: thinking global, acting local
Before to analyse Coca Cola's adapting to local demands and needs, the term Glocalization and its importance within the process of Globalization are going to be discussed.
3.2.1 Globalization vs. Glocalization
Globalization is one of the most important phenomena of the recent past and of the future. The term "Globalization" describes an ongoing process by which regional economies, societies and cultures are becoming more integrated through a dramatically increased global network of technological, economic, political and cultural exchanges. In specifically economic contexts, the term refers to the integration of national economies into the international economy through trade, particularly trade liberalization or free trade, foreign direct investment, capital flows, migration and the spread of technology. This worldwide phenomenon of interaction among the countries is driven largely by advances in communication, transportation and legal infrastructure as well as the political choice of countries to open cross-border links in international trade and finance.
Due to many difficulties that a globalization strategy faces another term has developed in recent years called "Glocalization". In contrast to globalization, the glocalization strategy, which means thinking globally but acting locally, is a more modern and different approach.
The term "Glocalization", which had become a buzzword in business world in 2000, describes a historical process whereby the local is integrated into the global. This means that localities develop economic and cultural relationships to the global system through information technologies, bypassing and subverting traditional power hierarchies like national governments and markets including cultures clash with newly introduced cultural concepts, ideologies and practices. So put simply, globalization is a move toward centralization, while glocalization is a move toward decentralization.
In this section the concept of glocalization is elaborated. In this context it will be explained why glocalization is important for multinational companies in general and especially for Coca Cola. Furthermore this section describes which advantages and disadvantages glocalization comprises and how the concept of glocalization is applied by Coca Cola in China.
3.2.2 Definition of Glocalization
Glocalization is a combination of the words "globalization" and "localization" and emphasise the idea that a product or service is developed and distributed globally is more likely to succeed if it is adapted to the specific requirements of local practices, legislation, fiscal regime, socio-political system, cultural expectations, local laws, customs and consumer preferences.
Today it is possible to understand by glocalization the intelligent adoption of concepts and ideas to the local and regional needs, instead of having exactly the same products and solutions everywhere. The concept of global localization explains the interactions between global and local dimensions in any strategy like political governance strategies, business marketing strategies, media and communication strategies and so on. Glocalization also explains the failure of some strong strategies, as they don't consider the effect of cultural diversity and strength of local dimensions. It is more considered as creation or distribution of products or services intended for a global or trans-regional market, but customized to suit local laws or culture.
3.2.3 Multinational Companies and Glocalization, Example: Coca Cola
The increasing globalization process has altered the international competitive dynamics in the various industries. The recent changes in the global marketplace call for fundamentally different vision and strategic thinking inside all types of companies. The strategy of glocalization is becoming more and more important in all types of businesses in recent years and seems to have received wide acceptance. Especially in the food and agribusiness industry the concept of glocalization is particularly important, because of the seamless challenges this industry faces due to the typical differences that exist in the food and drinking habits of people belonging to various regions, religions and cultures across the globe. Therefore the modifications of the glocalization strategy help consumers in the host country relate with the character in a much better and effective way.
In today's highly competitive business life a number of multinational companies currently apply glocalization strategies in an effort to build their customer bases and grow revenues. If multinational companies decide to expand their operations to a new country, they have to make a choice between following uniform business strategies as in their home country or modify their strategies to suit the host country socio-economic and political environment.
Because most of the time a company, which is doing extremely well in the global market or their home market, can fail completely in their local market or vice versa due to the problem of not being able to adapt to the local conditions, which is one of the highest priorities for successful global companies.
In order to operate successfully in their host countries, multinational companies must adopt glocal strategies in marketing, product development, advertisement etc. Therefore the companies try to be both local and global, big and small, centralized and decentralized, stable and dynamic. The main objective of these companies is to simultaneously offer standardized mass manufacturing, customized mass manufacturing and individually designed goods and services. To tackle this growing dilemma and for corporation success it is essential to maintain an appropriate balance between global homogenization and local customization.
Also the successful global brand like Coca Cola, which has had a global campaign, adopted a glocal strategy. The world's largest beverage company is the best example one could cite for a multinational company practising glocalization. The soft drink company stands for global brand, global taste, global communication differentiated with local language.
In the 1990s the worldwide business development was changing and the world was demanding a greater flexibility, local responsiveness and local sensitivity and a desire for local autonomy and preservation of unique cultural identity appeared. Coca Cola recognized that speed, transparency, local sensitivity and responsibility had become essential to their success. Simultaneously the world's largest soft drink company realised that a single global strategy and a single global campaign won't work in different countries with different cultures in the long term. Therefore it has realised that it is important that they act according to relevant local needs, local tastes and preferences, local laws, local cultures to support global brand strategies.
As a result they developed a strategy, allowing differences in packaging, distribution and media for a specific region or country according to its cultural, regional and national uniqueness and which fits within fundamental values, policies and standards of integrity and quality of the company. Coca Cola showed that it is crucial for worldwide business activities to succeed in any foreign country, to understand and respect local culture, history, differences, to adapt to consumer needs, habits and diet, as well as local conditions, characteristics and circumstances of the market.
The best example for Coca Cola's glocal strategy is China. China was always one of the biggest opportunities of all emerging markets with a huge potential for the Coca Cola Company. When Coca Cola first entered the Chinese market, it faced unusual problems and success did not occur in the beginning. The reason for that was that Chinese people had a historical preference for health-oriented beverages such as green tea and juices and the product was misunderstood by the people. Because of these different tastes and preferences, the Coca Cola Company adopted a glocal strategy.
This customer-based strategy was very effective for Coca Cola, because if their brand was not instantly recognizable in a variety of setting or they would have no congruence with local needs it may result in a loss of their brand's global image or they could fail to attract potential customers. Coca Cola has overcome this problem in China by creating a glocal strategy, which enabled them to combine the best of global and local marketing to maintain their brand image. This step established a strong sense of cultural congruence with a strong focus on social responsibility.
For Coca Cola this was a really important step, because also brinking habits vary significantly across cultures and countries like in the food industry. Therefore the Coca Cola Company has to be particularly sensitive to various cultural and religious issues because challenges faced in this industry due to the cultural differences are more critical and complex as compared to the other industries.
This effective long-term business strategy of glocalizing allowed most decisions regarding developing new drinks and approving local initiatives to be determined by local subsidiaries or distributors and to establish nationwide operations, which generated a strong market presence. Coca Cola developed with this strategy a world, where local areas benefit from global resources while they are retaining their own cultural identities. In the meanwhile China is not the only country for which it has adopted a glocal strategy. Over the last decade it has taken up this approach around the world, but especially for the Asian countries, because of their diversity of cultures, which does not provide a unified consumer base.
This section explained that glocalization explores both the effective expansion of transnational companies into new markets and the ability of cultures to exert their own identity in their interplay with the global scenario. It also showed that going global might not take much effort, but going glocal means a lot of responsibility. Therefore it is important to consider glocalization in expansion plans or when a company decides to launch in different locations, because it plays an important role if a company operates successfully or not.
Summarized, it is possible to understand by glocalization a global decision, which has local impact and, at the same time, it can be a local event with global effect. So, it can be said that glocalization represents the need for multinationals to be global and local at the same time.
3.2.4 A glocal strategy: Coca Cola wants to by Huiyuan
It has been shown that Coca Cola always tried and tries to adapt to any changes in the consumer's habits and demands. Therefore it changed its range of products, either by the invention of new product lines or through acquisition of other beverage brands and companies.
The consumer's preferences and demands of beverages in the Chinese market experienced a significant change in recent years. Whereas the demand of carbonated drinks stagnated, the demand of non-carbonated drinks such as teas and especially juices increased dramatically. Therefore Coca Cola introduced a couple of new drinks of these sorts. In 2008, however, Coca Cola decided to strengthen its position in the Chinese beverage market through the acquisition of the Huiyuan Group, the biggest producer and distributor of juices in China with a market share of nearly 50%. The company had been extraordinary interesting for Coca Cola, as it is not only well known and has a strong position in the Chinese market but also because of its very strong bases of raw materials and a good production and distribution infrastructure all over the country. Coca Cola expected to strengthen its position in the Chinese and also in the international beverage market through this acquisition and therefore was willing to buy Huiyuan Group at an extraordinary high price. In fact, Coca Cola offered to buy the company at a price nearly three times higher than its actual stock market value at the time.
Furthermore Coca Cola was willing to put Zhi Xiuli, the chairman and a big shareholder of Huiyuan at the top of the merged company and thereby increasing its "Guanxi" and secure its position in Chinese business.
By the end of 2008, the deal seemed to be home and dry, as all shareholders of Huiyuan Group to sell their shares. Therefore, Coca Cola only needed to the allowance of the Chinese authorities to take over the juice manufacturer.
But the Chinese government imposed the Anti-Monopoly-Law in August 2008 which made all acquisitions of Chinese companies by multinational corporations subject to stringent checks, as the government saw it as a risk to the national economic security. After a couple of month of investigations and negotiations the Chinese government finally rejected Coca Cola to take over Huiyuan, as it suspected Coca Cola to reach a market controlling position, which would harm the Chinese economy. Critics accused the Chinese authorities to block this merger due to national sentiments and therefore act not in accordance with the rules of the World Trade Organisation, whose member China is since 2001. Both companies, Coca Cola and Huiyuan, however accepted the Governments decision and did not try to act against it. This shows that in the politically controlled Chinese market it is still important to always try to collaborate with the authorities and never try to act against them, for example by going to court what would probably had happened in most other country, if the company had been confronted with such a decision. It also showed that the Chinese government, because of the size, potential and attractiveness of its economy has a lot of power and does not risk big conflict internationally by acting this way.
3.2.5 Advantages and Disadvantages of Glocalization
In this section the advantages as well as disadvantages of glocalization will be identified and described. First of all glocalization makes sense when a firm faces high pressure for local responsiveness and where there are significant opportunities for leveraging valuable skills within a multinational's global network of operations. Through glocalization international products are adapted to the local taste of the population and thereby local communities are introduced to different aspects of foreign cultures. This helps multinational companies to grow and gain trust of the people of particular regions.
So, glocalization helps in connecting with the consumers of that region on an emotional level and also leverage its global position. This is the most important aspect that leads to success of the company. Another positive aspect of glocalization is that multinational companies bring in foreign revenue and offer employment opportunities for locals. Disadvantages of this strategy can be that companies are unable to realize location economies or failure to transfer core competencies to foreign markets. Another disadvantage is that it is really difficult to implement a glocal strategy due to organizational problems. This means that glocalization doesn't always benefit multinational companies because individuals and groups in each region or country can choose to accept or reject the products offerings or the company's presence.
3.3 Developing a global trade mark
3.4 Coca Cola using natural resources
An important question that Coca Cola faces every day, regards natural resources and the environment, especially water and its usage. Water is an essential ingredient for the beverage business. In 2005, Coca Cola used 290 billion litres of water in its plants to manufacture its products, 40% of it was used to make drinks and 60% was consumed in the supply chain and for the production of sugar and corn.
3.4.1 Handle resources sustainably
Coca Cola's efforts to reduce and to improve the efficiency of its water consumption have increased since the 2000s. Indeed there have been lots of global initiatives that Coca Cola has undertaken to hit this mark. With regard to that, Coca Cola's chairman and CEO said that Coca Cola's purpose is to return every drop of water that the company consumes, by recycling water used for production processes. Moreover the company supports initiatives of water supply in developing countries and to protect the environment through local projects.
Coca Cola was blamed, in less developed countries, of draining the underground water and of discharging improperly treated industrial wastewater. The most difficult situation is in India, in the Kerala district, where the company was accused to extract 15 millions litres of groundwater everyday, without any expense. Another important complaint against Coca Cola India is that its bottle washing plants used chemicals in their processes, and produced effluents that, according with local residents, were discharging before any kind of treatment. Moreover, some reports estimated that, in 2004, Coca Cola India used 283 billions litres of water, which corresponded to the world's usage of water for about ten days, and that Coca Cola utilized 2.7 litres of water for each bottle of its drink and 1.7 litres of them were released as effluent.
In the year 2002, the company undertook its water sustainability projects to supply communities of developing countries, which lived in zones near its bottling factories, with potable water. Especially for India, the company, in June 2002, was participating in many rainwater harvesting initiatives, with the help of many non-governmental organizations, central authorities, state groundwater committees and welfare associations.
Additionally, in 2004, Coca Cola undertook the global water initiative, with which it not only had the goal of the containment of its water use, but also the purpose of finding and developing some sustainable solutions to water resources management. Coca Cola tested 840 areas around the world to understand the problem of global water shortage, since this resource is its most important ingredient and the company wants to sustain this resource to be able to continue its business.
Coca Cola aspired to improve its usage of water in its production processes in association with local governments, authorities and communities in many developing countries. With regard to Africa, Coca Cola established an association with the US Agency for International Development's (USAID) and they started, in 2007, 9 water initiatives with an investment of US$ 7 millions. The projects' aim was the enhancement of the quality of water and a basic supply of fresh water and sanitation to communities without these basic services, for example in Kenya, Tanzania, Angola and Uganda. In Europe, Coca Cola cooperated with the United Nations Development Programs (UNDP) and thereby invested US$ 7 million into a project to improve water supply in the less developed areas of Croatia, Kazakhstan, Romania and Turkey. In China the company undertook a rainwater harvesting initiative, with the association of Soong Ching Ling, to provide and improve a healthy access to potable water for about 3000 inhabitant. Furthermore it supported the development of 27 equipments for harvesting rainwater and water storage in five small towns. In India, Coca Cola together with the government built about 300 rainwater gathering systems to improve the water storage. Finally, In Mexico Coca Cola took initiative to improve re-use and water supply facilities for its own usage. Furthermore it supported reforestation programs and the restoration of 25,000 hectares of forest.
3.4.2 Strategies for sustainable usage of water resources
In 2007, Coca Cola undertook a water stewardship strategy that is composed by four key points: plant performance, watershed protection, community water initiatives and global awareness & action.
About the plant performance, Coca Cola has tried to increase the efficiency of its plants with regard to water consumption, creating an interactive water resource management toolkit to help bottling companies to enhance their efficiency in the use of water. In fact, in 6 years from 2002 to 2007, the company's system had improved its water usage efficiency by 21%. But its water consumption had gone up by 4%, in 2007, because it had launched new products such as tea and coffee.
The second area of the strategy is the watershed protection; Coca Cola, with the association of governments, NGOs and many communities, works to educate developing countries and its bottling factories about the importance of maintaining watershed. This programme involved also some investments to promote water conservation in seven river systems in China, Southeast Asia, Eastern Europe and East Africa.
The community water initiatives involved partnerships with 70 communities in about 40 nations. These partnerships aimed sanitation, hygiene, watershed protection, water providing, efficient water usage and education and awareness. Additionally, Coca Cola participated in some projects with regard to reforestation, efficient usage of water in agriculture and rainwater gathering, especially in India.
Finally, the last core area of the strategy is the global awareness & action, with which Coca Cola developed a programme which had the purpose to provide healthy and potable water to schools in developing countries. This project involved the education of students, in many schools, about sanitation and hygiene.
3.4.3 Criticism on Coca Cola and its responses
In spite of several initiatives, partnerships and programmes about water consumption efficiency, Coca Cola had to face lots of criticisms for its business. The most important criticisms focused on the reduction of groundwater tables and on the fact that the local communities were without access to potable water due to the company, particularly in India.
Further complaints against Coca Cola were about the discharge of wastewater in the agriculture fields close to its blottling companies, the illegal seizure of lands from agricultural laborers and the release of dangerous material and sludge in the contiguous areas in India.
The responses of Coca Cola against these criticisms have been constant since the 2000s. First of all, the company launched a website, called www.cokefacts.org, where it has tried to fight the allegations linked to its business. Moreover, Coca Cola defended itself with the publication of reports and the conduction of studies. For example, the Palakkad District Environmental Protection Council and Guidance Society prepared in 2002 a report wherein they concluded that the Coca Cola plants had not had any kind of responsibility for any environmental damage that happened in zones near to them. In response to the complaint that Coca Cola's bottling industries had discharged several wastewaters without any kind of treatments, the company argued that these factories were the most advanced in the world with regard to the technologies and efficiency of their production processes. Finally, about the discharge of sludge in communities in India and in other developing countries, Coca Cola responded that the sludge was composed by only organic and inorganic stuff and, therefore, it was not dangerous and pollutant for the environment.
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