The Internal And External Environment Of Companies Commerce Essay

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Situation Analysis: The situation analysis in companies tends to examine the internal and external environment of companies. Having operated for decades,

Environmental Analysis: The environment is a significant factor in analyzing a business environment. It helps an organization understand things happening that may affect an it giving them ideas on what strategies they might want to implore to reflect the environment they operate in. For the purpose of analyzing the environment for this study, we will categorize the environment into the macro environment which involves the PESTEL (Political, Environment, Social, Technology, Economic and Legal). These are factors that may affect decisions of an organization. They could be new laws, government policies, demographic change and trade barriers. The macro environment further discusses it as;

Political Factors: These refer to policies of government intervening with the economy of a community. Political factors may affect Coca Cola's infrastructure because most of its net revenue is derived from sales in international markets (Coca Cola, 2005). Changes in government of international and civil unrest in nations could undermine consumer confidence and reduce the consumer purchasing power, thereby reducing demand for Coca Cola. An example of this is seen in the Middle East, because of the political and Civil unrest and political activism, supply to international countries can be affected

Environmental: These factors include weather and climate change. Changes in weather conditions in different locations may impact the level of sales in the beverage industry. Coca Cola is not an exception to this factor. Unusual cold weather during winter months will have temporary effect on sales and demand for its product. During this period, consumers may prefer to have tea or coffe as substitutes.

Technology: Newly introduced technologies create new processes and products. Technology may reduce cost; improve quality of services for Coca Cola that may lead to innovation of services. With the help of internet, Coca Cola has witnessed a little reduction in cost of distribution as customers make direct order online for their products. This also led to Coca Cola opening outlets near customers where they can easily pick up orders.

Social Factors: Changes in trend of social activities may affect the demand of products and availability/willingness of individuals to work. Ageing populations have affected the sale of Coca Cola because they believe the content of the product contains lots of sugar which may affect their health. The word about sugar reducing fertility has also restricted lots of consumers not want to consume much because of they believe it may affect them in the future

Economic Factors: Economic factors that affect activities of companies within an environment may have symbolic effects on the sale of Coca Cola. Factors like increase in interest rate, inflation and exchange rates. All these featurs may affect Coca Cola because strong currencies may make exporting products difficult thereby making raising prices in terms of foreign currency. Inflation may also provoke higher wage demand by employees and may raise expenditure for Coca Cola.

Legal Factors: These refer to the legal environment in which firms operate. It may be by Consumers law, competition law, employment laws and health and safety regulations. According to the Coca Cola's annual report of 2005, the company has been affected by the changes in laws and regulations relating to beverage containers and packaging may increase its coat and reduce demand for products referring to the its non refillable, recyclable containers in the United States and other world markets. Laws and regulations about the requirements to additional labeling and warning requirements on chemical content of products on health consequences may affect sale of its products.

Competitor Analysis: According to Aaker (2008 p.44) "understanding competitors and their activities can provide several benefits." Businesses may consider of getting on with their own plans and ignore competition while others like Coca Cola are obsessed with tracking the actions of competitors. Coca Cola is the soft drink company in the world (Coca Cola, 2005). They manufacture, distribute and market non alcoholic beverages segment of the market. Coca Cola major and sometimes only competitor is Pepsi. Coca Cola held the more market share of 45% with Pepsi holding 32% (Coca Cola, 2005). The Porters five forces may be used to understand the market and competitor analysis. According to the forces listed below, they allow business es to effectively map out strategies to produce business strengths and form competitive strategies. These factors affect Coca Cola by the factors listed below.

Competitive Rivalry: Rivalry among competitors may lead to dynamic periods of pricing and promotion in trying to win customers. This may lead to;

Strong innovation in services of products

Differentiation of product or services

Coca Cola is seen as a commodity, which may see consumers switching cost causing purchase for such products to be based on price.

Consolidation within its industry

Supplier Power: This factor tries to consider what extent suppliers can control market price. Power of suppliers may include;

Suppliers do not depend on small number of buyers

High switching cost

No substitutes to choose from

Small suppliers with Large number of buyers

Products by suppliers are sometimes essential to buyers

Power of Buyers: This determines the bargaining power of buyers. Regarding the extent by which buyers can bargain. Some of these powers may include;

Buyer's ability to switch to substitute products.

Information the buyer has about cost of alternate products

Large volume of buyers

New Entrants: This evaluates the process of contenders entering the market of existing leaders. Entry into new markets for Coca Cola may include;

Economies of scale; new Cola Drinks

Competition with established brands like Pepsi

Industry protection regulations

High cost of establishing or opening new factories in new locations

Threat of Substitutes: This is determined by how easily products can be substituted for other type of products or services. For example, the availability of Pepsi and other beverages may be preferred to Coca Cola

Market /Industry Analysis: This is used to to identify the complexity within an industry. It reviews the political, economic and market forces that affect the competition. Babara Murray (2006c) explained the Soft Drink industry, stating that Coca Cola and Pepsi have faced troubles in same industry. By so doing, either of these companies have begin to rely on new product flavors by producing noncarbonated products for its growth. In trying to understand the industry of Coca Cola and Pepsi, it is important that we consider the dominant economic factors, competitive sources, industry trends and the industry key factors.

Dominant Economic Factors: Size of the market, growth and profitability are economic analysis we can use to evaluate the industry. Market size in this industry has changed illustrating the soft drinks to have a market share of 46.8% and market value reached $307.2 billion in 2004 with a forecast of $367.1 billion in 2009 (Data Monitor, 2005).

Competitive Factors: This will be discussed under the financial analysis of both companies. Acccording to John Sicher (2005), Coca Cola was number one brand because it sold 4.5 billion cases in 2004 while Pepsi sold 3.2 billion.

Industry Trends: The trend in industries has increased competition with these companies because of diversification in products. Coca Cola and Pepsi have diversified into producing other noncarbonated drinks to expand it market share and brand image. Globalization also has is a key player in the competition between the Coca Cola and Pepsi.

Key Success Factors: The key success factors within the industry have been witnessed form the trends in companies. Constant innovation is an imperative in analyzing the success factors because Coca Cola identifies consumer needs and wants while maintain the ability to adjust and with changing markets (Murray, 2006).

Size of the market share for Coca Cola is also identified as a tool to evaluate its success. This success is as a result to its commitment to mass purchase making some organizations exclusive suppliers for its products during a period of time.

Coca Col's brand loyalty contributes a major quota to its success. Many consumers of Coca Cola are dedicated to drinking only Coca Cola and rarely purchase other varieties or substitutes. This brings about the importance of for the company to develop and maintain a superior brand image.

Price is also a major tool for its success in the industry. Coca Cola consumers without strong brand preference will select products with most competitive prices. Lastly, global expansion can be related to its success regarding that countries like United States have reached relative saturation (Datamonitor, 2005).

Customer Analysis: The consumer analysis allows us to identify prospects and segment market, considering the benefits to customers, their profile and market customer. The major segments of Coca Cola are basically the people who drink Coca Cola. The desire for consumers to purchase Coca Cola products have risen from the satisfaction derived from form the product.

Internal Analysis: In the quest to profer appropriate strategies, it is necessary to analyse the internal enviromrnt of Coca Cola. The value chain analysis is used in this context. It involves the mix competences and resources put together to for sustainable strategic implementation. This is further dissucussed in the phase 2 of this report.

The SWOT: The SWOT (strength, weakness, threat and Technology) is a tool used to analyze competitors. Strength and Weakness are internal while Threats and Opportunities are External to the company


Coca Cola is a very popular brand

Well Known

Strong Financial Base

Customer Loyalty

Brand is easily recognized

Global and international market share


Word of mouth

Related health issues of brand

Lack of popularity of diversified products

Low existent or Low profile advertising


Ability to buy out competition

It has more brand recognition

It has more successful brands to pursue


Has a major competitor (Pepsi)

Legal constraints

Health related issues


In order to outshine competitors and model strategies to avoid competitors, a continual introduction of new products will help increase profit and expand market share.

Another is for Coca Cola to sustain global and maintain market share. This is possible because they are global leaders in global market and are very established. If they lose global market share, they profits may decline.

My final recommendation for Coca Cola is to maintain and try to increase its brand loyalty by more advertising campaigns. This is important because it will help maintain profits and maintain market share.