Coca Cola Entry Strategies In To Mexican Market

Mexico is a North American Country and it is a world’s major emerging economy. Mexican economy consists mainly of private manufacturing and services. However, in the year 2003 acquisition of Pan-American Beverages, Inc. (Panamco), Coca cola established Coca-Cola FEMSA, S.A. de C.V. FEMSA is a joint venture entity, majority-owned by the Fomento Económico Mexicano SA de CV (or FEMSA) and minority-owned by the Coca-cola company and public shareholders. 53.7% of the Company’s capital stock is owned by the Fomento Económico Mexicano, S.A. de C.V. (FEMSA), 31.6% by Coca-Cola Company, and 14.7% by the public. JV provide s a mutually beneficial alternative for foreign and host nation companies and as a result, Coca-Cola FEMSA became world’s second-largest Coca-Cola bottler and the largest in Latin America. The company is bottling for almost 10% of worldwide Coca-Cola sales. In the past few decades, we can identify JV as the most success full entry strategy in any industry

As the world’s second biggest bottler FEMSA produces, markets, and distributes Coca-Cola trademark products, as well as water, and additional beverages in nine Latin American countries, namely, Mexico, Guatemala, Nicaragua, Costa Rica, Panama, Venezuela, Colombia, Brazil, and Argentina.

Coca Cola entry Strategies into the Indian Market

After the year 1991 India opened its economy to foreign trade and investors. Suddenly there GDP and economic growth shot up. In addition, trade liberalization in India provides enormous opportunities for Western firms ,mainly in consumer goods as there are more than 300 million people in the middle class category. Moreover, when compared with other emerging markets in Asia such as China and Eastern Europe, India has a well developed infrastructure, distribution channel and a well trained and educated work force.

So concentrating on the above facilities Coca cola returned to India in 1993. Coca-Cola was the top soft drink brand in India until 1977,as the Indian government reduced equity stake formula as required under the Foreign Exchange Regulation Act (FERA) which administrates the operations of foreign companies in India.

After a gap of a 16-years, Coca-Cola made its re-entry into India through its 100% owned subsidiary or Wholly owned subsidiary. Coca-Cola possessed the Nation’s top soft-drink brands and bottling network because of Coke’s acquisition of local popular Indian brands and most trusted brands in India including “Thumbs Up, Goldspot, Limca, Maaza,” which were floated by Parle. HCCBPL is the Indian bottling farm of the Coca-Cola Company. The manufacturing unit of HCCBPL, situated at Bidadi, is the third largest plant and one of the bottling operations owned by the company.

(Coca-Cola India page 4)

There are Four main strategies in international business used by international firms or Multinational Corporation (MNC’s).Such strategies can be defined as Global Standardization Strategy, Transnational Strategy, International Strategy and Localization strategy. Earlier in the 1980s, Coca cola company used Localization strategy. However those strategies all changed under the leadership of Roberto Goizueta. His strategy is focused on Global standardization strategy .This strategy focuses on increasing profitability and profit growth by cost reduction through an economic scale and they use Global advertising strategy to promote their brand. However, due to cultural barriers and other issues Global standardization strategy was an unsuccessful strategy .Therefore, after 1990 Global standardization strategy again shifted towards the Localization strategy by giving more power to the country managers, because “Douglas draft”(CEO of coca cola after Goizueta) believed that product development and marketing should be trailed according to local customer taste.

Page 374

“Localization strategy is focused on increasing profitability by customizing the firm’s goods or services so that they provide a good match tastes and preference in defendant national markets”. This strategy is very important as this makes considerable variation across the nation with regard to consumer taste.”

Page 396

So concentrating on Coca cola, its United States brand and, Mexican and Indian people have separate cultures, attitudes and separate tastes. Therefore coca cola has to focus on those countries people’s taste when they deliver their brands. To increase awareness of the consumers to the ‘Coke taste’, Coca cola can implement deferent kinds of marketing strategies according to each country, such as brand advertising promotion and product awareness strategy through public relation programs. And also through strong distributing strategy, products can be reached by the customer at any time. Afterwards, we can distinguish separate strategies for Mexico and India.

As mentioned in entry strategy after India reduced trade restrictions in 1991, more opportunities were opened to consumer goods companies such as Coca cola. Coca cola Indian marketing awareness is based on three “A”s. Affordability, focuses on pricing, Acceptability, focuses on convincing consumer to buy the product and Availability of product to the consumer. Those three emphasize pricing strategy, brand awareness strategy or Advertising and promotion strategy and distribution strategy.

As Coca cola entered the Indian market there were many Indian traditional refreshments still existing. Such refreshments including lemon juice, green coconut water ,fruit juices ,tea and lassi were comparatively cheaper than the price of Coke. So they have to use a competitive pricing strategy, which is called “Predatory Pricing”. In this way to get a competitive price they double the number of outlets. However through that they brought down the average coke price from Rs.10 to Rs.5

“Communication strategy emphasizes the communication of the product to perspective customers. There are a number of communication channels available to a firm, including direct selling, Sales promotions, direct marketing and advertising”. Earlier coca cola used Standardized advertising to promote their brand all around the world but it was not successful because of above mentioned issues. However Coca Cola India focused on brand localization strategy through advertising and promotion strategy based on “pull strategy” [2] in line with the traditional aspect such as Indian language to overcome cultural barriers – for example “Thanada Matlab Coca-Cola” emphasizes that “‘Coke’ means refreshment,”

Coca cola India mainly targets Indian rural andsemi urban consumers compring 96% of the country’s population. So in early 2002 they launched a new advertising campaign involving Indian Bollywood stars. Through this strategy, they were able to give the rural consumer of India, Coke as a cool drink.

And they also launched another advertising campaign to the urban population of India, which are represented 4% of the country’s population. “Life ho to aisi,” (life as it should be) was the topic of the advertising campaign. However Coca cola India realized that communication media used in cities and urban areas would not be successful in rural areas because they lack television or conventional media. As a solution they invested in billboards and cutouts. 

Appendix

[1] “Predatory pricing Strategy” is the use of price as competitive weapon to drive weaker competitors out of a national market”. Page 507

[2] “Pull strategy” depends on more mass media advertising to communicate the marketing message to potential customers”. Page 501

“Distribution strategy: the means it chooses for delivering the product to the consumer. The way the product is delivered is determined by the firm’s entry strategy.” Page 495

Referring to distribution strategy, they used centralized distribution strategy to the urban areas. (Through this system product was directly transported from bottling plant to retailers) Although this strategy was a success in urban areas it was not successful in rural areas. Because “Channel length” [3] is very long – Due to the distance from rural area to bottling plant it would be very costly. To avoid such massive cost they distributed stock from bottling plant to particular retailers. CCI planned to transport stock from truck to some particular range spokes to village Retailer Company to utilize auto rickshaws and cycles.

CCI implemented new plans to identify significant potential villages from different districts and CCI assigned large distributor (Hubs) for each district and supplied stocks to large distributors twice a week. Hubs supply stocks to the small distributors (spokes) under fix journey plan on a weekly basis and supplied against cash.

Performance in Coca cola India

The success of the strategy can be measured by company profitability and profit growth rate and increasing of the market share. page 375(Golabale Business today)

Through the above mentioned strategies CCI acquired Comprising 74% of the Indian population, (41% of its middle class, and 58% of its disposable income) The rural market was an attractive target and it delivered results. In 2003, income from rural areas increased from 37% and in urban areas growth in 24%. By the launch of the new Rs. 5 product (200 ml bottle), consumption doubled from 2001-2003. And that was by 80% of India’s new Coke drinkers, 30% of 2002 volume, and was expected to account for 50% of the company’s sales in 2003.Analyzing CCI annual report also we can identify the growing revenue and profit of the company and this also indicates that their market share is continually expanding. Appendix Annual report.

Coca cola invests more than US $1 billion in India from 1993 to 2003 by becoming India’s top international investors. In 2003 CCI had won the “prestigious Woodruf Cup” among 22 divisions of the Company based on three broad parameters of volume, profitability, and quality. Volume growth of Coca-Cola India is 39% in 2002. The industry grew 23% nationally. As the growth of the company, Coca-Cola India announced plans to double its capacity at an investment of $125 million (Rs. 750 crore) between September 2002 and March 2003.

Other than these financial performances Coca cola achieved some non financial performances too, mainly from a quality assurance perspective. To improve their image CCI sponsors “Golden Spoon Awards at the Food Forum India, 2009 in Mumbai.” and CCI won the Best Exporter Award for Roasted Coffee Beans for the year 2007 and 2008. Most recognized quality award in India is “Golden Peacock National Quality Award”. Accordingly, in year 2003 and 2004 CCI won the Golden Peacock National Quality Award for excellent quality standards, high productivity and Community relationships.

Above mentioned financial and non financial performances were achieved according to their own interest .Afterwards, we can identify corporate social responsibility performance activities in Coca Cola Company. In 2009 Coca-Cola India (CCI) won the “Golden Peacock Global Award” for Corporate Social Responsibility by setting a target to reach a “net zero” stability with respect to groundwater Consumption in year 2009, by replenishing ground water. In the same year Coca-Cola India awarded the Bombay Stock Exchange Award for Social and Corporate Governance 2009.As well as the award for Best Practices in Corporate Social Responsibility 2009. Coca-Cola Wins Another Gold Award For Its Citizenship Efforts. Coca-Cola India won the award for its partnership with India’s leading NGO BAIF for spreading awareness amongst school students, across India, using an innovative medium like a specially commissioned animation film.

Further more CCI won the Citizenship Challenge Awards – 2006.This award measured the CSR initiatives and encourages companies to invest in CSR activities. However winner is measured by three parameters “locally relevant, credible and sustainable” .and CCI wins Bhagidari Award- Fourth time in a row for excellence in water conservation and community development in year 2007. 

On the other hand CCI has been accused of aggravating local water resources in India, as Indian people were already suffering from water pollution and harsh droughts, in both urban and rural areas. Mainly affected are the low-income communities and landless farming workers and women. http://sgu05vls.wordpress.com/essay-1-coca-cola/

In addition to such over absorption of natural water resources, between years 1999-2004 Coca-Cola’s bottling plants in south India discharged salty and contaminated wastewater into the environment, polluting water resources including major rivers such as the Ganges. Usable water resources are declining rapidly thereby putting usable water recourses and over absorbing such resources as a major impact to the Indian society as well as environment. http://www.news.com.au/business/coca-cola-hit-by-pollution-claim-in-india/story-e6frfm1i-1225844123324

Focused on Coca cola Mexico FEMAS strategies are comparatively different from CCI strategies .because of localization as mentioned above. FEMAS concentrated more on increased profitability by improving revenue. In line with their strategy they contemplate more on New product development and new beverage segments and effectively advertise and market the company’s products;

New product development expresses the whole procedure of bringing a new product to market. Accordingly Coca cola tries to earn enormous returns. Page 511 therefore FEMAS is continuously exploring new lines of beverages, extend existing products, and FEMAS expands their non-carbonate drink portfolio organically throughout strategic acquisitions together with the Coca-Cola Company. To increase demand of the FEMAS product they try to a design package to attract the potential consumers.

FEMSA is the second largest bottling plant and it was the main coca distributor in Latin American countries and so their communication strategies are much more different than CCI .because they are dealing with wholesalers or clients rather than final buyers .As such they concentrate more on”Push strategy”[3] rather than mass media . Therefore FEMSA is continually strengthening the selling competence and selectively implementing pre-sale system, with the intention of getting nearer to clients and assisting them to satisfy the beverage needs of consumers. Coca-Cola FEMSA continually looks to deepen its customer relationships. In Mexico, the company is working closely with its largest clients to develop stronger multi-faceted relationships. Among the company’s initiatives, are tailoring its extensive portfolio of products and packages for their stores – based on the local market’s socioeconomic demographics and the store’s distinctive characteristic. However in order to promote coca cola brand they use radio ,television and press conferences..

FEMSA distribution channel is a very complex one because it distributes products to more than nine Latin American countries. Coca-Cola FEMSA sells its products directly. It has direct contact with all distribution channels in its area. Among these are hypermarkets, supermarkets, self-service stores, restaurants, service stations and small stores. Towards effective distribution systems Coca-Cola FEMSA selects the Microsoft platform to put into operation its SAP management system in all the company’s areas

Microsoft Corporation. (2002). Coca-Cola FEMSA chose the Microsoft platform to implement its SAP management system in all the company’s areas. MICROSOFT WINDOWS NT SERVER 4.0. 1 (1), 1.

[3] Push strategy emphasis personal selling rather than mass media advertising, though this strategy supplies more information to educate the buyer. Page 501

Coca cola Performance in Mexico

Coca-Cola FEMSA became the largest bottler of the Coca-Cola trademark beverages in Latin America in terms of total sales volume in 2006, with operations in Mexico, Guatemala, Nicaragua, Costa Rica, Panama, Colombia, Venezuela, Argentina and Brazil. The company is also the world’s second largest Coca-Cola bottler; in addition Coca-Cola FEMSA and the Coca-Cola Company acquire Jugos del Valle, one of the leading juice manufacturers in Mexico and Brazil, through a new joint-venture company. Beyond the potential synergies, this transaction will considerably increase the company’s presence in Latin America’s fast-growing, but under-developed non-carbonated beverage segment. As a result of this, Mexico became the world’s largest Coca cola consumer.

Coca cola FEMSA’s Annual reports in a five year summery indicate that their strategies are a success, because their main strategy was the increase of profit through the economic scale and product development. Accordingly annual reports show higher profit growth rate and profitability. However there is some fluctuation in year 2007 and 2008 as a result of economic recession in year 2008. (Source: FEMSA Annual report 2009) Appendix 1.4

When we examine non financial performances, we can note that FEMSA contributed a lot of CSR activities. For example coca cola’s investment in Brazilian Tropical Forest Water Program. Plus Coca-Cola Company’s major national reforestation program in Mexico. In the course of these two projects, Coca-Cola FEMSA planted over 18 million trees over a five-year period,

Also, through its recycling, water management and energy conservation programs, Coca-Cola FEMSA benefits its environment and its business. For example, PET recycling is a win-win proposition for the company and the society. By using more recycled PET in its bottles, the Company utilizes less energy and resources in its business, they preserve fossil fuels and they enhance the quality of its environment.