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Business Strategy in the Global Environment

Table of Contents
Serial Topic Page
Number No.
1 Executive Summary 2
2 Introduction 3
3 PEST Analysis 3
4 Organizational Business Strategy/Structure of Coca Cola 5
5 Product Diversification 6
6 Environmental Scanning 6
7 Effects of External Environmental Factors 6
8 Economic Factors 6
9 Political Factors 7
10 Technological Factors 7
11 SWOT Analysis 9
12 Recommendation of Coca-Cola's Future Generic Business 10
Strategy
13 Conclusions 10
14 Referencing 11

Vinit Shah
MBA2-Finance
0421KMKM1009 Page 1
Business Strategy in the Global Environment

Executive Summary
Every business organisation functions has a direct/indirect impact from the
outside/external environment. Outside market plays a very important role for the
business process. It can be said that the profitability of the company also depends on
the changes in the outside world. Fluctuations in various aspects considered such as
price, political factor, social and cultural, economical and consumer likes and dislikes
varies directly with the business operations. This project gives a brief explanation
about the effects a business organisation faces and benefits it can earn in the context
of the external environment.

Vinit Shah
MBA2-Finance
0421KMKM1009 Page 2
Business Strategy in the Global Environment

Introduction

Business Environment

Functioning of any business is not just with the walls and premises of the
office or any place where it is actually carried out. Business depends more on the
external factors which helps define their objectives and decide on strategies for the
smooth functioning. These external factors are largely outside the control and
influence of the business. Business environment can be better explained as it is a
combination of political, economic and technological factors (PEST).Outside
environment keeps on changing has a direct impact in the business functions and is
capability to survive.

PESTLE Analysis

Analyses the external influences on a firm i.e. issues that could significantly affect the
strategic development of a firm, the former acronym, PEST, has been expanded to
include legal and environmental aspects (Oxford dictionary of Business and
Management). It is the scan of the external environment which includes political,
economic and technological factors (PEST).

  Environmental Scan

          /   \

External Analysis     Internal Analysis    

/                       \  

Macroenvironment  Microenvironment     

|
   
  P.E.S.T. 

Vinit Shah
MBA2-Finance
0421KMKM1009 Page 3
Business Strategy in the Global Environment

Political Factors

Political factors include government rules and regulations and all othet legal matters
and define both all the formal and informal rules under which any firm/business
carries out its operations. They are :-

1. Political stability
2. Environmental regulations
3. Tax policy
4. Trade restrictions and tariffs
5. Employment laws

Economic Factors

Economic factors has a huge impact on the purchasing power of potential customers
and the cost of capital of the business enterprise.

1. Inflation rate
2. Interest rates
3. Exchange rates
4. Economic growth

( http://www.quickmba.com/strategy/pest/ )

Vinit Shah
MBA2-Finance
0421KMKM1009 Page 4
Business Strategy in the Global Environment

Social Factors

Social factors consist of demographic and cultural aspects of the outside macro
environment. These factors impacts customer wants and the range of potential
markets.

1. Career attitudes
2. Health consciousness
3. Age distribution
4. Population growth rate
5. Emphasis on safety

Technological Factors

Technological factors can lower barriers to entry, decrease the production efficiency,
and influence outsourcing decisions. Technological factors can be classified as :-

1. R&D activity
2. rate of technological change
3. technology incentives
4. automation

Organizational Business Strategy/Structure of Coca Cola

Introduction

Coca-Cola is renowned all over the world. Its has sold more than one billion
units /day. More than ten thousand units are consumed every second. It can be a
suprice to hear but it is present all around the gloce and around 94% of the world
population is aware about it. Coca-Cola used abundant technologies to accomplish its
goals of reaching to the top of the soft drink industry. Every year 80 crore units of just
"Coca-Cola" are sold in the U.S alone.

Goals
"That combination infuses all the elements of the strategy that we are
implementing to deliver value to our share owners in the year to come, and well
into the future:

1. Speed up carbonated soft-drink growth.


2. Selectively Coca-Cola beverage brands to make profitable growth
3. Serve customers with originality and uniformity to generate growth across from
across the globe

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MBA2-Finance
0421KMKM1009 Page 5
Business Strategy in the Global Environment

4. Drive efficiency and sell cost-effectiveness drinks with the best and standard
quality everywhere.

Product Diversification
Coca-Cola is still on going to discover new beverage categories, and fulfil the
customers need with different tastes and flavours. Coca-Cola produces 300 beverage
brands with more focus on brand Coca-Cola, Diet Coke, Sprite, and Fanta Coca-Cola
is moving towards the direction of becoming a beverage-snack company.

Environmental Scanning
All businesses operate under two different environments, the external
Environment where the organisation does not have any control over it, and the
functioning of the business within the walls of the office/premises. Coca-Cola's
strategy and business process are greatly affected by these environmental
issues/factors.

Effects of External Environmental Factors


The external environmental forces exist in every part of Coca-Cola's global
business, and exercise influence on Coca-Cola's business approach and functions. Any
business is not capable of being "resistant" of such external forces. These factors
affect every working organisation across the globe.

Economic Factor
Slow economic growth in the United States has adversely affected the sales and
consumption of Coca-Cola soft drinks. Hence, the company has been working very
hard to increase its presence in the fast growing economies, such as China, India and
Middle East countries.

Political / Legal Factor


Coca-Cola has faced many difficulties in getting hold of the vast market share
in India, as consumers are unconvinced of the health effects of its products. The
company also faces U.S. government foreign policy restrict where it is not allowed to
function in Israel. In the United States, soft drink ingredients have to be tested and
certified by the Food and Drug Administration (FDA) before they are allowed to be
used in the production. During the international sanctions against Iraq period, Coke
products were traded illegally. Now Coca-Cola has authorized preparation with the
local Iraqi bottlers. However, the company is facing two great challenges: the unstable
and hazardous conditions in the country and strong existence of Pepsi in the Middle
East market.

Vinit Shah
MBA2-Finance
0421KMKM1009 Page 6
Business Strategy in the Global Environment

Technological Factor
The advancements of technology in the fields of soft drink
production, information, raw material, and communication technology have
great positive impacts on the overall functioning of Coca-Cola. The availability of
new soft drink ingredients encourages Coca-Cola to introduce new products to its
existing consumers. With the boom in information technology, it has made the
company "populated" the new generation of soft drink consumers. The company’s
website enables the world to "keep in touch" with the latest happenings and
developments of Coca-Cola.

Social / Cultural Factor


Before a short span of time, voices were raised against Coca-Cola being
aroused in the world market place. The most recent case is the call for Coca-Cola to
stop its sponsorship of Live 8 in India. Such negative response is due to severe water
shortages and underground water pollution caused by Coca-Cola production
activities, and distribution of its toxic waste to local farmers as fertilizer, and so Coca-
Cola spent over $2 billion in the U.S. and over $5 billion worldwide on recycled
content material and supplies. Even rumour such as the concentrated soft drink
includes pesticides which was a setback for the company, then the company made it a
point to prove the standards, loads of capital was invested in marketing, advertising
just to prove to positive response from the clinical research.

Demographic Factor
The increasing health consciousness and importance of healthy lifestyle not
only in developed nations, but also all over the globe, have slowed down the sales of
Coca-Cola's areated soft drinks. In response to this health consciousness issue, the
company introduced Diet Coke. Such change of consumer life style had also led to the
commencing of its bottled purified mineral water .

Presence of Opportunities & Threats


The opportunities and threats faced by Coca-Cola, and its responses towards
them in comparison of the actions taken by its rivals. A summary of the opportunities
and threats Coca-Cola faces are as below. Each of the elements is dealt with in greater
details.

Opportunities/Threats

1. Competition
2. New products introduction
3. Health issues
4. Major rivals also investing in non-carbonated drinks
5. Brand is attractive to global partners
6. Strength to boost acquired brand and major products link-ups.
7. Free trade

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MBA2-Finance
0421KMKM1009 Page 7
Business Strategy in the Global Environment

8. Risk of cannibalizing sales


9. Focus upon core products
10. Varying growth in non-core categories

Elements of Threats
Market is been growing very fast and trying to chase time as well and hence
there are more and more companies coming up resulting in competition, the threat of
new viable competitors in the carbonated soft drink industry is not very substantial.
The threat of substitutes, however, is a very real threat. The soft drink industry is very
strong, but consumers are not necessarily married to it. Possible substitutes that
continuously put pressure on Coke and its competitors include tea, coffee, juices,
milk, and hot chocolate.

Competition
The non-alcoholic beverages section of the commercial beverages industry is
highly competitive. Competitive products include carbonates, packaged water, juices
and nectars, fruit drinks, sports and energy drinks, coffee and tea and other beverages.
Non-alcoholic beverages are sold to consumers in both ready-to-drink and not-ready-
to-drink-form. Consumer buying power also represents a key threat in the industry.
The rivalry between Pepsi and Coke has produced a very slow moving industry in
which management must continuously respond to the changing attitudes and demands
of their customers. There are high chances that consumers can easily switch to other
beverages with little cost or importance.

Health issues
Increasing consumer and regulatory awareness of the health problems arising
from obesity and inactive lifestyles represents a serious risk to the majority of Coca-
Cola products. As health problems continue to grow, industry legislation and public
backlash may both harm the company's performance going forward.

Response to Opportunities & Threat


Coca-Cola was in the core of the Cola combat and the company is in need of
more market share. It then grabs the opportunity that arises with the presence of
McDonald's. It was the best chance of growing for Coca-Cola as the plan was to enter
into younger demographic of market and refining such branding awareness of Coca-
Cola, while this market is still at its baby stage. Not only that, Coca-Cola was also
able to provide McDonald's restaurant with a portfolio of brands inducing dismissal of
other colas. Coca cola strived further entering into the customer branding awareness
through attachments with schools and education institutions, as this was the market
penetration method employed. Naturally, people want to have assurance in their the
beverages they like the most. Coca-Cola understands that consumers place priority on
being healthy and fit and promotes active living through programs around the world
that support physical activity.

Vinit Shah
MBA2-Finance
0421KMKM1009 Page 8
Business Strategy in the Global Environment

SWOT ANALYSIS

Strengths:- Coca-Cola has been serving American culture for over a 100 years. The
Coca- Cola image is displayed on hats,T-Shirts and other collections. This extremely
recognised brand image is one of Coca-Cola’s greatest strengths. “More than 685
million servings are enjoyed around the globe, Coca-Cola stands as a simple, yet
powerful symbol of class and pleasure”. Coca Cola’s bottling system is one of their
kinds and so is one of the greatest strengths of this brand. Functions carried out
throughout the world but still maintains a local approach. The companies making
bottles and cans are private owned and operated by independent business people who
are certified to sell products of the Coca-Cola Company.

Weaknesses:- Coca-Cola has recently reported some "declines” in sales regarding


unit case volumes in Indonesia and Thailand due to less consumer purchasing power."
In Japan, unit case sales fell to 3% in the 2nd quarter [of 1998] that scared because
while Japan generates 5% of worldwide volume, it contributes 3 times as much to
profits.

Opportunities
Brand name/Goodwill is the most significant element affecting Coke’s
competitive position. Coca-Cola is known well recognised in 90% of the world. Main
aim of coke is to make its brand name even better and well known across the globe.
Changes in packaging have also affected unit case, but the public has tended not to be
affected by new products. infinite growth opportunities around the world is its
advantage because of its bottling system.

Threats
The threat of new practical competitors in the aerated soft drink industry is not
very considerable. The threat of substitutes is very real in kind. The soft drink
industry is in boom but consumers are not inevitably addicted to it. Contribution of
Coca-Cola and Pepsi covers nearly 40% of the whole of the beverage market, the
changing health consciousness of the market could have a serious affect. Of course,
both Coke and Pepsi have already diversified into these markets, allowing them to
have further significant market shares and offset any losses incurred due to
fluctuations in the market (“Cola Wars”, 1991). A key threat to the industry can be
buying power of the consumners. The rivalry between Pepsi and Coke has produce a
very slow moving industry in which management must take action conitiously to the
changing attitudes, likes, dislikes and demands of their consumers. Consumers can
easily switch between other brand making beverages with little expenditure or
importance.
(http://www.neilstoolbox.com/bibliography-creator/reference-website.htm#)

Vinit Shah
MBA2-Finance
0421KMKM1009 Page 9
Business Strategy in the Global Environment

Recommendation of Coca-Cola's Future Generic Business Strategy


As Coca-Cola is entering into different market segments by diversifying more
into drinks and snacks, it is recommended that the company to pursue an overall low
cost strategy and planning in the broad markets that it serves with variety of products.
With this strategy, Coca-Cola will be able to compete with the major rivals by
offering its products at competitively low prices, or match the rivals' price yet earn a
higher profit margin.

Conclusion
The results of analysis of Coca-Cola's vision, mission, environmental scanning
of the drink industry in which it operates, the generic business strategies, global and
internet strategies it adopts, the corporate strategy and the implementation give us a
full overview of Coca-Cola's operation and positioning in the drink industry. The
ever-changing external environment and the challenges posed by the opportunities and
threats in its immediate industry command a significant attention and resources from
top management. With the current successful generic business strategy, Coca-Cola
should not be complacent. On the contrary, it has to keep an eye on its rivals' actions
and changes in external environment variables, than shift the current generic business
strategy to a more appropriate one. The company needs to juggle its corporate strategy
and the internal corporate culture in order to achieve a sound strategy execution and
implementation.

Vinit Shah
MBA2-Finance
0421KMKM1009 Page 10
Business Strategy in the Global Environment

References
India Resource Centre. (2005). Coca Cola. Available:
www.indymedia.org.uk/en/2005/06/313633.html. Last accessed 29th Nov 2010.

 Anonymous . (2005). Daily Servings Count. Available: http://www.thecoca-


colacompany.com/. Last accessed 29th Nov 2010.

Anonymous . (2005). Coca Cola. Available: http://www.thecoca-


colacompany.com/ourcompany/index.html. Last accessed 29th Nov 2010.

QuickMBA. (2005). PEST analysis. Available: http://www.quickmba.com/strategy/pest/.


Last accessed 29th Nov 2010.

Praveen Arichandra. (2005). SWOT analysis. Available:


http://web.ics.purdue.edu/~pbawa/421/pepsi%20cola%20swot.htm. Last accessed 29th Nov
2010.

Vinit Shah
MBA2-Finance
0421KMKM1009 Page 11

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