ABE INTERNATIONAL COLLEGE OF BUSINESS AND ACCOUNTANCY

VILLAGE CENTER, AVENIDA VETERANOS, TACLOBAN CITY

COCA-COLA
(VALUE CHAIN ANALYSIS)

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In Partial Fulfillment
Of the Subject
Management Service
(MWF/ 9:00- 10:00)

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Submitted by:
Jihanne Palada

Mary Joyce Manzano

Submitted to:

Ms. Lourdes Espera

Instructor
INTRODUCTION
Coca Cola markets nearly 2,400 beverages products in over 200 geographic
locations. As a result development of a superior value system is imperative to
their operations. Throughout this paper we will analyze their value system by
using Michael Porteras value chain analysis model. In an attempt to paint a
current picture of the non-alcoholic beverage industry we will assess the
market activity by using mergers, acquisitions and IPOS as our benchmarks to
determine if the market is growing or contracting.

Value Chain Analysis

A value chain is a model used to disaggregate a firm into its strategically

relevant value generating activities, in order to evaluate each activity's
contribution to the firm's performance (Terms V 2006). Through the analysis of
this model we can gain insight as to how a firm creates their competitive
advantage and shareholder value.

The value chain of the nonalcoholic beverage industry contains five main
activities. These include inbound logistics (suppliers), operations, outbound
logistics (buyers/ customers), marketing and sales, and service.

PRIMARY ACTIVITIES OF COCA-COLA:

Inbound Logistics (Suppliers)

Some of Coca Colas most notable suppliers include Spherion, Jones Lang
LaSalle, IBM, Ogilvy and Mather, IMI Cornelius, and Prudential. These
companies provide Coca Cola with materials such as ingredients,
packaging and machinery. In order to ensure that these materials are in
satisfactory condition, Coca-cola has put certain standards in place which
these suppliers must adhere to (The Supplier Guiding Principles). These
include: compliance with laws and standards, laws and regulations,
freedom of association and collective bargaining, forced and child labor,
abuse of labor, discrimination, wages and benefits, work hours and
 overtime, health and safety, environment, and demonstration of
compliance (Coca Cola 2006).

From time to time, Coca-Cola uses third parties to assess their suppliers
by having interviews with employers and contract workers. If a supplier
has issues about the supplier guiding principles, they are usually given a
certain amount of time to take corrective measures; if not, Coca-Cola has
the right to terminate their contract with these suppliers.

Operations

Coca Colas core operations consist of Company-owned concentrate and

syrup production (Coca Cola 2006). According to their website, some of the
main environmental impacts of their business occur further along the value
chain through system's bottling operations, distribution networks, and sales
and marketing activities (Coca Cola 2006). Management of these operations
across the business value chain tends to be more challenging outside of the
core operations. According to Coca Cola, they continue to address this by
working with their partners to reduce the effects at every level of the
manufacturing process by enlarging their comprehension of the complete
environmental impact of their business through the entire lifecycle of their
products from ingredient procurement to production, delivery, sales and
marketing, and post-consumer recycling (Coca Cola 2006).

Outbound Logistics (Buyers/ Customers)

The activities required to get finished products to customers include

warehousing, order fulfillment, transportation, and distribution management.
Coca Cola has the worlds largest distribution system. They own, lease, and
operate in over 800 plants around the world (Coca Cola 2006). The 2,400
beverage products which they market reach consumers in more than 200
different geographic locations (Coca Cola 2006). Grocery stores such as
Sobeys, fast food restaurants such as McDonalds (fountain sodas), and
vending machines are just a few of the distribution units used to ultimately
reach consumers.
Coca Cola has over 300 bottling partners which range from publicly traded
businesses to small family owned operations (Coca Cola 2006). They have
implemented the Coca Cola System in which they work cohesively with their
partners in order to develop strategies aimed to meet the needs of all their
customers.

Examples of their commitment to these strategies are seen in their plant in

Indonesia, where boats are used to transport the products between hundreds
of islands throughout the Amazon. This is often because waterways are often
the main way to access these remote islands. In some of the higher
elevations of in the Andes, Coca Cola products are sometimes transported by
four-legged power. Across much of Africa, bottlers deliver to thousands of
family-run kiosks and home-based stores.

Marketing and Sales

Out of approximately 2,400 products, Coca Cola markets four of the worlds
top sales drink brands. Although the industry is relatively small and they only
directly compete with two companies, creativity is a vital marketing strategy
to Coca Cola.

Coca Colas ultimate goal is to deepen their brands connection with

consumers. As a result, they have to constantly reinvent their product (Coca
Cola 2006). The marketing strategy they use is directly linked to the
consumer; from advertising, to point of sale, to ultimately opening and
consuming a Coca Cola beverage. Techniques which they have used to
achieve this include developing new products and brands, changing the
design of their packaging, and designing various new advertising campaigns
(Coca Cola 2006).

On October 19th, Coca Cola reported their earnings for the third quarter.
Earnings per share are up which results in higher benefits for shareholders.
According to Neville Isdell, CEO of Coca Cola, they have experienced a
growth in sales of five percent compared to the same quarter last year. This
is as a result of balancing performance across their global markets and their
product portfolio (Coca Cola 2006).
 Service

Activities that maintain and enhance a products value include customer

support, repair services, installation and training.

Coca Colas customers range from large international retailers and

restaurants to smaller independent businesses and vendors. As a result, they
provide services tailored to meet their customers needs.

Coca Cola also supports their customers by providing them with the training
necessary to help their businesses become more effective and profitable.
They have established Customer Development and Training Centers which
are available to more than 21,000 independent retailers, which provide
training at no cost in areas such as general management, marketing, finance,
inventory management and customer service.

Mergers, Acquisitions, and IPOs

Mergers

In order to grow profitably, minimize their costs, and to become the global
market leader, Coca-Cola has business partners all around the world. These
business partners play a key role in helping Coca Cola to achieve their
strategic goals. Some examples of Coca Cola merging with other companies
include:

Coca-Cola merged with Apple Computer to promote its iTunes digital music
service. With this approach, Coca-Colas aim was to create a new form of
communication among their younger customers (India Daily 2006).

On September 26, 2006, Coca Cola announced changes in the terms of their
merge with Efes Sinai Yatirim Holding. In this merge, Coca Cola has a
shareholding investment interest of 87. 63%. The Company announced
that according to these changes, the merger and exchange ratios will be
97.7514% and 1.73839, respectively. Coca-Cola Icecek A.S. will also
increase its capital from TRY 249,589,770 to TRY 255,331,140(Reuters
2006).
 Acquisitions

On September 26, 2006, Pepsi Co., a major competitor of Coca Cola,

announced that they had acquired IZZE Beverage Company, the maker of all-
natural, sparkling fruit juices. Unfortunately the announcement did not outline
further details of the agreement (Reuters 2006).

On September 25th Coca Cola announced its intent to take control of CCBPI
from San Miguel Corp. According to Reuters, Coca Cola Co. is set to take
over management and control of the soft drinks arm of the Philippines' San
Miguel Corp., though a formal deal has yet be agreed on. San Miguel wants to
offload its 65% stake in Coca Cola Bottlers Philippines Inc. (CCBPI), the local
unit of San Miguel soft drinks firm, which has been suffering from weak sales
and demand in recent years. Coca Cola currently owns 35% of CCBPI. San
Miguel also wants Coca Cola to remove a non-competition clause, allowing
San Miguel to sell beverage products that compete with CCBPI(Reuters
2006).

IPOs

Initial Public Offering (IPO) is the first sale of a corporations common shares
to public investors. New IPO means that the industry is continuing to expand
(Yahoo Finance (2006).

Although the most recent IPO in the nonalcoholic beverage industry occurred
in 2002 the industry is relatively stable. It is difficult for new competitors to
enter the industry; if they are successful, they will be faced with high
competition because the industry is relatively full (Yahoo Finance 2006).
Support Activities for the Main Activities:

Infrastructure

Organizational Structure

Coca Cola has expanded its operations over the past 120 years. They now
operate in over two hundred countries with nearly 2400 product offerings.
Their global operation is divided into six geographic locations- the Africa
Group, East and South Asia and the Pacific Rim Group, the European Union
Group, the Latin American Group, the North Asia Eurasia and Middle East
Group, and the North American Group (Coca Cola 2006).

Control Systems

Coca Colas guiding principle is to lead by example and learn from every
experience (Coca Cola 2006). Coca Cola has established high standards at all
levels which they strive to meet in order to ensure that they achieve
international best practices in terms of transparency and accountability (Coca
Cola 2006). They have developed control systems which are outlined in their
Corporate Governance Guidelines, Codes for Business Conducts, and bylaws.
In addition, they have established seven committees which monitor and
regulate performance at all levels of operations. These include Audit,
Compensation, Finance, Management Development, Public Issue and Diversity
Review, Executive and Directors and Corporate Governance committees
(Coca Cola 2006).

Company Culture

Coca Cola has a global citizenship which is dedicated to ensuring that their
business operations are conducted in a responsible manner. According to
their website, the strength of their culture derives from the passion,
leadership and integrity demonstrated by all employees worldwide (Coca Cola
2006). Coca Cola is committed to ensuring that all company citizens are
treated fairly. They have adopted the practices of the United Nations Global
Compact which is an initiative guided by ten principles to encourage unity
between UN agencies, labor and civil society, and to support universal
environmental and social principles (UN Global Conduct 2006).

Human Resource Management

Within Coca Colas human resource department, strategies are developed and
implemented which will ensure that the organization builds the capability to
deliver desired business results (Coca Cola 2006). With this being said, the
human resource department is currently undergoing a number of changes.
Coretha Rushing, head of the department for the past four years is resigning
as a result of a discrimination case (New York Times 2006). Along with this,
the department is also in the midst of planning to downsize.

Coca Cola has approximately 37,000 employees which fall under their human
resource department. Employees receive the best value and are provided
with diverse benefits and options. Some of these include health and life,
retirement, tuition and program, and additional benefits. As previously
mentioned training programs made available to independent retailers in
general management, marketing, finance, inventory management, and
customer service to independent retailers also fall within this department.

Technology Development

Coca Cola recognizes that they must keep up with technology in order to
maximize productivity. In 2003 they formed a contract with Symbol
Technologies, Inc. They provided more than $3 million in technological
support. They built a system which combines the PDT 8100, data-
communication cradles and printers for pre-sales operations. According to
Coca Cola, future growth will include wireless wide area network
communications for anywhere, anytime information and laser bar code
scanning (Symbol Technologies 2006). As a result, Coca-Colas sales
representatives are now able to visit 30-40 outlets daily, which is 25 percent
higher than before. Technology investment brings different benefits to Coca
Cola. These include increased productivity for sales representatives and
increased number of sales visits by 25 percent. In the future, technology will
continue to provide the highest level of service to the Coca Cola Company by
improving efficiency, leveraging existing knowledge, and proactively
mitigating legal issues by educating clients on key issues affecting the
company (Coca-Cola 2006).

Procurement

Coca-Cola has plants, production sites and bottling facilities all around the
world. This plays an important role in their business since they are one of the
global leaders of the non-alcoholic beverage industry. According to the CIO
of Coca-Cola, outsourcing comes at the expense of improving in-house
skills, which will eventually lead to reduced costs. As a result, Coca-Cola
uses outsourcing to be a world leader by implementing control mechanisms to
its contractors, as is mentioned in appendix 1. In the main time, they invest in
and train their employees in order to achieve their long-term strategic goals.
They take corporate responsibility very seriously, and make sure that all of
their business partners comply with their Supplier Guiding.
ANALYSIS
Supplier Guiding Principles play a key role in maintaining Coca-Colas quality of
standards. Coca-Cola makes sure that their suppliers comply with these
standards by using third parties to assess them. However, there are still many
issues with regards to water resources, and health problems. For example,
Coca-Cola drained so much water in India that at least five Indian communities
are now faced with water shortages in addition to other health problems.
Another example includes, Coca-Cola using expired materials for the production
of soft drinks in Vietnam. An inspection was made in July 2006 and inspectors
discovered 7.5 tons of expired material had been used to produce soft drinks.
They also found that there was a large amount of expired soft drinks which had
already been sold into the market (Corp Watch 2006).

It is important to gain the support of the local community as it will affect the
growth, and the image of the company. As a result, Coca Cola has certain rules
in place which they must also comply with in order match their organizational
responsibility guidelines. On the contrary, examples previously mentioned
display hypocrisy and damages their image (Corporate Accountability
International 2003).
CONCLUSION
Through our examination of the market activity of the non- alcoholic beverage
industry we have not found any significant changes within the industry. There
were only two mergers and two acquisitions with the most recent activity being
in September of 2006. All of these transactions were between unrelated parties
which indicated a minimum growth in the industry. There most recent activity
pertaining to IPOs was in 2002. Again, this is an indicator of the marginal growth
of the industry. However, because Coca-cola is constantly expanding their
operations all over the world we can probably foresee that this may change in
the near future.

Coca Cola is doing an increasing amount of outsourcing in order to minimize

their costs, maximize their profit, gain more market share, and to protect their
competitive advantage. They have mechanisms in place that control and assess
their business partners in order to ensure the quality of their products and their
image; however, their practices in some parts of the world do not act in
accordance with their corporate responsibility guidelines. This results in bad
publicity and negative brand image. The company is trying to circumvent these
negative effects by instituting training programs which promotes equilibrium of
the companys value system.

References
Coca Cola (2006). Citizenship. Retrieved October 22, 2006 from,
http://www2.coca-cola.com/citizenship/supplier_guiding_principles.html

Coca Cola (2006). Careers.. Retrieved October 22, 2006 from,

http://www.thecocacolacompany.com/careers/employee_benefits.html

Coca Cola (2005). Value Chain. Retrieved October 22, 2006 from,
http://www2.coca-cola.com/citizenship/value_chain.html

Coca Cola (2006). The Coca Cola Company Reports 3rd Quarter and Year-to-
Date 2006 Results. Retrieved October 25, 2006 from, http://www.thecoca-
colacompany.com/presscenter/nr_20061019_corporate_third_qtr_earnings.html
Corp Watch (2006). Tons of Expired Coca Cola Materials Destroyed in Vietnam.
Retrieved March 24, 2006 from, http://www.corpwatch.org/article.php?id=13906

Corporate Accountability International (2003). Statement of Corporate

Responsibility of Corporate Accountability International Associate Campaigns
Director Gigi Kellett at the Annual Shareholders Meeting of Coca Cola.
Retrieved October 21, 2006 from,
http://www.stopcorporateabuse.org/cms/page1256.cfm

E-Competitors (2006) Glossary. Retrieved October 24, 2006 from,

http://www.e-competitors.com/Glossary/Terms_V.htm

India Daily (2006). Coca-Cola has agreed an Alliance with Apple Computer to
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www.indiadaily.com/editorial/12411.asp

Legal Tech (2001). The Coca-Cola Company Legal Division Technology

Statement of Vision. Retrieved October 23, 2006 from,
www.legaltech.com/coca_cola.htm

The New York Times (2006). Company News Coke Is Losing A Human
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Symbol Technologies, Inc. (2003) Coca Cola FEMSA To Roll Out Symbol

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from,

http://www.symbol.com/news/pressreleases/press_releases_coca-
cola_femsa.html

Symbol Technologies, Inc. (2006) Coca Cola HBC Improves Sales Productivity
by 25

Percent with Symbol Solutions. Retrieved October 24, 2006 from,

http://www.scansource.com/symbol/files/CocaCola_CS.pdf
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Yahoo Finance (2006) IPOs By Industry. Retrieved October 25, 2006 from,
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