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External Environment Analysis Of Coca-Cola

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Question:

1. Pestle analysis of Coca-Cola.
 
2. Porter’s Five Force Model used in Coca-Cola.
 
 

Answer:

About coca-Cola

Coca-Cola is one of the world’s largest and most popular brand in beverage industry. Coca-Cola was established in the year 1886 at Atlanta, Georgia. The company ranks top in non-alcoholic beverage industry and also in the marketing, distribution and production of its concentrated syrup. With the brand name coca-cola, the company features many brand like Diet Coke, Fanta, Sprite, Minute Maid which counts to 14 billion dollar revenue. (Karan, 2010).

Coca-cola along with its bottling companies stands first in production and distribution channel in the world. The company has reached over the world with 115 years of existence. The major aim of the company is to increase the market share value which is achieved by maintaining good relations and bond with its associates. The company also values customer requirements and feedback and also focuses on protecting the company assets and reducing the risks associated with operating the business (Thomson, 2008).

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Country background

For conducting external environmental analysis of Coca-Cola, the country selected is India. Coca-Cola comes under the FMCG market and in India the FMCG market is witnessing huge changes since 1990. The competition in this market is increasing and the small and local players are facing difficulties in survival. From 20th century the Indian market and consumers are changing and liking the foreign products. This was the time when Coca-Cola got a green signal from Indian customers. The best marketing strategy adopted by Coca-Cola in India market is to ensure that its beverages are available at rural areas which are very far and inaccessible and reaching maximum of the Indian people. With this strategy the company gained a brand image among the nation and people started assuming it as iconic image. But the entry of Coca-cola in India was not easy it has faced various political and legal factors which will be discussed later in the essay.

 

Introduction

The aim of this paper is to discuss the environmental analysis of Coca-cola. In today’s business scenario most of the companies are astonished by the amount and type of changes taking place in their external environment. Companies of any type of industries are facing the uncertainties of the external environment. For e.g. the retail shops have faced major threat from the huge discount store like Big Bazar, D-Mart or Wall Mart. So in this paper we will discuss the external environment of Coca-Cola and how the various factors of external environment affects the functioning of the company and how the company responds to these uncertainties.

External Environment analysis of Coca-cola

Coca-Cola was invented by Doctor John Pemberton who was a Pharmacist. The basic components of Coca Cola drink are the cola leaves extracts, carbonated water, caffeine and syrup of sugar cane. 

The external environment of a company consists of two areas: Macro and micro environment. The macro environment of Coca Cola consists of external and uncontrollable factors which influence the company’s decision making, performance and its strategy. These factors are social, political, legal, economical, technological factors. Under these factors comes the demographics, corporate social responsibility and environmental forces. Under micro environment the factors affecting the business operations are market structure, market trends, competition, customers and suppliers (Fahad, 2013). By studying the macro environment of Coca-Cola we can identify the possible opportunities and threats for the company which are not in control of the business.

Pestle Analysis of Coca-Cola

PESTLE analysis is a marketing tool used by marketers and researchers to study the macro environment or the external environment of a company. The external environment of a company is affected by various factors like Political, Economical, Social, Technological, Environment and Legal. These factors in total define the whole external environment of Coca-Cola from each and every angle and helps in determining how these various factors will affect the performance and business operations of the company in long run (Pestle Analysis, 2013). Although the company is leading the beverage industry but still to sustain its competitive advantage the company should conduct regular PESTLE analysis so that it can keep a track on its competitor strategies and seek the opportunities so that it can win the customer loyalty and its market position.

Pestle Analysis In Table

Political

The political environment of India is influenced by various factors like government policies, interest of political parties.  India started liberalization with which Coco-Cola got easy entry in India. But because of corruption and pressure from various political parties the company faced down-run and then again it entered India by fulfilling all the political factors.

 

Economical

The Indian economy is quite stable since after the introduction of Industrialisation policies. With these policies there has been reduction in industry licensing, foreign capital liberalization which leads to constant improvement of Indian economy. In the 2013 the country GDP was $5.07 trillion which was improved to 5% in 2014. Thus high GDP and constant improving economic condition of India brings favourable market for Coca-Cola

 

Social

India has huge population with higher younger generation. The population rise leads to more employment and people have more money to spend.

The youths of India are more health conscious and constantly looking for drinks which are refreshing.

The climate of India is hot where people look for beverages which are cold and refreshing which can quench their thirst. Thus the social factors of India are favourable for Coca-Cola

 

 

Technological

India is a developing country and has strongest IT sector in the world. Gradually the country is adopting the attest technologies like 3G and 4G.

India has also launched its own satellites which proves to be a profitable ground for entry of Coca-Cola

Legal

In the recent years India has brought various legal changes in the FMCG market which has brought a positive impact leading to rapid growth of FMCG industry in India.

The government has also imposed excise free zones so that companies can start manufacturing instead of outsourcing.

Such Legal initiatives creates favourable conditions for Coca-cola

Environment

The environmental factors are not in control of humans. The natural calamity can affect the Coca-Cola operations.

The environmental factors which India is concerned is recycling, depletion of the resources, pollution etc.

Already Coca-Cola has been taking such initiatives in other countries so following these norms will not be difficult task for the company in India 

 

Political Factors: Marketing decisions are strongly affected by the development in the political environment. The Political factors includes the government agencies, pressure groups, rules and policies like trade traffic and fiscal policies which influences the economy of a country and in turn the operations of the business.

With the rules and regulations the government intervenes with the functioning or operations of the company as cited by Demetris, 2006. The members of board of directors of a company have to ensure that in every business decision the rules and regulations must be followed. While formulating the various policies related to recruitments, monitory, fiscal and environment must be in adherence with the political factors.

Coca-Cola being a non alcoholic beverage company falls under the category of Food and Drug Administration. The FDA is an US government recognised agency whose role is to monitor and crosscheck the ingredients used in the drink. Thus the company Coca-Cola has to ensure that its ingredients should meet the FDA guidelines before getting the approval of FDA.

Besides meeting the requirement of FDA, the other political factors that need to adhere by business operations of Coca-Cola are the rules and regulations of income tax, export, import and political crisis. The political crisis like protests, political violence brings fluctuations in demand which makes difficult for the company to penetrate in the countries facing political crisis as stated by Demetris, 2006.

Economical Factors: The economical factors are the economic determinants of a country, like interest rate, fluctuation rates, currency exchange rate and economic growth of the nation. These economical factors define the sales and price of the product and purchasing capacity of the customers. The various economical factors like inflation rate, employment and unemployment rate, wage rate, standard of living helps the company in taking decisions related to future investments. The economical factors varies with the country therefore whenever the company is entering into a country it has to make sure that its business operations are in congruence with the county’s economical factors (Njanja, 2012).

The purchasing power of a country depends upon its economic growth, and this is best identified by the company Coca-Cola to enter into the new market and market its product across the world. With this tool the company is working with 63 types of currency. With the fluctuations in exchange rate and currency rate the company’s export of product is affected worldwide (Buchanan, 2009).

The next economical tool affecting the external environment of Coca-Cola is the interest rate on borrowed money. Coca-Cola manages with fluctuations in interest rate by using a derivative instrument. At the time of inflation as indicated by Njanja, 2012 the company sorts its staff on the basis of high salary in countries where inflation rate is high so that they can cope with the situation. The major threat to company from external environment, at the time of inflation is with increasing the salaries, the product cost also increases but that cannot be imposed on product’s price because of the market risk and competition.

 

Social Factors: The social factors comprises of trends related to cultural, environmental, demographic, seasonal and population. For example during the sports season the demand for soft drinks increases. Also in terms of demographic segmentation the youth generation prefer soft drinks more in comparison to old generations.

The social factors like people choice, their culture and tradition, population growth and trends cannot be changed by the company and the choice left for the company is to adapt and adjust with such factors. Coca-Cola being B2C type of company has a direct relationship with the consumers thus the company has to be very specific in analysing the culture and traditions of the country they are entering into (Fahad, 2013).

Coca-cola is having around 3000 above different products. So the strategy followed by the company to penetrate into the new market is to first conducting an intensive market analysis and then introducing few of their products as per the social factors of the targeted country and then gradually increasing the products base on the basis of social factors.

The threat company is facing is the nutritional value of Coca-Cola drinks. The consumers and government are becoming very cautious about the obesity caused from the beverage industry. Younger generations are getting physique conscious and they are getting very concerned about the nutritional value of Coca-Cola drinks. The Coca-Cola management responded to this threat by introducing drinks like diet coke and light coke as cited by Fahad, 2013.

Technological Factors: In beverage industry technology plays an important role in production of the concentrated syrup, packaging of the bottles, filling of the bottles, and distribution of the products. The reason why Coca-Cola is available in different packages or bottles or cans is the technological advancements which bring availability of different vending machines all over the world. The technology helps in production of stylish, colourful, non-refillable cans and bottles which are attracting the children and youth and thus becoming a marketing tool for Coca-cola in promoting its products.

The major business of the Coca-Cola is dependent on its bottling partners. Around 85% of the volume is produced by its manufacturing partners on which the company Coca-Cola do not have the full power. The company is majorly involved in making the concentrated syrup and rest of the work like bottle manufacturing, bottle filling and packaging is done by its bottling partners. Thus the company has to keep a strong relationship with its various partners who are involved in the company operations (Regassa, 2011).

 

Legal Factors: The various legal factors are the laws related to employment, consumer, health and safety and discriminations. As the company Coca-cola is US based so it has to adhere itself with the rules and regulations of the USA like Food Safety act, Federal trade act, cosmetic act etc. Apart from these mentioned acts the company has also to adhere with the environmental acts like waste disposal, pollution checks etc. For this the company has opened various recycling plants where the plastic bottles and water are recycled.

The company has to keep a check on the regulations related to advertising, sales and promotions. If the company fails to adhere or follow these legal laws would create a negative impact on the brand image and company has to pay serious penalties. Thus the company Coca-Cola should keep a regular check whether its operations are in adherence with the country’s legal factors.

Environmental Factors: The environmental factors includes the factors related to environment. Some of the environmental factors are under human control like natural calamities. But other environment factors like pollution, carbon footprint etc can be controlled by humans and the organisations.

Coca-Cola is sincerely following the norms and policies related to environmental issues in India. The company is using recyclable plastic in its packaging. The company has opened water recycling plant where it is recycling the waste water. The company has also planted so many trees to save water. As the company is manufacturing non-alcoholic beverage which requires lot of water so in return company is planting trees to save water.

Porter’s Five Force Model

The Porter’s five force model is used by Coca-Cola for analysing the industry and developing the business strategy.

Rivalry among existing firms: Coca-cola is India facing major competition with Pepsi, Cadbury, Parle which are leading the beverage industry. The global sales of Coca-Cola is higher than Pepsi but in India Pepsi is leading the market with highest sales as initially coke faced legal issues while entering Indian market.

As per the survey report in Beverage digest 2008 in non alcoholic carbonated drinks Pepsi is leading the Indian market with 30.8% increase in share whereas the Coke market share has decreased to 42.7%. But gradually coca-cola is gaining its market size by setting up its own bottling plant and distribution network (Fahad, 2013).

Threat of substitutes: The beverage industry is filled with various products like tea, coffee, water, juices etc. Such companies need aggressive advertising and marketing strategies to make their products easily available to the consumers. Thus to gain a competitive advantage Coca-Cola has also started diversifying its products like bottled drinking water and juices to increase its profitability. The switching cost for consumers is very less thus they easily shift to other substitutes. The perceived values of this industry is very less because for consumers all products are same the only difference is in their promotional strategies (Fahad, 2013).

Bargaining power of consumers: Consumers can buy the products from vending machines, fast food cafes, and retail stores. Thus the availability of these products at different places shows the bargaining power of buyers. The bargaining power is high because these various stores purchase in bulk.

Bargaining Power of Suppliers: The bargaining power of suppliers is weak because the raw material required in manufacturing the soft drinks are very cheap like sugar, colour, flavours etc. These raw materials are easily available to the producers; switching cost is less so manufacturers can easily shift to other suppliers (Fahad, 2013).

Threat of forward integration is also weak as suppliers cannot afford establishing plants as they are very costly.

 

Recommendations And Conclusion

The above report details the brief introduction of the company Coca-Cola. Then gives a light on the international market analysis of its product and operations. The paper mainly focuses on the external environment analysis of Coca-Cola which is done by doing PESTLE Analysis. With PESTLE analysis the company’s management can identify the major segments which the company need to focus. Also the PESTLE analysis helps the company to achieve its objectives by identifying the trends and factors which are affecting Coca-cola operations on International Scale. As stated by Fahad, 2013 the company operating in international market is still facing the challenges and overcoming them by maintaining its top position by its innovative ideas, brand position and availability.

From the report it is very clear the Coca-Cola always regards its customer base number one factor in while operating in international or local level. The customers are always valued as their choices and tastes are varying day by day. Thus the company has understood to succeed in the market it has to first understand the liking and demographics of its customers and accordingly bring new product innovations to maintain and target new customer base. If Coca-Cola fails to satisfy the need of its customers they will switch to other brands. Customers are no longer loyal thus Coca-Cola has to keep regularly analysing its external environment to maintain its leading position in the market and sustain its competitive advantage.

The Values of Coca-Cola are: Integrity: to do always what is right; Passion: Whatever they do and how they do should be the best; Service: To fulfil the expectations of their customers, consumers and society; Quality: No compromise in Quality, should be on top every time; Results: To win as a team in workplace as well in marketplace; Respect: Should respect others by listening to them, understanding them and appreciating them; Fun: Enjoy their work every day. (Karan, 2010)

At last we can conclude saying that Coca-Cola is maintaining its top position by emphasising on its initiatives and focusing on minimising the pollution, providing health living (Diet Coke) and providing excellent work environment for its employees. These all activities of Coca-Cola will amplify the economic development of the country in which Coca-Cola is operating.

 

References

Buchanan, D., Fitzgerald, L. And Ketley, D. (2005), Sustaining Organizational Change, International Journal of Management Reviews. Vol 7, No 3, September, PP189-205

Demetris Vrontis, Alkis Thrassou. (2006). Situation Analysis and Strategy Planning: An Empirical case study in the UK beverage Industry. Innovative Marketing, Vol 2, Issue 2

Fahad Muhammad Umar. (2013).Global business strategy: A case study of Coca-cola company. Stratford college of business and Management UK.

Karan Lohan. 

Njanja, L., Pellisier, R., & Ogutu, M. (2012). The Effect of External Environment on Internal Management Strategy. International Journal Of Business & Management, 7(3), 194-205.

Pestle Analysis. (2013). Understanding PEST Analysis with Definitions and Examples. 

Regassa, H., & Corradino, L. (2011). Determining the value of the coca cola company — a case analysis. Journal of The International Academy For Case Studies, 17(7), 105-110.

Thomson Reuters.  (2008). U.S. Soft Drink Sales Volume Falls More in '07. 

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