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Benefits of International Diversification

Question:

Discuss about the Marketing strategy of Coca-Cola company.

Recently, Coca-Cola company revealed that it had made a contract with the Nigerian based company, Chi limited to acquire minority equity share holding. Chi ltd is a market leader in Nigeria in juice and dairy products (Team, 2016). As a result, Coca-Cola company has been able to create a strategic relationship with Chi ltd. Initially, Coca-Cola targets to increase its shares to 100% in the next three years from its initial 40% (Team, 2016). Coca-Cola company is strategically positioned to expand its product portfolio and to increase its regional dominance in Africa. Coca-Cola company will have an edge in the market since it is being introduced by a major market leader in the region (Team, 2016). It believed that international expansion and diversification of products are the main drivers of Coca-Cola’s growth and it is believed that this investment is strategic and act as a future growth catalyst. 

Developing strategies for managing operations and global market place in a country markets that are highly diverse have become essential tasks for business managers (Stefano Bresciani, 2017). Similarly, the process of international diversification is associated with a fair uncertainty deal, with little form agreement. The impact of industry, environmental, and industrial factors have not been intensively exploited in a number of previous studies although there has been an exploration of other determinants of international diversification (Robert J. Hodrick, 2016). At the same time, the relationships between the performance and international strategies still remains complicated. Unsurprisingly, the extent of the companies’ involvement in international business and their scope and scale in international diversification has significantly become the center of attention for management researches.

International diversification is an approach through which a company increases the sales of its products across countries and global regions into a different markets or geographical regions (Patrick J. Wilson, 2003). Researches using terms such as international expansion, internationalization, multinationality, geographic expansion, and globalization are used in this context to refer to same construct of strategic management. The researches concerning international diversification has centered on the portfolio of foreign direct investment comprising of control and equity. Additionally, researchers in strategic management perceive international diversification to be more than just a simple risk reduction means, that should be embraced rather than being applied as a competitive edge gaining strategy (Ang, 2007). Therefore, the literature on management provides substantial attention to the existing relationship between the performance of the firm and international diversification.


Studies have additionally proposed a range of forerunners, and late research on international diversification has progressively accentuated complex connections and potential moderating impacts, outcomes of processes, and the impacts of the institutional condition (N. Capar, 2003). Thus, by using the case of Coca-Cola, this study establishes a thorough model of international diversification that takes after this general movement by analyzing research on the precursors, arbitrators, and results of global broadening research. On the premise of literature survey and evaluation, the study suggests a number of recommendations for proceeding with research on international diversification.

The Importance of Product Diversification

During the past two decades, the environment of the international business has seen tremendous change, in such a way that international diversification has increasingly become an important strategic option obtainable by companies looking sustainable competitive edge (Sanjay Dhir, 2015). According to the report released by the World Investment, leading global companies such as Coca-Cola operated in 2003 on an estimated average of 48.9% of their assets, 405 of their employees, and 48.00% of their total sales in other countries apart from their home country.

International diversification has increased significantly with the MNEs of the developing country (Tim A. Kroencke, 2017). For instance, in 2002 the companies operating in the emerging market economies accounts for approximately $ 850 billion of the total foreign direct investment. The south African based company Cemex, which has specialized in provision of construction materials with its headquarters located in Mexico, is an example of the firm’s diversification. The company operates more than 30 out of its 50 subsidiaries and 70% of its staff are employed outside of South Africa, which is its home country (Abid, 2014). Mainly since 1980s, there have been researches concerning the international diversification phenomenon through analyzing the foreign operations shares, which include the subsidiaries, sales, profits, or assets within the MNEs. This kind of study experienced increased growth in the whole of 1990s as researchers considered how organizations could attain new resources and move the core competencies by diversifying internationally to new markets, resulting in adjusted risk returns and increased performance (Gholamreza Mansourfar, 2010). The most recent analysis of articles published in leading management journals demonstrate that international diversification has become one of the areas of international management which is most popular. The international diversification researches continues to grow as the questions for research becomes richer, dwelling more into the complex relationship with varied motivations and performance that leads the expansion of the organizations internationally.

Coca-Cola company has a portfolio of more than 3400 beverages ranging from the regular sparkling and diet beverages to beverages that are still such as tea and coffee, water, 100% fruit juice, energy and sports drinks, and soy and milk-based beverages (finanzen.net, 2016). Coca-Cola varieties cut across the whole world. The diversification of products strategy comprises of current product modification to increase its potential. Diversification of products and product development is quite different in a such a way that product diversification entails the creation of new base of customers, which increases the market potential of the novel product (Team, 2016). This is mostly accomplished through extensions of the brand or the new brand’s implementation, though in some instances the modification of product may establish a new market through the creation of new product uses.

The diversification of products strategies has two main dangers. These are the loss of the original brand’s meaning and the new customer base misunderstanding. The risk of new customer base misunderstanding is present with the development of the market, while the risk of cannibalization or the loss of meaning is just an important as with the development of products (Chepkilot, 2016). Coca-Cola company produces, distributes, and sells to customers a number of beverages that are non-alcoholic globally. The firm provides consumers with a variety of drinks that can be put into three main categories. These categories include waters, still beverages, and sparkling beverages.

Coca-Cola's Acquisition of an Equity Share in Chi Limited

Sparkling beverages includes the traditional variety of refreshment products offered by Coca-Cola such as Sprite, Coca-Cola diet, Fanta, and Coca-Cola. Products under this segment are a significant and offers the consumers a satisfying and enjoyable solution to keep good hydration. One of the new products that have been launched by Coca-Cola in the new global markets includes the Coca-Cola Zero. This product has been among the most successful product launched in the firm’s history. The company announced that it had sold more than 599 million cases globally in 2009 (Banutu-Gomez, 2012). Another product that has been launched in Russia by the company is Fruktime. This is a fruit flavored product and which was the fourth product to be launched in Russia by Coca-Cola company after the launch of Sprite and Fanta. Fruktime comes in four flavors. This include soda, cream, Buratino, and Soda. Researches on the markets demonstrates that these flavors are the most preferred by the consumers in Russia. On the other hand, still beverages refer to the beverages that do not have carbon, such as nectars and juices. The fruit concentrate is obtained by evaporating water that is mostly found in original juice and then replacing it at the time of bottling. Fruit necta is juice pulp or a juice to which varying amount of sugar and water is added.


Coca-Coola has introduced also new lines such as Spoarade and PowerAde in Peru. The new lines of products are not eating from one another’s market share but growing the entirely the actual market share. The main aim of introducing the brand such as PoerAde was to help the Coca-Cola company to compete against other products in the market such as Gatorade, so as to gain the competitor’s market share (Chepkilot, 2016). Therefore, the company’s introduction of these kind of products sounds prosperous. Nonetheless, the company still face fierce competition from other products such as Gatorade. Gastorate is one of the leading brand in the market of isotonic beverage. In Belarus, the company sells variety of juices such as Rich and Dobry (finanzen.net, 2016). The company’s Nestea tea brands in Belarus include Peach, Lemon, Citrus and Wildberries. Consumers demand variety and additional choices within the category of tea led to the Coca-Cola’s introduction of Nestea Vitao in 2009. The brand comprises a range of white, red, and green tea bags combined with fruit flavors. In China, the Sprite tea drink and the Minute maid have been able to perform exceptionally in the region. Both drinks have been established through researches and as a result there has been the development of a production unit in China.

Coca-Cola company has also launched its new products named Krushka in Belarus, Russia, New York, and Ukraine. The product is fermented with barley and rye is natural sugar flavored (Team, 2016). Though the product is manufactured following a beer process, its fermentation is monitored closely to ensure that the level of alcohol is within the Food and Drug Administration’s guidelines for non-alcoholic beverages. An extensive variety of water has been availed to consumers by the Coca-Cola group. For countries that do not have a long history of high sales of Coca-Cola carbonated drinks, water is a significant product line for Coca-Cola company. In Belarus, through its line of BonAqua, Coca-Cola offers six types of water.

management and Labor relation strategies are the most important strategies companies considers when doing business in foreign nations (Banutu-Gomez, 2012). How management and labor perceive each other is varied across countries. It is significant for firms to evaluate the point of departure in each country’s norms, values, culture, religious beliefs, and laws to determine how to adopt management and labor strategies that are only effectively, but also accepted socially. Before establishing operations in any nation, a firm ought to decide how they plan to staff their offices. There are three structures in which an organization can staff their global operations (Chepkilot, 2016). These incorporate the geocentric, polycentric, and ethnocentric structures. The ethnocentric approach is when individuals from the home organization are accused of dealing with the operations in the outside nation. The polycentric approach is the point at which the nearby individuals of the remote nation oversee operations. Geocentric staffing is the point at which the organization picks the best individuals to oversee operations. Along these lines, in a geocentric system, there could be a blend of home, host-nation, and even outsider managers

One reason why Coca-Cola is so profitable is on the grounds that it has executed the approach of geocentric staffing. This is at times a troublesome methodology to initiate on account of the different social constructs managers will experience, not simply among their immediate reports, but rather among kindred administrators. Be that as it may, Coca-Cola has clarified that they manage social contrasts through association configuration by making a variety of adaptable structures and organizations that can supplement diverse markets and through staffing by esteeming global assignments and giving the company's best individuals presentation to various societies and methods for leading business (Team, 2016). Notwithstanding the staffing approach, firms must assess the labor force they will experience. They ought to recognize the nation's particular objectives, structures, and beliefs that contrast from the host nation, different techniques of collective-bargaining, approaches the nation uses to manage working environment strife, administrative associations and much more. It is vital for organizations to decide whether the host nation's work compel will be perfect with the company's main goal and objectives (Banutu-Gomez, 2012). Coca-Cola champions proceeded with development of the business and require the inclusion of expert staff. Potential workers of the Coca-Cola Organization must be open, motivated, result-oriented, and independent, in light of the fact that the organization's center qualities are the commitment, cooperation, quality, integrity, and teamwork.


An organization must defend itself from any undesirable work relations issues by creating methodologies for managing these circumstances. For instance, when unions have attempted to organize, Coke has endeavored to break the drive by expanding the compensation scales substantially. This has worked in favor of Coca-Cola in many nations. Furthermore, Coca-Cola's establishments are for the most part little firms that do not issue stock so their monetary operations and they are classified. This shields the parent organization from being lawfully in charge of any unpopular activities from a diversified firm. Note that Coca-Cola has not generally been effective in their labor relations techniques in each nation. Coca-Cola was included in a lawsuit asserting that they utilized prison labor and were included in other human rights debates in China. Mr. NebilleIsdell, Director of the Board (Chepkilot, 2016), denied these cases clarifying they consider labor practices as more important. Also, he added that internal examinations found no utilization of prison labor. The governing body charged that Public Issues and Diversity Audit Board of trustees have consistently inspected the organization arrangements, systems and positions identifying with human rights issues which incorporate working environment responsibility, and particularly identifying with representatives of the organization and its providers in China. Coca-Cola was likewise involved in the biggest racial segregation claim ever. It was recorded in the interest of 2000 previous and current U.S. representatives and brought about a $192.5 million settlement (Ang, 2007). The U.S. Work Secretary was entrusted with supervising the organization's diversity endeavors after the outrage. Coca-Cola reacted rapidly to the situation and adopted diversity in its organization strategy. In later years, managers in the U.S. concentrate more on issues of diversity in Europe.

Executing sound management methodologies is vital when an organization grows internationally since administrators are straightforwardly in charge of settling on choices that influence the workers of the host organization and effect the organization as a whole. Coca-Cola has been successful at the adoption of management strategies. Because of the decentralization of Coca-Cola's remote operations, directors are permitted to settle on choices that they believe are most appropriate for the nation in which they work. These techniques can contrast enormously from nation to nation. For instance, due to the way business is done in U.S, managers concentrate on contracts more than associations with their clients and vendors than other nations. In the U.S., independence is pervasive in the public eye and the desires of American laborers are that they should take care of themselves or they may be taken advantage of by the management of their respective organization (Chepkilot, 2016). It is the inverse in Asia. Managers must know about these distinctions from nation to nation and embrace management styles that mirror these distinctions. It is critical for directors not to compel standards that are utilized in their home nations while overseeing abroad company departments. Coca-Cola trusts that diversification of experience diminishes the inclination to trust that there is just a single approach to get things done

Conclusion

International diversification is one of the main international actions taken by different companies as growth strategy. Coca-Cola company recently announced that it was acquiring minority shares from the Nigerian, Chi ltd. This is seen as efforts of the Coca-Cola company diversification strategies that are aimed to increase its revenues in the global markets. Additionally, the company also has diversified to a range of products across the globe. From the literature evidence discussed in this paper, it is evident that the company has been successful in its international actions. However, in its effort to adhere to the labor guidelines, the company has been accused of tempering with human rights, an allegation it has denied. International actions are crucial for the success of an organization globally.  Therefore, the academic fraternity and other stakeholders need to explore the subject further so as to come up with the best practices to be implemented by global entities.

References

Abid, F., 2014. International Diversification Versus Domestic Diversification: Mean-Variance Portfolio Optimization and Stochastic Dominance Approaches. Risk and Financial Management, pp. 45-66.

Ang, S. H., 2007. International diversification: A “quick fix” for pressures in company performance?. Business Review, 9(1), pp. 17-23.

Banutu-Gomez, M. B., 2012. COCA-COLA: International Business Strategy for Globalization, London, UK: William G. Rohrer College of Business.

Chepkilot, 2016. Management styles & Leadership practices at Coca-Cola., s.l.: s.n.

finanzen.net, 2016. How Coca Cola Is Continuing Its Portfolio Diversification Strategy. [Online]
Available at: https://www.finanzen.net/nachricht/aktien/How-Coca-Cola-Is-Continuing-Its-Portfolio-Diversification-Strategy-4751756
[Accessed 17 5 2017].

Gholamreza Mansourfar, S. M. a. T. H., 2010. A review on international portfolio diversification: The Middle East and North African region. African Journal of Business Management, 4(9), pp. 4167-4173.

Michael A. Hitt, L. T. T. M. B. C., 2006. International Diversification: Antecedents,Outcomes, and Moderators, Texas: Mays Business School.

Capar, M. K., 2003. The relationship between international diversification and performance in service firms. Journal of International Business Studies, 34(1), pp. 345-355.

Patrick J. Wilson, R. Z., 2003. Does it Pay to Diversify Real Estate Assets? - A Literary Perspective, Adelaide: Center for International Economics Studies.

Robert J. Hodrick, X. Z. 1., 2016. International Diversification Revisited, s.l.: s.n.

Sanjay Dhir, S. D., 2015. Diversification: Literature Review and Issues. [Online]
Available at: https://www.researchgate.net/publication/284224641_Diversification_Literature_Review_and_Issues
[Accessed 17 5 2017].

Stefano Bresciani, A. F., 2017. International Diversification and Performance In European Service Multinational Companies, Torino: Department of Management – University of Torino.

Team, T., 2016. How Coca Cola Is Continuing Its Portfolio Diversification Strategy. [Online]
Available at: https://www.forbes.com/sites/greatspeculations/2016/02/25/how-coca-cola-is-continuing-its-portfolio-diversification-strategy/#12d6a4b32adf
[Accessed 7 5 2017].

Tim A. Kroencke, F. S. ,. S., 2017. International Diversification Benefits with Foreign Exchange Investment Styles, s.l.: Center for European Economic Research.

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