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Sample Paper: An Analysis of Coca-Cola
Table of Contents
The competitive advantage of multinationals comes from them possessing unique internal resources and capabilities and having the ability to apply them in diverse markets to earn superior profits. Approaching them from this perspective, multinational firms gain competitive advantages by possessing unique resources that they can leverage especially in foreign markets. Coca-Cola Company has been an example that has exhibited the competitive edge that multinational firms have. In addition, multinational firms succeed in sustaining their competitive advantages if persistent in developing new capabilities, especially with the ongoing changing environment and increasing competition (Frynas & Mellahi, 2014, p. 138).
Focusing on Coca-Cola, this paper examines its key resources, capabilities and core competencies. It will evidence that the success factors of the multinational can be linked to the firm being a unique bundle of tangible and intangible resources. The uniqueness of these makes it difficult for competitors to emulate the firms. As Johnson and Dimitratos (2014), p. 19 observe, the acquisition and maintenance of distinctive assets are critical elements needed for the firm’s success in establishing sustainable competitive advantage and economic rent while safeguarding the sustainability of the rents can be attributed to barriers to imitation.
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Analysis of Coca-Cola
The Company
Coca-Cola Company was founded in 1886 in Atlanta Georgia as syrup initially sold in a pharmacy as a patented medicine. Since then, Coca-Cola has grown into one of the largest multinational firms globally, selling numerous carbonated soft drinks in over 200 countries. A strategy that the firm has adopted in globalizing its products has been raising its product mixes in response to local customers worldwide (Shenkar et al., 2014, p. 2). The production and distribution mechanism that Coca-Cola adopts is a franchising operational mode in its globalization process. The firm produces concentrates, syrups and beverage bases that it then sells to bottlers worldwide. Then, the bottlers that hold Coca-Cola franchises in various geographical areas produce the final carbonated beverage by mixing the provided syrup with sweeteners and filtered water. The bottling partners afterwards package the beverages, merchandize them and distribute them to retailing partners and customers (Srivastava & Verma, 2012, p. 316).
The globalization of Coca-Cola is achieved in two dimensions, vertically and horizontally. Vertically, it is via its supply chain in terms of its franchising system. In the supply chain, Coca-Cola is linked to approximately 300 bottling partners globally. Horizontal globalization by Coca-Cola is achieved in various regions by establishing operating groups, which include North America, Europe, Eurasia, Latin America, Africa, and the Pacific, where it employs about 146,200 associates (Gong, 2013, p. 48).
Resource-Based View of Coca-Cola
The focus on the performance of firms is a subject of increasing interest, with attention being on the reasons firms differ, their behaviors, strategic choices, and their management. The resource-based view shifts focus on the competitive advantage of a firm from its industry to its specific effects. A central theme in the resource-based view is that the ability that firms possess to compete is based on their capabilities and resources (Bouncken et al., 2015). This sets the basis for analyzing Coca-Cola as a multinational firm to establish its strengths over competitors.
Porters’ Five Forces Model
Essentially, competition drives the focus on establishing strategies. Apart from industry rivals, competition for profits entails four more competitive forces including suppliers, customers, substitute products and potential entrants. The rivalry extending from the five forces defines the structure of an industry and shapes the competitive interactions (Porter, 2008, p. 2). The five factors influence Coca-Cola directly through its competitive actions and the responses that it adopts. If the forces are weak, the opportunity to achieve superior performance within the industry rises.
Analyzing Coca-Cola through the Porter’s Five Forces Model
Threat of New Entrants
New entrants in any industry bring about new capacity and desire to increase their market share. The threat of entry caps the profit potential and drives the incumbent firms to deter new competitors (McGuigan, et al., 2011: 343). In the soft drinks market, Coca-Cola faces a very low threat from new entrants.
With the market controlled by already well-established brands, a new entrant would struggle to enter the beverage industry and pose competition to Coca-Cola any time soon. This can be attributed to the existence of high barriers in the industry such as customer loyalty with the already existing brands, economies of scale, lacking access to comprehensive distribution channels and high initial investment (Puravanka, 2007, p. 18). These make it complicated for any entrant trying to challenge incumbents.
Furthermore, Coca-Cola and its main rival, PepsiCo have long-term contracts with most bottlers that confer perpetual rights in different geographical areas. In the agreements, the bottlers are prohibited from dealing with new competing brands (Puravanka, 2007, p. 18). This further complicates any effort by a new entrant to find bottlers who can distribute their products.
Threat from Buyers
Powerful customers force firms to lower prices, demand improvements in product quality, or play the firms off against competitors at the expense of the industry’s profitability (Cullen & Parboteeah, 2014, p. 194). In the case of Coca-Cola, the buyers include convenience stores, large grocers, restaurants, and supermarkets reselling the beverages to consumers. As they buy large volumes from the company, they have the bargaining power to lower prices. Furthermore, the declining demand for soft drinks considered unhealthy by consumers increases the bargaining power of the buyers in dictating prices (Deichert, et al., 2006, p. 9). Thus, the buyers pose a moderate threat to Coca-Cola.
Threat of Suppliers
Powerful suppliers tend to capture value by increasing prices, shifting costs to industry players and limiting quality and services. For Coca-Cola, the reliance on basic raw materials such as water, sugar, and artificial flavor leaves suppliers with relatively low power as the firm is in a position to substitute between them easily (Deichert, et al., 2006, p. 8). With the cost of switching between customers being extremely low, the threat posed by suppliers is expected to be low in the industry.
Threat of Substitutes
Substitutes are those products that can perform the same or a similar function as the product even if through different means. By placing a ceiling on prices, substitutes tend to limit the profit potential in an industry (McGuigan et al., 2011, p. 343). Coca-Cola products face numerous threats of substitutes. This results from the alternative beverages that include water, coffee, tea and energy drinks. The relative closeness of the alternative product prices translates to low switching costs and enhances the threat. In particular, the threat has been increased by the rising concern about health, which is raising the popularity of sports drinks and bottled water (Puravanka, 2007, p. 18). In particular, the low switching costs from the consumers’ perspective means that the threat posed by substitutes is very strong.
Competitive Rivalry
The rivalry existing among the existing competitors is likely to involve price discounting, advertising campaigns, new product introductions and service improvements, increasing rivalry lowers the profitability of an industry and its degree is influenced by the intensity of competition and the basis on which the firms compete (Porter, 2008, p. 9). For Coca-Cola Company, PepsiCo is the only major competitor, and the two multinationals control the majority of the global market share. Thus, competitive rivalry facing Coca-Cola is relatively low as only two firms compete.
SWOT Analysis of Coca-Cola
The examination of the internal and external environment of a company is critical in the strategic planning process. The SWOT analysis, comprising strengths, weaknesses, opportunities and threats associated with Coca-Cola provides insights into internal and external environments and positive and negative factors that the company faces (McFarlin & Sweeney, 2011, p. 275). This way, the SWOT analysis delivers insightful information regarding the resources and capacities of a firm in the context of the competitive environment.
Strengths
A significant strength enjoyed by Coca-Cola lies in the firm’s expansive size and financial power. The Coca-Cola Company possesses significant financial muscle that enables it to have solid acquisition capability and marketing funds critical for the expansion and maintenance of consumer loyalty.
Another strength that Coca-Cola boasts of relates to its global strength because of its expansive geographic spread. Coca-Cola Company has a considerably solid global geographic mix. Having sales volumes achieved outside the company’s core developed market has greatly enhanced Coca-Cola’s resilience in the global economic presence (Euromonitor, 2013, p. 6). Furthermore, a strength that has proved considerable, particularly to Coca-Cola, over the years is the recipe for its core product. Even though various cola drinks exist in the market, no other has the exact taste as that of Coke as the company has gone to great lengths in protecting the product’s recipe, ensuring that the company has something unique in the market and which the competition cannot copy (Goldman & Nieuwenhuizen, 2006, p. 38).
Weaknesses: Carbonate Reliance and Health Concerns
A rising weakness facing Coca-Cola lies in the company’s heavy reliance on carbonates. Even though Coca-Cola Company has recently been growing its soft drinks portfolio, it is still highly dependent on its carbonated products. This makes the company susceptible to performance drops (Euromonitor, 2013, p. 6).
Another weakness facing Coca-Cola lies in its image associated with ‘high sugar’ carbonates. With rising awareness regarding the risks of high-sugar diets, the sugar content of its core products hinders the company considering the consumer agenda is shifting towards healthier options (Euromonitor, 2013, p. 6). Coca-Cola can overcome this threat by acquiring firms with positive reputations for wellness.
Opportunities: Health Trends and Emerging Markets
An opportunity that Coca-Cola can capitalize on lies in the rising popularity of the health and wellness movement in the soft drink market. Awareness has been increasing among consumers regarding the significance of healthy diets, prompting them to seek healthier beverage options.
Another opportunity for Coca-Cola is in emerging markets. This particularly applies in the populous China and India, which provide significant volume opportunities (Euromonitor, 2013, p. 6). The firm is hereby advantaged by its financial muscle, enabling it to enter the markets.
Threats: PepsiCo and Product Cannibalization
A major threat facing Coca-Cola involves the strong competition posed by its major rival. PepsiCo has persistently been Coca-Cola’s main competitor in the soft drinks market and has particularly proved challenging when it comes to bottler buyouts, which have particularly given it a competitive edge in repositioning its brand in the marketplace.
The second threat that Coca-Cola is posed with revolves around cannibalization in its low calorie categories. There are situations where Coca-Cola brands have been seen to directly compete with each other, exemplifying the risk of cannibalization facing the company (Euromonitor, 2013, p. 6).
Discussion
Coca-Cola has successfully accumulated resources, core competencies, and capabilities it can base its strategies. Through systematically acquired and exploited combination of strengths, it dominates the global market. Of particular importance is the way the company can respond to changes in consumer needs and preferences. Hereby, if the growing awareness on health lowers the demand Coke products, it would not still not hurt the company significantly. The company can acquire other companies and inject new resources and capabilities to improve the performance of the acquired entities.
As a multinational firm, Coca-Cola indisputably has the resources to distribute products globally, the financial muscle to support multiple distribution channels, the manufacturing capacity to produce additional quantities of products, and the capability to sell multiple products in global markets. Hereby, a major aspect that comes out is the company not only having the tangible resources such as financial capital and manufacturing equipment. The difficulty in competing with Coca-Cola lies mainly in its intangible resources contributing to value creation even if they cannot be identified physically. Among these, reputation, know-how, human capital, brand name and organization culture are central features that make the company even more distinctive to an extent that it would be technically impossible to emulate.
In relation to Coca-Cola’s competitive edge, the continued and progressive use of various capabilities has meant that they have grown more complex and stronger for the firm’s competitors to understand and imitate. The positive credentials of these capabilities, as sources of competitive advantage, are that even though complex for other companies, they have not overwhelmed Coca-Cola’s steering and control. Core competencies lie in the firm’s brand, human assets and distribution assets its competitors cannot match easily. With over 400 brands owned by the company, intense advertising, an extensive distribution system and a diverse workforce, Coca-Cola can shield itself from competitors.
Conclusion
As evident, the leading position that Coca-Cola has adopted in the global arena provides the company with a wide range of resources, capabilities, and competencies that enable it to have a competitive advantage. In any market globally, Coca-Cola is a force to reckon with, and it has the capacity necessary to ensure it can maintain its global market share. With the experience that Coca-Cola has accumulated over the years, it is difficult for competitors to emulate its resources, capabilities, and core competencies.
However, aware of the changing environment shown in the SWOT analysis, conducting an environmental analysis such as the PEST analysis for the company strengthens the analysis. Political, economic, social, and technological variables can affect the company’s performance.
References
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