Coca Cola: An External Environment Analysis
- Conduct Pestle analysis on the environment of Coca Cola
- Conduct the test of Porter’s Five Force Model In Coca Cola
Background of Coca-cola
Coca Cola was launched in 1886 in Atlanta, Georgia. In the international beverage market, Coca Cola has established itself as the most prevalent and massive company. It has maintained its top position in the international market of the non-alcoholic beverage industry by devising advanced strategies in promotion, dissemination and manufacturing aspects. Several soft drink brands like Sprite, Fanta, Diet Coke, Minute Maid, etc. comes under the Coca Cola company and contribute an estimate of $ 14 billion profit to the company (Karan, 2010).
If compared to its competitors’ production and distribution network Coca Cola has positioned itself at top position. Coca Cola since its inception, i.e. 133 years has sustained its impression and goodwill among its customers. The primary motive of this enterprise is to amplify the value of its market shares by keeping up an affable relationship with its partners. To suffice the needs and requirements of the customers in the market, the marketing strategies are prepared by referring to customer reviews and feedback. By adopting this approach, the company had eliminated many risks in business operations, thereby providing a sound defense for the company assets (Thomson, 2008).
Background of the operative Country
In this External Environment Analysis, the operative environment of Coca Cola in India is chosen for conducting external environment analysis. The products of Coca Cola coms under the category of Fast Moving Consumer Goods (FMCG) i.e. the products which are cheap and are sold very quickly. The market for Fast Moving Consumer Goods is witnessing a very vibrant change in India since 1990. The level of competition is increasing in the Indian Market which is crushing down minor and small-scale industries. The public of India has started showing an affinity towards foreign products from the beginning of the 20th Century. Hence the period was very appropriate for the Coca Cola company to mark its entry in the Indian market. The company had adopted the marketing strategy to make available their products even in the remote rural areas so that the products should be available for the majority of the Indian population. Because of its heavy marketing and high availability, the company established itself as a brand classical image among the Indian population. Even though the company is now in a well-established position in the Indian market, it had to face a lot of political, economic and legal challenges while its entry.
The primary motive of drafting this External Environment Analysis is to conduct a very detailed analysis of the operative external environment of Coca Cola in India. Many of the company's challenges and other small-scale industries had failed to perform well in the dynamic economy if the Indian market. Because of India’s high profit yielding economy, many giant and new companies are making entry into the market. The entry of companies like Wall Mart and Big Bazar is the evident one, who is posing an imminent threat to small scale retail shops by providing the products at attractive offers and huge discounts. Hence, the study of Coca Cola is also of utmost importance. In this External Environment Analysis, the external environment of the Coca Cola company is analyzed to ascertain the factors which will affect the business operations, strategies, outcome and other aspects of a company and the methods the management should adopt to tackle these obstacles for the smooth undertaking of business.
External Environment Analysis of Coca Cola
Doctor John Pemberton, a pharmacist, was the person who invented the recipe for Coca Cola. The recipe of Coca Cola includes ingredients like carbonated water, sugar cane syrup, caffeine and extracts of cola leaves.
The exterior environment of a company could be segregated into the Macro environment and Microenvironment. The macro-environment in the case of Coca Cola denotes the factors which are uncontrollable and peripheral in the manner and have the potential to vary the business, strategies, and decision making. These factors are majorly technical, political, social, economic, and legal. The features like corporate social responsibility, environmental forces, and demographics come beneath these features. If considered the microenvironment of Coca Cola, the factors which affects the daily operations are trends in the market, suppliers, the structure of the market, customers and competition (Fahad, 2013). The detailed study of these factors regarding Coca Cola will give an overview of how the giant companies take control of the circumstances by efficiently dealing with the obstructions.
Pestle Analysis of Coca-Cola
To review the external environment of a company, PESTLE analysis is used as a tool by proficient researchers and marketers. There are various external factors which affect the business of a company such as Political, Economic, Social, Technological, Environmental and Legal. The analysis of the said factors will provide a better overlook of the external environment of an organization from all aspects an give a forecast on various threats and opportunities in the market (Pestle Analysis, 2013). Although the company is a giant in the beverage company, it should keep an eye on its operative market by analyzing the factors via PESTLE Analysis. The use of PESTLE analysis will help the company in keeping track of its major challengers and point out the hidden prospects and opportunities in the market.
Like other developing countries the market of India is susceptible to the aspects like ideologies followed by the political parties and various policies by the government. By the new economic policy of India, the idea of liberalization and globalization were introduced in the market which paved the way for Coca Cola’s entry. For the reason that the political system of India is very corrupted and dishonored, the company had to face intense coercion from the political parties.
After the introduction of New Economic Policy in the Indian economy, the financial condition of the country has become very stable. The introduction of this policy has abridged the issuance of an industrial license. The liberalization in the policy of foreign capital had attracted more foreign direct investments which have improved the national economy. As compared to the statistics of 2013 the economy has achieved 5% growth which is 5.07 trillion approximately. Since the economy is in stable condition and is in the path of positive growth, India is a very potential market for Coca Cola.
The majority of the Indian population is youth and possess high purchasing power. As the Indian population is growing exponentially, the number of customers will also increase. The young generation of India gives more importance to the health and their health-conscious nature is driving them to choose healthy and refreshing drinks.
Being a sub-tropical country, the weather of India is very hot and insists the people buy a cold refreshing bottle of beverage to quench their thirst. The affinity of the Indian population towards foreign products is very favorable for Coca Cola.
Although India is a developing country, it has made great advancements in the field of Information Technology. The technology in India is synchronized and adapted for the use of 4G and 5G networks.
The space and research technology of India has achieved many milestones and hence self-sufficient in providing the updated solution. These conditions provide confidence to Coca Cola to further expand its business in India.
Because of the rapid growth of the FMCG market in India, the legislation has introduced many amendments in the law pertaining to it. These changes have made a positive impact on the economy by which the FMCG market has shown rapid growth.
To support the investing companies the government of India has introduced the idea of excise free zones. This is a great relief to the companies since it will allow them to concentrate primarily on the manufacturing process rather than outsourcing. These legal proceedings provide are providing a very healthy environment for Coca Cola.
This aspect majorly depends on the geographical feature of the place. Any sort of the change in nature is beyond the control of humans. Natural calamity of whichever nature will surely affect the business of Coca Cola.
The major issue in the ecological system of the nation facing poor recycling techniques, pollution, depletion of important resources, etc.
Coca Cola has introduced many eco-friendly programs in other countries. So it will not be a great challenge to the company.
Political Aspect: The political system and its advancements in any country are very crucial in making marketing decisions. The major political factors which influence the market decisions of a company are pressure groups, ideologies followed by the political parties, fiscal and trade policies, agencies of the government.
As per the observation of Demetris in 2006, the government unceasingly interrupts the performance and the operation of the company using statecraft and legislature. The company authorities have to ensure that all the process is being done by following the laws and regulations of the particular country. The company management should cope with the political environment of the operational country by devising strategies regarding the monitory, environment, employment, and fiscal programs.
The operational environment of Coca Cola i.e. the market of non-alcoholic beverage company is being controlled by the Food and Drug Administration internationally. The process of beverage making and its components are scrutinized by the FDA which works under the USA government. Any food or beverage industry operating in the international market has to follow the guidelines laid down by the FDA.
Further political elements that a huge company like Coca Cola should consider besides the FDA guidelines are the rate of tax on import, export, sales, income, stability of the political system, and other regulations laid on the corporates by the government. The negative factors like political violence, protest and campaign against the government have the potential to bring uncertainty and insecurity in the political environment of the country which will turn out to be a hostile environment for companies like Coca Cola Demetris, 2006.
Economic Factors: The fiscal and monitory aspects like the exchange rate of the currency, rate of economic growth in the domestic economy, rate of economic fluctuation, the rate of interest, etc. come under the category of economic factors. These mentioned factors have the potential to influence the course and trend of the dynamics like purchasing power of the customers, cost of production, price of the product, extend of sales, etc. The management of the eminent companies make decisions for their future investments by studying the economic statistics like rate of wages, rate of employment, rate of inflation, and standard of living pursued by the population. To carry on the profitable and stable business, the organization has to analyze whether it's business operations have the agility to cope up with the pace and dynamics of the economy of the respective country (Njanja, 2012).
The economic growth of a country is decisive in the employment rate of a country. The authority and the higher officials of the Coca Cola company consider the factor of economic growth as a significant element while marking the entry into a new market. Since the company is operating its business worldwide, it has to deal with different types of currencies. Even the slightest variation in the exchange rate of these currencies can affect the financial condition of the Coca Cola company drastically (Buchanan, 2009).
The rate of interest charged by various lending agencies also affect the financial performance of the company, hence this economic tool must always be brought up to date. The marketers and management of the Coca Cola Company have derived a special derivative instrument to keep in check the variations in the rate of interest. As per the observations of Ninja, 2012, in the condition of inflation the company carries out the categorization of the staff according to the salary in the ascending order to tackle the increase in expenditure. The expenditure increases because, at the time of inflation, the salary of the employees become high. This becomes a major challenge to the company and to tackle this situation aforesaid derivative instrument is used. This issue is being termed as a major one because the increase in salary will make a high impact on the production cost and it will be hard to survive in the market without changing the retail price. ?
Social Factors: The dynamics which come under this category are aspects like demographic, cultural, population, environmental, and seasonal. If one of the aspects like demographics could be taken into consideration it would be observed that the younger generation shows more affinity towards the soft drinks rather than the older generation does. The occasions and seasons like sports events also have a great impact on the sales of Coca Cola as it brings great demand for soft drinks.
Some dynamics under social factors like the growth of population, trends among the population, preferences of the customers, tradition and the customs, etc. could not be influenced or controlled, hence they have to adapt and devise strategies keeping in mind these devices. If considered the case of Coca Cola, it is very important to study and analyze the customs, traditions, and trends of the operating country since it is B2C kind of company which requires a direct relationship with customers (Fahad, 2013).
Around more than 3000 products are supplied under the franchise of Coca Cola company. At the initial stage, an intensive market analysis is being conducted to enter a new market. After this stage, some of the products are being introduced into the market by coordinating to the social factors. After this, the base of the product is increased gradually by keeping in mind the trends of the society.
The aspect in which the company is facing a high challenge is the alimentary and nutritive value of the soft drinks produced by Coca Cola. As carbonated drinks play a high role in obesity among the population, the health department of India is scrutinizing Coca Cola’s products continuously. The youth of India is now very health conscious and hence the food with high sugar content is being avoided by the mass. To cope up with this pro-health trend, Coca Cola had introduced light coke and diet coke in India (Fahad, 2013).
Technological Factors: In the manufacturing and processing of concentrated syrup, the use of most modern and safe technology is very important. The use of technology is also significant in processes like packaging, filling, and distribution of the product. The products of the Coca Cola are available in the remote corners of the rural of India in various bottles, cans, and flavors because of its advanced technologies and modern vending machines. The cutting-edge technology installed by the company makes it possible to create perishable, multicolored and stylish cans that are very attractive to young customers, especially children.
The major business process of the company relies on its packing associates. The packaging system of the company is truly under the mercy of its partners since 85% of the enclosing is done externally. The company operation is mainly focused on the processing of concentrated syrup and has outsourced the rest of its processes to its bottling partners. Since the critical operations are being outsourced to other parties, the company needs to maintain a strong relationship with its partners (Regassa, 2011).
Legal Factors: The dynamics which come beneath this factor are employment law and rules, regulations relating to health and safety, anti-discrimination laws, etc. Since the company is based in the United States of America, it has to follow the guidelines laid down by the Cosmetic Act, Food Safety Act, Federal Trade Act, etc. Away from this, the company had to also consider various laws about environmental issues like resource depletion, disposal, recycling and processing of the waste, pollution, etc. To work in accordance with the environmental laws the company has installed many waste processing and recycling plants and hence harmful plastic bottles and the polluted water is recycled.
There also many directives and rules regarding the promotion and distribution of the product which al companies should be aware of while operating in a company. There is a high risk of sanctions and penalties if the company fails to abide by the rules and regulations laid down by the government. The sanctions by the government have also the potential to create a destructive impact on the company’s goodwill. Hence it is very critical that the company should follow all the laws in order to conduct its business operations smoothly.
Environmental Factors: All the issues related to the ecology and its balance comes under this section. Many natural forces and disasters (like an earthquake) are not under the control of human beings. But the man-made disasters like unconventional depletion of resources, pollution, deforestation etc. could be brought under control by human interventions.
The management of Coca Cola has taken a stringent approach towards the protection of the human environment. Only the reused plastic is being used in the bottling process. The polluted water as the resultant of the process is recycled and processed to eliminate toxic contents. To bring balance in the ecosystem, the company has launched a program to plant a large number of trees. The planting of trees is also to compensate for the heavy usage of water carried out by the company.
Porter’s Five Force Model: In order to devise novel business strategies, Porter’s five Force Model is used, which has the recommendation of an effective and reliant tool among the marketers and researchers.
Rivalry among existing friends: The company is currently facing heavy and serious competition from beverage companies like Cadbury, Parle, and Pepsi which had already established themselves well in the Indian market. Although according to the global statistics the Coca Cola has left everyone behind, the beverage market of India is being led by Pepsi. The Coca Cola company was a bit late in marking the entry to the Indian market since it had to face some legal issues while its entrance.
If referred to the statistics provided by the Beverage digest in the year 2008, in the Indian market for nonalcoholic soft drinks, Pepsi had made the advancement of 30.8% while Coca Cola has to face the set back 42.7% decrease in its sales. Coca Cola has taken this matter very genuinely and has installed many bottling plants in India to gradually recover from this setback (Fahad, 2013).
Threats of Substitutes: The concept of beverage in India not only limits the perception of soft drinks. The market is full of substitutes like natural juices, water, tea, coffee, etc. Since these are all easily accessible drinks Coca Cola has to intensify its advertisement and promotion to convince and to influence the choices of its targeted customers. To sustain and progress in the market, Coca Cola has also followed the path of juice and bottled water companies by branching out their products to achieve desired profits. As there are a lot of cheap substitutes present in the market the consumers possibly will show the tendency to switch the product. Since the targeted consumer of these beverage companies are the same the perceived values of the supposed companies are very minor, hence it is only the promotional strategies of the companies which stands for the differences (Fahad, 2013).
Bargaining power of consumers: The consumers have the power to get their desired products from any sort of outlets like fast food café, hotel, vending machines, and retail stores. The power to buy a product from many places showcase the bargaining power envisaged to the customer. Since these stores buy the stocks in bulk, it further adds ups to the purchasing power.
Bargaining power of Suppliers: In the case of Coca Cola, the bargaining power of suppliers is very low because of the high and cheap availability of raw materials required to make the product like carbonated soda, flavors, sugar, etc. Because of the cheap and high availability of the raw materials the switching cost for the manufacturers, hence shifting to another supplier would not be a hassle (Fahad, 2013).
While the suppliers have less power to start a plant themselves, forward integration, in this case, would also be very weak.
Recommendations and Conclusion In this External Environment Analysis, we have given initially a brief introduction to the Coca Cola Company. After that, a detailed analysis of its operations and products in the global market is conducted. This External Environment Analysis mainly focusses on the analysis of the external environment using the effective tool of PESTLE analysis. Various flaws and strategic points could be located and controlled using the tool of PESTLE analysis. Various trends and hidden threats influencing the productivity and existence of Coca Cola company could be identified by conducting this test and thus aid the company to attain its goal. According to the observations of Fahad in 2013, since the company has still potent challenges present in the international market, it has to devise new strategies, and policies to overcome the obstruction and maintain its top position.
It has been observed in this External Environment Analysis that while carrying on its operation in the global market the company had always placed the customer base on the top priority. Although the preferences and palate of the customer change daily they the company follows the policy to always value them. It was being understood and observed by the company that to sustain and be successful in the market they have to deeply analyze and observe the taste and trends of the Indian society and hence bring new products that match the liking and requirement of the demographic. Since there are a lot of cheap substitutes available in the market, there is a strong chance of shifting the choice of product, if the requirements of the customers remained unfulfilled. It has been observed that the customers of India are not loyal to a certain brand for a long period, so it is imperial that the management should keep analyzing the exterior factors to sustain the top position in the market.
It could be concluded in this External Environment Analysis that the Coca Cola company has been successful in maintaining its top position in the international market by keeping in watch the factors like environmental pollution, introducing health-conscious drinks like Diet Coke and Light Coke, maintaining excellent operational environment, etc. The growth of the Coca Cola Company has been also induced by the growth rate of particular operative countries. External environment analysis assignments are being prepared by our management assignment help experts from top universities which let us to provide you a reliable best assignment help service.
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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.
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