Assignment Writing Help on International Trade: Coca-Cola’s Expansion Strategy

International Trade: Coca-Cola’s Expansion Strategy

Introduction

In their bid to capture global markets and enhance their global competitiveness, companies adopt different strategies to enhance cost reduction and local competitiveness of their products. Firms face a lot of pressures in their efforts to meet these needs which bring about conflicting demands (Daft & Samson, 2015). While cost reduction measures call for product standardization to capitalize on technical economies of scale, the pressures for local responsiveness require modification of products to respond to tastes and preferences of local consumers (Ghemawat, 2003).  There are several strategies that firms use to venture into international markets which include localization strategy, global standardization strategy, transnational strategy, and international strategy. Each of these strategies has its merits and demerits thereby requiring firms to make careful choices and to continually review the successes and the need for change (Ireland, Hoskisson, & Hitt, 2008).  This paper focuses on strategies that companies uses to harness their competitiveness in global markets, taking Coca-Cola as a case study.  We will review the reasons the reasons for engagement in global trade

The Case of Coca-Cola

When Coca-cola started its global expansion process, it adopted the localization strategy which was meant at helping the company meet the unique needs of customers in every region. This means that the company gave local operations a considerable degree of independence so that they could manage their local operations using marketing strategies and models that they saw fit. Under the localization strategy, the focus of the company was to increase its profitability in different countries by customizing its products to the tastes and preferences of its local customers.

However when Robert Goizueta took over the leadership of the company in the 1981, there was a new approach. The company changed its strategy to a centralized strategy where some key marketing and management decisions were made at its Atlanta headquarters. This strategy saw the introduction of global brands such as Diet Coke, Cherry Coke, among others. Realizing the lower per capita consumption in other countries of between 10 -15% of the United States, the new CEO felt that the company was losing the benefits of technical economies of scale by producing and marketing several local brands.

 This informed the push to make Coca-Cola a global company hence the adoption of a global standardization strategy. This saw the company also taking stakes in the bottlers thereby taking control over them through policies designed in its headquarters. In other words, Goizueta used one-size-fits all strategy which is viewed as a model of lowering costs based on the concept of standardization and exploitation of economies of scale. For instance, the company used the same advertising message worldwide.

The global standardization strategy by Coca-Cola took root in the 1980s and was continued by his successor Douglas Ivester in the 1990s. However, new global realities were emerging which informed the change of strategy at the company’s headquarters (Gareth & Hill, 2013).  The global standardization strategy was receiving several challenges. One key challenge was competition by the emergence of smaller local brands that adopted a more customized approach in their respective countries. This saw the collapse of Coke’s global strategy as the company began to lose local markets and failed to meet its financial targets. With growing pressure in the company, Douglas Ivester resigned in 2000 and his position as CEO was taken by Douglas Daft. Daft had to lead the company through a change of strategy in their attempts to recapture the dwindling local markets (Daft & Samson, 2015).  

To recapture local markets, the company shifted back to the localization strategy. This move was informed partly by the experience of the company in Japan, which was the company’s second most profitable market, where the bestselling product was not a carbonated beverage, but a canned cold coffee drink sold through vending machines. This success brought the insight to the company that its products should be customized to local tastes and preferences. It also informed the need to give more autonomy to country level managers (Ireland, Hoskisson, & Hitt, 2008).  The idea of Daft was that strategy, product development and marketing should be matched to local needs. His first move was to lay off 6,000 employees many of whom were based in the Company’s Atlanta Headquarters. This followed the return of autonomy to country managers, followed by a move to stop all global advertisements and reallocation of advertising budgets to country level (Hill, 2013).

However, the new move did not bring the expected results and there was a reorganization of the company’s strategy to transnational approach which was introduced by Neville Isdell who took over the company’s leadership in 2004 (Gareth & Hill, 2013).  In Isdell’s view, there were benefits that the company would derive from harnessing the strengths of Goizueta and Ivester strategies. Therefore, the need arises for a midpoint strategy where the headquarters maintained some autonomy for product development, pricing, and marketing while at the same time allowing country managers to lead the pack in selecting the strategies, products, and marketing strategies that were most relevant to the local circumstances. The need to leverage good ideas across the globe such as the Georgia Coffee, which was a bestseller in Japan, also informed the new strategies by Isdell (Coca-cola, 2009).

Coca-Cola’s experience shows the effects of globalization of markets. It is a testament of the continued convergence of consumer tastes and preferences. The branding of Coke to a global brand that commands a heavy global presence and becoming a common beverage all over the world has transformed the brand from being an American brand based in Atlanta to a global beverage with little reference to Atlanta. The company has managed to transform itself into a global giant offering beverages that have received a wide acceptance around the world. This is what we refer to as globalization and the convergence of consumer preferences and tastes.

References

Daft, R. L. & Samson, D. (2015). Fundamentals of Management: Asia Pacific edition. Cengage Learning.

Gareth, J. & Hill, C. (2013). Strategic management theory: An integrated approach. Cengage Learning.

Ghemawat, P. (2003). Globalization: The strategy of differences. Retrieved at http://hbswk.hbs.edu/item/3773.html

Hill, W. (2013). International business: Competing in the global marketplace. McGraw-Hill: USA.

Ireland, R. D., Hoskisson, R. E., & Hitt, M. A. (2008). Understanding business strategy: Concepts and cases. Mason, OH: South-Western Cengage Learning.

The Coca-Cola Company: (2009).As Inclusive As Our Brands: 2009 U.S. Diversity Stewardship Report. Retrieved from http://assets.coca-colacompany.com/51/ba/c9ddc22646ca9660ee4d8f309c01/2009_Diversity_Report.pdf