Coca-Cola External and Internal Environments

External and Internal Environments

The Coca-Cola Company operates in the carbonated soft drink industry that is highly competitive. The company was founded in the year 1883, and it has become the world-leading manufacturer, distributor, and marketer of nonalcoholic soft beverages and syrups producing over 500 brands of beverages. The company is locally headquartered in Atlanta, Georgia, with more than 200 subsidiaries across the world. Back in 1886, the Coca-Cola Company first operated as soda fountain drinks. Over the years, sales of the fountain became quite popular, but the company’s popularity grew more rapidly in the period, when it began bottling products, hence, making the beverage more popular.

The company focuses on manufacturing only sparkling drinks such as a carbonated energy drink, carbonated water, and flavored water. In addition, there are still beverages, which are non-carbonated energy drinks and water. These products are distributed to its consumers through a sophisticated supply chain system. Coca-Cola’s major competitors are Nestle, PepsiCo, and Dr. Pepper Snapple Group. The company has managed to match with constant, trending, and dynamism of the global market through its mission and vision. The Coca Cola’s mission is to inflict moments of happiness through refreshments and establish a difference by creating a value for its customers. The company’s vision aims at achieving the ability to make its customers happy, expand its projects’ portfolio as well as improve its profitability and productivity. Furthermore, the company is guided under fundamental core principles, namely the quality customer and employee drive and integrity.

The soft drink industry is highly competitive, and this calls for strategies designed to boosts its competitive advantages over its rivals. Notably, the competitors, such as PepsiCo, Dr. Pepper Snapple Group and Nestle, cover a market share of 30%, 22%, and 6 % respectively. Despite this competition, Coca-Cola has maintained a competitive cutting edge with a substantial market share of 42%, which it has earned through its innovative products.

Thus, the paper seeks to discuss the two segments of the general environment, particularly the demographic segment and economic segment. In addition, the paper will evaluate how well the company has addressed the two forces of competition, which are the competition rivalry and the threat of substitute’s products, along with assessing the company’s external threats, opportunities, strengths, and weaknesses as well as determining the Coca-Cola’s resource capability and competencies. Finally, it will analyze the company’s value chain in order to determine where they can create avalue using resources, capabilities, and core competencies.

External Analysis

General Environment

The general environment usually consists of seven segments, namely the demographic, political/legal, technological, economic, global, physical, and sociocultural segments. However, the demographic segment and economic segments play a significant role in regard to the Coca-Cola’s operation (Hitt, Ireland, & Hoskisson, 2014 ).

Demographic Segment

The company provides its products to a substantial population size, a wide range of age groups, wider geographic distribution as well as diverse religion and ethnic groups. The company’s largest portion of products primarily focuses on teenagers and middle-aged adults. According to the statistics revealed by Index Mundi, the majority of the world’s population lies in the demographic structure of 15-54 years old as of 2014.This suggests that the company’s decision to focus on teenagers and middle-aged customers has enabled it to capture the world’s potential customers, which increases the company’s sustainability and growth. Concerning the geographic distribution, the company distributes its products to a wider market region as it has over 500 subsidiaries in different countries ( Coca-Cola , 2015). The market share is evenly distributed across all the ethnic groups and religions across the world.

The demographic segment is highly sensitive, especially when the targeted age structures change their taste and preferences towards the company’s products. For instance, teenagers have a tendency of shifting their consumption behavior as they like trying related products, and this poses a danger to Coca-Cola if its competitor, such as PepsiCo, attempts to win the teenagers’ customer base. Ethnic groups and religions tend to have cultural aspects that may either be favorable for the company products or not. Thus, when the teenage customers change their tastes and preferences, while the ethnic and religious groups behave in a manner that discourages the consumption of Coca-Cola products, the company is likely to suffer losses or a massive reduction in sales (Anders, 2013).

Economic Segment

Between the years 2008 and 2013, the global economy experienced an inflation in terms of foods and beverages, which was higher than the general price of commodities in the market. This was significantly influenced by the 2008 global financial crisis (Nganga, 2014). As a result, many consumers ended up having a less disposable income to spend on these commodities. In addition, the Coca-Cola Company also suffered an increase in transportation and logistics costs globally due to the subsequent rise in prices of oil. This translated to the general increase in cost in the soft drink industry. The industry became more competitive as the rivals were striving to develop strategies that could combat the downturned economy. The company found it difficult to reduce its cost of production, which also affected the setting of competitive prices in the market. In this sense, the rapid fluctuation of currency in 2013 also caused the company to experience a decline in profit margins, especially in its foreign business operations. The economic downturn negatively affected the company negatively, leading to a massive decline in revenues. According to their 2013 annual report, Coca-Cola still managed to register a 1 % worldwide growth worldwide (Anders, 2013).

Five Forces of Competition

The Porter’s five forces of competition model comprises of bargaining powers of suppliers, the power of suppliers, the threat of substitutes, threats of new market entrants, completive rivalry. However, a competitive rivalry and threat of substitutes are the most significant aspects, which Coca-Coca ought to address (Hitt, Ireland, & Hoskisson, 2014 ).

Competition Rivalry

The soft drink industry is made of Coca-Cola, PepsiCo, Dr. Pepper Snapple Group and Nestle. Coca-Cola and PepsiCo are considerable competitors in the games with a total of 72 % market share, while other rivals, such as Dr. Pepper Snapple and Nestle, cover a small size of Pepsi. Therefore, Coca-Cola’s major threat is PepsiCo, which produces over 200 brands that include the Pepsi-Cola, Gatorade Quaker, Frito-Lay, and Tropicana brands (Puravaranka, 2007). These brands provide an extensive variety of products which present a direct competition to Coca-Cola, since they offer a satisfaction close to that of Coca-Cola’s products to customers. In this respect, the two companies have taken much of the competition in advertising, rather than using price strategies. Both Coca-Cola and PepsiCo carry out the product differentiation to their brands; thus, their market expansion continues to grow.

Coca-Cola has managed to address this issue setting the objective of focusing its already developed carbonated beverages market. However, the company has exploited some lucrative markets, such as Africa and the Middle East, which have given them a chance of doubling their 2014’s revenues by 2028 ( Coca-Cola , 2015). In addition, the company is attempting to increase the sales of non-carbonated beverages by acquiring and merging with other drinks company, while shaping the health and wellness approach in the soft drink industry. This was to counter the PepsiCo’s idea of acquiring NutritionCo as a subsidiary to meet consumers’ health and wellness requirements.

Threat of Substitutes

The soft drink industry faces high threats of substitutes, as there are many alternative beverages such as coffee, tea, water, energy drinks, as well as alcoholic drinks. Additionally, the threats have escalated, since these substitutes exist at a relatively close price as Coca-Cola products. Thus, consumers can easily consider the alternate product due to the low cost of shifting. In respect to this, Coca-Cola has engaged intense advertising campaigns to mitigate the substitute’s threats. In addition, the company has undertaken a rapid product differentiation on their brand to win customers’ preferences at fair prices (Anders, 2013).

Future Prediction

Shortly, Coca-Cola has a chance to continue minimizing the threat of competition from PepsiCo and other competitors as well as reducing the threat posed by the substitutes. In order to reduce the PepsiCo’s threat, there is a necessity to extend a diversification and differentiation of its brands and products. The differentiation will render productsfor them to stand out from those of PepsiCo. This is will be achievable when the company conducts an extensive research to come up with innovative products, while observing the health and wellness of its customers. Regarding the threat of substitutes, Coca-Cola can consider the merging or acquisition strategy with companies that produce alternative commodities such as energy drinks and non-carbonated water. In terms of this approach, Coca-Cola will still benefit even if customers choose to switch towards the alternate products ( Coca-Cola , 2015).

SWOT Analysis

Externally, the SWOT analysis examines a company’s threats and opportunities within the industry. Like any other company, Coca-Cola also experiences some elements of opportunities and threats.

Opportunities

One of the opportunities available for Coca-Cola is the aspect of health and wellness. Recently, there is a rising trend in health and wellness in the soft drink industry. The consumers are also aware of the significance of health matters concerning drinks, and many consumers actively prefer to use healthier drinking options. This is a substantial opportunity for Coca-Cola to venture into producing healthy diets drinks to capture health sensitive customers. For instance, Coca-Cola can manufacture sugar-free drinks for diabetic patients who are fond of their products. Another opportunity available for Coca-Cola is the emerging markets around the globe (Nganga, 2014). These markets exist in countries, which are experiencing a rapid industrial and technological growth such as India and China. These two countries provide massive opportunities for carbonated drinks, bottled water, and juice drinks. Therefore, Coca-Cola should open up more subsidiaries in these particular regions. Lastly, the company has to popularize some of its products that have not obtained a space in the store’s shelves. Coca Cola’s product, such as Coke Lime, has disappeared in the market, but it still has a chance to reappear if Coca-Cola manges to rebrand and intensely advertise it (Nganga, 2014).

Threats

The Coca-Cola’s major threat is the strong competition from PepsiCo and other small companies. As much as Coca-Cola has a leading competitive advantage, still PepsiCo has managed to limit its penetration to particular market regions. For instance, PepsiCo has highly dominated in the Middle East market region with a staggering market of 85%. This has heavily limited Coca-Cola’s chances to venture heavily in the Middle East market. Another threat posed by PepsiCo is its advantage of having stolen a march regarding bottle buyout and strategic market positions (Puravaranka, 2007). Another serious threat is the changing health-consciousness attitude of consumers that tends to affect Coca Cola’s sales in a negative manner. Many consumers have become health sensitive by avoiding products, which are linked to diabetes, obesity, and cancer. For instance, the aspect of obesity linked with carbonation as it alleged to be increasing the level of calories with consumed products. Lastly, Coca-Cola is faced with the threat of a constant currency fluctuation and economic instability, which ends up affecting their pricing strategy (Nganga, 2014).

In regard to the issue of market penetration, Coca-Cola can try entering the Middle East market either though franchising as a franchisee or merging with small soft drink companies. Therefore, it will able to sell its product under the name of the franchises, thereby enlarging its Middle East market coverage (Coca-Cola , 2015). Concerning the threat of the constant changing health concern, Coca-Cola has to take this as an opportunity and start manufacturing health diets such as sugar-free and caffeine-free cokes. On the issue of the economic downturn, the company can focus on reducing its cost of production by commanding its suppliers and resources under its supply value chain. In this respect, Coca-Cola will attain absolute large economies of scale, which will allow the company to set competitive prices that can yield good returns despite negative forces from the currency and general economic recession (Puravaranka, 2007).

Internal Analysis

Strength

One of the Coca-Cola’s strengths is its popular brand in the market that it has built over the years. It has earned its brand recognition through its patented technical know-how in producing soft drinks, which competitors have failed to master. The brand recognition is virtually incomparable as it is popular all over the world. The brand not only gives the customers a sense of refreshment, but also a sense of lifestyle as they feel themselves as a part of something popular and cool (Coca-Cola , 2015). Another strength is its sophisticated supply chain management and logistics. Coca-Cola has linked with major retail stores, such as Wall-Mart and Target, which carry out the retailing process on behalf of Coca-Cola. Lastly, the company has an outstanding financial performance due to its massive sales and low cost of production as it operates in large economies of scale (Coca-Cola , 2015).

However, in order to enhance its sustainability, Coca-Cola has to continue improving on its strengths. With the purpose of doing it, the company needs to continue protecting its secret ingredient in producing their beverages. The production of technical know-how serves as an obstacle that bars new competitors from entering the market. Additionally, Coca-Cola can further improve its supply chain management and logistics by outsourcing these services to logistics companies such as DHL (Hitt, Ireland, & Hoskisson, 2014 ).

Weakness

Like other corporations, Coca-Cola also has major weaknesses, which have been hindering its efficient operations. One of the weaknesses is its overreliance on carbonate, while competitors, such as PepsiCo, have diversified their portfolios of products in terms of ingredients. Therefore, it is susceptible to a downturn in this category. This has rendered some of its products, namely Coke Lime and Cole Classic, become unpopular, since some customers had complained about the taste. Another weakness is its over-concentration in the US market. Coca-Cola has placed the majority of its brands within the local market, while only distributing few brands to the global market (Hitt, Ireland, & Hoskisson, 2014 ).

However, the company is able to eliminate its weaknesses by designing strategies to counter them. For instance, it can avoid the over-reliance on carbonate ingredients by diversifying and differentiating its products with different kinds of ingredients after researching on these respective ingredients. Lastly, in order to solve the problem of only focusing many brands in one region, Coca-Cola has to allow some of its subsidiaries to produce a variety of brands and distribute it around the world.

Coca-Cola’s Resources, Capabilities, and Core Competencies

Resources

Coca-Cola’s resources can be classified into three categories, namely the tangible, intangible, and human ones. The company’s tangible resource includes its financial and physical resources. According to the Coca-Cola’s annual report in 2014, the company generated a massive profit of $8.6 billion, and the company market value was approximated at $ 158.8 billion according to the Forbes magazine (Coca-Cola, 2015). Its financial strength is also evident in how it invests billions in the new market venture in China, India and some parts of Africa. In regard to physical resources, Coca-Cola owns many office premises, stores, and factories fitted with a sophisticated machinery across the world. The intangible resources include the Coca Cola’s goodwill and its patented technical know-how, as well as the advanced research center. The company’s goodwill arises from its incomparable brand recognition around the world. The Coca-Cola’s human resource is made up of a team of the motivated employees who work in proper working conditions and A flexible working time. Besides, Coca-Cola also trains its talented staff and offerS them attractive remuneration packages (Anders, 2013).

Capabilities

The Coca Cola’s financial ability puts it in a position to operate in large economies of scale. With these financial resources, Coca-Cola can extent its subsidiaries to other countries, build the infrastructure, conduct the employees’ training and improve their supply chain management and logistics system. In addition, the company has the capability of managing more than 500 brands, while controlling more than 200 subsidiaries and serving over 100 million customers around the world (Nganga, 2014). Lastly, the company’s talented, motivated, and innovative employees grant Coca-Cola with the ability to produce reputable brands and maintain them in such a competitive industry.

Core Competencies

Core competencies refer to features and attributes of the company, which cannot be matched by competitors. Coca-Cola’s competencies include the production know-how, quality oriented production, sophisticated machines and existence in large economies of scale. Additionally, the company operates in the three values principles, namely the quality, integrity and customer driven policies. These key principles articulate well with the company’s mission and vision (Nganga, 2014).

Value Chain Analysis

In terms of the value chain analysis, Coca-Cola has resources that allow facilitating agriculture and ingredient sourcing in the inbound logistics. Water is also easily fetched, and there no limitation in trying to access other essential raw materials due to its financial ability. In regard to the operation, thte Coca Cola’s operating segment is divided into seven sections across the world, where it carries its manufacturing process. It has reduced the cost of operation outsourcing of some operation obligations such as bottling, packaging, and merchandising. It has managed to achieve this through its financial capabilities and large economies operation (Coca-Cola, 2015).

Concerning the outbound logistics, the distribution of products across the globe has become more efficient as it has its subsidiaries that operate in more than 200 countries around the world (Coca-Cola, 2015). Due to its financial possibilities, Coca-Cola has managed to finance the majority of its distributions independently to distributors, retailers, and wholesalers. In regard to marketing and sales, Coca-Cola records massive sales each year due its capability in carrying out the intensive product promotion. Additionally, the company’s brand recognition also boosts its sales in the market. Lastly, Coca-Cola has sets of both physical and follow-up services introduced to handle customers’ complaints as well as addressing rumors targeting to defame the company’s products (Puravaranka, 2007).

Conclusion

The Coca-Cola Company has as a sustainable future, which is boosted by its strengths and opportunities in the market. Despite the threat posed by stiff competitors, such as PepsiCo, Coca-Cola still has a leading competitive advantage. Furthermore, the company has significantly balanced its operations by improving its strengths, reducing weaknesses, capitalizing on opportunities and mitigating various threats. In addition, the company’s technical expertise about its production acts as a barrier that prevents new market entrants who might bring extra competition. The Coca-Cola Company’s resources are strong due to a substantial financial ability, numerous infrastructures, and a reliable human base workforce. Its capability of operating in large economies of scale is due to its considerable financial power. Moreover, Coca-Cola has an advanced supply chain system and logistics operation, which is facilitated by massive resources, capabilities, and core competencies.

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