1. Executive Summary
The main objective of this research paper is to carry out a comprehensive analysis about the Coca-Cola Company. In so doing, the paper would focus on exemplifying an appropriate company background of Coca-Cola, considering the financial overview of the company, and most importantly, formulating a problem statement of the company along with the historical background of the problem as well as the main players and actors who contributed to the problem.
Furthermore, the paper would illustrate the potential challenges, issues, and prospects of the company with consideration of the discussion of the related literature, alternative solutions and their implementations, and implications for future use. Finally, the paper shall focus on accumulating pertinent recommendations in conjunction with a relevant conclusion.
2. Company Background: Overview
Bloomberg Businessweek (1) suggests that the Coca-Cola Company produces, allocates, and delivers nonalcoholic beverages and syrups internationally and it is predominantly renowned for the production of sparkling and still beverages; to specify, the business’s sparkling beverages comprise of nonalcoholic ready-to-drink beverages with carbonation, for example, energy drinks, and carbonated waters and flavored waters. Some of its other products from still beverages comprise nonalcoholic drinks without carbonation, together noncarbonated saccharine savored waters with enhanced quality, cloister free energy-drinks, lucrative juices, and lovely savored drinks, including ready-to-drink teas, high quality coffees, and superior sports drinks; moreover, the business also offers fountain syrups, and other healthy food supplements those are favored by the health conscious customers. With the glory of running such as a successful business for over centuries, this US-based company possesses a very bold supply chain offering diversified products to consumers all over the Saudi Arabia creating a passion that fastens the billions of its enthusiasts.
Coca-Cola Company the worlds leading multinational company are continuing its global operation in more than two hundred countries in the soft drink and beverage sector with stronger brand position. Through out the global operation Coca Cola Company has evidenced huge crisis from the national and international legislation, competitors, and diversified culture and disturbed its operation and profitability but none can keep any stopple to its progress. Middle East and GGC countries are also a vital market for this MNC but also suffered from different crisis starting from the gulf war while US sanctions prohibited their national MNCs to do business in some Arab counties that seriously injured the company in this region (ECOS 10). Later on gulf crisis, the MNC faced some other crisis concerning the religious sentiments of the Arabs. In a promotional campaign poster with Muslim retailer is saying her prayer in front of Coca Cola’s monogram in the wall rather than the Kaba while another computer graphics presented “No Makkah- No Mohammed” – that generated serious public protest in the Arab world that leads to a of Coke in Saudi Arabia (Slide Share Inc 1). Starting from Arab Israel conflict in sixties, Coca-Cola evidenced a long ban in the Kingdom of Saudi Arabia and after long interval Coca Cola reentered in the Saudi Arabia market in 1988 by joining venturing with previous center part Olayan Group but the operation don’t goes smooth (The Olayan Group 1). The Coca-Cola Company Inc would like to explore its operation in Middle East specially to strengthening its CCBCSA. In Saudi Arabia, with this view the management has engaged this researcher to present a report on the company.
3.1 Research Objectives & Research Question
The main objective of this report is to examine the operational performance and strategies of Coca-Cola in its global operation and especially in Saudi Arabia to understand and identify the crisis and challenges that belongs to the company and how the company’s strategy would respond to them. This investigation continues on the strategic implication of the company in global operation with the aim to sustaining its market leader position among their competitors’ in the global market with their product and services with high degrees of attentiveness and particularly argued privileged levels of profitability. This report has aimed to explore the effectiveness of global strategies by considering strategic tools and parameters and assess how the Coca-Cola Company prolonged its leading position. To do so, this report also deals with few imperative research questions as follows: How does theoretical framework of the strategic planning works on development of Coca-Cola Company? How Coca-Cola Company designed their strategic planning to become a leader in international soft drinks and beverage market? To what degree the implementations of existing and alternative policy can success Coca-Cola Company’s mission and vision in Saudi Arabia? What extent do the Coca-Cola Company assessed on competitive advantage? To what extent it is possible for the company to implement their strategy in global recessional economy.
4. Historical Background of the Problem or Contributing Factors
Williston (2) pointed out that the Coca-Cola Company has elongated complex historical background with allegation of aligning with Nazi party during World War II and its German operation evidenced blamed for anti-Semitism. In 1936, the Coca-Cola Company sponsored the notorious Nazi showcase Olympics which most of the countries refuse to take part and up to 1939, the company operated forty-three bottling plants along with six hundred distributor channels within Nazi Germany.
In the post era of World War II, the company’s global operation seriously hampered for its wartime disputed strategy and brand Coca-Cola faced worldwide boycotts in many counties. During the epidemic of war Max Keith, the German operator of Coca-Cola developed Fanta, which the company buyout in sixties and the legend marketing campaign of the company successfully rub out the blame of Nazis integration from the public mind but history never, excuse Coca-Cola for its notorious role. The Coca-Cola Company started its operation of bottling in Saudi Arabia during 1950 but the establishment of Israel, US favor to Israel and the company’s secret pact with Jewish spread out boycotting Coca-Cola and the Saudi Arabia Operation propounded in 1963 (The Olayan Group 10). The Coca-Cola boycotts in the Arab world seriously damaged the companies’ bottling plants in Middle East and several studies demonstrated that the mass peoples’ boycott of US goods in this region has donated at least 55% turn down of US exports towards KSA  during 1998 to 2002. The Olayan Group is Saudi Arabian multinational company consisting with fifty business entries served for manufacturing, distribution as well as project financing and the Coca-Cola Company reentered in Saudi Arabia through a joint venture in 1988 under the banner CCBCSA. Olayan Group engaged its highest effort to recover Saudi Arabia Market after twenty-five years absence by enforcing corporate crisis management, entrepreneurship, and persistent commitment to growth including national and global values.
The excellent operation of CCBCSA has enabled the Coca-cola to recover 30 % of the beverage and soft drink market of KSA with inspiring growth in the GCC counties within 2000 by producing Coca-Cola, Fanta, and Sprite. CCBCSA introduced state of the earth technology in its production plant including IT integrated management at 30 distribution channels all over KSA and above 1400 employees that serve a strong customer base (The Olayan Group 1).
4.1 Saudi Arabia: Crisis Management
TRACCS (1) argued that the crisis management drives still prolonged to Coca-Cola after the reentry of the company in KSA while in 2000, the Life Magazine bring into public views a Coca-Cola promotional photograph a Cameroonian Muslim salesperson saying his Namaz keeping Mecca and Kaba at his back but bending his head in front of Cocoa-Cola cooler. The portrait has captioned with the slogan that “Muslims always look for spiritual refreshment”, it is not clear whether the happing was an intentional hit to the Islamic sentiment or a malicious blander of the R&D of Coca-Cola, but the fact faired worldwide Muslim protest. The anti-Islamic propaganda of the company swiftly spread out in KSA, different Muslim activists and student organizations in the US University campuses urged to boycott of Coca-Cola in KSA. The situation was deteriorating quickly but the local Agent of Coca-Cola, the Olayan Group tactically take control on the fact and communicated with the headquarter of Coca-Cola to make safe by a written exculpation along with apology from the Life Magazine by obviously mentioning that Coca-Cola never done any thing with that photograph.
Within two days headquarter arranged such a document from the Life Magazine and published a protest in the Newspaper from New York, the same copy was translated into Arabic and published in the local Newspapers and distributed in the University campuses in KSA and thus the crisis was managed.
4.2 Saudi Arabia: Crisis Management
In 2000, Coca-Cola slapped with a diverse religious crisis in Saudi Arabia while some Muslim identified that the computer graphics of reversed Logo of Coca-Cola looks like Arabic alphabets and spelled as “No Makkah-No Mohammed’”. This time same storm of protest flourished in KSA and argued for boycotting US products and Coca-Cola at the most wanted object of attack and the market of Saudi Arabia become destabilized. The local agent has called to mitigating the crisis responding to negative propaganda against the Coca-Cola along with setting a stopple to such false allegation.
The local agent urged to the media due to the irrationality of the false allegation offensively caused from baseless rumors, they formed an investigation team with legend pundits and linguistic professors. The report of the investigation pointed that the logo of Coca-Cola had designed long before in 1880 while the company operates only in the domestic market as a soft drink while there were no question to integrating anti-Islamic thoughts. Both the electronic and print media responded positively, some of the newspapers published cover concerning the real fact that contributed Coca-Cola to overcome the raised scandal against the company.
5. The Main Players or Actors Who Contributed To This Problem
For the presented case – 1, it is clear that clear that the local agent of Coca-Cola has successfully managed the risks with the help of headquarter but the fact that goes through promotional campaign in Cameron is malicious evidence for which the main player is the R&D department of Coca-Cola that has forgotten to respect diversified culture. Being a large MNC, Coca-Cola has to take care of maintaining ethical and social responsibility as an integral element of its strategic management process for the operation both home and abroad. Godiwalla (5) added that the socio-cultural environments in which the MNC operates are continuously changing with time where the MNC needed to respond properly for it ethical and along with CSR issues while the socio-cultural environments consists with major three levels as global, regional and home country.
It is natural that sometimes the home country at headquarters’ couture could be far different and conflicting to the operating country; in that case, MNCs must take care to the host country’s culture and ethic and in this aspect where Coca-Cola evidenced enough lacking to meeting the industry norms in KSA. In the both cases, to publicize the scandal in media, there are possibilities to have the involvement of competitors. The most renowned competitor of Coca-Cola is the Pepsi who has enjoyed the Saudi market along in the absence of Coca-Cola, but for Saudi Arabia and the Middle East both the competitors are most friendly to protect common interest due to different boycotts in this region. Another possible main players or an actor who contributed to this problem is Macca-Cola. Rarick (1) exposed that the Macca-Cola came in the Saudi Arabia market in 2002 addressing the un-Islamic attitude of Coca-Cola and the owner of Macca-Cola is a Muslim political activist from French. Mecca-Cola used the name of the birthplace of the founder of Islam, which has considered as a holy place for the Mohammedans, and emotionally blackmailed the religious sentiment. It also branded another product Zamzam Cola that already gained enough popularity in Iran, Bahrain and other Arab countries just patronizing anti-American sentiment in this region. Another new player also trying to gain a share in the soft drink market of KSA by using religious sentiment named ‘Qibla-Cola’, which is an US, based company, but Islamic leveled.
6. Challenges, Issues, and Prospects
Due to an US leveled MNC; the Challenge of Coca-Cola Company is unavoidably concerned with the challenges of USA in Saudi Arabia. CCI (1) pointed out that it is the pick time for America to take into account how the people of rest of the world observe present America, what are major changes of public perception towards Americana during nineties, how the isolation and social life of American are changing, and anti-American moves are flourishing globally. Until and unless America would change its foreign policy, the US brands would face raising challenge of decreasing sales revenue like coca-cola. Connecting to the Twin Tower attack on September 11, 2001, the US and Saudi Arabia has been deteriorating and that like a cold war situation while USA blame KSA for financing the terrorists as Al-Qaeda’s chief is a Saudi citizen. The public perception in this region is that the Al-Qaeda is a creation of America and the terrorist attack of September 11, 2001 was a preplanned drama of Americans that was staged to undermine the Arab world to exploit their petroleum resources.
The American aggression in Iraq, Afghanistan, threats to Iran all those are interlinked to the US-KSA relation those directly impacted US brands like Coca-Cola in this region (MEPC 7). Rather than the political issues there are some other challenges those Coco-Cola has been facing in Saudi Arabia and rest of the globe. Favaro, Tim, and David (1) pointed out that the retailing soft drinks have a great challenge during the recession due to the exaggerated home values seriously impact on the customers. During the recession, the interest rate turns to zero and credits are available for free of cost while the raising unprecedented levels seriously decrease the consumer’s spending. The soft drinks have to have face challenges by responding uncompromisingly accumulating new outlets, introducing new concepts, driving to the international market and organizing online presence retaliates could take the challenges. As a leading soft drinks Coca-Cola has to drive in the market with such challenges.
The Coca-Cola Company (5) pointed out that the soft drinks industries are acknowledged as dead set against recession, but the present U.S. recessionary economy has sink it’s teeth into the profits of world’s prevalent beverage giant like Coca-Cola.
Coca-Cola Company proclaimed that its sales were downturn in December 2008 due to some of its supply chains are facing worst monthly returns among the last five years and if the situation continue any more then there is doubt to say that the biggest fast food has been impacted by recession. Coca-Cola has also argued that elevated food prices, reduced speed of customer expenditure coupled with the downturn of housing market that resulted lower sales in global operation. The company also identified pure water resource, raising health consciousness of customers, increasing competition in the global market, shifting beverages business environment, exchange rate, energy crisis, increasing cost and decreasing profitability and their major issue of challenge. USCIB (1) pointed out that Coca-Cola Company has been overcome the punch of credit crush while the Chairman and CEO of Coca-Cola Muhtar Kenthe also added that the company has noteworthy growth in 2008 particularly where 73% of the revenue and 81% of its profit from overseas market. The soft drink industry possibly would gain an enhanced situation with no serious impact of global financial crisis as well as considerable increase in food prices but Coca-Cola has been positioned against some recession due to job cut and reduced income globally. Under the recessionary economy, people consider more than twice before spending their money about the justification of expenditure while Amidon (13) mentioned that under the recessionary economy the return on assets of Coca-Cola has reduced 3% in 2008 in relation to previous year 2007. Amidon (5) also reported that Coca-Cola has gained a profit slight higher than its expectation but overall growth rate decreased notably.
In 2008, due to the global financial crisis and its consequential recession, the company reported a remarkable loss of US$ 874 million while the company’s debt-to-equity ratio decreased 0.979 or 97.9% in global operation.
It is important to note that the soft drinks industry is indeed prospective in Saudi Arabia because the public demand for such beverages remains more or less inelastic in most of the cases except of any sudden influence by recessionary impact. In context, Coca-Cola Company has a number of prospects for carrying out its business operations in Saudi Arabia for enlarging non-carbonated category, which is growing in a fast pace (the international non-carbonated drinks market grew by 7.5% in first quarter of 2005, whereas in 2007, Coca-Cola announced a 7% augmentation in its Powerade-sport-drink and 14% augmentation in Minute Maid juice). Conversely, apart from Saudi Arabia, Coca-Cola has achieved significant growth in main emerging-markets like Russia, China, and Brazil as demand for soft drinks and beverages at those nations raised rapidly in current times owing to their economic-growth (unit volume increased by 11% in 2006 in North Asia, Eurasia, and Middle East due to mainly for growth of China and Russia). In recent years, with number of international sporting events rising, the prospect of Coca-Cola to sponsor those events and to enhance its brand name is increasing as well; it is arguable that this method of brand promotion is a good technique to reach the target customer. To illustrate this argument, it is essential to state that the company has recently sponsored the 2008 Olympic Games in Beijing, 2010 Winter Olympics in Vancouver, Canada, and 2010 FIFA Football World Cup of South Africa that altogether brought a huge success for the company’s image.
Discussion of the Related Literature
Coca-Cola operates on a local-scale in every community of KSA and the world constructing widespread-accessibility with local-focus owing to potency of Coca?Cola’s organizational structure that encompasses more than 300 bottling-partners internationally who work closely with customers like grocery-stores, restaurants, street-vendors, convenience-stores, movie-theaters, and amusement parks, who in turn sell its products to final-consumers at a rate of 1.6 billion servings-a-day. This reflects the fact that this company indeed possesses a very strong organizational structure as illustrated in the figure below: Figure 1: Organizational Chart of Coca-Cola Source: Self generated from Girard (5) Coca-Cola’s products are consumer products, and are rather responsive to consumer’s disposable income; therefore, the company’s management reports two possibilities that serve to figure out its arrangement related to this factor – first, consumers think soft drinks as inexpensive pleasure and so even in temporary environment of steady or slightly dwindling disposable income, consumers are unlikely to relinquish soft drinks. Second, Coca-Cola scrutinizes disposable income in over 200 countries including Saudi Arabia where it sells soft drinks; this information suggests that disposable income is gradually rising around the world and that individual consumers are eventual buyers of soft drinks; additionally, Coca-Cola interprets this to mean more purchases of consumer products, particularly in countries where consumer product purchasing has been negligible. Nevertheless, Coca-Cola and PepsiCo’s real ‘buyers’ have been neighbouring bottlers who are either franchised or owned, particularly in the case of Coca-Cola; it is arguable that whilst Coca-Cola and its competitors release their franchises, those bottlers in turn develop the ‘channel’ in the course of which these comprehensive beverage brands attain the local customers even in the rural areas.
7.1 Environment Analysis of Coca-Cola in Saudi Arabia
In order to convey an assessment of Coca-Cola’s operations in the Saudi Arabian business environment, it is imperative to consider a number of factors such as the country’s demographics, economic, political, socio-cultural, technological factors: Figure 2: External Environment of Coca-Cola Operation Source: Self-generated
It is crucial for Coca-Cola Company to examine the demographic features of the country to ensure that it is undertaking effective tactical steps. In 2010, Saudi Arabia had a total population of 25,731,776; the average age of the total population was 24.
9 years (with an average of 26 years in men, and 23.4 years in women) and a populace growth rate of 1.548 percent annually. Recently, the birth rate of the country is 19.43 births per 1000 people and death rate is 3.34 deaths per 1000 people; moreover, the net migration rate of Saudi Arabia is -0.61 migrants per 1000 people.
The urban inhabitants represent 82 percent of the total population with a rate urbanisation of 2.5 percent; the life expectancy of the total population is 73.87 years and total fertility rate is 2.35children per woman. According to Indexmundi (1), the government expends about 5.7percent of the total gross domestic product for education purposes of Saudi Arabia and it is arguable that the literacy rate of the total population is 78.
8 percent. The following table shows the age configuration of the total Saudi Arabian population: AgePercentageMaleFemale0 to 14 years38%5,557,4535,340,61415 to 64 years59.5%9,608,0327,473,54365 years and over2.5%363,241343,750