Assignment on mergers and acquisition
Submitted to: Sonia chawla (H.O.D)
Submitted by: Himani ND MBA 2 SEM 2120/08
COCA COLA ACQUIRE PARLE
ACKNOWLEDGEMENT
We acknowledge the earnest suggestions given to us by Dr. (Mrs). Sonia Chawla, Head of M.B.A. Department, under whose benevolent guidance we were able to accomplice this assignment
Coca cola acquire parle
Background
During the late 1970s, the American cola giant Coca-Cola abandoned operations in India rather than make a forced sale of 60% of their equity to an Indian company.Following this, the Parle brothers, Ramesh Chauhan and Prakash Chauhan, along with then CEO Bhanu Vakil, launched Thums Up as their flagship drink, adding to their portfolio of older brands Limca (lime flavour) and Gold Spot (orange flavour). Thums Up was basically a cola drink, but the company never claimed it as such. The formula was just as closely guarded as the famous Coke formula. During the same time, the owners of Coca- Cola’s bottling plant, Pure Drinks Ltd., launched Campa Cola and Campa Orange, both of which had a higher dose of carbon dioxide.
Manmad Hill
Multinational Companies doesn’t believe in competition; they either suppress the competitor (kick out of the market) or merge them. When Pepsi and Coca-cola entered India in 1991, Indian companies were making the same carbonated water and those were Thumbs-Up (by Indian company, Parle) and Gold-Spot. Later Coca-cola acquired Parle’s Thumbs -Up and Gold-Spot. If our government wanted competition in the market, why did they allow merging Thumbs-Up with Cocacola? Years before the merging, all Coke and Pepsi dealers suppressed ThumbsUp sales and Parle was not having any way except merging into Coca-Cola. Now, coca-cola runs mainly on bottling plants made by Parle. And, our Government says that they invest money in setting up their plants. General Motors acquired Hindustan Motors plants. Where are they spending money? Advertisements!
Competition is in advertising and marketing. Think about it, these don’t add anything to the product. Do you think they are giving it for cheap in the competition? A 300ml Pepsi bottle gets ready within Re 1 cost and sold for Rs 8 Coca-Cola re-entered the Indian market on 26th October 1993 after a gap of 16 years, with its launch in Agra. An agreement with the Parle Group gave the Company instant ownership of the top soft drink brands of the nation. With acc ess to 53 of Parle’s plants and a well set bottling network, an excellent base for rapid introduction of the Company’s International brands was formed. The Coca -Cola Company acquired soft drink brands like Thumps Up, Goldspot, Limca, Maaza, which were floated by Parle, as these products had achieved a strong consumer base and formed a strong brand image in Indian market during the re-entry of Coca-Cola in 1993.Thus these products became a part of range of products of the Coca-Cola Company. Sprite, Fanta, Fresca and TAB joined brand Coca-Cola in the 1960s. Mr. Pibb and Mello Yello were added in the 1970s. The 1980s brought diet Coke and Cherry Coke, followed by PowerAde and Fruitopia in the 1990s. Today scores of other brands are offered to meet consumer preferences in local markets around the world. Sprite, Fanta, Fresca and TAB joined brand Coca-Cola in the 1960s. Mr. Pibb and Mello Yello were added in the 1970s. The 1980s brought diet Coke and Cherry Coke, followed by PowerAde and Fruitopia in the 1990s. Today scores of other brands are offered to meet consumer preferences in local markets around the world. For instance, Cokewhich acquired Parle Products and its brands in 1993 now has 50 percent of themarket share compared to 60 percent for Parle in 1993. Entry of Coke has actually helped rival Pepsi to gain its market share from 25 percent in the time of Parle to 48 percent
In 2003, the Indian subsidiary of the Coca-Cola Company was awarded the Robert W. Woodruff Award for outstanding business performance. Coca- ColaÂ’s turnaround in India had come after a period of heavy investments. During the period 1993-2002, the company had invested $1 billion in India. In 2003, CocaCola had 17 manufacturing units, 60 distribution centers catering to 5,000 distributors and one million retail outlets, serviced via trucks and three-wheelers. Coca-Cola directly employed 10,000 people.
Advantages Hindustan Coca-Cola Beverages (HCCBPL) was created when Coca-Cola returned to India in October 1993, by buying out the Parle soft drink business with its local brands and 52 bottling plants (including those of Parle's franchise partners). In the last two years, HCCBPL invested some $836 million in infrastructure (retail and distribution network), while setting up 10 new "greenfield" bottling sites in rural areas. Their location in rural villages has several advantages for Coke, including a low-cost
labour force that it hires as contract labour and special subsidies and tax breaks from the state governments for investing in remote rural areas. Moreover the rural market is largely untapped and lacks safe drinking water, encouraging those who have sufficient income to drink Cokes.
All the new plants are fully automated with relatively few permanent workers (38 percent percent of the total). The others are contract workers hired at low wages either from local villages or migrants from Bihar or Uttar Pradesh. The capacity of each plant is several times that of the older semi-mechanised plants while employing fewer workers. One new plant in Gaziabad has the capacity to bottle 120 thousand crates per day (4-6 times that of the older plants) with less than 200 workers (the older plants averaged 500 workers). The ten new plants can produce as much as the 52 acquired from Parle, but are still operating at very low capacity. In the process of developing new plants, the company tried to buy out the plants controlled by its franchise partners (those formerly associated with Parle). In some cases agreements were not reached and in February 2000 Coke cancelled the franchise licenses of the Poona Bottling Company in Puna and Waluj Beverages in Aurangabad. While a legal battle is being waged between Poona and Coke, Poona workers have been laid off and unpaid Coke also closed some of the low-capacity bottling plants it did buy from Parle franchises. It closed the Andheri plant (near Mumbai-Bombay), laying off 500 workers and shifted its machinery to the Wada plant. The company is ignoring a decision from Mumbai High Court to employ these workers at the Wada plant. Of the 44 Coke plants now operating nearly half are unionised. 70 percent percent of these are owned directly by HCCBPL, whose management is trying to retrench permanent workers all over India, through Voluntary Retirement Schemes (VRS) The unionised HCCBPL plants have higher wages than non-union ones, and in some plants even the contract workers are unionised (which means higher wages but no other benefits).
MANIFESTO FOR GROWTH
VALUES: Coca-Cola is guided by shared values that both the employees as individuals and the Company will live by; the values being:
LEADERSHIP: The courage to shape a better future
PASSION: Committed in heart and mind
INTEGRITY: Be real
ACCOUNTABILITY : If it is to be, it’s up to me
COLLABORATION: Leverage collective genius
INNOVATION: Seek, imagine, create, delight
QUALITY: What we do, we do well
MISSION
To Refresh the World... In body, mind, and spirit
To Inspire Moments of Optimism... Through our brands and our actions
To Create Value and Make a Difference... Everywhere we engage.
VISION FOR SUSTAINABLE GROWTH
PROFIT: Maximizing return to shareowners while being mindful of our overall responsibilities.
PEOPLE: Being a great place to work where people are inspired to be the best they can be.
PORTFOLIO: Bringing to the world a portfolio of beverage brands that anticipate and satisfy peoples’ Desires and needs.
PARTNERS: Nurturing a winning network of partners and building mutual loyalty.
PLANET: Being a responsible global citizen that makes a difference.
VALUES: The values that the employees in the Company are expected to keep up to and work by regularly are as follows:
LEADERSHIP: To take an initiative and lead, motivate and drive the team with energy and zeal, to deliver outstanding results.
INNOVATION: To continuously strive for progress and reach the next level of excellence in everything we do.
PASSION:To be deeply committed and display drive and energy in the quest to deliver outstanding performance.
TEAMWORK:To unite for greater strength and work collectively as a group towards the achievement of common goals.
OWNERSHIP: To think and act like owners at all levels; to have decisions taken at the lowest appropriate level.
ACCOUNTABILITY: To be individually and transparently accountable to our colleagues for delivering agreed targets and goals.
VISION FOR SUSTAINABLE GROWTH To provide exceptional strategic leadership in the Coca-Cola India System-resulting in consumer and customer preference and loyalty, through Coca- Cola’s commitment to them, and in a highly profitable Coca-Cola Corporate branded beverages system.
MISSION
To create consumer products, services and communications, customer service and bottling system strategies, processes and tools in order to create competitive advantage and deliver superior value to;
Consumers as a superior beverage experience
Consumers as an opportunity to grow profits through the use of finished drinks
Bottlers as an opportunity to grow profits in volumes
Bottlers as a trademark enhancement and positive economic value added
Suppliers as an opportunity to make reasonable profits when creating real valueadded in an environment of system-wide team work, flexible business system and continuous improvement
Indian society in the form of a contribution to economic and social development.
QUALITY POLICY “To ensure customer delight, we commit to quality in our thoughts, deeds and actions by continually improving our processes…Every time.”
STRENGTHS DISTRIBUTION NETWORK: The Company has a strong and reliable distribution network. The network is formed on the basis of the time of consumption and the amount of sales yielded by a particular customer in one transaction. It has a distribution network consisting of a number of efficient salesmen, 700,000 retail outlets and 8000 distributors. The distribution fleet includes different modes of distribution, from 10-tonne trucks to open-bay three wheelers that can navigate through narrow alleyways of Indian cities and trademarked tricycles and pushcarts. STRONG BRANDS: The products produced and marketed by the Company have a strong brand image. People all around the world recognize the brands marketed by the Company. Strong brand names like Sprite, Fanta, Limca, Thums Up and Maaza add up to the brand name of the Coca-Cola Company as a whole. The red and white Coca-Cola is one of the very few things that are recognized by people all over the world. Coca-Cola has been named the world's top brand for a fourth consecutive year in a survey by consultancy Interbrand. It was estimated that the Coca-Cola brand was worth $70.45billion. LOW COST OF OPERATIONS: The production, marketing and distribution systems are very efficient due to forward planning and maintenance of consistency of operations which minimizes wastage of both time and resources leads to lowering of costs.
WEAKNESSES
LOW EXPORT LEVELS: The brands produced by the company are brands produced world wide thereby making the export levels very low. In India, there exists a major controversy concerning pesticides and other harmful chemicals in bottled products including Coca-Cola. In 2003, the Centre for Science and Environment (CSE), a non-governmental organization in New Delhi, said aerated waters produced by soft drinks manufacturers in India, including multinational giants PepsiCo and Coca-Cola, contained toxins including lindane, DDT, malathion and chlorpyrifospesticides that can contribute to cancer and a breakdown of the immune system. Therefore, people abroad, are apprehensive about Coca-Cola products from India.
SMALL SCALE SECTOR RESERVATIONS LIMIT ABILITY TO INVEST AND ACHIEVE ECONOMIES OF SCALE: The Company’s operations are carried out on a small scale and due to Government restrictions and ‘red -tapism’, the Company finds it very difficult to invest in technological advancements and achieve economies of scale.
OPPORTUNITIES
LARGE DOMESTIC MARKETS: The domestic market for the products of the Company is very high as compared to any other soft drink manufacturer. Coca-Cola India claims a 58 per cent share of the soft drinks market; this includes a 42 per cent share of the cola market. Other products account for 16 per cent market share, chiefly led by Limca. The company appointed 50,000 new outlets in the first two months of this year, as part of its plans to cover one lakh outlets for the coming summer season and this also covered 3,500 new villages. In Bangalore, Coca-Cola amounts for 74% of the beverage market. EXPORT POTENTIAL: The Company can come up with new products which are not manufactured abroad, like Maaza etc and export them to foreign nations. It can come up with strategies to eliminate apprehension from the minds of the people towards the Coke products produced in India so that there will be a considerable amount of exports and it is yet another opportunity to broaden future prospects and cater to the global markets rather than just domestic market.
HIGHER INCOME AMONG PEOPLE: Development of India as a whole has lead to an increase in the per capita income thereby causing an increase in disposable income. Unlike olden times, people now have the power of buying goods of their choice without having to worry much about the flow of their income. The beverage industry can take advantage of such a situation and enhance their sales.
THREATS
IMPORTS: As India is developing at a fast pace, the per capita income has increased over the years and a majority of the people are educated, the export levels have gone high. People understand trade to a large extent and the demand for foreign goods has increased over the years. If consumers shift onto imported beverages rather than have bev erages manufactured within the country, it could pose a threat to the Indian beverage industry as a whole in turn affecting the sales of the Company.
TAX AND REGULATORY SECTOR: The tax system in India is accompanied by a variety of regulations at each stage on the consequence from production to consumption. When a license is issued, the production capacity is mentioned on the license and every time the production capacity needs to be increased, the license poses a problem. Renewing or updating a license every now and then isdifficult. Therefore, this can limit the growth of the Company and pose problems.
SLOWDOWN IN RURAL DEMAND: The rural market may be alluring but it is not without its problems: Low per capita disposable incomes that is half the urban disposable income; large number of daily wage earners, acute dependence on the vagaries of the monsoon; seasonal consumption linked to harvests and festivals and special occasions; poor roads; power problems; and inaccessibility to conventional advertising media. All these problems might lead to a slowdown in the demand for the company’s products.
COMPETITORS TO HCCBPL The competitors to the products of the company mainly lie in the non-alcoholic beverage industry consisting of juices and soft drinks. The key competitors in the industry are as follows:
PACKAGING DETAILS Coca-Cola, Thums Up, Fanta Limca and Sprite: 330 ml can, 200 ml and 300 ml returnable glass bottles; 500+100 ml free, 1.5 litre and 2 litre PET bottles
Implication Besides enhancing equity in units already controlled by transnationals, the principal strategic weapon at enhancing long term profit earning capacity appears to be one of "purchasing market shares" through acquisitions and mergers. The most startling of these is no doubt the sell-out by Parle Exports, the dominant Indian producer of soft drinks, to international giant Coca Cola. Coca Cola I nc ("serving more than 685 million drinks each day in more than 195 countries") and India's Parle exports have signed an agreement under which Parle exports has transferred the rights of all its soft drinks brands - Thums Up, Limca, Citra, Gold Spot and Maaza - to the Coca Cola company. This gives the latter the right to withdraw these brands, accounting for 60 per cent of the Rs.1200 crore soft drinks market, as and when it chooses
For instance, Coca-Cola while re-entering the country in 1993 acquired Parle, the largest player in the market with several well-established brands and a nation-wide bottling and marketing network. That gave Coke a head start over the rival Pepsi which, even though having entered the country five year s earlier in 1988, was still struggling with a 25 percent share compared to market leader Parle’s 60 percent. Coke was not only able to use Parle’s bottling and marketing network but even its brands which are still hugely popular and outsell Coke’s own brands of soft drinks. Subsequently taking a 8cue from the entry strategy of Coke, Pepsi has also acquired Duke, a smaller soft drink manufacturer to build its market share. Similarly, Hindustan Lever, the Indian subsidiary of Unilever has acquired Dollops, Kwality and Milkfood to get into icecream market with the help of their marketing networks, production facilities in different parts of the country and brands.
Secondly, there has been a large number of cases of foreign firms acquiring wholly Indian ones, epitomised by the purchase of soft drinks giant Parle Exports by Coca-Cola. Data relating to inflows on account of acquisition of shares of Indian companies by non-residents under Section 29 of FERA is available from January 1996. The evidence shows that the share of FDI inflows on this account has been substantial in recent y ears, accounting for 23 per cent of the total in 1999-2000 and 15.5 per cent in 2000-2001.
