Coca Cola Pakistan

Bs Commerce 6th (2009-2013)

Report On International Business

Topic: Coca-Cola Beverages Pakistan Limited Submitted to: Sir Maratab Ali Kazmi Submitted by: Tasneem Nawaz Syed Shafqat Abbas Muhammad Jamil Ali Khalid Zahid jeelani Zargham Ahmed

BCM-09-01 BCM-09-10 BCM-09-13 BCM-09-27 BCM-09-28 BCM-09-42

Bs Commerce 6th (2009-2013) Department of Commerce Bahaudin Zakariya University Multan

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DEDICATED To our teacher Bastion Of patience and grace Owing their Prayers, the world we could face up to the Tyranny, Unawareness and coercion those murmur prayers as my best Possession ‘O’ Lord of Heavens, The Kindness is The best dwelling, we ever knew the Spur For all that we do.

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TABLE OF CONTENTS Introduction

04

Brands

05

New Coke to Present

06

Coca-Cola IN Pakistan

08

Uncontrollable Elements

11

SWOT Analysis

14

Post 9/11 Effects

17

PEST Analysis

19

Duties & Taxes Applied

21

Strategies to Reduce Political Vulnerability

23

Cultural Borrowing

24

Problems

26

References

27

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INTRODUCTION Coca-Cola (also known as Coke) is a popular carbonated soft drink sold in stores, restaurants and vending machines in over two hundred countries. It is produced by The Coca-Cola Company, which is also occasionally referred to as Coca-Cola or Coke. It is one of the world’s most recognizable and widely sold commercial brands. Coke's major rival is Pepsi. Although Coke has been the target of urban legends decrying the drink for its supposedly copious amounts of “acid”, or the "lifethreatening" effects of its carbonated water but still it is the most in-style soft drink. About its safety and the ethics of the company that produces it, it is widely accepted as the most dominant soft drink in the world today. Originally intended as a patent medicine when it was invented in the late 19th century, Coca-Cola was bought out by shrewd businessman Asa Griggs Candler, whose aggressive marketing tactics led Coke to its dominance of the world soft drink market throughout the 20th century. Although faced with accusations of perverse side-effects on the health of consumers and monopolistic practices by its producing company, CocaCola has remained a popular soft drink well into the first decade of the 21st century.

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BRANDS Globally, the Coca-Cola Company owns or licenses nearly 400 brands in the nonalcoholic beverage business. Many of those brands are considered among the worlds most valuable. Some of these include: - Carbonated soft drinks Such as Coca-Cola, Diet Coke, Fanta, Sprite - Juices and juice drinks Such as Minute Maid, Qoo, Fruitopia, Maaza and Bibo - Sports drinks Such as POWERade and Aquarius - Water products Such as Ciel, Dasani, Kenly and Bonaqua - Teas Such as Sokenbicha and Marocha - Coffee Such as Georgia coffee, the best-selling noncarbonated beverage in Japan.

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NEW COKE TO THE PRESENT In 1985, Coca-Cola, amid much publicity, attempted to change the formula of the drink. Some authorities believe that New Coke, as the reformulated drink was called, was invented specifically to respond to its commercial competitor, Pepsi. Double-blind taste tests indicated that most consumers preferred the taste of Pepsi (which has more lemon oil, less orange oil, and uses vanillin rather than vanilla) to Coke. New Coke was reformulated in a way that emulated Pepsi. Follow-up taste tests revealed that most consumers preferred the taste of New Coke to both Coke and Pepsi. The reformulation was led by the then-CEO of the company, Roberto Goizueta, and the President Don Keough. It is unclear what part long-time company president Robert W. Woodruff played in the reformulation. Goizueta claims that Woodruff endorsed it a few months before his death in 1985; others have pointed out that, as the two men were alone when the matter was discussed, Goizueta might have misinterpreted the wishes of the dying Woodruff, who could speak only in monosyllables. It has also been alleged that Woodruff might not have been able to understand what Goizueta was telling him. The commercial failure of New Coke therefore came as a grievous blow to the management of the Coca-Cola Corporation. Coca-Cola management was unprepared, however, for the nostalgic sentiments the drink aroused in the American public; some compared changing the Coke formula to rewriting the American Constitution. The new Coca-Cola formula subsequently caused a public backlash. Gay Mullins, from Seattle, Washington, USA, founded the Old Coke Drinkers of America organization, which attempted to sue the company, and lobbied for the formula of Old Coke to be released into the public domain. This and other protests caused the company to return to the old formula under the name Coca-Cola Classic on July 10, 1985. The company was later accused of performing this volte-face as an elaborate reuse to introduce a new product while reviving interest in the original. The company president

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Bs Commerce 6th (2009-2013) responded to the accusation by declaring: "We are not that stupid, or that smart." The Coca-Cola Company is the world's largest consumer of natural vanilla extract. When New Coke was introduced in 1985, the economy of Madagascar crashed — vanilla being a prime export — and recovered only after New Coke flopped, since New Coke used vanillin, a less-expensive synthetic substitute. Purchases of vanilla more than halved during this period. Meanwhile, the market share for New Coke had dwindled to only 3% by 1986. The company renamed the product "Coke II" in 1992 (not to be confused with "Coke C2", a reduced-sugar cola launched by Coca-Cola in 2004). However, sales falloff caused a severe cutback in distribution. By 1998, it was sold in only a few places in the Midwestern U.S.

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COCA-COLA IN PAKISTAN

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Introduction The Coca-Cola Company is a global company with some of the world's most widely recognized brands, the Coca-Cola business in Pakistan has completed its 58 years of operation. The beverages are produced locally, employing Pakistani citizens. And their product range and marketing reflects Pakistani tastes and lifestyles, and they are deeply involved in the life of the local communities in which they operate

History The Coca-Cola Company began operating in Pakistan in 1953. Benjamin H. Oehlert Junior, former senior vice president of The Coca-Cola Company, served as United States Ambassador to Pakistan from 1967 to 1969.

Brands Coca-Cola®, Fanta®, Sprite®, Sprite 3G®, Diet Coke®, kinley®

Bottling Information The Coca-Cola System in Pakistan operates through twelve bottlers, 10 of which are owned by Coca-Cola Beverages Pakistan Limited, out of these twelve plants now eight are operating. The CCBPL plants are in Karachi, Hyderabad, Lahore, Gujrawala, Faisalabad, Rahimyar Khan, Multan and Sialkot. The remaining two plants, independently owned, are in Rawalpindi and Peshawar. The Coca-Cola in Pakistan serves 95,000 customers retail outlets.

Employment/Economic Impact In Pakistan it has invested over $ 22886 million (U.S.). due to the heavy investment it also employed many people in Pakistan.

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Community Involvement In 2000, when Eastern Pakistan suffered its worst droughts, The CocaCola System initiated a famine-relief program to help victims and was the first private-sector company to assist. It initiated a voluntary Haj program that allows one employee from each plant, selected through a draw, to be sent on the Holy Pilgrimage to Mecca at the Company's expense.

Sponsorships The Company sponsors Pakistan's leading pop group and organizes concerts throughout the country for teenagers and underprivileged children. It sponsors Pakistan's No. 1 solo artist, who will participate in concerts and charity events organized by The Coca-Cola Company in Pakistan. The Company has signed a sponsorship agreement with eight of Pakistan's national cricket players for promotional and advertising use. The Coca-Cola System in Pakistan is the exclusive supplier for Pakistan Railways, serving soft drinks in stations, platforms and on trains. The Company will be undertaking a beautification program of stations and platforms. in last few years coca cola sponsored a program to encourage Pakistani music with name of coke studio.

Marketing Involvement Coca-Cola Corporation is a multinational organization. And it is indulged in the international marketing .The brands and basic strategies are made in the home country but the local strategies are defined in the host countries. Also the 4P’s are made according to the demographics and taste of the people of the host country. In Pakistan the Coca-Cola Company maps the strategies and the brands by looking into the environment in which it is working. The brands are produced locally. And the product, price promotion and placement are planned with respect to the controllable variables and uncontrollable variables.

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Uncontrollable Elements Whenever any business start operating in two or more than two countries, it come across some of the problems which are beyond the control of business , like legal restraints, government controls, weather, consumer behavior, economic conditions of the host country, social and cultural factors, geography & infrastructure, channel of distribution available, level of technology and competitive forces. These problems are different in all the countries in which business starts its operations. So business has to design a separate framework for each country to overcome these problems. Coke is one of the oldest companies which are in international business; they have a vast experience of controlling these elements. They heavily rely on research to overcome these problems.

Legal And Political Problems They perform thorough study of legal and political problems to decide to enter into any country. They track the previous record of the ruling party and policies. They also keep in mind the attitude of other opposition parties about foreign companies. If any problem arises regarding political or legal issues, they don’t sacrifice their policies and secrecies, as we have a case of COKE AND INDIAN GOVERNMENT. When Indian Government asked to have formula for the concentrate and they deny and left the huge Indian market. Social And Cultural Factors Social and Cultural factors have a very vital impact on the business in the host country. Although this is the most difficult task to understand the culture of the host country but business has to do reasonable care to understand this problem. Coke performs research to understand these issues and design their strategies

accordingly.

They

design

their

products,

prices,

place,

promotion and customer service according to the culture of the country. As we see that coke has 400 brands allover the world but in Pakistan we have only 5 brands and in India which is a market of 1.1 billion people 11

Bs Commerce 6th (2009-2013) coke has 15 brands. This is because of cultural differences that they cannot introduce all the brands in all the countries. Geography & Infrastructure If any business wants to start its business in any other country, it also studies the geography and infrastructure of the host country. That is if feasible for doing business or not. They decide the channel of distribution, modes of transportation and there cost to make decisions regarding prices and designing strategies. In Pakistan Coke found a reasonable infrastructure to do business, which is continuously improving to facilitate distribution system. Economic factors Different counties have different economic conditions at a time so Coke designs different strategies to handle these conditions. As Coke is one of the largest businesses in the world, they have a strong financial background to overcome these economic problems. In host countries they change their prices, investment and penetration strategies to overcome economic factors. Competitive Forces Whenever any business enters into any other country they face competition with some local and international brands. Coke Combat this problem with their quality commitment and continuously providing its customers with quality product, services and entertainment.

Demographic Factors People of all ages and gender use Coca-Cola. Educated people belonging to upper and middle-income groups also commonly use Coca-Cola. Major emphasis of Coca-Cola is to attract teenagers.

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Life Style Pattern The Taste and quality conscious people Drink Coca-Cola brands especially Coca-Cola. Diet Coca-Cola offered by Company is Very popular among diabetic patients.

Preference for Specific Benefits For over 51 years Coca-Cola Corporation has maintained a tradition of producing only the Quality drinking beverages. That is why it continues to be a familiar and trusted household name in Pakistan. Today, Coca-Cola’s lives up to its well earned reputation as market leader by insuring that consumers get the best carbonating drink. The best of nature, technology and human resource have together contributed to Coca-Cola’s reputation for unparalleled quality- a standard now recognized internationally. Above all, the entire process is overseen by a professional management and trained workforce.

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SWOT ANALYSIS

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STRENGTHS Coca-Cola has been a complex part of Pakistani culture for over a half century. Being a strongly recognized brand the product's image is loaded with coolness and refreshment, and this is an image many people have taken deeply to heart. The Coca-Cola image is displayed on T-shirts, hats, and collectible memorabilia. This extremely recognizable branding is one of Coca-Cola's greatest strengths. "Enjoyed more than 685 million times a day around the world Coca-Cola stands as a simple, yet powerful symbol of quality and enjoyment". Additionally,

Coca-Cola's

bottling

system

is

one

of

their

greatest

strengths. It allows them to conduct business on a global scale while at the same time maintain a local approach. The bottling companies are locally owned and operated by independent business people who are authorized to sell products of the Coca-Cola Company. Because Coke does not have outright ownership of its bottling network, its main source of revenue is the sale of concentrate to its bottlers. The Coca-Cola Company in Pakistan has the mover advantage, as it was the first to introduced soft drink. There are 8 plants working in Peshawar, Karachi, Lahore, Gujrawala, Rawalpindi, Faisalabad, Raheem Yar khan, and Multan. These big plants have employed more than 1800 employees. Duopoly of two main beverage companies in Pakistan including Coca-Cola has been diffused into the local markets.

WEAKNESSES Although domestic businesses as well as many international markets are thriving, Coca-Cola has recently reported some "declines in unit case volumes due to reduced consumer purchasing power” Coca-Cola on the other side has effects on the teeth's which is an issue for health care. It also has got sugar by which continuous drinking of CocaCola may cause health problems. Being addicted to Coca-Cola also is a health problem, because drinking of Coca-Cola daily has an effect on your body after few years (International report of Coca-cola).

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Bs Commerce 6th (2009-2013) Out of twelve plants, eight are the operational plants while two are franchised with other group of companies, which is a drawback for cocacola in Pakistan as in these two plants the involvement of Coca-Cola International is not present which effects the overall image of these plants in the local market about the quality and international standards.

OPPORTUNITIES Brand recognition is the significant factor affecting Coke's competitive position. Coca-Cola's brand name is known well throughout 94% of the world today. In Pakistan it is the well-known brand among the people of all ages specially the children are more attracted towards the coke. As Coca-Cola is in business of soft drinks and has more than 450 brands allover the world, but in Pakistan they have only four brands, so there is a potential in Pakistani market for other brands too. Pakistani weather is hot and humid. This causes a tremendous growth in the sales during the summer season. Packaging changes have also affected sales and industry positioning, but in general, the public has tended not to be affected by new products. Coca-Cola's bottling system also allows the company to take advantage of infinite growth opportunities around the world. This strategy gives Coke the opportunity to service a large geographic, diverse, area. The unique formula (concentrate) is being imported from U.S.A and it is then processed in the local plants, this resists the copying of formula and formation of fake formula thus keeping the taste of pure and real CocaCola revitalizing and tempting.

THREATS Currently, the threat of new viable competitors in the carbonated soft drink industry is not very substantial. The threat of substitutes, however, is a very real threat. The soft drink industry is very strong, but consumers are not necessarily married to it. Possible substitutes that continuously put pressure on both Pepsi and Coke include tea, coffee, juices, milk, and hot chocolate ("Cola Wars", 1991).

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Bs Commerce 6th (2009-2013) Even though Coca-Cola and Pepsi control nearly 5% of the entire beverage market, the changing health-consciousness of the market could have a serious affect. Of course, both Coke and Pepsi have already diversified into these markets, allowing them to have further significant market shares and offset any losses incurred due to fluctuations in the market ("Cola Wars", 1991). In Pakistan the consumption of cold beverages is 5% which have to be stabilized. Consumer buying power also represents a key threat in the industry. The rivalry between Pepsi and Coke has produce a very slow moving industry in which management must continuously respond to the changing attitudes and demands of their consumers or face losing market share to the competition. Furthermore, consumers can easily switch to other beverages with little cost or consequence.

Post 9/11 Effects After 9/11 incident Coca-cola suffered a loss due to boycott of religious activists at a larger scale. The market share and market value was dropped down to several points .Price competition was started after this incident. Due to sanctions imposed on Pakistan after May5, 1995 taxes were to be paid in high amount thus increasing the cost of production and price offered to consumers and decreasing the buying powers of customers. So any of the activists behavior can cause decline in the production and sale of coke and other cold beverage company.

Intellectual Property Rights Coke is one of the biggest brands in the world, and its brand value is approximately 4 billion$. It is said that the most common word to speak in this world is “OK” and after this the second most common in this whole world is “COKE”. Sometimes different people and organizations used their names to make money, in the form of fake bottling. The main threat to the company is the production of fake bottles. Fake bottling is growing day by day Fake bottles problem for a company comes under the “act of unfair practices”. In a black marketing aspect whole sellers and retailer could take the fake bottles at a low price for selling at

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Bs Commerce 6th (2009-2013) the price of original bottles which could be harm full for the health of consumers. Coca Cola Company could create a check and balance to meet the need of time, which in turn could help to increase its market share. It already had made several steps to prevent fake bottling and production of fake coke but due to mushrooming industry the laws and management of the corporation is failed to stop this industry from flourishing. The government is also not of great help to the company in solving this main issue.

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PEST ANALYSIS

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POLITICAL FACTORS The political environment of Pakistan affects the coca-cola beverages and Coca-Cola Export Corporation, to some extent. For instance, the political instability in Pakistan causes trade and import policies to change rapidly as the government changes which causes many problems in the import of raw materials. Trade barriers such as tariffs and duties on the import of syrup (concentrate) from USA increases the operational cost. A relaxation has been given by the current government. So the situation for the beverage industry is getting better day by day for the last couple of years. Also the policies have been more or less constant and also the emaciation of free trade zones by the government will help the Coca-cola to flourish more effectively in Pakistan.

ECONOMIC FACTORS The economic condition of Pakistan has not been stable for a long time. The increase in fuel prices, short fall of electricity increase the prices of almost every product in Pakistan that decrease the consumer buying power (inflation). When the recession occurs the price of bottles are dropped down to increase the sales and to achieve the targets of the company. So overall economy of Pakistan directly affects the cost and price of the Coca-Cola Company.

SOCIAL FACTORS Being a foreign based company Coca-cola faces opposition by Muslim activists. The main social issues are: It faced scandal of humiliating Muslim’s religion that when the inverted image of Coca-Cola brand name is being viewed on the mirror it disgraces the name of Holy city Makkah and Hazrat Muhammad (P.B.U.H). This was a wrong conception as there was no reality in it and this scandal was flopped after a short span. One of the greatest social barriers to coca-cola Lahore is the restriction of coke in the campus premises. Jamiat’s strike to coke affects the sales and overall image of coke as a larger number of students from all over the 20

Bs Commerce 6th (2009-2013) Pakistan are studying in the University of The Punjab. But on the contrary in the all parts of the country coke is viewed as the partner in the major events like Basant and promoter of music thereby making a place in the hearts of young generation of the society.

TECHNOLOGICAL FACTORS The making of Coke, Fanta, Diet coke and sprite involves "mixing and blending, filling and capping ". For this process, concentrate or syrup is imported from USA and is then mixed in the local plants .Machinery for the local plants was also imported but now the coca-cola company follows Local content law as most of the spare parts are locally made. The system is automated and equipment is fully operational and up-to-dated. In technology Coca-cola company is far ahead than the several other local beverage brands of Pakistan. It is a Highly Technical 10 Steps Process. Which are all done in the local plants using local content law.

DUTIES AND TAXES APPLIED Duties and Taxes are the tariff barriers for any company to import or export something to other country. The most important component of coke is their concentrate which is provided all over the world from USA. Pakistani Government treats their concentrate under the head of luxuries and applied second highest duty after tobacco. According to their spokesman if this duty is removed, then price of coke’s 250ml bottle can be lessened up to Rs.5.

Laws Abided By & Methods of Conflict Resolution Coca-cola is one of the oldest multinational corporation, they have a vast experience

of

dealing

with

different

governments

and

different

organizations all over the world. When ever they enter into some country they made a thorough research work. They analyze the political restrictions, rules and regulations of doing business, political parties which can affect policies and policy making authorities. They respect the laws of

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Bs Commerce 6th (2009-2013) host country and design their framework according to the rules and regulations of the host country.

Methods of Conflict Resolution World wide Coca-cola tries to solve any disputes which may arise through arbitration and they mention this clause in contract that if any dispute arises, they will go for arbitration but if arbitration does not solve the problem then they refer their dispute to litigation. They prefer arbitration because litigation is very expensive and lengthy process; there is fear of poor image and damaging public relations, fear of unfair treatment in host country and fear of loss of confidentiality. As far as Pakistan is concerned up till now no such dispute has arisen in which they need to go for arbitration. But they go for litigation against those firms which are involved in using their brand name for fake bottling.

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STRATEGIES TO REDUCE POLITICAL VULNERABILITY Nowadays

political

governments

are

very

conscious

about

foreign

businesses and foreign investments, so they usually have standardized policies for all the competing businesses; there is no biasness in dealing with different competing business. But sometimes a situation may arise due to some political reasons that may create some problems, so coke deals with such problems strategically. As we have a example, when Pepsi launch their tin can at Rs.10/-they got special permission to manufacture tin cans and that was the only plant which got permission to manufacture cans, as we know that time Pepsi and Coke are bitter competitors so Coke must go with guns and guns with Pepsi, they tried to get permission but they failed. So they imported Coke cans from Dubai at Rs.13/- and sell it for Rs.10/- to compete in the market. So if some problem arises which can affect their image and that cannot be solved due to some political and legal problems they solve this strategically. As we know that nowadays Pepsi in Pakistan is under the administration and control of Mr. Hamayun Akhtar who is a Federal Trade Minister of Pakistan, but nowadays policies are standardized so it doesn’t create any problems.

Current Strategies Regarding International Operations One of the reasons of losing their market share in Pakistan in last few years was their quality. In Pakistan they were operating as franchisee but now Company has acquired most of the plants except from Peshawar and Rawalpindi plant now they are very much conscious about their quality standards and the quality of other two is being controlled by Coca Cola Exports Corporation. Another reason was that their backup was not as strong as Pepsi. They were

not

getting

any kind

of

help

regarding

financial

problems,

management problems from Coca Cola International. But now most of the plants are under the control of Company itself and Coke International is also very keen to raise its market share in Pakistan so they are fully

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Bs Commerce 6th (2009-2013) supporting

Coca

Cola

Beverages Pakistan

and

Coca

Cola

Exports

Corporation Pakistan. In Pakistan there main focus is on standardized products as Coca Cola, Sprite, Fanta, and they are going to launch some of new products in next 2 or 3 years.

Adaption and cultural borrowing Adaption is a key concept in international marketing, and willing to adapt is a crucial attitude .Adaptation, or at least accommodation, is required on small matters as well as large ones. Coca-Cola Company recognizes the need of affirmative action, that is, open tolerance of concept “different and equal”. Coca-Cola company

feels that essential to effective to

Adaption is awareness of its own culture and recognize that differences in others can cause

anxiety, frustration and misunderstanding of the host

intention .The self reference criterion (SRC) is specially operative in business custom but Coca-Cola company could not indulge its own (SRC) in others culture it try to adopt the strategies of the host countries where they are doing business around the world ,it reduce the (SRC) to lower the barriers of cultural differences . Coca-Cola Company develops an understanding and willingness to accommodate the differences that exists. Company is doing a successful business internationally since 1953. And operating in a home country for more than 50 years it have set up its strategies to meet the needs of required customer in every way possible where it is doing business it aware of the possibility of cultural differences and the probable differences, consequences of failure to adapt, or accommodate, the seemingly and less variety of customs must be assessed. Coca-Cola

Company

business

customs

includes

imperatives

and

adiaphora. Cultural imperatives are the business customs and exceptions that must be met and conformed to or avoided if relationship is to be successful. Company knows the best how to do the business at their best. Human relation, friend ships and or attaining the level of trust are right tricks to do a business in a home country as well as in a host country.

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Bs Commerce 6th (2009-2013) They that there is no substitute for establishing friend ship in some cultures before effective business negotiation can begin. Company motivate their local agents to make more sales and the friendship helps establish the right relationship with end users that to more sales over a longer period of time. Culture adiaphora relates to the area of behavior or to customs that cultural aliens may wish to conform or to participate in but that are not required. Company feels that such Culture adiaphora has a minute effect on its sale but it has no longer effects. When an issue arises in a home country about its penny per bottle is given to the Israel to war against Muslims and mean while many brands came into existence such as Mecca Cola, Shandy Cola etc. They have adapted their company culture according to the external environment as they are indulge in many community programs such as scholarship and school funding programs and they have borrow the culture of Pakistanis. They hire local employees and plan according to the local environment

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PROBLEMS BEING FACED BY COCA-COLA COMPANY There are some problems being faced by a company which affects its business strategies. It is difficult to know where to begin and isolate the events which shape the business environment.

Distribution Coca-Cola Company is facing a problem of distribution, as distributors are expecting more from coco cola to provide an extra distribution channels which could help them to spread their products at large .Coca-cola products are some where not available in rural area due to inefficient distribution system.

Low value of share Coca-Cola company having a share of about 27% which is lower than its competitors i.e. Pepsi having market share of 68% involve in more promotional strategies as compared to Coca-Cola.

Fake Bottling Fake bottling in Pakistan is one of the major problems being faced by the company. This problem not only affects the sale volume and profit margins but also brand value and loyalty of the customers. The profitability which company gain, ultimately that part of gain goes to fake bottle producers, who running their business in the name of company

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Bs Commerce 6th (2009-2013) References : •

Google.com

•

Coca cola Multan ( operational Manager Imran Nawaz)

•

International business by Griffin Pustay

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Coca Cola Pakistan

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