D594: International Competitive Strategy Indiana University, Kelley School of Business, Summer II, 2012

1. D594: International Competitive StrategyIndiana University, Kelley School of Business, Summer II, 2012 Coke’s Global Issue CORPORATE STRATEGY Zach Brunson, Viktoria Mantcheva, & Beth Mouzin

2. Coke’s Corporate Strategy Table of Contents Being Responsive to local markets Learning from new markets Coordinating activities globally

3. Globalization:Corporate Strategy • Track consumer sentiment, consumer demand, and noting all unique countries’ preferences • Ex: Aligning the right product to the right market -Coke’s decision when acquiring Parle in India to keep the ‘Thumbs Up’ brand name, which remains the top seller in India • Evaluate demographic changes and their opportunities • Urbanization of many populations and emergence of more middle class citizens in countries with emerging economies • Although some countries may not seem lucrative right now, as emerging economies grow and more middle class citizens emerge, demand for consumer products will increase Being responsive to host country contexts

4. Globalization:Corporate Strategy Being responsive to host country contexts (cont’d) • Examine regional socioeconomic trends • Ex: Recent research has shown that in many countries people are consuming more beverages at home, rather than going out, so Coke has catered to this trend • According to Muhtar Kent, multinationals should do three things to be successful in international markets: • Promote investment • Promote small business development • Bring on global and cross-cultural leaders • Need people who are comfortable operating outside of their comfort zone • Ex: Organic growth of internal leaders with cultural experience (French leading European division, Columbian leading Latin America)

5. Being responsive to host country contexts (cont’d) • Understand that sustainability has to become a vital piece of every business’s planning, no longer just “an addendum that is nice to do as a charity effort.” (Isdell with Charlie Rose) • Evaluating the company’s footprint and which resources it consumes the most in order to assist in protecting and growing those resources • Ex: Coke’s vision to be water neutral by 2020 through reducing, recycling, and replenishing to economies around the world, also they are now making biodegradable bottles Globalization:Corporate Strategy

6. Being responsive to host country contexts (cont’d) • Do not allow management to become disconnected from society • Ex: Isdell, Tony Eames and Filipino manager and local war hero, Jesus “King King” Celdran created a sales team called Tiger Force, that appealed to the Filipino militaristic fascination. • Ex: Pepsi’s management team became disconnected in the Philippines as they viewed the Filipinos as lazy rather than social and more family oriented. Lack of cultural understanding on Pepsi’s part was a part of their market loss in the country. • Work to fully understand the culture of the country where you are operating • This includes the need to include locals in the management team so that they can be part of the decision making process • Allowing expats to sit around and complain in this way could lead to alienation and generate a lack of understanding of the market and the customers. Globalization:Corporate Strategy

7. Learning from new markets • Avoid arrogance • Ex: Coke’s international business became so strong that although North American bottlers thought they housed best practices, it was realized in many cases that North American bottlers needed to travel abroad to learn new ways of operating • By reinforcing the need to be heavily involved in already established communities • As Isdell discusses in his book, it is always important to get involved and make a commitment to the community when trying to penetrate a new market. This same commitment should be made to markets already served to uphold current good reputation • Ex: In US, Coke is now working to provide beverages with lower calories as US media points to high calorie sodas as major contributor to childhood obesity Globalization:Corporate Strategy

8. Learning from new markets (cont’d) • Practice “Connected Capitalism” • Defined by Isdell as a true partnership between businesses, nonprofits, and governments that is beneficial to all parties’ interests and to a greater extent, society as a whole. • Ex: One Coke bottler in Africa spent the equivalent of a one-way ticket to Atlanta to drill two wells after realizing local villagers were getting sick from drinking water out of a polluted river. Besides being used for drinking, the well water was also used to irrigate crops. As a result of the wells, sickness declined and farm income increased, and as the community’s fortunes improved, so too did the sales of Coca-Cola. • Understand the local governments and how they influence your business • Ex: TheSouth African government imposed price controls and intervened with the free-market system. Any time Coke wanted to raise prices, they had to provide a detailed profit/loss statement to authorities. Competitors, such as Goldberg & Zeffert, had to regularly request price increases due to their thin margins. Although Coke didn’t like the system, this process was beneficial to them. Globalization:Corporate Strategy

9. Learning from new markets (cont’d) • Integrate and cross-train groups in different regions and locations • Through decentralization and having operating groups separated by region, decisions can be made on a more local level, allowing the organization to quickly respond to changing market demands and efficiently share information on how to enter new markets. • Although not always the case, tactics employed abroad can sometimes be successful domestically as well • Ex: In North America, limiting immediate consumption bottle size to a 20 oz. option only and having straight walled two-liter bottles instead of using the contoured bottle Coke is famous for was realized as something that was an oversight in the domestic market that had already proved successful abroad Globalization:Corporate Strategy

10. Coordinating activities across varied markets • Create a strong overall global brand but also join it with a regional and local presence • Ex: Coke uses its worldwide system of bottlers, each having exceptional knowledge of local markets, to aid in local marketing with funding and assistance from Coke Global • Listen to lower level global employees and customers to find out where real problems and opportunities exist • Ex. When Neville Isdell took office as CEO of Coke, he spent the first 100 days traveling the globe, finding out the truth about the state of the organization, rather than believing everything he heard at the corporate level Globalization:Corporate Strategy

11. Coordinating activities across varied markets (cont’d) • Incorporate the front line • Coke’s biggest asset was the route salesmen. According to Isdell, they did the heavy lifting, literally and figuratively. Isdell’s goal was to always motivate their sales force first. • Ex: In working with low growth rate in the 90’s, Face-to-Face meetings were held regularly at the local levels to keep employees informed. • Look at your business from the lenses of the competitor to understand areas of improvement • Ex: Isdell ran a strategy meeting with the management team while pretending to be Pepsi. This meeting was designed to uncover the true Coke weaknesses by allowing the management team to be thoroughly honest Globalization:Corporate Strategy

12. Coordinating activities across varied markets (cont’d) • Balance standardization and mutual adjustment • The Code of Conduct for the Coca-Cola company is a guide book for how employees across the organization should act, however, allowing for more mutual adjustments, as implemented by Isdell, has engaged employees and reduced turnover, allowing for increased growth rates. • Sell in many channels • Ex: By selling in restaurants, cinemas, supermarkets, convenience stores, universities, sporting venues, etc. Coke was able to enjoy a diversified channel portfolio allowing the overall portfolio to be little affected if one channel suffered Globalization:Corporate Strategy

13. Coordinating activities across varied markets (cont’d) • Base the organization on the company’s principles in order to connect and provide mutual goals for a global organization • Five Basic Principles: • People– be a great place to work where people are inspired to be the best they can be. • Portfolio– bring to the world a portfolio of quality beverage brands that anticipate and satisfy people’s desires and needs. • Partners– nurture a winning network of customers and suppliers, creating mutual, enduring value • Planet– be a responsible citizen that makes a difference by helping build and support sustainable communities • Profit– maximize long-term return to shareowners while being mindful of our overall responsibilities. Globalization:Corporate Strategy

14. CONCLUSION Understanding the local markets and the culture is by far the most important activity for a global company. This will allow it to develop and maintain a product portfolio that satisfies local needs and demands. Organize a management team of locals in order to adjust to local culture and needs. In order to be a global company, the management team must be multidimensional with unique cultural knowledge. A global strategy must be well organized and well known throughout the whole company. A structured list of principles guides the company to better cooperation with local governments and international non-for-profits. Incorporating Social Responsibility in the core business allows the company to understand its global footprint and protect the resources it utilizes. Globalization:Corporate Strategy