Question

Already in all African countries, Coca Cola has committed $12 billion to invest in the continent between 2010 and 2020. Why does Coca-Cola show such strong commitments to Africa? Founded in 1892, Coca-Cola first entered Africa in 1929. While Africa had always been viewed as a “backwater”, it has recently emerged as a major growth market commanding strategic attention. Of the $27 billion that Coca-Cola’s chairman and CEO Muhtar Kent promised to invest in emerging economies between 2010 and 2020, $12 billion will be used to beef up the plants and distribution facilities in Africa. Why does Coca Cola show such strong commitments to Africa? Both the push and pull effects are at work. The Push The push comes from the necessity to find new sources of growth for this mature firm, which has promised investors 7% -9% earnings growth. On July 14, 1998, its stocks reached a highwater mark at $88. But it dropped to $37 in 2003. In 2011, it rallied 30% over the past year and reached $67 on December 1. Can Coca-Cola’s stock reach higher? Its home markets are unlikely to help. Between 2006 and 2011, US sales declined for five consecutive years. Further, health advocates accused Coca-Cola of contributing to an epidemic of obesity in the United States and proposed to tax soft drinks to pay for health care. While Coca-Cola defeated the tax initiative, it is fair to say the room for growth at home is limited. In Europe and Japan, sales are similarly flat. Elsewhere, in China, strong local rivals have made it tough for Coca-Cola to break out. Its acquisition of a leading local fruit juice firm was blocked by the government, which did not seem to bless Coca-Cola’s further growth. In India, Pepsi is so popular that “Pepsi” has become the Hindi shorthand for all bottle soft drinks (including Coke!). In Latin America, sales are encouraging but growth may be limited. Mexicans on average are already guzzling 665 servings of Coca-Cola products every year, the highest in the world. There is only so much sugary water one can drink every day. The Pull In contrast, Coca-Cola is pulled by Africa, where it has a commanding 29% market share versus Pepsi’s 15%. With 65,000 employees and 160 plants, Coca-Cola is Africa’s largest private sector employer. Yet, annual per capita consumption of Coca-Cola products is only 39 servings in Kenya. For the continent as a whole, disposable income is growing. In 2010, 60 million Africans earned at least $5,000 per person, and the number is likely to reach 100 million by Page 3 of 5 2014. While Africa indeed has some of the poorest countries in the world, 12 African countries (with a combined population of 100 million) have a GDP per capita that is greater than China’s. Coca-Cola is hoping to capitalize on Africa’s improved political stability and physical infrastructure. Countries not fighting civil wars make Coke’s operations less disruptive, and new roads penetrating the jungle can obviously elevate sales. Coca-Cola is already in all African countries. The challenge now, according to CEO Kent, will be to deep dive into “every town, every village, every township”. This will not be easy. War, poverty and poor infrastructure make it extremely difficult to distribute and market products in hard-to-access regions. Undaunted, Coca-Cola is in a street-by-street campaign to increase awareness and consumption of its products. The crowds and the poor roads dictate that some of the deliveries have to be done manually on pushcarts or trolleys. Throughout the continent, Coca Cola has set up 3,000 Manual Distribution Centers. Taking a page from its playbook in Latin America, especially Mexico, Coca-Cola has aggressively courted small corner stores. Coca-Cola and its bottlers offer small corner store owners’ delivery, credit, and direct coaching-ranging from how to save electricity to advice on buying a house after vendors make enough money. In Africa, US-style accusations of Coca-Cola’s alleged contribution to the obesity problem are unlikely. After all, the primary concern in many communities is too few available calories of any kind. However, this does not mean Africa is Coca-Cola’s marketing Shanghai-la, free from any criticisms. It has to defend itself from critics that accuse it of depleting fresh water, encouraging expensive and environmentally harmful refrigeration, and hurting local competitors who hawk beverages. In response, Coca-Cola often points out the benefits it has brought. In addition to the 65,000 jobs it has directly created, one million local jobs are indirectly created by its vast system of distribution, which moves beverages from bottling plants deep into the villages and the bush a few crates at a time. The Future "Ultimately," the Economist opined, "doing business in Africa is a gamble on the future." Overall, CEO Kent is very optimistic about Africa. In his own words at a media interview: Africa is the untold story, and could be the big story, of the next decade, like India and China were this past decade. The presence and the significance of our business in Africa is far greater than India and China even today. The relevance is much bigger… In Africa, you've got an incredibly young population, a dynamic population. Huge disposable incomes. I mean, $1.6 Page 4 of 5 trillion of GDP, which is bigger than Russia, bigger than India. It's a big economy, and so rich underground. And whether the next decade becomes the decade of Africa or not, in my opinion, will depend upon one single thing - and everything is right there to have it happen-that is better governance. And it is improving, there is no question.

Required:

a) Explain why Coca-Cola so interested in Africa, which is typically regarded as part of the base of the global economic pyramid?

b) What unique resources and capabilities does Coca-Cola have that will help it compete well in Africa?

c) Discuss the drawbacks of making such large-scale commitments to Africa? (5 marks) d) Examine the criticisms of stakeholders in the United States and Africa against Coca-Cola and state your position on it.

Answer 1

Answer A:

Coca-Cola is a corporation that has been around since 1892. Coca-Cola is trying to find new rising growth markets and continent has evidenced to be that. Combined, twelve of the African countries have a gross domestic product larger than that of Chine. Coca-Cola has twenty-ninth of the market shares incontinent.

Answer B:

Coca-Cola has the power to conduct street by street campaigns, to succeed in the cities and villages. This may assist in raising its selling and distributions to areas off the crushed path. The manual distribution centers will assist to grow sales, by coaching jobs and guiding little bottlers and residents to possess their sales and delivery.

Answer C:

Yes, there are drawbacks. There are still several areas in the continent wherever the govt and physical infrastructure isn't stable. With Coca-Cola investment giant amounts of cash incontinent, the instability may prove unquiet to Coca-Cola operations.

Answer D:

Yes, it's a legitimate criticism that Coca-Cola is depleting fresh, and motivating ecological harmful refrigeration. Coca-Cola needs to find a way to supply property producing which will not pillage natural deposits.

Why move to continent Coca-Cola was based in 1892, however, began business incontinent in 1929. Despite the idea that continent is associate degree unstable government lacks infrastructure, and nice conflict and turmoil, Coca-Cola set to enter the continent and is that the largest private-sector leader incontinent. $12 billion was allotted towards building

Distribution centers and plants are incontinent. Sales within the U.S are declining thanks to the general public concern over sugar. Sales in Europe and Japan are flat, whereas markets in China and Bharat offer robust completion for Coca-Cola. Africa's lower-middle-class population is growing at a gradual rate, therefore income is increasing. This creates a chance for Coca-Cola to faucet into growth opportunities (Natalia Cheverri 2012). However, will it work?

Although there are areas in the continent lacking infrastructure, Coca-Cola operates in each country. Coca-Cola utilized a franchising producing model that works absolutely for operational incontinent. Coca-Cola partnered with native authorized bottling teams to assist produce the merchandise. Coca-Cola manufactures the sweetener concentrate and sells to the bottlers. The bottlers add filtered water, suffusion, and sweetener to create the ultimate product.

With this model, Coca-Cola is sharing the wealth with native investors/community members. This creates property business and improves community buy-in with Coca-Cola's existence incontinent (Maritz Jaco 2010). As a result of partnerships is fashioned with native bottlers and native members of the community, there's an unconditional interest by the locals to stay Coca-Cola's business productive. Through these partnerships, Coca-Cola is in a position to assist build the socio-economic system in several cities.

Distribution Coca-Cola was having issues distributing products to a special space of the continent with no roads. In 1999, native bottlers came up with the concept to hide off the crushed path areas by any means that necessary. This enclosed distribution by bicycle, pushcart, hand-carry and even donkey-can. This distribution methodology is named manual distribution and has been adopted by several organizations everywhere on the planet (Maria Jaco 2010). The manual distribution methodology was even adopted by associate degree innovative non-profit named Cola life. This organization distributes medication everywhere the continent of the continent. Summary

Coca-Cola took of venture in creating the choice to enter the continent. This gamble has paid off as a result of Coca-Cola is currently one amongst the most important organizations incontinent and sees growth profits.