Coca-Cola's Re-Entry and Growth Strategies in China|Business Strategy|Case Study|Case Studies

Coca-Cola's Re-Entry and Growth Strategies in China

            
 
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Case Details:

Case Code : BSTR140
Case Length : 12 Pages
Period : 1978-2004
Organization : Coca - Cola
Pub Date : 2004
Teaching Note : Available
Countries : China
Industry : Beverages

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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"Putting cold bottles on shelves is the best marketing we can do, we don't have to ask ourselves if our product will sell, only, how do we get it to the consumer?"

- E. Neville Isdell, chairman and CEO, The Coca-Cola Company, in a trade publication in 1992.1

"Any of you with experience operating in China know that to have a shot at success, you've really got to take the time to invest in the country. China is large and diverse and it's a long-term proposition. So you have to make the effort to patiently and diligently build your business over time. That's where our focus was decade after decade and our results today prove the wisdom of this approach."

- Patrick T Siewert, President, East and South Asia Group, the Coca-Cola Company, at the 8th Annual International Conference on "The Future of Asia" in 2002.2

Introduction

The Coca-Cola Company (Coke) re-entered China in 1979. Today it is recognized as one of China's most trusted brands according to Interbrand.3 It was voted number 5 of the top 10 multinational companies doing business in Asia in the 2003 Review 200,4 a survey conducted by Far Eastern Economic Review (FEER).5

Since 1990 it has been making profits in China and according to AC Nielsen6 it had a market share of over 50 percent share of the Chinese beverages market in 2002. How did Coke achieve this success in China? Coke's top managers and industry observers too believe that it is the company's winning approach of "Think local, act local" that has enabled it to capture markets outside of the United States. This is particularly true of the Asian markets where the diversity of cultures and income levels makes for a rather diverse consumer base. Coke encourages local managers to develop strategies that are best suited for their areas, and regional offices have the freedom to approve local initiatives. From the very beginning, Coke's strategy for re-entry into the Chinese market has been based on localization of the entire Coca-Cola system.

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In order to achieve this, Coke had to work closely with Chinese state-owned enterprises and develop strong relationships with the Chinese government. Since China had just opened up to foreign investment at the time of its re-entry, Coke had to deal with its restrictive policies.

It brought its technology and equipment to China and built bottling plants, which it then handed over to the Chinese government. Later it formed joint ventures with state-owned enterprises to set up more bottling plants. Coke formed joint ventures with local Chinese companies as well. Even though initially it had to import certain inputs for the production process, Coke eventually sourced them from Chinese companies. Coke developed its own infrastructure for distribution but gradually came to mainly rely upon state-owned distribution companies and local Chinese distribution companies. This strategy of localization of the Coca-Cola system in China proved to be a success and China grew to be its second largest market in Asia in 2003 (in terms of volume).

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1] "Coke's big gamble in Asia: Digging deeper in China, India" by Leslie Chang in Kunyang, China and Chad Terhune and Bets Mckay in Atlanta, USA, August 11, 2004, The Wall Street Journal.

2] Press center, www.coca-cola.com.

3] Interbrand is a global brand consultancy firm founded in 1974. It attempts to identify, build and express the right idea for a brand, so that positive business results can be achieved.

4] Review 200 is a survey designed to identify the companies that Asia's business people regard as leaders in their class.

5] FEER is one of Asia's leading business magazines, published every Thursday in Hong Kong. It is fully owned by Dow Jones & Company, the publishers of Wall Street Journal. The magazine covers politics, business, economics, technology and social and cultural issues throughout Asia, with a particular emphasis on Southeast Asia and China.

6] AC Nielsen, a market research company, was established in the United States of America by Arthur C. Nielsen Sr. in 1923. It gradually spread its operations allover the world. In 2001, AC Nielsen became part of VNU, a world leader in marketing information, media measurement and information, business media and directories.

 

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