Environmental Analysis of Coca-Cola
Coca-Cola Company is known across the world for its strong brand image since its establishment in the year 1886 (Umar, 2013). However, in order to understand the competitive strategies that Coca-Cola applies in countries in which they operate, it is important to evaluate its external environment. External analysis comprises of two major areas which include the macro and the micro environment. The macro environment encompasses of the external factors that influence performance, strategies and decision making and they include: legal, political, technical and legal factors. On the other hand, micro-environment factors mainly affect the business operations such as the market trends, the competition, the structure and suppliers. Environmental analysis is crucial because it helps in influencing performance while at the same time determine the ways in which organizations such as Coca-Cola is operated.
- Analysis of external environment
- Laws and regulations
Laws and regulations include government interventions that might end up affecting the ways in which Coca-Cola Company functions or operates. In this regard, the company’s board of directors has to ensure that all the decisions that they make must follow all the rules and regulations that is required for a beverage company. Coca-Cola mainly operates under the Food and Drug Administration (FDA) in the U.S. (Umar, 2013). All its operations are therefore crosschecked by FDA that ensures that they use the right ingredients when making their beverages. At the same time, the company is expected to adhere to rules and regulations of export, import and income tax in the 200 nations that it operates across the world.
- Economic factors
Among the economic determinants that may affect Coca-Cola operations includes currency exchange rate, interest rate, economic growth, inflation rate, unemployment rate, standard of living, and the wage rate. For instance, considering the purchasing power of the consumers in a specific country, some of the factors that may influence their power include the fluctuations in the currency rate and the exchange rate. When the exchange rate is high, it means that the value of currency in the nation is low and this will require the consumers to purchase products at a higher price. Most customers will shy away from impulse buying such as beverages which in turn will negatively affect the performance of the Company.
In today’s business environment, it is impossible for a company to succeed without incorporating technological strategy. Technology has mainly made it easy for companies to manage their ways of communication (Njanja et al, 2012). Technological advancement has enabled Coca-Cola Company to improve its packaging process. For instance, it is the reason the beverages are available in various bottles and cans because of the availability of vending machines across the world (Umar, 2013). This particular technology has made it easy for the company to come up with stylish, non-refillable cans and bottles that attracts several of their customers especially youths and children.
- Social and demographic issues
In every nation that Coca-Cola operates in, it has to evaluate the kind of population available. For instance, a nation with younger generation is favorable for their performance. This is because of the chance for the company to obtain labor through employment of the youths. At the same time, the youths are more conscious about their health thus will only consume refreshing and quality drinks (Njanja et al, 2012). This will determine the kind of ingredients that Coca-Cola will use to make their beverage that will meet all the needs of the consumers. At the same time, there is a possibility that the company will have more sales for its beverages in hot climatic regions compared to cold areas.
The beverage industry comprises of several organizations which provide intensive competition for Coca-Cola Company. For instance, the main competitors which currently exists in the soft-drinks markets that Coca-Cola rivals include PepsiCo. However, the rate of purchase in a particular region will be based solely on the customer’ s tastes and preferences thus this is what the company needs to focus on when making its beverage drinks to increase its sales in a competitive environment.
- New Entrants
Some of the competitive factors that may affect the performance of Coca-Cola include new entrants. The new organizations may come up with better technology that acts as a threat to the performance of the already existing organizations like Coca-Cola.
- Substitutes and complements customers
Substitutes and complements customers will increase the level of demand which in the end affects the competitive nature of the company. When the substitute customers decide to become loyal to the company, they will act as a strength which in the end makes Coca-Cola Company more competitive.
- Adapting to the environment
Coca-Company Company has managed to adapt to various environments in which it operates by coming up with the right strategies that will enable them remain competitive in the markets. For instance, it has taken advantage of the social factors such as availability of a large number of youths in the nation to provide labor. At the same time, Coca-Cola adheres to the legal regulations by making sure that all its decisions follow all the rules and regulations of operations in specific environments (Umar, 2013). The company has taken advantage of environmental changes such as climatic change to either increase or decrease its supply in a specific market to meet the consumer’s needs and demands.
- Ways of influencing the environment
It is important for a company to influence its environment to its advantage. This is the only way in which a company like Coca-Cola that is operating in various nations can maintain its competitive nature amidst high level of competition. Some of the ways in which Coca-Cola influences its environment is by meeting all the demands of the customers. For instance, when the company realizes that its target customers are cautious about their health, it will do its best to come up with new product that will meet this demand. The company initiated Coke diet in the U.S. and across other developing nations where people are cautious about their health. At the same time, the company has also influenced its environment through low sale prices in order to meet the economical factors in some particular nations where it operates.
- Decision making
Coca-Cola has indeed made good decisions throughout its operations thus the reasons it has remained to be a strong brand in the environments which it operates. Through putting their consumer’s demands and expectations first, the company has managed to control its sales volume in specific environments. The strategy of global expansion has enabled Coca-Cola Company to enter new markets where demand for beverages has been high.
In conclusion, environmental analysis is important because of its ability to influence performance which in the end determines the operations of an organization such as Coca-Cola Company. Some of the environmental factors that have influenced the ways in which Coca-Cola Company is being operated include: technological factors, laws and regulations, social factors, competition, and economic factors. However, by determining the ways in which environmental factors influence its decision making it becomes easy to come up with the right strategies in which Coca-Cola uses across the world.
Njanja, L., Pellisier, R., & Ogutu, M. (2012). The Effect of External Environment on Internal Management Strategy. International Journal of Business & Management, 7(3), 194-205.
Umar, F. (2013). Global business strategy: A case study of Coca-cola company. London: Stratford college of business and Management UK.