Dr. Mai Assignment

7/31/2019 Dr. Mai Assignment

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INTRODUCTION

In analyzing the macro-environment, it is important to identify the factors

that might in turn affect a number of vital variables that are likely to influence the

organizations supply and demand levels and its costs (Kotter and Schlesinger,

1991; Johnson and Scholes, 1993). The "radical and ongoing changes occurring in

society create an uncertain environment and have an impact on the function of the

whole organization" (Tsiakkiros, 2002). A number of checklists have been

developed as ways of cataloguing the vast number of possible issues that might

affect an industry. A PEST analysis is one of them that is merely a framework that

categorizes environmental influences as political, economic, social and

technological forces. Sometimes two additional factors, environmental and legal,

will be added to make a PESTEL analysis, but these themes can easily be

subsumed in the others. The analysis examines the impact of each of these factors

(and their interplay with each other) on the business. The results can then be used

to take advantage of opportunities and to make contingency plans for threats when

preparingbusiness and strategic plans (Byars, 1991; Cooper, 2000).

Kotler (1998) claims that PEST analysis is a useful strategic tool for

understanding market growth or decline, business position, potential and direction

foroperations. The headings of PEST are a framework for reviewing a situation,

and can in addition to SWOT and Porters Five Forces models, be applied by

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companies to review a strategic directions, including marketing proposition. The

use of PEST analysis can be seen effective for business and strategic planning,

marketing planning, business and product development and research reports. PEST

also ensures that companys performance is aligned positively with the powerful

forces of change that are affecting business environment (Porter, 1985). PEST is

useful when a company decides to enter its business operations into new markets

and new countries. The use of PEST, in this case, helps to break free of

unconscious assumptions, and help to effectively adapt to the realities of the new

environment.

PEST ANALYSIS

PEST Analysis is a simple but important and widely-used tool that helps you

understand the big picture of the Political, Economic, Socio-Cultural and

Technological environment you are operating in. PEST is used by business leaders

worldwide to build their vision of the future.

It is important for these reasons:

By making effective use of PEST Analysis, you ensure that what you are

doing is aligned positively with the forces of change that are affecting our

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world. By taking advantage of change, you are much more likely to be

successful than if your activities oppose it.

Good use of PEST Analysis helps you avoid taking action that is condemned

to failure for reasons beyond your control.

PEST is useful when you start operating in a new country or region. Use of

PEST Analysis helps you break free of unconscious assumptions, and helps

you quickly adapt to the realities of the new environment.

PEST analysis stands for "Political, Economic, Social, and

Technological analysis" and describes a framework of macro-environmental

factors used in the environmental scanning component of strategic

management. It is a part of the external analysis when conducting a strategic

analysis or doing market research, and gives an overview of the different macro

environmental factors that the company has to take into consideration. It is a

useful strategic tool for understanding market growth or decline, business

position, potential and direction for operations. The growing importance of

environmental or ecological factors in the first decade of the 21st century have

given rise to green business and encouraged widespread use of the PEST

framework.

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COMPOSITION

Political factors are how and to what degree a government intervenes in the

economy. Specifically, political factors include areas such as tax policy,

labour law, environmental law, trade restrictions, tariffs, and political

stability. Political factors may also include goods and services which the

government wants to provide or be provided (merit goods) and those that the

government does not want to be provided (demerit goods or merit bads).

Furthermore, governments have great influence on the health, education, and

infrastructure of a nation

Economic factors include economic growth, interest rates, exchange rates

and the inflation rate. These factors have major impacts on how businesses

operate and make decisions. For example, interest rates affect a firm's cost of

capital and therefore to what extent a business grows and expands. Exchange

rates affect the costs of exporting goods and the supply and price of

imported goods in an economy

Social factors include the cultural aspects and include health consciousness,

population growth rate, age distribution, career attitudes and emphasis on

safety. Trends in social factors affect the demand for a company's products

and how that company operates. For example, an aging population may

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imply a smaller and less-willing workforce (thus increasing the cost of

labor). Furthermore, companies may change various management strategies

to adapt to these social trends (such as recruiting older workers).

Technological factors include technological aspects such as Research and

Development activity, automation, technology incentives and the rate of

technological change. They can determine barriers to entry, minimum

efficient production level and influence outsourcing decisions. Furthermore,

technological shifts can affect costs, quality, and lead to innovation.

APPLICABILITY OF THE FACTORS

Using a PEST analysis helps a business to understand various macro

environmental factors that they need to take into consideration when determining

the decline or growth of a particular market.

It is also a crucial tool for ascertaining business position, the potential of a business

and the direction of business should be moving in to thrive in the marketplace.

PEST ANALYSIS ON COCA-COLA COMPANY

The Coca-Cola Company (NYSE: KO) is a beverage retailer, manufacturer

and marketer of non-alcoholic beverage concentrates and syrups. The company is

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best known for its flagship product Coca-Cola, invented by pharmacist John Stith

Pemberton in 1886. The Coca-Cola formula and brand was bought in 1889 by Asa

Candler who incorporated The Coca-Cola Company in 1892. Besides its namesake

Coca-Cola beverage, Coca-Cola currently offers more than 500 brands in over 200

countries or territories and serves 1.6 billion servings each day.

The company operates a franchised distribution system dating from 1889

where The Coca-Cola Company only produces syrup concentrate which is then

sold to various bottlers throughout the world who hold an exclusive territory. The

Coca-Cola Company owns its anchor bottler in North America, Coca-Cola

Refreshments.

The Coca-Cola Company is headquartered in Atlanta, Georgia. Its stock is

listed on the NYSE and is part of DJIA, S&P 500 Index, the Russell 1000 Index

and the Russell 1000 Growth Stock Index. Its current chairman and CEO is Muhtar

Kent.

The Coca-Cola Company was originally established in 1892 as the J. S.

Pemberton Medicine Company, a co-partnership between Dr. John Stith

Pemberton and Ed Holland. The company was formed to sell three main products:

Pemberton's French Wine Cola (later known as Coca-Cola), Pemberton's Indian

Queen Hair Dye, and Pemberton's Globe Flower Cough Syrup.

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In 1894, the company became a stock company and the name was changed

to Pemberton Chemical Company. The new president was D. D. Doe while Ed

Holland became the new Vice-President. Pemberton stayed on as the

superintendent. The company's factory was located at No. 107, Marietta St. Three

years later, the company was again changed to Pemberton Medicine Company,

another co-partnership, this time between Pemberton, A. O. Murphy, E. H.

Bloodworth, and J. C. Mayfield.

Finally in October 1898, the company received a charter with an authorized

capital of $50,000.The charter became official on January 15, 1899. By this time,

the company had expanded its offerings to include Pemberton's Orange and Lemon

gay Elixir.

Over the last few decades, innovation has become widely recognized as both

a major goal of economic activity and one of the most important instruments

through which organizations and countries gain and sustain competitive advantage

in globally competitive marketplaces (Fonseca 2002). At the organizational level,

some claim that innovation is a key functional activity in organizations, in much

the same way as marketing or finance is.

Others suggest that innovation is a key survival strategy for organizations

because it enables more rapid adaptation to turbulent environments. Innovation

then becomes a primary indicator of an organization's ability to adapt to its

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environment. Over the past few decades, this acclamation of innovation has

become highly prominent as technological and scientific advancement, particularly

in information and communication, increasingly affects every aspect of people's

lives (Oden 1997).

Innovation is an important part of management for businesses. Without

innovation businesses would remain stale and it cannot create changes. Innovation

makes things happen for business. The innovation of communication particularly

the onset of telecommunication gave individuals to put up companies that will sell

telecommunication products. The rise of telecommunication gave J&J Co the

chance to show how they aim to serve clients and provide services.

J & J Co has a unique strategy that they use to manage their daily operations.

The change of strategy is a way for the company to show that they can innovate. J

& J Cos change of strategy will help the company give better services to clients

and illustrate what they can still do.

The telecommunication industry is the fastest growing industry in almost

every country (Noll 1997). The telecommunication industry has been built

progressively and steadily on major accomplishments in the progress of science

and technology (Shy 2001). The telecommunication industry is one industry that

continues to improve to meet the changing and complicating needs of clients.

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This industry has created products that include low-cost, broadband

communication services and IT solutions such as internet based video

conferencing. This industry also brought about the resurgence of cell phones. One

business that competes in such industry and that company is J &J Co. This

company is a retailer of Cellular phones and other telecommunication products.

J&J Co was founded by Joseph Davies and Johnny Lee. J & J has around 200

employees in its 20 retail stores found in various countries. The retail stores

operate for 10 hours with some operating for 12 hours depending on the location.

The personnel have daily shifts that change constantly.

Coca-Cola is the worlds largest soft-drink company which manufactures

and markets non-alcoholic beverage concentrates and syrups. Besides the well

known Coca-Cola and Coke brands the company offers more than 500 brands in

over 200 countries or territories and serves 1.6 billion servings each day. It is

headquartered in Atlanta, Georgia.

Strengths

1. Coca-Cola is the worlds most valuable brand and has strong brand loyalty.

2. Wide variety of Coca-Cola products is sold in the restaurants, stores and

vending machines over 200 countries.

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3. Coke is the dominant market leader of the global soft-drink industry right

through the 20th century.

4. Coke primarily competes on advertising and differentiation and has the high

market share.

5. Coca-Cola has enormous distribution and production facilities of non-

alcoholic beverages and related products.

6. Joint venture with Nestle has resulted in the formation of Beverage Partners

Worldwide (BPW).

7. The company has strong financial position and profits throughout the

history. Its average ROE (return on equity) for the past five years is 37.08%

whereas its ROC (return on capital) is 33.6%.

8. Coca-Cola has the heavy advertising and promoting activities.

9. More than 70 percent of revenue comes from outside the United States.

10.Enormous number of loyal customers and brand equity all over the world.

Weaknesses

1. New coke formula leading to a backlash which results in bad image of coke.

2. The company is facing high burden of external debts for the last few years.

In 2002, long-term debt of the company was 2700 million dollars.

3. Product offering is restricted to beverages.

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4. In November 2009, because of a dispute over wholesale prices of Coca-Cola

goods, Costco blocked the replenishment of their shelves with Diet Coke

and coke.

5. Coca-Cola has discontinued its many products after few years of launching

such as New Coke, Coca-Cola with Lemon, Coca-Cola with Lime, Coca-

Cola Blak, etc. which result in bad image of the brand.

6. Coke has taken less aggressive market standing in todays changing

economic surroundings.

Opportunities

1. Bottled water drinking has increased 11 percent.

2. Consumers prefer to drink new smaller beverage products that are not sold

on a mass scale.

3. One of the biggest opportunities is to diversify into the non-carbonated

drinks such as coffee, water, juices, etc.

4. The company can offer the hygienic products due to increasing number of

health conscious consumers.

5. European market and China show marvelous potential for growth.

6. The economic conditions are improving globally after economic meltdown

2007-10.

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7. Diversify into complementary food products which will ultimately increase

the drink consumption.

8. Coca cola should increase its partnership with fast food chains.

Threats

1. There is Low growth rate in the carbonated drinks market in North America

which is the main market of Coca-Cola.

2. There is a problem with Coke to raise its prices by an edge that would permit

it to keep pace with inflation.

3. Huge numbers of substitutes such as beer, water, juices, coffee etc are

accessible to the end consumers.

4. Pepsi is the strong competitor which competes with advertising and

differentiation.

5. Since the consumer lifestyle is changing rapidly and they are becoming more

health conscious therefore there demand is shifting towards non-carbonated

products such as juices, tea and bottled drinks.

6. Many smaller players are furious competitors which are also creating the

competition severe.

7. The prices of raw material such as sugar and metals used in manufacturing

of cans are increasing rapidly.

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8. Carbonated drink revenues have been decreasing due to association of sugar

to obesity and lofty fructose lump syrup to heart disease.

9. Pepsi has more diversified selling beverage and food products as compared

to the Coca Cola.

10.Coca Cola is facing various regulations in respective countries around the

globe.

COMPANY OVERVIEW

The Coca-Cola Company (Coca-Cola) is a leading manufacturer, distributor

and marketer of Non-alcoholic beverage concentrates and syrups, in the world. The

company owns or licenses more than 400 brands, including diet and ligh t

beverages, waters, juice and juice drinks, teas, coffees, and energy and

sports drinks. The company operates in more than 200 countries.

Approximately 74% of its products are sold outside of the US. The company is

headquartered in Atlanta, Georgia and employs 71,000 people as of September

2006.The company recorded revenues of $24,088 million during the fiscal year

ended December 2006,an increase of 4.3% over 2005. The increase in revenue was

primarily due to increase in sales of Unit cases of companys products from

approximately 20.6 billion unit cases of the companys Products in 2005 to

approximately 21.4 billion unit cases in 2006, the increase in the Price and

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Product/geographic mix also boosted the revenue growth. The company-wide

gallon sales and unit case volume both grew 4% in 2006 when compared

to 2005. The operating profi t of the company was $6,308 mil lion

during fiscal year 2006, an increase of 3.7% over 2005. The net profit

was $5,080 million in fiscal year 2006, an increase of 4.3% over 2005.

SWOT ANALYSIS

The Coca-Cola Company (Coca-Cola) is a leading manufacturer, distributor

and marketer of Non-alcoholic beverage concentrates and syrups, in the world. The

opportunities of the company is enormous. However, the company is threatened by

intense competition which could have an adverse impact on the companys market

share.

Strengths Worlds leading brand

Coca-Cola has strong brand recognition across the globe. The company has

a leading brand value and a strong brand portfolio. Business-Week and Inter-brand,

a branding consultancy, recognize Coca-Cola as one of the leading brands in their

top 100 global brands ranking in2006.The Business Week-Inter-brand valued

Coca-Cola at $67,000 million in 2006. Coca-Cola ranks well ahead of its close

competitor Pepsi which has a ranking of 22 having a brand value of $12,690

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million Furthermore; Coca-Cola owns a large portfolio of product brands. The

company owns four of the top five soft drink brands in the world: Coca-Cola, Dit

Coke, Sprite and Fanta. Strong brands allow the company to introduce brand

extensions such as Vanilla Coke, Cherry Coke and Coke with Lemon. Over the

years, the company has made large investments in brand promotions.

Consequently, Coca-cola is one of the best recognized global brands. The

companys strong brand valuefacilitates customer recall and allows Coca-Cola to

penetrate new markets and consolidate existing ones.

Large scale of operations

With revenues in excess of $24 billion Coca-Cola has a large scale of

operation. Coca-Cola is the largest manufacturer, distributor and marketer of

nonalcoholic beverage concentrates and syrups in the world. Coco-Cola is selling

trademarked beverage products since the year 1886 in the US. The company

currently sells its products in more than 200 countries. Of the approximately

52billion beverage servings of all types consumed worldwide every day, beverages

bearing trademarks owned by or licensed to Coca-Cola account for more than 1.4

billion. The companys operations are supported by a strong infrastructure across

the world. Coca-Cola owns and operates 32 principal beverage concentrates and/or

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syrup manufacturing plant located throughout the world. In addition, it owns or has

interest in 37 operations with 95 principal beverage bottling and canning plants

located outside the US. The company also owns bottled water production and still

beverage facilities as well as a facility that manufactures juice concentrates. The

companys large scale of operation allows it to feed upcoming markets with

relative ease and enhances its revenue generation capacity.

Robust revenue growth in three segments

Coca-colas revenues recorded a double digit growth, in three operating

segments. These three segments are Latin America, East, South Asia, and Pacific

Rim and Bottling investments. Revenues from Latin America grew by 20.4%

during fiscal 2006, over 2005. During the same period, revenues from East, South

Asia, and Pacific Rim grew by 10.6% while revenues from the bottling

investments segment by 19.9%. Together, the three segments of Latin America,

East, South Asia, and Pacific Rim and bottling investments, accounted for 34.8%

of total revenues during fiscal 2006. Robust revenues growth rates in these

segments contributed to top-line growth for Coca-Cola during 2006.

Weaknesses Negative publicity16


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The company received negative publicity in India during September

2006.The company was accused by the Center for Science and Environment (CSE)

of selling products containing pesticide residues. Coca-Cola products sold in and

around the Indian national capital region contained a hazardous pesticide residue.

These pesticides included chemicals which could cause cancers, damage the

nervous and reproductive systems and reduce bone mineral density. Such negative

publicity could adversely impact the companys brand image and the demand for

Coca-Cola products. This could also have an adverse impact on the companys

growth prospects in the international markets.

Sluggish performance in North America

Coca-Colas performance in North America was far from robust. North

America is Coca-Colas score market generating about 30% of total

revenues during fiscal 2006. Therefore, a strong performance in North

America is important for the company.

Coca-Cola Company, The SWOT Analysis North America on the sale of

unit cases did not record any growth. Unit case retail volume in North America

decreased 1% primarily due to weak sparkling beverage trends in the second half

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of 2006 and decline in the warehouse-delivered water and juice businesses.

Moreover, the company also expects performance in North America to be weak

during 2007.Sluggish performance in North America could impact the companys

future growth prospects and prevent Coca-Cola from recording a more robust top-

line growth.

Decline in cash from operating activities

The companys cash flow from operating activities declined during fiscal

2006. Cash flows from operating activities decreased 7% in 2006 compared to

2005. Net cash provided by operating activities reached $5,957 million in

2006, from $6,423 million in 2005. Coca-Colas cash flows from operating

activities in 2006 also decreased compared with 2005 as a result of a contribution

of approximately $2 16 million to a tax-qualified trust to fund retiree medical

benefits. The decrease was also the result of certain marketing accruals recorded in

2005 .Decline in cash from operating activities reduces availability of funds for the

companys investing and financing activities, which, in turn, increases the

companys exposure to debt markets and fluctuating interest rates.

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OPPORTUNITIES

Acquisitions

For the last one year, Coca-Cola has been aggressively adopting the

inorganic growth path. During 2006, its acquisitions included Kerry Beverages,

(KBL), which was subsequently, reappointed Coca-Cola China Industries

(CCCIL). Coca-Cola acquired a controlling shareholding in KBL, its bottling joint

venture with the Kerry Group, in Hong Kong. The acquisition extended Coca-

Colas control over manufacturing and distribution joint ventures in nine Chinese

provinces. In Germany the company acquired Apollinaris which sells sparkling and

still mineral water inGermany. Coca-Cola has also acquired a 100% interest in TIC

Holdings, a bottling company in South Africa. Coca-Cola also made acquisitions in

Australia and New Zealand during 2006.These acquisitions strengthened Coca-

Colas international operations. These also give Coca-Cola an opportunity for

growth, through new product launch or greater penetration of existing markets.

Stronger international operations increase the companys capacity to - penetrate

international markets and also gives it an opportunity to diversity its revenue

stream.

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Growing bottled water market

Bottled water is one of the fastest-growing segments in the worlds food and

beverage market owing to increasing health concerns. The market for bottled water

in the US generated revenues of about $15.6 billion in 2006. Market consumption

volumes were estimated to be 30 billion liters in 2006. The markets consumption

volume is expected to rise to 38.6 billion units by the end of 2010. This represents

a CAGR of 6.9% during 2005-20 10. In terms of value, the bottled water market is

forecast to reach S19.3 billion by the end of 2010. In the bottled water market, the

revenue of flavored water (water-based, slightly sweetened refreshment drink)

segment is growing by about $10 billion annually. The companys Dasani brand

water is the third best-selling bottled water in the US. Coca-Cola could leverage its

strong position in the bottled water segment to take advantage of growing demand

for flavored water.

Growing Hispanic population in US

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Hispanics are growing rapidly both in number and economic power. As a

result, they have become more important to marketers than ever before. In 2006,

about 11.6 million U S households were estimated to be Hispanic. This translates

into a Hispanic population of about 42million. The US Census estimates that by

2020, the Hispanic population will reach 60 million or almost 18% of the total US

population. The economic influence of Hispanics is growing even faster than their

population. Nielsen Media Research estimates that the buying power of Hispanics

will exceed $1 trillion by 2008- a 55% increase over 2003 levels. Coca-Cola has

extensive operations and an extensive product portfolio in the US. The company

can benefit from an expanding Hispanic population in the US, which would

translate into higher consumption of Coca-Cola products and higher revenues for

the company.

THREATS

Intense competition Coca-Cola competes in the nonalcoholic beverages

segment of the commercial beverages industry. The company faces intense

competition in various markets from regional as well as global players. Also, the

company faces competition from various nonalcoholic sparkling beverages

including juices and nectars and fruit drinks. In many of the countries in which

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Coca-Cola operates, including the US, PepsiCo is one of the companys primary

competitors. Other significant competitors include Nestle, Cadbury Schweppes,

Grouped NONE and Kraft Foods. Competitive factors impacting the companys

business include pricing, advertising, sales promotion programs, product

innovation, and brand and trademark development and protection. Intense

competition could impact Coca-Colas market share and revenue growth rates.

Dependence on bottling partners

Coca-Cola generates most of its revenues by selling concentrates and syrups

to bottlers in whom it doesnt have any ownership interest or in which it has no

controlling ownership interest. 1n2006, approximately 83% of its worldwide unit

case volumes were produced and distributed by bottling partners in which the

company did not have any controlling interests. As independent companies, its

bottling partners, some of whom are publicly traded companies, make their own

business decisions that may not always be in line with the companys interests. In

addition, many of its bottling partners have the right to manufacture or distribute

their own products or certain products of other beverage companies. If Coca- Cola

is unable to provide an appropriate mix of incentives to its bottling partners, then

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the partners may take actions that, while maximizing their own short-term profits,

may be detrimental to Coca-Cola. These bottlers may

devote more resources to business opportunities or products other than those

beneficial for Coca-Cola. Such actions could, in the long run, have an adverse

effect on Coca-Colas profitability. In addition, loss of one or more of its major

customers by anyone of its major bottling partners could indirectly affect Coca-

Colas business results. Such dependence on third parties is a weak link in Coca-

Colas operations and increases the companys business risks.

Sluggish growth of carbonated beverages

US consumers have started to look for greater variety in their drinks and are

becoming increasingly health conscious. This has led to a decrease in the

consumption of carbonated other sweetened beverages in the US. The US

carbonated soft drinks market generated total revenues of $63.9 billion in 2005,

this representing a compound annual growth rate (CAGR) of only 0.2 % for the

five-year period spanning 200 1-2005. The performance of the market is forecast to

decelerate, with an anticipated compound annual rate of change (CAGR) of -0.3%

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for the five-year period 2005- 2010 expected to drive the market to a value of

$62.9 billion by the end of

2010.Moreover in the recent years, beverage companies such as Coca-Cola

have been criticized for selling carbonated beverages with high amounts of sugar

and unacceptable levels of dangerous chemical content, and have been implicated

for facilitating poor diet and increasing childhood obesity. Moreover, the US is the

companys core market. Coca-Cola already expects its performance in the region to

be sluggish during 2007. Coca-Colas revenues could be adversely affected by a

slowdown in the US carbonated beverage market.

CONCLUSION

PEST analysis looks at the external business environment and is an

appropriate strategic tool for understanding the "big picture" of the environment in

which business operates, enabling the company to take advantage of the

opportunities and minimize the threats faced by their business activities. When

strategic planning is done correctly, it provides a solid plan for a company to grow

into the future.

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With a PEST analysis, the company can see a longer horizon of time, and be

able to clarify strategic opportunities and threats that the organisation faces. By

looking to the outside environment to see the potential forces of change looming

on the horizon, firms can take the strategic planning process out of the arena of

today and into the horizon of tomorrow.

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REFERENCES

Byars, L. (1991) Strategic Management, Formulation and Implementation

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Johnson, G. and Scholes, K. (1993) Exploring Corporate Strategy Text and

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Kotter, J. and Schlesinger, L. (1991) Choosing strategies for change, Harvard

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Capron, N. and Glazer, R. (1987) Marketing and technology: a strategic

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Cooper, L. (2000) Strategic marketing planning for radically new products, Journal

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Kotler, P. (1998) Marketing Management Analysis, Planning, Implementation,

and Control, 9th Edition, Englewood Cliffs: Prentice-Hall.

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Pearce, J. and Robinson, R (2005) Strategic Management, 9th Edition, New York:

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Tsiakkiros A (2002) "Strategic planning and education: The case of Cyprus", The

International Journal of Educational Management Bradford 2002

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