COCA COLA
Coca Cola is a multinational company based in the U.S. hat deals in beverage production, transportation, and sales. With its headquarters in Atlanta in Georgia, the company practices manufacturing, marketing, and retailing of the non-alcoholic beverage syrups and concentrates. The company was invented in 1886 by an American Pharmacist, Pemberton, and sold to Griggs Candler in 1889, at a price of US$2,300. Throughout the years, the company has developed through acquisitions, whereby it acquires new companies (Afeni, 2017). In 1960, Coca Cola acquired Minute Maid, in 1993, it acquired Thums Up, an India Cola company. Through a series of other acquisitions, the company has been able to develop world-wide. Operating throughout the world, the company enjoys a significant market share as compared to its competitors.
Market and Financial Situations
Coca Cola, since its foundation, has experienced tremendous growth in revenues and market value. Coca Cola operates in more than 200 world countries, whereby the company uses unique strategies to win the diversified markets. Generally, Coca Cola is sold in all the world countries except in North Korea and Cuba. Despite its presence in numerous countries, the company is faced with numerous challenges, which include; terrorism in some countries, dictatorship, and political instabilities. Due to these factors, the functionality and efficiency of production have been affected by numerous companies. The United States is still the company’s primary market with Asia countries and European nations, also being part of the broader market. China and Mexico follow closely behind the U.S., despite the company’s late entry into the country. Despite the presence of the U.S. as the primary market, however, diversity and distribution of other markets are close. This implies that no single market boasts of having more than 20% of the volume of sales made in all the company’s markets. By percentage, Coca Cola has 28% established markets, 53% emerging markets, and 19% developing markets.
In 2016, the company had gross revenue of US$ 41,863, with a net share of US$ 6,527, and a price/share of US 40.63. In 2017, the company’s revenue and net share had dropped significantly to US$ 35,410, US$ 1,248, and the U.S., respectively. However, the price per share increased dramatically to 42.80. In these two years, the number of employees dropped from 100,300 to 61,800 in 2017. In the F.Y. 2018, the company reported gross revenue of US$ 31.86 billion. In this financial year, the critical sources of revenue were Europe, Africa, and the Middle East, which collectively contributed US$ 7.7 billion, 24% of the total revenue (Afeni, 2017). This revenue included the sales of non-carbonated drinks, carbonated drinks, coffee, energy drinks, and tea. Latin America contributed US$ 4 billion, which is 13 of the gross revenue. This was achieved from the sale of products similar to those in the EMEA region. North America contributed 35% of the gross revenue by contributing US$ 11.2 billion from the sale of coffee, tea, carbonated beverages, and non-carbonated ones (Afeni, 2017). The Asia Pacific Region contributed US$ 5.1 billion. Other sources of revenue included the Battling Corporate and Investments, which contributed 12% of the revenue. The source of this revenue was the control of the company’s bottling operations.
By 2019, the company’s operating revenues in the world totaled to US$ 37.27 billion. In 2019, the company reported an increase of 5.2% from the previous year. This growth was promoted by innovation and the presence of solid revenue development and management initiatives within the company. Another contribution to the net growth was the acquisition of the United Kingdom’s Costa Limited. In 2018, the adjusted earnings of the company were coming in at US$ 0.47 per share, and in 2019, the rate had grown to US$ 0.48. In the EMEA region, the company obtained a growth of 2%, and in Latin America, the company witnessed a 15 decrease in the overall revenue. In North America, the revenue increased by 4%, and in Asia, there was a decline of 25 (Afeni, 2017). In 2020, the company has seen a tremendous decrease in revenue, over the first quarter of the year, with the Covid19 crisis causing the closure of its many sale joints. With restaurants, movie shops, football stadiums, and other sports activities closed, the company estimates considerable losses in this financial year. Since March, the company has witnessed a 25% decrease in global volumes. The company reported a revenue of US$ 8.60 billion over this period. The company has a market value of US$ 203 billion.
Coca Cola’s Involvement in international trade
Coca-Cola is a global business, which implies that it operates both in domestic and international markets. In the past five years, 70% of the company’s revenue was generated from international markets. In order to enter international markets, the company uses the globalization strategy to ensure the differentiation of products. In every country, the company operates through partners who are reliable and responsible for branding. The company then groups countries in terms of bottling capacities, whereby Asian countries are considered big bottlers as compared to the African countries. Generally, the company operates by bypassing exports. This implies that the company’s outlets in other countries are mandated to conduct manufacturing and sales operations. For this reason, the company evades the export tariffs from the U.S. and other markets. In every country, the company provides bottlers and syrup manufacturing industries, which helps in evading the export duties. The company uses a franchise system whereby it produces syrup concentration and then sells it to bottlers around the world. For this reason, the franchise companies are held responsible for purchasing and importing products into their countries. Coca Cola owns shares in the franchise companies, which include; Coca-Cola Hellenic, Coca-Cola-Enterprise, Coca-Cola Amatil, Coca-Cola FEMSA, and Bottling Company. Through these individual franchises, the company operates in the global markets. These companies are allowed to add flavors, depending on the local tastes. Coca Cola sells more than 400 brands, operating in over 400 countries.
Coca-Cola’s contribution to the US GDP
Coca Cola contributes significantly to the U.S. economy by paying all the due taxes to support the economy. The company pays corporate taxes, excise taxes, customs duties, employment, and stamp duties. Through these forms of support to the U.S. economy, the company contributes hugely to the U.S. economy. The company has 9,000 employees in Georgia and 7500 in metro Atlanta. These employees work in the company’s headquarters; thus, they present only a fraction of the company’s employees in the U.S. Being a franchise company, Coca Cola creates more employment opportunities through distribution, marketing, store management, and other jobs. By creating numerous employment opportunities and through taxation, the company contributes hugely to the economy. Currently, Coca-Cola has 62,600 employees in the U.S. Thus, by contributing to the creation of jobs and in paying hefty taxes to the U.S. government, the company plays a crucial role in the development of the economy (Afeni, 2017). Across the Coca cola’s value chain, employment opportunities are created whereby the commodities offer job before reaching the consumer. With more than 500 brands in the U.S., Coca-Cola enables the U.S. economy to thrive through the taxation of these commodities.
Challenges in International markets
With the changing world trends, competition from other companies like Pepsi, and political instabilities in some countries, the past five years have been challenging for Coca Cola. The United Nation’s through the various environmental organs have been advocating for the protection of the environment from plastics and other environmentally harmful substances. With numerous bottles lies in oceans, and in other forms of environment, the company faces the risk of tough policies, which promise to ensure a plastic-free environment. These regulations place Coca-Cola and other beverage companies at a higher risk of losing international markets. In this same period, world there has been an exponential rise in sugar-related diseases like diabetes. In a bid to regulate the emergence of these diseases, most markets have put measures that regulate sugar up-take. Similarly, most health activists advocate for a world free of sugar, which is a detrimental challenge for Coca Cola whose products are predominantly made of sugar. The water industry is thriving as compared to the soda industry as a result of activists.
U.S. Federal government’s fiscal and Federal Reserve Monetary policies
Several U.S. policies have been made, which promise to increase the taxation on beverage companies like Coca-Cola. In September 2015, the U.S. Internal Revenue Service introduced high taxation for foreign affiliates. Coca-Cola is currently affected by all the U.S. government’s fiscal policies. In effecting the fiscal policies on U.S. corporations, open market operations, reserve ratio requirements, and the discount rates are considered. For this reason, the Coca-Cola operation and marketing leadership’s main focus is to maintain production volatility, which is achieved through maintenance of prices, maintenance of inventory levels, and control of logistics cost.
Since 2004, the U.S. government’s spending has been on the rise, rising from four trillion to 4.45 trillion in 2019. To cover the increased spending, the government increases tax rates imposed on the individual U.S. companies, with Coca Cola being similarly affected by the fiscal policies. In 2015, the tax rate imposed on Coca Cola was 23.31%, in 2016, the rates dropped to 19.49%, in 2017 the rate was at 82.47%, in 2018 the tax rate was 19.44, and in 2019, the company was charged at a rate of 16.7%. In 2007, the Federal Reserve decided to cut federal funds by 25 points (Hassan & Mano, 2019). The Fed pumped over $ 41 billion in terms of short-term reserves towards the markets.
Impacts of Fluctuations in Mexico
Exchange rate fluctuation refers to the state of exchange rates to float freely when compared to another, which implies that the rates are in constant fluctuation. When the dollar value increases, businesses can buy huge sums of foreign currency. Fluctuations in exchange rates are attributed to interest rates, economic activities in a given country, geopolitical risks, and growth prospects (Gómez, 2019). Fluctuations in exchange rates lead to economic instability within a country, affecting international trade and capital flow. Coca Cola is an international company; thus, any fluctuation in exchange rates affects it.
In 2017, one USD was equivalent to an average of 19.90 MXN, while in 2019, the rates shifted with a dollar being worth more than 23.7 MXN. This fluctuation has witnessed numerous impacts on international companies like Coca-Cola. The company’s revenues in Mexico recorded an increase of 4.1% between 2017 and 2018. During this period, the inflation of Mexican currency had not occurred (Hassan & Mano, 2019). The transaction between Coca-Cola in Mexico and other American companies decreased by 2.6%. During this period, the transactions were dropped by the better performance of the Mexican economy and currency as compared to the U.S. dollars. The company also recorded a gross profit of 4.7%. With a favorable currency, Coca-Cola’s company in Mexico was able to obtain sweeteners from other markets at lower prices. All the raw materials were accessible cheaply over this period, which implies that the company’s expenditure reduced while sales increased, leading to an increase in overall profits.
In 2019, the world witnessed a decreased oil price, and Mexican currency has been negatively affected by this decrease. In 2019, President Trump announced the imposition of strict tariffs on Mexican goods and commodities. For companies like Coca-Cola, these two factors significantly influenced the company’s operations in Mexico. For instance, obtaining raw materials from the U.S. was more expensive as compared to the situation in 2017. The Fomento Economico Mexicano (FEMSA), is Coca-Cola’s franchise in Mexico. In its operations, the franchisee obtains syrup concentration from the U.S. based Coca-Cola, Inc. (Gómez, 2019). For this reason, the franchise depends on the exchange rates. In 2019, one USD averaged 23.49 Mexican Pesos in the financial year, which implies that the currency had depreciated as compared to the previous years. For this reason, Coca-Cola recorded decreased profits, gross income, and sales volumes.
Impacts of Fluctuations in India
Coca-Cola entered the India market in 1950 and left the country in 1977 when India imposed strict Foreign-exchange Act that could see the company lose millions in taxes and revenues paid to the Indian government (Singaram, Ramasubramani, Mehta, & Arora, 2019). In 1991, the country paved the way for intentional investors to enter into the Indian market, with Coca-Cola making a re-entry into the country in 1992. Over the years, the company has grown tremendously in the country through acquisitions, with “Limca Gold Spot” and “Thums Up” being the company’s most crucial acquisitions.
Since 2016, the U.S. dollar has been depreciating when compared to the Indian Rupee. In 2016, one USD was equivalent to an average of 66.77 Rupees. In between 2016 and 2017, the exchange rates have been fluctuating, favoring the two countries at intervals. In 2019, one USD was exchanged at an average of 65 Rupees (Hassan & Mano, 2019). This fluctuation in the exchange rates had numerous impacts on Coca Cola and other international businesses in the country. Being an emerging market, the India franchise purchases most commodities from the U.S., with the syrup concentration coming from the U.S. (Afeni, 2017). This implies that the company pays more for the syrup while maintaining the prices of its commodities. Consequently, the company cuts the volume production to fit the projected expenditure. For this reason, the fluctuations in the exchange rates have had negative impacts on Coca-Cola’s operations in India.