Question: Coca-Cola's red and white logo is a familiar sight all over the world, from Argentina to Zimbabwe. Battling rival PepsiCo as well as regional soft-drink manufacturers, the Atlanta-based beverage company has long viewed global markets as critical to its push for profits. It established operations in Canada and Central America before 1910, and today its products are available in more than 200 nations. The company earns nearly three-quarters of its revenue outside the United States. However, growth in worldwide sales volume has slowed in recent years. As a result, Coca-Cola's senior managers are looking at ways to build sales in markets that previously seemed less promising because of low income levels, high inflation, currency fluctuations, volatile political conditions, supply and energy shortages, or other complications. Few people in rural northern India, for example, can afford costly products such as kitchen appliances on the area's average monthly income of about $42. Even large-size soft drinks are out of reach for many. After losing millions of dollars as it gained first-hand knowledge of the market, however, Coca-Cola hit on the dual strategy of adjusting the bottle size-to make its sodas more affordable for buyers-and putting its products in as many outlets as possible.
Now Indians can buy a tiny 200-milliliter bottle of Coca-Cola for the equivalent of 12 cents at thousands of bus-stop stands, neighborhood grocery stores, and food stalls. The deputy president of Coca-Cola India explains the company's outlet-by-outlet drive for distribution: "Our hands are firmly in the dust here. It's the only way we can capture this market." And the drive has been successful: Coca-Cola has captured more than 50 percent of the market for carbonated soft drinks in India. China is another fast-growing market where Coca-Cola is boosting sales by getting its beverages into as many stores and stands as possible. At one time, the company had to use pedicabs and other creative transportation methods to move beverages from bottling plants to outlets around Shanghai and other big cities. As the company built more bottling plants, it contracted with hundreds of thousands of distributors to get its beverages into local outlets. Thanks to this extensive distribution system, Coca-Cola sells nearly $2 billion worth of soft drinks in China every year. China soon will overtake Brazil as the company's third-largest market (behind the United States and Mexico).
Coca-Cola's business in Brazil has been up and down as the country's economic situation has changed. After years of high inflation, the economy improved, and Brazilians began buying more soft drinks. Coca-Cola responded to stiff competition from low-priced local brands by cutting prices. However, the move hurt profitability and failed to spark a significant sales rally, so Coca-Cola changed tactics. As it did in India, the company started offering soft drinks in smaller bottles, each size carrying a correspondingly small price tag. Thinking small made all the difference: Coca-Cola's sales and profits are bubbling in Brazil. Africa has proven to be a much bigger challenge. Runaway inflation, frequent power outages, and ongoing supply shortages have sapped Coca-Cola's profits in Zimbabwe and several other African nations. Despite the obstacles, the company is determined to continue doing business in those markets. It is moving ahead with plans to expand the number of stores that sell Coca-Cola beverages as a long-term foundation for future profitability. When and where consumers get thirsty, Coca-Cola will have its bottles and cans in a convenient outlet. "We want to be everywhere, and will be there forever," says Alex Cummings, president of Coca-Cola's Africa operations.11 For more information about this company, go to www.cocacola .com.
1. Why might a country in Latin America or Africa resist CocaCola's efforts to expand local sales?
2. Does the United States have a comparative advantage in soft drinks? Explain.
3. Knowing that smaller sizes have helped Coca-Cola increase sales and profits in India and China, do you think it should use the same approach in the United States? Why?