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Management

Country risk analysis – Coca Cola

Abstract

 

It is important for a company to analyze the risks associated with a country while entering in a market. There are various methods for analyzing country risk and one of most prominent method is Mann’s SPT and Porter’s Diamond. This paper tries to analyze the risk associated with Coca Cola in India with the help of these two economic models. Few suggestions are also provided for Coca Cola to improve its performance in India.

 

Country risk analysis – Coca Cola

Introduction

Coca Cola is a multinational company and it is important for the company to analyze country risk before it enters a new market for operation. Coca Cola has plans to enter Indian market and for the purpose it aims to analyze country risk. This paper makes use of Mann’s SPT and Porter’s Diamond for analyzing the country risk that Coca Cola is to consider while entering Indian market. Recommendations are also given at the end for the company to operate in a successful manner in India.

1.     Economic:

 

  1. Which economic model do you think is the most appropriate in considering country risk?  Why?

It is important for companies to determine the competitive advantage of countries before starting a business there. Porter Diamond and Mann’s SPT are two effective economic models for determining the competitive advantage of a country for starting a new business. Both models are found efficient to determine the competitive advantage of a country. It will be better for a company to use both these models for it will help the company to get a complete picture of all the aspects that are likely to affect its business (Solberg, 2002).

Porters Diamond will help to understand the advantages possessed by a country due to some factors available there. It will also help to understand and improve the role of a country in global market. With this method comparative advantage of a country or region over other areas can be clearly found out. Proactive approach of this model considers factors like structure, firm strategy and rivalry as determinants instead of land, natural resources, population, location and labor. Along with that demand for the products in various conditions, supporting industries related to particular industry and factor conditions are also considered. This model relies on the role of government in pushing companies to competitive level for better performance and gaining combined benefit ultimately (Solberg, 2002).

In Mann’s Social Process Model social needs and environment are the factors considered. A frame work interrelating economic, cultural and political dimensions is used for encompassing these essential dynamics of a society. It helps to review social conditions and assess the interrelation between them and also to identify institutions that are related to each other. With this model every facet of society is encompassed facilitating s systematic review of all aspects of society. Activities sustaining life is characterized by economic commonality, societal governance that drive institutions is characterized by political commonality and mindset of society and values shaping it is characterized by cultural commonality. It is the cultural commonality that directs other two aspects (Mann & Götz, 2006).

By using both these models a company can understand the political, social, cultural factors and structure, strategy, firm, government’s role, product demand and supporting industries that are likely to affect the operations of an organization.

  1. Identify the points of Porter’s diamond and determine the influence of each on your company in the assigned country (Coca Cola in India).

According to Porter’s diamond structure of the firm, its strategy, rivalry, demand for its products under various conditions, supporting industries, factor conditions and government’s role are to be analyzed.

Main rival of Coca Cola in India is Pepsi. Both are carbonated soft drink manufacturers and they compete fiercely in global market. Soft drinks have a great market in India and strategy of Coca Cola is to sell their unique taste for lower price. Company aims to sell quality soft drinks with unique features for fewer prices. Coca Cola introduces various soft drinks aiming different target market. Diet coke is marketed for people who are weight conscious. Maaza is for kids and those who love juices. Sprite aims young people and thumps – up for those who are confident and mature and is masculine in character. Fanta is aiming women. Thus with diversification of products Coca Cola targets all kinds of customers and this is the best structure for Indian market. Coca Cola’s corporate structure is always welcomed by Indian market (Carroll & Buchholtz, 2011).

Products of Coca Cola will be in demand throughout the year for winter season is only for very less time in India. Demand for the product will be high during summer and will reduce only during winter season which is only for a small period. Coca Cola needs large amount of water for production and in India water resources are not less. Labor is also very cheap in India. It is easy to get labor for cheap price and water without paying any price and both these provides added advantage for the company.

Government of India always supports foreign investments and industries and hence the company will get support from government. There are several small firms on whom Coca Cola can rely on for collecting raw materials like bottles. All these are available for cheap price in India and thus according to Porter’s Diamond all these factors has great influence on Indian economy (Carroll & Buchholtz, 2011).

2. Political:

 

  1. Name at least five stakeholders for your company in the assigned country, and state how each does or can influence the company (Coca Cola in India).

Suppliers, customers, government agencies, investors and employees are the five stakeholders of Coca Cola in India.

Suppliers – Suppliers play a vital role in the growth of Coca Cola in India. It is with stable, sound and ethical supplier base that Coca Cola is able to establish themselves among local communities in the country. All the ingredients for manufacturing is provided by suppliers and they also help the company to remain ethical and environmental friendly to certain extent (Carroll & Buchholtz, 2011).

Customers – It is the customer that keeps the company in top position in market. Customers help the company to keep with the pace and to compete with rivals. Customers are the ultimate aim and it is according to their taste and demand that the company manufactures its products. Even the diversification found in soft drinks provided by Coca Cola is the result of consumer demand (Carroll & Buchholtz, 2011).

Investor – Coca Cola takes in to consideration the interest of investors while functioning. Investors demand profit and at the same time want the company to remain sustainable and ecofriendly. Demands of investors are considered with top priority and importance by Coca Cola management. It is according to investor preference that the company is functioning and achieving profit.

Employees – Employee satisfaction and safety is given great importance by the company. Coca Cola believes that employee participation is of great importance and efforts are made for optimization of employees. It is also necessary that the employees of the company are skilled and trained and have adequate knowledge of the company and their job related matters. Coca Cola believes in motivating its employees and rely on highly talented and motivated staff (Carroll & Buchholtz, 2011).

Government agencies- Coca Cola believes that it is important to make sure those laws and regulations of a country are to be followed for better performance of company. Government agencies make sure that the company is relying to various regulations and reforms. It is the agencies who ensure that company is performing its commitments to environment and sustainability most effectively (Carroll & Buchholtz, 2011).

  1. In the class we have previously identified 9 sources of societal instability facing the firm.  Please choose 5 out of the 9 sources and briefly apply them to the firm you have been assigned to and briefly explain what they are and how you think they will impact country risk.

Sources of societal instability also have an effect on performance of a firm. Few factors that are likely to affect the performance of Coca Cola are resources, production, polity, distribution, wisdom.

One of the factors likely to cause societal instability is resources. When a country is poorly developed and people find it difficult to have enough food, health and housing to lead a normal life a company like Coca Cola will not be able to grow. People cannot afford soft drinks when they find it difficult to have enough food, housing and health (Mann & Götz, 2006).

Production is another factor and in an economy where monopoly, closely held ownership is widespread, has only few economic opportunities, slow growth of GNP or high unemployment it is difficult for a company to establish. It will be very difficult to start a business as existing companies will not allow that. Even if company starts to function it will not be able to market their product efficiently for these situations create poor people in large number who cannot afford soft drinks.

A country with low average income or extreme disparities of income is said to have distribution factors. In such a society companies like Coca Cola cannot start business aiming only those people who are capable enough to buy soft drinks. Extreme income disparities will make it difficult for company to find good market and sell its products to gain profit.

Polity is the situation where decision making is skewed extremely towards ruling elite. Under such situations companies will have to remain very flexible to satisfy and comply with the rules made by a particular ruler. When government change these rules will gain change and it is difficult to survive in such an economy.

Wisdom is the situation where there is widespread illiteracy or corrupt behavior standards. When there is corruption companies will have to pay bribe for each and every thing related to its functioning. Illiterate people can be easily misled and they might form rivalry against company if Coca Cola fails to satisfy any person asking for bribe. It is a very expensive situation and is not beneficial.

In India no such conditions exists and hence this is one of the best markets Coca Cola can function. There is no high disparity of income, monopoly of ownership, extremely corrupt behavior standards etc. and hence company can easily function here independently and be successful.

3. Cultural:

 

  1. a. Using the Social Benchmarks in Mann’s SPT (Borderless Business, P. 177), compare them in your assigned country to the same benchmarks in the U.S.A. (Use only benchmarks # 1, 2, & 3).

How are the fundamental beliefs different in India from that in the U.S.A.?

In India people often identify themselves in relation to religion, language and ethnicity. Another method of social identity is to identify themselves as the member of a particular family. Identity is always associated to fathers or mothers name or family name than as an individual. Indians value corporation, group harmony, modesty, dignity, patience, placidity, generosity, indifference to savings, work ethics and ownership. Indians speak moderately and at the time they have careful listening and observing habit. Permissive child rearing practices is common in India. In India symbols are usually associated to religion and there is only one symbol to represent the nation, the national flag (Yeung & Mathieson, 1998).

People of USA identify themselves with ethnicity, race, religion, political believes etc. Americans value individualism, equality, materialism, science and technology, competition, work and leisure, mobility, progress and change, volunteerism, action and achievement. In USA each region has their own symbol representing natural treasures and cultural heritage and they also have their own flag and stamp. Other than this America uses national flag as their nation’s identity. There are several other symbols like statue of liberty, liberty bell, great seal etc. (Caputo, 2011).

How are the social relationships different in India from that in the U.S.A.?

In India family is given great importance and generations are valued with great respect and importance. Interest groups and communities are normally based on ethnic beliefs and culture. Indians prefer to develop peer group on the basis of their values and identity but peers are given great importance and is given a position even in personal life. Indians are born to groups and social interdependence is very much prevailing in India. Social interaction is of highest priority and Indians believe social interactions to last for long time (Yeung & Mathieson, 1998).

In USA individuality is given more importance over groups. People identify themselves as individuals and not as members of a group. They are not socially dependent. Society is informal in almost every aspect and Americans are modest in their behavior. In America everyone is given respect and is treated with dignity. Individuality of each person is given importance than that of a group (Caputo, 2011).

How is the work force mindset different in India from that in the U.S.A.?

Americans work to achieve personal benefits rather than organizational benefit. They are more technology oriented, optimistic, rational and adaptive to changes. Long term association with organizations is very less for employees seek individual benefits and growth. American workers are more assertive in nature and a more close relationship is maintained between superiors and subordinates (Caputo, 2011).

In India culture and values are given priority over any other factor and hence employees are more loyal to their company and work for the achievement of organization. At the same time they are emotional and are not adaptive to changes. Technological advancements are not that easy to implement and majority employees cannot be optimistic. Individualism is values less and hence employees are associated to organization for long term. In India power distance is more and Indians prefer to avoid uncertainty (Yeung & Mathieson, 1998).

  1. Describe your team’s country’s culture in terms of three of Trompenaars’ categories:1) Relationships vs. Rules; 2) Individualism vs. Communitarianism; 3) Status as Achieved vs. Status as Ascribed. Indicate ways the company may need to modify its way of operating to accommodate this culture.
  2. Relationships vs. Rules

India is a relationship oriented state and hence is particularistic in approach. Culture of India is focused on relationship and not rules. Hence Coca Cola while dealing in India need to give more importance to trust. Trust is one of the most values factors in a culture that is relationship oriented. Indians do not see contract as a binding agreement but for them relationships are binding agreements that need to be maintained at any stage (Hampden – Turner & Trompenaars, 2001). Hence it is important for Coca Cola management to maintain good relationship with every person they come into contact with. Make sure that there is team motivation among employees and all stakeholders are benefited. Company need to remain as a team with good relation between management and stakeholders both internal and external.

  1. Individualism vs. Communitarianism

In India culture is seen as part of a group and not as that of an individual. India has a communitarian culture and is oriented towards a common goal. In India altruism, social legacy, social concern, cooperation and public service is of great importance. Coca Cola need to consider the fact that India has a consensus oriented culture where cooperation is given top priority. In India through agreements are made they are very rarely kept (Kumar, 2004). While entering in to an agreement with a supplier in India Coca Cola must bear this fact in mind and make sure to have a good relationship with the parties for getting things done. Indians rarely say no to anything for maintaining the relationship even if they are aware of the fact that they cannot keep a promise. So it is for the company to make sure that any person they enter into contract are capable of fulfilling the contract. Do not rely merely on words of parties but it is necessary to conduct a study before taking decision.

  1. Status as Achieved vs. Status as Ascribed

Indians have a mix of achieved and ascribed status due to cultural diversity and caste system. Hindus are more of ascribed status while protestants are more of achieved status. Majority Indians give importance to ascription due to prevailing caste system. Status is ascribed through profession, degrees, age and caste. Kinship and friendship is given more importance than expertise (Gesteland & Gesteland, 2010). Coca Cola need to make sure those Indian employees with higher position is to be treated in a better manner than those below them. It is also important to understand the social status and caste of a person whenever you are dealing with. This is to be considered at every stage of business as well as in every relationship.

References

Caputo, R. K. (2011). U.S. Social Welfare Reform: Policy Transitions from 1981 to the Present. New York: Springer.

 

Carroll, A. B., & Buchholtz, A. K. (2011). Business & Society: Ethics, Sustainability, and Stakeholder Management. Ohio: Cengage Learning.

 

Gesteland, R. R., & Gesteland, M. C. (2010). India Cross Cultural Business Behavior. Gylling: Copenhagen Business School Press.

 

Hampden – Turner, C., & Trompenaars, F. (2001). Riding the Waves of Culture Understanding Cultural Diversity in Business. London: Nicholas Brealey Publishing.

 

Kumar, R. (2004). Brahmanical Idealism, Anarchical Individualism, and the Dynamics of Indian Negotiating Behavior. International Journal of Cross Cultural Management , 39-58.

 

Mann, C. J., & Götz, K. (2006). Borderless Business:Managing the Far-Flung Enterprise. Connecticut: Greenwood Publishing Group.

 

Solberg, R. L. (2002). Country Risk Analysis:A Handbook. London: Psychology Press.

 

Yeung, O. M., & Mathieson, J. A. (1998). Global Benchmarks: Comprehensive Measures of Development. California: Brookings Institution Press.