Global Strategic Management (10756524)

1. Executive Summary
The purpose of this report is to construct strategies by analysing the general beverage
industry– in particular, carbonated drinks – and the competitive environment. Coca-
Cola Amatil (CCA) is one of the most popular and recognizable brands in the world
of business (Heller et al 2006, p.1). Thus, from this analysis, CCA’s potential growth
and strategic management to maximize profitability will be examined. Eventually,
these crucial factors in business management are affecting CCA’s performance in the
market, including expanding into larger market and launch takeovers of other
companies that CCA believe will create value for the company.

This report will also discuss and outline each aspect in the general environment that
CCA is operating in, Australia, and also the strength of each aspect in regards to
Porter’s five forces. Along with the analysis, the effect that each aspect brings to
strategic management will also be discussed, focusing mainly towards several aspects
to CCA’s strategic management.

2. About CCA
CCA’s main drive to success was their overall strategy to produce and promote their
products, which is geared towards the continued success of this famous brand,
including advertising to build and maintain brand awareness (Khan 2005, pp.16).
However, despite a strong brand, management of change has been necessary at Coca-
Cola. The corporate culture involving a super-brand like Coke can result in managers
becoming overconfident in the product as well as the processes and procedures that
have built up throughout the company over time. The threat is that the public will
simply get bored with the brand (Amer 2002, pp.12). Therefore, CCA has undergone
radical changes over the years by expanding more into the markets and launching
takeovers. The process involves a potentially large proportion of risk and may proved
to be calamitous. This paper will refer to how Coca-Cola has taken advantage of
strategic management to undermine the risk and be profitable.

3. Strategic Management
Strategic management, in contrast with business policy is a technical approach and as
Wheelen and Hunger (2002, p.2) wrote, “strategic management is that set of
managerial decisions and actions that determine the long run performance of a

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company”. Strategic management involves strategic process, which is when CCA

defines business objectives and assesses both the internal and external situation to
formulate and implement the strategy, evaluate the process, and make adjustments as
necessary to stay on track. It involves environmental scanning, strategy formulation,
strategy implementation and evaluation and control (Azam 2009, pp.1).

In order to construct strategies for CCA, the major objective to be focused upon is to
maximize profitability, thus increase value of the firm. First and foremost, accessing
the internal strength and weaknesses of CCA is very crucial. Relative superiority and
deficiency is important information (Khan 2008, pp.8). For instance, knowing that
CCA’s business in South Korea was not benefiting and causing problems regarding
human labor and too much expense, CCA made a crucial decision to close down the
facility. This act shows how CCA has minimized its weakness and liability (Fin.
Report 2008).

While internal strength and weakness can be accessed through CCA’s managers,
external components involving the industry are more complicated. The threats and
opportunities that lies in the surroundings of CCA refers to the general environment,
that will be discussed later on in this paper.

3.1. Expanding into markets

Currently, CCA controls about 59% of the world market, greater than any other
carbonated drink company. Expanding into market can be done by acquiring other
companies that operate in the same industry for the reason that CCA have larger share
in the beverage industry, such as mineral waters, alcoholic drinks or juice. However,
expansion is better if its within the soft drink segment, because it is one of the largest
growing segment in the nonalcoholic ready-to-drink beverage category. CCA can also
increase its market share independently, through strategic management that caters
towards maximizing the potential of the company, but compact the weaknesses, so
that it will not cost a liability to the firm. The firm’s definite strength is the fact that it
has a larger market share, its historic reputation and brand familiarity. Strategies used
to capitalize this strength include: increasing people’s awareness towards the product
through effective marketing, advertising and promotions; also invest in innovative
projects to further develop existing products. Such innovations may include

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improvisation of the products’ packaging design, to attract a larger target market

group and also researching on how to improve the substances used to produce the
product, for instance, including vitamins or more healthy ingredients in the drink. In
turn, this will change people’s mindset about CCA product regarding health issues.
By doing this, CCA stands a chance to eliminate the threat of substitute for the reason
that drinking coke is not healthy or for a reason that it is a “boring” drink.

3.2. Takeover
CCA received a merger proposal from Lion Nathan Limited, however due to many
conditions that need to be satisfied and would be hassle for CCA to do so and the fact
that CCA thinks the proposal was not attractive, Lion Nathan withdrawn its proposal
to merge with CCA. Through mergers and takeover, the merged companies can
conduct surveys to discover customer preference concentrate upon maximizing the
potential of that particular product. Improving on the moral and working environment
of managers and employees may result in internal changes. This is important because
positive minds and comfortable environment may affect the working attitude of
managers, as the main driver of success. Incentives can also be given to motivate
employees, such as giving bonuses and benefiting schemes for making the efforts to
make CCA a better company.

Furthermore, synergies for production and distribution efficiency can be created.

Looking at CCA’s financial statement, the firm has been facing difficulty in managing
cost, especially fuel cost. This is because its production facility is not widely
dispersed, therefore distribution are costly. The merged companies will be able to
have use each other’s resources and thus, creating a more dispersed production plant,
which will save cost in transporting the goods and also keeping it at warehouses.
Consequently, saving a large amount of revenue earned. Furthermore, effectiveness of
advertising (commercialization) may also aids in increasing awareness of product,
thus increase in demand and consumption. It is also important that the companies
maintain customer satisfaction, thus guaranteeing their loyalty to the product. This
can be done through serving customers with creativity and consistency and generate
growth across all channels.

One of the most straightforward business management strategies known for CCA is to

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launch takeovers. As a result, it is able to selectively broaden the family of beverage

brands to drive profitable growth. Moreover, it enables CCA to be in the front line to
lead and accelerate the global growth of carbonated soft drink.

Takeovers or mergers will create value for CCA when it offers competitive advantage
for the firm. The competitive advantage may include economies of scale, increase
market share and synergies created from resources that are unobtainable should CCA
stay independent. It allows CCA to grow and increase capability together with fellow
bottlers.

4. Financial Aspects
Strategic operating management measures and determines the profitability and
business efficiency. CCA was earning less than its cost of capital, implying that
CCA’s earnings were not meeting its required rate of return. This indicates the need
for CCA to have a great change in its management structure (Heller et al 2008, p.2).

A fall in turnover of goods in year 2008 from 2007 denotes that CCA deploys their
assets less efficiently in generating profits and cash flows. CCA has been making a
constant investment in assets, such as launching of new range of products, resulting in
assets overload. Changes in product mix, such as price rise, weakened economy, or an
increase in proportion of lower priced products, leads to a decrease in sales and
affects total turnover. Investing in major projects caused smaller return on assets
figure. CCA is on the stage of mature in the product life cycle, resulting in cash
excess from operation and may cause decreasing production capacity, which led to the
increase in sales and revenue. In order find a balance, strategies to increase production
efficiency has to be implemented, such as decreasing cost in distribution, but add on
human capital. As a matter of fact, CCA is currently undertaking expanding strategy –
“Project Zero” – including expanding SAP platform, automated warehousing,
increased production capability (Fin Report 2008).

5. Industrial Environment and 5 Forces Model

Applying Porter’s 5 forces allows the garnering a retrospective view of the potential
attractiveness in terms of profitability of the company. Analyzing the beverage
industry will also allow a more accurate outlook on its potential. The analysis below

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will concentrate on the industry from CCA perspective and also its effect on strategies
discussed before.

5.1. Bargaining Power of Supplier

Inputs, such as materials, labor, supplies, etc. are standard rather than unique or
differentiated. This allows variable substitutes of inputs readily and resulted in
numerous potential suppliers. Suppliers themselves will find it hard to enter business
like CCA and perform function in-house. Since CCA is producing at large scale, to
suppliers, this business is very important, however the cost of purchase has significant
influence on overall costs. This requires CCA to carefully choose its suppliers to
suppress cost problem (Azam 2009, p.7).

5.2. Bargaining Power of Buyers

There are a large number of buyers and customer relative to the number of firms in
the industry, each with relatively small purchases. However, there is no cost incurred
in switching suppliers. CCA’s product is very unique to some degree and has
accepted branding. However, customers are very highly sensitive to price, therefore
choosing the most cost efficient suppliers are very crucial to minimize cost, thus
maximizing profit (Azam 2009, p.8).

5.3. Threats of Substitute

Generally, substitutes have performance limitations that do not completely offset their
lowest price or their performance is not justified by their high price. Obviously, it cost
the customers nothing to switch to CCA’s substitutes, such as coffee, tea and juice.
Besides, there has been a high potential of customers to substitute CCA products
(Azam 2009, p.7). CCA can further develop its competitive advantage against
substitutes through takeovers to minimize the potential of decrease in sales.

5.4. Rivalry Among Competing Firms

CCA’s main rival is Pepsi and the biggest threat that they pose is price. When prices
change, the effect on beverage industry towards the consumption of soft drink is
drastic (Khan 2005,pp.27). Although the product is not complex, which makes it
easier for other companies to compete against CCA, they do not own a share in the

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market as large as either CCA or Pepsi are. This is because it is hard to commit into
this industry, as it will be hard to get out of this business, involving specialized skills,
facilities and long-term contract commitments. Capital needed to enter the business
line is very large (Azam 2009, p.9). This will result in less competition, thus enabling
CCA’s chance to gain more market share.

5.5. Threats of New Entrants

Large companies like CCA, have a cost or performance advantage in the beverage
industry, because of established brand identities. Beside Pepsi, there are proprietary
product differences in the industry. The capital needed to enter the industry and to be
frontline in the industry like CCA today is very expensive, for the reason to build
production plant, managing the company, commercialization, etc. and also a long time
frame to build the confidence and loyalty in the target market. Newcomers also face
difficulty in accessing the distribution channels and it may be more costly compared
to what CCA has to pay, given their level of experience in the industry. Licenses,
insurance and qualifications are difficult to obtain. However, upon entering the
industry, newcomer can expect a strong retaliation in the market. When this happens,
their position may pose a threat to CCA and CCA may find more challenges in
implementing strategies to obtain more market share and maintain customer’s loyalty
(Ahmed 2008, p.6).

Overall, CCA are not competing mainly against Pepsi. The fight is against its
substitutes. Their main goal is so that public should reach to Coke whenever one feels
like drinking something. As a result, a strategic management to win the fight is to put
up a large number of vending machines at every street corner, restaurants and cafes.
Consequently, sales will took a quantum jump and CCA have less to worry about
competitor and substitutes.

6. General Environment
General environment is the external environment before an organization starts
strategy formulation; it must scan the external environment to determine the strengths
and weaknesses. Thus, how and to what extend is each trend is affecting strategic
management within CCA.

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6.1 Demographic
The population of people in Australia is growing older and there is an increase in the
younger generation, which affects the strategic orientation of CCA. Geographical
areas where most of retirees live will not be a potentially great target market, as they
might prefer healthier drinks (non-carbonated, such as juice or milk), because of
health concern. However, as discussed before, CCA can tackle this issue with
innovative development of products (Amer 2002, p.25).

6.2 Economic
Australia is a very economically developed country, with a high quality, cost and
standard of living, alongside with low inflation and unemployment rate. Economic
growth had been tremendous in the past decade, yet it did not make Australia
financial viable against the global crisis now, so does CCA. Consumer might prefer
water, as a cheaper substitute of Coke, and less people will also be spending time in
cafes or restaurants (which led to the decrease in potential purchase of coke drinks),
as they are trying to be conservative with monetary issues. CCA’s strategies have to
adjust with the situation to cope as well, for instance, cutting cost as much as possible
to reduce selling price. When the economy recovered, economic growth in Australia
benefits CCA’s strategy for profitability, as more people work harder, the demand for
caffeinated drinks increases, thus pushes CCA’s sales, turnover and profitability
margin up (Amer 2002, p.26).

6.3 Political
In Australia, the corporate rate is 30%, which is decent compared to other countries
that put pressure on businesses upon high excise tax and company tax. Australia is
also a country that is very well protected by the law, especially in regards to patent
and intellectual property. Australia government has also acted in the best interest of
the population, thus making forecast in political climates easier. Overall, Australia is a
safe ground for large MNC like CCA. With fewer surprises in political variables (i.e.,
tax and patent law changes, deregulation, special tariffs), formulation of new
strategies and implementation of current strategies are also easier to be carried out and
outcome easier to be forecasted. Nevertheless, it is crucial that CCA abide the law and
regulations in Australia and at the same time, maintain close rapport with strategists
who are experts in legalistic skills and cultural issues involve in a diverse nation like

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Australia. Overall, government stability will aids in implementing CCA’s strategies

(Amer 2002, p.25).

6.4 Sociocultural
Australia has been opening a wide door for foreigners and migrants from other
countries, resulting in less Caucasians nowadays, compared to a decade ago. In
addition, migrants entering Australia are mainly youngsters, who are pursuing their
studies. Since CCA’s main target market is young people, this situation is benefiting
CCA. As a matter of fact, coke is a global product, where it is very well known
everywhere in the world. Thus, in this case, brand familiarity will result positively in
CCA’s favor. Furthermore, the gap between rich and poor is narrowing with in line
with the economical advancement in Australia, creating more job opportunities (Amer
2002, p.28).

6.5 Technological
Technology nearly underlies every strategic management decision, especially in
Australia, where technological advancement can dramatically affect firms’ product,
market, processes, marketing practices, competitive position, etc. It can also create
new market, where CCA can expand into, resulting in profiliferation of new and
improved products, change the relative competitive cost positions in an industry, and
render existing products obsolete. Furthermore, technological changes can reduce or
even eliminate cost barriers, creating better production capacities, shorter production
runs, inventory management and shortage in technical skills, resulting in changing
values and expectations of employees, manages and customers of CCA. Most
importantly, technological advancement can function as a catalyst to create a
competitive advantage for CCA that are more powerful compared to the existing
advantage. To implicate with rapid development in technology, CCA should pursue
strategies that take advantage of Australia’s high-technological opportunities, to
achieve sustainable, competitive advantages in the market, thus expanding market and
launch takeovers. To accommodate with CCA’s development, Australia also has a
good reputation for availability and reasonable cost for money and raw materials
(Amer 2002, p.25).

6.6 Global

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Global considerations impact virtually all strategic decisions. The boundaries of

countries no longer can define the limits of out imaginations ((Amer 2002, p.29).
Australia also has maintained a good relationship with many countries, which made
large MNC like CCA easier to perform trade, export and import goods, especially
through specific trade agreement, where tariffs and tax are minimize, thus lowering
cost of operation. Efficiency and minimum hassle has improved global business
activity.

Overall, every aspect of the general environment is shaping the way Australians live,
work, produce, and consume. New trends will impact on CCA’s strategy, as it create a
different type of consumer, and consequently, a need for a different product needs,
thus, demanding for constant change in strategies.

7 Conclusion
The ultimate strategy for CCA to maximize profitability is to first identify their core
competency, and then change the playing field, carbonated drink in this case, to suit
CCA’s core competency (Amer 2002, p.18). Working with a focus in specialty and
strength will create opportunities for growth and advancement. However, although it
is good to be a leader individually and have strong core competencies, it is always
better to work with one another, harness each other’s core competency, launching
takeovers. This way, CCA will have a greater chance in performing above par and
expansion to take hold of larger market share is possible.

Generally, CCA is in its mature phase of product life cycle. This means that they
generate a lot of extra cash from operation. Excess cash can be used to finance new
projects that may add value to increase wealth of shareholders or to have dividend
payout to shareholders. However, strategically, it will be wiser if CCA choose to
retain those excess cash, especially in a credit crunch like now, many companies are
coping badly to maintain liquidity. Excess cash will be useful to fund further
operating, financing and investing decisions, this includes funding mergers, takeovers
and means to gain greater share in the market.

8 Reference

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Khan M. 2008, “Nature of Strategic Management”, Virtual University of Pakistan,

viewed 24 May 2008, <http://www.scribd.com/doc/2516371/Strategic-Management>

Heller et al 2006, “Coca-Cola Management”, Thinking Management, viewed 20 May

2008, <http://www.thinkingmanagers.com/companies/coca-cola.php>

Khan A. 2005, “Marketing Strategies of Coca-Cola”, Term Project, viewed 20 May

2009, <http://www.scribd.com/doc/10552013/Coca-Cola-Marketing-Strategies>

Amer W. 2002, “Intelligent Process Management for Increased Productivity”, Blue

Tech Inc., viewed 21 May 2008, <http://www.scribd.com/doc/12688822/Be-
Strategic>

Ahmed S. 2008, “A Strategy Audit: Paloka”, Business Policy, viewed 20 May 2009,
<http://www.scribd.com/doc/8433992/Strategic-Management-Strategic-Audit-of-
Pakola>

Azam Q. 2009, “Strategic planning”, Business Policy, viewed 21 May 2009,

<http://www.scribd.com/doc/12731896/Strategic-Management-Concepts>

Coca-Cola Amatil, 2008 End of Financial Year Report

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