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BBA 4001

STRATEGIC MANAGEMANT

KHOO YU TING

921227015896

200080

MS.YEE

JULY 2014
TABLE OF CONTENT

TOPIC PAGES

1 Contents 1

2. Background of Coca Cola company 2-4

3 Porter five Force Analysis and SWOT analysis of Coca 5-16


Cola company

4 Evaluation of its strategic strengths and weaknesses 17-19

6 Reference 20

7 Coursework 21-26

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1.0 Background of Coca Cola company

The Coca-Cola Company is an American multinational beverage corporation and

manufacturer, retailer and marketer of nonalcoholic beverage concentrates and syrups,

which is headquartered in Atlanta, Georgia. The company is best known for its flagship

product Coca-Cola, invented in 1886 by pharmacist John Stith Pemberton in

Columbus, Georgia. The Coca-Cola formula and brand was bought in 1889 by Asa

Griggs Candler (December 30, 1851 - March 12, 1929), who incorporated The Coca-Cola

Company in 1892. 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.

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.

In general, The Coca-Cola Company and its subsidiaries only produce syrup concentrate,

which is then sold to various bottlers throughout the world who hold a Coca-Cola

franchise. Coca-Cola bottlers, who hold terrestrially exclusive contracts with the

company, produce the finished product in cans and bottles from the concentrate in

combination with filtered water and sweeteners. The bottlers then sell, distribute and

merchandise the resulting Coca-Cola product to retail stores, vending machines,

restaurants and food service distributors.

One notable exception to this general relationship between The Coca-Cola Company and

bottlers is fountain syrups in the United States, where the company bypasses bottlers and

is responsible for the manufacture and sale of fountain syrups directly to authorized

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fountain wholesalers and some fountain retailers. The Coca-Cola Company currently

owns Coca-Cola Refreshments, the anchor bottler of Coca-Cola products in North

America. Coca-Cola Refreshments consists of bottlers formerly owned by Coca-Cola

Enterprises.

The Coca-Cola Company also produces a number of other soft drinks

including Fanta (introduced circa 1941) and Sprite. Fanta's origins date back to World

War II during a trade embargo against Germany on cola syrup, making it impossible to

sell Coca-Cola in Germany. Max Keith, the head of Coca-Cola's German office during

the war, decided to create a new product for the German market, made from products

only available in Germany at the time, which they named Fanta.[48]The drink proved to be

a hit, and when Coke took over again after the war, it adopted the Fanta brand as well.

Fanta was originally an orange flavored pop which can come in plastic bottles or cans. It

has become available in many different flavors now such as grape, peach, grapefruit,

apple, pineapple and strawberry.

In 1961 Coca-Cola introduced Sprite, another of the company's bestsellers and its

response to 7 Up. Coca-Cola South Africa also released Valpre Bottled "still" and

"sparkling" water.

Sports

Coca-Cola sponsored the English Football League from the beginning of the 200405

season(beginning August 2004) to the start of 2010/11 season, when the Football

League replaced it with NPower.

Along with this, Coca-Cola sponsored the Coca-Cola Football Camp, that took place in

Pretoria, South Africa during the 2010 FIFA World Cup, during which hundreds of

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teenagers from around the world were able to come together and share their love of the

game, partly due to Best Buy's efforts through their 15 program.

Other major sponsorships include NHRA, NASCAR, the NBA, the PGA Tour, NCAA

Championships, the Olympic Games, the NRL, the FIFA World Cups and the UEFA

European Championships. In the Philippines, it has a team in the Philippine Basketball

Association, the Powerade Tigers.

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2. Porter Five Force Analysis and SWOT analysis of this company

Since its introduction in 1979, Michael Porters Five Forces has become the de facto

framework for industry analysis. The five forces measure the competitiveness of the

market deriving its attractiveness. The analyst uses conclusions derived from the analysis

to determine the companys risk from in its industry (current or potential). The five forces

are (1) Threat of New Entrants, (2) Threat of Substitute Products or Services, (3)

Bargaining Power of Buyers, (4) Bargaining Power of Suppliers, (5) Competitive Rivalry

Among Existing Firms. The following is a Five Forces analysis of The Coca-Cola

Company in relationship to its Coca-Cola brand.

Threat of New Entrants/Potential Competitors: Medium Pressure

Advertising and Marketing

Soft drink industry needs huge amount of money to spend on advertisement and

marketing. In 2000, Pepsi, Coke and their bottler's invested approximately S2.58 billion.

In 2000, the average advertisement expenditure per point of market share was S8.3

million. This makes it exceptionally hard for a new competitor to struggle with the

current market and expand visibility.

Customer Loyalty/ Brand Image

Pepsi and Coke have been investing huge amount on advertisement and marketing

throughout their existence. This has resulted in higher brand equity and strong loyal

customers' base all over the globe. Therefore, it becomes nearly unfeasible for a new

comer to counterpart this level in soft drink industry.

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Retail Distribution

This industry provides significant margins to retailers. For example, some retailers get

15-20% while others enjoy 20-30% margins. These margins are reasonably enough for

retailer to entertain the existing players. This makes it very difficult for new players to

persuade retailers to carry their new products or substitute products for Coke and Pepsi.

Fear of Retaliation

I am very difficult to enter into a market place where already well-establish players are

present such as Coke and Pepsi in this industry. So these players will not allow any new

entrants to easily enter the market. They will give tough time to new entrants which could

result into price wars, new product line, in order to influences the new comers.

Entry barriers are relatively low for the beverage industry: there is no consumer

switching cost and zero capital requirement. There is an increasing amount of new

brands appearing in the market with similar prices than Coke products

Coca-Cola is seen not only as a beverage but also as a brand. It has held a very

significant market share for a long time and loyal customers are not very likely to

try a new brand.

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Threat of Substitute Products: Medium to High pressure

This industry is enriched with enormous statistics of substitutes such as: water, tea. beer,

juices, coffee, presented to the end-consumers. But all the supplier of these substitutes

needs massive advertising, brand equity, brand loyalty and making sure that their brands

are effortlessly accessible to the consumers. Most of the substitutes cannot counterpart

the existing players' offers or diversify business by offering new product line of the

substitute products to safeguard themselves from rivalry.

There are many kinds of energy drink s/soda/juice products in the market. Coca-

Cola doesnt really have an entirely unique flavor. In a blind taste test, people cant

tell the difference between Coca-Cola and Pepsi.

The Bargaining Power of Buyers: Low pressure

The most important buyers for the Soft Drink industry are fast food fountain, vending.

Convenience stores, food stores, restaurants, college canteens and others in the

categorize of market share. The profitability/revenue in each of these segments obviously

demonstrates the bargaining power of the buyers to pay different prices.

The individual buyer no pressure on Coca-Cola

Large retailers, like Wal-Mart, have bargaining power because of the large order

quantity, but the bargaining power is lessened because of the end consumer brand

loyalty.

The Bargaining Power of Suppliers: Low pressure

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Most of the raw materials desirable to manufacture soft drink are basic merchandise such

as flavour, colour, caffeine, sugar, and packaging. The suppliers of these commodities

have no bargaining power over the pricing due to which the suppliers in soft drink

industry are relatively weak.

The main ingredients for soft drink include carbonated water, phosphoric acid,

sweetener, and caffeine. The suppliers are not concentrated or differentiated.

Coca-Cola is likely a large, or the largest customer of any of these suppliers.

Rivalry among Existing Firms: High Pressure

The industry is almost dominated by the Coke and Pepsi. This industry is well known as

a Duopoly with Coke and Pepsi as the companies competing. These both players have

the majority of the market share and rest of the players have very low market share.

Otherwise: competition is comparatively tow to result any turmoil of industry structure.

Coke and Pepsi primarily are competing on advertising and differentiation rather than on

pricing. This resulted in higher profits and disallowed a decline in profits. Pricing war is

nevertheless experienced in their global expansion strategies.

Currently, the main competitor is Pepsi which also has a wide range of beverage

products under its brand. Both Coca-Cola and Pepsi are the predominant

carbonated beverages and committed heavily to sponsoring outdoor events and

activities.

There are other soda brands in the market that become popular, like Dr. Pepper,

because of their unique flavors. These other brands have failed to reach the success

that Pepsi or Coke have enjoyed.

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Valuation Academy is proud to present our meticulously researched and in-depth analysis

of Coca-Cola using Porters Five Forces and a SWOT analysis available for just $4. This

2,500 word, (fully editable) 10 page word document will be available for download after

checking out through the link below.

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SWOT analysis of Coca-Cola

Strengths

Coca Cola is an extremely recognizable company. Popularity is one of its superior

strengths that is virtually incomparable. Coca Cola is known very well worldwide. It's

branding is obvious and easily recognized. Things like, logos and promos shown on t-

shirts, hats, and collectible memorabilia. Without a doubt, no beverage company

compares to Coca Cola's social popularity status. Some people buy coke, not only

because of its taste, but because it is widely accepted and they feel like they are part of

something so big and unifying. At the other end of the spectrum, certain individuals

choose not to drink coke, based solely on rebelling from the world's idea that coke is

something of such great power. Overwhelming is the best word to describe Coca Cola's

popularity. It is scary to think that its popularity has been constantly growing over the

years and the possibility that there is still room to grow. If you speak the words Coca

Cola, it would definitely be recognized all around the world. Money is another thing that

is a strength of the company. Coca Cola deals with massive amounts of money all year.

Like all businesses, they have had their ups and downs financially, but they have done

well in this compartment and will continue to do well and improve. The money they are

earning is substantially better than most beverage companies, and with that money, they

put back into their own company so that they can improve. Another strength that is very

important to Coca Cola is customer loyalty. The 80/20 rule comes into effect in this

situation. Eighty percent of their profit comes from 20% of their loyal customers. Many

people/families are extremely loyal to Coca Cola. It would not be rare to constantly find

bottles and cases of a product such as coke in a house. It seems that some people would

drink coke religiously like some people would drink water and milk. This is an

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improbable feat. Customers will continually purchase these products, and will probably

do so for a very long time. If two parents were avid Coca Cola drinkers, this will be

passed down do their children as they grow loyal to the company. With Coca Colas

ability to sell their product all over the world, customers will continue to buy what they

know and what they likeCoca Cola products.

The best global brand in the world in terms of value. According to Interbrand, The

Coca Cola Company is the most valued ($77,839 billion) brand in the world.

Worlds largest market share in beverage. Coca Cola holds the largest beverage

market share in the world (about 40%).

Strong marketing and advertising. Coca Cola advertising expenses accounted for

more than $3 billion in 2012 and increased firms sales and brand recognition.

Most extensive beverage distribution channel. Coca Cola serves more than 200

countries and more than 1.7 billion servings a day.

Customer loyalty. The firm enjoys having one of the most loyal consumer groups.

Bargaining power over suppliers. The Coca Cola Company is the largest beverage

producer in the world and exerts significant power over its suppliers to receive the

lowest price available from them. Corporate Social Responsibility (CSR). Coca

Cola is increasingly focusing on CSR programs, such as recycling/packaging,

energy conservation/climate change, active healthy living, water stewardship and

many others, which boosts companys social image and result in competitive

advantage over competitors.

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Weaknesses

Coca Cola is a very successful company, with limited weaknesses. However they do have

a variety of weaknesses that need to be addressed if they want to rise to the next level.

Word of mouth is probably a strength and weakness of every company. While many

people have good things to say, there are many individuals who are against Coca Cola as

a company, and the products in which they produce. Word of mouth unfortunately is

something that is very hard to control. While people will have their opinions, you have to

try to sway their negative views. If bad comments and views are put out to people who

have yet to try Coca Cola products, then that could produce a lost customer which shows

why word of mouth is a weakness. Another aspect that could be viewed as a weakness is

the lack of popularity of many of Coca Colas drinks. Many drinks that they produce are

extremely popular such as Coke and Sprite but this company has approximately 400

different drink types. Most are unknown and rarely seen for available purchase. These

drinks do not probably taste bad, but are rather a result of low profile or non existent

advertising. This is a weakness that needs to be looked at when analyzing their company.

Another weakness that has been greatly publicized is the health issues that surround some

of their products. It is known that a popular product like coke is not very beneficial to

your body and your health. With todays constant shift to health products, some products

could possibly loose customers. This new focus on weight and health could be a problem

for the product that are labeled detrimental to your health.

Significant focus on carbonated drinks. The business is still focusing on selling

Coke, Fanta, Sprite and other carbonated drinks. This strategy works in short term

as consumption of carbonated drinks will grow in emerging economies but it will

prove weak as the world is fighting obesity and is moving towards consuming

healthier food and drinks.

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Undiversified product portfolio. Unlike most companys competitors, Coca Cola

is still focusing only on selling beverage, which puts the firm at disadvantage. The

overall consumption of soft drinks is stagnating and Coca Cola Company will find

it hard to penetrate to other markets (selling food or snacks) when it will have to

sustain current level of growth.

High debt level due to acquisitions. Nearly $8 billion of debt acquired from

CCEs acquisition significantly increased Coca Cola's debt level, interest rates

and borrowing costs.

Negative publicity. The firm is often criticized for high water consumption in

water scarce regions and using harmful ingredients to produce its drinks.

Brand failures or many brands with insignificant amount of revenues. Coca Cola

currently sells more than 500 brands but only few of the brands result in more

than $1 billion sales. Plus, the firms success of introducing new drinks is weak.

Many of its introduction result in failures, for example, C2 drink.

Opportunities

Coca Cola has a few opportunities in its business. It has many successful brands that it

should continue to exploit and pursue. Coca Cola also has the opportunity to advertise its

less popular products. With a large income it has the available money to put some of

these other beverages on the market. This could be very beneficial to the company if they

could start selling these other products to the same extent that they do with their main

products. Another opportunity that we have seen being put to use before is the ability for

Coca Cola to buy out their competition. This opportunity rarely presents itself in the

world of business. However, with Coca Colas power and success, such a task is not

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impossible. Coca Cola has bought out a countless number of drink brands. An easy way

to turn their profit into your profit is too buy out their company. Even though this may

cost a vast amount of money initially, in the long run, if all goes to plan, it results in a

large profit. Also, the company will no longer need to worry about this product being part

of the competition. Brand recognition is the significant factor affecting Cokes

competitive position. Coca Cola is known well throughout 90% of the world population

today. Now Coca Cola wants to get there brand name known even better and possibly get

closer and closer to 100%. It is an opportunity that most companies will ever dream of,

and would be a supreme accomplishment. Coca Cola has an opportunity to continue to

widen the gap between them and their competitors.

Bottled water consumption growth. Consumption of bottled water is expected to

grow both in US and the rest of the world.

Increasing demand for healthy food and beverages. Due to many programs to

fight obesity, demand for healthy food and beverages has increased drastically.

The Coca Cola Company has an opportunity to further expand its product range

with drinks that have low amount of sugar and calories.

Growing beverages consumption in emerging markets. Consumption of soft

drinks is still significantly growing in emerging markets, especially BRIC

countries, where Coca Cola could increase and maintain its beverages market

share.

Growth through acquisitions. Coca Cola will find it hard to keep current growth

levels and will find it hard to penetrate new markets with its existing product

portfolio. All this can be done more easily through acquiring other companies.

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Threats

Despite the fact that Coca Cola dominates its market, it still has to deal with many threats.

Even though Coca Cola and Pepsi control nearly 40% of the entire beverage market, the

changing health-consciousness attitude of the market could have a serious effect on Coca

Cola. This definitely needs to be viewed as a dominant threat. In todays world, people

are constantly trying to change their eating and drinking habits. This could directly affect

the sale of Coca Colas products. Another possible issue is the legal side of things. There

are always issues with a company of such supreme wealth and popularity. Somebody is

always trying to find fault with the best and take them down. Coca Cola has to be careful

with lawsuits. Health minister could also be looked at as a threat. Again, some people

may try to exploit the unhealthy side of Coca Colas products and could threaten the

status and success of sales. Other threats are of course the competition. Coca Colas main

competition being Pepsi, sells a very similar drink. Coca Cola needs to be careful that

Pepsi does not grow to be a more successful drink. Other product such as juices, coffee,

and milk are threats. These other beverage options could take precedent in some peoples

minds over Coca Colas beverages and this could threaten the potential success it

presents again.

Changes in consumer tastes. Consumers around the world become more health

conscious and reduce their consumption of carbonated drinks, drinks that have

large amounts of sugar, calories and fat. This is the most serious threat as Coca

Cola is mainly serving carbonated drinks.

Water scarcity. Water is becoming scarcer around the world and increases both in

cost and criticism for Coca Cola over the large amounts of water used in

production.

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Strong dollar. More than 60% of The Coca Cola Company income is from outside

US. Due to strong dollar performance against other currencies firms overall

income may fall.

Legal requirements to disclose negative information on product labels. Some

Coca Colas carbonated drinks have adverse health consequences. For this reason,

many governments consider to pass legislation that requires disclosing such

information on product labels. Products containing such information may be

perceived negatively and lose its customers.

Decreasing gross profit and net profit margins. Coca Colas gross profit and net

profit margin was decreasing over the past few years and may continue to

decrease due to higher water and other raw material costs.

Competition from PepsiCo. PepsiCo is fiercely competing with Coca Cola over

market share in BRIC countries, especially India.

Saturated carbonated drinks market. The business significantly relies on the

carbonated drinks sales, which is a threat for the Coca Cola as the market of

carbonated drinks is not growing or even declining in the world.

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3.0 Evaluation of strategic strengths and weaknesses

The Coca-Cola Company has a number of different strengths. First of all, Coca-Cola is

one of the most widely recognized soft drink brands around the world. You can find

Coca-Cola products in many countries worldwide. This is an obvious strength because

consumers are more inclined to purchase products from a company they are more

familiar with. The more people that know about the product being sold, the more likely

sales are going to increase. Another strength that the Coca-Cola Company has is its

continued devotion to producing high quality products that can be purchased

internationally. The same soft drinks you enjoy in America can be found in other

countries such as Canada or India without a loss of quality. Another major strength of the

Coca-Cola Company is their product development. In addition to making products of the

highest quality, Coca-Cola has been known to introduce some dramatically new flavours

to its line of soft drinks. Flavours such as Vanilla or Cherry Coke have gained wide

popularity and are still in high demand for sales. Coca-Colas dedication to

experimenting with and making new and exciting products is what differentiates this soft

drink company from its competitors. Another advantage that Coca-Cola has that

differentiates it from its competitors would their powerful advertising campaigns. Coca-

Cola is well known for having some of the best advertisements. These advertisements

reflect the companys vision of Coca-Cola as a means of connecting people, instead of

just being used as a mere soft drink. Popular Coca-Cola advertisements throughout

history continue to be a hit with consumers today. Coca-Colas mission statement is to

refresh the world, to inspire moments of optimism, to create value and make a difference

everywhere we engage. Coca-Cola stays true to their mission statement with their

strengths, new product development, and advertising.

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Coca-Cola is not without its weaknesses however. Even though product

development is considered a strength for the company because of the diversity of soft

drink flavours offered, it can also be viewed as a weakness. The reason for this is that the

products that Coca-Cola produced are not necessarily healthy. The sodas and drinks

produced by the company are high in sugar and can be harmful if consumed in excess.

With obesity becoming a growing problem in our world today, people may look to other

healthier products as an alternative to drinking Coca-Cola products. Even with healthier

options such as Diet Coke, Coca-Cola can lose sales as consumers move toward a

healthier lifestyle. Another weakness Coca-Cola has is that although it is a leading soft

drink company, it is not without its competitors. The biggest competitor for Coca-Cola

would be PepsiCo. PepsiCos basic Pepsi soft drink is very similar if not identical to the

basic Coke soft drink offered by Coca-Cola. Since there really isnt anything that sets the

two formulas apart, Coca-Cola has to work hard to differentiate their products from

PepsiCo.

There are a lot of other companies that sell soft drinks that can be comparable to

those sold by Coca-Cola. Coca-Colas biggest rival is probably the PepsiCo Company.

These two companies have been competing for the soft drink industry since they began,

and they are still the two biggest companies is soft drink sales. The Pepsi drink sold by

PepsiCo can be considered a substitution for Coca-Cola for consumers. In order to get

people to buy their products, Coca-Cola needs to differentiate them from Pepsi. As

mentioned before, one way they do this is by creating new Coca-Cola flavors, which in

turn offers products to consumers that they cant get from PepsiCo. This is a great way to

differentiate from PepsiCo and makes customers more inclined to buy Coca-Cola

products. Another way that Coca-Cola stays ahead of the competition is by forming

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partnerships with various sporting events such as the Olympics, Special Olympics, tennis,

football, etc. Coca-Cola and sport are closely linked. Coca-Cola is a product that is found

in places where people gather to have fun and socialize, which definitely fits the

description of any sporting event. By connecting sports and Coca-Cola, the company can

gain recognition and support, something its competitors may not have access to. If Coca-

Cola continues to maintain its high level of quality around the world and introduces new

innovations in soft drink flavour, technology, and advertising, they will continue to be the

highest selling brand of soft drink on the market.

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4.0 Reference

1. http://books.google.com.my/

2. en.wikipedia.org

3. text book\

4. http://valuationacademy.com/

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5.0 Coursework

1. SIX categories of risks.

The effects of climate change on industries and companies throughout the world can be

grouped into six categories of risks: regulatory, supply chain, product and technology,

litigation, reputational, and physical.

1. Regulatory Risk: Companies in much of the world are already subject to the Kyoto

Protocol, which requires the developed countries (and thus the companies operating

within them) to reduce carbon dioxide and other greenhouse gases by an average of 6%

from 1990 levels by 2012. The European Union has an emissions trading program that

allows companies that emit greenhouse gases beyond a certain point to buy additional

allowances from other companies whose emissions are lower than that allowed.

Companies can also earn credits toward their emissions by investing in emissions

abatement projects outside their own firms. Although the United States withdrew from

the Kyoto Protocol, various regional, state, and local government policies affect

company activities in the U.S. For example, seven Northeastern states, six Western

states, and four Canadian provinces have adopted proposals to cap carbon emissions

and establish carbon-trading programs.

2. Supply Chain Risk: Suppliers will be increasingly vulnerable to government

regulationsleading to higher component and energy costs as they pass along

increasing carbon-related costs to their customers. Global supply chains will be at risk

from an increasing intensity of major storms and flooding. Higher sea levels resulting

from the melting of polar ice will create problems for seaports. China, where much of

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the world's manufacturing is currently being outsourced, is becoming concerned with

environmental degradation. In 2006,12

in agricultural output by 2030; more droughts, floods, typhoons, and sandstorms; and a

40% increase in population threatened by plague.

The increasing scarcity of fossil-based fuel is already boosting transportation costs

significantly. For example, Tesla Motors, the maker of an electric-powered sports car,

transferred assembly of battery packs from Thailand to California because Thailand's

low wages were more than offset by the costs of shipping thousand-pound battery packs

across the Pacific Ocean. Although the world production of oil had leveled off at 85

million barrels a day by 2008, the International Energy Agency predicted global demand

to increase to 116 million barrels by 2030. Given that output from existing fields was

falling 8% annually, oil companies must develop up to seven million barrels a day in

additional capacity to meet projected demand. Nevertheless, James Mulva. CEO of

ConocoPhilips, estimated in late 2007 that the output of oil will realistically stall at

around 100 million barrels a day.

3. Product and Technology Risk: Environmental sustainability can be a prerequisite to

profitable growth. For example, worldwide investments in sustainable energy (including

wind, solar, and water power) more than doubled to $70.9 billion from 2004 to 2006.

Sixty percent of U.S. respondents to an Environies study stated that knowing a company

is mindful of its impact on the environment and society makes them more likely to buy

their products and services.35 Carbon-friendly products using new technologies are

becoming increasingly popular with consumers. Those automobile companies, for

example, that were quick to introduce hybrid or alternative energy cars gained i

competitive advantage.

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4.Litigation Risk: Companies that generate significant carbon emissions face the threat

of lawsuits similar to those in the tobacco, pharmaceutical, and building supplies (eg-,

asbestos) industries. For example, oil and gas companies were sued for greenhouse gas

emissions in the federal district court of Mississippi, based on the assertion that these

companies contributed to the severity of Hurricane Katrina. As of October 2006, at lea*

16 cases were pending in federal or state courts in the U.S. This boomlet in global

warning litigation represents frustration with the White House's and Congress' failure to

come to grips with the issue," explained John Echeverria, executive director of

Georgetown University's Environmental Law & Policy Institute.

5. Reputational Risk: A company's impact on the environment can heavily affect its

overall reputation. The Carbon Trust, a consulting group, found that in some sectors the

value of a company's brand could be at risk because of negative perceptions related to

climate change. In contrast, a company with a good record of environmental

sustainability may create a competitive advantage in terms of attracting and keeping

loyal consumers, employees, and investors. For example, Wal-Mart's pursuit of

environmental sustainability as a core business strategy has helped soften its negative

reputation as a low-wage, low-benefit employer. By setting objectives for its retail

stores of reducing greenhouse gases by 20%, reducing solid waste by 25%, increasing

truck fleet efficiency by 25%, and using 100% renewable energy, it is also forcing its

suppliers to become more environmentally sustainable.37 Tools have recently been

developed to measure sustainability on a variety of factors. For example, the SAM

(Sustainable Asset Management) Group of Zurich, Switzerland, has been assessing and

documenting the sustainability performance of over 1,000 corporations annually since

1999. SAM lists the top 15% of firms in its Sustainability Yearbook and classifies them

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into gold, silver, and bronze categories. Business Week published its first list of die

world's 100 most sustainable corporations January 29,2007. The Dow Jones Sustainability

Indexes and the KLD Broad Market Social Index, which

evaluate companies on a range of environmental, social, and governance criteria, are

used for investment decisions. Financial services firms, such as Goldman Sachs, Bank

of America, JPMorgan Chase, and Citigroup have adopted guidelines for lending and

asset management aimed at promoting clean-energy alternatives.

6. Physical Risk: The direct risk posed by climate change includes the physical effects

of droughts, floods, storms, and rising sea levels. Average Arctic temperatures have

risen four to five degrees Fahrenheit (two to three degrees Celsius) in the past 50 years,

leading to melting glaciers and sea levels rising one inch per decade.41 Industries most

likely to be affected are insurance, agriculture, fishing, forestry, real estate, and

tourism. Physical risk can also affect other industries, such as oil and gas, through

higher insurance premiums paid on facilities in vulnerable areas. Coca-Cola, for

example, studies the linkages between climate change and water availability in terms of

how this will affect the location of its new bottling plants. The warming of the Tibetan

plateau has led to a thawing of the permafrostthereby threatening the newly-

completed railway line between China and Tibet (See the Environmental Sustainability

Issue feature for a more complete list of projected effects of climate change.)

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2. FOUR responsibilities of business.

Archie Carroll proposes that the managers of business organizations have four

responsibilities: economic, legal, ethical, and discretionary.

1. Economic responsibilities of a business organization's management are to produce

goods and services of value to society so that the firm may repay its creditors and

shareholders.

2. Legal responsibilities are defined by governments in laws that management is

expected to obey. For example, U.S. business firms are required to hire and promote

people based on their credentials rather than to discriminate on non-job-related

characteristics such as race, gender, or religion.

3. Ethical responsibilities of an organization's management are to follow the generally

held beliefs about behavior in a society. For example, society generally expects firms to

work with the employees and the community in planning for layoffs, even though no law

may require this. The affected people can get very upset if an organization's management

fails to act according to generally prevailing ethical values.

4. Discretionary responsibilities are the purely voluntary obligations a corporation

assumes. Examples are philanthropic contributions, training the hard-core unemployed,

and fir owning day-care centers. The difference between ethical and discretionary

responsibilities is that few people expect an organization to fulfill discretionary

responsibilities, whereas many expect an organization to fulfill ethical ones.

Carroll lists these four responsibilities in order of priority. A business firm must first

make a profit to satisfy its economic responsibilities. To continue in existence, the firm

must follow the laws, thus fulfilling its legal responsibilities. There is evidence that

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companies found guilty of violating laws have lower profits and sales growth after

conviction. To this point Carroll and Friedman are in agreement. Carroll, however, goes

further by arguing that business managers have responsibilities beyond economic and

legal ones, Having satisfied the two basic responsibilities, according to Carroll, a firm

should look to fulfilling its social responsibilities.

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