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Happy learning! Prof. Santanu Ray
Coca Cola in China
Coca-Cola, the leading soft drinks manufacturer and marketer entered the Asian markets in the early 20th century. In 1929, it started marketing its products in China, but had to leave the country following the Communist takeover in 1949. It re-entered China in 1979, following the re-establishment of diplomatic relation between China and US. Because of the restrictive policies of the Chinese government towards Foreign Direct Investment, the multinational soft drinks companies including Coca-Cola had to initially encounter difficulties to establish itself. However, Coca-Cola established itself through its strategy of localization of manufacturing and distribution activities and China grew to become the fifth largest market for the company.
Soft Drinks Industry in China
Soft drinks industry forms an important part of China s food and wine industry. For the soft drinks manufacturers, China proved initially to be a tough market for growth. This was because the Chinese preferred
lycium chinensis leaf tea. But the consumption of soft drinks by a Chinese was only 10 cups per year compared to that of an American. . Tartary buckwheat tea. Modern production machinery and good packaging facilities facilitated in the growth of the carbonated soft drinks industry. green bean beverage and ginger tea were the different kinds of tea beverages available in China. over the years. Hence. ready-to-drink tea and fruit juices were some of the non. persimmon leaf tea. Ready-to-drink soft drinks. Coca-Cola and PepsiCo were some of the main producers of the carbonated soft drinks in China. mineral water. The soft drinks industry received a setback when the Communists came to power in China and formed People s Republic of China (PRC) in 1949. bluish dogbane tea. mint tea. gingko tea. ginseng tea. In China. However. which was 40 times more than that of the Chinese. However.carbonated drinks popular in China. Tea was one of the most popular beverages for the Chinese.to drink their own country-made tea. These tea beverages contained elements that were considered to be beneficial to one s health. concentrated fruit juice. Foreign investments in this industry had also contributed to its development. availability of mineral water in areas where the water was polluted. the Chinese preferred tea and considered soft drinks to be harmful to their health. Consumers had turned to noncarbonated soft drinks because of its provision of healthy ingredients like vitamin-enhanced milk. the non-carbonated soft drinks industry had witnessed a faster development than the carbonated soft drinks industry. people in China started consuming soft drinks. carbonated and non-carbonated were the two popular types of soft drinks.
Production of beverages by any multinational company was not allowed for nearly thirty years after the PRC was formed. It suffered due to huge shortage. China s de facto leader. The Chinese government had given considerable importance to technological development. Foreign investment and production by the multinational companies was not allowed until 1978 when Deng Xiaoping. announced the open-door policy. multinational companies like Coca-Cola Enterprise.After the Communist takeover. had invested heavily in the soft drinks industry in China. so as to narrow down the gap in technology between the Chinese and overseas manufacturers. the multinational companies in China were asked to leave the country and all the plants that were owned by these companies were nationalized by the government. Since then. Apart from the investments by the multinational companies and increase in the demand for the soft drinks. With the entry of multinational companies in to the Chinese markets. Etc. The open-door policy allowed the multinational companies to invest in China. During these thirty years the beverage industry in China witnessed little development. Majority of the Chinese producers had adopted the foreign . Pepsi-Cola International enterprise and Cadbury Schweppes Plc. soft drinks industry had witnessed development in both the categories of soft drinks. as the domestic production did not meet the increasing demand. improvement in technology and infrastructure facilities had also contributed to the development of the soft drinks industry. This policy was adopted as a part of Chinese economic reforms to promote foreign trade and economic investment in China. Juzi Qishui was the only carbonated beverage that was available in China.
To increase the domestic production. litchi juice. China had achieved major breakthroughs. Economic boom in China in the 1990s further led to the growth of the drinks industry. In technology development. the production value increased to 78560 million yuan. For technological up gradation and developing new products.technological skills and equipment in their production facilities and some producers imported the production lines from countries like US. In 1996. The research helped the institutes to develop the technologies like ferment technology. was an example of such a research institute that conducted research on healthy foods and beverages. the institute was able to come out with healthy products. With the help of research conducted.3% annually during the 1990s. Lechen Cola. many key soft drink companies and research institutes had invested heavily in research and development. Ltd. In 1991. organism technology. The production of soft drinks had increased at the rate of 17. Ltd. Also came out with a varied range of soft drinks products like lemon juice. It established a number of manufacturing bases throughout the country so as to provide support to the domestic producers. like Waken Lion Herbage Beverage that helped to lower blood pressure and increase energy. Some of the soft drinks companies such as the Guangdong Jianlibao Group Co. These measures helped the soft drinks industry in China to develop. Qinqhai Longzang Biology Technology Co. UK and Japan. the production value of the total soft drinks industry was 26500 million yuan of which the carbonated soft drink was 8220 million yuan and the non-carbonated soft drinks was 18280 million yuan. Over the years the percentage of . Tianlang pure water. China had set up more plants and production facilities. technology to separate membrane.
The quality rate went up to 71.8% and non-carbonated soft drinks accounted for 48.5% in 1991.2 million yuan in 1996. the average quality rate of the soft drinks was 35. the output of the carbonated soft drinks was more compared to the no-carbonated soft drinks.carbonated soft drinks production value had decreased and that of the non-carbonate soft drinks increased.2% of the total soft drinks output in 1996. However. the output and production value of the carbonated soft drinks decreased and that of the non-carbonated soft drinks increased. Because of the intense competition in the soft drinks industry. The decrease in both the production value and output of carbonated soft drinks was to the shift in the consumers preference for the non-carbonated soft drinks. According to a census conducted in 1991. In 2001. The total soft drinks output was 14910 metric tons of which carbonated soft drink output was 4620 metric tons and non carbonated soft drink was 14910 metric tons. Due to the presence of harmful elements in the carbonated soft drinks consumers preference gradually shifted to the non-carbonated soft drinks. Since then there has been a steady improvement in the soft drinks in terms of quality.8 million yuan and the non-carbonated soft drinks production value increased to 59167. the non-carbonated soft drinks sector recorded an average growth rate of nearly 20-25%. The carbonated soft drinks output accounted for 51.2% in 2001. The production value of the total soft drinks was 131380 million yuan of which the carbonated soft drinks contributed 43285 million yuan and non-carbonated soft drinks 88095 million yuan. The carbonated soft drinks decreased to 19392. . the soft drinks manufacturers had focused more on quality improvement. Between 1990 and 2000.
Coca-Cola made its entry in to China. compared to the previous year. The increase in the sales of tea. Coca-Cola began bottling operations in 1928 by opening two bottling . This would open the market for the new entrants in the soft drinks industry. at a growth rate of 10. China would be a tough market in the presence of established soft drinks players like PepsiCo and Coca-Cola. fruit juices and health-enhancing drinks had contributed to the growth of the soft drinks industry. However. Coca-Cola in China In the early 1920s. the carbonated soft drinks demand would reach 78300 million yuan. Compared to 2003. After some research. it could be affected by the shortage in domestic production in the future. To localize its production. Mandarin. it was translated as K o K ou K o Le^.8% annually and the non-carbonated soft drinks would increase to 155900 million yuan in 2006. Even through soft drinks industry had developed rapidly during the past decade. the nearest Mandarin equivalent word to the term Coca-Cola. with bottles imported from its plant in the Philippines. for these new entrants. The industry predicted that by 2006. China in order to meet the shortage in production has to depend on imports.In 2004. Coca-Cola had to transliterate the CocaCola trademark in to China s official language. soft drinks industry growth rate had increased rapidly. According to the analysts. at a growth rate of 12.5% per year. In order to reach 500 million Chinese population. soft drinks industry yielded a 16% increase in the growth rate in terms of volume.
Oils. In 1980. Coca-Cola used to build the plants and hand it over to the government. Although Coca-Cola re-entered China by importing products from other places. and Foodstuffs Import and export Corporation (COFCO) to build a plant in Beijing and hand it over to the government. As a result of the Communist takeover in 1949. Initially. Coca-Cola built the second bottling plant in Guangzhou and handed it over to the Chinese government.plants in Shanghai and Tianjin. Coca-Cola entered in to an agreement with the state-owned China National Cereals. such as hotels and friendship stores. Coca-Cola started bottling and distribution activities by entering in to joint ventures with the local Chinese companies. In 1984. Coca-Cola was available only to the nonlocals who purchased it from the select retail outlets. Coca-Cola re-entered China and became the first US company to sell its products in China after the government allowed the multinational companies to invest in China. due to the government restrictions on Coca-Cola prohibiting it from selling its products to the Chinese. immediately after the announcement of the open-door policy in 1978. However. In 1982. Coca-Cola started negotiations with the Chinese government and expressed its commitment to economic development and foreign investment in the consumer goods industry of China. it focused on localizing its production and distribution operations. In 1979. Coca-cola opened . It opened the third plant in Qingdao in 1930. Accordingly in 1981. In order to expand its operations in China. Coca-Cola built and handed over the plant to the government and availed itself the permission to expand sales and distribution in China. Coca-Cola had to increase its operations and all its plants were nationalized by the government.
where the foreign investors were given some tax privileges and other incentives. In the same year. Fanta and Sprite brands were launched that were produced by this plant. The independent wholesalers and privately-owned distribution firms had also contributed to the expansion of Coca- . Localisation of the distribution system in China was another strategy adopted by Coca-Cola. The Shanghai plant was fully owned by the Coca-Cola Company and handled the requirements of the bottlers through this plant. Its commercials featured the Chinese zodiac animals like dragons and spring festival couplets. The products of Coca-Cola in China were distributed through the wholesale distributors like the state-owned sugar. Apart from the localisation strategy. The company allotted huge funds for advertising expenses as a part of its growth strategy. Coca-Cola commercial was aired on the television. China's Ministry of Light Industry and Coca-Cola Company entered into an agreement to jointly set up bottling plants in the cities of Tianjin. the ministry of Light industry asked Coca-Cola to open a soft drinks concentrate plant in Shanghai and thus contribute to the Chinese economy. Xiamen was chosen as the city comes under China s special economic zones. Coca-Cola had given considerable importance to the marketing of its products. In order to develop its domestic soft-drinks industry. which was the first foreign commercial to be aired in the state-run network. tobacco and wine companies. Shanghai and Qingdao. It gave the local managers the freedom to advertise. Coca-Cola continued to grow the late 1980s. In 1984. In 1985. In 1984.the third bottling plant in Xiamen. Coca-Cola achieved a major breakthrough when the Chinese government agreed to the sale of Coca-Cola products to the Chinese consumers.
Apart from the wholesale distributors. the retail distribution network in China had not grown rapidly. In 1993. After ten years of re-entering China. the retail distributors also sold Coca-Cola's products. that included mango and lychee flavours. However. In 1996. Coca-Cola simultaneously entered into an agreement with another Hong Kongbased company Kerry Beverages Group to produce and market the products in northern and interior regions of China. it entered the non-carbonated beverages market in view of the increase in the demand for the non-carbonated beverages by launching the product Tian Yu Di (Heaven and Earth). Its first bottling plant. CocaCola also introduced another product of carbonated soft drinks Xingmu (SMART) with flavours of green apple. Xian Coca-Cola bottling plant was opened in 1995. the Ministry of Light Industry granted permission to Coca-Cola to set up ten additional new plants. By 1990 Coca-Cola had 13 plants in China. a non-carbonated juice . Over the years. Coca-Cola acquired 12. It went on to outsell Tian Yu Di and became one of the top five most saleable brands in the carbonated soft drinks market. oolong and jasmine teas. The agreement also required Coca-Cola to produce the local soft drinks along with the Coca-Cola products. and bottled mineral water. and coconut in 1997.Cola's distribution networks. watermelon. In 1995 Swire made huge investment in the bottling plants. In 1993. Coca-Cola started to make profits from 1990. Coca-Cola introduced another brand in the noncarbonated soft drinks segment called Qoo.5% share of Swire and entered into an agreement with it to produce and sell the products in southern China and in interior regions Of China. Coca-Cola formed an alliance with the Hong Kong-based company Swire Pacific and Kerry Beverages Group (Swire). so as to develop the local Chinese brands.
To implement the growth strategy successfully in China. Coca-Cola grew rapidly in China. Coca-Cola recorded an increase of 22% in the sales volume of the soft drinks. . From 1979 to 2003. which was first introduced in Hong Kong. During the 1990s. To mark the occasion. CocaCola had to face considerable competition in the Chinese market. It soon became popular and was ranked as the Asia's leading juice drink. Extensive advertisements and promotions of the products and introduction of the 200-ml coke had helped Coca-Cola to record double-digit gains in 2004.1 billion in China. the sales of American companies including Coca-Cola declined following the anti-American sentiment. It became the official sponsor of the national soccer team that qualified for the FIFA World Cup finals. which was to be held in 2002. Coca-Cola entered the tea market in China by introducing Lanfeng green tea. However. Coca-Cola continues with its marketing and promotion activities in 2001. it aired a special TV commercial. Coca-Cola had invested $1. but in 1999 after the US bombing of the Chinese embassy in Belgrade. In 2004. Coca-Cola released a new Chinese script logo in 2003 that signified the start of the "year of coke" in China. of which carbonated soft drinks accounted for 15%. In 2001.drink. the decrease in the sales was not as high as expected by the company and it continued to implement its growth strategy for the Chinese market. The launch of the products Nestea Ice Rush and Minute maid Orange juice in 2004 had helped Coca-Cola's non-carbonated segment to increase its unit case volume by 51%. Coca-Cola had also provided financial and technological assistance to the domestic companies to improve the quality standards of the bottles. However. Coca-Cola also launched a commemorative can and videodisc called The road to the world cup.
According to the industry observers. Pepsi also invested huge amounts of money on advertising and promotions. Through its marketing techniques Wahaha had been able to increase its market share in the beverages market. They together occupied a major share in the soft drinks market in China. according to the analysts. CocaCola also faced competition from the domestic players. Coca-Cola remained the leading soft drinks producer in China and in 2004 China became the fifth largest market for the company. but in few regions Pepsi had given tough competition to Coca-Cola over the last few years. Apart from Pepsi. Coca-Cola s strategy had been to provide the consumers with a good taste and low price cola. As a part of its marketing strategy. Pepsi also produced the soft drinks catering to the consumers' taste. In terms of market share. Coca-Cola and Pepsi were the two main beverage companies in China. However. The Future . Coca-Cola was the number one soft drinks company in China. However. Coca-Cola's failure to target the teenagers had led to make Pepsi popular among the youth in China. to tackle this problem Coca-Cola immediately changed its marketing team in 2004 and strengthened its marketing efforts. especially from PepsiCo (Pepsi). Like Coca-Cola. It played the patriotic card and appealed to the consumers to purchase its products so as to promote the national brand. Pepsi targeted the youth in China and had been successful in increasing the sales. especially the Zhejiang based Hangzhou Wahaha Group (Wahaha).Coca-Cola had faced competition from the domestic players as well as from the other multinational companies.
Paul Etchells predicted that China would become the third largest market by 2008. Paul Etchells said that he wanted to increase the geographic coverage of the company s bottling plants by establishing six more bottle companies in China by 2008 besides establishing more than 34 manufacturing facilities. had announced in 2004 that Coca-Cola would invest heavily in China to expand its business in the following years so as to offset the decreasing sales in the US and Europe. juice. and ready-to-drink tea. which are expected to remain stagnant in the future. and not from the carbonated drinks. It is estimated that by 2008. The decline in the market share of the carbonated soft drinks is a cause for concem for Coca-Cola as 80% of its total sales comes from the carbonated soft . such as mineral water. 600 sales centres and having over 1. The growth of the soft drinks market will come from the non-carbonated drinks. 90% of the market growth of the soft drinks would come from the non-carbonated soft drink. Coca-Cola bye making use of its vast experience intends to expand further and provide the local customers with a wide range of new quality products. According to a study conducted by Morgan Stanley. The company expects a growth of 20% in 2005. compared to 16% growth in 2004. growing at a rate of 10% annually. the president and CEO of Coca-Cola China. surpassing that of Brazil and Japan. Coca-Cola expects that the total soft drinks output would reach 2.Paul Etchells. Experts are also optimistic that China would be a major growth driver for Coca-Cola in the future.1 million customers in the near future in China.26 million tons in 2005. Driven by the expected increase in the sales in view of the Summer Olympics to be held in 2008. In an interview. China will contribute 25% of the global soft drinks growth and 16% of the CocaCola's growth by 2010.
It intends to introduce all its brands. The untapped rural market would be the primary area for Coca-Cola to improve its growth rate. which has large sales network across the country. Coca-Cola may not be able to beat its competitors in the rural markets. . in the non-carbonated segment would also face competition from the local producers. Coca-Cola. it would not be easy for Coca-Cola to tap the potential in the rural markets. According to an independent analyst. Cola-Cola is working on to capture the rural market in China through its more than 600 sales stores.drinks. because of the wide sales network that its competitors have which Coca-Cola lacks. as it has to face competition from the leading beverage companies such as the Wahaha Group and Master Kong. including Coca-Cola. But according to the analysts. Nestea and Minute Maid to the rural markets.
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