Coca Cola Case Study

Case Discussion Questions

Question 1

Why do you think that Roberto Goizueta switched from a strategy that emphasized localization towards one
that emphasized global standardization? What were the benefits of such strategy?

Answer 1 (A)

Roberto Goizueta switched from localization strategy to global standardization strategy because during his
initial control over Coca Cola Company in 1980’s, the Coca Cola brand has already been marketed to more
than 76 countries in the world and the subsidiaries were managed individually by the local management to suit
with local taste and preference. This practice has given bad impact on the company profit as there were a lot
duplication of functions, smaller scale of production runs and too much of customization which limits the ability
of the firm to capture the cost reduction.

The benefit of Global Standardization is the company will enjoy increase profitability and profit growth by
reaping the cost reduction through economies of scale(produce in large quantity), learning effect(the
production efficiency is improving from time to time as the worker become expert after repetitive sequence)
and location economies(product’s value creation is done at the optimal location/environments). So by having
the Global Standard, the product is produced at the most economic price and will create better perceived
value for money spent by the customer.

Answer 1 (B)

Roberto Goizueta, a Cuba immigrant who became the CEO of Coke in 1981, switched from a strategy that
emphasized localization ( which focuses on increasing profitability by customizing the firm’s goods so that they
provide a good match to tastes and preferences in different national markets)to one that emphasized global
standardization ( which focuses on increasing profitability by reaping the cost reductions that come from
economies of scale, learning effects and location economies); he believed that the main difference between
the United States and international markets was the lower level of penetration in the latter, where consumption
per capita was only 10 to 15 percent of US consumption. Thus, he made Coke become a global company,
centralizing a great deal of management and marketing activities at the corporate headquarters in Atlanta, he
focused on core brands and took equity stakes. By doing this, he thought that he could have more strategic
control over the headquarters. By extending the business, the company has the opportunity to gain big profits
and to be a market leader, in this case of Coca-Cola. This strategy was built about standardization and
realization of economies of scale, by using the same advertising messages to all over the world.

Question 2

What were the limitations of Goizueta’s Strategy that persuaded his successor, Daft, to shift away from it ?
What was Daft trying to achieve? Daft’s strategy also did not produce the desired results. Why do you think
this was the case?

Answer 2 (A)

Goizueta’s Strategy has a limitation on the product that was suit for local customization as his approach was
more on producing the standard product for Global market. By having this strategy, his focused was on
increasing profitability and profit growth by reaping the cost reduction that comes from economic of scale,
learning effects and location economies. Douglas Daft has taken different approach by taking localization
approach strategy. In this approach Daft has given back the autonomy power to the Country Manager to
decide for any changes that was suit to customer’s expectation. The strategy taken by Daft was not really
successful because even though he managed to meet the customers requirement by customizing the product
but actually in total the company gained lesser profitability and profit growth due to higher cost per unit of
products produced.
Answer 2 (B)

He adopted this strategy by laying off 6000 employees, especially in Atlanta, and granting autonomy to the
local managers; he also announced that the company will stop making global advertisements and he placed
this control in the hands of country local managers. The best example of this case is Japan, the second most
profitable market for the company, where the product was adapted to local tastes and preferences which
meant that there the decentralization would be better if it would be more accentuated and in my opinion, the
culture and the customs of that country influenced this situation. In my opinion, the wrong step which
contributed to the failure to produce the desired effects of this strategy was the fact that Daft stopped making
global advertising which is an important step in a firms attributes.

Question 3

How would you characterize the strategy Coke is now pursuing? What is the enterprise trying to do? How is
this different from the Goizueta and Daft? What are the benefits? What are the potential costs and risk?

Answer 3

I believe that Coke is now trying to pursue transnational Strategy as it has been practiced by many
multinational companies like Procter and Gamble, Xerox and etc. Goizueta’s approach was on Global Strategy
and Daft’s approach was more on localization strategy. The transnational Strategy actually is a combination of
both Global and Localization Strategy. The firm seeks to combine the benefits of global-scale efficiencies with
the benefits of local responsiveness. Interchange still occurs between the home base and foreign subsidiary
and between foreign subsidiaries - a process known as global learning.

Benefit of Transnational Strategy

a) Core competencies exchangeable

b) Experience and location economies
c) Locally responsive

Potential Cost

a) Slightly higher price compared to localization strategy due to minimum adjustment to suit foreign
country requirements.

Potential Risk

a) Will be lacking of local responsiveness.

b) Will be lacking of location economies.
 c) Can’t exploit learning effect.

Question 4

What does the evolution of Coke’s strategy tell you about convergence of consumer tastes and preference in
today’s global economy?

Answer 4

Every location has different taste and preference according to the country, culture, environment, exposure and
etc. Due to that, the producer of the product has to do minor adjustment on its product to suit with current
situation in order to gain higher products sales and to penetrate bigger market. Based on Neville Isdell
strategy, the company took moderate action between Goizueta’s and Daft’s strategy where the product was
produced based on the local tastes and preference and later leveraging good ideas across nations. The
approach was not the one-size-fits-all ethos like Goizueta’s era but the consumer taste and preference is
considered when setting the strategy and basically the response from the market is very encouraging.