The strategy of Coca-Cola in China

Résumé du document

Chinese "Economic Reform and Opening up" policy was started in 1978; in the same year, the Coca-Cola Company returned to the Mainland market, becoming the first foreign enterprise who entered Mainland China after 1949. Therefore, its 30-year exploration can be regarded as an epitome and reflection of foreign direct investment in China. In the following chapters, I would like to focus on three aspects: Coca-Cola's return journey; its strategies in Chinese market and the competition against local players. As we already had the example of KFC in China I found it interesting to focus on the example of another international company in China, especially because Coca-Cola is the first one to enter Mainland's market.

In 1927, the Coca-Cola Company made its Chinese presence with two bottling plants established in Shanghai and Tianjin. Three years later the third plant was added in Qingdao. The Shanghai plant ranked as the largest Coca-Cola bottling plant outside the United States in 1933 and became the first plant outside the United States to sell one million cases annually in 1948.

With the foundation of People's Republic of China (PRC), all foreign companies were asked to leave. The Coca-Cola's plants in the Mainland were nationalized and the equipments were used for the production of local soft drink.

Extraits

[...] In the same year, in Shanghai, Coca-Cola established its first concentrate plant in the Mainland. Originally, it proposed holding 100% ownership of the plant to maintain the control over its formula; but it was not allowed at that time. Then a compromise plan was put forward: Coca-Cola set up two plants: one was the concentrate plant (owned by Coca-Cola); the other was the bottling plant (owned by Chinese partner). These two plants were formed as a 50-50 joint venture. Doing so, the concentrate could be produced locally, but the products were regarded as imports. [...]

[...] Its predecessor, the Trust Company, was the underwriter for the Coca-Cola Company's initial public offering in 1919. A popular myth states that only two executives have access to the formula, with each executive having only half the formula. The truth is that while Coca-Cola does have a rule restricting access to only two executives, each knows the entire formula and others, in addition to the prescribed duo, have known the formulation process. A specific production model In general, The Coca-Cola Company (TCCC) and/or subsidiaries only produces (or produce) syrup concentrate which is then sold to various bottlers throughout the world who hold a Coca-Cola franchise. [...]

[...] Since 2006 Coca Cola Company aims at reducing its reliance on carbonated drinks. So they launched an aggressive expansion into the nation's fruit and vegetable drinks business, valued at $ 10.6 billion in 2007, while carbonated drinks only reached $ 7.4 billion. (Source Euromonitor). The fruit and vegetable drinks market is set to grow 16 percent to $ 12.3 billion this year, much quicker than the 7 percent rise expected for carbonated drinks. (Source Euromonitor) The first step of this strategy is the launch of an already existing brand in their range: Minute Maid, which is specialized in fruit juices. [...]

[...] In 1981, the first bottling plant was completed in Beijing. Originally, Shanghai was Coca-Cola's first choice; however the plan was strongly criticized by the public in Shanghai, regarding the investment as “treasonable act”. Fortunately, the plan was supported by the Secretary of the CPC Beijing Municipal Committee. Coca-Cola and COFCO agreed on these terms of cooperation: the Chinese part should buy 300,000 US dollar-worth of concentrate annually; in return Coca-Cola should provide a bottling line which could produce 300 bottles per minute for free. [...]

[...] This approach, combined with a relatively long advertising history in the country (in 1984, Coca-Cola was the first foreign company to advertise on CCTV, China's central-government television station) has made Coca-Cola the most recognized soft-drink brand in China for six consecutive years, according to a recent CCTV survey. Sponsoring of local sports events (like Olympic Games, not very local but so important in China: a huge visibility for Coca Cola during the games) and education charity event are a very efficient strategy global and local. Launching of products very adapted to the Chinese market is a major strategy for Coca-Cola; they decided to produce beverages only for Mainland China. [...]