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Multinational Firms in Asia

16 Dec 2016Film Essays

Coca-Cola in China: Challenges and Strategies of Multinational Firms in Asia

Beverage giant Coca-Cola Company’s entry into the Chinese market began in 1927 but it was not until 1979 that the company built its first bottling plant on Chinese shores following Deng Xiaoping’s decision to open China to foreign investors (Weisert, 2001). Today, Coca Cola’s China operations account for up to $1.2B in its earnings and is currently one of Coca Cola’s fastest growing markets (Jagger, 2007), providing the company with a significant source of revenue to counter declining sales in its mature markets such as the United States.

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Coca Cola’s dominance in the Chinese beverage market is underscored by the fact that Coca-Cola products “account for 35 percent of China's carbonated beverage market” (Weisert, 2001). However, the Coca-Cola Company’s China venture has also posed numerous challenges for the world’s biggest soft drinks manufacturer. Undoubtedly, among the most difficult areas for the company were the presence of cultural and language barriers that affect Coca Cola’s business management and branding and marketing initiatives. At the same time, Coca-Cola also had to manage the obstacles presented by Chinese government regulations to the company efforts at market expansion.

Barriers Facing Coca-Cola in China

Clearly, one of the most difficult problems encountered by the Coca Company in its expansion into the Chinese market was the wide cultural gulf between the company’s Western cultural orientation and the Chinese’ market’s very different cultural norms and expectations. On the one hand, Coca-Cola represented values that were highly Western in nature as exemplified by the popular culture built around its carbonated products. On the other hand, Chinese consumers prefer tea-based beverages which are believed to promote health. In fact, Coca-Cola continues to face competitive threats from companies distributing and marketing tea-based beverages.

Recently, the company has been overtaken in terms of sales by a tea-based herbal drink known as Liang Cha, which has gained the reputation among Chinese consumers for its health-giving properties (Clarke, 2008, p. 18). This marks a severe challenge for the company as it indicates that tea and herbal-based beverages remain a dominant part of China’s culture and taste preference. Likewise, the company has had to adjust its management style and organizational values to adapt to the values of its Chinese managers and partners.

Compounding the cultural challenges faced by Coca-Cola in China was the presence of language barriers. Undoubtedly, language was an important factor for Coca Cola’s success since communication gaps could easily undermine the company’s efforts at brand and image building among Chinese consumers. For instance, a direct translation of the English Coca-Cola in the Chinese language would have meant “bite the wax tadpole” (Mooney 2008). Organizationally, language was also critical in the communication of the Coca Cola’s goals and objectives to its Chinese managers and employees.

Meanwhile, tough government controls related to the sale of carbonated beverages and soft drink products as well as regulations on business size and industry concentration also pose hindrances to the Coca Cola’s expansion activities. A recent move to acquire Chinese juice company Huiyan, for instance, has sparked threats of an anti-trust suit against Coca-Cola (BBC News, 2008). This is because Huiyan is the biggest local manufacturer of juice and nectar-based beverage products, and its products have a high concentration in the Chinese market (McKay, et. al., 2008, p. B1). In addition, China has yet to reform bureaucratic processes which slow down business operations. Weisert (2001) notes, for instance, that “a new bottling plant currently requires a three-year wait for government approval, and concentrate production volume must be reauthorized annually.”

Coca Cola’s Strategies in Doing Business in China

On the other hand, Coca Cola’s continued success in China reflects the company’s ingenious use of strategies to overcome the challenges posed by cultural barriers, language differences, and strong government controls. To address cultural difficulties, Coca-Cola implemented its localization program dubbed “Think Local, Act Local,” which gave Coca Cola’s local managers initiative in the development of local brands and control over the company’s advertising and marketing activities in the Chinese market (Weisert, 2001). Undoubtedly, this strategy enabled the company to operate its business in the as culturally-sensitive manner as possible.

Likewise, the company is also trying to expand its Chinese products to include tea, juice, and coffee-based beverages in response to consumer preference for these products. For instance, it has added Qoo, a vitamin C beverage aimed at children, to its product portfolio which has been one of Coca Cola’s bestselling products (Jagger, 2007) Likewise, one of the Coca Cola’s important accomplishments in its Chinese operations is the victorious adaptation of the company’s trademark brand Coca-Cola into the Chinese language by appropriating the phonetic sounds of the English Coca-Cola in Mandarin (Mooney, 2008). Hence, the company was able to deliver its simple but powerful message to Chinese consumers in the form of “delicious happiness,” which is the rough equivalent of Coca Cola’s “refreshing” message in its Western markets.

Moreover, Coca Cola’s historical presence in China also reflects the company’s ability to hurdle the impediments imposed by stringent government control. The company was able to achieve its horizontal integration and expansion in the Chinese market through a combination of acquisition of local industry players and entering into joint projects with the government (Weisert, 2001). Its $2.5 billion bid to acquire Huiyan, for instance, represents the company’s effort at personifying its product portfolio to take advantage of promising trends in the beverage market (Marquez, 2008). Coca Cola’s successful acquisition of Huiyan would not only make the company China’s biggest beverage maker but it would also be a test for Coca Cola’s ability to prevail over China’s bureaucratic processes.

Works Cited:

  • BBC News (2008). Coca-Cola in China anti-trust case. BBC UK. Retrieved November 3, 2008 from http://news.bbc.co.uk/2/hi/business/7607838.stm
  • Clarke, R. (2008). Coca-Cola facing a healthful challenge among Chinese consumers. Functional Ingredients, 80: 18.
  • Jagger, S. (2007). Coca-Cola toasts China as it drives soaring sales. Times Online. Retrieved November 3, 2008 from http://business.timesonline.co.uk/tol/business/industry_sectors/consumer_goods/article2093751.ece
  • Marquez, J. (2008). Coca-Cola offers $2.5B to buy China juice maker. USA Today. Retrieved November 3, 2008 from http://www.usatoday.com/money/industries/food/2008-09-03-coca-cola_N.htm
  • McKay, B., Canaves, S., & G. Fowler (2008). Coke deal juices its China business. Wall Street Journal. Retrieved November 3, 2008 from http://proquest.umi.com/pqdweb?did=1547671111&sid=2&Fmt=4&clientId=18096&RQT=309&VName=PQD
  • Mooney, P. (2008). Coke means delicious happiness in China. Retrieved November 3, 2008 from http://www.coca-colaconversations.com/my_weblog/2008/08/coke-means-deli.html
  • Weisert, D. (2001). Coca-Cola in China: Quenching the thirst of a billion. The China Business Review. Retrieved November 3, 2008 from http://www.chinabusinessreview.com/public/0107/weisert.html
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