Coca-Cola's Global Rethink
People who read this also read:
Why do I think globaloney is potentially dangerous to your health rather than just a useful simplification or call to arms? Probably the best example I can think of was Coca-Cola, which a decade ago, in the waning days of CEO Roberto Goizueta’s reign, was acclaimed as the aggressively globalized corporation. Goizueta emphasized that the distinction between international and domestic no longer applied (which he embodied in organizational changes), set aggressively high growth targets, focused on a handful of megabrands to drive volume growth, and engaged in an unprecedented amount of centralization and standardization.
Ten years later, under CEO Neville Isdell, Coke has executed an about-face. Isdell has separated out the domestic and international organizations and cut growth targets by half, to the cheers of analysts who had come to regard the earlier ones as unrealistic. The emphasis now falls on variety, with particular push to learn from Japan, Coke’s most profitable major market and one in which it has a particularly broad array of products, ranging from best-selling Georgia Coffee to offerings such as Real Gold, a hangover cure, and Love Body, a tea that some believe increases bust sizes. And the emphasis on variety carries over from products to strategies: in China and India, in particular, Coke has lowered price points, reduced costs by indigenizing inputs and modernizing bottling operations, and upgraded logistics and distribution, especially in rural areas.
The difference between Coke’s strategies under Goizueta and Isdell is that the former relied on globaloney whereas the latter rejects it. Goizueta believed that the only fundamental difference between the U.S. and other country markets was the lower average levels of market penetration overseas—which he also thought could be changed in “not too many years.” With such a faith in the underlying structural similarity of markets, it was natural for Goizueta—or any other purveyors of globaloney--to lump the international and domestic organizations together with an emphasis on international growth, to focus on economies of scale since there are, by assumption, no barriers at borders to hinder their exploitation, and to employ the strategies that worked at home overseas. Rejection of globaloney, in contrast, implies a reversal of these biases.
It took Coke the better part of a decade to figure out that globaloney and its strategic implications were hazards to its health—in the course of which its market value declined by about $100 billion, or more than 40% from its peak. But Coke is an unusual company in terms of its size and ubiquity. Do you see other companies displaying similar biases? How calamitous are the consequences likely to be?
Read all of Pankaj Ghemawat's What in the World posts
HARVARD BUSINESS ONLINE RECOMMENDS:
Differences Across Countries (HBS Press Chapter)
Toward a Better Future: Getting Started: Devising Better Strategies for Global Value Creation (HBS Press Chapter)
Getting Global Strategy Right (CD-ROM)
Sign up for the Harvard Business Publishing Weekly Hotlist, a new weekly email roundup featuring the top highlights from HarvardBusiness.org.
- Comments (3)
- Join the Discussion
- Email/Share
Comments
Professor Ghemawat,
I couldn't agree with you more about the fact that a whole lot of globaloney drives the thinking of most global or global aspirant corporations. Having said that, although I see the point of Isdell reversing the globaloney ideology in actions, I am not sure that it is gone in spirit. If Coca Cola's basis of operation is to appropriate the natural resources of developing countries like India (e.g. water) at less than acceptable prices, and hide the true magnitude of costs it imposes on the ecosystem (effluents, solid waste), it can't have truly left behind its globaloney, can it?
- Posted by Srinivas Sridharan
October 2, 2007 10:19 PM
Dear Sir,
One very interesting thing about Coca Coal, which I read recently about the India and China’s, are as follows:
1. As you said Coke reentered in the India’s market in 1993 after being booted out from India for about a decade. As it reentered the massive India’s Market it had masterminded the marketing strategies in beverage market by buying out Ramesh Cahuhan’s Thums Ups Brand. It did not cannibalize the brand of Thums Up it kept it alive in it’s portfolio and still it is very much alive in India. It got over the bottling plants of Thums Up and gave the licensing for making Coke along with Thums Up. It was a mastermind decision, as it knew that Pepsi its archrival has all ready made an in road in India in early nineties. Buying Thums Up was to kill the Indian competition but not killing the brand. Billion Of US$ were poured in advertisements and campaigns to win the confidence in the mind of the people after the allegations rocked both Pepsi and Coke that’s its products had abnormally high traces of unacceptable chemicals. In recent years it is doing good in India’s Market. Interestingly the market in India grew ( CAGR) of only1 % between 1999 and 2006 from $1.31 billion to $1.32 billion. It is said 30% of all beverages sold in emerging markets are ready- to-drink. That number is 70% in the western world and in developed world, this will happen in only one decade time period in the case of emerging markets. Very smartly it did up sale and Cross Sale getting into the (Brand: KINLAY) potable drinking water market in India (this is a major segment) where the MNCs are also coming in along with Indian players.
2. Where as in the case of China it found its difficult and a very complex market and had to struggle.
3. Coke introspects and takes corrective decisions and actions in adjusting to different countries complex market, politics and sentiments of the customers as Global MNC’s professional do.
4. It is focusing on markets with favorable demographic, for that it is rightly repackaging and rightly pricing its products so that it can reach to the critical mass when the market will mature and ROI’s will be favorable in coming years.
5. Globalization in this Darwinian world is only meant for smart players. Survival Of The Fittest, and only the Fits have the right to survive. Even if you make any mistake you have to come up very fast and take corrective decisions for turn around. As you rightly said globaloney is the only solution in todays world.
Regards,
Debashish Brahma
- Posted by Debashish Brahma
October 3, 2007 6:37 AM
Globaloney probably started in the '60s when a highly respected academic predicted that we were relentlessly moving towards standardized products promoted in similar ways and marketed at similar prices across the world. In all fairness, two decades later, the same academic was the first to accept with humility that the prediction had gone haywire.
What we are witnessing today is an equally relentless pursuit of customization - sometimes leading to rather bizarre forms of individual customization. From a producer's or provider's perspective, standardization would make a lot of sense. Equally, from a customer's perspective, customization may hold the key to the success of corporations.
The challenge for corporations today is therefore a balance between these extreme positions. Within the context of neighboring countries, there are vast differences in expectations. An example of this may be found in appliances across Europe. What is acceptable in one country is often a failure in a neighboring country. The same dilemma holds for other products - even for basic products like food.
In as much as adaptation to suit individual markets is neither operationally feasible nor economically viable, your observation on globaloney hits the nail on the head. For one thing, mobility of all factors of production is still a distant dream. For another, even if such mobility were to become a reality, it would still test the best of organizations on ingenuity in design and agility in adaptation.
It would be quite fascinating to see how organizations would cope with this dilemma.
- Posted by B V Krishnamurthy
October 9, 2007 7:15 AM