Number One Everywhere: How Coca-Cola Can Adapt Its Global Strengths to Address Local Challenges in Its Weak Markets
The recent decision of India’s parliament to allow 100 percent foreign ownership of companies in India is big news to many multinationals that have been dying to get in on the action in the world’s second most populous market, and the massive Coca-Cola Company is no exception. Indeed, with a full re-entry to the country it abandoned in the late 1970s, there’s essentially no corner of the world that will now be without the seemingly ubiquitous white-on-red script of the most successful soft drink in history. But one other major region has given Coke headaches since at least the early 1960s, and going there today one might be hard pressed to find the classic can for sale. Indeed, Coca-Cola has faced a number of challenges in the Middle East, but learning how to turn them into opportunities there could teach the soft drink giant some important lessons it will need for success in India.
Issues with Israel
Coke has lacked strong market presence in both the Middle East and India for some time, mainly due to political issues. In an effort to shore up local industry, India’s government in the 1970s followed protectionist policies that required foreign companies to sell at least 60 percent of their stakes in local operations to domestic firms. Rather than accede to this demand, Atlanta based Coke joined other multinationals in an exodus from the country, which at that time was not viewed as having the strategic importance it has today.
Though not completely absent from Arab markets over the last several decades, and certainly not withdrawn by its own choice, politics is nevertheless the key to Coca-Cola’s dramatic inferiority to Pepsico in the region, where at around 25 percent market share Coke is outdone three-to-one by its rival. In the early 1960s Coca-Cola judged Israel to offer less potential than the non-Jewish nations of the region and planned to operate heavily in those Arab areas, but after American-Israeli groups took umbrage at this perceived slight and threatened boycotts back home, the company established a strong presence in Israel in 1966, which dramatically reduced opportunities elsewhere in the Middle East. Pepsi, though attempting to gain market share in Israel, made many mistakes there, which actually opened the door for its mass acceptance in the Muslim parts of the region, with the result that while Coke has made some inroads, it remains a significant laggard.
To some extent, Coke’s original problem in the Middle East continues today, though flavored now with general anti-American sentiment over anti-Israeli sentiment. The massive boycotts of American products that have been common throughout the first decade of the 21st century also impacted archrival Pepsi, and allowed Arab-owned brands like Zam Zam Cola and Mecca Cola to flourish in response to demand for more local products. Of course, this problem affects Pepsi as well, but setbacks from boycotts cost the dominant company proportionally less of its market share than Coke typically loses to the emerging contenders.
In addition to this desire to be seen thumbing a nose at symbols of American power, many consumers in the Arab world are following the lead of their developed-world counterparts by becoming more interested in healthier snack and drink options, which threatens the viability of flagship brands at both Coca-Cola and Pepsi. Additionally, many in the still-poor region never bother even to consider the choice between a Diet Coke and a (Coca-Cola-owned) Vitamin Water, opting instead for local brands, which sell for as much as half off the multinationals’ product prices.
The Story on the Subcontinent
So how similar can the situation in India be? Despite their relatively close geographical proximity, one would expect there to be few other areas on earth so dramatically different than the largely Muslim Middle East and the predominantly Hindu Subcontinent, which manages to make much of its news by tussling with its Muslim neighbor Pakistan. Nevertheless, many of the challenges Coca-Cola is facing on its re-entry into India are similar to those it has endured for so long in the Middle East, and so a careful study of the one may help the other—and vice-versa. For example, Coke hasn’t been fully absent from India in almost 20 years, when, in 1993 the company was allowed to purchase a majority stake in native brand Thums Up, a spicier cola than Coke which appealed to local tastes. This popular drink was initially slated to be phased out in favor of the flagship brand until sales of the latter failed to take off as anticipated and now continues to play second fiddle to Thums Up, which accounts for approximately 42 percent of all cola sales in India. In fact, Coca-Cola itself ranks a distant fourth in the overall Indian soda market, behind Thums Up and Pepsi, each with about 15-16 percent of the market, and Coca-Cola’s own Sprite brand, which captures a similar 15-16 percent share in comparison with Coke’s own 9 percent.
Though America seems on the surface to enjoy much warmer relations with India than it does with almost the entire Middle East, there is still plenty of anti-American sentiment in the former region. While India doesn’t have to worry about what many Arabs consider a US-led occupying army in its back yard, many Indians consider America’s relative coziness with Pakistan, cultivated because of America’s need for as many friends in the Middle East as possible, as tantamount to a slap in the face, particularly in light of India’s long-running dispute with Pakistan over the Kashmir province. Additionally, ever mindful of its status as the world’s largest democracy, India has felt its status as a nuclear power has been dealt with heavy-handedly by the United States, which has been accused of offering support for India’s weapons only in exchange for limited sovereignty on their use and the taking of a tougher line with China, now India’s largest trading partner. So the move to open up complete foreign ownership of firms in India should be read as a move to revive a stagnant economy rather than an embrace of foreign—specifically American—firms or business practices.
Furthermore, the Coca-Cola Company, with its worldwide icon status and all-American image, is the target of criticism even when such may be better directed elsewhere. For example, even though Pepsi ranks worse on pesticide levels found in its drinks in India, Coke is the firm drawing most fire from the many NGOs and civic groups lambasting the company on its water practices there. Indian consumers are also on the lookout for beverages that speak to their tastes, evolving or traditional. In some respects this is why Thums Up has continued to do so well, with a flavor that speaks to local palettes, but other products like fruit juices tend to do well in the Indian market.
The Challenge as Opportunity
So Coke has been a day late to both markets and in one way or another is coming up a dollar short in both the Middle East and India. How the company responds to these challenges could define its share of these markets for decades to come, just as decisions made in the 60s and 70s have brought the firm to this point. But there is a strong silver lining buried in the clouds hovering overhead, because Coca-Cola already possesses some competencies that will help weather the storm, if applied correctly with the right local flavor to these sensitive markets. Indeed, all of the problems the company faces—its American image, evolving tastes and local tastes, and relatively poor (though numerous) consumers—rely on a series of interconnected solutions. For example, Coke has already demonstrated in the Middle East what it can do with its advertising juggernaut when it gets under the skin of the place and adopts a local flavor. Speaking the language of the large and increasingly secular youth population in many countries, Coke has hired Lebanese pop star Nancy Ajram who “In one commercial […] hands bottles of Coca-Cola to a young couple quarreling, and instantly, the two lovers make up as colorful hearts and flowers flood out from the bottles.” Indeed, at 8.3 percent of sales Coke worldwide more than doubles the advertising spend of archrival Pepsi, which spends around 3.3 percent, and this campaign in some Arab countries has seen Coke’s share of the market rise to around 35 percent. But Coca-Cola has kept the very local feel of the advertising while Pepsi has introduced foreign, though not American, stars alongside their local spokespeople.
Such images also help make the drink feel more Arabic, and indeed Coke sales tend to rebound strongly even after vociferous boycott activity. But Coke has also been expanding its portfolio of brands to include other choices that will appeal to more sophisticated generations of both Arabs and Indians. With a global brand portfolio consisting of over 3,500 different soft drinks, juices, waters, coffees, and teas, 800 of which are low calorie, releasing those that appeal to local tastes and partnering with local celebrities to sell them will prove to be an excellent local adaptation of moves Coke is already taking in its home market as sales of the flagship cola continue to decline there. Some of these, like the Powerade brand, could benefit from an extension of the successful marketing strategy, for example by hiring local sports stars like Egyptian Mido in the soccer-mad Middle East or Sachin Tendulkar in cricket-crazed India.
But even while Coke relies on a more diverse array of products to capture market share, it could continue to bolster sales of its namesake brand with a few simple innovations. For example, the company is no stranger to operating joint ventures, and is soon to embark upon one with a bottler in Iraq; what if the company sought out additional partners to tap into some of the less formal sectors of the market, where those in remote or slum areas could enjoy a smaller than normal can of Coke for the same price as a slightly larger local drink? Indeed, there seems no need to engage in the type of destructive price warfare that has been going on with Pepsi in the Middle East, when the advertising is working well enough to make Coca-Cola an aspirational brand even in the small villages where Nancy Ajram is well known and appears on the label. Indeed, many of the strategies Coke is pursuing in the Middle East can be translated to India to great effect, perhaps with a Bollywood star boosting the product throughout the country. Another possibility would be to take a lesson from Coke’s own success with Thums Up and perhaps try tinkering with the formula to add needed vitamins in poor areas or make it more palatable to the local tastes of both regions—a strategy that, if successful, could be profitably exported to many other markets.
Coke’s Secret Formula
But isn’t it the case that a Coke is the same wherever you go, and so the company should operate with the same model wherever it goes? Well no, and no. A Coca-Cola bought in San Diego is actually quite different than one bought just over the border in Tijuana, as the former is no longer made with real sugar but with high fructose corn syrup. Legendary recent Coke boss Roberto Goizueta told his initial management team that even the drink’s secret formula itself would be up for discussion in improving how the company did business, and launched “New Coke” in 1985. Though the original formulation was reinstated a short time later, the “no sacred cows” philosophy towards management of the Coca-Cola Company has endured, and it is this that Coke must leverage in order to successfully adapt its incredible global strengths to the unique local demands of these two potentially very important markets.
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