Thursday, October 2, 2008

Why Is Coca-Cola Expanding Outside US?

Why Coca-Cola seeks expansion outside America?

(1) To further increase its market share & continuously earn supernormal profit

(2) To look for benefits such as increasing purchasing & managerial economies of scale (EOS) through horizontal integration. Besides, relatively labour wages in developing countries are much lower than US itself. Very often the labour law is very weak too, allowing those workers to be fully exploited

(3) To stay competitive & ahead of close rivals like Pepsi & Dr. Pepper Snapple. One of the common strategy is to acquire dominant firms in growing market so as to set a strong foothold there before any rivals do.

(4) Sales in home country begin to decline as more US people begin to switch to healthier drinks such as bottled water & tea

(5) The business in US has reached saturation level & there is not much space for further expansion as most markets had been tapped into

(6) Market outside US is growing rapidly especially from the BRIC economy (Brasil, Russia, India & China). In fact 78% of Coca-Cola sales is contributed from abroad

For further reading, refer

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