Coca-Cola’s plans to expand in China are a central part of its push to double revenues — and those of its bottlers — from almost $100bn (€67bn) now to $200bn over the next 10 years. Coca-Cola executives say they expect 60 percent of the new growth to come from China, India, and other emerging markets, with only 15 percent from developed markets.
A bit of Coca-Cola history in China…
When Coca-Cola sold products in China in the 70s they were greatly restricted, only allowed to sell to foreigners at hotels and special friendship stores. In the early 80s Coca-Cola built bottling plants in Beijing; Guangzhou, Guangdong Province; and Xiamen, Fujian Province, relinquishing ownership of the plants to the Chinese government in exchange for better distribution rights. In 1984 Coca-Cola built its first joint venture in China, a bottling plant in Zhuhai, Guangdong Province. The following year the government allowed the company to sell its products to the Chinese mass market.
Coca-Cola has continued this pattern of localizing production and building infrastructure through government and domestic partnerships. It has been the key pillar in their ability to develop the necessary infrastructure to push their brand throughout China. The company has invested heavily in domestic businesses that eventually support the company’s supply, distribution, and network plans.
Coca-Cola’s ‘think locally, act locally’ strategy in foreign markets has afforded them success throughout the world for the last two decades. The story has been more or less the same in China, but the Chinese market has proved to be an entirely different beast. What specifically is Coca-Cola doing to find market penetration and growing profits? To learn more about localization in China, check out our article on “8 ways retailers can embrace localization in Asia.“
Hire Local Managers & Provide Wiggle Room
The company has hired locally and even given local managers control over advertising campaigns, freeing them from restrictions set by headquarters. Hiring locals has put the company much more in-tune with the Chinese market. It’s lead to the development of great new products and advertising strategy that might not otherwise have had a chance to emerge.
The company encourages local managers to develop new drinks, and regional offices have the freedom to approve initiatives. The development of new offshoot drinks has bettered the company’s diversity and strength of product mix against aggressive domestic competition.
This has truly been a pillar for the company’s success in China on several fronts. First, and probably most important, handing over the control of bottling plants to the central government has given Coca-Cola more flexibility and freedom to thrive. Second, since the company realized the importance of localizing its supply, demand, and distribution chains by investing in local bottling and distribution companies, it has been able to manage logistics and quality. Read about “3 trends driving localization in China.“
Target Third & Fourth Tier Cities
While many global brands go into China with first tier cities in sight, Coca-Cola’s vision of expanding in third and fourth tier cities, and the estimated 800 million in potential, is clearly a much more progressive strategy. They have been aggressive and have tried to accelerate their penetration into these markets by offering to purchase local companies like Huiyuan Juice (although a failed attempt as the deal was blocked by the government). It shows though that the company is clearly looking for a way to expand in a more progressive manner.
Coke’s mission? To quench the thirst of over a billion in China.
Coke’s long standing history in China has given them the time and experience to tweak their business model and brand in China. They’ve already figured out a lot, but there are three major obstacles standing in the way of the brand reaching its goal of doubling earnings within the next ten years.
The most feared animal in the mix is local competition, which will do their best to eat away at Coca-Cola’s market share. According to a study by Ogilvy & Mather Asia, it’s estimated that seven of the top 10 brands in China are local ones. Coca-Cola ranks number 9, closely followed by KFC, a fairly impressive stat in my opinion.
Ogilvy’s study continued to say local brand strength seems to be linked to their increase in advertising, where they grossly outspend their international competition. Coca-Cola has already fired back with more local advertising and marketing initiatives, for example their neighborhood Coke delivery boy and elders profit sharing campaigns.
Red Tape & Politics
The central government still proves to be a major hurdle for the company to rapidly increase market penetration. It seems to be the nature of the game. The company moved very wisely in trying to buy Huiyuan, a local beverage company — except when it came to dealing with the government and the law. The billion dollar deal was blocked, preventing Coke’s much needed market penetration in third and fourth tier cities.
Coke’s progressive plans to achieve their goal within 10 years will require reliable demographic and market data. This data need could prove to be a challenge for the company, but will be necessary in order for them to do the following:
Maximize Penetration – Data to assist determining Coca-Cola’s product mix, size, flavor, pricing, and other product details to roll out to the market based on demographic and spending patterns.
Sales Channel Marketing – Data to assist in determining the optimal distribution of coolers and other peripheral marketing POP around their expansion plan to improve their brand visibility.
Supply Chain Maximization – An understanding of their new potential client bases in China in order for Coke to determine the best location for additional bottling plants and distribution centers to minimize logistic costs.
Learn more about the data challenges businesses face in China in our article on “5 Data Headaches in Emerging Markets.“
Well this one seems pretty clear to me. If you want to succeed in China, you need to hire local managers and empower them. This will benefit your organization in the long run. It will more closely integrate you with cultural nuisances you might miss if you don’t. It will most likely lead to new sales and business avenues you never knew existed in the past.
Invest in Local Partners
Forming relationships with local partners has worked for Coke. It has worked for other organizations too. Whether the partners are sales channels, distributors, manufacturers or other, they will only help to alleviate the strain of logistics/sales from your own organization. Why should you have to bear the brunt of the weight alone?
Relationship with Government
This one is a given, but how? How do you make the government smile in your direction? For Coca-Cola it took releasing control of bottling plants to the government in exchange for more leeway. Other brands may find success by simply employing a local Chinese workforce. Forming a relationship with the government does seem key, but also tricky. I’d like to know how to do this more myself. =)
Be ‘Brand’ Flexible
A bit obvious I know, but being ‘brand’ flexible is crucially important and deserves a spot. Coke’s ability to adapt and localize to the Chinese market is really amazing. They develop localized products and advertising campaigns very well. The brand bends and flexes to strong market winds. This is important. Health conscious Shanghai consumers are caught up in Coca-Cola’s vitamin water craze. Allow your brand, guided by local knowledge and management, to grow, mutate, and extend itself. To start with, learn about the top 8 Chinese social media sites for brands in China.