Please include a word count at the end of the assignment. Note that tutorsare given the discretion to deduct marks for exceeding the word limit ordisregard the content after the word limit is reached.
Please read the case ‘Coca-Cola’s challenge in China: “healthy” growth'(on pages 13-30) and answer the following questions:
1 Use Porter’s five-force analysis to assess the nature of China’s softdrinks industry.(25 marks)
2 Briefly discuss the historical reasons and economic rationale behinddifferent corporate partnership strategies (i.e. mandatory joint ventures, strategic joint ventures, strategic M&A and strategicalliances).(15 marks)
3 What motivates companies to seek mandatory joint ventures, strategic joint ventures, strategic M&A and strategic alliances in
China’s beverage market?(30 marks)
4 Discuss the role of this law in Coke’s proposed M&A of Huiyuan. (10 marks)
5 What are the strategic options available to Coke at the point of the new acquisition? Use SWOT analysis as a framework for yourdiscussion. 20 marks)
After the Chinese Communist Party (CCP) kicked Coca-Cola and other foreign firms out in1949, the company remained outside the country’s soft drink market until 1979. Market reentry after 1979 was not smooth: Although Coke possessed a strong brand name and array ofproducts, strict foreign investment restrictions and underdeveloped production infrastructurelimited the company’s growth.
In the 1980s and ’90s, Coke gradually rebuilt its brand profile and production footprint in China through joint ventures (JVs) with local and foreign firms. At the same time, economic reforms produced greater disposable income, enabling Chinese consumers to purchase food andbeverage goods. Coke’s ascent in China during this time, steadily winning market share andbreaking away from traditional rival Pepsi, bolstered the company’s bottom line: Chinaemerged as one of Coke’s most important markets for new revenue, second only to the UnitedStates.
Over time, however, myriad market changes eroded Coke’s competitive position in China.Chinese consumer preferences gradually changed. Instead of buying fizzy soda drinks, health-conscious consumers switched to fruit juices, traditional teas and specialty health drinks. Asconsumer preferences changed, firms, both in and outside the beverage industry, developednew drinks to quench this thirst. The new generation of challengers included larger firms withnational reach and brand recognition, such as the instant-noodle giant Tingyi HoldingsCompany, and smaller regional firms that primarily produced one or two products.
Changing consumer tastes and industry restructuring led Coke executives to rethink theirexisting strategy in China, which relied on carbonated soft drinks. Coke’s initial strategicdiversification response was to acquire Huiyuan Juice, one of China’s leading juice providers. The Chinese government, however, blocked the M&A transaction based on concerns aboutexcessive market power. In the aftermath, Coke faced an important strategic dilemma: Howcould the firm navigate the rapidly shifting consumer landscape in China with the legacy of itsold business model? Should the company continue on the M&A trail, either abroad or in China,
Erik Tollefson prepared this case under the supervision of Professor Zhigang Tao for class discussion. This case is not intended to show effective or ineffective handling of decision or business processes.
0 2017 by The Asia Case Research Centre. The University of Hong Kong. No part of this publication may be reproduced or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise (including the intemet)—without the permission of The University of Hong Kong.
Ref 16/583C
14MGT B399 Management Policy and Strategy
16/583CCoca-Cola’s Challenge in China: “Healthy” Growth
in order to offer new products? Or should the company develop healthy drinks internally?Should it fundamentally reorganize its presence in China?
Coca-Cola (Re-) Enters China
After China expelled all foreign corporations in 1949, Coca-Cola was completely cut off fromthe mainland Chinese market for about three decades. In 1978, when the country beganeconomic reforms, Coca-Cola was among the first foreign multinationals that sought to re-enter the country. The company, however, faced sizable problems: Although Coke boasted a world-famous brand, it had only minor brand recognition in China’s major cities and no brandrecognition in rural areas. The company also lacked critical on-the-ground infrastructure, suchas production facilities and a distribution network—the lifeblood of a soft-drink producer.
China’s beverage industry, however, presented ample if untapped opportunities. The industrywas fragmented, with a handful of local producers, such as Arctic Ocean (JL7KA7,10 inBeijing, accounting for a majority of market share in major cities.’ Nationwide distribution ofbeverage products was limited. Production processes were also inefficient, bordering onwasteful, and depended on small-scale production plants that lacked the technology andeconomies of scale to produce beverages.2
The Early Years (1979-1990)
Coca-Cola adopted a localization strategy focused exclusively on soft drinks………………………………..