Porters Five Force Model Porter's five forces analysis is a framework for industry analysis and business strategy

development formed by Michael E. Porter that draws five forces that determine the competitive intensity and therefore attractiveness of a market. As far as our case is concerned we aim to develop an analysis which will better let us understand how attractive, lucrative is the Brazilian market for Coca Cola and positive and negative traits they should be concerned about in order to achieve their desired goal ie. to capture the market which they are losing to the Tubainas and the Brand B companies. Attractiveness in this context refers to the overall industry profitability. An unattractive industry is one in which the combination of these five forces acts to drive down overall profitability. A very unattractive industry would be one approaching pure competition, in which available profits for all firms are driven to normal profit.

Coca Cola in Brazil Five Forces analysis:

1) Rivalry among existing firms: Coca Cola is the largest manufacturer, distributor and marketer of concentrates and syrups in the world with sales in over 200 countries. The annual revenues of the group exceeded USD 21 billion in 2005. The main product of Coca Cola is carbonated soft drinks for which it commands a share of 40% in this market.. Branding is a prominent feature of the non-alcoholic beverages industry. The Coca Cola brand is one one of the most famous brands in the world. Among top 10 non-alcoholic beverage brands in the US, 5 belong to Coca Cola including the top spot. The non-alcoholic beverages segment of the commercial beverages industry is highly competitive. Coca Cola competes with major international beverage companies that, like Coca Cola, operate in multiple geographic areas, as well as numerous firms that are primarily local in operation. It has been seen from the case that Coca Cola has already established as a key player in the Brazilian market but recently facing intense rivalry from the Tubainas and the Brand B companies. Local competition: More than 70% of Coca Colas revenues are derived from markets outside the United States. Coca Cola faces stiff competition from local competitors in these markets. Local competitors tend to have government support, a better understanding of the local market needs and a very well established distribution network. For example in China, Coca Cola faces stiff competition from Future Cola, a carbonated beverage manufactured by Chinas largest beverage group, Hangzhou Wahaha Group which is government controlled. In less than 10 years, Futura Cola has carved out a 35% share of the carbonated beverage markets for itself. In Brazil Coca Cola faces competition from Guarana Anteratica (owned by A.B. Inbev group) which is the second best-selling soft drink brand in Brazil, just after Coca Cola. A.B. Inbev greater than 75% share of the Brazilian beer market and uses its extensive distribution network to promote its brand of carbonated drinks. Coca Colas ability to gain or maintain share of sales or gross margins in the global market or in various local markets may be limited as a result of actions by competitors.

2) Threat of new entrant: Due to the huge spend in advertising needed to build and sustain a brand coupled with the requirement of an extensive bottling and distribution network, it is relatively hard for new entrants to enter the carbonated beverages market. Coca Cola uses its brand and exclusive global bottling network to differentiate itself from its competitors. It continues to sustain its brand by carrying out extensive advertising globally and sponsoring major sporting and cultural events. Its efforts have been rewarded with a very strong brand loyalty by consumers of carbonated drinks. Also due to the sheer size of Coca Cola it has achieved economies of scale allowing it to differentiate itself in terms of cost which adds an additional hurdle for new entrants to overcome. From the case we can see that in this market, there is a high possibility of a firm entering the market and possibly gaining shares easily by playing along and obtaining a favorable position in the price war. However in case of non carbonated beverage segments, such as energy drinks, flavoured waters, juice drinks, teas, coffees and sports drinks where Coca Cola does not have a very strong position and which are more fragmented it is easier for new entrants to come in.

3) Threat of substitutes: The carbonated beverages industry is under considerable threat from other non-alcoholic beverages due to consumer preference shifts. Consumers are becoming increasingly aware of and concerned about the health consequences associated with obesity, particularly among young people. As a result their preferences have shifted to an array of sports drinks, vitamin fortified water, energy drinks, herbal teas, some of which are growing as much as 9X faster than Coca Cola. The substitutes are generally priced similar to Coca Cola. The new trend is expected to especially affect sales of major brands at Coca Cola including Coke Classic, Sprite and Fanta which are non-diet carbonated beverages. The Diet Coke is the only carbonated beverage brand by Coca Cola which is expected to gain from this trend. As seen on the case, Coca Cola faces major threat of substitute in this particular market.

4) Bargaining power of suppliers: All ingredients for Coca Cola are commodities-caffeine, color, flavour, sugar, packaging which limits supplier power. However Coca Cola is not shielded to adverse movement in commodity prices.

5) Bargaining power of customers: Coca Cola used to be vertically integrated into bottling. However in 1990s the bottling operations were hived off into a separate company called Coca Cola Enterprise (CCE) which is now the biggest customer for Coca Colas concentrate. Coca Cola continues to have a 38% stake in CCE, however its influence over CCE has significantly decreased due to the strain in relationship over time. CCE is a publicly traded entity which can independently decide to increase prices to retail customers without the consent of Coca Cola which could affect Coca Colas market share. Also dedicated bottlers such as CCE are not willing to handle new products that dont approach the high volumes of carbonated beverages. This impedes Coco Colas attempts to diversify into other drinks. The relationship with big bottlers such as CCE are absolutely critical for Coca Cola. Many bottling partners have the right to manufacture or distribute their own products or certain products of other beverage companies and may choose to do so if the relationship is not optimally serviced. Bottlers in turn sell Coca Cola to fast food restaurants, regular restaurants, convenience stores, supermarkets and vending machines. The barrier to switch to other carbonated drinks is very low. It may be higher in case of global fast food chains like McDonalds where Coca Cola products are sold exclusively. However Coca Cola is able to differentiate itself through strong branding. Substitute products are available but they cannot compete with Coca Colas brand loyalty and exclusive distribution network. PepsiCo has a better leverage with supermarkets than Coca Cola does because of its combined product offerings (snacks and drinks) that help supermarkets generate much higher revenues. Direct customers are willing to pay higher prices for their bottle of Coca-Cola if is conveniently available to them (via a vending machine or at a restaurant/fast food chain where it would complement their meal). Although the tax rate for Coca Cola had gone down from 30% in 2001 to 22% in 2004 positively affecting the prices that Coca Cola can offer to its customers, any increase in tax rate would adversely affect the prices to end customers. Bargaining power of suppliers is extremely high in the Brazilian market.

6) Main threats: The threat from substitutes and bargaining power of customers are the 2 forces that pose the greatest threat to Coca Colas future profitability.

Coca Cola has not been able to sufficiently respond to the change in trend to substitute products such as sports drinks, vitamin fortified water, energy drinks, herbal teas, some of which are growing as much as 9X faster than Coca Cola largely due to the lack of management support. The management board of Coca Cola comprising of old stalwarts and in the absence of a strong CEO strongly believe that Coca Cola should stick to their core strategy of getting their core carbonated beverage brands right as the market for all other drinks is relatively small. Additionally even though Coca Cola does offer some alternate beverages it faces stiff resistance from its dedicated bottlers who are not willing to carry to new products that dont approach the high volumes of its carbonated drinks. PepsiCo on the other hand is more willing to diversify in accordance with the trend. PepsiCo got a 2 year jump on Coca Cola in bottled water. They also outmanoeuvred Coca Cola to acquire Gatorade, the sports drink brand that could have been Coca Colas had it not been for a last minute deal back out by CocaColas board member Warren Buffet. As a result Coca Colas Powerade has just a 17% share of the fast growing sports-drink segment in the U.S., vs 81% for PepsiCos Gatorade brand. PepsiCo has solved the distribution problem for Gatorade by distributing it via an effective system of food brokers. If Coca Cola does not gear up it will lose a chance to catch this trend even as its revenues of carbonated drinks will decline in the future.

As in depth analysis from different sources show, Coca Colas main customers are its bottlers. Many of the bottlers are publicly traded entities which can independently decide to increase prices to retail customers without the consent of Coca Cola adversely affecting Coca Colas market share. If the bottlers continue to raise prices Coca Cola may be forced to resort to radical measures to defend Coca Colas interest such as reacquiring 62% of its main bottler CCE that it does not own.

Source for competitive advantage Coke is one of the most powerful and well-recognized brands in the world. It possesses a wide distribution network reaching customers in some of the most remote areas of the world. Strong brand recognition and customer loyalty combined with vast production economies of scale through its controlled bottling operations have shaped and sustained Cokes competitive advantage to date. However, consumer preferences are changing. Water, juice, sports drinks, energy drinks, coffee and other carbonated and non-carbonated soft drinks are gaining share from Coke. Per capita soda consumption, which steadily increased in the 80s and 90s is experiencing a shift in trend.

In the short term (e.g. 3-5 years), Coke should pursue strategies to expand its carbonated soft drinks market share in the emerging markets (i.e. India) where the company holds considerably market share. In the short term, the strategy of penetrating emerging markets should provide ample top-line growth opportunities. In the long run, under new leadership, Coke clearly needs to respond to the change in consumer demand and become more like Pepsi with a diversified product portfolio strategy. Similar to Pepsis Tropicana juice, Gatorade sports drink, and Aquafina water, Coke should invest in penetrating this new wave of change in consumer preference. These new product categories possess higher growth prospects than traditional carbonated soft drinks market. Further, Coke should diversify into food categories (i.e. snack food). This would provide improved leverage with retails when competing for shelf space. Given pricing pressures from its bottling operations, Coke should also consider buying back the bottling operations altogether. This would allow Coke to have better control and visibility over the retail price set for end-customers.

PEST Analysis for Coca Colas operations in the Brazilian market.

 Political Analysis

Non-alcoholic beverages fall within the food category under the FDA. The government plays a role within the operation of manufacturing these products in terms of regulations. There are potential fines set by the government on companies if they do not meet a standard of laws. The following are some of the factors that could cause Coca-Cola company's actual results to differ materially from the expected results described in their underlying company's forward statement: Changes in laws and regulations, including changes in accounting standards, taxation requirements, (including tax rate changes, new tax laws and revised tax law interpretations) and environmental laws in domestic or foreign jurisdictions. Changes in the non-alcoholic business environment. These include, without limitation, competitive product and pricing pressures and their ability to gain or maintain share of sales in the global market as a result of action by competitors. Political conditions, especially in international markets, including civil unrest, government changes and restrictions on the ability to transfer capital across borders.

Political structure and legal considerations also have impinged on Coco-Cola Companys strategies. Governments of some Arab nations boycotted Coca-Colas products due to a political dispute and discontented with the company for maintaining distributors in Israel. Political analysis in Brazil has not been given that much information about in the case.

Economical Analysis

Being flexible and willing to change to satisfy consumers needs, has enabled Coca-Cola to exploit the economies of scale that was gained by its global marketing and at the same time making its products appeal to local taste, which these have earned the company an enormous profits quarterly. As Coca-Cola has expanded over the decades or even nearly a century, the company has benefited from the various cultural insights and perspectives of the societies in which business is done. No doubt of the remarkable experience it has, it is still very committed to local markets, to paying attention to what people from different cultures and backgrounds like to drink, and where and how they like to drink it, to remain competitive and to develop more new

drinks to satisfy its markets. Now, the estimated brand equity of Coca-Cola is $84billion, market share of more than 50 percent in beverage industry globally and about 70 percent of its income comes from countries outside United States. Every 10 seconds, 126,000 people in the whole world, choose to reach out for one of The Coca-Cola Company brands, and it is the companys mission to make that choice exciting and satisfying, every single time. Previously the U.S. economy was strong and nearly every part of it was growing and doing well. However, things changed. Before the attacks on September 11, 2001, the United States was starting to see the economy recover slightly and it is only just recently that they achieved the economic levels. Consumers are now resuming their normal habits, going to the malls, car shopping, and eating out at restaurants. However, many are still handling their money cautiously. They believe that with lower inflation still to come, consumers will recover their confidence over the next year. As researching for new products would cost less the Coca-Cola Company will sell its products for less and the people will spend as they would get cheap products from Coca-cola.

Social Analysis Foreign environment factors have influenced the Coca-Colas strategies in international marketing. Culture has a tremendous effect on peoples preferences and perception. Language is one of the aspects of culture that marketers must take care of, in term of translating product name, slogans and promotional messages so as not to convey the wrong meaning. Coca-Cola did not look much into this aspect when entering into the markets of countries like China and Taiwan as the literal translation of Coca-Cola in Chinese characters mean, bite the wax tadpole. Changes are necessary in international marketing for consumers products, as it is important that the products suit ones taste, preferences and fulfill ones needs. Coca-Cola has continued changing, improving and developing new drinks to appeal to local tastes.

After discovering that Coke did not appeal as much to Japanese consumers, Coca-Cola developed over 30 new drinks for the Japanese market, which inclusive of Asian tea, English tea, coffee and fermented-milk drink. In China, Coca-Cola has also begun the similar strategy of introducing beverages developed for the taste buds of local market. It launched a fruit juice drink called Tian Yu Di (Heaven and Earth) specifically for the Chinese market with planning of introducing the market with a Chinese iced tea and soy milk drink.

Many U.S. citizens are practicing healthier lifestyles. This has affected the non-alcoholic beverage industry in that many are switching to bottled water and diet colas instead of beer and other alcoholic beverages. Also, time management has increased and is at approximately 43% of all households. The need for bottled water and other more convenient and healthy products are in important in the average day-to-day life. Consumers from the ages of 37 to 55 are also increasingly concerned with nutrition. There is a large population of the age range known as the baby boomers. Since many are reaching an older age in life they are becoming more concerned with increasing their longevity. This will continue to affect the non-alcoholic beverage industry by increasing the demand overall and in the healthier beverages.

Technological Analysis Some factors that cause company's actual results to differ materially from the expected results are as follows: The effectiveness of company's advertising, marketing and promotional programs. The new technology of internet and television which use special effects for advertising through media. They make some products look attractive. This helps in selling of the products. This advertising makes the product attractive. This technology is being used in media to sell their products. Introduction of cans and plastic bottles have increased sales for Coca-Cola as these are easier to carry and you can bin them once they are used. As the technology is getting advanced there has been introduction of new machineries all the time. Due to introduction of this machineries the production of the Coca-Cola company has increased tremendously then it was few years ago The absence of soft drink vending machines in the supermarkets and malls which is one of Coca Colas expertise in the line of distribution to the customers as outlined above poses a major technological drawback for operations in the market.

Product lifecycle Analysis

Initial trials to utilize a tool that would facilitate decisions associated with emergent 7 environmental demands, which appeared effective, appeared in early 1970. Stimulated by the Resource and Environmental Profile Analysis REPA of Coca-Cola used to compare types of soda packaging; while defining best option(s) generated many studies, with software developed to help in analysis. SETAC (The Society of Environmental Toxicology and Chemistry) defines LCA as an objective process to evaluate the environmental loads associated with a product or activity, identifying and quantifying energy and materials utilized, and those wasted and left in the environment. LCA generates an analysis of all production processes, evaluating the environmental balance in all phases of the product and processes life cycle (LCI Life Cycle Inventory). Subsequently, it is possible to perform evaluation of the environmental consequences associated with the process or product, analyze the environmental exchanges to obtain project approval, quantify the environmental emissions in each stage of the life cycle, and/or the process which contributes greatest impact. Also, one can evaluate the effects of absorption and inputs (Impacts evaluation). Application of LCA enables various analyses including: raw material entrance; processing or preparing materials to be used in the process; the production process itself; packaging; distribution, and management of residue and sub-product (BARRETO et.al, 2007). Figure 1 details the activities that compose the 4 stages of LCA and provide important data for process and design management. Thus, it is possible to develop products, elect better result technologies, identify the life cycle phase in which impacts occur, select significant environmental indicators, and reformulate products or the process, while identifying opportunities for a greater economic efficiency and8

possibly creating new products. The Brazilian market indeed provides a lucrative market with all aspects in the growth stage. Thus the following can be derived from the case Company Life cycle (Coca Cola) growth. Product lifecycle growth. Industry lifecycle growth.

Porters Diamond Model The Porters Diamond Model approach looks at clusters of industries, where the competitiveness of one company is related to the performance of other companies and other factors tied together in the value-added chain, in customer-client relation, or in a local or regional contexts. An implication of this model will let us verify what necessary conditions and factors exist in the Brazilian market that will aid Coca Cola to achieve their desired objectives. The Porter's analysis deals with the dynamic process by which competitive advantage is created. The phenomena that are analysed are classified into six broad factors incorporated into the Porter diamond, which has become a key tool for the analysis of competitiveness:

Factor conditions - human resources, physical resources, knowledge resources, capital resources and infrastructure. Specialized resources are often specific for an industry and important for its competitiveness. Specific resources can be created to compensate for factor disadvantages. We can see that the factor conditions that are important for the operations are present and necessary inputs are available. Demand conditions demand conditions in the home market can help companies create a competitive advantage, when sophisticated home market buyers pressure firms to innovate faster and to create more advanced products than those of competitors. In Brazil, the demand conditions are positively efficient and carbonated soft drink demand is in full swing. Related and supporting industries these industries function by producing inputs which are important for innovation and internationalization. These industries provide cost-effective inputs, but they also participate in the upgrading process, thus stimulating other companies in the chain to innovate. There are ample supporting and related firms and industries in the market ie. the soft drinks manufacturers. Firm strategy, structure and rivalry these agendas constitute the fourth determinant of competitiveness. The way in which companies are created, set goals and are managed is important for success. But the presence of intense rivalry in the home base is also important; it creates pressure to innovate in order to upgrade competitiveness. It can be seen that all

these conditions have been taken care of by Coca Cola in their course of operations in the highly intensive Brazilian market. The two additional factors that also comes to play are

Government can influence each of the above four determinants of competitiveness. Clearly government can influence the supply conditions of key production factors, demand conditions in the home market, and competition between firms. Government interventions can occur at local, regional, national or supranational level. Information about government interventions and strategies have not been illustrated in the case. Chance events are occurrences that are outside of control of a firm. They are important because they create discontinuities in which some gain competitive positions and some lose.

The Porter thesis is that these factors interact with each other to create conditions where innovation and improved competitiveness occurs.

Country Risk Analysis

Political, Legal, and Regulatory Risks In every country, politics plays a crucial part in the determination of the risk versus reward of an international business alliance. Brazil as a country is a major democratic country even though they have seen there fair share of corruption and societal problems. Brazil has been an emerging country and is currently under the FTAA rules and regulations of international business. According to AON Risk management, Reinsurance, Human Capital, Consulting, Brazil ranks as the tenth largest economy in the world with a medium-low regulatory risk in conducting international business with. In abiding by all rules, the legalities involved in the increase of gold traded to Brazil is aggressively being enforced by utilizing all current resources. Transportation of the gold, which is used for trade, is thoroughly inspected to ensure all legal freight laws and guidelines are adhered.

Exchange and Repatriation of Funds Risks In conducting global business exchange, conversion could be one of the riskiest steps pertaining to globalization. The determination of if to accept future payments from a particular countrys

currency could be dangerous if not able to determine the future value. Many international countries will not accept any other form of funds if the currency is not there own or equal to their currency at matching value. Market Risks The risk of the four Ps (product, price, place and promotion) should be kept to a minimum. The gold will continue to be the same quality that is sold in the United States, but pricing will be different because of the currency conversion from the U.S. dollar ($) to the Brazilian reais. Gold is currently being sold for 927 USD per ounce, in Brazil the price would be 1,479 BRL. (XE, 2008) The place risk consists of individual jewelry stores purchasing our gold. Promotion will continue to follow the format that has led gold to be an enduring commodity in the United States and throughout the world. Physical and Environmental Challenges Many parts of Brazil are inaccessible by river or road, which hinders the transportation of goods and trade. Brazil has a wide organism of roads and highways connecting many areas of Brazil however, many are unpaved. The government, leading to an inefficient means of transportation, has not maintained numerous roads and highways. (Library of Congress, 2005) Airports and airline transportation to major cities and metropolitan areas is modern and efficient. Air transport to Brazils major cities can be equated to airports and air transportation in the United States (Library of Congress, 2005). President Lula Da Silva has stated his intent to focus on the infrastructure of Brazil, which should fare for better means of road transportation in the future as roads and highways are repaired, built and maintained. The effect of the physical environment should not be problematic for the trade of gold into the country. The gold exported to Brazil will be via airliner into the larger, metropolitan cities rather than remote towns and villages. The target market will consist of people in the middle to upper income class which are more likely to reside in larger and better developed cities and towns to be close to better paying employment. Transportation into other regions of the country will be the responsibility of the buyer. Brazil has been the focus of environmental concerns for sometime. Environmental conditions and deforestation in the Amazon has created a great deal of attention for Brazil during the 1980s. This attention and the publicity it caused resulted in a change of public opinion concerning the Amazon region and encouraged tighter control of government regulations. (United States Department of State, 2008) The Amazon region is not the only environmental concern of Brazil. Years of clearing land for farming and development as well as agricultural use of land has caused soil erosion, desertification and pesticide pollution of water and soil. Urban areas suffer from air pollution and rural areas do not have sufficient sanitation disposal. According to the U.S. State Department, the

government has not been effective in controlling damage to the environment. Brazil is good at official rhetoric yet poor in actual practice of its environmental policy. However, some progress has been made at the state and local level. (United States Department of State, 2008).

Trends which work in favor of Coca Cola The middle class continues to grow allowing its citizens purchasing power of luxury items such as gold jewelry and investment avenues. The government has made economic growth and poverty alleviation top priorities and is promoting increased exports and financing options to increase exports to the country (U.S. Department of State, 2008). These examples, along with the fact Brazil is an ally with the United States, offers opportunity and promise to our organization in the trade of gold in the country of Brazil. Brazils population, especially in urban areas, enjoys up-to-date fashion, designer labels and fine jewelry. This group is also interested in saving for the future and providing for their families in safe, risk management investment tools. Gold jewelry and investment gold fulfills both these desires of a growing middle class looking to spend on a valuable commodity which will retain value over time. These scenarios portrait booming possibilities for Coca Cola to target these customers as their customers in the Brazilian market.

References
http://www.antiessays.com/free-essays/11964.html http://en.wikipedia.org/wiki/Diamond_model http://www.antiessays.com/free-essays/137466.html http://www.scribd.com/doc/52823009/27/PEST-ANALYSIS-OF-COCA-COLA