CO 5125: 03 ECONOMICS FOR MANAGERS

Submitted to PROF. ABHISHEK BHATI 15/08/2011 ID Number: 12615096 SIDDHARTH CHAPLOT

Introduction The report is merely a representation of Coca Cola Companys operations and how it faces the competition in the Indian markets. It further elaborates how the economic factors such as inflation, recessions, lack of employment opportunity is affecting the business of the company apart from the global competition. Further a demand curve explains the price elasticity as per the changes in the demand for the goods due to various reasons. Factors of production are also explained further as per the requirement of the project, which highlights about the importance of land, labour, capital and entrepreneur for the business and its use adding up to the production of the company. Company history and overview and the competitive environment Coca Cola is one of the global leading soft drink companies which manufactures and supplies soft drink products to the retailers, restaurants and other outlets selling soft drinks and other beverage to direct customers. The company was founded as a soda fountain beverage in the year 1886 in US, which further progressed by introducing its impressive bottling system. This happened during the year 1899, when the company decided to gain the official copyrights for bottling its product. By the year 1909, almost 500 plants of companys product were operating, into different territories of the country, out of which some were operative only during summers when the demand was comparatively higher. As the business kept on progressing and the demand was increasing year after year, but in 1916 companys business was affected due to the copying of its bottle design which created confusion in the minds of the customer. The company along with guidance of glass manufacturers and designers introduced new design of the bottle with patents rights purchased to protect against competitors strategies. The products were started being used in the vending machines and by the end of 1920s the bottled product sales grew more than the fountain sales. During the mid of 1920-30s, the company made a decision expand its business outside United States. This decision enabled the company to open its plants in South Africa, France, Australia, Guatemala, Spain, Honduras, Italy and other European markets. As prior to the beginning of World War 2 the company made an expansion to almost 45 countries. The year 1950 showed the company introduced changes in its packaging system and size of the product. By the beginning of 1960s company started selling their products on cans. The Coca-Cola bottling concept became popular its roots deeply planted in local societies. Such heritage provides the Coca Cola well today as individuals seek brands that respect local image and the uniqueness of local markets. As a fact century ago, good local based relationships between Coca-Cola bottlers, customers and societies are the base under which the complete business grows by the beginning of twentieth century. The major part of the segment of the company includes youngsters, and then the rest comprise of adults and very less amount of senior citizens. As the product symbolises the brand associated with youngsters choice in most of its advertisement and marketing approaches. The company had made its customers across the world in more than 100 countries including Asian, European and majorly American countries. The companys competitors include Pepsi and other soft drink brands. These competitors are located in major part of the world were coca cola is operative. The market share of Pepsi in India is lesser than Coca Cola, although most of the people still use it as a substitute for coke. The introduction of Coca Colas new product Coke zero managed maintaining the attention of its existing customers, although the new product didnt continued growing the demand after a certain period (Pendergrast,2000).

Considering the above information and the increasing competition in the market it is likely that Coca Cola may have to face a perfect competition in the future as international companies are entering into the market. There is an immense research and development been taken place not only in the medical industry but also soft drink and beverages industry. Imports and substitutes find their way easily to enter into the market with pricing strategy and make a brand name within a couple of years might become a challenging question for the Coca Cola in future (Buchli, 2002). Pepsi being considered as a very good substitute preferably taken by the customers against Coke with almost the same price charged for both the products. These products are also of affordable nature for the customers as per the average income considered of an individual in India (Gill and Gill,2009). Elements that affect Demand The individual Demand Curve explains the price that individuals are likely to pay for a particular quantity of a product. The market demand curve will be the addition of all single demand curves. It displays the quantity of a good consumers thinks of buying at unlike prices. Changes in the prices causes a change in the Demand Curve of the company, For instance, a rise in the price from p2 to p1 will show a decline in demand from Q2 to Q1

Shifts in the Demand Curve Such a situation appears when, even at the same price, consumers are ready to buy a higher quantity of products. It might appear when there is a shift seen in the conditions of demand. Diagram: Shift in Demand

A shift towards the right in the demand curve may appear for numerous reasons such as: 1. A rise in disposable salary, it may appear for various reasons like high wages and low amount of taxes 2. An improvement in the quality of the product for instance; Laptops are now much advanced 3. Marketing of the product may increase brand loyalty of the product and also demand to a great extent. 4. An unexpected rise in the price of substitute product, for instance; if the price of Sony Laptops increase the demand for Dell Laptops will rise 5. An unexpected decline in the price of complements. For instance; a lower price of trousers may increase the demand for belts. 6. Weather conditions: During the season of summers there will be an increased demand for soft drinks and juices to cope with the weather conditions. 7. Expectations of future price increments. 8. Changes in the govern policies and laws on the sale of soft drinks products in the country. 9. Application of excessive taxes may directly increase the price of the product thereby changes the demand for the product causes a great change into the demand curve for the product (Mankiw,2011).

Essential factors of production Production process comprises four essential factors Land, Labour, capital and entrepreneur essentially needed during the time of production of a product. Factors of production in economics can be elaborated by the following diagram shown below:

Factors of production imply to inputs needed for commencement of production activities. Input is an initial point of each and every production process. Professor Benham elaborated in his work that anything which contributes to the output is considered as the factor of production. The existence of something does not signify it as an essential factor of production but its involvement in the activity is an essential condition (Boehm, 2002). The Chart below also explains the four factors of production in much detail term: Sr, No 1 2 3 4 Names of factor Reward factor Land Labour Capital Enterprise Rent Wages Interest Profit of

Features of Land 1. Land is one of the natural and primary factors of production and also considered as gift of nature.

2. Land is considered to keep the base for each and every production activity. Acquiring a land for production is the initial decision taken before considering other factors of production. 3. This factor of production is seen to have perfectly inelastic supply. Supply of land is referred to be fixed in nature for the production of goods. 4. This factor of production is seen to be different at different places depending upon the fertility element. 5. Land is also considered to have a passive aspect as it requires other factors such as labour, capital and entrepreneur to make an active element of production cycle. 6. Land is considered to possess derived demand in consumer perspective.
7. It is the factor which does not contain any social costs and also considered to have an

indestructible element (Skousen,2008).

Features of Labour Labour is referred to be an intangible asset for the business. It is not of fixed nature like that of land but its cost varies or changes as per the number of units produced. 1) Labour is an element that cannot be separated from the labourer. The workers cost of labour depends upon the number of units produced for the production of goods. 2) This factor of production is also considered to be of perishable in nature, as it cannot be kept stored. In case of unemployment the labour cannot be stored for future requirement of work to be fulfilled. 3) The cost to produce a labour for the production process cannot be determined. It is normally given on the skills and an effort made to produce a particular commodity. So the labour cost is not of fixed nature. 4) It is one of the active factors of production in the production activity as compared to other factors such as land and capital. They also vary as per the efficiency, speed and expertise of producing the product at a given period of time with the right procedure. 5) The supply of labour is considered to be of inelastic in nature as it relies on many aspects such a size of population, sex, skills, willingness to work etc. 6) Labour is a human capital as society invests in it in the manner of education and healthcare service (Skousen,2008). Features of Capital 1. Capital is considered to be one of the most significant aspects of any business. In economics terms, the money is meant to be a capital only when it is invested in real purchase of production related items such as machineries and plant. During the instance when the money is utilised for purchasing capital goods it is considered as Money Capital. Below pictures demonstrates it quite well.

But money being handled by the consumer to purchase consumer products doesnt resemble to be capital. Money in itself is not considered to be the factor of production activity. 2. Capital is a also considered to be a secondary as well as productive factor as it is made by humans. 3. It is one of the factors of production consisting derived demand to produce finished products that have direct demand (Skousen,2008). Features of Entrepreneur 1) It is the factor of production that combines all other three factors that is land, labour and capital to complete the production cycle of the product. 2) It is an essential element also referred as playing the role for the enterprise for fulfilling the organisational function in completing the entire production cycle. 3) An effective entrepreneur has an ability to approach and organise things professionally, ability the bear business operations risk and must be innovate for the organisation (Skousen,2008).

Macroeconomic Environment of India The economy of India had grown quite significantly since last 5 years. Post period to 1991, India has been considered among the topmost 10% of the global nations as per economic growth. The key challenge for India is to stand such a growth while distributing its advantages more extensively. This needs uninterrupted effort as worldwide experience shows that development brakes down unless reorganizations are pushed through when development is high. Main obstacles to Indias development are:

Improper Infrastructure Larger Fiscal Shortfall Limiting Labor Laws Unreformed Financial Sector

Macroeconomics makes study of an economy at the aggregate level or on the basis of the entre economy. It is associated with the functioning of the entire economy or large sectors of it. These sectors include government bodies, business entity, and home based characteristics. Macroeconomics focuses on such issues as countrys economic output and growth, unemployment, recession, inflation, foreign trade, and monetary and fiscal policies of the nation (Kumar and Gupta, 2008). Stability of the political system/government of the country India is going through a time of not only political improbability, but also economic unsteadiness. But are both of them related to each other? Indias Prime Minister Manmohan Singh made a standing concern of resolving the nuclear contract with the US in the eye of opposition from the Left, at the risk of shortening the time of his government. During the same period, inflation, as calculated by the authorized wholesale price index, had beaten 11% after a break of thirteen years, interest rates were toughening, and oil prices the world over had reached record heights. In India, the countrys gross domestic product had grown by more than 6% a year, two years in continuity, for the prior period of substantial political instability: Gross Domestic Productivity reached high by more than6% in 1995-96 and by 8% in 1996-97. After the beginning of April 2005 and March 2008, for the first time in the more than the five decades long history of independent India, the countrys Gross Domestic Product increased by an average of 10% every year, three years in series. The arrangement of Indias politics was as stable or as unstable as it is at current period, the modification being that the next general elections are planned to get concerned on or prior to April 2009. The months earlier any election contains a time of political bitterness. The condition is not changed this period round (Schofield and Gonzalo,2011). Inflation and unemployment The economy of a country can be directly affected by two significant aspects such as inflation and unemployment.

Inflation Inflation is a continuous increase in prices without a corresponding increase in the quantity or quality of the original produce or services. In clear sense, inflation implies an economical loss of balance and declines a currency's actual and nominal purchasing capacity. The sharper the growth, the quicker the weakening of the currency's purchasing power. Speedy economic expansion is one aspect that may enable price inflation, as a result of uneven control of the money supply. Prominent procedures of inflation in the India are the Consumer Price Index

(CPI) and the Producer Price Index (PPI). When inflation records are used to modify the estimate of Gross Domestic Productivity, it is called as GDP deflator (Shield, 2010).

Unemployment The unemployment rate calculates the percentage of the total number of workers in the work force who aggressively seek employment but are not able to find same. While it is noticed in a straight manner, there are few measurement problems to be taken into consideration, such as what creates searching for a work, how part-time work is evaluated and things that might happen person is skilfully employable but not actively desiring employment for simple reasons. Measurement problems sideways, in overall the greater the unemployment rate, the more the economy is deteriorating labour resources by letting people to stay remaining idle. When unemployment rates are lower there is a propensity to wage inflation because new workers are not easy to be found and workforce frequently need extra incentives in order to take or maintain the work. Due to comprising a modest pool of unemployed workers helps as a barrier to increasing labour costs, most economists observe complete employment (zero or insignificant unemployment) as unrealistic and even unwanted. Structural unemployment apparently lets human capital to flow more easily (and economically) when there are changes in demand for labour in numerous fragments of the economy. It also elaborates that this does not resemble that higher unemployment is seen as optimistic (Wagner,2000). Conclusion After careful consideration and findings of the project concerning the demand and price elasticity of Coca Cola, it can be concluded that the company still enjoy the leading position in the soft drink market. The globalisation and its impact had given an opportunity to spread its operations in major part of the world and making an international brand image for soft drink lovers. Although with immense competition with major competitors like Pepsi, company still enjoys the maximum part of the market share. The effect of inflation although causes a decline in cokes market share, it still remains at the leading position as competitors share also declines due to the same reason. Macroeconomic terms of India says that the market going to grow further quite well as number of youngsters, the major segment of the company had increased since last year.

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