Dipartimento di Impresa & Management Cattedra di Global Economic Challenges Global Value Chain: The Coca-Cola System RELATORE Prof. Luigi Marengo CANDIDATO Gabriele Corea Matr.664361 CORRELATORE Prof. Gianfranco Di Vaio Anno Accademico 2015/2016 1 Table of Contents Abstract 1. An introduction to the Global Value Chain: story and development throughout time.......................................................................................................................6 1.1. The history of World Trade...........................................................................8 1.2. Trade Theories...............................................................................................8 1.3. Agglomeration Forces vs. Dispersion Forces..............................................14 1.4. Which stages are offshored?........................................................................15 1.5. Type of Value Chain Governance...............................................................17 1.6. The importance of FDI................................................................................18 1.7. The technological flows of know how........................................................20 1.8. What future for GVCs?...............................................................................22 2. The Soft Drink World: the structure, the main drivers and players...................24 2.1. The Birth of The Coca-Cola Company.......................................................29 2.2. The Coca-Cola Company: The Profile........................................................35 2.3. The Coca-Cola System................................................................................39 2.3.1. Coca-Cola HBC................................................................................42 2.3.2. Coca-Cola FEMSA...........................................................................45 2.3.3. Coca-Cola Enterprise........................................................................47 2.4. The Coca-Cola Company SWOT Analysis.................................................48 2.5. Growth strategy: organic growth and acquisition.......................................54 2.6. Differences between Coca-Cola and PepsiCo Business Model..................55 3. Coca-Cola Bottlers: challenges of the major anchor bottlers in the world.........58 3.1. Coca-Cola Refreshments.............................................................................58 3.1.1. The next step in the North America System.....................................61 2 3.2. The Coca-Cola Enterprise and the birth of Coca-Cola European Partners plc................................................................................................................65 3.2.1. CCE: the most important independent Bottler and its challenges....66 3.3. Coca-Cola HBC...........................................................................................73 3.3.1. Coca-Cola HBC strategy...................................................................73 3.3.2. Established Markets vs Developing Markets vs Emerging Markets.................................................................................................77 3.3.3. The Challenges in Emerging Markets...............................................84 4. Conclusion..........................................................................................................87 5. Bibliography.......................................................................................................90 3 Abstract In this study I will analyse how The Coca-Cola System works, its characteristics and its trends. Throughout the last century, the world has seen huge and great changes in social, political and economic terms. These changes are mainly due to the technological improvement that the world has experienced. These technological improvements are really connected and strictly linked with the phenomena of globalization. The globalization is the increase of interdependence of economies across the world. The globalization and the technological improvements together brought also some changes in how producing products: after the Second globalization wave (1980) that was characterized by the ICT (information, communication and technology) revolution, some organization in the world begun to split their value chain in order to place each different stages in different places exploiting the positive features of each geographic area. The value chain is the sum of the total activities that are needed, by a firm to produce a product from the conception stage, to the end use and beyond. When a company decides to split and locates in different places each stage, we are in front of a global value chain. The Coca-Cola System is one of the major examples of global value chain. In The Coca-Cola System there are two main players: The Coca-Cola Company and the Anchor bottlers. The Coca-Cola Company creates the demand throughout consumer and brand marketing instead each different bottlers in their different territories are responsible for meeting this demand. The Coca-Cola Company is responsible for the production of the concentrates, has the ownership of all the brands or it has the licence to produce and sell the ones that it does not owned; it is also responsible for the consumer marketing of the products and for all the external relationship between the Company and all the third players. The Anchor Bottlers are responsible for the production of the final product from the syrup that they buy from The Coca-Cola Company; they are responsible for the selling part of the value chain and for trade marketing and all the relationship with the local community and with the local government. There will be also a deeper analysis on three major bottlers in order to better understand which are the features and main challenges of each one. 4 At the end, I will finally try to deduce which is the trend that characterized last years of The Coca-Cola System and how this trend could evolve in the next years. 5 1. An introduction to the Global Value Chain: story and development throughout time. During last years, the world has seen different phenomenon in the economic development driving by the globalization. The global value chain is one of these new phenomena. But what is in the first place a “value chain”? A value chain is the sum of the total activities that are needed, by a firm to produce a product from the conception stage, to the end use and beyond. All of these steps might be performed by a single entity or might be split within different companies that are then responsible just for those single steps. Further, there are some situations where different steps might not take place in the same countries: in this situation, we are dealing with a global value chain. The global value chain is a phenomenon due to three basic ingredients: globalization, technological changes and political changes. All of these ingredients are really interconnected each other. There were some key pillars that influenced the birth of global value chain which also characterize globalization: lower transportation and communication costs and new economies of specialization, scale and scope. The globalization is the increase of interdependence of economies across the world. This definition takes into account a lot of economics and social activities as: migration, finance and technology in addition to trades. The major result that the globalization has brought is the increase in trade across the world. The international trade in goods and services as a share of GDP has been increased throughout the years: the exports in the OECD countries grew by a 26.4% to 29.4% and instead the imports increased from a 27% to a 29.8% from the 2007 to 20121. The fact that the rich countries have increased their exports and imports, of the same category of products, is called “intraindustry trade”. As we know, this intraindustry trade is not justified by the traditional trade theories that academics have studied. Another key pillar of the globalization is the increase of the international financial flows. These flows could be split into two different sub categories: the foreign direct investment (FDI) which are all the inward flows that go 1 Source: OECD Factbook 2014 6 directly toward investment in factories, machines, and businesses; the other sub category is portfolio investment, which are all the international inward investment that are (principally) made in shares and bonds.2 Generally FDI have a greater impact on economic growth than portfolio investment: this is due since FDI concerns and is influenced by know how. In fact, one of the most important result and also driver of the globalization itself is the flow of the knowledge across the world. In order to better understand the weight that the FDI might have in the economic growth for a country, could be useful to take into consideration and analyse in a deeper way one of the emerging and faster economy worldwide: the Chinese’s Economy. The FDI were one of the greatest and principal components for the Chinese growth. From the 2000 the GDP in China was constantly increasing, with a mean of 3.45% between 2000 and 2005 and this growth was driven by a steadily growth by exports and FDI3. Between the years 2005 and 2011 the growth was even at a higher rate with only a fall during the 2008 due to the financial international crises. This increment of FDI in China, have been started in 1978 with the so called “open doors policy”. This policy had its final conclusion