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Background of the Coca-Cola Company and its operations in China

Coca-Cola is the largest beverage producer in the world. By the end of the year 2011, the company was reported to have bottling plants in approximately 200 countries across the globe. The company has operated in China for about eighty years. The company first opened a plant in China in the year 1927, but the firms were not remarkably successful.

The lack of success of the earlier plants was attributed to problems of managing in a foreign culture. The company’s mother plant is located in Atlanta, United States where business is based on capitalistic modes of management. During this time, China was still operating on communistic modalities of operation and hence the company could not confer to that mode of management.

As an aspect of globalization continued to gain roots in the economic world, China was forced to reopen its policies paving the way for compatibility and entry of more new firms in China. Coca-Cola has taken advantage of these developments to re-enter the country. Serious operations of Coca-Cola in China began in the year 1979 with the opening of a bottling plant in the capital of China, Beijing (Zweifel, 2002).

As it is today, the company has managed to sustain its operation in China with 35 bottling plants having been opened across the country so far. This does not mean that the company is operating smoothly in the country. There are many hatches of management, which keep interfering with the operation of Coca-Cola in China.

Most of the problems facing the company are related to differences in human resource practices, as well as differences in business management culture between the United States and China. The problem of management of the Coca-Cola Company in China is just one of the examples of the problems that are faced with in the management of subsidiary firms of multinational corporations.

Cultural barriers have been found to impede on different aspect of management for multinational firms. In this regard,systems of management in foreign countries combine with cultural barriers to impede operations of subsidiaries (Coca-Cola Website 2012).

The entry mode of the coca Coca-Cola Company in the international market- China

Fisher, Hughes, Griffin, & Pustay (2006) observed that the opening and running business at the international levels entail a lot of operations which further complicate the efficiency and effectiveness of managing subsidiaries. Firms often find it challengeable to set up business at the international level because they need to address the issue of cultural differences at the initial stages of management (Zekiri and Angelova, 2011).

This is what Coca-Cola encountered during its first attempt of establishing and running a business in China. It is worth to note that, as long as the internationalization of business is one of the ways of establishing competitive advantage, managing business at that level is quite daunting. This is due to high costs of transactions that accompany other factors of management (European Conference on Knowledge Management, Harorimana, and Watkins, 2008).

The success of multinational firms in foreign countries depends on the modes of entry that are used to establish themselves in the international market. As firms enter new markets, they have to learn the corporate culture that is prevailing in the international market and work on possibilities of adjusting their culture relative to the foreign culture.

The international theory has for a long time been used to explain the paths that are taken by firms as they maneuver in international business (Fisher, Hughes, Griffin &Pustay, 2006). It is ascertained in theory that companies make several changes in order to gain full access into new markets (Mead and Andrews, 2009). These changes are meant to ease the adaptability and workability of the country with the foreign corporate culture in the international business arena.

The Coca-Cola Company is argued to have used different tactics to gain access into the foreign market. This has not prevented the company from facing challenges that are faced in international business management (European Conference on Knowledge Management, Harorimana, and Watkins, 2008).

The Coca-Cola Company ventured fully in China market during the year 1979. This year was phenomenal to international business in China because the country was adopting economic changes to help in improving the economic environment for foreign companies. Amidst entry into the Chinese market, the company faced stiff competition from companies like Pepsi-Cola, which has familiarized with the local business environment in the country.

The situation for Coca-Cola was further aggravated by the versatility of the local market environment in China (Chung and Smith, 2007). Coca-Cola is termed as a benchmark in the international market entry and management. This follows the assessments that have been done on the joint venture approach that was taken by the company to enter the Chinese market (Weisert, 2001).

Other people argue that the success the successful of Coca-Cola entry in China was highly backed by the economic reforms that had been implemented China. Therefore, it can be said with certainty that many factors play out to determine the success of management strategies that are applied in entering the international market. Among these factors are the prevailing business policies in international business destination that shape the general business culture (Mok, Dai and Yeung, 2002).

Chung and Smith (2007) observed that China is a large country that has been attaining accelerated economic growth since the mod of the 20th century. This growth has presented both challenges, as well as opportunities to subsidiary firms in the country. Foreign companies often find themselves in a compromising situation because of the cultural gaps in management as well as a problem in conducting business ethics in a foreign environment (Wu, 2008).

The problem of cultural differences in Coca-Cola company management in China

Culture is normally ignored, but it is a critical factor in business management. Culture is complex because it involves many things including language, the general patterns of interaction that are embraced in the country, and modes of establishing business and other relations. Culture is an important factor in international management and cannot be ignored by firms that are managing business ventures at the international level.

In international management, culture has a direct impact in management than the impact it has on a local management. It is difficult for a firm to fit within the foreign culture because of the existence of cultural variations in international business. Being a big country with a large population, China has diverse cultures, which make it hard for adaptability by expatriate staff of the Coca-Cola Company (Chung and Smith, 2007).

This was common in the initial stages of entry of the company in China. It is argued that foreigners have to take a longer period in order to comprehend the business culture of China. The Chinese population is argued to have grown within three main philosophies, which totally affected the way they behaved and interacted even in business. These philosophies are Taoism, Confucianism, and Buddhism. Other people considered them religions.

Business behavior has and is still being influenced by sub-philosophies emanating from the three main philosophies. Being a company that was born in United States – Western Culture, Coca-Cola experienced challenges while following interactive principles in the culture of China. For instance, Feng Shui is considered the main strategy that is used to advance and attain success in business.

This philosophy posits that environment influences the fortunes of people. Therefore, business transactions or decision making are mostly modeled around this principle.

The philosophy of Confucianism has made the Chinese develop a character that makes them believe in themselves more than what they do. Chinese people did not believe in entering business contracts with foreigners. However, they have begun doing so because of globalization and the realization of the benefits of international business. While most companies prefer taking a corporate approach in contacting business, this case cannot be easily applied to China.

Multinationals operating in China including the Coca-Cola company are forced to take a people inclined approach of conducting business instead of the corporate approach. This makes it complicated for the multinationals because of different aspects of culture like language, which has to be totally understood thereby facilitating personalized business deals.

The other philosophy or principle, which affects management of business in China, is Guanxi. This principle entails the interchange of favors amongfirms. Therefore, the expansion of business in the country is significantly affected by this principle (Wu, 2008).

Effect of culture and local language on Coca-Cola operation in China

One of the important factors of management at the international level is communication and language. Businesses operating on the international scene are supposed to factor this component in international management. Firms experience challenges while adapting to the local language.

This is especially in cases where firms are using expatriate staff to manage firms in foreign countries. Welch, Welch, and Piekkari (2001) observed that language could be a substantial barrier for human resource management. This is especially for subsidiary firms wherethe home country uses a different language compared to the language used in the country where subsidiaries are located.

The case for Coca-Cola company operation in China is no exception because of the vast lingual gap between United States, where the parent company is located, and China where the company has subsidiaries (Coca Cola Company 2010). Companies are bound to fail if thy find it difficult or they take long to adapt to the new language spoken in the foreign country.

Language barrier has been argued to be one of the factors that inhibit the success of multinational companies upon entry into new or foreign business environments. Coca-Cola prefers to use expatriate assignees in international markets and the same applies to its operations in China. The dependence on local languages limits the ability of the expatriate managers to communicate with the local staff working in the firms (Thomas, 1998).

Human resource management pays a lot of emphasis on close and open communication to build positive working relations firms. International human resource management experts are ascertaining that achieving open communication in international firms is quite challenging due to the language barrier (Welch, Welch, and Piekkari, 2005). The foreign companies in international markets aresorting the problem of language in expatriate management in different ways.

The Coca-Cola Company uses expatriate staff in subsidiary management to solve the problem of language constraint within international management. Coca-Cola has been shifting from dependency on using expatriate workers in managing subsidiaries because of the high rate of expatriate failure in international business administration assignments (Harzing and Pinnington, 2009).

Thomas (1998) noted that the high rate of expatriate failure is linked to numerous factors. These factors include difficulty in adapting to the foreign culture within destinations where subsidiaries are located. Expatriate workers also increase the cost of management in foreign destinations.

Costs of sustaining the foreign staff in foreign countries are argued to be unusually high. In this case,many resources are used in conducting activities to aid these staff to adapt to a foreign environment and foreign business cultures. In many cases, full adaptation of expatriate workers in international companies working in foreign lands is rarely achieved. Expatriate staff is deemed to have remarkably little knowledge on how local business environment of foreign countries is structured.

Therefore, they take a lot of time to learn and adapt to management practices used in these countries at the expense of implementing real business practices (Shay and Baack, 2004). Though it is argued that international business practices are becoming more harmonized because of globalization, it will take a little longer to attain real harmonization (Le´vy, 2007).

Fragmentation of business cultures is argued to continue dominating international business (Huang and Evert, 2003). The other action being taken by the Coca-Cola Company in eliminating cultural barriers to subsidiary management in China is training.

The company takes time to prepare staff for international assignments by training them on the culture of foreign countries where the firm is doing business. However, this aspect of international business management enhancement is argued to be ineffective (Berger, 1998). Coca-Cola prefers to use a similar model of business management in all its subsidiaries (Harzing and Feely, 2008).

Harzing and Feely, 2008 observe that many firms are thinking of the possibility of merging these to practices, which entails the use of few expatriate managers combined with local managers. The assumption is that these two sets of managers will learn from one another to propel business. Nonetheless, conflicts are bound to be inherent in such cases (Peltokorpi, 2010).

Numbers of local staff who work for international firms operating in China have been increasing with the increase in the number of international firms operating within the country. The number of expatriate staff has also been increasing but at a much lower rate. This indicates the efforts of firms to breach cultural hindrances in managing firms within China. This trend is as represented in the graph shown below:

The graph of composition of staff in foreign subsidiaries in China

Graph of composition of staff in foreign subsidiaries in China.

Conclusion

Many firms are opting to expand business operations resulting to the growth of international business. Managing business in the international market is not a straightforward exercise because of management barriers. Cultural differences are the major hindrances of managing business internationally.

The barriers include language difference and differences in modes of managing business. These hinder the management of Coca-Cola Company in China. The Coca-Cola Company is attempting eliminate this hindrance by taking a dual approach in managing its firms in China.

Reference List

Berger, M 1998, “Going global: implications for communication and leadership training,” Industrial and Commercial Training, vol. 30, No. 4, 123-127.

Chung, M and Smith, W 2007, “The Importance Of Overcoming Cultural Barriers In Establishing Brand Names: An Australian Company in China,” Innovative Marketing, vol. 3, No. 2, pp. 31-41.

Coca-Cola Website 2012, Career Opportunities with Coca-Cola China. Web.

Coca Cola Company 2010, Coca Cola Continues Strong Investment in China. Web.

Harzing, A, and Feely, J A 2008, “The language barrier and its implications for HQ-subsidiary relationships,” Cross Cultural Management: An International Journal, vol. 15, No. 1, 49-61.

Harzing, A and Pinnington, A 2009, International Human Resource Management,: Sage Publications, London.

Huang, X and Evert, V 2003, “Where intrinsic job satisfaction fails to work: National moderators of intrinsic motivation,” Journal of Organizational Behavior; vol. 24, No 2, 159-179.

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Mok, V, Dai, X, and Yeung, G 2002, “An Internalization Approach to Joint Ventures: The Case of Coca-Cola in China,” Asia Pacific Business Review, vol. 9, No. 1, pp. 39-58.

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Zekiri, J and Angelova, B 2011, “Factors that Influence Entry Mode Choice in Foreign Markets,” European Journal of Social Sciences,vol. 22, no. 4,pp. 572-584.

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