KO Ethics Market Entry Into

KO Ethics

Market Entry into China

When Coca-Cola decided to enter the Chinese market, the company set out a strategy that emphasizes rapid growth. As of earlier this year, Coca-Cola opened its 42nd bottling plant in the country and has built distribution networks to almost every corner of the land (Trefis, 2012). Despite this massive push, the company's Chinese operations fall under the "Pacific" regional grouping in the company's geography-oriented organizational structure. Coca-Cola's China unit is a subdivision within Pacific (Coca-Cola.com, 2012).

Coca-Cola entered China by building out its own infrastructure. This is in contrast to its approach in the U.S., for example, where Coca-Cola bottlers are independent operations. Bottlers in China are run by the company. This has led to problems, for example with the chlorine issue in a Shanxi plant earler this year that caused a scandal (Abrams, 2012). The company therefore has undertaken a more comprehensive vertical integration than it normally does when entering new markets. This allows the company to work more closely with Chinese officials, and it also allows for Coke to have greater control, specifally over things like product quality. Coke was able to resolve the chlorine issue quickly as the result of having such control.

Coca-Cola has also sought to grow by acquisition. The company had problems earlier this year when the Chinese government rejected its $2.3 billion bid for Huiyuan Juice, a Chinese-owned company. This highlights that Coke is seeking to grow its market in Chian quickly, but also that the company is going to have problems with its vertical integration approach that minimizes cooperation with Chines partners. However, that the company is using Western management techniques bodes well for its ability to behave ethically, specifically with respect to its desire to avoid bribery and corruption. It would have bribed its way to that deal, but instead chose not to, even though ultimately the deal was blocked.

Leadership is in short supply in Chinese business, so Coca-Cola has relied on foreign managers, even those from Taiwan or Hong Kong, to bring expertise. This has proven to be a challenge anyway, as the chlorine issue highlights, as there is a lack of experience at the plant level and problems like that occur. Thankfully, the company has enough foreign talent in place to ensure that issues like that are dealt with quickly and effectively. It is necessary to ensure that the company has some of its top people in the country, given that it expects China to be its largest market at some point in the next several years, and that it is currently growing at a rate of 14-15%, outpacing the growth in the Chinese economy (China Daily, 2007).