Coca-Cola and PepsiCo's strategies for penetrating the Chinese market

Strategic Decision Making

Case Analysis -- Final Exam

"Cola Wars in China: The Future Is Here"

Coke/Pepsi and International Strategy for Penetrating the Chinese Market

Going global is the next move of virtually any successful American company. However, when it comes to penetrating the markets of nations that are drastically different from the U.S., one needs to be aware of these different cultures and expectations and use this knowledge to guide one's actions fully and succinctly.

When it came to companies like Coke and Pepsi, companies that are absolutely massive, they both used differing strategies in a nation as specific as China. When Coca-Cola had launched in China, they had just instituted a very specific and strategic method of integration: " 'think local, act local, but leverage global' mandate to empower local decision makers, in recognition of the need to both respond to local preferences and react to local competitors" (Dai). Thus, Coca-Cola's strategy was one marked by aggression and a proactive engagement: the initial investment that Coca-Cola used was of $1.1 billion. Part of the success that Coca-Cola was able to experience was connected to the fact that it was aggressive, but also highly adaptable. The company not only pushed forward their standard products to the Chinese market, such as Coke, Pepsi, Fanta and Sprite, but they also developed new products that the Chinese market would no doubt be more receptive to. Heaven and Earth, Jinrneile, Smart, Lenfang, Qoo, along with a new water brand called Sensation. These new brands were all particularly marketed to the Chinese audience in a manner that would seem familiar and which would evoke pleasurable responses. For example, common cultural items like windmills and dragons would be used, along with local film stars and famous athletes, including gold-winning Olympic athletes. This allowed the Coca-Cola Company to engage in a certain amount of national pride and to fully flourish within their most pressing cultural advances and achievements. While the company was able to experience around $189 million in revenue, consumption of coca cola was still far below that of the United States, as in America the per capita consumption is 415 servings, 163 in Japan, 98 in Europe, and 68 in South Korea (Dai). Thus, while these efforts were indeed valiant and smart, they didn't produce the desired results that were meaningful to the company at large.

PepsiCo adopted a similar strategy when it came to debuting to the Chinese market. PepsiCo first debuted to the Chinese market by signing a deal with the Chinese government which established a certain level of partnership in 1981. Twenty years later the company, like Coca-Cola had invested half a billion dollars in China, by developing bottling plants and by pushing forward all of its carbonated soda varieties, such as 7up, Miranda, and Mountain Dew. In order to connect more strongly with the Chinese market, it also bought Chinese varieties of these brands, such as Asia, Arctic and Tianfu. Chinese entertainers and famous personalities were also hired as brand ambassadors. However, none of these tactics ever proved to offer any level of notable success. As it turned out, "high marketing costs and conflicts with joint venture partners were holding the company back" (Dai).

The Success of Wahaha: Resources Capabilities and Competencies

One of the major items that allowed Wahaha to success where massive companies like Coke and Pepsi had failed were as a result of the company's strong confidence and leadership. "Zong firmly believed that local companies were capable of competing with multinational players… He concluded that the failure of domestic colas in the early stages was due to their lack of marketing and brand management skills, and that Wahaha had proven that it had these skills. As well, he believed that some domestic producers did not want to compete with multinationals because they did not have the confidence to compete against the giants. Confidence was not lacking at Wahaha" (Dai). This is indeed a revelatory summary of the situation and one which should not be underestimated. The leader of Wahaha demonstrates that he is able to accurately appraise the situation and to give an accurate assessment of what's really going on, something that most other companies appeared unable to do. By engaging in this accurate assessment, Zong put the company in a place where it would be more likely to succeed, as result of their openness and honesty about why others had failed and what they needed to do to ensure the success of their product. Thus, it was confidence combined with a strong amount of realism which put Wahaha in a situation where the company would be more likely to succeed.

Another aspect which is directly connected to the reason why Wahaha succeeded where larger companies failed lies in their approach. Zong decided to target the rural market first, an entire area which had long been neglected by Coke and Pepsi. This was such a smart move, because the rural market represented a massive part of the entire nation's population: the rural market was composed of 1.1 billion people. The Wahaha firm had an inherent advantage in that they probably understood the rural market better than any of these foreign companies, and that the rural market would be more likely to trust their product over the product of a major multinational company. Furthermore, the success of Wahaha was also entrenched in the fact that the company didn't skimp when it came to research and development. Zong was fully invested in creating an excellent product and the company was dedicated to doing that no matter what. Finally the company didn't try to cut corners when it came to marketing. Their products were aggressively branded, and offered in a variety of sizes and massive TV campaigns were launched in order to gain consumer attention to these products. Getting the product out to the rural market was done through a nation-wide and comprehensive distribution network, allowing the company to make contact with rural customers in ways that Coke and Pepsi had failed: "Wahaha played on its strength in the countryside where the trade was fragmented, and reachable primarily through multi-layered wholesale markets. Distributors who had been working with Wahaha for years and who had benefits from Wahaha's remarkable growth, supported the launch of the cola" (Dai). Thus, Wahaha had relationships long in place which allowed it to draw upon for the successful expansion of its product line. These foreign companies thus couldn't compete with the company in this manner.

Wahaha Future Corporate and Business Strategies

Wahaha should consider the strategies that have thus far worked well for it: self-awareness and self-knowledge along with a healthy dose of confidence appear to be pivotal. The company is self-aware of their strengths and seeks to capitalize on them. The company is also aware of their weaknesses and seeks actively to improve them. For instance, one strength that the company undeniably brought to the table was revolved around their intensive knowledge of the ins and outs of the nation. The company knew more thoroughly the needs and resistances of the rural population and how to go about winning over this section of the market. This company also knew that if it was going to compete in any meaningful way with these MNE, it would have to really invest time and energy in creating a superior product. Thus, the Wahaha company invested a great deal of their resources in research and development so that when their product was ready to compete, it would do valiantly. Finally, the Wahaha company understood the importance of marketing and made sure a strong portion of their budget was firmly rooted and invested in this arena.