Long-term Investment Decisions
Coca-Cola is the world most recognizable brand in offering soft drinks operating in over 200 countries around the globe. Through product variation and adaptation, the company has been able to realize a wide influence in the market in terms of capital investment. This thesis is concern with long term decision making in Coca-Cola. This thesis presents a particular situation where the government regulations intervene in the merging process. Therefore, the purpose of this desertion is explaining the reasons for and against government involvement in the market economy.
Managerial economics are concerned with several activities in the company including decision making and increasing shareholders wealth or value. Adopting a merge as an expansion strategy is faced by different enabling factors, as well as, hindrances from the government regulations. The government is justified to intervene in the marker economy since the free market economy allows free interactions among mergers devoid of government regulation. Free markets are self regulating; hence they fosters free play among the two institutions a situation that bring several economic conflicts which cannot be controlled in a free market. The fact that there are many players in the market necessitates the need for having laws to govern transaction and their performances to enable the separation of their personal advantage to mutual advantage. The government ensures there are private law and public law to ensure that the market economy functions effectively to benefit all players. The private law consist regulations governing the terms of the contract, property, agency and secured transaction law. The contract law consists of obligations of both parties in the merge, whereas the property law protects the players’ repository wealth including movable properties and immovable properties. The employment and agency regulate the rights, powers, and conditions of persons acting on behalf of either partner’s. The public law protects the public good. The public law provides regulations in cases such as bankruptcy and insolvency, paying of taxes, and environmental laws. Therefore, as much as Coca-Cola is considering expanding through a merger, the company should consider implementing a market regulated by the government other than the free market devoid of government regulations. This shows there is a need for the government to get involved in the market economy.
In the recent era of globalization, government has to be involved in the market economy since the process requires several rules and regulation measure to ensure companies operate within social responsibility and enable the government collect revenues through taxes and revenues that is used for the country economy. Anti-monopoly rules ensure that Coca-Cola is not a sole player in the market of soft drinks. Competition in the market economy ensures that companies provide competent drinks and offer quality services to the customers.
There are several rationales that justify government involvement in the market especially in the United States. Through the use of public rules, the rights of customers and interest are protected. Also, government involvement in mergers ensures proper resolving of conflicts by outlining the responsibilities, rights, limitations, and protocols to be followed by partners. Also, through public rules the government ensures that such companies as Coca-Cola maintain their social responsibilities towards the customers and the society in general through the protection of the environment. Coca-Cola if allowed can create a monopoly where only one company rules over the entire market. However, government interventions ensure rules and laws encouraging entry of new competitors such as Pepsi Co in the market. Therefore, considering the above rationales the United States government is justified to get involved in the marketing process by formulating policies and regulation relevant to the sector to prevent exploitation and protect the public interest and rights.
Considering the above argument, Coca-Cola will face increased threats and regulation in expanding the company performances through merging, therefore; the company can develop the alternative of self-expansion. The self-expansions strategy also has a number of limitations and complexities. The self expansion strategy principally will require Coca-Cola to finance the operations in the capital market outline. Recently, the company has established an expansion strategy in China. Coca- Cola has to conduct risk analysis and capital budgeting before investing in capital projects. Identifying the areas with viable long term investment is a problem due to the uncertainty affiliated to the economy. For instance, the company invested heavily in Russia and Latin America, but now the company is facing reduced sales due to changing economies at the areas. Therefore, the complexities involved in self-expansion includes conducting of risk analysis in a domestic and international perspective, estimating aspects such as cash flows, and the nature of capital budgeting decision method and their repercussions to the company shot and long term goals. Self-expansion strategies include numerous considerations including capital budgeting, risk analysis, and calculation of cash flows in the capital projects identified.
Coca-Cola business environment can be divided into two the microenvironment consisting of stakeholders among them being managers, customers, shareholders, distributors, and other persons related to the organization. The Microenvironment is the second environment, and it is consisted of external factors that affect the market including technology, politics, economical factors, and culture. Both environments provide forces that lead to affiliation of the interest of stakeholders and mangers towards profitability. Political forces affect ensures that the firm adhere to the appropriate standards and regulation governing health and safety standards. Adhering with the governmental standards ensure that Coca-Cola covers a wide market area domestically and internationally. Customer preferences form the greatest influential force in the business of soft drinks. Marketing managers have to engage through an interactive marketing process through the company’s websites to ensure customer preferences and tastes are reflected in the company’s products so as to ensure customer satisfaction, which eventually leads, to more profits. Converging the interest of the company stakeholders and managers begins with the manager conducting scans about the existing stakeholders to help him or her understand stakeholders it terms of their preferences and worries. The second aspect is to engage stakeholders in the process of decision making through online dialogues. Communication is another key that ensure there is the creation of common interests. Leadership management is the main force that ensures there is the creation of common interest through regular communication, adherence to stakeholders’ preferences, and engaging stakeholders in business operations. These forces together create similar objectives directed at creating profitability.
The market economy is complex especially for a multinational company such as Coca-Cola. Government involvement in the market economy is extremely crucial since the free market economics result to unsolved conflicts due to lack of outlined obligations, rights, or limitations governing a partnership in a merger. However, the government provides rules and regulations that ensure players adhere to certain rules and obligations, as well as, limitations and rights. The government provides regulation to govern such aspects as completion in the market, solving cases involving bankruptcy, and protecting the public good. Since there are numerous regulations governing a merger, Coca-Cola ought to use the self-expansion strategy a system that also has complexities, as well. Self-expansion faces complexities such as risk analysis, level of investment, and determination of cash flows in the capital projects. Lastly, there are numerous forces emerging from the external and internal environment that affects the creation of similar interests among shareholders and managers. Among this forces include preferences and engagement level between the two, shareholders and managers.
Deogun, N. (1999, February 15). SwLearning. Retrieved from www.swlearning.com: http://www.swlearning.com/finance/brigham/theory10e/resources/news/02_15_99.html
Mankiw, N. G. (2009). Managerial Economics. New York: Cengage Learning.
Samuelson, P. A. (2010). Economics. New York: Tata McGraw-Hill Education.