The annual report is a comprehensive report that summarizes activities of the company. The main objective of the annual report is to provide information to its internal and external stakeholders regarding company’s performance and activities. The document summarizes and discusses the information presented in the annual report of Coca-Cola.
Coca-Cola is one of the leading beverage company that licenses more than 500 nonalcoholic beverages such as mineral water, juices, energy drinks, coffee and other sports drinks. The company was established in 1919 under the law of State of Delaware and is currently headquartered in Atlanta Georgia (“Annual Report: Coca-Cola SEC 10K”). The company has tremendously expanded its business since its establishment. Coca-Cola particularly operates under franchised distribution system. The company has expanded its business across 200 countries across the globe by strengthening its strategic agreements with its global partners (“Annual Report: Coca-Cola SEC 10K”).
1. Summarize comments made in annual report
The annual report of Coca-Cola highlights that the company has six international operating segments that are Europe, Latin America, North America, Asia-Pacific, Eurasia and Africa (“Annual Report: Coca-Cola SEC 10K”). However, no particular detail about the international operation and overseas expansion plan is presented in the annual report. However, the annual report illustrates the strategic agreement (10 years) of Coca-Cola with Green Mountain Coffee Roasters Inc. It is briefed that this strategic collaboration is to increase its sales and revenues. Coca-Cola is inclined to improve its sales by developing a strategic agreement to expand its operations overseas and increase its revenues.
2. Summarize MNC international operations
Coca-Cola is inclined to increase its sales by establishing a stronger relationship and agreement with its international franchised and bottling partners. Currently, Coca Cola’s distribution system and bottle agreements are expanded in more than 200 countries across the globe serving more than 1.9 billion people each day. The information provided in annual report highlights that the company aims to expand its business by improving its marketing presence to increase its sale volume in developed, developing and emerging markets.
Regarding its internationals sales information provided in annual report (2014) highlights, "The Coca-Cola system has sold 28.6 billion unit cases for our products in 2014, 28.2 in 2013 and 27.7 billion in 2012 (“Annual Report: Coca-Cola SEC 10K”). However, the amount of unit case sold does not include the sales of its international segments including North America and some brand owned by Russian Juice Company. The unit case sales of United States contributed to 19 percent of the international unit case sales volume of the company (“Annual Report: Coca-Cola SEC 10K”). It can be noted that the major unit case sales were done from United States region. The largest unit case sales for international sales of Coca-Cola in 2014 were from Mexico, Brazil, and Japan.
The growing demand for nonalcoholic beverages in the different region were the most influential factors that motivated the company to expand in other countries. There are some other acquisition and strategic collaboration with the leading companies to improve its sales volume. Recently Coca has entered into a global strategic agreement with Green Mountain Coffee Roaster Inc. also known as Keurig Green Mountain Inc. (“Annual Report: Coca-Cola SEC 10K”). The main objective to develop a strategic agreement with the company is to introduce itself as a global brand portfolio to increase its production and sales. The company is more focused to expand its beverage brand to increase its revenue streamlines.
Coca-Cola is inclined to increase its sales through licensing, joint ventures and strategic partnership (“Annual Report: Coca-Cola SEC 10K”). The strategic alliance benefits the company to expand its business in the international market as it facilitates the company with the ease of market entry, shared risk, shared knowledge and expertise and competitive advantages. Coca-Cola is inclined to develop strategic agreements with global partners for internationalization. It benefits the organization to penetrate in the local markets efficiently. It significantly contributed to overcoming political, economic and social obstacles with ease. It is because if the organization enters the new market it needs to understand different needs, consumer behavior, demographics and market conditions.
Through a strategic alliance, the company can gain more knowledge about the market and its consumers. The collaborative partners work with the company, sharing similar organization goals and objectives. Shared responsibility for development and execution can benefit the company to perceive trends and patterns prevailing in the market. By developing strategic agreements with distributors and bottling partners, can improve overall performance, as it involves shared responsibilities, limited participation, lessen burden and liabilities, reduces capitalization and reduces opportunity costs.
At the same time, it is important to ensure that the organizations sustain a long-term relationship with its partners. The strategic alliance has enabled Coca-Cola to penetrate in the local markets effectively and has enhanced information and knowledge regarding diversity issues (Griffin and Pustay). By developing strategic agreements, Coca-Cola can understand needs of the market. One of the major benefits of the company is that by entering into a strategic agreement the effective information enables Coca-Cola to align its marketing strategies collaboratively (Griffin and Pustay).
Coca-Cola is focused to increase different types of products in its product line those suppers keeping in view the needs of local and international consumers. Therefore, Coca-Cola has signed some agreements and partnership with the local companies as well as global companies to enter the new market by selling a variety of beverages. According to the information provided in Annual Report (2014) of Coca Cola it can be identified that the Coca-Cola is engaged in some strategic alliance agreements in different regions of the world.
In the United States and Canada, the company has signed its agreements with third-party distributors with the DPSG brands to increase participation in sales of non-alcoholic beverage through licensing. Also, the company has entered a joint venture with Nestle and Beverage Partners World Wide to increase the sales in the region of Europe, Canada and Australia under the trademark ‘Nestea’. Coca-Cola has signed a strategic partnership agreement with Aujan Industries Company that is one of the largest beverage companies in the Middle East. Moreover, Coca-Cola has hand over 50 percent right to its distributor to produce other regional beverages brands such as Rani and Barbican (“Annual Report: Coca-Cola SEC 10K”).
3. Internationalized operations
Coca-Cola borrows funds domestically due to reasonable interest rates instead of borrowing fund internationally. For debt financing, Coca-Cola mainly makes use of the commercial paper program to address the needs of customers. For long-term and short-term financing that the company makes use of commercial papers, short term debt and long term debt from the local and international financing companies and banks (“Annual Report: Coca-Cola SEC 10K”).
Coca-Cola makes use of different financing methods to finance its activities. The company is inclined to make use of debt financing rather than equity financing. It is because the capital structure of the company is the primary reason due to which it makes use of debt financing as it allows the company to reduce taxation and capital cost. The cash flows of the company are generated in domestic currencies, cash equivalents, short-term investment, marketable securities, cash flows from operations and other financing activities. However, the capital fund is mainly gained in domestic currencies. The generated cash flows from its operations are used to make the annual payments. However, some portion of its earning is retained by the government of United States.
The annual report (2014) indicates that the substantial amount of operating income and income in foreign subsidiaries that is reinvested in a foreign jurisdiction (“Annual Report: Coca-Cola SEC 10K”). These investments are used for the development and growth of international operations of the company. The cash flows from the international operation are then exchanged for United States dollars. In 2014, the foreign currency fluctuation was influenced by many factors. On the basis of information provided, it can be noted that the cash generated from the cash flows are used to cover annual payments. However, the cash flow from operations affects its annual payments.
Moreover, it can also be noted that the company makes use of amount generated from cash flows to cover its annual payments. It can be noted that there is no issuance of bonds have been done in the year. Perhaps, the company has long-term corporate bonds will be matured to need the future payment patterns against its payments. Coca-Cola faced some losses in 2014 because of fluctuation in the currency rate that has affected profits of the company (“Annual Report: Coca-Cola SEC 10K”).
The unexpected and devaluation of currencies in developing currencies have affected earnings of the company adversely. However, the annual report provides brief information about the fluctuation exchange rates. The company is looking forward strengthening of US dollar in larger developing countries but no particular decision of the company to deal with the fluctuation rates have been reported in annual report of company (“Annual Report: Coca-Cola SEC 10K”).
4. Political risk exposed
Coca-Cola is a multinational company and operates in the different regions of the world. Therefore, the company is exposed to some unfavorable political and economic risks in the international market. Warren, Reeve, and Duchac define political risks as, 'a type of risk faced by investors, corporations and government' (Warren, Reeve, and Duchac).
Multinational organizations operate in the different region of the world, where they are exposed to some social, economic and political risks. Political risks are mainly associated with the political conditions, international relation and other commerce policies that influence activities of organizations (Murphy).
The company is mainly exposed to number of political issues in the Asia and Middle East because of civil unrest and governmental changes that has significantly affected global consumer confidence, purchasing power and demand for product in international markets. Political Risk creates hurdle, barriers and obstacles for the company to persuade its business activities efficiently. One of the major political risks that the Coca-Cola faces is the product boycott because of political activism in different regions of the world. The negatively impacts consumption behaviors and patterns, resulting sales and profit reduction of the company (“Annual Report: Coca-Cola SEC 10K”). It has made it difficult for Coca-Cola to execute its business in the region. The company is facing consequences to persuade its business activities in the regions like Saudi Arabia, Iran, Syria and Palestine because of political resistance. The boycott of the products has declined revenues the company that can lead to severe losses.
Moreover, the company is also exposed to restrictions because of governmental policies of the countries. It has restricted the company to transfer earnings across the border (“Annual Report: Coca-Cola SEC 10K”). The restriction to transfer makes it difficult for the parent company to transact the amount generated from its other operating segments to allocate for its other operations and business activities. The government policies restrict transactions of the larger portion of the amount out of the operating country. The company also faces issues of price control, import authorization, limited profits and restrictions on other activities business in the different region of the world (“Annual Report: Coca-Cola SEC 10K”).
The company is exposed to political and economic instability that can impact US trade sanctions in different countries like Iran and Syria have made it difficult for Coca-Cola to accept transactions for commerce in such countries (“Annual Report: Coca-Cola SEC 10K”). These legislative restrictions and policies have exposed the company to greater risks to persuade its business activities. Most of domestic financial institute have also made it difficult for the company to take loans or debt from this institution. The uncertainties because of changing government, interest rates and taxation policies for multinational companies in different countries makes it difficult for the company to continue to make sales.
5. Changes in exchange rates affected company’s profits
The foreign currency fluctuation has decreased operating revenues of the company by 2 percent. The fluctuation in exchange rate of the company was because of the constant change in the exchange rate of US dollar and other currencies that includes South Africa, Brazilian real, Australian Dollar, Japanese Yen and Mexican peso. These changes in the exchange rates have casted negative impact on Eurasia and Africa, Latin America, Asia-Pacific and Bottling investment of the company (“Annual Report: Coca-Cola SEC 10K”). However, some of the other currencies offset the impact of weak US dollar. British Pounds and Euros have casted favorable impact on the losses due to fluctuation in US dollar (“Annual Report: Coca-Cola SEC 10K”).
It can be noted that the recent changes in US dollar has favorably and unfavorably affected profits of the company. The recent US Dollar movement appears to weaken due to which Coca-Cola may face losses. Coca-Cola faces economic exposure; it is because the value of the firm is dependent on US dollar. Therefore, the Coca-Cola has been facing consequences due to unexpected currency fluctuation that has affected company’s future cash flow and market value in the long run. It can be noted from the information provided in the annual report of Coca-Cola that the company faced losses because of the unexpected exchange rate. Also, the devaluation of other currencies also contributes to the profits of the company. The Annual Report (2014) of Coca-Cola highlights that the company is exposed to some economic risks. However, the company aims to correspond these issues through its economic hedging.
One of the major economic risks that the company is exposed to is hyperinflationary economies that have adversely affected profits and revenues of the company. Also, the constant change in fiscal and monetary policies, growing inflation rate, interest rate, and taxes have negatively impacted the performance of the company and its profitability (“Annual Report: Coca-Cola SEC 10K”).
6. Coca-Cola benefited from its international operations
Based on the information provided in the annual report of Coca Cola it can be identified Coca Cola’s international sales increased by 2 percent in 2014 despite structural changes, acquired brands and new licenses brand (“Annual Report: Coca-Cola SEC 10K”). There was a significant increase in the profits of the company, as the sales volume of the company has significantly increased in the current year. Though the profits of the company have been affected by some factors, it can be noted that there has been a significant increase in the revenues of the company. It can be noted that the revenue growth has improved in the present year. It is predicted that the company will benefit from its international operations. However, there are many other factors such as economic and political factors that have adversely affected the profitability of Coca-Cola.
It can be noted that the growing political and economic barriers in the international market have created obstacles for the company to persuade its business activities in different regions of the world. Political unrest in Syria, Palestine, Iran and Afghanistan has adversely affected Coca Cola’s operations The Middle East, Asia and Africa (“Annual Report: Coca-Cola SEC 10K”). The emerging political activist movements have boycott use of Coca-Cola and other products. Variation in the profitability in the different regional operation influences overall profitability of the company and its market position. The inflationary environment have caused profits of the company negatively. Hence, it is important for the company to strategically deal with these issues to improve its overall performance (Warren, Reeve, and Duchac; Murphy).
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