Multinational company.
A multinational company is a company that has got its facilities and assets in other countries other than the home country. These kinds of companies are said to have factories or offices in varied countries and they usually have a central headquarter that coordinate the global management. In this case, the multinational company under study is the coca cola company.
About the company.
The company of coca cola is a multinational beverage company corporation of American history and a retailer, manufacturer, and the marketer on beverages syrups and concentrates that are nonalcoholic. The company has its headquarter in Atlanta, Georgia. The company is well known for its popular product coca cola.
The company was formed by John Stith in Columbus in 1886. The company runs a system of franchise distribution that started from 1889 when the company produced on the syrup concentrate that was the sold to some bottlers across the universe who had a separated territory. The anchor bottler of the company is found in North America. ( (Depan & Doz 1986).
Pricing of revenue and costs in the cola coca company.
The products of Coca-Cola Company are of the same level with those of the competitors so as to meet the pricing competition. The company has to be perceived as different from others but affordable.
. Just like the other company that has existed for a longer period, Coca-Cola Company has to remain consistent and fluent with the strategy of pricing. Stiff competitions from other big companies have made the coca cola company faster, smarter and better. ( (Depan & Doz 1986).
The company has been making many decisions on pricing of its cost and revenue with the goal of maximizing the value of the shareholder. Coca-Cola company makes use of the lower price points to make a penetration into the new markets that are sensitive especially to price.
It does this to face the competition and to raise the awareness of the brand among the target group. Once a brand is well implemented, it positions itself as the premium company about other competitors.
The brand at the moment will possess the image or bring the intangible benefits in lifestyle, moments of happiness and joy and group affiliation. The marketing strategy will still focus on affordable life enjoyment.
At the retailers level, there are the regular on pack promotions so as to meet the objectives of the company as well as attract the consumers to purchase them even more.
Regarding revenue pricing, the company prices their products in a way that it can consolidate the maximum revenue that can be found. This is done by considering the demand of the public or the consumers and ensuring that the prices are not too high or low as compared to that of the competitors charging the consumers. Otherwise, there would be no sales or buying of the products thus leading to low priced revenue.
The contribution the operational companies are making to the parent firm’s profits.
The coca cola company has, by and large, spread all over the world was serving a great population. The company has continuously gained momentum and growth as is capitalizes on the fast expanding industry of beverages and ranked as the largest company of beverages in the world.
. The company expanded greatly after the Second World War. It has proven its flexibility and innovative nature all around the globe, adapting to the local eras of news and markets without distorting the image of the brand
. The company itself sells the syrup that is highly concentrated to bottling companies who add the carbonated water and then bottle the end product before distributing them and selling to the market. the company has the full control to make the investment in bottling companies as well as withdrawing themselves when the bottlers are not meeting the high standards of the company.
The company provides a lot of resources for their operational nations that sell their products for them to maximize their potential regardless of the kind of environment they are operating.
One of the operational countries is the South African nation and the Eastern African countries. The efforts of the company in African continent speak a lot about the economic strength and the size of the company. ( (Depan & Doz 1986).
The two regions of Africa that is the Southern Africa and the Eastern African made an agreement to combine the operations of bottling of their ready to drink non-alcoholic drink beverages businesses.
The new bottler. That is the Coca-Cola Beverage Africa, is aimed to serve the 12 high growing nations that account for about 40 percent of all the coca cola drinks in the African region.
This amalgamation is just not for the sake of the benefits and profit of the African nations but also at large the parent Coca-Cola Company also harvest some profit from them. Africa with the two operational regions that are the Eastern and Southern Africa offers a significant potential for growth in beverages that is underpinned by the increasing individual disposable income, a population that is growing fast and increasing the per capita consumption.
This, by and large, throws back the profit to the mother coca cola company since the demand and the consumption of their products are too high. The coca cola Beverage Africa would be the biggest coca cola bottler in the entire continent, with the scale and capabilities that are complementary and the resources to acquire and accelerate the top line growth.
This aspect would allow the merged company to develop the best practices of operation and invest in the production, distribution and sales, and marketing to make benefits from the expanding demands and the drive for gaining profit by the company and the parent company ( (Depan & Doz 1986).
The means the coca cola company use to hedge against exchange rate risk
Because a large number of the developed currencies are free-floating, it is impossible to make the prediction of the value of the asset in the currency of a foreign nation at any point in time in the future. It is obvious that influence greatly the return of the investments.
International business activities carry the risks that any return on the investment can change favorably or not due to the difference in exchange rates at the purchase time and the moment the dividend is received, or investment is sold.
To hedge the risk of exchange, the coca cola company buys the hedge from any financial institution in question. This currency hedge is a kind of derivative that aims at either locking in a rate of exchange in the present day for a transaction that will take place in the future or at exercising an earlier agreed upon rate of exchange at the future time. Buying into the hedge is a good solution to the risk of rates of exchange.
The company is in a position that will not worry about the value of the product in the other country as it is agreed on a pre-determined rate of exchange between the home country and the currency across the border with the bank. The company would, however, be rest assured that the return on the investment is just the return of the company’s portfolio in addition to the return of the foreign currency. ( (Depan & Doz 1986).
Another means that Coca Cola Company uses to hedge the risk of rates of exchange is by swapping the currency. This transaction represents an agreement to make an exchange of one currency for another at the rate of exchanged that is agreed upon.
During the operation, there are two transactions that are taking place concurrently; one is the buying and another one of selling the same amount of currency at two different dates of value that are usually the SPOT and FORWARD that agree earlier at the time when the transaction is being closed.
In swapping of the currency, the bearer of the unwanted money exchanges the currency with that of the equivalent amount of the other currency. Thus, the company exchanges its interests and the exposures of a rate of currency from one kind to the other or benefits of the financing of the bank at a lower rate. Depan & Taylor 2003).
Making forward transactions that are flexible is another means that are employed by the coca cola company to hedge the risk of the rates of exchange. These methods have more or like the same qualities like the forward transaction with only a single specific distinction.
This distinction is that the settlement of transaction can take place at any given time until the contract matures. The company can choose to make a partial settlement for the transaction at any time of interest until the time the contract matures, with the obligation of exchanging the whole national currency until the time of maturity.
This means a lot of benefits to the company as the transaction can take place at any time of need until the maturity of the contract under the same already established rate. It enhances the best management of the liquidity of the company and the well-coordinated incomes and payments. Depan & Taylor 2003).
The effect of increase or decrease in the dollar’s exchange value on the profitability of the firm.
When there is a decrease in the value of exchange on the dollar, the export of the country would be cheap, and the imports would be much expensive. This decrease of the dollar makes the export transactions more competitive; therefore, there would be a decrease in the imports and an increase in the exports.
About the coca cola company that exports or sells it concentrated syrups to the potential bottlers; the exports would be much as the countries will be running for the cheaper and affordable products at the expense of the expensive ones.
This would increase the profitability of the firm by a greater margin. The firm will benefit from the sales that have increased. This aspect would lead to massive employment and creation of jobs lowering unemployment rates especially in the industry that is exporting the products. This depreciation of the value of exchange will increase the value of profits and the income of the coca cola company. (Depan &Frankel 1993).
The decrease in the value of exchange of the dollar would buy and larger have a great impact on the company. This depreciation would reduce the incentive for the exports to cut the costs. There would be less incentive to reduce the cost of the company and boost the productivity at a greater deal. This is the opposite of the increased value of exchange.
A decreased value of exchange of dollar makes it harder for the trade deficits of the company to the creditors of overseas. It increases the cost of importation like the rising cost of the raw materials of a company and the technology that is imported.
This causes an inward drift of the company and can affect the long-run potential of production. The poor demand of the company can make the stance of the company be at risk making it hard for the company to export as the fundamental marketers would be in recession and the sales of overseas are failing.
When the elasticity of the price of the demand for the imports and exports are low, the decrease of the value of exchange will cause a worsening of the trade balance in the services and good of the company. This is referred to as the effect of the J-Curve.
On the other hand, an increase of the exchange value would result in the decrease import expenses and the company will benefit from the cheap imports. This effect would boost the company’s profit as it would be saving much money and making profits by buying the raw materials at the cheaper rate. The coca cola company would be making impulse buying at the lowest prices possible that will enable the have enough resources and also stores other for the future use. This would increase the incentives for the company.
At the same time, the appreciation of the value of exchange would have a worrying impact on the rate of exports. The company’s products would be more expensive as compared to those of others on the other countries.
This can result in the reduction of the demands of the products. This is a great negative effect on the profitability of the company as the bottling company will find it very expensive to purchase the concentrated syrups. They will either buy the little they could afford or even refrain completely from buying them.
This challenge will also affect the consumers on the other hand. The bottlers will tend to hike the costs of the products so as to balance the financial budgets and avoid losses. And the consumers would reduce the rate of buying the products. Thus, it reduces the rate of consumption. (Depan & Frankel 1993).
Reference
Depan S & Doz L(1986). Strategic management in multinational companies. Pergamon
Press.
Depan S & Taylor P (2003). The Economics of Exchange Rates. Cambridge University Press.
Depan S &Frankel A (1993). On Exchange Rates. MIT Press.
