Multinationals in emerging markets on Coca Cola in China
Abstract
Emerging markets of the world are composed of over two thirds of the entire population of the globe and over ten percent of the world’s total GDP. Such markets offer great potential to companies that are growing. Such markets have become huge targets of multinational companies. According to available literature, emerging markets have three types of distinct markets. These markets are the agricultural/rural sector, modern urban sector and the transitional sector. Mostly the rural sector has limited resource to purchase even the basic products. On the contrary the urban and transitional sectors do have adequate resources representing an attractive target for major companies.
Introduction
Entering a new market is a difficult aspect to most multinational companies. According to Mok (2002), high transactional costs makes it difficult to transact business in an imperfect market whereby there is a lot of opportunism uncertainty, small number of market players and bounded rationality. Most of the MNCs find it difficult to cope with contractual costs such as writing, executing and enforcement finding them as greater than costs that are incurred when the market is internalized. In a situation where contractual contingencies are involved, it becomes even worse. In this case most of the multinationals would prefer to establish wholly owned subsidiaries (WOSs) in order to cope with the market imperfection. Another commonly used mode to enter into foreign markets includes joint ventures (JVs).
Based on the above considerations, this paper focus its attention on Coca Cola in China and tries to explain the modes of entries used by MNCs into emerging markets of the world. The choice of coca cola was arrived at because of it being the largest Cola producer in the globe and also the fact that it is among the largest MNCs. Coca cola also has a long established history in the Chinese market...