COMMENT: Coca-Cola’s risky return
The new Somalian bottling plant, which was opened this week, signifies Coca-Cola's first return to the war torn country after its original plant was destroyed in the civil war 15 years ago. Coca-Cola clearly believes that the African country is another emerging market where it can succeed despite initially unfavourable trading conditions.
Coca-Cola is the world's leading provider of non-alcoholic branded beverages, with products sold in over 200 different countries including, as of this week, Somalia. The new plant in the country's capital Mogadishu will produce the company's main brands, Coca-Cola, Sprite and Fanta, at a maximum of 36,000 bottles per hour. Production will only start at 70% of capacity, though this is expected to rise as the market develops.
Somalia has been without a central government since 1991, and with Coca-Cola's original bottling plant destroyed during the country's civil war, the new facility remains a risky venture for the company. Coca-Cola's US$8.3 billion bottling plant represents the country's largest investment in over 10 years. Mobile phone companies, Internet cafes and radio stations have emerged in recent years, but conditions remain difficult. There are an estimated 60,000 heavily armed gunmen roaming the capital of 1 million people, and ongoing violence involving local militias means that transport access to the city is severely restricted.
Coca-Cola's ability to adapt its business model to an individual marketplace has been one of the key ingredients in the company's global success. This helps to explain Coca-Cola's phenomenal success in China, after it became the first American consumer product to return to the country after the restoration of diplomatic ties in 1979. It established the first Chinese majority-owned soft drink bottling joint venture - COFCO Coca-Cola Beverages - in 2000.
To limit the risk involved in the Somalian venture, Coca-Cola has again chosen a local bottling partner, United Bottling Company (UBC). UBC is made up of 399 Somali shareholders from as wide a range of communities as possible. The plant's success therefore relies on the different clans involved protecting their interests. Returning to Somalia presents obvious risks for Coca-Cola, but it is further evidence of its desire to break into emerging markets. This strategy may not guarantee breakthroughs everywhere but it will certainly bring more successes than failures in the long term.
Sectors: Soft drinks
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