The Business Case for Sustainable Ethics: How Coca-Cola Can Create Competitive Advantage
The Coca-Cola Company has lately had to confront criticism about harm done to ecosystems everywhere. For instance, carbonated soft drinks bottlers use massive amounts of water. The water is often taken from communities where people do not have enough to drink. Moreover, the process of making the cans and bottles require large amounts of energy and generate greenhouse gases that contribute to global warming. Consequently, some environmental groups have called for a boycott of Coca-Cola products (Albelda and Wernick, 2007). In this essay, I will explore the business case for sustainable ethics as it applies to Coca-Cola. I will begin by discussing Michael Porter’s five forces model and how it can be used to create a competitive advantage. I will then apply the model to two specific cases: Wal-Mart and Tesco. I will conclude with a discussion of the implications of the business case for sustainable ethics for Coca-Cola and other companies.
2. The Business Case for Sustainable Ethics
The business case for sustainable ethics has been articulated by Michael Porter in his article “What Is Strategy?” (Porter, 1996). Porter argues that companies can create a competitive advantage by taking into account environmental and social issues. He calls this approach “create shared value” (CSV). CSV involves creating value for both the firm and society. For example, a company might develop a new technology that reduces pollution while also saving money on production costs. Or a company might source its raw materials from suppliers who follow best practices for environmental protection. By taking into account environmental and social issues, firms can create a competitive advantage that will lead to higher profits and enhanced shareholder value.
Porter’s argument has been influential in shaping corporate responsibility programs at many companies (Muir, 2008). However, critics have argued that CSR is nothing more than a public relations ploy or a way to greenwash a company’s image (Bhattacharya and Bansal, 2005). Others have argue that CSR is simply a way for companies to avoid regulation (Friedman, 1970). In response to these criticisms, Porter has clarified that CSV is not about philanthropy or doing good deeds; it is about creating value (Porter and Kramer, 2011). When done correctly, CSV can be profitable for firms and beneficial for society.
3. Coca-Cola and the Five Forces Model
In order to create a competitive advantage, firms must first understand the nature of competition in their industry. Michael Porter’s five forces model is a useful tool for understanding the competitive dynamics of an industry (Porter, 1979). The model consists of five forces: threat of new entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitute products, and intensity of rivalry. Each force represents a different type of competition that firms must take into account when making strategic decisions.
The soda industry is an oligopoly, meaning there are only a few firms that control the market (Doyle, 2012). The main competitors are Coca-Cola and PepsiCo. These two firms have significant market share and brand recognition. They also have high barriers to entry due to their economies of scale. As a result, new entrants are unlikely to be successful in this industry.
Buyers in the soda industry have moderate bargaining power. There are many retailers who sell soda products, but Coke and Pepsi have significant control over the distribution channels. As a result, buyers have some leverage, but not enough to significantly reduce prices.
Suppliers in the soda industry have low bargaining power. There are many suppliers of sweeteners, packaging, and other ingredients, so buyers are not reliant on any one supplier. This increases competition among suppliers and reduces their bargaining power.
There are many substitute products for soda, such as water, tea, and coffee. However, soda still has a large market share. This is due to its low price and wide availability. As a result, substitute products pose a moderate threat to the soda industry.
The main competitors in the soda industry are Coke and Pepsi. These firms have been engaged in a fierce rivalry for many years. They have invested heavily in advertising and promotion in order to gain market share. As a result, the intensity of rivalry is high in this industry.
4. Wal-Mart and the Power of buyers
Wal-Mart is the largest retailer in the world, with over 11,000 stores in 27 countries (Walmart, 2017). The company has a significant impact on the global economy. In 2016, Walmart’s revenue was $485 billion (Forbes, 2017). This is equivalent to 2.3% of the US GDP (US Bureau of Economic Analysis, 2017).
Walmart is a powerful buyer in the global marketplace. The company has extensive supply chain operations and uses its buying power to negotiate low prices from suppliers (Lashinsky, 2006). As a result, Walmart is able to sell its products at very low prices. This has made it difficult for other retailers to compete with Walmart on price.
5. Tesco and the Threat of New Entrants
Tesco is the largest retailer in the UK, with over 3,400 stores (Tesco, 2017). The company has a significant impact on the British economy. In 2016/17, Tesco’s revenue was £51 billion (Tesco annual report, 2017). This is equivalent to 3% of the UK GDP (UK Office for National Statistics, 2017).
Tesco is a vertically integrated company that owns many different businesses, such as supermarkets, banks, and insurance companies (Tesco annual report, 2017). This gives Tesco a significant competitive advantage over other retailers who do not own their own supply chain or financial services businesses. As a result, it is difficult for new entrants to compete with Tesco.
In this essay, I have explored the business case for sustainable ethics as it applies to Coca-Cola. I have discussed Michael Porter’s five forces model and how it can be used to create a competitive advantage. I have applied the model to two specific cases: Wal-Mart and Tesco. I have concluded that the business case for sustainable ethics is strong for Coca-Cola and other companies. By taking into account environmental and social issues, firms can create value for both themselves and society.