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THE EURO & COCA-COLA.
Term Paper ID:25546
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Essay Subject:
Examines introduction of currency of European Union & its likely impact on activities of beverage firm in France.... More...
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7 Pages / 1575 Words
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Paper Abstract:
Examines introduction of currency of European Union & its likely impact on activities of beverage firm in France.
Paper Introduction:
Introduction
In 1992, the European Union (EU) was formed among major countries in Western Europe. Replacing the European Common Market, the EU created one of the largest trading blocs in the world and effectively eliminated trade barriers among member nations. Goods and services are now freely traded among the member nations, and the North American Free Trade Agreement (NAFTA), which created a similar trading zone among Canada, the United States and Mexico, is generally viewed as a reaction to the EU. In a move which has perhaps greater ramifications for the world economy than the free trade zone, the EU has adopted a single currency, the euro, which is being implemented over several years. Although not all member countries have adopted the euro, and some non-member states (such as Switzerland, which has a strong national curr
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Although the euro will not replace all European localcurrencies, the fact that 11 nations are already moving to the euro has far-reaching consequences for companies doing business in Europe. As competition for euro transactions increases, however,there will be pressure on financial institutions to reduce or eliminatetheir fees, which will result in ever-increasing transactions beingconducted in euros. (1996, November 18). Coca-Cola is an accepted brand and productwithin Europe, although the company does have different promotionalstrategies for different countries. The activities of Coca-Cola and Coca-Cola Enterprises have not goneunnoticed by European authorities, and some attempts have been made toblock the companies' mergers and acquisitions in Europe. From anoperational standpoint, billing, collection, credit management and even theselection of suppliers must be handled on a country-by-country basisbecause of the currency differences. However, the skills that French money managers honed prior to theeuro's implementation give the country a particular advantage as the eurocomes into use. France isparticularly well-positioned to take advantage of the single currency, andthe nation's money managers can be expected to seek long-term investmentopportunities which offer higher yields than the relatively insulatedFrench have seen in the past. Hard currency will also be available on January1, 2 2. Coca-Cola owns 43 percent of Coca-ColaEnterprises, and Coca-Cola Enterprises bottles only Coca-Cola products(after purchasing the syrup from Coca-Cola). (1999, March 1). Initially, corporations will be able to move funds from one locationto another without paying large transfer fees. This is likely to bring about mergers and acquisitions inthe French financial industry. Recently, Coca-Cola announced plans to acquire all of Cadbury-Schweppes, a move that is expected to meet with significant resistance fromvarious European anti-trust agencies. Parkinson, K. Coca-Cola's Activities in France Coca-Cola Enterprises is the world's largest soft drink bottler withinternational operations. Attempting to implement a pan-Europeanstrategy in light of the implementation of the euro would be a mistake forthe beverage company because, although trade barriers have been removed andcurrency barriers are in the process of being removed, Europe remains acollection of independent nations with very different cultural tastes fromone country to the next. Business Credit, n.p. OKRB99 6 1A). Ready or not, here comesthe euro! 184). 5 ). First of all, the acquisitions improve the company'spenetration in France, which the company has targeted as being a strongmarket opportunity. By making the announcement prior tothe widespread implementation of the euro, but after the euro has beenintroduced, Coca-Cola may be able to finance the acquisition more smoothlythan if the timing were different. During the first months of implementation, there will be very littledifference in the way that companies conduct business because local lawswill remain in effect, as will local charges imposed by financialinstitutions. At that time, the goal is that all Europeantransactions, both private and public, retail and wholesale, will beconducted in euros in those countries which have chosen to implement thesingle European currency (Parkinson, 1998, n.p.). Inaddition, credit management will be simplified as a single, common currencyis used by all appropriate credit agencies. References Banks, H. This research considers theimplementation of the euro and the effect on one particular multinationalcorporation, Coca-Cola, with an emphasis on Coca-Cola Enterprises. Eventually, funds will beable to move with either no delay in value, or only small valuedifferences. As the euro implementation continues, French investors and financialinstitutions are likely to seek higher yields than they have in the past,and the considerable wealth controlled by French money managers (estimatedat one-quarter of Europe's $5 trillion assets) will offer strong incentivefor investors from outside France to consider using French financialinstitutions. Those nations which are implementing the euro mustbegin to convert their retail transactions on January 1, 2 2 (they mayconvert earlier at their discretion), and local currencies will begin to bephased out at that time. The Euro On January 4, 1999, 11 "early adopting" countries implemented use ofthe euro for wholesale transactions. OKRB99 6 1A. 5 ). These companies will have to decide whether to pursue a pan-European strategy in light of the single currency, or whether to enter newmarkets at all. While the most acute activity in euros is initiallyexpected to take place among European financial institutions, Japanese andAmerican financial institutions (and others in non-Euro nations) are alsoexpected to participate in euro-denominated transactions. Stomach share. In a movewhich has perhaps greater ramifications for the world economy than the freetrade zone, the EU has adopted a single currency, the euro, which is beingimplemented over several years. Coca-Cola and the Euro Currently, Coca-Cola and Coca-Cola Enterprises must have individualoperational and marketing strategies for each European country. Secondly,the expansion is in keeping with the company's goal of consolidating itsbottlers. Business Week,p. 5 ). On July 1, 2 2, the euro will replace all local currency andcoin for all transactions. Coca-Cola Enterprises first entered the French marketin 1996, and since that time, is responsible for increasing per-capitaconsumption of Coca-Cola products by approximately 3 percent. At this point, companies can pay and receive euros, but since no hardcurrency has been issued, retail transactions will continue to take placein national currencies. Using the same strategy in France as the companyuses in Greece, for example, could well prove problematic. 184-185. The remaining EUmember, Greece, did not quality for early adoption because it was unable tomeet the minimum economic standards with regard to debt levels and grossdomestic product (GDP) (Parkinson, 1998, n.p.). Suppliers will be able toreceive either euro or hard currency initially, and, since the localcurrency rate is fixed as of January 1999, the exchange rate will no longerinfluence such transactions. This gives the company greater control over this key part of itsdistribution channel. Coca-Cola can continue its marketing strategy as it has inthe past and should continue to realize considerable European success. In addition, French financialinstitutions control a significant amount of assets; French insurancecompanies, for example, manage more than $714 billion. The implementation of the euro is likely to have less of an effect onCoca-Cola and its bottlers than on companies whose products are not as wellrecognized. L. Besides France, the countries wherethe euro is being implemented over the course of three years include:Austria, Belgium, Finland, Germany, Ireland, Italy, Luxembourg, theNetherlands, Portugal and Spain. France's Adaptation of the Euro France is among the nations which implemented the euro for commercialtransactions at the beginning of 1999. Unger, H. Conclusion The implementation of the euro will take several years to complete andit is not clear exactly what the ramifications of a single Europeancurrency will be. Coca-Cola's marketing efforts to this point have been successfulbecause the company has invested considerable resources in its Europeanstrategy over the past century. In this way,companies such as Coca-Cola which have long-standing relationships withfinancial institutions may not need to change those relationships at all asthe euro is implemented (Parkinson, 1998, n.p.). This should also prove beneficial tomultinational companies such as Coca-Cola and Coca-Cola Enterprises whichenjoy strong pan-European market presence already through their currentoperations (Parkinson, 1998, n.p.). Coca-Cola, forexample, has indicated that it is interested in acquiring the Oranginabeverage business of Pernod Ricard, but has yet to submit a formal proposalto the French government (Unger, 1999, p. Forbes, pp. Prior to theimplementation of the euro, these assets were generally in real estate,savings accounts and other comparatively low-yield investments. Marketing News, p. Not so fast. Once theFrench moved to a pan-European currency, there was some concern that theeconomy would be destabilized ("The French Flex," 1999, p. 5 . Coca-Cola Enterprises buys two bottlersin France. Lehu, J. Introduction In 1992, the European Union (EU) was formed among major countries inWestern Europe. As the euro is implemented, many ofthese differences will disappear resulting in economies of scale forcompanies such as Coca-Cola and Coca-Cola Enterprises. France is generally considered more advanced than much ofEurope with regard to sophisticated financial instruments such asderivatives and asset-backed securities; these are skills which can betransferred to the larger European market now that France's money managersare no longer limited to the franc. (1999, January 4). Companies such as Coca-Cola Enterprises which have operationsin many different European countries will need to consider the cash andfinancing needs of their operations as a whole, just as companies do in theUnited States (Parkinson, 1999, n.p.). (1999, February 15). The acquisitions are in keeping with Coca-Cola's strategy in twoimportant ways. 43). By combiningoperations for Europe as a whole and handling credit and collection for 11(or more) countries collectively rather than individually, the companyshould be able to realize savings which would otherwise be unavailable. For companies such as Coca-Cola, this mightmean that the French institutions are willing to provide financing forexpansion and other activities. Goods and services are now freely tradedamong the member nations, and the North American Free Trade Agreement(NAFTA), which created a similar trading zone among Canada, the UnitedStates and Mexico, is generally viewed as a reaction to the EU. Theseassets (along with those controlled by other financial institutions) arenow free to seek higher-yields throughout Europe ("The French Flex," 1999,p. Knight-Ridder/Tribune Business News, p. (1998, November-December). Prior to the implementation of the euro, the Frenchenjoyed essentially protected financial markets which put capital intoFrench financial institutions and French investment vehicles. Coca-Cola Enterprises is also the sole licensedbottler for Coca-Cola products in Belgium, Great Britain, Luxembourg andthe Netherlands; each of these is a member of the EU, and, with theexception of Great Britain, each is also an early adopter of the euro. During the mid-199 s, the company ran into even greater difficulty as Coca-ColaEnterprises acquired CCSB by buying out the Cadbury-Schweppes interest;until the transaction, Coca-Cola owned 49 percent of the bottler andCadbury-Schweppes owned 51 percent) (Banks, 1996, p. In early 1999, Coca-ColaEnterprises purchased two bottling operations in southern France for morethan $1 million; combined, the two bottlers sold more than 18 millioncases of soft drinks in 1998, generating revenue of more than $7 million.The acquisition of these two bottlers helps to ensure Coca-Cola Enterprisesdominant position within France (Unger, 1999, p. This acquisition would ensure Coca-Cola's predominance for years in the European soft drink market, which iswhy the transaction is expected to have to clear many government barriersamong the various European nations. Although not all member countries haveadopted the euro, and some non-member states (such as Switzerland, whichhas a strong national currency) will not be participating in the euro astheir national currency, the implementation of the euro has far-reachingeffects in today's global economy. 43. OKRB99 6 1A). Replacing the European Common Market, the EU created oneof the largest trading blocs in the world and effectively eliminated tradebarriers among member nations. Instead, thecompany's promotional efforts should continue to use a country-by-countryapproach which will help Coca-Cola maintain its dominant market positionthroughout the EU member countries (Lehu, 1999, p. Denmark, Sweden and the United Kingdomhave chosen not to convert their national currencies. The nation's own financial systemis one of the most stable in Europe, and some analysts initially expressedconcern that the implementation of the euro would end the protection ofFrance's economic system and bring about some disruption in France'sfinancial situation. Until now, the French financial industryhas not seen the same high level of activity in this area as in othercountries, but the move toward the euro will bring increased economies ofscale and other market pressure to institutions such as Banque National deParis and Credit Commercial de France ("The French Flex," 1999, p. The French flex their muscles.
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