According to the Word Bank, about 1.35 billion people in the world today live below the international poverty line, which is set at $1.25 per day. In addition, it is estimated that the recent global financial and economic recession increased this number by 64 million people.
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What this means is that a significant number of people in the world today live under extreme poverty (Raman 103). As a result of this, it is important to encourage investment in the private sector.
Investment in the private sector is important considering the fact that the ability of governments to foster development and provide aid is limited. Right now, the government is under a lot of pressure to provide the citizens with basic infrastructure using the meager resources.
The resources are overstretched, meaning that the government needs help from the private sector. Investors in the private sector will provide the citizens with, among others, employment and infrastructure.
For more than three decades, private corporations around the world have emerged as essential pillars as far as economic development is concerned.
The private corporations have created job opportunities and other benefits in the society, contributing significantly to the reduction of poverty in the world (Walsh and Dowding 106). There are debates revolving around the impact of private investors on the global economy.
Analysts are especially concerned with the impacts of these organizations on the economy of the developing countries. The debates notwithstanding, it is important to note that private corporations have significantly improved the economy as far as the developing nations are concerned.
The organizations have improved the business environment in these countries, in addition to providing the citizens with employment and other social amenities.
Private organizations are aware of their impacts on the economy of the developing nations. They are aware of the fact that their operations affect the life of individuals in the community within which they are operating.
As a result of this, the organizations recognize that their success or failure impacts on the community they are operating from. It is as a result of this realization that such companies have taken the initiative to transfer skills and knowledge from the developed world to the third world economies (Stanford 54).
The current paper is written against this backdrop. In this paper, the author focuses on the operations of a multinational company with significant impacts on the regional and global economy.
The companies selected for this analysis are Coca Cola and SABMiller. In this report, the author focuses on the business policy adopted by the Coca Cola Company and SABMiller. In addition, the author critically analyzes how the two companies have assisted the government in reducing levels of poverty in the country.
The report is a case study of the operation of the two companies in two developing countries. The two countries are El Salvador and Zambia. The impacts of the two companies on these two economies are critically analyzed.
Coca Cola’s Business Policy in Zambia and El Salvador
Zambia: Background Information
In spite of the fact that Zambia has recorded a positive economic growth in the past five years, it remains one of the poorest countries in the world. The country attained independence in 1964. Immediately after independence, the country had the potential to emerge as one of the leading economies in Africa.
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However, the economy of the country declined sharply in the 1990s. Analysts blame the economic decline in the country on corruption. Corruption increased immediately after independence, and it persisted into the 1990s.
The country’s economy started to recover in 2003. For the next five years, the country recorded an average of 5% in economic growth. The positive growth is largely attributed to the establishment of a favorable environment, which was conducive to investment.
The country attracted investments from other nations, both within and outside Africa. The boom in copper mining is another reason why the country recorded a positive economic growth. Other factors leading to this growth post- 2003 include low inflation rates and improved political stability.
In 2005, the country was relieved of most of its foreign debt. To this end, the country received a 4 billion USD debt relief. In 2008, the price of copper in the international market plummeted, which affected the economy of this country negatively.
The decline in the price of copper on the global market was brought about by the recent economic recession. The economy of the country revived in 2009 when the effects of the economic recession on the global economy tapered off.
Since then, the country’s economy has continued to grow at an average rate of 6.3 percent per annum. However, in spite of this impressive economic growth, about 64% of the population in the country lived below the poverty line by the end of 2006. The current macroeconomic outlook in Zambia is positive.
However, there are various factors that continue to negatively affect economic development. For example, more than 80% of the nation’s working population is involved in agriculture (Sherelle 38).
El Salvador: Background Information
Currently, El Salvador is recovering from the effects of ten years of civil war. It is one of the poorest countries in Latin America.
A series of natural disasters, coupled with the plummeting prices of coffee in the world market, have worsened the situation. The economy of the country recorded a steady positive growth between 1996 and 2006. The economic growth was especially significant after dollarization in 2001.
According to Mexico Food (71), dollarization has increased the cost of living. In addition, dollarization has reduced interest rates in the country.
In spite of these positive impacts, dollarization has not significantly reduced poverty levels in the country. The country has experienced labor shortages in the recent past as a result of migrations. Most of the citizens have migrated into the United States of America and into other western nations.
The effects of poverty in the country vary from one group to the other. For example, and according to Mexico Food (72), poverty levels are disproportionately higher among women and farm workers compared to the rest of the population.
After the civil war, the country was faced with additional challenges, including violence and crime. Rate of crime has increased as a result of increased economic inequalities and pervasive poverty.
Other factors attributed to the rise in crime include increased access to illicit firearms, underemployment, and unemployment.
All these factors have negatively affected economic development in the country (Mexico Food 71). The success of efforts made by the government and other stakeholders to revive the economy is hindered by these factors.
Coca Cola- SABMiller Value Chain: Background Information
Coca Cola is one of the most popular multinational corporations in the world. It has established local operations in various countries around the world. The bottling of Coca Cola products is carried out by local companies, which are usually under the management of local investors.
Since the company was started in 1852, it has developed more than 500 still and sparkling brands of soft drinks. In addition to this, the company has operations in more than 200 countries around the world. In these countries, the country works in collaboration with more than three hundred bottling partners.
Coca Cola manufactures various products. The products include, among others, syrups, beverage bases, and concentrates. The manufactured products are then sold to the bottling companies (DATAMONITOR 2).
The company has operations in El Salvador and Zambia. The bottling operations in El Salvador and Zambia are carried out by SABMiller. In both countries, Coca cola has very few employees.
Majority of employees are drawn from the local population. The few employees shipped in by the company are mainly tasked with the responsibility of providing technical and marketing advice to the local operators (Market Watch 22).
In spite of the fact that El Salvador is geographically small, it is an important market for Coca Cola products in the region. On the other hand, Zambia medium sized as far as physical boundaries are concerned. As a result of this, Zambia is one of the top twenty markets for Coca Cola products in Africa (Sherelle 39).
It is a fact beyond doubt that competition is stiff in the two markets. However, Coca Cola has countered this by developing an elaborate business policy. Coca Cola Company’s business policy is aimed at promoting continual growth in El Salvador and Zambia.
Coca Cola Company controls the largest market share in both countries compared to the competitors. For instance, in the category of sparkling beverages, Coca Cola accounts for 51% of the market share in El Salvador and 73% in Zambia (Dibadj and Powers 111).
In 2009, the profits of Coca Cola in Zambia declined significantly. The decline was attributed to the company’s heavy investment in manufacturing glass bottles. The cost of manufacturing the bottles was very high as a result of decreased supply.
The revenues generated by the company from its operations in El Salvador have recorded a consistent positive growth in the past five years. It is a fact that the prices of the company’s products in El Salvador are significantly lower compared to those in Zambia.
However, the company has managed to increase the revenues in this country by increasing the sales volumes (Madhavan 35).
Coca Cola’s Business Policy in Zambia and El Salvador: Macroeconomics
As already indicated earlier in this paper, the number of individuals employed directly by Coca cola and SABMiller in these countries is very small. However, the value chain resulting from the operations of the two companies in the two countries employs a large number of people.
For example, it is estimated that more than 3,810 jobs are created by the value chain in Zambia. The implication here is that one direct job from the Coca Cola-SABMiller value system generates 10 other jobs in the Zambian economy.
The value chain is responsible for more than 4,300 formal jobs in El Salvador, which translates to more than 1% of all formal jobs in the country. The implication here is that for every direct job created by the Coca Cola- SABMiller value system, there are three formal jobs created in the El Salvador economy.
Most of the formal jobs linked to the Coca Cola- SABMiller value chain in the two countries are created in sales, distribution, bottling, and non- farm supplies’ sectors. In addition to the formal jobs, the value chain in the two countries has created a significant number of informal jobs.
The informal jobs are found in the retailing of products and harvesting of sugar cane sectors. The value chain system has created more than 65,000 retail outlets in El Salvador and more than 26,000 retail outlets in Zambia (Nevin 44).
The revenue generated from the sale of products manufactured by this company is shared among all the partners in the value chain. In El Salvador, each 12 ounce bottle is sold at 4.25 USD. In 2010, the cost of a bottle was 62% of the selling price. The recommended price of the same bottle in Zambia is 5.04 USD.
In 2010, the cost of one bottle was 76% of the selling price. Each value chain partner receives a profit that is pegged on sales volume and the cost structure. In 2009, the sugar farmer in El Salvador received 2.2% of the profits. The retailer and the distributor in the country received 35.5% and 56% of the profits respectively.
There are variations in cost structures and the types of business conducted by the company in the two countries. As a result of this, revenue distribution in the two countries is significantly different (Sellers 141).
The revenue realized by the government in the two countries as a result of taxes imposed on the two companies varies. The revenue largely depends on the taxation systems adopted by specific countries.
The total revenue in terms of taxes collected by the government in El Salvador from the operations of the two companies is significant.
In the past five years, the government has collected approximately 51 million USD from the two companies in terms of taxes. In Zambia, the system’s tax contribution in the past five years is approximately 53.5 USD (Walsh and Dowding 109).
The Coca Cola-SABMiller value chain extends beyond the borders of the two countries. In 2010, the total amount that was spent on procurement in Zambia was 26 million USD. Seventy five percent of the amount was used in purchasing inputs from the region or from other countries in the world.
In El Salvador, 73 million USD was used to procure inputs. Sixty four percent of the money was used in buying inputs from other countries in the world. Supplies are mainly sourced from Central America in the case of El Salvador and from South Africa in the case of Zambia.
In attempts to spur the growth of the local economies, SABMiller and Coca Cola endeavor to source supplies locally in both countries. However, most countries in the developing world are not in a position to provide most of the inputs required for the smooth running of the two companies.
One explanation for this is the limited capacity of industries in these economies. The main factors taken into consideration by the two companies when purchasing supplies are quality, availability, and price. In many cases, local suppliers lack the technical ability and capacity to meet the system’s demand.
In addition, the business policies adopted by SABMiller and Coca Cola with regard to environmental and labor standards are quite stringent. As a result, most companies in the developing economies lose the opportunity to partner with Coca Cola (Madhavan 45).
Informal and Formal Sectors
Just like in most other developing nations, the jobs created by the Coca Cola- SABMiller value chain in El Salvador and Zambia are mainly in the informal sector as opposed in the formal sector.
In Zambia, the informal sector accounts for about 90% of the nation’s economy. In El Salvador, the informal sector is responsible for more than 60% of the economy. Informal workers toil in the sugarcane fields, as well as in distribution and retailing channels.
Although the jobs in the two countries are not regulated, they are important for the survival of the poor in the two nations. The livelihood and job security of workers in the two nations depend on whether they are formally or informally employed.
The individuals working in the formal sector are entitled to social welfare. In addition, they can effectively negotiate with the employer. In contrast, their counterparts in the informal sector lack such rights. The individuals engaged in the informal sector are forced to endure unpleasant working conditions.
The lack social security and are disproportionately affected by fluctuations in the market. Most people lack the opportunity to engage in formal work. As a result, they have no option but to stick to the informal sector (Regassa and Corradino 107).
Benefits, Living Wages, and Minimum Wages
In El Salvador, the employees receiving the highest pay in the Coca Cola- SABMiller system are in formal employment. The employees include those engaged in the sugar mills, bottling company, and distribution outlets.
The purchasing power of the formal employees is very high compared to that of the informal employees. In addition, those who own retail shops have a higher income than those working in the sugarcane fields. The income of the latter is slightly above the minimum wage.
In Zambia, formal employees in the Coca Cola-SABMiller system receive salaries that are above the average wage set in the country. The employees of Zambia Breweries receive the very high salaries compared to the rest (Sherelle 39).
Capacity Building and Training
Both companies have invested heavily in efforts to improve the capacity, skills, and knowledge of business partners in the value chain. The efforts include, among others, providing sugar producers with credit programs and technical assistance.
For instance, SABMiller, under Industrias La Constancia (ILC), invested 800,000 USD in the training of workers in 2011 alone. The objective of this investment was to improve the capacity of the employees, as well as help them to advance their careers.
On the other hand, Zambia Breweries spends about 95,000 USD each year to train employees. Zambia Breweries’ sales representatives are encouraged to mentor retailers and assist them gain skills necessary for business development (Raman 112).
According to Nevin (47), it is hard to quantify empowerment. However, it is one of the most important aspects of corporations investing in developing and transitional economies.
Nevin (47) notes that empowerment among employees is evaluated by the degree to which they are capable of coming together to make collective bargains. In addition, empowerment among employees is determined by their effectiveness in using channels of communication to receive audience.
Empowering employees in the developing world is very important. It ensures that they benefit from economic growth brought about by increased investment. When people are empowered, they become assets to the company.
They protect the business against potential conflicts and emerging tensions. In addition, they provide the company with insights that help in product innovation and in improving production processes (Dibadj and Powers 134).
Workers in the Informal Sector
The capacity of employees in the informal sector to come together and agitate for the changes they need in practices and policies is very limited.
The limited capacity is observed among independent retailers, distributors, and sugarcane harvesters in the Coca Cola-SABMiller value chain. The individuals in these sectors are incapable of organizing themselves. In most cases, they are incapable of influencing business policies in the company or in the government.
In Zambia, the National Association of Marketers is charged with the responsibility of communicating with the relevant stakeholders on such issues as marketplace amenities, local authorities’ fees, and licensing. However, the number of informal employees joining this organization is very small (Sherelle 41).
In most cases, sugar producers are incapable of determining the price of the commodity. Regulatory restrictions, such as quotas, make it very difficult to include farmers in price negotiations.
The difficulty is observed in both El Salvador and Zambia. Despite the fact that the costs of inputs increase on a regular basis, the farmers are not in a position to negotiate with the millers. In both countries, there are organizations representing the interests of producers. However, small-scale producers remain unrepresented (Sellers 140).
Stability and Security
Harvesting sugarcane is a very rigorous process. Laborers working in the fields have suffered from such injuries as poisoning and burns. Poor wages and lack of access to basic amenities and medical services are cited as some of the main factors exposing workers to such dangers (Walsh and Dowding 110).
The level of crime in El Salvador has remained very high since the civil war. Partners in the Coca Cola-SABMiller value chain, including distributors, suppliers, and sugarcane producers, report cases of vandalism, extortion, and muggings on a regular basis.
For example, the area within which ILC is located is regarded as a crime zone. Consequently, the company has put in place round-the-clock security programs to enhance the safety of the members of staff. Additionally, ILC came up with a program to train young men who were involved in crime in the past.
They are trained on how they can start small businesses to improve their life. Leaders in Nejapa, where ILC is located, have pointed out that poverty is the main reason why rate of crime is very high in the town.
Owners of distribution businesses are afraid of expanding their businesses because of the high levels of organized crime (Regassa and Corradino 109).
The condition of the roads in Zambia is quite poor. The poor conditions of the roads are a threat to the safety of truck drivers, who work for long hours (Sherelle 42).
Women Participation and Gender Diversity
Coca Cola and SABMiller promote the participation of women and minorities in the labor market in both countries. In the developing world, women are disadvantaged, especially with respect to access to healthcare, employment, and education.
They are denied basic rights because of culturally-determined gender roles in the community. Their opinion does not count in the decision making process, and they are especially prone to violence (Market Watch 23).
Women and SABMiller
In both countries, formal jobs are largely dominated by men compared to women. The company has a strong policy that discourages discrimination on the basis of gender. However, most of the work in the bottling company requires physical strength. As a result, it is considered as a man’s job.
In addition, insecurity has contributed to the underrepresentation of women in the value chain. The entire Coca Cola-SABMiller value chain is dominated by male workers. There are various factors responsible for this underrepresentation, including insecurity (Mexico Food 73).
Women in Distribution
In most cases, women work together with their husbands in retail and distribution outlets. The number of female business owners in the two countries is very small. For instance, the two largest distribution outlets in Zambia are owned by couples.
Stanford (54) notes that women in Zambia are concerned about gender discrimination with regard to access to business growth and career advancement opportunities. Distribution in both countries is characterized by insecurities, which discourage women from owning such businesses.
In both countries, a significant number of women own and operate small retail outlets. Most outlets are close to their homes. As a result, they work and take care of their families at the same time. Seventy six percent of retail outlet owners in El Salvador are women.
In Zambia, 35% of the outlets are either owned or managed by a woman. Zambia Breweries and ILC train small scale retailers. However, women retailers in Zambia face various challenges accessing credit services.
As a result, their capacity to grow is very limited. In El Salvador, the situation is significantly different from Zambia. Most of the women interviewed in one study pointed out that they accessed credit facilities with the same ease as male retailers (Regassa and Corradino 107).
Sustainability and the Environment
Both companies have demonstrated their commitment to environmental and social sustainability. Both of them have elaborate corporate social responsibility (CSR) systems. They are independently evaluated each year (DATAMONITOR 8).
Depending on their supply chain and business operations, multinationals determine access to quality water among members of the community. Companies operating in close proximity to local communities give back to the society by sponsoring clean water initiatives and ensuring that they treat their wastewater.
In this regard, businesses should ensure that their operations do not interfere with the ability of the locals to access quality water. Coca Cola Company and SABMiller are registered members of CEO Water Mandate (CWM).
According to the stipulations of CWM, member companies are committed to strengthening water sustainability practices and policies (Market Watch 25).
In July 2010, the United Nations General Assembly pointed out that human beings have a right to clean water.
The Assembly encouraged countries and multinationals to transfer technology, build capacity, and provide necessary resources to third world countries to assist them provide affordable, safe, accessible, and clean drinking water to their populations.
During the convention, The Assembly averred that 900 million people in the world lacked access to clean and safe water (Walsh and Dowding 113).
Just like in the developed world, the agricultural sector consumes more water in third world countries compared to other sectors. Water is the major component of the products manufactured by Coca cola. In addition, water is used as a coolant for machines.
Other areas where water is used include in washing facilities and in the manufacturing processes. The value chain significantly affects the farms in the third world.
In Zambia, farmers use a lot of water to wash sugarcane after harvesting. However, the use of water during harvesting in El Salvador is less compared to Zambia. The major reason for this is that it is usually wet during harvesting in El Salvador (Dibadj and Powers 145).
Coca Cola is a registered member of Bonsucro, which was established to limit the negative impacts of sugarcane farming and processing. As a member of this organization, Coca Cola encourages sugarcane producers to use environment-friendly practices, such as drip irrigation.
The reduction of negative effects on the environment effects is appraised by independent evaluators. Currently, Coca Cola is working with producers in Zambia and in El Salvador to design pilot projects that will benefit the environment and the producers (Nevin 45).
In the two countries, the Coca Cola-SABMiller value chain system is located close to sources of water. The same water is used in other industrial, agricultural, and domestic processes. The main issue in Zambia is access to water.
On the other hand, the main issue in El Salvador is availability of water. Managers in the bottling plants engage members of the community by showing them how to use water to benefit everyone.
In addition, they train them on how to use water with minimal negative effects on the environment. Zambia Breweries and ILC observe the requirements of the water stewardship committee in Coca cola (Raman 103).
SABMiller ‘Water Dialogues’
One of the major plants operated by Zambia Breweries is located near residential areas. The plant supplies clean water to the residents of two nearby towns.
Residents of another town use water from an adjacent spring, which is also used by the plant. The plant has provided the community with several standpipes of clean water for free. In exchange, the community protects the plant’s pipes from vandals.
One of the major plants operated by ILC, as well as residents of the surrounding community, uses water from the San Antonio River. ILC is treats all wastewater before it is discharging into the river, but other industries in the area do not.
For some time, the community assumed that ILC was among the industries releasing untreated water into the river. ILC, together with the local authority, informed the community that wastewater from the plant was treated.
The company entered into discussions with the community on what should be done to deal with the pollution caused by the other industries. The other industries have started treating their waste water. They are now working together with members of the community to conserve the environment (Raman 110).
Packaging and Recycling
Landfill waste is one of the most challenging waste management issues in the developing world. Contaminants from the landfills leak and contaminate groundwater, endangering the health of members of the surrounding communities.
SABMiller has initiated a recycling program in both countries. 70% of all Coca Cola products in Zambia are sold in returnable bottles, with the rest sold either in plastic bottles or in aluminum cans. The use of returnable bottles is eco-friendly because they are returned to the company, washed, and reused.
Coca Cola and SABMiller had proposed a program to recycle aluminum cans and plastic bottles. However, due to the limitations of the Zambian recycling industries, the program has not taken off. In El Salvador, 52% of the products are sold in plastic bottles, 35% in returnable bottles, and 9% in cans.
The recycling plants operated by ILC are very efficient, but they were adversely affected by the economic recession. As a result, some of them closed down (Sellers 144).
Products and Marketing
Beverage companies are tasked with the responsibility of making sure their products are safe for consumption. The companies should realize that some people in the society may be negatively affected by their products. In the developing world, these companies should ensure that their message is presented in a way understandable to consumers (DATAMONITOR 7).
The company’s product portfolio in the two countries is fairly limited. Most people in the countries consume sparkling beverages. Sales of juice in El Salvador have continued to rise in the past two years. The company has more than 500 brands and more than 3,300 products (Market Watch 25).
Consumer Perceptions and Marketing
Coca Cola has spent over 5 million USD in marketing its products in El Salvador. The brand is associated with success and inspiration in the two countries. The products are integral parts of family and cultural celebrations.
Fanta is the most popular product among children in the two countries. The business policy adopted by Coca Cola includes a Global Responsible Marketing Policy (GRMP). The policy discourages the marketing of the company’s products to children aged less than twelve years (DATAMONITOR 9).
Under GRMP, Coca Cola committed to display nutritional labels on all its products by the end of 2010. The products sold in returnable bottles in both countries did not have the labels as of 2009.
The company is reluctant to provide such information on returnable bottles because it will force it to replace all bottles that are currently in circulation. In 2011, the company established a telephone number that consumers could call and get such information.
Consumers in both countries point out that they do not comprehend the information on the cans and plastic bottles. In addition, they do not think that the company should provide such information on returnable bottles (Madhavan 41).
Under GRMP, the company commits to measure and monitor the degree to which the policy is adhered to. In addition, it has come up with a Review Process to make sure that the policy is fully implemented. The findings made are documented in the CSR report at the end of every year.
The International Food and Beverage Alliance conducted an independent audit and found that Coca Cola had complied with the provisions of GRMP. The level of compliance was more than 96% for television adverts and 100% for print and online adverts (Company Spotlight, 24-26).
Coca Cola operates in more than 200 countries in the world. In most of its operations in the developing nations, the company has streamlined its value chain to ensure it remains profitable.
In addition, streamlining the value chain helps in protecting the environment, improving welfare of the employees, and improving the quality of products. The company has achieved this through a diverse business policy.
The policy addresses the role of the company in the countries’ macroeconomics, livelihood of employees, worker empowerment, job security, participation of women in the labor market, marketing of products, and protection of environment.
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