In the 1990s, Coke took a number of steps to increase its European sales. One of these was to replace local franchisors who had become too complacent with more active, market-driven sellers. In France, for example, Pernod, a Coca-Cola franchisee, was forced to sell some of its operations back to Coke which in turn, appointed a new marketing manager for the country. In addition, Coke's price was lowered and advertising was sharply increased. As a result, per capita, consumption in France went up. Coke is today widely considered in Europe without any particular adverse feelings but, originally, there was strong resistance to Coke as the term of "Cocacolonization" was coined first in 1949 in France. Already earlier, in 1947, soon after WW II had ended, Coca-Cola started bottling water in the Netherlands, Belgium, and Luxembourg, and in 1949 it had also bottling operations in Switzerland, Italy and France. By 1953, Coca-Cola had rapidly expanded with 63 bottling plants on three continents including Egypt, Iceland, Iran and New Guinea. However, most of its operations is conducted by franchisees and not by wholly owned subsidiaries. By 2015, Coca-Cola has been sold in more than 200 countries worldwide and, as Coca-Cola claims, the term "coke" is the second-most understood term in the world behind "okay". In England, Beecham and Grand Metropolitan used to be Coke's national bottlers but that was turned over to Cadbury Schweppes, most famous for its Schweppes mixers. Schweppes is related to Jacob Schweppe, who was born in Germany but worked in Geneva (Switzerland) where he developed in 1780 a method to mix water with carbon. In 1783, the procedure was patented and Schweppe's idea was to produce and sell the carbonated water enriched with Chinin as malaria prophylaxes. What most individuals don't know: malaria was actually present in Europe until the 1970 when it was finally eradicated and the drink as a medical form of malaria prophylaxes was of actual practical use and need in many countries in Europe before that time. Chinin was considered to protect against malaria infections, and it was also used for malaria therapy. But Chinin tastes very bitter and therefore was difficult to consume. Schweppes, however, had the idea to mix Chinin with Lemon and Tonic water to make it better tasting and much easier to consume Given the limited market potential though in mainland Europe, Schweppes moved to London (UK) and set up a company in 1792 that became very successful as the drink was welcomed by the British army troops and civil administrative staff stationed in tropical countries where they were exposed to malaria. The company was very successful and in 1831 Schweppes became Royal purveyor to the Court and received in 1836 the Royal Warrant. In 1969 the Schweppes company was acquired by Cadbury. In 1998 the distribution of Schweppes was divided between Cadbury and Coca-Cola: Cadbury kept distribution rights in 26 countries and Coca-Cola in 155 countries. In the UK, Cadbury distributed Coke and immediately began a series of marketing programs that resulted in sales tripling within three years. In Germany, the pace has been even faster. Beginning in the early 1990s Coke identified Germany as one of its primary targets and began building a distribution network there to both produce, package and sell Coke locally. Meanwhile, throughout the entire country the company has taken even bolder steps including the replacement of an inefficient domestic bottling network and the institution of a new, well-financed marketing campaign tailored to German culture created in cooperation with a domestic marketing fimm. As a result, Germany became Coke's largest and most profitable market in Europe. But all of this came at a price. For example, some government agencies and companies expressed concern about Coke's overriding emphasis on cost control and market growth and its willingness to push aside those who are unable to meet these goals. As a result, the EU's Competition Department was asked to investigate possible anti-competitiveness tactics. Meanwhile, in the UK, the British Monopolies and Mergers Commission investigated Coke regarding its joint venture with Schweppes, and San Pellegrino, the Italian mineral water company, filed a complaint with the Commission of the EU, contending that Coca-Cola abused its dominant position by giving discounts to Italian retailers who promised to stock only Coke. Yet none of these actions stopped Coke's efforts to establish a strong foothold in Europe. As the European Union eliminated all internal tariffs, it became possible for a chain store with operations in France, Germany, Italy, and the Netherlands to buy soft drinks from the lowest-cost suppliers on the continent and not have to worry about paying import duties for shipping them to the retail stores. Low cost and rapid delivery were going to be key strategic factors for success.. Recent developments shed some doubt on whether the company will be as successful as it is forecasting. Worldwide market growth has been flat and there has been a move away from carbonated and sugary drinks. In Eastern Europe, it is the market for bottled uncarbonated water that is booming. Between 1998 and 2004, per capital consumption of bottled water in Eastern Europe doubled. Although Coca-Cola Water Division is one of four major players in Europe, it is not the market leader and smaller, local national competitors account for a large portion of the market in their countries. Other efforts to develop innovative, non-carbonated products have not proven very successful. The company knows that its future growth is going to depend heavily on its ability to supplement its current product line with new offerings such as vitamin-enriched drinks, and perhaps coffee and tea offerings. Worst of all perhaps, a few years ago the company began centralizing control and encouraging consolidation among its bottling partners. Coke believed that by making all key operation decisions in Atlanta, it could drive up profitability. Unfortunately, at the same time that it was pushing for this centralized type of operation, regional markets began demanding that the company be more responsive to local needs. In short, Coke was going global while the market wanted it to go local. Coke is now trying to turn things around. In particular, the firm is implementing three principles that are designed to make it more locally responsive. First, the company is instituting a strategy of "think local, act local" by putting increased decision making in the hands of local managers. Second, the firm is focusing itself as a pure marketing company and pushing its brands on a regional basis and local basis rather than on a worldwide basis. Third, Coke is now working to become a model citizen by reaching out to local communities and getting involved in civic and charitable activities. In the past, Coke succeeded because of its understanding and appeal to global commonalities. Today, it is trying to hold its market share by better understanding and appealing to local differences. Europe remains an important market for Coke, which derives about a quarter of its revenues from the region, about the same as the Asia-Pacific region. North America, though the dominant market, accounts for just under a third of Coke's revenues. Indeed, Coke attracts both investors and consumers in Europe as it is listed on the Paris NYSE Euronext since 2011. Similarly to many secondary listings, this move to Paris is more about raising awareness than cash as, according to the CEO, the secondary listings "reflect our commitment to Europe and will provide convenient access" for European investors. But even in countries that are not very amicable to the US some demand for Coke drinks seem to exist. Metropolitan company, a retailing company located in the Democratic Peoples Republic of Korea (also better known as North Korea), had ordered from Coke Russia a batch of 200.000 Classic Coke bottles to be sold to specially selected individuals only. It had received a sample of 10 bottles of "classic coke" and after tasting the sample, Metropolitan had signed a contract with Coke Russia specifying that Coke would be required to ship 10 batches of 20.000 bottles of Coke to the Republic of Korea within 3 months after the signature of the contract according to EXW terms. Metropolitan company received 190.000 bottles of Coke within the three months period that included 100.000 classic Coke and 90.000 other Coke types like, Coke Light, Cherry-Coke etc. Coke Russia had informed Metropolitan one week before the three months delivery term expired that it will not able to ship the remaining 10.000 bottles within time since there was a defect in the bottling plant and, as a consequence, the shipment will be delayed by 1 month. Yet, Coke Russia demands payment for the 10.000 remaining bottles and Metropolitan is unclear what it has to do. In addition, as the Metropolitan CEO had leamed that 100.000 classic Coke were delivered and 90.000 bottles of other flavored cokes, the CEO is wondering if Metropolitan has to accept the other types of Coke or not? Does Metropolitan have to pay for the still outstanding 10.000 bottles? 1. Discuss Coke's "Internationalization Strategy" and make suggestions how Coke could improve its factor conditions in Europe. (50 pts) 2. Analyze the Metropolitan vs. Coke Russia situation using the CISG (explicitly refer to the relevant CISG articles in your discussion!). (25 pts)