Mixed messages about Coca-Cola’s record acquisition

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Arthur Kroeber

Coca-Cola is coughing up USD 2.4 billion to acquire China’s leading juice maker, the Huiyuan Juice group, spending much more than the current value of the Chinese company, writes AFP.
Analysts, including consulent Arthur Kroeber of Dragonomic in Beijing, have mixed feelings about the purchage, to put it midly.
According to AFP:
If approved by local authorities, the deal would be the largest takeover by a foreign firm of a Chinese company, said Arthur Kroeber, managing director of the Beijing-based economics research firm Dragonomics.

“Coke’s in an interesting place in China: They’ve been here forever — they’ve been here for 30 years — (but) there’s not a whole lot of profit growth for them in their existing soft drink market,” he said.
“You have huge volumes, but your margins are always microscopic, so you need to look at how you can diversify into new products lines.”

The purchase seems to be part of an international policy by Coca-Cola to move into non-carbonated drinks rather than based on the Chinese economic realities. While it would certainly be good for the volume of the sales and the company’s market share, margins would be rather low, making it an investment for the long haul at best.
Moving into markets like retail and low-end consumer goods has seldom been a lucky move by foreign companies in China.

Commercial
Arthur Kroeber is also a speaker at the China Speakers Bureau, together with a larger group of authoritative experts on China’s economy. When you are interested in having him as a speaker, do get in touch.

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