A Note on the Regional Triad Model and the Soft Drink Industry

By Gardner, John C.; McGowan, Carl B. | Multinational Business Review, Spring 2010 | Go to article overview

A Note on the Regional Triad Model and the Soft Drink Industry


Gardner, John C., McGowan, Carl B., Multinational Business Review


Abstract:

The objective of this paper is to analyze the five largest companies in the soft drink industry in the context of the regional triad theory as presented in Rugman and Brain (2003) and later in Rugman and Verbeke (2004b, 2007). We find that of the five largest companies in the soft drink industry, only Coca-Cola meets the definition of a global company as defined by regional triad theory. National Beverage is a strictly domestic company and Cadbury, Cott, and Pepsi are bi-regional MNEs with sales in the NAFTA and European triad regions. Coca-Cola reports sales in five major geographic regions, which fits the criteria of a global firm.

INTRODUCTION

Rugman and Brain (2003) and Rugman and Verbeke (2004a, 2007) show that only a small number of multinational enterprises (MNE) are actually global in the sense that the MNE has a minimal proportion of sales in each of the three core triads defined originally by Ohmae (1985) as Japan, the European Union, and the United States. Rugman andVerbeke (2004a) expand the definition of the broad triad regions to Asia, NAFTA, and the expanded European Union. To be a global MNE, a firm must have no more than 50% of sales in the home triad region and at least 20% of sales in each of the other two triad regions. A bi-regional MNE has sales of at least 20% in two triad regions but less than 20% of sales in the third triad. A homebased MNE does not have 20% of sales in either of the other triad regions. A fourth category defined in Rugman and Brain (2003) is a host triad region oriented MNE that has more than 50% of sales in a triad region other than the home triad region.

Rugman and Brain (2003) analyze the 20 largest multinational enterprises (MNE) listed in theTempleton global performance index of the largest 246 MNEs as determined by foreign sales to total sales for 2000. The authors find only one global MNE, five bi-regional firms, 12 home triad MNEs, and two host triad MNEs. Using 2001 data, Rugman and Verbeke (2004a and 2004b) find that of the 500 largest MNEs of which 380 report geographic sales data, nine MNEs are global, 25 MNEs are bi-regional, 11 MNEs are host country oriented, and 320 MNEs are home country oriented. That is, even the largest MNEs are not global as defined by the Triad Theory Model, except in a few instances.1

Rugman and Verbeke (2004b) provide a framework that can be used to categorize companies as global, regional, and national in character using a three-by-three matrix with the locus of decision making on one axis and product characteristics on the other axis. The horizontal axis is the locus of decision making in the MNE which can be at corporate headquarters, in regional centers, or in national units. The vertical axis relates to product characteristics and can be a world product, a regionally adapted product, or a nationally adapted product.

A firm that has a world product with a corporate headquarter decision locus would be characterized as using a global strategy. An MNE "where all decisions are taken centrally, and products are not adapted to host countries or region"2 would be a global MNE. A regional strategy would be defined as one with regional decision making centers and a regional product. A firm that has a national-based product and a national management strategy is defined as using a national strategy. This MNE would "be fully polycentric, with products carefully tailored to each national market and most strategy decisions left to the host-country affiliate managers."3

THE REGIONAL TRIAD MODEL AND THE SOFT DRINK INDUSTRY

The soft drink industry is dominated by five companies: Coca-Cola, Cott, Cadbury, National Beverage, and Pepsi. These five companies account for 95% of soft drink sales worldwide. Table IA provides the distribution of average global sales for Pepsi, Cott, Cadbury, and National Beverage over the 2000 to 2004 period. The table clearly shows that these four soft drink companies, with little presence outside the NAFTA/Anglo region, do not meet the definition of Triad MNEs. …

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