Milestone 3
Sarah Brown
Department of Business and Leadership, Regent University
Dr Jeff Bajah
ECON 230 Macroeconomics
September 30, 2022
Introduction
Coca-Cola is an internationally acclaimed company. Gaining the majority of their profit from the United States, their home country, and Mexico, one of their key markets, the company's growth is impacted by the economic condition of both countries. The structure of each country's respective banking system and their implementation of fiscal policies have noticeably contributed to the current economic growth of Coca-Cola. Consistently expanding as a widely successful corporation, Coca-Cola, like any other company, is susceptible to the repercussions of economic shifts in its home country and key market.
Impact of National Banking Systems on Coca-Cola
The Federal Reserve System, or “the Fed,” is the United States’ central banking system. Established by Congress to provide the US with a stable, safe, flexible monetary and financial system, the Federal Reserve System has been in use since 1913 (The Fed - What Is the Purpose of the Federal Reserve System? 2022, para 1). As a US-based company, Coca-Cola operates under the structure of the Federal Reserve System and is directly impacted by its policies. The Fed directly affects the economic well-being of the United States as its policies can either benefit or harm things such as employment and inflation. The Federal Reserve System has an impact that reaches beyond general economic concepts. The federal funds rate, controlled by the Fed, is the rate banks pay for overnight borrowing in the federal funds market. When the rate is low and comparatively cheap for people to borrow money, households are generally more likely to spend more on goods and services. More spending means companies like Coca-Cola gain more profit. An increase in profit allows for expansion in product lines and employment rates, contributing to overall economic growth. This policy, the federal funds rate, is just one example of how policies enacted and enforced by the Fed affect a company’s economic growth. Mexico, Coca-Cola’s key market, operates under its central bank system, Banco de México.
Similarly to the Federal Reserve System, Banco de México’s main objective is to maintain a healthy, stable economy in Mexico. The system’s official website states that “low and stable inflation” is its top priority (Banco de Mexico, 2022, para 1). The effects of Banco de Mexico on Coca-Cola’s economic growth are not as direct as the Federal Reserve System’s but have a noticeable impact nonetheless. As the Banco de Mexico establishes and adjusts policies, it directly affects the economic health in Mexico and indirectly affects Coca-Cola as a good widely sold in Mexico.
Affects of Fiscal Policies in the US on Coca-Cola
Fiscal policy is defined as “Federal government policy on taxes, spending, and borrowing that is designed to influence business fluctuations.” (Cowen & Tabarrok, 2020, chapter 37) Fiscal policies affect economic conditions such as aggregate demand for goods and services, inflation, employment, and economic growth. Post-covid era fiscal policies have sought to minimize the financial harm produced by the pandemic. The adjustment of fiscal policies impacts the economic development of Coca-Cola. For instance, the fiscal stimulus policies implemented after the COVID-19 pandemic had a significant role in mitigating dropping consumption levels of goods during the lockdown period and boosting the consumption of goods during economic mobility. This fiscal policy has helped the Coca-Cola company grow by supporting higher levels of goods consumption. While the company experienced an 11.4% decline during the peak Covid period, 2020, it was able to reach a 17.09% increase in the following year, 2021 (CocaCola Revenue 2010-2022 | KO, n.d.). While this regaining of growth cannot be entirely attributed to the fiscal stimulus policies, it is worth noting the significant improvement since the issue date of the first stimulus checks on December 31, 2020.
Mexico’s Fiscal Policies in Relation to Coca-Cola’s Economic Growth
Mexico’s use of fiscal policy through the upcoming implementation of their national budget will impact the country’s overall economic growth and the Coca-Cola company’s growth specifically. While Mexico’s budget reflects an optimistic financial outlook, it does seem to follow the country’s recent economic history. Including new numbers regarding expenses such as national expenditures and pensions, the Mexican budget does show that the policymakers prioritize maintaining stable Gross Domestic Profit and debt levels. Additionally, the 2023 budget shows a projected 9.9% increase in revenue, a 0.8% increase from the expected 2022 revenue increase. This increase can be partly attributed to the fiscal policy changes that produced higher interest rates resulting in higher borrowing costs (Mexico Budget GDP Assumptions Optimistic, Revenue Forecasts More Prudent, 2022, para 8). Higher revenue overall promotes economic growth amongst many companies. Coca-Cola benefits from these fiscal policies as one of Mexico’s most consumed goods. Thus, by directly impacting the nation's economic well-being, Mexico’s fiscal policies also influence Coca-Cola’s growth.
Conclusion
In conclusion, Coca-Cola has done exceptionally well in adjusting to the economic conditions of both the United States and Mexico in a way that benefits the company’s profitability and overall economic growth. Countries are consistently changing fiscal policies to better their respective economies. By adhering to fiscal policies and making necessary adjustments, Coca-Cola has experienced a consistent increase in profit and economic growth and is expected to continue to do so.
References
Banxico (n.d.). Banco De Mexico. Retrieved September 30, 2022, from https://www.banxico.org.mx/indexen.html
CocaCola Revenue 2010-2022 | KO. (n.d.). MacroTrends. Retrieved September 30, 2022, from https://www.macrotrends.net/stocks/charts/KO/cocacola/revenue
Cowen, T., & Tabarrok, A. (2020). Loose-leaf Version for Modern Principles of Economics (Fifth ed.). Worth Publishers.
The Fed - What is the purpose of the Federal Reserve System? (n.d.). Board of Governors of the Federal Reserve System. Retrieved September 30, 2022, from https://www.federalreserve.gov/faqs/about_12594.htm
Mexico Budget GDP Assumptions Optimistic, Revenue Forecasts More Prudent. (2022, February 16). FITCH WIRE. Retrieved September 30, 2022, from https://www.fitchratings.com/research/sovereigns/mexico-budget-gdp-assumptions-optimistic-revenue-forecasts-more-prudent-16-09-2022
Hey Sarah I enjoyed reading your post you and I are both doing our project on Coca-Cola, you have some really good points!! I agree that Coca-Cola has done exceptionally well even through the pandemic!!! I myself will buy a coke I don’t care how much it costs I’m addicted to Coca-Cola and Pepsi
Hey Sarah,
I enjoyed reading your post. You described everything in simple terms so it is easy to follow and for everyone to understand. It is great for Coca-COla that the company is doing well regarding policies changing in both cuntries the US and Mexico. Since Mexico is struggelling with their GDP, it has an effect on Coca- Cola as well. I did not really think about the positive effects that can occure to one country when the other one is struggeling. Thank you for mentioning that, for some reason I have always just focused on the bad side of the struggles.
Have a great weekend:)
Good morning Sarah,
You had an extremely insightful post on Coca-Cola. I had no idea the importance of the fed funds rate until the U.S economy took a drive this year and interest rates started to spike. As you mentioned before, the fed funds rate is banks charge to other for overnight lending. Moreover, when one bank has excess funds, this is known as liquidity. According to FRED Economic Data (2022), a bank with liquidity "will lend to another bank that needs to quickly raise liquidity". The fed funds rate ultimately influences the prime rate that the banks issues its citizens, which tends to be three points higher than the fed funds rate. Great overall post Sarah.
Reference:
FRED Economic Data. (2022b, September 1). Retrieved October 2, 2022, from https://fred.stlouisfed.org/series/FEDFUNDS
Sarah, Great post this week, The federal reserve has a great impact on a variety of companies and markets throughout the United States but one thing In particular you did a great job of focusing on was the Effects of fiscal policy on Coca-Cola, How the rates set forth by the central bank affected the company was very interesting to me as I covered this in my post as well!
Sarah,
I enjoyed reading your thoughts this week. The policies implemented by the central bank have significant impacts on various markets that operate within the nation. As you have pointed out, much of the shift in the economic success of the Coca-Cola company in recent years may not be directly impacted by fiscal and central bank policy, but these policies have influence regardless. I have found it interesting to reach about inflation, taxation, stimulus funding, and other topics within this subject in light of the COVID-19 pandemic and overseas conflicts. Specifically on the topic of stimulus funding, these checks obviously stimulated the economy, but I am curious if long term they have had more of a negative impact than a good one.
Have a blessed week!
Sara,
I think you have a well done post. One thing I would like to get your opinion on is the high Federal Funds rate, in contrast to the very low required reserve ratio. As you mentioned, a low Federal Funds rate increases spending. In a similar vein, the Federal Reserve lowers the required reserve ratio when they are trying to increase spending. However, what we are currently seeing is a required reserve ratio of zero, and a Federal Funds rate of 3.25 percent (Federal Reserve, 2022; Tepper, 2022). While the 3.25 percent may not seem high, keep in mind that it started at near zero percent in March (Tepper, 2022). This seems to indicate that the Federal Reserve is trying to slow down inflation. Yet, if they were trying to do that, they would also increase the required reserve ratio. What are your thoughts on this discrepancy?
References
Federal Reserve. (2022, January 4). Reserve Requirements. https://www.federalreserve.gov/monetarypolicy/reservereq.htm.
Tepper, T. (2022, September 21). Federal Funds Rate History 1990 to 2022. Forbes Advisor. https://www.forbes.com/advisor/investing/fed-funds-rate-history/.
It seems like Cocacola continues to prove itself worthy of being the largest beverage company in the world. It's adaptability has given it a huge competitive advantage. There is immense success found in its ability to leverage resources: "The company‘s goal is to use Company‘s assets — its brands, financial strength, unrivaled distribution system, global reach, and the talent and strong commitment of its management and associates — to become more competitive and to accelerate growth in a manner that creates value for its shareowners" (Mudaliar). This strategy is apparent with the monetary and fiscal policies you mentioned, furthering the idea that Cocacola has used them to work in their favor. The company has made itself more efficient and appealing, in even times of economic uncertainty.
Mudaliar, A., & Bhadauria, B. M. S. A Comparative Profitability Analysis Of Coca Cola & Pepsico.