Vietnam Boycotting Coca-Cola Over Taxes

Or Is It?
Posted by Abe Sauer on May 16, 2013 10:43 AM

Coca-Cola is killing Vietnam's children. That's the takeaway message of a
video that is part of a boycott movement against the world's most famous,
most successful soda maker. But is Vietnam's anti-Coca-Cola consumer
movement all state-sponsored fizz and no substance?
Even after the war was over and the troops had left, news stories used the
presence of Coca-Cola as an example of persisting American influence in
Communist Vietnam. "Girlie Magazines and Coca-Cola Still In Vietnam" read
the headline from a May 1975 Associated Press story. Sadly, two decades did
not make the press much more sensitive. "Coca-Cola Invades Vietnam" read
the Nov. 18, 1994 Albany Herald headline announcing Coke's official return to
selling in the nation.
During the post-war US embargo, Coca-Cola was still widely available in
Vietnam, brought in from neighboring nations. Thanks to this make-do
distribution system, Coke claimed a majority of Vietnam's soft drink market
even before it officially returned to bottling in the nation. But for the last
several years, Coke's success has become a sore spot for Vietnamese
consumers who suspect the brand is cheating the nation out of tax receipts
and a new boycott is aiming to do something about it.
Coca-Cola has consistently reported losses in Vietnam for the last decade.
This exempts the bottler from local taxes. For example, Coke reported a 2010
Vietnam loss of 188 billion dong, or about $8.98 million. In the last decade,
Coke has reported losses in Vietnam of $180 million.
But then, as Vietnamnet reports, Coca-Cola announced plans for a new three-
year, $300 million investment to expand sales in Vietnam, though the ongoing
loss has triggered suspicion by authorities that Coca-Cola is abusing transfer
pricing, a practice that some say is simply a harmless allocation of profits
throughout a multinational's jurisdictions but which others say is a method for
multinationals to avoid taxes in developing countries by shifting profit to tax
havens. (Here's a good explanation.)
Coke's tax scandal has been compounded in Vietnam by news that the
beverage maker appears to be getting greedy with land allocated for its
manufacturing facilities. The result of the ongoing anger at Coca-Cola has
resulted in the city of Da Nang blankly stating that it will not let the bottler
expand any further in the region. "In places where laws are transparent,
sufficiently detailed, and clear, there is nothing to worry about. However,
Vietnam unfortunately is not one of those places," said Adam Sitkoff, the
Executive Director of The American Chamber of Commerce in Hanoi, in an
email interview with brandchannel.
Sitkoff said that Coca Cola is not alone in its PR woes in Vietnam, citing
Pepsi, Metro, Unilever, BAT and Adidas as other companies that have landed
in newspapers about transfer pricing investigations. Calling Coke a brand
that's made "a positive difference in Vietnam," Sitkoff reiterated that despite all
of the hoopla, "There has been no evidence of wrong-doing by Coke in
Vietnam that I have seen." He also pointed out that transfer pricing is very
legal, including in Vietnam. The strategy is also by no means unique to the
nation or region. "For example," he said, "many large companies dont pay
taxes in the United States even though they are seemingly successful."
As for the boycott, Sitkoff questions the veracity of who is behind things like
the Coca-Cola Evades Taxes (Phn i Coca Cola trn thu) Facebook page.
He added, "It doesnt take much to generate a story that is critical of
companies here, especially foreign companies." Indeed, this sort of state-run
media beat down on foreign brands is a staple of authoritarian regimes
struggling with consuemer-choice-driven market realities.
That said, regardless of the facts behind the reports and suspicions, "a
common tactic multinationals employ to mitigate their tax liabilities" is hardly
as catchy as "tax avoidance by foreign companies is killing our kids." Whether
the reports about Coca-Cola's tax avoidance are real or not, Coke could face
a very real branding crisis.
An ongoing state-run press crusade against Apple in China has resulted in
real brand damage with the nation's consumers. As with Coke in Vietnam,
Apple has been accused of tax evasion and greed and cheating the Chinese
population. Despite Apple's pushback and the fact that Apple really has done
little wrong, the ongoing campaign has diminished the brand in the eyes of
some consumers.
It's all just part of doing business in certain countries, reasons Sitkoff, who
believes, ultimately, Coke will be fine because consumers love what the brand
promises. "The safety and consistency of the product is important in countries
(like Vietnam) where food safety is a big concern to consumers," he said. "No
matter what corner of this country you visit, you can be comfortable ordering a
coke." Sitkoff cannot vouch for the safety of the ice cubes, though.
This brand promise is exactly why Coca-Cola can weather a Vietnam boycott,
either real or conjured. "Coca-Colas public relations nightmare in Vietnam is a
problem for US businesses in general," wrote Jeff Browne, President of
Vietnomics, a company that builds business relationships and cultural bridges
between Vietnam and the US, in a blog post about Coke's PR crisis.
"American investors need to be supportivenot just exploitivepartners in
Vietnam. Thats what sets them apart from China and others in one of the
worlds most dynamic frontier markets."
But "bottom line," Sitkoff concludes, "is that foreign brands are popular in
Vietnam and that is likely to continue."
Top image via the anti-Coca-Cola Facebook page.
More about: American Brands, Apple, China, Coca-Cola, Taxes, Tax Havens, Transfer Pricing, Vietnam,Vietnam
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