Taking a loss like Coca Cola
07-10-2015 13:46:42+07:00
Taking a loss like Coca Cola
In February 1994, Coca Cola began doing business in Vietnam after the US lifted the trade embargo against Vietnam, with initial investment capital of $163 million. Since then, the soft drink manufacturer has never made a profit.
Coca Cola’s 2014 financial report showed that sales in Vietnam increased by 25 percent, while the growth rate was 9 percent in Thailand. Sales decreased by 3 percent in the Philippines, and by 4 percent in Australia.
Coca Cola entered Vietnam as a giant with 100 years of experience and a strong brand. As there was no strong rival, Coca Cola quickly dominated the domestic market.
The giant became even more powerful when the government of Vietnam in 1998, in a move which was seen as supporting Coca Cola, allowed joint ventures to turn into 100 percent foreign invested companies.
The soft drink manufacturer then immediately bought three companies in Vietnam in a plan to cement its firm position in South East Asia. It decided to raise the investment capital to $350 million and increase production capacity to 40 million liters a month.
However, while reporting increasingly high investment capital, output and consumption with sales reaching VND2.5 trillion in the first decade of the 21st century, it reported a loss of VND200 billion.
Coca Cola has repeatedly reported losses since its first day of operation in Vietnam, despite the impressive sales growth rate of 20 percent per annum.
In 2011, Coca Cola reported a huge loss of VND3.8 trillion, which was even higher than its initial investment capital (VND2.6 trillion).
With repeated losses, Coca Cola did not have to pay any corporate income tax in Vietnam over the last 20 years.
Irial Finan, Coca Cola’s vice president said it was quite normal for Coca Cola which planned a long term investment in Vietnam, to take losses.
He also noted that the low Vietnamese productivity made it difficult for Coca Cola to employ workers, which was one reason behind the loss.
Coca Cola took losses also because it had injected big money into investment projects. Surprisingly, the soft drink manufacturer still decided to pour another $300 million into the market which brought a loss of nearly VND4 trillion, and it still hoped to increase sales by twofold by 2020.
Coca Cola’s explanation seems to be unconvincing. Le Duy Minh from the HCM City Taxation Agency said Coca Cola Vietnam tops the list of the businesses suspected of conducting transfer pricing to evade tax.
“The enterprise repeatedly takes a loss because it has to pay a lot for materials. Materials are mostly imported from the holding company and they are very expensive,” Minh said in a local newspaper.
