Byravee Iyer
May 28, 2013

Why consumers in Vietnam are calling for a ban on Coke

ASIA-PACIFIC - Coca-Cola might be famous for spreading messages of joy and peace, but in Vietnam, the world’s largest beverage player is being accused by some of contributing to the suffering of medical patients via tax evasion.

An image posted on Facebook reflects the negative sentiment the brand is facing
An image posted on Facebook reflects the negative sentiment the brand is facing

A video released earlier this year, part of a boycott campaign against the beverage company, tells the story of a young girl suffering from leukemia. Her health insurance doesn’t cover medical expenses, and she cannot afford adequate care because companies like Coca-Cola won’t stop evading tax, according to the widely shared video.

The video, released in Janaury, was made by young filmmakers who wish to heighten social awareness of tax obligation and evasion. The video was conceived by the IAMS Student Community and produced by VietnameseGuyz Production.

Although the film ends with a disclaimer stating that it is fictional and does not target any specific company, it garnered publicity after it was posted on a Facebook page entitled ‘Phan doi Coca Cola tro thue’ (Coca Cola Evades Taxes). It has managed 15,030 views so far. The page, started in December 2012, has more than 1,000 fans, with several people calling for a ban on Coke.

“Brands need to realize that today, consumers are looking for and embracing brands and products that are transparent and genuinely generous,” said Tara Hirebet, Trendwatching’s head of APAC. Hirebet believes that when faced with an incident like tax evasion, consumers see the brand as hiding information and not being transparent. “They don’t see you as a human and likeable brand anymore, so you need to work to regain that image and give them a better truth than what’s out there,” she said.

Steve Yi, Grey Group Korea’s chief strategy officer believes Coca-Cola will see some significant short-term damage to sales. “One can recall the Chinese riots against Japanese brands. It might not be on that scale of violence or anger, but to say Coca-Cola or other American brands will not take a hit, that’s a pipe dream," he said.

Over the last 10 years, Coca-Cola has repeatedly posted losses in Vietnam and as a result it has been exempted from paying corporation income tax. In fact, its accumulated losses as of 2010 outstripped its initial capital investment. Trouble started in October 2012 when the company announced plans to spend $300 million to grow its presence in the high-growth emerging market.

“Vietnam’s economy has maintained healthy growth in recent years, and this new financial commitment is more than an investment in Coca-Cola’s expansion in Vietnam, it is also an important acknowledgement of our belief in the long-term potential of this key market,” Muhtar Kent, chairman and CEO of Coca-Cola, said at the time.

Media reports in Vietnam claim that Coca Cola could be abusing transfer pricing. Some acknowledge that if Coca-Cola pushes material prices via transfer pricing, it could result in losses for the subsidiary company while increasing profits for the parent company.

Coca-Cola, for its part, attributed the losses to raw material price increases and loan interest and foreign-exchange-rate fluctuations. However, according to tax authorities quoted in the media, most of Coca Cola's loans are from its parent company. 

In 2010 Coca-Cola sought permission to lease 4,700 square meters of land in Lien Chieu in Da Nang, next to its existing factory, to set up another production facility. The local authorities rejected the request, as the company has still not started using a 40,000-square-meter space allocated to it earlier. It currently has three plants in Ho Chi Minh city, Da Nang and Hanoi.

Hirebat recommends Coca-Cola reevaluate its strategy in Vietnam. She recalls the example of Disney pulling out of Bangladesh after the tragedy of the garment building collapse in order to rebuild consumer confidence. “Brands need to respond to negative feedback by not denying, but apologising and showing commitment to making positive changes," she said. "Being transparent will gain the respect of consumers.”

She added that consumers are increasingly embracing brands that act more humanly and humanely.  “Brands like Coca-Cola need to show personality, not just by owing up to their mistakes but even poking fun or being tongue-in-cheek about it,” she said. She cited the example of Ikea Singapore, which rolled out tongue-in-cheek social media campaigns during the horsemeat scandal.

Finally, Hirebet urged Coca-Cola to consider ‘embedded generosity’ or building CSR into the very DNA of its product so consumers effortlessly get to feel good every time they purchase it. “When being accused of tax evasion and taking money away from Vietnamese children or killing them, Coca-Cola could find a way to give back to society or even directly to Vietnamese children through their products and sales," she said.

Yi would like to see Coca-Cola issue a soft response. “Even if you did not do anything wrong, it would be good to issue a careful apology  and to ensure that Coca-Cola will do its share in aiding the development of the Vietnamese poor if not with tax money but with charitable contributions of some kind,” he added. 

Vietnam is a lucrative market for cola makers. According to a 2011 report from Nielsen, FMCG in Vietnam registered the fastest growth in Asia at 17.7 per cent. Pepsi and Coca-Cola are vying to fight domestic beverage maker Tan Hiep Phat, which leads in market share. Pepsi has sold 51 per cent of its beverage business in Vietnam to Japan’s Suntory Holdings. The new company will start selling Pepsico product and will later introduce Suntory products.

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