Coca Cola Vietnam Strategy

Analysis of macro environment (PESTEL Model)

Although Coca Cola Company is well-known as a multinational organization, which means it has lots of advantages in the beverage industry, in order to be the leader in Vietnam market, Coca Cola must understand clearly about the macro environment in Vietnam to recognize which threats and opportunities it is facing with. Coca Cola may use PESTEL model as a tool to analyze major factors in macro environment.

Political Analysis

Tax policy: Tax has a great influence on any business operating in Vietnam, no matter local or foreign firms. Recently, tax service has questioned for many large foreign companies in Vietnam. Tax Agency has written requests for consideration local inspection hole operations, profitability of the business to conclude if companies report losses for the purpose of increasing costs to evade taxes or not. Among them, Coca Cola Company reported losses in continuous operation for 20 years. This made a really bad reputation for Coca cola in Vietnam. However, in 2014 and 2015, the government decided to decrease corporate income tax from 25% to 22% to encourage the development of enterprises as well as to expand production, and increase competitiveness. This change can bring benefit to the company.

Conclusion: a losing in tax rate can help Coca Cola reduce part of their costs, and as the result, it can take advantage of this factor to increase their profit and use their budget more effectively.

Government regulations: As a famous brand, manufacturer, distributor and seller in beverage industry, Coca-Cola Company is a subject to antitrust laws of general applicability. The Company may have an exclusive right to manufacture, distribute and sell a soft drink product as long as its product is in substantial and effective competition with others of the same general class in the market. It is a common regulation in business worldwide. Moreover, there are some other regulations which strictly limit and prevent the expanding of the Company. For instance, on January 1, 2006, a number of states had regulations restricting the sale of soft drinks and other foods in schools. Many of these restrictions have existed for several years in connection with subsidized meal programs in schools. If this restriction enacted for a long time widely, it could impact on the Company’s products, image and reputation as well.

Conclusion: besides antitrust law, some other regulations may become the barriers of Coca Cola’s expanse. Therefore, updating the latest regulation associated with beverage industry as well as quality of food and health care can help the Company react and create strategy better.

Social welfare policies:  Vietnamese government always encourages the enterprises to have responsibilities toward the citizen by helping people. In Vietnam, Coca Cola has played the role as a good neighbor and responsible citizen by set up many regional and local foundations, organized charity programs in local. Some reality programs such as “Vietnam pushcarts program” – helping economically disadvantaged women build sustainable livelihoods, the workshop program in Business Skills and Class Selling Skills Training.

Conclusion: By caring and bring benefit to the society, Coca Cola can build their good image in not only consumer’s mind but also the government’s.

Political risk: the political risks are impact to change in its business. The complicated as political conflicts, disagreements cabinet and sluggish affect the development and sales. Vietnam has a steady political condition for the development of Coca Cola. However, Vietnam is supposed to have high Political risk, because:

Firstly, the Communist Party Congress will be held in 2016; new committee members are chosen every five years. Prime Minister Dung is ineligible to stand for another term; however, his successor is likely to continue his policy programs.

Secondly, plans for economic liberalization will accelerate as the government intends to sell almost 300 state owned enterprises in 2015. While it is expected that this goal will not be met, it does indicate the government’s continued resolve following progress made in 2014.

Thirdly, despite consistent economic gains in the last decade, development is hampered by inadequate infrastructure, low human capital, high levels of corruption and pervasive bureaucracy.

Finally, moreover, disputes between Vietnam and China over oil-rich islands in the South China Sea have created political tensions. Additionally, these disputes sparked riots against Chinese-owned factories in Vietnamese manufacturing hubs.

Conclusion: because of the high risks of Vietnam, Coca Cola should consider carefully prior any decision in investment in Vietnam. It even had better have plan B for the development of the Company if any of those risks happened.

Economic analysis

Economics has a huge impact to not only the business of Coca cola company but also any other companies, indicated by these main elements: interest rates, inflation rates, tax rates or consumption patterns...

Inflation rate: affects the business, especially the prices of products. This chart below shows how inflation impact on the price of Coke worldwide.

The blue line is Coke’s normal price and the red is the inflation adjusted price. It can be seen that Coke’s price increased due to the inflation. This adjustment is according to the economic situation and the state’s current inflation rate that force the prices of products to increase dramatically or slightly.

[pic 1]

Source: About inflation

Figure 1. Coca Cola inflation adjusted price from 1997 to end of May - 2013

However, recent Vietnam’s inflation rate is around 3.3%, which supposed to be a good rate for any investors considering entering Vietnam market.

[pic 2]

Source: Asia Pacific executive brief - IMA Asia

Figure 2. Inflation, CPI year average of Asia Pacific countries in 2012-1016

Conclusion: lower inflation rate brings opportunity for Coca Cola if it tends to invest more and expand in Vietnam market. However, the inflation rate of Vietnam economy has been fluctuating for years, which should be concerned when making plan.

Economic growth

Vietnam has been securing socio-political stability, and is known to be one of the most dynamic economies. Economic growth between 1991 and 2010 averaged 7.5% each year and, despite the country had to face many difficulties in the period of 2011-2013, GDP growth still rose by 5.6%. Vietnam’s economy further maintains its recovery trend in 2015 as the macroeconomic stabilization and global economic developments are providing strong pillars for the growth. The growth target of 6.2 percent set by the government in 2015 is viable. According to the World Bank forecasts, Vietnam’s economy growth rate in 2015 and the next two years will be on the upward trend. Vietnam’s GDP growth is predicted at six percent in 2015, which will be gradually increasing to 6.5 percent in 2017 thanks to positive developments in the manufacturing, export and foreign investment sectors.