Coca Cola denies the charges on transfer pricing

The Vice President might foresee what awaits him in Vietnam during his visit to the market. Local newspapers these days continuously stir up the public with the news and reports about Coca Cola, which has been suspected of making the transfer pricing and has not paid any dong in the corporate income tax over its last 20 years of operation.

As anticipated, the first question raised to the Vice President who attended a press meeting during his visit to Vietnam was, why Coca Cola still decided to pour $300 million in capital into Vietnam, though the drink manufacturer still has not made profit over the last 20 years.

The Vice President said that Coca Cola, which is following a long term investment plan in Vietnam, strives to obtain long term profits. Once it decides to make investment in one country, it would do many things to be able to cling itself to the market and cement its firm position there.

In order to do that, it needs to invest in the infrastructure items, develop equipment and the labor force, and develop the brand in the market. In general, Coca Cola needs to build up itself to make it grown up enough to obtain the sustainable development. All of these works cannot be done overnight, and they will require a long time.

A high technology firm, for example, has to accept losses in its first 10-15 years of operation before it becomes a successful business. As for Coca Cola, the most successful subsidiary of the group needed 25 years to operate with no profit in order to be successful nowadays.

He admitted that Coca Cola has not succeeded in Vietnam in terms of the financial efficiency. However, with the reasonable investments, the drink manufacturer hopes to begin making profit in the next years. The non-alcoholic drink market in Vietnam remains modest. However, when the market develops and Coca Cola grows up enough, it would begin making profit.

The Vice President’s explanations seemed to be unsatisfactory to local reporters. Vietnam is a developing economy with the new investment environment which offers many investment incentives. Especially, the labor cost is very low in Vietnam.  All these factors could provide the great advantages to the investors, which help them reduce the investment rates and soon make profit.

Meanwhile, Coca Cola, a big guy with the powerful financial capability, needs more than 20 years to make profits with their investment deal in Vietnam, which sounds illogical.

Explaining this, the Vice President said though the labor cost in Vietnam is lower than in other countries, the total cost is not lower at all. The same sum of money Coca Cola has to pay to set up one factory in Vietnam is nearly the same with the money it spends for the factory in the US.

However, the business efficiency in Vietnam is much lower than in the US, because the factory in Vietnam just can create 1 million products, while its designed capacity is up to 70 million. This is the reason why Coca Cola bears high expenses.