Saturday, October 27, 2007

To be Exploited by Multinationals is Glorious

An old, but very interesting article from NYT- Coke's Great Romanian Adventure;
The Coca-Cola Company has gone from having no presence here until the end of 1991 to becoming the biggest soft drink maker, rolling past archrival Pepsi-Cola. Long the dominant player in the Soviet bloc, Pepsi has given way to Coke not only in Romania but throughout most of Eastern Europe and the rest of the former Communist world.

From Poland to Albania to the Georgia Republic,Coke is now outselling Pepsi by more than 2 to 1, roughly reversing the lead that Pepsi held before the Communist bloc began to splinter in 1989. In Romania, the company keeps six bottling plants humming (two more are set to open this year) and employs 2,500, posting sales last year of about $120 million.

To be sure, the cola wars are far from over here or in the rest of the region, an area that is still very much a growth market. Pepsi says it remains No. 1 in, among other places, Hungary and Ukraine (where Coke has yet to invest) and in Russia itself. And it is fighting back where it is now No. 2, with new technology for the local bottlers that it has traditionally relied upon as well as money for new plants. In Romania, Pepsi has become a more aggressive marketer. Taking Coke's lead, it has been adding more of its own colors (with new red, white and blue signs and blue trucks) to Bucharest's pallid palette. The 'Multiplier Effect'

Still, Coke's advances in the region offer lessons for other Western companies struggling to make inroads in the tantalizing markets of the former Soviet bloc. Starting with the fall of the Berlin Wall in October 1989, Coke severed most of its relations with state bottlers and invested quickly and heavily to import its own manufacturing, distribution and marketing techniques. Pepsi, by contrast, remained tied for some time to the creaky operations of the state bottlers and has never come close to Coke's investment levels. So far, Coke has poured $1.5 billion into Eastern Europe, $150 million into Romania alone.

The surge in Coke sales here has other implications as well. Before Coke's arrival, there had been essentially no foreign investment in Romania, a nation of 23 million that has long been the poorest, most repressed and deeply isolated of the major countries in central Eastern Europe. That makes Romania an almost ideal setting to track the "multiplier effect" of foreign investment in a developing country -- tracing job and wealth creation as well as the transfer of modern management and production methods.

A new study by economists at the University of South Carolina College of Business Administration shows just how much of an engine of growth Coke has become. Since Coke sells its soft drinks primarily through small retailers and kiosk owners, it has helped to recreate a class of micro-entrepreneurs -- the "petty bourgeoisie" that Marxism tried to eliminate -- and to establish a spreading base for free-market activity.

"By 1994, as many as 20,000 to 25,000 kiosks and other small retail shops started or maintained their business because of Coca-Cola," said the report, to be released on Wednesday. "Many also sold soap, cigarettes and other high turnover products, but would have gone bankrupt without Coca-Cola."

Over all, at least 11 jobs were created elsewhere in the economy for each job that Coke created directly, the study found, more than double the rate for the soft-drink industry in the United States. The study, which also examined the effect of Coke's investments in Poland, was sponsored by the Society of International Business Fellows in Atlanta, Coke's home city.

Coke is also getting credit here for something less quantifiable but no less important: a growing sense of hope and of belonging to the outside world.
"Our system always guaranteed that we got second-rate products, so there was no pride in what we sold," said Eugen Trifulescu, who runs a general store in downtown Bucharest. "Then Coke comes in with its new trucks and new bottles and its drivers in new uniforms. Everything is high quality. That makes us feel better about ourselves."
So important has Coke become that the normal fears in emerging countries of being overrun commercially and culturally by the West -- or by Coke alone, for that matter, in a process that has come to be called Coca-colonization -- are largely absent here.
Indeed, given Romania's history of poverty and repression, and the public's eagerness to embrace capitalism, these concerns seem almost irrelevant.

"There is not the feeling in Romania of being exploited by multinationals," said Misu Negritoiu, the chief economic adviser to Romania's President, Ion Iliescu. "Rather, people see multinationals as a vehicle for transferring organizational and managerial skills." ...

Coke's business in Eastern Europe as a whole is expanding at twice the rate of its other foreign operations, according to analysts, up 23 percent in 1994, 28 percent in 1993 and 37 percent in 1992. The company now sells close to 425 million cases in all of the former Communist countries, out of total worldwide sales of 11.8 billion.
FOR its part, Pepsi does not concede defeat. "One of the things that Coke is very good at is declaring victory at one fixed point in time," said F. David Jones, president of Pepsi's Eastern Europe and Central Asia division. "It is tempting to draw the line and say the race is over, but that is completely the wrong impression."

Andrew Conway, beverage analyst for Salomon Brothers in New York, agreed that "the cola battles are continuing to rage in Eastern Europe."

He added, however, that "other than in Hungary, where the race is very tight, Coca-Cola has taken share leadership away from Pepsi in every country where it has competed." Analysts say Coke is also close to overtaking Pepsi even in Russia, which is generally not considered part of Eastern Europe.

Mr. Conway said Coke has simply overwhelmed Pepsi in Eastern Europe by its spending, pointing out that Coke's 1995 budget for international investment is $700 million, compared with $300 million for Pepsi.

Because of its size, "Coke can outspend competitors by more than 2 to 1," Mr. Conway said. "So Pepsi is being forced to run a lot harder now to catch up."...

Coke's helping hand is also felt by service companies, which have used Coke as a stepping stone to business with other foreign investors.

Bogdan Enoiu ran a small advertising agency in Bucharest until he linked up with Coke in 1993. He is now also doing promotions for Xerox, Gillette, Nestle, Samsung and Texaco, all of which have begun to do business here, though hardly on the scale of Coke.

"If you're accepted by Coke, it's like a blank check," he said.


1 comment:

Gabriel M said...

Look, as a Romania I know... all this talk about "exploitation" and "(cultural) colonization" is just meaningless hot air from Western academics in goofy sciences that should take their heads out of their collective ass once in a while and read something else than discredited authors, who were dead wrong, from the 19th century...