ROLE OF MULTINATIONALS IN GROWTH OF BEVERAGE INDUSTRY
Apr 07 - 13, 2008
The beverage industry plays an important role in Pakistan economy and the foreign beverage companies have played a key role in the growth of this industry. The American multinationals Coca-Cola and Pepsi have been increasing their investments to expand their customer base in the country. Pepsi Co has been the primary competitor of Coca-Cola not only in the world, but also in Pakistan.
Coca-Cola Limited, the world's largest beverage company and the leading producer and manufacturer of soft drinks, plans to establish a US$100 million mega plant in Pakistan's business and financial hub of Karachi. Coca-Cola Country Manager for Pakistan and Afghanistan is all set to start work on the project with the assistance and cooperation of the city district government Karachi. With a population of over 18 million, Karachi has a big base of consumers. The Coca-Cola has contributed significantly to the growth of the country's beverage industry, as the company has invested millions of dollar in the country.
Last August, Coca-Cola Pakistan had awarded a five-month drilling contract worth EUR 72,743 to Exploration Drilling International Inc. (EDI) to find a suitable construction site in Karachi with access to a water aquifer of sufficient quality and quantity to supply a Mega bottling plant. EDI provided the entire project team, comprising of a project manager, geologist and drillmaster. Its innovative technology provided the geological and hydrological data necessary to allow Coca-Cola Pakistan to decide where to construct their bottling plant.
The sale and distribution of the Coca-Cola products is handled largely by a number of independent bottlers in various countries of the world. The company has been expanding its presence in new foreign markets through distribution of its syrup concentrate to various bottlers holding a Coca-Cola franchise throughout the world. The franchise holders produce finished water and sweeteners, and thus the Coca-Cola product is sold to retail stores in the market. In the beginning, the company had a franchise bottling system but it decided to come to Pakistan in 1996 and took over the bottling system. Presently, all the plants are owned and operated by the Coca-Cola Company in the country. The Coca-Cola Beverages Pakistan Ltd. is a subsidiary of Atlantic Industries.
Based in Atlanta, Georgia, Coca-Cola company is one of the largest corporations in the United States. It manufactures, distributes and markets non-alcoholic beverage products in more than 200 countries of the world. Besides Coca-Cola, the world's best-known brand, the company markets four of the world's top five soft drinks brands including Fanta and Sprite. Listed on the New York Stock Exchange, the company offers about 400 brands across the world. According to an estimate, out of the 50 billion beverage servings of all types consumed worldwide every day, beverages bearing the trademarks owned by or licensed to Coca-Cola account for nearly 1.3 billion. Of these, beverages bearing the trademark of Coca-Cola account for 55% of the company's total gallon sales.
Pakistan has been a key market for Coca-Cola in the region. Large number of retailers is presently selling Coca-Cola to the people across the country. The company has however identified the issues of high taxation and counterfeit products as the two major impediments in accelerating the growth of the industry in Pakistan. It has been of the view that if these issues are resolved by the government, the consumption volumes will go up and government revenues will increase substantially.
Since the commencement of its operation in 1953, the Coca-Cola continuously enhanced its investments in the country that resulted in growth of vendor industries and job creation for the people. The company has more than nine production plants in Pakistan. At least 60,000 people depend on Coca Cola or its supplier companies for earning their livelihoods in Pakistan. It invested over US $130 million in Pakistan in 1996. Most of the investment came in 1998-99 when economic sanctions had been imposed against Pakistan following the May 1998 nuclear tests. Coca-Cola had invested over $150 million in the country in the year 2004. In 2005, it made new investment of over $20 million in new production lines, refrigerated trucks and other infrastructure. In November 2006, the Coca-Cola Pakistan had announced its five-year investment plan worth$100 million for modernization of its plants in the country. Coca-Cola Icecek (CCI) has recently shown interest in acquiring an equity stake in Coca-Cola Pakistan and CCI is in discussion with the company since last December.
Pepsi Co is another US multinational that has been operating as beverage company in the south Asian for the last four decades. It offers its products through independent bottlers in the country. In 2003, Pepsi-Co announced the formation of a combined PepsiCo Middle and East Africa region enabling Pakistan to manage this entire operation. The decision to make Pakistan the central point of newly designed West Asia business unit demonstrated the importance, the company attaches to the country in the context of the West Asia region. Under the division, Pakistan is a part of the company's West Asia Business Unit, along with Iran, Kazakhstan and the other Central Asian countries.
The key challenge for Coca Cola in Pakistan has been the heavy taxation. Besides the central excise duty, general sales tax on concentrated products, the taxes are levied on raw material. The company has to pay three percent additional sales tax, as most of shopkeepers are not registered and the company has to pay the tax in advance for them.
The company's executives complain that Coca Cola is more heavily being taxed than other beverage companies in the country urging the government that things should be sorted out in cases of heavy taxation.
The worsening law and order and political turmoil are the other important issues, which harbor a whole range of concerns among the foreign firms to start or expand their operations in Pakistan. Coca-Cola and Pepsi have been working in the country in a challenging environment. faced a decline in sale of their products in the country during U.S-led attacks on Afghanistan and Iraq in 2001 and 2003, respectively, as wide sections of society in Pakistan's North West Frontier Province (NWFP) had boycotted the U.S. products in protest.