COCA-COLA INVESTING MORE IN PAKISTAN
Nov 19 - 25, 2012
Coca-Cola Limited - the world's largest beverage company and the leading producer and manufacturer of soft drinks - plans to invest $248 million in Pakistan after it has already invested $172 million last year. The investment plan was recently disclosed in the local media by Coca-Cola general manager for Pakistan and Afghanistan. The company will spend on two new bottling plants, one each in Karachi and Multan in Punjab province. It will also invest in more coolers, which will be distributed amongst retailers to help with the company's retail sales efforts. The investment will flow into the country over the next two years. The company however complains against double taxation in the country. It is forced to pay excise duty on both the concentrate and the finished product, in addition to paying sales taxes on the final product. It also pays the full corporate income tax on its net income. Last year, the company paid Rs11 billion in taxes.
Coca Cola enjoys a 30% share in Pakistan market, second only to PepsiCo, which is its archrival. 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. It is investing more due to the rising demand in the country where people spent $1.3 billion on carbonated beverages last year, according to one estimate. A Coca Cola facility for manufacturing Coke cans has already been completed last year. Coca Cola Beverages Pakistan operates six bottling factories in Karachi, Gujranwala, Multan, Lahore, Rahimyar Khan, and Faisalabad. With a population of over 18 million, Karachi has a big base of consumers.
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.
Since the commencement of its operation in 1953, the Coca-Cola continuously enhanced its investments in the South Asian 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 10,000 people depend on Coca Cola or its supplier companies for earning their livelihoods in Pakistan. Most of the investment from the company 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. A few years back, Coca-Cola Icecek (CCI) showed interest in acquiring an equity stake in Coca-Cola Pakistan.
Pepsi Co has been the primary competitor of Coca-Cola not only in the world, but also in Pakistan. Pepsi Co is another US multinational that has been operating as Beverage Company in the south Asian country 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.
Pakistan has been a key market for Coca-Cola in the region. Large number of retailers are 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.
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.