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Background

In the presence of high transaction costs due to market imperfections, it is normally less expensive for multinational corporations (MNCs) to conduct their business activities in new markets through their internal corporate structures rather than relying on the markets. Internalization theory reveals the economic rationale that was behind the changes in Coca-Colas modes of entry as it moved from franchising to joint ventures with selected local partners, and more recently to the combination of joint ventures and franchising. According to most of the economic experts judging about the developing trend of Vietnam when opening the market for foreign investment, Joint venture recently is the inevitable tendency. In the beginning period, foreign partners often rely on the domestic operations that can help them in administrative procedures settlement. After that, once they have already achieved what they want, foreign partners are likely to push us out and usurp the whole company. If domestic companies are inexperienced or negligent, they will easily fall into this trap. Becoming a partner in the joint ventures with Vietnamese enterprises was really a good idea for the drink giant to penetrate the Vietnamese market easily. This was considered a jumping board for Coca Cola to jump into the Vietnam, a promising market. In August 1995, the first joint venture between Coca Cola Indochina and Vinafimex was set up, headquartered in the north. Just three years later, another joint venture appeared in the central region - Coca Cola Non Nuoc headquartered in Da Nang City. In October 1998, the government of Vietnam turned the green light on, allowing joint ventures to undergo the restructure to become 100% foreign owned enterprises. The Coca Cola joint ventures then, one after another, fell into the hands of Coca Cola Indochina. The thing first happened with Coca Cola Chuong Duong in the south. After that, in August 1999, the joint ventures in Da Nang and Hanoi also shifted to 100% foreign owned enterprises. In June 2001, after getting the permission from the Vietnamese government, the three Coca Cola enterprises merged into one, put under the management of Coca Cola Vietnam, headquartered in Thu Duc district in HCM City.

As such, just within six years in Vietnam, Coca Cola could do a lot of things: getting married and then divorced with several Vietnamese enterprises. Timeline: Penetration process of Coca Cola into Vietnamese market Year 1960 2-1994 8-1995 Events Coca cola was first introduced in Vietnam Coca Cola came back to Vietnam for long-term business plan The first Joint Venture between Coca Cola Indochina and Vinafimex was established in the north of Vietnam 9-1995 The second Joint venture was set up in the south between Coca Cola and Chuong Duong company 1-1998 The last joint venture appeared at the central of Vietnam between Coca Cola and Da Nang Beverages Company namely Coca Cola Non Nuoc 10-1998 8-1999 The government allowed Coca Cola to become 100% foreign owned enterprise The joint ventures in Da Nang and Hanoi also shifted to 100% foreign owned enterprises. 7-2001 The three Coca Cola enterprises merged into one.

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Coca cola problems

1. Small numbers of market agents: Small numbers of market agents can be quite a problem when Coca Cola wishes to seek a new venture partner in the Vietnam. Since the initial local partner has cost advantage over other local market agents, it is thus not always optimal for the MNC to switch its partners. If the abovementioned mechanisms for profit division, joint decision-making and monitoring are welldeveloped enough to sustain the viability of a long-term commitment of joint maximization of profits, there will be less incentive for both parties of the join venture to switch partners. 2. Uncertainty of market: With the presence of uncertainty in the Vietnam market environment, there is an incentive for Coca Cola to form a join venture in order to economize on the information requirements for FDI. The competitive advantages of an MNC are its firm-specific knowledge in terms of technology, management and capital markets. The competitive advantages of its local partners are mainly their location-specific knowledge about the local market, such as its culture, business practices, contacts and the local government. The synergistic effects of combining the resources of all parties of the joint venture could possibly result in a lower long-term average cost accruing from uncertainty than in the case of a WOS. . Competitors: Drinks and Beverages market in Vietnam is referred to be a very attractive market for many giant domestic as well as foreign corporations. Some of the most famous companies are Coca Cola, Pepsi, Tribeco, Tan Hiep Phat, URC, Wonderfarm However, today in Vietnam, Coca Cola and Pepsi are likely to dominate this market because of their famous trade mark and long time history. Although there are plenty of beverage brands in Vietnam, this market is basically a playground for the Giants like Coca Cola and Pepsi Co. The competition is very fierce that every company catches the opportunity whenever there an empty plot in the market. 4. Policy problems: From Vietnam Standpoint, the government wanted Coca Cola to:

Increase the world trade and open up new markets Development of new technologies that can be transplanted between countries Liberalization of the economy of the nations throughout the globe Establish of common markets and the other regional trading barriers with common external tariffs.

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What Coca Cola did in Vietnam

1. Joint Ventures in Vietnam: The most efficient method Coca Cola used to weed out Vietnamese partners from the joint ventures was the unprofitable business. Coca Cola spent money like water, throwing money into the noisy advertisement campaigns to fight against its biggest rival Pepsi. The HCM City Taxation Agency has confirmed that Coca Cola has been taking loss since the day of its official operation in Vietnam. The consecutive loss then made Vietnamese partners unbearable and forced them to quit the joint ventures to escape the loss. The first Vietnamese partner who had to leave was Vinafimex. Sources said that Vinafimex sold its stakes to Coca Cola at just two million dollars. In 2001, Coca Cola Ngoc Hoi Factory, Coca Cola Chuong Duong in Hanoi and Coca Cola Non Nuoc in Da Nang merged into one at the permission by the Ministry of Industry. As such, a company specializing in making and distributing soft drink products with the investment capital of 350 million dollars was set up. Investment capital of the three above said factories were 151 million, 182.5 million and 25 million dollars, respectively. After buying all the capital contribution in the joint ventures from Vietnamese partners, the three factories turned into 100 percent foreign owned enterprises with the production capacity of 400 million liters per annum. 2- Social Responsibility

Coca-Colas challenge in Vietnam is finding the way to localize its global corporate social responsibility programming, while ensuring it protects its brand image Coca-Cola is committed to sustainable business practices, as stated clearly in its vision statement. As a leading multinational company selling fast moving consumer products in a highly competitive globalized environment, Coca-Cola has developed a comprehensive corporate social responsibility (CSR) program, permeating every aspect of its business, and has a range of community -based projects covering education, health care, and the environment. In 2008, CocaCola Company provided over US $82 million to local communities for program activities and over 273,000 hours of volunteer service by its employees. Coca-Cola is a major consumer of water resources, which has left open to criticism and calls for consumer boycotts in the past in other markets, the Coca-Cola management in Vietnam decided that water programming was critical to the sustainability of its Vietnam operations. As such, Coca-Cola Vietnam began the Clean Water for Communities project in 2006. Expanded in 2010, the program provides access to clean water and sanitation for communities and schools in Thu Duc District (Ho Chi Minh City), Lien Chieu District (Danang City) and Thuong Tin District (Hanoi), directly benefiting more than 10,500 students and teachers and 1,000 poor families. The project focuses on access to water and sanitation, and consists of the construction of wells and latrines, as well as communication events for school children and communities to learn about clean drinking water and sanitation. With the Research Center for Family Health & Community Development (CEFACOM) as the implementing partner for 2010, the project is an investment by Coca-Cola of US $100,000, or about 25% of its overall CSR budget in Vietnam.