CIAO DATE: 05/02

Georgetown Journal of International Affairs

Volume 1, Number 1, Winter/Spring 2000

 

Interview: Coca–Cola’s Douglas Ivester ^*
by Kathryn Remus & Karim Chrobog

 

As the world’s most famous consumer brand, The Coca–Cola Company is sensitive to political circumstances. Recent health scares and regulatory problems in Europe, and NATO’s accidental bombing of the Chinese embassy in Belgrade, have adversely affected company sales in both Europe and China. Simmering tension on trade between the European Union and the United States has only added to Coke’s global headache. Yet in spite of these recent problems Coca–Cola remains the apotheosis of the global company. From Mexico to Iceland (the world’s top per capita Coke consumers) the planet drinks the bubbly black liquid to the tune of 9,000 bottles a second. Just before he announced his departure from the company, Coca–Cola CEO Douglas Ivester talked with the Journal about doing business in the age of globalization.

Journal Statistics show that the combined income of the top 200 global enterprises now surpasses the combined economies of 182 countries. Throughout your career at Coca–Cola, how have you seen the relationship between business and government change?

Ivester Over a period of time, there will be a growing understanding that both government and business have a role to play in bettering the lives of the people in a given community. Each of us is different–the government has its role to play, and at the same time, a corporation has its role to play. The corporation’s role is to provide capital for businesses to get started, and in our case, to bring innovation to the marketplace. We teach entrepreneurial skills to people, including everything from manufacturing to selling skills, which ultimately creates jobs in the economy and contributes to the overall tax revenue of the country. We see the roles as very complementary. One group, government, setting the context and rules for everyone to play by, and a company like ours coming in and providing capital and the underlying entrepreneurial skills to build commerce.

Journal But the United States government frequently takes unilateral trade sanctions against countries such as Cuba and Iraq, that are counter to the wishes of its global trading partners and American corporations. Do you believe that trade sanctions are an effective policy tool?

Ivester The world is changing and trade sanctions are far less effective than they were at one point in time. One example is Cuba. Although I have not been to Cuba, I understand that there is wide availability of international products. I think the real question is whether one country can have an economic impact of significance when other countries do not honor the trade sanctions.

Journal Does it hurt American corporations when the United States takes a stand so counter to the ground rules that other countries are laying for their corporations?

Ivester I can not say that it necessarily hurts, but rather delays. Ultimately, if sanctions were lifted, we would have a late start, but could probably make that up. An example that is fresh in everyone’s mind is North Korea. U.S. National Security Adviser Sandy Berger was quoted as saying that the administration is swapping Coca–Cola for a ban on missiles. That is a pretty positive thing. If Coca–Cola goes into North Korea, we will build an industry where one does not exist: We will create jobs, we will create investment, and we will create a very refreshing product for the people of North Korea. If the American government gets the added benefit of not having to worry about missiles, that is an overall positive as well.

Journal The trade relationship between the United States and the European Union has worsened due to disagreements on issues such as hormone–enhanced beef and quotas on steel. U.S. trade restrictions against EU products have caused public outcry in countries like France. Does anti–American sentiment impact your bottom line in Europe?

Ivester For The Coca–Cola Company, we try our best to be non–political. We believe in free trade and the free flow of goods across various economies. We have done a lot of consumer research in Europe, and we have not found consumers to be anti–American. Consumers basically want to do their job, they want to buy products that they want to buy, and Coca–Cola happens to be one of those products they want to buy. In terms of governments, we just need to do a better job of educating them on the value that we bring to a particular economy. Within the European Union, for example, we know that we have a significant economic impact and that we are positive in terms of employment. Our business is expanding, our employment is expanding, and we are actually meeting a lot of the governments’ objectives in terms of economic development. However, we probably need to do a better job of explaining ourselves to those governments.

Journal Do you think that increased friction between Coca–Cola and Europe is a result of the growth of the European Union as a political force?

Ivester Any time political systems undergo transition it is incumbent upon the company that is dealing with that political organization to educate and inform them of the benefits that they bring to a given economy. We have always done that on a country–by–country basis in Europe; so, we have a great business in virtually every country. We now find ourselves having to begin the education process and begin the communication process at a higher level. We certainly will undertake to do that. At this point in time it has not slowed our growth any, and it certainly has not dampened our enthusiasm for investing in Europe as a whole.

Journal Your literature attributes lowered consumption of Coca–Cola products in China to the accidental bombing of the Chinese Embassy in Belgrade. How can U.S. multinationals mitigate the economic backlash of unpopular–and in the Chinese case, unpredictable–U.S. government action?

Ivester The major mitigating factor for Coca–Cola is that our business is a local business. In China, Chinese operate the bottling business and the employees are overwhelmingly Chinese. That is the case in France, that is the case in Belgium, that is the case in Germany, or Brazil, or any other place we operate. Our business is essentially a local business and we are affiliated through the trademark and through The Coca–Cola Company, but it is a series of local businesses making a local contribution. That ultimately is the best thing we can do.

Journal It is interesting that you label Coca–Cola a “local business” at the same time that you are expanding the corporation’s global reach through mergers. Your merger with Cadbury–Schweppes comes to mind. Frequently, these mergers require the approval of government institutions in accordance with anti–trust legislation, making mergers more difficult. Do you view this as a logical consequence of globalization, and how do mergers impact competition and expansion of global corporations?

Ivester There is no doubt about it; you are seeing large companies extend their distribution into other countries. It is true of European companies, Daimler–Benz buying Chrysler. It is true of Wal–Mart buying Asda in the UK. A lot of activity is taking place. Ultimately, such activity is good for consumers because it brings them a higher quality product and better service with better value. It does not do anything negative. It does not hurt employment, nor does it lessen tax collection. I think that as governments begin to understand the benefits of some of those mergers, they will be more supportive of them. The DaimlerChrysler venture had no problems, probably because a German company was the parent company. The same rules that apply to that merger actually apply to everything else. It is really just a matter of communicating to the government the benefits that can emerge from such a transaction. In our case, the Cadbury brands were well–respected international brands, and we think that the merger will make those brands more available to consumers around the globe. For the employees of Cadbury–Schweppes, the merger puts them into a worldwide system and gives them tremendous opportunities to enhance their skills and earnings potential as they join a company with a global scope. So, the employees benefit, consumers ultimately benefit, governments benefit because of the expansion of the business infrastructure, and in this case Cadbury–Schweppes benefited because they got some cash to invest in their core business.

Journal Companies with a global scope such as Coca–Cola and McDonald’s are identified around the world as icons of American culture. In what way does Coca–Cola leverage or discourage this association?

Ivester Our trademark is the most identifiable global trademark. It probably represents the best of American business in terms of what American business has done to promote commerce and transfer skills to local environments. Therefore, it boils down to a communication issue: The challenge is to communicate the benefits we bring to the local economy.

Journal Coca–Cola has been advertised around the world as a positive and a stable partner for developing countries. During the recent economic crises in Russia, for example, Coke was recognized as the most trusted company in Russia. How does your company’s commitment to troubled markets such as Russia and Southeast Asia fit into a larger corporate global strategy?

Ivester Our company was built on the backs of people who had the willingness to stick with an investment once they had made it. If you go back and look at some of our major countries today, such as Japan, Germany, Argentina, Chile, Brazil, or Mexico, there were times when it did not look like that was a positive investment, but our company and our previous management had the foresight and willingness to stick with those investments during those difficult times. We have the same obligation to the people that come after us to take a long–term view and to look at these markets not in terms of what they are today, but where they are going to be twenty or thirty years from now. We now enjoy a very prosperous business in Japan, not so much because of what we do in Japan today, but because of the commitments of our forefathers who stuck with it in the late 1950s and early 1960s. It is part of our history and part of the fabric of The Coca–Cola Company to be a pioneer and to move into these markets with a long–term view.

Journal Other programs like Coca–Cola’s international consumer development group assist U.S. companies in developing successful strategies for overseas expansion. Why does Coke believe this activity is worthwhile and how does it fit into the overall company business strategy?

Ivester Five percent of the global population lives in the United States, and 95 percent lives outside the United States. It is natural for a company to look outside of its own geographic boundaries, whether that’s an American company looking to the Far East, a French company looking to Latin America, or a British company looking to India. As those organizations look to expand their businesses, they come to us for expertise and guidance. We do a lot of work with our customers as they look to the international markets. Expansion is also beneficial to the local economy. As development on the local economic level increases, people can afford to spend more in all sectors of the economy.

Journal On the other hand, critics often argue that multinational corporations exploit countries with cheap labor and weak environmental regulations. How does Coca–Cola respond to such criticism?

Ivester We are very proud of our environmental record because we follow the same environmental standards both inside and outside the United States. In terms of labor, we do employ labor at the local level, and we pay good and competitive wages in the local environment. But, at the same time, we sell our products in that country for local prices. We do not go to a country, make the products, and then export them back to the United States, which is the way some companies do business–in effect producing in a low wage country, and exporting to a high wage country to sell at a higher price. Our products typically are produced, sold, and consumed in the same country. Yes, in Vietnam, for example, we use local labor, but we also sell the product into the local economy so that lower labor costs benefit the consumer as well. As wage rates rise and as the economy develops, we will continue to be competitive and will pay the going rates in the marketplace.

Journal In the next 20 years, what do you believe will be the largest growing overseas market?

Ivester Most people would give you Asia as the obvious answer because of its vast population. Certainly, Asia is a priority market for us. I think the key for the Coca–Cola system, however, is not to miss the opportunities that the other areas of the world offer just because there is a high growth opportunity in Asia. We have organized our business in six geographic and business groups, each of them having the opportunity to invest capital, and the opportunity to independently develop their business. We are spending a lot of time and attention toward growing a business in Africa, for example, because we think there is vast potential for a beverage business in Africa. We want to make sure that just because there is a glaring opportunity in one part of the world that we do not miss the opportunities existing in other parts of the world.

Journal As Coca–Cola prepares to seize these opportunities, what are your thoughts and predictions about the future of Coca–Cola and the world in the new millennium?

Ivester I think the best predictor of our future is probably to look at our past. Between ten years ago and today, our business has doubled, and I see no reason why our business can not double over the next ten years as well. We approach the turn of the century with a great optimism, not only in the world, but also in the people and brands of The Coca–Cola Company.

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Endnotes

Note *:   Mr. Ivester was interviewed by Kathryn Remus and Karim Chrobog. Both are juniors in Edmund A. Walsh School of Foreign Service at Georgetown University. Back.