Economic Impact of
the Coca-Cola System on China
Peking University
Tsinghua University
University of South Carolina
August 2000
Economic Impact of the Coca-Cola System on China
Executive Summary
August 2000
T
his executive summary presents the
major findings of an in-depth economic impact study of The Coca-Cola
Company and its bottling partners in China.
It is the first-ever attempt to assess—quantitatively and qualitatively—the impact a
leading business system has had on the Chinese economy.
Localization: A Two-Way Street
One feature of globalization in the early 21st
century is that leading international firms
need strong local partners as much as local
partners need ties to the most advanced enterprises. Conducted during 1999, this study
investigated the Coca-Cola enterprise network and its local economic linkages
throughout China. The study describes the
ways in which Coca-Cola’s international
production and marketing expertise have
both contributed and adapted to the unique
local conditions and characteristics of the
Chinese marketplace. The interchange is
mutually reinforcing: just as Coca-Cola’s
presence in China has helped transform the
Chinese economy, China’s local conditions
have required that The Company adopt a
“flexible localization” approach.
This study is timely because China is
currently preparing for entry into the World
Trade Organization (WTO). Upon accession
to the WTO, China has committed to open
vast segments of the economy to foreign investment. Chinese leaders are attempting to
evaluate how stepped-up foreign investment
might affect the economy as a whole, specific industries and services sectors, Chinese
workers and farmers, and the government
budget. The Coca-Cola example can contribute meaningfully to this evaluation.
Methodology
The primary research involved estimating
the economic multiplier effect of
Coca-Cola’s capital investment and ongoing
operations in 1998. The multiplier effect
shows the extent to which Coca-Cola provides employment and income for Chinese
citizens as well as tax revenue for local and
central governments. The results, based on
an input-output model of China, provide a
The extent of Coca-Cola’s participation
in Chinese markets is evident across most
regions of the country. The brand’s logo is
found on the pushcarts seen along busy
commercial streets of major cities and on the
small shops found in out-of-the way neighborhoods of rural villages. Yet, no one has
ever assessed the real impact of this omnipresent multinational-local business system
on the economy as a whole.
i
nificant. Reaching nearly 80 percent of the
potential Chinese market, Coca-Cola’s production and distribution tie together an immense employment network, spreading income throughout the economy.
basis for evaluating the cluster of business
activities that develop indirectly around the
Coca-Cola bottling system.
To collect primary data on the
Coca-Cola system, a questionnaire was sent
to 23 Coca-Cola bottlers (28 bottling plants)
asking for detailed information about local
purchase patterns. The results were then
matched to sectors in China’s statistical table. The survey information reflects
Coca-Cola bottlers’ production activity, employment, turnover, and tax payments at the
end of 1998. The multiplier analysis primarily covered the direct and indirect upstream
(supplier) impacts, although estimates of
downstream (distribution) economic effects
are also provided.
The report also draws on interviews with
individuals involved in Coca-Cola’s marketing and production and surveys of
Coca-Cola distribution in four Chinese regions: Shanghai, Guangdong Province, Xian
(Shaanxi Province), and Harbin (Heilongjiang Province).
•
The number of people directly employed
in the Coca-Cola system is estimated to
have been 14,046. This includes permanent
and temporary, skilled and unskilled workers. More than 62 percent were skilled
workers who usually got permanent jobs.
•
Through its supplier (upstream) linkages
alone, total employment supported by the
bottling system was about 350,000.
•
Retail and wholesale trade ventures that sell
Coca-Cola products prosper and affect the
Chinese economy according to the margins
charged on traded goods. It is estimated that
the sale of Coca-Cola products supports at
least 50,000 jobs in the wholesale and retail sectors.
•
In all, about 414,000 total (direct plus indirect) jobs are sustained by Coca-Cola
production and distribution. This represents a multiplier effect of 30 (the ratio of
total employment to direct employment in
the bottling system). The high aggregate
number of jobs associated with the CocaCola network and the notably strong multiplier effect, no doubt, reflect the laborintensive character of the Chinese economy.
This result also shows that most jobs associated with Coca-Cola’s production and distribution are in local Chinese businesses that
are not part of the direct bottling enterprise.
•
The Coca-Cola bottling system injected
8.16 billion RMB into the Chinese economy in 1998. The input-output analysis indicates that this generated additional Chinese output of about 21.7 billion RMB.
Economic researchers at two leading
universities in China, Peking University and
Tsinghua University, conducted the quantitative research. Scholars at The Darla Moore
School of Business at the University of
South Carolina collaborated with the Chinese economic team and conducted incountry interviews with Chinese businesses
involved in Coca-Cola’s marketing, production, and distribution.
Key Findings
The results suggest that the total impact of
the Coca-Cola system on China, once direct
and indirect effects are accounted for, is sig-
ii
•
the quality and market-acceptability of their
products. Managers of Coca-Cola bottlers
and suppliers also recognize that they must
pay more attention to consumer demand and
distribution systems—not just to improved
production processes.
Coca-Cola bottlers made tax payments of
387 million RMB to the Chinese government in 1998. The input-output analysis
calculates that Coca-Cola’s operations in
China generated an additional 1.2 billion
RMB in tax payments.
Case studies of Coca-Cola’s impact in
different regions of China uncovered additional effects of Coca-Cola in China. These
effects, while harder to quantify, show the
broad influence of Coca-Cola on business
development in China.
Coca-Cola is cultivating marketsensitive managers and workers. In so doing,
Coca-Cola is helping to bring about China’s
transition from “production dictated by
command” to “production directed by demand.” Under the planned economy, there
was very little meaningful communication
between Chinese consumers and the industries that produced goods for them. In fact,
producers often acted in ways that would be
an anathema in market economies; for example, advertising products they could not
otherwise sell, and believing that good
products needed no advertising. Coca-Cola
employees, wholesalers, and retailers have
learned that they must study purchasing
patterns and consumer preferences to improve their responsiveness to market conditions.
Enterprise Reform
Coca-Cola bottling plants, many of which
started as inefficient, technologically backward state-owned enterprises (SOEs), have
been transformed into highly successful
joint ventures. Structural changes—spinning
off unrelated services or products—and
technological upgrading have been important elements of SOE reform.
Even more importantly, however,
Coca-Cola has helped reform Chinese enterprises by introducing fundamental changes
in the roles and responsibilities of managers
and workers. Managers of bottling plants
have been made financially accountable for
their profits and losses. As a consequence,
they have instituted better inventory control,
quality control, and cost-management systems. They have learned to track consumer
preferences and to pay attention to their
products’ distribution. In turn, workers have
learned that they will be rewarded for hard
work.
Stimulating Entrepreneurship
Some of the most interesting findings to
emerge from this research concerned the
connections established between the
Coca-Cola system and the small business
sector of China. Through partnerships in
distribution, globally competitive business
practices have been transmitted to a new
generation of Chinese entrepreneurs.
The Coca-Cola system involves a complex distribution web—wholesalers, retailers, and other vendors. This is the “visible
hand” of China’s domestic trade sector. Importantly, these vendors include entrepreneurial distribution partners who sell the
Whereas pre-reform Chinese enterprises
traditionally focused on boosting the quantity of output, managers of Coca-Cola bottlers and suppliers recognize they must lift
iii
China. Similar examples abound in other
supply sectors including polyethylene terephthalate (PET) bottles, aluminum cans,
and sugar.
brands to retailers and small wholesalers. In
addition, there are independent small and
large wholesalers that hold inventories of
Coca-Cola products, selling them directly to
retailers, or to another tier of wholesalers.
Some are SOEs in various stages of restructuring.
Suppliers to Coca-Cola have benefited in
many ways from their affiliation. In addition
to seeing their businesses grow as
Coca-Cola’s bottling volume has increased,
suppliers have also been able to spread geographically, following Coca-Cola into interior provinces. For example, Zhuhai’s
Zhong Fu Industrial Group, originating from
a 20-person enterprise established in 1982,
became a supplier of PET bottles to
Coca-Cola China in 1986. To meet
Coca-Cola’s demand for PET bottles in the
interior provinces—where Coca-Cola has
established most of its new bottling plants in
the 1990s—Zhong Fu has followed
Coca-Cola, setting up PET plants near every
new Coca-Cola bottling plant. By 1999,
Zhong Fu had 36 plants spread across China.
Now, Zhong Fu employs 5,000 workers and
exports to Japan and Southeast Asia.
Surveys revealed that many vendors
selling Coca-Cola products had previously
been unemployed. On average, 28 percent of
the owners of the retail shops and restaurants in Harbin, Guangdong province,
Shanghai, and Xian had been jobless before
starting their ventures. Now, many depend
on selling Coca-Cola products for their livelihood. Among the 400 retailers canvassed
at random, most agreed or strongly agreed
that “Coca-Cola products attract customers
to the store.”
Localizing Inputs
The vast majority of inputs for Coca-Cola
products are local, with more than 98 percent of the supplies purchased from Chinese
suppliers. The high degree of localization
shows how far the economy itself has been
transformed over the past two decades. In
the early 1980s, Coca-Cola was unable to
locate any plant in China that produced glass
bottles to the standards required by the company. Initially, all glass bottles used in
Coca-Cola bottling lines in China were imported from Korea. Coca-Cola’s headquarters in Atlanta sent a small team of glass
technologists to China. They identified five
state-owned glass factories with relatively
high technical levels and provided free advice on improving the quality of the bottles.
The bottles quickly rose to meet the minimum standards. All of the factories began to
export bottles and expanded their sales in
Another benefit of being a Coca-Cola
supplier is the enhanced reputation it brings.
Being a supplier to Coca-Cola gives a
“stamp of approval” on the ability of an enterprise to deliver a quality product, stimulating additional business for many suppliers.
Workforce Training
A key focus in all Coca-Cola bottling plants
is employee training. Coca-Cola has recognized the critical importance of localizing
marketing expertise in China. In turn, the
Company has trained tens of thousands of
Chinese in its world-renowned marketing
methods. Training extends to the wholesal-
iv
immediate business objectives. Of course,
significantly upgrading education and retraining the Chinese labor force are tasks
beyond one company or enterprise system.
This case, however, stands as a paragon of
corporate citizenship in China.
ers and retailers of Coca-Cola products, not
just the Company’s own sales force. For example, in Harbin, Coca-Cola provides sales
training for pushcart vendors, all of whom
had been laid-off from state-owned factories.
Beyond the training that Coca-Cola provides to Chinese who are associated with the
production and marketing of Coca-Cola
products, the Coca-Cola system contributes
more broadly to the development of China’s
workforce. Under a 1987 agreement with the
Chinese government, Coca-Cola runs a Soft
Drink Training Center at the Tianjin Jin Mei
Beverage Company. Government officials
and factory managers from all over China
may seek training at the center, which provides courses in both technical and business
skills. It is a “public good” for the benefit of
the entire soft-drink industry.
Developing Domestic Brands
The Coca-Cola system has also worked with
the Chinese government to develop the softdrink market. Coca-Cola has invested its
capital and experience in developing localized brand names. Tian Yu Di (“Heaven and
Earth”) is a tea, water, and fruit juice brand
designed for the Chinese market. The concentrate and base of Tian Yu Di, produced at
Tianjin Jin Mei, are provided to all
Coca-Cola bottlers. To fulfill its commitment to develop the Chinese beverage industry, Coca-Cola transferred the ownership
of Tian Yu Di gratis to the Chinese Government in 1996. Tian Yu Di now markets water under its brand name as well.
Supporting Education
Cultivating China’s human resources requires support for the education system. In
higher education, the Coca-Cola system
along with the Chinese Youth Development
Foundation and The China Youth News began a cooperative arrangement with 50 universities across the country to offer the
Coca-Cola First Generation University
Scholarships. These scholarships are earmarked for underprivileged students. The
Coca-Cola system also donated 20 million
RMB to the Chinese Project Hope to establish 50 elementary schools and 100 Hope
libraries for China’s remote areas.
Summary
The Coca-Cola network—encompassing the
bottlers, suppliers, and the many vendors
that sell Coca-Cola brands—has a broad impact on the Chinese economy. Over 400,000
jobs are associated, directly or indirectly,
with producing and distributing Coca-Cola
products. This is one of the most extensive
multinational-local business systems in
China. As a result, the enterprise system
spreads advanced marketing know-how and
production expertise to many regions of the
country.
By funding beverage-industry training
and educational opportunities for poor Chinese, Coca-Cola is clearly concerned with
long-term development, not just achieving
As Coca-Cola’s investments in China
continue to grow, thousands of additional
Chinese workers, entrepreneurs, and other
v
nese stakeholders—in government, education, industry, and distribution—who see
their interests closely aligned with
Coca-Cola’s. The viability of Coca-Cola as
a successful enterprise system in China, as
in other markets, depends on support to and
from local stakeholders. This conclusion is
one that has relevance for all foreign investors in China.
stakeholders will participate in a dynamic
cluster of businesses built around making,
marketing, and delivering Coca-Cola products.
Coca-Cola’s formula for success in
China has been to adapt to conditions in the
local markets where its products are sold. As
its presence in China has grown, the company has created increasing numbers of Chi-
vi
Preface
This study is a collaborative effort among China and United States-based academic institutions. This multiplier analysis of the Coca-Cola system, including the bottler survey design
and the calculations, were carried out under the direction of Professor Justin Yifu LIN, Member,
China People's Political Consultation Committee, and Director of the China Center For Economic Research at Peking University, along with Dr. Xin-Qiao PING of Peking University and
Professor Douglas Woodward of the University of South Carolina. The distribution surveys
(Shanghai, Guangdong province, Xian, and Harbin) were carried out by Tsinghua University
students under the direction of Professor LIU Jisheng, School of Economics and Management,
Tsinghua University. The students surveyed more than 400 small retailers to assess the role that
Coca-Cola brands play in the China’s grocery stores, convenience stores, restaurants, street vendors and other points-of-sale. Professor Woodward conducted interviews with Chinese businesses involved in Coca-Cola’s marketing, production, and distribution during October 1999.
The results rest entirely on the work and judgment of the economists at the three research institutions. The responsibility for the final study given in the pages that follow this preface falls on
the Division of Research in the Darla Moore School of Business at the University of South
Carolina.
It should be recognized that this study, and the research that underlies it, represents the
effort and cooperation of many more people than can be acknowledged here. Two individuals,
however, should be recognized for the significant role they played in the study. Sandra J. Teel,
associate director of the Division of Research and instructor in marketing, coordinated the project locally and edited this report. The authors are especially grateful to Erin Endean, Managing
Director of Hills & Company, International Consultants, for her assistance in conceptualizing the
study, managing the project internationally, conducting interviews in China, and bringing to bear
her considerable knowledge of China and the Chinese economy in reviewing and contributing to
the final product. Finally, the authors wish to thank Swire Beverages for the photographs that
appear on the title page.
vii
viii
Economic Impact of the Coca-Cola System on China
Table of Contents
Executive Summary ..............................................................................................................................i
Preface
..........................................................................................................................................ii
Chapter 1: Introduction ........................................................................................................................1
Motivation .................................................................................................................................1
The Mutual Benefit of Multinational-Local Linkages in China ...................................................3
Impacts ......................................................................................................................................5
Quantitative Impacts .........................................................................................................5
Qualitative Impacts ...........................................................................................................7
Organization of the Study ...........................................................................................................8
Chapter 2: Coca-Cola with Chinese Characteristics ............................................................................11
Introduction ..............................................................................................................................11
History .....................................................................................................................................11
Structure of the Coca-Cola System ...........................................................................................17
Bottling Alliances .....................................................................................................................19
Swire: Southern and Interior China .................................................................................20
Kerry: Northern and Interior China .................................................................................21
Independent Partners .......................................................................................................21
Upstream and Downstream Networks .......................................................................................22
The Upstream Network ...................................................................................................22
The Downstream Network ..............................................................................................23
Conclusion ...............................................................................................................................24
Chapter 3: Multiplier Analysis of the Coca-Cola System in China ......................................................27
Introduction ..............................................................................................................................27
Input-Output Model ..................................................................................................................28
Direct Effects of the Coca-Cola System ....................................................................................29
Indirect Impacts of the Coca-Cola System ................................................................................31
Employment Supported by the Coca-Cola System ....................................................................33
Downstream Employment Impacts ...........................................................................................37
Multipliers for Capital, Labor Income, and Taxes .....................................................................37
Effects on Capital Formation ...........................................................................................38
Effects on Labor Costs ....................................................................................................39
Effects on Tax Revenue ..................................................................................................40
Conclusion ...............................................................................................................................40
ix
Chapter 4: Qualitative Impacts ...........................................................................................................43
Winds of Change ......................................................................................................................43
Competitive Enterprise and Mutual Advantage .........................................................................45
Demand Conditions ..................................................................................................................48
Supply Conditions ....................................................................................................................54
Local Resources .......................................................................................................................60
Market Conditions ....................................................................................................................63
Conclusion ...............................................................................................................................63
Chapter 5: Conclusion ........................................................................................................................67
Bibliography
Appendix A: Bottler Survey
Appendix B: Technical Appendix
Appendix C: Coca-Cola Distribution Survey in China
List of Tables and Figures
Tables
1.1 Foreign-Invested Enterprises in the Chinese Economy, 1998 ......................................................4
2.1 Coca-Cola China Ltd. Bottler’ Information ...............................................................................17
3.1 Direct Operational and Capital Expenditures: Coca-Cola System in China ................................30
3.2 The Indirect Impacts of the Coca-Cola System on Output in China ...........................................32
3.3 Employment Multipliers ...........................................................................................................34
3.4 Estimated Employment Impact by “Adjusted Average Cost of Job” ..........................................35
3.5 Employment Impact: Employment-Output Coefficient Approach .............................................36
3.6 Downstream Employment Impact of the Coca-Cola System ......................................................38
3.7 The Multipliers of Capital Depreciation, Labor Income, and Tax Revenue ................................39
4.1 Location of Packaging Materials and Suppliers .........................................................................55
Figures
2.1 The Coca-Cola System in China ...............................................................................................17
2.2 Bottler Locations in China ........................................................................................................19
2.3 The Coca-Cola Bottling Alliance in China ................................................................................19
2.4 Coca-Cola Production and Distribution .....................................................................................22
4.1 Coca-Cola in a Porter Framework .............................................................................................46
x
Economic Impact of the Coca-Cola System on China
Chapter 1: Introduction
Motivation
Over the past 20 years, China has forged a greater economic transformation than any other
country in history. In 1978, under Deng Xiaoping’s leadership, China began a process of economic modernization that lifted a quarter billion people from poverty—the most dramatic reduction in poverty the world has ever witnessed. From 1978 through 1998, China realized an astonishing 9.7 percent average annual growth in gross domestic product. Per capita income increased
fourfold.1 The growth in national wealth and per capita income resulted from a profound structural transformation.
•
•
•
In the countryside, communes were dismantled, and farmers were allowed to plant crops of their
choice in private plots.
In cities, in the mid-1980s, factory managers were told to take responsibility for profits and losses and
to make their own decisions on production. This was a dramatic change: factories had produced according to state plan targets, used state funds for investment, and sold products through state-owned
distributors at prices set by the state.
China vaulted from a closed to an open economy, from autarchy to globality.2 Chinese exports have
surged, and foreign capital has flowed into the domestic economy from around the world.
International investment has contributed significantly to the re-emergence of China as a
global economic power. China stands out as a major recipient of international direct investment,
as opposed to portfolio investment. Portfolio investment, or short-term capital flows into banks,
equity markets, and bonds, has received much attention following the currency crises that swept
East Asia in the late 1990s. While portfolio investment has, at times, helped to keep interest rates
low and introduced new venture capital to developing countries, its erratic nature has also destabilized many emerging markets. In contrast, foreign direct investment (FDI) promises to deliver
long-term benefits for host economies. FDI can take place through acquisition, new (greenfield)
investment, or joint venture. Over the past decade, China has absorbed much of the world’s international direct investment flows. By 1996, China emerged as the second-largest recipient
country for direct investment, second only to the United States. In 1990, China had not been in
the top ten.
Today, no one would dispute that the country has enjoyed unprecedented prosperity after
the historic economic liberalization. Still the question remains: What real impact does international capital have on a country’s local economic development? This question will persist as
trade and investment continue to pour across national borders.
1
China’s cautious opening to international direct investment, in which foreign involvement has been either restricted, or controlled, or encouraged according to the economic sector,
has yielded many experiences—some positive, some negative.3 This study assesses one of the
most interesting success cases: the reintroduction of the Coca-Cola system (The Coca-Cola
Company and its affiliated bottlers) to China.
Since re-entering the Chinese market in 1979, the Coca-Cola system, comprised of The
Coca-Cola Company and its allied bottlers, has invested $1.1 billion in the local economy and
built 28 new bottling plants.4 The extent of Coca-Cola’s participation in Chinese markets is palpable in many regions of the country. The brand’s logo is found on the retail pushcarts seen
along busy commercial streets of major cities and on the small shops found in out-of-the-way
neighborhoods of rural villages.
The Coca-Cola experience offers a fascinating example of the participation of an international business in local Chinese development. As China rapidly continues its evolution from a
command- to a market-oriented economy—the pace accelerated by its preparations for possible
accession to the World Trade Organization (WTO)—global business systems like Coca-Cola
may help stimulate economic growth, employment, and tax revenue. Perhaps even more importantly, they may transfer world-class management techniques. The transfer of managerial knowhow has the potential to transform China’s economic landscape by introducing market-based
concepts to workers and managers in all walks of life, from state-owned enterprises to private
entrepreneurs.
Partnerships between international and local firms are destined to play a leading role in
advancing China’s domestic economic development. International firms potentially contribute to
a more viable economic climate by associating closely with local enterprises and, increasingly,
entrepreneurs. As local enterprises face continual reform and rationalization, effective multinational-local economic linkages offer an alternative development path—providing employment,
tax revenue, and crucial expertise needed to build market-based institutions.
The principal reason for this study, then, is to provide an in-depth, scholarly examination
of a multinational enterprise network with extensive local economic linkages in China.
Coca-Cola brings an advanced international business system in contact with businesses and consumers throughout China.
In many respects, the study is based on pioneering research. It is the first to examine the
tangible impact of a multinational business system on economic development in China. As an
analysis of an extensive multinational-local business network, the study is neither macroeconomic (economy-wide) nor microeconomic (firm-level). Rather it is mesoeconomic—between
macro and micro—investigating how international and local enterprise interact jointly to influence China’s domestic economic performance. No one has ever assessed, in quantitative as well
as qualitative terms, the real impact of this multinational-local business system on China’s economic development. The research draws on case studies of Coca-Cola production and distribution in different Chinese regions and features an economy-wide analysis focused on the economic multiplier effect caused by Coca-Cola’s capital investment and ongoing operations.
2
The Mutual Benefit of Multinational-Local Linkages in China
This study comes at a pivotal moment in the Chinese economic transition: China’s leaders recognize that the country’s future economic vitality is hinged to the reform of state-owned enterprises (SOEs). Even after two decades of economic reforms, SOEs still account for nearly half of
China’s industrial output and the vast majority of services like transportation, telecommunications, and banking. SOEs, which employ 100 million Chinese workers5 or about two-thirds of the
urban labor force, are chronically hemorrhaging money, with up to two-thirds of them operating
in the red in recent years. The study assesses the ways in which multinational enterprises
(MNEs) can help transform moribund SOEs.6 MNEs provide employment for workers displaced
by SOEs and revenues to the central government to cover its mounting expenditures for social
services (pensions, unemployment insurance, health care) provided formerly by SOEs.
The climate for foreign investment may change drastically in the next few years. China is
nearing completion of its long negotiations to join the World Trade Organization. These negotiations will ultimately commit China to permitting greater foreign access to its markets by reducing tariff and non-tariff barriers to imports, eliminating trade-restrictive measures relating to foreign investment (such as export requirements, foreign-exchange balancing requirements, and local-content requirements), and permitting foreign participation in most services sectors. The debate within China over the role of multinational enterprises is far from over. Accession to the
WTO will depend, in part, on the broad acceptance in China of the principle that both Western
business and local Chinese enterprises will benefit from the liberalization measures.7 For Chinese economic liberalization and reform to enjoy support at home and abroad, it is necessary to
have concrete examples of how this win-win situation works in practice.
After years of debate and research concerning multinational enterprise (MNE), scholars
now generally agree that international direct investment contributes to economic development,
raising national income and productivity levels, whether in Asia, North America, or elsewhere.8
It is also axiomatic in the theory of international direct investment that a foreign enterprise possesses certain competitive advantages over its domestic rivals. These advantages compensate for
their “disadvantage of alien status;”9 that is, their lack of knowledge about local customs, laws,
and so forth, in which local firms always have an advantage. The foreign firm’s competitive advantage—including superior technology, managerial talent, and marketing expertise—enables it
to overcome the main barrier to investing in a distant market—its “foreignness.” In a myriad of
ways that will be explained in this study, a multinational enterprise can convey real benefits to
the host economy by introducing and demonstrating best-practice techniques, managerial competency, product quality, and market efficiency.
Since opening to foreign investment in the late 1970s, China’s economy has become
more efficient and its workers more productive. Multinational enterprise systems brought modern market practices and global standards to the Chinese economy for the first time in 30 years.
The annual increase in FDI, mostly expenditures for plant and equipment by multinational enterprise, averaged more than 40 percent during the 1990s, reaching as high as 175 percent in 1993.
Overall, during the past two decades, more than $300 billion has been placed in China by foreign-based multinational enterprise, amounting to 50 percent of all foreign direct investment in
the developing economies.10 According to Chinese statistics, foreign-invested enterprises ac-
3
count for a notable share of China’s industrial output, fixed asset investment, and tax revenue, as
seen in Table 1.1 below.
Table 1.1: Foreign-Invested Enterprises in the Chinese Economy, 1998
Industrial Output
Fixed Asset Investment
Business Tax Revenue
Value
RMB 1.55 trillion ($188 billion)
RMB 376 billion ($45.5 billion)
RMB 123 billion ($14.9 billion)
Percentage
of Total
27%
13%
14%
Note: These figures include the significant investment from Hong Kong and Taiwan.
Together, investment from Hong Kong and Taiwan accounts for 75 percent of FDI in
China.
Source: Zhongguo Waizi (Foreign Investment Monthly), September 25, 1999, as summarized in China’s “Foreign Investment Enterprises,” China Online, September 29, 1999.
Many MNEs, including Coca-Cola, are attracted to China by the size of its domestic
market. Others enter China to supply factories of other foreign firms. Finally, export-oriented
multinationals are attracted by China’s low wages, which enable them to reduce production costs
for labor-intensive products. Unlike most other countries, FDI in China takes place mostly
through joint ventures, which share everything from plant location decisions to potential profits
with local Chinese business partners, many of which are SOEs. MNE participation is needed to
help sustain the reform process as SOEs restructure.
Western media reports in recent years have frequently highlighted the concerns of foreign
investors in dealing with the Chinese bureaucracy or with Chinese joint-venture partners. Often
when a foreign investor has scaled back operations in China, the media outside China have reported the decision as emblematic of “growing frustration” with doing business in China. Most
operations, however, are profitable. The average return on investment in China is considered to
be low, but surveys suggest that 55-65 percent of foreign companies operate above the breakeven
point.11
Even so, in 1999, after years of incredible growth, new FDI commitments dropped by 21
percent, and actual FDI inflows dropped by 11 percent. Increasingly, foreign companies have
come to view the Chinese market in more realistic terms. Rather than focus on the huge consumer base, many now see the hurdles they must surmount to reach those consumers. Indeed, a
major impediment to success by foreign investors is the Chinese distribution system.12 Even
compared with other developing countries, China has a rudimentary national distribution system.
In recent years, the distribution infrastructure has been mostly upgraded to help transport exports
to the coast. The lack of a modern transportation system and well-functioning retail/wholesale
markets makes it costly to reach Chinese consumers outside the major coastal cities. Moreover,
successful foreign retail products often stimulate local businesses’ production of similar items.
This means foreign companies may spend considerable amounts of money to advertise their
brands and set up distribution, only to see domestic competitors quickly take market share. As a
result, many foreign-based companies are increasingly frustrated and disappointed by the elusiveness of the market opportunities China offers.
4
By 1999, some observers began to argue that the mutual advantage between multinational
enterprise and host countries had not lived up to its promise in China. This study is about a case
where the mutual advantage of direct investment—between an enterprise and a host country
economy—has apparently worked. As it turns out, the Coca-Cola system, generally profitable
during the 1990s, has also made a surprisingly strong, discernible economic contribution to
China’s economy.
Impacts
The main purpose of this study is to provide a comprehensive economic analysis of the
Coca-Cola system in China, based on the best available data and economic modeling techniques.
The research was designed to examine one essential question: How is the Coca-Cola system
contributing to China’s economic development as the country continues its historic metamorphosis from an inward-looking, planned system to an outward-looking, market economy?
The impact of a multinational enterprise (MNE) on the host economy depends on how
deeply it interacts with local businesses. Coca-Cola's business is almost entirely local market oriented; that is, the Coca-Cola system does not export the finished product to overseas markets,
nor does it import extensively from outside China. Production must be located close to customers, requiring investment in every region where soft-drink demand is strong, and production and
distribution are feasible.
Global enterprises like Coca-Cola can potentially enhance the local economic development of a host country through a number of effects. These effects can be summarized into four
categories:13
•
•
•
•
Demand conditions,
Supply conditions,
Local resources, and
Market conditions.
In turn, assessing the impact of Coca-Cola on China’s economy can be separated into two
types of effects: (1) those that can be precisely quantified (direct and indirect employment, tax
revenue, output effects), and (2) those that take on a more qualitative nature (competence, product quality, entrepreneurship, and rivalry). Some of the upstream and downstream linkages can
be quantified through economic modeling. Qualitative economic impacts are best understood
through case studies.
Quantitative Impacts
The core research behind this study is a quantitative economic multiplier analysis of the
Coca-Cola system’s business impacts on the Chinese economy. The results are based on the inter-industry (or input-output) relations of the Coca-Cola bottling system. The input-output model
provides a basis for looking at the interactions between the bottling system and the economy as a
whole. The bottling system’s upstream and downstream activities engender direct and indirect
impacts on the Chinese economy. The total impact multiplier combines all the effects in one
number.
5
The Coca-Cola system establishes upstream linkages by purchasing goods and services
from local suppliers. With information from the bottlers and a Chinese economic input-output
model, one can measure how soft-drink bottling stimulates a chain reaction that leads to multiple
benefits for the economy. In general, more highly developed upstream and downstream linkages
lead to greater economic benefits and enhance the market orientation of the economy.
The common approach to evaluating multiplier effects is to measure the extent of upstream linkages only. Most researchers find that local sourcing, or input procurement, increases
as investment in the local economy matures.14 At startup, for example, foreign firms exhibit
lower linkages than domestic counterparts. As foreign firms expand business, they increase local
input sourcing, often significantly.15
Investors like Coca-Cola, whose business centers on sales to China’s internal market, prefer to source locally to avoid tariffs and minimize transportation costs. However, in a developing
economy, they may be constrained by the absence of local supply or by the low-quality inputs.
The extent of supply linkages, then, is an important measure of the maturity of the Chinese economy. To get a sense of China’s ability to form strong economic clusters, this research surveyed
and modeled the input purchases of 23 Coca-Cola bottling plants in China. The survey questionnaire was sent to Coca-Cola bottlers asking for detailed information about local purchase patterns.16 The results were then matched to sectors in the currently available China input-output
table. The information reflects Coca-Cola bottlers’ production activity, employment, turnover,
and tax payments at the end of 1998. The economy-wide analysis primarily covered the direct
and indirect upstream (supplier) impacts.
The study also attempted to measure downstream (or distribution) linkages. Distribution
linkages arise through marketing channels (retail and wholesale). Coca-Cola’s success depends
on local market development, and generating downstream linkages, or sales to local firms, is a
necessity. Thus, in China, a major impact of the Coca-Cola system may be found in marketization—creating an infrastructure that encourages wholesale and retail markets to function effectively and that, in fact, helps establish new retail business.
Given the size of the investment in China, the Coca-Cola system may exert a large multiplier impact on the economy as a whole, once upstream and downstream effects are aggregated.
As its reach extends to 80 percent of the potential Chinese market, the Coca-Cola system’s production and distribution tie together an immense employment network of jobs, spreading income
throughout the economy.
Employment is the basic metric used to assess how deeply imbedded Coca-Cola is in the
Chinese economy. The jobs linked directly and indirectly to the Coca-Cola system clearly contribute to local economic welfare. Job multipliers summarize the extent of the Chinese employment tied to production and distribution.
The results may be compared to previous research on Coca-Cola’s economic impact in
other countries, providing insights into both the similarities and the differences in Chinese eco-
6
nomic development. Related work includes studies of Coca-Cola’s multiplier effects in Eastern
Europe and South Africa.17
The only previous research on Coca-Cola in China, a case study of the Tianjin bottling
plant by Cambridge University economist Peter Nolan,18 did not measure the multiplier effect.
Nevertheless, the study produced a number of interesting findings about the plant, including a
higher profit stream for the Chinese joint-venture partner and increased government revenue.
Output rose by 247 percent, and profits per worker increased 389 percent from 1990 to 1994.
The high rise in labor productivity is found to result from a large capital investment and a more
efficient organization of the production process. Nolan found Coca-Cola had a strong effect on
suppliers in terms of productivity, profitability, and delivery efficiency. Employment shifted into
sales and marketing. The Coca-Cola plant improved wages and training opportunities. Coca-Cola
attracted high-quality new recruits with promotions based on merit. Nolan also looked at other
less tangible impacts, noting that Coca-Cola introduced new commercial and work ethics in
China; yet, the study did not precisely estimate the upstream and downstream linkages. While
Nolan roughly estimated the total multiplier to be around six to one, he did not employ an explicit model, nor did he look at all plants in the system. This study assesses the multiplier effect
of the business system in China using an explicit methodology with primary data drawn from a
survey of all Coca-Cola bottling plants.
Qualitative Impacts
While quantifying the economic impacts generated by the Coca-Cola system is the primary objective of this study, the economic multiplier represents only one dimension of the soft-drink
system’s economic effects. Coca-Cola may promote market-oriented restructuring of the economy through a variety of other ways. The additional criteria used to judge Coca-Cola’s effects on
China’s economic development cannot be modeled precisely, but in the long run, may be of even
greater importance than the measurable effects.19
For example, Coca-Cola’s investment program offers the potential for upgraded technology and better organizational skills. Multinational-local enterprise networks may also introduce
improved management skills throughout the whole value chain, including customers and suppliers. Other possible qualitative effects involve improved product quality and raised consumer expectations of indigenous competitors. Moreover, market-oriented investments by Coca-Cola may
spur domestic competition, thereby transmitting globally competitive practices to the local
economies. In addition, foreign direct investment may become a vehicle for upgrading quality
standards throughout an industry, and more generally, throughout the host country through its
demonstration effect.
Coca-Cola, in particular, may stimulate local entrepreneurship in the distribution sector.
In this regard, MNEs whose business is centered on China’s domestic market may play a special
role. It is a matter of self-interest for the Coca-Cola system to assure that the market infrastructure within China develops. Coca-Cola is leading the way toward realignment in the chain of
economic activity to meet consumer demand rather than production quotas. This closely parallels
the results of research in Eastern Europe, in which researchers found that Coca-Cola served as a
model in the transition away from a command distribution system dominated by state-owned
7
enterprise to privately owned distribution.20 Previous research found that Coca-Cola’s presence
upgraded product quality and efficiency throughout the soft-drink value chain. As supply was
now geared to demand, Coca-Cola demonstrated how markets work—not by an “invisible hand,”
but by the observable relations between local and international business.
Organization of the Study
As subsequent chapters will show, the Coca-Cola system provides a prism through which it is
possible to perceive the interactions between Chinese economic entities and foreign-based companies. In this study, the special character of the Coca-Cola system is seen through the quantitative and qualitative effects explained in this chapter.
Given the rapidly evolving nature of production and distribution in China, the range of economic impacts were unknown a priori. This study breaks new ground by measuring the full extent of multinational-local linkages and, in turn, the effect on the overall economy of China.
The rest of the study is presented in four chapters.
•
•
•
•
Chapter 2 surveys the Coca-Cola system in China. The chapter provides a detailed history and description of the Coca-Cola system and its potential linkages to other sectors of the Chinese economy.
This includes an overview of the bottling system’s international and local partners.
Chapter 3 presents the multiplier analysis, quantifying the upstream and downstream linkages in the
Coca-Cola system. The chapter begins with a description of the Chinese input-output model and how
it is applied to the Coca-Cola system. Tables in this chapter summarize the direct and indirect impacts
of Coca-Cola operations and capital expenditure. The chapter provides employment and tax impacts.
Chapter 4 considers the qualitative effects of the Coca-Cola system. To recall the earlier discussion,
these effects include elevating product quality, stimulating local entrepreneurship, developing managerial talent, and spurring domestic market development.
Chapter 5 reviews the study’s central findings, offering concluding observations about the significance of Coca-Cola’s local impact in China.
In summary, this study provides a detailed analysis of Coca-Cola’s soft-drink operations
and local economic linkages in China. The study quantifies the local jobs and income supported
throughout the global-local network. Beyond the standard impact measures, this study uncovers
some unique characteristics of the Coca-Cola system in China. It is argued that such international-local business linkages will form a linchpin in the Chinese economy of the 21st century.
1
Lin (1999).
Globality, in contrast with globalization, is not a process, but is the new reality as we enter the 21st century—the
result of China’s and indeed most of the world’s opening now to international trade and capital flows. Rather than a
process, globality is the situation that results from decades of increasing globalization. A major theme of the 1999
World Economic Forum annual meeting in Davos, Switzerland, globality is an economic condition in which “the
traditional and familiar boundaries are being surmounted and made irrelevant” (Yergin and Stanislaw, 1998, p. 14).
Globality aptly describes the current state of the Chinese economy.
3
For a recent survey of foreign firms’ involvement in the Chinese economy and their policy implications, see Rosen
(1999).
4
It should be noted that The Coca-Cola Company also has investments in bottling facilities in Hong Kong, Macau,
and Taiwan. The data in this study do not include these investments.
2
8
5
Of the 100 million Chinese workers in SOEs, about half are employed in business enterprises (manufacturing and
services). Other state employees include those in government organizations (central and local ministries, bureaus,
commissions, and offices); agencies (welfare, public service, police, fire, rescue, and security); and institutions
(schools, universities, hospitals, scientific research institutes, and others).
6
State-owned enterprises have generally lagged other non-state enterprises (collective, private, and foreigninvested) in terms of efficiency, product innovation, production quality, and customer service (Lin, 1999). The poor
performance of SOEs has been a drag on the economy overall. Highly leveraged, SOEs draw over 90 percent of the
loans from Chinese state-owned banks, and their debts now exceed the assets of the banks that finance them (Lardy,
1998).
7
As a condition of WTO membership, China would pledge to adopt the liberalization measures.
8
Woodward and Nigh (1998); United Nations Conference on Trade and Development (1999).
9
Caves (1996).
10
The Economist “Infatuation’s End,” September 25, 1999.
11
Ibid.
12
Baldinger (1998).
13
Dunning (1994); Porter (1990).
14
Caves, op. cit.; United Nations (1992).
15
For research related to this issue in Asia, see Lim and Fong (1991).
16
The survey is included in this report as an appendix.
17
Division of Research (1995); Hefner and Woodward (1999); Division of Research (1998).
18
Nolan (1995).
19
United Nations (1992, p. 122).
20
Hefner and Woodward (1999).
9
10
Economic Impact of the Coca-Cola System on China
Chapter 2: Coca-Cola with Chinese Characteristics
Introduction
Each day, more than one billion servings of Coca-Cola products are consumed across the world.
As the world’s most pervasive brand reaching almost 200 countries, Coca-Cola products are sold
in highly diverse markets. Success in any market is not the result of a monolithic global strategy
or single system. While Coca-Cola concentrate is one of the world’s most invariant formulae, the
Coca-Cola system itself is highly adaptable. The complex of suppliers, bottling plants, and distribution outlets responsible for making and delivering the product to consumers adapts to local
conditions and requirements in each market Coca-Cola serves.
China’s local markets pose many distinct challenges, even to seasoned multinational
business systems. The country’s vast regional differences, rapid development, and sheer size
render any simple approach to entry and expansion impossible. Coca-Cola has pioneered a flexible approach to localization that has important implications for the economic reform process. In
the process of localizing production and distribution, the result has been, to borrow the wellknown phrase from Deng Xiaoping theory, a Coca-Cola system “with Chinese characteristics.”
Essentially, Coca-Cola has had to continually re-evaluate its Chinese business system. Although
Coca-Cola products are sold globally, there is no single model that fits all economies, no matter
the size or shape. To manufacture and distribute soft drinks in China’s many markets, the multinational parent, the country office, and an array of Chinese businesses must constantly search for
the right approach to localization. In all cases, success depends on a core alliance of highly competent bottlers, suppliers and distributors. This chapter provides background on the development
of the Coca-Cola system in China, discussing the history of the business as well as the current
structure.
History
Almost since its inception, Coca-Cola has been available in overseas markets. Using technology
and sales know-how honed for only 15 years in the United States, The Coca-Cola Company first
entered Asian markets at the beginning of the 20th century. Between the first and second world
wars, under the leadership of Chairman Robert W. Woodruff, the expansion spread widely. One
of Woodruff’s goals was to localize Coca-Cola production in overseas markets, sourcing glass
bottles, caps, machinery, and personnel.1
China figured prominently in this early period of Coca-Cola’s overseas operations under
Woodruff. Coca-Cola products have been available in China since the early 1920s. Originally,
bottles were imported from Coca-Cola’s manufacturing base in the Philippines. Then, in 1927,
11
The Coca-Cola Company appointed two Chinese bottlers (in Shanghai and
Tianjin). In 1930, a third was added in the northeastern coastal city of Qingdao. Coca-Cola’s early operations in China were positioned for long-term
growth, primarily in coastal China. In 1933, Shanghai ranked as the largest
Coca-Cola bottling plant outside the United States.
While the Japanese took over many plants during their World War II
occupation, Coca-Cola returned to China quickly after the Japanese surrender. Immediately after the war in 1945-46, Guangzhou, then known as Canton in the West, also became a Coca-Cola bottler location. As evidence of
the interest in and commitment to China, Woodruff visited Shanghai and
Tianjin in 1947. Just before the founding of The People’s Republic of China
in 1949, the Shanghai plant, the most modern, fastest bottling line in China,
reached a major benchmark: it was the first plant outside the United States to
sell one million cases annually. The customer base was narrow, however.
Coca-Cola distribution served primarily the large expatriate community in
Shanghai.
In 1949, China asked all foreign companies to leave. Coca-Cola
plants were nationalized, and The Company lost permission to import concentrate. Premier Zhou Enlai ordered that the machinery in the bottling plant
in Shanghai be dismantled and shipped to Beijing, where it would be used to
produce soft drinks for newly formed state enterprises. Direct production by
foreign-owned beverage manufacturers in the People’s Republic of China
ceased for more than thirty years.
The beverage industry showed little development during the first
three decades of the People’s Republic of China. Before 1978, “Juzi
Qishui,” an orange-flavored carbonated beverage sold in glass bottles was
the only soft-drink beverage distributed across the Chinese market. The former Coca-Cola plants struggled to survive under the changing circumstances
of the early years of the People’s Republic, the Great Leap Forward (195859), and the Cultural Revolution (1966-1976). A case in point is the Tianjin
facility. In 1953, the Chinese government officially took over the Tianjin
Coca-Cola plant; the Japanese had controlled it during the war. The Tianjin
factory began producing a carbonated soft drink under the Crystal label and
later lemonade and orange juice under the Shanhaiguan label. In 1956, 40
soft drinks factories were merged with Crystal to become the Shanhaiguan
Company. Yet, the basic equipment, already aging, would not be upgraded
for the next two decades.
Major Milestones
1927-1982
1927
The Coca-Cola
Company first established bottling
plants in Shanghai
and Tianjin.
1948
Shanghai becomes
the first market
outside the United
States to post annual
sales of more than 1
million unit cases.
1979
The Coca-Cola
Company reenters
the Chinese market,
following the reestablishment of
relations between
China and the
United States. The
first batch of 28,000
cases of Coca-Cola
cans and bottles are
transported from
Hong Kong to
Guangzhou, Shanghai, and Beijing.
1980
In Beijing, groundbreaking in Beijing
of the first
Coca-Cola plant in
China following
reentry.
1981
Guangzhou
Coca-Cola bottling
plant groundbreaking.
1982
First FIFA/
Coca-Cola Football
Academy is held in
Beijing.
The overall beverage market was fragmented during the Cultural
Revolution period of the 1960s and 1970s. At one time, there were 60 carbonated soft-drink
factories in Tianjin alone, including those operated by the People’s Liberation Army and various
collectives. Many were small and inefficient. With the profusion of producers, profits plummeted. In 1980, the Tianjin factory moved to a new building and installed imported equipment
12
from Romania, which was far behind Western efficiency standards. Overall, the soft-drink industry stagnated throughout the country until the open
door policy of the late 1970s and early 1980s.
In 1979, when China began to welcome foreign participation in its
economy, the industry developed rapidly. Over the next 20 years, the beverage industry as a whole (including carbonated beverage, bottled water,
and fruit and vegetable juices) expanded. In 1980, the total national output
of beverage was less than 300,000 tons. By 1985, output jumped to one
million tons, and then to 3.3 million tons in 1990, then reaching 10.69 million tons in 1997. In other words, beverage output was 36 times that of
1980, an annual increase of 23.7 percent during the 17 years. The Chinese
nonalcoholic beverage market is now over 34 billion RMB ($4 billion at
current exchange rates), with imports accounting for less than 2 percent.
Imports are low because foreign beverage firms have opened many joint
ventures to produce beverages in China, thereby reducing shipping costs
and serving Chinese consumers better.
Coca-Cola embarked on a long-term reentry strategy almost immediately after Chinese leader Deng Xiaoping announced in 1978 that China
would permit foreign direct investment. According to Chinese policies toward foreign direct investment in China, carbonated beverages fell under
the category of "controlled" (kongzhi), as opposed to "encouraged" (guli)
or "prohibited" (jinzhi). Thus, proposed foreign investment was subject to
Chinese government approval on a case-by-case basis. Coca-Cola opened
lines of communication with the Chinese government, ensuring them that the
Coca-Cola system, which would bring China hundreds of millions of dollars
in investment, and would make a long-term commitment to economic development in the consumer goods industry. Top management in Atlanta dispatched representatives to China charged with putting a new Coca-Cola system in place throughout the value chain: production, sales, marketing, and
distribution.
In 1978, when the Carter Administration was negotiating the resumption of formal United States-China diplomatic relations at the Beijing
Hotel, Coca-Cola management was down the hall negotiating The Company’s return to China. Coca-Cola signed its deal with Chinese authorities
three days before the U.S. government concluded its negotiations. Indeed,
the U.S. government announced the normalization of diplomatic relations
on December 15, 1978, and Coca-Cola announced its resumption of sales
in China the same day.
Major Milestones
1983-1990
1983
Xiamen Coca-Cola
bottling plant groundbreaking.
1984
Fanta and Sprite are
launched after production starts in Xiamen
plant. First foreign
commercial airs on
China Central Television; it is for CocaCola.
1985
Zhuhai Coca-Cola
plant, the first joint
venture in the system,
begins production.
1986
Shanghai Pudong
Coca-Cola plant
groundbreaking.
Coca-Cola organizes
the first Asian
Coca-Cola Cup football tournament in
China.
1987
Nanning and Dalian
plants start production.
1988
First Coca-Cola concentrate plant starts
production in Shanghai. Coca-Cola supports the China National Games in
Guangzhou.
1989
Nanjing and Hangzhou
plants start production.
1990
Tianjin plant begins
production. Coca-Cola
sponsors the Asian
Games in Beijing.
The re-introduction of Coca-Cola in China began in 1979 with a
limited period in which the products were imported. Cans came from California; bottles from
Hong Kong. Coca-Cola first shipped 30,000 cases to Guangzhou, Shanghai, and Beijing. At that
time, Coca-Cola could only be sold to foreigners (e.g., in hotels and in friendship stores, which
13
Major Milestones
were limited to foreigners, and for which hard currency was required).
Meanwhile, plans were made for a new Coca-Cola plant in Shanghai,
China’s most populous city, which was often used as a test market for food
and beverage products.
1991
Hainan plant starts
production.
Innovation and flexibility were needed to make a long-term investment
strategy work in China. The lack of a presence in China for 30 years did not
deter management. Coca-Cola had now invested throughout much of Asia and
had strong competitive advantages in the soft-drink business. Besides brand
recognition, Coca-Cola had unrivaled expertise in production and distribution.
1993
Master plan for
building 10 new
Coca-Cola bottling
plants approved by
Ministry of Light
Industry.
Thus, in the early years of China’s opening to foreign trade and investment, Coca-Cola was one of the first multinational enterprise systems to consider long-term localization. As demand for the imported product grew
quickly, Coca-Cola needed to accelerate the process of getting the product to
the market. In an unusual step for the Atlanta-based company, Coca-Cola at
first sold concentrate, but owned no bottling plants. Instead, Coca-Cola set up
operations for the Chinese government, refurbishing old plants and building
new facilities—directly transferring capital and technology to China.
In the 1980s and 1990s, the actual Coca-Cola bottling and distribution
system began to take shape through joint ventures with Chinese partners. Then,
Coca-Cola embarked on a process of input localization, and continued to build
its distribution infrastructure as The Company had done under Woodruff in the
1920s and 1930s. In 1980, Coca-Cola reached agreement with state-owned
China National Cereals, Oils, and Foodstuffs Import and Export Corporation
(COFCO) to set up a plant in Beijing (instead of the plant originally planned
for Shanghai). Coca-Cola built the plant for $2.7 million and gave it to the
Chinese government in return for permission to expand sales and distribution
in China. At first, concentrate was imported into China from the United
States. The Beijing plant was completed in 1981 and officially opened by
Coca-Cola’s first foreign-born leader, Roberto Goizueta (at the time, the
newly designated Chairman of The Coca-Cola Company). In 1982, CocaCola started to build a new plant in Guangzhou, approved by President Jiang
Zemin, who was then serving on the Chinese Government’s Export Committee. The Coca-Cola Company also granted this plant to the Chinese government. In return, Coca-Cola received payment for the concentrate supplied
to the plants in both Beijing and Guangzhou.
1991-1999
1994
Coca-Cola’s system
begins commitment to
Project Hope; builds
50 schools and 100
libraries over next 5
years.
1995
Wuhan, Xian, and
Shenyang plants start
production
1996
Zhengzhou and Harbin plants start production.
1997
Qingdao, Dongguan
plants start production. Dongguan is the
first Coca-Cola plant
to produce noncarbonated beverages.
1998
Hefei and Taiyuan
plants start production.
1999
Chengdu and Kunming plants start production. The
Coca-Cola Company
celebrates 20th anniversary of its return to
China by opening a
US$38 million expansion to its Beijing
plant.
In 1984, Coca-Cola built a bottling plant in Xiamen, one of China’s
newly designated “special economic zones” (SEZs), which were given permission to grant foreign investors special tax privileges and other investment
incentives. Xiamen is located in Fujian Province, opposite Taiwan. Owned
by China’s former Ministry of Light Industry (now known as the State Light Industry Bureau,
reporting to the State Economic and Trade Commission), the plant produced Fanta and Sprite in
addition to Coca-Cola. Also in 1984, Coca-Cola’s Macau bottler brought an old bottling line and
14
three vehicles to Zhuhai (the SEZ next to Macau) and set up a joint venture. This was the first
joint venture in the Coca-Cola system in China. The Coca-Cola Company signed the jointventure agreement with the former Ministry of Light Industry.
While building a production capability, The Coca-Cola Company also worked to improve
its brand recognition in China. In another significant milestone in 1984, Coca-Cola underwrote
coverage of the British queen’s trip to China on China’s Central Television station (CCTV). In
return, CCTV permitted a Coca-Cola commercial to air on the state-run network—the first foreign commercial on China’s Central Television station. Thereafter, CCTV permitted foreign advertising. The products of Coca-Cola were thus being advertised throughout China before they
became commercially available to Chinese consumers.
The most significant event of 1984, however, came during a landmark meeting between
Yang Bo, China’s Minister of Light Industry, and Coca-Cola’s top management team at the Atlanta headquarters. The Ministry of Light Industry delegation had traveled throughout the world
and concluded that the Chinese could learn a great deal from foreign beverage manufacturers and
distributors. Minister Yang signed a letter of cooperation with The Coca-Cola Company to form
cooperative manufacturing facilities in China, starting with Tianjin, Shanghai, and Qingdao—
cities in which Coca-Cola had been bottled before 1949. A joint task force was established involving the Ministry of Light Industry and The Coca-Cola Company to investigate where to locate
additional plants.
The Ministry of Light Industry also proposed that Coca-Cola establish a concentrate plant
in Shanghai as a means for Coca-Cola to broaden its contribution to and participation in the Chinese economy. Chen Muhua, who was then Minister of Foreign Trade, supported this idea.
Viewing the plant as a means for China to develop its domestic soft-drink industry, a majority of
the members of the Standing Committee of the Party Politburo approved the plan.
Coca-Cola proposed holding 100-percent ownership of the concentrate plant to maintain
control over its formula, as is the case throughout the world. In addition, The Coca-Cola Company signed a “contractual joint venture” in which The Company and its Shanghai partner jointly
built the nearby bottling plant. While Coca-Cola owned the concentrate plant, the Chinese held
ownership in the bottling plant. Altogether, the Shanghai operations worked out to be a 50-50
joint venture. The Chinese partners included the Ministry of Light Industry and the Shanghai Investment and Trust Company (SITCO). President Jiang Zemin (then Mayor of Shanghai) approved the Coca-Cola Shanghai project in 1986. Thirty-five years after one of Coca-Cola’s
prized plants was closed, a new era had begun.
With plans for a concentrate plant underway in Shanghai and new bottling plants in
Shanghai and Tianjin on line, Chinese leaders approved the sale of Coca-Cola’s products to Chinese consumers in 1985. Subsequently, in the late 1980s, the market continued to grow. Bottling
output grew also as production lines were put in place. In a significant step toward localization,
the Shanghai concentrate plant opened in 1988. In 1990, more than 10 years after having reentered the market, The Coca-Cola Company started to make a profit in China.
15
In 1993, Coca-Cola achieved another major breakthrough. After three months of negotiation, the President of Coca-Cola China, Steve Chan, received approval from the Ministry of
Light Industry and the State Economic and Trade Commission for the company to set up ten additional plants in China, adding to the 14 plants already in place and bringing the total to 24. The
company planned to build them as quickly as possible, identifying “key” and “anchor” bottlers
with which they could collaborate in the target markets. The Chinese approval specified the
provinces in which Coca-Cola could set up new bottling plants, and required that the bottling
plants be in the capital cities of each of these provinces. The ten new Coca-Cola bottling facilities were to be constructed by the end of 1998. Thus, by the end of the 1990s, Coca-Cola had
established a base to sell its flagship brands: Coca-Cola, Diet Coke, Sprite, and Fanta.
The 1993 accord also committed Coca-Cola to developing China’s local brands. The accord directed Coca-Cola bottling plants to produce local Chinese brand soft drinks as well as
Coca-Cola products. Actually, this marriage of local and multinational interests began long before the 1993 accord. The Coca-Cola joint venture in Tianjin, established in 1988, produced Chinese brands and Coca-Cola products in the same facility for six years before forming two separate enterprises, each with its own production line: Tianjin Jin Mei (which focused on domestic
brands) and Tianjin Coca-Cola Bottling Company (which produced the Coca-Cola brands). At
that time, the original bottling facility was transformed into a facility with two missions: manufacturing the beverage base for all non-Coca-Cola brands and providing training for executives
in China’s soft-drink industry. A new bottling facility was set up in the Tianjin Economic and
Technological Development Zone to handle the bottling of all Coca-Cola brands.
Tianjin Jin Mei spearheads the development of the indigenous non-carbonated beverage
brand Tian Yu Di (“Heaven and Earth”). In general, carbonated beverages like Coca-Cola, Sprite,
and Fanta are market leaders in most Chinese regional markets—accounting for about threequarters of the overall nonalcoholic beverage sales, with the non-carbonated segment less well
developed. The Tianjin joint venture targeted the increasingly popular regional preferences for
non-carbonated flavors. Tian Yu Di currently makes fruit juice drinks (mango, lychee, and others), ready-to-drink teas (oolong and jasmine), and bottled mineral water. Inaugurated in January
1996, it was the first domestic beverage brand produced in China by a multinational enterprise.
In the development of Tian Yu Di, Coca-Cola transferred the trademark to the Sino-U.S. joint
venture Tianjin Jin Mei Beverage Company. In 1996, the joint venture established the first noncarbonated beverage base plant. By the end of the decade, all bottlers in the Coca-Cola system
bottled Tian Yu Di.
Another somewhat unusual domestic Chinese beverage line introduced by Coca-Cola and
its partner Tianjin Jin Mei is Xingmu (“Smart”), a carbonated soft drink line with bright colors
and exotic flavors. In 1997, Xingmu introduced green apple, watermelon, coconut, peach and orange flavors. These flavors have proved to be extremely successful. Despite its later start, the
carbonated Xingmu outsells non-carbonated Tian Yu Di by approximately four to one. Yet both
lines are doing well. Xingmu sales surged by 180 percent in the first half of 1999, while Tian Yu
Di soared by 300 percent.2 This level of commitment to developing an indigenous soft drink is
remarkable. It is a hallmark of the flexible localization approach that Coca-Cola took in China.
16
Structure of the Coca-Cola System
Coca-Cola China
Today, to produce locally and extend its global
competencies, The Coca-Cola Company works
with a select group of bottlers, mostly joint
Local Coca-Cola Bottlers (24)
ventures with Chinese state-owned enterprises
Concentrate
(28 Bottling Plants)
(Figure 2.1). A subsidiary of the Atlanta-based
Plants (2)
Coca-Cola Company supplies the beveragebase syrups and concentrate from its Shanghai
Figure 2.1: The Coca-Cola System in China
plant. To make the final product, The Company
permits the local bottlers to produce under the Coca-Cola trademark, where bottling companies
form franchise arrangements with The Coca-Cola Company. To secure and develop a franchise,
a local Coca-Cola bottler must have sufficient capital to invest in the requisite land, building
structures, machinery, equipment, trucks, bottles, and crates.
By 1999, two decades after reentering the country, Coca-Cola achieved alliances for Chinese bottling facilities in 21 separate cities or provinces. In all, 24 bottling enterprises produce
Coca-Cola and Chinese brands. The system encompasses 28 bottling plants. (Some cities have
one “enterprise,” but two “bottling plants.”) Five of these plants have been funded with the retained earnings of the existing bottling enterprises. Counting the unique Tianjin Jin Mei venture,
which produces beverage base for Chinese brands supported by the Coca-Cola system (discussed
later), and the Shanghai concentrate plant, the Coca-Cola system has 30 manufacturing facilities
in China.
Table 2.1 and Figure 2.2 depict how the bottling system has spread across the Chinese
landscape. As the map suggests, Coca-Cola bottling plants cover much of China, with the notable exception of the western interior provinces. Nevertheless, through the efforts of Chinese distributors the brands can be found in far-inland markets.
Table 2.1: Coca-Cola China Ltd. Bottlers’ Information (as of March 2000)
Name
Year Opened
Beijing Coca-Cola
Beverage Co. Ltd.
1981
(New plant
1999)
1983
(New plant
1999)
Swire Guangdong
Coca-Cola Ltd.
Guangmei Foods Co.
Ltd.
1984
Swire Coca-Cola
Beverages Xiamen
Ltd.
Zhuhai Coca-Cola
Beverage Co. Ltd.
Nanning Coca-Cola
Beverage Co. Ltd.
Dalian Coca-Cola
Beverage Co. Ltd.
1985
(J/V 1996)
City/Province
Beijing
Guangdong
Guangdong
(for Xingmu & Meijin)
Xiamen, Fujian
1985
Zhuhai, Guangdong
1987
(J/V 1994)
1987
(J/V 1993)
Nanning, Guangxi
Dalian, Liaoning
17
Key Shareholders
Kerry Beverages
National COFCO
Beijing COFCO
Swire Coca-Cola HK Ltd.
Guangdong Foodstuffs Imp & Export
(Group) Corporation
COFCO Industries Development Co.
BFC International (Asia) Ltd.
Guangzhou Eagle Coin Enterprise Group
Corporation
Swire Beverages
Xiamen Luquan Industrial Co. Ltd.
Macau Industrial Limitada
Zhuhai Food & Beverage Co. Ltd.
Kerry Bottlers (Nanning) Co. Ltd.
Nanning Kangle Shareholding Co. Ltd.
Kerry Beverages
Dalian Fruits Co.
Key/Anchor
Bottler
Kerry
Swire
Swire
Swire
Independent
Kerry
Kerry
Name
Year Opened
Shanghai Shen-Mei
Beverage & Foods
Co. Ltd.
1987
(New plant
1998)
City/Province
Shanghai
Nanjing BC Foods
Co. Ltd.
1989
Nanjing, Jiangsu
Hangzhou BC Foods
Co. Ltd.
1989
Hangzhou, Zhejiang
Tianjin Jin Mei Beverage Co. Ltd.
1990
Tianjin, Hebei
Hainan Coca -Cola
Beverage Co. Ltd.
1991
Hainan
Tianjin Coca-Cola
Bottling Co. Ltd.
1994
Tianjin, Hebei
Xian BC Hans Foods
Co. Ltd.
Wuhan Coca-Cola
Beverage Co. Ltd.
1995
Xian, Shaanxi
1995
Wuhan, Hubei
Shenyang Coca-Cola
Beverage Co. Ltd.
1995
Shenyang, Liaoning
Harbin Coca-Cola
Beverage Co. Ltd.
1996
Harbin, Heilongjiang
Swire Coca-Cola
Beverages
Zhengzhou Ltd.
1996
Zhengzhou, Henan
Qingdao Coca-Cola
Beverage Co. Ltd.
Swire Coca-Cola
Beverages Hefei
Ltd.
Swire Beverages
(Dongguan) Ltd.
Taiyuan Coca-Cola
Beverage Co. Ltd.
1997
Qingdao, Shandong
1997
Hefei, Anhui
1997
1998
Dongguan, Guangdong
Taiyuan, Shanxi
1999
Chengdu, Sichuan
2000
Kunming, Yunnan
Chengdu Coca-Cola
Beverage Co. Ltd.
Kunming Coca-Cola
Beverage Co. Ltd.
18
Key Shareholders
Coca-Cola China Ltd.
National COFCO
Shanghai SITICO & Shanghai Food Industrial Investment
BCD
National COFCO
Nanjing Perfumery Factories
BC Development Co. Ltd.
National COFCO
Hangzhou Tea Factory
Coca-Cola (Asia) Holdings Ltd.
Tianjin Beverage Factory
China National Food Industry Corporation
China Light Industrial Corp for Foreign
Economic & Technical Cooperation
Coca-Cola China Ltd.
National COFCO
Hainan COFCO
Coca-Cola (Asia) Holdings
Tianjin Beverages Factory
China National Food Industry Corporation
BCD
Xian Hans Brewery
Kerry Beverage
National COFCO
Wuhan Second Beverage Factory
Kerry Beverages
Ba Wangshi Beverage
Beijing COFCO
Kerry Beverages
Harbin Economic & Technology Area
Industrial Development Co. Ltd.
Beijing COFCO
BCD, Beijing
Beijing Zhong Yin Industrial & Trading
Co.
Zhengzhou General Food Products Factory
Kerry Beverages
Qingdao Yiqing Industrial Corp.
BCD
CITIC
Anhui Jiushi Group
Swire Coca-Cola HK Ltd.
Dongguan Huaxin Industrial Co.
Kerry Beverages
National COFCO
Xishan Coal & Electricity (Group) Co.
Ltd.
Kerry Beverages
Chengdu Hua Jin Group
Kerry Beverages
COFCO
Hong Kong Yuan Tong Investment Co.
Ltd.
Key/Anchor
Bottler
Independent
Swire
Swire
Independent
Independent
Independent
Swire
Kerry
Kerry
Kerry
Swire
Kerry
Swire
Swire
Kerry
Kerry
Kerry
Heilongjiang
Beijing
Ningxia
Xinjiang
Inner Mongolia
Jilin
Liaoning
Gansu
Shanxi
Hebei Tianjin
Qinghai
Shandong
Jiangsu
Shaanxi Henan
Hubei
Xizang
Sichuan
Anhui
Shanghai
Hunan Jiangxi Zhejiang
Guizhou
Fujian
Swire
Independent
Kerry
Guangxi
Yunnan
Guangdong
Hainan
Figure 2.2: Bottler Locations in China (as of March 2000).
Bottling Alliances
Changing bottler relationships form part of the dynamic of
Coca-Cola as a multi-local system (see Figure 2.3). Over
time, Coca-Cola began to set up joint-venture bottling
plants in which it had local partners. These were generally
drawn from 3 different Chinese government agencies: the
China National Council of Light Industry (NCOLI) (formerly the Ministry of Light Industry, now known as the
State Light Industry Bureau, reporting to the State Economic and Trade Commission); China National Cereals,
Oils, and Foodstuffs Import and Export Corporation
(COFCO); and China International Trust and Investment
Corporation (CITIC).3 In most cases, the joint ventures
included additional local partners based in the city in
which the joint venture is located. The ownership structure
of each joint venture is distinct; the local partners put a
unique stamp on the business.
19
Key & Anchor Bottlers
Bottling
Alliances
China Joint Venture Partners
Figure 2.3: The Coca-Cola
Bottling Alliance in China.
Following the 1993 accord between Coca-Cola and the Chinese government, Coca-Cola
decided to restructure its China operations to involve other key and anchor bottlers as well. The
Company placed a priority on consolidating operations into an efficient regional group, as it has
done in many parts of the world. The key and anchor bottlers are part of Coca-Cola’s bottling
realignment strategy, typically consolidating a disjointed bottling system into an efficient regional group. One unusual feature of the Chinese system is the large market area (in both geography and population) served by each bottling plant. Many single facilities are situated in market
areas with a population ranging from 40 to 100 million—as large as medium-sized countries.
Outside China, many bottling plants would normally cover areas of this size.
Covering distinct regions within a given country, key and anchor bottler advantages include economies of scale and the ability to develop advanced distribution systems. The key and
anchor bottlers, in which Coca-Cola typically holds a minority interest, lead Coca-Cola’s efforts
to reach Chinese consumers. In China, The Coca-Cola Company is allied with two primary multinational anchor/key partners: Swire Pacific and the Kerry Group.
Swire: Southern and Interior China
In 1993, Coca-Cola signed a territorial arrangement
with Hong Kong-based Swire Pacific (“Swire”) to
produce and distribute Coca-Cola products in
southern China and in selected interior provinces.
Swire and The Coca-Cola Company are now partners in nine joint ventures in China. The Coca-Cola
Company holds a 12.5 percent share of Swire.
Swire itself started in the 1960s from Hong Kong
as Swire Bottlers. Coca-Cola’s relationship with
Swire has since extended to include bottling operations in the United States, Taiwan, and China.
Reaching the Top of the World:
Coca-Cola in Tibet
Cold drinks find their way to some of the
world's coldest places: Coca-Cola brands have
been sighted in Tibet (Xizang), although there
is no bottling plant for 1,000 miles (the nearest
are in Chengdu and Kunming). The products
found in Tibet came from Qinghai and Xinjiang, reaching these provinces from Beijing.
Other Coca-Cola products in Tibet have originated in Chengdu or Wuhan. Sometimes Chinese entrepreneurs, acting on their own initiative, distribute these products in unusual ways.
Bottles or cans are even carried in by camel.
Unfortunately, at first some of the cans burst on
the camel caravan to Tibet. Upon investigation,
it was found that the reason was not the cold
weather, but that the cans had been taken from
their packaging and put individually into camel
packs. Without the protective packaging, the
cans were knocking around inside the pack,
causing their shells to weaken or crack from
stress. The problem was corrected, and camels
still can be spotted with Coca-Cola en route to
Tibet.
With new bottling lines permitted under the
1993 accord, Swire invested heavily. Many of the
new investments were in China’s interior provinces. Swire’s first investment was in the Xian
Coca-Cola bottling plant, which opened in 1995.
Xian, in Shaanxi Province, is a popular tourist destination, known for its ancient terracotta warriors.
To serve this market, Swire entered into a joint
venture with BC Development and Xian Hans
Brewery to form Xian BC Hans Foods, Ltd. BC
Development itself is a joint venture between China International Trust and Investment Corporation, Swire Pacific, and a subsidiary of The Coca-Cola Company. The joint venture distributes
the product both to tourists and the 30 million people of Shaanxi province.
Over the next 6 years, Swire made additional investments in bottling facilities in Guangdong, Fujian, Zhejiang, Jiangsu, Anhui, and Henan provinces. Swire also was allowed to sell
20
Coca-Cola products in three provinces without bottling facilities: Gansu, Ningxia, and Jiangxi.
Altogether, its facilities and distribution network cover nearly half of China and reach a population of 420 million.
Kerry: Northern and Interior China
As Coca-Cola was implementing its anchor bottling alliance with Swire, it was simultaneously
forming a key bottling alliance with the Hong Kong-based Kerry Beverages group, led by Malaysian Chinese entrepreneur Robert Kuok. In July 1993, Coca-Cola purchased a 12.5-percent
interest in Kerry Bottling. Kerry and Coca-Cola are now partners in ten joint ventures, principally in North China. The Kerry Group is now the key bottler in Coca-Cola’s bottling facilities in
Beijing, Chengdu, Dalian, Harbin, Kunming, Nanning, Qingdao, Shenyang, Taiyuan, and
Wuhan. By the end of 1999, Kerry bottling facilities and its distribution network covered provinces and municipalities with a combined population of nearly 500 million.
Independent Partners
Five bottlers remain outside the anchor/key bottling system: Zhuhai, Shanghai, Tianjin (2), and
Hainan. The bottling plant in Zhuhai, a port city near Hong Kong and Macau, is wholly Chineseowned, the only plant with this status. The Coca-Cola Company and its Chinese joint-venture
partners own the Shanghai, Tianjin, and Hainan plants that are outside the anchor/key bottling
system.
In Shanghai, a joint venture known as Shanghai Shenmei Beverage and Foods Co., Ltd.,
owns two bottling facilities (one opened in 1987 and the other opened in 1998). In addition, there
is a wholly foreign-owned factory producing Coca-Cola concentrate and beverage bases for the
entire country as well as for export to Hong Kong, Macau, and some Southeast Asian countries.
Tianjin has two independent bottling facilities. The unique Tianjin Jin Mei venture was
mentioned earlier regarding its pioneering role in developing the indigenous beverage industry.
Tianjin Jin Mei is a 50-50-equity joint venture between The Coca-Cola Company and the State
Light Industry Bureau of the State Economic and Trade Commission. Tianjin Jin Mei has seen
considerable success with the indigenous Tian Yu Di (“Heaven and Earth”) brand of fruit juice,
teas, and mineral water. Recall that the Tianjin facility includes the entire beverage base plant for
Tian Yu Di (sold by all 24 Coca-Cola bottlers in China) and a national training center for the
soft-drink industry, as well as a bottling line. In addition, Tianjin also is home to the Tianjin
Coca-Cola Bottling Co., Ltd., which has bottled Coca-Cola brands since its formation in 1994.
The fifth independent partner is in Hainan. Along with its joint venture partners, the national office of the China National Cereals, Oils and Foodstuffs Corporation (COFCO) and the
Hainan branch of COFCO, Coca-Cola opened its bottling enterprise in Hainan in 1991.
Over the next five years, the Coca-Cola system in China will encompass additional independent bottlers (i.e., outside the Swire/Kerry anchor and key bottler network). In April 2000,
The Coca-Cola Company and the China National Cereals, Oils, & Foodstuffs Import & Export
Corporation (COFCO) signed a joint venture agreement establishing the first Chinese majority-
21
owned bottling operation in the Coca-Cola China system. The joint venture, which will be
known as COFCO Coca-Cola Beverages, Ltd., plans to invest $150 million in China over the
next five years. COFCO will hold a 65 percent stake in the new venture, with The Coca-Cola
Company holding the remaining 35 percent stake.
Beverage Ingredient
Suppliers
Production
Wholesalers
Packaging Suppliers
Transport & Other
Equipment Suppliers
Coca-Cola
Bottlers
Retailers
Advertising & Other
Business Services
Construction
System
Final Consumers
Further Upstream Linkages
Upstream and Downstream Networks
Beyond the bottling alliances is a network of businesses that extend upstream and downstream.
To manufacture and distribute soft drinks, the bottlers and the Coca-Cola country office carry out
a process of localization with suppliers and vendors. Figure 2.4 shows the Coca-Cola system and
its surrounding network. The Coca-Cola network can be seen as different elements in the value
chain from agriculture (upstream) to retail (downstream), from sugar refiners (upstream) to street
venders (downstream).
Restaurants, street vendors
and other points of sale
Downstream Network
Upstream Network
Figure 2.4: Coca-Cola Production and Distribution.
The Upstream Network
In the upstream network, the bottling system connects the local production joint ventures to Chinese suppliers. Local inputs account for 98 percent of the final product. The upstream supplier
network, shown in Figure 2.4 embraces dozens of businesses that directly supply inputs and
services to the system. The actual soft-drink production process is capital intensive, with highly
automated production lines. However, to make the final product, the lines combine concentrate
and syrups with other inputs—water, sugar, CO2, bottling, and packaging material—that require
substantial amounts of local labor, both skilled and unskilled.
Each bottler has its own procurement pattern, but the input standards are rigorously enforced. For packaging, Chinese factories, many of them reformed SOEs, supply the polyethylene
terephthalate (PET) bottles, glass, paper, closures, and crowns. Chinese producers also supply
equipment such as bottling line machinery, trucks, and lifting machinery. Business services include financial institutions, advertising agencies, sign makers, design firms, business consultants,
accounting firms, law offices, repair services, and hotel and travel companies. Construction firms
are major partners during expansion programs.
22
The Coca-Cola Company holds no ownership shares in the upstream network. Even so,
the Coca-Cola system is a major purchaser for many of the suppliers, so strong relations are
built. Close supplier relations in the system generate cost savings—economies of scale, joint
production planning, and inventory control—for the suppliers and the bottlers.
Coca-Cola’s specifications are demanding, but China has proven to have the capability
for advanced, competitive manufacturing and service operations. Many supplies are delivered on
a just-in-time basis. Coca-Cola bottlers select suppliers according to their ability to deliver products on demand.
The high degree of localization shows how far the economy itself has been transformed
since the liberalization of the late 1970s. In the early 1980s, Coca-Cola was unable to locate suppliers that met the standards required by the bottling system. Initially, some of Coca-Cola’s inputs were imported. At the same time Coca-Cola provided free advice on how to raise the quality
of products in China, and suppliers quickly rose to meet the standards. A successful example of
an upstream supply linkage is Zhuhai’s PET. In the mid-1980s, all PET bottles had to be imported. Local enterprises began supplying Coca-Cola’s bottling plants as they spread across the
provinces. Additional examples are given in Chapter 4.
The Downstream Network
On the distribution side (see Figure 2.4), Coca-Cola has built an extensive downstream network—an infrastructure that reaches from the coastal provinces into the interior regions. Arguably, Coca-Cola is the international-local business system with the greatest commitment to the
vast population of China that resides outside of the major cities. The downstream network is responsible for delivering the product of all bottlers to consumers.
The bottling system distributes some Coca-Cola products directly to retailers, but most of
the output from the plants first flows through wholesale channels, which then distribute products
to local retailers and other outlets outside the major cities served by bottling plants. Based on a
survey of bottlers in the Coca-Cola system conducted during 1999 (described in Chapter 3),
wholesale comprised 60 percent of total turnover in 1998. Formal retail accounted for 19 percent
of turnover; informal retail accounted for 4 percent.
Besides bottling plants, the Coca-Cola system includes warehouses and sales depots in
200 cities—virtually all of the cities in China with a population greater than one million. Distribution will gradually expand its coverage to cities with 500,000 to one million residents. In addition, the Coca-Cola system uses state-owned companies and other distributors to get its product
to final consumers. Coca-Cola has a cooperative relationship with wholesalers, but traditionally
has not set up joint ventures in distribution. The wholesalers are independent and may handle
products other than Coca-Cola (water, candy, biscuits, and so forth).
The Swire and Kerry enterprise groups run sales centers and hire local Chinese for the
sales/delivery team. The Swire group oversees 100 sales centers (of the 200 warehouses and
sales centers that currently comprise the Coca-Cola system’s distribution system). The Hangzhou
23
area alone has 32 sales centers; the Guangzhou area has 12. Sales centers handle selling, order
taking, delivery, and bill collection. They prepare monthly reports on finances, which are sent to
the bottling plant for tracking and to the Hong Kong office for consolidation.
In China, one of the unique characteristics of the overall Coca-Cola network is that a
large proportion of the distribution is handled through wholesalers, rather than directly. Formal
retail outlets comprise a surprisingly small share of all sales. Retailers appear in different forms,
from large supermarket chains to small points-of-sale like kiosks and street vending. Distribution
in China also must accommodate the reality of China’s vast geographic expanse and poor road
infrastructure. Distribution in China is extremely labor-intensive when compared to a more developed or geographically smaller country.
Coca-Cola’s involvement in distribution to retailers, while a small share of total product
delivered, has grown in recent years. Foreign investors like Coca-Cola can now market the products produced in China directly to Chinese retailers. The specific characteristics of Coca-Cola’s
distribution system are explored in Chapter 4.
Conclusion
The Coca-Cola system has invested more than one billion dollars in China over the past 20 years.
Through the large investment program by the anchor and key bottlers and assistance of jointventure partners, Coca-Cola products are available to nearly 80 percent of China’s population.
Coca-Cola brands, including Sprite and Fanta, now account for about 30 percent of the carbonated soft-drink market in China.
In this chapter’s review of the Coca-Cola system in China—its history and current structure—five essential points stand out:
1. The entire beverage market has grown tremendously since opening to foreign investment in the late
1970s.
2. The Coca-Cola Company is committed to developing an indigenous Chinese beverage base.
3. The Coca-Cola system is a complex array of international-local alliances, including participation by
state-owned enterprises.
4. Expansion in Coca-Cola’s bottling and distribution facilities in China has stimulated growth and geographic expansion of suppliers to Coca-Cola, including state-owned enterprises.
5. The vast majority of Coca-Cola’s distribution is handled through Chinese wholesalers, rather than
directly to retailers and other points-of-sale.
The first point suggests that Coca-Cola’s business has not achieved its success at the expense of domestic beverage development. Overall soft-drink output has grown 36 times since
1980, an annual increase of 24 percent during the 17 years up to 1997. Carbonated and noncarbonated beverages exhibit a relatively high income elasticity of demand; hence, this growth is
not surprising as income levels grew rapidly during this period. Coca-Cola’s business has expanded along with the market as a whole. Coca-Cola’s leadership role in beverage production,
convenience packaging, and marketing spurred increased demand for beverages. Local soft-drink
firms have adopted many of the marketing advances of the Coca-Cola system. Even so, the size
of the regional markets in China is huge and presents ample opportunity for development by
24
Coca-Cola and other brands. The market is far from mature: Per capita consumption of
Coca-Cola products nationwide is only about 7 servings per year, compared with Thailand at 47.
The remaining points allude to the unique characteristics of the Coca-Cola system in
China. The agreement to develop local brands through the Tianjin Jin Mei joint venture is an example of the innovative approach Coca-Cola has taken in China. The singular nature of the
Coca-Cola system in China can also be seen in the complex array of international-local bottling
alliances, which includes participation by state-owned enterprises. The network of state-owned
businesses extends to key suppliers. The country’s distribution system, on the other hand, places
special challenges on the development of the business. Success will depend on continued innovation in distribution.
Overall, this chapter covered the long history and complex business of Coca-Cola in
China. The bottling system is the core, creating upstream linkages with soft-drink input and
service suppliers and downstream linkages with distributors, wholesalers, and retailers. The system is large enough to have a palpable impact on Chinese employment and output.
The next chapter presents the direct and indirect impacts of Coca-Cola operations on the
Chinese economy. Since Coca-Cola connects with many sectors of the economy, the total jobs
and income effects must be calculated using a model that accounts for all the economic interactions in the country. The general impact model employed in this research is an input-output
model. Chapter 3 describes the input-output approach, along with precise employment, fiscal,
and output impacts.
1
Pendergrast (1993).
The Economist Intelligence Unit. “Case Study: Coca-Cola Develops Local Brands,” China Hand, Chapter 8: Consumer Marketing, p. 33.
3
There are four Coca-Cola joint ventures that are not part of the key and anchor bottling systems. Also outside the
key and anchor bottling systems is one wholly Chinese-owned bottling company.
2
25
26
Economic Impact of the Coca-Cola System on China
Chapter 3: Multiplier Analysis of the Coca-Cola System in China
Introduction
This chapter presents the major findings of this study based on a quantitative evaluation of
Coca-Cola’s economic impact on the Chinese economy. The Coca-Cola system is seen as a
cluster of businesses that have far-reaching economic effects in China. The bottling system directly provides jobs and income for Chinese citizens, as well as tax revenue for local and central
governments. More importantly, the system’s local linkages generate a large economy-wide ripple effect. As the bottling system purchases inputs and hires workers, it creates additional income. The income is re-spent in other sectors, leading to further impacts on the local economy.
The result is the economic multiplier effect.
This analysis uses the official Chinese input-output accounts for 1992, the most up-todate version available. Input-output analysis accounts for all direct and indirect effects of any
economic stimulus. The stimulus from Coca-Cola is based on primary data collected from a July
1999 survey of its bottlers in China. (The survey instrument is provided in Appendix A of this
report.) The survey reflects the Coca-Cola system’s production, employment, turnover, and tax
payments at the end of 1998. The purchases by the bottling plants yield upstream impacts of the
Coca-Cola system. Multiplier impacts are given for the downstream activities as well.
The multiplier effect of the Coca-Cola system is covered in detail in this chapter, beginning with an overview of the economic model. The methodology discussion is followed by a profile of the direct economic impacts. Next, the main findings, the indirect and total impacts of the
bottling system, are discussed. An additional section presents the economic impact of the
Coca-Cola system on government tax revenue and labor income and capital.
The most notable result is the large employment multiplier: 30 total jobs throughout the
economy for every direct job in the bottling system. There are two approaches to calculating the
multiplier impact of the Coca-Cola system on employment: the “adjusted average cost of job”
and the employment coefficient. Interestingly, the results from these output approaches converge. The dual approach makes the job multiplier more credible.
27
The Input-Output Model
Input-output (I-O) analysis, the first practical economic impact tool employed throughout the
world, is based on economy-wide matrices of government economic data. The matrices account
for inter-industry flows of goods and services, final demand, and total output. Each industry is
represented as both a column and a row in the matrix. The columns can be seen as a set of recipes for production in each industry, showing an industry’s demands from all other industries.
In essence, the upstream linkages are depicted in the columns of the table for each industry. Suppliers to all other industries are depicted as the rows of the table for each industry. The basic I-O
matrix also includes final demand (consumption, investment, government, and trade) and total
output for the economy.
I-O tables for China (1992) form the basis for calculating economic multiplier effects in
this study.1 To measure the impact of a new or ongoing project in an economy, the direct stimulus must be determined and then indirect effects are captured through calculations based on the IO matrix. For example, the construction of a $15 million Coca-Cola bottling plant provides an
initial impact of $15 million on the local economy. This is the direct stimulus. Clearly, the construction of the project will require concrete, steel, construction workers, and so forth. The
money spent on these materials and services comprises the indirect expenditures or impacts.
Every purchase in the bottling system has the potential to affect other elements in China’s economy. Measuring the indirect effects is impossible without an I-O framework.
The stimulus effect of the Coca-Cola system is derived from the original survey data covering bottling system expenditures. Based on the responses, a profile of all purchases was constructed for the production system (23 of the 24 Coca-Cola bottling companies in China). Again,
the purchases generate Coca-Cola’s direct effects on China’s economy. The direct impacts are
then entered into the model as an initial injection into the economy that leads to further rounds of
economic activity. Capital spending, which also directly impacts the economy, is included along
with operational expenditures. 2
After the direct effects have been ascertained, the China I-O model is used to estimate the
ripple effects—the indirect and total impacts—of Coca-Cola-related economic activity. This calculation is based on the “Leontief inverse” matrix for China, derived from the 1992 China I-O
table. The Leontief inverse (named for the Nobel laureate who invented modern input-output
economics) captures all indirect effects in one large computation. For example, when upstream
suppliers—PET manufacturers, printing companies, sugar refiners, and others—pay workers,
buy inputs, and purchase new equipment, they generate more spending and income in the economy. The rounds of spending and income continue until the initial injection of spending from the
Coca-Cola system no longer affects any sector of the economy. The Leontief inverse accounts
for all rounds of spending and income traceable to the initial injection.
With the total economic impacts resulting from the initial injection, one can compute the
multipliers for output, employment, and taxes. The multipliers simply compute a ratio of total
(direct and indirect) effects to the initial stimulus. In a nutshell, the multiplier results given in this
chapter provide a measure of the Coca-Cola system’s support for economic activity in China.
28
They provide a benchmark from which it will be possible to gauge future effects, given updated
I-O tables or new survey information.
To interpret the multiplier results correctly, it is necessary to acknowledge a few of the
model’s assumptions and limitations. First, I-O models assume a constant technology over time.
In this case, the technology was determined by government surveys that led to the 1992 I-O table. Because technical change has taken place since 1992, the multiplier impacts might be
somewhat distorted in various industries.
Another assumption is that China is considered a closed economy; that is, there are no
imports or exports. This limitation is embedded in the Chinese I-O table, in which there is no
external trade sector (imports and exports). This would be a major distortion for import-intensive
or export-oriented operations, but not a major limitation in this case because most of the CocaCola system’s expenditures were paid for domestic China’s goods and services. Thus, the closed
nature of the Chinese input-output table is not a major drawback in this application. In any event,
imports are excluded from the impact analysis. At the same time, the model considers no exports,
including concentrate exports from the Shanghai plant, which would boost the Chinese multiplier
impact.
Finally, the Chinese model does not capture the price changes that have occurred since
1992. Using the 1992 I-O table assumes that pricing relationships in China have remained constant from 1992 through 1998. However, there have been notable changes. For example, distortions in the China price system in 1992 led to negative taxes (government subsidies) for the
coal/mining industry, and money losses in the sugar and gas industries. In using the 1992 I-O
table, these factors have to be held constant, implying that the impacts of Coca-Cola system on
the tax revenue of those industries in 1998 are still negative. Since 1992, the price system has
begun to reflect resource scarcity, which would likely have improved the efficiency of industries
like sugar, gas, and coal/mining. Therefore, negative multipliers might disappear when an updated I-O table reflecting the present Chinese economy becomes available.
These limitations affect all applications of input-output analysis in China. Still, the I-O
approach is the only way to quantify the extensive industry-specific impacts in the economy as a
whole.3
Direct Effects of the Coca-Cola System
As described in the previous section, the direct effects of the Coca-Cola system derived from a
survey of 23 Chinese Coca-Cola bottlers. This survey produced the first known economic profile
of a multinational-local enterprise system in China suitable for use in an input-output framework.
Respondents replied to detailed questions about total turnover, expenditures on production inputs, operational and capital payments, labor costs, and tax payments. The major findings are
summarized in the Table 3.1.
The first section of Table 3.1 delineates the bottlers’ production input, operational, and
capital expenditures—the direct linkages between the Coca-Cola system and its major suppliers.
The table indicates that concentrate, plastic materials, cans, sugar, commercial service, and
29
Table 3.1: Direct Operational and Capital Expenditures: Coca-Cola System in China (1998 Prices)
1
2
3
4
Units: 1000 RMB
Industrial Sectors
Coal
Water
Sugar
Protective clothing
Pallets (wood)
Paper
Office equipment
Electricity
Gas
CO2
Concentrate
Lubricants
Chemical consumables
Plastic
Glass
Metal containers
Crowns, Cans (empty for canning, if relevant)
Fork lifts
Fountains/vending equipment
Cars
Coolers
Computers
Plant maintenance
Effluent and water treatment
Building maintenance
Transportation expense
Communication expenses
Commercial expenses
Travel expenses
Construction
Training expenses
Advertising expenses
Legal fees
Financial expenses
Insurance expenses
Others
Total
Government Income
Corporate tax
Indirect taxes
Local rates and taxes
Other taxes and fees paid to government
Total
Labor Income
Skilled (secondary education or higher)
Unskilled (less than secondary education completed)
Total
Number of Employees
Skilled (secondary education or higher)
Unskilled (less than secondary education completed)
Total
30
21,247
14,030
764,370
449
5,548
252,644
16,353
50,005
1,130
33,057
1,160,904
2,234
80,292
1,064,948
25,482
5,751
1,211,155
33,294
209,138
115,608
8,109
18,200
32,600
2,152
6,096
11,757
11,999
710,027
15,713
854,113
5,753
174,996
1,209
91,180
10,133
1,475,949
8,497,625
73,461
299,118
9,965
4,926
387,470
585,701
269,778
855,479
8,730
5,319
14,046
Local
21,247
14,030
764,370
449
5,548
252,644
16,009
50,005
1,130
33,057
1,160,904
2,234
80,292
1,064,948
25,482
5,751
1,211,155
13,110
181,757
114,712
8,093
16,514
32,600
2,152
6,096
11,757
11,999
709,918
14,437
581,191
5,753
174,996
1,209
94,456
10,133
1,463,639
8,163,777
Imported
0
0
0
0
0
0
344
0
0
0
0
0
0
0
0
0
0
20,184
27,381
896
16
1,686
0
0
0
0
0
109
1,276
272,922
0
0
0
-3,276
0
12,310
333,848
73,461
299,118
9,965
4,926
387,470
Permanent
575,736
179,721
755,457
Permanent
8,000
1,711
9,711
0
0
0
0
0
Temporary
9,965
90,057
100,022
Temporary
730
3,608
4,335
construction are the main sectors that directly benefit from Coca-Cola operations. These industries are considered part of the immediate Coca-Cola cluster, strongly linked, intermediate output
sectors, the supplies necessary to produce the final products. The cash outflows from these sectors touch off the multiplier process. Note that Table 3.1 splits the operational and capital expenditures into local and imported spending. As indicated earlier, imports (which range from 2 to 4
percent, depending on whether the system is undertaking new plant construction in a given year)
do not lead to further impacts and, thus, are excluded from the initial injection of the Coca-Cola
system. Accordingly, the total initial injection into the Chinese economy is about 8.16 billion
RMB in 1998.
Government tax payments (Section 2 of Table 3.1) reflect peculiarities of the Chinese tax
system, in which indirect tax payments are high (primarily the 17 percent value-added tax). In
addition, there are some extra fees imposed by local governments, although Table 3.1 suggests
that the fees are not a major consideration for the Coca-Cola system. Altogether, bottlers paid
387 million RMB in taxes.
Besides stimulating intermediate goods and service industries, a significant amount of direct spending goes to labor income. In 1998, this amounted to 855 million RMB (see section 3 of
Table 3.1). As consumers, the workers receiving the income stoke the spending-income cycle
and enlarge the multiplier effect.
These cash outflows (purchases from industrial sectors, taxes, and labor income) are the
direct effects of the Coca-Cola system. However, it is impossible to compute the indirect effect
of the tax and labor income payments without a social accounting matrix, which was not available; hence, labor costs and tax revenue are excluded from the initial injection of the Coca-Cola
system.4
Section 4 of Table 3.1 shows the survey results for direct employment in the bottling
system. According to the bottler survey, the direct employment tied to the Coca-Cola system (including permanent and temporary, skilled and unskilled) is estimated to be 14,046 in 1998. More
than 62 percent were skilled workers who usually get permanent jobs; on the other hand, for
about one-third of the workers, job positions were temporary. Most wage costs were spent on
permanent workers.
Indirect Impacts of the Coca-Cola System
The previous section discussed first-round economic effects as bottlers inject spending into the
Chinese economy. This section presents the results of indirect and total impacts engendered by
the bottling system’s initial injection.
The indirect multiplier for each of 37 industries contained in the Chinese Input-Output
table of 1992 is given in Table 3.2, along with the aggregate indirect multipliers. The initial injection of 8.16 billion RMB in 1998 gave rise to about 21.7 billion RMB in total output. Hence,
the indirect output multiplier is around 2.66; that is, for every one RMB purchase of intermediate
goods and input, the Coca-Cola system will generate 2.66 RMB for the economy as a whole. The
total output multiplier is 3.66 (direct plus indirect divided by direct).
31
Table 3.2: The Indirect Impacts of the Coca-Cola System on Output in China
Code
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
Industry
Coal/Mining
Water
Sugar
Knitting Mills
Wood Products
Paper
Culture, Education, Sports, Arts
Electricity
Gas
Basic Chemicals
Chemicals, daily use
Synthetic Chemicals
Other Chemicals
Plastics, production use
Plastics, daily use
Glass Products
Metal Products
Metal Machinery
Special Industrial Equipment
Other Special Equipment
Motor Vehicles
Household Electronic Appliances
Computer
Machinery Maintenance
Scrap Waste
Construction
Rail, Freight, Transportation
Communication
Commerce
Air Passenger
Real Estate
Educational Services
Cultural Services
General Technical Services
Financial Institutions
Insurance
Other
Total
Initial injection:
∆ Y(1000 RMB)
21,247
14,030
764,370
449
5,548
252,644
16,009
50,005
1,130
33,057
1,160,904
2,234
80,292
24,031
1,040,917
25,482
5,751
1,211,155
13,110
181,757
114,712
8,093
16,514
32,600
2,152
6,096
11,757
11,999
709,918
14,437
581,191
5,753
174,996
1,209
94,456
10,133
1,463,639
8,163,777
Resulting output: Multiplier:
∆ X (1000 RMB)
∆ X/∆
∆Y
160,295
7.54
37,693
2.69
833,997
1.09
7,624
16.98
50,448
9.09
572,618
2.27
60,295
3.77
435,417
8.71
6,357
5.63
254,907
7.71
1,298,567
1.12
507,638
227.23
104,120
1.30
214,635
8.93
1,228,635
1.18
87,153
3.42
48,308
8.40
1,289,185
1.06
114,202
8.71
246,773
1.36
385,959
3.36
23,643
2.92
29,833
1.81
51,413
1.58
64,074
29.77
53,802
8.83
124,815
10.62
56,198
4.68
2,032,728
2.86
21,213
1.47
750,745
1.29
14,573
2.53
187,849
1.07
138,330
114.42
680,465
7.20
51,942
5.13
9,522,215
6.51
21,748,665
2.66
It is also apparent from Table 3.2 that the effects are much higher in some industries:
Knitting Mills, Synthetic Chemicals, Scrap Waste, Rail-Freight-Transportation, and General
Technical Services. Note that across all 37-industry sectors listed, there is no sector in which the
multiplier is less than one, implying that the bottling expands the economy in all sectors. Note
that Table 3.2 shows only upstream effects of the Coca-Cola system in China.
32
Employment Supported by the Coca-Cola System
Throughout the world, employment is the most common gauge of economic impacts. However,
in the ever-changing Chinese economy, calculating jobs effects can be difficult. Using several
alternative methods, this study made a special effort to estimate the employment supported by
the Coca-Cola system.
In the simplest case, total employment effects of the Coca-Cola bottling system were calculated by combining two factors: labor income computed by the I-O model (presented later in
the chapter) and the industry-specific average wage level. In other words, to derive the employment estimate, the total wage income supported by the Coca-Cola system by sector is divided by
each industry’s average wage. Thus, with the total wage income derived from the model, the latest average wage level of each sector is needed. Since the Coca-Cola survey data were measured
in 1998 RMB and the latest data for industry-specific average wages is 1997, the total labor income by sector was adjusted to 1997 prices.
The results are striking. Total employment indirectly supported by the bottling system
appears to be about 466,000 in 1998 (see Table 3.3). Direct employment in the Coca-Cola bottling system itself is about 14,000, so the total employment multiplier (the total direct and indirect divided by the direct jobs) is more than 33. The multiplier from the indirect influence of the
Coca-Cola system is 32. Another measurement of the effect on employment is described in the
last column of Table 3.4, which indicates that each 100,000 RMB injection of the Coca-Cola
system in China provided an estimated six job positions in 1998.
Since calculating the job impact represents a crucial objective of this study, several additional checks were made to ensure accuracy. Apart from the method discussed already, there are
two possible alternatives for computing job effects: an “adjusted” average cost of job and an employment-output coefficient approach.
Essentially, the adjusted average job cost method is similar to the simple method already
described, but adjusts the average wage by two factors to better reflect labor costs in China: the
non-wage welfare income per worker in the state-owned enterprises (SOEs) of China; and the
payment used to support the laid-off workers. In accordance with Chinese central government
policy since 1997, when a state-owned enterprise pays wages, it must also pay the four insurance
premiums: (i) pension insurance (which equals 20 percent of the wage bill); (ii) health insurance
(which equals 6 percent of the wage bill); (iii) birth insurance (which equals 0.6 percent of the
wage bill); and (iv) unemployment insurance (which is 3 percent of the wage bill). Thus, for each
existing job position, the average non-wage labor cost is about 30.6 percent of wage income.
The second adjustment to the average job is the payment for the unemployed workers in
the SOEs. Firms are required to pay for unemployed workers. Compared with 46 million active
workers in the SOEs, there were about 13 million unemployed SOE workers in China in 1997.5
The average income for the unemployed workers was about 30 percent of that for the existing
workers. This means that the average labor cost for each job was increased by 8.5 percent.6
33
Table 3.3: Employment Multipliers
(Units: 1000 RMB unless specified)
Additional
employment
Injection (∆
∆E)
∆E/∆
∆Y
21,247
7,565
0.36
Code
1
Industry
Coal/Mining
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
Water
Sugar
Knitting Mills
Wood Products
Paper
Culture, Education, Sports, Arts
Electricity
Gas
Basic Chemicals
Chemicals, daily use
Synthetic Chemicals
Other Chemicals
Plastics, production use
Plastics, daily use
Glass Products
Metal Products
Metal Machinery
Special Industrial Equipment
Other Special Equipment
Motor Vehicles
Household Electronic Appliances
Computer
Machinery Maintenance
Scrap Waste
Construction
Rail, Freight, Transportation
Communication
Commerce
Air Passenger
Real Estate
Educational Services
Cultural Services
General Technical Services
Financial Institutions
Insurance
Other
Total
14,030
764,370
449
5,548
252,644
16,009
50,005
1,130
33,057
1,160,904
2,234
80,292
24,031
1,040,917
25,482
5,751
1,211,155
13,110
181,757
114,712
8,093
16,514
32,600
2,152
6,096
11,757
11,999
709,918
14,437
581,191
5,753
174,996
1,209
94,456
10,133
1,463,639
8,163,777
491
7,826
95
588
6,300
1,248
2,666
80
2,920
11,259
2,769
1,818
1,824
12,806
1,321
822
22,871
1,821
3,576
3,277
219
230
1,042
0
1,540
1,858
806
62,179
79
5,126
1,280
5,857
4,494
9,486
409
277,528
466,078
0.04
0.01
0.21
0.11
0.02
0.08
0.05
0.07
0.09
0.01
1.24
0.02
0.08
0.01
0.05
0.14
0.02
0.14
0.02
0.03
0.03
0.01
0.03
0.00
0.25
0.16
0.07
0.09
0.01
0.01
0.22
0.03
3.72
0.10
0.04
0.19
0.06
After adding the non-wage labor costs to the average wage in 1997, it is possible to compute an adjusted average cost of job, as shown in column 5 of Table 3.4. To calculate the total
employment effect, this adjusted cost becomes the denominator used to divide the adjusted increase in total wage income resulting from the initial injection of the Coca-Cola bottling system
in China. This yields an alternative estimate of the impact of the Coca-Cola system on jobs supported in China: about 352,704 persons—less than the estimate given without taking into account
non-wage labor costs.
34
Table 3.4: Estimated Employment Impact by “Adjusted Average Cost of Job”
Industry
Adjusted Increase Adjusted Increase Average
Average
of GDP
of Wages
Wages Cost of Job
(1000 RMB)
(1000 RMB)
(RMB)
(RMB)
Coal/Mining
168,732
54,416
6,833
9,505
Water
39,676
4,989
9,649
13,422
Sugar
877,892
48,874
5,933
8,253
Knitting Mills
8,025
595
5,933
8,253
Wood Products
53,103
3,671
5,933
8,253
Paper
602,756
39,349
5,933
8,253
Culture, Education, Sports, Arts
63,469
7,791
5,933
8,253
Electricity
458,334
27,081
9,649
13,422
Gas
6,691
812
9,649
13,422
Basic Chemicals
268,323
18,239
5,933
8,253
Chemicals, daily use
1,366,912
70,312
5,933
8,253
Synthetic Chemicals
534,356
17,291
5,933
8,253
Other Chemicals
109,600
11,356
5,933
8,253
Plastics, production use
225,932
11,391
5,933
8,253
Plastics, daily use
1,293,300
79,978
5,933
8,253
Glass Products
91,740
8,251
5,933
8,253
Metal Products
50,850
5,137
5,933
8,253
Metal Machinery
1,357,037
142,836
5,933
8,253
Special Industrial Equipment
120,214
11,372
5,933
8,253
Other Special Equipment
259,761
22,335
5,933
8,253
Motor Vehicles
406,273
20,464
5,933
8,253
Household Electronic Appliances
24,887
1,365
5,933
8,253
Computer
31,403
1,436
5,933
8,253
Machinery Maintenance
54,119
6,508
5,933
8,253
Scrap Waste
67,447
0
5,933
8,253
Construction
56,634
10,785
6,655
9,257
Rail, Freight, Transportation
131,384
21,806
11,152
15,512
Communication
59,156
10,234
12,056
16,770
Commerce
2,139,714
317,114
4,845
6,739
Air Passenger
22,330
1,407
16,865
23,459
Real Estate
790,258
49,591
9,190
12,783
Educational Services
15,340
9,109
6,759
9,403
Cultural Services
197,736
46,107
7,478
10,402
General Technical Services
145,611
42,720
9,031
12,563
Financial Institutions
716,279
97,034
9,718
13,518
Insurance
54,676
4,298
9,982
13,885
Other
10,023,385
1,890,112
6,470
9,000
Total
22,893,332
3,116,166
7,313
10,172
Estimated
Jobs
(person)
5,725
372
5,922
72
445
4,768
944
2,018
61
2,210
8,520
2,095
1,376
1,380
9,691
1,000
622
17,308
1,378
2,706
2,480
165
174
789
0
1,165
1,406
610
47,054
60
3,879
969
4,433
3,401
7,178
310
210,018
352,704
Table 3.5 provides an alternate estimation based an employment-output coefficient approach. The coefficients are employment-output ratios from official Chinese statistics for 1997.
To calculate the job impact using employment coefficients for 1997, the output increase in GDP
in 1998 must be adjusted to 1997. The results appear in the last column of Table 3.5. Using the
employment-output coefficient approach, the impact of the Coca-Cola bottling system on employment supported is 349,554 persons.
35
Table 3.5: Employment Impact: Employment-Output Coefficient Approach
Code
Industry
1
2
3
4
5
6
7
Coal/Mining
Water
Sugar
Knitting Mills
Wood Products
Paper
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
Electricity
Gas
Basic Chemicals
Chemicals, daily use
Synthetic Chemicals
Other Chemicals
Plastics, production use
Plastics, daily use
Glass Products
Metal Products
Metal Machinery
Special Industrial Equipment
Other Special Equipment
Motor Vehicles
Household Electronic Appliances
Computer
Machinery Maintenance
Scrap Waste
Construction
Rail, Freight, Transportation
Communication
Commerce
Air Passenger
Real Estate
Educational Services
Cultural Services
General Technical Services
Financial Institutions
Insurance
Other
Total
Culture, Education, Sports,
Arts
Adjusted Increase
of GDP
(1000 RMB)
168,732
39,676
877,892
8,025
53,103
602,756
63,469
458,334
6,691
268,323
1,366,912
534,356
109,600
225,932
1,293,300
91,740
50,850
1,357,037
120,214
259,761
406,273
24,887
31,403
54,119
67,447
56,634
131,384
59,156
2,139,714
22,330
790,257
15,340
197,736
145,611
716,279
54,676
10,023,385
22,893,332
Employment Jobs Supported
Coefficient
(person/1000 RMB)
(person)
0.046
7,762
0.060
2,381
0.038
33,360
0.015
120
0.021
1,115
0.009
5,425
0.010
635
0.004
0.068
0.014
0.022
0.023
0.096
0.019
0.013
0.026
0.021
0.030
0.008
0.022
0.006
0.015
0.105
0.022
0.046
0.011
0.030
0.025
0.018
0.006
0.007
0.116
0.028
0.015
0.010
0.007
0.009
0.015
1,833
455
3,757
30,072
12,290
10,522
4,293
16,813
2,385
1,068
40,711
962
5,715
2,438
373
3,297
1,191
3,103
623
3,942
1,479
38,515
134
5,532
1,779
5,537
2,184
7,163
383
90,210
349,554
The employment-output coefficient estimate is close to the adjusted average wage cost
results given in Table 3.4. Indeed, it falls within 1 percent of the alternative method: 349,554
versus 352,704. Therefore, it is reasonable to estimate the impact of the bottling system on jobs
supported throughout the economy at 350,000.
36
Downstream Employment Impacts
So far, the discussion has been confined to Coca-Cola’s upstream linkages. Given the nature of
the business as described in the last chapter, downstream impacts through distribution should be
considered as well. The July 1999 survey covered only the bottlers’ expenditures, not the downstream impacts of the Coca-Cola system. Nevertheless, discussion with Coca-Cola managers and
case studies conducted in different regions of China yielded the parameters needed to estimate
the downstream effects.
Downstream business, the retail and wholesale trade ventures connected to the Coca-Cola
system, have a multiplier impact on the Chinese economy according to the margins charged on
various products. These margins become income for the trade sector, which is then re-spent in
the economy and leads to a ripple effect similar to the expenditures by the bottlers. It is possible
to estimate the impact of the trade sector by using an average gross margin on all Coca-Colarelated income. This source of income is then re-spent according to the average expenditure or
cost structure of the trade sector.
Given the downstream impact on the GDP, it is possible to estimate the corresponding
downstream employment effect. Two approaches were used; the first is based on employment
coefficients for 1997. Since the price index of productive goods is 95 in 1998 (if we treat the
price of 1997 as 100), the price in 1998 should be inflated to 1997 by the factor (1/0.95). The
downstream employment resulting from the Coca-Cola system, shown in the middle column of
Table 3.6, is a total of 48,788 jobs supported by the Coca-Cola system.
The second method is based on the “adjusted average cost of job”. The results are shown
in the right-most column of Table 3.6. By the average cost of job method, the downstream employment impact of the Coca-Cola system would be 64,046. The lower of these two estimates
(48,788 and 64,046) will be taken as the downstream employment impact, although it is believed
that the actual job tally may be higher.
Considering both the upstream and downstream employment impacts, the Coca-Cola
system’s direct employment in China of about 14,000 workers supports an additional 400,000
Chinese workers in upstream (350,000) and downstream (50,000) positions. The overall employment multiplier is 30 (414,000/14,000).
Multipliers for Capital, Labor Income, and Taxes
Besides employment, I-O analysis generates other multipliers. Consider the multipliers derived
for different components of China’s national income: capital depreciation, labor cost, and tax
revenue. Beyond the inter-industry relationships already discussed, I-O analysis can be used to
calculate indirect effects of income, wages, and tax revenue derived from Coca-Cola operations.
Because the Chinese statistical database lacks a complete household and government account
matrix, it is not possible to determine how the expenditures of households and government revenue lead to further impacts on the whole economy, or to derive complete multipliers.7 Even so,
the calculation for the partial multipliers provides some useful insights.
37
Table 3.6: Downstream Employment Impact of the Coca-Cola System
Industry
Coal/Mining
Water
Sugar
Knitting Mills
Wood Products
Paper
Culture, Education, Sports, Arts
Electricity
Gas
Basic Chemicals
Chemicals, daily use
Synthetic Chemicals
Other Chemicals
Plastics, production use
Plastics, daily use
Glass Products
Metal Products
Metal Machinery
Special Industrial Equipment
Other Special Equipment
Motor Vehicles
Household Electronic Appliances
Computer
Machinery Maintenance
Scrap Waste
Construction
Rail, Freight, Transportation
Communication
Commerce
Air Passenger
Real Estate
Educational Services
Cultural Services
General Technical Services
Financial Institutions
Insurance
Other
Total
Employment- Average Cost
Output Coefficient
of Job
Estimate
Estimate
(person)
(person)
660
487
300
47
114
20
16
10
297
119
250
220
121
179
146
161
70
9
164
97
98
28
338
58
349
46
205
66
182
105
230
96
114
66
75
32
78
111
132
62
363
369
62
27
208
11
89
59
1,650
0
202
379
991
353
300
124
28,625
34,971
17
8
425
298
299
163
83
67
386
601
972
974
43
35
10,133
23,589
48,788
64,046
Effects on Capital Formation
Table 3.7 shows that, on average, the partial multiplier of the injection of the Coca-Cola system
on capital formation (capital depreciation) is 0.17. This implies that about 17 percent of bottling
system purchases transfer into new capital formation. The table lists the industry-specific impacts. Note that the partial multiplier for capital depreciation in coal/mining, electricity, synthetic
38
Table 3.7. The Multipliers of Capital Depreciation, Labor Income, and Tax Revenue
(Units: 1000 RMB)
Code
Industry
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
Coal/Mining
Water
Sugar
Knitting Mills
Wood Products
Paper
Injection
(∆
∆ y)
21,247
14,030
764,370
449
5,548
252,644
16,009
Culture, Education, Sports, Arts
Electricity
50,005
Gas
1,130
Basic Chemicals
33,057
Chemicals, daily use
1,160,904
Synthetic Chemicals
2,234
Other Chemicals
80,292
Plastics, production use
24,031
Plastics, daily use
1,040,917
Glass Products
25,482
Metal Products
5,751
Metal Machinery
1,211,155
Special Industrial Equipment
13,110
Other Special Equipment
181,757
Motor Vehicles
114,712
Household Electronic Appliances
8,093
Computer
16,514
Machinery Maintenance
32,600
Scrap Waste
2,152
Construction
6,096
Rail, Freight, Transportation
11,757
Communication
11,999
Commerce
709,918
Air Passenger
14,437
Real Estate
581,191
Educational Services
5,753
Cultural Services
174,996
General Technical Services
1,209
Financial Institutions
94,456
Insurance
10,133
Other
1,463,639
Total
8,163,777
Additional
capital depreciation
(∆
∆ D)
24,884
7,147
50,050
304
1,448
25,140
1,693
76,190
603
15,476
35,309
32,754
4,541
12,016
41,936
4,832
1,097
56,256
4,606
7,453
11,583
635
973
3,049
0
1,266
34,094
12,812
73,592
1,930
365,030
1,750
14,933
10,837
24,203
1,203
407,385
1,369,009
Additional
wage income
∆D/∆
∆Y
(∆
∆ w)
∆w/∆
∆Y
1.17
0.51
0.07
0.68
0.26
0.10
0.11
1.52
0.53
0.47
0.03
14.66
0.06
0.50
0.04
0.19
0.19
0.05
0.35
0.04
0.10
0.08
0.06
0.09
0.00
0.21
2.90
1.07
0.10
0.13
0.63
0.30
0.09
8.96
0.26
0.12
0.28
0.17
51,695
4,739
46,430
565
3,488
37,381
7,401
25,727
772
17,327
66,797
16,427
10,788
10,821
75,979
7,838
4,880
135,694
10,803
21,218
19,440
1,297
1,364
6,183
0
10,246
20,715
9,722
301,259
1,337
47,112
8,654
43,802
40,584
92,182
4,083
1,795,606
2,960,358
2.43
0.34
0.06
1.26
0.63
0.15
0.46
0.51
0.68
0.52
0.06
7.35
0.13
0.45
0.07
0.31
0.85
0.11
0.82
0.12
0.17
0.16
0.08
0.19
0.00
1.68
1.76
0.81
0.42
0.09
0.08
1.50
0.25
33.57
0.98
0.40
1.23
0.36
Additional
tax revenue
(∆
∆T)
∆T/∆
∆Y
-13,082
1,259
70,132
368
1,936
32,878
3,203
51,193
217
21,301
134,776
53,260
8,406
11,251
46,650
8,666
2,546
73,134
6,278
14,225
26,007
1,402
1,224
1,886
0
1,470
6,424
2,052
18,225
756
25,808
27
4,326
3,446
52,837
4,299
524,854
1,203,639
-0.62
0.09
0.09
0.82
0.35
0.13
0.20
1.02
0.19
0.64
0.12
23.84
0.10
0.47
0.04
0.34
0.44
0.06
0.48
0.08
0.23
0.17
0.07
0.06
0.00
0.24
0.55
0.17
0.03
0.05
0.04
0.00
0.02
2.85
0.56
0.42
0.36
0.15
chemicals, rail-freight-transportation, communication, and general technical services is greater
than one, meaning that these sectors are more capital intensive.
Effects on Labor Costs
Table 3.7 indicates that about 36 percent of the initial injection from the bottling system formed
additional wage income. Among all of the specific industry impacts, coal/mining, knitting mills,
synthetic chemicals, construction, rail-freight-transportation, education services, and general
technical services appear to be more labor intensive. Here, the partial labor cost multiplier in
these industries is greater than one. Note that the labor cost share is the highest of all the additional national income resulting from the Coca-Cola system. This indicates that Chinese labor
39
benefited most from the bottling system. Defining the labor-cost multiplier as the ratio of final
increase to the initial labor expense of the injection, it follows that the multiplier is about 3.5.
Effects on Tax Revenue
Also shown in Table 3.7 is the contribution to government tax revenue. This reveals that 15 percent of additional purchases by the Coca-Cola system would be transferred to government revenue. If we add this contribution to the direct tax payment described in Table 3.1, then it is clear
that the Coca-Cola system would generate about 1.6 billion RMB in tax revenue annually for
Chinese government. Observe also that the final tax revenue share of national income (1.2 billion
RMB) is more than 3 times that of initial tax payment of the bottling system. In other words, the
tax multiplier (defined as the ratio of final tax contribution to the initial tax payment) is over 3.8
Conclusion
The results presented in this chapter reveal that the direct economic impact of the Coca-Cola
system’s capital and operational expenditure is about 8.16 billion RMB. The direct labor cost is
around 0.855 billion RMB, while the direct tax payments are estimated to be 0.387 billion RMB.
It is estimated that the Coca-Cola’s system’s expenditure on capital, production inputs, and the
operational expenditures (8.16 billion RMB) produced 21.4 billion RMB in intermediate output
in China, implying that the indirect multiplier for the GDP is about 2.66. The total multiplier (direct plus indirect divided by direct) is 3.66. This is relatively large, but not surprising.
Moreover, the impacts are given for capital formation, tax revenue, and employment. The
total tax revenue indirectly increased by the bottling injection is 1.2 billion RMB in 1998, which
is more than 3 times the tax directly paid by the bottling system to the government.
The analysis approached the complex task of estimating the far-flung operations impacts
of the Coca-Cola system through careful crosschecking by alternative methods. It is estimated
that Coca-Cola production alone buttresses the country’s employment base by about 400,000
through upstream and downstream activities. This yields an employment multiplier (the ratio of
direct and indirect jobs divided by direct jobs) of 30. These figures suggest that strong employment linkages have been forged, with an extensive network of employment throughout the Chinese economy.
The employment multiplier effect in China is considerably higher than that found in other
countries. The Eastern Europe and South Africa studies found the employment multiplier effect
was about 11 total jobs supported by each direct job in the bottling system. 9 No doubt, the high
aggregate number of jobs associated with the Coca-Cola network and the notably strong multiplier effect reflect the more labor-intensive Chinese economy. They also reveal that almost all
employment associated with Coca-Cola lies outside the bottling system in other businesses in the
Chinese economy at large. These impacts stemmed from both upstream and downstream linkages to the bottling system. The earlier research suggests that the downstream linkages of softdrink production play a particularly pivotal role in emerging markets. These effects may have
been actually underestimated in this study. Even so, the results suggest that the soft-drink bottling cluster stimulates a strong chain reaction that leads to multiple benefits for local economies.
40
In an emerging market economy like China, many impacts cannot be precisely quantified.
The next chapter discusses the qualitative impacts of the Coca-Cola system, those not addressed
by multiplier analyses.
1
Three I-O tables are available in China: the inter-industry value flow I-O table, the direct consumption coefficient
I-O table, and the whole consumption coefficient I-O table. This research mainly relied on the direct consumption
coefficient I-O table, but some calculations (in particular, tax and employment multipliers) also draw on the interindustry value flow and whole consumption coefficient I-O tables. There are 118 sectors in the I-O table, with all
unspecified industries in the bottling survey aggregated into the term of “others”.
2
Imports do not count as local purchases that lead to further impact in the model and, therefore, were excluded from
the economic impact.
3
That is not to say that input-output analysis provides a complete general equilibrium account of any activity. The IO table lacks household and government accounts. Although it is possible to calculate tax revenue and labor income
from an input-output table, without a social accounting matrix (SAM), it is not possible to calculate how government
revenue and household income are re-spent. Only a SAM can compute the complete economic impacts of the bottling system on China’s economy. In short, the I-O model only estimates the principal direct and indirect effects of
Coca-Cola system—the major inter-industry relationships. Yet, the estimated multipliers are partial multipliers.
4
This distinguishes the direct effects from the term initial injection, for the latter not only affects the economy directly, but also will generate indirect effects.
5
Typically, it is reported that 100 million people worked in state-owned entities in 1997 (see chapter 1 of this report). Of the 100 million in SOEs, 53 million persons were on the payrolls of state-owned business enterprises.
Further, of the 53 million employed in business enterprises, 7 million were receiving wage payments, but unemployed. The number of unemployed SOE workers was calculated by taking the official number of unemployed SOE
workers (6 million) and adding the number of laid off workers (7 million).
6
The 8.5 percent is calculated as [(13 million /46 million)*0.30*100].
7
These are the results of vector-point-product; i.e., the point multiplication between the whole consumption coefficients of GDP, wage, taxes, capital depreciation, and the total impacts of the Coca-Cola system on the industry output. The proof for this method justification is given in Appendix B, the technical appendix, to this report.
8
Note that the additional tax revenue from coal/mining is negative. This reflects the fact that, in 1992 when the
China I-O table was constructed, the Chinese government subsidized the sector of coal/mining.
9
Division of Research (1995); Division of Research (1998).
41
42
Economic Impact of the Coca-Cola System on China
Chapter 4: Qualitative Impacts
Winds of Change
After several decades of soaring economic growth resulting from a market-led transformation,
China faces serious economic challenges in the immediate years ahead. Chinese leaders have begun to implement far-reaching new enterprise, banking, and government reforms. In addition,
they are preparing to introduce greater competition in many sheltered areas of the economy, including services like wholesale, retail, transportation, and foreign trade. These reforms will bring
about dramatic changes in the structure of the Chinese economy. They will also force unprofitable enterprises to close, causing worker layoffs to soar. China’s central challenge will be to find
ways to stimulate economic growth and create new jobs in vibrant sectors of the economy, and to
redirect and retrain workers.1
Chinese accession to the World Trade Organization (WTO) will significantly alter
China’s handling of external trade and foreign investment. Although accession negotiations are
continuing as this study is going to press, details of China’s commitments to major trading partners who are members of the WTO indicate the scope of the changes China will undertake.2 In
preparation for the WTO, China has signaled that it will move toward transparency in legal and
commercial activities, publicizing the rules that guide and regulate business, and eliminating
many rules that treat foreign-based and domestic firms differently, including mandatory export
requirements, required foreign-exchange balancing by foreign-invested enterprises, and minimum local-content mandates. China will also permit foreign companies to offer services like
wholesaling, retailing, transporting, and advertising. Other services like accounting, engineering,
construction, insurance, and financial services will also permit foreign participation upon Chinese accession to the WTO. China will reduce import tariffs, eliminate non-tariff barriers to imports (like quotas), and allow foreign companies to handle import and export transactions, rather
than being forced to use authorized Chinese trading corporations to handle external business
dealings. China's leaders hope these changes will attract direct investment to China. As foreign
firms are permitted to participate in heretofore closed sectors of the Chinese economy, international-local linkages are certain to expand, especially links between local firms and those based
in Western Europe and North America.
The Coca-Cola example points to possible benefits to China of these multinational-local
linkages. This chapter examines Coca-Cola’s contribution to the future of Chinese development
in areas not captured by the multiplier effect. The impacts of the Coca-Cola system on market-
43
based economic development are viewed through a qualitative framework based on the PorterDunning concept of economic development.
Understanding the determinants of a successful enterprise system and the impact of
Coca-Cola on market-based development is crucial because China has only partially made the
transition to a market economy. So far, the country has pragmatically treaded into globalization,
carefully “feeling the stones as it crosses the river,” to use Deng Xiaoping’s phrase. But China is
going to be swept into major economic restructuring with both the reform of SOEs and marketopening measures mandated by the WTO.
Some scholars predict that many local Chinese companies will no longer be competitive
in the home Chinese market. Peter Nolan, Cambridge University’s renowned expert on the Chinese economy, in conjunction with economic analyst Wang Xiaqiang, recently studied Chinese
companies’ ability to adjust to accession to the WTO. The analysis shows that Chinese SOEs
have made tremendous progress since liberalization began in the late 1970s. Nevertheless, at a
seminar held in Beijing in late 1999, Professor Nolan stated, “The pace of progress in the business capabilities of the world’s leading firms is so great that it is hard to imagine any strategy
that could lead to a successful catch-up.”3
As in all market systems, there will certainly be successes and failures in the new enterprise system that unfolds in China. This study examines only a single business system, with a
number of unique characteristics. However, based on the field research on Coca-Cola, one can at
least conceive of a catch-up strategy. First, it is necessary to abandon leading versus lagging, local versus foreign, us versus them dichotomies. Mutual gain, one of the oldest concepts in economics, is often the product of enhanced competition. One of the odd features of globalization in
the early 21st century is that leading international firms need strong local partners as much as
local partners need ties to the most advanced enterprises.
The Coca-Cola system indicates the extent to which a leading global firm and local businesses can mutually elevate economic development in China. Through close interaction among a
variety of stakeholders, the system introduces high competitive standards throughout China’s
provinces.4 No one would dispute that Coca-Cola is a leading firm in China, and not just in beverages. The influence of this one business system is significant, as it is pervasive and well
known. Indeed, the Third Survey of Consumer Attitudes and Lifestyles5 in the People’s Republic
of China discovered that Coca-Cola is the Most Recognized Brand. Conducted by The Gallup
Organization, the survey found that 82 percent of Chinese consumers had heard of Coca-Cola. In
1999, Fortune China ranked Coca-Cola as the Most Admired Company in China.
That Coca-Cola’s participation in the Chinese beverage industry has boosted efficiency is
undeniable. Previously, the SOEs in the beverage industry were clearly not close to world efficiency standards, even if they thought they had high “efficiency” rates according to their calculations.6 But Coca-Cola found, upon entering into joint ventures with these Chinese factories,
that the beverage SOEs had been falsifying efficiency rates. Actual efficiencies were not improving—and even may have been deteriorating—but managers had “tweaked” the rated speed
of equipment (the denominator) to inflate the performance rate.7 The actual efficiency rate in
most Chinese bottling plants that became part of the Coca-Cola system was initially on the order
44
of 40 percent. The efficiency rate has turned around
dramatically after Coca-Cola began to introduce systematic ways of measuring efficiency and to reinvent
basic business systems from the ground up in its bottling facilities in China, drawing on “best practices”
and benchmarks based on experience in the United
States, Taiwan, and Hong Kong.
The efficiency brought to the country since
Coca-Cola’s investments in the 1980s shows up as
lower costs in the beverage industry. Production costs
of non-alcoholic beverages have plummeted with
Coca-Cola’s involvement. The industry has significantly upgraded distribution as well.8 Improving the
distribution chain can reduce prices to the final consumer. Moreover, the Coca-Cola system’s efficiencies
extend not only to the direct customers, but also to ancillary Chinese businesses. Although measuring the
impact of these efficiencies is difficult, interviews with
bottlers, suppliers, and retailers (which formed the basis
of this chapter’s findings) suggest that the gains are
palpable.
Just as it is in China’s long-run self-interest to
introduce higher standards of production and distribution, it is in Coca-Cola’s interest to take the full range
of stakeholders in China seriously during this next
wave of globalization. The system has important local
stakeholders beyond those counted in the employment
calculations presented in Chapter 3. This chapter will
show that the viability of Coca-Cola as a successful
cluster will depend on support to and from Chinese
consumers, state-owned enterprises, supplier businesses, the emergent entrepreneurial sector, and government. The underlying theme of this chapter is that
China will develop in a more competitive world by
forging bonds among these stakeholders through mutual advantage. This notion is explored fully in the next
section.
Competitive Enterprise and Mutual Advantage
For China to flourish rather than wither in today’s
globalized economy, it must become more competitive.
Yet, how is competitiveness, admittedly an elusive
term, defined? Recent case studies of competitive busi-
45
Globalization From Below:
Coca-Cola in Harbin
". . . globalization emerges from below, from
street level, from people's very souls and
from their very deepest aspirations."
—Thomas Friedman, 1999, p. 285
In addition to its long, cold winters and the
aurora borealis, China’s northernmost province (Heilongjiang) boasts Coca-Cola’s successful pushcart program in Harbin, the province’s capital. As China restructures, jobs must
be generated to absorb unemployment. The
pushcart program is an example of jobs creation without draining scarce government
funds.
In each city, China’s Administration for
Industry and Commerce approves the pushcart
project, provides licenses, and authorizes
pushcart-operating territories. With the support of local police and Harbin’s mayor, the
Harbin program began as a test in 1997 and,
due to its success, extended to the nearby city
of Jiamusi in 1999. The objective of the Harbin Coca-Cola Beverage Company pushcart
program was twofold: (i) to increase sales and
(ii) to support local government efforts to reduce unemployment.
To achieve its objective, the bottler trains
Harbin’s residents as pushcart operators
(salespeople). In addition, to equip each newly
trained vendor, the Harbin bottler provides
pushcart, ice chest, sun umbrella, Coca-Cola
T-shirt, and 10 ice packs. The investment to
date in the Harbin pushcart program is about
1.5 million RMB.
The pushcart sales force reached one thousand in 1999; 700 in Harbin, and 300 beginning operations in the city of Jiamusi. Pushcart
sales in 1998 were more than 100,000 unit
cases of Coca-Cola returnable bottle products.
The average monthly income per salesperson
of 600 RMB (7,200 RMB annually) is
equivalent to or greater than that of most factory workers.
Beyond the pushcart program, other Harbin
entrepreneurs have built retail businesses
around Coca-Cola. Surveys of Harbin vendors
show that 21 percent of owners of retail shops
and restaurants had been unemployed before
starting their ventures.
ness development have often turned to an analysis advanced by Harvard economist Michael
Porter.9 In Porter’s framework, competitive economic development is rooted in private businesses that continually innovate and respond to market opportunities. Besides the multiplier effects and economic linkages discussed in the last chapter, impacts here arise from cost savings,
upgrading managerial and labor force skills, and better marketing/customer relations. These effects cross many industries and embrace other stakeholders, including consumers and government. A business system’s impact shows up through competition, productivity, new business
formation, and innovation. It shares common concerns and opportunities; the local businesses
and institutions that constitute a cluster succeed through mutual interests.
In Porter’s view, a competitive business’s viability rests on four pillars: demand conditions; resource (factor) conditions; firm strategy, structure, and rivalry; and related and supporting industries. These four variables are, in turn, affected by exogenous forces: chance and government. Each element in the “Porter diamond” spurs competitiveness. Consider demand conditions. As private enterprise viability is determined by meeting consumer preferences, demand
can be fundamental in the development process. Demand conditions in the domestic economy
spur a cluster to develop to world standards. Consumers communicate through markets—with
retailers and other points of sale. Discerning and sophisticated consumers push business to improve both products and efficiency. Of course, the proper resources must be there for the enterprise to succeed. Critical, often scarce resources are skilled labor and managerial talent. A viable
cluster also depends on a strong supplier network. A full complement of local suppliers helps
anchor a cluster in the local economy and engender strong multiplier effects. Finally, competitiveness requires real market rivalry: the particular nature of firm strategy and market structure
can spur or deter productivity, efficiency, innovativeness, and new business formation.
Figure 4.1 places Coca-Cola within a simple Porter framework that will guide the discussion throughout the rest of this chapter. At the outset, it should be stressed that the beverage
cluster is embedded in the packaged consumer goods cluster. In
Demand
any case, a cluster’s competitive
Distrisuccess affects and is affected by:
Consumers Vendors
butors
•
•
•
•
Local demand;
Local supply;
Local resources; and
Local market conditions.
Because the elements in
the model are mutually reinforcing, a change in one can cause the
entire environment to adjust.
Thus, it is in the interest of the
Coca-Cola system to recognize
its stakeholders in each of the
elements that form a successful
local structure. For local demand
conditions, the stakeholders are
Educational
System
Resources
Multinational-Local
Enterprise
The Coca-Cola
System
Local Enterprise
Labor
Supply
Stakeholders
National
Government
Market
Structure
Local
Government
First Tier Ancillary
Suppliers Suppliers
Figure 4.1: Coca-Cola in a Porter Framework.
46
consumers and local vendors. First-tier suppliers are clearly the stakeholders for the local supply
conditions. Ancillary suppliers’ fortunes are also connected to the cluster’s success, as they are
through the economic multiplier linkages covered in Chapter 3. Local resources (or factors) can
be everything from natural endowments of raw materials to unskilled labor and management. For
Coca-Cola, the stakeholders related to local resources are primarily the labor force and the educational system. The market conditions’ stakeholders are local and national government policy
makers. Indeed, in analyses of stakeholders and developmental responsibility, government is
portrayed as the “overarching” stakeholder of an enterprise network.10 In China, as elsewhere,
the government acts as market stimulator, market regulator, and even market participant. At the
same time, the Coca-Cola system, as described in previous chapters, is a stakeholder for local
Chinese identified in Figure 4.1.
The traditional Porter framework has several limitations for the purposes of this analysis.
One problem is that it tends to look only at enterprises that promote export competitiveness.11
Yet, the four categories are also useful in examining the competitive character of domestic clusters vis-à-vis global standards. Exports matter; but, in a transitional economy like China, clusters
that support domestic market development are crucial as well. Even in Porter’s original work,
outward competitiveness in national economies depends on domestic rather than global demand
conditions.
The traditional Porter case study analysis also failed to recognize the role of leading
global firms and international-local linkages. Successful global businesses can be crucial to economic development in a more competitive China. A select group of global companies possess
attributes—technology, brand name, and management skill—that are important to a competitive
cluster. There are close linkages between the firms in surrounding business systems and the core
companies. These core companies are imbedded in the competitive development process, as Figure 4.1 depicts for Coca-Cola.
John Dunning, a leading international business scholar, has forcefully argued, based on
over 40 years of research, that multinational enterprises can have a profound effect on economic
development. Professor Dunning’s work, along with a large body of literature on international
business, suggests that multinational business should be added as a central variable in any model
of competitive development in the 21st century.12 Today, it is hard to exaggerate the role of foreign involvement as a key driver in developing competitive economies.
The evidence backs Dunning’s theory: to commit significant investment and succeed in a
foreign market, multinational businesses must possess core competencies—distinct competitive
advantages that compensate for the lack of knowledge about local markets and customs. Advanced international systems like Coca-Cola’s can overcome barriers to development, such as
supply shortages or poor distribution infrastructure, which hinder less competitive enterprise
systems.
Global competencies create reciprocal advantages for the enterprise and stakeholders.
The enterprise’s competitive edge—superior marketing, organizational skill, technology, or other
specific advantage—allows it to survive in the era of global competition. Yet, previous chapters
showed that The Coca-Cola Company does not operate from a single business system, but as a
47
set of alliances. Acting alone would pose serious political, logistical, cultural, and linguistic barriers. Almost any Western-based entrant to China possesses, at best, a secondary knowledge of
local economic and political systems. Chinese partners, that is, all stakeholders mentioned earlier, offer a means to obtain critical local knowledge and overcome initial investment hurdles. At
the same time, Chinese partners gain by assimilating the technical, organizational, and managerial advantages of an advanced international business system. The rapid development of an integrated market economy based on competitive firm behavior motivates Chinese businesses to
seek alliances with global standard bearers like Coca-Cola. The mutual advantage of local and
non-local firms underlies the 1993 agreement between Coca-Cola and China to develop the softdrink industry, just as it will no doubt underlie future developments.
The Coca-Cola case of competitive development is worth close inspection because the
enterprise system plays a vanguard role in developing the cluster of industries that centers on the
beverage industry and packaged consumer goods. Moreover, the beverage cluster is part of a
wider consumer goods cluster, which has helped reestablish a market-driven business culture in
China.
The Coca-Cola case is particularly interesting because it shows the reciprocal and interactive nature of multinational-local relationships. That is, it shows that, just as a multinational’s
presence in China helps transform the Chinese economy, a multinational’s success in China depends on its ability to respond to the unique local conditions in China. As foreign investment in
China grows, possibly accelerated by China’s membership in the WTO, this becomes increasingly relevant to China—and to foreign investors. Ultimately, successful cooperation in the new
Chinese economy will require a close working relationship between the foreign and local enterprises. To prosper, the industries that make up the value chain must link through market transactions and contractual obligations. They must also transfer knowledge and expertise: international
to local and vice versa. This process will propel important segments of the Chinese economy,
including SOEs, toward the productivity levels of developed market economies.
The next four sections provide details of research into the determinants that sustain a viable competitive global-local enterprise system in China. Although the terminology varies
among analysts, the Porter-Dunning framework breaks down into some well-known concepts
found in every economic principles book: supply and demand, resource availability, and the nature of market conditions. The sections that follow probe each of these principles in light of the
current Coca-Cola system’s operations in China. Insights into the business were gleaned through
numerous interviews in China and from surveys conducted in different provinces. The discussion
begins with demand and then moves to supply, resources, and competition.
Demand Conditions
Among all the fundamental changes in the Chinese economy, the most radical is the change from
central planning to decentralized markets. Consequently, over the past 20 years, the amount and
variety of consumer goods in China has multiplied at an astounding rate. Brand consciousness
has taken hold where there was virtually none in the late 1970s. As consumer products have proliferated, tastes have become more discerning. Chinese consumers desire local products, foreign
48
products, and new products not found elsewhere. In
some ways, Chinese awareness of and interest in
new products now exceeds that of consumers in traditional market economies.13
Consumer goods industries with strong international-local links have spearheaded changes in the
demand structure of China. International consumer
goods companies like Coca-Cola focus on creating
and fulfilling consumer demand. Traditionally, domestic SOEs have focused much more on the production process, paying relatively less attention to
demand and distribution systems. Even in the early
1990s, the bulk of products distributed in China was
handled by state-owned enterprises. SOEs that
formed joint ventures with the Coca-Cola system
often began, for the first time ever, to promote market development and distribution.
Family-Based Business Sprouts
in Guangdong
Guangdong Province is well known for its
entrepreneurial drive. This drive shows up in
the Coca-Cola system. One entrepreneur is a
beverage wholesaler in Guangdong province.
In addition to seeing his revenue triple since
becoming a distribution partner with
Coca-Cola, this wholesaler believes his reputation among retailers and wholesalers has
risen. Coca-Cola’s business has provided him
with routine, direct service to retailers. This
has, in turn, boosted his sales of a variety of
products—not just soft drinks. His relationship with the local Coca-Cola bottler has
made him eager to expand to other geographic areas where there is no direct store
delivery service.
This partner also believes that
Coca-Cola’s business has fostered his son’s
interest and involvement in the business.
Thus, he credits Coca-Cola with not only increasing his profits but also helping his son to
become an astute businessman.
Distribution is evolving along with the market. In the 1980s, a large number of consumers
wanted to buy Coca-Cola; the distribution system,
however, was limited, and the wholesale sector was
almost entirely state-owned. Interviews with Coca-Cola personnel in China suggest that, in the
early years of investment, effective consumer demand for Coca-Cola products far exceeded supply in China. There was little local competition in the beverage business. (For many years, carbonated soft drinks were limited to orange soda.) Also, there were few foreign consumer products available in China.
In this historical context, China’s distribution system was very passive. In other words, a
wholesaler simply waited for the business to come. This is called zuo shang (sitting commerce).
Demand for consumer goods so greatly exceeded supply in the 1980s that bottlers and other
manufacturers did not need to worry about selling or distributing their products. Consumers
asked retailers for Coca-Cola; retailers in turn asked wholesalers for Coca-Cola products. Retailers prepaid orders in cash—up to three months in advance. As a consequence, wholesale distribution became very lucrative, and many Chinese chose to enter the wholesale business. Then, as
wholesalers multiplied in number, their margins shrank. More recently, competition in the
wholesale business has forced wholesalers to become more active in selling products.
Interviews with Coca-Cola system managers reveal that the Coca-Cola system has directed significant resources toward developing its Chinese sales network. In the early 1990s, the
effort concentrated on major cities: Beijing, Tianjin, and Shanghai. In the late 1990s, the distribution effort has expanded to other large cities and smaller cities, as well as into the countryside
where the brands are sold. This distribution diffuses modern practices throughout the consumer
goods cluster.
49
In many countries, Coca-Cola handles distribution primarily through “direct store delivery” (DSD), using its own sales centers, trucks, and sales and delivery staff to sell and deliver
soft drinks to retail outlets and restaurants. In the DSD approach, sales are to retail establishments, not to wholesalers. This approach works well in developed markets, where consumers
buy a very high volume of sodas, customers have cars so they can buy a case or two of soda at a
time, and supermarkets are conveniently located. Yet in China, cars are not the norm, “supermarkets” are in their infancy, those that exist are often far from consumers, and per capita consumption of soft drinks is low. Consequently, The Company has had to develop a novel distribution system that brings Coca-Cola products to where consumers are able to make their purchases.
As a result, DSD covers only about 20 percent of sales in China; it is only one among many
methods of getting Coca-Cola products to Chinese consumers.
The Coca-Cola Company and its bottlers plan distribution by starting with the consumer
and where he or she purchases the Coca-Cola product, then determining a tailored and flexible
approach to getting products into the markets where they are in demand. In China, the vast
majority—70 to 80 percent—of product is distributed through wholesale outlets. Even in large
cities, where Coca-Cola has a significant presence and may have a bottling plant, many retailers
get the product from small wholesalers, rather than directly from bottlers. This means that there
are many workers involved in distribution who are not tied to Coca-Cola bottlers.
However, the bottling system does own and manage warehouses and hire “direct store
delivery” personnel. In a large city with a warehouse, Coca-Cola might have 40 to 50 sales
people and 10 to 20 trucks handling distribution to smaller warehouses and to retail outlets. In
second-tier cities (for example, Weifang, Zibo, and Yantai), the system usually includes a sales
center and warehouse facilities along with a truck delivery fleet. In some cases distribution emanates from a sales center at the bottling plant. From the sales center, Coca-Cola representatives
visit customers every day to take orders. Typically, products will be delivered to these customers
within 24 hours of the order. In a bottling plant employing 1,000 people, roughly 400 would
likely be involved in sales and distribution.
Even in the large cities where Coca-Cola has a presence (that is, a bottling plant,
warehouse, or sales center), local wholesalers play a key role. For example, within central
Beijing alone (inside the fourth ring road), Coca-Cola serves 40,000 to 50,000 retail outlets, but
is only able to reach 1,000 to 2,000 of these through DSD. The rest must be reached through
wholesale distributors.
The system relies on local wholesalers and warehouses in cities where it does not have a
sales center. In smaller cities, the system often works with private individual distributors. As all
market actors are motivated by incentives, not surprisingly, distributors are given incentives to
help meet or exceed sales targets.
50
China’s wholesale network is a very fluid one;
it will see even greater changes when China allows
more competition in the sector and opens to foreign
participation in wholesaling.
Throughout China wholesale enterprises take
three forms. The first is the state enterprise, Tang Yan
Jiu Gongsi, which are basically sugar/tobacco/wine
companies that have retained a right to distribute these
items. Tang Yan Jiu Gongsi have been around since
the 1950s. Second is the privatized (formerly staterun) distribution companies. Like former state-owned
factories, these companies have been separated from
the government. Entrepreneurs who previously
worked in the state-run wholesale/distribution business usually run them. Finally, there are individual
private entrepreneurs in wholesale (Ge Ti Hu).
Ten years ago, most wholesaling took place
through state enterprises, but the system is changing.
In more developed markets (such as Guangdong and
Zhejiang Provinces), the share of distribution handled
by privatized formerly state-run companies has grown
over the past 5 years. In less-advanced provinces (for
example, Henan, Shanxi, Anhui), this segment of
wholesale is only now beginning to take off. Today,
private entrepreneurs are also appearing, to varying
degrees, throughout the wholesale trade sector. The
percentage of product being delivered through individual entrepreneurs is growing as the SOE share of
the wholesale sector shrinks.
Building Better Businesses
Henan Province, considered the cradle for
China’s 5000-year civilization, is today a hotbed of entrepreneurial activity. Coca-Cola has
worked with small, private enterprises to take
advantage of this awakening spirit.
Coca-Cola’s distribution partners epitomize
the benefits of association with Coca-Cola:
enhanced company reputation, expanded (and
consolidated) sales network, and increased
knowledge of management strategy.
One distribution partner in Xinmi explained how his business has grown since his
association with Coca-Cola several years ago.
Early in the relationship, the Xinmi partner’s
business included fast food, audio/visual
equipment, and other activities. Recognizing
the business potential for developing a CocaCola delivery network in Xinmi and with confidence in his future with Coca-Cola, the
Xinmi partner is now solely committed to
Coca-Cola.
Along the lower reaches of the Yangtze
River in Jiangsu Province, a small wholesaler
is a distribution partner. Owing to his relationship with Coca-Cola, the Gaochun partner, who also sells alcohol and beverages, has
expanded his sales network, especially in rural areas. He believes Coca-Cola has
equipped him with business management
skills that serve as a solid foundation for his
future. Moreover, like other distribution partners, he credits his association with
Coca-Cola for the enhanced image and profitability of his company.
No doubt, in the future, direct store delivery
networks will expand in China (as they have elseAs insurance against the loss of the staterun tobacco monopoly of which he is part, the
where in Asia) in part through sales centers. However,
Gaochun partner has found new sources of
it is not clear that DSD will ever be the mainstay of
revenue in Coca-Cola. His dealings with
Coca-Cola’s distribution system in China. Pointing to
Coca-Cola have taught him about the distriCoca-Cola’s flexible localization, Company execubution of products in a market economy.
tives and managers indicate they serve consumers in a
variety of ways in different provinces and cities of China. In some cases, the DSD approach will
work, as it has in other countries, with sales centers, a sales staff, and trucks. In many parts of
China, this may not be best option, however. Obstacles to direct store delivery include managing
the operation; establishing systems (financial control, tracking sales, etc.); and cost (to rent
warehouses, buy trucks, and recruit staff).
51
Another creative approach is to design a distribution system specifically around the final
consumer. In China, Coca-Cola often reaches consumers through local Chinese distributors, who
have greater knowledge of wholesaling in China and deep familiarity with the localities in which
Coca-Cola products are sold.
To succeed, Coca-Cola, like all enterprise systems, must tap into the entrepreneurial drive
that is manifest in China’s distribution sector. The Coca-Cola system has attempted to support
and stimulate entrepreneurial activity by establishing partnerships14 with small-scale Chinese
distributors. These one-person enterprises make money on each case sold and may make a commission on sales. The individual may advise the system on approaching the local market. Partners really know the demand conditions in the local villages. An example is a local fair or celebration. The partner may personally know the customers at the fair and how beverage products
might be able to be featured there. The partners then see that soft drinks are served at the events.
Thus, the business is built “from below.”
Just as it is clear that Coca-Cola needs local partners, the system provides benefits beyond financial. Some partners receive sales technology needed to advance their business, including software to track sales, deliveries, and payments received. This technology transfer to
local entrepreneurs allows them to enhance their sales and delivery efficiency.
Essentially, individual local distribution partners—grassroots stakeholders in the cluster—may make sales and deliveries at a lower cost than the system’s larger distributors. Local
partners lease the trucks for the day or days that they make deliveries, rather than buy them; they
rent warehouse space cheaply, knowing where and how to do so in the community. From the
perspective of developing local clusters, it is important to recognize that the affiliates sell products other than Coca-Cola soft drinks. Over time, these entrepreneurs may develop into major
wholesalers, as some already have.
At the same time, the structure of the demand system—and the characteristics of the final
consumer—is changing. There is a need to constantly re-evaluate how the distribution system
will bring the brands to where consumers are able to make their purchases. If global market
trends take hold in China—spurred and reinforced by China’s commitments to liberalize the distribution sector within 3 years of becoming a WTO member—the greatest opportunities for distribution of consumer goods in China may be in supermarket chains and restaurants. However,
supermarkets in China still are often far from consumers and not nearly as important as they are
in developed economies. Nevertheless, consumption in bars/restaurants is growing at 15 percent
a year, much faster than in other channels. As Chinese consumers frequent restaurants more,
beverage demand is likely to grow. Schools and enterprises are also increasingly important customers for Coca-Cola and the beverage cluster.15
Servicing new markets also poses a challenge as demand grows across all regions of the
country. As Chapter 2 showed, Coca-Cola (like most global brands) does not regularly reach
Chinese consumers in the interior and poorer provinces—which account for about 20 percent of
China’s population. The distribution infrastructure to rural areas of all provinces remains underdeveloped. Contrary to common perception, however, there are market opportunities in the
poorer rural provinces. Aggregate statistics often are misleading in an economy the size and di-
52
versity of China’s. The reality is that in regions with an average per capita income of 2,000 RMB
per year, there is a core group of consumers for carbonated soft drinks.
Demand for Coca-Cola is strong across all provinces surveyed for this study. Tsinghua
University surveys of over 400 grocery stores, restaurants, and other vendors in Shanghai, Harbin, Guangdong, and Xian found Coca-Cola products are important in the business (see Appendix C, question 20). This was especially true in the Shanghai survey. Most respondents agree that
“demand for products of Coca-Cola is very large,” ranging from 67 percent of respondents in
Harbin to over 80 percent in Guangdong (see question 5, Appendix C).
Coca-Cola’s support for the burgeoning domestic trade sector allows for more variety in
the consumer goods. Most points-of-sale (for example, small shops and restaurants) carry other
products (beverages and snack foods) and deal with their customers on the distribution of all
these products. Some are formerly SOEs that have been privatized by the government or from
which certain employees spun off their own businesses. Others may have developed from private
small-scale entrepreneurs, selling such things as cigarettes, candy, and other high turnover products. Many distributors have worked with the Coca-Cola system for 10 to 15 years, although
their scale and scope may have changed during this time.
Selling Coca-Cola brands also provides spillover benefits. Field research shows that offering Coca-Cola products is a way for many outlets to attract customers. Most retailers agree or
strongly agree that “Coca-Cola products attract customers to the store,” according to the
Tsinghua University results (79 percent in Shanghai; 76 percent in Guangdong; 66 percent in
Xian, and 10 percent in Harbin). The vast majority of respondents also agrees or strongly agrees
that “When customers buy Coca-Cola products, they also buy other products (see Appendix C,
question 5). Vendors not only make margins on Coca-Cola products, but they make a profit on
purchases of other products. There is a symbolic effect resulting from Coca-Cola’s presence in
China. Coca-Cola serves as a prestige product that signals a certain global or first-tier status for
an enterprise. Thus, the distribution cluster develops: high turnover products like Coca-Cola provide vendors with income to help build inventories and stock less-frequently-brought products
like shampoo, soap, and other household necessities.
Another significant transformation in Chinese demand conditions, propelled in part by
Coca-Cola, is in advertising. In some respects, the modern advertising industry in China began
with Coca-Cola’s entrance. Known worldwide for sophisticated, high-quality, and highly successful advertising techniques, Coca-Cola brought these techniques to China, insisting on comparable quality being provided by Chinese advertising firms. Coca-Cola’s superior quality commercials quickly set the standard of excellence for the country. The same effects occurred with
outdoor signage and radio advertising. Not surprisingly, well over two-thirds of the vendors and
restaurants surveyed in Shanghai, Harbin, Guangdong, and Xian agree or strongly agree,
“Coca-Cola products have good advertisements” (see Appendix C, question 5).
To summarize, this section reviewed the qualitative dimensions of the downstream linkages. The cluster constitutes a complex distribution web—the wholesalers and other vendors, the
visible hand of the domestic trade sector. Importantly, these include entrepreneurial distribution
partners who sell the brands to retailers and small wholesalers and receive a small fee from the
53
Coca-Cola system for the services performed. In addition, there are independent small and large
wholesalers that hold inventories of Coca-Cola products, selling them directly to retailers or to
another tier of wholesalers. Some are SOEs in
various stages of restructuring. Distribution
stakeholders also embrace the many local retailers,
restaurants, and other enterprises that reach final
consumers. These businesses may help absorb
surplus labor as the restructuring of China’s SOEs
proceeds. On average, 28 percent of the owners of
the shops and restaurants in Harbin, Guangdong,
Shanghai, and Xian had been jobless before starting their ventures. Finally, there are the Chinese
consumers. The distribution side’s stakeholders
interact daily, tethering the whole business to consumer demand.
Supply Conditions
Just like the demand system, the real world of supply is dynamic. It involves real businesses interacting in a competitive framework, not faceless “upstream linkages” depicted in a multiplier
model. On the supply side, the Coca-Cola system creates externalities, or what economists call
“agglomeration economies”: a cluster of related and supporting firms yielding cost savings for
the core firms that rely on them. Coca-Cola plants draw on a network of input suppliers throughout the provinces.
Table 4.1 lists the enterprise type (joint venture, wholly foreign-owned enterprise, or local) and product lines for major packaging suppliers to Coca-Cola. The packaging suppliers,
which operate within the wider Chinese packaging industry, encompass about equal numbers of
international-local joint ventures and wholly local firms. Management at each plant is largely
responsible for maintaining the supplier network in packaging and other input industries. While
there is no list of captive suppliers nor pre-ordained relationship, the Coca-Cola system country
office monitors quality control and maintains a list of suppliers who can meet the Coca-Cola
system’s standards; it makes these available to the bottlers. Although independent, these suppliers obviously become close stakeholders. However, as in any supply cluster, the firms also have
Coca-Cola competitors as customers.
54
Table 4.1: Location of Packaging Material Suppliers
Location
Beijing
Fujian, Xiamen
Fujian, Zhangzhou
Sichuan, Chengdu
Liaoning, Dalian
Guangdong,
Guangzhou
Guangdong, Dongguan
Guangdong, Foshan
Guangdong, Huizhou
Guangdong, Sanshui
Guangdong, Shunde
Guangdong, Shenzhen
Guangdong, Zhuhai
Guangdong, Zhuhai
Guangdong, Zhanjiang
Hainan
Zhejiang, Hangzhou
Heilongjiang, Harbin
Supplier Type
Plastic Crate
Aluminum Can
PET
Plastic Closure
Label
PET
Paper Cup
Aluminum Can
Can End
PET
PET
Aluminum Can
Glass
PET
Aluminum Can
Can End
PET
Aluminum Can
Can End
3-pc Steel Can
Paper Cup
Can
Can End
Label
PET
Label
Aluminum Can
Can End
3-pc Steel Can
Plastic Crate
Crown
Paper Cup
Can End
Aluminum Can
PET
Plastic Closure
Label
Aluminum Can
Can End
Paper Cup
Glass
Label
PET
Plastic Crate
PET
Plastic Closure
PET
55
Enterprise Type
Local
JV
JV, Local
JV
JV
Local
JV
Local
Local
Local
Local
JV
JV
Local
JV
JV
JV
JV
JV
JV
JV
JV
JV
JV
Local
JV
JV
JV
JV
Local, JV
JV
WFOE (HK)
JV
JV
Local
Local
Local
JV
JV
Local
JV
Local
Local
Local
Local, JV
Local
Local
(Table 4.1, continued)
Jiangsu, Kunshan
PET
Local
Paper Cup
Local
Label
Local
Jiangsu, Nanjing
PET
Local, JV
Paper Cup
Local
Jiangsu, Suzhou
Label
WFOE (Taiwan)
3-pc Steel Can
WFOE (Taiwan)
Jiangsu, Taicang
Can End
JV
Jiangsu, Yancheng
Plastic Crate
Local
PET
Local
Jiangsu, Yanzhou
3-pc Steel Can
JV
Jiangsu, Yizheng
PET Resin
Local
Jiangsu, Zhenjiang
Aluminum Can
JV
Can End
JV
Guangxi, Nanning
PET
Local
Shandong, Qingdao
PET
Local, JV
Aluminum Can
JV
Can End
JV
Shanghai
Glass
JV
Crown
Local
Plastic Crate
Local
PET
Local, JV
Plastic Closure
Local
Label
Local
Aluminum Can
JV
Can End
JV
3-pc Steel Can
JV
2-pc Steel Can
Local
Paper Cup
Local
Shanghai
PET Resin
WFOE (Taiwan)
Liaoning, Shenyang
PET
Local, JV
Tianjin
Crown
JV
Plastic Crate
Local
PET
Local
Plastic Closure
JV
Aluminum Can
JV
Can End
JV
Paper Cup
JV, Local
Hubei, Wuhan
PET
Local
Aluminum Can
JV
Shaanxi, Xian
PET
Local, JV
Aluminum Can
JV
Shandong, Yantai
Glass
Local
Plastic Crate
Local
Henan, Zhengzhou
PET
Local
JV=Joint Venture; WFOE=Wholly Foreign-Owned Enterprise
Source: Coca-Cola China
56
It appears that in the bottling industry, China’s manufacturing infrastructure and equipment base is relatively advanced and stable. The ability of local companies to respond to the
needs of a leading enterprise system bodes well for the future. Since its entry, Coca-Cola has
worked through its network of suppliers and suppliers’ suppliers to upgrade the quality of production of PET, glass, aluminum cans, and other inputs. Most inputs are sourced locally. One of
the latest is resin, used to produce PET, which had been imported (mainly from Taiwan) into
China because there was no Chinese supplier. In 1999, two resin-producing factories came online in China: the Yijing Resin Factory (close to Nanjing, west of Shanghai). Coca-Cola approved this plant in 1999 as a supplier of resin for the one-piece PET bottles. Also, the Far Eastern Textile Group of Taiwan built a resin factory in Shanghai that opened in 1999. Whereas in
1998 all of the resin used by the Coca-Cola system was imported, one year later, 90 percent of
the resin was manufactured in China.
Quality is a special concern in the beverage cluster because the products are consumed so
frequently. Worldwide, Coca-Cola is reported to supply over a billion servings of its brands a
day. Quality became a great concern in China because a majority of factories before liberalization produced with primitive equipment without reliable laboratory facilities to monitor quality.
A 1991 survey by government health officials found that only 36 percent of domestic carbonated
soft drinks plants conformed to national technical standards.16
It is hard to overstate the importance of enhancing quality control in a transitional economy like China. Coca-Cola’s insistence on quality has spread through its linkages with suppliers.
To reduce costs, Coca-Cola has a policy of localizing as much of the inputs as possible. Yet in
the early 1980s, Coca-Cola was unable to locate any plant in China that produced glass bottles of
the minimum standards required by the company. Initially, all of Coca-Cola's glass bottles were
imported from Korea. Coca-Cola's headquarters in Atlanta sent a small team of glass technologists to China. They identified five state glass factories with relatively high technical levels and
provided free advice on how to raise the quality of their product. The bottles quickly rose to meet
the minimum standards. All of the factories began to export bottles and expanded their sales in
China, advertising that they meet Coca-Cola standards.
At the same time, maintaining quality control is a particular challenge in an environment
in which many new plants have been constructed in a short time (see Chapter 2). State-owned
industries were not accustomed to delivering quality goods for the domestic market, and the
central planning system regime rarely paid attention to quality. Even Chinese managers of
newly-formed or privatized businesses found rigorous quality control concepts to be alien to
their mode of thinking.
As was the case with glass bottles, Coca-Cola’s arm’s-length supplier policies were
modified somewhat in the early years of developing its renewed bottling presence in China. The
Coca-Cola country office gave assistance and sometimes encouragement to potential suppliers
that did not meet quality and efficiency standards. Suppliers were not left strictly on their own to
upgrade their production processes or products. Managers of Coca-Cola’s China bottling plants
recognized that local suppliers were important stakeholders and necessary to a successful enterprise system in the long run.
57
As the glass bottle case illustrates, being a supplier to Coca-Cola put a stamp of approval
on the ability of an enterprise to deliver a quality product. As the contract enhanced the reputation of the supplier, Coca-Cola stimulated additional business for some suppliers. For example, it
was well known that Coca-Cola demanded timely delivery. As a result, firms with Coca-Cola
contracts signaled to other businesses that they could deliver quality products on time. In turn,
they become important stakeholders in the competitive beverage industry.
A telling example of how a stakeholder develops in the supply system can be found in
Zhuhai, near Macau. The rise of a Chinese PET producer also tells much about entrepreneurial
activity and the rise of Chinese business competitiveness. Huang Le Fu started the Zhong Fu Industrial Group. As a teenager, Mr. Huang was a fisherman, organizing a local fishermen’s committee. But in 1971, when he was in his 20s, he took over a small plastics company whose business was to mend fishing nets. While the company grew slowly in the 1970s, as liberalization
proceeded in 1980s, the entrepreneurial drive of Mr. Huang led him to build a vast manufacturing and trade business. In 1980, Zhuhai became a special economic zone, and Mr. Huang saw an
opportunity to ride the wave of the economic reform. Close to Macau and Hong Kong, Zhuhai
enjoys a geographical advantage and thus garners information about global market opportunities.
In the early 1980s, the garment industry was developing rapidly in China, and Zhong Fu found
successful opportunities in making fiber material.
Soon the company also found opportunities as a supplier to the beverage industry. Zhong
Fu expanded into manufacturing PET bottles. Mr. Huang saw that the PET bottles in South
China were being imported from Macau, Hong Kong, and Taiwan. He found that the PET-bottlemanufacturing company was profitable and thought it would be a good business opportunity for
Zhong Fu. He contacted Coca-Cola Guangdong, which at that time was purchasing PET bottles
from Taiwan.
In 1985, Dr. R. Fenton May of The Coca-Cola Company visited Zhong Fu. May emphasized the importance of high quality and reliable supplies and taught employees quality control,
management, and inventory control. He encouraged Zhong Fu to develop the business. In 1986,
The Macau Coca-Cola Bottling Company brought a bottling line and three vehicles to Zhuhai
and set up a joint venture, the first joint venture in the Coca-Cola system in China. Later that
same year, Zhong Fu had four PET machines running, with most of the total output supplied to
the Coca-Cola system. Labor and most inputs were local. There was no Coca-Cola-approved
resin source in China at the time, however. (With the startup of two new resin factories [in Nanjing and Shanghai], Coca-Cola has been able to source locally 90 percent of the resin it needs for
PET bottles used in China.)
Since the business was developing as a conglomerate with unrelated product lines (interlining and clothing, leather, electronics, even ships), Mr. Huang decided the company needed
a focus. Testifying to risk-taking common among entrepreneurs, the head of Zhong Fu chose
packaging precisely because the industry was backward in China at that time. He focused on
PET, but also expanded production of labels, caps, cups, and PC containers (large water bottles).17
58
Today Zhong Fu manufactures 2.2 billion PET bottles a year, 3 billion caps, 5 billion labels, 700 million paper cups, 6 million PC containers, and 50 million meters of corrugated cartons. Nearly half its PET output goes to Coca-Cola. It is a key player in the beverage supply
cluster with 36 plants spread across China. In fact, the PET plants that have opened throughout
China have followed Coca-Cola, often locating close to Coca-Cola bottling plants. Clearly, the
factories’ proximity to bottling plants helps reduce shipping costs and maintain quality standards.
Bottle shipment often causes bottles to shrink (when they are exposed to high temperatures), reducing their quality. As a result, Zhong Fu now has an extensive regional presence with a uniform price in every region to prohibit cross-regional sales and limit market cannibalization. The
company’s leader, Mr. Huang believes it needs to be within an “arm’s reach” of its customers.
In all plants, Zhong Fu is challenged to meet tight quality control parameters set by the
Coca-Cola system. In 1995, Coca-Cola asked Zhong Fu to develop a one-piece PET bottle,
which is more environmentally friendly than two-piece bottles. The earliest one-piece bottle produced by Zhong Fu had stress cracks. Initially, Zhong Fu lost money in the effort, but Coca-Cola
provided the necessary molds and technical assistance to help Zhong Fu in the effort. As often
happens in cluster development, once Zhong Fu had developed the technical ability to produce
the one-piece bottle, it was used (to some extent) by competitors of Coca-Cola.
This PET manufacturer is a model of enterprise reform. A few facts about the company
show how the township/village enterprise developed rapidly as a bottling cluster supplier when
run by an aggressive entrepreneur.
•
•
•
Zhong Fu now employs 5,000 workers across China. Of the total work force, 500 use technical skills,
usually requiring a college education. Many of the workers are responsible for quality control in the
automated factories.
Zhong Fu has 60 percent of China’s market for PET. (In addition to the soft drink bottles, the company also produces shampoo bottles.) The enterprise supplies PET bottles to other beverage companies besides Coca-Cola and also supplies local bottled water companies.
In 1996, Zhong Fu was listed on the Shenzhen Stock Exchange. Its stock rose 3-fold in 1998, with net
profit at 4-5 percent of revenue.
The company’s plans remain ambitious: develop new packaging products; introduce hightechnology, high-value products into the product line; change to more environmentally-friendly
products; and establish a base for petrochemical products. Zhong Fu continues to achieve its
goals and build its business around a few basic principles:
•
•
•
•
Expand according to market impulses. Zhong Fu places great emphasis on gathering market information.
Maintain strict product quality. The company strives to meet international quality standards.
Stress product innovation. Zhong Fu claims to constantly adjust its product mix and develop new
products to succeed in the market.
Specialize in niches and build scale operations. The company focuses on certain industries, establishes brand reputation, and then expands to other fields.
Having achieved success as a township/village enterprise by linking to the beverage
cluster in China, Zhong Fu now targets the wider Asian market for PET. In 1998, Zhong Fu ex-
59
ported nearly US$10 million worth of packaging products to Southeast Asia and Japan.
Company executives feel confident their product can compete, both in efficiency and quality,
anywhere in Asia. This is a prime example of
how a competitive domestic supplier may develop as an enterprise.
Enterprise Reform in Action
Beijing Coca-Cola Bottling was a state-owned enterprise (SOE) until 1993, when it was transformed into a
joint venture as a result of investment from Kerry,
Coca-Cola’s anchor bottler for the northern region. The
reform process this bottling plant underwent was far
ranging: technological, structural, and managerial.
Overall, Chinese suppliers have progressed rapidly by linking with the Coca-Cola
system. Stakeholders like Zhong Fu present the
promising side of the country’s competitive
enterprise system. China’s competitive strength
will be boosted if foreign investment induces
similar changes in the Chinese factories supplying other foreign investors manufacturing in
China.
As an SOE, the Beijing plant had undergone significant technological renovation in the 1980s and early
1990s. Coca-Cola built a glass bottling line in 1981,
then transferred the plant gratis to China. Coca-Cola
provided a canning line in 1986 and a PET line in 1992.
Despite this technological upgrading, the SOE remained inefficient by international standards. Kerry
bought the facility in 1993 and transformed it into a
joint venture. In 1994, new Coca-Cola management focused on instilling new managerial concepts among the
300-person workforce, 200 of which had been inherited
from the SOE.
Local Resources
The study was primarily designed to address
upstream and downstream multiplier effects of
the Coca-Cola system, and the supply and demand conditions that make a beverage enterprise system viable. Having examined demand
and supply conditions thus far in this chapter,
the discussion now turns briefly to the other
elements of the Porter-Dunning framework:
resources and market conditions.
The new plant manager improved productivity by
setting up a lunchroom at the plant, eliminating the extended lunch hour many workers had previously taken,
and ending the customary mid-day consumption of
beer. He changed the worker bonus system, making
only 40 percent of pay fixed, with the remainder paid
according to the quality of the work performed. He
banned smoking. And he fired the quality control manager—the quality index of production at the plant had
been among the lowest of all factories in the Coca-Cola
system in China. The firing was big news in China; no
one had ever been fired by any SOE in China at the
time.
Arguably, the most precious—and
scarce—resource in China today is managerial
talent. Coca-Cola is working to advance
China’s managerial know-how, in many respects setting the standard for managerial and
organizational competence throughout the
country.
As a joint venture, Beijing Coca-Cola outsources
significant parts of the business. For example, an outside contractor now prepares meals. An independent
contractor also provides cleaning services. The cleaning
company was able to reduce its costs by selling the recyclables taken out as factory trash. Maintenance had
cost the SOE 180,000 yuan per month; it now costs just
10,000 yuan per month.
Ultimately, a viable enterprise requires
direction from strong local management. The
Beijing Coca-Cola bottling plant has seen sales
volume expand over 1,000 percent, with profits
growing even more, from 1992 through 1998.
Song Tai San, General Manager of the Beijing
Coca-Cola Beverage Company, says that
flourishing joint ventures like the Beijing bot-
The manager also built a distribution system. All
new factory hires were put into sales and marketing.
The manager built three warehouses outside Beijing,
and raised salaries of his sales staff by about 25 percent.
The plant now employs 600 workers—twice the number employed by the SOE. It sold 29 million cases of
soft drinks in 1998, compared with 1.8 million sold in
1992. The plant is now first in sales and profits among
the Kerry bottlers in the Coca-Cola system.
60
tling plant depend on human relations and capabilities. Indeed, a common problem in development cited by many managers and executives is finding qualified workers. In fact, the real impediment to developing China may be human resources. In beverages, this factor was deemed to
be critical to the success of the bottlers, suppliers, and businesses in the distribution network. 18
In the bottling system, marketing and sales positions have been particularly hard to staff.
Often these functions were overlooked entirely. When the Beijing Coca-Cola bottling plant was
an SOE, it had no sales trucks and only 4 people on the sales staff: one person responsible for
invoices, one responsible for stock, and one clerk. Demand for Coca-Cola products so greatly
exceeded supply that salespeople were considered unnecessary. After July 1992, when
Coca-Cola’s anchor bottler for the northern region of China, Kerry, began to invest in the Beijing
bottling plant and take over management of this SOE-turned-joint venture, sales took on much
greater importance. After a few transitional years, the Beijing joint venture in 1999 became the
top Kerry bottler in the Coca-Cola system in terms of sales and profits.
As Chinese enterprises move away from “production dictated by command” to “production directed by demand,” firms must monitor and track consumer preferences by studying purchasing patterns and other aspects of the local market. Production quotas led to the supply of unattractive products on an erratic basis. In the context of the Porter-Dunning framework, the development of marketing knowledge and functions in China can be seen as crucial to the development of the domestic marketing industry. International businesses generally come to China
with advanced marketing resources and the willingness to use them. Often, they can afford to
finance the establishment of a marketing industry from the ground up. For a variety of reasons,
strictly local companies would be less likely to undertake such an ambitious and costly effort.
The fact that international businesses are training marketing expertise in China means that this
expertise could, over time, become available to Chinese companies as well. This would, of
course, increase the ability of local firms to deliver goods that will appeal to consumers in China.
In China’s case, this is particularly important since non-Chinese investors mention the lack of
reliable consumer data as one of the major impediments to doing business in China—and one
that the development of Chinese partnerships does not alleviate.19 Most Chinese companies have
an anecdotal rather than statistical knowledge of consumer preferences, which, in a country as
large and diverse as China, is obviously a major drawback.
Multinational firms in China have adopted a mixture of strategies to cope with the shortage of domestic marketing know-how. They have hired overseas Chinese, China-savvy Westerners, and have sent their Chinese staff overseas for training. The effectiveness of each of these
three strategies is widely disputed. A study of successful and unsuccessful Canadian businesses
operating in China revealed that use of local marketing, sales, or service activities tended to increase profits. The authors speculated that transferring marketing and service activities to local
China managers was highly productive because, at these levels, the products could be better tailored to the local tastes.20
Coca-Cola has focused on localizing marketing expertise. In the long run, cultivating local sales and marketing knowledge is a key to success for any international business operating in
China. While the Coca-Cola system’s expertise in local marketing is renowned across the world,
61
international companies cannot expect to “import” sales and marketing knowledge; they must
“grow” that knowledge and capability locally.
Despite the growing demand for marketing, sales, and other service workers, or perhaps
because of it, expertise is particularly scarce in China today. Indeed, the country lacks a strong
tradition of education and experience necessary for the most vital functions in a market economy.21 Under the planned economy, there was no marketing tradition. Essentially there was no
communication between Chinese consumers and the industries that produced goods for them. In
fact, SOEs often acted in ways almost opposite to those in market economies; for example, advertising products they could not otherwise sell and believing a good product needs no advertising.22
The lack of a marketing orientation poses a distinct challenge. Inadequate human resources—not finding the skilled labor for specific functions in modern China—can impede
growth. For instance, Coca-Cola conceivably could open a sales center once it decides it has the
volume base. However, building the new center takes up to a year of planning. The key is finding
and selecting a local sales center manager who knows the bottling system, and then training him
or her. It has been found that the wrong way to open a sales center is to get near completion before deciding staffing. The sales center staff must know the Coca-Cola bottling system and the
regional market. Such individuals are often hard to find.
Coca-Cola is addressing the crucial issue of training and developing human resources in
the beverage industry. In fact, under the agreement with the Chinese government mentioned in
Chapter 2, the Company established a Soft Drink Training Center at the Tianjin Jin Mei Beverage Company. This center has cultivated both technical and business skills throughout the Chinese industry. It trains managers for Chinese soft-drink bottlers and Chinese government officials as well as staff employed by the Coca-Cola system in China. It is a “public good” for the
benefit of the entire soft-drink segment of the beverage cluster. That is, training, whether for the
soft-drink industry in Tianjin or at each bottler location, has high potential spillover effects on
the Chinese economy. Further, local and foreign entrants to the carbonated soft-drink market in
China seek to employ personnel trained at the Tianjin Soft Drink Training Center.
Over the long run, cultivating human resources means supporting the education system. It
is well known that education needs more resources at all levels. In higher education, the
Coca-Cola system, along with the Chinese Youth Development Foundation and The China
Youth News, began a cooperative arrangement with 50 universities across the country to offer
the Coca-Cola First Generation University Scholarships. These scholarships, earmarked for underprivileged students, are awarded to top university students from poor, rural areas of China. In
addition to supporting education through scholarships, Coca-Cola China has donated more than
20 million RMB for the building of 50 Project Hope schools and related activities. Started by
Deng Xiaoping in 1989, Project Hope is a nonprofit program providing education in underdeveloped areas. As in the college scholarship program, Coca-Cola works with the China Youth Development Foundation, which runs Project Hope activities in more than 2,000 schools.
By funding beverage-industry training and educational opportunities for poor Chinese,
Coca-Cola is clearly concerned with long-term development, not just achieving immediate busi-
62
ness objectives. Of course, significantly upgrading education and re-training the Chinese labor
force are tasks beyond one company or enterprise system. This case, however, stands as a paragon of corporate citizenship in China. How effectively China’s resources—especially human
capital—are managed will determine the future growth path. Higher productivity, greater output
per unit of labor, is the only path to sustainable economic growth. As China integrates into the
global economy, economic growth will have to make more productive use of its vast labor force.
Market Conditions
The Coca-Cola system has also worked with the Chinese government to develop the soft-drink
market, the final major element of the Porter-Dunning framework. In general, the market develops by becoming more diverse and more competitive. As the country’s best-known brand,
Coca-Cola plays a leadership role in the beverage cluster, if not the consumer goods sector overall. Chapter 2 described the 1993 cooperative memorandum, signed by the Coca-Cola Company
and China’s National Council of Light Industry. The joint plan was to promote the beverage industry through “sincere cooperation and common development.”23 Recall that part of the agreement was to help China’s beverage industry develop its own brands, leading to the introduction
of Tian Yu Di (“Heaven and Earth”) and Xingmu (“Smart”). Coca-Cola invested several million
U.S. dollars in developing the formulas. Production of Xingmu and Tian Yu Di has grown rapidly, from 260,000 cases in 1996 to 26,000,000 in 1999. One beneficiary has been Hangzhou
China Foodstuffs, where the two brands have made up 10 percent of total sales and are expected
to soon reach 30 percent. Now, each Coca-Cola bottling plant is actively promoting the Chinese
brands. Soft drinks depend on brand awareness. During the gestation period, the Coca-Cola
Company has covered all advertising and publicity for Tian Yu Di and Xingmu.
The success of Tian Yu Di and Xingmu demonstrates a commitment to find brands appropriate to China. Overall, the soft-drink market in China remains highly competitive and dynamic.
In economic terms, the market is contestable—meaning it is possible for rivals to enter, or reenter, at any time. With the threat of entry, soft-drink producers are pushed to be efficient and to
lower costs, even when no direct competitive threat is present.
As Coca-Cola introduces new brands, the contemporary beverage market in China remains more competitive than ever, with many producers springing up across the country. Future
Cola started in 1998, bottled by Hangzhou Wahaha Group in Zhejiang Province. Fenhuang Cola,
from Guangdong Province, has grown rapidly and has even exported its product to Russia and
Southeast Asian countries. Yanjing Beer entered the competition in the carbonated beverage
market in 1997. Responding to this intensified rivalry, Coca-Cola stated that it welcomed the
new participants and believed that “mutually orderly competition can build a healthier and
broader market.”24 The overall market for soft drinks grew from 4.84 million tons in 1993 to 12
million tons in 1998.
Conclusion
Every day thousands of cases of Coca-Cola work their way through the market system, through
the channels of demand and supply, to reach Chinese consumers. This chapter examined the
Coca-Cola system’s qualitative impacts, as seen through the Porter-Dunning framework. In the
63
numerous studies of economic development around the world using this framework, it has been
found that leading global firms influence the development and prosperity of local firms, and
those firms, in turn, influence the prosperity of the nation. A modified Porter-Dunning framework guided interviews with stakeholders involved in production and distribution.
Coca-Cola’s qualitative impacts on developing a more competitive environment in China
are often subtle and diffuse, but have real influences on the demand, supply, resource, and market conditions. They can be seen through the stakeholders covered in this chapter—from prosperous enterprises like PET supplier Zhong Fu to impoverished children attending schools supported by Project Hope.
Interactions take place on many levels. One of the most interesting aspects to emerge
from this research is the relationship established between the Coca-Cola system and the small
business sector of China. Through partnerships in distribution, globally competitive business
practices are transmitted to China’s new generation of entrepreneurs. This chapter argued that the
viability of Coca-Cola as a successful business will depend on support to and from Chinese
stakeholders. In the final analysis, it shows that “us-versus-them” distinctions mean little in
practice.
1
Lloyd (2000).
See Johnson (2000, p. A 17).
3
Lloyd, op. cit.
4
Nolan’s own study of Coca-Cola in China suggests that this is the case. See Nolan (1995).
5
China Economic Review (1999).
6
For example, production line speeds, rated against the “rated speed” of a given piece of equipment, were often calculated to be showing dramatic improvement from year to year—with efficiency posting solid gains from year to
year.
7
For example, if the real “rated speed” were 300 bottles/minute, and the SOE bottler were handling 100 bottles/minute, the managers began calculating their performance using a “rated speed” of 150/min (67 percent efficiency rate calculated); the next year, they would use a “rated speed” of 120/min (82 percent efficiency rate); the
next year, they would further alter the denominator to make it appear that they were performing at a 95 percent efficiency rate.
8
See Team Canada Research Centre and Canadian Trade Commissioner Service (1998).
9
Porter (1990).
10
Tavis (1997).
11
See, for example, Liu and Song’s (1997) application of the Porter framework to China.
12
For a synthesis of Professor Dunning’s many writings on the subject of globalization and its relationship to the
Porter cluster model, see Dunning (1993).
13
Fox (1998).
14
The term “partnership” does not imply any kind of legal partnership in which debts/liabilities are shared. Rather, it
describes a partner relationship in which both the bottler and local entrepreneur work jointly to develop their local
market. The term “101 Partners” refers to the distribution agents of Swire Beverages that met the Company’s operating standards. Partnership 101 is an abbreviation of “One system; zeroed in on retailers, building the business one
drink at a time.”
15
If the temperature exceeds 38 degrees centigrade, many Chinese factories will give their workers soft drinks.
16
A 1992 survey of carbonated soft drinks products in Beijing found that only 67 of 130 varieties passed national
health standards.
17
Mr. Huang also kept the interlining business and the repairing and manufacturing of fishing boats.
18
A well-trained work force is the only way to ensure consistent quality products. In Behind the Open Door, a recent study of foreign enterprises in China published by the Institute of International Economics, Daniel Rosen wrote
the following about the beverage cluster: “Quality is an important foreign enterprises comparative advantage. For2
64
eign firms seek to use the reputation of being more reliable than their Chinese competitors to bolster their market
position. But the potential for loss of that reputation is a serious threat. For example, street-side ‘fountain’ (not prebottled) Coca-Cola is frequently made with unpurified water direct from the water system, water that often fails to
meet drinking standards. If children were to die drinking contaminated Coca-Cola, hypothetically speaking, the
brand’s good name could be threatened not just in China but worldwide. Adequate training—for the bottlers, the
installers of lines to soda fountains, and retailers—is critical to make sure that does not happen.” See Rosen (1999,
p.109-110).
19
Fox, op. cit.
20
See Abramson and Ai (1999).
21
Ying Fan (1998) wrote that, “ . . . the government acknowledged that the majority of Chinese managers lacked
marketing knowledge and had no experience of operating in a real competitive marketplace.”
22
The absence of marketing activities in the state-run economy was so pronounced that the Chinese never developed
a Chinese equivalent for the English word, “marketing”. See Fan (1998).
23
See China Business Times (Zhonghua Gongshang Shibao) (1999).
24
China Daily (1999).
65
66
Economic Impact of the Coca-Cola System on China
Chapter 5: Conclusion
China’s impressive economic performance over the past 20 years has laid the foundation
for deeper integration into the world economy. Looking to the future, China is serious about
continual economic restructuring. From state-owned enterprise reform to the economic liberalization measures needed to join the World Trade Organization, the changes over the next decade
will be far-reaching. Some analysts believe that many Chinese companies will not survive. Unemployment could rise significantly unless robust and globally competitive enterprises revitalize
moribund enterprises and replace out-dated business systems with modern practices.
It is well established that market-oriented businesses tend to manage resources more efficiently than state-owned enterprises driven by quotas. Responding to market incentives rather
than five-year plans, entrepreneurial activity is the fastest and most certain way to elevate national economic growth. Deng Xiaoping perhaps understood the entrepreneurial role in the economy so well because he had himself opened a successful restaurant (not unlike those surveyed
for this study), the China Bean Curd Shop, as a student in Paris during the 1920s.1
China’s economic development now rests on different forms of enterprise ownership, including small family-oriented business startups and larger concerns with ownership by private
shareholders listed on China’s stock exchanges. The leadership recognizes that the state no
longer exclusively controls the “commanding heights” of the economy, to paraphrase Lenin.
Continuing Deng’s pragmatic reforms, President Jiang Zemin stated that future ownership in
China could take “multiple forms in its realization”.2 It should be recognized that private companies, like economies, also restructure to maintain competitiveness. What makes private business
systems dynamic and flexible can also revitalize national economies.
This study sheds light on the prospects for China’s future economic development through
a comprehensive evaluation of one business system. The real significance of the Coca-Cola system in the Chinese economy is that it shows what can be achieved: It is possible to build and
sustain a complex modern business system that unites advanced international companies and
Chinese businesses.
The findings of this study derive from many sources and methods: economic statistical
modeling, surveys, and interviews. A central conclusion of the study is that the Coca-Cola system contributes significantly, both in quantitative and in qualitative ways, to China’s economic
development and reform.
67
Employment and other economic effects were calculated through an economic multiplier
model. The results reflect Coca-Cola bottlers’ production activity, employment, turnover, and tax
payments in 1998. Thus, in strictly quantitative terms, the multipliers demonstrate that a highly
localized cluster of industries has developed around Coca-Cola’s soft-drink production and distribution in China. The analysis suggests that the Coca-Cola system directly and indirectly contributes significantly to national output, as well as to the country’s tax revenues.
Perhaps the most notable result, at least on the quantitative side of the analysis, is that the
employment supported by the Coca-Cola system turned out to be surprisingly large. The analysis
of Coca-Cola’s economic multiplier effect reveals that the Coca-Cola system is associated with
over 400,000 Chinese workers. These jobs are mostly outside the Coca-Cola system itself; one
job is supported directly in the bottling system and 29 outside the system for a total employment
multiplier of 30. In other words, it is not Coca-Cola’s direct employment that accounts for its
impact; rather it is the extensive ties Coca-Cola has with Chinese businesses outside of the bottling system.
Yet, multiplier effects do not adequately account for Coca-Cola’s local impact. Equally
important as the multiplier effect is the expertise and knowledge embodied in investments by a
leading enterprise system like Coca-Cola. The system brings competence and globally competitive standards of production, marketing, and management to many provinces in China.
Coca-Cola has also introduced managerial and organizational competencies to a wide variety of
businesses in both distribution and production. While relatively abundant in the developed world,
these resources tend to be scarce in transitional economies. Specifically, Coca-Cola is focused on
bringing local marketing expertise and the concept of serving the customer, which was often neglected by the state-owned Chinese enterprises.
A secondary conclusion of this study is that Coca-Cola has taken a flexible approach to
the unique challenges posed by China. Coca-Cola’s “flexible localization” is apparent in the
ways Coca-Cola deals with Chinese suppliers, and with suppliers’ suppliers, helping to improve
quality control, reliability of supply, and production efficiency. The Coca-Cola distribution system represents the most demonstrable example of Coca-Cola’s flexible localization in the Chinese market. Reaching consumer “desire” entails a variety of approaches to serving the complex
mix of wholesale and retail channels. That those retail and wholesale channels throughout China
are themselves in considerable flux poses challenges for all businesses, foreign or domestic.
Reaching the Chinese consumer and strengthening China’s demand conditions entails an
emphasis on demand and market dynamics. Many observers have commented about the lure of
the Chinese market in attracting investment to the country. Still, companies often fail to adequately plan for distribution to consumers—the channels to reach final demand. Market signals—virtually ignored in China for 30 years and distorted during the first 20 years of economic
reform—are becoming clearer, as China curtails the government’s role in economic activity.
However, the Coca-Cola case demonstrates that it is not an “invisible hand” that gets products to
the market. It takes enormous resources—both human and capital—to meet this demand. The
Coca-Cola system takes the consumer as the ultimate reason for its existence and deploys resources creatively to fill consumer demand for Coca-Cola products. This conclusion has relevance to all consumer-oriented businesses in China, domestic and foreign.
68
Thus, the Coca-Cola case shows the reciprocal and interactive nature of multinationallocal relationships. That is, it shows that just as a multinational’s presence in China helps transform the Chinese economy, a multinational’s success in China is dependent on its /ability to respond to the unique local conditions in China. As foreign investment in China grows, possibly
accelerated by China’s membership in the WTO, this becomes increasingly relevant to China—
and to foreign investors. The Coca-Cola system provides a successful example of how an advanced market-oriented international business can stimulate and support the local Chinese economy as the country continues its historic transition from a command- to a market-based system.
1
2
Yergin and Stanislaw, 1998, p. 213.
Yergin and Stanislaw, ibid.
69
70
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Rosen, Daniel H. 1999. Behind the Open Door: Foreign Enterprises in the Chinese Marketplace, Institute
for International Economics, Council on Foreign Relations, Washington, D.C.
Stopford, John. 1998-99. “Think Again: Multinational Corporations.” Foreign Policy. Winter 1998-99.
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Available: http://www.foreignpolicy.com/Winter98-99.
Tavis, Lee A. 1997. Power and Responsibility: Multinational Managers and Developing Country Concerns. South Bend, Ind.: University of Notre Dame Press, p. 105, 151.
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Woodward, Douglas, and Douglas Nigh, eds. 1998. Foreign Ownership and the Consequences of Direct
Investment in the United States. Westport, Conn.: Quorum Books.
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Yan, Rick. 1998. “Short-term Results: The Litmus Test for Success in China.” Harvard Business Review
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73
74
Appendix A
Bottler Survey
Appendix A, Bottler Survey, 1
Appendix A, Bottler Survey, 2
Economic Impact Study: China
Bottler Questionnaire
Coca-Cola is undertaking a study to estimate the impact of its operations on the Chinese economy. To undertake such an impact study, Coca-Cola requires financial information from its bottling associates. The information pertains to current as well as capital expenditure.
This questionnaire is concerned with budgeted financial data for the year ended 31 December
1998. To the extent that your financial year does not end on 31 December, please provide your
best estimates for the 12 months ending 31 December 1998. Should you require any clarity or
assistance with the completion of this questionnaire, please contact:
Dr. Douglas P. Woodward
Director, division of Research,
college of business, University of South Carolina
Tel: (803)777-2510
Fax: (803)777-9344
E-mail: woodward@darla.badm.sc.edu
Dr. Justin Yifu Lin
Director, China Center for Economic Research
Peking University
Tel: 86-10-62751475
Fax: 86-10-62751474
E-mail: jlin@pku.edu.cn
Bing-Chung Lo
Vice President
Coca-Cola China Ltd.
Tel: 852-2599-1333
Fax: 852-2506-3786
E-mail: bclo@apac.ko.com
Appendix A, Bottler Survey, 3
Section 1—Sales
Please provide your expected turnover (excluding indirect taxes and net of discounts) for the
year ended 31 December 1998 as follows:
Yuan
1.
Total turnover (excluding indirect taxes and net of discounts) for the year
2.
Turnover (excluding indirect taxes and net of discounts) by pack type
a) Returnable glass
b) Non returnable glass
c) Cans
d) PET (plastic bottles)
e) Total (should be consistent with 1 above)
3.
Turnover (excluding indirect taxes and net of discounts) by channel
a) Wholesale
b) Formal retail
c) Informal retail
d) Government
e) Military
f) Others (please specify)
g) Others (please specify)
h) Others (please specify)
i) Total (should be consistent with 1 above)
Appendix A, Bottler Survey, 4
Section 2—Production Inputs
How much will you spend on the following as it relates to production inputs (excluding indirect
taxes):
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
1
Production Input (excluding labour)
Cans
Sugar
Concentrate
Water
Coal
Gas
Lubricants
Electricity1
Protective clothing
Labels
Crowns
Cans (empty for canning, if relevant)
CO2
Caustic
Chemical detergents and other consumables
PET (plastic bottles)
Other packaging materials:
a) Carton (for transportation)
b) Shrink-wrap or wrapping plastic
c) Pallets
d) Containers (plastic)
e) Containers (metal)
f) Others (please specify)
g) Others (please specify)
Building maintenance
Plant maintenance
Effluent and water treatment
Other material production input costs
a) Please disclose.
b) Please disclose.
c) Please disclose.
Total Spent
China
Totals
Please include entire electricity bill here, including electricity used for administrative purposes.
Appendix A, Bottler Survey, 5
Source
Non-China
Section 3—Labour Inputs
The following table requires you to estimate the number of staff working for you at the end of
December 1998.
Permanent
Number of
employees
Skill Level
26.
Skilled (secondary education or higher)
Male
Female
Total
27.
Unskilled (less than secondary education completed
Male
Temporary
Number of
employees
Weeks2
Female
Total
28.
2
Total
Male
Female
Total
Approximate average number of weeks worked during the year per worker.
The following table requires you to estimate the cost of the staff working for you for the year
1998. Please include gross salary, travel, and entertainment allowances and directors remuneration, all bonus and other non-recurring items, company portions of medical aid contributions
and retirement funding contributions, all other company paid contributions, company car expenses (such as petrol and oil and repair and maintenance for company cars only) and total
other payroll expenses.
Skill level
Permanent
employment
29.
Skilled (secondary education or higher)
30.
Unskilled (less than secondary education
completed)
31.
Total
Male
Female
Total
Male
Female
Total
Male
Female
Total
Appendix A, Bottler Survey, 6
Cost of
Temporary employment
Section 4—Administrative and other inputs
This table identifies all other expenses not disclosed above (except for taxation items dealt with
in Section 5 below).
Administrative and other inputs
Total Spent
China
Source
Non-China
Selling expenses
32.
33.
34.
Advertising expenses
Promotional expenses
Salesman expenses
35.
36.
Other selling expenses
Subtotal
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
Interest and other financial charges
Interest expenses
Foreign exchanges loss (gain)
Bank charges
P&L on sale of fixed assets
Other financial expenses
Subtotal
Operating expenses
Transportation expense
Communication expenses
Travel expenses3
Training expenses
Insurance expenses
Legal fees
Other operating expenses
Subtotal
51.
Depreciation and amortization
52.
53.
All other expenses – please disclose
All other expenses – please disclose
54.
Totals
Please add the sub-categories of expenses if they are significant but not listed above.
3 Please include all travel costs (i.e., car rental, meals, hotels, transfers, etc.)
Section 5—Transactions with Government
This table requests that you disclose all payments to government. Please disclose amounts actually paid, not amounts accrued.
55.
56.
57.
58.
59.
Transactions with Government
Corporate Tax
Indirect taxes
a) Sales taxes
b) Customs and excise
c) Other indirect taxes
Local rates and taxes
Other taxes and fees paid to government
Total taxes paid
Appendix A, Bottler Survey, 7
Total
Note: At this point, please take time to consider whether all income and expenditure statement
items have been accounted for in the responses above. It is imperative that all income and expense is captured as accurately as possible to provide input to the assessment of Coca-Cola's
impact on the Chinese economy.
Section 6—Capital Expenditure
This section requires that you disclose all capital expenditure to be made by you in the current
and subsequent two years. Please disclose all capital expenditure to be made regardless of
whether the assets are to be employed in China or not. Further, please disclose capital expenditure on Chinese and non-Chinese sources purchases.
60.
61.
62.
63.
64.
65.
67.
68.
69.
70.
71.
72.
73.
74.
75.
76.
Capital Expenditure
Pallets (wood)
Returnable bottles
Plant and equipment
Coolers
Fountains/vending equipment
Forklifts
Company cars
Other motor vehicles
Computer hardware
Computer software
Crates (plastic)
Office equipment
Buildings
Other items (please disclose)
Other items (please disclose)
Totals
Local
1998
Imported
Thank you for the time taken to complete this questionnaire.
Appendix A, Bottler Survey, 8
Appendix B
Technical Appendix
Appendix B, Technical Appendix, 1
Appendix B, Technical Appendix, 2
Technical Appendix
The basis data mainly comes from The 1992 Input-Output (I-O) Table of China, which
shapes the research methodology. This appendix formally explains the Input-Output-based modeling methodology employed here to determine the economic impact of Coca-Cola’s production
activities. Essentially, an I-O table offers a snapshot picture of the economy at hand, focusing on
relationships between production activities, production factors, and final demand institutions
such as households, the public sector, and the foreign sector.
General Assumptions
An important assumption of I-O-based modeling is that the production structure remains
constant. Thus, the analysis is comparatively static by nature and ignores dynamic effects, such
as substitution between production factors, labor and capital, and between domestic and imported
intermediates. Therefore, I-O-based modeling has a very modest approach in that it can answer “
what if ” questions, while holding most other economic conditions constant; i.e., ceteris paribus.
This approach is adequate for the current research since there is no interest in major policy issues
that may fundamentally change the structure of the economy at hand.
Like many other I-O tables, the 1992 input-output table of China is valued at producer’s
prices.
Basic Structure
Row-Based Equation
In terms of linear algebra, an I-O-based model can be reduced to a single equation according to the rows of the value table:
(1)
A*X + Y = X
where A is the intermediate deliveries per unit of output,
X is a vector of outputs, and
Y is a vector of final demand.
The matrix follows directly from the 1992 I-O Table of China. Equation (1) can be easily
transformed to the following more familiar one:
(2)
(I – A) * X = Y
where I is the identity matrix.
(I – A) represents the structure of the economy at hand.
To obtain output X directly if Y is known, we use equation (3):
(3)
X = (I – A)-1 Y
Appendix B, Technical Appendix, 3
where (I – A)-1 is the famous Lieontief Inverse Matrix (LIM) which is marked by B . Its element
is b ij . b ij represents the whole output of the ith industry needed by the jth sector when it increases one unit of its final demand.
Equation (3) can be used to describe the following relationship:
∆X = (I − A) −1 ∆Y = B ∗ ∆Y
in which the column vector ∆X represents the change in economic activity as a result of the injection contained in the column vector ∆Y. In this case, the injection comes from the Coca-Cola
system, and it adequately represents the stimulus that Coca-Cola’s production activities generate.
From this equation, it can be seen that a number of variables (such as gross operational surplus,
labor income, and total taxes paid) are solved simultaneously in the system.
Column-Based Equation
Compared with the row-based model in the equations above, the column-based model is
formulated as following:
ˆc∗X+ D+ V +T+ P = X
A
where Âc comes from the intermediate delivery matrix A described in equation (1). Actually, Âc
is a diagonal matrix whose main diagonal line consists of the elements of matrix I *A, and other
elements are zero. I is a row vectoring whose elements equal one. D is a vector of depreciation,
and V, T, P are the labor income, total taxes paid, and profit, respectively.
Denoting M as the sum of D, V, T and P, we can easily get from (5):
(6)
M = (I - Âc ) * X
where (I - Âc ) represents the amount added to the National Net Income when the total output increases one unit.
Coefficients and Partial Multipliers
Also from Equation (5), we can derive corresponding coefficients called “Direct Coefficients”. First, we define the Direct Depreciation Coefficient (DDC) of industry j as the depreciation per unit of output:
(7)
a dj = Dj / Xj (j = 1, 2, 3, … n).
where Dj represents the depreciation of industry j,
Appendix B, Technical Appendix, 4
Xj is the total output of industry j.
Reformulating the equation, we get:
Dj = adj * Xj ( j = 1, 2, 3, … …, n)
Since D is a vector with n elements, we can write D as
ˆ
D = Ad * X
ˆ
where Ad is a matrix with a dj as its diagonal elements; all other elements are zero
X is an n-dimension vector.
Similarly,
ˆ
V = Av * X
ˆ
T = At * X
ˆ
P = Ap *X
Therefore, we can rewrite equation (5) as the following:
ˆ
ˆ
ˆ
ˆ
ˆ
[ Ac + Ad + Av + At + Ap ]*X = X
This means that
ˆ
ˆ
ˆ ˆ
D = [ I - Ac - Av - At - Ap ] * X
ˆ
ˆ
= Ad * X = Ad * [ I – A ] −1 *y
So that
(9)
ˆ
ˆ
∆D = Ad * ∆X = Ad *[ I – A ] −1 ∆Y
And, similarly, we can write out for ∆V, ∆ T, ∆ P as the results of the injection of ∆ Y. For this
ˆ
reason, we define the term “ Ad * [ I – A ] −1 ” as the depreciation “multiplier” which reflects the
impact of the injection (∆
∆ Y ) on the depreciation. Since this does not include the indirect effects
through households’ and government’s spending, we call the multiplier as a “partial multiplier”.
The partial multipliers for wage (∆
∆V), tax revenue (∆
∆ T), and profits (∆
∆ P) could be defined in the same way.
Appendix B, Technical Appendix, 5
Proof of the National Net Income Multiplier Equaling One
In our research we found that the National Net Income Multiplier equals to one, i.e.,
n
n
i =1
i =1
∆M/∆
∆Y=1. To prove this, it is the same to prove ∑ mi = ∑ y i . In terms of linear algebra, I M =
I Y where I is a 1xn vector and M, Y are two nx1 vectors representing the national net income
and final demand respectively.
From Equation (6), we have M= (I- Âc ) X, therefore
I M= I (I- Âc ) X=[ I -( I Aˆ c )] X=( I -Ac) X=[ I -( I A)] X= I (I-A) X= I Y
where the third equal sign comes from the following derivation:
I Aˆ c
 ∑n a
 i =1 i1

 0
= (1 1 L L 1)  M

 M
 0

n
=  ∑ ai1
 i =1
n
∑ ai 2
i =1
0 

0


O

O
0 
n
L 0 ∑ a in 
i =1

L L
0
n
∑ ai 2
i =1
0
L
L L ∑ ain  = Ac.
i =1

n
As for the fourth equality sign, we can get it from the explanation of Equation (6):
Ac
 a11

 a 21
= I A= (1 1 L L 1)  M

 M
a
 n1
n
=  ∑ ai1
 i =1
n
∑ ai 2
i =1
a12
a 22
L
L L a1n 

M 
O
M 

O M 
L L a nn 
n
L L ∑ ain 
i =1

Finally, the last equal sign is just according to Equation (2). End of proof.
Appendix B, Technical Appendix, 6
Table 1: Some Coefficients
Ad
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
0.1552
0.1896
0.0600
0.0399
0.0287
0.0439
0.0281
0.1750
0.0949
0.0607
0.0272
0.0645
0.0436
0.0560
0.0341
0.0554
0.0227
0.0436
0.0403
0.0302
0.0300
0.0268
0.0326
0.0593
0.0000
0.0235
0.2732
0.2280
0.0362
0.0910
0.4862
0.1201
0.0795
0.0783
0.0356
0.0232
0.0428
Av
0.3225
0.1257
0.0557
0.0741
0.0691
0.0653
0.1228
0.0591
0.1214
0.0680
0.0514
0.0324
0.1036
0.0504
0.0618
0.0899
0.1010
0.1053
0.0946
0.0860
0.0504
0.0549
0.0457
0.1203
0.0000
0.1904
0.1660
0.1730
0.1482
0.0630
0.0628
0.5938
0.2332
0.2934
0.1355
0.0786
0.1886
At
-0.0816
0.0334
0.0841
0.0483
0.0384
0.0574
0.0531
0.1176
0.0341
0.0836
0.1038
0.1049
0.0807
0.0524
0.0380
0.0994
0.0527
0.0567
0.0550
0.0576
0.0674
0.0593
0.0410
0.0367
0.0000
0.0273
0.0515
0.0365
0.0090
0.0356
0.0344
0.0019
0.0230
0.0249
0.0776
0.0828
0.0551
Ap
0.0824
0.1398
-0.0256
0.0597
0.1148
0.1005
0.0626
0.1360
-0.0809
0.0772
0.0921
0.1024
0.0750
0.0660
0.0971
0.0890
0.0800
0.1249
0.1136
0.1081
0.1198
0.1090
0.1176
0.0870
0.3330
0.0546
0.1671
0.2503
0.2733
0.2228
0.1686
0.0026
0.1227
0.1005
0.2749
0.3159
0.0966
Source: The Input-Output Table of China, 1992, CNSB.
Appendix B, Technical Appendix, 7
Table 2: Partial Multipliers
Ind.
Code
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
Mv
Md
Mt
Mp
0.53
0.30
0.41
0.40
0.38
0.35
0.43
0.28
0.48
0.34
0.33
0.31
0.39
0.33
0.33
0.34
0.41
0.38
0.38
0.38
0.33
0.36
0.35
0.40
0.28
0.49
0.31
0.30
0.36
0.31
0.17
0.71
0.44
0.50
0.30
0.28
0.45
0.23
0.29
0.17
0.14
0.13
0.15
0.12
0.26
0.24
0.18
0.13
0.16
0.14
0.17
0.15
0.16
0.12
0.13
0.13
0.13
0.12
0.13
0.14
0.15
0.09
0.12
0.32
0.27
0.12
0.17
0.52
0.16
0.16
0.15
0.15
0.10
0.13
-0.01
0.11
0.20
0.15
0.14
0.16
0.15
0.16
0.11
0.18
0.21
0.20
0.18
0.17
0.16
0.19
0.15
0.14
0.15
0.15
0.17
0.16
0.14
0.13
0.09
0.12
0.09
0.08
0.08
0.11
0.07
0.04
0.09
0.09
0.13
0.15
0.14
0.25
0.30
0.22
0.31
0.35
0.35
0.30
0.29
0.17
0.30
0.33
0.32
0.29
0.32
0.35
0.31
0.32
0.34
0.34
0.34
0.37
0.35
0.38
0.32
0.54
0.28
0.27
0.35
0.45
0.41
0.25
0.09
0.31
0.26
0.42
0.48
0.29
M d : the Multiplier of depreciation; M v : the Multiplier of
labor income; M p : the Multiplier of profit M t : the Multiplier of taxes
Appendix B, Technical Appendix, 8
Appendix C
Coca Cola Distribution Survey in China
Tsinghua University
I.
II.
III.
IV.
Guangdong
Xian
Shanghai
Harbin
Appendix C, Distributor Survey, 1
Appendix C, Distributor Survey, 2
I. Guangdong Province
Note: Total valid survey: 103. The survey subjects include grocery stores, convenient stores, fast food restaurant,
street vendor, restaurant, department stores and so of 10 kinds of stores. However, for some reason, some questions
could not get all the answers.
1.
Total
The business has been operated for average of 3.58 year
1 year and below
1 to 3 years (including 3)
4 year and above
30, 29%
33, 32%
44, 39%
The list of merchants sold: (respondent only chooses one)
2. 1) Foods including soft drinks 2) Foods including soft drinks and non-foods
3) Only drinks
4) Others
Foods including soft drinks
Non-foods and foods including soft drinks
Total
3
(3.75%)
77 (96.25%)
Only drinks
Others
0
0
3.
Who manage the business?
1. Owner
2. Employee
3. Family member
1. Owner
2. Employee
3. Family member
Total
61 (67%)
17 (18%)
14 (15%)
4. For how many years has the store sold the products of Coca-Cola? 3.33 years, which is 92.9% of the average operation period.
1 year and below
1 to 3 years (including 3)
4 year and above
Total
31
35
37
For stores opened less than 4 years, they all sold Coca-Cola products at the beginning of their business.
5. To what extent you agree with following opinions:
Total
Strongly disDisagree
Neutral
Agree
Strongly
agree
Agree
number
%
%
%
%
Demand for products of
0
0.0
6
6.7
10
11.2
47
52.8
26
29.2
Coca-Cola is very large
10
11.0
34
37.4
8
8.8
31
34.1
8
8.8
The quality of Coca-Cola
products is not any better
than other soft drinks
Coca-Cola products are
0
0.0
2
2.0
4
4.0
78
78.8
15
15.2
affordable
Coca-Cola products at0
0.0
2
2.1
20
21.1
58
61.1
15
15.8
tract customers to the
store
Coca-Cola products have
3
4.7
11
17.2
4
6.3
33
51.6
13
20.3
good advertisement
When customers buy
1
10
8
8.3
55
57.3
29
30.2
3
3.1
Coca-Cola products, they
also buy other products
Note: The score is calculated by giving “strongly disagree” 1 point and “strongly agree” 5 point, and 1 point difference for each level in between. If all the answers are “strongly agree”, then the total score will be 100 points.
Total
score
80.84
58.52
81.44
78.18
73.18
65.16
6. Overall, how important are the sales of Coca-Cola to you when you consider their weights in your capital?
Very important Important Somehow important Somehow unimportant Very unimportant
Total
10 (9.9%)
35 (34.7%)
35 (2.0%)
19 (18.8%)
2 (2.0%)
Appendix C, Distributor Survey, 3
7. How often do you order Coca-Cola products?
Once a day
Once a week
Once a month
Total
6 (7%)
35 (39%)
2 (2%)
No regular schedule
35 (39%)
8. How and how long do you get the Coca-Cola products?
Cola Coca transportaShipped from distribution Vehicle
tor
39
51
I pick up the products
from a distributor
17
a. Coca-Cola transportation vehicle (39)
Everyday
Every
Once a week
two days
Total
4
0
17
Twice a
week
4
b. Shipped from distributor. (51)
Everyday
Every
two days
Total
1
4
Twice a
week
5
Once a week
13
c. Pick up the products from a distributor (17)
Everyday
Every
Once a Twice a
two days
week
week
Total
1
0
5
2
I pick up the products
from a retailer
2
Once a
month
2
Twice a
month
4
Once a
month
0
Once every
three weeks
1
d. I pick up the products from a retailer (2)
Everyday
Every two days
Once a week
Total
0
0
2
Note: Some stores order products from several channels.
Others
12 (13%)
No regular
schedule
8
Twice a
month
2
Once a
month
1
Once a month
0
Twice a
month
3
No regular
schedule
26
No regular
schedule
4
Twice a month
0
Others
0
9. Which day during a week do you sell most Coca-Cola products? (Only choose one)
Total
Monday
Tuesday
Wednesday
Thursday
Friday
Weekend
Uncertain
Everyday
is same
Sell less in
weekend
0
0
0
1 (1%)
4 (4%)
28 (29%)
45 (48%)
11 (12%)
6 (6%)
10. What time is your best selling time for Coca-Cola products?
Before lunch
After lunch and
After dinner
before dinner
Total
8 (8.6%)
27 (29.0%)
21 (22.6%)
Uncertain
32 (34.4%)
Between class
hours
4 (4.3%)
Meal time
1 (1.1%)
11. What to do after your Coca-Cola products sold out?
A. Wait for next shipment:
23, 42.6%
B. Pick up the products from the distributor:
31, 57.4%
If you pick up the products, how many do you usually get?
Among 87 valid answers, 78 stores have pretty stable volume of purchasing. It ranges from small amount as 1 box to
big amounts as one hundred boxes, with an average of 12.75 boxes. The other 9 stores don’t have stable purchasing
volume.
How do you pick up the products?
(1) Walk and lift them
0
(3) Rental cars
(2) Handbarrow
7
(4) Others: Bicycle
12.
When do people buy Coca-Cola products?
2
3
Motorcycle 1
Three-wheel bicycle 3
when they feel thirsty: 8
Appendix C, Distributor Survey, 4
a.
Where do they drink them?
In the store: 5 (5.5%)
b.
13.
a.
d.
If the customer drinks in your store, he drinks:
By himself: 9 (10%)
b.
With a friend: 0 (0%)
Uncertain: 76 (86%)
14.
a.
b.
c.
The degree of importance for drinks are frozen to your customer?
Very important: 83
81% (11 interviewers specially emphases in summer)
Not very important: 20 19% (13 interviewers specially emphases in winter)
Not at all: 0
0%
15.
a.
Do the customers often buy unfrozen drinks from you?
Often: 22 (22%)
b.
Not often: 74 (74%)
16.
a.
Do you store your Coca-Cola products in the refrigerator?
Yes: 97 (100%)
b.
No: 0 (0%)
17.
a.
Can you sell more Coca-Cola products if you have a refrigerator?
Yes, much more: 65 (67%)
b.
Yes, little more: 32 (33%)
18.
a.
Do you store your other products in the refrigerator?
Yes: 97 (100%)
b.
No: 0 (0%)
At home: 5 (5.5%)
c.
Uncertain: 80 (89%)
c.
With two or more friends: 3 (4%)
c.
Never: 4 (4%)
c.
What the customers will buy if Coca-Cola products sold out?
Pepsi
Jianlibao Sprite Xingqisi
Spring Water Coconut Juice
Percentage 65.3 % 9.3%
6.7%
6.7%
6.7%
2.7%
Store No. 49
7
5
5
5
2
No: 0 (0%)
19.
a.
c.
Which drink is the best seller? (Only for price concern)
Premium: 7
7.5%
b.
Medium: 74
Lower: 8
8.6%
d.
Same for all: 4
Yibaosuai Yangxiecheng
1.3%
1.3 %
1
1
79.6%
4.3%
Do you think which brand the customers like best?
Coca
Pepsi Yibaosuai Sprite Yangxiecheng
Percentage 67.1 % 15.2%
6.3%
5.1%
2.5%
Store No. 53
12
5
4
2
Spring Water
1.3%
1
What are the three best seller brands?
No. 1: Coca-Cola: 95 (48%)
No. 2: Pepsi Cola: 65 (33%)
No. 3: Sprite :
Luzhou
1.3%
1
37 (19%)
20.
Please estimate the importance of the following products in your business:
Soda Drink
20%
Spring Water:
20%
Juice
13%
Ice Cream
Small Food:
11%
Biscuits:
10%
Cookie:
7%
Chocolate:
21.
How many employees in your store (including the owners)?
Employee Number
1
2
3
4
6
7
Store Number
19
48
12
3
2
1
Store/total store no. (%)
20.9
52.7
13.2
3.3
2.2
1.1
Average No. of employees per store: 3.16
8
1
1.1
10
2
2.2
Meiniandao
1.3 %
1
13
1
1.1
13%
6%
25
1
1.1
40
1
1.1
With total of 288 employees, male employees consist of 127, or 44.1%, working in 69 stores. Female employees
consist of 161, or 55.9%, working in 76 stores.
Family member count
1
2
3
4
Organization count
13
24
1
4
Appendix C, Distributor Survey, 5
25: How much is your initiating fund for business?(RMB)
Fund Amount
<=5,000 5000-10,000 Not Including
Organization count
8
11
Average fund/ Shop
3975
9000
Percentage among shops
16%
22%
10,000-50,000 Including
21
29524
42%
26: How long it takes you to get the initiating fund?
Time
1-6 month
6-12 month
More than 12 month
Shop count
15
6
5
Government Fund
3
>50,000
10
145500
20%
27: The source of your initiating fund and interest rate
Fund of 78 shops is from family and friends. Fund of 19 shops is from personal savings. All of them are no interest.
28. Have you ever received government development fund?
Yes
No
Total
4
92
One shop specified that the government help to open the business and give the tax exemption , another one specified
that the government give the tax reduction because of the poor business.
29. Did you invest in these categories to expend your business? If yes, please specify the amount.
Yes
computer
Public phone
Promotion
Other
No
Total
4
1
1
1
1
82
30.The source of your investment and interest rate
More than 95% organizations had no investment last year.
31.How much did you spend on these items last month?
People avoided answering this question, Incomplete sample.
32. What kind of help have been provided by Coca-Cola Company:
Helps
ShipRefrigUmbrella Glass
Content
ping
erator
bottle
Number of point of sale
69
21
10
18
Percentage of total num- 67.0%
20.4%
9.7%
17.5%
ber of point of sale
Note: Some of point of sale get more than one help.
Kiosk
Sign
1
1%
15
15%
Mixing
Machine
1
1%
Tables &
Chairs
2
2%
33. How many unit do you sell per day. (In packet unit)
Package
2L
1.25 L
0.5 L
355 ML 250 ML 192 ML
Plastic
Plastic
Plastic
Can
Glass
Glass
Content
Bottle
Bottle
Bottle
Bottle
Bottle
Winter
Average Sale (in bottle)
1
5.6
12.0
14.4
12
15.1
Point of Sale
2
36
59
60
2
13
Percentage
0.1%
10.0%
35.4%
43.4%
1.2%
9.8%
Summer Average sale (in bottle)
9
16.1
25.0
36.0
19.8
27.2
Point of sale
3
34
54
56
6
15
Percentage
0.6%
12.3%
30.2%
45.1%
2.7%
9.1%
Note: Percentage (Average sale*Number of point of sale)/Σ(Average sale*Number of point of sale)*100%
Appendix C, Distributor Survey, 6
34. Cost and price per unit
Package
1.25 L
0.5 L
355 ML
250 ML
192 ML
Plastic
Plastic
Can
Glass
Glass
Content
Bottle
Bottle
Bottle
Bottle
Average cost (Yuan/bottle)
4.54
2.66
1.96
0.72
0.69
Average price (Yuan/bottle)
5.48
3.5
2.98
1.3
1.04
Gross profit
17.2
24.0
34.2
44.6
33.7
Note: Average price is the mean of prices of all retailers who are selling same kind of product.
35. Please specify the lead time of capital not including the costs.
None. (Interviewee refused to answer this question.)
36. Your Date of Birth.
None. (Interviewee refused to answer this question.)
37. What was your occupation before you sold Coca-Cola?
Occupation
Number of People
Clerk
5
Clerical
4
House woman
6
Unemployed
16
Worker
16
Businessman
8
Peasant
5
Part-time worker
4
Student
3
Repairman
2
Others
4
Total
73
38. What kind of occupation would you choose if you were not doing current business?
Occupation
Number of People
Do not know
37
Beverage
3
Do not work
2
Run other business
5
work part-time
3
Repairman
2
Others
3
Total
55
39. Do you have any business training?
1) Yes. 4 people 2) No. 90 people 3) 1 has the service training
4) 1 has hotel management training
40. Do you think it is necessary to have business training?
Options
Number of people
Percentage (%)
It is necessary.
25
26.9%
Not necessary
58
62.3%
Do not have time
9
9.7%
Indifferent
1
1.1%
Appendix C, Distributor Survey, 7
If you think it is necessary to have business training, what kind of training you need?
Kinds of training
Number of people selected this kind of training
Agency
3
Accountancy
2
Marketing
6
Sales
13
Credit management
2
Computer technology
3
Human resource
0
Customer relationship
4
Management
1
Total
34
Note: Some people made more than one choice.
41. Do you have other income source besides the income of this business?
1) Yes. 19 people 21.3%
2) No. 70 people 78.7%
If you have, please estimate how much you earn from that source (not including this Coca-Cola business.)
Those who have other income source refused to answer this question.
Appendix C, Distributor Survey, 8
II. Xian
Note: Total valid survey: 106. The survey subjects include 46 small convenient stores, 29 grocery stores, 21 drug
stores, and 10 restaurants. However, for some reason, some questions could not get all the answers.
1.The business has been operated for average of 4.29 year
1 year and below
1 to 3 years (including 3)
Total
26 (25%)
42 (39%)
4 year and above
38 (36%)
The list of merchants sold: (respondent only chooses one)
2. 1). Foods including soft drinks 2). Foods including soft drinks and non-foods
3). Only drinks
4). Others
Foods including soft drinks
Non-foods and foods including soft drinks
Total
25 (24.7%)
69 (68.3%)
Only drinks
2 (2%)
Others
(5%)
3. Who manage the business?
1. Owner
2. Employee
3. Family member
1. Owner
2. Employee
3. Family member
Total
81 (90%)
8 (9%)
1 (1%)
4. For how many years has the store sold the products of Coca-Cola? 3.31 years, which is 77.2% of the average operation period.
1 year and below
1 to 3 years (including 3)
4 year and above
Total
27
54
25
5. To what extent you agree with following opinions:
Total
Strongly disDisagree
Neutral
Agree
Strongly
Total
agree
Agree
score
number
%
%
%
%
%
Demand for products of
1
0.9
8
7.5
8
7.5
78
73.6
11 10.3
81.6
Coca-Cola is very large
1
0.9
43
40.6 19
17.9
40
37.7
3
2.8
63.8
The quality of Coca-Cola
products is not any better
than other soft drinks
Coca-Cola products are
0
0.0
3
2.9
15
14.4
78
75.0
8
7.7
80.6
affordable
Coca-Cola products attract
3
2.8
17
16.2 15
14.3
64
61.0
6
5.7
73.6
customers to the store
Coca-Cola products have
0
0.0
13
12.3 14
13.2
70
66.0
9
8.5
78.6
good advertisement
When customers buy Coca0
0.0
5
4.7
7
6.7
76
72.4
17 16.2
84.0
Cola products, they also
buy other products
Note: The score is calculated by given “strongly disagree” 1 point and “strongly agree” 5 point, and 1 point difference for each level in between. If all the answers are “strongly agree”, then the total score will be 100 points.
6. Overall, how important are the sales of Coca-Cola to you when you consider their weights in your capital?
Very important Important Somehow important Somehow unimportant Very unimportant
Total
16 (15.1%)
52 (49.1%)
27 (25.5%)
9 (8.5%)
2 (1.9%)
7. How often do you order Coca-Cola products?
Once a day
Once a week
Once a month
Total
1 (0.9%)
58 (54.7%)
14 (13.2%)
No regular schedule
33 (31.1%)
Appendix C, Distributor Survey, 9
8. How and how long do you get the Coca-Cola products?
Cola Coca transportation Shipped from distribuI pick up the products
I pick up the products
Vehicle
tor
from a distributor
from a retailer
71
14
3
1
a. Coca-Cola transportation vehicle (71)
Everyday
Every two days
Once a week
Once a month
Twice a month
Others
Total
1
3
49
2
6
10
b. Shipped from distributor. (14)
Everyday
Every two days
Once a week
Once a month
Twice a month
Others
Total
0
2
5
3
1
3
c. Pick up the products from a distributor (3)
Everyday
Every two days
Once a week
Once a month
Twice a month
Others
Total
0
0
2
0
0
1
d. I pick up the products from a retailer (1)
Everyday
Every two days
Once a week
Once a month
Twice a month
Others
Total
0
0
1
0
0
0
Note: Some stores order products from several channels.
9. Which day during a week do you sell most Coca-Cola products? (Only choose one)
Total
Mon.
Tues.
Wed.
Thurs.
Fri.
Weekend
Uncertain
Everyday
is same
Sell less in
weekend
1 (1%)
0
0
1 (1%)
17 (17%)
48 (50%)
17 (17%)
7 (7%)
7 (7%)
10. What time is your best selling time for Coca-Cola products?
Before lunch
After lunch and before dinner
After dinner
Total
2
75
46
Note: some stores had two choices.
11. What to do after your Coca-Cola products sold out?
C. Wait for next shipment:
80, 75.5%
D. Pick up the products from the distributor:
32, 30.2%
If you pick up the products, how many do you usually get?
Among all valid answers, 40 stores have pretty stable volume of purchasing. It ranges from small amount as 1 box to
big amount as 50 boxes, with an average of 5.64 boxes.
How do you pick up the products?
(1) Walk and lift them
0
(2) Handbarrow
6
12.
a.
(3) Rental cars
(4) Others
16
8
Where do customers drink Coca-Cola when they buy them?
In the store: 64 (65%)
b.
At home: 35 (35%)
13.
If the customer drinks in your store, he drinks:
a. By himself: 34 (37%)
b. With a friend: 33 (36%)
c. With two or more friends: 24 (27%)
14.
The degree of importance for drinks are frozen to your customer?
a. Very important: 91 (86%)
b. Not very important: 13 (12%) c. Not at all: 2 (2%)
15.
a.
Do the customers often buy unfrozen drinks from you?(not taken from refrigerator)
Often: 63
59.4% b.
Not often: 40
37.7%
c.
Never: 3
16.
a.
Do you store your Coca-Cola products in the refrigerator?
Yes: 84
83.2% b.
No: 17
16.8%
Appendix C, Distributor Survey, 10
2.8%
17.
a.
Can you sell more Coca-Cola products if you have a refrigerator?
Yes, sell much more: 67 (68%)
b.
Yes, sell little more: 27 (27.5%)
18.
a.
Do you store your other products in the refrigerator?
Yes: 86
82.7%
b.
No: 18
c.
No: 4 (4.5%)
17.3%
19.
What the customers will buy if Coca-Cola products sold out?
Jielibao Lulu Pepsi Feichang-Cola Bingfeng Lepesi Wahaha Fenghuang-Cola RedBull Others
Percentage 28.1 % 18.8% 14.4% 10.6%
7.5% 5.0%
4.4%
4.4%
3.1%
3.8%
Store No. 45
30
23
17
12
8
7
7
5
6
a.
Which drink is the best seller? (Only for price concern)
Premium: 2 (1.9%)
b.
Medium: 86 (81.1%)
c.
Lower: 18 (17%)
Do you think which drink the customers like best?
Coca
Pepsi Yibaosuai Sprite Yangxiecheng
Percentage 67.1 % 15.2%
6.3%
5.1%
2.5%
Store No. 53
12
5
4
2
Spring Water
1.3%
1
What are the three best seller brands?
No. 1: Coca-Cola: 106
43%
No. 2: Fanta: 79
31%
Luzhou
1.3%
1
No. 3: Sprite : 66
20.
Please estimate the importance of the following products in your business:
Soda Drink
13%
Spring Water
15%
Juice
Ice Cream
12%
Small Food:
11%
Biscuits:
Cookie:
10%
Chocolate:
11%
Meiniandao
1.3 %
1
26%
13%
12%
21.
How many employees in your store including the owners?
Employee No.
1
2
3
4
5
6
7
8
10
17
Store No.
37
46
7
5
1
2
2
2
1
1
Store/total store no. (%)
36
44
7
5
1
2
2
2
1
1
Average No. of employee per store: 2.4
With total of 244 employees, male employees consist of 95, or 38.9%, working in 63 stores. Female employees
consist of 149, or 61.1%, working in 71 stores.
22. Employee and Employer Role distribution:
Manager
Cashier
Count
32
3
Organization count
24
3
Percentage
11.9%
1.1%
Attendant
229
106
85.4%
23.Age distribution among employees and employer
18-24
25-39
40-54
Count
77
103
46
Organization Count
20
58
35
Percentage
29.5%
39.5%
17.6%
55-64
30
18
11.5%
Part-time
4
3
1.5%
Total
268
65 above
5
4
1.9%
Total
261
24: How many employees are your family members?
Total 116 employees are family members of employer, it’s 77.3% of total employees.
25: How much is your initiating fund for business? (RMB)
Amount
<=5,000 5,000-10,000 (including)
Organization count
33
20
Shop average fund
3081
9700
Percentage among total shop
37.9%
23.0%
10,000-50,000 (including)
23
29130
26.4%
Appendix C, Distributor Survey, 11
>50,000
11
10818
12.6%
26: How long it takes you to get the initiating fund?
Time
1-6 month
More than 6 month
Shop count
48
7
Percentage
50.0%
7.3%
6-12 month
41
42.7%
27: The source of your initiating fund and interest rate
Source
Local loaner
Family &Friend
Personal saving
count
2
31
83
Percentage
1.7%
26.3%
70.3%
Company
2
1.7%
28. Have you ever received government development fund?
Yes
No
count
3
101
29. Did you invest in these categories to expend your business? If yes, please specify the amount.
18 respondents responded that there is investment in transportation, 81 responses responded that there is no investment. Among those have investments:
Category
Transportation
Construction
Machinery
Dinning facility
Game Table
Count
3
2
11
11
1
30.The source of your investment and interest rate
Source
Local loaner
Family &Friend
Count
1
3
Percentage
1.6%
4.9%
Personal saving
55
90.2%
Company
2
3.3%
31.How much did you spend in these items last month?
Category
Owner income
Employee
income
E&
water
Transportation
Communication
cleaning
Storage
Administration
Others
Shop average
Shop count
1133.7 (RMB)
86
452
35
220
85
270
5
184
55
60
55
274
7
230
59
725
14
32. What kind of help have been provided by Coca-Cola Company:
Help
ShipRefrigUmbrella
Glass
Content
ping
erator
Bottle
Number of stores
48
23
17
16
Percentage of total num45.3
21.7
16.0
15.1
ber of stores
Note: Some stores get more than one help.
Kiosk
Sign
1
0.9
15
14.2
33. How many units do you sell per day? (In packet unit)
Package
2L
1.25 L
0.5 L
355 ML 250 ML
Plastic Plastic
Plastic
Can
Glass
Content
Bottle
Bottle
Bottle
Bottle
Winter
Average Sale (in bottle)
3.5
7.54
7.37
11.52
9.43
Stores
4
67
67
48
14
Percentage
0.5%
18.0%
17.6%
19.7%
4.7%
Summer Average sale (in bottle)
30.3
29.6
134.77
47.33
108.64
Stores
1
92
57
51
33
Percentage
0.1%
12.0%
33.9%
10.7%
15.8%
Note: Percentage = (Average sale* Number of stores)/((Average sale* Number of stores)*100%
Appendix C, Distributor Survey, 12
Mixing
Machine
2
1.9
12 OZ
Paper
Cup
28
2
2.0%
55
2
0.5%
Cart
1
0.9
16 OZ
Paper
Cup
525
2
37.4%
2036
3
27.0%
34. Cost and price per unit
Package
2L
Plastic Bottle
1.25 L
0.5 L
355 ML
250 ML
12 OZ
Plastic
Plastic
Can
Glass
Paper
Content
Bottle
Bottle
Bottle
Cup
Average cost (Yuan/bottle)
6.93
4.65
2.46
1.89
0.91
Average price (Yuan/bottle)
8.92
5.43
2.97
2.68
1.18
1.6
Gross profit (%)
22.3
14.4
17.2
29.5
22.9
Note: Average price is the mean of prices of all retailers who are selling same kind of product.
35. Please specify the lead time of capital not including the costs.
None. (Interviewee refused to answer this question.)
36. Your Date of Birth.
Age
<=30
30-45
>=45
Number of people
Percentage
48
51.1%
23
24.5%
23
24.5%
37. What was the occupation before you sell Coca-Cola?
Occupation
Number of People
Percentage
Clerk
18
17.1%
Clerical
8
7.6%
House woman
6
5.7%
Unemployed
24
22.9%
Worker
30
28.6%
Businessman
6
5.7%
Peasant
2
1.9%
Teacher
3
2.9%
Student
3
2.9%
Others
5
4.8%
Total
105
38. What kind of occupation would you choose if you were not doing current business?
Occupation
Number of People
do not know
21
do business
11
Worker
11
Clerk
3
Salesman
2
stockholder
1
peasant
1
total
50
39. Do you have any business training?
1) Yes. 20 people 18.9% 2) No. 86 people 81.1%
40. Do you think it is necessary to have business training?
Options
Number of people
Percentage (%)
It is necessary
22
21.6%
Not necessary
80
78.4%
Appendix C, Distributor Survey, 13
16 OZ
Paper
Cup
2.2
If you think it is necessary to have business training, what kind of training you need?
Kinds of training
Agency
Accountancy
Marketing
Sales
credit management
Computer technology
Human resource
Customer service
Total
Number of people selected this kind of training
4
3
8
8
5
2
0
1
31
41. Do you have other income source besides the income of this business?
1) Yes. 42 people 53.2%
2) No. 37 people 46.8%
If you have, please estimate how much you earn from that source (not including this Coca-Cola business.)
Those who have other income source refused to answer this question.
Appendix C, Distributor Survey, 14
III. Shanghai
Total survey issued: 105
Valid survey returned: 100
1.
The business has been operated for average of ____ year
1 to 5 year (including 5)
5 to 10 years
10 year and above
Total
75%
15%
10%
The list of merchants sold: (surveyee only chooses one)
2. 1). Foods including soft drinks 2). Foods including soft drinks and non-foods
3). Only drinks
4). Others
Foods including soft drinks
Non-foods and foods including soft drinks
Total
30%
68%
3.
Who manage the business?
1). Owner
2). Employee
1. Owner
2. Employee
3. Family member
Total
84%
8%
8%
Only drinks
2%
Others
0%
3). Family member
4. For how many years has the store sold the products of Coca Cola?
1 to 5 year (including 5)
5 to 10 years
10 year and above
Total
78%
13%
9%
5. To what extent you agree with following opinions:
Total
Strongly disagree
Demand for products of Coca Cola is
0%
very large
The quality of Coca cola products is not
5%
any better than other soft drinks
Coca Cola products are affordable
0%
Coca Cola products attract customers to
0%
the store
Coca Cola products have good adver1%
tisement
When customers buy Coca Cola prod0%
ucts, they also buy other products
Disagree
14%
Neutral
17%
Agree
65%
Strongly Agree
4%
76%
7%
12%
0%
1%
7%
6%
14%
88%
70%
5%
9%
6%
8%
65%
10%
6%
6%
85%
3%
6. Overall, how important are the sales of Coca-Cola to you when you consider their weights in your capital?
Very important Important Somehow important Somehow unimportant Very unimportant
Total
6%
45%
41%
8%
0%
7. How often do you order Coca-Cola products?
Once a day
Once a week
Once a month
Total
3%
42%
20%
No regular schedule
35%
8. How and how long do you get the Coca-Cola products?
a. Coca Cola transportation vehicle
Everyday Every two days Once a week Once a month
Total
0%
1%
11%
2%
b. Shipped from distributor.
Everyday Every two days Once a week Once a month
Total
1%
2%
11%
8%
Twice a month
3%
No regular schedule
7%
Twice a month
4%
No regular schedule
5%
Appendix C, Distributor Survey, 15
c. Pick up the products from a distributor
Everyday Every two days Once a week
Total
3%
0%
13%
d. I pick up the products from a retailer
Everyday Every two days Once a week
Total
0%
0%
1%
Once a month
7%
Twice a month
6%
No regular schedule
11%
Once a month
1%
Twice a month
1%
No regular schedule
2%
9. Which day during a week do you sell most Coca-Cola products? (Only choose one)
Monday
Tuesday
Wednesday
Thursday
Friday
Weekend
Total
3%
3%
9%
2%
35%
16%
Uncertain
32%
10. What time is your best selling time for Coca-Cola products?
Before lunch
After lunch and before dinner
After dinner
Total
2%
85%
13%
11. What to do after your Coca-Cola products sold out?
E. Wait for next shipment:
35%
F. Pick up the products from the distributor:
65%
If you pick up the products, how many do you usually get?
1. Less than 5 boxes: 70%
5-10 boxes: 20%
More than 10 boxes: 10%
How do you pick up the products?
(1) Walk and lift them
0%
(3) Rental cars
31%
40%
29%
(2) Handbarrow
(4) Others:
12.
a.
Where do customers drink Coca-Cola products when they buy them?
In the store: 85%
b.
At home: 15%
13.
a.
If the customer drinks in your store, he drinks:
By himself: 27%
b.
With a friend: 38%
14.
a.
The degree of importance of frozen drinks to your customer?
Very important: 53%
b.
Not very important: 43%
15.
a.
Do the customers often buy unfrozen drinks from you?(not taken from refrigerator)
Often: 63%
b.
Not often: 33%
c.
Never: 4%
c.
With two or more friends: 35%
c.
16.
Do you prepare a refrigerator for your Coca-Cola products?
a.
Yes: 81%
b.
No: 19%
If no, why?
a.
Lack of capital: 76%
b.
Not necessary: 10%
c.
17.
a.
Can you sell more Coca-Cola products if you have a refrigerator?
Yes, sell much more: 50%
b.
Yes, sell little more: 47%
18.
a.
Do you prepare a refrigerator for your other products?
Yes: 79%
b.
No: 21%
19.
Pepsi
52%
What the customers will buy if Coca-Cola products sold out?
Farmer’s Spring Water
Shandeli
Ice Tea
Hulong Tea
15%
10%
9%
8%
What are the best seller brands?
Coca-Cola: 46%
Pepsi: 35%
Shandeli: 2%
Ice Tea: 2%
Sprite : 8%
Other: 1%
Appendix C, Distributor Survey, 16
Not at all:
4%
No such plan: 14%
c.
No, no help at all: 3%
Meinianda
2%
Coconut Juice Other
2%
2%
Farmer’s Spring Water: 6%
20.
Please estimate the importance of the following products in your business:
Degree of Importance
Products
Very Important Important
Not ImporSignificantly not
(%)
(%)
tant (%)
important (%)
Chocolate
4
18
75
2
Cookie
5
56
38
0
Biscuit
9
65
25
0
Small food
9
60
28
1
Ice-cream
11
54
26
4
Soda drink
20
69
6
3
Spring Water
17
80
1
1
Juice
2
65
28
3
21.
a.
How many employees in your store including the owners?
One employee: 30%
b.
Two employees: 31%
c.
Absolutely Not
Important (%)
1
1
1
2
5
2
1
2
More than two employees: 39%
Total employee number for 100 stores: 211
Full Time: 201
Part Time: 10
22.Employee and Employer Role distribution:
Category
Count
manager
NA
Cashier
NA
Warehouse keeper
NA
Driver
NA
Part time
NA
Others
NA
Total
NA
23.Age distribution among employees and employer
Category
Count/percentage
Under18
1/0.47%
18-24
17/8.06
25-39
110/52.13
40-54
74/35.07
55-64
9/4.27
65 up
0/0
Total
211/100
24: How many employees are your family members?
71% of total employees is the family member, 29% of total employees is not family member.
25: How much is your initiating fund for business? (RMB)
Amount
<5,000
5000-10,000
10,000-20,000
Percentage
18%
21%
30%
20,000-30,000
20%
26: How long it takes you to get the initiating fund?
1-6 month
6-12 month
12 month up
Percentage
50%
22%
28%
27: The source of your initiating fund and interest rate
99% from friends and family members, 1% from bank.
Appendix C, Distributor Survey, 17
30,000-100,000
9%
>100,000
2%
28. Have you ever received government development fund?
Yes
No
Percentage
0
100%
29. Did you invest in these categories to expend your business? If yes, please specify the amount.
1.5% responded that there is investment in transportation; average amount is less than 3,000. 95% responded that
there is no investment.
30.The source of your investment and interest rate
Almost all the source is coming from family and friends, very lower interest rate.
31.How much did you spend in theses items last month?
a. Employer income (Salary and profit)
Amount
<500
500-1,000
1,000-2,000
2,000-3,000
Percentage
16%
32%
30%
17%
3,000-5,000
5%
b. Employee income
Amount
<500
500-1,000
Percentage
13%
59%
>2,000
7%
1,000-1,500
11%
1,500-2,000
10%
c. Electricity , water and other expense: Evenly distributed among 50-2000.
d. Fax: 40-200
e. Cleaning: 20-100
f. Storage: 200-1000
32. What kind of help have been provided by Coca-Cola Company:
Help Shipping
Equipment (Refrigerator, umbrella, bottle)
Options
Yes
44%
5%
No
56%
95%
g. Security: 60-1400
Signage
Others
13%
87%
none
none
33. How many units do you sell per day. (In package unit)
Winter
Package
Sale in bottle/day
1-3
4-6
7-9
10-12
13-15
16-18
19-21
22-24
25-27
>>27
2L
Plastic Bottle
2%
1%
0%
1%
0%
0%
0%
0%
0%
0%
1.25 L
Plastic
Bottle
70%
14%
9%
5%
2%
0%
0%
0%
0%
0%
0.5 L
Plastic
Bottle
45%
28%
14%
10%
0%
0%
3%
0%
0%
0%
355 ML
Can
1.25 L
Plastic
Bottle
15%
25%
11%
27%
8%
1%
0.5 L
Plastic
Bottle
12%
15%
4%
23%
12%
5%
355 ML
Can
40%
36%
10%
10%
4%
0%
0%
0%
0%
0%
750 ML
Glass
Bottle
1%
2%
1%
0%
0%
0%
0%
0%
0%
0%
250 ML
Glass
Bottle
1%
1%
1%
1%
0%
0%
0%
0%
0%
0%
12 OZ
Paper
Cup
0%
0%
0%
0%
0%
0%
0%
0%
0%
2%
750 ML
Glass
Bottle
0%
1%
0%
1%
0%
0%
250 ML
Glass
Bottle
0%
1%
0%
1%
1%
0%
12 OZ
Paper
Cup
0%
0%
0%
0%
0%
0%
Summer
Package
Sale in bottle/day
1-3
4-6
7-9
10-12
13-15
16-18
2L
Plastic Bottle
0%
1%
0%
1%
0%
0%
7%
12%
7%
14%
13%
4%
Appendix C, Distributor Survey, 18
19-21
1%
2%
15%
22-24
0%
2%
4%
25-27
1%
6%
8%
>>27
0%
2%
2%
Note: percentage of retailer selling specific size of package
24%
4%
12%
3%
1%
0%
1%
0%
0%
0%
1%
0%
0%
0%
0%
2%
34. Cost and price per unit
2 L Plastic bottle
Cost
Price
Range
Percentage
1.25 L Plastic bottle
40-50 Yuan/carton 45-50 Yuan/carton
2%
1%
Cost per carton in Yuan
7 Yuan/bottle
7.8 Yuan/bottle
2%
1%
Price per bottle in Yuan
Range
Percentage
0.5 L Plastic bottle
46-50
50-54
54-56
2%
7%
71%
Cost per bottle in Yuan
4.8
1%
5.0
5.2
5.5
6.0
53% 4%
29% 2%
Price per bottle in Yuan
Range
Percentage
355 ML can
50-52
3%
60-65
1%
2.5 2.8 3.0
3.2
3% 7% 60% 3%
Price per can in Yuan
Range
Percentage
750 ML Glass bottle
Range
Percentage
250 ML Glass bottle
Range
Percentage
12 OZ paper cup
38-40
1%
52-54 54-56 57-58
7%
62%
4%
Cost per can in Yuan
40-43
1%
58-60
4%
43-45 45-47 47-49
57%
31%
5%
Cost per carton in Yuan
30
2%
Cost per carton in Yuan
19
22
1%
1%
1.8
1%
N/A
N/A
16 OZ paper cup
Cost
N/A
N/A
Price per cup in Yuan
1.5
3%
Price per cup in Yuan
2.0
1%
35. Please specify the lead time of capital not including the costs (per month).
Capital range
Percentage of total retailers
300-2000 Yuan
22%
2000-5000 Yuan
28%
5000-10,000 Yuan
38%
10,000-20,000 Yuan
12%
36. Your Date of Birth.
None.
Appendix C, Distributor Survey, 19
3.5
8%
2.0-2.3
2.5
2.8
3.0
15%
75% 2%
2%
Price per bottle in Yuan
3.0
5.0
1%
1%
Price per bottle in Yuan
1.0
1.1
1%
1%
Cost
Range
Percentage
Range
Percentage
56-58
9%
37. What was the occupation before you sell Coca-Cola?
Occupation
Percentage
Unemployed
38%
Clerk
22%
Clerical
16%
Worker
11%
Retired
8%
House woman
3%
Others
4.8%
38. What kind of occupation would you choose if you were not doing current business?
Occupation
Percentage
do not know
43%
Do other business
27%
salesman
10%
worker
5%
Run restaurant
4%
Driver
4%
Student
2%
Others
5%
39. Do you have any business training?
1) Yes. 21%
2) No. 79%
40. Do you think it is necessary to have business training?
Options
Percentage (%)
It is necessary
52%
Not necessary
48%
41. Do you have other income source besides the income of this business?
1) Yes. 20%, average at 1000 yuan/month
2) No. 80%
Appendix C, Distributor Survey, 20
IV. Harbin
Business Name
Business Location: Harbin
Tel: Area Code: 0451
Business Classification:
Convenient Store: 10
Restaurant/Bar: 24
Street vendors:
Small Convenient Store 34
Fast food Restaurant: 26
Others (see detailed description): 6
Detailed Description:
Total Surveys: 100
Business is divided into two groups: Convenient Store and Restaurant
Each group is further divided according to the number of employees:
2 person and below: small convenient store
2 person above: convenient store
5 person and below: fast food restaurant
5 person above: restaurant/bar
Appendix C, Distributor Survey, 21
1. The business has been operated for ____ year
1 year and below
1 to 3 years (including 3)
Total
23 (23%)
38 (38%)
4 year and above
39 (39%)
The list of merchants sold: (surveyee only chooses one)
2. 1). Foods including soft drinks 2). Foods including soft drinks and non-foods
3). Only drinks
4). Others
Foods including soft drinks
Foods including soft drinks and non-foods
Total
80 (80%)
20 (20%)
Only drinks
0
Others
0
3. Who manage the business?
1. Owner
2. Employee
3. Family member
1. Owner
2. Employee
3. Family member
Total
88 (80%)
4 (4%)
17 (16%)
We can tell from above data that the business usually managed by the owner.
4. For how many years has the store sold the products of Coca-Cola?
1 year and below
1 to 3 years (including 3)
4 year and above
Total
23 (26%)
33 (37%)
34 (37%)
5. To what extent you agree with following opinions:
Total
Strongly disagree
Demand for products of Coca-Cola is
2
very large
(2%)
The quality of Coca-Cola products is not
8
any better than other soft drinks
(9%)
Coca-Cola products are affordable
0
Coca-Cola products attract customers to
the store
Coca-Cola products have good advertisement
When customers buy Coca-Cola products, they also buy other products
14
(14%)
1
(1%)
2
(2%)
Disagree
21
(26%)
28
(30%)
0
72
(74%)
11
(14%)
2
(2%)
Neutral
4
(5%)
1
(1%)
1
(1%)
2
(2%)
2
(2%)
3
(4%)
Agree
52
(63%)
53
(58%)
76
(96%)
9
(9%)
64
(79%)
74
(90%)
Strongly Agree
3
(4%)
2
(2%)
2
(3%)
1
(1%)
3
(4%)
2
(2%)
6. Overall, how important are the sales of Coca-Cola to you when you consider their weights in your capital?
Very important Important Somehow important Somehow unimportant Very unimportant
Total
2 (2%)
22 (22%)
29 (29%)
35 (36%)
11 (11%)
7. How often do you order Coca-Cola products?
Once a week
Once a month
Once a day
Total
4 (4%)
30 (29%)
9 (9%)
No regular schedule
59 (58%)
8. How and how long did you get the Coca-Cola products?
Cola Coca transportation Shipped from distribuI pick up the products
I pick up the products
Vehicle
tor
from a distributor
from a retailer
58 (51%)
27 (24%)
26 (23%)
2 (2%)
a. Coca-Cola transportation vehicle (58)
Everyday Every two days
Once a week
Once a month
Twice a month
Others
Total
3 (5%)
8 (14%)
24 (41%)
1 (2%)
4 (7%)
18 (31%)
b. Shipped from distributor. (27) The name of the distributor________
Everyday
Every two days
Once a week
Once a month
Twice a month
Others
Total
2 (7%)
5 (19%)
10 (37%)
0 (0%)
3 (11%)
7 (26%)
Appendix C, Distributor Survey, 22
c. I pick up the products from a distributor (26)
Everyday
Every two days
Once a week
Total
0 (0%)
1 (4%)
2 (8%)
d. I pick up the products from a retailer (2)
Everyday
Every two days
Once a week
Total
0
0
0
Once a month
3 (12%)
Once a month
0
Twice a month
5 (19%)
Twice a month
2
Others
15 (57%)
Others
0
9. Which day during a week do you sell most Coca-Cola products? (Only choose one)
Monday
Tuesday
Wednesday
Thursday
Friday
Others
Total
1 (1%)
0 (0%)
1 (1%)
0 (0%)
10 (10%)
88 (88%)
10. What time is your best selling time for Coca-Cola products?
Before lunch
After lunch and before dinner
After dinner
Total
28 (19%)
76 (53%)
40 (28%)
11. What to do after your Coca-Cola products sold out?
G. Wait for next shipment:
H. Pick up the products from the distributor:
If you pick up the products, how many do you usually get?
41
43
49%
51%
How do you pick up the products?
(1) Walk and lift them
3
7%
(3) Rental cars
9
21%
(2) Handbarrow
(4) Others
12.
a.
When do people buy Coca-Cola products?
In or outside of the store: 81
67%
Where do they drink them?
b.
At home: 39
13.
a.
If the customer drinks in your store, he drinks:
By himself: 77 (34%)
b. With a friend: 83 (37%)
14.
a.
The degree of importance of frozen drink to your customer?
Very important: 49 (47%) b.
Not very important: 53 (51%)
c.
15.
a.
Do the customers often buy unfrozen inks from you?
Often: 66
63%
b.
Not often: 35
34%
Never: 3
16.
Do you store your Coca-Cola products in the refrigerator?
a.
Yes: 69
70%
b.
No: 29
If no, Why?
13
14
c.
Not at all: 2 (2%)
3%
30%
Can you sell more Coca-Cola products if you have a refrigerator?
Yes, sell much more: 54 ( 54%) b.
Yes, sell little more: 45 (45%)
18.
a.
Do you store your other products in the refrigerator?
Yes: 72
73%
b.
No: 27
19.
What the customers will buy if Coca-Cola products sold out?
Which drink is the best seller? (Only for price concern)
Premium: 19 (15%)
b.
Medium: 84 (66%)
c.
What are your three best seller drinks?
No. 1: Coca-Cola
No. 2: Sprite
33%
c. With two or more friends: 64 (29%)
17.
a.
a.
30%
33%
c.
27%
No. 3: Fanta
Appendix C, Distributor Survey, 23
Lower: 24 (19%)
No: 1 (1%)
20.
Please estimate the importance of the following products in your business:
Degree of Importance
Products
Very ImImportant
Not ImSignificantly
Absolutely
portant
portant
not important Not Important
Chocolate
1
30
14
1
46
Cookie
0
31
13
1
43
Biscuit
11
33
3
1
45
Small food
14
32
14
13
23
Ice-cream
19
28
4
1
48
Soda drink
25
70
3
0
0
Spring Water
16
79
3
0
0
Juice
10
69
14
0
0
Total Percentage
%
7
7
9
10
10
20
20
17
21.
How many employees in your store including the owners?
Average number of employees: 4.4 (excluding two special samples)
22.Employee and Employer Role distribution:
Most of establishment is small, then have no distinguished division of management and labor.
23.Age distribution among employees and employer
Category
Count
Under18
2
18-24
276
25-39
174
40-54
126
55-64
23
65 up
10
Total
611
24: How many employees are your family members--------92
25: How much is your initiating fund for business? (RMB)
Under 5000 (including 5000) 5000-10000 (Including 10000)
Total
23
24
10000-50000 up
49
26: How long it takes you to get the initiating fund?
1-6 month
6-12 month
12 month up
Total
42
48
8
27: The source of your initiating fund and interest rate
Bank
Local loaner
Friends & Family
Total
2
89
Others
7
28. Have you ever received government development fund?
Yes
No
Total
1
97
If yes, Please specify------------29. Did you invest in these categories to expend your business? If yes, please specify the amount.
Yes
Transportation
Construction
Machinery
Other
No
Total
12
8
2
6
1
73
Appendix C, Distributor Survey, 24
Others
4
30.The source of your investment and interest rate
Bank
Local loaner
Personal saving
Total
13
Friends & Family
18
Others
4
31.How much did you spend in theses items last month?
Incomplete sample.
32. What kind of help have been provided by Coca-Cola Company:
Package
ShipEquipment
Kiosk Cart
ping
(refrigerator, umContent
brella, glass bottle)
Number of point
46
8
0
0
of sale
33. How many unit do you sell per day. (In packet unit)
Package
1.25L
0.5 L
Plastic
Plastic
Content
Bottle
Bottle
Winter
Average Sale (in bottles)
5.05
2.35
Summer
Average sale (in bottles)
12.45
4.4
34. Cost and price per unit
Package
Content
Average cost (Yuan/bottle)
Average price (Yuan/bottle)
Gross profit
1.25 L
Plastic
Bottle
4.79
5.56
16.1%
0.5 L
Plastic
Bottle
2.48
2.98
20.2%
355 ML
Can
1.91
2.84
48.7%
355 ML
can
10.6
25.75
Refrigerator
delivery
truck
5
0
250
glass
bottle
7.2
17.95
250 ML
Glass
Bottle
0.95
1.63
71.6%
35. Please specify the lead time of capital not including the costs.
None. (Interviewee refused to answer this question.)
36. Your Date of Birth.
<=30
Age
Number of People
15
30-45
>=45
Other
42
25
18
37. What was the occupation before you sell Coca-Cola?
Occupation
Number of People
Clerk
8
Clerical
5
House woman
16
Unemployed
21
Others
28
Appendix C, Distributor Survey, 25
short
-term
credit
1
sign
Others
10
1
38. What kind of occupation would you choose if you were not doing current business?
Occupation
Number of People
Do not work
26
worker
17
House woman
20
Run other business
11
work part time
6
others
15
39. Do you have any business training?
1) Yes. 4 people
2) No. 95 people
40. Do you think it is necessary to have business training?
Options
Number of people
It is necessary
15
Not necessary
84
41. How many employees in your business (including yourself): average 4.4 people
42. Do you have other income source besides the income of this business?
1) Yes. 21 people
2) No. 77 people
If you have, please estimate how much you earn from that source (not including this Coca-Cola business.)
Other income comes mainly from salary ranging from 300 yuan to 800 yuan. Some refused to answer this question.
Appendix C, Distributor Survey, 26