Upload
buikhuong
View
213
Download
0
Embed Size (px)
Citation preview
COLLEGE OF MANAGEMENT IN TRENČÍN
MULTINATIONAL VERSUS DOMESTIC CORPORATIONS
Bachelor Thesis
Study programme: Business Administration Workplace: College of management, Trenčín
Thesis advisor: Ing. Daniela Maťovčíková
Trenčín, 2010 Barbora Kubíková
BACHELOR THESIS
MULTINATIONAL VERSUS DOMESTIC CORPORATIONS
By
Barbora Kubíková
Advisor: Ing. Daniela Maťovčíková
A Bachelor thesis to Be Submitted to
City University of Seattle / Vysoká škola manažmentu
In Partial Fulfillment of the Requirements for the Degree of
Bachelor in 3.3.16 Economics and Business Administration
Study program: Business Administration
Submitted by ________________________________________________Date__________
Candidate Signature
Approved by ________________________________________________Date__________
Bachelor thesis/Project Advisor
Approved by ________________________________________________Date _________
Rector (or his representative)
Trenčín 2010
MULTINATIONAL VERSUS DOMESTIC CORPORATIONS
I, Barbora Kubíková, do hereby irrevocably consent to and authorize the library of Vysoká
škola manažmentu v Trenčíne to file the attached project and/or bachelor thesis
(Multinational versus domestic corporations) and make such paper available for in-library
use in all site locations.
For public access to digital form of the project/bachelor thesis on internet
I give my permission
I do not give my permission
I state at this time that the contents of this paper are my own work and all resources used
are indicated.
_______________________________________________________________ (Signature)
________________________________________________________________ (Date)
Multinational versus Domestic Corporations 6
Table of Contents
List of abbreviations 7
Acknowledgment 8
1. Chapter – Introduction and Problem Statement 9
2. Chapter – Review of Literature 10
2.1 History of trade 11
2.2 Definition of corporation 11
2.3 Origins of multinational corporations 13
2.4 Structure of corporation 14
2.5 Production and investments of corporation 17
2.6 Marketing 19
3. Chapter – Methodologies and Procedures Used in the Study 21
4. Chapter – Results 22
4.1 The Coca-Cola Company history 22
4.2 The Coca-Cola Company structure 22
4.3 The Coca-Cola Company in Slovakia 23
4.5 Kofola history 24
4.6 The Coca-Cola Company vs. Kofola net income 25
4.7 The author’s survey 27
5. Chapter- Discussion, Conclusion, Recommendation 33
References 34
Abstract 36
Appendix 38
Multinational versus Domestic Corporations 7
List of Abbreviations
CEO- Chief Executive Officer
CFO- Chief Financial Officer
COO- Chief Operations Officer
FDI- Foreign Direct Investment
MNC- Multinational Corporation
MNCs- Multinational Corporations
Multinational versus Domestic Corporations 8
Acknowledgement
I would like to thank to the lecturer of City University who is also my advisor of
bachelor thesis Ing. Daniela Maťovčíková. I am very grateful for her kind advices and support
while working on the thesis.
Multinational versus Domestic Corporations 9
1. Chapter – Introduction and Problem Statement
Almost all of the people worldwide are shopping. Shopping is necessary tool for
people in order to survive. Consumers are unpredictable and companies fights for the best
possible percentage of market share. Multinational corporations are almost everywhere.
These corporations represents important tool for an economy of the country. On the other
hand, the domestic companies are often press down and losing their profit because of
multinational corporation entering the market. Sometimes, it is difficult for domestic
corporation to fight with the power and capital the MNCs have. The aim of bachelor thesis
is to summarize, inform and analyze about facts multinational corporations and domestic
companies have. The character will be based on creating background with information
about both types of companies. I would like to create also historical background. The
theoretical information will be applied to the real companies so that the audience will have
global view on whole issue. Moreover, in the paper will be also analysis and comparison of
two companies, one multinational and one domestic. I will compare the multinational The
Coca-Cola Company with the domestic Kofola. Both of these companies are well known
for Slovak consumers. I want to bring an unbiased view on both companies and explain
how both companies work. Moreover, I will analyze the advantages and disadvantages of
both types of companies.
Bachelor thesis will be appropriate tool for better orientation dedicated to people
that do not know about these kinds of companies too much. The work should also be
helpful to everybody who wants to earn information about multinational as well as
domestic corporations. The aim is to deliver clear view about the situation of the
companies. Based on the analysis of advantages and disadvantages, the reader should
decide easily whether it is better for him/her to invest in multinational or in domestic
corporation.
Multinational corporation are often discussed whether they are beneficial for the
world or harmful. Surely, the domestic companies suffer because they cannot compete
with the power and capital the MNCs have. However, the domestic corporation can be
highly successful in its own country and be an appropriate competitor for multinational
corporation.
Multinational versus Domestic Corporations 10
2. Chapter – Review of Literature
In the bachelor thesis, I went through various sources to obtain information. Even
though majority of internet sources will be used, books and movie play an important role
in my work too.
The basic source used in first few parts is the third edition of Microeconomics
textbook written by the professor Michael Parkin. In the bachelor thesis, the textbook is
used in order to explain definitions of basic facts and their explanations. Moreover, it is
used to provide the reader of this work with some historical background. The author,
Michael Parkin, has given the students a complete and easily understandable picture of
microeconomics. Even though this book was published in 1997 and might be considered as
an old resource, it is a reliable source of information for the thesis due to the fact that our
university uses it as a textbook in microeconomic classes.
Another important book used in the bachelor thesis is called “Best practices in
international business”, with authors Michael R. Czinkota and Ilkka A. Ronkainen. The
book is divided into seven parts where each part focuses on one area of international
business like environment, globalization, strategies of entry and operations, functional
areas, organization and implementation, market specifics and the future. These parts;
however, are not written only by the authors but also by other people listed as authors of
particular section. The book was released in the year 2001 and published by Harcourt
College Publishers (Czinkota, Ronkainen, 2001).
The controversial documentary movie “The Corporation” by Mark Achbar,
Jennifer Abbott and Joel Bakan is one of the main sources too. The movie is based on the
book called “The Corporation: The Pathological Pursuit of Profit and Power” written by
Joel Bakan (Big Picture Media Corporation, 2010). The author of the book also cooperated
in creating the film. The Corporation talks and points out facts about MNCs from the other
side. The movie creates more likely negative image of MNCs and shows what is behind
the success of MNCs. In the movie experts, former employees, CEOs, brokers, and many
more talks about the corporations and their behavior (Big Picture Media Corporation,
2010). This film is used in the thesis in order to describe MNCs from different point of
view that the consumers might not know.
Various websites of The Coca-Cola Company had been used in the chapter 4 of the
thesis. The websites were useful in obtaining information about the Coca-Cola history,
Multinational versus Domestic Corporations 11
products and structure. Also the Kofola website had been used for the same aim.
The New Encyclopædia Britannica printed version is used for explanation of
certain terms. The information are from Micropædia volume 4 and 6.
2.1 History of Trade
Trade has a long interesting history. Corporations were not created out of nothing.
The process of selling lasts for centuries. It also took several centuries to get from the first
basic trading systems till today’s phenomenon of corporations whether small domestic or
multinational. The way world has developed trade into current picture is surely worthy of
note.
The initial idea of trade at the international level is dated back to the years 1760 till
1830 to the economist Adam Smith. His famous economic theory is based on the division
of labor; moreover, on free domestic and international markets. Smith described his
revolutionary idea of division of labor as “the greatest improvement in the productive
powers of labor” (As cited in Parkin M., 1997). At that time, the theory of free market
seemed to be complicated and not possible to achieve. Adam Smith claimed that each
person should make the best economic choice and then this person is led to the aim by “an
invisible hand” (Parkin Michael, 1997). Using this invisible hand the society should profit
from the whole outcome of the production (Parkin M., 1997). Adam Smith gave the
theoretical background to the idea of free trade. Free trade is the policy where government
does not interfere or go against export of the country and import to the country (The New
Encyclopædia Britannica, 1992a). The free trade nowadays is different and the government
is posing tariffs and quotas in order to prevent domestic producers (Parkin M., 1997).
When free trade became possible among countries, the companies started to expand and
that was the first push to start multinational corporations.
2.2 Definition of Corporation
Any industry is state or private business. Corporation belongs to private business
sector. In order to understand what the corporation is to the fullest extend there is a need to
know other types of organization too. Proprietorship, partnership and corporation are three
types of business organization (Parkin, 1997). The aim of all three types is to make profit;
however, each of them does it in different way. First of all, the proprietorship, often called
Multinational versus Domestic Corporations 12
a sole proprietorship, is small company with one owner and has unlimited liability.
Unlimited liability means a company has responsibility for all the debts (Parkin, 1997). So,
when the owner of the company is in debt, his/her whole wealth is in danger of
confiscation because the owner is fully responsible for the actions of the company. The
examples of sole proprietorship are little businesses like hairdresser salon or tattoo studio.
Another form of business organization is partnership. Partnership is similar to
proprietorship but as it is already indicated from the name it has more than one owner.
Partnership also follows the unlimited liability and the debts are usually divided among
partners (Parkin, 1997). It can be said that partnership is the same as sole proprietorship
and the only difference is in number of owners. An example of partnership can be shop,
pub or restaurant. And finally the third type of business ownership is the corporation. The
corporation is a company which is owned by shareholders. These shareholders or in other
words the owners of the company have limited liability. A share is something like a piece
of corporation (Parkin,1997). The shareholders, sometimes also called stockholders, buy
shares/stocks of corporation and they become the owners. Limited liability is the opposite
of unlimited liability. The owners, in other words shareholders, of the corporation do not
risk their all wealth. In case the corporation is in debt or bankrupt, the shareholders can
loose only the money they originally invested (Parkin, 1997). Based on these facts, it is
visible that corporation is much bigger organization than the proprietorship or partnership.
Moreover, each of these types of business ownership has its own advantages and
disadvantages which are listed in the table below.
Table 1
The Pros and Cons of Different Types of Firms
Type of firm Pros Cons
Proprietorship
Easy to set up
Simple decision making
Profits taxed only once as
owner’s income
Bad decisions not checked by need
for consensus
Owner’s entire wealth at risk
Firm dies with owner
Capital is expensive
Labor is expensive
Partnership
Easy to set up
Diversified decision
making
Can survive withdrawal of
partner
Profits taxed only once as
owners’ incomes
Achieving consensus may be slow
and expensive
Owners’ entire wealth at risk
Withdrawal of partner may create
capital shortage
Capital is expensive
Corporation Owners have limited Complex management structure
Multinational versus Domestic Corporations 13
Source: Parkin (1997)
The table clearly lists all the differences between proprietorship, partnership and
corporation. Partnership and proprietorship are almost the same. The corporation differs
and it is the most complicated form of ownership.
Different people imagine different things when hearing the expression
multinational corporation. Multinational Corporation is defined as “A company that
operates in a number of countries and competes primarily within national
markets”(Czinkota & Ronkainen, 2001). MNCs are doing their business in developed
world and the consumers can find their favorite goods from East Europe, through US or
Canada to China. As opposite to MNCs are domestic corporations. The name already
indicates that domestic corporation operates in one country. For example, the domestic
corporation is set in France and does the business only in France where it competes with
other domestic producers as well as with MNCs.
The corporation as a business form has different taxation as other business
ownership. The corporation’s income tax is sometimes viewed as controversial issue. The
corporation’s income tax refers to “all countries assess income taxes on the net profits of
corporations, although they differ widely in details and rates”(The New Encyclopædia
Britannica, 1992b). Not only, a MNC has to deliver tax from all countries income but also
the shareholders have to pay taxes from the dividends a corporation is paying them. This is
known as double taxation (Investopedia, 2010a). The taxation of corporation is a
disadvantage in comparison with other business ownerships.
2.3 Origins of Multinational Corporations
The history of multinational corporations is basically the same as the history of
trade mentioned in the section 2.1. However, the Indies traders of West and East of
liability
Large-scale, low-cost
capital available
Professional management
not restricted by ability of
owners
Perpetual life
Long-term labor contracts
cut labor costs
can make decisions slow and
expensive
Profits taxed twice as company
profit and as stockholders’ income
Multinational versus Domestic Corporations 14
mercantilist age during the 16th
, 17th
and 18th
century are said to be the root of
multinational corporations. The Indies traders were not multinational but thanks to their
trades among maritime states, the increase in trade occurred which also led to the age of
discovery. The first multinational corporations ever were established as a result of the
maritime transportation and continuous thoughts about free trade which gave the freedom
to politic and economical issues (Sherman, 2001). These first MNCs were, of course,
different as the ones of 21st century. The first MNCs’ capital and organization were closely
related to the nation of each MNC origin (Sherman, 2001). In 1980s and 1990s till 21st
century the MNCs are considered to dominate the international business. Their range
differs from telecommunication, manufacturing and mining to goods and services of all
kind (Sherman, 2001). The evolution of MNCs has a history of five centuries and as the
business is getting more and more international, the MNCs will continue with the business
provided for another few centuries. If some other form of doing business among countries
do not replace current phenomenon of MNCs, it can be said that MNCs will operate in the
world forever.
2.4 Structure of Corporation
Almost each type of business has certain structure. Small companies usually have
simple and easily understandable structures and logically structure of large companies is
more complicated. Different organizational structures exist, so that the company can
choose what kind of structure to use in order to achieve the company’s goals. There are
several steps that have to be taken to the final decision. Once these steps are taken, the
final structure in which corporation will operate is chosen.
Within a corporation there is an organizational design and organizational structure.
The organizational design copes with a variety of dimensions and components that belong
under the culture and structure of the company (Lamar University, 2010). On the other
hand, the organizational structure is an official system that needs to be followed and
cooperates with employees’ motivation, coordination and organization. Both, the design
and the structure, help the company to attain its goals (Lamar University, 2010). When the
corporation is established, choosing the structure that best fits not only the products that
company is producing and selling but also indentifying the type of a company and message
they want to deliver to the world is important. Before the corporation goes for particular
structure, the culture needs to be chosen.
Multinational versus Domestic Corporations 15
According to Gregory S. Richards MBA, Ph.D, FCMC (2010), four types of
organizational culture exist:
Clan culture
Hierarchy culture
Adhocracy culture
Market culture
Based on Mr. Richards’ comprehensive study, the bachelor thesis’ author created the
following table, so that the reader can clearly see the differences between each type of the
cultures.
Table 2
Source: Richards (2010)
A corporation, by picking certain culture, becomes recognized and the person
searching for a job has a possibility to choose which culture fits best his/her personality.
When the culture is chosen, the certain structure needed to be followed. Functional
Type of Culture Main Characteristics
Clan Culture
Friendly workplace
Teamwork
The heads of the company are considered to be mentors
Long tradition and loyalty
Hierarchy Culture
Formal workplace
Strict rules and policies
Strength, efficiency and predictability are the main goals
Adhocracy Culture
Innovative workplace
Risk takers, individual approach
Open to new experiments
Market Culture
Goal oriented workplace
Productivity and high competitiveness
Wining emphasis
Multinational versus Domestic Corporations 16
structure, divisional structures and a matrix structure are three types of organizational
structure (Lamar University, 2010). The functional structure is used for smaller types of an
organization. Functional structure is chosen when the employees have more or less similar
positions and are doing similar duties while using basically the same skills (Lamar
University, 2010). The advantages of functional structure are the communication within an
organization is quick and easier. Moreover, the employees have better possibility to learn
from each other. On the other hand, functional structure has number of disadvantages.
When the company expands, it might be more difficult for employees to manage certain
situation. To be more specific, when a new product is released or the company decides to
expand to foreign markets too, there is a need to have more specialist and more
departments in the organization (Lamar University, 2010). The functional structure can be
used for small, domestic corporation. Next, divisional structures are popular and work
well. The divisional structures include the product structure, market structure and
geographic structure. Product structure is needed when the company offers several
different products or services under the same brand. The advantages are that there is more
focus on each product and division of labor is more efficient. Moreover, applying market
structure is beneficial in different parts of the world where the customers have special
needs and special products are produced for these countries. Market structure also serves
as prevention for cultural shock (Lamar University, 2010). The last type of divisional
structure is geographic structure. The geographic structure is best applied for companies
which operate on international level, so that the company can operate and set the goals for
certain location. The advantages of divisional structures are the high quality delivered to
consumers and customer service at high level, teamwork possibilities connected with
travelling and employees’ identification with their division and job what leads to job
satisfaction (Lamar University, 2010). Also, three main disadvantages of divisional
structure might occur. The disadvantages are high operating costs, slow communication
between certain divisions and potential disputes between divisions (Lamar University,
2010). And finally, the matrix structure is a mixture of functional and product structures.
The employees are divided based on the function they have and the product they are
working on. In this structure, the employees have usually functional boss as well as the
product boss (Lamar University, 2010). The advantages of matrix structure are quick
product development, support of creativity and face-to-face decision making and problem
solving. However, the disadvantages are serious for employees and that is increased level
of stress, conflict issues among bosses and employees and low possibilities for promotion
Multinational versus Domestic Corporations 17
and the career rise (Lamar University, 2010). Each structure has its advantages as well as
disadvantages; however, these structures helps the owners of the company to specify what
they do and the way they deliver the message to the consumers and business partners.
Under the structure of each corporation also belong the board of directors and
management team. The board of directors stands at the imaginary top of the corporation.
The board of directors is elected by shareholders. The board of directors consists of the
chairman, inside and outside directors (Investopedia, 2010b). The inside directors are
responsible for budget, business strategy and projects. Inside directors are usually
shareholders or employees of top management. On the other hand, the outside directors are
not in the management team and the main purpose of these directors is to provide the board
with clear and unbiased information about the company. Moreover, the chairman is
responsible for the run of the whole corporation and is chosen from the directors
(Investopedia, 2010b). The board of directors is important and also serves as a
shareholders’ advocate. Under the board of directors is top management. The top
management consists of:
CEO
COO
CFO
The CEO is the top manager who is responsible for all operations the corporation
provides and is also implementing the decisions of board of directors (Investopedia, 2010).
The CEO and the chairman of board of directors is, in some corporations, the same person.
Next, the COO is in charge of the operations, the corporation is doing. The COO’s job is to
follow daily activities and provide CEO with report regarding marketing, employees and
production (Investopedia, 2010b). The CFO is responsible for financial operations of the
corporation and report to the CEO, board of directors and to shareholders (Investopedia,
2010b). When the culture, structure, board of directors and top management is carefully
chosen, it is the base for a corporation to be successful. Also, based on these, the
shareholders can decide where to invest their money. As a matter of fact, the success
depends on consumer preferences, their demand for certain products and the corporations’
ability to supply market with an appropriate amount of products.
2.5 Production and Investments of Corporations
Because of the fact MNCs are operating within more nations, their production is
Multinational versus Domestic Corporations 18
also set up in different countries. Usually, a MNC produces goods in one country from
where the goods are shipped and sold in another countries. Production methods of MNCs
are often seen from different points of view.
Firstly, the MNCs can bring a lot of benefits to the particular country where they
decide to produce and invest. MNCs aid and bring benefits to the individuals and nations
(Sherman, 2001). There are several advantages that MNCs bring to people in the country.
The MNCs decrease unemployment, educate their employees and offer them several
opportunities (Sherman, 2001). Particular MNC entering new market provides people with
jobs. When MNC is opening a factory, usually several hundreds of people get a job or even
thousands of people, depending on the size of factory. Open a factory is not the only way
to give jobs to people. Even when MNC do not want to produce in the state, only enter the
market in order to distribute goods, the company is still offering jobs to the individuals.
The MNC employ people directly; moreover, the indirect employment is created too. Next
benefit of MNCs to individuals is the education and skills the MNC gives to its employees.
When the company uses special technology and equipment, they need to teach the
employees how to operate such a machines. These trainings are usually for free and this
know how will stay with the person, so they can use it afterwards in another jobs too.
Moreover, the employees can travel and get to know other countries and cultures while
working for MNC. Next, the MNCs bring number of benefits to the host nation such as
“Access to Foreign Capital, Development of Resources, Technology and Productivity
Improvement, Management and Marketing Skills” (Sherman, 2001). Host nation is
connected with foreign direct investment. FDI is, simply said, the investment in the
country by foreign investors. The term host refers to a country which hosts these foreign
investments (OECD, n.d.). For example, Slovakia would be a host country for any foreign
company that decided to invest and settle their business in Slovakia. In this particular case,
the MNCs are coming to host nations and offering benefits that would be difficult to
achieve for domestic corporations. All four fields of benefits cited above are important for
countries. MNCs can serve as huge financial injection for the country and the host nation
can profit out of foreign capital. Moreover, as the world has become more and more
industrialized, the MNCs have ability to develop new technologies and invest into them
which also serves as an advantage to host country. Nevertheless, there is a difference
between production along with investments in developed countries and in developing
countries. In developed countries the advantages are significant and apply to what is
already written but production of MNCs in developing countries is almost always
Multinational versus Domestic Corporations 19
accompanied with controversial issues. Moreover, the MNCs are often connected with
production in third world countries. MNCs often use child labor to produce the product.
The workers usually have miserable condition for work and have minimum possible wage.
Also, the employees in third world countries work more hours than in the developed world.
What is also sad is that the worker has a certain time for production of product and if the
production takes longer than is suppose to be, the worker is fired (Achbar, Abbott, &
Bakan, 2006). The lobby in the government and the capital inflow give the MNCs certain
power that they use in the developing world. Even though the consumers in developed
world know about the unethical treatment of the employees in the developing world, the
corporate power is doing anything possible to present itself in the best possible way
(Achbar, Abbott, & Bakan, 2006). Production and investments of MNCs are huge and have
number of advantages; the disadvantages clearly show other face of MNCs. In this case,
the advantage of domestic corporation is that they might produce only in their own
country. The domestic corporation is doing the investment in its own country and bring
jobs to the inhabitants.
2.6 Marketing
Generally said, marketing strategies play an important role in any kind of business.
The corporations, whether multinational or domestic are not an exception. The marketing
of MNCs is usually well designed and strong. MNCs also spend lot of money for creating
their image in front of consumers. There are basic steps that are needed to be taken in order
to create marketing strategy that will aim towards company’s goal. Once the product is
developed, the market research needs to be done. In market research, some features are the
same almost everywhere and the population can be controlled globally. However, the
market research should be based on the target, the population and the culture of the country
where the product will be sold (Vedpuriswar, n.d.). The careful and detailed market
research serve as a leading tool for a company. It is important that the research is done
carefully because the consumers’ preferences indicate what kind of advertising campaign
will be chosen. The advertising step is the trickiest part. With a successful and catchy
advertising, the target group will be affected so that the product is recognized and people
will buy it. However, if the advertising campaign does not catch the target group, the
product might be unsuccessful (Vedpuriswar, n.d.). Specially, in case of MNCs the wrong
product advertisement can be connected with the brand worldwide. Then, pricing is
Multinational versus Domestic Corporations 20
important. The MNCs usually use global pricing, meaning certain product has
approximately the same price everywhere. The pricing depends on the social status of
inhabitants in particular country; moreover, on the competitors in the country too
(Vedpuriswar, n.d.). If the product is new in the country and nobody else sells similar
product, the company can pose higher price without having fear of not being successful.
On the other hand, when the product is already on the market, the company should set the
price at a competitive level. Next step in global marketing is positioning. The right position
of the product is important and helps to improve efficiency and effectiveness. And finally,
the selling part can take place (Vedpuriswar, n.d.). These steps are applicable for both
multinational and domestic corporation. The MNCs are trying to reach the masses by same
advertisements in several countries but they have to be aware of cultural differences. The
steps described above are also known in shorter version as 4 P’s of marketing mix. The 4
P’s are product, price, place and promotion (Purdue University, 2005). Each company is
facing the four P’s of marketing mix and try to be the best in each part in order to attract
customers and gain demand for their products.
Multinational versus Domestic Corporations 21
3. Chapter – Methodologies and Procedures Used in the Study
In the bachelor thesis, two types of methodologies are used and that is evaluative
and data analysis. Firstly, the Coca-Cola, as MNC is described. The information about
history, settling in Slovakia, structure and profit are evaluated. Then Kofola as domestic
corporation is described too and the reader is provided with the brief history, structure and
profit. Moreover, the questionnaire about both companies submitted to 100 respondents
will be analyzed. The aim of the questionnaire is to see the preferences of Slovak
consumers.
Multinational versus Domestic Corporations 22
4. Chapter – Results
4.1 The Coca- Cola Company History
The beginning of famous, world wide known multinational corporation called
Coca-Cola is dated back to the year 1886. John Pemberton, pharmacist from Atlanta in the
USA, invented the famous soft drink. Mr. Pemberton’s bookkeeper named the drink Coca-
Cola and during the first year, he sold only 9 glasses per day. The whole century after,
more than 37, 854 Litres of Coca- Cola has been produced. Unfortunately for Mr.
Pemberton, he died two years after his discovery and never found out that he created drink
and started one of the most successful companies in the world (Heritage Timeline, 2008).
Another important person in Coca-Cola history, among many, was Mr. Robert Woodruff
who became the company president in 1923 and stayed in the company for 60 years. He
was considered to be marketing genius who brought Coca-Cola to millions of people
overseas. In the 1960 Coca-Cola was already in 163 countries worldwide and company
decided to bring new flavors to the market. Moreover, they started to buy other companies
and became more recognized (Heritage Timeline, 2008). Nowadays The Coca-Cola
Company is in 200 countries and offers over 400 different drinks and 1.4 billion drinks are
sold daily (Heritage Timeline, 2008). This was brief history of The Coca-Cola Company.
In took some time to become known in the world. But Coca-Cola is here as one of the
biggest and most successful MNC of all times.
4.2 The Coca-Cola Company Structure
The Coca-Cola Company is spread worldwide and has a complicated structure.
Moreover, The Coca-Cola Company has number of daughter companies and its operations
are divided into several geographical sections. These sections are known as strategic
business units (The Coca-Cola Company, 2003).
According to The Coca-Cola Company website (2009a), the company has operating
groups as follows:
Eurasia and Africa Group
Europe Group
Latin America Group
Multinational versus Domestic Corporations 23
North America Group
Pacific Group
Bottling Investments Group
Mc Donald’s Division
Each group has the president and also several daughter companies which are
concentrated to the certain part of the world. The current CEO of whole Coca-Cola, since
July 2008, is Muhtar Kent. He is also the chairman of the board (The Coca-Cola Company,
2009a). The surprising fact is that one MNC, Coca-Cola, has an operating division for
another MNC and that is Mc Donalds. The current president of The Coca-Cola Company,
Javier C. Goizueta, is also the vice president for Mc Donald’s division. This division
cooperates and is making the strategic alliances with Mc Donalds in 119 countries and
more than 31,000 Mc Donalds fast food restaurants (The Coca-Cola Company, 2009b).
Based on this, the power of The Coca-Cola Company is visible and the cooperation with
Mc Donalds is clearly huge if the whole operating division had to be created only for the
cooperation of two MNCs. Furthermore, The Coca-Cola Company has 5 major bottling
companies. There is one main bottling company in the certain part of the world. Only these
5 bottling companies employed 172 544 employees in the year 2004 and had the annual
revenue in the same year of $ 30.2 billion (Girard, 2005). When only 5 companies provide
jobs to more than 170 000 people, the whole Coca-Cola Company has to directly and
indirectly employ incredible number of people all over the world. This simple and basic
description of The Coca-Cola Company structure gives an overall image of the power of
this MNC. Not only The Coca-Cola Company has complicated structure but also other
MNCs.
4.3 The Coca-Cola Company in Slovakia
The Coca-Cola Company came in former Czechoslovakia in 1970s and in 1993
Coca-Cola started to make investments in Slovakia. From April 7, 1994 Coca-Cola
produces its soft drinks in Slovakia in the factory in Luky as Coca-Cola Beverages
Slovakia (The Coca-Cola Company, 2008). The Coca-Cola Beverages Slovakia is owned
by Coca-Cola Hellenic Bottling Company (The Coca-Cola Company, 2008). The Coca-
Cola Hellenic Bottling Company is one of the 5 major bottling companies of The Coca-
Cola Company which was mentioned in the section 4.2. Nice pyramid can be seen here,
Multinational versus Domestic Corporations 24
Coca-Cola Slovakia belongs to The Coca-Cola Hellenic Bottling Company which belongs
to The Coca-Cola Company. Also, the Coca-Cola Slovakia owns other different soft drinks
brands. The companies and products produced and distributed by Coca-Cola Slovakia are
listed in appendix in the question number 3. Based on the range of soft drinks, The Coca-
Cola Slovakia owns a lot of famous and demanded soft drinks brands not only in Slovakia,
but also in Czech Republic, for example Bonaqua mineral waters. To sum up, Slovak
consumers have been enjoying The Coca-Cola Company’s soft drinks of wide range for 30
years. Coca-Cola has a strong base in Slovak market and as a MNC operating in Slovakia
is successful.
4.4 Kofola History
Kofola, often referred to as the best product of Cold War is famous corporation and
is a strong competitor to multinational Coca-Cola. The origins of Kofola are dated back to
the late 1950s to Opava in Czech Republic when the Spofa company had to develop a
product of the cola type which would serve as an alternative of soft drinks known from
west part of the world. After that, the Kofo sirop was created and in 1960s started to be
massively produced (Kofola, 2010). In early 1970s Kofola became popular and kept the
popularity till the Velvet Revolution. The changes on the Slovak and Czech markets in the
year 1989 brought difficult times to Kofola Company. The market started to be full of
foreign brands and the consumers’ demand for Kofola decreased (Kofola, 2010). However,
Kofola has found the way to the top again. In the year 1998, Kofola had slowly came back
and has started to be visible in the shops, restaurants and bars. Kofola, at that time
belonged to Santa Napoje and the second era of former famous drink began (Kofola,
2010). In the year 2001, the great marketing campaign definitely brought customers to
Kofola Company with the slogan “Keď ju miluješ, nie je čo riešiť” which can be translated
as when you love her, there is nothing to worry about. The slogan appears in the
advertisements till nowadays and is well known and popular. One year later, Kofola
bought Santa Napoje for € 7 mil. and in the year 2006 the drink Kofola in 2 liter bottles
became a best selling product in Slovakia among soft drinks (Kofola, 2010). Kofola went
through difficult times when MNCs came into Slovak market but the Kofola Company has
fought and now it is demanded and popular among the consumers. Moreover, the domestic
Kofola is an equal competitor to the multinational Coca-Cola Company.
Multinational versus Domestic Corporations 25
4.5 The Kofola Structure
The Kofola Group might be small in comparison to large Coca-Cola but the
strucuture clearly indicates that Kofola is operating in foreign countries too. The Kofola
Group consists of 14 companies and operates in Slovakia, Czech Republic, Poland,
Hungary and Russia (Kofola, 2008). So the Kofola Company is slowly spreading around
and brings soft drinks to foreign consumers as well.
4.6 The Coca-Cola Company vs. Kofola Net Income
Two competitors on Slovak market, two different approaches regarding business.
Both of these companies came through ups and downs in their long lasting history. Both of
them are successful and well known. Closer look to their net income brings clearer picture
of both companies.
Firstly, the MNC Coca-Cola Company’s net income for the period ended
December 31, 2009 was $ 713 000 (Yahoo Finance, 2010). The number seems to be small
for such a huge corporation; therefore, the comparison with previous two years is needed.
Table 3
Income Statement
View: Annual Data All numbers in thousands
PERIOD ENDING 31-Dec-09 31-Dec-08 31-Dec-07
Total Revenue 21,645,000 21,807,000 20,936,000
Cost of Revenue 13,333,000 13,763,000 12,955,000
Gross Profit 8,312,000 8,044,000 7,981,000
Operating Expenses
Research Development - - -
Selling General and Administrative 6,785,000 6,718,000 6,511,000
Non Recurring - 7,625,000 -
Others - - -
Total Operating Expenses - - -
Operating Income or Loss 1,527,000 (6,299,000) 1,470,000
Income from Continuing Operations
Total Other Income/Expenses Net 10,000 (15,000) -
Earnings Before Interest And Taxes 963,000 (6,314,000) 1,470,000
Interest Expense - 587,000 629,000
Income Before Tax 963,000 (6,901,000) 841,000
Income Tax Expense 232,000 (2,507,000) 130,000
Multinational versus Domestic Corporations 26
Minority Interest - - -
Net Income From Continuing Ops 731,000 (4,394,000) 711,000
Non-recurring Events
Discontinued Operations - - -
Extraordinary Items - - -
Effect Of Accounting Changes - - -
Other Items - - -
Net Income 731,000 (4,394,000) 711,000
Preferred Stock And Other Adjustments - - -
Net Income Applicable To Common Shares $731,000 ($4,394,000) $711,000
Source: Yahoo Finance (2010)
The gross profit of The Coca- Cola Company was almost the same in the years
2007, 2008 and 2009. However, in the year 2008, The Coca-Cola Company faced non
recurring expenses resulting in operating loss. Mainly because of the non recurring
expenses, The Coca-Cola Company faced net loss of $4,394,000. One year later, The
Coca-Cola Company is profitable again with net income $ 731,000. When comparing with
the year 2008, the company made a huge step in finances and became profitable out of loss
of few millions.
The case of Kofola Company is different. Since this company is working well, the
profit is on the rise. The net income of Kofola Group for the year 2009 was shocking €
18.77 mil (TASR, 2010). The uprising success of Kofola Company is also visible on the
following graph which shows revenues and profit after taxes during 4 years.
Multinational versus Domestic Corporations 27
Figure 1: Revenues and profit after taxes of Kofola
Source: eTrend (2009)
In the graph above, the success of Kofola Group is shown. Their profit is rising
from one year to another; furthermore, the net income for the year 2009 is the proof that
Kofola survived and is not scared of the phenomenon and power of MNCs. Based on the
data provided, it can be concluded that domestic Kofola takes over multinational Coca-
Cola without any significant problems.
4.7 Author’s Survey
The Coca-Cola Company and Kofola are successful in the Slovak market. They
offer to Slovak consumers more or less the same range of soft drinks. The aim of the
questionnaire was to discover the preferences of Slovak people.
The translated questionnaire is available in appendix. The sample was 100 people
in the age ranges from 18 till 45 years old. The amount of male respondents was 43 and
female respondents 57.
In the question number 3, the products of The Coca-Cola Company available in the
Slovak market are listed. In number 4, all products of the Kofola are listed. These two
questions are not analyzed in the thesis because the aim of the questionnaire is not to
Multinational versus Domestic Corporations 28
discover specific products the Slovak consumers are buying but their preferences about the
brand. The authors’ point behind these two questions is to get the respondents familiar with
kinds of soft drinks each company produces. Some people might not know that Bonaqua
belongs to Coca-Cola and that, for example, Kofola owns Rajec. Because the author does
not compare only two specific soft drinks, Coca-Cola and Kofola, but the whole portfolio
of these two brands, it was important that the respondents know where the sub brands
belong in order to answer following questions.
Question # 5
In the question number 5, the respondents were dealing with specific factors that
most influence their choice of specific soft drink. Out of 8 factors offered, the respondents
had to choose 3 most important for them. It can be concluded that the most important
factor for Slovak consumers is the taste. The taste is important for 32% of all respondents
followed by price which is essential for exactly 20% and the quality matters for 19%.
Quantity, brand, package, recommendation, and advertisement got only small percentage
of all answers. Advertisement influences the choice of only 3% of the respondents. As
mentioned before, the companies, especially large MNCs are spending huge amount of
money into marketing and advertisement in order to catch customers; therefore, this result
(3% influenced by advertisement) is surprising. For better data imagination, the graph is
provided below.
Figure 2: Factors influencing consumers’ choice of soft drinks
32%
20%19%
8%
6%3%
5%7%
Taste
Price
Quality
Quantity
Package
Advertisement
Recommendation
Brand
Multinational versus Domestic Corporations 29
Question # 6
In question number 6, the respondents, based on the list of soft drinks offered by
both companies, had to decide whether they prefer to buy products of Coca-Cola or
Kofola. Products of Kofola is preferred by 63% of all respondents and products of Coca-
Cola by 37%. As a matter of fact, it can be concluded that Slovaks prefer the domestic well
known corporation Kofola.
Figure 3: Brand preferences of the consumers
Question # 7
Respondent that chose The Coca-Cola Company in previous question had to
specify why they take Coca-Cola over Kofola. Out of 4 possibilities, 57% of the
respondents stated that Coca-Cola products are of better taste than Kofola products.
63%
37%
Kofola
Coca-Cola
Multinational versus Domestic Corporations 30
Figure 4: Reasons why the customers prefer The Coca-Cola Company
Question # 8
Question 8 is the same like question 7 but asks about Kofola. The same possibilities
are offered and better taste is again chosen by majority of respondents and that is 79%.
Interesting fact is that in both questions the factors have the same order, taste, price, wider
product variety and image. None of Kofola fans chose image as a factor why they are
buying Kofola, while image is important for 11% of Coca-Cola fans.
Figure 5: Reasons why the customers prefer Kofola Company
19%
57%
13%
11%
Wider Product Variety
Better Taste
Better Price
Image
10%
79%
11%
Wider Product Variety
Better Taste
Better Price
Image
Multinational versus Domestic Corporations 31
Question # 9
In the 9th
question, the respondents were asked whether support of domestic
producer or company influences their choice. For 53% of respondents, the support of
domestic company is important. These answers are also connected with question number 6
because mostly for people who prefer Kofola, supporting the domestic company is
important.
Figure 6: The choice of products is influenced by supporting the domestic producers
Question # 10
And finally, the last question asks whether good and ethical name of the company
is important for respondents. The result shows that ethical name is important for 64% of
respondents.
53%
47%
Yes
No
Multinational versus Domestic Corporations 32
Figure 7: The good and ethical name of the company influence the choice of products
Based on the author’s survey, it can be concluded that The Coca-Cola Company in
Slovakia and Kofola are equal competitors. Even though, the respondents of the survey
prefer Kofola, The Coca-Cola Company has strong base of consumers too. To conclude,
the author’s survey proved that the domestic corporation can be successful while
competing with the phenomenon and power of MNC.
64%
36%
Yes
No
Multinational versus Domestic Corporations 33
5. Chapter- Discussion, Conclusion, Recommendation
The MNCs are powerful and difficult to obey. Even though, in today’s word the
free trade is preferred, people against MNCs started to take steps in order to decrease their
power and behavior. The critic of corporate power, not only financial but also political, is
on the rise. The MNCs can manipulate the market and through their strong and well
thought marketing campaigns influence the mind of people. The question is whether there
is a future for domestic corporations. Are the domestic corporations able and willing to
compete? In developed world maybe they have an attitude to compete, but in developing
world the small companies do not have a chance against MNCs. The huge negative of
MNCs is that they are settling the production lines in poor countries and use cheap labor.
As a result, the difference between poor developing and rich developed countries is visible
more than in the past.
As described in the thesis, the corporation as a form of ownership has advantages
as well as disadvantages. These advantages and disadvantages are rising as the corporation
expands. The MNCs exist for decades and domestic companies are brave and do their best
in order to survive in the market. There are some consumers who prefer to support the
domestic producers and buys their product even though the price is sometimes higher.
However, it can happen that a consumer thinks he/she supports small domestic business
and later on the consumer finds out that the small company is owned by bigger company
and this company belongs to some MNC. Yes, the MNCs are everywhere and it is nearly
impossible not to buy their products. Also, the world has became global and the
international business is visible all over the world.
Maybe, better form of business ownership would be an MNC in much smaller
range. Kofola company does really great on the market and is preferred by Slovak
consumers. Kofola also operates in other countries, so it can be concluded that Kofola is
multinational as well. However, the increase in market share and net income are the proof
that even small company is able to do business at an international level. The small
corporations which produce the same range of product should definitely do small ventures
and expand to the neighbor state. And Kofola is a perfect example that it works and it is
possible to be more successful and more popular in the state of domestic corporation
origins than foreign MNC. Domestic corporations should hold together and show the
MNCs that their power is in dangerous position.
Multinational versus Domestic Corporations 34
References
Achbar, M., Abbott, J., & Bakan, J. (2006). The Corporation [Motion Picture]. Big Picture
Media Corporation
Big Picture Media Corporation. (2010). About the Film. Retrieved from
http://www.thecorporation.com/index.cfm?page_id=2
Czinkota, M.R., & Ronkainen, I.A. (2001) Best Practices in International Business.
Orlando: Harcourt, Inc.
eTrend. (2009, November 4). English Summary:Lost years. Retrieved from
http://www.etrend.sk/trend-archiv/rok-/cislo-/english-summary-11.html
Girard, P. (2005, August). Coca-Cola Company: Inside the Real Thing. Retrieved from
http://www.polarisinstitute.org/files/Coke%20profile%20August%2018.pdf
Heritage Timeline. (2008). Atlanta Beginnings. Retrieved from http://heritage.coca-
cola.com/
Investopedia. (2010a). Double Taxation. Retrieved from
http://www.investopedia.com/terms/d/double_taxation.asp
Investopedia. (2010b). The Basics of Corporate Structure. Retrieved from
http://www.investopedia.com/articles/basics/03/022803.asp
Kofola. (2008). Structure. Retrieved from http://company.kofola.cz/
structure__m_ospolecnosti__spol_struktura.html
Kofola. (2010). História Značky Kofola [The History of Kofola Brand]. Retrieved from
http://www.kofola.sk/index.cfm/historia/historia-znacky-kofola/
Lamar University. (2010). Topic 14:Organizational Structure. Retrieved from
http://dept.lamar.edu/industrial/underdown/org_mana/org_structure_george.htm
OECD. (n.d.). Definition of Foreign Direct Investment. Retrieved from
http://www.oecd.org/dataoecd/10/16/2090148.pdf
Parkin,M. (1997). Microeconomics (3rd
ed.). Addison-Wesley Publishing Company, Inc.
Purdue University. (2005). Marketing’s Four P’s: First steps for New Entrepreneurs.
Retrieved from http://www.ces.purdue.edu/extmedia/EC/EC-730.pdf
Multinational versus Domestic Corporations 35
Richards, G.S. (2010). Integrating CPM Systems: Building a Performance Oriented
Culture. Retrieved from http://www.cmc-ontario-
eoc.ca/site/CAMC_EOC_92/pdf/Dr.%20Richards%20perf%20culture.pdf
Sherman, V.G. (2001). In Defense of Multinational Corporation. Retrieved from
http://bastiat.net/en/Bastiat2001/george.v.sherman.html
TASR. (2010, March 3). Kofola v roku 2009 vykázala čistý zisk 476 miliónov Kč [Kofola,
in the year 2009 showed net income of 476 mil Kc]. Retrieved from
http://ekonomika.sme.sk/c/5294376/kofola-v-roku-2009-vykazala-cisty-zisk-476-
milionov-kc.html
The Coca-Cola Company. (2003). The Structure of The Coca-Cola Company. Retrieved
from http://www.thecoca-colacompany.com/investors/
annualandotherreports/2003/ourco_structure.shtml
The Coca-Cola Company. (2008). História [The History]. Retrieved from
http://www.coca-cola.sk/svet-coca-cola/coca-cola_slovensko/historia.php
The Coca-Cola Company. (2009a). Operating Group Leadership. Retrieved from
http://www.thecoca-colacompany.com/ourcompany/board_kent.html
The Coca-Cola Company. (2009b). Operating Group Leadership. Retrieved from
http://www.thecoca-colacompany.com/ourcompany/bios/bio_113.html
The New Encyclopædia Britannica. (1992a). Free Trade. Chicago: Gwinn, R.A., Norton,
P.B., & McHenry, R.
The New Encyclopædia Britannica. (1992b). Income Tax. Chicago: Gwinn, R.A., Norton,
P.B., & McHenry, R.
Vedpuriswar. (n.d.). Global Marketing Strategies. Retrieved from
http://ismindia.org/faculties/ved/lecture03.html
Yahoo Finance. (2010). Coca-Cola Enterprises Inc. (CCE): Income statement. Retrieved
from http://finance.yahoo.com/q/is?s=CCE&annual
Multinational versus Domestic Corporations 36
ABSTRAKT
Téma: Nadnárodné versus domáce korporácie
Kľúčové slová: nadnárodné, domáce, profit, konkurencia
Študent: Barbora Kubíková
Vedúci BP: Ing. Daniela Maťovčíková
Bakalárska práca za zaoberá nadnárodnými a domácimi korporáciami. V práci sú
vysvetlené hlavné rozdiely medzi oboma typmi korporácii. Korporácie sú opísané z hľadiska
histórie, základov nadnárodných korporácií, štruktúry a marketingu. Prvá časť bakalárskej práce sa
väčšinou zaoberá korporáciami vo všeobecnosti. Taktiež, výhody ako aj nevýhody sú zdôraznené.
V praktickej časti, nadnárodná The Coca- Cola Company spolu s Kofolou sú opísané
z hľadiska histórie, štruktúry a tržieb. Ďalej je rozanalyzovaný dotazník autora bakalárskej práce.
Vďaka dotazníku, preferencie zákazníkov k firmám vyrábajúcim nealkoholické nápoje boli zistené.
Multinational versus Domestic Corporations 37
ABSTRACT
Topic: Multinational versus domestic corporations
Key words: multinational, domestic, profit, competition
Student: Barbora Kubíková
Advisor: Ing. Daniela Maťovčíková
The bachelor thesis deals with the multinational and domestic corporations. In the work,
major differences between these two types of corporations are described. The history of trade,
origins of multinational corporations, structure and marketing are explained. The first part of the
thesis is mostly about corporations in general. Moreover, almost in each section the advantages and
disadvantages are pointed out.
In the practical part, the multinational Coca-Cola and the domestic Kofola are described.
The history, structure, and profit of both companies are evaluated. Furthermore, the author’s survey
about consumer preferences is analyzed.
Multinational versus Domestic Corporations 38
Appendix
Questionnaire
1. How old are you? _______________
2. You are:
a. Male
b. Female
3. Which products of Coca-Cola Company do you prefer or you buy most of the
time (Label 3 to 10 answers)?
a. Coca-Cola
b. Coca-Cola light, Coca-Cola zero
c. Fanta
d. Sprite
e. Kinley Tonic, Kinley Bitter Lemon and other flavoured tonics
f. Lift Orange, Lift Lemon, Lift Apple, Lift peach, Lift Bunch
g. Cappy juices
h. Cappy Ice Fruit
i. Nestea ice teas
j. Burn energy drink
k. Powerade drinks for sportsmen
l. illy ice coffees
m. Bonaqua mineral waters - non flavored
n. Bonaqua mineral waters - flavored
o. Bonaqua Emotion Peach, Aloe Vera, Vitamin E and Bonaqua Emotion
Apple
4. Which products of Kofola Company do you prefer or you buy most of the time
(Label 3 to 10 answers)?
a. Kofola Original
b. Kofola without sugar
Multinational versus Domestic Corporations 39
c. Kofola Lemon
d. Vinea White, Vinea Red
e. Jupí fruit drinks still
f. Jupí fruit juices
g. Jupí syrups
h. Jupík drinks for children
i. Capri-Sonne
j. Top Topic, Top Topic Extracts
k. RC Cola
l. Chito Tonic
m. Sentino Orange
n. Snipp
o. Nescafé Xpress ice coffees
p. Mami Drink
q. Rajec mineral waters- non flavored
r. Rajec Bylinka mineral waters- flavored
5. Which factors influence your choice of drinks (label exactly 3 answers)?
a. Taste
b. Price
c. Quality
d. Quantity
e. Package
f. Advertisement
g. Recommendation
h. Brand
6. In the questions number 3 & 4 you had a possibility to recognized products of
two successful brands in the Slovak market. Products of which brand do you
prefer?
a. Coca-Cola
b. Kofola
Multinational versus Domestic Corporations 40
7. Based on question number 6, if you prefer The Coca-Cola Company, the
reason why is (Label only 1 answer that fits your preferences the best):
a. Coca- Cola has better choice of products
b. Their products taste better than Kofola products
c. Coca-Cola has better prices than Kofola
d. It is all about the image
8. Based on question number 6, if you prefer Kofola, the reason why is (Label
only 1 answer that fits your preferences the best):
a. Kofola has better choice of products
b. Their products taste better than Coca-Cola products
c. Kofola has better prices than Coca-Cola
d. It is all about the image
9. Does supporting domestic producer influence your choice of products?
a. Yes
b. No
10. Does good and ethical name of the company influence your choice of
products?
a. Yes
b. No