Coca-Cola - Back in Burma

Case 3: COCA-COLA: BACK IN BURMA

1. What challenges does Coca-Cola face in Burma? What are the risks?

In June 2013, the Coca-Cola Corporation announced it had opened its first bottling plant in Burma after the United States and Burma governments signed a Trade and Investment Framework Agreement (TIFA) to begin more active economic cooperation. However, this was not the first time that Coca-Cola entered into Burma market.

In 1927, Coca-Cola entered the Burmese market for the first time. However, due to the military junta’s repressive action against pro-democratic opposition in Burma, the U.S government imposed economic sanctions in 1988. Because of this, Coca-Cola had to leave Burma. Thereafter, Burma put in a great deal of effort to build their economy and attract Foreign Direct Investment (FDI). The main change was the transition from army rule to liberalized government, market-based exchange-rate system, and investment and labor laws. As a result, Burma showed tremendous economic growth, increasing their GDP and net annual FDI from 1970s to 2013. Their biggest investment partner was China until 2011. They also intensified cooperative relations with western countries. In addition, Burma joined in a few regional governmental organizations such as the Association of Southeast Asian Nations.

Despite of efforts to improve economic, political and business environments in Burma, there are still some risk elements to be concerned about. This includes political instability, low level of economic status, and lack of clear rules and regulations to protect foreign investors. These all can be seen as challenges that Coca-Cola has to overcome to safely settle down in Burma. However, among these factors, the main risk for Coca-Cola is poor legal environment of Burma that cannot assure protecting Coca-Cola’s FDI.

Although the U.S and Burma signed TIFA without Bilateral Investment Treaties (BITs), Coca-Cola cannot help taking on the risk of investment. This is because BIT can protect private foreign investment in a country like Burma, where it cannot ensure the safety of foreign investors through existing agreements. In addition, Burma’s FDI law does not clarify the way of arbitration by means of settling investment disputes. Also, when investment issues come up, Coca-Cola has to resolve them depending on the local courts of Burma. These are influenced a lot by their government since Burma had not signed any international treaty, which can settle investment disputes.

Burma has political risks, such as expropriation and confiscation. These are kind of macro political risk, meaning that risks affect all foreign enterprises in the same general way. Coca-Cola is the first company, which puts large direct investments in Burma, so Coca-Cola would have to take more risks than others. In addition, Coca-Cola suffers strategic concerns such as product safety and liability, marketplace behavior, legal jurisdiction, and arbitration as mentioned above. As a result, the problem that Coca-Cola faces in Burma is investment risk, which mainly comes from poor legal environment with political instability and unstable economic condition of Burma.