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COLLEGE OF MANAGEMENT IN TRENČÍN

MULTINATIONAL VERSUS DOMESTIC CORPORATIONS

2010 Barbora Kubíková

COLLEGE OF MANAGEMENT IN TRENČÍN


Bachelor Thesis

Study programme: Business Administration Workplace: College of management, Trenčín

Thesis advisor: Ing. Daniela Maťovčíková

Trenčín, 2010 Barbora Kubíková

BACHELOR THESIS


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


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


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


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.


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.


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,


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


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


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


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.


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


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


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


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


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


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.


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.


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


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,


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.


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


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.


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


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


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


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


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


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


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.


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

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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


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

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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

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from http://www.thecoca-colacompany.com/investors/

annualandotherreports/2003/ourco_structure.shtml

The Coca-Cola Company. (2008). História [The History]. Retrieved from

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P.B., & McHenry, R.

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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.


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.


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


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


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

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