The Coke Machine (22 page)

Along with Canada and Hawaii, Mexico was one of the first foreign countries to sell Coke, dating back to 1897. For the next few decades, the company sold small amounts in Cuba, the Philippines, England, Germany, and other countries. Early sales abroad ranged from sporadic to anemic. In 1927, Woodruff focused on the market with a new Foreign Department, which contracted out with local companies and businessmen to operate plants overseas, eventually spinning off into a separate subsidiary called the Coca-Cola Export Corporation.

The franchise system put into place when Candler accidentally gave away the store proved useful in foreign markets, allowing the company to expand more rapidly and with less risk—not to mention decreasing the company’s liability if anything should go wrong. The company took delight in calling itself a “local” company wherever it went, pointing out that only 1 percent of Coca-Cola Export’s employees were American. Then again, the bulk of the profits—up to 80 percent in some cases—flowed back to Atlanta. And not all countries were created equal. In developing nations, bottling companies were often contracted out to American corporations, such as the powerful United Fruit Company in Guatemala and Nicaragua, or owned outright by Coke, as in India.

However much it championed local autonomy, the company was not above using its lobbying clout to force its way into countries that weren’t so receptive. In Brazil, for example, a law prohibited drinks containing the preservative phosphoric acid, necessary to prevent degradation of caffeine. (Since Brazilian colas contained caffeine naturally derived from the guarana plant, the preservative was not needed locally.) As part of a bilateral trade agreement with the United States in 1939, the country was forced to repeal the law. The agreement also reduced taxes on soft drinks sold in 6½-ounce bottles, a transparent sop to Coke, since local sodas were sold in 12-ounce bottles.

Despite expansion into South America and Europe in the 1930s, Coke’s sales overseas didn’t really pick up until after World War II—thanks to Woodruff’s promise to give soldiers Cokes for a nickel and the taxpayer-funded bottling plants it engendered. In many ways, the company’s international success mirrored that of the country that created it. As Europe lay in ruins, the United States suddenly found itself, along with the Soviet Union, as one of the world’s two superpowers. With the new economic and cultural hegemony came a new resentment from some foreigners, particularly in Europe, where the Marshall Plan facilitated the entry of American corporations, at the same time creating anxiety about the crass commercialism of American culture. In some cases, the opposition spilled out into open protest, often directed against the most obvious symbol of the United States: Coca-Cola.

Local communists, in particular, spread wild rumors about the American drink—warning that it turned children’s hair white overnight, or that its bottling plants were cover for atomic bomb factories. Nowhere was opposition stronger than in France, where the French Communist Party lamented the growing “Coca-Colonization” of the continent, and the left-centrist newspaper
Le monde
warned that nothing less than “the moral landscape of France is at stake!” Joining the leftists in an unlikely alliance were conservative wine growers who feared Coke’s effect on French viniculture—the liquid symbol of France’s own way of life.

When the communists and their allies tried to pass a law in the French National Assembly to effectively ban Coke in France and its colonies, Coke reacted with immediate furor. “Coca-Cola was not injurious to the health of American soldiers who liberated France from the Nazis,” fumed Coca-Cola Export head James Farley, a former political operative in the Roosevelt administration. “This is the decisive struggle for Europe,” cried Coke’s top lawyer, as if describing a military conquest. The company called in all of its troops. At its urging, the State Department warned France of “serious possible repercussions” if it pushed through a ban so “prejudicial to American interests.” One Georgia congressman forswore French dressing (in an eerie precursor to the “Freedom Fries” protest by Republican congressmen preceding the invasion of Iraq); another more seriously threatened a trade war on French wine, cheese, and Champagne.

As the combined political pressure defeated the anti-Coke alliance in the National Assembly, the company was in fact living up to the fears of those opposing it—becoming a cultural bully that imposed its will, and its products, on a country whether it liked it or not. Despite its victory in France, a 1953 poll there found that only 17 percent of respondents liked Coke “well enough” or “a lot,” while 61 percent liked it “not at all.” Company officials justified their forceful entry into Europe in the name of the free market, in contrast to the totalitarian control by communists.

“My guess is that the commies don’t dislike us so intensely just because we’re American,” mused one Coke executive. “It’s because Coke is a champion of the profit motive. . . . Everyone who has anything to do with the drink makes money.” Coke had good reason to resent communists, who had nationalized bottling plants in Cuba and China after World War II. For years, Coke steered clear of the communist world, even as Pepsi broke into the Soviet Union with the help of former Pepsi counsel Richard Nixon in the 1960s.

With the exception of its stand against “the commies,” however, the company was as flexible in its politics internationally as it had been at home. In the Middle East, it used every excuse not to open a franchise in Israel so it didn’t upset the wealthy sheiks who owned bottling franchises in Saudi Arabia, Egypt, and other Arab countries. When American Jews protested in a boycott in 1966—Mount Sinai Hospital and Nathan’s Famous Hot Dogs both suspended sales—Coke backtracked and granted a franchise in Tel Aviv within days. The Arab League predictably retaliated with its own boycott. Coke did the math, and stayed with the Jews, closing up shop in the rest of the Middle East for the next two decades. In an interview, company head Paul Austin said it would simply be against company policy to give in to a boycott, despite the fact that the company seems to have done exactly that.

As president of Coke in the 1960s and chairman in the 1970s, Austin spent more than half his time flying around the world to cultivate new countries for Coke. By 1976, the overseas market accounted for 40 percent of consumption and 55 percent of profits. By this time, the concept of the “multinational corporation” had become the established way of doing business around the world. All across the business world, companies spawned international subsidiaries to exploit local markets, while profits invariably flowed back to New York, London, Paris, or Stockholm. Coke was virtually unique, however, in spinning off not only control but also ownership to its franchises.

“We’re not multinational, we’re multilocal,” said Austin, who after the Arab boycott began actively trying to walk the walk in living up to the image of international harmony espoused by Coke’s “Teach the World to Sing” commercials. As the idea of corporate social responsibility (CSR) caught on, Austin set out to make Coke a leader. In addition to buying Aqua-Chem, the subsidiary that made desalinization plants to provide fresh water in the Middle East, he invested money in sports programs and nutritious milk-based drinks to sell in Latin America alongside sugary sodas. Austin’s efforts to create his so-called halo effect seemed genuinely aimed at improving the lot of people in countries where Coke was sold. If it had a secondary effect of selling more Coke in markets where Coke struggled, that was just the “perfect harmony” of the company’s business plan.

In the campaign for president in 1976, Austin cultivated corporate peanut farmer-turned-Georgia governor Jimmy Carter, throwing the candidate multiple fund-raisers and offering free use of Coke’s corporate jet. “We have our own built-in State Department in the Coca-Cola Company,” Carter said in one interview, claiming Coke execs gave him “penetrating analyses” of foreign countries, “what its problems are, who its leaders are, and when I arrive there, provide me with an introduction to the leaders of that country.” The strategy paid off for Coke after Carter’s election, when Portugal suddenly reversed its long-standing resistance to a Coke bottling plant (maintained out of deference to citrus growers). Shortly after Coke went on sale there, the State Department approved a $300 million loan to the country, a coincidence that did not go unnoticed by U.S. editorial writers.

 

 

 

The limits of Austin’s
“halo effect” were most evident—violently so—in Guatemala, a sliver of a country southeast of Chiapas that shares its indigenous Maya population. The Coke franchise in Guatemala City had passed from United Fruit in the 1950s, and was now run by Texas businessman John Trotter. A lawyer who loved polyester suits and hated communism, Trotter flew in on his Piper Club plane every few weeks to give pep talks to local managers. Mostly he harped on one theme—the evil of unions, which he ranked second only to communists in their desire to snatch away the god-given profits of the working businessman. Under no circumstances, he told them, should the cancer of unionism be allowed to affect the plant.

Workers at the Coke plant at the time suffered under inhuman working conditions, spending twelve-hour shifts loading crates at the minimum wage of $2 a day. By spring of 1976, more than 80 percent of the two hundred-some workers signed papers to unionize in an effort to improve their lot. When union leaders Israel Márquez and Pedro Quevedo presented the petition to Trotter, however, the Texan refused to recognize it, firing 154 workers. With the law on their side, the workers successfully sued for reinstatement—but Trotter and local executives continued to break up the union, subdividing the bottler into other companies to make it more difficult for workers to organize. The Coke workers reached out to the Catholic Church for help, and were answered by a Philadelphia-based order of nuns called the Sisters of Providence, who owned two hundred shares of Coca-Cola stock—as a way to generate wealth for their order and to influence policy abroad.

Horrified to hear of the situation, its leader, Sister Dorothy Garland, contacted the Coca-Cola Company to demand changes. Coke’s president, Luke Smith, admitted tension, but said the franchise agreement tied the company’s hands. “There is no provision in the bottlers’ agreement . . . which give us any right to intervene on such a dispute,” he explained. Undeterred, the nuns filed a shareholders’ resolution at the company’s annual meeting in 1977 to demand an independent investigation into the issue.

Before the vote, Coke announced its own investigation, which came back a few months later, exonerating Trotter. The nuns cried foul, even as a new president assumed power in Guatemala in 1978. General Romeo Lucas García was one in a long line of military leaders who had ruled the country since a CIA-sponsored coup in the 1950s. But the avowed anticommunist was particularly brutal in his crackdown on “subversive elements,” directing his secret police to rout any leftist influences in government, academia, and industry—including unions.

Taking advantage of the situation, Trotter threatened the union organizers with violence if they didn’t give up their efforts. Shortly thereafter, Israel Márquez was sprayed by machine-gun fire in his jeep, narrowly escaping with his life. Pedro Quevedo wasn’t so lucky. Sitting in his truck during deliveries, he was ambushed by two men, who pumped four rounds into his face, then another eight into his throat before driving away on waiting motorcycles. Another union leader, Manuel López Balán, was also killed, his throat slit while making deliveries on his route.

Even as most of the workers resigned from the union, Márquez traveled to Wilmington to confront Coke chairman Paul Austin at the 1978 annual meeting. In a soft voice, he detailed the murders of his colleagues, before directly appealing to Austin’s business sense. “Coca-Cola’s image in Guatemala could not be worse,” said the small Guatemalan man through a translator. “[In Guatemala,] murder is called ‘Coca-Cola.’ I have come here today to ask your immediate help so that blood no longer flows through the Coca-Cola plant.” Unmoved, Austin tabled the resolution as out of order. Then amid cries from the audience, he gaveled the meeting to a close.

In truth, Austin’s hands were tied—intervene in the dispute and he’d call the entire franchise system into question, potentially opening the Coca-Cola Company up to a flood of labor complaints from other countries. At the same time, if he didn’t intervene, he’d abrogate all the goodwill he’d so eagerly sought through Coke’s CSR efforts. Even as Coke execs privately decided not to renew Trotter’s contract, they declined to break it, instead sending another company exec to investigate the situation. He, too, exonerated the franchisee—and no wonder, since he never even questioned Trotter or set foot inside the plant. Unconvinced, the Guatemalans appealed to the International Union of Food and Allied Workers (IUF), a Geneva-based super-union, which issued a call to boycott Coke in November 1979 and instigated work stoppages at Coke plants in Finland, Sweden, and New Zealand.

As the situation quickly grew out of hand, the company assured critics that it would not be renewing Trotter’s contract when it expired in 1981. Meanwhile, the rampage continued, with four more union organizers killed. Street protests against Coke in Guatemala led to a dramatic fall in the company’s market share. Finally, the pressure was too much for Coke to stall any longer. Even though it had repeatedly claimed it could do nothing until the contract expired, company execs flew to Houston in July 1980 to present Trotter with an offer he couldn’t refuse—a generous buyout by two handpicked bottling executives, with most of the financing provided by Coke Atlanta, and no questions asked. The new owners approved a contract with the union after the sale.

But Coke’s stalling had left eight workers dead—a legacy in Guatemala that would come to haunt the company again in more recent years.