Cablegate: Coca-Cola Peacefully Resolves Labor Dispute with Gvn

This record is a partial extract of the original cable. The full text of the original cable is not available.




E.O. 12958: N/A

1. A recent labor dispute over the termination of Coca-Cola's
direct-hire guardforce deteriorated into a two-day stand-off when
more than half of the guards refused to relinquish their posts.
Coca-Cola, which had previously cleared the terms of the lay-off
and related severance package with the local government, called
upon city officials for assistance. The officials visited the
guards and urged them to accept the original offer, and the guards
eventually left. The event generated significant local press
coverage. Local authorities provided public support to an
American firm that followed the Vietnamese labor law.

Guard Force on Guard
2. On February 8, security guards at the Coca-Cola Company
bottling plant in Ho Chi Minh City's Thu Duc District began a
labor action that was something of a cross between a sit-in and a
lock-out. Coca-Cola had recently decided to outsource the
security function at the plant by hiring a private security
company to replace the plant's 24 direct-hire security guards.
When new guards from the Tri Dung Security Company arrived to take
up their posts, 15 old guards, all direct-hire Coca-Cola
employees, refused to relinquish their jobs. The laid-off guards
did not use violence or interfere with the plant's operations;
they simply refused to leave.

3. Publicly, the laid-off guards claimed that the signature of
Coca-Cola Vietnam's General Director had been forged on the
paperwork executing the personnel change. They also described the
procedures for terminating their employment as unsatisfactory and
said they did not want to be blamed for any losses or problems
that might arise during the transition from direct-hire guards to
the private security company. Their real demands, however,
codified into a demand for larger severance packages. Coca-Cola
offered each guard the legally-mandated one month of severance pay
per year of service, plus two months pay to cover time spent
searching and training for a new job. On top of the legally
mandated payments, Coca-Cola sweetened the package with a bonus
averaging 9 months' salary. The laid-off guards countered with a
request for 36 months' salary.

4. Coca-Cola was unwilling to change their offer and called upon
local authorities to assist. Ho Chi Minh City Department of
Labor, Invalids, and Social Affairs (DOLISA) officials and
representatives from the Labor Confederation visited the bottling
plant. Prior to terminating the guards' employment, Coca-Cola
submitted its proposed severance plan to DOLISA and the Labor
Confederation for approval and both approved of the terms. Having
signed off already, local officials urged the guards to accept the
original terms. According to a Coca-Cola representative,
officials told the guards that this was a generous offer that went
far beyond the legal requirement and one they should accept.
Local police were also notified of the situation but did not use
force to end the standoff.

Changing of the Guard
5. It took some time, but the measured reaction by Coca-Cola and
local authorities paid off late in the evening on February 10,
when the recalcitrant guards left their posts and allowed their
replacements to take over after a delegation of DOLISA, Labor
Confederation, and People's Committee officials visited the
factory and called for the guards to leave. The standoff lasted
more than two days but effected no change in the original terms.
Coca-Cola set a one-week window (February 13-20) for the guards to
come pick up their severance packages at the factory. At present,
10 of the 24 guards have arrived to claim their payments. Coca-
Cola has requested that the People's Committee appoint some
government body to accept the money from Coca-Cola and disburse
payment for claims made after February 20.

Coca-Cola's Guarded Reaction
6. A Coca-Cola rep told Econoff that the decision to terminate
the guards and hire a private security firm was simply a move to
outsource a function that could be done more cheaply and
effectively by an independent specialist. It also helps limit
Coca-Cola's liability for any guard-related incidents. He also
mentioned that the guards employed by Coca-Cola were offered the
opportunity to work for Tri Dung Security Company, albeit at lower

7. Coca-Cola praised the local authorities for helping solve the
problem peacefully. The Coke rep said the lesson he was taking
away from the incident was, "Let the government do what it is
there for, to handle problems like these. When there is a
problem, we should step back and call in the government." A vice
president of the HCMC Labor Confederation echoed Coca-Cola in
laying blame for the conflict on the guards. He told Econ FSN
assistant that the company had more than fulfilled its
responsibilities and he had absolutely no complaints about the way
Coca-Cola handled the lay-off.

8. When asked why the police did not just go in at the start and
remove the guards, the Coca-Cola rep said that was not something
his company wanted as it carried the potential for bad publicity,
especially if someone were injured. The termination did generate
a fair amount of press attention.

9. Coca-Cola's operations in Vietnam, begun shortly after the end
of the U.S. embargo, include three bottling plants (Hanoi, Danang,
HCMC) and employ more than 2000 employees. According to company
estimates, they have captured 65 percent of the market share after
an investment in excess of USD150 million. Coca-Cola believes its
success is due to consumer sentiment and loyalty, and would
therefore try to avoid anything that might upset consumers.

Labor Actions Are Commonplace
10. Labor actions are commonplace in HCMC. Newspapers carry
fairly regular accounts of walk-outs and short-term strikes in
local factories. ConGen contacts in the Labor Federation were
reluctant to give statistics without approval from higher-ups, but
a local newspaper reporter working the labor beat said there were
60 full-blown strikes in HCMC during 2003, an increase of
approximately 10 percent over 2002. Most incidents, which might
only last for a day or so, do not make it into the statistics.
Labor disputes are mostly sparked by wages (overtime), benefits,
or work conditions complaints. According to a local labor NGO
contact, some sort of dialogue followed by minor concessions on
either side almost always solves these conflicts. In his
experience, however, no one has ever demanded 36 months' severance

11. This is a good news story for the American business community
here. When this high-profile U.S. firm played by the rules and
offered a severance package well in excess of the legal
requirements, local authorities played a helpful role, diffusing
the situation and essentially backing the company. At the same
time, the effort to reach agreement rather than use force reflects
the preferred method for dealing with the majority of labor

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