US embassy cable - 04HOCHIMINHCITY201

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000201 
 
SIPDIS 
 
STATE PASS USDOL ILAB BBUI 
STATE ALSO PASS USAID FOR ANTOINETTE FERRARA 
BANGKOK FOR USAID 
 
E.O. 12958: N/A 
TAGS: VM, ELAB, ECON, LABOR 
SUBJECT: COCA-COLA PEACEFULLY RESOLVES LABOR DISPUTE WITH GVN 
ASSISTANCE 
 
 
Summary 
------- 
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 
salaries. 
 
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 
pay. 
 
Comment 
------- 
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 
disputes. 
YAMAUCHI