Inside Coca-Cola

by Neville Isdell

  She felt better as we entered Makati, the Manila business district, and checked into the Peninsula Hotel and later when we had dinner in the Champagne Room of the old Manila Hotel, where General Douglas MacArthur had lived when the Japanese attacked in 1941. Pamela agreed to give the Philippines a try and we were soon on our way.

  The company provided us with a first-class house complete with a swimming pool, three maids, a driver, a gardener, and two security guards. Even by African standards, this was almost a surplus of servants. Our daughter, Cara, had her own nanny, or “yaya.” We added another family member as well, Sebastian, a basset hound. The friendliness of the people and our ease at making friends soon meant that as a family we settled in rapidly. The only security problem we had was when one of our guards shot himself in the foot while playing with his gun.

  The Philippines consists of about 7,100 islands, many of them uninhabited. In a typical year, many regions receive 100 inches of rain. When it rains, it pours, as Manila is in the typhoon belt.

  The country has an interesting cultural mix of former Malay tribal structure influenced by more than two hundred years of Spanish rule and more than forty years of U.S. control. English is widely spoken and literacy is relatively high. In the 1980s, some predicted that the Philippines, which then had 50 million people, could be the next Japan, an economic giant. For a variety of reasons, most related to the Philippine political process, that has not materialized, although the country still has enormous potential. One of the striking features of the Philippines is how similar it is to Mexico in architecture and design. Spain administered the islands out of Acapulco. The marketplace in old Acapulco where fish and vegetables are sold looks remarkably like a standard one in Manila.

  Despite such similarities, the influence of the United States on the Philippines is difficult to ignore. A number of the television programs and newspapers are in English and most Filipinos have relatives living in the U.S. This veneer of U.S. culture, mixed with a laissez-faire, Spanish-Malay way of living, creates a sort of organized chaos, a bubbling, cheerful society where people appear to be generally happy, even those who are poor. Obviously, poverty takes its toll in many ways, but enjoying oneself is at the center of many Filipino’s lives. Merienda, big daily rituals revolving around food, with snack breaks during the morning and afternoon, stop work in the office and are an important part of the culture, one that is not to be interfered with.

  The Catholic Church is strong in the Philippines and its voice is heard in all moral and political debates. Church attendance and the observation of various church festivals are major events. Each year at Easter, men are actually hung on crosses and flagellated on the streets. Yet, as in any society, in the Philippines there is a dichotomy.

  In every town and particularly evident in Manila are “short-term” hotels—very profitable businesses—where normal stays are for three hours. They advertise heavily, particularly around Valentine’s Day. After checking in, you are directed to a vacant garage and the door is closed behind you. Your room is directly above the garage and fairly garish with plenty of mirrors. Food and drink are available as room service. How do I know all of this? Well, Pamela and I decided to sample one as part of a desire to “explore,” which proved of great interest when I relayed the story one evening at a friend’s dinner party, although there were a few concerned faces around the table.

  An expat is able to live to a degree within Philippine society. In Japan, you go to a formal business event but you very rarely go to someone’s home. In the Philippines, it is not unusual to be invited to someone’s home. There is a level of integration between expats and Filipinos that I have not seen anywhere else in Asia.

  When we first arrived, President Marcos had just been reelected to a new six-year term and the political situation appeared to be stable, although conditions would deteriorate steadily during our time there. George Bush, then vice president under Ronald Reagan, honored Marcos with a state visit, prompting protests from the opposition.

  For the first time, I had my own major company to run, but it was in an exotic country of which I knew little. For any global company, there is no more important task than fully understanding the culture of the country where you are operating. This lesson was ingrained in me in the Philippines.

  Before arriving, I read as much as I could about Filipino culture, something I had failed to do when we moved to Australia, making the incorrect assumption that it would be like South Africa. In the Philippines, family allegiance is extremely strong. Allegiance to your classmates, either from the military or in school, is actually greater than any allegiance people would have for their employer.

  The cultural traits include Utang na loob, which means obligation. If I do you a favor, you have to return the favor some time in the future. Pakikisama means getting along, avoiding confrontation when first meeting someone. Filipinos also tend to search for common lineage with others all the way to a third cousin, and seem to have an encyclopedic knowledge of their detailed family trees.

  In Filipino culture, “yes” often means “I hear you,” not “I agree with you.” Ensuring you have agreement is therefore much more complex. The worst thing to do is get annoyed and say, “You agreed to do this.” In your view, they did. In their view, they didn’t. In other words, you’re in their culture and you need to understand the way their culture works. You can’t impose your culture on them. Of course you maintain your standards and your values. That’s a different issue. Yet at the same time, you have to bend with the cultural wind if you’re going to be able to work in any country and find ways to achieve your goals within this frame.

  Once in the Philippines, I realized immediately that I needed to hire a Filipino manager, someone who knew the business but could also be a cultural interpreter. John Hunter, who had designed the five-year plan, had already come to that same conclusion and had a recommendation. That man turned out to be Jesus Celdran, nicknamed King King or King2.

  I met him over lunch at the Manila Polo Club. Physically, the two of us didn’t match at all. King is five foot six and I’m about a foot taller. Eventually our nickname became Mutt and Jeff. We were joined at the hip—well, we couldn’t have been because of the height difference—but metaphorically, we were.

  With King King our basic team was complete. In addition to him and myself was Tony Eames, an Australian transferred from Atlanta to be manager of Coca-Cola in the Philippines. He’d replaced John Hunter, who had been promoted to Hong Kong. Tony and I were in our thirties, King King about twenty years older. We traveled the length and breadth of that country together. King King in particular was absolutely crucial to my success. He was the one who was able to understand what I was trying to do strategically. He was able to say, “Well, I like your idea but here’s why it doesn’t work in the Philippines,” and even more important, he’d explain how we could make it work.

  For example, once we were discussing sales incentives. We had a business of 10,500 employees. My thinking was that we could leverage the sales incentives. Instead of giving employees a $200 bonus, we could actually give them a refrigerator that was worth $400 because we could buy the appliances at cost from the manufacturer. We’d be giving them double the value of prizes for the same cost, and this would also act as a family incentive.

  “No boss, that doesn’t work,” King King told me. He explained that when a salesman wins a $200 bonus, it goes into his back pocket. It’s his play money, unlike his salary, which he takes home and gives to his wife. In the Philippines, the woman manages the family and handles the money and basically gives an allowance to the husband. My plan would not have worked culturally. Logic does not always prevail.

  In one of my first meetings with senior management, I addressed another sensitive cultural issue, expat salaries, which were much higher than those of the Filipino execs. I explained to my Filipino direct reports that this was necessary to attract foreign talent and that I myself had been paid less than an American in South Africa, who r
an the much smaller bottling plant in Durban. While I was not particularly pleased about that, I understood he could not be paid on the local pay scale.

  “I’ve brought these people in. I think we need that injection of new talent,” I told the Filipino managers. “At the end of the month, you are going to think about what they walk away with and what you walk away with for equal effort and if you disagree with that, you shouldn’t be part of the team. I don’t want there to be a burning resentment about higher expat salaries and benefits around that element. Absent that one difference, we’re not going to be the expats in one corner, the Filipinos in another. We are one team.” I meant that and lived by it, as did the three expats I had brought in.

  Pepsi, in a later reaction to Coke’s resurgence in the Philippines, brought in a new team of expats. They committed the sin that I was avoiding. The expats sat around at the Manila Polo Club, drank beer, and complained about the Filipinos being lazy. That is what happens when management is disconnected from society. It leads to alienation all around and a lack of understanding of the market and the customers.

  From day one in the Philippines, I began the process of modernizing the bottling plants and energizing the sales force. No one was more important in this process than Tony Eames, the region manager of the Coca-Cola Company. He had no ego when it came to sharing decision-making on advertising, which was normally the purview of the Coca-Cola Company. The advertising campaign from headquarters at the time was “Have a Coke and a Smile.” With Pepsi outselling us 4 to 1 in Manila, I thought we needed a stronger message. Also, Pepsi had singer Michael Jackson, who was extremely popular in the Philippines, in its ads. So we developed our own commercials, using Filipino stars, advertising both the Coca-Cola brand and featuring our new packaging. It could have been interpreted as a violation of the company rules since all brand advertising had to come through Atlanta. Yet Tony allowed us to do this, arguing that it was packaging advertising, which was exempted. Also, with only one bottler in the Philippines, it made more sense to collaborate with us during our early stage of storyboard development. He was right. I reciprocated by allowing him to give his input on manufacturing issues, which were normally reserved only for bottlers. It was a great lesson on how the franchise system should and could work.

  Joe Brand from Coca-Cola Company joined my team as head of quality control to ensure that the bottling plants met global standards. Coke insisted that Joe report directly to me and not to Ramon Abola, the Filipino technical head. I considered this a major mistake as it would undermine Ramon and send a signal to the organization that expats were special. Joe, to his credit, saw this, and agreed to report to Ramon. This reinforced that we were a single team even though Joe earned more money than his boss. Joe never faltered and within three years, quality scores for Coke plants in the Philippines were higher than the world average.

  When I interviewed Joe for the job, I was in the Makati Medical Center, with a drip in my arm, weak and emaciated, having lost ten pounds from a bout with typhoid fever and a recurrence of the malaria I had as a child in Africa. I looked like a skeleton. Such was life on the road.

  Both before and after my recovery, King King, Tony, and I worked almost every weekend, hopping from one island to the other.

  During World War II, King King had served with guerilla forces as an intelligence officer behind Japanese lines under the command of Colonel Wendell Fertig, an American who stayed behind in the Philippines after General MacArthur escaped to Australia.

  “We were constantly moving from one camp to another, always in fear for our lives, trying to keep one step ahead of the Japanese,” King King recalled in an interview for this book.

  King King had great credibility in Mindanao as a war hero, and a facility for languages in this, the most multicultural island in the Philippines. As an interesting aside, former Coke CEO Paul Austin also served behind enemy lines with Filipino guerillas during World War II, obtaining information for U.S. Navy PT boat operations.

  When I arrived in the Philippines, Mindanao was still an island of extreme conflict, with two insurgencies underway. The first was led by the communist New People’s Army and the second by the Moro Liberation Front. Both groups controlled large sections in the rural areas of the island. And yet, Mindanao was Coke’s strongest market.

  The conflict with the MLF, which sought independence for Muslim areas, continues even to this day, and the U.S. military is very involved in an advisory capacity.

  When King King and I traveled to areas of the Philippines where Muslim influence was strong, we were always accompanied by guards toting their firearms. Often they were positioned outside my bedroom door, even following me to the men’s room.

  On one isolated island, a couple who had paddled over in a dugout canoe was terrified when we landed in a helicopter. It was almost as if we had stepped back in time a thousand years, as they were members of a remote indigenous tribe. They had no idea of date or time or the peso value of the fish they were catching. We offered them Coke and San Miguel beer, neither of which they had ever tasted. They hated and literally spat out the beer, but loved the Coca-Cola. We had two more satisfied customers.

  Appealing to the country’s militaristic fascination, King King, Tony Eames, and I created a sales team called the “Tiger Force” with the theme song “Eye of the Tiger,” from the movie Rocky. To this day, when I hear that song, I’m energized by it. I feel all over again the thrill of the fight.

  On Saturdays and Sundays, we would hold sales rallies, with music, good food, San Miguel beer, and theatrics. Once, King King, Tony, and I dressed as Filipino generals. I would sometimes smash a Pepsi bottle against the wall of a bottling plant, revving up the troops. In one town, the local bottling manager, who was friends with the military officers there, arranged for us to ride to the rally on a tank. This was business war and the enemy was dressed in blue.

  Hundreds of route salesmen attended our rallies around the country. They worked six days a week in the tropical heat, driving from one tiny shop to the other, unloading heavy crates of Coke, making sure that the Coca-Cola signage was properly placed (so that it would be more prominent than Pepsi’s) and that the coolers were working properly, all the while pitching the store owner to buy new products such as Mello Yello.

  When we launched Mello Yello, billed as “the world’s fastest soft drink,” I would lead the salesmen in calisthenics—doing pushups on the stage—then we’d run around the plant together. It was all about creating energy and drive, and not something I had learned at Harvard Business School.

  Many people think the power of Coca-Cola is the strength of the brand. Yet, it’s the route salesman who is the unsung hero, the one who does the real heavy lifting, literally and figuratively. Those were the people we tried to motivate. And quickly, we saw the difference in the marketplace. Regularly, we’d go out and tour the sari-saris, as the small shops were called. “Don’t expect what you can’t inspect” was my motto. Some of the shops were literally tin-roofed shacks and at six foot five, I had to stoop to get through the front doors, not always successfully. Yet we began to see that Coke was gaining more prominence as our signs and products became much more visible. When I toured the bottling plants across the country, there was typically a big lunch and a scripted tour, the factory spruced up for my visit. I made a point of breaking off from the official tour and inspecting the employee bathrooms and locker rooms. If they were not kept clean, it was a sign that the company did not really care about the employees. Workers were sometimes shocked to see me, the president of the company, touring their bathrooms, which were often filthy. It sent a message, from the top, that employees mattered and that quality meant quality in everything we did. Everything communicates a message. For example, I would rather have no sign than an old, faded sign.

  One of the strategy development methods I have used on occasion is to be sure that we’re looking at our business through the lens of our competitor. In Manila, I took the upper management team to
a strategy session at the Intercontinental Hotel. They entered a room which was decorated with Pepsi posters. There was ice-cold Pepsi for them to drink, no Coke, and I had Pepsi T-shirts for them to wear. They were obviously shocked. Then I conducted an all-day session designed to detect the weaknesses in the Coca-Cola system and develop a strategy to retain our leadership over Pepsi. During such a session, it takes about an hour for people to get comfortable, but eventually things fall into place and workers get a thoroughly honest assessment of their own flaws and strengths. Interpreting the data over the following days clearly helps to build better business strategies. It’s amazing the brutal honesty that comes from these sessions, and how hidden flaws that most people are naturally reluctant to admit to are uncovered. Goizueta, the Coca-Cola CEO and chairman, helped our cause, flying in for a visit to Manila. It was interesting to see Roberto, a Cuban, in his Spanish mode. The Sorianos were Spanish Filipinos and still had roots in Spain and they bonded with Goizueta completely.

  We had a lunch that went on and on and afterward, the Sorianos and Goizueta disappeared to carry on drinking. It was pretty clear in the evening that they had a very good session. At a major evening party, Roberto, the Sorianos, and yours truly did the tinikling, a Filipino dance in which two women hold bamboo poles and slide them together on the ground to the rhythm of the music. The dancer has to jump out before getting his feet caught between the poles. I had never seen Roberto like that. He was an extremely disciplined man but here he was immersed in the Spanish fun culture.

  Don Keough, president of Coke, later paid a visit with John Georgas, head of Coke’s international sales. At a sales rally, I had Don and John dressed in Tiger Force T-shirts as I led employees in motivational chants. “We could have led a revolution with that crowd, that day,” Don later said.