"Enhancing our National Competitiveness is Not an Option"

Muhtar Kent, Chairman and Chief Executive Officer, The Coca-Cola Company

Remarks to the Economic Club of Washington
Washington, DC
May 19, 2010

As prepared for delivery

Thank you, David (Rubenstein), and good evening, everyone.

What a great privilege it is to be here at the Spring Dinner of the Economic Club of Washington. And what an honor it is to share tonight's program with our student scholars. Looking into the faces of these incredible young men and women, I see the future -- a future of enormous opportunity and unlimited potential. My sincerest best wishes go out to each and every one of you.

And I want to applaud David, the Economic Club of Washington, our teachers and parents, and all your members for your vision and support of this great program. Your scholars program reminds me very much of a similar program Coca-Cola launched 24 years ago.

Back then, on the eve of our Company's 100th anniversary, two former Coca-Cola leaders wanted to help honor our centennial anniversary with a gift. What became of those efforts is The Coca-Cola Scholars Foundation, which has helped send over 4,500 bright young students from across the nation to college.

It's an extraordinary group of young leaders, much like our students here tonight. Some have gone on to start their own businesses. Many are in Washington, working on Capitol Hill, K Street, and in the White House. Others have dedicated their lives to helping the poor in the most under-served areas of the world. We even have a few who are working for Coca-Cola and are making significant contributions to our Company.

Investing in education is the greatest down payment we can ever make. It is the foundation of our nation's future competitiveness and well-being.

Tonight, I would like to talk a little about our national competitiveness -- and specifically the imperative to keep American businesses healthy and competitive. I also want to express a deep concern that I and many others share about some of the tax policies that are being considered here in the U.S. Policies that could potentially damage American business' ability to create American jobs, invest in innovation, and compete in a healthy manner in a global economy.

Today, more than ever, the U.S. needs to do everything in its power to encourage investment, innovation and job growth in America. We also need a competitive tax structure on non-U.S. income of American companies to keep our businesses on a level playing field with our international competitors. Let's be clear: In today's growing and inter-connected global economy, American business' success internationally is essential to our future competitiveness domestically.

Our success in the world is absolutely critical to our success here at home.

Almost all of America's brand-name firms such as Coca-Cola, IBM, P&G, Microsoft and Caterpillar, to name a few, are multi-nationals. In the world today, the vast majority of foreign corporations only pay taxes to their home country on profits earned there. In other words, profits earned outside their home country are only taxed by those nations where profits are earned.

Here is the reality we are facing. Today, most OECD capital exporting nations have a territorial tax system for their international companies -- countries such as Australia, Britain, France, Germany, Switzerland, and 21 more. The U.S. is part of a short list of countries which actually has a worldwide system in the way it applies tax rules to its international business and gets to a quasi-level playing field through a system called deferral.

Let me explain with a live and true example. Take a Dutch multinational with operations in Malaysia. It pays a 25 percent corporate tax on its profits and can bring home or invest the rest tax-free -- that's 75 percent after-tax return.

By contrast, a U.S. firm with operations in Malaysia pays the same 25 percent Malaysian tax and if it decides to bring the profits to the U.S. it would face an additional 10 percent U.S. corporate tax rate for a total tax of 35 percent. This would leave the U.S. company with only a 65 percent after-tax return. American companies can defer the U.S. tax by keeping the profits abroad. Naturally, many do.

Under proposals now being considered here in the U.S., the benefits of deferral would be further restricted to put U.S. companies at an even greater disadvantage versus their foreign competitors operating under territorial tax systems.

Please understand me -- we at Coca-Cola are very much aware of the fiscal pressures the U.S. is facing today on federal, state and local levels. We recognize the critical need to improve our education system, fix our health-care system, rebuild our infrastructure, promote research-and-development programs, strengthen national security, and a long list of other burning priorities.

We -- all of us -- are asking a lot from our government. None of these needs can be addressed without revenue being generated. That's just a fact of life.

I am not opposed to taxes. In fact, we at Coca-Cola are very supportive of fair and equitable taxes that address the demands we are all placing on government.

But having one of the highest corporate tax rates in the world today -- and having a system of foreign income taxation that is more onerous than that of any other developed country -- does not bode well for America's future.

U.S. policies in this regard are now going counter to the rest of the world. And it's not just me saying this. In recent years 27 OECD countries have reduced their top corporate tax rates. The U.S. has not followed suit and it now has the 2 nd highest rate among the 31 OECD nations. Many congressional leaders from both major parties agree that our corporate tax code lies well beyond the international mainstream.

Now, having said this, think about the many positive roles large U.S. global businesses play in the U.S. economy. Today, global American-based companies like Coca-Cola directly employ 22 million workers in the U.S. and support more than 41 million additional American jobs through our supply chains. That's nearly one-in-three American workers.

These livelihoods and jobs are inter-connected with our global economy, and interconnected with the health and well-being of American companies and their ability to remain healthy and competitive in the world. And these jobs, by the way, are high-paying -- nearly 20 percent higher than the average private-sector job.

Large U.S. global companies also account for a quarter of America's GDP -- almost $3 trillion dollars in output. These same businesses account for about 30 percent of all private sector capital investment in the U.S. Last year, this equaled nearly half a trillion dollars in new property, plants and equipment.

Consider the impact on innovation -- the historical catalyst of the American economy.

Large U.S. global companies today represent three-fourths of all private-sector R&D performed in the U.S. That's a $200 billion dollar down-payment for future innovations, products, services, business models and jobs. And, of course, large U.S. global companies contribute directly to the wealth of America's households -- in other words, everyone in this room. Our companies have created $20 trillion dollars in market capital. Almost 90 percent of this value created is held directly by American citizens and in U.S. pension, retirement and insurance funds.

I could go on with more statistics, but you see the picture.

At a time when we need to be committed to growth, renewal and innovation the drivers of the American economy we cannot afford policies that will hinder our ability to invest in the future.

We at Coca-Cola believe in the future of this country. We always have and always will. We have grown up these last 124 years right beside America... and we have expanded globally to the benefit of America.

I think our collective history has shown that what's good for Brand America is also good for Brand Coca-Cola. Ours is a symbiotic relationship like few others. I have certainly seen this play out during my own 32 years of traveling the globe for Coca-Cola.

As our respective reputations increase abroad, our fortunes at home always take a turn for the better. And for sure we're a better company today -- and a larger contributor to the American economy today -- because of our great success overseas. In fact, over 75 percent of our revenue comes from markets outside the U.S.

And here's what this global success allows us to do: In just the last 5 years, we have invested nearly $20 billion dollars in capital expenditures and acquisitions right here in the U.S. This represents well over half of our Company's worldwide investments over the same period. In addition, each year, we invest over $10 billion dollars in our supply chain in the U.S. -- including $208 million dollars that was spent this past year on suppliers right here in D.C., Maryland and Virginia.

Ladies and gentlemen, these kinds of investments in the U.S. would not be possible without a strong and profitable global business for Coca-Cola. They most certainly would not be possible if American businesses were not able to compete on a level playing field with foreign businesses.

And far from shipping jobs overseas, we're creating real and tangible benefits for Main Street America. In fact, I saw this happen again two weeks ago when I went down to our Main Street citrus plant in Auburndale, Florida. Yes, it's really on Main Street!

I am not sure how many of you have been to Auburndale. It's a pretty little town of 14,000 people located in central Florida, right in the heart of the orange grove belt.

I was down there to help inaugurate a $115 million dollar expansion of our operations and to meet with our local suppliers who provide us with citrus for our growing global juice business. In fact, one third of the entire Florida orange juice crop is now processed at our Auburndale facilities.

Here's something you might find interesting: The capital improvements we've made to our Auburndale facilities are a direct result of the intense demand we're seeing for our juice beverages in Asia and China, in particular. In fact, about 80 percent of the orange pulp processed at our Auburndale plant will be exported to China alone.

That's right -- our business in China is creating jobs and economic stimulus right here in the U.S. If you look at what's going on down in Auburndale, you'll see that our new investments will create 135 new Coca-Cola jobs, and will have an additional $60 million dollar impact on the local community.

For all the talk we're hearing about China's rise taking jobs from America -- the reality is (as my friend Fareed Zakaria has noted so well) that China's rise and the rest of the world's rise are good for America and ultimately good for American job growth.

As I mentioned earlier, entrepreneurs and small- and medium-size American companies are tightly interwoven into our global operations at Coca-Cola. They play an instrumental role in our success, and our success is helping them grow. I think one of the great untold stories is just how much mutual dependency exists between large and small businesses today.

Our Coca-Cola system is a massive generator of small business development here in the U.S. and around the world. We feel we have a deep responsibility to promote and protect the interests of entrepreneurship and small businesses -- which are today the most-trusted institutions in America.

Just a few days ago, I met with several of our innovative suppliers during an awards program in Atlanta for our top minority and women-owned business partners. We invested nearly a half a billion dollars in minority and women-owned businesses in the U.S. last year. Their role will increase along with that of all of our great small business partners in the months and years ahead.

Together, the insights we learn... the innovations we gain... and the top and bottom line benefits that we derive from our small business partnerships are immense, to say the least.

Take, for instance, the story of Harris & Ford, an African-American-owned ingredient sourcing and trading company from Indianapolis -- in the heart of America. In 2002, through our supplier diversity program, we first engaged what was then a 20-person small business to help us source ingredients for our beverages around the world. Harris & Ford has done such a great job for us, that last year we spent nearly $35 million dollars with them. They helped us streamline our business and ensure that we are keeping up with our growing global demand for ingredients. We helped them grow significantly and create many new jobs here in the U.S.

There are tens of thousands of similar examples just like this from large U.S. global companies and their small business partners all across this country. We -- all of us -- are in this global economy together. And that's a wonderful thing because I believe it is going to provide meaningful growth opportunities for America's workers and American businesses of all sizes over the next decade.

As a billion people worldwide enter the middle class over the next decade... as more nations exercise free markets -- the opportunities for U.S. global businesses and those who supply and support them will grow significantly. If we -- together -- create the right climate for investment, entrepreneurship and competitiveness here in the U.S., there is no limit to how far we can advance over the coming decade.

Even with modest growth projections, the U.S. is expected to add another China to its economy by the year 2020. Think about that for a moment. We don't hear much about that, do we? Just imagine if we create the climate now that would help us exceed those modest projections?

We must never lose sight of our entrepreneurial heritage and what made this nation great. It's going to require fair policies that keep American businesses on a level playing field.

I think it's incumbent upon all of us in the business community to make our voices heard at every opportunity that presents itself. The Business Roundtable and the U.S. Chamber are great places to start, as they are tremendously important advocates.

Collectively, we in the business community need to do a better job advocating the benefits of free enterprise and global trade, and that really starts with leading by example. Nothing speaks louder than our actions. And no actions speak louder than investing in our future -- which really brings us full circle to where we started tonight, with education.

Continuous, vigorous and focused education is the antidote to so many of the challenges facing our society today -- none more critical than job creation. We can shout the benefits of free trade and global markets until we're hoarse, but that won't begin to heal the hurt of just one person whose job has been lost.

Education, re-training and lifelong learning initiatives have never been more important.

To our scholars tonight -- let me just say never lose your passion for learning. Your achievement tonight is just the beginning of life-long journey of learning and reinvention. Enjoy it... embrace it... let it lead you to a life rich in discovery and fulfillment.

To all the members of the Economic Club of Washington, I hope I've left you tonight with clarity about my point of view concerning the need to keep American businesses competitive. While our global landscape is shifting... while new markets are emerging... we should see this not as a threat but as an amazing new opportunity to innovate, grow and keep the American ideals of free enterprise fresh, relevant and energized for a new century of prosperity.

Thank you for having me here tonight. I look forward to your questions. Thank you.