Case 1-3 Coke and Pepsi Learn to Compete in India

Yuliya Rudenko

BUSA 460 International Marketing

Dr. Merlin Simpson

10/01/2007

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Case Analysis #1

Introduction

Many companies plan to do their business internationally. However, they are not

always successful because they have to face culture differences, which they were not

prepared for. Therefore, it is critical to do internal research of that country before doing

any business in the specific country. Nevertheless, there is always going to be some

issues that they can only face when the company gets there; issues always arise when

moving a business to a different country. Though, it is really important to learn from

these issues and create a plan that will help the corporation in the future in a similar

situation.

Coca-Cola and Pepsi Cola are the two leading beverages company in the world.

Both companies moved to international market. PepsiCo entered in the Indian market in

July 1986 and they were working with two local partners, Voltas and Punjab Agro. The

Indian government approved this application with the exception that the sale of soft

drinks concentrate to local bottles could not exceed 25 percent of total sales of the new

venture. Coca- Cola on the other had a different story. They entered into the Indian

market in 1958; however they face many problems from the government such as cutting

its equity stake to 40 percent and handing over its secret formula for the syrup, so they

decided to leave India. However, in 1990 Coca-Cola decided to go back to India,

following their laws.

Both companies tried their best to succeed in the Indian market. They were well

aware of tolerance and the cultural differences. Both companies were trying to compete

with the local business in the same industry by using many different strategies. In my

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opinion, to bring something new to the culture it takes a lot of strategic marketing in

order to make that product acceptable. It was mentioned in the case that the average

Indian was buying only three bottles a year. Also, India was not big on carbonated drinks;

they preferred more natural beverages, so Coca-Cola made a foray into the premium juice

segment with the launch of Minute Maid juice (Prasda, 2006). Therefore, the companies’

goals were to make this product more likable for the Indians. Coca Cola for instance, was

doing discounts by reducing product price and also giving away drinks through “buy one

and get one free” specials. Both companies also focused on hiring well known stars from

Bollywood to do their advertising and some what they were successful. In the article of

Finally, Coke Gets it Right, Alex von Behr, who is the president of Coke India, mentioned

“The environment in India is challenging but we are learning how to crack it” (Manjeet,

2003). Those small issues were nothing compared to what Coke companies had to face in

India.

Issues

When Coca-Cola reentered the market in May 1990 they were trying to joint the

local bottling company owned by the giant Indian conglomerate, Condrej. They did

everything that the Indian law required but for some reason the Indian government turned

down their application; however, they approved Pepsi Co. Coca-Cola did not give up;

they made their return again by joining forces with Britannia Industries India. In 1991

there were some changes within the government and many international companies

believed these changes as beneficial to international businesses. Unfortunately, it was

only a promise that the government made in order to attract multinational companies. In

the past the Indian government was known for being unfriendly to foreign investors. The

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video that we saw in the class about India, in the film an editor mentioned that many

things changed in India, however, the India government does not welcome international

companies with welcome arms. While everyone was trying to enter into the Indian

market, many companies were disappointed because of the inconsistency in the

government’s promises. If a company goes into the Indian market, it seems like the

government tries it’s hardest to make it hard for them by issuing ridiculous laws and

leaving no choice for the company but to leave the country.

It‘s seems as though the Indian government is squelching any investments from

foreign companies. First the government wanted to know the secret ingredients for Coca-

Cola and then they wanted to control the company equity stake. The most important

thing they forget is that they are the ones who are going to benefit from the multinational

corporation. The government benefits from taxes and foreign investments. Also,

multinational companies bring demand for jobs. For instance when people in India

boycotted against all American companies because of the Iraq war they thought they

would stop American industries from selling their products in India; however, they forgot

that by doing this it would also hurt Indian economy.

One of the laws that the Indian government called “principle of indigenous

availability” had specified that if an item could be obtained anywhere else in India,

imports of a similar product are forbidden. Therefore, the government thought by doing

this it would bring more revenue and jobs to the country. However, this law made the

country be self-reliant in its defense industry. Consumers had little choice of products or

brands and no guaranty of quality.

In the “Contamination Allegation Water Usage” section in the case both Coca-

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Cola and Pepsi got sued because they contained significant levels of pesticide residue in

their drinks. Some states in India such as Gujarat, Punjab, Madhya Pradesh, Rajasthan,

Kerala and Karnataka were asking educational institutions and hospitals to stop stocking

these soft drinks. (Cioletti, 2003) Both companies denied the charges because their

argument was that they were required by law to use local own products and the extensive

use of pesticide in Indian agriculture had resulted a minute degree of pesticide in sugar

used in their drinks. They also argued that their products are safe and they measured that

against the most stringent standards. (Bremner and Lakshman, 2006) After this argument

the case was dismissed because the Indian government had nothing to say to the fact that

they were the ones who had this problem in their agriculture products.

Recommendations

I really like how Coca-Cola responded to some of these cultural issues. First of all

they hired some of the local people who understand the culture to deal with some of the

above issues. They tried their best to play fair with the locals and at the same time stay

competitive with other business in the same industry. The second solution would be to

think twice before reentering the market for the second time. Because often an individual

company is helpless against a corrupt and unstable government.

From reading this cause it did not seem as though many of these companies made

any significant profit in the Indian market. Therefore, before entering to a new country

the company should do internal research of the new country and especially when bringing

a new product to the Indian market.

My first recommendation for both Coke companies is to talk to the Indian

government and ask them to negotiate their laws. Because of the way it is right now, it is

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really hard for multinational businesses to function in India. The government should

provide some kind of protection. It would be really nice if the multinational companies

would have a representative in the government. Just in case any issue arise they could

bring them to their representative and they would negotiate within themselves. However,

I really do not know if it is possible in the Indian government.

The other recommendation would be make their own products in India, and do not

ask locals to supply them with their products. Though, they could hire locals to do the

agriculture work, as long as the company is in charge of it. By doing this, they would

avoid any problems from the agriculture and environmental side. Because they would be

more aware about how this product was produced.

Both companies should be more involved in the community that they are trying to

promote their drinks. This would include helping them celebrate their festivals or even

support local soccer players. People would notice this right away and recognize they are

here to support their community, not just sell their product.

In conclusion, every country has its own negative and positives sides. If a

multinational company wants to invest their money in a specific country they have to see

if the positives will overcome the negatives. In other words, would it be possible to make

any money with all the struggles they have to go trough do deal with the cultural

differences.

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 Reference

Bremner, B. and Lashman, N. (2006) Pesticide Claims Shake Up Coke and Pepsi.

Business Week. Retrieved from EbscoHost.com Business Source Premier on 9/29/2007.

Cioletti, J. (2003) Indian government says Coke & Pepsi safe. Beverage World,

Vol. 122, Issue 9. Retrieved from EbscoHost.com Business Source Premier on 9/29/2007.

Graham, J. and Cateoria, P. (2007) International Marketing.

Manjeet, K. (2003) Finally, Coke Gets it Right. Business Week, 0077135, Issue

3819. Retrieved from http://web.ebsohost.com/bsi/detail?vid=7&hid=104&sid=1e8d660d

on 09/30/2007.

Orr, D (2003) The Coke Challenges. Forbes Asia, Vol.1, Issues5. Retrieved from

EbscoHost.com Business Source Premier on 9/29/2007.

Prasad. G. ( 2006) Coca-Cola rolls out juice offer in India. Media Asia. Business

Week. Retrieved from EbscoHost.com Business Source Premier on 9/29/2007.

Ratnam, V. (1998) Multinational companies in India. The International Journal of

Resources Management 9:4. Retrieved from EbscoHost.com Business Source Premier on

9/29/2007.