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Executive Summary The paper presents the case of Coca-Cola India, the company which was on the heels

of promising future growth and was very well utilising its global brand name to gain market share in Indian emerging market. Its long term strategy was very much aligned with promising future growth of Indian economy and soft drink industry. But with the growth of economy and industry, the paper emphasizes certain other factors that need to be considered. Among these factors are political uncertainties, bureaucratic hurdles, various NGOs and effect on local stakeholders. One institutional void was the difference between European standards and Indian standards (finalized but yet to be implemented) which played an important role to restrict the growth of Coca-Cola in spite of its promising future projections. The paper discusses various controversies including pesticide issue that NGO raised in 2003 and with the immediate effect; several states banned the sale of Coca-Cola due to strong hold of regional parties and anti globalization NGOs, even though central government did not issue any immediate enquiry. Coca-Colas image was severely damaged and sales volume was badly affected. Even after 2007, consumption of carbonates still considered to be an issue of debate. The paper presents the business dilemma that Coca-Cola India faced to regain its image and trust in Indian market. Although Coca Cola was able to boost its sale by 13% in the first quarter of 2008 yet these statistics are much lower than actual sales projections. There are certain practices and strategies which could help companies to avoid this type of situation and multinationals can continue to have long term promising future growth even after the presence of NGOs and other types of business risks in an environment of political uncertainty. In the last section, paper describes the course of action that can help other companies to avoid the type of dilemma, Coca Cola India faced. 1. Coca Cola India: 1.1 Think Local Act Local Considering favourable economic factors and the growing Indian beverages market, Coca Cola planned its long term growth strategy based on the acquisition of popular brands and by focussing on local mantra. After acquiring significant market share with the acquisition of local brands and introducing diverse range of products, in 2001, Coca Cola India decided to target rural areas, taking into account that urban and rural India are two distinct markets on a variety of important dimensions. In rural markets, where both individual brand names and the soft drink market were underdeveloped, the aim was to enter the market with a recognizable brand name. On the other hand, in urban markets, where Coca-Cola was already known and where people lay more emphasis on the brands, Coca Cola aimed at narrowing its positioning, focusing on differentiation through offering unique and compelling value . The strategy Coca Cola adopted provided significant results. In 2002, the companys volume growth reached 39% as compared to 23% for the whole soft drink industry. After getting overwhelming response from the emerging Indian market, Coca Cola India decided to invest $125 million (Rs. 750 crore) to double its capacity19. Proceeding further with its strategy aimed at the numerous rural Indians, Coca Cola created a smaller, cheaper format costing Rs. 5. The success was so acute that Coca Colas archrival PepsiCo had to follow suit soon after. However, this initiative had to be dropped in 2003, after the rise in raw material prices. From the beginning, Coca-Cola India has laid great emphasis on its carbonated products (Coca-Cola, Sprite, Fanta) and has been slow in responding to a wider demand in other types of soft drinks whose

growth in sales has been more significant (bottled water and juices). Although Coca Cola India was trying hard to strengthen its positioning through a long term brand strategy and utilizing its global brand value, certain controversial issues were raised by the NGOs in the country due to which Coca Colas image was severely damaged and sales dropped immediately by 30-40% .

3.2 Various Controversial Issues On August5th, 2003, The Center for Science and Environment (CSE), an activist group (NGO) in India, targeted Coca Cola on the ground that its soft drinks contained pesticides, including Lindane, DDT, Malathion and Chlorpyrifos surpassing global standards by 36 times. These four pesticides were known to cause cancer, damage to the nervous and reproductive systems, birth defects, and severe disruption of the immune system . The study that was conducted by this NGO revealed the presence of pesticides in most soft drinks distributed in India, among which were Coca-Cola and its various product lines. The aim of the study was broader than just pinpointing the soft drink industry (pesticide is also present in most Indian staples, and in larger quantities), but getting Indians attention to the problem is easier if one targets large, powerful and American multinationals. As CSEs director Sunita Narain, a well-known and appraised activist and the instigator of the pesticide study, puts it herself: looking at soda draws attention to the whole pesticide problem . The goal she was following had immediate effects: protesters in Mumbai and Kolkata defaced Pepsi and Coke ads and burned placards depicting soda bottles. Several states restricted or banned soda sales . While the pesticide issues were gaining momentum in most parts of India, various NGOs which were raising questions about the globalization movement and its effects, joined the anti-Coke movement by accusing Coca Cola of depleting water resources in poor villages of the southern state of Kerala. The fast growing population and the scarcity of water resource in India have made any matter concerning water a very touchy issue. Upon hearing about these allegations, local officials in Kerala shut down a $16-million Coke bottling plant in March 2004 . Coca-Cola, by the very nature of its activities, is an important user of water, both in the composition of its products and in its manufacturing process. And by being a foreign MNC and one of the top representations of Americanism, it is also an easy target for criticism. Although these claims are still unproven, the company has been trying ever since to regain the plants license. The numerous public outcries at Coca-Cola and rival PepsiCo regarding the presence of pesticides in their carbonated products not only affected the name of these two giants, but influenced the very trend in the soft drinks industry. Whether these allegations are true is another debate, but the fact remains that the public image of Coca-Cola and its brand name have been severely damaged. As a consequence, the consumption of star products like Coca-Cola has gone down. The response of Coca-Cola was seen as an inappropriate one by many Indians. Instead of launching a strong campaign showing their corporate social responsibility and the will to improve their processes in India, Coca Cola began a Bollywood-type campaign that was clearly too light-headed to show

that the company had understood the message. It also claimed that those were acts of sabotage and after-sale adulteration and did not show a real commitment in requestioning its operations. After the allegations on Coca-Cola over the water resources issue, The Energy and Resources Institute (TERI), an independent research organization based in New Delhi came up with the report saying that some Coca-Cola bottling plants in India generally meet government regulatory standards on the level of pollutants in wastewater, but are contributing to water scarcity . This report concludes that there was no significant contamination and that the plants "generally meet the government regulatory standards" for water quality, though sometimes did not meet the company's own tougher standards. Two major conclusions of the report suggested that Coca-Cola should improve its treatment of factory wastewater, and that it should keep from situating bottling plants in areas where water resources are strained. Both Coca-Cola India and its bottlers complied with the standards of relevant Indian government and regulatory agencies, the report found. New Delhibased TERI was headed by the Chief U.N. climate scientist Rajendra Pachauri, who was a co-winner of Nobel Peace . Even after these issues in 2003, Indian parliament recommended govt to set purity standards on soft drinks. But till the end of 2006, the government had yet to act on these recommendations . The different NGOs that have attacked Coca-Colas reputation after the water controversies have highlighted the fact that even if the company complied with Indian standards, it should also take a step further and also observe the Western norms it applies elsewhere. They are accused of selling products they wouldnt dare sell at home . They are also targeted for not offering a solution to the communities they have operations in. By looking at Coke Indias website, it becomes apparent that the threats posed by these controversies were deemed important enough to integrate sections on the companys commitment to the communities and the environment . Nevertheless, Cokes slow and inappropriate reaction during the controversies has affected its growth strategy. Whereas the product is still highly unaffordable for most rural, poorer Indians (especially since the disappearance of the Rs. 5 bottles), many urban, more well-off potential customers have gone away from consuming carbonates to healthier, pesticide-free beverages . The brand name Coca-Cola is not synonymous with quality anymore in the minds of many Indians. 3.3 How to regain its Brand Image After various controversial issues, the business dilemma for Coca Cola India is to regain its global brand image in the Indian market. Given the increasing public interest in environmental issues and presence of NGO activists, such criticisms are inevitable for MNCs and they should be prepared for this type of issues. Prior to this problem, Coke had already experienced safety problems. In 1999 in Belgium, an outbreak from which about 250 people suffered happened due to some unsatisfying treatments in the companys bottling facility . This problem turned out to be the largest recallseventeen million cases from five European countriesin Cokes history. Ivester, CEO at that time, even if he was in France and very close to the site, came back home in the US without taking any action, and kept silent for over a

week. This course of actions cannot be excused if the company is blamed as irresponsible to the corporate issue. The loss of brand image and criticism could be avoided not only by reacting to NGOs attack; Coca Cola could also proactively use this problem as an opportunity to raise its corporate reputation. If Coca Cola had proactively approached CSE asking them to disclose their research result in order to further improve its quality system, how would society react? People would feel that Coca Cola India is attempting to detect a cause and solve the problem. It is important to show that the company is committed to the local society. A proactive move can turn out to improve Cokes brand image in India. More involvement in the communities where Coke has bottling plants is necessary. This can be done, for instance, by providing villagers with an easier access to potable water, or by investing in a durable manner in the education of the members of the community. Coca-Cola needs to show that it is a responsible corporate citizen, that its presence in India is beneficial, and it needs to rebuild its brand name by focusing on this strategy. It should proactively collaborate with local NGOs to ensure they grasp the whole extent of the problem they are facing and try to find solutions accordingly. Coca Colas other problem was its water consumption in the factory. Because of the huge amount of water that was consumed in the factory, the people living nearby, most of whom were engaged in farming activities, faced water shortages. Assuming the factory needs that water, it is not easy to change the production process. In order to solve the water problem, the company has to change the production process dramatically. It is not easy in terms of either money or time because these changes need a great deal of investment in new technology development. However, the company has to invest in its production capability using less water. Otherwise, it would intrude into peoples life and could easily become an easy target for NGOs activists. Taking into account the energy, time and money of having to deal with NGOs attacks and its negative effect on the brand image, it would be worthwhile to invest a large amount on this production improvement. On a brighter note, however, Coca-Cola India has realized that better communication and dialogue with its consumers as well as state authorities, supportive or otherwise, looks likely to be crucial to successfully do business. Over the last two years, Coca-cola has installed 300 rainwater harvesting structures spread across 17 states, including locations at schools and farms; the collected water is used for plant functions, as well as for recharging aquifers. Coca-cola plans to have 5042 more rainwater harvesting systems by partnering with local governments, NGOs, schools, and communities to establish local rainwater harvesting facilities. Coca-cola has funded and launched rainwater harvesting projects at all of its bottling plants, which will save millions more gallons of water a year at each plant . Also, the Coca-Cola Company shares its water management expertise with communities surrounding each of its plants, helping them to develop localized rainwater harvesting programs. All these measures taken by Coca-Cola have a positive impact on changing local peoples attitude toward its inferior image. As a result, due to taking efficient corporate social responsibility, sales volume of coca cola India has started to go up. With regards to its marketing strategy, instead of approaching urban and rural consumers differently after the pesticide issue Coca Cola relied only on one Bollywood actor to produce its TV commercials and clarifying the things. The broader the target, the least effective the advertisement is, and thus

the effects of advertisements will scatter. Coca Cola should clearly differentiate its marketing strategies between urban consumers and rural market.

4. Lessons to learn from Coca Colas case Coca-Colas financial report for this year shows that soft drinks major Coca Cola has posted a 13 per cent increase in unit case volume in India during the first quarter of current year, surpassing growth in developed markets. This is a good sign that Indian consumers are starting to accept Coca-Colas improvement in dealing with water scarcity and the pesticide challenge. While this increase in sales has been triggered in part by bottled water and juices, carbonates also observed their share of growth. If most of the challenges Coca-Cola had to face seem to have been overcome, its case can provide meaningful insight as to what other MNCs can proactively do to prevent this type of crisis. Do not underestimate the power of local stakeholders When entering a new market in a foreign country, MNCs have to be aware of the different characteristics (cultural, administrative, geographical and economic distances) that could affect doing business in this new environment. In India, as Coca-Colas example has shown, understanding the interactions between local governments, activists, NGOs and the communities is essential. Furthermore, when one of those players raises some concerns about the MNCs activities, they have to be taken seriously, as the impact of a bad reputation can result in losses of market shares. Hence, a wrong market strategy will result in a higher price to pay for MNCs to strengthen their local positioning. In case of a crisis, be prompt to reply with the appropriate solutions Compared with Cokes behaviour prior to 2006 that refused to acknowledge the growing discontent around its operations in India, Coca-cola is now taking an active play in improving its shaken image by implementing effective water management. However, by reacting too slowly and in an inappropriate manner, Coca-cola has lost significant sales volume in India since the water issue happened. The damage could have been far less extensive had it taken into account what the communities were demanding. Besides, the price of regaining customers confidence and recovering the value of its brand image will prove far more costly than expected. Although in India, BIS (bureau of Indian Standards) had not finalized standards till 2004 (later finalized in 2006 but yet to be notified) specifically for the soft drinks, but Coca Cola should have made it clear before the issues that which standards it was following i.e. European or Indian (which were yet to be implement). Hence, other MNCs should avoid using an arrogant attitude in times of crises, and show instead that they take their corporate social responsibility seriously. A prompt reaction to a problem will show that the company is dedicated to the community it operates in. In fact, exceptional risk management in such disastrous situations can dramatically turn around the corporate image. A famous good example is the Tylenol deaths in 1982. Some bottles of Tylenols were contaminated with deadly cyanoid and killed 7 people in Chicago. Johnson & Johnson conducted immediate recall for the whole country combined with an aggressive PR campaign to the public preventing people not to take Tylenol capsule. Its market share dropped from 37% before the crisis to only 7% afterwards . However, Johnson & Johnsons prompt reaction to save consumers was praised by people and

Tylenols share returned to 30% in a short period. Its stock price rose after the tragedy . The cases of Tylenol and Coca-Cola show, in a different manner, that MNCs will gain by providing the right solutions to a problem, and more so if these steps are taken on a timely basis. Both examples also show the price to pay if you allow consumers to lose confidence in your products. Be proactive and get involved with local interest groups Coca-Cola has been slow to answer to the pesticide and water shortage controversies. However, learning from its mistakes, it has also started to be more proactive in the communities and in the way it deals with its business operations. Collaborating with different local groups and NGO has been a successful experience, and its market share has gone up. Foreign MNCs can learn from this case by getting interested parties involved in some aspects of its operations. For example, what are the possible side effects of opening a plant in a particular region? Who might be able to help lessen the problem? By asking themselves the right questions and showing that they believe in their social responsibility, MNCs should be able to find reliable partners. And this could prevent many possible future crises. An old Chinese saying states that the water that bears the boat is the same that swallows it up. Transposed to the business strategy environment, this means that MNCs should learn how to make a thoughtful balance between the companys interests and local resident interests in order to reduce or avoid the conflicts that could happen. On the other hand, unlike Coca-Colas case, if a crisis cannot be prevented, a MNC should take quick action to reduce its impact, rather than ignoring the crisis or putting down the demand of local residents. Otherwise, MNCs will have to pay the higher price of recovering its loss of market share and profit.