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Coke and Pepsi Learn to Compete in India

A. Identification of issues and Problems Step 1overview of the case study During the 1900s and the beginning of the new millennium Indias government had opened its doors wide open to foreign investors, but the Coca-Cola Corporation and PepsiCo experienced many difficult challenges. Both companies were engulfed with unexpected problems and difficult situations that led to the recognition that Indias market was very different and special knowledge, skills and local expertise was needed to be obtained if the two companies were to succeed. As Ronald McEachern, PepsiCos Asia chief, stated, India is the beverage battlefield for 2003. Pepsi entered into the Indian beverage market in July 1986 as a joint venture with two local partners, Voltas and Punjab Agro, forming Pepsi Foods Ltd. Coca-Cola followed suit in 1990 with a joint venture with Britannia Industries India before creating a 100% owned company in 1993 and then ultimately aligning with Parle, the leader in the industry. In many ways, Coke and Pepsi managers had to learn the hard way that what works here does not always work there. In India, there are two main high seasons for the consumption of soft drinks. First being the summer session which lasts about seventy-five days in mid-April to June. The second major opportunity for Coca-Cola and PepsiCo in India is the annual Navratri celebrations.

Another issue that the Indian market faced was the attack by the United States and Britain on Iraq. A boycott was put in place as the result and targeted specifically Pepsi, Coca-Cola, and McDonalds as a protest against the unjust war. Sales of Coca-Cola and Pepsi plummeted fifty percent within the first two weeks of the boycott. Just as things were looking better, an environmental organization claimed that an essential ingredient in locally produced soft drinks, was carcinogenic. Producers either had to resort to using a costly imported substitute, estergum, or they had to finance their own R&D in order to find a substitute ingredient. Many failed and quickly withdrew from the industry.

After testing of the products, the results showed that soft drinks produced by the two companies were safe to drink under local health standards. But the damage was already done. To regain trust and credibility, Coca-Cola and Pepsi created advisory boards and had more purity tests conducted to combat consumers fear about their product. But in 2003 and again in 2006, studies have shown that Coca-Cola had pesticide residue in their products that were twenty-four times higher than the European Union standards. This event led full bans on Coca-Cola in seven states in India (Srivastava, 2009) After the bad press had cooled down from the pesticide incident, new allegations of Coca-Cola using precious groundwater and supplying farmers with toxic waste that was used to fertilize their crops appeared. In 2004, Coca-Cola converted 2/3 of the freshwater it used into wastewater globally (Srivastava, 2009). Activist groups in California formed and rallied several colleges in the United States and some in Europe to ban or stop renewing their contract with Coca-Cola. This also led to many Americans wanting Coca-Cola to close its bottling plants due to such an irresponsible practice. To avoid the same problems that Coca-Cola is now facing, PepsiCo has come up with new techniques for conserving water usage, especially in India. The agriculture in India accounts for over eighty percent of total fresh water consumption, therefore PepsiCo is working with the farmers to reduce the water intensity in paddy cultivations by thirty percent through direct seeding of paddy. In 2007, this new technique was piloted on 100 acres and again in 2008 on 1000 acres. PepsiCo found that if only 6,000 acres were shifted to the direct seeding, it would offset all of the water used by PepsiCo in India (PepsiCo, 2008). Due to India's suspicion of foreign business stemming from past history, both Pepsi and Coca-Cola received alien status upon entry to the Indian market. 2 The two corporations were required to follow many laws, designed as obstacles to impede foreign business. For example, sales of soft drink concentrate by Pepsi to local bottlers could not exceed 25% of total sales. Also, foreign businesses were not allowed to market their products under the same name if selling within the Indian market. (E.g. Lehar Pepsi) Most controversial was the agreement Coca-Cola was forced to sign to sell 49% of its equity in order to buy out Indian bottlers. This response might have been acceptable if investment rules in India were clear and unchanging, but this was not the case during the 1990's. Step 2identifying the problems Coca Cola and Pepsi encountered many problems such as, conflicts with Indian Laws, Indian government viewed as unfriendly and the boycott

which specifically targeted Pepsi, Coca Cola and McDonalds. Conflicts with the Indian Laws had a great impact on Pepsi and Coca Cola. Unlawful to market under their Western name in India: Pepsi became Lehar Pepsi, Coca Cola merged with Parle and became Coca-Cola India. Different Laws for Pepsi and Coke: Coca-Cola forced to sign to sell 49% of its equity in order to buy out Indian bottlers. This response might have been acceptable if investment rules in India were clear and unchanging. Indian government viewed as unfriendly to foreign investors. 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 It 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.

B. Solutions Due to the external nature of the political and legal environment of operating in India, much of the problems were out of Coca-Cola and Pepsi's control. Even if the two were to have performed a more extensive environmental analysis, many of the problems would not have been forecasted. Government situations are dynamic and inconsistent where there is not a strong foundation of law. 1. Price: Coca-Cola reduced prices nationwide by 15-25% . Advantage: To make them affordable and easy to get access to. It also

tends to increase profits in the short term. Disadvantage: If a department already voluntarily reduced its cost substantially must now find a way to cut expenses farther, probably to the point where it cannot complete the production process or reduce the ingredients of the product.

2. Product: Coca-Cola and Pepsi launched different product lines to appeal to the Indian consumer tastes. They started with product lines that were already available, such as cola, fruit drinks, and carbonated water. Then, when the market was ready, they launched other lines, such as bottled water (Coke- Kinley and Pepsi-Aquafina) and clear lime sodas (CokeSprite, Pepsi-7 Up). Advantage: Indians will have more choices of products. Disadvantage: The consumers might be confused of what theyll going to buy because of too many choices of products.

3. Promotion: Both Coca-Cola and Pepsi adapted to the local market with promotions. They promoted heavily during the Navrarti festival. Pepsi gave away a kilo of Basmati rice with every refill of a case of Pepsi. This is an effective strategy to blend the old (rice) with the new (Pepsi). Coca-Cola gave away vacations to Goa, a famous resort in India. Further, they teamed up with influential figures in Indian pop-culture to promote their products. Pepsi launched an ambitious marketing campaign sponsoring Cricket celebrities and athletes from the World Cup. Coca-Cola launched its Lifestyle Advertising Campaign as a method of building brand loyalty among its target markets: "India A" (18-24 year old urban youth) and "India B" (rural youth). They used a music director and an actor to promote the project. Most importantly, they tried to create a connection between local idioms and their products so that they would stick. The use of celebrities is a powerful marketing tool across cultures to promote products. Advantage: The new products will be publicized which will give information to the consumers. It also helps increase market share Disadvantage: It can be quite costly depending on the advertising

medium to be used; obviously TV and radio advertising tend to be more expensive than advertising on notice boards.

4. Channels of distribution: Production plants and bottling centers were strategically placed in large cities all around India. More were added as demand grew, along with new product lines. In Coca-Cola's case, the JV with Parle provided access to its bottling plants and its products. By forming partnerships, both Coca-Cola and Pepsi were able to get initial access into the market. Advantages: Cost Saving, Time Saving, Customer Convenience Disadvantage: Utilization costs, It might have a loss in commun ication control and product importance that would result to a bad effect in the name of the product and the company.

5. Research: Advantage: Pepsi created smaller bottles to keep up with the trend of high frequency/ high volume consumption. Coca-Cola launched the minis in an effort for higher volume. Both met trends in demand with new product lines. Disadvantage: : It seems that prior research into general market demand may have been the most overlooked aspect by Coca-Cola and Pepsi. India has not ever been considered a lucrative market for the soft drink industry.

C. Recommendations

Price o Maybe the company can do giveaways or free drinks so that consumers who dont want to waste their money for soft drinks will be able to judge whether the price is worth it or not.

Product o Produce more products that the Indian community likes and maybe the ingredients of that product will be supplied by the Indian community so that it would be cheaper and affordable compared to those products of which its ingredients are still from the home country of the company.

Promotion o Both companies should apply corporate social responsibility where they are trying to promote their drinks. Not just in a specific place but they should apply it in the country of India. This would include helping them celebrate their festivals or even support local soccer players. People would notice this right away and recognize that these multinational companies are not just here to maximize their profits but they are also here to support Indian community.

Channel of distribution o Formulate a strategy that would not utilize a great cost and will not lose communication and most specially, the importance of the product.

Research o Before Coke and Pepsi brought their products to India, they should have forecasted that the Laws of Indian community is different from their own

Laws. There should have been a research about the culture of India so that they will be able to compete their product with the local products of India without any cultural differences.