Macro-Economic Factors Impacting a

Manufacturing Company – Coca Cola

Coca-Cola came to I ndia in the year 1956. Since I ndia had not any foreign exchange
act, Coca-Cola made huge money operating under 100% foreign equity. I ndian foreign
exchange act w as implemented in the year 1974 during I ndra Gandhi time. The foreign
exchange act stated that foreign companies selling consumer goods must inv est 40% of
its equity stake in I ndia in its I ndian associates. Coca-Cola agreed w ith inv esting 40%
foreign equity but stated that they w ould still hold full pow er in technical and
administrativ e units w ith no local participation allowed.

This demand w as against the foreign exchange act. The gov ernment instructed Coca-
Cola to either w rite up a new plan or to leav e the country. I n 1976 I ndira Gandhi called
for elections and all of the other political parties formed one party in her opposition. They
called themselv es the Janta Party (Public Party). The Janata Party came into the power
in 1977 and stressed that Coca-Cola should either accept the foreign exchange act or
leav e the country. Coke India left that year. After the departure of Coke company from
I ndia, George Fernandez said: -“Coke had 100% equity in I ndia. Their inv estment was not
much. They came into the country w ith Rs. 6,00,000, w hich at the present rate of
exchange is less than $20,000. On this Rs.6,00,000 inv estment, they had taken out of the
country, by a modest estimate, 250 million rupees (about $ 8 million) as profit in the tw enty
years they had been in the country.”

I n 1993 Coca-Cola re-entered after government approval, due to the new liberalization
policies that w ere coming to I ndia. The foreign exchange act w hich had once prevented
companies from keeping too much equity had now been completely modified. The
modification made it so that companies w hich exceeded foreign equity by 40% of the
total w ere to be treated on par w ith I ndian companies. Automatic approv al w as to be
granted for equity inv estment of up to 51% and for foreign technology agreements in
high priority industries. Non-I ndian residents and companies ow ned by them abroad
could inv est up to one hundred percent equity in high priority industries, allowing greater
freedom for repatriation of capital.

I n 1999, Coca-Cola bought Parle, I ndia’s top soft drink brand, w hich bottled Thums up,
Limca and Gold Spot. Before Coke and Pepsi re-entered India, more than 50 I ndian soft-
drink brands had been dev eloped and 200 production plants set up. As time passed after
Coke and Pepsi entered I ndia, people w itnessed the progressive disappearance on
indigenous drinks and the demand for healthier drinks lowered as w ell.