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Coca-Cola has an estimated worth of $83.8 billion – more than Budweiser, Subway,
PepsiCo, and KFC combined (O’Reilly, 2015). It is the most widely distributed product, and is
sold in every country other than Cuba and North Korea (O’Reilly, 2015). Competitors marvel at
the company’s global success, and researchers puzzle over the firm’s global strategies. This
paper will analyze Coke’s journey back into the Chinese and Indian market.
As soon as the Chinese and Indian markets opened up to the world, Coca-Cola worked
hard to establish itself in both emerging markets. Coca-Cola’s re-entry into China and India
highlight the complex relationship between firm structures and institutions in emerging
economies. In India, under the Foreign Exchange Regulation Act, the country placed a cap on
all foreign equity participation at 40 percent (Chakravarti, 2013). Unwilling to give up majority
stake of its company, Coke removed itself from the country in 1977 (New York Times, 1977).,
but was able to re-enter in 1993. In China on the other hand, Coke was forced out by
revolutionary expropriation in 1949, and re-enters almost 30 years later in 1978 (Chong, 2013).
Current literature often focus on market entry decisions with relation to profit
maximization. Entering an emerging market is a costly and difficult endeavour for companies.
Past literature posit several different theories for firm structure choice. In emerging markets, due
to lack of market structures and high levels of risk, most theories suggest that firms will invest
country. In developed nations, formal institutions are known to be the main barrier to entry.
However, as long as companies play by regulations and laws, entry into a market is not difficult.
This is not the case in emerging markets such as China and India. In 1978, China had almost no
formal institutions in place, and in 1993, through India’s formal institutions were established,
they were poorly enforced. In both countries, there was a strong reliance on informal institutions.
Coke’s ability to enter each market relied heavily on the unique way it structured its firm.
Coke’s case contradict theories that firms should be structured for economic efficiency, or to
conform to local institutions. Coke’s joint venture structure served as a framework to help
establish local relationships necessary to navigate the host country’s institutions. It is argued that
the most optimal firm structure for entering emerging markets is a joint venture since it allows
Literature Review
This section will review prior literature on general market entry strategies in emerging
economies, and current theories on how both formal and informal institutions impact such
decisions. Although there is a range of literature studying market entry strategies in emerging
economies, the specific case of Coca-Cola’s market entry in China and India highlight the
interconnections between firm structure choice and host country institutions. The choice of firm
structure for a large multinational corporation is shaped by a variety of factors. In this paper,
foreign market entry mode is defined as “an institutional arrangement that makes possible the
entry of firm’s products, technology, human skills, management, or other resources into a foreign
Johnson and Tellis (2008) identify five major categories for modes of entry in terms of firm
structure:
● Export: A firm’s goods are produced in the home market and sold in the host nation.
● License and Franchise: A formal right offered to a firm located in a host nation to use a
home firm’s proprietary technology or other knowledge resources in return for payment.
● Alliance: Agreement between a firm in the home market with a firm located in a host
● Joint Venture: Shared ownership of an entity located in a host nation by two partners
firm located in the home nation to manufacture or sell goods/services in the host nation
When determining the mode of entry, a trade-off will always be made. For most
companies, the choice is a careful balance between control, resource constraints, and the risks
involved. As current literature have shown, in order to assume control, companies must commit
greater resources, and take on more market and political risk (Root, 1998).
Figure 1: From Anstrop (2013) showing how that the choice of entry is a function of the trade-
off between control, resource commitment, and a dimension of flexibility and risk
Beyond these general considerations, entering emerging economies provides a unique set
of challenges. Because of emerging economies’ rapid growth and reform, there is less economic
and political stability, and higher risks (Arnold and Quelch, 1998). These places often lack basic
infrastructure such as distribution systems and communication channels. There is also a lack of
regulatory discipline and legal frameworks, and business regulations may change frequently and
unpredictably (Arnold and Quelch, 1998). Even when there are formal laws and regulations, their
enforcement appears arbitrary and weak. When market supporting institutions are weak, it is
costly and risky for firms to sustain control and market presence (Meyer, 2009). Moreover, in
emerging economies, national and local governments are more influential. This often means
higher levels of bureaucracy with excessive requirements for licenses, approvals, and paperwork
which are both time consuming and costly for firms (Arnold and Quelch, 1998).
Two main theories exist regarding market entry: the transaction-cost theory and the
resource-based theory. These theories differ in how they view the effect of firm control in a host
nation. This includes control over intangibles such as brand equity and marketing data, and
tangibles such as a patent. The control of complementary resources such as access to local
distribution channels is also important. Arnstorp (2013) provides a good literature review of the
two theories:
Broadly, this theory posits that that the higher the resource commitment and desired
control of an entry mode, the higher the cost. More specifically, it states that firms select
governance structure that minimize the transaction costs of carrying out its activities. The most
effective entry mode according to the transaction cost theory would be low resource and
commitment such as exporting. Wholly owned subsidiaries and joint ventures would be
considered high-cost entry modes since they require high levels of resource commitment
(Arnstorp, 2013). More costly entry modes should only be used when firms can expect to
This theory suggests that as control increases, a firm’s chance of success should increase
since the firm is able to manage their key resources more effectively (Gatignon and Anderson
1988). Firm resources can be categorized into financial resources, physical resources, human
resources and organizational capital (Barney, 1991). When entering new markets, firms need to
determine how to use their resources, and develop and acquire new resource advantages.
Due to high cost and risks in China and India, the transaction cost theory suggests high
flexibility and low control modes of entry for Coke such as exporting or licensing. Coke
however, chose to operate as a joint venture in both countries – a method that is both high cost,
and has low flexibility. Moreover, despite being costly, the joint venture structure does not
increase Coke’s control in either country. The resource based theory would also predict low
Recognizing that basic market theories cannot capture entry mode decisions completely,
the role of institutions are considered. Institutions can be defined as both formal and informal
structures that constrain the choices of individuals and organizations. Most literature would
define formal institutions to be political, legal, and economic systems that include constitutions,
laws, regulations, property rights etc., and informal institutions to be social norms and values of
individuals and include sanctions, taboos, customs, traditions etc. (North, 1991). Though formal
rules may change quickly, especially in emerging economies, informal rules are deeply grounded
in the society, and are harder to change (North, 1991). Arnstorp (2013) provides a good literature
There are two major pieces of literature, each with different approaches to institutional
theory. North (1991) developed an economic framework, in which he suggests that firms are a
rational economic actor that adapts to a market’s institutional framework in order to maximize
economic efficiency. Scott (1995) on other hand, provides a sociological approach of the theory,
and posits that firms seek legitimacy by adapting to the institutional frameworks. Both suggest
that firm choices are not driven by the firm capabilities, but are rather determined by the
Most literature agree that the institutions of host country play an important role on firm
entry mode. Previous research suggests that the more developed the institutional environment of
the host country is, the more likely entrant firms are to choose a high-control entry mode such as
a wholly-owned subsidiary (Meyer, 2009). It is only with better structural support that firms are
willing to devote high levels of resources to a country, and dedicate more resources to the market
entry (Arnstorp, 2013). Likewise to market entry theory, Coke’s case also contradicts
institutional theory. Despite the lack of, and poor enforcement of institutional structures in both
China and India, Coca-Cola chose to commit high levels of resources and entered as a joint
venture. Coca-Cola’s unique entry approach into China and India suggests that current theories
on firm structure and entry mode may need to be revised when applied to larger emerging
Methods
The story of how Coke managed to re-enter each market is pieced together though
secondary interviews with Coke executives, newspaper articles, and shareholder reports. Coke
re-entered the Chinese market in 1978, and re-entered the Indian market in 1993. Because of the
historical timeframe, SEC filing and investor data could not be obtained.
China and India provide an interesting backdrop to the case of Coca-Cola due to their
varying institutional structures. As emerging markets with very different political regimes and
market structures, it is surprising Coke entered both markets using the same firm structure. To
better interpret Coke’s position in each country, it is important to understand the general
institutional environments of India and China. The following section will provide a brief
The literature review by Saul Estrin (2014) provides a good overview of the institutional
structures of China and India. It highlights that the informal institutions for corporate governance
Most literature would agree that China’s formal legal corporate governance structures
were ineffective as market-supporting institutions. There was weak rule of law, and weak
ownership protection for companies. However, informal institutions compensated for these
weaknesses in shareholder protection and rule of law. It was informal interactions between the
local state and private entrepreneurs that set the foundation for formal institutional reforms
(Estrin, 2014). During Chinese liberalization, the local state was heavily involved, and the
resulting property ownership contracts all involved the state. Generally, the reforms were not
conducive to a market economy. When Coke was returning in the mid-1970s, economic reform
was just beginning to occur, and there were nearly no formal institutions in place.
With the lack of formal institutions, informal institutions played a key role in supporting
private owners and the local states. Private assets could be assumed by the state almost
instantaneously; the government could revoke private companies’ right to exist and seize assets.
Therefore, informal institutions were used to establish firm legitimacy, and protect them from the
variable formal institutions. These methods included cultivating relations with government
officials, taking over ailing state-owned enterprises, donating services to the local community,
India’s formal corporate governance institutions were very weak post-independence but
improved after the 1991 liberalization: capital markets were liberalized, and a takeover code
adopted in 1994 allowed for a basic market to develop. Steps were also taken to improve
corporate governance structures and disclosure practices. When Coke entered in 1993, India’s
market was significantly more developed compared to China. However, despite being
established, the formal regulations were often hard to navigate. Informal institutions were still
The most important informal institutions that worked with formal governance institutions
were business groups. Past literature finds a positive correlation between the performance of
foreign and domestic corporations and affiliation with a business group. Literature shows that
informal institutions helped replace the largely ineffective formal legal framework.
In both China and India, despite the lack of or ineffective formal institutions, informal
mechanisms worked in their place. These substitutive informal institutions helped promote
positive investment outcomes both domestically in terms of entrepreneurship, and led to strong
Results
While Coca-Cola was re-entering various Asian markets in the late 1970s, it was leaving
India. In 1977, prime minister Indira Gandhi was removed from power, and the new Minister of
Industries George Fernandes created a new provision of the Foreign Exchanges Regulation Act
(FERA) requiring foreign companies to lower their equity stake to 60 percent (Encarnation et al.,
1985). In Coke’s case, this would also mean giving up equity in their concentrate production
operations. Unwilling to oblige by the government’s terms, Coke exited the country in 1977
In 1985, new Prime Minister Rajiv Gandhi started pushing towards liberalized economic
and industrial policies, and Coca-Cola started planning for a potential re-entry (Financial Times,
1985). In 1988, Coca-Cola announced that it had applied for permission from the government “to
build a company-owned facility for the production and export of certain preparations used in
making Coca-Cola concentrate” (Dow Jones Newswires, 1988). Coke planned to enter the
market as an exporter, and believed that their application was “in full compliance with the Indian
government regulations” (Dow Jones Newswires, 1988). In fact, Coke was so confident in being
approved that it had already agreed to appoint two major local companies as bottlers (New York
Times, 1989). In response to Coke’s confidence, Edward Shanks, president of another US soft
drink that set up franchise in India in 1987 warned to “take nothing for granted in India. This I
am sure will be a big political issue, regardless of how well Coke has its ducks lined up." (Wall
politicians and large Indian companies saw the proposal as an abuse of India’s export processing
zone regulations. George Fernandes, now the Janata Party Leader, was still opposed to foreign
companies making soft drinks in India. The Parle company, the leader in the Indian soft drinks
market, thought it was a “bad decision” for the government to let Coke back in (Reuters, 1988).
To try and sway the Indian government, Coke promised to help India’s balance of payments with
more invested exports as “a gesture of good faith” (Financial Times, 1989). With conflicting
views, the decision about Coke’s re-entry was pushed back till after the upcoming election.
was rejected. The new prime minister Pratap Singh makes conflicting statements about India’s
stance on foreign investment (Wall Street Journal, 1990). Beyond the vocal objections by various
leaders in office, no formal information was provided by the government to explain the rejection
of the proposal (Reuters, 1990). Coca-Cola makes the statement that “India, by rejecting its
proposal, admits it doesn’t follow its own rules.” (Wall Street Journal, 1990).
By mid 1991, Coca-Cola had plans to make a fresh bid back into India. This time, it
planned to establish a joint venture with an Indian food processing company called Britannia
Industries (Reuters, 1991). The new offshore company would be named Britco Foods, and would
export snack foods, as well as produce Coca-Cola beverages for sale in India (Dow Jones, 1991).
By late 1991, Rajan Pillai, Chairman of Britannia Industries, had held informal talks with
ministers and officials, and said he was “confident in the proposal being approved” (Financial
Times, 1991). In the final agreement, 40% of the shares would be held by coke, and 60% held by
With the joint venture, Coca-Cola was controversially accused of “seeking entry into the
country by the back door” (Reuter, 1991). Coca-Cola was able to obtain an automatic license to
operate the joint venture by taking advantage of the Roa government’s policy of liberalization
(Somal, 2014). Many Indian soft drink producers accused Coca Cola of evading the rules by
creating a joint venture with a non-resident Indian (Reuters, 1991). They alleged that the joint
venture proposed products that did not fall under the high-priority category for automatic
Unfortunately, this initial joint venture failed to take off as successfully as Coke had
hoped. Thus, Coke started looking at ways to partner with the Parle Group, who commanded 60
percent of India’s soft drink market. In late 1992, Coke was able to negotiate a strategic alliance
with Parle, acquiring their stable local brands, and gaining access to their nationwide bottling and
distribution infrastructure (Coca-Cola, 2012). Ramesh Chauhan, Parle's chairman said that under
the terms of the agreement, Coca-Cola was to form a joint venture with Parle, pay him a
consultancy fee of US $125,000 a year for five years, and give Parle the right of refusal to set up
bottling franchises (Reuters, 1994). On record, Coke said its business relationship with Parle was
''operational and functional." (Reuters, 1994). In October 1993, Coke made a grand entrance
In 1949, there was a wave of nationalization in China where foreign brands were all
removed; Coca-Cola factories were nationalized during this time. Chairman Mao also famously
deemed Coke to be a “bourgeois concoction” (Cendrowski, 2014). In the late 1970s, the Chinese
market was largely fragmented and unregulated. The soda industry in China was very provincial;
each province had its own local branded drink (Chong, 2013).
consumerism, and for a long time, most officials in the Chinese government were against the
idea of Coca-Cola ever coming back to China (Cendrowski, 2014). China was a completely
different world back, as David Brooks, executive vice-president of Coca-Cola Greater China
describes, “It’s hard to conceive today how closed off China really was—it was like North Korea
today” (Cendrowski, 2014). However, when Deng Xiaoping came into power after Mao’s death
in 1976, he suggested a new open-door policy (Weisert, 2001). There was now possibility for
At this time, President Carter’s administration was also trying to establish diplomatic
relations with China (Boda, 2016). The role the American administration played in Coca-Cola’s
re-entry into China is often left out of literature. In the United States, Coca-Cola had an intimate
relationship with the Carter administrations. During Jimmy Carter’s presidential campaign, Coke
allowed Carter to use their aircrafts, and hosted fundraising luncheons to raise money for
Carter’s campaign (Boda, 2016). Once Carter become President, Pepsi was removed from the
White House, and Carter’s administration appointed Paul Austin, president of Coca-Cola as a
board member of the National Council for US-China Trade (Donovan, 2014).
The re-entry into China was carefully planned. In 1973, US companies were not allowed
to conduct business directly with Chinese companies. Thus, Coca-Cola established a new
company called Benetrade in Hong Kong to begin scouting the Chinese market (Nan, 2014). In
1974 at the Chinese Export Commodities Fair, Coca-Cola, under Benetrade, first approached the
China Nationals Cereals, Oil and Foodstuffs Corp (COFCO), a state-owned enterprise that was
the sole agricultural products importer and exporter operating under the direct control of the
Soon after, Austin visited China in 1975 to talk to government officials. On the trip, he
noted that “the Chinese people are sociable people,” and that “they like to have soft drinks.” He
also highlights that his “attitude was not pushy,” and that he chose to work with the government
by emphasizing that “the way to signal [China’s economic opening] to the world at large was to
Carter’s relationship to Coca-Cola made the brand appear even more American in the
eyes of the Chinese. Many speculate that Carter’s administration may have leaked news to Coca-
Cola executives of the upcoming agreement between the US and China. Regardless, Coke had
Peter Lee, was called by up Austin in the summer of 1977. At that time, Lee worked as a
chemist, and was heading to Coke’s base in Hong Kong. Austin asked Lee to be “an eye for the
company and see where China is going” (Cendrowski, 2014). Once in Hong Kong, Lee began to
communicate more with the China National Cereals, Oils, and Foodstuffs Corporation (COFCO).
As Lee recalls, “I sent many telexes to different departments over six or seven months. I never
received a response. Then suddenly, in December 1978, I received a response. It said, “We
understand what your company could offer. We welcome you to come to Beijing for
Lee arrived in Beijing to attend a meeting with officials. Present at the meeting were
three people from COFCO. During the meeting, Lee sold Coke as a product for tourists: “I
understand China now has an open-door policy—it’s open to tourists from all over world. We
have a product we believe most tourists would love” (Chong, 2013). Almost immediately after
on December 13, 1978, a deal was signed giving Coke the exclusive right to sell non-Chinese
made Coke in China. The contract allowed both sides to set up bottling plants and sell Coke in
the main cities and at scenic spots in China. However, only tourists visiting major cities were
allowed to buy Coke (Donovan, 2014). Before the plants were operational, COFCO was
responsible for consignment sale of the drink. Coca-Cola would provide a production line for the
bottling plant, while its Chinese counterpart would provide the buildings (Chong, 2013).
In the background, Dick Holbrook, the assistant US Secretary of State for the East Asian
and Pacific Affairs worked on establishing diplomatic ties with Chinese officials. Once Coke
signed the agreement, they “got a request from Carter not to announce until he had made an
announcement [about normalized diplomatic relations]” (Cendrowski, 2014). Two days after the
Coke deal on Dec. 15, 1978, the US government reached an agreement with China to normalize
Discussion
Coke re-entered China in 1978, and re-entered India in 1993. Despite the different
political regimes, market structures, and institutions, there are surprising similarities in Coke’s
market entry approach into each country. Arguably, the joint venture mode of re-entry allowed
Coke to integrate itself smoothly into each country’s informal institutions. The shared ownership
structure of a joint venture provided the opportunity for Coke to engage with local partners and
effectively acclimate itself to the local business environment. The following discussion will
analyze Coke’s firm structure choice against the back drop of each country’s political regimes,
Political Structures
China and India’s individual political structures played a large role in shaping Coke’s
decisions, and ability to enter each country. The Chinese state was very localized, and local
governments acted as key decision makers in communities. Despite localized power, the one
party system still gave the state ultimate control. Even with strong local relationships and a
strong local presence, private companies could still be assumed by the state instantaneously.
However, with one political party, Coke’s communication efforts were straightforward.
When initiating communication in China, Coke recognized that there was one major state-owned
enterprise to target: COFCO. This single company had complete power in food sales and
production in China. The meeting Lee had with Chinese officials when negotiating Coke’s
potential entry consisted of three COFCO members. By establishing connections with this state-
owned enterprise early, Coke started building its presence within government circles early.
With a one-party system, there was no opposition to Coke’s market entry beyond the
single government’s concerns about Western influence. The lack of opposition made
negotiations easier between Coke and the government. The government only had to satisfy itself,
and Coke only had to recognize what the government wanted. Thus, Coke crafted an image that
the Chinese government could collectively support. In Austin and Lee’s meetings, they
persuaded officials that “the way to signal [China’s economic opening] to the world at large was
to bring in Coca-Cola - as the symbol of US foreign trade” (Chong, 2013). Realizing that China
wanted to enter the global market, Coke sold itself as the perfect opportunity for China to
In India’s democracy on the other hand, the presence of different political parties meant
varying opinions on everything. The various political opinions on foreign direct investment made
Coke’s re-entry process difficult. There was constant change in India’s political stance. Each
election brought a different opinion into power. When George Fernandes’ party came into power
in 1977, there was an emphasis on supporting indigenous industries and thus foreign equity
exits India. The next election brought more liberal economic policies, and Coke thought they
would be able to re-enter. However, Coke’s entry proposal fell during the timeframe of a new
When a country does not have a unified political stance, it is hard for foreign companies
to craft a marketable brand to the government. Unlike in China where Coke targeted the
appropriate state-owned enterprise to access key decision-makers, it was harder for Coke to
directly communicate with the decision-makers of India. Coke had to operate as an outsider.
When Coke drafted its first proposal, it made it “sweeter,” by adding additional incentives it
thought the government wanted. Coke believed its first proposal would be approved, showing the
company’s lack of information about the decision-making process. The Indian government’s
lack of transparency and institutional integrity made working with them difficult. When Coke
finally re-entered, it worked around the “formal” rules, and “entered through the back door.”
Instead of getting the government onboard, Coke worked with other businesses such as Parle,
and local businessman such as Pillai of Britannia Industries and Chauhan of Parle. These local
business partners were more integrated with local institutions and had more influence and access
to people in power.
within the political structures. As a shared ownership agreement, a joint venture provided the
foundation for Coke to work intimately with government officials and local businessman. In both
cases, the local business partners were well established in the existing market environment, and
were crucial in helping Coke build relationships within the local political structures. The
partnerships allowed Coke to interact with key government decisions-makers through informal
networks. These informal interactions were an essential step in negotiating formal agreements.
When Coke entered China in the mid-1970s, the market was fragmented and localized; it
was before the establishment of property rights, joint venture laws, and special economic zones.
However, the lack of structure and formal institutions is observed to have helped Coke enter
First off, there were no dominant competitors due to the fragmented market. Though
different regions had its own soft drink brand, there were no objections to Coke’s entry from
local drink manufacturers. The most likely reason for the lack of objection is that local
manufacturers had no idea about Coke’s potential re-entry into the market. Coke did not
communicate with local states, and worked directly with national officials to obtain legitimacy
and support at the national level. Backed by the national government, it would have been
Moreover, the Carter narrative is often left out of Coke’s entry back into China. Coke
managed to establish itself in China before diplomatic relations and market reforms, and its
success can be tied to Carter’s relationship with the Chinese government. Carter’s administration
appointed Paul Austin as a board member of the National Council for US-China Trade giving
Austin direct access to key decision makers of China’s market. Without formalized laws,
informal negotiations were the only option for market entry. Access to important people was the
In India, Coke’s exit in 1977 allowed Indian soft drink companies to grow rapidly.
Instead of a fragmented soft drink industry, large companies dominated. Parle, as the largest
stakeholder controlled 60 percent of the market. The chairman of Parle, Chauhan, also
controlled the All-India Soft Drinks Manufacturers Association, a major business group that had
many connections within the Indian government (Chakravarti, 2013). Even with formal
institutions in place, business groups held large amounts of power in governance. Both business
groups and opposition parties were very vocal in their objections against Coke’s re-entry.
Though India had established formal institutions such property rights, joint venture laws,
and business associations, these structures were confusing to navigate. For example, through
Coke’s first proposal appeared to follow all necessary guidelines, it was rejected. Decisions
made by government bureaucrats on permitting processes were elaborate, yet arbitrary, and the
final decisions often conflicted with formal rules. There was also strong influence from powerful
lobbyists such as the All-India Soft Drinks Manufacturers Association. Business groups appeared
to have significant leverage in government decisions. Ultimately when Coke re-entered, it relied
heavily on its joint venture partner Pillai in terms of using his local networks and connections.
Pillai held “informal negotiations” with government officials, directly demonstrating the impact
countries. In China, informal institutions were the only access to the market, while in India,
informal institutions were necessary to overcome the arbitrary and confusing bureaucratic
systems.
Firm Structure
When re-entering the Chinese market, Coke formed the company Bertnade in Hong Kong
to work around policies preventing foreign companies from directly interacting with Chinese
firms. However, despite China’s lack of market structure and high risk environment, Coke did
not pursue a low resource mode of entry such as exporting, as the transaction cost theory would
suggest. Instead, Coke dedicated significant resources into China. Contrary to the resource based
theory, although Coke committed more resources, it did not hold much control over its
operations in China. The Chinese government commanded a lot of power against Coke. The
initial agreement placed heavy restrictions on Coke’s distribution methods and overall market.
The government also held the power to shut down Coke operations instantaneously.
Coke’s case in China challenges the institutional theory that firms are only likely to
employ high control entry modes in more developed institutional environments. However,
Coke’s entry strategy had merit. Because of the long exile in China, rather than re-entering the
market, Coke was essentially breaking into new territory. Coke needed to establish its
legitimacy to the Chinese government as a company who embodied China’s new foreign
policies. Legitimacy was more important than economic efficiency in China’s case. Resource
investment was necessary to re-establish itself as a brand, and compliance with the government
to was necessary to enter the country at all. Without high levels of investment, Coke would have
been unable to establish strong relationships with the Chinese government. It was only through
the joint venture with the state-owned enterprise COFCO that Coke could directly collaborate
with the government. This significantly mitigated risk of unforeseeable government actions, and
When Coke tried to re-enter the Indian market, it drafted a proposal to operate as an
export company. This move would validate the transaction cost theory; it made sense for Coke to
want a flexible, low cost firm structure such as exporting. In an emerging market, to minimize
risk and maximize profit, a low cost and high flexibility entry mode is ideal. However, the
proposal failed, and Coke is forced to consider other entry mode options. This case is a blatant
Transaction cost theory is right in predicting an export market as Coke’s most desired
form of entry, but India’s case shows that institutions play the more significant role in dictating
what a company does. Coke had no leverage within the Indian government. Recognizing it was
necessary to work within the system, Coke formed a joint venture with Britannico. After the joint
venture was established, the chairman of Britannico held informal talks with ministers and
officials, and was “confident” that Coke’s new proposal would be approved (FT, Housego,
1991). Despite holding the smaller market share in this joint venture, Britannica did not have
Through the joint venture in India, Coke leaders formed valuable relationships with local
business partners and accessed key players in the government system. Once Coke entered the
market, it acquired Parle’s brands in the country. By working with business partners already
familiar with the local industry, Coke obtained the networks necessary to communicate with
highlight the merits, and even necessity of a joint venture entry mode. It is observed that the way
a firm structures itself cannot be for economic efficiencies. In the case of Coke in India,
institutions prevented the firm from operating in the most optimal way. In China’s case,
institutions are not strong enough to support entry modes that may have been the most optimal.
However, entry mode decisions should also not be to conform to the institutional frameworks of
a host country. The firm must still consider ways to take advantage of the local market and find
opportunities to maximize profit when possible. The reason for entering a new market is
Thus, it is observed that the structure a firm chooses is an opportunity to form necessary
relationships within the institutional networks of a country. These relationships are necessary for
accessing local information and leveraging the firm’s resources and strengths in local markets.
Coke’s case demonstrates that a joint venture is the optimal structural choice in emerging
markets. A joint venture connects the firm with the informal institutions of a host nation. The
joint ownership structure provides the unique and necessary structure that allows outside firms to
collaborate effectively with local players well acquainted with the local environment. The
relationships established through the formal partnership will mitigate risks in unstable political
and economic markets, and help firms transition more smoothly into the host nation.
This case study focused on the decision making process of Coca-Cola into China and
India. Most literature examine how the company evolves once it enters a market, and there is
little research on the journey of the initial entry into markets. The cases highlight the complex
systems firms need to navigate in order to enter emerging economies. Before agreements are
negotiated, years of behind the scenes work had to occur. The cases also challenge the
conclusions of institutional and market entry theories. This suggests that current theories may
need to be revised when applied to larger emerging economies such as China and India.
However, it is noted that the time frame of Coke’s entry decisions was a large variable in
the decision making process. When Coke was re-entering China in the late 1970s, it was leaving
India – the resources Coke had available during each period for global investments were very
different. Moreover, the global strategy of the firm could have changed over time. Perhaps when
entering China, Coke had a re-entry strategy of simply trying to enter new markets, whereas by
the time it was trying to re-enter India, it took a more profit maximizing position.
In the future, more research can be done to analyze the direct effects of the US
government’s diplomatic relationships on US firm entry strategies. More research can observe
how Coke and other US-based corporations choose to define themselves in foreign countries
depending on the diplomatic ties. A more detailed analysis of the US government’s relationship
with China and India during the time of Coke’s re-entry into the respective countries can help
Conclusion
Coca-Cola’s re-entry process in China and India demonstrate that a joint venture is an
optimal firm structure choice when entering emerging markets. A joint venture provided the
framework for Coca-Cola to interact closely with local informal institutions. Through informal
institutional relationships, Coke obtained legitimacy and was able to mitigate risks in China and
India. Through its joint ventures, Coke obtained political access, which led to political support
and cooperation in both countries. Informal relationships between the host country companies
and government officials are more important than any formal legal processes in place. Informal
connections allowed Coke to access people in positions of power and demonstrate legitimacy to
people in governance. In regions like China with almost no formal institutions, informal
negotiations were the only way for firms to access the market. In regions like India with weak
formal institutions, informal institutions were important to building the right relationships for
leverage in the decision-making process. The structure Coke chose allowed it to form necessary
relationships within the institutional networks of a country. These relationships were critical for
accessing local information and leveraging Coke’s strengths in the local markets.
Questions
1. Carry out a PEST analysis for Coca Cola in India and China
2. Compare the similarities and differences in the Marketing environment of the two
countries?
3. Coca Cola left India and then reentered India? Could they have handled the situation in a
*The newspaper articles I used for India’s case study are not cited here. I used HBS’s computers
when finding them, and for some reason I cannot access the Factiva database from my personal
college account. I have the links to all the articles, and can work to site them at a later time!
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