Analysis Coke And Pepsi Learn To Compete In India Business Essay Example

India is concentrated in the hands of top politicians who dictate decisions, unlike Western democracies. As a result, concerns in India have to go through numerous obstacles before reaching someone capable of making final determinations. This micro environment puts significant pressure on groups, particularly affecting Coca Cola and Pepsi who held significant political power during that time. Organizations like the All-India Anti-Imperialist Forum advocated for a boycott of American and British goods after attacks on Iraq, while the Centre for Science and Environment (CSE), led by Ms.Sunita Narain, reported that drinks produced by Coca Cola and PepsiCo contained pesticide residue levels higher than permitted by Bureau of Indian Standards (BIS). Both incidents resulted in sales decline.Despite the government's actions causing less damage compared to the negative publicity received, it is evident that India's political power and stability are currently in question. The inconsistent and dynamic government situations in India can be attributed to unclear laws and policies that lack a strong foundation (Ash Rao, 2006). This absence of solid institutions creates an environment conducive to corruption, making lobbying politicians even more crucial. According to Li Chain, a former member of the Planning Commission and political reformer in Bangalore, India ranks high on the corruption index and has yet to find an effective solution for addressing corruption within its bureaucracy and political system (Ashok Rao et al., 2006).

The unpredictable nature of India's dynamic environment posed challenges for Coca Cola and Pepsi as they were unable to foresee many issues they would encounter. However, given the unstable, confusing, and ever-changing political landscape, both companies should have been prepared to handle similar problems. An example of Coca Cola's

response was their decision to sell 49% of their equity to Indian partners within two years. While lobbying was not feasible due to an oversight by the Foreign Investment Promotion Board (FIPB), another alternative could have been refraining from further investment through a joint venture with Parle until solid foundations were established. During this period, investment regulations constantly fluctuated and remained unclear.Coca Cola should have been aware of this and not expected equal treatment, considering that other foreign companies like Philips and Carrier were allowed to repurchase most of their outstanding shares. PepsiCo quickly adapted to changing policies in every situation, but both companies lacked proactiveness. Both PepsiCo and Coca-Cola could have avoided negative publicity on their brand names if they had taken specific steps. The timing of their entry into the Indian market led to different outcomes. The advantages and disadvantages resulting from earlier or later entry are significant because the timing of entry in a foreign market is a crucial decision. While being the first entrant in the market may offer better chances of gaining market share, both the first and subsequent entrants have their own pros and cons. The political and legal environment in India does not clearly indicate which of the two, PepsiCo or Coca-Cola India, had more advantages in terms of timing of entry. PepsiCo entered the market in 1986, although Coca-Cola had already been present in India from 1958 to 1977. Coca-Cola decided to leave when the Indian government demanded that they share their formula and reduce their equity interest to 40%. However, Coca-Cola re-entered the market in 1993.On the other hand, PepsiCo's timing was flawless as they entered

during a period of significant growth in the carbonated soft drink industry in India.By 1993, Pepsi had managed to secure a significant portion of soft drink sales, gaining a 29% market share. According to Srivastava M. (2010), the term "Pepsi" in India became synonymous with any bottled fizzy drink from abroad and was commonly used to refer to all soft drinks, not just those produced by PepsiCo. However, PepsiCo faced challenges due to its timing as the Indian Government only approved its application to trade in India after it reached a maximum sales threshold of 25% and changed its name to Lehar Pepsi. Moreover, PepsiCo struggled in competing with smaller Indian soft drink brands for market share.

In contrast, Coca Cola India entered the Indian market six years later under more favorable circumstances. During this period, laws were amended to facilitate foreign investment which included eliminating the requirement for foreign companies to partner with Indian companies. In 1993, Coca Cola entered as Coca-Cola India but expanded its investments in 1996 by forming a joint venture with industry leader Parle. This allowed Coca-Cola India to acquire four bottling plants along with popular brands such as Thums Up, Limca, Citra, Gold Spot and Mazaa. However, as part of the agreement with the Indian government for this joint venture expansion, Coca-Cola India had to sell 49% of its equity to Indian partners.

The Indian market is vast both in terms of population and geography.Both Pepsi and Coke have adapted their merchandise policies, promotional activities, pricing policies, and distribution agreements to accommodate the large scale of operations in India. With a population of over 1 billion people, making India the 7th

largest country in the world, it is one of the largest markets in the current economic system. Both companies made adjustments across various aspects. In terms of merchandise policies, they carefully tailored their products to suit Indian tastes by offering lime drinks, fruit drinks, and water similar to those already available in India. Only after establishing a secure position in the market with these core products did they introduce American-style beverages. For example, Coke added Sprite to its beverage family. Additionally, both companies introduced new products: Coke launched bottled water named Kinley while Pepsi Foods introduced Aquafina. When it came to promotional activities, both Pepsi and Coke took advantage of the Navrartri Festival as it was an opportune time for soft drink consumption. Coca-Cola India distributed 20,000 festival passes for purchasing a "Thums Up" drink and implemented a 'buy one get one free' strategy along with organizing lucky draws for a chance to win a trip to Goa.PepsiCo sponsored large-scale dance competitions and offered promotions such as a free kg of Basmati rice with every refill of a 300ml Pepsi case, a free Kit-Kat with every 1.5L bottle, and a free Polo with every 500ml bottle. By segmenting rural and urban Indian youth into categories 'India A' and 'India B', both companies were able to advertise and promote their products differently to target these markets individually. Coca-Cola used Bollywood stars in their advertisements and campaigns, while Pepsi preferred clean events and famous athletes like cricket players, as well as sponsoring the Cricket World Series of 2003.

Regarding pricing policies, PepsiCo implemented an aggressive strategy on their one liter bottles which drew varied reactions from competitors. In

response, in 2003, Coca-Cola India reduced the prices of their soft drinks by 15-25% to encourage consumption and improve affordability. Both companies ensured that their beverages were readily available for regular purchases.

Furthermore, when it comes to distribution agreements, both PepsiCo and Coca-Cola India strategically located their production facilities and bottling centers in major cities such as Mumbai and Delhi. As demand increased and product ranges expanded, they added more facilities. Additionally, they formed partnerships with local companies to gain initial access to the market.Both PepsiCo and Coca-Cola successfully implemented a strategy called "Global Localization of function," where they adapted their products to the location and culture in which they marketed them. For instance, PepsiCo demonstrated its first signs of glocalization by entering the Indian market through a joint venture with local companies Voltas and Punjab Agro, forming PepsiFoods Ltd. In order to comply with government regulations, PepsiCo changed its name and the names of its other products to Pepsi Lehar in 1990. This name change not only helped them integrate with Indian culture but also introduced Lehar 7UP, a lemon drink designed specifically for local tastes and lime culture. Additionally, both companies cleverly sponsored cricket players and tournaments as well as football events. For example, during the 2003 Cricket World Cup in South Africa, PepsiCo sponsored the Indian Cricket Team. They also organized local tournaments during this time and featured football heroes in their campaigns to take advantage of the World Cup Fever. Furthermore, PepsiCo aligned their marketing campaigns with important sports events such as the "Keep it Cool" 7UP Summer Campaign that coincided with the India-Zimbabwe One Day Cricket Series. To further connect with

consumers, popular Bollywood actors like Amitabh Bachchan were enlisted to endorse Mirinda drinks. As previously mentioned, PepsiCo capitalized on festivals like Navrartri by offering promotions; in 2000, they partnered with Guarjarati Television to televise this festival for nine nightsCoca-Cola India initially started as a joint venture with Brittania Industries India Ltd. In 1993, Coca Cola formed another joint venture with Parle, acquiring its four major bottling plants and the brands including Thums Up. By 2002, Thums Up had become the second most consumed soft drink nationwide. This allowed Coca Cola to incorporate a popular local drink into their brand, which improved the image and reputation of Coca Cola. Glocalisation is an integral part of Coca Cola's business strategy, involving global thinking and local actions. They also leveraged the Navrartri Festival to connect with local culture by offering 20,000 free passes to the "fast dance" for every bottle of Thums Up purchased. Coca Cola India focused on lifestyle advertising and utilized famous directors like A.R. Rahman and popular local music such as gaana in their ads. They also enlisted Bollywood stars like Aishwarya Rai and Vivek Oberoi to target rural and urban youth in different market segments. Some analysts argue that Coca Cola India made mistakes in planning and managing its reentry into the Indian market. Do you agree?If not, who or what do you think was responsible for any errors? Coca Cola initially entered the Indian market in 1958 but later withdrew in 1977 due to government-imposed challenges, such as reducing equity interest and surrendering the secret syrup formula. However, Coca Cola managed to re-enter the market in 1993 after their initial application in May

1990 was rejected. It is likely that Pepsi's application to enter the Indian market influenced Coca Cola's decision to try again. This could have been Coca Cola's first mistake as they were hasty in their approach. Despite knowing that the political environment was still unstable and risky, Coca Cola entered the market soon after PepsiCo. Thorough research should be conducted before entering such a politically, economically, and culturally risky market. However, there were many aspects of the Indian market that Coca Cola was unaware of particularly when it came to dealing with extensive political risks. While Coca Cola has made mistakes, it would be incorrect to solely blame them. The Indian government and other authorities held significant influence over businesses, making it difficult to predict certain situations (Question 1).Coca Cola India could have avoided certain management errors if they had been more knowledgeable and careful in planning and implementing their corporate and business strategies. Despite challenges such as government application rejections and regulations, Coca Cola India did not want to miss out on the attractive market, but it should have tried to negotiate more with the government before entering. Initially, Coca Cola India was slow in recognizing important issues like the ideal price point for its soft drinks. However, reducing prices would have increased consumption and profits considering that over 50% of the population was living in poverty. Despite this setback, Coca Cola India has been successful with its strategy, having around one million retail stores across India selling its products. Effective communication strategies such as using Bollywood stars in advertisements and 'Buy one Get one free' promotions were key to this success; however, a

better understanding of the Indian population would have been beneficial. Ultimately, Coca Cola India needed a more competitive and stable foundation. Although there were external factors and hidden risks beyond its control, better management could have led to improved results during the entry phase into the market which was plagued with errors and unfortunate circumstances possibly due to their hasty decision-making process. Both Pepsi and Coke need to address the issue of water usage in their product industry while finding ways to prevent further boycotts or protests from occurring.The effectiveness of activist groups, such as the one in California, should be taken into consideration. The question arises whether Coke should directly engage with this group or wait for the trend to diminish. According to Amit Srivastava's findings in 2006, The Coca Cola Company used a staggering 290 billion litres of water primarily for equipment cleaning purposes, with two thirds of it ending up as waste water. This is particularly noteworthy given the problem of water scarcity in the country. It is imperative that both companies make genuine efforts to discover more efficient methods of cleaning that consume less water and demonstrate greater responsibility towards India. In an attempt to rebuild trust with the Indian population and thrive in the market, Coca-Cola has recently announced a partnership with the World Wildlife Fund for water conservation. For companies to operate successfully in foreign markets, corporate social responsibility plays a crucial role. Both PepsiCo and Coca Cola India suffered significant damage to their reputations due to negative publicity they received. Despite establishing advisory boards and conducting purity tests as a preventive measure against product boycotts or protests, these

actions proved insufficient. It would have been necessary for them to improve their public relations strategies at an early stage. Following the purity tests, effectively communicating the results would have been another important step forward. Opting to deny accusations before presenting test results could have been perceived as offensive behavior on their partThe utilization of press releases and open days at the factories can increase government and public involvement. It would also be beneficial to emphasize corporate social responsibility in dealings with the government to build trust and ensure a safer position. One viable idea is offering a percentage of profits to help construct schools or hospitals in India. Powerful activist groups, such as those in California, can either be valuable allies or formidable enemies for companies. They have significant influence on Coca Cola consumers through direct engagement, which puts pressure on manufacturers and suppliers to take action. The closure of bottling works and contract terminations with Coca Cola were a result of these activist efforts in California. To maintain credibility and avoid accusations of hiding actions, Coca Cola should directly address these issues and proactively provide honest answers instead of waiting for rumors and accusations to subside. While both companies are strong global brands, it is important to analyze their approaches to handling situations as they may lead to different outcomes. The initial success or failure in a foreign market greatly impacts the future of a company.PepsiCo has a significant market share and sustainable brand recognition, while Coca Cola's struggles with the Indian government are concerning as a good relationship with governments is crucial for growth. Both PepsiCo and Coca Cola have successfully developed

selling schemes aimed at increasing the ingestion of carbonated soft drinks. They have also excelled in glocalization. Some argue that PepsiCo achieved greater success by incorporating Basmati rice into its sales advertisements, while others view Coca Cola's use of Bollywood stars in its ad campaigns as flawless. However, Coca Cola India failed to follow through on new ventures and strategies, while PepsiCo took their initial ideas and expanded upon them. In fact, PepsiCo was more effective in engaging local consumers with its brand. According to statistics, Pepsi has consistently demonstrated growth over time and long-term investors seem to favor it due to its promise of future expansion. Investing in Pepsi Co now guarantees a projected increase of approximately 100 points by 2015. On the other hand, Coca Cola India appears to attract those who favor fixed income as its investments show less fluctuation. In terms of market share, Coca-Cola still trails behind Pepsi, indicating that Pepsi has a more comprehensive strategy for success.
Coca Cola is facing challenges in a fast-growing market, while Pepsi has been more successful. Both companies should learn from their experiences in India before entering other emerging markets. Neglecting market research and PESTLE analysis was a mistake, as what works in one place may not work in another. Ongoing environmental scanning is essential to anticipate situations rather than react to them. To avoid negative publicity, both companies should have implemented specific measures and focused on educating consumers about their products. It's important for them to understand and cater to local preferences, like PepsiCo's success with the clear lemon category in India. They must also pay attention to market trends and adapt pricing

policies, bottle sizes, communication mix, and distribution methods accordingly.They also utilized local celebrity endorsements for advertising. However, Coca Cola realized the significance of investing in local products and staying attuned to market trends. Even though they initially did not invest in the Thums Up brand, Coca Cola later acquired a substantial market share. The timing of their entry into the market was unfavorable due to foreign investment laws at that time. Instead of dividing the market into "India A" and "India B" without further specification based on factors like age, gender, language, interests, or location, it would have been advantageous for Coca Cola to define their target audience more specifically. It is crucial for multinational corporations to establish positive relationships with authorities and other groups in the host country as it can either aid or hinder their success. Coca Cola made an error by attempting to retract from their commitments. Initially entering into the contract was a mistake on their part. However, they further harmed their reputation and relationship with the government by seeking extensions and trying to deny voting rights for Indian interests. In conclusion, Venkatesh Mysore (Managing Director of MetLife India Insurance Company Pvt.Ltd.in Bangalore) emphasizes that adhering to a country's laws and avoiding shortcuts is highly important for multinational corporations (Ashok Rao et al., 2006).