Coke and Pepsi 1

Case 1-3 Coke and Pepsi Learn to Compete in India

Scott Austin BUSA 460-02 September 27, 2008

Coke and Pepsi 2 It would not take a marketing expert to understand why Coke and Pepsi were so eager to enter the beverage industry in India. A few of these reasons would be there are no large global competitors in the market, it is the second most populated country, soon to surpass China to become the most populated country, and its cheap labor market is always appealing. In the eyes of Coke and Pepsi this is all they needed to hear to begin plans to enter the country. However, the two soft drink giants did not foresee many of the challenges they would face once they began their campaigns in India. In this paper I will address and discuss the major issue that obstructed Coke and Pepsi from entering the Indian market, and I will offer some suggestions to the companies on how to become successful in this market. It is difficult to narrow it down to one main problem that did not allow Coke and Pepsi to become successful in the soft drink industry in India. When a company decides to go global they must engage in international marketing. International marketing is a science that is forever changing and offers no constant blueprint for success. The following are the main constraints and issues that international marketers run into, political/legal forces; economic forces; competitive forces, level of technology, structure of distribution, geography and infrastructure; and cultural forces. These constitute the principal elements of uncertainty an international marketer must cope with in designing a marketing program (Cateora & Graham, 2007). Coke and Pepsi were both affected by all of these issues, but the main issue that limited their success in the entrance to Indias market was political/legal forces. A major concern for businesses looking to enter new markets abroad is how stable their government is. The more stable the government, the more appealing it will be for a company to do business with that country. If a government lacks stability then entering into the market becomes more risky. This is where Coke and Pepsi ran into their most devastating

Coke and Pepsi 3 problem. India has an unstable government that continually changes policies surrounding foreign ownership of business within India. The case says, Local market analysts commented that there is no apparent logic behind these government policies, other than to allow local investors to become bargain hunters at the expense of Coca-Cola (Cateora & Graham, 2007). This shows that the Indian government was not interested in building businesses that could help the country grow into a successful global entity, instead they were trying to put money in the pockets of a select group of Indians. The case later explains that since Coke and Pepsi entered the market in different years that they had to follow different rules and regulations surrounding ownership. Indias government began to open its doors wider to foreign investments in 1991 due to the introduction of the New Industry Policy, which was put in place to do away with complicated trading policies and regulations. Although they made these changes Indias government still limited ownership of business to foreign investors, like Coke and Pepsi, to fifty-one percent of the total equity (Cateora & Graham, 2007). Due to the New Industry Policy many companies decided to enter markets in India because their population was so large and labor was so inexpensive, that if they could become successful their profits would be astronomical. Near the turn of the 21st century Coke was experiencing losses in India, and in 2002 the company was ordered by the Indian government to sell forty-nine percent of its company to local investors. Coke did all that it could to persuade the government to not force the sale of the company, and the governments response was that entry conditions couldnt be changed (Cateora & Graham, 2007). It is hard to decipher if Coke simply did not read the fine print when signing contracts with India, or if the government set the contract up in a misleading

Coke and Pepsi 4 manor. I believe the situation should be blamed on the Indian government. I believe they are to blame because they seem to be only looking out for the interest of their investors. Instead India should be building relations with global companies in order to help elevate the economic state within India, and possibly become a larger power on the world level. The situation that Coke faced in India resembles the situation that Starbucks ran into while doing business with Ethiopia. Starbucks had been doing business with Ethiopia with out any dilemma, and suddenly Ethiopia sprung a trademark clause on Starbucks. The following is an excerpt from the article in the Wall Street Journal. Within months, though, the celebration dissolved into feuding that has rattled Starbuck's image. The world's largest coffee chain is locked in a trademark dispute with Ethiopia, one of the world's poorest countries. The battle was spurred by a rare aggressive attempt by a developing country to assert intellectual-property rights. The country aims to gain more control over the distribution and promotion of its most valuable export. Starbucks spent months discouraging Ethiopia from trying to trademark the names (Adamy & Thurow, 2007). Although the situations are not exactly the same they do parallel each other quite well. Both companies entered markets that they believed to be promising even though each had unstable governments. After each company began doing business, the government demanded some sort of extreme compensation in order to continue business within their country. In each situation the demand brought on by the government has hindered the relationship between the company and the government of that country. One major thing companies need to focus on when entering new markets is that the risk and reward ratio is in their favor. If a company is willingly going into a risky market, they must be prepared to lose it all. Another article from the Wall Street Journal that I believe reflects a portion of the Coke and Pepsi case is an article about marketing firms that were eager to take advantage of Chinas consumer market. The following is a brief section from the article.

Coke and Pepsi 5 Marketers eager to grab their share of China's burgeoning consumer culture are clashing at times with international ad agencies that have opened up China shops to service their accounts. Many Chinese clients have no prior experience with, and little patience for, the institutionalized "creative" product traditional ad agencies try to sell them (Fowler 2006). What this article illustrates is that these marketing firms believed China had a need for their services, however they entered the market with a practice that the Chinese did not find necessary. They, like Coke and Pepsi, should have not been so eager to enter the markets before they had a better understanding of what they would need to be successful. After reading through the first six chapters of the textbook, International Marketing, I have decided on three recommendations for Coke and Pepsi to be successful in India. I believe they need to build better relations with the government, practice more sustainable business, and to remain marketing and advertising at local cultural events. First, they need to focus on building a lasting relationship with the government of India. This is because the government has the final say on what goes on inside of their country. Government can also influence the thinking and behavior through the passage, promulgation, promotion, and enforcement of a variety of laws affecting consumption and marketing behaviors (Cateora & Graham, 2007). If Coke and Pepsi do not improve their relations with the government their brand can be tarnished or they may not be allowed to do business within the country. Secondly, Coke and Pepsi need to integrate more sustainable business practices to insure the longevity of their businesses in India. Being sustainable should be a major focus for them because India is over populated, and this has lead to a lack of resources. For example, they could implement a recycling program, use alternate energy sources for their production, and use ingredients grown on farms that practice sustainable farming. If either company

Coke and Pepsi 6 ignores the importance of sustainability their life in India may get cut short. Not only will using sustainable business practices benefit India, but it will also benefit Coke and Pepsi by showing their consumers that they care about the environment and are doing their part to preserve it. Finally, Both companies should continue to integrate their product into the culture of India. For example Coke should continue to promote their products during Navratri, a yearly traditional Gujarat festival. During this time they offer free passes, buy one get one free schemes, and lucky drawings where you can win a trip to Goa (Cateora & Graham, 2007). Pepsi should continue its sponsorship of the cricket and soccer teams within India. Not only will this show that they are interested in the culture and lifestyles of India but it will ensure that a large number of people will see their brand. If Coke and Pepsi continue to do promotional events within the culture of India they will show the citizens that they are American companies that are willing to adapt and accommodate to their cultural differences. After reading the case of, Coke and Pepsi Learn to Compete in India, I believe the biggest issue each company faced was the instability of the Indian Government, which lead to minimal success in the market. However if they improve their relationships with the government, practice sustainability, and continue to integrate into the Indian culture, than they will see much more success in the future.

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References Adamy, Janet and Roger Thurow. 2007. Ethiopia Battles Starbucks Over Rights to Coffee Names, Wall Street Journal, 5 March: A1. Cateora and Graham. 2007. International Marketing, New York: McGraw-Hill. Fowler, Geoffrey A. 2006. Agencies Find China Land of Opportunity and Unhappy Clients, Wall Street Journal, 17 Mar: B1.