Coke and Pepsi Learn to Compete in India: Case Analysis 1

Coke and Pepsi Learn to Compete in India: Case Analysis 1

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. As both companies would soon discover, "competing in India requires special knowledge, skills, and local expertise…what works here does not always work there." (Cateora & Graham, 2008, p. 604). In this article, I will analyze the primary obstacle to Pepsi and Coca-Cola's success, discuss their strategies to cope with the issue, and ultimately propose my own suggestions to improvement.

Major Obstacle: Political / Legal Environment

The primary barrier to Pepsi and Coca-Cola's entry into the Indian market was its political / legal environment as a result of its history. First, despite the liberalization of the Indian economy in 1991 and introduction of the New Industrial Policy to eliminate barriers, such as bureaucracy and regulation to foreign direct investment, India still had a strong history of protectionism, dating back most recently to its economic policies following the Gulf War. India's past promotion of "indigenous availability"1 depicts its affinity toward local products. In fact, the idea of protectionism in industries where India had a comparative advantage can be seen as early as the 1920's. Britain and India used "discriminating protection" to ward off German and Belgian competitors in the steel industry. (Rothermund, 1993).

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." (Cateora & Graham, 2008, p. 608).

As St. Augustine said, "an unjust law is no law at all." Because of the lack of consistency in the legal environment, there was a greater importance placed on lobbying the politicians. As Coca-Cola soon discovered though, when there was a change in the oversight of the Foreign Investment Protections Board (FIPB), all previous lobbying became useless. Lack of solid institutions gives way to corruption. In fact, India has still not ratified the OECD designed to combat corruption.

Coke and Pepsi's Controls

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. Thus, Pepsi and Coca-Cola focused on the following controllable aspects3:

1. Price: Coca-Cola reduced prices nationwide by 15-25% to make them affordable and easy to get access to. Pepsi introduced returnable glass bottles for customers to recoup costs.

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 (Coke-Sprite, Pepsi-7 Up).

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