Coke and Pepsi Learn to Compete in India

Section 1:

During the 1900s and the beginning of the new millennium India's government had opened its doors wide open to foreign investors, but the Coca-Cola Corporation and PepsiCo experienced many difficult challenges. Both companies were engulfed with unexpected problems and difficult situations that led to the recognition that India's market was very different and special knowledge, skills and local expertise was needed to be obtained if the two companies were to succeed. As Ronald McEachern, PepsiCo's Asia chief, stated, "India is the beverage battlefield for 2003".

In 1991, India was in an economic crisis that was triggered by the rise in imported oil prices following the first Gulf War. During this crisis, foreign exchange reserves fell, imports were more tightly controlled, industrial production fell, and inflation was continuously rising. Led by Prime Minister Narasimha Rao, dramatic measures were put in place to stabilize the economy for the short term. By 1994, inflation was halved and foreign investors viewed India as a leading Big Emerging Market. Foreign Investment also increased dramatically following the New Industrial Policy which dismantled complicated trade rules and regulations.

Coca-Cola also entered India as a joint venture but later petitioned to create a one hundred percent owned company, Coca-Cola India. Coca-Cola's entrance caused a major threat to the small producers. As a result, many individual local producers tried to align themselves with Coca-Cola, which later turned into a joint venture between Parle and Coca-Cola.

In India, there are two main high seasons for the consumption of soft drinks. First being the summer session which lasts about seventy-five days in mid-April to June. This season accounts for fifty percent of the year's carbonated beverage consumption across the country. The second major opportunity for Coca-Cola and PepsiCo in India is the annual Navratri celebrations.

Another issue that the Indian market faced was the attack by the United States and Britain on Iraq. A boycott was put in place as the result and targeted specifically Pepsi, Coca-Cola, and McDonald's as a protest against the "unjust" war. Sales of Coca-Cola and Pepsi plummeted fifty percent within the first two weeks of the boycott.

Just as things were looking better, an environmental organization claimed that soft drinks produced in India by Coca-Cola and Pepsi contained significant levels of pesticide residue. After testing of the products, the results showed that soft drinks produced by the two companies were safe to drink under local health standards. But the damage was already done. To regain trust and credibility, Coca-Cola and Pepsi created advisory boards and had more purity tests conducted to combat consumer's fear about their product. But in 2003 and again in 2006, studies have shown that Coca-Cola had pesticide residue in their products that were twenty-four times higher than the European Union standards. This event led full bans on Coca-Cola in seven states in India (Srivastava, 2009)

After the bad press had cooled down from the pesticide incident, new allegations of Coca-Cola using precious groundwater and supplying farmers with toxic waste that was used to fertilize their crops appeared. In 2004, Coca-Cola converted 2/3 of the freshwater it used into wastewater globally ((Srivastava, 2009). Activist groups in California formed and rallied several colleges in the United States and some in Europe to ban or stop renewing their contract with Coca-Cola. This also led to many Americans wanting Coca-Cola to close its bottling plants due to such an irresponsible practice.

To avoid the same problems that Coca-Cola is now facing, PepsiCo has come up with new techniques for conserving water usage, especially in India. The agriculture in India accounts for over eighty percent of total fresh water consumption, therefore PepsiCo is working with the farmers to reduce the water intensity in paddy cultivations