India, a“sovereign, socialist, secular, democratic republic” (India 2010), has a nationalist and protectionstic political landscape with foreign-biased policies including “principle of indigenous availability” (Catero 2009) and “License Raj” (Nirmalya Kumar 2009). This limited free market economy made it challenging for foreign businesses to operate in India (e.g. PepsiCo had to promote under Lehar Pepsi). In 1991, the country’s capitalistic economic reform improved its business climate but some discriminatory protectionism laws still existed. As “political leadership openly used state-control over economic resources to maintain and exercise power” (Sanyal 2008), power struggle among the frequently changed political parties through legislations was very common. The resulted in the federal republic’s “inconsistency in implementation of government rules’ (Catero 2009) due to its complicated legal system. With the strong pressure from the independent non-government groups, both companies faced high political and economic risks (“domestication”, Kerala temporaral ban, India’s foreign colas boycott and pesticide allengations). Though most of the factors in the political environment are unpredictable and existed within the macroenvironment, steps could have been taken to anticipate and minimize the impact of the political risks. Coca-Cola could have worked with local partners and the host government. As “political sensitivity to foreign influences can be catastrophic – often driven by perception and not reality” (William Nobrega 2008) in India, PepsiCo and Coca-Cola could deploy “corporate social responsibility” (CSR) to create a positive image among the special interests group’ interests and promote sustainability in the community. Question 2
Being the first foreign cola brand to enter into India during its economic liberalization, PepsiCo had “an early entry while the market is developing” (Catero 2009) through its local joint venture. The local market knowledge lowered its economic and political risks (Lehar 7UP’s success and PepsiCo’s transition to a fully-owned subsidiary). PepsiCo’s “first-mover advantage” resulted in “sales volume ahead of rivals (Coca-Cola) and thus reap the cost advantages associated with the realization of scale economies and learning effects” (Charles Hill 2009). It also established brand loyalty and a high market share of 23.5 per cent in 2002.
PepsiCo’s “pioneering costs” (Philip Kotler 2009) were high as it had to promote under “Lehar Pepsi” and fulfill stringent requirements to ensure “sales of the soft drink concentrate could not exceed more than 25 per cent of total sales.” It was subjected to challenging political policies, corruption, initial local resistance and strong local competition protected by the government.
By entering into the market later, Coca-Cola benefitted by “free-riding” on PepsiCo’s experience and operated in a more stable environment. Coca-Cola gained from PepsiCo’s growth as it managed to acquire Parle’s brands. Through Thums Up and became the cola market leader in India. Though Coca-Cola avoided the “License Raj”(Narayan 2008), it was subjected to the disinvestment rule which forced it to “domesticate” in 2002. Later entry also meant stronger competition and Coca-Cola main cola drink still tailed after Pepsi Cola’s in terms of sales and mindshare. Question 3
The Indian market (Appendix A) is “highly pluralistic” (Saxena 2005) with distinctive social inequities, different languages, cultural values, religions as well as education levels. Both PepsiCo and Coca-Cola used a “hybrid” marketing (global and multidomestic) approach with similar strategies in their marketing mix. Both companies initially offered a standard product – Pepsi Cola and Coca-Cola. As the market grew, each company offered adapted products (PepsiCo’s Lehar 7UP), new products (bottled water, energy drinks, fruit juices and others) and local brands (Coca-Cola’s Thums...