Coke & Pepsi
1. The Political environment in India has proven to be critical to company performance for both PepsiCo & Coca-Cola India. What specific aspects of the political environment have played key roles? Could these effects have been anticipated prior to market entry? If not could developments in the political area have been handled better by each company?
Ans:
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. 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” 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.
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. 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.
• 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.”
It is difficult to anticipate the political and legal environment prior to market entry. Due to the external nature of the political and legal environment of operating
Ans:
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. 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” 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.
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. 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.
• 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.”
It is difficult to anticipate the political and legal environment prior to market entry. Due to the external nature of the political and legal environment of operating