Coke & Pepsi

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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 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.

2.Timing of entry into Indian market brought different results for PepsiCo & Coca-Cola India. What benefit or disadvantages accrued as a result of earlier or later market entry? Ans:
Pepsi (early entry-1986)
Entered the market Before Coca-Cola and was able to gain a foothold in the market while it was still developing •Gained 26% market share by 1993
Obstacle due to Government policies:
Were forced to change their name to Lehar Pepsi
Govt. limited their soft drink sales to less than 25% of total sales •Struggled to fight off local competition

Coca-Cola (late entry-1993)
Were able to buy 4 bottling plants from industry leader Parle •Also bought Parle’s leading brands: Thums Up, Limca, Citra, Gold Spot and Mazaa •Set up 2 new ventures with Parle to bottle and market product –Disadvantages

Denied entry until 1993 because Pepsi was already there
Harder to establish market share with Pepsi there
Not allowed to buy back 49% of equity

3.The Indian market is enormous in terms of population & geography. How have the two companies responded to the sheer scale of operations in India in terms of product policies, promotional activities, pricing policies & distribution arrangements? Ans:

Product Policies
Catering to Indian tastes
Entering with products close to those already available in India such as colas, fruit drinks, carbonated waters –Waiting to introduce American type drinks
Coca-Cola introducing Sprite recently
Introducing new products
Bottled water
Promotional Activities
Both advertise and use promotional material at Navrartri •Pepsi gives away premium rice and candy with Pepsi
Coca-Cola offers...
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