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Coca-cola in India case. 1. What aspects of US culture and of Indian culture may have...

Brief Integrative Case 2.1 Coca-Cola in India Coca-Cola is a brand name known throughout the entire attractive market. From 2Brief Integrative Case 2.1 Coca-Cola in India 249 200,000 indirectly through their purchases of sugar, pack Pepsi and Coke arCoca-cola in India case.

1. What aspects of US culture and of Indian culture may have been causes of Coke's difficulties in India?

2. How might Coca-Cola have responded differently when this situation first occurred, especially in terms of responding to negative perceptions among Indians of Coke and other MNCs?

3. If Coca-Cola wants to obtain more of India’s soft drink market, what changes does it need to make?

4. How might companies like Coca-Cola and PepsiCo demonstrate their commitment to working with different countries and respecting the cultural and natural environments of those societies?

Brief Integrative Case 2.1 Coca-Cola in India Coca-Cola is a brand name known throughout the entire attractive market. From 2003-2006, foreign investment world. With stag nant soft drink sales in markets like doubled to $6 billion. Imported goods have become a sta- Europe and North America, Coca-Cola has aggressively tus symbol for the burgeoning middle class. looked to new, expanding markets to continue to grow its brand. India, with 1.2 billion consumers, has been a pri-growth, as Indians consume an average of 12 eight-ounce mary target for Coca-Cola; through acquisitions and beverages per year. In comparison, Brazil consumers clever marketing, the company now covers 60 percent of drink roughly 240 beverages per year on average. Despite India's $1 billion soft drink market Coca-Cola's expansion in India has not been without on average, India has been one of Coke's best emerging minor setbacks, however. In 2006-2007, Coca-Cola faced market plays. In 2014, India surpassed Germany as Coca- some difficult challenges in the region of Kerala, India, Cola's sixth largest market. During the January to March after it was accused of using water that contained pesti period of 2014, sales volumes in India increased 6 per- cides in its bottling plants. An envionmental group, the cent. This growth is on par with Coca-Cola's other emerg- Center for Science and Environment (CSE), found ing market operations in China (12 percent growth over 57 bottles of Coke and Pepsi products from 12 Indian the same period) and Brazil (4 percent growth over the states that contained unsafe levels of pesticides. The Kerala minister of health, R. Ashok, imposed a ban on plans to expand capacity at all 13 of its bottling plants the manufacture and sale of Coca-Cola products in the which should help expand the company's distribution region. Coca-Cola then arranged to have its drinks tested throughout the country. Coca-Cola is aiming to double in a British lab, and the report found that the amount of both revenue and volume in India by the year 2020. pesticides found in Pepsi and Coca-Cola drinks was harm less to the body. Coca-Cola then ran numerous ads to India overtook the United States and China as the top regain consumers' confidence in its products and brand. destination for FDI, according to a report by the Financial However, these efforts did not satisfy the environmental Times. A 2015 survey of Japanese manufacturers con- groups or the minister of health. Coca-Cola has been targeting India for potential the relatively low amount of beverages consumed by India same period) As part of its investment plan, Coca-Cola In 2014 FDI in India stood at $33.9 billion. In 2015, ducted by the Japan Bank for International Cooperation ranked India as the most promising country for overseas business operations. India's GDP grew at the impressive average annual rate India's Changing Marketplace During the 1960s and 1970s, India's economy faced of 8.5 percent during the six years spanning 2003-2008 many challenges, growing only an average of 3-3.5 per Even the global financial crisis, which began in Septem- cent per year. Numerous obstacles hindered foreign com panies from investing in India, and many restrictions on points, and the economy has continued to grow at the economic activity caused huge difficulties for Indian annual rate of 6-7 percent in the years since the crisis firms and a lack of interest among foreign investors. For But the country needs more investment in manufacturing many years the government had problems implementing if it hopes to improve the lives of the 350 million people reform and overcoming bureaucratic and political divi living in poverty. sions. Business activity has traditionally been underval ued in India leisure is typically given more value than work. Stemming from India's colonial legacy, Indians Coca-Cola and Other Soft Drink are highly suspicious of foreign investors. Indeed, there Investment in India. have been a few well-publicized disputes between the Coca-Cola had experienced previous confrontations with Indian government and foreign investors. More recently, however, many Western companies are India when the government demanded its secret formula. finding an easier time doing business in India. In 1991 political conditions had changed, many restrictions were years for soft drink providers of India Coke and Pepsi eased, and economic reforms came into force. With more have invested nearly $2 billion in India over the years. than I billion consumers, India has become an increasingly They employ about 12,500 people directly and support ber 2008, only cut the rate of growth by 2-3 percemtage the Indian government. In 1977, Coke had pulled out of Circumstances have dramatically improved over the 248
Brief Integrative Case 2.1 Coca-Cola in India 249 200,000 indirectly through their purchases of sugar, pack Pepsi and Coke are doing our work for us. Now the whole aging material, and shipping services. Coke is India's nation knows that there is a pesticide problem." number-one consumer of mango pulp for its local soft drink offerings.6 Coca-Cola in India is also the largest Indian soft drink makers have been tested for similar vio- domestic buyer of sugar and green coffee beans. FRom lations even though pesticides could be in their products 1994 to 2003, Coca-Cola sales in India more than doubled. In 2008-2009 Coca-Cola announced its plans to invest groundwater, why isn't anyone else being tested? We are more than $250 million in India over the next three years. continuously being challenged because of who we are," The money would be used for everything from expanding said Atul Singh, CEO of Coca-Cola India bottling capacity to buying delivery trucks and refrigera- tors for small retailers. The new money meant around a subject of pesticides in consumer products to light. "If you 20 percent increase in the total Coca-Cola has invested in target multinational corporations,, you get more publicity." India. Coca-Cola's sales in India climbed 31 percent in adds Arvind Kumar, a researcher at the watchdog group- the three months ended March 31, 2009, compared to a Toxic Links. "Pesticides are in everything in India. year earlier. That's the highest volume growth of any of Coke's markets. Furthermore, Coca-Cola announced plans in 2012 to invest upwards of US$5 billion in India by 2020. This After CSE's discovery of the unsafe levels of pesti- investment marks a 150 percent increase over the announced cides, some suggested the high levels of pesticides plans from 2011 to invest up to USS2 billion in India over came from sugar, which is 10 percent of the soft drink the next five years. Putting this investment in perspective, content. However, laboratories found the sugar samples Coca-Cola has invested a total of just over US$2 billion in to be pesticide free. its India operations over the past 20 years. Despite the large investment in India, Coca-Cola will see serious competition minister who still claims to have a revolutionary objec- from Pepsi in this market. Together Coke and Pepsi tion to the evils of capitalism. Defenders of Coca-Cola make up 97 percent of the market for carbonated soft drinks claim that this is a large reason for the pesticide findings in India, where soda sales overall are estimated to be in Coca-Cola products. After the ban was placed on all USSI05 billion. Coke accounted for 60 percent of all sales Coca-Cola and PepsiCo products in the region of Kerala, while Pepsi received 37 percent of the market share.30 Royal Crown Cola (RC Cola) is the world's third larg products and name. The court said that the state govern- est brand of soft drinks. The brand was purchased in 2001 ment had no jurisdiction to impose a ban on the manu by Cott Beverages and entered the Indian market in 2003. For production in India, the company hired three licensing statewide ban on Coke products. and franchising bottlers. In order to ensure that it was not associated with the pesticide accusations against Pepsi Indian unit of Coca-Cola Company was asked to pay $47 and Coke, RC Cola immediately had its groundwater million in compensation for causing environmental dam- tested by the testing institute SGS India Pvt Lid. Coca-Cola fought back against the accusations. "No such as milk and bottled teas. If pesticides are in the Some believe that Coca-Cola was targeted to bring the India's Response to the Allegations. Kerala is run by a communist government and a chief Coca-Cola took its case to the state court to defend its facture and sale of products. Kerala then lifted the In March 2010, after several years of tense battles, the age at its botling plant in the southern Indian state of Kerala. A state government panel said Coca-Cola's sub- sidiary, Hindustan Coca-Cola Beverages Pvt Ltd (HCBPL) was responsible for depleting groundwater and dumping toxic waste asound its Palakkad plant between 1999 and The Charges against Coke The pesticide issue began in 2002 in Plachimada, India. Villagers thought that water levels had sunk and the 2004. Potests by farmers, complaining about the alleged drinking water was contaminated by Coke's plant. They pollution, forced Coca-Cola to close down the plant in launched a vigil at the plant, and two years later, Coke's 2005. Coca-Cola responded that HCBPL was not respon- license was canceled. Coca-Cola's most recent pesticide sible for pollution in Palakkad, but the final decision on issue began at a bottling plant in Mehdiganj. The plant the compensation will be taken by the state government." was accused of exploiting the groundwater and pol luting it with toxic metals. Karnataka R. Ashok, the health minister of Kerala, India, banned the sale of all Coca-Cola Pepsi's Experience in India and PepsiCo products, claiming that the drinks contained PepiCo has had an equally noticeable presence in India, and unsafe levels of pesticides The alleged contamination of the water launched a storms as its rival Coca-Cola. In addition to claims of exces- debate on everything from pesticide-polluted water to the sive water use, a CSE pesticide study, performed in August Indian middle-class's addiction to unhealthy, processed 2006, accused Pepsi of having 30 times the "unofficial" pes- it is not surprising that the company has weathered the same ticide limit in its beverages (Coke was claimed to be 27 times foods. "It's wonderful," said Sunita Narin, director of CSE
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Answer 1

Certainly, both these countries the USA & India have very different cultures and hence, demand a very different way of doing business in these countries.

Coca-Cola first faced difficulties when the government of India asked to share its secret formula and later when Coca-Cola & Pepsico products were banned in the state of Kerala and Coca-Cola were fined $47 million with the charges of contaminating the groundwater. At that point of time, Indians had been very suspicious of foreign investors considering their history and some disastrous experiences with other giant foreign investors. That is why, when Coca-Cola products were accused of containing pesticides, it turned out to be very difficult to convince the Health Minister and local consumers/customers that these products did not contain any pesticides and were quite safe to drink. One of the key difficulties at that point was dealing with the government; specially from the state of Kerala.

Another major difference with respect to the cultures of these countries is that Indian culture other than being very price-sensitive is also very brand perception-oriented. So, even though Coca-Cola would have survived the battle with the government, it would still result in loss of sales as it had hampered the brand perception. So, it was very important to make sure that brand perception remains the same throughout this situation.

Answer 2

Indian culture has always been very sensitive with respect to the brand perception and specially when it comes to a foreign brand as there have always been speculations with respect to their decisions and proposals put forward by them. So, Coca-Cola needed to make sure that brand perception doesn’t hamper at any point of time.

There are certain elements which Coca-Cola should have taken care of while responding to this situation.

  1. Coca-Cola should have taken this issue very seriously & handled it immediately before it escalating it to the larger audience.
  2. Mr. Atul Singh, CEO of Coca-Cola shouldn’t have accused the Indian & State government for targeting Coca-Cola with false charges and demanded testing to be done for its competitors, milk based products & packaged teas as it resulted in change of perception not only about the Coca-Cola but about the entire industry including other MNCs.
  3. While responding to this situation, Coca-Cola also mentioned that the pesticides could have come from the groundwater and hence could have been present in other products as well. However, rather than responding like that and ultimately hampering their brand perception, Coca-Cola should have mentioned that they would immediately check the water & other ingredients being used in the production to identify the source of pesticides.

Answer 3

To increase their share in the market, of which 97% is shared between Pepsico & themselves (Coca-Cola), certain initiatives must be taken to improve CocaCola’s brand perception, perception about the carbonated drink industry & increase the brand loyalty.

  1. Coca-Cola should make people believe that Coca-Cola products are safe to drink.
  2. Coca-Cola should take certain initiatives with respect to Corporate Social Responsibility and take certain decisions to make their entire business more customer -friendly. Certain areas that Coca-Cola could work upon are packaging, production, logistics, supply chain to make more environment-friendly
  3. Coca-Cola could the initiative of spreading awareness about health, nutrition & physical education and hence, increase their brand perception & brand loyalty in Indian consumers.
  4. Coca-Cola should partner with Indian government and some state governments to work towards solving the water contamination issue. This can help Coca-Cola in not only improving its brand perception but also in building stronger relationship with the government bodies.
  5. Coca-Cola should also try to diversify their portfolio and explore milk based products & other products
  6. Considering that the preference shifting towards healthier products, Coca-Cola should explore in healthy drinks rather than just staying in carbonated drinks business.

Answer 4

MNCs like Coca-Cola and PepsiCo must demonstrate their commitment to working with different countries and respecting the cultural and natural environments of those societies. This can be done by some of the following ways:

  1. Hiring local talent & partnering with local players to avoid brand perception being created as an outsider or foreign player
  2. Partnering with central & state governments to work on major environmental challenges related to their business
  3. Spreading awareness about the manufacturing process & reiterating the fact of products being safe to consume
  4. Taking certain initiatives with respect to Corporate Social Responsibility
  5. Spreading awareness about health, nutrition & physical education
  6. Launching product range targeted to the local market rather than being focused with global brands & global products
  7. Respecting the regional beliefs, trends, cultures and making sure that none of them is hampered.
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