DA-IICT• INTERNATIONAL MANAGEMENTKINJAL CHOUDHARYSAURABH BARNWALDEVVRATH SHAMALSAURABH PASHINERAGHAV NEGIAYUSH PARMAR
A letter to Pepsi from George Fernandes• “I learned that you are coming here. I am the one that threw Coca-Cola out, and we are soon going to come back into the government. If you come into the country the same fate awaits you as Coca-Cola.” George Fernandes (General Secretary Janta dal)
Political Environment During 80s• India had closed economy and government intervention in the corporate sector was quite high.• Use of foreign brand name not allowed as per regulatory framework.
Need for Pepsi to reach India• U.S.A the major market for PepsiCo reached saturation and Pepsi needed to expand.• India was a lucrative destination because of its large middle class.• Soft drink consumption of India was only 3bottles/annum compared to 63 for Egypt , 38 for Thailand and 13 for even neighboring Pakistan. So it was highly untapped.
Pepsi’s Actions• PepsiCo joined hands with R.P Goenka (RPG) group to begin operations in the country.• The company along with the R.P.G group company Agro Product Export Ltd. Planned to import the cola concentrate and sell soft drinks under the Pepsi label.• Import of cola concentrate would essentially be in return for exporting juice concentrate from operations to be established in the state of Punjab.
Grounds For Rejection Of The Proposal• PepsiCo’s entry into India revolved around “promoting and developing the export of Indian agro based products and introducing and developing PepsiCo’s products in the country ” .• Still the government rejected the proposal because of:---
Contd…1. The Government did not accept the clause regarding the import of cola concentrate .2. The use of foreign brand name(Pepsi) was not allowed as per the regulatory framework.• Not willing to sit quietly on the issue Pepsi framed another proposal.
Proposal-2• Lot of emphasis on the PepsiCo’s entry on agriculture and employment in Punjab.• Promise that new proposal would tempt many terrorists to return to society.• PepsiCo even made few commitments to the Indian government.
Commitments made by Pepsi• The company would focus on food and agro- processing and only 25% of the investments would be directed towards soft drinks business.• The company would bring advanced food processing technology and also give a boost to image of the products made in india in foreign markets.
Contd…• Half of the production would be exported and the export-import ratio would be 5:1 for a period of 10 years (80% of the exports to be of food products manufactured by the company and 20% of the exports to be of food products from a select list manufactured by other companies)• Creation of jobs for 50,000 people across the nation of which 25,000 in Punjab alone.
Contd…• Foreign brand names would not be used.• An agricultural research center would be established.• Finally govt. agreed to the conditions as a result Pepsi was a joint venture between PepsiCo(36.89%),Voltas India ltd(24%) and Punjab Agro Industrial Corporation(36.11%)
Pepsi’s way of handling Commitments• Its cola was named “Lehar Pepsi” Pepsi was given a prominent position while Lehar was in background.• Failed to export 50% of its production.• Pepsi failed to create jobs by 1996, it had only 2,400 direct and 26,000 indirect employees.• No concrete steps were taken to set up an agro research institute.
July 1991 India Liberalizes• Pepsi bought of its partners PAIC’s stake was reduced to less than 1%.• The government removed the restrictions that bound Pepsi’s investment in soft drinks to only 25% and its need to export 50% of its production.• Pepsi changed its colas name from Lehar Pepsi to Pepsi.
Critical Problems and Issues faced by PepsiCo• Closed economy of India during 80s.• Use of foreign brand name not allowed as per regulatory framework.• Import of cola concentrate was not allowed.• 100% foreign direct investment was not allowed.• Agricultural sector was the priority.
Strategy Adopted By PepsiCo• Promoting and developing the export of Indian Agro-based products, though it got rejected.• Each cola import would be in return of exporting juice concentrate from Punjab.• Development and Welfare of State.• Bringing about Agriculture Revolution in state.• Creating Employments.• Terrorists to return to society.• Punjab boasted a healthy agricultural sector
Contd…• Development of Areas it planned to operate in• Directing major (75%) investment towards agricultural sector• Focusing on food and Agro-processing.• Boosting the image of Indian products in foreign market.• Establishing Agricultural Research Centre.• More emphasis on Exports than imports to improvise the balance of payment.
Alternative Solution• One of the alternative that Pepsi inc. could have adopted is the “wait and watch” approach .• They could have waited for a friendlier and more liberal government in order to venture into the Indian market on more favorable terms.• This was the strategy employed by their eternal rivals coke for entry into India.• They waited till post liberalization era and as soon as the shackles were released they jumped into the foray with acquisitions of already established local brands like Thums up, Citra , Limca and Gold spot.
Alternative Solution Contd...• This not only provided physical manufacturing, bottling, and distribution assets but also strong consumer preference.• This combination of local and global brands enabled Coca-Cola to exploit the benefits of global branding and global trends in tastes while also tapping into traditional domestic markets.• Leading Indian brands joined the Companys international family of brands, including Coca- Cola, diet Coke, Sprite and Fanta, plus the Schweppes product range.
Alternate Solution-II• They could have set up a research center in India itself upfront for developing the cola concentrate and then setting up facilities for mass production and supply from India.• Thus the problem of importing cola concentrate would have been dealt with and as far as the problem with the usage of foreign brand name could have been solved by a tie- up with an indigenous company.