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Coke And Pepsi Learn To Compete In India

5720 words - 23 pages

CASE 13 Coke and Pepsi Learn to Compete in India
THE BEVERAGE BATTLEFIELD
In 2007, the President and CEO of Coca-Cola asserted that Coke has had a rather rough run in India; but now it seems to be getting its positioning right. Similarly, PepsiCo’s Asia chief asserted that India is the beverage battlefield for this decade and beyond. Even though the government had opened its doors wide to foreign companies, the experience of the world’s two giant soft drinks companies in India during the 1990s and the beginning of the new millennium was not a happy one. Both companies experienced a range of unexpected problems and difficult situations that led them to recognize that competing in India ...view middle of the document...

A new government took office in June 1991 and introduced measures to stabilize the economy in the short term, then launched a fundamental restructuring program to ensure medium-term growth. Results were dramatic. By 1994, inflation was halved, exchange reserves were greatly increased, exports were growing, and foreign investors were looking at India, a leading Big Emerging Market, with new eyes. The turnaround could not be overstated; as one commentator said, “India has been in economic depression for so long that everything except the snake-charmers, cows and the Taj Mahal has faded from the memory of the world.” The Indian government was viewed as unfriendly to foreign investors. Outside investment had been allowed only in high-tech sectors and was almost entirely prohibited in consumer goods sectors. The “principle of indigenous availability” had specified that if an item could be obtained anywhere else within the country, imports of similar items were forbidden. As a result, Indian consumers had little choice of products or brands and no guarantees of quality or reliability. Following liberalization of the Indian economy and the dismantling of complicated trade rules and regulations, foreign investment increased dramatically. Processed foods, software, engineering plastics, electronic equipment, power generation, and petroleum industries all benefited from the policy changes.

THE INDIAN SOFT DRINKS INDUSTRY
In India, over 45 percent of the soft drinks industry in 1993 consisted of small manufacturers. Their combined business was worth $3.2 million dollars. Leading producers included Parle Agro (hereafter “Parle”), Pure Drinks, Modern Foods, and McDowells. They offered carbonated orange and lemon-lime beverage drinks. Coca-Cola Corporation (hereafter “Coca-Cola”) was only a distant memory to most Indians at that time. The company had been present in the Indian market from 1958 until its withdrawal in 1977 following a dispute with the government over its trade secrets. After decades in the market, Coca-Cola chose to leave India rather than cut its equity stake to 40 percent and hand over its secret formula for the syrup. Following Coca-Cola’s departure, Parle became the market leader and established thriving export franchise businesses in Dubai, Kuwait, Saudi Arabia, and Oman in the Gulf, along with Sri Lanka. It set up production in Nepal and Bangladesh and served distant markets in Tanzania, Britain, the Netherlands, and the United States. Parle invested heavily in image advertising at home, establishing the dominance of its flagship brand, Thums Up. Thums Up is a brand associated with a “job well done” and personal success. These are persuasive messages for its target market of young people aged 15 to 24 years. Parle has been careful in the past not to call Thums Up a cola drink so it has avoided direct comparison with Coke and Pepsi, the world’s brand leaders. The soft drinks market in India is composed of six product segments: cola,...

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