The Political Environment for Coca-Cola and Pepsi in India - Essay Example

The political environment in India has proven to be critical to company performance for both PepsiCo and 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 arena have been handled better by each company? The political environment in India has been very challenging to both Coca-Cola and Pepsi due to the fact that the government is very protective of the local industries. Coca Cola entered the Indian market first in 1958, but it withdrew India in 1977 due to a controversy over the copyrights of its formula. Intellectual property is often not protected in foreign marketplaces. In order for Coca-Cola and Pepsi to penetrate the marketplace in the late 1980’s and early 1990’s these firms had to negotiate joint ventures with local firms. A joint venture can be defined as, “An association of two or more individuals or companies engaged in a solitary business enterprise for profit without actual partnership or incorporation” (Thefreedictionary). The regulations of India are also a tough challenge. The political environment of India could have been studied more closely prior to these two companies entering the India marketplace. Databases that could have helped these companies evaluate the political, cultural and economical environment better are CountryWatch, CultureGrams, and EIU Country Intelligence. 2. Timing of entry into the Indian market brought different results for PepsiCo and Coca-Cola India. What benefits or disadvantages accrued as a result of earlier or later market entry? Coca-Cola was the company that entered first into the market. The twenty years of experience and captivation of market share were wasted once they withdrew from India in 1977. Pepsi entered before Coca-Cola at the end of the 20th century. The company was able to obtain good market share in the soda beverage business by acquiring different brands from the competition. When Coca-Cola entered second in 1990 the firm was at a disadvantage in relation to Pepsi in the soda business. The Indian soda market was extremely fragmented prior to Pepsi’s and Coca Cola’s entrance. A fragmented market is a marketplace in which a lot of companies participate. 3. The Indian market is enormous in terms of population and geography. How have the two companies responded to the sheer scale of operations in India in terms of product policies, promotional activities, pricing policies, and distribution arrangements? India is the second most populated country in the world. The country has a population of 1.19 billion people (CultureGrams). Both Pepsi and Coca Cola have done a poor job of expanding the size of the market. One of the reasons that the companies have been ineffective in this foreign market is because the firms failed to realize that the marketing strategy that worked in Western nations will not be effective in an Asian marketplace. An inherent problem of the Indian marketplace is that income per capita of the consumers is very low. The yearly gross domestic product per capita of India is $3,500 (CultureGrams). The firms have not taken advantage of the fact that their products are food items that have the attribute of being a physiological necessity for customers. 4. “Global localization” (glocalization) is a policy that both companies have implemented successfully. Give examples for each company from the case. The use of globalization was utilized in the marketing strategies of the companies. For instance Pepsi realized that the Indian people have the same passion for sports that many Americans have even though the sports each market likes is different. The Pepsi ad campaigns focused on sports that Indians like such as soccer. Globalization implies that companies can implement certain business strategies in different markets with similar results. The use of acquisition was a strategy that helped Pepsi increased its overall market share. Coca Cola utilized globalization in its marketing strategy by using the universal business knowledge of targeting young people it its campaigns using local customs. 5. How can Pepsi and Coke confront the issues of water use in the manufacture of their products? How can they defuse further boycotts or demonstrations against their products? How effective are activist groups like the one that launched the campaign in California? Should Coke address the group directly or just let the furor subside? The controversy over the quality of the water and the possible existence of pesticides residues in the drinks of these two companies was handled very badly by the executive management teams of the firms. The companies decided to resolve the problems through avoidance. Avoidance involves pretending the conflict does not exist (Schermerhorn, Hunt, Osborn). In India silence is visualized by consumers as a sign of guilt. The companies got boycotted by the government which meant their products could not be sold or consume in governmental agencies. The strikes and boycotts in the universities in California were damaging to the image of the companies. 6. Which of the two companies do you think has better long term prospects for success in India? The early lead that Pepsi obtained from penetrating the Indian market four years earlier and the fact that Pepsi does not have the faulty history that Coca-Cola has in India will help Pepsi a lot in the long run. I believe that Pepsi has a better joint venture partner and better local brands in its portfolio. A strategy that Coca Cola is using that is very promising is targeting the youth in its advertising. Creating customer loyalty in a brand by young consumers can help create customer retention and positively influence cash flows in the future. 7. What lessons can each company draw from its Indian experience as it contemplates entry into other Big Emerging Markets? The first lesson that Coca-Cola must learn from India is that it is imperative to protect industry secrets prior to penetrating a foreign marketplace. Leaving the market in 1977 cost Coca Cola millions of dollars and years of experience and market research. When Coca Cola reentered the market in 1990 the customer taste of the Indian population had changed drastically. Pepsi has done very well so far in India, but the company did a poor job of learning more about the culture of India. The company also has to develop its own products in the joint ventures instead of buying out so many brands. An important lesson both companies must learn is that assuming that the tactics used in the United States can be transferred to a foreign market is an error. 8. Comment on the decision of both Pepsi and Coke to enter the bottled water market instead of continuing to focus on their core products—carbonated beverages and cola based drinks in particular. The decision to enter the water market by Coca Cola and Pepsi was very smart. The firms realize that the wellness movement that is engrained in the U.S. culture is also very prominent among the people of India. A lot of consumers prefer to drink a bottle of water over a soda because drinking water is healthier. Water is considered a substitute product to soda. The strategy to sell bottle water creates diversification for the companies. Some of the advantages of diversification are increase in the customer base, higher sales, and it helps offset the losses of poor product lines (Asam). 9. Most recently Coca-Cola has decided to enter the growing Indian market for energy drinks, forecasted to grow to $370 billion in 2013 from less than half that in 2003. The competition in this market is fierce with established firms including Red Bull and Sobe. With its new brand Burn, Coke initially targeted alternative distribution channels such as pubs, bars, and gyms rather than large retail outlets such as supermarkets. Comment on this strategy. The strategy of Coca Cola of entering the energy drinks segment of the industry is an excellent business strategy. Energy drinks are a healthy alternative that has higher gross margins than sodas. If the company is able to control a 5% market share of the $370 billion marketplace it would generate $18.5 billion in sales. The strategy also serves the purpose of diversifying the product lines of the company. Using non-traditional sales spots such as bars, pubs, and gyms is a way to get the product to market faster. Work Cited Page Asam, M. 23 August 2011. “Product Diversification, Risks, and Rewards.” 30 July 2012. Culturegrams.com. 2012. “India.” 30 July 2012. Schermerhorn, John and James Hunt and Richard Osbon. Organizational Behavior (8th ed.). New Jersey: Prentice Hall. 2003. Print. Thefreedictionary.com. 2012. “Joint Ventures.” 30 July 2012. Read More