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Exit of Cocacola and Entry of Pepsi in the Indian Market

After Coca Cola left the Indian market due to problems with Indian Government, theIndian Government decided to start a local brand to meet the demand for soft drinks in the country. Pure drinks group was started by Padma Sri late Sardar Mohan Singh in 1942, and in 1950 they started bottling Coca- Cola across India. In 1978, when Coca Cola left India, they started bottling their own brand“Campa Cola”. Thums Up was introduced in 1977 to offset the expulsion of The Coca-Cola Company from India. The Parle brothers, Ramesh Chauhan and Prakash Chauhan, along with Bhanu Vakil, launched Thums Up as their flagship drink, adding to their portfolio of older brands Limca (lime flavour) and Gold Spot (orange flavour). Thums Up enjoyed a near monopoly with a much stronger market share, often overshadowing domestic rivals like Campa Cola, Double Seven, Dukes and United Breweries Group’s McDowell’s Crush. According to statistics Parle’s Thums Up market share kept increasing since 1983 (43%) to 1990 (70%), while its chief rivals share had been declining.

ENTRY OF PEPSI

Pepsico saw the opportunity to enter the Indian market after Coca- Cola departed. In their first attempt in 1985, Pepsico tried to join hands with one of India’s leading business house, the R P Goenka group, to begin operations in the country. They put forward a deal to promote the development and export of Indian agro- based products, and in turn get permission from central government to import cola concentrate and to sell a Pepsico brand. This request was rejected on the grounds that the import of concentrate could not be agreed to and the use of foreign names were not allowed. In their second attempt in 1988, Pepsico put forward a very impressive offer. They promised to create employment opportunities for about 50,000, make 75% of the total investments in food and agro processing, and bring advanced technology and 50% of total produce to be exported. PepsiCo gained entry to India in 1988 by creating a joint venture with the Punjab government-owned Punjab Agro Industrial Corporation (PAIC) and Voltas India Limited. This joint venture marketed and sold Lehar Pepsi until 1991, when the use of foreign brands was allowed; PepsiCo bought out its partners and ended the joint venture in 1994.

Pepsi’s Entry into India: A Lesson in Globalization

A REPORT OF 1988- TACKLE OF POLITICS AND PEPSICO IN INDIA- A POLITICAL HISTORY

Convincing India that it needs Western junk has not been easy.

” 1 – A New Internationalist Magazine Article, commenting on Pepsi’s struggle to enter India, in August 1988.

A Letter to Pepsi

In 1988, the New York office of the President of the multi-billion cola company PepsiCo received a letter from India. The company had been trying for some time to enter the Indian market – without much success.

The letter was written by George Fernandes (Fernandes), the General Secretary of one of the country’s leading political parties, Janata Dal. He wrote, “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, you have to remember that the same fate awaits you as Coca-Cola.

“2 This development did not seem to be a matter that could be ignored. PepsiCo’s arch-rival and the world’s number one cola company, Coca-Cola, had indeed been forced to close operations and leave India in 1977 after the Janata Dal came to power.

3 Even in the late 1980s, India had a closed economy and government intervention in the corporate sector was quite high.

However, multinational companies such as PepsiCo had been eyeing the Indian market for a long time for a host of reasons. As the major market for PepsiCo, the US, seemed to be reaching saturation levels, the option to expand on a global scale seemed to have become inevitable for the company.

India was a lucrative destination since its vast population offered a huge, untapped customer base. During the late 1980s, the per capita consumption of soft drinks in India was only three bottles per annum as against 63 and 38 for Egypt and Thailand respectively. Even its neighbor Pakistan boasted of a per capita soft drink consumption of 13 bottles. PepsiCo was also encouraged by the fact that increasing urbanization had already familiarized Indians with leading global brands. Given these circumstances, PepsiCo officials had been involved in hectic lobbying with the Indian government to obtain permission to begin operations in the country. However, the company could not deny that many political parties and factions were opposed to its entry into the country. It had therefore become imperative for PepsiCo to come up with a package attractive enough for the Indian government.

The Promises That Helped Pepsi Enter (Case Intro)

In May 1985, PepsiCo had joined hands with one of India’s leading business houses, the R P Goenka (RPG) group, to begin operations in the country. The company, along with the RPG group company Agro Product Export Ltd., planned to import the cola concentrate and sell soft drinks under the Pepsi label.

To make its proposal attractive to the Indian government, PepsiCo said that the import of cola concentrate would essentially be in return for exporting juice concentrate from operations to be established in the north Indian state of Punjab. In its proposal submitted to the Ministry of Industrial Development, company sources said that the objectives of 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.” However, the government rejected this proposal primarily on two grounds: one, the government did not accept the clause regarding the import of the cola concentrate and, two, the use of a foreign brand name (Pepsi) was not allowed as per the regulatory framework.

The association with the RPG group too ended at this juncture. Not willing to sit quietly on the issue, PepsiCo put forward another proposal to the government a few months later.

THE SODAS WITH LARGEST MARKET SHARE IN INDIA

The company knew that the political and social problems4 that plagued Punjab were an extremely sensitive issue for India in the 1980s. PepsiCo’s decision to link its entry with the development and welfare of the state was thus a conscious one, aimed at winning the government over. The fact that Punjab boasted a healthy agricultural sector (with good crop yields in the past) also played a role in PepsiCo’s decision. Reportedly, the new proposal gave a lot of emphasis to the effects of PepsiCo’s entry on agriculture and employment in Punjab. The company claimed that it would play a central role in bringing about an agricultural revolution in the state and would create many employment opportunities. To make its proposal even more lucrative, PepsiCo claimed that these new employment opportunities would tempt many of the terrorists to return to society…

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