PepsiCo and Coca-Colas Essay Example

PepsiCo and Coca-Colas Paper The purpose of this report is to analyze and learn from PepsiCo and Coca-Colas entry into the Indian market. It involves many international marketing aspects, including the impacts of Indias political environment on both companies success causing them to enter at different times result in different effects, to respond in many ways to the enormity of India, discuss their glocalization strategies and Coca-Colas mistakes in India. Political environment in India For the government of India fulfilled some austere trade policies, rules and regulations before the year 1990, PepsiCo and Coca-Colas entry into the Indian market was its political environment as a result of major obstacle. Indian government was only interested in the high-tech sectors for foreign investment. It was almost entirely prohibited to invest customer goods sectors. That was Principle of Indigenous Availability, which policy banning imports being sold in India. Due to this political environment, Coca-Cola had withdrawn from the Indian market in 1977. We will write a custom essay sample on PepsiCo and Coca-Colas specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on PepsiCo and Coca-Colas specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on PepsiCo and Coca-Colas specifically for you FOR ONLY $16.38 $13.9/page Hire Writer The new government of India was founded in June 1991. In order to expand liberalization of the Indian economy, new government introduced some new industrial policies, such as bureaucracy and regulation to foreign direct investment. These policies intended to dismantle complicated trade rules and regulations, foreign investment increased dramatically, beneficiary industries included processed foods, software, engineering plastics, electronic equipment, power generation and petroleum generation. Pepsi and Coca-Cola were required many India laws, for example, foreign businesses were prohibited use of foreign brand names on products selling within the Indian market. Therefore, Pepsi became Lehar Pepsi, Coco-Cola became Coca-Cola India. Also, designed as obstacles to impede foreign business, for example, sales of soft drink concentrate to local bottlers could not exceed 25 per cent of total sales for the new venture. Because of the lack of consistency in the legal environment, Coco-Cola agreed to sell off 49% of its stocks to Indian investors as a condition of entering in order to buy out Indian bottlers in 2002. It was most controversial agreement. Because of this time limit had been extended once already, Coca-Cola asked for a second extension that would delay it until 2007 was refused. Coco-Cola though by the Foreign Investment Promotion Board wanted to block the votes of the Indian shareholders who would control 49% of Coca-Cola. But all previous lobbying became useless. The government of India lacked solid institutions leading to corruption. In contrast to Coca-Cola, Pepsi had entered India in a different year under a different set of rules. The above of these effects could not be anticipated prior to Indian market entry. The political environment was inconsistent with some policies and laws. Indias emerging market is a lacking of harmony. It mixed with discordant tones. The interest clashed with Indian government. These interests often were conflict with some political issues. These policies were often related to economic, environment and social problems. Resolving these problems was in the interests of whom including a large number of consumers, environmentalists and lobbies. Accordingly, foreign companies wanted to enter Indian market successfully that usually required carefully. It must be consider all the stringent rules and local policies, for instance equity stakes under the new rules from 40 per cent to 51 per cent. Local have a free media and democratic political system. These will be beneficial to support or protest behavior for many long-established international companies. For Coco-Cola, it could only agree to start new bottling plants instead of buying out Parle, and thus had to agree to sell 49% of equity. Pepsi was not held to a disinvestment rule because it had opted to set up several bottling units. Timing of entry into the Indian market Earlier market entry PepsiCo lodged a joint venture application to enter India in July 1986. It had selected two local partners, Voltas and Punjab Agro. This application was approved under the name Pepsi Foods Ltd by the government of Rajiv Gandhi September 1988. In 1986, following Coca-Colas departure, Parle became the market leader in India. The local main competitors were only Parle and Pure. In addition to the demand for carbonated drink in Indian was very low, in 1989, the average Indian was buying only three bottles a year. Advantages Due to lacking of Indias competitiveness in soft drinks industry, PepsiCos entry would enhance competitive advantage and promote the development of soft drinks in Indian market. It could be helpful to find more opportunities for PepsiCo. Many opportunities for the Indian market contributed to the development of enterprise. Pepsi had learnt from the experiences of Coca-Cola. Pepsi seized the Indian market as soon as possible. Through the adoption of measures, the use of joint venture with local groups to lobby the Indian government. Thus PepsiCo would be easier to build up their reputation and loyalty to associate with establishing priorities. In possession of good honor and admire, the degree of brand popularity was greater of the other competitors. The continuous development of PepsiCo was able to gain a foothold in the market before Coco-Cola entered the market. Pepsi gained 26% market share by 1993. Disadvantages The development of PepsiCo became more slowly due to infrastructure was not enough imperfections in early India. The crumbling infrastructure also improved the investment risks and costs at that time. The cost of exploration greatly increased influenced by Indias political environment. For example, Pepsi was forced to change their name to Lehar Pepsi. Also, Indian government limited their drink sales to less than 25% of total sales. This policy would help PepsiCo to struggle to fight off local competitions. Later marketing entry Coca-Cola Corporation had been present in the Indian market from 1958 until its withdrawal in 1977. Due to the government of India require Coca-Cola hand over its secret formula for the syrup so that it chose to leave India rather than cut its equity stake to 40 per cent. At that time there were many opportunities for the Indian market. The Coca-Cola inevitably became the market leader. But Coca-Cola was only a distant memory to most Indians. In spite of that Coca-Cola succeeded creating a 100%-owned soft drinks company (Coca-Cola India) in 1993 and then ultimately aligning with the Indian market leader (Parle) in June 1993. Advantages At this time the Indian market has already a relatively sound infrastructure so that Coca-Colas investment risk reduced. In July 1993, Coca-Cola was able to buy 4 bottling plants from industry leader Parle. Coca-Cola also bought Parles leading brands including Thums UP, Limca, Citra, Gold Spot and Mazza. Later Coca-Cola again set up 2 new ventures with Parle to bottle and market products. By 2002, Coca-Cola owned 30 bottling plants, 10 franchisees and held a 56 per cent market share of the national soft drink market in India. The Coca-Cola once again was market leader. Disadvantages The capacity of the soft drink market in India was becoming smaller increasingly. Coca-Cola the twice to return to the Indian market in 1993, but faced Indian beverage market is old rival PepsiCo. In May 1990, the government of India has also been turned down Coca-Cola just as Pepsi was approved. Hence, Coca-Cola had difficultly to establish market share with PepsiCo there. Obstruction by the policy, Coca-Cola was not allowed to buy back 49% of equity. So it did not relate very well to the government of India. Furthermore, Coca-Cola had reported losses in India since its return there in 1993. Responses to the sheer scale of operations in India Pepsi and coca-cola responded in many ways to the enormity of India in terms of population and geography. The following is about the sheer scale of operations ways. Product policies In order to cater to Indian consumer tastes, PepsiCo and Coca-Cola launched different products. Entering with products closed to those already available in India, such as colas, fruit drinks and carbonated waters. They used a variety of tastes and created multi-brand strategy. In order to encourage growth in demand for bottled beverages in the Indian market, introducing new products such as bottled ware (Coca-Colas brand is Kinley and Pepsi Foods brand is Aquafina). They launched their own brand in a new category, such as clear lime category (Coke-Sprite, Pepsi-7UP). Coco-Cola merged with Parle and two new ventures set up to bottling plants and both companies products. Promotional activities Both PepsiCo and Coca-Cola used advertising and promotional strategy in India. During the cultural festival of Navrartri, PepsiCo sponsored Navrartri celebration in annual. Some promotion ways, every refill of a case of Pepsi gave away one kilo of Basmati rice or a packet of Kit-Kat and Polos candy free. Coco-Cola offered free passes, coke giveaways as well as vacations to Goa. They used seasonal sales promotions and the success of their seasonal advertising campaigns through researching marketing in different campaigns and areas of India. The successful promotions included Pepsis sponsorship of cricket and football from the world cup. Coca-Colas lifestyle advertising as a method of building brand loyalty among its target market: India A appealed to young urbanites; India B appealed to rural areas. Coca-Cola used of local characteristics and to introduce new Mini size to launch the affordability plank campaign. Pricing policies Coco-cola reduced prices by 15%-25% to encourage consumption to try to compete with Pepsi and gain market share in 2003. Through the introduction of a mini size by Coca-Cola increased total volume of sales. Pepsi was forced to match these price reductions. It introduced returnable glass bottles for customers to recoup costs. Pepsi started out with an aggressive pricing policy to try to get immediate market share from Indian competitors Distribution arrangements The demand grew with the increase of the value of regions and customers, along with new products were added. Both Coca-Cola and PepsiCo were able to gain market share. Coca-Colas production plants and bottling centers placed in large cities all around India, such as Delhi, Mumbai, Ahmedabad and Surat. PepsiCos marketing and distribution were focused in the north and west around the major cities of Delhi and Mumbai. Coca-Cola and Pepsis Glocalization Glocalization refer to globalization and localization. Make use of the product or service global meet consumer in a local market, in order to emphasize that the globalization of product or service is more likely to succeed if they adapted specifically to each locality or culture. PepsiCo and Coca-Cola both companies have successfully implemented glocalization. Pepsis Glocalization PepsiCo lodged a joint venture application to enter India with two local partners, Voltas and Punjab Agro, and forming Pepsi Foods Ltd in 1988. In 1990, Pepsi Food products were promoted under the name Lehar Pepsi to conform with foreign collaboration rules. After that Pepsi launched its Lehar 7UP in the clear lemon category in keeping with local tastes. PepsiCo was also actively integrated into the Indian cultural festival. Navrartri is a traditional festival held in the town of Gujarat which lasts for nine days. During the cultural festival of Navrartri, PepsiCo used advertising to promote their products. PepsiCos most effective glocalization strategy had been sponsoring world famous Indian sports events, such as cricket and football. Coco-Colas Golcalization By 1993, Coca-Cola formed alliance with the market leader Parle made four major cities (Delhi, Mumbai, Ahmedabad and Surat) in bottling plants and five major leading brands. During the culture festival of Navrartri, Coco-Colas free passes issued to the celebration in each of Thums Up bottles. Also offered special promotions where people could win free vacations to Goa. Coco-Cola also hired several famous Bollywood actors to publicize their products. Those commercials were impressive. Coca-Cola Indias mistakes Coca-Cola entered Indian market at the wrong time. Due to entering at that time, Coca-Cola must agree to abide by all the Foreign Investment Laws and the political environment in India, such as local stringent conditions, foreign collaboration rules, prohibited use of foreign brand names and disinvestment clause and so on. In January 2002, Coco-cola India wanted to expand investment, but the Indian government provides that the company must be the original 100% owned holding company (HCCHPL), of which 49% of equity sold to the local investment within two years as a condition. Since then Coco-Cola had asked for extensions twice, Indian government granted the first extension, but denied the second. Coco-Cola India tried to deny voting rights to its new Indian shareholders. But FIPB denies this again. Coca-Cola India repeatedly required to reduce disinvestment rule requirements in order to allow Indians into the industry, and expectations delist their shares altogether, effectively making their Indian operations wholly owned subsidiaries. Coco-Cola should not have tried to weasel their way out of promises. These mistakes hurt Coca-Colas image and reputation as an International company. Coca-Cola should set the pace for the entire multinational company. Coco-cola should have been more careful to wait patiently when it entered the Indian market and Coca-Cola was a promising. Conclusion In conclusion, PepsiCo and Coca-Cola had succeeded to enter Indian market and to implement glocalization to adapt the local culture. Through to research the market and trends prior to entering the Indian market, they had been fully aware of the history, geography, political, and legal considerations. Some key lessons can use the experience of Coca-Cola and PepsiCo for reference. It is worthy of learning from some companies as it contemplates entry into other big emerging markets. These are many active approaches can take to help ensure success in the foreign market.