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Coca Cola in India

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Coca-Cola in India accused of leaving farms parched and land poisoned
? Paul Brown, environment correspondent
? guardian.co.uk, Friday 25 July 2003 16.25 BST
? Article history
The largest Coca-Cola plant in India is being accused of putting thousands of farmers out of work by draining the water that feeds their wells, and poisoning the land with waste sludge that the company claims is fertiliser.
The plant in the southern state of Kerala is designed to satisfy the demand for Coke in what has become the multinational company's fastest growing market.
But its huge demand for water is causing such damage to the local economy that the village council which had granted the company a licence to operate is now demanding the plant's closure.
So desperate have the nearest villagers become for water since their wells dried up that Coca-Cola sends water tankers round every morning to supply minimum needs.
The company denies the shortages have anything to do with its use of up to 1m litres of water a day from the underground aquifer that used to keep the wells topped up.
The charity ActionAid says the crisis facing the once prosperous farming area is an example of the worst kind of inward investment by multinational companies in developing countries.
In a report to the World Trade Organisation's meeting in Cancun, Mexico, in September the charity says this kind of abuse must be controlled.
The report says Plachimada was a thriving agricultural community until Coca-Cola set up the bottling plant in 1998. Coconut groves and vegetable crops have had to be abandoned because of the lack of water.
ActionAid says thousands of people worked on the land but now just 141 are employed at the plant, with a further 250 as casual labourers. Peaceful sit-in protests have been going on for more than four months. In a hut outside the plant a large Coca-Cola bottle is kept in a coffin.
In a report today on Radio 4's Face the Facts programme details of the contaminants in the sludge Coca-Cola sells as fertiliser, gives away, or sometimes dumps in dry riverbeds are revealed for the first time.
Samples taken in India and analysed by Exeter University show high levels of lead and cadmium in the sludge.
Lead is particularly bad for children, affecting their nervous system, and cadmium is taken up by plants, is toxic to the kidneys and liver and can cause cancer.
The report by David Santillo says: "Repeated applications of sludge, containing these sorts of levels of cadmium and lead, to agricultural soils would undoubtedly lead to a build-up of these toxic metals in the soil, from where cadmium could then be transferred to plants _ and therefore into the food chain.
"This contaminated sludge sample also contained a high component of phosphorus, presumably the reason for its promotion as a fertiliser.
However, the presence of high levels of cadmium and lead in the sludge make it completely unsuitable for use as a fertiliser."
Sunil Gupta, vice-president of Coca-Cola India, says the company has been the target of a handful of extremist protesters and it is lack of rainfall that has caused local water supplies to be exhausted. The company claims to use a maximum of 600,000 litres a day.
Mr Gupta also says Coca-Cola undertook an environmental impact assessment before building the plant, but has declined to make one available.
He stood by the claim that the sludge waste from the plant was fertiliser and said the company complied with all local environmental laws and stood for the welfare of the community.
So far attempts by the local council to shut the plant have failed. An order by the Perumatty village council cancelling the company's licence to operate, on the grounds that the bottling plant was over-exploiting the water resources, was overruled by the Kerala high court last month

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Solution Summary

The solution addresses the manifestation of Coca Cola opening a plant in India.

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International Business Considerations and Variables

Read the case below and answer the questions that follow.

Coke in India, Before and After


Coke in India

PepsiCo was in the Indian market during the mid-1950s, but pulled out because the business was unprofitable. Coca Cola had operated in India since 1950 but left in
1977 because the Indian government insisted on some unacceptable conditions. The Indian government demanded that Coke reduce its ownership from 100 to 40 percent; that it divulge its formula, and that it use dual trademarks so that Indian consumers would have a local logo. Coke was especially adamant about preserving the mystique of its secret formula and pulled out of India rather than comply.

Coca-Cola's departure gave PepsiCo a great opportunity, but Pepsi did not begin negotiations with the Indian government until 1985, and did not get formal permission to return immediately. Although the initial investment Pepsi proposed was only $15 million, approval had to be given at the cabinet level. There were twenty parliamentary debates, fifteen committee reviews and 5,000 articles in the press about the proposed investment over a three year period. Finally approval was granted under onerous terms. Pepsi gave too many concessions for too little in return.

Pepsi had to:

1) Limit its ownership to 39.9%;
2) It had to promise to export about $150
Million over the first ten-year period of operation;
3) Soft drink sales could not exceed 25% of total sales;
4) It had to promise to export 75% of concentrate;
5) It had to set up an agricultural research center;
6) It had to set up fruit and vegetable processing plants).

After Pepsi accepted these terms and was readmitted, Coke than reapplied to re-enter India around 1988, but its application was denied, to Coke's fury and disgust. Then in 1991, Prime Minister Rao was elected and launched broad economic reforms. Coca-Cola announced its return to India in 1993.

In order to get permission to return, Coke had to form a 51%-owned JV with an Indian company named Parle Exports. Coke had to agree to export three times the value of its imports. It also had to promise to export plastic beverage cases to compensate for its imports of concentrate.

After Pepsi became the target of militant protestors in 1995, Pepsi's second KFC restaurant in New Delhi was closed for a month by the Indian authorities because two flies were found in its kitchen.

However, India is a huge potential market and both companies have persevered. The Indian market has opened up fast in the last fifteen years and now the two companies are dealing with marketing issues rather than with a business-unfriendly government. The government of India has become much more business-friendly.

Coke's new strategy in India

With slowdown in developed markets, companies like PepsiCo and Coca-Cola are looking at emerging markets like India and China for growth. PepsiCo is aiming to triple its businesses in India over the next five years (and also setting up a new leadership structure in India). The Coca-Cola Company (Coke), the world's largest non-alcoholic beverage company, is not one to be left behind. Coke has a new strategy and has renewed its focus on semi-urban and rural markets in India.

The soft drink consumption market in India is mainly concentrated in urban cities. Market research data suggests that consumers in urban cities spend ten times more than consumers in semi-urban and rural markets. However, Coca-Cola has renewed its focus on the rural market in India and believes there is huge opportunity with vast growth potential in these markets. Coke is targeting small towns (tier II and III towns like Agra, Bilaspur and Lucknow) and rural markets in India.

Coke's new strategy involves training retailers (around 6,000 of them) in a program launched by the Coca-Cola University. [In 2007, the company launched Coca-Cola University — a virtual, global university for all learning and capability-building activities.]

The company calls this the "parivartan" program (meaning "Change" in English). Shop owners (traditional retailers) are given training on displaying and stocking products well. The goal of the innovative training program is to provide traditional Indian retailers with the skills, tools and techniques required to succeed in a constantly changing retail scenario. Presentations (including audio/visual technology) in local Hindi language help small retailers (with stores less than 200 square feet in average size) to better understand the concepts involved. Each retailer also receives a Coca-Cola "Certified Retailer" certificate at the conclusion of the program.

Last year, PepsiCo set up a research facility in India. Last month, Coke too set up an R&D faculty in India to develop beverages that suit local taste and increase focus on localizing its portfolio of beverages. Earlier, Coca-Cola India had been outsourcing all R&D functions from its facility in Shanghai. Some examples of local flavors include Maaza aam panna by Coca-Cola and Pepsi has locally-produced flavors under its Tropicana juice brand (with nimbu pani (lemon water) in the pipeline).
Moving from a price strategy to stepping up distribution

In the past (in 2002-03), Coke had already targeted rural consumers by bringing down the entry price (Rs 5 a bottle) for its product. Now, it has stepped up distribution of its 200-ml (priced at Rs 7 and Rs 8) returnable-glass-bottles.

Partly from: http://www.casestudyinc.com/coke-strategy-training-retailers

Case Discussion Question:

What lessons can international marketers learn from Coke and Pepsi's experiences in India? Please list up three or four different items.

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