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Business, Government, andSociety

PGP Term-1 (2011-13)

Session 01

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H ousekeepingInstructor Coordinates Shri. N. Ravi, Email: ravi.n@iimb.ernet.in

Tel: 2699 3843 (Room No.004 New Faculty Block)TA Coordinates SUVENDUKUMAR BARAL

Email: suvendukb@iimb.ernet.in 2699 3479 (Room P-201, E Wing, 2 nd Floor)

Meetings welcome and I prefer contact by email

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Please register for the course on Moodle

The moodle site is:http://moodle.iimb.ernet.in/course/view.php?id=336

The enrollment key is:BGS2011

Look for BGS under the Economics and Social Sciences area

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Pesticides in Colas

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Flashback 2003In 2003, the Centre for Science and Environment (CSE), anon-governmental organization, said soft drinks producedby multinational giants Pepsico and Coca-Cola, containedtoxins such as DDT that can contribute to cancer and abreakdown of the immune system.Tested products included Coke, Pepsi, and several othersoft drinks (Seven Up, Mirinda, Fanta, Thums-Up, Limca, &Sprite).

CSE found that the India-produced Pepsi had 36 times thelevel of pesticide residues permitted under EU regulations;Coca Cola's had 30 times. CSE said it had tested the sameproducts in the US and found no such residues.

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Corporate Reactions

Coke and Pepsi both denied CSE s allegations.

Coke only "hinted at the issue" in ads as it didn't want to

legitimize the interest group's claims.Coke became mired in technical detail, publicizing its owntests that showed the drinks met tough European standardsand pointing out that India's Health Ministry had taken issuewith CSE's testing methods.

That was the start of a two-year slide for Coke's case sales,(15% drop) which analysts say was made worse by atroubled distribution system and a decision to raise prices inthe midst of the pesticide controversy.

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Parliament s ResponseParliament banned the drinks in its canteen.It also set up a Joint Parliamentary Committee to examine theissue. The JPC validated the findings of CSE and in early February

2004 asked the government to set standards for carbonateddrinks. The Bureau of Indian Standards met over 20 times to

deliberate on the standards. This was the first time standardswere being formulated for pesticide residues in soft drinks bythe BIS.

In October 2005, after months of data analysis and discussionwith all stakeholders including the two soft drink majors andCSE, it finalised the standards. But these standards had notbeen notified even in 2006. Unless and until standards areofficially notified, they have no value.

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2006: Deja Vu

The controversy flared up again in August of 2006,when CSE released its new test results.

The study finds pesticide residues in all samples; itfinds a cocktail of 3-5 different pesticides in allsamples on an average 24 times higher than BIS[Bureau of Indian Standards] norms, which have beenfinalized but not yet notified.

The levels in some samples for instance, Coca-Colabought in Kolkata exceeded the BIS standards by140 times for the deadly pesticide Lindane. Similarly, aCoca-Cola sample manufactured in Thane containedthe neurotoxin Chlorpyrifos, 200 times the standard.

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Counterevidence

India's Health Ministry said in a sworn statement to theIndian Supreme Court that Coke and Pepsi beveragestested in three government labs contained little to nopesticide residue, and none of the levels found exceeded"statutory limits."

A prominent government lab in the United Kingdom alsoreported it found none of the pesticides cited by thepublic interest group.

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Standards? Which? For Whom?

W hen the controversy broke, New Delhi had not evenformalized its own regulations.The levels that Coke and Pepsi were said to exceed by 24

times were still proposals that wouldn t go into effect untilearly 2007.Both companies had been strong supporters of newstandards. They had participated actively in thegovernment s standard setting process.

"It's absolutely in our interest to have clear regulationsthat are scientifically verifiable," says Mike W hite, chiefexecutive of PepsiCo International.

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Media Makes It an Emotive Issue

Newspapers printedimages of cans of thedrinks with headlineslike "toxic cocktail."News channelsbroadcast images ofprotesters pouringCoke down the throatsof donkeys.

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Political Response

G overnmental response was harsh. Seven of India's 28states imposed partial bans on Coke and Pepsi.The state of Kerala banned the drinks altogether.

Officials there have ignored a subsequent high courtruling overturning the ban (on the grounds that only thecentral government can ban a food product).

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Judicial Response: Disclose!

The Rajasthan High Court set a deadline of August 3,2006 for Coke and Pepsi to disclose contents of soft

drinks, including the permissible levels of pesticides andchemicals, on bottle labels.

Coke & Pepsi, filed an appeal in Supreme Court againstthis order.

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Civil Society Response:Expanding Fronts of Attack

National Alliance of People's Movements coaxed theCentral Pollution Control Board in Varanasi to visit a Cokebottling plant at Mehndiganj to check if toxic effluentswere polluting water bodies & fields close to the unit.

They alleged that around 25 lakh litres of ground waterwas being depleted daily by these companies pushingdown the water level. (Incidentally, this was exactly whathad happened in Plachimada in Kerala that resulted inthe Coca Cola factory being closed.)

According to Dr Sandeep Pandey, National Coordinatorof the NAPM, the sludge from the factory had heavymetal concentrations like lead, chromium and cadmium

that was over the permitted limit.

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Interlude:The Cola Companies in India

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Coca Cola s H istory in India

India's leading soft drink until 1977; it left after the Janatagovernment ordered it to turn over its secret formula & dilutestake in Indian unit as per FERA

In 1993, it returned post-liberalizationIn 2005, Coca-Cola and Pepsi together held 95% market share of soft-drink sales in India.

Greenpeace urged the Kerala government to close down theCoca-Cola bottling plant at Plachimada, in Palakkad district, forthe "criminal cheating" it had indulged in by passing on to thefarmers of the area "toxic wastes" in the guise of fertiliser.

That plant was closed down also because of allegations that it wasdepleting the groundwater of the area; opposed by farmers

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Pepsi s H istory in India

Banned from import in 1970s for refusing to release listof ingredients.

Gained entry into India in 1988 by creating a jointventure with Punjab Agro Industrial Corporation (PAIC)and Voltas, selling Lehar Pepsi till 1991.

After liberalisation, Pepsico bought out its partners. Joint

venture ended in 1994.Pepsi arrived on the market shortly after.

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Can Coke & Pepsi Walk Away From theIndian market?

India is a small part of the global soft drink business. In 2005, India madeup about 1.4 percent of the 20.6 billion cases of beverages Coke soldworldwide. Profits were even thinner

Yet, India is key to Coke & Pepsi for their future.

Sales of cola-type soft drinks are on the decline in the US, whereconsumers are turning to diet sodas, water, sports drinks & othernoncarbonated beverages. That means companies have to look for

future growth in countries such as India, where there are lots of peopleand a growing economy

Indians consume only seven 8 oz servings per capita per year, whileMexicans consume 1500; scope for growth enormous!

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Coke & Pepsi s Economic Impact

Together, Coke and Pepsi have invested nearly $2 billion inIndia

They employ about 12,500 people directly and support morethan 200,000 indirectly given their huge purchases of India-made sugar, packaging material, and shipping services.

Coke is even India's No. 1 consumer of mango pulp for oneof its local soft drink offerings

Of course, there is probably an adverse health impact fromconsumption of Coke & Pepsi But details of such externalities are unavailable

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Back to the Action:H ow to Manage the Controversy?

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The Two Sides: Coke vs. CSE

Trace amounts of pesticides can be found in India'swater supply and in its crops, as well as in raw

ingredients such as sugar. Coke says it treats the local water in its plants beforeusing it to produce soft drinks.

CSE s director, Sunita Narain, says pesticide residuecan cause cancer, birth defects and damage to nervousand immune systems if consumed over a long period.

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Risk Regulation & Implications

Refuting these allegations is difficult because: Standards for safe pesticide levels in drinks have been

agreed on in India but never made a legal requirement. The industry continues to argue over whether tests are

needed for the final product or the water that goes intothe drinks.

There is also debate over how to cleanse sugar of its

pesticide traces and a recognition that India'sgroundwater is so badly contaminated that most foodproducts contain some pesticide residue.

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Science:Explaining the specifics

Asim Parekh, a vice president of Coca-Cola India, saidhis "heart sank" when he first heard the allegationsbecause he knew consumers would be easilyconfused.

"I have tried my level best to communicate thisinformation. But even terminology like PPB - parts perbillion - is difficult to comprehend. This makes our jobvery challenging."

Bakshi, the Pepsi executive, also struggled with themessage. "The subject is extremely technical. It is hardto explain the entire story.

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Tactical Aspects: Identity Politics?

Have Coke & Pepsi been singled out because they areforeign-owned? "W e are continuously challenged because of who we

are," says Atul Singh, CEO of Coca-Cola India.But Indian soft drink makers have been tested for similarviolations, and many people believe that pesticide levelsare even higher in Indian-made milk and bottled tea.W hile pesticide residues are present in virtually all

groundwater in India, New Delhi has largely ignored theproblem.

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Brand Vulnerability

Isdell of Coke said CSE "picked on carbonated soft drinksbecause that would get the headlines ... for a broaderissue of pesticides in the food chain in India.David Cox, Coke's Hong Kong-based communicationsdirector for Asia, accused Sunita Narain, of "brandjacking"

using Coke's brand name to draw attention to hercampaign against pesticides.

Bakshi, the head of Pepsi in India, said, "You are not justup against the person holding the press conference, butalso the people who seize on the allegations, the otherconstituencies who jump on the fray."

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Gaining LeverageSunita Narain acknowledged she targeted the soft drinkgiants to bring attention to the issue of pesticidecontamination of food products but has stood by hertesting. "Our concern was that if we are finding pesticides in a

product that is supposedly clean and safe, it means thereis widespread contamination in India," Narain told NationalPublic Radio's "Morning Edition"

Coke has joined Narain in calling for limits on pesticideresidue in finished soft drinks, not just the water used tomake them.

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Crisis Response

In 2006, within a week of the CSE report, Coke launchedthe first of three rounds of newspaper ads refuting theclaims. The ads were in the form of a letter from India'smore than 50 company-owned and franchised Cokebottlers saying their products were safe. Similar letterswere given to retailers. Merchandisers pressed stickersonto drink coolers that proclaimed Coke was "safetyguaranteed.

"W e had a communication that took the bull by thehorns," said Kini, Coke India's marketing chief.

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Standard Operating Procedures?

Coke & Pepsi formed committees in India and the US,working in parallel on legal & PR issues.W orked around the clock fashioning rebuttals

They commissioned their own laboratories to conduct testsand opted to wait until the results came through beforecommenting in detail.This approach quickly backfired: their reticence merelyfanned consumer suspicion.

They became bogged down in the technicalities of theallegations, instead of focusing on winning back theemotional support of their customers.

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Contd

Coca-Cola also decided to go on the attack, thoughindirectly. Coke officials from Delhi gave briefings during which

they questioned the scientific credentials of theiraccusers.

They directed reporters to blogs containing largequantities of uniformly pro-Coke entries

They handed out the cellphone number for the directorof an organization called the Center for Sanity andBalance in Public Life.

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Coke also decided to address customers directly, printingan advertisement asking, "Is there anything safer for youto drink?" and inviting Indians to visit its plants to see howthe beverage was made.

Experience has shown that consumers are oftenreassured by the sight of the water filtration process in thefactory.

Coke said it had received about 2,000 calls from peopleinterested in the tour.

And, of course, Coke used the Aamir Khan ad

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Assessing the Crisis Response

Coke and Pepsi stumbled badly in their response to thepesticide allegations: they underestimated how quickly this would spiral into a

nationwide scandal misjudged the speed with which local politicians wouldseize on an Indian environmental group's report toattack powerful global brands

failed to respond swiftly to quell the anxieties of their

customers.In short, two of the world's biggest brands failed to do what they do best: pitch the virtues of their products directly to their customers.

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PR Consultants Gyaan

Coke & Pepsi should have known betterSuhel Seth, Advisor to Coca Cola "Fringe politicians will continue to be publicly hostile to

bigW

estern companies, regardless of how eager theyare for their investment." "Large multinational corporations are still seen by

pockets of consumers and opinion makers as maraudersand not as contributors."

Levick, an American PR consultant, agrees: "They underestimated their own importance. "Much more than companies, they are symbols of the

W est. They don't realize how powerful that is."

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Contd

"Crisis abhors a vacuum. They needed to showleadership. These minimalist statements were notadequate." Levick

Failing to sense the political potency of the story, Cokeand Pepsi initially hoped that the crisis would blow overand adopted a policy of virtual silence.

"In the U.S. and the W est there is a certain dignity tosilence, said Seth, the Indian public relations expert ."But here people interpret silence as guilt. You have toroll up your sleeves and get into a street fight. Coke andPepsi didn't understand that.

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The companies also failed to realize how fast newstravels in modern India

"W e are living in a new, very aware India," said AmitAgnihotri, a public relations analyst in Delhi. " W e have36 news channels. People are interested in what ishappening around them. Coke and Pepsi haven'tunderstood the power of this new India. They tried towish this problem away, by ignoring it, by not respondingto it. That won't work any more."

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Sunita Narain Counterattacks

Takes on Cola cos: W hat a line of attack! Pepsi s ads denying it had pesticides in its drinks, said there

were more pesticides in tea, eggs, rice & apples.

Coca-Cola, in its defense, has similarly argued that as everythingin India is contaminated, its drinks are safe. They say this is being done to target them, because they are big

brands & US multinationals. The pesticide industry wants the focus not to be on pesticides

but on heavy metals & other contaminants. They also say thatthey are being singled out. We also do not have the luxury of first cleaning agricultural raw

material, then building our processed food industry. We will haveto clean both ends of the food chain the farm & the fork.

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Sunita Narain Analyses MNC Tactics

Tactics used by MNCs against opponents

D iversion is just one of the ploys.

The second is to D eny . This is where 'science' becomes a handy

weapon. Even though science has created modern toxins, it isslow on generating knowledge about the impact of toxins andpollutants on our bodies and our environment. The polluterswant 'conclusive' & 'incontrovertible evidence that there iscause & effect. We the victims have to prove our science.

The third tactic is to D iscredit and D ismiss : your science is notgood, it is not validated or peer reviewed. The health minister(Anbumoni Ramadoss) did exactly this when he used a half-baked report to try & discredit our laboratory and our work onsoft drinks and pesticides.

The fourth step in the polluter's game-plan is to D amn and toD estroy.

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Paradox! Swaminathan S. Anklesaria Aiyar on Risk-Risk Tradeoffs

Colas are safer than alternatives. The biggest health risk comes not from pesticides but bacteria,

which kill millions. Cola has far less bacteria. That is why manyforeign tourists drink Coke, Pepsi or bottled water, & nothingelse. Ironically, these three drinks are the ones targeted by CSEas being unsafe.

Besides, the actual pesticide level, is 3,080 times higher in milk, 111,600 times in fruit, 69,700 times in

vegetables, 60,000 times for tea leaves than in proposed colastandards. These are priority items in diet, and so are permitted

high levels, If you ban colas, what will people switch to? Water, tea, canejuice & fruit juices. (More nutrition?) Banning colas will increasepesticide intake, not decrease it.

The cost is entirely bearable for cola companies. So OK

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The Final Word Indra Nooyi

"One thing I should have done was appear in India threeyears ago and say: Cut it out. These products are the

safest in the world, bar none. And your tests are wrong."[OK! This sounds like a good strategy]

"W e have to invest, too, in educating communities in howto farm better, collect water, and then work with industryto retrofit plants and recycle."

[Really? Doesn t sound like a typical Pepsico agenda!]

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Tata Tea and ULFA

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The H istory

Tata Tea had a major presence in Assam and owned severaltea gardensIn 1990, ULFA contacted them for the first time, asked forcash

Tata Tea refused, and instead set up hospitals, adult literacycentres, childcare centres, a technical training institute andschools + scholarships, support for handicapped childrenTook Lifeline Express to Assam in 1995August 1993: Bolin Bordoloi kidnapped by Bodo group;

eventually released in July 1994. Ransom?ULFA: If you are paying other militant groups, why not ustoo? Demanded 100 walkie-talkie sets

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Company officials met H ome Secretary, demandedprotection But no resp on se

January 1996: Tata Tea expressed willingness toparticipate in development projects; sent copy of communication to State govt.Tata Tea CEO received threats from militant groups;requested central govt for help

Talks at Bangkok in early 1996: Tata Tea offered medicalassistance for needy Assamese in hospitals outsideAssam at Tata Tea s costOffer accepted, scheme launched!

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Following arrest of an ULFA member, linksbetween Tata Tea and ULFA were publiclyrevealed

Interrogation, cases against Tata Tea topmanagement followedTatas threatened to pull out of Assam

Mediation by politiciansAssam government decided to soft pedal thecase

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According to an analyst .

The determination of the state government to prosecute

managers of the company for consorting with the enemy is sheer

hypocrisy. With the Assam state government's writ barely extendingbeyond Guwahati and its compromised police and paramilitary

forces unable to provide even minimal protection to the far-flung

properties and personnel of tea companies, they had no option but

to parley with militant organisations. The revelation that Tata Tea

managers had kept the IB informed about the negotiations provides

further proof of their bona fides.

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And according to Pritish Nandy

A government that cannot protect its people and itscorporates, has no right to punish anyone who isprotecting himself.

But the Assam government argued that the funding of extremists by business houses was ananti-national act.Mahanta said, It is the moral responsibility of companies to inform the government, the police orintelligence agencies about extortion by militants.

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A Flavour of the Course

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Overview of the Course

Rationale: Everything you study in the MBA is focused on

the world of the corporation This course takes you outside, to examine the

external, environmental, societal forces thataffect corporations and markets

Emphasis is on political, social, institutionalfactors affecting corporations

Very interdisciplinary, lots of great thinkers!

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BUS INESS ENTERPRIS E

Sociopolitical Environment

Market Environment

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Topics Covered/Class Sessions

Introduction & Overview; BGS Mini DebatesRole of the Corporation/Corporate Social ResponsibilityRationale for Government

RegulationInterest GroupsSocial CapitalMediaH ow People Reason and RespondInstitutions

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Indian PoliticsIndian Society

Indian EconomyIndia on the Global Stage: Foreign PolicyGlobalizationUrbanization

Environmental IssuesAgrarian Crisis and the Rural EconomyInnovation and the Knowledge Economy

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Course Evaluation

10% Film or Book Review25% Group Project30% Mid-term Examination

35% Final Examination

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The Instructor

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I joined the Foreign Service in 1973 and retired in December 2009after working nearly 37 years in different positions at home andabroad.

My last assignment was Secretary in the Ministry of External Affairslooking after the conduct of all aspects of bilateral relations with asmany as 70 countries in Eastern Europe, Central Asia, East Asia,South East Asia, Australasia, the Gulf, West Asia and North Africa.

I was also in-charge of bilateral economic relations of India with allcountries of the world, with an emphasis on multilateral and regionalties with organizations of which India is a member. These included ASEM, ASEAN, EAS, GCC, SAARC etc.

While working in India at different times, my assignments havecovered political, economic and trade/commerce functions, in theMinistries of External Affairs, Finance and Commerce. In the overallcontext, exposure to economic and commercial work has occupied asignificant part of my career.

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My postings abroad have been in Belgrade, Tokyo, Thimphu (Bhutan),Moscow, Munich and as Ambassador of India in Hanoi from 2004 to 2006.

In the Ministry of Commerce, between 1997 and 1999 as in charge of theWest Asia & North Africa Division, I looked after Indias economic andcommercial relations with Iran, the countries of the Persian Gulf, the MiddleEast and North Africa. Some useful insights were gained on the oil industryin the Gulf.

As in charge of the Commodity Divisions dealing with Chemicals and

Pharmaceuticals, Leather and Sports Goods and Toys, cases dealing withanti-dumping were also dealt with. Thus, I have some detailed knowledgeabout Indias Foreign Trade.

As Director in the Foreign Trade Division, in the Ministry of Finance,between 1986 and 1989 a wide-ranging insight into Indias acceptance and

offer of technical and economic assistance globally, was gained. I am from IIMBs Class of 1982 and received the Chairmans Gold Medal for

the Best All Round Performance in April 1982. I also received thedistinguished alumni award from the IIMB in October 2009.My basic academic qualification: M.Sc. in Chemistry from Delhi University in

1971

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Mini-debates on BGS Themes

Values and Indian Society: Corruption is here to stay, no point in fighting it

Role of Government vs. Role of Corporations: BPOs that employ women who work late shifts are responsible for

their safety not the government

Indian Politics: All companies must reserve jobs for locals

Equity Liberalization has resulted in winners taking all. We must tax winnersmore and spread the wealth

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Debate Themes

Dynastic Democracy It is OK to have dynasties dominate Indian politics as long as they are

elected in direct elections.

Globalization McDonalds and Pizza H ut have been thoroughly Indianized.IIT s Social Responsibility Since IITs have been established by the government and heavily

subsidised, each one should prove its commitment to society. Oncein 5 years they should market a new mechanical device that reduceseffort among unskilled labour.

Media The newspaper, as we know it, will vanish in a couple of decades