Pepsi's Entry into India: A Lesson in Globalization

BYAnkit Agarwal D-8Ankit Chawla D-9

Priya Garg D-39 P. Priyanka D-43 Vikas Tripathi D-53

Issues

Understand the kind of strategy a multinational company

develops to enter highly regulated economies that have

immense market potential

Analyze the importance of formulating and selling a business

proposal in such a manner that it becomes attractive to the

regulatory authorities of a foreign country

Conti…….o Appreciate how and why a company changes its strategies in tune

with changes in the regulatory environment of a foreign country

o Understand the role big private sector corporations can play in the

development of the economies in which they operate, and the

financial and social implications (reputation, goodwill) of doing so.

A Letter to Pepsi Hindrances to enter into India

The letter (written by George Fernandes).

"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”.

Coca-Cola, had been forced to close operations and leave India in

1977 after the Janata Dal came to power.

Late 1980s, India had a closed economy and government

intervention in the corporate sector was quite high.

Why Pepsi Wants to Enter

the major market for PepsiCo, the US, seemed to be reaching

saturation levels.

India was a lucrative destination since its vast population offered a

huge, untapped customer base.

Increasing urbanization had already familiarized Indians with leading

global brands.

1st proposal (rejected by govt.) 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.

planned to import the cola concentrate and sell soft drinks under the

Pepsi label.

PepsiCo's entry into India revolved around 'promoting and

developing the export of Indian agro-based products .

Reason of rejection The government did not accept the clause regarding the import of the cola

concentrate.

The use of a foreign brand name (Pepsi) was not allowed as per the

regulatory framework.

Pepsi come up with new proposal with commitment

of

agricultural revolution

To create many employment opportunities.

that would tempt many of the terrorists to return to society...

Promises That Helped Pepsi Enter

The company would focus on food and agro-processing and only

25% of the investment would be directed towards the soft drink

business.

The company would not only bring advanced food processing

technology to India, but also provide a boost to the image of

products made in India in foreign market.

Foreign brand name would not be used.

Half of the production would be export and the export –import ratio

would be 5: 1 for the period of 10 years (80% of the exports to be of

food products manufactures by the company and 20% of the exports

to be of food products by another companies)

Creation of jobs for 50000 people across the nation , of which 25000

were be in Punjab.

An agriculture research center would be established.

Despite the protest Pepsi food Ltd. Venture was cleared in 1988.

Pepsi(36.89%) came up with joint venture with PAIC(36.11%) and

Voltas India Ltd(24%).

Pepsi's Promises - Keep Some, Break Some!

The company had promise to provide jobs to 50000 people , but by

1991 it had employed only 783 as direct employ, but by 1992,this

figure increased to 909 and by 1996 it rose 2400.

Pepsi also failed to adhere to its commitment to export 50% of its

production.

Its exports to fruit/vegetable based products was negligible.

Pepsi began exporting products such as tea rice and shrimp.

Conti……. In addition it exports glass bottles leather products, and even

champagne. Critics pointed out these products has also been

exports from India and Pepsi was deliberately not meeting its export

obligation.

Questions were asked in parliament regarding Pepsi commitment .

A team of government officials visited company plant and found that

Pepsi had not made any efforts to export 40% of goods it

manufacture.

INDIA Liberalizes- A Boon For Pepsi

In the early 1990s, the Government of India was facing a foreign

exchange crisis. Organizations like the International Monetary Fund

agreed to help the Indian government deal with the financial crisis,

on condition that it liberalized the Indian economy.

Pepsi benefited from the economic changes in many ways. The

removal of various restrictions meant that it no longer had to fulfill

many of the commitments it had made at the time of its entry.

Conti….o The company establish a wholly - owned subsidiary, Pepsi Co

Holding India Pvt. Ltd. (PHI), which was completely devoted to the

soft drink business.

Under the new economic policy , the use of the foreign brand names

in India was allowed Consequently , Pepsi changed its colas name

from Lehar Pepsi to Pepsi.

in1995,the beverage business grew by 50%.

PHI’s turnover surpass the Pepsi’s turnover by 1.25 billion

Pepsi Goes Farming- Finally Pepsi's tomato farming project was primarily responsible for increasing

India's tomato production.

Production increased from 4.24 million tonnes in 1991-92 to 5.44 million

tones in 1995-96 due to the use of high yield seeds.

Pepsi offered its contract farmers advanced equipment such as

transplanters and seeding machines to help them carry out their task

efficiently and speedily.

Contract farming has been encouraged by Pepsi.

Conti….. In late 1990, the company finally met its commitment to set up agro

research centers in Punjab and Karnataka.

Pepsi imported the superior technology from china and transferred it to

the farmers in Punjab and Gujarat as a result the Yield per hectare

improve form 1 tones to 3.5, 4.5 tones.

Company had invested 18 billion by 2000 in India.

Agri-program had been successful because of its unique laboratory-

farm-factory approach.

In 2000, company‘s export added up 3 billion. The item exported

included food, basmati rice , gaur gum and soft drink concentrated.

Pepsi met the soft drink requirements of many of its plants world wide

through its Indian operation.

Pepsi had don so much for countries agriculture sector although It was

not bounded to do so after change in regulatory framework.

In 2002, join hands with Punjab Agri-Export corporation to process

citrus fruit.

Doing Business on its Own Terms

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