Coca Cola India

Executive Summary

The paper presents the case of Coca-Cola India, the company which was on the heels of promising future growth and was very well utilising its global brand name to gain market share in Indian emerging market. Its long term strategy was very much aligned with promising future growth of Indian economy and soft drink industry. But with the growth of economy and industry, the paper emphasizes certain other factors that need to be considered. Among these factors are political uncertainties, bureaucratic hurdles, various NGOs and effect on local stakeholders. One institutional void was the difference between European standards and Indian standards (finalized but yet to be implemented) which played an important role to restrict the growth of Coca-Cola in spite of its promising future projections. The paper discusses various controversies including pesticide issue that NGO raised in 2003 and with the immediate effect; several states banned the sale of Coca-Cola due to strong hold of regional parties and anti globalization NGOs, even though central government did not issue any immediate enquiry. Coca-Cola’s image was severely damaged and sales volume was badly affected. Even after 2007, consumption of carbonates still considered to be an issue of debate. The paper presents the business dilemma that Coca-Cola India faced to regain its image and trust in Indian market. Although Coca Cola was able to boost its sale by 13% in the first quarter of 2008 yet these statistics are much lower than actual sales projections. There are certain practices and strategies which could help companies to avoid this type of situation and multinationals can continue to have long term promising future growth even after the presence of NGOs and other types of business risks in an environment of political uncertainty. In the last section, paper describes the course of action that can help other companies to avoid the type of dilemma, Coca Cola India faced. вЂÑ"

1. Coca Cola India:

1.1 Think Local Act Local

Considering favourable economic factors and the growing Indian beverages market, Coca Cola planned its long term growth strategy based on the acquisition of popular brands and by focussing on вЂ?local mantra’. After acquiring significant market share with the acquisition of local brands and introducing diverse range of products, in 2001, Coca Cola India decided to target rural areas, taking into account that urban and rural India are two distinct markets on a variety of important dimensions. In rural markets, where both individual brand names and the soft drink market were underdeveloped, the aim was to enter the market with a recognizable brand name. On the other hand, in urban markets, where Coca-Cola was already known and where people lay more emphasis on the brands, Coca Cola aimed at narrowing its positioning, “focusing on differentiation through offering unique and compelling value” . The strategy Coca Cola adopted provided significant results. In 2002, the company’s volume growth reached 39% as compared to 23% for the whole soft drink industry. After getting overwhelming response from the emerging Indian market, Coca Cola India decided to invest $125 million (Rs. 750 crore) to double its capacity19. Proceeding further with its strategy aimed at the numerous rural Indians, Coca Cola created a smaller, cheaper format costing Rs. 5. The success was so acute that Coca Cola’s archrival PepsiCo had to follow suit soon after. However, this initiative had to be dropped in 2003, after the rise in raw material prices. From the beginning, Coca-Cola India has laid great emphasis on its carbonated products (Coca-Cola, Sprite, Fanta) and has been slow in responding to a wider demand in other types of soft drinks whose growth in sales has been more significant (bottled water and juices). Although Coca Cola India was trying hard to strengthen its positioning through a long term brand strategy and utilizing its global brand value, certain controversial issues were raised by the NGO’s in the country due to which Coca Cola’s image was severely damaged and sales dropped immediately by 30-40% .

3.2 Various Controversial Issues

On August5th, 2003, The Center for Science and Environment (CSE), an activist group (NGO) in India, targeted Coca Cola on the ground that its soft drinks contained pesticides, including Lindane, DDT, Malathion and Chlorpyrifos surpassing global standards by 36 times. These four pesticides were known to cause cancer, damage to the nervous and reproductive systems, birth defects, and severe disruption of the immune system .

The study that was conducted by this NGO revealed the presence of pesticides in most soft drinks distributed in India, among which were Coca-Cola and its various product lines. The aim of the study was broader than just pinpointing the soft drink industry (pesticide is also present in most Indian staples, and in larger quantities), but getting Indians’ attention to the problem is easier if one targets large, powerful and American multinationals. As CSE’s director Sunita Narain, a well-known and appraised activist and the instigator of the pesticide study, puts it herself: “looking at soda draws attention to the whole pesticide problem ”. The goal she was following had immediate effects: “protesters in Mumbai and Kolkata defaced Pepsi and Coke ads and burned placards depicting soda bottles. Several states restricted or banned soda sales .”

While the pesticide issues were gaining momentum in most parts of India, various NGO’s which were raising questions about the globalization movement and its effects, joined the anti-Coke movement by accusing Coca Cola of depleting water resources in poor villages of the southern state of Kerala. The fast growing population and the scarcity of water resource in India have made any matter concerning water a very touchy issue.

Upon hearing about these allegations, local officials in Kerala shut down a $16-million Coke bottling plant in March 2004 . Coca-Cola, by the very nature of its activities, is an important user of water, both in the composition of its products and in its manufacturing process. And by being a foreign MNC and one of the top representations of Americanism, it is also an easy target for criticism.

Although these claims are still unproven, the company has been trying ever since to regain the plant’s license. The numerous public outcries at Coca-Cola and rival PepsiCo regarding the presence of pesticides in their carbonated products not only affected the name of these two giants, but influenced the