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
THANK YOU
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