SOLUTION: MGT 672 SEU Intercultural Awareness a Must for Success of MNCs in India Discussion

Brief Integrative Case 2.1
Coca-Cola in India
Coca-Cola is a brand name known throughout the entire
world. With stagnant soft drink sales in markets like
Europe and North America, Coca-Cola has aggressively
looked to new, expanding markets to continue to grow its
brand. India, with 1.2 billion consumers, has been a primary target for Coca-Cola; through acquisitions and
clever marketing, the company now covers 60 percent of
India’s $1 billion soft drink market.
Coca-Cola’s expansion in India has not been without
minor setbacks, however. In 2006–2007, Coca-Cola faced
some difficult challenges in the region of Kerala, India,
after it was accused of using water that contained pesticides in its bottling plants. An environmental group, the
Center for Science and Environment (CSE), found
57 bottles of Coke and Pepsi products from 12 Indian
states that contained unsafe levels of pesticides.1 The
Kerala minister of health, R. Ashok, imposed a ban on
the manufacture and sale of Coca-Cola products in the
region. Coca-Cola then arranged to have its drinks tested
in a British lab, and the report found that the amount of
pesticides found in Pepsi and Coca-Cola drinks was harmless to the body.2 Coca-Cola then ran numerous ads to
regain consumers’ confidence in its products and brand.
However, these efforts did not satisfy the environmental
groups or the minister of health.
India’s Changing Marketplace
During the 1960s and 1970s, India’s economy faced
many challenges, growing only an average of 3–3.5 percent per year. Numerous obstacles hindered foreign companies from investing in India, and many restrictions on
economic activity caused huge difficulties for Indian
firms and a lack of interest among foreign investors. For
many years the government had problems implementing
reform and overcoming bureaucratic and political divisions. Business activity has traditionally been undervalued in India; leisure is typically given more value than
work. Stemming from India’s colonial legacy, Indians
are highly suspicious of foreign investors. Indeed, there
have been a few well-publicized disputes between the
Indian government and foreign investors.3
More recently, however, many Western companies are
finding an easier time doing business in India.4 In 1991,
political conditions had changed, many restrictions were
eased, and economic reforms came into force. With more
than 1 billion consumers, India has become an i­ ncreasingly
248
attractive market.5 From 2003–2006, foreign investment
doubled to $6 billion. Imported goods have become a status symbol for the burgeoning middle class.6
Coca-Cola has been targeting India for potential
growth, as Indians consume an average of 12 eight-ounce
beverages per year. In comparison, Brazil consumers
drink roughly 240 beverages per year on average. Despite
the relatively low amount of beverages consumed by India
on average, India has been one of Coke’s best emerging
market plays. In 2014, India surpassed Germany as CocaCola’s sixth largest market. During the January to March
period of 2014, sales volumes in India increased 6 percent. This growth is on par with Coca-Cola’s other emerging market operations in China (12 percent growth over
the same period) and Brazil (4 percent growth over the
same period).7 As part of its investment plan, Coca-Cola
plans to expand capacity at all 13 of its bottling plants,
which should help expand the company’s distribution
throughout the country. Coca-Cola is aiming to double
both revenue and volume in India by the year 2020.8
In 2014 FDI in India stood at $33.9 billion.9 In 2015,
India overtook the United States and China as the top
destination for FDI, according to a report by the Financial
Times.10 A 2015 survey of Japanese manufacturers conducted by the Japan Bank for International Cooperation
ranked India as the most promising country for overseas
business operations.11
India’s GDP grew at the impressive average annual rate
of 8.5 percent during the six years spanning 2003–2008.
Even the global financial crisis, which began in September 2008, only cut the rate of growth by 2–3 percentage
points, and the economy has continued to grow at the
annual rate of 6–7 percent in the years since the crisis.12,13
But the country needs more investment in manufacturing
if it hopes to improve the lives of the 350 million people
living in poverty.14
Coca-Cola and Other Soft Drink
Investment in India
Coca-Cola had experienced previous confrontations with
the Indian government. In 1977, Coke had pulled out of
India when the government demanded its secret formula.15
Circumstances have dramatically improved over the
years for soft drink providers of India. Coke and Pepsi
have invested nearly $2 billion in India over the years.
They employ about 12,500 people directly and support
Brief Integrative Case 2.1 Coca-Cola in India
200,000 indirectly through their purchases of sugar, packaging material, and shipping services. Coke is India’s
number-one consumer of mango pulp for its local soft
drink offerings.16 Coca-Cola in India is also the largest
domestic buyer of sugar and green coffee beans.17 From
1994 to 2003, Coca-Cola sales in India more than doubled.
In 2008–2009 Coca-Cola announced its plans to invest
more than $250 million in India over the next three years.
The money would be used for everything from expanding
bottling capacity to buying delivery trucks and refrigerators for small retailers. The new money meant around a
20 percent increase in the total Coca-Cola has invested in
India.18 Coca-Cola’s sales in India climbed 31 percent in
the three months ended March 31, 2009, compared to a
year earlier. That’s the highest volume growth of any of
Coke’s markets.19
Furthermore, Coca-Cola announced plans in 2012 to
invest upwards of US$5 billion in India by 2020. This
investment marks a 150 percent increase over the announced
plans from 2011 to invest up to US$2 billion in India over
the next five years. Putting this investment in perspective,
Coca-Cola has invested a total of just over US$2 billion in
its India operations over the past 20 years. Despite the large
investment in India, Coca-Cola will see serious competition
from Pepsi in this market. Together Coke and Pepsi
make up 97 percent of the market for carbonated soft drinks
in India, where soda sales overall are estimated to be
US$1.05 billion. Coke accounted for 60 percent of all sales
while Pepsi received 37 percent of the market share.20
Royal Crown Cola (RC Cola) is the world’s third largest brand of soft drinks. The brand was purchased in 2001
by Cott Beverages and entered the Indian market in 2003.
For production in India, the company hired three licensing
and franchising bottlers. In order to ensure that it was not
associated with the pesticide accusations against Pepsi
and Coke, RC Cola immediately had its groundwater
tested by the testing institute SGS India Pvt Ltd.21
The Charges against Coke
The pesticide issue began in 2002 in Plachimada, India.
Villagers thought that water levels had sunk and the
drinking water was contaminated by Coke’s plant. They
launched a vigil at the plant, and two years later, Coke’s
license was canceled. Coca-Cola’s most recent pesticide
issue began at a bottling plant in Mehdiganj. The plant
was accused of exploiting the groundwater and polluting
it with toxic metals.22 Karnataka R. Ashok, the health
minister of Kerala, India, banned the sale of all Coca-Cola
and PepsiCo products, claiming that the drinks contained
unsafe levels of pesticides.
The alleged contamination of the water launched a
debate on everything from pesticide-polluted water to the
Indian middle-class’s addiction to unhealthy, processed
foods. “It’s wonderful,” said Sunita Narin, director of CSE.
249
“Pepsi and Coke are doing our work for us. Now the whole
nation knows that there is a pesticide problem.”23
Coca-Cola fought back against the accusations. “No
Indian soft drink makers have been tested for similar violations even though pesticides could be in their products
such as milk and bottled teas. If pesticides are in the
groundwater, why isn’t anyone else being tested? We are
continuously being challenged because of who we are,”
said Atul Singh, CEO of Coca-Cola India.24
Some believe that Coca-Cola was targeted to bring the
subject of pesticides in consumer products to light. “If you
target multinational corporations, you get more publicity,”
adds Arvind Kumar, a researcher at the watchdog group
Toxic Links. “Pesticides are in everything in India.”25
India’s Response to the Allegations
After CSE’s discovery of the unsafe levels of pesticides,26 some suggested the high levels of pesticides
came from sugar, which is 10 percent of the soft drink
content. However, laboratories found the sugar samples
to be pesticide free.27
Kerala is run by a communist government and a chief
minister who still claims to have a revolutionary objection to the evils of capitalism.28 Defenders of Coca-Cola
claim that this is a large reason for the pesticide findings
in Coca-Cola products. After the ban was placed on all
Coca-Cola and PepsiCo products in the region of Kerala,
Coca-Cola took its case to the state court to defend its
products and name. The court said that the state government had no jurisdiction to impose a ban on the manufacture and sale of products.29 Kerala then lifted the
statewide ban on Coke products.30
In March 2010, after several years of tense battles, the
Indian unit of Coca-Cola Company was asked to pay $47
million in compensation for causing environmental damage at its bottling plant in the southern Indian state of
Kerala. A state government panel said Coca-Cola’s subsidiary, Hindustan Coca-Cola Beverages Pvt Ltd (HCBPL),
was responsible for depleting groundwater and dumping
toxic waste around its Palakkad plant between 1999 and
2004. Protests by farmers, complaining about the alleged
pollution, forced Coca-Cola to close down the plant in
2005. Coca-Cola responded that HCBPL was not responsible for pollution in Palakkad, but the final decision on
the compensation will be taken by the state government.31
Pepsi’s Experience in India
PepsiCo has had an equally noticeable presence in India, and
it is not surprising that the company has weathered the same
storms as its rival Coca-Cola. In addition to claims of excessive water use, a CSE pesticide study, performed in August
2006, accused Pepsi of having 30 times the “unofficial” pesticide limit in its beverages (Coke was claimed to be 27 times

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