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Business Environment
In 1988, the New York office of the President of the multi-billion cola company PepsiCo received a letter from India. The company had been trying for some time to enter the Indian market without much success. The letter was written by George Fernandes, the General Secretary of one of the country's leading political parties, Janata Dal. He wrote, "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.This development did not seem to be a matter that could be ignored. PepsiCo's arch-rival and the world's number one cola company, Coca-Cola, had indeed been forced to close operations and leave India in 1977 after the Janata Dal came to power. Even in the late 1980s, India had a closed economy and government intervention in the corporate sector was quite high.
Another Proposal
The company knew that the political and social problems that plagued Punjab were an extremely sensitive issue for India in the 1980s. PepsiCo's decision to link its entry with the development and welfare of the state was thus a conscious one, aimed at winning the government over. The fact that Punjab boasted a healthy agricultural sector (with good crop yields in the past) also played a role in PepsiCo's decision. Reportedly, the new proposal gave a lot of emphasis to the effects of PepsiCo's entry on agriculture and employment in Punjab. The company claimed that it would play a central role in bringing about an agricultural revolution in the state and would create many employment opportunities.
The company entered into agreements with a few big farmers (well-off farmers with large land holdings) and began growing tomatoes through the contract farming route (though the agro-climatic profile of Punjab was not exactly suitable for a crop like tomato, Pepsi had chosen the state because:
1) 2) 3) Farmers were progressive, Their landholdings were on the larger side, Water availability was sufficient. Initially,
As a result, the government decided to liberalize the economy. 2 most prominent features of the government's new economic policy.
The removal of the numerous restrictions on foreign trade and The increased role of private equity in Indian markets 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. .
Business Environment
Economic Environment
GDP growth rate Trends- avg. 8%,2011-7.8% GDP Per Capita- $3400(2010 est.),$7400(2010)- CIA Factbook Agriculture: 15.7% Industry: 28% Services: 54.9% (CSO and Economic Survey,2009-10) Labor Force- 478.3 million (2010 est.)CIA Factbook country comparison to the world: 2
Ease of doing business-134(2011),135(2010) out of 183 countries. World Bank Countries Ease of doing biz
# India Ministry of Labor *Bureau of Labor Statistics
Economic Indicators
Economic Environment
Levels of income and its distribution Low income Lower middle income Upper middle income High income Per capita income(2010) $1005 or less $1006 - $3,975 $3,976 - $12,275 $12,276 or more.
Limited Industrialization- High dependence on agriculture. High Birth rates Low Literacy Rates Heavy reliance on foreign aid. Political instability and unrest Excessive Unemployment and underemployment Technological Backwardness Excessive dependence on imports The vicious circle of poverty.
E.g.. Afghanistan,Guinea-Bisau,Bangladesh,Haiti,Kenya Third World Countries - Political rights and Civil Liberties
Basket Cases
Countries which are unattractive for investments and operations due to economic, social and political problems. Republics of former U.S.S.R best example. USA, Canada, Japan and European Economic Area represent 77% of worlds income.
Special Incentives Foreign Trade Regulations Attitude towards foreign companies Stability of Government
Competition Act
Prohibition of Anti Competitive Agreements (Global Lysine Cartel-5 firms-2 Japanese,2 S.Korea+1 U.S Archer Daniels Midland-Hi penalty imposed) Prohibition of Abuse of Dominance (Microsoft-IE, German Govt. asked Wal-Mart to lower prices) Regulation of Combinations
(Opposition of Merger of staples and Office Depot)
Competitive Advocacy