This is a summary of the provided case study titled "Opening Happiness: Coke’s Strategy for Success

in China and India" by Nara Dillon (May 11, 2018).

Introduction: Coca-Cola is one of the most iconic brands globally, with an estimated worth of $83.8
billion, surpassing the combined worth of several major brands. It is distributed worldwide, except in
Cuba and North Korea. This paper focuses on Coca-Cola's re-entry into the Chinese and Indian
markets.

Market Entry in China and India: Coca-Cola re-entered both the Chinese and Indian markets as they
opened up to the world. Entry into these emerging markets posed unique challenges due to
regulatory constraints and institutional factors. India imposed a 40 percent cap on foreign equity
participation under the Foreign Exchange Regulation Act, leading to Coca-Cola's withdrawal in 1977
but re-entry in 1993. In contrast, Coca-Cola was forced out of China in 1949 but re-entered in 1978.

Market Entry Theories: Existing literature on market entry strategies in emerging economies
primarily focuses on profit maximization. The choice of firm structure in these markets depends on
factors such as resource constraints, control, and risk. The lack of formal institutions and reliance on
informal institutions make emerging markets like China and India unique.

Coke's Firm Structure: Coca-Cola's entry into these markets challenges traditional theories. Instead
of aligning with local institutions, Coca-Cola's joint venture structure allowed it to establish essential
local relationships. This suggests that joint ventures can be the optimal structure for entering
emerging markets, enabling access to informal institutions critical for success.

Literature Review: The literature review discusses market entry modes, including export, license and
franchise, alliance, joint venture, and wholly-owned subsidiary. Companies face trade-offs between
control, resource commitment, and risk. Emerging economies present additional challenges due to
rapid growth, lack of stability, infrastructure deficiencies, regulatory instability, and bureaucracy.

Transaction Cost and Resource-Based Theories: Two major theories, transaction cost theory and
resource-based theory, provide contrasting views on the effect of firm control in host nations.
Transaction cost theory suggests that high-cost, low-flexibility entry modes are suitable for high-risk
markets. Resource-based theory argues that increased control enhances success. Both theories
predict low chances of success for Coca-Cola's high-cost, low-flexibility joint venture approach in
China and India.

Institutional Theory Perspective: Institutional theory emphasizes the role of formal and informal
institutions in shaping firm entry modes. Institutions include political, legal, and economic systems
(formal) and social norms and values (informal). Institutional theories differ in whether they view
firms as rational economic actors or as entities seeking legitimacy by adapting to institutional
frameworks. Strong institutional environments favor high-control entry modes.

Coca-Cola's Contradictory Approach: Despite the lack of robust institutional structures and weak
enforcement in China and India, Coca-Cola opted for joint ventures, which required high resource
commitment. This contradicts traditional theories on entry mode choice and suggests that theories
may need revisions when applied to larger emerging economies like China and India.

This summary provides an overview of the case study's main points, including Coca-Cola's re-entry
into the Chinese and Indian markets, the challenges posed by emerging economies, and the
unconventional approach of using joint ventures in these markets.

Entry into China:

  In 1949, Coca-Cola's factories were nationalized in China, and it was seen as a symbol of
Western capitalism.

 China's market was fragmented and unregulated in the late 1970s.

 After Mao's death in 1976 and Deng Xiaoping's rise to power, China began to adopt an open-
door policy.

 Coca-Cola established a new company called Benetrade in Hong Kong to scout the Chinese
market and initiated contact with China Nationals Cereals, Oil, and Foodstuffs Corp (COFCO).

 Coca-Cola's President Paul Austin visited China in 1975 and emphasized that bringing Coca-
Cola to China would symbolize the country's economic opening to the world.

 Coca-Cola's relationship with the U.S. government, particularly President Jimmy Carter's
administration, played a role in Coca-Cola's re-entry into China.

 A deal was signed in December 1978, giving Coca-Cola the exclusive right to sell non-
Chinese-made Coke in China for tourists visiting major cities.

 Dick Holbrook, the assistant U.S. Secretary of State for the East Asian and Pacific Affairs,
worked on establishing diplomatic ties with China while Coca-Cola signed the agreement.

 Diplomatic relations between the U.S. and China were normalized two days after the Coca-
Cola deal.

Entry into India:

 In 1977, India introduced a provision of the Foreign Exchanges Regulation Act (FERA)
requiring foreign companies to lower their equity stake to 60 percent.

 Coca-Cola exited India in 1977 rather than comply with the new regulation.

 In 1985, Prime Minister Rajiv Gandhi started pushing for liberalized economic and industrial
policies, leading Coca-Cola to plan for a potential re-entry.

 In 1988, Coca-Cola applied for permission to build a company-owned facility for the
production and export of certain preparations used in making Coca-Cola concentrate.

 Despite confidence in approval, Coca-Cola faced opposition from various Indian leaders and
companies, leading to delays.

 In 1990, with a newly elected government, Coca-Cola's export-oriented plan was rejected.

 In 1991, Coca-Cola planned a joint venture with Indian food processing company Britannia
Industries, which was ultimately approved.

 The joint venture, Britco Foods, allowed Coca-Cola to re-enter the Indian market, with 40%
ownership by Coca-Cola and 60% by Britannia Industries.

 Coca-Cola was accused of seeking entry through the back door due to the joint venture
structure.

 The joint venture faced controversy, but Coca-Cola ultimately made a grand re-entrance into
the Indian market in October 1993.

Overall Analysis:
  Coca-Cola's entry into China and India defied conventional theories of market entry.

 Despite the lack of formal institutions and weak enforcement in both countries, Coca-Cola
chose high-resource-commitment entry modes such as joint ventures.

 The influence of informal institutions and unique political circumstances played a significant
role in Coca-Cola's successful re-entry into these markets.

 The case highlights the importance of understanding the interplay between formal and
informal institutions in emerging economies like China and India.

This summary covers the entry into China and India, the roles of key individuals and government
relations, and the challenges and controversies faced by Coca-Cola in both markets.

Political Structures:

 China's one-party system made communication with the government more straightforward
for Coca-Cola, allowing for a targeted approach with state-owned enterprises like COFCO.

 The absence of opposition in China's political system facilitated negotiations between Coca-
Cola and the government.

 Coca-Cola positioned itself as a symbol of U.S. foreign trade, aligning with China's economic
opening policies.

 India's democratic system, with multiple political parties and changing policies after
elections, posed challenges for Coca-Cola's re-entry.

 Frequent changes in India's political stance made it challenging to craft a consistent market
entry strategy.

 India's government lacked transparency and institutional integrity, leading to difficulties in

dealing with formal institutions.

 Coca-Cola had to work through informal networks and local business partners in India to
navigate the bureaucratic system.

Markets and Institutions:

 In China, the fragmented and localized soft drink market provided opportunities for Coca-
Cola, and the lack of objections from local manufacturers eased entry.

 The Carter administration's role in Coca-Cola's entry into China, as well as the absence of
formal laws, emphasized the importance of informal negotiations.

 In India, the presence of dominant local soft drink companies like Parle posed challenges for
Coca-Cola.

 India's formal institutions, while in place, were difficult to navigate due to complex decision-
making processes and influence from powerful business groups.

 Informal networks played a crucial role in overcoming bureaucratic hurdles in India.

Firm Structure:

 Coca-Cola's entry into China challenged traditional market entry theories, as it committed
significant resources despite limited control over its operations.
  In China, the goal was to establish legitimacy and align with the government's open-door
policy.

 In India, transaction cost theory suggested exporting as the ideal entry mode, but
institutional constraints forced Coca-Cola to choose a joint venture.

 The choice of a joint venture entry mode allowed Coca-Cola to build relationships within the
institutional networks of both countries.

Strengths and Limitations of the Study:

 The study focuses on Coca-Cola's entry decision-making process, shedding light on the
complexities of entering emerging economies.

 It challenges conventional institutional and market entry theories, suggesting a need for
revisions in the context of larger emerging economies.

 Variations in resources and the firm's global strategy during different time frames are
acknowledged as factors influencing entry decisions.

 Further research is recommended to analyze the direct impact of the U.S. government's
diplomatic relationships on U.S. firm entry strategies.

 A detailed examination of the U.S. government's relationships with China and India during
Coca-Cola's re-entry periods could provide insights into government-corporation
interactions.

Conclusion:

 Coca-Cola's re-entry into China and India demonstrates that a joint venture is an optimal firm
structure choice for entering emerging markets.

 Joint ventures provide a framework for close interaction with local informal institutions,
aiding in legitimacy building and risk mitigation.

 Informal relationships with host country companies and government officials are often more
critical than formal legal processes.

 The chosen structure allowed Coca-Cola to form vital relationships within the institutional
networks of both countries, enabling access to local information and leveraging strengths in
local markets.

Questions:

1. PEST Analysis for Coca Cola in India and China:

A PEST analysis for Coca-Cola in India and China would involve assessing the Political, Economic,
Socio-cultural, and Technological factors influencing its operations in each country. Here's a brief
overview:

India:

 Political: India's changing political landscape affects policies on foreign investment

and taxation. Regulations like the Goods and Services Tax (GST) can impact
operations.
  Economic: Economic growth, inflation rates, and income levels are important for
consumer spending on beverages.

 Socio-cultural: Cultural diversity, consumer preferences, and health consciousness

influence product demand.

 Technological: Advances in bottling and distribution technologies can improve

efficiency.

China:

 Political: China's political stability and government regulations can impact

operations. Relations between China and the U.S. may also affect business.

 Economic: Economic growth, currency exchange rates, and competition in the

beverage industry are key economic factors.

 Socio-cultural: Cultural preferences, urbanization trends, and consumer behaviors

affect product acceptance.

 Technological: Advancements in manufacturing, distribution, and digital marketing

are relevant.

2. Comparing Marketing Environments:

Similarities:

 Both countries have large consumer markets with diverse preferences.

 There's a growing trend towards healthier beverage options in both markets.

 Coca-Cola faces competition from local and international beverage brands in both
countries.

Differences:

 China's market is more fragmented with regional preferences, while India has
dominant players like Parle.

 Cultural differences influence taste preferences, marketing strategies, and product

adaptations.

 China has more formal state-owned enterprises like COFCO, while India's business
landscape is characterized by business groups and powerful lobbies.

3. Coca Cola's Exit and Re-entry in India:

Coca-Cola's exit from India in 1977 was primarily due to changes in Indian regulations, specifically the
Foreign Exchanges Regulation Act (FERA), which required foreign companies to lower their equity
stakes. They chose to leave rather than comply with these regulations.

In hindsight, Coca-Cola could have handled the situation better to avoid leaving India. They might
have considered negotiating with the Indian government to find a middle ground or explored
alternative strategies that complied with the regulations. However, at the time, India's political
environment and regulatory changes made it challenging for foreign companies to operate
effectively. Coca-Cola's eventual re-entry in 1993 was made possible through joint ventures and
strategic partnerships, which allowed them to navigate the complex Indian market more successfully.

Summary of the Case:

Coca-Cola's re-entry into China and India serves as a compelling case study in navigating the
complexities of entering emerging markets. Despite the differing political structures, market
dynamics, and institutions in each country, Coca-Cola's entry strategy showed surprising similarities
and highlighted the importance of the joint venture entry mode. Here's an overall summary of the
case:

Political Structures:

 China's one-party system and centralized control allowed Coca-Cola to communicate directly
with state-owned enterprises like COFCO, streamlining its market entry efforts.

 In India's democratic environment with changing political parties, Coca-Cola faced challenges
in crafting a consistent market entry strategy.

 In both countries, a joint venture entry mode facilitated engagement with local partners,
which was crucial for navigating the political landscape.

Markets and Institutions:

 In China, the fragmented and localized soft drink market provided an opportunity for Coca-
Cola, backed by the national government.

 In India, dominant local players like Parle posed challenges, and formal institutions, while in
place, were difficult to navigate.

 Informal networks played a pivotal role in overcoming bureaucratic obstacles in both

countries.

Firm Structure:

 Coca-Cola's entry into China challenged conventional market entry theories, as it invested
significant resources despite limited control over operations.

 In India, institutional constraints forced Coca-Cola to choose a joint venture over the initially
preferred exporting strategy.

 The joint venture entry mode allowed Coca-Cola to build essential relationships within each
country's institutional networks.

Conclusion: Coca-Cola's re-entry into China and India underscores the effectiveness of the joint
venture entry mode in emerging markets. Joint ventures facilitated close interaction with local
informal institutions, aiding in legitimacy building and risk mitigation. Informal relationships with
host country companies and government officials often proved more critical than formal legal
processes. The chosen structure allowed Coca-Cola to establish vital relationships within the
institutional networks of both countries, enabling access to local information and leveraging
strengths in local markets.

The case study challenges conventional market entry theories, suggesting that firms must consider
the specific institutional and political contexts of the host country and form valuable relationships to
ensure success in emerging markets. Ultimately, the goal of entering a new market is to enhance
long-term profitability, and the chosen firm structure should align with this objective.