Case Study Analysis

Pepsico Entry into India

Presented to: Dr. M R Suresh

By Group - A2
Sachit Srivastava 19045
Emani Nagi Reddy 19078
Kartik Subaiah 19084
Raghvendra Singh 19100
Ranjana Somani 19102
Why Pepsi chose India?
►  Before this, Coca-Cola had been thrown out of India in1977
► Even in 1980’s economy was marked by high government
interventions
► Pepsi though, was looking India for couple of reasons,
► 1.India was always a market that every MNC wanted to enter ( reason
very vast population)
► 2.Urbanization familiarized Indians with global brands
► 3.Low per capita consumption of soft drink, 3 bottles p.a. as compared
to 63 for Egypt, 38 for Thailand and 13 for Pakistan
Pre-establishment(First attempt)
►  PepsiCo teamed up with Agro Product Export Ltd., a company owned by R. P. Goenka
(RPG groups) to begin operations in the north Indian state of Punjab
► Objectives put forward to sought permission from the central government
► a. to promote the development and export of Indian made and agro-based product
► b. to import cola concentrate and to sell a PepsiCo brand soft drink in the Indian
market
► The government rejected this proposal primarily on two grounds:
1. Did not accept the clause regarding the import
2. Use of a foreign brand name(Pepsi) was not allowed as per the regulatory framework
The “PUNJAB CARD”
►  Proposal: 'Green Revolution' in Punjab, which would end stagnation
in Punjab's rural sector and would help in promoting small and middle
farmers
► Argument: This project will create ample employment opportunities
for the unemployed youth who has taken the path of terrorism and
thereby will help in restoration of peace in Punjab
► Outcome: Argument very well received in the political circles in Delhi
and Punjab which finally led to PepsiCo's entry into India in the form
of a joint venture with PAIC and Voltas as its partners
► JV Stake PEPSI – 36.89, Voltas – 36.11% & PAIC – 24%
Promises leading to establishment of
Pepsi in India
► The project will create employment for 50000 people nationally,
including 25000 jobs in Punjab alone
► 74 per cent of the total investment will be in food and Agro- processing.
Manufacturing of soft drinks will be limited to only 25 per cent
► PepsiCo will bring advanced technology in food processing and
provide thrust by marketing Indian products abroad
► An Agro-research Centre will be established by PepsiCo
► No foreign brand name will be used for domestic sales
► 25 per cent of the total fruits and vegetable crops in Punjab will be
processed in the project
Pepsi goes farming, Finally
► Though Pepsi attracted a lot of criticism, many people felt there was a
positive side to the company's entry into India
► Pepsi’s tomato farming project shot up India’s tomato production from
4.25mn tonnes in 1991-92 to 5.44mn tonnes in 1995-96.
► Punjab’s overall tomato productivity went up from 28,000 tonnes to
250,000 tonnes and per hectare from 16 tonnes to 50 tonnes
► The company offered its contract farmers, free of cost, some advanced
equipment's such as transplants and seedling machines
► It also set up agriculture research centers in Jallowal and Chano
(Punjab) and Nelamangala (Karnataka)
► Though “Pepsi Agri Backward Integration Programme” the company
encouraged Punjab farmers to cultivate potatoes with low sugar content
Frameworks used:
Cognitive activities:
PepsiCo used ‘cognitive activities’ while formulating the new proposal:
1. Identifying: Increasing unrest in the country due to rise in terrorism.
2. Diagnosing: Unemployment forced people to engage in such
activities.
3. Conceiving: Devised a plan to improve agriculture in Punjab and
make the state rich & fertile again.
4. Realising: it will lure the terrorists back to Punjab and they will
involve themselves in farming.
Managing Regulatory Change:
1. Alter: After the rejection, PepsiCo tried to negotiate with the
government by sending a new proposal with more attractive terms.

2. Avoid: PepsiCo didn’t abide by most of the terms and ignored the
show cause notice sent by the government.

3. Accede: They did comply with many terms, not immediately but at a
later stage.

4. Ally: Entered the market in a joint venture with Voltas and Punjab
Agro Industrial Corporation.
Xavier’s Framework of Analysis:

1. Environmental Analysis: PepsiCo analysed the social as well as

political environment and then prepared the strategy.
2. Market Analysis: Analysed the potential market growth as bottle per
capita was only 3.
3. Competitor Analysis: No major competitor in the market except for
local, unorganised soft drink manufacturers.
4. Company Analysis: PepsiCo had enough funds and resources that
they can take the risk and step in the Indian market.
5. Marketing mix Analysis: Apart from the 4 Ps – Product, Price, place
& Promotion, Pepsi focussed on 2 more Ps – Politics and Public
Opinion.
6. Strategy Formulation: PepsiCo devised the strategy by analysing all
the above mentioned aspects.
Mega Marketing

It is the expansion of marketing beyond the buyer to third parties that influence
transactions. These third parties include labor unions, cultural institutions, reform groups,
banks, and most significantly, governments.

2 Ps(Public Relation and Power) that were involved as coined by Philip Kotler.
Public Relation – Several attempts of proposals and finally entering the market.
Power - Served as an intermediary between the US and Indian governments. This has
helped the Indian government in numerous ways and created goodwill around Pepsi's
brand.
Q1. Why do companies like Pepsi need to globalize?
What are the various ways in which foreign companies can enter
a foreign market? What hurdles and problems did Pepsi face
when it tried to enter India during 1980s?

Benefits of globalizing:
► Lower costs of production- availability of cheaper resources
► Access to new markets – increases sales.
► Better profitability – exporting after producing at a cheaper cost.
► Reduces risk – loss in one country can be compensated by profit in
another.
► Global recognition – advertising on a global scale gives global
exposure.
Methods to enter foreign market:
► FDI – Foreign Direct Investment
► JV – Joint Venture.
► Merger & Acquisition.
► Strategic alliance.
► Exporting.
► Wholly owned subsidiary.
► Licensing.
► Franchising.
Problems faced by Pepsi while entering
during 1980s:
► Political threats.
► Opposition from soft drink companies, social and political groups.
► Use of foreign brand name was not allowed as per the regulatory
framework.
► Formulation of a lucrative strategy to convince the government of
India.
► Disagreement on the import of ‘Cola Concentrate’.
Q2.Critically analyse the strategy adopted buy Pepsi to sell itself to Indian
government .do you think the biggest factor responsible for the acceptance of
its proposal by regulatory authorities was its projection of its operations as
the solution to many of Punjab problems? Why/ why not

► In may 1985 PepsiCo joint hands with RP Goenka group Agro product
export limited Plan to import the cola concentrate and to sell soft drinks
and a Pepsi label .
► PepsiCo also emphasised that the import cola concentrate would be
used for exporting juice from operations state of Punjab, got rejected
► The next proposal get into putting emphasis off the effects of PepsiCo
entry on agriculture and employment in Punjab
► The company would focus on food and Agro processing in only 25% of
the investment would be directed towards the shopping business
► The company would not only bring advanced food processing
technology to India but also provide boost of to the image of products
made in India in foreign markets
► half of the production would be imported and the export import ratio
would be 5:1 for a period of 10 years.
► Creation of jobs for 50,000 people across the nation of which 25,000
Punjab
► foreign brand names would not be used
► an agriculture Research centre would be established
Criticism

► Created 909 jobs in first 4 years

► Research Center was not hey established
► Zahura village has faced 2.5 million Rupees loss because of non-
operational plant
► Underpayment of farmers
► Non supportive to small and medium sized farmers
► Could not that there to its commitment to export 50% off its production
The strategy of Pepsi was to project the entry of the company as :
► a boost for the economy of Punjab
► an increase in the employment level in Punjab
► the ultimate solution to terrorism
As they got to know that their prior strategy would not work to enter into
India, they decided to touch on socio-cultural factors to ease their work.
So, yes the projections were used to meet to persuade the Indian
government to allow Pepsi to enter India .
►3. How did the Company react to the changes
in the Business Environment after the
Liberalization of the Indian Economy in the
early 1990s?
Critically comment on the allegation that
Pepsi deliberately did not adhere to most of its
commitments.
After Liberalization:
► Benefitted from India’s liberalization as the business environment
► Bought off its partner in venture i.e. Voltas and PAIC
► Establishing wholly owned subsidiary PepsiCo Holdings India Pvt. Ltd
(PHI)
► The company changed its cola name from Lehar Pepsi to Pepsi
► Consolidation of Business and sold off its Tomato Paste Plant
► Plastic Exports were 67% and Beverages business – 50%
► Agro research centre was nowhere
Allegation:
► Failed to generate employment opportunities
► 50% of employee working for Concentrate and Bottling Business not
for Food processing Business
► Reduced the workforce and more machine oriented
► More lasting impression of “Pepsi” and “Lehar Pepsi”
► Export of fruit & vegetable-based products was negligible & started
exporting Tea, Rice & Shrimps
► Failed its commitment
► Used Politics and public image
4) Examine the Contract Farming initiatives
undertaken by Pepsi in India and explain the
rationale for such initiative from the company’s
perspective.
Why is it important for multinational corporations
to work towards the improvement of the economy
of the countries in which they operate? What are
the other various ways in which this can be done?
Contract Farming Initiatives

• Took the risk of tomato cultivation

• Zahura plant wasn’t available, end of 1990 and hence combined loss
of Rs 2.5 million for local farmers
• However, increased tomato production
• Significant increase in yield in tomato per hectare
• Chilli farming was a failure
• Offered advanced technological equipment to its contract farmers
• Flourished in Basmati rice and Groundnut crops
• ‘Laboratory-farm-factory’ Approach was an element of success
Rationale for Initiative
► Company wanted crops that are associated with their products like soft
drinks, snacks, peanut butter, etc.
For example: A part of the groundnut yield was used for peanut butter
exports.
► Building strategic alliances for a fruitful outcome.

Importance of Economy Improvement

► Good reputation and Consumer loyalty
► Political advantage
► Preferred choice
► Local workforce
► Powerful alliances
Ways to achieve the above
► Capital Investments
► Provide Employment
► Conduct CSR activities
► Transfer of skills and expertise to local workforce
Any Questions?