Entr y into INDIA

……… A lesson in
GLOBALIZATION.
 AN ABSTRACT
It took half decade of negotiating, 20 debates in Parliament
and a monumental public relations campaign for Pepsi to enter
India.
Not exactly Pepsi-Cola, it was called Lehar Pepsi, a concession
to the anti-foreign lobby.
It appear only in Jaipur, Kanpur, Bangalore and Punjab.
Christopher Sinclair, the President of Pepsi-Cola International,
called his company’s venture in India “An Historic Agreement.”
PepsiCo’s move into the Indian market was made possible by
the company’s willingness to take a 36.9% share in a
conglomerate called “Pepsi Foods Private Limited”
It’s a co-owners were Punjab Agro Industries and Voltas a
subsidiar y of TATA Group.
 AN ABSTRACT
PepsiCo agreed to set up fruit and vegetable processing
plants, agriculture research stations, franchised bottling
operations and snack-food factories using local potatoes and
other ingredients.
It is also planned to invest more than $1Billion in India by
1998.
First plants were built in nor thern Punjab State
Pepsi Food Private Ltd had planned to call his flagship drink
“Pepsi Era” but opponents challenge a name under a law.
Lehar Pepsi,7-Up and Miranda got an unexpected assist when
Government decide in April 1989, to begin an enforcing a two
year ban on the use of brominated use of vegetable oil.
 "Convincing India that it needs
Western junk has not been easy."
- A New Internationalist Magazine Article, commenting on
Pepsi's struggle to enter India, in August 1988
 A Letter to PEPSI
 In 1988, the New York office of the 
President of the multi­billion 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 (Fernandes), The General 
Secretary of one of the country's leading 
political parties, Janata Dal.
 A Letter to PEPSI
"I learned that you are coming 
here. I am the one that threw 
Coca­Cola 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 Coca­Cola."
George Fernandes 
The General Secretary – Janta Dal
 PEPSI’S ENTRY INTO INDIA
Before
 Before this Coca-cola had been thrown out of India in1977.

 Even in 1980’s economy was marked by high government

inter ventions.
 Pepsi though, was looking India for couple of reasons,

 The US market seems to be reaching its saturation level.

 India was always a market that ever y MNC wanted to enter . .

( reason ver y vast population).
 Urbanization familiarized Indians with global brands.

 Low per capita consumption of sof t drink, 3 bottles p.a. as

compared to 63 for Egypt, 38 for Thailand and 13 for Pakistan.
 THE PROMISES - PEPSI’S ENTER
 May 1985, PepsiCo had joined hands with the R P Goenka
(RPG) group, to begin operations in the nor th Indian state of
Punjab.
 Agro Product Expor t Ltd., planned to impor t the cola
concentrate and sell sof t drinks under the Pepsi label.
 Make its proposal attractive to the Indian government

 Objectives -revolved around 'promoting and developing the

expor t of Indian agro-based products
 The government rejected this proposal primarily on two
grounds:
1. Did not accept the clause regarding the impor t
2. Use of a foreign brand name (Pepsi) was not allowed
 RPG group too ended at this juncture
 THE PROMISES - PEPSI’S ENTER
 Decision to link its entr y with the development and welfare of
the state of Punjab.
 Fact that Punjab boasted a healthy agricultural sector

 Entr y on agriculture and employment

 New employment oppor tunities would tempt many of the

terrorists to return to society...
 Focus on food & agro-processing only 25% investment for Sof t
drink Bring advanced food processing technology & Boost image
of Made in India to Foreign Market
 The Ex-Im ration 5:1 for 10 years

 80% Expor t of Company & 20% Expor t of Selected

Manufacturer
 50K Jobs in India & 25K in Punjab, No Foreign Brand Names
used & Agriculture Research Center
 PEPSI ENTERED

 Govt. Quite impressed with T&C Proposed

 In 1988 Finally Cleared by the Govt.
 JV – PAIC (Punjab Agro Ind. Corp.) &
Voltas India Ltd. (TATA)
 JV Stake PEPSI – 36.89, Voltas – 36.11%
& PAIC – 24%
 In 1989 Launched the Soft Drinks with
Great Fanfare & Multi-Media advertising
Campaing
 PEPSI ENTERED
JV – Stakes - 1988

24

36.89

PEPSI
Voltas
PAIC

36.11
 Marketing Expert – PHILIP KOTLER
 Some year later Commenting, how the
company used Mega Marketing to enter the
Indian Market
 Pepsi bundled a set of benifits that won the
support of various interest groups in India.
 Instead of relying on the normal four P's
added two P's – Politics & Public Opinion
 Committing towards developing Rural economy
& Bringing Technologies for Food Processing &
water treatment
 Turned a lot of Votes in Pepsi Co's favor.
 PEPSI's 6 P's
  Product
  Price
  Place
  Promotion
  People &
  Politics
 Promises Keep Some, Break Some!
 Pepsi began by setting up a fruit and vegetable processing
plant at Zahura village in Punjab's Hoshiarpur district.
 Focus on processing tomatoes to make tomato paste
 Local varieties of tomatoes were found to be of inferior
quality
 Imported the required material for tomato cultivation.
 Agreements with a few big farmers
 The agro-climatic profile of Punjab was not exactly suitable
for a crop like tomato
 Chosen the state because farmers were progressive,
landholdings were on the larger side, & water availability was
sufficient
 Experts from the US had to interact extensively with the
farmers
 PROMISES ARE MEANT TO BE BROKEN
 On payments by cheque, found out that 80% of the farmers
did not even have a bank account..!
 Croped Harvested 1990, Plant not been made operational
Farmer had to bear losses of 2.5 Millions
 Pepsi paid Rs. 0.75/Kg & Market Price was Rs. 2.00/Kg
 Fails to Creat Jobs, Promised for 50000 Jobs but by 1991 -
783 Employed, 1992 – 909, & By 1996 – 2400 people as Direct
Employees. Pepsi Claimed Employed 26000 as Indirect
Employment
 Industry Commeted company included the small vendors who
sold soft drinks as indirect employees. It could not be regarded
as the employees of Pepsi
 Information revealed that more than 50% employees working
in its bottling business and not for food processing activities.
 Promises Keep Some, Break Some!
 It also had major holding in Futura Polymers Ltd. Recyling
plastic – a capital intensive firm.
 The use of name “Lehar Pepsi” also attracted much
contraversey.
 Pepsi also failed to adhere its commitment to export 50% of
its production.
 It began exporting tea, rice, shrimps, glass bottles, leather
products, champagne as against fruit or vegetable based
products has always been exported.
 There was even a show cause notice to Pepsi company by
Ministry of Commerce, to which company paid no attention.
 Luckily for Pepsi, it did not have to face criticism for long
 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 government.
 Condition that it liberalized the Indian economy.
 The Process included:removal of numerous
restriction on foreign trade and increased the role of
Private Equity in Indian market.
 Pepsi benefited from the economic changes in many
ways.
 The Company took full Adavantage of New Economic
Policy
 India Liberalizes - A Boon For Pepsi
 Bought off its partners in Joint Venture. A Wholly-
Owned subsidairy.
 PepsiCo Holdings India Pvt. Ltd. (PHI) – Devoted Soft
Drinks Business. Changed Cola Name from Lehar
Pepsi to Pepsi.
 Decision to sell off its Tomato Paste Plant to the
Indian FMCG major, Hindustan Lever Ltd. (HLL).
 1995 – Beverages business grew by as much as 50%
 1996 – PHI – Pepsi's turnover by Rs. 1.25 Billion,
1.5% Fruit & Vegetable Exports & 67% Plastic
Exports
 1997 – The Agro Research Center promised by the
Company was nowhere in sight.
 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 ’91-92 to 5.44mn tonnes
in ’95-96.
 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 offer its contract farmers, free of cost,
some advanced equipments such as transplanters 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.
 AFTER ALL PEPSI WASN’T THAT BAD
PEPSI’S ENTRY-INDIAN BENEFITS
 It extended it contracts farming initiatives to
groundnuts in the year 2000.
 The project initiated in Punjab and then in
Gujarat.
 By using improved technology from China, the
per hectare yield improve from 1tonne to 3.5-
4.5tonnes.
 Pepsi invested additional Rs.3.75bn in spread
over 3 years (2000-2002) in Karnataka over and
above the existing investment of Rs.1.4bn
 Since its entry to India company already
invested Rs.18bn by the year 2000.
 8000 people were working for the Company
 DOING BUSINESS ON ITS OWN
TERMS……..
 In 2000 Pepsi’s export added up to Rs. 3bn.
 It included processed foods, basmati rice, guar gums and
even soft drink concentrate.
 Even by 2000 it could procure only 3,000 tonnes of
potatoes p.a. as against its requirement of 25,000 tonnes.
 In 2002, company entered into various contract farming
deals.
 It joined hands with Punjab Agri Export Corporation to
process citrus fruits for its Tropicana project in August
2002.
 The company also initiated, first of its kind, organized
and commercial seaweed farming in Tamilnadu.
 By 2003, Pepsi’s soft drinks, snacks, fruit juices and
mineral water business had established themselves firmly
in India.
 Questions . . ?

1. Why do Companies like Pepsi need to

Globalize? What are the various ways
in which Foreign Companies can enter
a Foreign Market? What hurdels and
problems did Pepsi face when it tried
to enter India during the 1980s?
 Companies like Pepsi 
Need to be global for the Following
* Expand Sales- Increase the market for their production by
tapping potential new countries
* Minimize Risks- Globalization and International trade also
helps in minimizing risks.
* To leverage on technology
* To increase production efficiencies
* For diversification so as to reduce risks
* To counter foreign investments by competitors
* Minimize Costs and optimal resource utilization- By shifting
operations in areas with cheaper labour and resources.
 Companies can enter foreign markets 
through the following ways:
* Export – Direct & Indirect
* JV - Joint Ventures
* Mergers and Acquisitions
* Licensing, Franchising
* Strategic Alliances
* Management Contracts
* Contract Manufacturing
* FDI – Foreign Direct Investments
 Hurdles faced by Pepsi
* India being a closed economy till 1991, there was high level of
intervention by the government in the corporate sector
* Low awareness, demand and consumption for soft drinks. The
per capita consumption was only 3 per annum
* Foreign brand name could not be used
* There was no liberalization and this not even 1% FDI was
allowed.
* Sensitive political and social problems in the country like
terrorism
* Cola concentrate – the major ingredient to make Pepsi soft
drink could not be imported
* Agriculture sector was the priority and thus Pepsi had to win
the government by making promises of development in the
agriculture sector
 Questions . . ?
2. Critically analyze the strategy
adopted by Pepsi to sell itself to the
Indian Government. Do you think the
biggest Factor Responsible for the
acceptance of its proposal by the
Regulatory Authorities was its
Projection of its Operations as the
solution to many of Punjab's
Problems? Why/Why Not?
 Strategy Adopted by Pespi
 Promoting and developing the export of Indian
Agro-based products, though it got rejected.
 Each cola import would be in return of exporting
juice concentrate from Punjab.
 Development and Welfare of State.
 Bringing about Agriculture Revolution in state.
 Creating Employments.
 Terrorists to return to society.
 Punjab boasted a healthy agricultural sector
 Strategy Adopted by Pespi
 Development of Areas it planned to operate in
 Directing major (75%) investment towards
agricultural sector
 Focusing on food and Agro-processing.
 Boosting the image of Indian products in foreign
market.
 Establishing Agricultural Research Centre.
 More emphasis on Exports than imports to
improvise the balance of payment.
 Reson for Acceptance of Proposal
By the Regulatory Authorities 

 Yes, Most of the commitments were related

with Punjab therefore it is the biggest factor
responsible for acceptance of Pepsi.
 Questions . . ?
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
deliberatly did not adhere to most of
its commitments.
 After Liberalization 

 In 1994, it bought off its partner in venture i.e. Voltas

and PAIC.
 Establishing wholly owned subsidiary PepsiCo Holding
India Pvt. Ltd.
 Changed name from “Lehar Pepsi” to “Pepsi”
 Sold off its Tomato Paste Plant in 1995
 Gradually reduce the contract farming
 Plastic Exports were 67%.
 Till 1997, the agro research centre was no where.
 Allegation 
 Failing to create jobs
 50% of employee working for Concentrate and
Bottling Business not for Food processing Business.
 Pepsi with Futura Polymers Ltd. were reducing 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 to export 50% production.
 Products exported were same which use to happen
earlier.
 Questions . . ?

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 Initiative

 Increase in Tomato crop production

 Providing High yield seeds to increase the
productivity in the tomato cultivation
 Offered advanced equipments (Free of cost) to
increase the speed & efficiency
 Imported the required material for tomato
cultivation
 Rationale for Contract Farming

 Rationale behind the contract farming was that in one

or the other way company insisted on the development
of those crops which were directly or indirectly related
to their businesses such as soft drinks, snacks, fruit
juices & mineral water.
 Other rationale behind the contract farming was to
increase their own business rather than any social
welfare.
 Rationale for Contract Farming

Taken initiative for

 Chilly farming
 Groundnuts production over paddy production
 Rice production
 Fruits & Vegetable Farming
Encouraging farmers to cultivate potato with low
sugar content for chips.
 Case Study - References
 Case written by A. Mukund.
ICFAI Center for Management Research.
 Slideshare.net – agarwalpuneet11 Slides
 Project Reference: IIM Calcutta.
 Times Of India
 Washington Post.
 Thank
You

ITM Malad
SMBA - 18
 Presented By
Group No. 04
Prassanna Ghorpade
Jay Sanghrajka
Pooja Dave
Vishal Sawant
Mehul Shah
Nidhi Sheth
Shubhangi Panchal
MCE - Multinational Corporate
Environment
Case Study
Submited to
Prof. Abdul
On
16/12/2012
At
ITM Malad – SMBA – 18