Pepsi's Entry into India: A Lesson in Globalization


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Case Details:

Case Code : BSTR062
Case Length : 11 Pages
Period : 1994 - 2003
Organization : Pepsi
Pub Date : 2003
Teaching Note : Available
Countries : USA
Industry : Beverages & Snack Food

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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EXCERPTS

Pepsi's Promises - Keep Some, Break Some!

Pepsi began by setting up a fruit and vegetable processing plant at Zahura village in Punjab's Hoshiarpur district. The plant would focus on processing tomatoes to make tomato paste. Since the local varieties of tomatoes were found to be of inferior quality, Pepsi imported the required material for tomato cultivation.

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 its farmers were progressive, their landholdings were on the larger side, and water availability was sufficient). Initially, Pepsi had a tough time convincing farmers to work for the company. Its experts from the US had to interact extensively with the farmers to explain how they could benefit from working with the company. Another problem, although a minor one, was regarding financial transactions with the farmers. When the company insisted on payments by cheque, it found out that as many as 80% of the farmers did not even have a bank account..!

India Liberalizes - A Boon For Pepsi

In the early 1990s, the Government of India was facing a foreign exchange crisis. The country was finding it extremely difficult to borrow funds from the international markets due to a host of problems on the political, economic and social fronts.

Organizations like the International Monetary Fund agreed to help the Indian government deal with the financial crisis, on condition that it liberalized the Indian economy. As a result, the government decided to liberalize the economy. The removal of the numerous restrictions on foreign trade and the increased role of private equity in Indian markets were the two most prominent features of the government's new economic policy. 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. The government removed the restrictions that bound Pepsi's investments in the soft drinks business to 25% of the overall investments and required it to export 50% of its production...

Excerpts Contd... >>

 

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