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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The Promises That Helped Pepsi Enter

In May 1985, PepsiCo had joined hands with one of India's leading business houses, the R P Goenka (RPG) group, to begin operations in the country. The company, along with the RPG group company Agro Product Export Ltd., planned to import the cola concentrate and sell soft drinks under the Pepsi label.

To make its proposal attractive to the Indian government, PepsiCo said that the import of cola concentrate would essentially be in return for exporting juice concentrate from operations to be established in the north Indian state of Punjab. In its proposal submitted to the Ministry of Industrial Development, company sources said that the objectives of PepsiCo's entry into India revolved around 'promoting and developing the export of Indian agro-based products and introducing and developing PepsiCo's products in the country.' However, the government rejected this proposal primarily on two grounds: one, the government did not accept the clause regarding the import of the cola concentrate and, two, the use of a foreign brand name (Pepsi) was not allowed as per the regulatory framework.

The association with the RPG group too ended at this juncture. Not willing to sit quietly on the issue, PepsiCo put forward another proposal to the government a few months later.

The company knew that the political and social problems4 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. To make its proposal even more lucrative, PepsiCo claimed that these new employment opportunities would tempt many of the terrorists to return to society...

Excerpts >>

4] The rise of militant groups demanding the creation of a separate state, Khalistan, led to serious religion-based terrorism in Punjab throughout the 1980s and early 1990s. Hundreds of people were killed in terrorist violence and security forces and the police had a tough time bringing the situation under control. By the mid-1990s, the terrorist movement had been controlled to a large extent.

 

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