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    Case Study Analysis Pepsico Entry Into India

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    Sahana Gowda
    PepsiCo sought to enter the Indian market in the 1980s but faced rejections from the government. To gain approval, PepsiCo proposed focusing on agriculture development in Punjab by creating jobs and increasing crop yields. This strategy appealed to political interests and helped address issues like unemployment and terrorism. However, PepsiCo was later alleged to not fulfill many of its commitments around employment, exports, and research. After economic liberalization, PepsiCo established a wholly owned subsidiary and consolidated its beverage business, benefiting from the more open market.

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    Case Study Analysis Pepsico Entry Into India

    Uploaded by

    Sahana Gowda
    315 views26 pages
    PepsiCo sought to enter the Indian market in the 1980s but faced rejections from the government. To gain approval, PepsiCo proposed focusing on agriculture development in Punjab by creating jobs and increasing crop yields. This strategy appealed to political interests and helped address issues like unemployment and terrorism. However, PepsiCo was later alleged to not fulfill many of its commitments around employment, exports, and research. After economic liberalization, PepsiCo established a wholly owned subsidiary and consolidated its beverage business, benefiting from the more open market.

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    PepsiCo sought to enter the Indian market in the 1980s but faced rejections from the government. To gain approval, PepsiCo proposed focusing on agriculture development in Punjab by creating jobs and increasing crop yields. This strategy appealed to political interests and helped address issues like unemployment and terrorism. However, PepsiCo was later alleged to not fulfill many of its commitments around employment, exports, and research. After economic liberalization, PepsiCo established a wholly owned subsidiary and consolidated its beverage business, benefiting from the more open market.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    315 views26 pages

    Case Study Analysis Pepsico Entry Into India

    Uploaded by

    Sahana Gowda
    PepsiCo sought to enter the Indian market in the 1980s but faced rejections from the government. To gain approval, PepsiCo proposed focusing on agriculture development in Punjab by creating jobs and increasing crop yields. This strategy appealed to political interests and helped address issues like unemployment and terrorism. However, PepsiCo was later alleged to not fulfill many of its commitments around employment, exports, and research. After economic liberalization, PepsiCo established a wholly owned subsidiary and consolidated its beverage business, benefiting from the more open market.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 26

    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?

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