Pepsi In India- A Letter to Pepsi of the multi-billion cola In 1988, the New York office of the President

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, the General Secretary of one of the country's leading political parties, Janata Dal. He wrote, "I learned that you are coming here. I am the one that threw Coca-Cola 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 Coca-Cola.This development did not seem to be a matter that could be ignored. PepsiCo's arch-rival and the world's number one cola company, CocaCola, had indeed been forced to close operations and leave India in 1977 Click to edit Master subtitle style after the Janata Dal came to power. Even in the late 1980s, India had a closed economy and government intervention in the corporate sector was quite high.

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Indian Market- lucrative Destination However, multinational companies such

as PepsiCo had been eyeing the Indian market for a long time for a host of Reasons.

US, seemed to be reaching saturation levels, Globalization-the only option left. India -lucrative destination Vast population Offered a huge, untapped customer base. 7/27/12

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
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The Promises That Helped Pepsi Enter

The import of cola concentrate

Another Proposal
The company knew that the political and social problems 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 7/27/12 PepsiCo's decision.

----- Promises - Keep Some, Break Some

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 7/27/12 were found to be of inferior

Problems faced by Co. Pepsi

1)

Convincing farmers to work with co. Experts interact extensively with the farmers to explain how they could benefit from working with the company.

2) Financial transactions with the farmers. When the company insisted on payments by cheque, it found out that as many as 80% of 7/27/12

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. 2 most prominent features of the government's new economic policy.

The removal of the numerous restrictions on foreign trade and The increased role of private equity in Indian markets 7/27/12

Pepsi

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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. According to a www.agroindia.org article, -Pepsi's tomato farming project was primarily responsible for increasing India's tomato production. Production increased from 4.24 million tonnes in 1991-92 to 5.44 million tones in 1995-96. The company's use of high yielding seeds was regarded as one of the reasons for the increase in productivity in tomato cultivation during the same period. Commenting on the above issue, Abhiram Seth, [Seth, the company's Executive Director (Exports and External Affairs)] said, "When we set up our tomato paste plant in 1989, Punjab's tomato crop was just 28,000 tonnes, whereas our own requirement alone was 40,000 tonnes. Today, the state produces 250,000 7/27/12 tonnes. Per hectare yields, which used to be 16 tonnes,

Doing Business on its Own Terms

The company's contract farming initiatives and its focus on improving Punjab's agricultural sector seemed to indicate that Pepsi had been working towards fulfilling its pre-entry commitments. However, the reality was quite different. In 2000, the company's exports added up to Rs 3 billion. The items exported included not only processed foods, basmati rice and guar gum. 7/27/12 In fact, the company met the soft drink concentrate

Business Environment

Economic Environment Political AND Legal Environment Social and Cultural environment Technological Environment

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Economic Environment
GDP growth rate Trends- avg. 8%,2011-7.8% GDP Per Capita- $3400(2010 est.),$7400(2010)- CIA Factbook Agriculture: 15.7% Industry: 28% Services: 54.9% (CSO and Economic Survey,2009-10) Labor Force- 478.3 million (2010 est.)CIA Factbook country comparison to the world: 2
Click to edit Master in 2011 Inflation Rates-9.02-average rate subtitle style

Unemployment Rates -9.4% (2010 est.)#,U.S-9.20%(June,2011)* Population below poverty line-37% Planning Commission (Tendulkar Committee) Ease of doing business-134(2011),135(2010) out of 183 countries. World Bank Countries Ease of doing biz
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Comparison of countries http://www.globalfirepower.com/coun tries-comparison-detail.asp

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A nation's ranking on the index is based on the average of 10 sub indices:

Starting a business - Procedures, time, cost and minimum capital to open a new business Dealing with licenses - Procedures, time and cost of business inspections and licensing (construction industry) Hiring and firing workers - Difficulty of hiring index, rigidity, difficulty of firing index, hiring cost. Registering property - Procedures, time and cost to register commercial real estate Getting credit - Strength of legal rights index, depth of credit information index Protecting investors - Indices on the extent of disclosure, extent of director liability and ease of shareholder suits Paying taxes - Number of taxes paid, hours per year spent preparing tax returns and total tax payable as share of gross profit

Trading across borders - Number of documents, number of signatures and time necessary to export and import 7/27/12 Enforcing contracts - Procedures, time and cost to enforce a debt contract

Economic Environment
Levels of income and its distribution capita income(2010) Low income or less Lower middle income $3,975 Upper middle income $12,275 7/27/12 Per $1005 $1006 $3,976 -

Limited Industrialization- High dependence on agriculture. High Birth rates Low Literacy Rates Heavy reliance on foreign aid. Political instability and unrest Excessive Unemployment and underemployment Technological Backwardness Excessive dependence on imports The vicious circle of poverty.
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Low income Countries

Early stages of Industrialization

Lower Middle Income countries

Expansion of consumer markets Availability of cheap and motivated Labor Force Domestic markets dominated withclothes, batteries, tires, building material, etc. Post threat to the rest of the world through cheap labor E.g India Philippines, Indonesia, 7/27/12

Upper Middle Income countries Less dependency on agriculture

Occupational mobility of the people from agriculture to industry. Migration of people from rural to Urban areas-Urbanization. High Exports and rapid economic development. e.g.. Chile,Colombia, Costa Rica,Cuba,Brazil,etc.

High Income countries

Service sector contributes more than 50% to the GNP.
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Basket Cases
Countries which are unattractive for investments and operations due to economic, social and political problems. Republics of former U.S.S.R best example. USA, Canada, Japan and European Economic Area represent 77% of worlds income.

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Political and Legal Environment Anti Trust litigation

Environment protection laws Tax laws
http://www.taxrates.cc/html/argentina-tax-rates.html

Special Incentives Foreign Trade Regulations Attitude towards foreign companies Stability of Government

Corruption Perception Index: 87/178

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Competition Act
Prohibition of Anti Competitive Agreements (Global Lysine Cartel-5 firms-2 Japanese,2 S.Korea+1 U.S Archer Daniels Midland-Hi penalty imposed) Prohibition of Abuse of Dominance (Microsoft-IE, German Govt. asked Wal-Mart to lower prices)
7/27/12 Regulation of Combinations