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This case discusses the methods that Pepsi, an international food and beverage company, used to enter India's market even after Coca-Cola was banned from the country in 1988. Apart from the government regulations, this case also explains other issues that hindered Pepsi from joining the Indian market, for example competition from other carbonated drinks and fear of health implications (Greer, 2018).
Their primary strategy that eventually worked was to sell themselves to the Indian government. Pepsi presented their case and explained ways that this opportunity would result in a win-win situation by making commitments that would contribute to the growth of India's economy. The case explains the lucrative promises that Pepsi made to the regulatory authority, such as boosting Punjab's economy through agriculture and creating employment for Indian citizens. The case also discusses the criticism posed against Pepsi for failing to fulfill their promises and commitment. Pepsi only honored a section of these promises. This case further explains Pepsi's step to conduct business on its own after the liberation of India's economy and its decision to undertake contract farming initiatives and its rationale. The case also explains the strategies that multinational companies can use to venture into a new international market (Mukund, 2003) .
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Key Issues pertinent to Case
A letter to Pepsi, and the reasons Pepsi wished to venture into India.
The promises that helped Pepsi to enter India.
Promises kept by Pepsi.
Promises broken by Pepsi.
India's economic liberation and what this meant for Pepsi.
Pepsi manages the move of going farming.
Pepsi doing business on its own terms.
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In the 1980s, Pepsi expressed their intention of entering the Indian market. However, this was not well received by the Indian Government because, in 1988, Pepsi's president received a letter written by the Secretary-general of one of the leading political parties in India, General Fernandez. This letter warned the company of the fate that will befall them, as Coca-Cola experienced if they tried their move (Mukund, 2003) . However, Pepsi did not give up as they knew the benefits that would be achieved by tapping the Indian market. Pepsi was adamant about being discouraged from venturing into India because India's large population was an untapped market for their product, seeing that there was no competition. The US market was also saturated, and Pepsi needed to diversify. The company also wanted to develop in India during an era of urbanization.
To prove themselves worthy of the Indian market, Pepsi had to devise lucrative strategies for the government. Their first proposal was to promote the export of India's agricultural products and import cola to India to manufacture Pepsi's products (Mukund, 2003) . The Indian government rejected this proposal, and Pepsi came up with different promises and commitments. These new promises focused on Punjab, and Pepsi promised to help the small business people and farmers by establishing food-processing factories that would buy their produce. Pepsi also promised to create employment for Indian civilians. These opportunities would help to rehabilitate the youth who had been radicalized to join terrorism. Eventually, these proposals were accepted, enabling Pepsi's establishment in India.
Pepsi managed to keep some promises, including establishing a processing plant at Zuhura village in Punjab. This establishment was a processing company that made tomato paste. The factory created employment opportunities for Indian citizens, and the evident beneficiaries were the tomato farmers who sold their produce to the establishment. However, Pepsi failed to honor their commitment in some ways. The company underpaid the farmers by offering them Rs0.75 per kilogram of tomatoes when the market price was Rs 2.00 per Kg. Pepsi also employed an insignificant number of citizens, contradicting their initial promise of hiring 56,000 people; they even attempted to reduce the workforce.
The liberation of India's economy was an advantage to Pepsi. The Indian government removed restrictions on foreign trade (Rao & Kadam, 2016) . This unbound Pepsi from the laws that stated they should only own 25 percent of their establishment and export 50 percent of their products. This made Pepsi the sole owners of their investment in India, and they shifted their focus to soft drinks and changed their name from Lehar Pepsi to Pepsi.
Pepsi managed to introduce contractual farming to Indians, and this benefited their welfare and economy. This was mostly for tomato farmers, and the company offered them free farming equipment such as trans planters and seedling machines. The farmers also received high-quality seedlings from Pepsi. Pepsi also introduced the Pepsi Agri Backward Integration Programme, which encouraged farmers to cultivate potatoes with low sugar content. After all, Pepsi's presence in India was beneficial because the company also introduced initiatives to promote groundnut farming and introduce technology to Indian farmers.
In the early 2009s, Pepsi resulted in doing business on its own in India. The company started exporting processed food, basmati rice, soft drink carbonate, and guar gums. Pepsi also managed to secure farming deals, for instance, collaborating with the Punjabi Agri Export Corporation to process and export citrus fruits (Gupta, 2020) . Pepsi also introduces the concept of organized and economical farming of seaweed in Tamilnadu.
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Companies like Pepsi need to globalize to expand their market. This move can be accomplished by increasing sales through the creation of global branches. Pepsi also needed to globalize to reduce its production cost. By setting up factories in third-world counties such as India, the company can access cheaper labor and resources than in first-world countries like the United States. Companies like Pepsi need to globalize their operations for diversification purposes. Diversity enables the company to reduce risks and avoid collapsing because it has many branches. Globalization also increases the production efficiency of a company as it acquires many points of operation. There are various ways that a company can enter a foreign market, including strategic alliances; for instance, Pepsi made an agreement with the Punjabi government body, Punjabi Agri Export Corporation, to form an agriculture and processing company (Greer, 2018) A new company can also venture into a new market through mergers and acquisitions. Pepsi adopted this by acquiring significant shares of Futara Polymers, an Indian company that deals in recycling plastics. Exporting products can also be used as a strategy for a company to enter a new market.
Some of Pepsi's problems when entering the Indian market include the unavailability of cola in India, a vital ingredient in their products that they could not import. Pepsi also suffered political disadvantages that led to terrorism cases, affecting their business. The company's biggest problem was the low demand for soft drinks caused by a lack of awareness. This caused the company to record a minimum profit in India.
Pepsi used smart strategies to sell themselves to the Indian Government. They promised to increase employment in their factories for Indian citizens. The company also promised to revive and improve the agricultural sector, which is India's main economic activity. This also included introducing and facilitating the export of agricultural products. I agree that the most significant factor responsible for the acceptance of Pepsi's proposal by the regulatory authorities was the projection of its operation as the solution to many of Punjab's problems because they made commitments to improve the welfare of Punjab. Pepsi's strategy committed to developing areas around its operations and contributing to agriculture development, which is one of Punjab's main priorities.
After the changes in the business environment caused by the liberation of the Indian economy, the company changed its name from Lehar Pepsi to Pepsi and bought off its shareholder, Voltas, and PAIC, remaining the sole owners of PepsiCo. The company maintained its support in agribusiness, increasing its growth by 50 percent. Pepsi did not adhere to most of its commitment because it failed to create employment for 56,000 citizens and promised, employing only 2,400 individuals. The agro research establishment that Pepsi promised to fund was not established, and the company failed to adhere to its promise of exporting 50 percent of its products.
Pepsi supported the contract farming initiative of increasing tomato production in India by providing high-quality seeds to the farmers and advanced farming equipment. Pepsi's rationale was also to increase their own business while promoting social welfare. They achieved this by taking initiatives to support chili farming, groundnut farming, and growing low sugar potatoes for chips (Mukund, 2003) . It is essential for multinational corporations to work toward the improvement of the countries they operate to provide a conducive environment for their employees, seek profitable rewards for the investors, and enrich their business partners. This can also be done by maintaining the quality production of products and establishing good customer relations.
References
Greer, G. (2018). Win in India: An Analysis of Market Entry Strategy Into India’s Food and Beverage Industry.
Gupta, S. (2020). How India became Pepsi's right choice. Retrieved 17 October 2020, from https://www.business-standard.com/article/companies/how-india-became-pepsi-s-right-choice-114032701308_1.html
Mukund, A. (2003). Pepsi's Entry into India: A Lesson in Globalization (Tech.). ICFAI Center for Management and Research.
Rao, A., & Kadam, K. (2016). 25 years of liberalisation: A glimpse of India’s growth in 14 charts - Business News , Firstpost . Firstpost. Retrieved 17 October 2020, from https://www.firstpost.com/business/25-years-of-liberalisation-a-glimpse-of-indias-growth-in-14-charts-2877654.html .
