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									Challenges of International Marketing for US Companies:
                   Cola Wars in India

                       Ajay Manrai
                       Lalita Manrai

                         Professors
          Lerner College of Business and Economics
                University of Delaware, USA




                       Presented at
            The International Business Congress
            UPC, Lima, Peru on October 13, 2010       1
                          Presentation Outline
PART A (Dr. Lalita Manrai)
I.INTRODUCTION
    1. Why Do Companies Go International?
    2. What is it Like to Do Business Abroad?

II.THE MARKETING SYSTEM
        a). Consumers
        b). Competitors
        c). Macro Environment
        d) Micro Environment

III.INTERNATIONAL MARKETING CHALLENGES
        a). Socio-Cultural Aspects of Consumer Behavior
        b). Political and Legal Aspects of Government Regulation
        c). Structure and Strategies of Competitors
        d). Interests and Concerns of the Society at Large

IV. CONCLUSIONS
       1. Major Obstacles to Success in International Marketing
       2. Factors Critical for Success in International Marketing   2
               Presentation Outline…continued
PART B (Dr. Ajay Manrai)

                CASE STUDY:
    Coca-Cola (Coke) and Pepsi-Cola (Pepsi)
     Challenges of International Expansion:
  Learning to Compete in India in the Last Two Decades




                                                         3
                 I. INTRODUCTION

1. Why Do Companies Go International?

   * Pull and Push effects

   * World wide expansion opportunities for US Multinationals
     in the post World War II period

   * Energy crisis of 1970s and economic events following it

   * Globalization of Businesses
      - International operations of US Companies
      - Internationalization of US Businesses

                                                               4
International Operations of US Companies

•      Overseas Investment by US Companies - $13.7 Trillions

•       Percent Revenues from Overseas sales for US Companies
        Coca Cola - 70%+
    Intel – 78%+
    HP – 65%
    GE – 48%
    Ford – 46%
    Wal-Mart – 22%




                                                                5
Internationalization of US Business

•   Foreign Investment in USA - $16.3 Trillion

•   Foreign Acquisition of US Companies ---

        IBM Thinkpad PCs (China)
        Burger King (UK)
        The Wall Street J (Australia)
        Colombia Pictures (Japan)
        Chef –America (Switzerland)




                                                 6
2. What is it Like to Do Business Abroad?

Survey of several hundred US companies with international operations
(in early 1990s) asked:

* If you could make the same amount of profit and the market growth
  opportunities are the same, would you choose to do business in –

        a. _________ USA

        b. _________ Abroad


* Results? Why?




                                                                       7
  Due to the Differences in the
International Marketing Systems
         II. The Marketing System


Micro                 Company        Co. 4Ps                              Micro


        Environment                             Consumers   Environment


Macro                 Competitors   Comp. 4Ps                             Macro




                                                                             9
III. International Marketing Challenges
a). Socio-Cultural Aspects of Consumer Behavior

b). Political and Legal Aspects of Government Regulation

c). Structure and Strategies of Competitors

d). Interests and Concerns of the Society at Large




                                                     10
III. International Marketing Challenges
a). Socio-Cultural Aspects of Consumer Behavior
 1. Values: Individualism - Collectivism, Gender Preferences
      Examples: Travel Advertising in Canada
               : P&G Diapers in Korea and China

 2.   Beliefs: Right - Wrong, Lucky - Unlucky
      Example: Mattel- Barbie and Ken Dolls in India
              : Disney Rides, Hong Kong – Feng Shuied

 3. Aesthetics: Cleanliness, Beauty
      Examples: P&G Diapers in Japan
              : Mattel – Barbie Doll in Japan

 4.   Symbolism: Verbal – Non Verbal Languages
      Example: High Context Culture – Latin America
             : Low Context Culture - USA                11
  III. International Marketing Challenges
   a). Socio-Cultural Aspects of Consumer Behavior

5. Religion: Dietary Requirements/Restrictions
   Examples: McDonald’s in India and Israel
                                                     Mac Aloo Tikki
                                                 Chicken Maharaja Mac
6. Family: Role of Men and Women
   Example: Advertising of Gerber Baby Food in Costa Rica

7. Ethnicity – Taste Preferences
   Example: Domino Pizza in India: Variety of Ethnic Versions

8. Cultural Borrowing: Adoption of Foreign Tastes
   Example: Pizza Hut in India Sells “Oriental” Pizza


                                                                12
  III. International Marketing Challenges
  b). Political/Legal Aspects of Government Regulation
1. MOE: Joint Ventures, Manufacturing (Direct Investment)

       Examples: GE & WIPRO JV in India
       :Direct Investments in EU Due to Increased Protectionism

2. Political Risks: Confiscation, Expropriation, Domestication
    Example: Improve BOP – Nestle, Australia – Coffee Exports
       : Japan Building Highways in Tanzania for Safari Tourism

3. Economic Risks: Local Content Laws
    Example: McDonald’s Uses Local Beef in Brazil

4. Legal Risks: Protection of Intellectual Property
   Example: DuFont in China
      : Golden Arches Registered by a Japanese Entrepreneur       13
III. International Marketing Challenges
 c). Structure and Strategies of Competitors
1. Perception of Competition: East versus West
   Examples: West - Market Efficiency and Improvement
      : East - Cooperation is More Salient, and
        Efficiency is achieved via Reduced Transaction Costs




2. Worldwide Competition: World’s 100 Largest Companies
   Examples: Change from 1963 to 2007: #s out of 100
   USA : 67 to 34
   EU: Britain, 7 to 9; France, 4 to 9; Italy, 2 to 4;
       Netherlands, 1 to 4; Spain, 0 to 3; Swiss, 1 to 4
   Asia: China, 0 to 3; Japan, 3 to 8; S. Korea, 0 to 4  14
   III. International Marketing Challenges
     c). Structure and Strategies of Competitors
3. Determinants of Brand Preference: Better Quality @ Cheaper Prices
   Country Specific Difference in Price-Quality Tradeoffs
   Example: Cell Phones that do not have Roaming Capability
      will not sell in Japan at any Price but Acceptable in China




4. Dimensions of Quality: Market Perceived Quality, MPQ, versus
                          Product-Performance Quality, PPQ
   In Highly Competitive Markets, Consumers Take PPQ as Given
   Because of Many Choices and Thus, MPQ Makes a Difference
   Example: Chinese Refrigerator Manufacturer Offered Options on Design
      and Color of Refrigerator Handles (MPQ) to Gain Market Share over
      Foreign Imports (PPQ) – WHY?
       Chinese keep refrigerators in their Living Room.             15
   III. International Marketing Challenges
    d). Interests and Concerns of Society at Large
1. Consumer Protection: Obesity Attributed to Fast Foods
   Examples: McDonald’s Response to Overcome the Problem
   * UK Campaign Called “Changes” - Healthy Menu Items

2. Environment: Pollution, Resource Shortage, Eco-System Imbalance
                         Examples: * China has 16 of World’s 20 Most Polluted Cities
                :        * Mexico City, Water Consumption – 16,000 gallons/Sec.
                                        Water Production – 2 ,640 Gallons/Sec.
                :        * Narmada Valley Dam Project in India - Displaced Tens of
                                        Thousands of People




   Sustainable Development: Economic Growth with Wise Resource Mgmt
   Equitable Distribution of Benefits and Reduction of Negative Effects
   Balance Between the Economy, Environment and Society                       16
                    IV. CONCLUSIONS – Part A

1. Major Obstacles to Success in International Marketing

•   Self-Reference Criterion (SRC)
        Unconscious reference to one’s own cultural values, experiences, and
        knowledge as a basis for decision

•   Ethnocentrism
       Notion that people in one’s own company, culture, or country know
       best how to do things
               IV. CONCLUSIONS – Part A
 2. Factors Critical for Success in International Marketing
•Knowledge of Culture, History, Global Economic, Social, Political Trends

• Tolerances of Cultural Differences

• Cultural Sensitivity –
  Objectively viewing the new culture and appreciating the nuances

• The more exotic the new culture , the more sensitive, tolerant and
  flexible an international marketer needs to be


                        Countries and Cultures
                           Need to Coexist
                                 and
                            Live in Peace
                                                                       18
         Coca-Cola (Coke) and Pepsi-Cola (Pepsi)
          Challenges of International Expansion

                Learning to Compete in India
                The Last Two Decades


The Beverage Battlefield?



“We have had a rather rough run in India”…Coke, 2007

“India is a beverage battlefield in this decade and beyond”… Pepsi

                                                              19
                     Coke and Pepsi
          Challenges of International Expansion
   Both companies faced a range of unexpected problems and difficult situations
   that led them to recognize that competing in India requires

   • Special Knowledge

   • Skills

   • Local Expertise


Coke and Pepsi Managers had to learn the hard way –

“What works here (USA)” does not always “Work there (India)”


WHY?                                                                          20
                       Coke and Pepsi
            Challenges of International Expansion


                            Answer to Why?

                “Environmental Perspective”

“The environment in India is challenging but we are learning how to crack it.”
Industry Leader




                                                                          21
                Indian Soft Drinks Market
             Political and Legal Requirements
      Pepsi entered the Indian Market in 1986 in collaboration with
                       Voltas and Punjab Agro as

                        PEPSI FOODS LIMITED


                   Under Very Stringent Conditions:
      • Mandated that it be promoted under the name “Lehar Pepsi”
• Sales of Soft Drink concentrate to local bottlers should not exceed 25% of
                        Total Sales of the New venture
       • Required to process and distribute local fruits and vegetables

         We’re willing to go so far with India because
         We want to make sure we get an early entry
  while the market is developing”… Wayne Calloway, CEO
                                                                          22
              Indian Soft Drinks Market:
            Political and Legal Requirements

       Coke Re-entered the Indian Market in 1990
Coke’s first entry in Indian Market was in 1958 but it exited in 1977
  as a result Indian Government pressure to

• Reduce Equity Stake to 40%

• Reveal its Secret Formula for the syrup



Re-entered in 1990 in Collaboration with Britannia Industries India Limited as

BRITCO FOODS

                                                                          23
                 Indian Soft Drinks Market:
                  Customer Characteristics
• Market Estimated at about US $1.3 Billion Market in 2000, &
  Growing only around 1% annually
  Overall Beverage market is US $3.2 Billion and Growing 6%
  [including fruit juices and water]

• Target Market Demographics: 14 – 25 years old (Urban Youth)

• Seasonal: More than 50% Consumption during mid April – June (70-75 days)
        Next Highest Season is 20-25 days around Nav-ratri (mid October)
• Product Segments
    • Carbonated Soft Drinks (Perceived artificial and unhealthy)
        • Cola
        • Cloudy lemon
        • Orange
        • Soda (carbonated water)
        • Mango
        • Clear Lemon
    • Non-carbonated Drinks (Perceived natural, healthy, tasty)
        • Frooti (mango drink)                                               24
                    Indian Soft Drinks Market:
                    Competitor Characteristics
• Major Players – mid 1990s
    • Parle Agro (60% down from 70% in pre-Pepsi era)
        • Thumps Up, Limca, Citra, Fanta, Mazaa, Frooti, Bisleri
        • Image Advertising
             •Thumps Up – Job well done, and personal success




    • Pepsi (26%)

    • Pure Drinks (10%) – Campa Cola

    • Duke, Modern Foods, McDowell & Others (4%)
                                                                   25
                  Indian Soft Drinks Market:
                  Competitor Characteristics

•Pepsi’s Strategy – until mid 1990s

    • Lehar 7UP and Lehar Pepsi in major cities like Delhi and
    Mumbai

    • Aggressive pricing on 1 liter bottle

    • New bottle size 250 ml

    • New brands – Slice and Teem

    • Fountain sales




                                                                 26
   Indian Soft Drinks Market – Coke Strategy

• Strategy – until mid 1990s
    • Bought Parle’s bottling plants in major cities like Delhi and Mumbai
    • Bought Parle’s; leading brands including Thumps Up
    • Kinley Water

    Then in 2000s Coke stepped up its game -

    • Think Local and Act Local
         • “Thumps Up – TASTE the THUNDER”
         • Thumps Up “Toofani Ramjhat “ (Fast Dance) – During Navratri
         • Buy one get one free
         • Lucky Draw – Win a Trip to Goa (Famous for its Beaches)
         • TV Campaigns
             • Local and Regional Festivals and CRICKET games
             • Amir Khan and Aishwarya Rai (Bollywood mega stars) in Coke ads
             • “Mumbai Dreams” with songs and music by A.R. Rahman
                                                      (Oscar Winner)
                                                                             27
Indian Soft Drinks Market – Pepsi Strategy

• Reaction   to Coke’s Strategy in 2000s
   • New brands and fruit drinks – Mirinda Lemon, Apple, and Orange in 200 ml
   • Limited Edition “Icy-blue” cola in 300 ml bottles (refillable glass bottles)
   • Introduced 250 ml for INR 12 [US $0.25] and 500 ml bottles for INR 15 (plastic)
   • Introduced its world class brand – Gatorade




   Increased promotional efforts -
   • “KEEP IT COOL”
   • Tie up with Zee Alpha TV to telecast Navratri
   •   Sponsorship of Garba in selected places (traditional dance)
   •   Refill one case of 300 ml bottles and get one kilo Basmati Rice free
   •   New campaign with Cricket celebrities
   •   Bollywood all time hero Abhithab Bachan and then the King Shah Rukh Khan
                                                                                  28
             Indian Soft Drinks Market:
           New Challenges at Societal Level
Pesticide Contamination Allegation

• Coke and Pepsi contain significant levels of pesticide residue
• Some States announced partial bans on use of the Coke and Pepsi products
• They did not respond swiftly and were reluctant to give details quickly
  and it fanned consumer suspicion and it backfired

 In India people interpret silence as “admission of guilt”
 Coke and Pepsi were to roll up sleeves and get in the streets but the mangers
 did not understand it.

 * Center for Sanity and Balance in Public Life (Kishore Asthana) says –
   You can drink a can of Coke every day for two years before taking in as much
   pesticide as you get from two cups of tea.

 * Tests by Ministry of Health and Family Welfare showed that soft drinks
   produced by Coke and Pepsi were safe                                   29
                        Indian Soft Drinks Market:
                      New Challenges at Societal Level


                              Water Usage

• One report claims that
  A bottling plant that produces 300,000 liters of soda drink uses
  1.5 million liters of water, enough to meet requirements of 20,000 people

Coke’s bottling plant license was not renewed by local village council because
it was perceived that it is depleting the water resources for farmers’ drinking
Water and irrigation supplies.

Later on appeal it was permitted to reopen but as stirred by an activist in USA,
Several students at a mid Western US University protested and banned Coke
Products from the campus. It spread like wild fire at 20 other campuses in USA.

Coke response: “We are not running away. The area will have water problem
   even if we shut down. We would rather stay and work with the farming
   communities and industries to reduce the amount of water used”       30
             IV. CONCLUSIONS – Part B
Lessons from the Experience of Coke and Pepsi in India
I. Political/Legal
   * Challenges:

   - Stringent Requirements for Entry/Re-entry

   - Restriction on Pepsi Name, Sale of Concentrate to Bottlers etc.


   * Strategy: Conforming to the Regulation by Indian Government for
    Joint Ventures/Collaborations

   - Pepsi Entered the Indian market in 1986 in Collaboration with
     Voltas and Punjab Agro as Pepsi Foods Ltd.

   - Coke Re-entered in 1990 in Collaboration with Britannia as Britco Foods
                                                                        31
               IV. CONCLUSIONS – Part B
Lessons from the Experience of Coke and Pepsi in India
II. Market/Customer
   * Challenges:

   - Significant Market Demand (US $1.3 B)
   - Seasonality in Demand – Summer Months &
     Festival Season (Navratri)

   - Target Population Demographics –
     Urban Youth (14-25 years)
   - Poor Perception as Artificial and Unhealthy

   * Strategy: Association with Local Culture, Traditions, Activities/Celebrities
   - Coke Bought Thumps Up from Parle & Promoted it as Toofani Ramjhat
    [Fast Dance] During Navratri Festival Season

   - Pepsi Tied up with Zee Alpha TV to Telecast Navratri Festival and
     Launched Campaign with Cricket Celebrities and Bollywood Top Stars32
            IV. CONCLUSIONS – Part B
Lessons from the Experience of Coke and Pepsi in India
III. Competition/Industry
   * Challenges:

   - Large Number of Local Brands and Non Carbonated Beverages

   * Strategy: Relevance of all 4Ps of Marketing Strategy

   - Coke in 2000s: Buy 1 Get 1 Free, Lucky Draw with a Prize of Trip to Goa

   - Pepsi in 2000s: Introduced New Brands and Fruit Drinks (Teem, Slice)
                     Introduced Gatorade, New Sizes and Refillable Bottles
                      Free Goods with Refill of a Case



                                                                        33
            IV. CONCLUSIONS – Part B
Lessons from the Experience of Coke and Pepsi in India
IV. Public and Society Coke “Drinks India Dry”

   * Challenges:

   - Pesticide Contamination Allegation – Partial Ban on Use of Coke and Pepsi

   - Depletion of Water Resources – Coke’s Bottling Plant License was revoked

   * Strategy: Scientific Tests, Corporate Citizenship, Speed of Response

   - Tests by Ministry of Health and Family Welfare Showed – Colas are SAFE

   - Coke worked with Local Farming Communities and Industries to
     Reduce Water Usage and Harness More Resources

   - Later, Coke’s License was Renewed on Appeal                         34
THANK YOU!



             35

								
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