Coke and Pepsi in India:

Issues, Ethics and Crisis Management

Assignment 2

Dharshviny a/p Sasidharan

SCM-006798

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Table of Contents

No. Contents Page

1. Identify the issues that are going on in this case with respect to issues

management, crisis management, global business ethics and stakeholder

management. Rank these in terms of their order of priorities for Coca

Cola and for PepsiCo.

1.0: Coca Cola and PepsiCo Attacked: The Story

1.1: Timeline of Cola-Pesticide Controversy

1.2: Issues Management by Coca Cola and PepsiCo

1.3: Crisis Management by Coca Cola and PepsiCo

1.4: Global Business Ethics and Stakeholder Management by

Coca Cola and PepsiCo

3-5

5-9

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9-12

12-13

2. Evaluate the corporate social responsibility (CSR) of Coke and Pepsi in

India.

2.0 : Corporate Social Responsibility of Coca Cola and PepsiCo 13-14

3. What lessons does this case present for MNCs doing business in the

global marketplace?

3.0: Lessons for MNC’s doing Business in Global Marketplace 14

4 References 15

1.0 Coca Cola and PepsiCo Being Attacked: The Story

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Coca Cola and PepsiCo are multinational corporations (MNCs) that face challenges as

they conduct business around the world, especially in developing nations and emerging markets.

Coke and Pepsi faced serious problems in the year 2003 when India’s Centre for Science and

Environment (CSE) an independent public interest group, made allegations that tests they had

conducted revealed dangerously high level of pesticides residue in the soft drinks which are sold

all over India. The director of CSE, Sunitha Narain stated that such residues can cause cancer

and birth defects as well as harm nervous and immune system if the products were consumed

over long periods of time. CSE found that the Indian produced Pepsi soft drinks products had 36

times the level of pesticide residues permitted under European Union Regulations; Coca Cola

has 30 times (Luce, 2003). CSE said it had tested the same products that they wouldn’t dare sell

at home.

Besides that, these companies faced crisis when another special interest group, India

Resource Centre (IRC), accused the companies of over consuming scarce water and polluting

water source due to its operations in India. IRC dramatically criticized the companies, especially

Coca Cola, by detailing a number of different ‘water woes’ experienced by different cities and

regions of the country. IRC’s allegations even more broadly accused the companies of water

exploitation and of controlling natural resources, and thus communities. Examples that were

frequently cited are the impact of Coke’s operations in the communities of Kerala and

Mehdiganj.

Centre for Science and Environment (CSE) and India Resource Centre (IRC) are

secondary stakeholders who quickly become primary stakeholders due to the crisis. In year 2004,

IRC continued its campaign ‘to hold Coca Cola Accountable’ by arguing that communities

across India were assaulted by Coke’s practices. Among the continuing allegations were;

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communities’ experiencing severe water shortages around Coke’s bottling plants, significant

depletion of water table, strange water tastes and smells and pollution of groundwater as well as

soil.(India Resource Centre, n.d.) IRC said that in one community, Coke was distributing its

solid waste to farmers as fertilizer and that tests conducted found cadmium and lead in the waste,

thus making it toxic waste. The accusation of high levels of pesticide continued. When checked

their past, before this problem arose, Coca Cola had made a type of bottled water called Kinley.

During the production of the bottled water, Pollution Monitoring Laboratory (PML) performed

some tests on the product. Through these tests, the PML found that the bottled water revealed

evidence of pesticide residue. This information had gone public, so Coca-Cola decided to stop

the production of the product and eventually this incident was forgotten.

Due to Coca-Cola’s behavior of saving most of their consumers by quickly removing the

problem of the product, many other suspicions grew and later brought on sanitation tests. A later

test showed that Coca Cola and Pepsi products in India from Thane in Maharashtra contained

200 times the permissible level of neurotoxin chlorpyrifos. (Walia, S., Balasingh, S., Dureja, M.,

2006) CSE director Sunita Narain said, pesticide residues of samples were as high as 52 times in

bottles bought in Kolkata, while the Nainital and Gorakhpur samples had pesticide residues 42

times more than the allowed limits. On the other hand, pesticide residues from samples in

Mumbai, which were manufactured in Thane and Nagpur, were 34 times above the BIS standard,

according to the study. Ironically, the Union Health Ministry is opposing the standards set by the

Parliamentary panel which was set up following similar revelations in 2003 by the CSE. The

ministry says, before setting standards for the industry, exhaustive research has to be done but

the three year delay to carry out those research that has drawn flak.

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1.1 Timeline of Cola-Pesticide Controversy

Date Event

August 6, 2003 The Centre for Science and Environment releases report about

pesticides in Coca Cola and Pepsi beverages.

August 8, 2003 PepsiCo files a petition in Delhi High Court, challenging the reliability

of CSE findings and calls for a review by experts committee

August 13, 2003 Several state governments order pesticide tests on Pepsi and Coca Cola

products.

India’s Supreme Court declines to hear the petition challenging CSE

findings

August 22, 2003 A Joint Parliamentary Committee (JPC) is set up to determine whether

CSE report on pesticides is correct, and to suggest criteria for evolving

appropriate standards for carbonated drinks and other beverages.

August 30, 2003 The Central Government issues a draft modification of the Prevention

of Food Adulteration Act, clubbing all beverages together for the

purpose of formulating standards.

November 2003 The JPC directs the Bureau of Indian Standards (BIS) to formulate

appropriate standards for carbonated beverages.

February 4, 2004 The JPC report, confirming CSE findings, is presented to Parliament.

February 13, 2004 The Ministry of Health and Family Welfare directs the pesticide

subcommittee of the Central Committee for Food Standards (CCFS) to

come up with recommendations regarding pesticide levels

June 23, 2004 The pesticide residue subcommittee of CCFS recommends yearlong

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monitoring of carbonated beverages.

July 15, 2004 The BIS finalizes draft standards for carbonated beverages.

July 27, 2005 The Ministry of Health and Family Welfare Issues notification that

water used in making carbonated beverages must follow the standards

of bottled water.

October 2005 Standards are finalized by the BIS.

March 2006 Standards are confirmed but not notified

August 2, 2006 Nearly three years after its first study, CSE releases another study of

beverages, documenting presence of pesticides at unsafe levels in most

Coca Cola and Pepsi brands. On the basis of the report, several states

ban the sale of Coca Cola and Pepsi products in educational

institutions. Bans in educational institutions are still in effect in several

places.

Source: Adapted from CSE (2003).

According to IRC, the parliament of India banned the sale of Coca Cola in its cafeteria.

Another significant event in February 2004 was the government’s joint parliamentary

commissions “seconding” of CSE’s findings. In December 2004, India’s Supreme Court ordered

Coke and Pepsi to put warning labels on their products. This caused a serious slide in sales for

the next several years. These actions shows how special interest groups, have reacted when faced

with a crisis. When talking about these crisis, we should discuss what patterns had lead concern

towards these crisis.

This was a clear departure from the historical pattern of environmental movements in

India that have focused, using grassroots action, on such problems as deforestation, displacement

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of people as a result of development projects, involving construction of dams and access to

protected areas, such as national parks. Most of these issues have increased threat to livelihood

security from environmental degradation as their most important dimension. These issues made

special interest groups to take action dramatically without fail. CSE’s strategic thinking, which in

a nutshell involved the relationship between environments and consumers in India, bore fruit and

was responsible for relatively successful trajectory of its campaign. The strategy is premised on

leveraging increasingly assertive and burgeoning consumers for which the environment has

emerged as a particular contested site of consumption.

The open conflict has settled down and sales took an upturn for both companies, but the

issues lingered on. In June 2007, the Indian Resource Centre accused Coca Cola as “green

washing” its image in India. The IRC staged a major protest at the new Coke Museum in Atlanta

on June 30, 2007, questioning the company’s human rights and environmental abuses. They

erected a 20-foot banner that read “Coca Cola Destroys Lives, Livelihoods, Communities” in

front of the New World of Coke that opened in May 2007. Amit Srivastava of the IRC was

quoted as saying, “This World of Coke is littered with abuses.” A representative of National

Alliance of People’s Movements, a large coalition of grass-roots movements in India, said “The

museum is a shameful attempt by the Coca Cola Company to hide its crimes.”

The protestations by these groups have apparently motivated other groups to take action

against Coke. It was reported that United Students against Sweatshops also staged a ‘die-in’

around one of Coke’s bottling facilities in India. In addition, more than 20 colleges and

Universities in the United States, Canada and the United Kingdom have removed Coca Cola

from campuses because of student-led initiatives to put pressure on the company. The protests in

Atlanta were also endorsed by a host of groups that participated in the U.S Social Forum.

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Due to all the conflicting studies and the stridency of CSE and IRC, one has to wonder

what is going on in India that caused this developing country to criticize giant MNCs such as

Coke and Pepsi so severely. Many developing countries would be doing all they could to appease

these companies. It was speculated by a number of different observers that what was at work was

a form of backlash against huge organizations that come into countries and consume natural

resources. Why were these groups so hostile toward the companies? Was it really pesticides in

the water and abuse of natural resources? Or was it environmental interest groups using every

opportunity to bash large corporations on issues sensitive to the people? Was CSE and IRC

strategically making an example of these two, hugely successful companies, and trying to put

them in place?

In late 2006, an interesting commentary appeared in Business Week, exploring the topic

of what has been going on in India with respect to Coke and Pepsi. This commentary argued that

the companies may have been singled out because they are foreign owned. It appears that no

Indian soft drink companies were singled out for pesticides testing, though many people believe

pesticide level are even higher in Indian milk and bottled tea. It was pointed out that pesticide

residues are present in most of India’s groundwater, and the government has ignored or been

slow to move on the problem. The commentary went on to observe that Coke and Pepsi have

together invested $2 billion in India over the years and have generated 12,500 jobs and support

more than 200,000 indirectly through purchases of Indian-made products, including sugar,

packing materials and shipping services.(Levick S.R., 2006)

1.2 Issue Management by Coca Cola and PepsiCo

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In this case, Coca Cola and PepsiCo went through the process of issue management when

they faced the initial allegation through the tests of Centre for Science and Environment (CSE)

which had conducted tests that revealed high level of pesticide residue in oft drinks being sold

over India. In this managerial decision-making process, Coke and Pepsi identified issue in the

stakeholder environment which is the local community who were affected for consuming their

products. Stakeholder management was taken up seriously when the crisis hit these companies

badly. Top line management had to take responsibility towards this issue. They analyze and

prioritize those issues in terms of their relevance to the organization, plan responses to the issues,

and then evaluate and monitor the results. Initially the two companies denied the allegations of

CSE and IRC primarily through media. Coke conducted its own test, the conclusion of which

was that their drinks met demanding European standards. Over the next several years, the debate

continued as the companies questioned the studies and conducted studies of their own. Their

issue management was not successful.

1.3: Crisis Management by Coca Cola and PepsiCo

However, when their issues management failed, Coca Cola and PepsiCo moved on to

crisis management when The Indian Resource Centre (IRC) also attacked the companies for not

taking the crisis seriously. There are a number of ways to describe the stages through which a

crisis may progress. One view is that crisis may consist of as many as four distinct stages; (1)

Prodromal Crisis Stage; the warning stage. (2) An Acute Stage- this is the stage at which the

crisis really occurs. (3) Chronic Crisis Stage- this may be the period of investigations, audits, or

in-depth news stories. (4) Crisis Resolution Stage- this the final stage where the goal of all crisis

management efforts.

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Coke’s response in crisis management began with Coke starting a more aggressive

marketing campaign. It ran three rounds of newspaper ads refuting the new study. The ads

appeared in the form of a letter from more than 50 of India’s company-owned and franchised

Coke bottlers, claiming that their products were safe. Letters with similar message went out to

retailers and stickers were pressed onto drink coolers declaring that was “safety guaranteed”.

Coke also hired researchers to talk to consumers and opinion leaders to find out what exactly

they believed about the allegations and what company needed to do to convince them the

allegations were false.

A TV ad campaign that featured testimonials from very well respected celebrities was

created by Coke, based on its research findings. A tour in one of Coke’s plants was made into an

ad where a popular movie star, Aamir Khan was featured. That move by the organization sent

out a significant meaning that Coke had nothing to hide. In addition to that, the movie star also

told the public that the product was safe and could be viewed personally. This was regarded as a

very persuasive move by the Coca Cola Company. The ad then was soon followed by giant

posters of the movie star consuming Coke. It appeared in public places like bus stop and so on.

Other ads were also released in order to target the adult women and housewives who make up

the majority of the food purchasing decisions in a household.

In a later interview, Coke’s CEO Isdell said he thought the company’s response during

the second wave of controversy was the key reason the company began turning things around.

After the 2003 episode, the company changed management in India to address many of the

problems, both real and imagined. The new management was especially concerned about how it

would handle its next public relation crisis. Weeks later, in December 2006, India’s Health

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Ministry said that both Coke’s and Pepsi’s beverages tested in three different labs contained little

or no pesticide residue. (Stanford, D., D., 2006)

Pepsi’s response as crisis management is similar to Coke’s. Pepsi decided to go straight

to the Indian media and try to build relationship there. Company representatives met with

editorial boards, presented its own data in press conferences, and also ran TV commercials.

Pepsi’s commercials featured the then-president in India, Rajeev Bakshi, shown walking through

a polished Pepsi Laboratory. Coke and Pepsi were armed with an unprecedented resolve to work

with each other. They were both ready to fight. They were both ready to be responsive, and the

fact patterns were on their side. They had even started the ball rolling with a colorful and

persuasive metaphor. Then came the crucial delay, the loss of momentum, and the proliferation

of inimical messages nationwide and Internet-wide.

Central Science Laboratory had a national press conference announcing the results of

their tests on August 14 attracting more than 100 journalists - a strong response, but one that

occurred nearly two weeks after the CSE pushed their story into the mainstream. The Cola

companies acted forcefully and with speed, but not as fast as the proactive NGOs. For large

companies, acting as rapidly as their own internal decision making and uncovering of the facts

will allow, often puts them at a disadvantage in the media. The earlier one meets a crisis head-on,

the better. When the cola crisis began, Coke referred journalists to supportive blogs and the

phone numbers of interest groups, including the Centre for Sanity and Balance in Public Life,

whose message points were widely quoted: "What is all the fuss about? Yes Colas have

pesticides [but] the amount is so low compared to other things Indians consume that they can be

ignored." (Levick Strategic Communications, 2007)The message may have been substantively

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accurate but it was interpreted to mean, "Don’t worry. Just be happy." It was an unfair

interpretation by the media, but it was one repeated frequently.

A pro-company blog strategy is as essential as it is brilliant. But for it to be effective as

an echo chamber there must be a central controlling voice. The beverage companies - or any

companies under attack - need to provide that initial voice. The blogs and third parties will then

provide the reverberations that form public opinion. They cannot be left on their own to do it or

you will lose control. Unfortunately, in the early days of this crisis, the Cola companies, while

highly active, were fairly quiet publicly. Running toward a crisis means confronting the other

side’s ostensible messages head-on, but without legitimizing them.

1.4: Global Business Ethics and Stakeholder Management by Coca Cola and PepsiCo

Looking at the aspect of global business ethics, Coke’s and Pepsi’s problems in India

have complicated by the fact that water carries such significance in India. We are often told

about cultural knowledge we should have before doing business in other countries. Water is one

of those issues in India, which the companies did not realize the importance of it. In spite of

having some of the worst water in the world due to poor sewage, pollution, and pesticide use,

according to UN sources, water carries an almost spiritual meaning to Indians. Bathing is viewed

by many to be a sacred act, and tradition for some holds one’s death is not properly noted until

one’s ashes are scattered in the Ganges River. In one major poll, Indians revealed that drinking

water was one of their major life activities to improve their well being. Indians sensitivity to the

subject of water has undoubtedly played a role in the public’s reaction to the allegations.

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Coca Cola and PepsiCo had given priority in issue management, and then followed by

crisis management, stakeholder management and global business ethics.

2.0: Corporate Social Responsibility by Coca Cola and PepsiCo

When all the criticisms attacked Coke and Pepsi, roughly from 2003 to 2006, both

companies were pursuing corporate social responsibility (CSR) initiatives in India, many of them

related to improving water resources for communities, at the same time as the conflict occurred.

Pepsi increased its efforts to cut down on water usage in its plants. Employees in the

plants were organized into teams and used Japanese-inspired Kaizens to emphasize continuous

improvements to bring waste under control. The company also employed local lobbying of

government.

Coca-Cola continues its initiatives to improve situation in India and around the world.

Coke faces water problems around the world because water is the key natural resource that goes

into its products. The company now has 70 clean water projects in 40 countries aimed at

boosting local communities. Coke made “water stewardship” which is a strategy plan when face

shortage of clean water. In august 2007, Coca-Cola India disclosed its 5- pillar growth strategy to

strengthen its bonds with India. Coke’s new strategy focuses on the pillars of People, Planet,

Portfolio, Partners, and Performance. The company also announced a series of initiatives under

each of the five pillars and announced its “Little Drops of Joy” proposal, which tries to reinforce

the company’s connection with stakeholders in India.(Krishnamurthi, P., Ramji, L., 2007) Pepsi

has continued on a number of projects as well. One new initiative is that the company now

gathers rainwater in excavated lakes and ponds and on the rooftops of its bottling plants in India.

The company also sponsors other community water projects as well.

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3.0 Lessons for MNC’s doing Business in Global Marketplace

The criticism of Coke has been most severe in India. CEO Isdell admits that the

company’s experience in India has thought some humbling lessons. Isdell, who took over the

company after the crisis had begun, told the Wall Street Journal, “it was very clear that we had

not connected with the communities in the way we needed to”. After the 2003 episode, the

company changed management in India to address many of the problems both real and imagined.

The new management team was especially concerned about how it would handle its next public

relations crisis.

Through the case of Coca Cola and PepsiCo, it is well seen that MNC’s must take

necessary measurement to study the culture, values, beliefs and even the language of a foreign

market before commencing in any kind of business. This case has shown two giant businesses

the impact of neglecting the sensitivity of the people in India. Even though they were severely

attacked and caused much harm to their global image, nevertheless it has taught many other

MNC’s to pay close attention to cultural sensitivity.

References

India Resource Centre. (n.d.) Coca-Cola Crisis in India. Retrieved from

http://www.indiaresource.org/campaigns/coke/

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Krishnamurthi, P., Ramji, L. (2007) Coca-Cola: “Little Drops of Joy”. Retrieved from

http://fmcg-marketing.blogspot.com/2007/10/coca-cola-little-drops-of-joy.html

Levick S.R., (2006) The Real Thing? The Rising Power of NGO’s Coke & Pepsi’s India

Adventures Mark a New Generation in Defending Brands. Journal of Law. Retrieved

from http://www.hg.org/articles/article_1730.html

Levick Strategic Communications (2007) A Passage to India. Articles by Levick Experts.

Retrieved from http://www.levick.com/resources/topics/articles/passage_india.php

Luce, E. (2003). India: Pepsi and Coca-Cola Deny Pesticide Claims. Retrieved from

http://www.corpwatch.org/article.php?id=7909

Stanford, D., D., (2006) Coke’s PR Offensive in India Pays Off: Protests over Pesticide-Tainted

Drinks Fizzle. Atlanta Journal Constitution. Retrieved from

http://www.spinwatch.org.uk/-news-by-category-mainmenu-9/154-food-industry/3765-

cokes-pr-offensive-in-india-pays-off

Walia, S., Balasingh, S., Dureja, M., (2006). Report of the Expert Committee to Review the CSE

Repot on Analysis of Pesticide Residues in Soft Drinks. Retrieved from

http://www.mohfw.nic.in/Report%20of%20the%20Expert%20Committee%20to

%20Review%20the%20CSE%20Repot%20o1.pdf

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