Presented By,Rashmi Ranjan Moharana,Jr. M.Sc. (Ag.Ma.Co.)PALB-4128

It took It took half decade of negotiating, 20 debates in half decade of negotiating, 20 debates in Parliament and a monumental public relations Parliament and a monumental public relations campaign campaign for Pepsi to enter India. for Pepsi to enter India.

Not exactly Pepsi-Cola, it was called Not exactly Pepsi-Cola, it was called Lehar PepsiLehar Pepsi, a , a concession to the anti-foreign lobby. concession to the anti-foreign lobby.

It appeared only in It appeared only in Jaipur, Kanpur, Bangalore and Jaipur, Kanpur, Bangalore and PunjabPunjab..

Christopher Sinclair, the President of Pepsi-Cola Christopher Sinclair, the President of Pepsi-Cola International, called his company’s venture in India International, called his company’s venture in India ““An Historic AgreementAn Historic Agreement.”.”

PepsiCo’s move into the Indian market was made PepsiCo’s move into the Indian market was made possible by the company’s willingness to take a possible by the company’s willingness to take a 36.9% 36.9% share in a conglomerate called “Pepsi Foods Private share in a conglomerate called “Pepsi Foods Private Limited”Limited”

It’s a co-owners were It’s a co-owners were Punjab Agro Industries and Punjab Agro Industries and Voltas a subsidiary of TATA GroupVoltas a subsidiary of TATA Group..

In 1988, the New York office of the President of the multi-billion cola company PepsiCo received a letter from India.

The company had been trying for some time to enter the Indian market - without much success.

Words Of Welcome To Pepsi

-George Fernandes, General Secretary , Janata

DalYear 1988

“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 for you as Coca-Cola”

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.

* India being a closed economy till 1991, there was high level of intervention by the government in the corporate sector

* Low awareness, demand and consumption for soft drinks. The per capita consumption was only 3 per annum

* Foreign brand name could not be used * There was no liberalization and this not even 1%

FDI was allowed. * Sensitive political and social problems in the

country like terrorism * Cola concentrate – the major ingredient to make

Pepsi soft drink could not be imported * Agriculture sector was the priority and thus Pepsi

had to win the government by making promises of development in the agriculture sector

Political environment Intent of development of local players only Opposition to promotion of carbonated drinks Fear of invasion of foreign brand

Legal environment Severe restrictions in equity through FERA Dispute in relation to ownership of brand

name( foreign name not allowed) Economic environment

Closed and starved or narrow economy Cold drink industry in nascent or embryo

stage Socio cultural environment

Fear of invasion of MNC culture Fear of impact on Health/diet

"Convincing India that it needs "Convincing India that it needs Western junk has not been easy."Western junk has not been easy."

- A New Internationalist Magazine Article, commenting on Pepsi's struggle to enter India, in August 1988

• The thirst for global presence made Pepsi to venture in India with already inroads in 150 countries before India.

• The huge consumer base of 850 million in India can never be ignored, in spite of all the odds

Due to the fate of Coke in India the market entry had to be prepared carefully.

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

RPG group too ended at this juncture

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

PEPSI ENTERED

Govt. Quite impressed with T&C Proposed

In 1988 Finally Cleared by the Govt.

JV – PAIC (Punjab Agro Ind. Corp.) & Voltas India Ltd. (TATA)

JV Stake PEPSI – 36.89, Voltas – 36.11% & PAIC – 24%

In 1989 Launched the Soft Drinks with Great Fanfare & Multi-Media advertising and Campaining

PEPSI ENTEREDPEPSI ENTERED

36.89

36.11

24

PEPSIVoltasPAIC

JV – Stakes - 1988JV – Stakes - 1988

Punjab boasted a healthy agricultural sector with good crop record in past.

Punjab being progressive state with larger landside with farmers

Easy water availability

High unemployment rate

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;

State of the art technology would be provided in the fields of food processing and soft drink manufacturing at no foreign exchange outflow;

50 per cent of the total value of production will be exported.

An agro-research centre will be established by PepsiCo in consultation with ICAR and PAU;

No foreign brand name will be used for domestic sales;

The export-import ratio will be 5:1 over 10 years, which means that for every dollar spends in foreign exchange on this project, the company will ensure an export earning of 5 dollars for 10 years;

25 per cent of the total fruits and vegetable crops in Punjab will be processed in the project;

A substantial increase in government revenue due to consumer market expansion and tax collection.

• Evidence showed that right from the beginning, Pepsi had no intention of diversification in Punjab but the real motive was to sell soft drinks.

• It was a tactics played by PepsiCo to get entry in the domestic market of India

• Thus, Pepsi with its strong market instinct and research become the powerful player of Indian beverages and soft drink industry with implying their funda of GLOCALISATION.

GLOBAL + LOCALISATION = GLOCALISATION

Fruit and vegetable plant set up in Punjab Focus: Processing tomatoes to make

tomato paste Soft drink business launched. Promised 24000 jobs, actual 909 in first

four years Research Centre still waiting Pepsi no longer a joint venture company

with its Indian partners. Zahura Village formers still awaiting their

compensation of 25 lakhs

PROMISES ARE MEANT TO BE BROKENPROMISES ARE MEANT TO BE BROKEN

On payments by cheque, found out that 80% of the farmers did not even have a bank account..!

Plant not been made operational Farmer had to bear losses of 2.5 Millions in 1990 harvest of crops.

Pepsi paid Rs. 0.75/Kg & Market Price was Rs. 2.00/Kg for tomatoes

Fails to Create Jobs, Promised for 50000 Jobs but by 1991 - 783 Employed, 1992 – 909, & By 1996 – 2400 people as Direct Employees. Pepsi Claimed Employed 26000 as Indirect Employment

Industry Commented company included the small vendors who sold soft drinks as indirect employees. It could not be regarded as the employees of Pepsi

Information revealed that more than 50% employees working in its bottling business and not for food processing activities.

Promises Keep Some, Break Some! It also had major holding in Futura Polymers Ltd. Recyling plastic – a capital intensive firm.

The use of name “Lehar Pepsi” also attracted much controversey.

Pepsi also failed to adhere its commitment to export 50% of its production.

It began exporting tea, rice, shrimps, glass bottles, leather products, champagne as against fruit or vegetable based products has always been exported.

There was even a show cause notice to Pepsi company by Ministry of Commerce, to which company paid no attention.

Luckily for Pepsi, it did not have to face criticism for long

Product Price Place Promotion

Politics Public Image

In the early 1990s, the Government of India was facing a foreign exchange crisis.

Organizations like the International Monetary Fund agreed to help the government.

Condition that it liberalized the Indian economy. The Process included: removal of numerous restriction

on foreign trade and increased the role of Private Equity in Indian market.

Pepsi benefited from the economic changes in many ways.

The Company took full Adavantage of New Economic Policy

Bought off its partners in Joint Venture. A Wholly-Owned subsidairy.

PepsiCo Holdings India Pvt. Ltd. (PHI) – Devoted Soft Drinks Business. Changed Cola Name from Lehar Pepsi to Pepsi.

Decision to sell off its Tomato Paste Plant to the Indian FMCG major, Hindustan Lever Ltd. (HLL).

1995 – Beverages business grew by as much as 50% 1996 – PHI – Pepsi's turnover by Rs. 1.25 Billion, 1.5%

Fruit & Vegetable Exports & 67% Plastic Exports 1997 – The Agro Research Center promised by the

Company was now here in sight.

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 equipments such as transplanters 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.

AFTER ALL PEPSI WASN’T THAT BAD PEPSI’S AFTER ALL PEPSI WASN’T THAT BAD PEPSI’S ENTRY-INDIAN BENEFITSENTRY-INDIAN BENEFITS

It extended it contracts farming initiatives to It extended it contracts farming initiatives to groundnuts in the year 2000.groundnuts in the year 2000.

The project initiated in Punjab and then in Gujarat.The project initiated in Punjab and then in Gujarat. By using improved technology from China, the per By using improved technology from China, the per

hectare yield improve from 1 tonne to 3.5-4.5 tonnes.hectare yield improve from 1 tonne to 3.5-4.5 tonnes. Pepsi invested additional Rs. 3.75bn in spread over 3 Pepsi invested additional Rs. 3.75bn in spread over 3

years (2000-2002) in Karnataka over and above the years (2000-2002) in Karnataka over and above the existing investment of Rs.1.4 bnexisting investment of Rs.1.4 bn

8000 people were working for the Company 8000 people were working for the Company

In 2000 Pepsi’s export added up to Rs. 3bn.In 2000 Pepsi’s export added up to Rs. 3bn. It included processed foods, basmati rice, guar It included processed foods, basmati rice, guar

gums and even soft drink concentrate.gums and even soft drink concentrate.

In 2002, company entered into various contract In 2002, company entered into various contract farming deals.farming deals.

It joined hands with Punjab Agri Export It joined hands with Punjab Agri Export Corporation to process citrus fruits for its Corporation to process citrus fruits for its Tropicana project in August 2002.Tropicana project in August 2002.

Initiated, first of its kind, organized and Initiated, first of its kind, organized and commercial seaweed farming in Tamilnadu.commercial seaweed farming in Tamilnadu.

By 2003, Pepsi’s soft drinks, snacks, fruit juices By 2003, Pepsi’s soft drinks, snacks, fruit juices and mineral water business had established and mineral water business had established themselves firmly in India.themselves firmly in India.

* Expand Sales- Increase the market for their production by tapping potential new countries

* Minimize Risks- Globalization and International trade also helps in minimizing risks.

* To leverage on technology * To increase production efficiencies * For diversification so as to reduce risks * To counter foreign investments by

competitors * Minimize Costs and optimal resource

utilization- By shifting operations in areas with cheaper labour and resources.

* Export – Direct & Indirect * JV - Joint Ventures * Mergers and Acquisitions * Licensing, Franchising * Strategic Alliances * Management Contracts * Contract Manufacturing * FDI – Foreign Direct Investments

Promoting and developing the export of Indian Agro-based products, though it got rejected.

Each cola import would be in return of exporting juice concentrate from Punjab.

Development and Welfare of State. Bringing about Agriculture Revolution

in state. Creating Employments. Terrorists to return to society. Punjab boasted a healthy agricultural

sector

Development of Areas it planned to operate in

Directing major (75%) investment towards agricultural sector

Focusing on food and Agro-processing. Boosting the image of Indian products

in foreign market. Establishing Agricultural Research

Centre. More emphasis on Exports than

imports to improvise the balance of payment.

Most of the commitments were related with Punjab , therefore it is the biggest factor responsible for acceptance of Pepsi.