The political environment in India proved to be very problematic for both PepsiCo and Coca-Cola when they entered the market. The government has long enforced a protectionist stance on its economy in order to safeguard the interests of its people. Even with the New Industrial Policy in 1991 (Pathak 2007), that loosened the grip on foreign businesses entering the country, PepsiCo and Coca-Cola still had to jump through many hurdles before they could operate. For example, PepsiCo was limited to selling at most 25% of total sales of their soft drink concentrate to local bottlers (Cateora 2007).
They were also not allowed to use foreign brand names on their products, which meant that PepsiCo had to rename their products Lehar Pepsi and Lehar 7UP. These limitations served to dampen PepsiCo’s advance into the market, as well as tamper with the ‘product’ element of their marketing mix by getting rid of the brand’s established name. Coca-cola on the other hand, was forced by the government to relinquish 49% of the company’s shares in order to purchase the local bottling plants (Cateora 2007).
What made it worst was that at the time the company was pleading with the government to waive the ruling; there was a change in the bureaucratic in the government that left all past lobbying efforts in vein. This lack of solid institutions not only makes it hard for companies to manage the enviroment, but also gives way to corruption. Unfortunately, even if the two companies had extensively researched the situation and performed comprehensive environment analysis, they would have not foreseen many of the problems.
This is due to the unstable and unpredictable nature of the political and legal environment resulting from a lack of a solid foundation of law. While PepsiCo entered India in 1988, Coca-Cola only managed to properly re-enter the Indian market in 1993, a whole 5 years after its rival. Both companies’ ventures faced some strict conditions from the government. However, Coca-Cola’s initial entry decision to buy out local company Parle would eventually result in some heavy repercussions for the company. Those 5 years really made a difference to PepsiCo. It allowed the company a firm grasp in the market.
According to the case study, by 1993, the company had already managed to hold 26% of market shares and this was even before Coca-Cola entered the market. Carbonated drinks require low involvement and are often convenience purchases. These kind of purchases are often based on whatever is on the consumers evoked set at the time; something which takes a lot of effort to change (Mathur 2006). Entering early gave Pepsi the upper edge in this respect. During the time, India’s regulations regarding international business and trade were also constantly changing (Pathak 2007).
At the time of PepsiCo’s entry, the government’s policy on international trade were more open and rules for operating with local businesses were more forgiving. Unfortunately for Coca-Cola, by the time it entered the county,
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