Fundamentals of Global Business

Coca Cola in India

Indian economy is growing rapidly and is now believed to be the 15th largest economy in world. This has resulted in the creation of new growth opportunities for local and foreign businesses thus attracting increased foreign investment. With its growing middle class and steadily improving per capita income, Indian market has more potential than most developing countries. Coca Cola Inc. was once driven out of the country because of the government's protectionist policies but things are changing now with relaxation in regulatory control and licensing requirements. This resulted in the return of many multinationals including Coca Cola but increasing its market share and competing with Pepsi Cola Inc. has not proved to be an easy task.

India's economic environment is highly conducive for growth of beverage companies with more than 150 million middle class consumers with annual income greater than $4,000. However these attractive features have failed to translate into equally attractive revenue figures for Coca Cola Inc. because of public's pre-conceived notions about foreigners entering local market. But Coca Cola has refused to give up. It is focusing on building its brand image through target advertising and is trying to capture rural markets with smaller version of its flagship brand. Coca Cola's market share of 16.5% doesn't paint a very encouraging picture of the company's future in India but with rural expansion, things may improve in the coming years provided the company effectively resolves some key disputes that have surfaced in recent months.

After re-entering the Indian market, Coco Coal focused on two key entry modes. It first focused on revamping the local brand Thumps Up and heavily invested in advertising and marketing of this brand. The blue can of Thumps Up was regularly pitted against the blue Pepsi Cola can and most advertisements focused on the flaws of the latter. This resulted in a fierce competition among the two brands and Thumps Up's market share increased dramatically. The second entry mode chosen by Coca Cola was rural expansion as the beverage giant entered small villages of India with smaller bottles of Coca Cola offered at reduced prices. "Inroads were made into rural markets with a nationwide rollout of 200-ml glass bottles in the Rs. 5-7 price range. The company expanded its retail network to cover over 3,500 villages and its cold chain was expanded with 50,000 additional coolers..." (1)