Coke and Pepsi in India: Issues, Ethics and Crisis Management Assignment 2 Dharshviny a/p Sasidharan SCM-006798

Table of Contents

No. 1.

Contents 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

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3-5 5-9 9 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 MNCs doing Business in Global Marketplace 14

References

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1.0 Coca Cola and PepsiCo Being Attacked: The Story 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 Indias 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 wouldnt 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. IRCs 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 Cokes 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 Cokes practices. Among the continuing allegations were; communities experiencing severe water shortages around Cokes 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-Colas 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.

1.1 Date

Timeline of Cola-Pesticide Controversy Event The Centre for Science and Environment releases report about pesticides in Coca Cola and Pepsi beverages.

August 6, 2003

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. Indias 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 monitoring of carbonated beverages. July 15, 2004 July 27, 2005 The BIS finalizes draft standards for carbonated beverages. 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 March 2006 August 2, 2006 Standards are finalized by the BIS. Standards are confirmed but not notified 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 governments joint parliamentary commissions seconding of CSEs findings. In December 2004, Indias 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 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. CSEs 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 companys 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 Peoples 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 Cokes 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. 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 Indias 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
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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 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)
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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. Cokes 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 Indias 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 Cokes 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.

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In a later interview, Cokes CEO Isdell said he thought the companys 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, Indias Health Ministry said that both Cokes and Pepsis beverages tested in three different labs contained little or no pesticide residue. (Stanford, D., D., 2006) Pepsis response as crisis management is similar to Cokes. 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. Pepsis 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,

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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 accurate but it was interpreted to mean, "Dont 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 sides 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, Cokes and Pepsis 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 ones death is not properly noted until
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ones 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 publics reaction to the allegations.

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. Cokes 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 companys connection with stakeholders in India.(Krishnamurthi, P., Ramji, L., 2007) Pepsi
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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. 3.0 Lessons for MNCs doing Business in Global Marketplace The criticism of Coke has been most severe in India. CEO Isdell admits that the companys 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 MNCs 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 MNCs to pay close attention to cultural sensitivity.

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

http://www.indiaresource.org/campaigns/coke/ 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 NGOs Coke & Pepsis 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) Cokes 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/3765cokes-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%20Revi ew%20the%20CSE%20Repot%20o1.pdf

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