LATE APRIL NEWS

April 29, 1998

When Battling Pepsi in India,

Thums Up Is the Real Thing

By NIKHIL DEOGUN and JONATHAN KARP

Staff Reporters of THE WALL STREET JOURNAL

NEW DELHI -- Donald Short, chief executive of Coca-Cola Co.'s Indian

subsidiary, offers a couple of visitors his company's leading soft drink. The

fizzy cola arrives in a familiar glass bottle emblazoned with a red logo. But

wait a minute -- this isn't a Coke. It's Thums Up, and it outsells Coca-Cola

by a 4-to-1 margin in some Indian markets.

Coke bought Thums Up from an Indian bottler in

1993, and the brand is now so crucial in battling

PepsiCo Inc. in India that Mr. Short last year made

a brassy request to his boss in Atlanta. "Doug," he

said to M. Douglas Ivester, Coke's chairman and

chief executive officer, "in Bombay, my business

card needs to read CEO of the Thums Up Co., not

CEO of the Coca-Cola Co."

In almost any other situation, such a request would

be heresy. But this is India, and Coke is throwing

out its playbook. Its emphasis on Thums Up after at

first ignoring it shows how even a savvy marketer

can misjudge a foreign country. "We're so

successful in international business that we applied

a tried and true formula ... and it was the wrong formula to apply in India,"

says Douglas Daft, Coke's chief of Middle and Far East operations.

For years, Coke had a small but successful business in India, with

Coca-Cola as the country's leading soft drink. But in 1977, Coke pulled up

stakes when a new government ordered the company to dilute its stake in

the Indian unit and turn over its secret formula. Coke's bottlers,

family-owned businesses that bought concentrate from Coke and bottled and

distributed the drink across the country, were suddenly without a product.

Where's the 'b'?

One bottler, Ramesh Chauhan of the Parle group, formulated an alternative

cola, put it in a Coke bottle and asked other bottlers to taste the product. It

was so similar that several thought Mr. Chauhan was trying to pass off an

old bottle of Coke as a new drink. Thus Thums Up was born. Parle says it

left the "b" out of Thumbs to make the name shorter and easier to

remember.

In 1993, with the Indian government liberalizing

the economy and encouraging foreign investors,

Coke returned to India and gained a

commanding lead in the market by buying Thums

Up; Limca, a cloudy lemon drink; and other

brands from Parle.

Marketing executives in India say Coke's plan

was simple: Take out its biggest competitor and

win access to the 50-plus bottlers that distributed

Thums Up across the country. The rest, Coke

thought, would be easy. After all, India already

knew Coke well, and consumers were

undoubtedly ready to welcome back their old

favorite.

Wrong. It turned out that a lot had changed in 16 years. A generation had

grown up without Coke and wasn't pining for its return. Meanwhile, Pepsi

had beaten Coke into India by three years and was making quick strides.

While top Coke executives in India were mostly expatriates and oriented

toward the U.S., Pepsi had staffed its operations with Indians and signed up

cricket stars idolized by millions of Indians as endorsers.

Nostalgic Ads

Coke, catching on, signed on as an official sponsor of the 1996 cricket

World Cup. Coke's ads showed ordinary Indians playing cricket against a

backdrop of red chilies, red clothes and, of course, a red Coca-Cola sign.

The ads were nostalgic, romanticizing the simple life of the Indian

countryside, and were visually gorgeous. But they "didn't connect with the

Indian consumer," says Sanjiv Gupta, who Mr. Short recently hired to be his

marketing chief. "It was India through the eyes of Coca-Cola."

At the same time, Pepsi was mocking Coke's

official sponsorship, running ads that showed

some of India's top cricket stars gulping Pepsi

and declaring, "Pepsi -- nothing official about

it." That cheeky slogan became so much a part of the Indian vocabulary that

it cropped up in newspaper headlines, cartoon captions and politicians' sound

bites.

To make matters worse, Coke was battling with its Indian bottlers. As it has

done elsewhere, Coke pushed small bottlers to sell their operations so that a

larger entity with more financial and distribution muscle could pursue Coke's

ambitions. But selling out was anathema to some of these family enterprises,

and Coke's attempts to induce sales were seen as bullying. Coke didn't help

itself by shunning the Indian press, which splashed the bottlers' complaints

across front pages.

The bottlers might not have been so angry had Coke been using Thums Up,

a proven moneymaker, to thumb its nose at Pepsi. But Coke management

couldn't get used to the idea of marketing a cola that wasn't the Real Thing.

Its non-Indian executives refused to refer to Thums Up as a cola, instead

marginalizing it as a "spicy beverage." To the bottlers, the lack of marketing

support and the references to Thums Up as a "pepperlike drink" showed that

Coke, instead of promoting the brand, was trying to drive a stake through it.

"We had some people who were going to kill Thums Up because they

viewed it as a natural enemy to Coke," Mr. Ivester acknowledges. "I said,

'Wait a minute. We bought this brand. I believe this brand can grow at the

same time Coca-Cola can grow.' "

A year ago, Mr. Short became Coke's third CEO in India in four years. Mr.

Ivester advised him to be flexible, adding: "You don't have to do anything

that you've done at Coke in your 20 years -- just do the right thing."

Mr. Short is hiring Indian professionals and pushing Coke brands heavily

with tie-ins to cricket and movies. The affable Coke executive is improving

relations with bottlers and meeting frequently with the press. Most

important, he is trying to make Coke more readily available by doubling the

number of sales outlets to one million by the year 2000.

Gimme Thunder

Thums Up remains the company's biggest seller and fastest-growing brand

in India, and Mr. Short has no qualms about giving it top billing. "I spent

more on Thums Up than Coke last year, and I'll spend more money on

Thums Up than Coke this year," he says. The flashy "I want my Thunder"

ad campaign for Thums Up targets men ages 20 to 29. Some industry

executives say Thums Up, unlike Coke, tastes good even when warm -- an

important trait in a country where many people lack refrigerators.

Coke expects its overall sales in India to grow 20% this year, compared with

a disappointing 5% increase in 1997. Pepsi still outsells the flagship

Coca-Cola brand, but Coke is ahead of Pepsi in sales if Thums Up and its

other brands are included.

The exact numbers are a matter of dispute. Pepsi says it has 43% of the

Indian soft-drink market while Coke has about 51%. Coke says its share is

about 57%. Whatever the true number, Pepsi built its share essentially from

scratch, while Coke instantly entered the market with a 60%-plus share by

buying Thums Up. So for all the changes, Coke has still lost ground since

entering the market five years ago and introducing its signature cola.

In the longer term, Coke may find it hard to push both Coca-Cola and

Thums Up. In no other country does Coke heavily promote two sugar colas.

For now, Coke is taking Thums Up international, promising to export Thums

Up and Limca to other countries in Asia with large Indian populations.

"I think they are national treasures," Mr. Short says of the two brands. "I'll

do everything I can to export these treasures out of India."

April 29, 1998

EU to Challenge U.S. Trade Law

By Filing Complaint With WTO

By JULIE WOLF

Special to THE WALL STREET JOURNAL

BRUSSELS -- The European Commission said it will challenge decades-old

U.S. antidumping legislation by filing a complaint with the World Trade

Organization in Geneva.

The move follows a request from the European steel federation, known as

Eurofer, which argues that the 1916 law violates WTO rules on dumping.

"We want the U.S. to amend the 1916 Anti-Dumping Act, which we believe

breaks current WTO rules," said Nigel Gardner, a commission spokesman.

Once the EU files its case with the WTO, the two sides have two months to

negotiate a solution. If they fail, the EU can ask the WTO to establish a

panel to rule on whether the legislation is in line with international trade

rules. "If [during the two months], the U.S. gives a commitment to change

the law, then obviously we won't pursue the WTO case," Mr. Gardner

added.

A spokesman for the U.S. Trade Representative's office in Washington said

the U.S. is consulting with the EU. "It's an old law, infrequently used, but

one that is consistent with our WTO obligations," he said. "If this goes

forward with litigation, we'll defend the statute to the fullest extent."

The 1916 legislation allows American companies to ask U.S. courts to

penalize importers of products that are sold at unfairly low prices. According

to Eurofer, the law is being used against Thyssen Inc., the U.S. unit of

Germany's Thyssen AG. The law allows for hefty fines as well as the

imprisonment of company officials, according to the commission.

Although U.S. courts have never used such penalties, the legislation imposes

lengthy legal procedures and costs on companies that "have an effect of

harassment," according to Christian Mari, an official at Eurofer. "It opens

the possibility to attack imports arbitrarily."

The 1916 law covers both dumping and antitrust issues and isn't the

legislation on which the U.S. government's dumping policies are based, the

Eurofer official said. But he said it breaks key principles set out in the

Uruguay Round international trade agreements. These include the

requirement that those complaining against dumping represent an industry as

a whole and prove that imports of dumped products have caused economic

damage.


April 27, 1998

A World Investment Agreement

May Still Be Possible, Official Says

Efforts by the world's main industrial states to forge a Multilateral

Agreement on Investment continue to be delayed by controversy over

the impact of such an accord in both developed and developing

countries, as well as by wrangling over exemptions from specific

features for individual countries. At a meeting Monday and Tuesday,

officials from the 29 countries in the Organization for Economic

Cooperation and Development, which has been hosting the

negotiations, are likely to give up trying to set a deadline for

agreement. However, according to Rainer Geiger, the deputy director

of the OECD's directorate for financial, fiscal and enterprise affairs,

the broad outlines of a possible accord are already in place. If

differences between the U.S. and Europe can be overcome, he told

Nicholas Bray, The Wall Street Journal Europe's economic affairs

correspondent, an agreement should be possible in the not-too-distant

future.

What is the likely impact of continued delay?

It's difficult to say there would be any dramatic impact. We are dealing with

long-term structural issues, rather than short-term measures. The MAI is

designed to mirror on an investment front the effects of trade liberalization

under the auspices of the World Trade Organization. Long-term, there would

be a very positive impact for the world economy from the creation of a

stable investment climate, in which both foreign and local investors could

count on a level playing-field as far as legislation and market access are

concerned. This could be particularly important for regions that have been hit

by the instability of financial flows.

Signing up to the MAI would guarantee to investors that a given country

adheres to rules of nondiscrimination regarding investments, reducing the risk

premia associated with such investments. There are also economic benefits

for OECD countries: though the investment climate in OECD countries is

generally liberal, you cannot be sure there will be no backsliding. Strident

attacks on the MAI from some lobby groups demonstrate the existence of

strong forces in industrial countries which are afraid of globalization. Without

the MAI, pressure from such groups might tempt governments to move into

protectionist mode.

But isn't the MAI controversial for other reasons?

Concern has been raised that it could be misused to attack the regulatory

powers of governments in areas that have nothing to do with investment.

This is unfounded: Foreign investors and multinational enterprises are subject

to the laws of a country in just the same way as local investors and

enterprises.

Another issue relates to the payment of compensation in the event of

expropriation. This needs to be clarified to make clear that the exercise of

regulatory powers cannot be considered expropriation, even if it leads to the

value of an investment being reduced. The MAI won't interfere with

governments' powers to take environmental measures.

What obstacles still stand in the way?

European countries and Canada object to the impact on their enterprises of

economic sanctions taken by the U.S. against countries like Cuba and Iran.

There are also other areas of sensitivity, such as government research in

technology, and measures to promote national audio-visual industries, where

France and Canada have strong views. One solution could be to require

countries joining the MAI to reflect commitments they have made

elsewhere, such as in international trade talks. However the MAI is designed

as a top-down agreement that affects all sectors equally, unless specific

exceptions are agreed, whereas the WTO works the other way round. We

have to find a solution that will make these two agreements compatible.

Another issue concerns the settlement of disputes involving an investor and

the state where the investment is made. The idea is that an investor should

be able to go directly to an arbitration panel in the event of an alleged breach

of the agreement. But there is still work to be done in this area.

Finally, individual governments have raised pages and pages of