When Battling Pepsi in India
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