Coke and Pepsi Case Study

1. Identify the ongoing issues in this case with respect to issues management, crisis management, global business ethics, and stakeholder management. Rank order these in terms of their priorities for Coca-Cola and for PepsiCo.

Number 1 Priority: The major global business ethics I found in this case study was the whole issue with excessive water usage in their companies as well as the pollution of the water. The book explains that water is very sacred in India. Even though India has some of the worse/polluted water in the world, it still carries a very large significance to Indians. Just because they have poor sewage, pollution, and pesticide use, that doesn’t mean that we can just bring an American company into India and make their water worse. These companies should have done their research and found that water is extremely sacred to them and these problems never would have risen. That is why it is so important for businesses to have cultural knowledge about the countries they enter because something that is not important to us may be the most important thing to another country.

Number 2 Priority: Both Coca-Cola and PepsiCo dealt with this crisis very poorly this first time. Instead of taking action and accepting the fact that they were in the wrong, they choose to deny the allegations of CSE and IRC through the media. They should have explained to their customers the problem, why it happened, what they were going to do to fix it, and keep their customers informed of the progress. They did not do these steps but rather, they conducted their own tests within their companies and came to the conclusion that their drinks met demanding European standards. The two companies also tried to play the blame game and explain that other companies in India had high levels of pesticides as well.

This is not the correct way to go about the crisis, Coca-Cola and PepsiCo. needed to take responsibility for their actions and explain to their customers that the issue was being taking care of instead of denying it and throwing other companies under the bus. In 2006, issues were still arising but this time the two companies responded much better to the allegations from CSE and IRC. Coca-Cola hired researchers to talk to customers to find out what exactly the allegations were. They created a TV commercial with a famous Indian celebrity where he told the people that the product was safe and that they could go to the company and see for themselves. Over 4,000 customers did just that and took a tour of the company. This proved that they have nothing to hide which was very persuasive. Pepsi’s response was similar to Coca-Cola in which they went straight to the media as well. Their commercials featured the PepsiCo. president walking through a laboratory. Pepsi also increased its efforts to cut down on their water usage.

Number 3 Priority: In terms of stakeholder management, the company was not really at the best interest of their customers. They clearly were putting pesticides in their soft drinks that were over the legal amount in India. When they were accused of this, the two companies denied it and ran their own tests within the company to “prove” that they were innocent. They should have allowed another subject to come in and test their products because obviously that’s a bias opinion. This also shows that at first they were not trying to do anything to improve their company. They just wanted to do what was best for them which was sell their product and make more money. They did not care about the pesticides or the sacred water they were overusing and polluting. If any business wants to be successful they need to put their customers first and their company second.

Number 4 Priority: The issue management that began to arise with Coca-Cola and Pepsi in 2003 is that it is extremely difficult to go into another country and sell a product. Every country and culture is different across the World and not all products can be sold the same way in the United States as they are in India. They were continuously being bashed by CSE for selling these soft drink beverages that had dangerously high levels of pesticide residue in them that were 24 times higher than the maximum allowed by the Indian government. They claimed that these high levels of pesticide can cause cancer as well as birth defects and also harm nervous and immune systems if consumed over long periods of time. The IRC also accused these two companies of over consuming scarce water as well as polluting the groundwater and soil. This resulted in Coca-Cola and PepsiCo. being forced to put warning labels on their products which in turn decreased their sales for the next several years.

2. Evaluate the corporate social responsibility (CSR) of Coke and Pepsi in India.
The economic responsibilities of a company are one of the two things that are required by society from a business. This is basically the social responsibilities companies should abide by. Neither Coke nor Pepsi were worried about their social responsibilities when they enter India. Either they did not do their research about the culture or they just didn’t care. It made both companies look horrible and like they did not care about anyone but themselves. Like discussed early, water is a very sacred resource to Indians and by these two companies using it excessively while polluting the water and soil it just showed they had little respect for their culture.

The second responsibility that is required by society from a business is legal issues. The obliviously deals with follows all the laws and regulations within the country you are in. Clearly Coke and Pepsi where not following through with this either. As discussed in the book, their pesticide levels were dangerously high by 24 times the maximum pesticides allowed by the Indian government. These companies were also polluting the water and soil as well which in turn were polluting the crops and food being grown by farmers since the companies were selling their solid waste as fertilizer to farmers.

The third responsibility is ethics and this is just expected by society. This deals with avoiding questionable practices and companies should operate above the minimum. I think the major problem that Coca-Cola and Pepsi had here is that they felt like they were not doing anything wrong. When they were being accused the first time, they completely denied in and ran their own test to try and prove their innocents. At this point, they knew that water was a sacred source and they should have been doing everything they could to gain their customers back. They should have been apologizing as well as explains ways in which they were going to cut back on water usage and pollution.

The final responsibility in the CSR model is philanthropic. The main point is to be a good corporate citizen and give back to the community. Neither of the two business were doing anything at all with this responsibility. They need to get more involved in the community so that they can build a relationship with their customers as well as build trust. They could have done something like have a “green” event and have people bring recyclable products to eliminate waste and pollution. Any type of event to get the community involved with the community helps to build that trust.

6. What should the companies have done differently in 2003 to address the water allegations? What should the company now do as it moves forward? There a quite a few things both Coke and Pepsi could have done differently to address the water allegations in 2003. For starters, instead of denying the allegations the companies should have taken responsibility for their actions and accepted the fact that they were using the water excessively as well as polluting it. When having a company, no matter what the problem is your customers are always right. If you cannot please your customers then you cannot have a business. After they had admitted to being in the wrong, the two companies should have then explained to their customers, CSE, and IRC exactly their plan of action.

They should have done this publically so that all the customers are able to here and see what was going on. They would first apologize for the mistake then explain that they are taking action by reducing their usage of water in the plants, not polluting the water and soil, and not selling solid waste as fertilizer. This is not it, they also need to follow up with their customers on their progress from time to time to show them that they really are taking action and it is working. Without a follow up, a company cannot build up that trust with their customers. It is extremely important for them to see the progress for themselves to know that the company cares and is taking action.

Now that the companies have taken action in 2006 and have explained that they cut back on water usage in plants and pollution they need to continue with these actions as well as show their customers. They should still be communicating with their customers and showing them exactly how much they have cut back on their water usage and pollution. When customers can actually see the numbers, it proves a lot more. Pepsi is actually gathering rainwater from lakes, ponds, and on rooftops to cut back on usage. This clearly shows how they are taking action and it also shows that their customers mean more to them than the company. There are still issues that need to be fixed within both companies but if they continue to take these steps of action then they can continue to build their relationship back up with their customers.

7. What lessons does this case present for MNCs doing business in the global marketplace?
I think the main lesson that this case presents for MNCs doing business in the global marketplace is that companies NEED to do research about the country they are entering before just opening up a business. Like in this case, water has a significance meaning to Indians even though they have some of the worst water in the world in India. There are other businesses in India that pollute the water that does not make it okay for Coke and Pepsi to do so when they know better. I guarantee that if they were in the United States and water was a huge significance here, they would change their ways much faster than they did in India. Different cultures have different things that are important to them so when traveling to another company whether to do business or just traveling, everyone should do a little research and get some background history of their country and what’s important to them.

Another lesson that can be learned from this issue is crisis management. Neither Pepsi nor Coke has any idea what they were doing when it came to this crisis. The only thing they knew how to do was deny all the allegations. They clearly did not work because they lost many customers which lead to a decrease in sales as well as broken customer relationships. Indians lost a lot of trust in these two companies. All companies, no matter where they are located, should have a crisis management plan ready at all times because you never know when a crisis may happen but you must always be prepared. Neither of these companies were prepared and look what happened. The second time around in 2006, the companies were much better prepared for these allegations and in turn responded better. Both companies changed their ways and showed their customers exactly what they were doing to improve themselves. This build a better relationship with their customers and their sales have actually increased in India.

The final lesson I think that can be learned here is the fact the neither company was really that involved in the community. They were not living up to their philanthropic responsibilities at all. I think it is important for any business to get involved because it shows customers that you care about the community and you want to help to make it better. It seemed like all these two companies cared about were themselves and they didn’t care that they were continuously make the community worse. They needed to do more within the community to show their concern. Getting involved also helps to develop a positive relationship between customers and companies. I feel like if Pepsi and Coke would have gotten involved from the beginning many of these allegations and issues never would have risen because they would have known a lot more about the people, culture, and community.