Case study Coca-Cola & Pepsi Harm India's Ecology

Abstract:

The case discusses the controversy surrounding the Indian subsidiaries of multinational cola majors Coca-Cola and Pepsi in 2002-03. The two companies had caused severe ecological damage in the state of Himachal Pradesh by painting their advertisements on rocks. The case describes the ecological importance of these rocks and the nature and extent of environmental damage caused by the companies. Besides giving a detailed account of the legal proceedings initiated against them, the case also discusses the efforts taken by the companies to repair the damage. The case also gives information on the various other controversial activities of Coca-Cola and Pepsi in India.
Issues: Rationale behind seasoned companies exploiting natural resources for commercial gains from the business ethics perspective

"What Coke and Pepsi need to realize is that passing the buck is not the solution. The fact remains that their dealers and franchisees have defaced the mountains and caused irreparable damage to the ecosystem."
- "Make Coke and Pepsi Pay for this," www.indianexpress.com, August 14, 2002.

"The fine imposed by the Supreme Court on Coke, Pepsi and others is a warning for other violators who think that in India you can completely disregard the principles of corporate governance and get away with it."
- "Coke, Pepsi Fined for Defacing Himalayan Rocks," www.newsindia-times.com, October 04, 2002 A Novel Controversy!

On August 10, 2002, Coca-Cola India (Coke) and Pepsi Foods Limited (Pepsi), the Indian subsidiaries of multinational cola majors Coca-Cola and PepsiCo, found themselves under attack. In an article published by leading Indian newspaper, Indian Express (titled 'Rape of the Rock'), the two companies were accused of destroying the ecological balance of the Himalayan state of Himachal Pradesh (HP). Coke and Pepsi had allegedly defaced rocks that were over 45 million years old along the Manali-Rohtang road in the state. These companies had painted their advertisements on the rocks, thus harming the ecosystem and disfiguring the beauty of the mountainous region (Refer Exhibit I for pictures of the painted rocks). While many other companies were also found to have damaged the rocks in this way, Coke and Pepsi were the most high profile organizations involved in this activity as a result they attracted the maximum criticism. This news report (and many other related reports that followed) generated wide-spread outrage against the companies and their illegal use of government-

land for advertising products. Many environmentalists referred to this act as 'commercial vandalism.' One such protestor, P. K. Manohar, a Supreme Court (SC) advocate and member of the Legal Action for Wildlife and Environment (LAWE), said, "This is not a free-for-all, and painting old, geologically valuable rocks this way cannot be allowed." Environmentalists argued that the damage done by the companies to the fragile ecosystem was irreparable. They pointed out that though the damage might seem to be repairable on paper; in reality it was virtually impossible. Commenting on this, Professor Ashok Sahni (Sahni) of Punjab University said, "It becomes a very expensive proposition trying to wash off the paint with gallons and gallons of thinner and then too completely cleaning it and restoring the original surface is impossible." Worldwide, companies following good corporate governance policies do not exploit natural formations for commercial purposes. Analysts said that by harming the ecology of the Manali-Rohtang road area, Coke and Pepsi had shown a gross negligence of their duties as socially responsible corporate citizens. Both the companies, however, refused to acknowledge responsibility for the damage done. Instead, they tried to pass the buck to their local partners (distributors, advertisers etc.). While Pepsi stated that it had little operational control over the affected Manali-Rohtang region, Coke argued that it was an 'extremely environment conscious' company and that the incident was a local mistake. As media coverage of this issue intensified, Coke and Pepsi began fearing the damage the controversy could cause to their image and popularity.
Damaging the Environment

The matter attracted the attention of the judiciary when a three judge bench headed by the Chief Justice of India B.N. Kripal pointed out the incident while hearing a public interest litigation regarding the conservation of forests in the country. The Supreme Court (SC) expressed concern over such acts by companies and said that they should be "made to pay" for the damage they did to the ecology in order to promote their business. Disturbed over the damage done to rocks in forests, Justice Kripal said that it would be proper to take up the matter in court. A person named Harish Salve was appointed amicus curiae (friend of the court) by the SC to investigate the matter and take the necessary legal action. Salve filed a case against the companies for commercial vandalism. The SC stated that the painting of the rocks was a non-forest activity and could not be carried out without the prior permission of the concerned authorities. Therefore, it asked the companies to explain why they painted the rocks.

After this, Salve, upon the court's direction, approached the National Environment Engineering Research Institute (NEERI) to inspect the entire Rohtang-Manali road for advertisements painted on the rocks. Three days after the first news report was published, the court issued notices to the cola companies, charging them of violating the Forest Conservation Act 1980. A detailed report on the damage done by the companies (submitted by Salve) stated that "from the village Kothi to Rallah waterfalls to Beas Kund, a stretch of about 56 kilometers, advertisements have been plastered on the entire mountainside." Environmentalists pointed out that these mountainous facades were home to huge ecosystems that had developed over millions of years...
The Legal Tangle - Proceedings & Arguments

Over the decades, many companies in India had painted their advertisements on rocks but nobody seemed to have been bothered by this practice till the Indian Express reported the damage to the ecosystem. Once the controversy erupted, many people suddenly found that they had something to say about the issue. Analysts felt that companies opted for this mode of advertisement since it was very cost-effective - they only had to invest in the paint and labor. Since they did not seek permission from the government, to whom the land belonged, they did not have to make any payment in this regard. The advertisements ranged in size from 10 square feet (sq.ft.) to about 100 sq.ft. Most of the Coke and Pepsi advertisements were between 10 to 20 sq.ft. each, with many smaller ones (painted by other companies) in clusters along the road and the river bed...
Implications for the Companies Analysts felt that the court's ruling sent a clear and firm message to corporates who had been abusing natural creations for commercial purposes.

This case was regarded by many corporates, lawyers and environmentalists as one of the fastest to be resolved - the court took a little more than a month to convict those who were found guilty and order restoration work (Refer Exhibit IV for a timeline of the case). Applauding the court's decision, Professor C K Varshney, School of Environmental Sciences, Jawaharlal Nehru University, New Delhi, said, "This is really a decision in the right direction, and perhaps ought to have been taken long back, for it really sets the rigor India needs in dealing with environmental issues. Such defacing of rocks is not something restricted to the Himalayas in India. I have seen this across the country. In supporting the protection of nature in its original form, in whatever way possible, the courts have set a great precedent"...

IssuesCapturing the market is the main issue facing any company and when it comes to Beverage market, it becomes more intense because there are just two players and they are fighting strongly to capture each others market and don't have any other option.

Both Coke and Pepsi are trying to gain market share in this beverage market, which is valued at over $30 billion a year. Just how is this done in such a competitive market is the underlying issue.

The facts are that each company is coming up with new products and ideas in order to increase their market share. Pepsi has always taken the lead in developing new products, but Coke soon learned their lesson and started to do the same. Coke hired marketing executives with good track records (98). Coke also implemented cross training of managers so it would be more difficult for cliques to form within the company

The creativity and effectiveness of each company's marketing strategy will ultimately determine the winner with respect to sales, profits, and customer loyalty.

These two companies are constructing new ways to sell Coke and Pepsi, but they are also thinking of ways in which to increase market share in other beverage categories. Although the goal of both companies are exactly the same, the two companies rely on somewhat different marketing strategies.

Pepsi has always taken more risks, acted rapidly, and was always developing new advertising ideas. Both companies have also relied on finding new markets, especially in foreign countries. In the foreign markets, Coke has been more successful than Pepsi. For example, in Eastern Europe, Pepsi has relied on a barter system that proved to fail. However, in certain countries that allow direct comparison, Pepsi has beat Coke. In foreign markets, both companies have followed the marketing concept by offering products that meet consumer needs in order to gain market share. For instance, in certain countries, consumers wanted a soft drink that was low in sugar, yet did not have a diet taste or image. Pepsi responded by developing Pepsi Max.

The next step is to take fast action to develop a product that meets the requirements for that particular region. Both companies cannot just sell one product; if they do they will not succeed. They have to always be creating and updating their marketing plans and products. The companies must be willing to accommodate their tar get markets.

Gaining market share occurs when a company stays one-step ahead of the competition by knowing what the consumer wants. My recommendation is to make sure the company is always doing market research. This way they are able to get as much feedback as possible from consumers. Next, analyze this data as fast as possible, and then develop the new product based upon this data. Once the product is developed, get it to the marketplace quickly. Time is a very critical factor. In my opinion, with all of these factors taken into consideration any company should give any company a good jump on market share.

Coke, Pepsi Under Fire for Painting Rocks in India

Two giant international soft-drink manufacturers, Coca-Cola and Pepsi, are under fire in India for colorful advertisements that were painted onto rocks in the ecologically fragile Himalayas. The Supreme Court of India recently served legal notices to the companies, charging them with violation of environmental laws, specifically the Forest Conservation Act of India. The notices refer to the damage caused by advertisements painted on eco-fragile rocks.

The Coke and Pepsi ads, painted in the bright colors associated with the two brands, appear on rocks along a road in the Himalayan state of Himachal Pradesh in northern India. The legal action came in response to a recent news report in the The Indian Express that brought the ads to the attention of officials, environmentalists, and the public. According to the newspaper, the soft-drink ads were paintedalong with local advertising on rocks dotted all along a 56-kilometer (33-mile) stretch of road between Manali, a popular hill resort in Himachal Pradesh, and Rohtang Pass. "This isn't a free-for-all, and painting old, geologically valuable rocks this way cannot be allowed," said P. K. Manohar, an advocate with the Supreme Court in New Delhi and member of Legal Action for Wildlife and Environment, a group of lawyers working for environmental protection and legislation in India. Scientists have voiced concern that the paint may have destroyed the mini-ecosystems of microbes and mosses that live on the rocks. In India it is illegal to advertise anywhere without permission, unless it is an advertising balloon floated from a private rooftop. The advertising daubed on the rocks has made a number of people angry, and not only because of possible ecological damage. For many people there is aesthetic damage caused by the brightly colored advertisements, marring the beautiful landscape of the Himalayas. The Chief Justice of India, B.N. Kirpal, headed the three-judge panel that issued the legal notices to the parent companies of Coke and Pepsi. The court had taken note of the newspaper report while hearing a case involving forest conservation in India, saying that the companies responsible should be "made to pay" for damage caused to India's environment. Kirpal also mentioned in court that the painting of advertisements on rocks in forest areas was disturbing.

C.K. Varshney, a professor at the School of Environmental Sciences at Jawaharlal Nehru University in New Delhi, applauded the legal move. "This is really a decision in the right direction, and perhaps ought to have been taken long back, for it really sets the rigor India needs in dealing with environmental issues," he said.

The initial response of both multinationals has been ambiguous. While Pepsi's official response has been that areas such as the affected Manali-Rohtang region are franchiseeowned where the corporate office has little control, Coca-Cola said that it is an extremely environment-conscious company, and what has happened seems to be a localized slip-up. Coca-Cola said it would ensure it wouldn't happen again. Local authorities in the area where the advertisements appeared said it is hard to prevent the rock defacement because those responsible for such paintings work under cover of night, and it is difficult to patrol all regions of the vast mountains.

The practice of painting rocks with advertisements is also a source of anguish to geologists. If a geologist cannot observe and study rocky outcrops, there is little else that can be done to understand the geology of the area. Ramesh Kakkar, chief of the Center for Advanced Study in Geology at Punjab University in Chandigarh, told The Indian Express: "If the outcrop has been painted over, we cannot conduct research." The legal experts arguing the case said they planned to ask the National Environment Engineering Research Institute, based in Nagpur, Maharashtra, to inspect the rocks along the Manali-Rohtang road and assess the damage. Experts say removing the paint from all the huge rocks with paint thinner or remover would be both costly and environmentally destructive. Left to nature, it could take five to ten years for the paint to wash off. Varshney said he was pleased that the courts have taken seriously a matter that many people might regard as trivial and hoped it was a sign of greater government vigilance on environmental issues in the future. "Such defacing of rocks is not something restricted to the Himalayas in India. I have seen this across the country," he said. "In supporting the protection of nature in its original form, in whatever way possible, the courts have set a great precedent."