" Cola Wars - Part 3 " - Coke vs Pepsi Fighting for Foreign Markets

The soft-drink battleground has now turned toward new overseas markets. While once the United States, Australia, Japan, and Western Europe were the dominant soft-drink markets, the growth has slowed down dramatically, but they are still important markets for Coca-Cola and Pepsi. However, Eastern Europe, Mexico, China, Saudi Arabia, and India have become the new "hot spots." Both Coca-Cola and Pepsi are forming joint bottling ventures in these nations and in other areas where they see growth potential. As we have seen, international marketing can be very complex. Many issues have to be resolved before a company can even consider entering uncharted foreign waters. This becomes very evident as one begins to study the international cola wars. The domestic cola war between Coca-Cola and Pepsi is still raging. However, the two soft-drink giants also recognize that opportunities for growth in many of the mature markets have slowed. Both Coca-Cola, which sold 10 billion cases of soft-drinks in 1992, and Pepsi now find themselves asking, "Where will sales of the next 10 billion cases come from?" The answer lies in the developing world, where income levels and appetites for Western products are at an all time high.

Often, the company that gets into a foreign market first usually dominates that country's market. Coke patriarch Robert Woodruff realized this 50 years ago and unleashed a brilliant ploy to make Coke the early bird in many of the major foreign markets. At the height of World War II, Woodruff proclaimed that Awherever American boys were fighting, they'd be able to get a Coke. By the time Pepsi tried to make its first international pitch in the 50s, Coke had already established its brand name and a powerful distribution network. In the intervening 40 years, many new markets have emerged. In order to profit from these markets, both Coke and Pepsi need to find ways to cut through all of the red tape that initially prevents them from conducting business in these markets.

Coke and Pepsi in Russia: In 1972, Pepsi signed an agreement with the Soviet Union which made it the first Western product to be sold to consumers in Russia. This was a landmark agreement and gave Pepsi the first-mover advantage. Presently, Pepsi has 23 plants in the former Soviet Union and is the leader in the soft-drink industry in Russia. Pepsi outsells Coca-Cola by 6 to 1 and is seen as a local brand. Also, Pepsi must counter trade its concentrate with Russia's Stolichnaya vodka since rubles are not tradable on the world market. However, Pepsi has also had some problems. There has not been an increase in brand loyalty for Pepsi since its advertising blitz in Russia, even though it has produced commercials tailored to the Russian market and has sponsored television concerts. On the positive side, Pepsi may be leading Coca-Cola due to the big difference in price between the two colas. While Pepsi sells for Rb250 (25 cents), Coca-Cola sells for Rb450. For the economy size, Pepsi sells 2 liters for Rb1,300, but Coca-Cola sells 1.5 liters for Rb1,800. Coca-Cola, on the other hand, only moved into Russia 2 years ago and is manufactured locally in Moscow and St. Petersburg under a license. Despite investing $85 million in these two bottling plants, they do not perceive Coca-Cola as a premium brand in the Russian market. Moreover, they see it as a "foreign" brand in Russia. Lastly, while Coca-Cola's bottle and label give it a high-class image, it is unable to capture market share.

Coke and Pepsi in Romania: Romania is the second largest central European market after Poland, and this makes it a hot battleground for Coca-Cola and Pepsi. When Pepsi established a bottling plant in Romania in 1965, it became the first U.S. product produced and sold in the region. Pepsi began producing locally during the communist period and has recently decided to reorganize and retrain its local staff. Pepsi entered into a joint venture with a local firm, Flora and Quadrant, for its Bucharest plant, and has 5 other factories in Romania. Quadrant leases Pepsi the equipment and handles Pepsi's distribution. In addition, Pepsi bought 500 Romanian trucks which are also used for distribution in other countries. Moreover, Pepsi produces its bottles locally through an investment in the glass industry. While the price of Pepsi and Coca-Cola are the same (@15 cents/bottle), some consumers drink Pepsi because Pepsi sent Michael Jackson to Romania for a concert. Another reason for drinking Pepsi is that it is slightly sweeter than Coca-Cola and is more suited for the sweet-toothed Romanians. Lastly, some drink Pepsi because, in the past, only top officials were allowed to drink it, but now everyone can. Coca-Cola only began producing locally in November 1991, but it is outselling all of its competitors. In 1992, Coca-Cola saw an increase in Romania of sales by 99.2% and outsold Pepsi by 6 to 5. While Pepsi preferred to buy its equipment from Romania, Coca-Cola preferred to bring equipment into Romania. Also, Coca-Cola brought 2 bottlers to Romania. One is the Leventis Group, which is privately owned. Coca-Cola has invested almost $25 million into 2 factories. These factories are double the size of the factory Pepsi has in Bucharest. Moreover, Coca-Cola has a partnership with a local company, Ci-Co, in Bucharest and Brasov. Ci-Co has planned an aggressive publicity campaign and has sponsored local sporting and cultural events. Lastly, Romanians drink Coke because it is a powerful western symbol which was once forbidden.

Coke and Pepsi in China: Coca-Cola originally entered China in 1927, but left in 1949 when the Communists took over the country. In 1979, it returned with a shipment of 30,000 cases from Hong Kong. Pepsi, which only entered China in 1982, is trying to be the leading soft-drink producer in China by the year 2000. Even though Coca-Cola's head start in China has given it an edge, there is plenty of room in the country for both companies. Currently, Coca-Cola and Pepsi control 15% and 7% of the Chinese soft-drink market respectively. The Chinese market presents unique problems. For example, 2,800 local soft-drink bottlers, many of whom are state-owned, control nearly 75% of the Chinese market. Those bottlers located in remote areas have virtual monopolies (The Economist, 67). The battle for China will take place in the interior regions. These areas are unpenetrated as most of the foreign soft-drink producers have set up in the booming coastal cities. China's high transportation and distribution costs mean that plants must be located close to their markets. Otherwise, in a country of China's size, Coca-Cola and Pepsi risk pricing their products as luxury items. In China, it is easier and politically safer to expand through joint ventures with local bottlers. It is expected that, in China, the company that wins the cola war will win based on the locations of their bottling plants and the quality of the partners they choose (The Economist, 67). Coca-Cola is bottled at 13 sites across China; five of these are state-owned. Also, Coca-Cola owns 2 concentrate plants in China. By 1996, Coca-Cola and its joint venture partners will have invested nearly $500 million in China. Pepsi is planning a $350 million expansion plan that will add 10 new plants. Both companies are ploughing profits straight back into expansion. They reason that any returns will not come until the next century.

Both Coca-Cola and Pepsi are trying to have their colas available in as many locations in the world and but at a cost which consumers would be willing to pay. The concepts which are becoming more important in Eastern Europe include color, product attractiveness visibility, and display quality. In addition, availability (meeting local demand by increasing production locally), acceptability (building brand equity), and afford ability (pricing higher than local brands, but adapting to local conditions) are the key factors for Eastern Europe. Both companies hope that their western images and brand products will help to boost their sales. Coca-Cola has a universal message and campaign since it feels that Eastern Europe is part of the world and should not be treated differently.

Currently, it is difficult to say who is winning the cola wars since the data from the relatively new market research firms focusses on major cities. Pepsi had a commanding 4 to 1 lead in 1992 in the former Soviet Union. Without this area, Coca-Cola has a 17% share versus Pepsi's 12% share in the soft drink industry. While both companies have been in Eastern Europe for many years, the main task now is to develop the market. Coca-Cola and Pepsi are in a dogfight, but both will end up as winners. In the end, the ultimate winner will be the Eastern Europeans who will have access to some of the world's best soft drinks.

The new battleground for the cola wars is in the developing markets country. With Coca-Cola's and Pepsi's investments in these countries, not only will they increase their sales worldwide, but they will also help to build up these economies. These long-term commitments by both companies will raise the level of competition and efficiency, and at the same time, bring value to the distribution and production systems of these countries. Many issues need to be overcome before a company can begin to produce its goods in a foreign country. These issues include political, social, economic, operational, and environmental topics which must be addressed. When companies like Coca-Cola and Pepsi effectively analyze and solve these problems to everyone's liking, new foreign markets can translate into lucrative opportunities in the long run.