COKE in INDIA - the FACTS

South Asia

SPEAKING FREELY Coca-Cola going flat in India By Elizabeth Mills Speaking Freely is an Asia Times Online feature that allows guest writers to have their say. Please click here if you are interested in contributing. US drink manufacturer Coca-Cola is facing renewed problems in India after Kerala's state government recently imposed a temporary ban on water extraction at its Plachimada bottling plant. The ban, which lasts until June 15, follows a recent parliamentary inquiry that found that soft drinks manufactured by Coca-Cola and Pepsi contained pesticide residues. These are the latest in a string of problems that Coca-Cola has faced and signals continued difficulties for the company, despite its move last December to create an advisory board tasked with navigating its affairs through the complex local political landscape. Coca-Cola has chalked up a turbulent history in India, only choosing to return to the country in 1993 after a somewhat unceremonious exit in 1977. That said, 2003 was a particularly difficult year for the Indian arm of Coca-Cola, with 2004 shaping up to be similarly onerous. Coca-Cola faced negative press over issues as diverse as contamination; anti-Iraq-war protests; alleged environmental degradation; and, as 2003 came to a close, an alleged sexual-harassment case involving a senior company executive and a former Miss Universe with whom the company had previously had a product-endorsement contract. The Plachimada issue has now returned to haunt the company and follows a barrage of bad press over the bottling plant. The ban has come in response to acute water shortages the district is facing, but is part of a much wider debate over water exploitation. In December, a High Court ruling saw the Indian arm of US drinks manufacturer Coca-Cola, Hindustan Coca-Cola Beverages Ltd, ordered to stop extracting groundwater at its southern Indian production facility in Plachimada, Kerala. Unsurprisingly, the company appealed the decision. The ruling also failed to satisfy local groups who have been campaigning for years for the closure of the bottling plant, demanding compensation for the environmental damage that they argue it has caused. The Plachimada bottling factory opened in 1999, since when locals have complained that water resources have fallen dramatically - impacting adversely on farming yields - and that the remaining supplies have been contaminated, rendering them unfit for human usage. Contamination issues of a similar kind also continue to dog the company. The recent parliamentary inquiry came in response to findings that the Center for Science and Environment (CSE), a Delhi-based non-governmental organization (NGO), released last July. In a report on 12 leading soft-drink brands, the NGO argued that that all contained higher levels of toxins than would be permitted under European Union regulations. In a move calculated to capture public attention, the CSE argued that repeat exposure to the likes of pesticide residues could result in cancer and the immune system's failure. Coke and Pepsi account for more than 80 percent of the market and own all 12 drink brands. As such, the two companies were the focus of the resultant public protests. The Indian government attempted to quash the issue in August, releasing a report suggesting that any pesticide residues found in the drinks were within given guidelines. This failed to satisfy the opposition, which called for a more thorough report, the findings of which were published in early February and have subsequently renewed the debate. Complex issues surround multinationals operating in a country such as India. In light of this, Coca-Cola has evidently contemplated a phoenix-styled resurrection of its reputation and product sales with the creation of an advisory board. The board, formed in December, comprises some of the country's leading professionals in the fields of economics, law and industry, operating under the chairmanship of former cabinet secretary Naresh Chandra. The group held its first meeting on December 16 and is expected to convene three to four times a year, both to review the company's performance in India and guide it on a range of issues, including policy formulation, operational and environmental matters, corporate citizenship, social responsibility and corporate governance. The first meeting arrived at the decision to form an Indian environmental council, which will be headed by former chief justice B N Kirpal. It is worth noting that some of the problems Coca-Cola has faced and continues to be troubled by form part of a wider debate, for which the drink giant cannot alone be held accountable. Environment and health issues feature highly in the Indian psyche, particularly with the continued publicity regarding the Bhopal disaster in 1984, caused when 27 tons of poison gases escaped from a Union Carbide pesticide factory, killing thousands within hours and injuring more than 500,000 other people. As such, a significant challenge that foreign companies face is the simple fact that many of the groups who campaign over environmental issues and the like have powerful political ties. Their opposition is based not just on environmental and health concerns, but often also on nationalistic sentiment - targeting these huge multinationals for what is often regarded as their adverse impact on the local culture. Furthermore, any health scare, particularly one related to contamination, vividly captures the public imagination, often to the multinational's disadvantage. A factor that has emerged from the toxin debate is the need for government to address lacking standards governing the quality of water that is used for soft drinks. Coca-Cola and Pepsi claim that they are operating to local standards, but - as CSE illustrated - these may not meet those set by the EU. As such, it is not just large multinationals that need to pay more attention to issues such as social responsibility, but also the government. In light of these issues, Coca-Cola's decision to create an advisory board was an interesting move. From a cynic's standpoint, it could be argued that the company's decision to create an advisory council and then populate it with high-profile figures immediately affords it some protection from criticism, and gives it easy access to the country's decision-makers - a useful asset in the face of social or legal action. Furthermore, it provides Coca-Cola with the opportunity to create a more easily identifiable Indian brand, not unlike Hindustan Lever, and as such reduce the propensity for its market to regard it as "foreign". Less cynically, the creation of an advisory council is something of a precedent. This is the first such move by a multinational operating in India, and may demonstrate a realization that foreign multinationals need to be more attentive to local concerns and show greater awareness of social responsibility if they are ultimately to succeed in the local marketplace. Elizabeth Mills (elizabeth.mills@wmrc.com) is a research analyst (Asia) with World Markets Research Center, London. (Copyright Elizabeth Mills) Speaking Freely is an Asia Times Online feature that allows guest writers to have their say. Please click here if you are interested in contributing.

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