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TOWARD A CRITICAL FRAMEWORK FOR UNDERSTANDING MNE OPERATIONS:
REVISITING COCA-COLA’S EXIT FROM INDIA
Abstract
The exit of Coca- Cola from India in the 1970s has been extensively used in IB textbooks as illustrating
the challenges faced by MNEs in difficult political/regulatory environments. In this paper, we use critical
hermeneutics to challenge the conventional understanding and interpretation of the event. Instead, an
understanding of the macro-economic and historical context suggests that the company had other options
available to it and may have lost a valuable opportunity due to inflexible policies. IB textbooks should be
wary of falling prey to naïve managerialism and instead provide a critical understanding of the operations
within a larger context to their readers.
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TOWARD A CRITICAL FRAMEWORK FOR UNDERSTANDING MNE OPERATIONS:
REVISITING COCA-COLA’S EXIT FROM INDIA
This article seeks to develop a critical framework for understanding multinational enterprises
(MNEs) and national governments that overcomes the naïve managerialism of widely used international
business (IB) textbooks produced in the West. Toward that end, we specifically focus upon the
frequently-cited incident of Coca-Cola Company’s exit from the Indian market in the 1970s. This case has
repeatedly been held up in the mainstream Western IB literature as a manifestation of poorly conceived
protectionist policies in India. Our paper, however, strongly challenges such an interpretation of the CocaCola case. In so doing, the present paper’s analysis leads to a significant revision of existing IB
knowledge about Coca-Cola’s exit from India, while simultaneously underscoring the importance of
adopting a critical perspective for understanding not only MNE operations, but also Western IB
textbooks, generally speaking.
International business (IB) and other management textbooks are not only repositories of the
sedimented knowledge of the field, they also play an important role in preparing future managers.
Interestingly, however, during recent years a number of scholars have questioned the perspective being
presented in management textbooks in general (Cummings & Bridgman, 2011; McLaren, Durepos &
Mills, 2009), as well as in IB textbooks more specifically (Coronado, 2012; Fougère & Moulettes , 2011;
Tipton, 2008). For instance, Cummings and Bridgman (2011) have critiqued management textbooks’
general neglect of the history of management knowledge, and suggested that greater historical awareness
among management students would likely encourage them to be more creative managers in the future.
Similarly, on the basis of their critical analysis of a large number of North American management
textbooks published since 1940, McLaren et al. have offered important insights about the role of sociopolitical context in “the social construction and dissemination of management knowledge” (2009: 388).
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Within the IB field, on the other hand, Coronado (2012) has critically interrogated popular
Western textbooks’ problematic representations of Latin American national cultures, and the role of such
representations in constructing, what she calls, the ‘neocolonial’ manager. Along similar lines, Fougère
and Moulettes (2011) offer a postcolonial critique of discussions of culture in mainstream IB textbooks in
the West. Their study suggests, among other things, that notwithstanding the IB textbook’s repeated calls
for cultural sensitivity, the treatment of other cultures in those textbooks is generally characterized by
cultural insensitivity rather than sensitivity. In a similar vein, Tipton’s study of IB textbooks has identified
a range of “serious weaknesses”—including “errors of fact ... errors of interpretation, and ... problems
with definitions and application of theories of cultural difference”—in those textbooks’ discussion of
culture (2008: 7). Broadly paralleling the endeavors of past scholarly critiques of management and IB
textbooks, one of our objectives in this paper is to understand how certain simplistic and misinformed
interpretations of Coke’s exit from India continue to persist in mainstream IB textbooks. Among other
things, therefore, this article seeks to alert scholars to the importance of developing a self-reflexive and
critical orientation toward the ‘knowledge’ being disseminated by major IB textbooks.
The conceptual approach adopted in this study is situated in the twin scholarly traditions of
political economy and postcolonial theory. While on the one hand, political economy has provided us
with a useful perspective in this paper for critically analyzing the actions of Coca-Cola Company in the
context of economic, political and regulatory developments in India, on the other hand, postcolonial
theory has proved to be of value for examining certain issues of cultural representation relevant to the
present case. It may be useful to note here that the scholarly traditions of political economy and
postcolonial theory seem to exist in a unique relationship which, while often being somewhat tense, is
also highly productive in intellectual terms (Lazarus, 2004; Prasad, 2003, 2012; Spivak, 1999). Not
surprisingly, therefore, researchers from a variety of fields have made increasing calls for creatively
combining the insights of these two traditions for purposes of in-depth critical inquiry (see, e.g., Chari &
Verdery, 2009; Loomba, Kaul, Bunzl, Burton & Esty, 2005). Indeed, an important example of such a call
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is to be found within the pages of this very journal itself. Specifically, writing their introduction to the
special issue on ‘Postcolonialism’ brought out by Organization in 2011, the special issue editors
explicitly called for ‘deepening and broadening’ postcolonial inquiry in organization studies by means of,
among other things, developing “critique via political economy” (Jack, Westwood, Srinivas & Sardar,
2011: 281). Accordingly, the present paper may be seen as an instance of critical organizational research
informed by a postcolonial sensibility that draws significantly upon the insights of political economy. For
purposes of data analysis, this paper utilizes the methodology of critical hermeneutics. The usefulness of
critical hermeneutics for this research has been discussed later in the methodological section of the paper.
We focus upon Coca-Cola in this article for a number of reasons. As all of us are well aware,
descriptions of corporate actions are quite commonly used to illustrate concepts in textbooks, and
publishers frequently advertise that their books are ‘packed with examples.’ These examples seek to show
how theory works in the ‘real world.’ Examples are drawn, most often, from the experience of MNEs for
two reasons. First, the field of IB has generally focused on the activities of MNEs as they have led
internationalization of business and thereby provided the environment for scholars to study. Second, there
is publicly available information about the activities of MNEs and textbook authors can find examples
more easily to draw upon.
Coca-Cola is an MNE that is frequently referred to in IB textbooks owing to the extent of its
internationalization. Out of 694 companies listed in the Company Index in the Griffin/Pustay (2007)
book, only two companies are cited more frequently than Coca-Cola. It earns more revenues and profits
overseas than in its home country. Moreover, operating in over 197 countries, the company’s main
product, the cola soft-drink, also serves to illustrate a product that is almost the same all across the world.
All in all, as Rugman and Hodgetts’ (1995) analysis of Coke’s various corporate characteristics (e.g.,
production and distribution, strategic orientation, international partnerships, etc.) indicates, the company
may be seen as the quintessential MNE.
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Coca-Cola, thus, is widely viewed as an example of a company that genuinely illustrates
internationalization in its various forms and serves as an exemplar of international management. We
chose Coca-Cola’s exit from India as a specific issue of interest for our study because the event is
frequently mentioned in a number of IB textbooks as an illustration of the many challenges of doing
international business. Moreover, the example continues to be cited in textbooks even 30 years after the
event suggesting that it has achieved a certain level of acceptance among educators in the field.
Set against the preceding backdrop, our objective in this article is to develop an enhanced critical
understanding of Coca-Cola’s exit from India, as well as of major IB textbooks’ interpretations of that
event. The rest of this article consists of four sections. First, we discuss our use of critical hermeneutics as
the methodology for the present paper. Second, we outline salient details regarding Coca-Cola’s exit from
India, and sketch out how Coke’s exit has generally been interpreted in IB textbooks. Next, we present
our critical analysis of the business situation under consideration and, in so doing, considerably enrich the
current understanding and knowledge about Coke’s exit from India. Finally, we conclude with a brief
discussion of implications.
THE METHODOLOGY OF CRITICAL HERMENEUTICS
During past years, there seems to have been a marked growth of hermeneutics oriented research
in several business-related scholarly fields, such as accounting (Francis, 1994; Llewellyn, 1993), business
communication (Phillips & Brown, 1993; Prasad & Mir, 2002), management information systems (Butler,
1998; Klein & Myers, 1999), marketing (Arnold & Fischer, 1994; Hirschman, 1990), organizational
behavior and theory (Gabriel, 1991; Mercier, 1994), and so forth. In this connection, moreover,
Noorderhaven has pointed out that hermeneutics may well be especially valuable for the field of IB
because the hermeneutic approach “does justice to the challenges formed by the unique character of
international business … as a field” (2004: 84). Noorderhaven (2004: 84) identifies the concept of
distance in its two senses—namely, (a) “the geographical, social, political, economic, cultural and
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linguistic distance” between the actual actors involved in international business transactions, and (b) the
distance between researchers and their objects of research which invariably involve “a social reality
which is much more distant to them than if they were studying domestic organizations or management
processes”—as indicative of the unique character of the field of international business. At a fundamental
level, therefore, IB research requires a methodology that would help scholars bridge the said distance.
According to Noorderhaven (2004), hermeneutics is precisely such a methodology. The various
methodological elements that enable hermeneutics-oriented research to meaningfully bridge the aforesaid
distance will be outlined below during the course of our discussions in this section of the paper.
Hermeneutics originally emerged as an approach for interpreting complex religious, legal and
literary texts. During recent years, however, hermeneutic scholars have significantly broadened the
meaning of the term, text, to include not only written documents, but also social and economic practices,
culture and cultural artifacts, institutional activities and structures, and so on (Ricoeur, 1971).
Hermeneutics, hence, now serves qualitative/critical management research as a valuable methodology,
allowing scholars to interpret not only documents, but also the much wider range of ‘texts’ spanning a
variety of micro- and macro-level organizational practices and phenomena (Gabriel, 1991; Noorderhaven,
2004; Prasad, A. 2002; Prasad, P. 2005).
Although the origins of hermeneutics may be traced back to ancient Greece, the conceptual
architecture of contemporary hermeneutics has been fashioned primarily by the intellectual efforts of
major modern European philosophers like Schleiermacher, Dilthey, Heidegger, Gadamer, Habermas, and
Ricoeur (Bleicher, 1980; Ormiston & Schrift, 1990; Palmer, 1969). Space considerations here do not
permit a detailed discussion of hermeneutics, which may be found in various other sources cited in this
article (e.g., Noorderhaven, 2004; Prasad, 2002). In brief, the hermeneutic approach to interpretation—or,
to be more precise, the critical hermeneutic approach to interpretation—is based upon five major
methodological concepts: (a) hermeneutic circle, (b) hermeneutic horizon, (c) interpretation as dialogue
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and fusion of horizons, (d) non-author-intentional view of textual meaning, and (e) the significance of
critique in interpretation. Taken together, these five elements enable IB researchers to (1) bridge the
distance which, as we noted earlier, Noorderhaven (2004) has identified as a unique characteristic of
international business, and also (2) allow scholars to develop a critical understanding of the phenomenon
under investigation
The concept of hermeneutic circle proposes that “the part [can only be] understood from the
whole and whole from … its parts” (Palmer, 1969: 77). In other words, any text—such as a corporate
document or an organizational event (“the part”)—can only be understood by situating the said text
within the overall totality of its cultural and historical context (“the whole”), and understanding “the
whole” only takes place by means of understanding the various “parts” that constitute the “whole”. For
management researchers, therefore, the concept of hermeneutic circle emphasizes the crucial importance
of context and history in interpreting any organizational phenomenon. The concept of hermeneutic
horizon, on the other hand, draws attention to the fact that (a) similar to the embeddedness of a text in its
own cultural and historical context, any person undertaking to interpret a given text is likewise embedded
in her/his own context, and (b) that the interpreter’s historico-cultural context is never precisely the same
as that of the text being interpreted (Prasad, 2002; Prasad & Mir, 2002). Hence, according to the
hermeneutic approach, interpreting and understanding a text involves a dialogue (between the text and the
interpreter of the text) that seeks to achieve a fusion and integration of the respective horizons of the text
and that of the interpreter. Such a fusion of horizons “requires … the … suspension of [the interpreter’s
unproductive] prejudices” (Gadamer, 1975: 266).
The nature of hermeneutic interpretation as a fusion of horizons, however, involves also a
profound recognition that the interpretive act is irrevocably rooted in the present, and is necessarily
mediated via the hermeneutic situatedness of the interpreter in the present. According to the hermeneutic
perspective, therefore, interpretation does not imply an attempt to reconstruct or recover the intended
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meaning of the text’s author. In other words, hermeneutic interpretation subscribes to a non-authorintentional view of meaning, and holds that “the meaning of a text [always] goes beyond its author”
(Gadamer, 1975: 264). The need to critically suspend unproductive prejudices and the rejection of authorintentionality alert us to the importance of the critical dimension in hermeneutics. Hermeneutic
interpretation requires both a self-critical orientation on the part of the interpreter, as well as a critical
stance toward the ‘text’ being interpreted. This aspect of critique in hermeneutic interpretation may
sometimes be facilitated by recourse to various critical scholarly perspectives (e.g., Marxism, neoMarxism, feminism, postcolonialism, etc.), with the result that hermeneutics comes to be transformed into
critical hermeneutics. As already indicated in our introduction, the critical element in the present research
is provided by this paper’s mobilization of insights from the intellectual traditions of political economy as
well as postcolonial theory.
As the foregoing discussion suggests, documents and texts often serve as key data elements in
(critical) hermeneutic research. For purposes of data collection and analysis, we began our study by
scrutinizing a number of popular IB textbooks for references to Coca-Cola’s exit from India. In all, our
research identified 18 textbooks, representing those that have been published by major publishers and/or
have gone through repeated editions. Four textbooks were subsequently dropped from the study because
they had no reference to the Coke exit, leaving 14 textbooks in our final data pool. We then followed up
and accessed the specific citations (newspaper and/or journal references) that the authors of these
textbooks had provided in connection with their discussion of this event. Thereafter, we extended our
document search to the Academic Universe (Lexis/Nexis) data base for references to the Coca-Cola
episode in prominent news sources like the Wall Street Journal, New York Times, and Business Week.
Alongside, we also conducted a similar search in the accessible archives of The Hindu, and Times of
India, two of the leading newspapers in India.
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In order to deepen our understanding of Coke’s exit, we examined India’s FERA legislation
(discussed below). We also undertook a Google Scholar database search of journal articles that mentioned
the subject, and looked at articles dealing with multinationals in Third World countries, as well as articles
that examined exit of MNEs (whether or not such articles specifically referenced the issue of Coke’s exit
from India). In addition, our research also involved interviews with two senior Government of India
officials (now retired)—one from the Ministry of Industry and the other from the Ministry of Finance—
who were responsible for dealing with the Coca-Cola issue in the 1970s.
We wrote to Coca-Cola Company in Atlanta, requesting copies of relevant internal documents. In
their reply, the company’s Executive Counsel stated that “the company does not maintain correspondence
from that time period” in its Atlanta office and will, in due course, try to send any relevant information
the company might still have in its Indian office. However, the company has been unable to send us any
materials thus far and, conceivably, the relevant materials have not been retained in the company’s Indian
office either. Hence, our research mainly confines itself to publicly available materials. In the next section
of the article, we first provide some brief background information about Coca-Cola’s exit from India, and
then review how Coke’s exit has been commonly interpreted in widely-used IB textbooks.
COCA-COLA’S EXIT FROM INDIA
Coca-Cola first began operating in the Indian market in 1956. In 1973, the Indian parliament
passed the Foreign Exchange Regulation Act (FERA), which came into effect on January 1, 1974. The act
sought to regulate payments and dealings in foreign exchange for the purpose of “conservation of the
foreign exchange resources of the country and the proper utilization thereof in the interests of the
economic development of the country” (FERA, 1973). The various sections of the act laid out rules
relating to who was authorized to deal in foreign exchange, the conditions under which money could be
changed, regulations about making payments in foreign exchange for imports, how money received from
exports was to be accounted for, and so on. Section 29(2)(a) of the Act (and accompanying guidelines)
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required that foreign companies that owned more that 40% equity in their Indian operations get the
permission of the Reserve Bank of India to continue in business (Nayak, Chakravarthi, & Rajib, 2005).
Four levels of foreign equity participation were permitted under FERA. First, trading companies and
manufacturing companies not using sophisticated technology (e.g., Coca-Cola) were required to restrict
foreign equity holding to 40% of total equity. Second, ‘high-tech’ companies could retain foreign equity
up to a maximum of 74% of the total. Third, multi-activity companies in both high-tech and trading
businesses could retain 51% foreign equity. Fourth, purely export oriented companies were permitted to
retain 100% foreign equity (FERA, 1973; Negandhi & Palia, 1988).
Faced with the stipulations of FERA, some 63 foreign companies in India that did not want to
dilute their equity decided to wind-up operations by 1980-81. In contrast, over 1000 foreign companies
complied with FERA. The Government of India (GOI) allowed majority holdings in the case of over 100
enterprises. Many who chose to stay by diluting equity, where necessary, benefited as it allowed them to
raise fresh capital at a time when access to capital markets was restricted, and also enabled them to raise
market shares (Athreye & Kapur, 2001; Nayak et al., 2005; Subramanian, 2002, 2007).
In accordance with FERA, Coca-Cola Export Corporation (which was 100% US owned and
operated a branch in India) was asked to sell 60% of the equity to Indian nationals. In response, CocaCola made a counter offer stating that two companies be formed: one company with 40% equity to be in
charge of bottling and distribution, and a separate company—termed a technical or administrative unit, in
which the US parent firm would retain 100% equity—to be responsible for importing the concentrate
used in making the soft drink, and to exercise control over the other company. This proposal was found
unacceptable by the GOI. These facts were extensively reported in the press.
Independent of the requirement of dilution of equity, Coca-Cola (along with all other companies
that needed to import materials) was required to obtain every quarter a license to import the concentrate
needed for the soft drink. At about the same time as the equity dilution issue was under negotiation, a new
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official took charge of the GOI office responsible for approving import licenses. In accordance with
extant government regulations that covered import of food items into the country, he required Coca-Cola
to report to GOI the specific ingredients used in the concentrate and/or have the product safety tested in
the government food laboratories as a condition for grant of import license. Coca-Cola refused to do so
(Mahadevan, 2007). The company then decided to withdraw from India.
Current Interpretations of Coca-Cola’s Exit from India
Our review of existing interpretations of Coca-Cola’s exit draws upon discussions of the event
appearing in a set of 14 popular IB textbooks widely used in the United States and elsewhere. In general,
IB textbooks aim to provide a causal explanation for Coke’s exit, and often frame their discussions
around certain concerns the firm is said to have had about losing its secret formula for the Coca-Cola
concentrate. For instance, according to Wild, Wild and Han (2010), “Coca-Cola … left India when the
[Indian] government demanded that it disclose its secret formula as a requirement for doing business” in
India (p.329). Similarly, Peng (2009) asserts that the company withdrew because the “Indian government
… demanded that Coca-Cola share its secret formula” (p.161), and Holt and Wigginton (2002) declare
that the company exited from the Indian market because “India attempted to gain access to Coke’s highly
guarded formula for its syrup” (p.75). Likewise, Griffin and Pustay (2007:43) argue that:
“… as a condition for remaining in the country, the Coca-Cola company was retroactively
required in the 1970s to divulge its secret soft drink formula. Coca-Cola refused and chose to
leave the market.”
Somewhat distinct from the aforementioned accounts, which seek to portray Coke’s withdrawal as a fairly
direct result of GOI’s demand that the company share its concentrate’s secret formula, other textbooks
offer an explanation for Coca-Cola’s exit that relies more upon the FERA requirement for dilution of
foreign equity and the supposed risks such dilution posed for the company’s intellectual property rights
involving its secret concentrate formula. For instance, Deresky (2006:318) argues that:
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“In the regulatory environment of the late 1970s, foreign companies operating in any non-priority
sector in India could not own more than 40% stake in the venture. Coca-Cola ran its operations
through a 100% subsidiary. After the company refused to partner with an Indian company and
share its technology it had to stop its operations and leave the country” (emphasis added).
Similarly, Hill (2011a: 84; 2011b:79) provides the following clarification for Coke’s exit:
“… in the 1970s when the Indian government passed a law requiring all foreign investors to
enter into joint ventures with Indian companies, US companies … [like] Coca-Cola closed their
investments in India. They believed that the Indian legal system did not provide for adequate
protection of intellectual property rights, creating the very real danger that their Indian partners
might expropriate … intellectual property…” (emphasis added).
In other words, authors like Deresky (2006) and Hill (2011a&b) do not make the argument that CocaCola withdrew from India because the GOI demanded that the company divulge Coke’s secret formula.
Rather, their contention seems to be that GOI enacted new legislation (namely, FERA) requiring CocaCola to reduce its foreign equity and enter into joint venture with an Indian firm, and that Coca-Cola was
unwilling to do so because partnering with an Indian firm put Coke’s secret formula at risk. Explanations
that follow this line of reasoning are offered also by some other textbooks (e.g., Czinkota, Ronkainen, &
Moffett, 2005; Punnett & Ricks, 1997), as well as by certain scholarly articles (e.g., Encarnation &
Vachani, 1985). Tallman (2009:30) refers to a ‘loss of proprietary resources’ for the company. In our
review, Hodgetts, Luthans & Doh (2006:32) stood out from the other textbooks by referring to the exit as
having been caused by ‘a change of rules’ in the country and not providing any interpretation.
In certain cases, the aforesaid explanations are accompanied by references to specific reports
published in US newspapers during the 1970s that seem to support the textbooks’ contentions. A
representative sample of those newspaper reports is given below.
Wall Street Journal (Editorial, August 10, 1977): “… [the Government of India demanded that]
… Coca-Cola deliver the secret of 7X [beverage concentrate]…”
New York Times (August 25, 1977): “The Government [of India] has asked Coca-Cola to
surrender its secret syrup formula to an Indian-controlled concern or get out by next April.”
New York Times (August 31, 1977): “… Indian Government demands … a controlling interest in
the company and … full disclosure of the soft drink formula so that Indian manufacturers can
produce the beverage.”
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New York Times (September 5, 1977): “… the Company [is required to] … transfer … the
formula for its concentrate to Indian shareholders or cease operations in India.”
In sum, IB textbooks’ explanations for Coke’s exit do seem to run in tandem with US newspaper accounts
published at the time, that contend that Coca-Cola withdrew either because (a) the GOI demanded that the
company reveal its secret concentrate formula, or (b) because the GOI demanded that the company dilute
its equity to 40% of total, and become a junior partner in a joint venture with an Indian firm that would
hold the remaining 60% equity.
At this juncture, it becomes important for purposes of analysis to pay close attention to some of
the finer empirical details of the business situation under consideration. When we do so, we find that the
two basic assumptions—namely, (a) GOI’s alleged demand for the secret concentrate formula and (b)
GOI’s supposed requirement that Coca-Cola become a junior partner in a joint venture—which provide
the foundation for various accounts appearing in US newspapers as well as IB textbooks, are unwarranted
and cannot be justified. A careful examination of the empirical details indicates that (a) the GOI neither
demanded the secret concentrate formula for itself nor did GOI insist that an Indian partner be given the
formula, and (b) that the GOI did not require Coca-Cola to become a junior partner: in other words, the
60% equity required to be held by Indian shareholders as per FERA could be widely dispersed among the
Indian public, leaving effective control in the hands of Coca-Cola (Encarnation & Vachani, 1985; FERA,
1973; Negandhi & Palia, 1988; Mahadevan, 2007; Subramanian, 2007).
Clearly, therefore, many popular textbooks’ explanations of Coke’s exit seem to rely upon
mistaken statements of important ground-level facts and, as a result, may be seen as seriously limited.
However, in addition to recognizing the significance of such errors, we can develop deeper insights into
the limitations of the IB textbooks’ interpretations by examining the somewhat restricted way in which
these textbooks tend to define the context for their analysis of the event. As noted earlier, hermeneutics
emphasizes the importance of overall context and history for purposes of adequately interpreting
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organizational activities. From the hermeneutic perspective, therefore, IB textbooks’ interpretations are
rather limited because these textbooks invariably choose to proceed with their analysis within a narrowly
defined context, specifically, only the context of political and regulatory changes taking place in India at
that time. Table 1 summarizes our analysis of the ways in which major IB textbooks portray Coke’s exit.
______________________
Place Table 1 about Here
______________________
Table 1 identifies (a) the specific chapters and/or major sections, as well as (b) the sub-section
and/or paragraph under which popular IB textbooks generally place their discussions of this incident. As
the table indicates, these textbooks mostly locate Coca-Cola’s exit within the context of the regulatory or
political environment of the country, the changes occurring within this environment, and the risks such
changes might pose for foreign firms. Once the context has been so defined, the explanations being
offered by the textbooks follow certain specific trajectories. These include claims like Coke withdrew
from India because of (a) GOI’s demand for the secret concentrate formula, or (b) as a result of a new
GOI requirement that all foreign investors enter into joint ventures with Indian companies, or (c) owing to
the emergence of some new risk close to that of nationalization/expropriation of assets, or (d) on account
of political blackmail, or (e) due to corruption and political avarice in India, or (f) in consequence of lax
intellectual property rights (IPR) protection under Indian legal conditions, and so on (Table 1).
We have already noted that the first two claims in the preceding list cannot be supported on the
basis of empirical details relating to the event. But what about some of the other claims? For instance, did
the GOI’s actions amount to some kind of attempted nationalization, as Peng’s (2009) textbook suggests
when it observes: “Coca-Cola’s experience in India is not isolated. Numerous governments in Africa,
Asia and Latin America have expropriated assets through nationalization” (p.161). Or did the GOI’s
actions amount to political blackmail, and was there corruption involved? Holt and Wigginton (2002: 75)
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assert that the GOI’s action “was called a blatant form of political blackmail”, but do not provide the
necessary reference to a source. The same authors’ discussion alludes also to “corruption or political
avarice” (Holt & Wigginton, 2002: 75). And was IPR protection inadequate in India? Indian laws seem to
have been in conformity with the global IPR regime prevailing at the time but, in view of recent changes,
the old regime might be seen as insufficient by some.
Irrespective of the actual substance of many of these claims, however, what is clear is that IB
textbooks generally tend to regard the Indian political/regulatory environment as a key problem. Not
surprisingly, perhaps, this tendency can sometimes result in unjustifiable claims being made. For instance,
viewing the regulatory changes of that time as a major problem, Shenkar and Luo (2004: 185) assert that
those changes led to an “exodus of … foreign MNEs” from India (emphasis added). As noted earlier,
following the enactment of FERA, 63 or so foreign MNEs withdrew from India while more than 1000
foreign companies stayed in the country: not exactly an ‘exodus’. However, Shenkar and Luo’s inference
of an ‘exodus’ is plausible if the starting point of analysis is the assumption that FERA, inherently, was a
significant problem and was viewed as such by an overwhelming number of foreign MNEs.
However, rather than attempting to either substantiate or refute various claims documented
above—a somewhat fraught enterprise, in any case, in view of the nature of some of the claims—it might
be useful to examine the persistent tendency in IB textbooks to interpret Coke’s exit only as a result of
problems/inadequacies/risks that are said to characterize India’s political/regulatory environment. What
could be some of the implications of this tendency? What might account for the tendency to see India’s
political/regulatory environment as beset by serious problems? How might our understanding of the event
shift if we decide to move away from the limited way in which IB textbooks define the context for their
analysis? The next section of the article addresses some of these issues and, in so doing, seeks to develop
an enhanced critical understanding of Coca-Cola’s exit from India.
TOWARD A CRITICAL UNDERSTANDING OF COCA-COLA’S EXIT
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One of the important motivations driving the present study is the desire for a more comprehensive
and critical understanding of Coca-Cola’s exit from India. With that end in view—and in line with (a) the
concept of hermeneutic circle, which holds that interpretation emerges via a circular movement between
‘text’ and ‘context’, and (b) the notion of interpretation as a fusion of the hermeneutic horizons of the
‘text’ and of the interpreter—it is necessary to define the context for our analysis at multiple levels of
increasing comprehensiveness and, in so doing, to work toward expanding and broadening our own
hermeneutic horizons (Gadamer, 1975; Noorderhaven, 2004; Prasad, 2002).
Hence, in this section of the article, we will move beyond the limited context of proximate
political/regulatory environment (within which IB textbooks’ discussions of Coke’s exit are commonly
confined), and develop a more broad-based, inclusive, nuanced and critical understanding of Coca-Cola’s
exit from India. In particular, our analysis will focus upon the following three broader levels of context:
(a) the larger macro-economic context of India during the 1970s, (b) the longer-term historical context of
India’s economic development, and (c) the cultural context as regards the place occupied by India within
wider Western/American consciousness. Moreover, while the first two levels of context—which are
primarily economic in nature—will be analyzed in this paper from a scholarly vantage point largely
located in the domain of political economy, our analysis of the third (i.e., cultural) level of the broader
context will also draw upon Edward Said’s (1978) contributions to postcolonial theory. In what follows,
we will briefly outline some of the key aspects of each of these higher levels of context, and analyze the
significance of such broadened delineation of context for enhancing our understanding of Coca-Cola’s
exit.
Indian Macro-Economy during the 1970s
The FERA legislation (discussed earlier) had been enacted under a general situation of
deteriorating macro-economic conditions in India. The first half of the 1970s was marked by serious
economic difficulties for India: average annual GDP growth rate, which had registered 4.8% during 1966-
17
1971, fell precipitously to 3.3% during 1971-1976 (Nayar & Paul, 2003). This steep decline was triggered
by a number of factors, including the economic burdens relating to the Indo-Pakistan War of 1971 and the
influx of some 10 million refugees into India from Pakistan, as well as the dramatic escalation of oil
prices by OPEC (Organization of Petroleum Exporting Countries) in 1973. Developments like these
resulted in deep problems for the Indian economy and, in particular, created grave strains on the foreign
exchange resources of the country.
In the early 1970s, the developing shortage of foreign exchange led to considerable policy
emphasis on import restriction/substitution and export promotion, and serious concerns were expressed
about large amounts of foreign exchange flowing out of the country owing to foreign MNE operations
involving payments for imports as well as repatriation of dividends. This was also a time when different
aspects of MNE behavior in developing markets (e.g., shipping of old technology, employing only
expatriates at managerial levels, monopolistic practices, etc.) led to a generalized reputation of MNEs as
being exploitative. Governments of many developing countries argued that there was a genuine need to
control and regulate MNEs in order to encourage the growth of indigenous business enterprises. These
sentiments were shared by significant sections of Indian policy makers. The enactment of FERA took
place within these very developments involving a deteriorating economy, growing foreign exchange
shortage, and increasing antipathy toward foreign MNEs.
When we broaden the context to include India’s macro-economy during the 1970s, it becomes
possible to recognize FERA as GOI’s response to a specific problem (namely, escalating foreign
exchange shortages), and move beyond the tendency displayed by IB textbooks to consider this
legislation itself as the problem, and as a mere manifestation of GOI’s desire to increase control over
MNEs. In other words, understanding the macro-economic context helps us realize that regulatory
changes of the period were intended to address a serious economic problem, rather than simply increase
GOI’s control over MNEs merely for the sake of greater control. Indeed, the fact that FERA itself
18
permitted majority foreign equity holding for specific categories of MNEs suggests that control, on its
own, need not be seen as the guiding objective of this legislation. Moreover, this element of FERA also
helps us understand that exit was not Coke’s only option under the situation; with somewhat greater
ingenuity and flexibility, the company had a range of options for continuing its operations in India. These
aspects of the situation, however, tend to be ignored in IB textbooks’ interpretations because of their
limited definition and understanding of the overall context.
Interestingly, Encarnation and Vachani (1985) have examined how a set of MNEs responded to
FERA. Their analysis points out that, rather than quitting like Coca-Cola, those firms that continued
operating in India often benefited through protected markets, succeeded in lowering capital costs by
improving the equity base, continued to retain control through wide distribution of new equity, and
entered into useful diversification of business. From this perspective, Coca-Cola, while undoubtedly a
company faced with changes in the political/regulatory environment, may also be seen as a company that
lost an opportunity due to somewhat inflexible corporate policies.
The Historical Context of India’s Economic Development
In the 1750s, when Britain began its century-long process of Indian conquest, India’s economy
produced roughly 25% of total global output; by the time India won back its independence in 1947, the
Indian economy accounted for just about 2% of the global economy (Huntington, 1996). This
extraordinary collapse of Indian economy between the 18th and 20th centuries was the result of a policy of
Indian de-industrialization, economic neglect, and colonial plunder pursued by Britain (Guha, 2007). It is
interesting to note, moreover, that Britain’s conquest of India was largely accomplished by a private
company, the East India Company.
After independence, the country sought to reverse its long economic decline, and the GOI
assumed a key role in directing Indian economic development by instituting a system of centrally-
19
coordinated national economic planning. This model of planned economic development yielded positive
results and the country’s annual GDP growth rate, which had stagnated under 1% before independence,
climbed to an average of about 4.8% during the period 1966-1971 (Nayar & Paul, 2003). The Indian
model of economic development emphasized the creation of a significant industrial base for the country,
with particular focus upon heavy industries, development of scientific and technological capabilities, and
economic self-reliance (Guha, 2007; Nayar & Paul, 2003). Moreover, partly in view of certain conditions
unique to India, the GOI decided also that the public sector would assume direct responsibility for
industrial development in many strategically important sectors of the economy.
Despite its focus on the public sector, the Indian developmental model also involved a significant
role for the private sector. Hence, it needs to be emphasized that the Indian model of a mixed economy
(i.e., a mix of public and private sectors) was substantially different from the economic model adopted by
“communist” countries like the erstwhile USSR, which prohibited private enterprise altogether. In pursuit
of its policy of developing a mixed economy, the GOI classified industries into different categories, some
of which (e.g., atomic energy, defense, etc.) were reserved for the public sector, others (e.g., chemicals,
pharmaceuticals, etc.) that were open to both sectors, and yet others (e.g., consumer products, food, soft
drinks, etc.) that were generally for the private sector alone. Coca-Cola Company, hence, operated in a
sector of the economy in which the GOI, by virtue of its explicitly-stated policy, had little interest in
promoting public sector ownership. On the other hand, in several other industries (e.g., banking,
insurance, coal, petroleum, etc.) the GOI promoted significant public sector participation including, where
necessary, nationalization of private sector enterprises.
This overview of the historical context is useful for deepening our understanding of the event.
Among other things, the historical context helps us develop a better appreciation of the role of
nationalization in India’s economic policy. Specifically, it appears that nationalization, while indeed an
important part of the Indian model, was generally confined to sectors of considerable strategic
20
importance. Therefore, there would seem to be little justification for interpreting Coke’s Indian
experience as being parallel to that of a firm being nationalized, unless the analyst assumes that a soft
drink company was a company of strategic significance for India’s economy in the 1970s. Such an
assumption, however, is difficult to sustain in light of the relative sophistication achieved by the Indian
economy by the 1970s. Hence, Peng’s (2009) conclusion that Coke’s experience in India has its parallel
in various acts of expropriation of MNE assets in “Africa, Asia and Latin America” (p.161) does not seem
tenable.
Moreover, the historical context also draws attention to the fact that FERA’s differential
treatment of different types of industries (e.g., priority, non-priority, etc.) was broadly in step with the role
accorded to different categories of industries in India’s post-Independence economic policy. Hence, GOI
appears to us in the form of a rational actor taking actions that are broadly consonant with a long-term
policy set in place at Independence. For such an actor to be engaging in “political blackmail” to get the
formula for a soft-drink syrup—as Holt and Wigginton (2002) suggest—seems somewhat improbable.
What this suggests is that researchers may need to steer clear of interpretations that view Coke’s exit as a
response either to increased risk of nationalization or alleged political blackmail.
India in Western Cultural Consciousness
Recent postcolonial theoretic scholarship in a range of academic fields, including IB, has pointed
out that Western cultural perceptions of the Third World have been significantly shaped by the long
history of European colonial domination of the world (Jack & Westwood, 2006; Özkazanç-Pan, 2008;
Prasad, 2003). For instance, Said (1978) has drawn attention to the ideological discourse of
‘Orientalism’—developed in tandem with European colonial expansion—as a key influence in molding
Western cultural understandings of various Eastern countries and regions. According to Said (1978),
‘Orientalism’ as a Western ideological discourse provides an epistemological framework, as well as a
cultural “style of thought” (p.2), that systematically regards (a) the East and the West as binary opposites,
21
(b) considers the West as superior to the East, (c) views the East as a constant source of danger, and (d)
perceives the East to be weighed down by a host of negative attributes such as backwardness, corruption,
irrationality, lawlessness, and the like.
Not surprisingly, views like these have long circulated in the United States as well, and have
deeply conditioned American cultural perceptions of the Third World, including those about India. For
instance, President Theodore Roosevelt himself wrote glowingly about British colonization of India as
“one of the mighty feats of civilization, one of the mighty feats to the credit of the white race” (Roosevelt
quoted in Nayar & Paul, 2003: 94-95) and, for various reasons, the United States was not at all
“enthusiastic” about India’s independence (Nayar & Paul, 2003: 67). Moreover, barring brief
improvement during the late 1950s and early 1960s, the place occupied by India in American/Western
cultural consciousness seems to have significantly deteriorated after Indian independence (Nayar & Paul,
2003).
Considerations of space prevent us from discussing various developments (e.g., Indian economic
policies, Cold War geo-politics, Vietnam War, etc.) that apparently contributed toward the aforesaid
deterioration (Guha, 2007; Nayar & Paul, 2003). In any event, American/Western cultural understanding
of India after India’s independence was set on a path of steady decline; Western media reports largely
offered unfavorable views of Indian economy, society and politics; and America and the West generally
came to see only “the bleak side of India” (Nayar & Paul, 2003: 97).
Hence, by the first half of the 1970s, India seems to have become entrenched in
American/Western cultural consciousness in a rather negative light. This was reflected in the way India
came to be portrayed in Western textbooks, media, and scholarly writings. Indeed, the prestigious Asia
Society’s review of 300 textbooks being used in US schools during 1974-1975 revealed that the
textbooks’ depiction of India “was the most negative of all Asian countries” (Asia Society, 1976; quoted
in Nayar & Paul, 2003: 95). The stereotypical depictions of India at the time included representations of
22
India as a land of rampant corruption, political turmoil, disorder and absence of rule of law, underdevelopment and economic failures, and as a country that was mystical and ‘other-worldly’ but also ‘soft’
on “communism” (Guha, 2007).
Expanding the context of our analysis to encompass elements of the wider Western cultural
consciousness is useful for further enhancing our understanding of Coke’s exit. Noorderhaven (2004)
notes that adopting the hermeneutic perspective in IB research implies that “practitioners of international
business … [need to be] regarded as [practicing] hermeneuticians” (p.96). This entails the necessity of
understanding international managers’ interpretations of the external environment and the business
situation they are confronted with. We suggest here that recognizing the mediating influence of Western
cultural consciousness on Coca-Cola’s managers’ interpretations of the external environment in India
helps us gain deeper insights into the firm’s decision to withdraw from the country.
For instance, the Western cultural view of India as a country where there is absence of rule of law
implies that its government might be seen as prone to taking capricious actions. Hence, as far as CocaCola is concerned, the letter and spirit of any law (e.g., India’s IPR law) loses its sanctity, and the
company’s decisions would likely be mediated by the belief that it cannot rely upon Indian courts of law
to uphold its legitimate IPR relating to the syrup formula. Similarly, if India is culturally seen as
economically ‘irrational’—or as a country where “politics often prevailed over economic interests,” to
quote the Rugman and Hodgetts (1995: 554) textbook—then Coca-Cola would likely believe that
conducting reasonable discussions and negotiations with the GOI might be exceedingly difficult.
Likewise, to the extent that Coca-Cola’s managers saw India as “socialistic”, they likely regarded
nationalization to be an uncompromising ideological goal for the Indian government and, moreover, they
might have been highly apprehensive that the GOI could arbitrarily expropriate the company’s assets
without due compensation.
23
Once we factor in the mediating role of the aforesaid cultural consciousness, it may no longer be
a matter of surprise that the GOI’s requirement that the concentrate be made locally in India was
interpreted by Coca-Cola as attempted expropriation of the company's intellectual property; sale of equity
to the Indian public was interpreted as handing over control to a majority Indian partner; and the GOI
requiring a detailing of the drink’s ingredients for food safety testing purposes was interpreted as the
government requiring that the concentrate formula be divulged. In sum, the cultural lens provided by
stereotypical Western understandings of India likely helped create within the Coca-Cola Company an
amplified perception of political/regulatory risk and, consequently, exit from India came to be seen as the
only viable option for the firm. Indeed, such stereotypical understandings may be said to have played an
important role also in the various newspaper accounts and textbook discussions.
DISCUSSION
In this article, we have sought to develop a more critical and comprehensive understanding of
MNE operations and national governments through an analysis of Coca-Cola’s exit from India during the
1970s, and in this process, also provided a critical revision of popular Western IB textbooks’
interpretations of this event. Current IB textbooks seem to contend not only that (a) the company
withdrew because of increased risks/problems in India’s political/regulatory environment in those years,
but also (b) that Coke might have been left with no option other than to quit the Indian market. In other
words, IB textbooks make the case that the company’s decision was strategically correct. Our critical
analysis, on the other hand, questions the interpretation offered in mainstream IB textbooks, and proposes
that the option to exit from India was not the only option available to the firm, and that in deciding to quit,
the company could also be said to have lost a valuable opportunity as a result of inflexible policies.
It needs to be noted, moreover, that Coca Cola’s re-entry into India in 1993—pursuant to the
liberalization of the Indian economy in 1991—seems to have been seen in certain quarters as a further
vindication of the narrow managerialist interpretation of the firm’s exit offered in IB textbooks. Our
24
critical re-examination of the record, hence, provides an important corrective, suggesting that Coke’s exit
from India in the 1970s needs to be viewed as having been significantly mediated by elements of Western
cultural consciousness, combined with an inadequate appreciation of India’s broader macro-economic and
long term historical contexts.
This study has a number of important implications for management and international business. To
begin with, the study emphasizes the crucial significance of history and the wider economic, political, and
cultural context for developing a more complete and informed understanding of organizational actions,
processes, events and so forth. As this paper has sought to demonstrate, current IB textbooks’
interpretations of Coke’s exit turn out to be inadequate largely as a result of those textbooks’ decision to
focus exclusively on the immediate context of political/regulatory changes in India, and to summarily
ignore important aspects of wider context and history. Management and IB researchers, hence, need to
recognize that developing a comprehensive and well-rounded understanding of organizational phenomena
requires that such phenomena be seen as deeply embedded in much larger contexts and histories.
However, it needs to be emphasized here that becoming familiar with the larger contexts and
histories of organizational phenomena is not an easy task, particularly for those IB scholars who may be
required to have dealings in their research with different countries having widely divergent cultures,
histories, local categories for configuring the social world, “modes of organizing” (Ibarra-Colado, 2006:
474), and so on. Following Spivak (2003), we would like to suggest that becoming familiar with the
broader context and history of a country/culture different from one’s own requires serious effort aimed at
developing an ‘idiomatic understanding’ of the country/culture in question. Such an ‘idiomatic
understanding’—which may often necessitate extended intellectual preparation directed at learning that
‘other’ society’s culture, history, politics, language(s), and so on—requires also a deep commitment to
non-Eurocentric thinking, and genuine respect for difference. Consequently, we believe that developing
the kind of understanding suggested above may be especially difficult for Western IB scholars for a
25
variety of reasons including, for instance, the pressures of a ‘publish or perish’ academic ‘research
industry’, as well as the Eurocentrism and provincialism that seem to pervade large sections of Western
culture and academe (Prasad, 2003, 2012; Said, 1978; Spivak, 1999). This implies that Western IB
scholars may need an extra degree of caution and considerable added effort while conducting research
that deals with non-Western countries and cultures.
Our paper also suggests the need for a concerted program of IB research designed to critically
revisit all other present and/or future business cases (especially, perhaps, the cases dealing with ‘Third
World’ countries) in mainstream IB textbooks. This paper has examined the limitations of IB textbooks in
the context of only one single case. Many other similar studies, however, are needed to fully cover the
spectrum of business cases discussed in IB textbooks. Such a program of critique is necessary not only for
underscoring the need for much greater scholarly rigor and caution in contemporary IB research, but also
for pedagogical purposes. Briefly stated, this kind of critical examination of business cases would seem to
be essential for alerting students to be on guard against the Eurocentrism and other limitations of IB
textbooks, and for adequately preparing today’s business students for a rapidly globalizing and
transforming world.
Kuhn (1970), in his analysis of history of science, points out that textbooks in their descriptions
of theories and concepts establish a paradigm that serves the purpose of normal science for a while,
explaining events and allowing for interpretation, till a new scientific revolution challenges the
established paradigm. Similarly, it could be argued that mainstream IB textbooks in the West adhere to a
particular paradigm of MNE operations in the ‘Third World’, and viewed Coke’s exit from India through
the prism of that particular paradigm. As suggested in our discussion, Said’s (1978) notion of Orientalism
appears to be an important element of that paradigm, under which alleged political risks and dangers in
the Third World are often viewed as compelling triggers for MNE behavior. Our analysis, however,
suggests that a more comprehensive understanding of context might be valuable in developing a relatively
26
moderate assessment of such perceived threats. Our study, hence, has certain parallels with studies of
government intervention in ‘Third World’ countries, which argue for the need to develop a nuanced
notion of ‘political risk’ and to look at the perspective of governments involved (e.g., Makhija, 1993;
Poynter, 1982).
In the process of examining IB textbooks, we found certain errors relating to statements of
empirical details surrounding Coke’s exit. We were able to ascertain one possible source of those errors,
namely, newspaper reports cited by the authors. In addition, similarities in comments across some
textbooks lead us to speculate as to one more plausible explanation for recurring errors. Loewen’s (1995)
analysis of persistence of errors in US history textbooks suggests that one author often takes her/his cue
from another, and the same (or similar) erroneous statements survive and continue to circulate through
future textbooks. It is possible that a similar dynamic might have obtained also in the case of IB textbooks
examined in our study.
It might be useful here to comment also on the role of textbooks in knowledge creation.
Textbooks are an attempt to bridge the gap between theory and practice when they provide description of
theory and examples to illustrate the theory. In this process, however, apart from playing a role in
transmitting knowledge, they may also be seen as creating knowledge, and by their choice of illustrations
and description of events, promoting/establishing a certain view of the world. Authors of textbooks
always seek to provide examples to illustrate the concepts being discussed. This can be an extremely
difficult task when writing on international topics since these often deal with countries, cultures and
contexts with which the authors may have little or no familiarity.
There is, thus, need for great care in choice of illustrations and comments. It is easy enough for
errors to persist and seemingly take a life of their own, as shown by Tipton (2008) who found persistent
errors on the topic of cultural difference in 19 widely used IB textbooks. Harzing (2002), in her review of
referencing errors in general, and references to her expatriate study in particular, comments that textbooks
27
and professional journals should be expected to maintain academic standards of citation and referencing.
Harzing cautions us that the implications of inaccurate referencing are serious for academics and
practitioners alike. For instance, certain reports from 2002 claiming that Coke was ‘banned from India’ in
the 1970s may be seen as continuing, even after a lapse of several years, the rather limited understanding
of the event. This suggests the need for considerable self-reflexivity on the part of authors of IB
textbooks.
28
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Subramanian, K. (2007) Former Director, Department of Economic Affairs, Ministry of Finance,
Government of India. Personal interview, 5 September.
Tallman, S. (2009) Global Strategy. UK: John Wiley.
34
Tipton, F. B. (2008) ‘Thumbs-up is a rude gesture in Australia: The presentation of culture in
international business textbooks’, Critical perspectives in international business 4(1): 7-24.
Wall Street Journal (1977) ‘Coke is right’, August 10: A14.
Wall Street Journal, 1977. Coke is right. August 10: A14.
Westwood, R., and Jack, G. (2007) ‘Manifesto for a postcolonial international business and management
studies’, Critical Perspectives on International Business 3(3): 246-265.
Wild, J. J., Wild, K. L., and Han, J. C. Y. (2010) International Business 5ed. Upper Saddle River, NJ:
Pearson.
35
Table 1: Select Portrayals of Coca-Cola’s Exit in IB Textbooks
No.
Book
Chapter/ Major
Section
Section/
Paragraph
Context
Quote
1.
Czinkota,
et al., 7ed.,
2005, p.
95.
Trade &
Investment
Policies
Managing the
Policy
Relationship
Host countries, on the other hand, try to enhance their role by instituting control
policies and performance requirements. …In some cases, demands of this type
have led to firms’ packing their bags. For example, Coca-Cola left India when
the government demanded access to what the firm considered to be confidential
intellectual property.
2.
Deresky
2006,
p.318
(Case
written by
ICFAI)
Case: ‘Pepsi's
entry into
India’
Letter to Pepsi
“In the regulatory environment of the late 1970s, foreign enterprises operating
in any non-priority sector in India could not own more than a 40% stake in the
ventures. Coca-Cola ran its operations through a 100% subsidiary. After the
company refused to partner with an Indian company and share its technology, it
had to stop its operations and leave the country.”
3.
Griffin &
Pustay,
2007, p.43
Global
India/ Profile
marketplaces
and business
centers/ The
marketplaces of
Asia
“Until 1991, India discouraged foreign investment, limiting foreign owners to
minority positions in Indian enterprises and imposing other onerous
requirements. For example, as a condition for remaining in the country, the
Coca-Cola company was retroactively required in the 1970s to divulge its secret
soft drink formula. Coca-Cola refused and chose to leave the market.”
4.
Hill, 7ed.,
2011a,
National
differences in
“When legal risks in a country are high, an international business may hesitate
entering into a long-term contract or joint-venture agreement with a firm in that
Focus on
managerial
36
p.84
political
economy
implications /
Risks
country. For example, in the 1970s when the Indian government passed a law
requiring all foreign investors to enter into joint ventures with Indian
companies, US companies such as IBM and Coca-Cola closed their investments
in India. They believed that the Indian legal system did not provide for adequate
protection of intellectual property rights, creating the very real danger that their
Indian partners might expropriate the intellectual property of the American
companies - which for IBM and Coca-Cola amounted to the core of their
competitive advantage.”
5.
Hill, 8ed.,
2011b,
p.79
National
differences in
political
economy/
Focus on
managerial
implications
Implications for
managers/ Risks
[Text same as Hill (2011a: 84); see above]
6.
Hodgetts,
et al., 2006,
p. 32.
Globalization
& Worldwide
Developments
India
In the mid 1970s, the country changed its rules and required that foreign
partners hold no more than 40 percent ownership in any business. As a result,
some MNCs left India.
7.
Holt &
Wigginton
2002, p.75
Government
relations and
political
risk/Profile
Douglas Daft,
CEO/
Experience of
crises
“Goizuetta and Coca-Cola also experienced more than a few crises. Early on,
India attempted to gain access to Coke's highly guarded formula for its syrup. In
what was called a blatant form of political blackmail, Indian officials and
investors wanted trade secrets in return for Coca-Cola's licensing rights to bottle
and market in India.”
“Goizuetta stood his ground, and Coke withdrew from India until agreements
could be reached without corruption or political avarice.”
8.
Peng,
2009,
Entering
foreign
Regulatory
risks/
“The government's tactics include removing incentives, demanding a higher
share of profits and taxes, and even confiscating foreign assets - in other words,
37
p.161
markets/
Institution
based
considerations
Expropriation
expropriation. The Indian government in the 1970s, for example, demanded that
Coca-Cola share its secret formula, something that the MNE did not even share
with the US government. At this time, the MNE had already invested substantial
sums of resources (called sunk costs) and often has to accommodate some new
demands; otherwise it may face expropriation or exit at a huge loss (as CocaCola did in India)…. Coca-Cola, for example, agreed to return to India in the
1990s with an explicit commitment from the government that its secret formula
would be untouchable.”
9.
Peng, 2ed.,
2011, p.
14/15.
Globalizing
Business
An Institution
Based View
Prior to 1991, India’s rules severely discriminated against foreign firms. As a
result, few foreign firms bothered to show up, and the few that did had a hard
time. For example, in 1the 1970s, the Indian government demanded that Coca
Cola either hand over the recipe for its secret syrup, which it does not even
share with the US government, or get out of India. Painfully, Coca Cola chose
to leave. Its return to India since the 1990s speaks volumes about how much the
rules of the game have changed in India.
10.
Punnett &
Ricks,
1997,
p.188
The political
environment of
international
business/
Integrative
approaches to
political risk
management
Choosing the
right
combination/
Protection of
firm specific
advantages
“Coca-Cola considers it 'secret formula' for producing the special taste of Coke
a key component to its success and protects this secret. The company has been
willing to forgo foreign investments in countries such as India because the
investment would put the secret formula at risk. The potential of profitable
operations was not enough of a benefit to offset the risk associated with loss of
such an important firm- specific advantage.”
11.
Rugman &
Hodgetts,
1995, p.
554
Doing business
in non-triad
nations/Asia
and the Pacific
India/ Profile
“Prior to 1990, the government had done little to promote multinational interest.
Politics often prevailed over economic interests and many MNEs found their
dealings with the government to be time-consuming and frustrating. For
example, both IBM and Coca-Cola left India in the late 1970s rather than accede
to the government's demand that they reduce their majority holdings to 40%.”
38
12.
Shenkar &
Luo, 2004,
p.185
Political &
Legal
Environment /
Measurement
of political risk
Ownership risk
“Milder forms of ownership risk include pressure toward or a formal change in
investment rules that force firms to reduce their stake (e.g., sharing ownership
with a local firm). In the early 1970s, the Indian government established such
rules that resulted in a strategic shift toward unrelated diversification and
eventually to the exodus of many foreign MNEs.”
13.
Tallman,
2009, p.
30.
Global Strategy
as a Resource
Based Strategy
Leveraging
resources and
capabilities
Threats of a loss of proprietary resources have in the past led firms to exit
markets - Coca Cola from India, IBM from Mexico, for instance.
14.
Wild,
Wild, Han,
5ed; 2010.
p.329
Analyzing
international
opportunities/
Assessing the
national
business
environment
Government
regulation/
Divulging
information
“Finally, governments can also require that companies divulge certain
information. Coca-Cola (www.cocacola.com) actually left India when the
government demanded that it disclose its secret Coke formula as a requirement
for doing business there. Coca-Cola returned only after the Indian government
dropped its demand.”
39