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If you were a shareholder who had invested money in Coca-Cola before the crisis happened in India, would you feel confident in keeping your investment after the company mismanaged the crisis ? Explain with reasons, why or why not?
NO, I wouldn’t feel confident in keeping my investment in Coca-Cola after the company mismanaged the crisis. I have arrived at this conclusion after doing a thorough research on the entire ‘crisis’ scenario and how it played out. First of all, let’s understand what a crisis is. A crisis is an issue that has escalated into a critical stage. The allegations against soft drinks giants such as Coca-Cola and Pepsi co. ltd. had initially begun around the year 2003 when the Centre for science and environment(CSE), an environmental group based in Delhi that was capable of doing pesticide residue monitoring in a full fledged laboratory had conducted tests on the soft drinks sold by 12 major brands in and around Delhi with the results showing that on an average, the Coke brands had 30 times higher pesticide residues and the Pepsi co ltd. brands had 36 times higher pesticide residue than the norms permitted in the developed world. The CSE had said that in all 12 of the soft drinks it tested, toxins including lindane and DDT(Dichlorodiphenyltrichloroethane) were found. If ingested over long periods, these toxins could lead to cancer and failure of the immune system and similar tests on US colas had no such residues.
The management of the company(Coca-Cola) went on to deny the allegations and the report saying that it was completely baseless and shouldn’t be given any attention because they had only released the product for human consumption after performing thorough tests in top-grade laboratories and coming to a conclusion that it was in fact safe. (2003)This matter had far from died down, on the contrary, it resurfaced again in 2004, when some Indian members of the parliament had concluded that 5 laboratories had confirmed, but not replicated the results on Indian colas saying that these soft drinks did contain pesticides and that their manufacturers were misleading the population of India that numbered in 1 billion saying that it was safe for human consumption but that was only because they tested different samples from different batches this time around. The Indian MPs’ report went on to recommend stringent regulations for fizzy drinks which “seek complete freedom from pesticides in aerated beverages”. The then soft drink market in India was worth around 900million pound sterlings and Coca-Cola and Pepsi co. ltd had accounted for more than 80% of the market. “The batches were different but all contained pesticides” said Sanjay Nirupam, a member of India’s upper house who sat on the joint parliamentary committee. Mr. Nirupam added: “ The consumer has to be sure what they are buying is safe.
You do not find US colas with pesticides, so why force us to drink pesticides? ”The cross-party committee had been convened only three times before and experts say that it is inconceivable that India’s government would not act on its findings. Evidence to the committee suggested that even the toughest safety requirements would cost companies less than half a penny for each bottle sold. Coca-Cola and PepsiCo. had contested the claims, even roping in big time Bollywood stars such as Amir Khan and Shah Rukh Khan as brand ambassadors to reassure consumers and build trust. The decision to uphold the findings of the CSE has been hailed as a victory for environmentalists. “The joint parliament committee has to be congratulated for putting the public health first,” said Sunita Narain, a director of the CSE. “These companies have operated outside the ambit of the law all over the world. The implications are that if you can do this here then it is also incumbent on other governments to adopt these standards. ” The two US companies were also attacked over the running of two bottling plants the Southern Indian state of Kerela. MPs said Coca-Cola’s and Pepsi’s operations had resulted in pollution of water, depletion of ground water, reduced yield in crops, skin disorders and other ailments. Both the companies had responded saying that far from depleting the local water supply, they were in fact recharging the aquifers with the same amount of water they used but the report says their efforts were not “commensurate enough”. Ms. Narain also noted that the implications of the report go beyond the role of multinationals. The Indian government is taken to task for failing to provide clean drinking water to its population. Almost all tap water in India contains traces of toxins and the report says governments should set safety standards that are legally enforceable. “Never mind Coke, it is water that is the real thing in India,” she said. Some of the statistics and key points related to the happenings of the time are mentioned below:
When the allegations were first published in the Indian newspapers of the time, the management was fairly confident that they would be able to handle the issue breezily but that wasn’t the case as one-quarter of India’s component states had imposed partial bans on their products. Both the companies had acknowledged that they miscalculated, and stumbled badly. They underestimated how quickly the matter would spiral into a nationwide scandal. They misjudged how quickly local politicians would seize on the issue, in a country that shielded its economy from multinational corporations until the 1990s when they opened up the economy to the global economy. In short, two of the world’s biggest brands failed to do what they do best: pitch the virtues of their products directly to their customers. The company had decided to wait on the lab reports before commenting on the allegations in detail and that seems to have backfired.
The management’s hesitation had added fuel to the flame and fanned consumer suspicions and they soon got caught up in the technicalities of the allegations, instead of focusing on winning back the emotional support of their loyal customer base. “They got behind the curve and now they are chasing crisis” said Richard Levick, president and chief executive officer of Levick strategic communications, a Washington based consulting company advising businesses in crisis. “We have to some way to go to restore consumer confidence in our brands” said Kari Bjorhous, Cocaa-Cola’s communications director in India. Both the companies appeared to unprepared for the political fallout that had taken place and how the consumers quickly reacted and boycotted the product as soon as the news that these drinks were unsafe for consumption had spread like wildfire leading to partial bans being imposed on their products in one state after another. “We were a little surprised and disappointed by the bans” said Kenth Kaerhoeg, group communications director for Coca-Cola Asia, who flew in from Hong-Kong to tackle the problem. The problem escalated because of the fact that local politicians had been quick to react to the reports whereas an opinion also persists that big time multinational corporations like Coca-Cola and PepsiCo. should have known better as they are still seen by pockets of consumers as marauders and not as contributors.
In the US, there is a certain dignity in silence whereas in India, people interpret silence as guilt. People in India have to learn how to raise their voices and stand up for themselves from a very young age if they believe that they are correct or their voice would just get lost in the vast number of their populace. Coke and PepsiCo. didn’t understand that. Coca-Cola officials in Delhi also tried to counter the allegations indirectly, by giving briefings for reporters in which they questioned the scientific credentials of their accusers, directing reporters to web logs filled with uniformly pro-coke entries and handing out the cellphone number for the director of an organization called the “Center for Sanity and Balance in public life”. Public relations experts said this indirect approach on Coke’s part may have been unwise. “Crisis abhors a vacuum, “ Mr. Levick said. “They needed to show leadership. These minimalist statements were not adequate”. Their strategy didn’t stop the crisis from escalating any further. It got to a point where there were memes being printed in the newspapers about Coke being labeled as a “toxic cocktail” and news channels broadcasting images of protestors pouring Coke down the throats of donkeys. Although India accounted for a small part of Coca-Cola’s global sales volume, they were a crucial part of Coca-Cola’s long term strategy. So, the management had decided to learn from the experience and make amends as quickly as possible. The organization had started inviting the consumers to their plants to check if the production facilities were being adequately monitored or not and whether the water filtration system was meeting the standards of the time or not. Another side of the argument was that the ground water in India was so contaminated that most food products contained some pesticide residue. Asim Parekh, a vice president of Coca-Cola India, had said that he was honestly frightened when he heard about the allegations initially because he knew that the consumer would be easily confused. In a country like India, where the majority of the population isn’t well read, even simple terminology is hard to convey and comprehend and the fact that the issue had escalated to a very complex one didn’t help at all and made the management’s job very challenging.
After analysing the information from various sources, the fact that Coca-Cola didn’t scan the Indian market environment, it’s risks and trends well enough is crystal-clear and they weren’t even close to predicting such a situation in the ‘Prodromal Crisis stage’. Even after the issue had reached the ‘Acute crisis stage’, their strategy going into the ‘crisis resolution stage’ to make amends was faulty and ill-informed. Although there might have been some technicalities that could’ve portrayed the company in a better light existed, they couldn’t capitalize on them to resolve the issue before it got out of hand. In the Chronic Crisis Stage, they did manage to learn from the experience and changed their approach in dealing with the issue by trying to win back the emotional support of their consumers and stakeholders. Leaving all the details aside, they left an impression that they didn’t really care about the public health in India by opting to stay silent initially and that’s the reason that I wouldn’t keep my investment in the company after they mismanaged the crisis so poorly but I would invest in the company again if they managed to learn and comeback from it in a better organized way.
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