Summary
SUMMARY for International business diplomacy
■ Although host countries and international firms may hold resources that, if
combined, should achieve objectives for both, conflict may cause one or both parties to withhold resources, thus preventing the full functioning of international business activities.
■ Both the managers of international firms and the host-country governmental officials must respond to interest groups that may see different advantages or no advantage at all to the business-government relationship. Therefore, the final outcome of the relationship may not be the one expected from a purely economic viewpoint.
■ Negotiations increasingly are used to determine the terms under which a company may operate in a foreign country. This negotiating process is similar to the domestic processes of company acquisition and collective bargaining. The major differences in the international sphere are the much larger number of provisions, the general lack of a fixed time duration for an agreement, and the need to agree on company property values in cases of nationalization.
■ The terms under which an international firm may be permitted to operate in a given country will be determined to a great extent by the relative degree to which the company needs the country and vice versa. As the relative needs evolve over time, new terms of operation will reflect the shift in bargaining strength.
■ Generally, a company's best bargaining position is before it begins operation. Once resources are committed to the foreign operation, the firm may not move elsewhere easily.
■ Since negotiations are conducted largely between parties whose cultures, educational backgrounds, and expectations differ, it is very difficult for negotiators to understand sentiments and present convincing arguments. Negotiation simulation offers a means of anticipating responses and planning an approach to the actual bargaining.
■ Historically, developed countries ensured through military intervention and coercion that the terms agreed upon between their investors and recipient countries would be carried out. The East-West political schism and a series of international resolutions have caused the near demise of these methods for settling disputes. The promise of giving or withholding aid has been used more recently by developed countries as a device for influencing host governments.
■ A number of bilateral treaties have been established whereby host countries agree to compensate investors for losses from expropriation, civil war, and currency devaluation or control. These agreements are not often clear about the mechanism or place of settlement for the losses.
■ Although international organizations or groups in third countries are frequently used to arbitrate trade disputes among individuals from more than one country, this method has been used very rarely to settle investment disputes, because governments are reluctant to relinquish sovereignty over matters occurring within their borders.
■ To prevent companies from playing one country against another or vice versa, groups of governments or companies occasionally have banded together to present a unified front in order to improve the terms received.
■ External relations may be used by both companies and countries to develop a good image, overcome a bad one, and create useful proponents for their positions. If successful, this strategy may result in better terms of operation for either side.
■ International agreements have been made to protect important intangible assets such as patents, trademarks, and copyrights. Since millions of dollars are often spent in the development of these assets, worldwide protection is a necessity.
■ One of the big problems for firms with intangible assets in recent years has been the pirating of the assets in countries that have not signed international agreements or do not actively enforce their laws on the asset protection.
CASE
PEPSICO IN INDIA55
In 1989 PepsiCo chairman D. Wayne Calloway said, "We are still basically an American company with offshore interests. As the nineties progress, that's going to change. We'll be a truly global consumer products company." The company's Indian snack-food and soft-drink joint venture, which began production in 1990, was a key part of that strategy. But in the first year of operation, the joint venture's managing director announced "losses of millions of dollars" because of delays in setting up production.
The Global Competitive Situation Two
companies, Coca-Cola and PepsiCo, have dominated the global market for soft drinks. The United States has been the biggest market, with per capita consumption of about 700 bottles per year. Analysts agree that this consumption figure is so large that almost all company soft-drink growth must come by building market share rather than getting people to increase their consumption. Even so, the companies have promoted breakfast sales and have added soft-drink versions to try to increase consumption. The fierce competition within the United States has resulted in industry returns on assets and sales of less than half what they have been abroad. Within the United States in 1990 the two companies were close rivals; Coca-Cola and PepsiCo held about 40 and 32 percent of the market, respectively. But in terms of total global sales, Coca-Cola's 47 percent share was more than double that of PepsiCo's; consequently, Coca-Cola has been much stronger where profits are
higher and where sales growth is expected to be much faster. For example, per capita consumption outside the United States is only about 14 percent of the U.S. per capita consumption; thus there is much more room to grow. In 1989 Coca-Cola earned almost 80 percent of its profits outside the United States as opposed to only 15 percent for PepsiCo.
Players other than Coca-Cola and PepsiCo are small globally in comparison; however, some have large shares in specific country or regional markets, such as Cadbury Schweppes in the United Kingdom.
In the soft-drink industry it is generally conceded that there is a tremendous advantage in being first into a market. Not only is brand loyalty built up fast and difficult to change, but the early entrants gain the best bottlers/distributors. Coca-Cola preceded PepsiCo into Western Europe, Latin America, and Japan, and PepsiCo has had an up-hill battle building market share in those areas. In the late 1980s PepsiCo sponsored Michael Jackson and Madonna concerts abroad, but has clearly had problems combatting Coca-Cola. For example, PepsiCo actually lost market share in France during the late 1980s; and when PepsiCo started doing well in the United Kingdom, Coca-Cola stole the bottler/ distributor Cadbury Schweppes away from PepsiCo. Yet PepsiCo beat Coca-Cola into the former Soviet Union in 1974 and dominates that market.
Because of the realization of the first-in advantage, PepsiCo has pushed hard in recent years to enter markets where Coca-Cola is not dominant, such as entering Myanmar ahead of Coca-Cola in 1990.
Indian Market Potential PepsiCo had been in the Indian market during the mid-1950s
but pulled out because of lack of profitability. Coca-Cola had operated in India for 27 years but left in 1977 because of disagreements with the Indian government. Coca-Cola's departure created an opportunity for PepsiCo; however, PepsiCo did not begin its three years of formal negotiations with the government of India until 1985. After Coke's departure an Indian firm, Parle Exports, became the dominant supplier in India with its soft drink, Thums Up. By 1988 Parle Exports was estimated to have sales of about $150 million per year, which comprised between 60 and 70 percent of the market. Parle Exports was also exporting a mango pulp drink, Maaza Mango, to various markets, including the United States.
The Indian market for soft drinks has been growing rapidly. When Coca-Cola departed, annual soft-drink sales were a little over a half billion bottles a year. By 1990 they were about 3 billion bottles a year and were expected to quadruple during the 1990s. India's population growth was expected to make that country surpass China as the most populated in the world. Furthermore, India had a much larger middle class than China, which was estimated to be about 150 million people when PepsiCo entered formal negotiations with the Indian government. Additionally, many observers have predicted that India will eventually become an economic giant, thus growing incomes should support more sales.
Another indication of market potential was that India's per capita consumption of soft drinks was estimated to be only 3 bottles per year in 1989 as compared to 13 bottles per year in neighboring Pakistan. Coca-Cola was selling 122 bottles per capita per year in Latin America, also a low-income area.
Indian Attitude Toward Foreign Investment The attitude was summed up by India's president of the Associated Chambers of Commerce and Industry of India, who said, "The basic thing is that most of our people, in all political parties, have no concept of how the
world is moving. My political friends think it's the seventeenth century and that every investment, like the East India Company, is going to come into India and take over." His reference was to the long domination of India by interests from Britain, France, and Portugal, which took out great wealth without returning noticeable benefit to the Indian economy.
India has approved foreign investment on a case-by-case basis with approval necessary at the highest governmental level. By the time PepsiCo began its negotiations, the maximum foreign equity holding was only 40 percent of an Indian enterprise. Furthermore, foreign firms were required to develop exports to compensate for imported equipment and components and for dividend payments.
Because of the political sensitivity to foreign investment, negotiations tended to be long and usually were public. Furthermore, little action was apt to be taken during election periods as politicians were afraid of adverse reaction if they were to support the entry of foreign firms. For example, when PepsiCo began its negotiations Gillette had recently been granted approval on an investment. Gillette had been lured because India has the highest unit razor-blade sales of any country in the world. Gillette spent seven years negotiating during two changes of government and finally settled on a 24 percent equity holding, an agreement to export 25 percent of its output, and the nonuse of the Gillette name on its products. The name issue has been important to Indian authorities because of (1) a belief that many consumers will think wrongly that a foreign-associated product is better and (2) that a locally associated brand name will give greater continuity in case the foreign investor leaves the market on its own or by the government's decision.
Coca-Cola and IBM both departed India at about the same time because of the strict operating restrictions that had come about after their initial entry. Coca-Cola objected to three governmental demands: that it reduce its equity holding from 100 to 40 percent, that it divulge its
formula, and that it use dual trademarks so that Indian consumers would familiarize themselves with a local logo. Coca-Cola was particularly adamant about the latter two directives. It had always relied on the mystique of a secret formula for its promotion, and it feared an expropriation once the new trademark became accepted.
There has also been a pervading feeling among non-Indian firms that Indian competitors can and do use a great deal of pull to prevent foreign competition. Officially, one is told that applications have simply run into "political difficulties," but behind the scenes Indian business leaders align themselves with Indian political leaders. For example, when Coca-Cola was given its directives in 1977, Ramesh Chauhan, the head of Parle Exports was an ally of Prime Minister Moraji Desai while Coca-Cola executives were close to Indira Gandhi, the head of the opposition party.
The Negotiations PepsiCo first negotiated a contingent joint venture arrangement with two Indian entities, which it felt could ease the negotiation process. One of these was a division of Tata Industries, perhaps India's most powerful private company. The second was a government-owned company, Punjab Agro Industries, which could give the appearance that the public interest would be served in the venture.
Although the initial investment was only $15 million, any approval had to be made at the cabinet level. There were twenty parliamentary debates about the proposed investment over a three-year period.
PepsiCo and its partners proposed that the new company be located in the politically volatile state of Punjab (see Map 13.1), where they enlisted the support of Sikh leaders who lobbied publicly in their behalf. They claimed that Sikh terrorism might be subdued by providing jobs and help to Punjabi farmers. The partners estimated that 25,000 jobs would be created in the Punjab and another 25,000 elsewhere because of the investment.
Their second argument was that even the
former Soviet Union and China had allowed entry of foreign soft-drink producers, thus putting India out of step even with other socialist countries. Their third argument was that new technology and know-how would prevent some of the wastage of Punjabi fruits, estimated to be about 30 percent. Finally, they contended that the lack of competition with foreign firms had kept prices and margins artificially high so that there was little incentive for local firms to grow and distribute widely. Competitive soft-drink sales were limited primarily to the largest cities.
Opponents contended that foreign capital and imports should be restricted to high-technology areas where India lacked expertise, that the venture's proposal to process foods (potato chips, corn chips, fruit drinks, and sauces) would simply displace what could be made in the home, and that imported equipment would hurt India's balance of payments. Journalists widely reported that PepsiCo had a CIA connection aimed at undermining India's independence.
Meanwhile, another U.S.-based company, Double-Cola, had successfully terminated a secret six-year negotiation in 1987. The agreement called for them to open three bottling plants immediately and another twenty-seven later on. Double-Cola apparently had an advantage in that it was controlled by nonresident Indians in London, and the Indian Prime Minister, Rajiv Gandhi, wanted to lure investment from Indians living overseas. Double-Cola also promised to use Indian raw materials and to reinvest profits in India.
The agreement with the PepsiCo group was signed in 1988 and included the following provisions for the venture's scheduled commencement of operations in 1990: (1) the company would export five times the value of its imports, an amount of about $150 million over the first ten-year period of operations; (2) soft drink sales would not exceed 25 percent of the joint venture's sales; (3) PepsiCo would limit its ownership to 39.9 percent; (4) 75 percent of concentrate would be exported; (5) an agricultural research center would be established; (6)
the company could sell Pepsi Era, 7-Up Era, and Marinda Era; and (7) fruit- and vegetable-processing plants would be set up.
Aftermath and Renegotiation Once PepsiCo's venture was approved, Coca-Cola made an application to reenter the Indian market through production within an export processing zone, which would permit 25 percent of output to be sold within India rather than in export markets. This was a threat to PepsiCo inasmuch as the Coca-Cola name was still well-remembered in India, and cans of Coke were even smuggled in from Nepal. But after sixteen months, Coca-Cola's application was denied, leading a Coca-Cola official to say that India "doesn't follow its own rules."
In late 1989 a new prime minister, V. P. Singh, took power in a minority government. As finance minister in the mid-1980s he had promoted liberalization of foreign investment. However, after taking power he almost immediately made conflicting statements about foreign investment. In early 1990 the venture began production of snack foods and announced that soft-drink production would begin by summer. Prime Minister Singh announced that the government would have to reexamine the PepsiCo agreement.
Several things then happened in quick succession. First, the U.S. government, without public reference to PepsiCo, announced that it might impose trade sanctions against India under its Super 301 legislation. The threat was made because of India's strict foreign investment regulations. Indian governmental officials and the joint venture's management then met secretly. Subsequently, PepsiCo agreed to place a new logo, Le-har, above the Pepsi insignia. Pepsi also lobbied publicly against Super 301 sanctions against India, and the U.S. government backed down on its threats. The partners announced that they would invest about $1 billion in the venture during the 1990s. The Minister of Food Processing Industries announced tax breaks for food processors.
■ Although host countries and international firms may hold resources that, if
combined, should achieve objectives for both, conflict may cause one or both parties to withhold resources, thus preventing the full functioning of international business activities.
■ Both the managers of international firms and the host-country governmental officials must respond to interest groups that may see different advantages or no advantage at all to the business-government relationship. Therefore, the final outcome of the relationship may not be the one expected from a purely economic viewpoint.
■ Negotiations increasingly are used to determine the terms under which a company may operate in a foreign country. This negotiating process is similar to the domestic processes of company acquisition and collective bargaining. The major differences in the international sphere are the much larger number of provisions, the general lack of a fixed time duration for an agreement, and the need to agree on company property values in cases of nationalization.
■ The terms under which an international firm may be permitted to operate in a given country will be determined to a great extent by the relative degree to which the company needs the country and vice versa. As the relative needs evolve over time, new terms of operation will reflect the shift in bargaining strength.
■ Generally, a company's best bargaining position is before it begins operation. Once resources are committed to the foreign operation, the firm may not move elsewhere easily.
■ Since negotiations are conducted largely between parties whose cultures, educational backgrounds, and expectations differ, it is very difficult for negotiators to understand sentiments and present convincing arguments. Negotiation simulation offers a means of anticipating responses and planning an approach to the actual bargaining.
■ Historically, developed countries ensured through military intervention and coercion that the terms agreed upon between their investors and recipient countries would be carried out. The East-West political schism and a series of international resolutions have caused the near demise of these methods for settling disputes. The promise of giving or withholding aid has been used more recently by developed countries as a device for influencing host governments.
■ A number of bilateral treaties have been established whereby host countries agree to compensate investors for losses from expropriation, civil war, and currency devaluation or control. These agreements are not often clear about the mechanism or place of settlement for the losses.
■ Although international organizations or groups in third countries are frequently used to arbitrate trade disputes among individuals from more than one country, this method has been used very rarely to settle investment disputes, because governments are reluctant to relinquish sovereignty over matters occurring within their borders.
■ To prevent companies from playing one country against another or vice versa, groups of governments or companies occasionally have banded together to present a unified front in order to improve the terms received.
■ External relations may be used by both companies and countries to develop a good image, overcome a bad one, and create useful proponents for their positions. If successful, this strategy may result in better terms of operation for either side.
■ International agreements have been made to protect important intangible assets such as patents, trademarks, and copyrights. Since millions of dollars are often spent in the development of these assets, worldwide protection is a necessity.
■ One of the big problems for firms with intangible assets in recent years has been the pirating of the assets in countries that have not signed international agreements or do not actively enforce their laws on the asset protection.
CASE
PEPSICO IN INDIA55
In 1989 PepsiCo chairman D. Wayne Calloway said, "We are still basically an American company with offshore interests. As the nineties progress, that's going to change. We'll be a truly global consumer products company." The company's Indian snack-food and soft-drink joint venture, which began production in 1990, was a key part of that strategy. But in the first year of operation, the joint venture's managing director announced "losses of millions of dollars" because of delays in setting up production.
The Global Competitive Situation Two
companies, Coca-Cola and PepsiCo, have dominated the global market for soft drinks. The United States has been the biggest market, with per capita consumption of about 700 bottles per year. Analysts agree that this consumption figure is so large that almost all company soft-drink growth must come by building market share rather than getting people to increase their consumption. Even so, the companies have promoted breakfast sales and have added soft-drink versions to try to increase consumption. The fierce competition within the United States has resulted in industry returns on assets and sales of less than half what they have been abroad. Within the United States in 1990 the two companies were close rivals; Coca-Cola and PepsiCo held about 40 and 32 percent of the market, respectively. But in terms of total global sales, Coca-Cola's 47 percent share was more than double that of PepsiCo's; consequently, Coca-Cola has been much stronger where profits are
higher and where sales growth is expected to be much faster. For example, per capita consumption outside the United States is only about 14 percent of the U.S. per capita consumption; thus there is much more room to grow. In 1989 Coca-Cola earned almost 80 percent of its profits outside the United States as opposed to only 15 percent for PepsiCo.
Players other than Coca-Cola and PepsiCo are small globally in comparison; however, some have large shares in specific country or regional markets, such as Cadbury Schweppes in the United Kingdom.
In the soft-drink industry it is generally conceded that there is a tremendous advantage in being first into a market. Not only is brand loyalty built up fast and difficult to change, but the early entrants gain the best bottlers/distributors. Coca-Cola preceded PepsiCo into Western Europe, Latin America, and Japan, and PepsiCo has had an up-hill battle building market share in those areas. In the late 1980s PepsiCo sponsored Michael Jackson and Madonna concerts abroad, but has clearly had problems combatting Coca-Cola. For example, PepsiCo actually lost market share in France during the late 1980s; and when PepsiCo started doing well in the United Kingdom, Coca-Cola stole the bottler/ distributor Cadbury Schweppes away from PepsiCo. Yet PepsiCo beat Coca-Cola into the former Soviet Union in 1974 and dominates that market.
Because of the realization of the first-in advantage, PepsiCo has pushed hard in recent years to enter markets where Coca-Cola is not dominant, such as entering Myanmar ahead of Coca-Cola in 1990.
Indian Market Potential PepsiCo had been in the Indian market during the mid-1950s
but pulled out because of lack of profitability. Coca-Cola had operated in India for 27 years but left in 1977 because of disagreements with the Indian government. Coca-Cola's departure created an opportunity for PepsiCo; however, PepsiCo did not begin its three years of formal negotiations with the government of India until 1985. After Coke's departure an Indian firm, Parle Exports, became the dominant supplier in India with its soft drink, Thums Up. By 1988 Parle Exports was estimated to have sales of about $150 million per year, which comprised between 60 and 70 percent of the market. Parle Exports was also exporting a mango pulp drink, Maaza Mango, to various markets, including the United States.
The Indian market for soft drinks has been growing rapidly. When Coca-Cola departed, annual soft-drink sales were a little over a half billion bottles a year. By 1990 they were about 3 billion bottles a year and were expected to quadruple during the 1990s. India's population growth was expected to make that country surpass China as the most populated in the world. Furthermore, India had a much larger middle class than China, which was estimated to be about 150 million people when PepsiCo entered formal negotiations with the Indian government. Additionally, many observers have predicted that India will eventually become an economic giant, thus growing incomes should support more sales.
Another indication of market potential was that India's per capita consumption of soft drinks was estimated to be only 3 bottles per year in 1989 as compared to 13 bottles per year in neighboring Pakistan. Coca-Cola was selling 122 bottles per capita per year in Latin America, also a low-income area.
Indian Attitude Toward Foreign Investment The attitude was summed up by India's president of the Associated Chambers of Commerce and Industry of India, who said, "The basic thing is that most of our people, in all political parties, have no concept of how the
world is moving. My political friends think it's the seventeenth century and that every investment, like the East India Company, is going to come into India and take over." His reference was to the long domination of India by interests from Britain, France, and Portugal, which took out great wealth without returning noticeable benefit to the Indian economy.
India has approved foreign investment on a case-by-case basis with approval necessary at the highest governmental level. By the time PepsiCo began its negotiations, the maximum foreign equity holding was only 40 percent of an Indian enterprise. Furthermore, foreign firms were required to develop exports to compensate for imported equipment and components and for dividend payments.
Because of the political sensitivity to foreign investment, negotiations tended to be long and usually were public. Furthermore, little action was apt to be taken during election periods as politicians were afraid of adverse reaction if they were to support the entry of foreign firms. For example, when PepsiCo began its negotiations Gillette had recently been granted approval on an investment. Gillette had been lured because India has the highest unit razor-blade sales of any country in the world. Gillette spent seven years negotiating during two changes of government and finally settled on a 24 percent equity holding, an agreement to export 25 percent of its output, and the nonuse of the Gillette name on its products. The name issue has been important to Indian authorities because of (1) a belief that many consumers will think wrongly that a foreign-associated product is better and (2) that a locally associated brand name will give greater continuity in case the foreign investor leaves the market on its own or by the government's decision.
Coca-Cola and IBM both departed India at about the same time because of the strict operating restrictions that had come about after their initial entry. Coca-Cola objected to three governmental demands: that it reduce its equity holding from 100 to 40 percent, that it divulge its
formula, and that it use dual trademarks so that Indian consumers would familiarize themselves with a local logo. Coca-Cola was particularly adamant about the latter two directives. It had always relied on the mystique of a secret formula for its promotion, and it feared an expropriation once the new trademark became accepted.
There has also been a pervading feeling among non-Indian firms that Indian competitors can and do use a great deal of pull to prevent foreign competition. Officially, one is told that applications have simply run into "political difficulties," but behind the scenes Indian business leaders align themselves with Indian political leaders. For example, when Coca-Cola was given its directives in 1977, Ramesh Chauhan, the head of Parle Exports was an ally of Prime Minister Moraji Desai while Coca-Cola executives were close to Indira Gandhi, the head of the opposition party.
The Negotiations PepsiCo first negotiated a contingent joint venture arrangement with two Indian entities, which it felt could ease the negotiation process. One of these was a division of Tata Industries, perhaps India's most powerful private company. The second was a government-owned company, Punjab Agro Industries, which could give the appearance that the public interest would be served in the venture.
Although the initial investment was only $15 million, any approval had to be made at the cabinet level. There were twenty parliamentary debates about the proposed investment over a three-year period.
PepsiCo and its partners proposed that the new company be located in the politically volatile state of Punjab (see Map 13.1), where they enlisted the support of Sikh leaders who lobbied publicly in their behalf. They claimed that Sikh terrorism might be subdued by providing jobs and help to Punjabi farmers. The partners estimated that 25,000 jobs would be created in the Punjab and another 25,000 elsewhere because of the investment.
Their second argument was that even the
former Soviet Union and China had allowed entry of foreign soft-drink producers, thus putting India out of step even with other socialist countries. Their third argument was that new technology and know-how would prevent some of the wastage of Punjabi fruits, estimated to be about 30 percent. Finally, they contended that the lack of competition with foreign firms had kept prices and margins artificially high so that there was little incentive for local firms to grow and distribute widely. Competitive soft-drink sales were limited primarily to the largest cities.
Opponents contended that foreign capital and imports should be restricted to high-technology areas where India lacked expertise, that the venture's proposal to process foods (potato chips, corn chips, fruit drinks, and sauces) would simply displace what could be made in the home, and that imported equipment would hurt India's balance of payments. Journalists widely reported that PepsiCo had a CIA connection aimed at undermining India's independence.
Meanwhile, another U.S.-based company, Double-Cola, had successfully terminated a secret six-year negotiation in 1987. The agreement called for them to open three bottling plants immediately and another twenty-seven later on. Double-Cola apparently had an advantage in that it was controlled by nonresident Indians in London, and the Indian Prime Minister, Rajiv Gandhi, wanted to lure investment from Indians living overseas. Double-Cola also promised to use Indian raw materials and to reinvest profits in India.
The agreement with the PepsiCo group was signed in 1988 and included the following provisions for the venture's scheduled commencement of operations in 1990: (1) the company would export five times the value of its imports, an amount of about $150 million over the first ten-year period of operations; (2) soft drink sales would not exceed 25 percent of the joint venture's sales; (3) PepsiCo would limit its ownership to 39.9 percent; (4) 75 percent of concentrate would be exported; (5) an agricultural research center would be established; (6)
the company could sell Pepsi Era, 7-Up Era, and Marinda Era; and (7) fruit- and vegetable-processing plants would be set up.
Aftermath and Renegotiation Once PepsiCo's venture was approved, Coca-Cola made an application to reenter the Indian market through production within an export processing zone, which would permit 25 percent of output to be sold within India rather than in export markets. This was a threat to PepsiCo inasmuch as the Coca-Cola name was still well-remembered in India, and cans of Coke were even smuggled in from Nepal. But after sixteen months, Coca-Cola's application was denied, leading a Coca-Cola official to say that India "doesn't follow its own rules."
In late 1989 a new prime minister, V. P. Singh, took power in a minority government. As finance minister in the mid-1980s he had promoted liberalization of foreign investment. However, after taking power he almost immediately made conflicting statements about foreign investment. In early 1990 the venture began production of snack foods and announced that soft-drink production would begin by summer. Prime Minister Singh announced that the government would have to reexamine the PepsiCo agreement.
Several things then happened in quick succession. First, the U.S. government, without public reference to PepsiCo, announced that it might impose trade sanctions against India under its Super 301 legislation. The threat was made because of India's strict foreign investment regulations. Indian governmental officials and the joint venture's management then met secretly. Subsequently, PepsiCo agreed to place a new logo, Le-har, above the Pepsi insignia. Pepsi also lobbied publicly against Super 301 sanctions against India, and the U.S. government backed down on its threats. The partners announced that they would invest about $1 billion in the venture during the 1990s. The Minister of Food Processing Industries announced tax breaks for food processors.
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