II. Coca-Cola’s Business in Russia

4. “When Coke tried to enter business in Russia, onlookers felt that American imperialism was trying to make its way into Russian socialism”. In light of the given statement, examine the characteristics of transition economy and its impact on the business operations in that country, especially for a country from capitalist nation. Having understood the dynamics of transition economy, what, according to you were the entry barriers for Coke in the process of entering into Russia? Did it have to deal with anti-Americanism?

Coca-Cola’s entry into the Russian market in the early 1990s was impressive as much for its boldness as for its success. The Russian economy and political system were in disarray following the fall of Communism, and the country represented a significant risk for potential foreign investors. Despite these risks, Coca-Cola believed that the long-term benefits of capturing a first mover advantage in this huge market justified an entry at this time.

Coca-Cola succeeded where others failed, by developing a clear strategy of how it would overcome the barriers to entry that defined the Russian market. Instead of being deterred by exorbitant taxes, enormous bureaucracy and systemic corruption, Coca-Cola accepted that these problems were part-and-parcel of doing business in Russia and that the company would need to develop a strong relationship with the Russian government if it was to overcome these challenges. Although the company has endured a number of setbacks along the way in Russia, Coca-Cola continues to be a market leader and manages to make profits in a very tough operating environment. The basis for this success appears to have been an unwavering commitment to a well-defined business strategy.

Also, there was a financial instability. Following the end of the Soviet Union, Russia’s political scene was unstable. The radical market-oriented economic reforms and stabilization policies launched by the government met fierce opposition from the conservative Soviet advocates. The opposition supporters elected an alternative government and president, but the defiance ended in a failed coup attempt. Russia’s political scene was highly fragmented. In 1993, during the first parliamentary election, there were at least 1,000 political parties throughout the country. Though many had consolidated in the succeeding years, there were still hundreds of parties, most of them small organizations revolving around individual personalities rather than a well-defined platform.

5. “Pepsi outsold Coca-Cola by 6 to 1 and was seen as a local brand”. Although Coke and Pepsi belonged to US, why was Pepsi perceived as a local brand and Coke like American one?

In 1972, Pepsi signed an agreement with the Soviet Union which made it the first Western product to be sold to consumers in Russia. This was a landmark agreement and gave Pepsi the first-mover advantage. Pepsi may be leading Coca-Cola due to the big difference in price between 2 colas.

6. “It was successful in setting in setting up plants in Russia only after it was able to convince the Russian officials that it would have a positive impact on the economy in the country”. Explain the role of MNCs in improving he economy of the country into which they enter. Also analyze the impact of Coke on the Russian economy.

Coca-Cola entry into the Russian market in the early 1990s was impressiveas much for its boldness as for its success. The Russian economy and political system were in disarray following the fall of Communism, and the country represented a significant risk for potential foreign investors.

7. How did Coke counter Pepsi which was the leader in Russian market? How did it gain an edge over the rest of its competitors?

Coke entered into agreements with the local beer bottlers, as most of the plants produced beer. At that tie, most of the bottlers were bottling products of Pepsi along with their beer brands. In order to lure the bottlers, Coke offered incentives to them to bottle its products. By 1987, its efforts were successful and the locals started bottling Coke.