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Coca Cola India Crisis Case Study

Case Analysis of Coca Cola India Crisis

1874 WordsApr 25th, 20138 Pages

Carder Higinbotham
Case analysis of the Coca-Cola India Crisis

1. What are the key problems that Gupta should focus on in the short term and in the long term?

In looking at the situation, hindsight is always 20/20. Gupta would have benefited from the eight steps of crisis management.

Step 1: Get control of the situation.
Gupta needed to define the real problem, use reliable information, and a measurable communication objective for handling it.

Step 2: Gather as much information as possible:
Gupta quickly reacted to the situation without taking a fair and objective look at the facts in the statements being made. Gupta’s reaction was emotional and attacked the credibility of the Center for Science and Environment ( hereafter…show more content…

Pepsi and Coke did a good job of showing a united front, however, there should have been more emphasis on the effort to provide safety as well as investigating the contamination claims.

2. How would you evaluate the crisis?
As the number one brand in the world, Coke has defined excellence in quality and marketing. Vilifying Coke is like vilifying Disney World or Hershey’s Chocolate. With all the resources that Coke has, there was no concentrated effort by Corporate Coke (America) to rally behind India. In my opinion, it seemed that if Coke had presented a global united front, emphasizing public safety, then some of the repercussions (Michigan State’s Coke boycott) could have been avoided. The initial plan to “deny, deny, deny” and “attack, attack, attack” showed an uncaring and unsympathetic face to the world. The public perception was that the soft drink industry was more interested in profits and maintaining their brand positioning rather than aggressively investigating the claim and recalling the product. The outright assault on the validity of the CSE’s findings was a mistake. It would have been better to cooperate with the CSE in order to get third party testing done. The CSE, was a respected organization. It generates awareness of consumer health and well-being. Coke immediately criticized the validity of the CSE testing results. .
Their initial efforts of the myth versus fact website was effective. However, in my opinion, when Coke and

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In a number of districts of India, Coca Cola and its subsidiaries are accused of creating severe water shortages for the community by extracting large quantities of water for their factories, affecting both the quantity and quality of water. Coca Cola has the largest soft drink bottling facilities in India. Water is the primary component of the products manufactured by the company.

There have been numerous public protests of The Coca-Cola Company’s operations throughout India, involving thousands of Indian citizens and several non-governmental organizations. Protests against the Coco Cola factories have taken place in a number of districts including: Mehdiganj near the holy city of Varanasi; Kala Dera, near Jaipur, Rajistan; Thane district in Maharashtra; and Sivaganga in Tamil Nadu.

The protests by villagers from Plachimada, in the southern state of Kerala have shown the strength of community-led activities, even against this global multi-national company. Through round-the-clock vigils outside the factory gates, they have managed to ‘temporarily’ shut down Coca-Cola’s local bottling plant. As of early 2007, the factory had remained closed for a number of years and a combination of community action and legal redress was aimed at permanent closure.

Background to Coca Cola ground water exploitation case in Kerala

In 1999, the Hindustan Coca-Cola Beverages Private Limited, a subsidiary of the Atlanta based Coca-Cola company, established a plant in Plachimada, in the Palakkad district of Kerala, southern India. The Perumatty Village Council gave a licence to the company to commence production in 2000. Coca Cola drew around 510,000 litres of water each day from boreholes and open wells. For every 3.75 litres of water used by the plant, it produced one litre of product and a large amount of waste water.

Two years after production began protest by local residents became common place. Local communities complained that water pollution and extreme water shortages were endangering their lives.

In 2003, women from the Vijayanagaram Colony in the village of Plachimada, protested that their wells had dried up because of the over exploitation of groundwater resources by the Coca-cola plant. They complained that they now had to walk nearly five kilometres twice a day to fetch water. They also argued that the little which was left was undrinkable and when used for bathing the water burned their eyes and lead to skin complaints. Aside form these health issues, the depletion of groundwater resources also affected the ability of local residents to raise their crops of rice and coconuts.

In April 2003, the Perumatty Grama Panchayat (Village Council) refused renewal of Coca-Cola’s licence to operate on the grounds that it was not in the public interest to renew the licence stating:
“…the excessive exploitation of ground water by the Coca-Cola Company in Plachimada is causing acute drinking water scarcity in Perumatty Panchayat and nearby places…”

The Village Council considered revocation of the licence to be necessary in order to protect the interests of local people.

Permatty Grama Panchayat v state of Kerala

In December 2003, the Village Council’s decision was challenged in the High Court of Kerala State. The Court considered two issues: the question of the over exploitation of ground water, and the justification for the Village Council’s decision to revoke the licence.

The Court recognised that the State as a trustee is under a legal duty to protect natural resources. It considered that these resources, meant for public use, cannot be converted into private ownership. The residing judge, Justice K Balakrishnan Nair, asserted that the government had a duty to act to “protect against excessive groundwater exploitation and the inaction of the State in this regard was tantamount to infringement of the right to life of the people guaranteed under Article 21 of the Constitution of India.”

The High Court ordered the plant to stop drawing the groundwater within a month, ruling that the amount of water extracted by the plant was illegal. But at the same time, it ordered the Village Council to renew the licence and not interfere with the functioning of the Company as long as it was not extracting the prohibited ground water. Coca-Cola refuted the accusations of excessive exploitation and pollution and lodged an appeal.

The next few years saw a confusing array of legal battle between the Village Council and the company.

In 2005, the divisional bench of the High Court granted permission for the company to extract 500,000 litres from the common ground water per day in the year 2005-2006. The Court also affirmed that the Village Council was not justified in cancelling Coca Cola’s licence to operate until a full scientific assessment had been made of the facts.

The Plachimada storyMarch 2000 – Factory established

April 2002 – Agitation by the villagers commences

March 2003 – Village Council refuses to renew licence

May 2003 – State government stays the Village Council decision

Dec 2003 – Single judge bench of the Kerala High court upholds the Village Council’s decision

21 Feb 2004 – The Government ordered the company to stop drawing ground water from the plant

12 March 2004 – Coca Cola company suspended production saying it was “left with no option but to close the factory down in the long run”

29 March 2004 – Village Council refused to renew licences again saying company had failed to meet conditions to: stop using ground water; demonstrate that its products were safe, and prove the non-toxicity of its solid waste

3 April 2004 – Irate villagers blocked tanker lorry taking water to the plant and police arrested 44 villagers

April 2005 – A High Court Division Bench allows appeal by Coca Cola and permits the company to draw 500,000 litres of water per day. Orders the Village Council to renew licence

May 2005 – Village Council files special leave petition in the Supreme Court

1 June 2005 – Company approaches the High Court again as the Village Council did not renew the licence. The court orders Village Council to renew the licence within 7 days, or it would be deemed that the licence stands renewed for two years from 10 June 2004

6 June 2005 – Village Council informs the company that licence will be renewed for three months; asks them to remit the fee and collect licence

17 August 2005 – A group of about 100 activists from Yuvajana Vedi youth organisation march to factory gates. Heavy police force severely injured 4 protestors who were hospitalised and arrested 43 activists

19 August 2005 – The Kerala State Pollution Control Board ordered the stoppage of production at the Plachimada factory for failure to comply with pollution control norms

15 September 2005 – Kerala State Government lends its support for the people against the company

November 2005 – High Court rejects the company’s petition that since Village Council did not keep up the stipulated time frame, it should be deemed that the licence stands renewed for two years. The company ought to have accepted the opportunity to function for three months. But the court again orders the Village Council to renew the licence

November 2005 – Village Council files against the latest High Court order in the Supreme Court

4 Jan 2006 – Village Council reissued a licence to the company for three months but laid out thirteen conditions, the first of which is that the company shall not use groundwater from Perumatty Panchayat for industrial purposes, or for producing soft drinks, aerated carbonate beverages or fruit juice

June 2006 – Meeting with community leaders ends in major commitment from Kerala state officials for pro-active action against Coca Cola

10 August and 11 August 2006, the Government of Kerala and the State Food (Health) Authority, respectively, banned the manufacture and sale of Coca-Cola in the State on the grounds that it was unsafe

September 2006 – High Court of Kerala set aside the orders of the Government of Kerala and the State Food (Health) Authority

SOURCES: Based on article by P.N. Venugopal, 27 Jan 2006, Quest Features and Footage, Kerala, cited on Together India website, with additional information from Asian News International 20 August 2005; the Hindu Newspaper 20 August 2005; the Indian Resource Centre, 17 August, 2005; The Hindu newspaper, 25 October, 2005; Coca Cola Company Website, Press releases.

In August 2005, the plant was closed once again, this time by the Kerala State Pollution Control Board. The Board had sought clarification from Coca Cola of the excessive amount of Cadmium in the effluent. G Raja Mohan, the President of Kerala State Pollution Control Board stated:
“In the waste water treatment sludges we have found contents of Cadmium abnormally high. It goes up to 600 percent above the permissible limit. In the ground water the content of Cadmium is not that much. So, there is something which they are using in the raw materials.”

In October 2005, the State Government of Kerala announced it would support the Village Council local activists by challenging Coca Cola’s right to extract water from common groundwater resources in the Supreme Court of India. In an official press release, Health Minister K. K Ramachandran said:
“the Government will stand by the people in whichever court the company goes. The right over water and air is the right to live. The Government will not allow stopping of these two lifelines of the people.”

On 4 January 2006, following decisions of the Kerala High Court, the Village Council renewed the Coca Cola company’s licence for three months but laid out thirteen conditions. The first of these was that the company shall not use groundwater from Perumatty Panchayat for industrial purposes, or for producing soft drinks, aerated carbonate beverages or fruit juice. The Village Council cited the 2004 Supreme Court decision of M C Mehta v Union of India and the notification by the Kerala State Groundwater Department that village is ‘over exploited’ with regard to groundwater.

Supreme Court Judgement recognises the right of citizens to use waterIn M C Mehta versus Union of India 2004(12) SCC118, the Supreme Court of India recognised that:

Groundwater is a social asset

Citizens have the right to the use of air, water and earth as protected under Article 21 of the Constitution (the protection of life and personal liberty)

It further states that the environmental balance is to be maintained and wherever groundwater is required for domestic and agricultural needs, priority is to be given to these.

Source: PN Venugopal, 27 Jan 2006, Quest Features & Footage, Kerala, cited on Together India website

In June 2006, the newly elected State Government of Kerala assured community leaders that it will take proactive measures against the Coca-Cola bottling plant in south India. On June 15th 2006, Chief Minister Mr. V. S. Achutanandan and other cabinet members submitted a memorandum outlining their demands. These demands included the permanent closure of the bottling plant in Kerala, compensation for the affected community members and prosecution of the Coca-Cola Company for criminal offences.

In August 2006, this brought a new twist to the ongoing saga. The Kerala State Pollution Control Board ordered a ban on the manufacture and sale of Coca Cola in the State questioning the safety of the product itself, based on allegations that it contained pesticides and harmful chemicals in a report by an NGO, the Centre for Science and Environment, New Delhi.

Coca Cola put out a press release stating:

We are completely confident in the safety of our soft drinks in India because they are produced to the same level of purity, regarding pesticides, as the stringent EU criteria for bottled water.

We support the adoption of stringent, science-based rules by the Indian government regarding levels of pesticides in soft drinks. The rules should be based on sound and validated testing methodologies. We continue to work with relevant government bodies, industry associations, non government organizations (NGOs) and the scientific community to develop and finalize criteria and associated testing methods for pesticides in soft drinks.

We have the same uncompromising commitment to product safety and quality in India and everywhere we offer our beverages around the world, and independent third parties regularly audit all plants for compliance. The Coca-Cola Company has stringent criteria for all of the ingredients used in our beverages. These criteria are backed by internationally accepted analytical testing protocols for these ingredients.

Our soft drinks in India have been regularly tested and evaluated by the world renowned and independent Central Science Laboratories (CSL) and all tests show no detectable level of pesticides.” – Coca Cola Media Statement Regarding the Safety of Coca Cola Soft Drinks in India, 9 August 2006.

However, in September 2006, the High Court of Kerala set aside the orders of the Government of Kerala and the State Food (Health) Authority banning the manufacture and sale of Coca-Cola in the State. The High Court observed that the ban could not be justified since it was based solely on a report by an NGO.

The State Government of Kerala has now challenged the extraction of water by Coca Cola in proceedings before the Supreme Court. The State Government argues that the company is taking water from poor communities, but according to a press article in October 2006, the Village Council was not pressing for the case in the Supreme Court to be listed for hearing. It appears to believe that as long as the conditions imposed by the Village Council are not fulfilled, the plant cannot reopen.

Nevertheless, water remains a problem for the villagers. With its groundwater still polluted, Plachimada now gets its drinking water through pipes, that provide water for only a few hours once in two days, and through tanker lorries which also arrive once in two days. Fifteen tanker-lorries of water are supplied by the government, and 15 more by the company.

Villagers remain particularly concerned at the pollution of the scarce remaining groundwater and land which they blame on the discharge by the Coca-Cola company of its waste into the surrounding fields.

Although the Coca Cola factory in Plachimada has remained closed since 2004, locals are not satisfied with simply closing the plant; they want justice for the damage caused to health and the environment. As the protestors complain:

“It’s true that the company is not functioning, but that is not enough. We must get compensation for all the crimes committed by the company.”

Whether or not the ban finally stays, the agitation in front of the factory gate is continuing. As Kaliamma, one of the several tribal women squatting in the temporary ‘agitation tent’ says: “Our problems have not been solved.”

Global protests against Coca Cola

Protests about over-extraction of ground water in India and Sri Lanka by Coca Cola’s subsidiary companies are impacting on the parent company. Strong concerns dominated the company’s annual general meeting on 19 April, 2006, in Delaware, USA. A group of protesters shouted outside the meeting, waving banners with messages such as: “Coca-Cola: Stop De-Hydrating the World” and “Coca-Cola: Destroying Lives, Livelihoods and Communities.”

Inside the meeting, nearly 20 shareholders spoke on behalf of campaigns from India and Colombia. A proposal tabled by a shareholder called on the company to “prepare a report on the potential environmental and public health damage of each of its plants, affiliates and proposed ventures extracting water from areas of water scarcity in India”, but failed to receive any positive response from the company.

In its statement against the proposal, Coca Cola stated that it “recognizes that water is a precious natural resource under growing stress around the world.” It set out the actions that the company has taken to address the risks associated with water extraction and dealt with the complaints in Kerala.

“As to groundwater issues in southern India specifically, the Kerala High Court ruling released in April 2005 (the result of a year-long independent study) stated that our facility was not the cause of water shortages in that community. The study showed that a cycle of three years of short monsoon seasons in the Kerala area was the main contributor to the local water shortages. Through our rainwater harvesting efforts in several communities and plant operations in India, we currently are returning a significant portion of the water we remove from aquifers for production purposes.

“Additionally, the Company has initiated partnerships to set up local rainwater harvesting projects in communities around the country and to mobilize local residents behind these water conservation efforts. These projects combine modern technology with the reinstatement of traditional methods of water management that had fallen into disrepair in some local communities.

“The Board understands the need and desire for transparency in all matters including environmental safety and health issues related to our operations in India and elsewhere. However, we feel that this proposal is unnecessary at this time because our above-described existing environmental, health and safety policies, practices, and reporting methods provide a wide range of information regarding the impacts of our operations throughout India and the world. Furthermore, the Board believes that producing the report called for in this proposal would create a redundant use of Company human and financial resources.”

The campaign against Coca Cola has spread, particularly on college and university campuses, as well as among trade unionists and religious organisations. The India Resource Centre published a press release the day following the Shareholder meeting stating: “Even as Coca-Cola officials were trying to deal with the scores of protesters at its meeting, the campaign to hold Coca-Cola accountable was producing damning results for the company. The Union Theological Seminary in Manhattan, New York, a graduate school of theology which trains students to be ministers in the Christian faith, just announced on Tuesday that it was banning the sale of Coca-Cola products on its campus.

In India, a new campaign was announced in Gangaikondan, in the southern state of Tamil Nadu, against a Coca-Cola bottling plant under construction. And a massive rally is planned in Plachimada, Kerala on April 22, where Coca-Cola’s bottling plant has remained shut down for over a year because the village council has refused to renew Coca-Cola’s license to operate.”

In November, 2006, the Chairman and CEO, The Coca-Cola Company, E. Neville Isdell, spoke about the challenges to Coca Cola in India at the Nature Conservancy in Atlanta, Georgia, USA. He remarked:

“In India, we have been challenged to demonstrate our commitment to water stewardship. While we are not even close to being one of the largest users of water, we are certainly one of the most visible, and have been subject to criticism that we are depleting groundwater aquifers in the State of Kerala. Let me be very clear: Coca-Cola has a shared interest with the communities where we operate in healthy watersheds — because they sustain life and our business. And the last thing we would ever do is spend millions of dollars to build a plant that would run itself dry.

“Accordingly, we are working with many partners across India to improve watershed management, and with the Central Ground Water Authority, local governments and communities to expand the use of simple and effective rainwater harvesting technology. To date, we have installed rainwater harvesting systems in 200 locations, including schools and farms, that are helping recharge aquifers when the rains come.”

Sources: This section is based on a wide variety of sources including court judgements, press releases and official statements from Coca Cola. These include: Permatty Grama Panchayat vs state of Kerala, High Court of Kerala 2003; Coca-Cola: Continuing Battle in Kerala, Coca-cola plant must stop straining water Indian Resource Centre July 10, 2003; Coca-cola plant must stop straining water, The Guardian 19 December 2003; W.A.N0.2125 of 2003 and W.A.N0215 of 2004 Judgment 7th day of April 2005, M. Ramachandran and K.P Balachandran, JJ High court of Kerala 2005; Coca-Cola Protestors Attacked by police: four hospitalized, R. Ajayan, Plachimada Solidarity Committee (India) Amit Srivastava, India Resource Center, August 2005; Kerala Pollution Board orders Coke plant to close, Asian News International 8/20/2005; State defends village council decision to revokes Indian licence, Indian Resource Centre, September 2005; Health Minister: Coke plant will not be allowed to function The Hindu, 25 October2005; Kerala Government Assures Proactive Action Against Coca-Cola Meeting with Community Leaders Ends in Major Commitments from State Officials, Indian Resource Centre : 19 June, 2006; Kerala assures proactive action against Coca-Cola one world. South Asian; Article by M Suchitra and O.N. Venugopal, 03 Oct 2006, The Quest Features & Footage, Kochi, cited on the India Together website; Shareowner Proposal Regarding Environmental Impacts of Operations in India (Item 7)by William C. Wardlaw, III, Annual Meeting of Coca Cola Shareholders, 2006; press releases, Coca Cola Company; articles from the India Resource Centre website.

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