Part 3: The Story of Thums Up, Gold Spot & Limca

Previously we had found out how Parle had upped the ante in marketing which resulted in some of the most innovative & sensous advertisements for Gold Spot:
http://guruprasad.net/posts/part-2-story-thums-gold-spot-limca/

While Coca Cola was being hammered by Parle in the marketing front, its real hurdle was in the politics of business. In a bid to check foreign exchange, the Govt of India, under Indira Gandhi, had passed a legislation which required foreign companies to reduce their stake in their respective Indian subsidiaries to just 40%. It was called the “Foreign Exchange Regulation Act (FERA)” passed in 1973 as an Act, effective from 1974 under the purview of Reserve Bank of India which notified all the foreign companies (including IBM & Coca Cola) to reduce their stake to 40% and gave them 2 years time to implement the same.
rbi_fera_1973
Source:
http://www.rbi.org.in/scripts/ECMUserView.aspx?Id=21&CatID=12
http://forbesindia.com/article/independence-day-special/economic-milestone-exit-of-the-mncs-(1977)/38431/1

Throughout 1975 & 1976, Coca Cola used its political connections (Indira Gandhi Govt) to negotiate (or to put on hold) with the Govt over FERA and other hurdles related to foreign exchange. coca_cola_connections

george_fernandes_emergency
In early 1977, after the revocation of Emergency, General Elections were held in which Indira Gandhi was ousted from power and a Govt was formed by Janata Party, which was a coalition of several non-Congress parties, most of whom were rebels & nationalists, with the most vocal being George Fernandes, who had become the “Face of Emergency” due to his role during the Emergency and JP’s Total Revolution against Indira Gandhi in the early 1970s.
More about JP’s Total Revolution:
http://guruprasad.net/posts/1974-bihar-movement-and-total-revolution/

A humorous take on Emergency:
http://guruprasad.net/posts/kissa-kursi-ka-a-humorous-take-on-indira-gandhi-the-emergency/

By the mid 1970s, Coca Cola had agressively ramped up operations across India and thanks to the profit margins, the company earned considerably, which did not go down with nationalists who claimed that the company was literally “looting” the nation and hence called for a nation-wide “Swadeshi” movement led by George Fernandes, with Coca Cola being their main target. Nationwide processions were organized against Coca Cola and several crates of the soft drink were spilled into gutters as a mark of protest.

George Fernendes, being the Union Minister for Industries, raked up the FERA case and demanded that Coca Cola must quickly reduce its stake in its Indian subsidiary to just 40% as per the Act. Since Coca Cola did not have any “high level political connections” with this Govt, it agreed to swallow the bitter pill, but Fernandes’ was still not convinced. He had made up his mind to drive out the MNC and as the last resort, tried to hit Coca Cola where it would hurt the most.
coke_vaultThroughout the world, for several decades, it was (and still is) widely acknowledged that Coca Cola has always been highly secretive about its recipe (formula of the concentrate used in the soft drink) and would never reveal it even at gun-point. George Fernandes knew this very well and he could vouch for the fact that Coca Cola would do anything to remain in India but would not reveal its secret formula. Hence, Fernandes picked up the 7 year old Act called “Indian Patents Act 1970” passed by Indira Gandhi Govt, and tried to evaluate if that could be used against Coca Cola.¬†Fernandes’ happiness knew no bounds when he found that 2 of the points in the “Indian Patents Act 1970” could be used against Coca Cola to force them reveal their secret formula.
ip_1970
Source:
http://ipindia.nic.in/ipr/patent/patent_Act_1970_28012013_book.pdf

By Aug 1977, the Janata Party Govt had pointed 2 guns at Coca Cola: Dilute their stake in the company and reveal the secret formula, otherwise, quit India.
Not just Coca Cola but few more MNCs including IBM were sent notices to abide by FERA (1974) & Indian Patents Act (1970) or quit India.
coke_1977
As expected, the Coca Cola took offence (for the secret formula demand by the Govt) and decided to pack its bags.
coke_wont_bow_down
Although the Govt had given 1 year time to Coca Cola to reconsider its case or quit, the company left no time in winding up its operations, and within the next 1 month, had already shut down most of the factories. This had come as a major blow for not just the company but even its workers who became jobless.
coke_workers_protest_1977
Talking about the soft drink industry, apart from Coca Cola, the only other major player with a pan-India presence was Parle, which had an orange (Gold Spot) and cloudy lemon (Limca) drink, but no cola drink, hence, leaving a huge void for the cola segment.
Customers were unhappy because there was no cola drink and 150,000 Coca Cola workers were unhappy because they were jobless.

Could “Swadeshi” movement come at the cost of thousands of job losses and lack of choices for customers? Who was responsible for this chaos? What could be the solution for this?

We shall find out about these in the next part tomorrow.

UPDATE:
Part 4:
http://guruprasad.net/posts/part-4-thums-up-story-govt-launches-77-double-seven-cola/

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