A Misreading in India

NEW DELHI When allegations of pesticide contamination were published on the front pages this month in India, Coca-Cola and PepsiCo executives were breezily confident that this was a crisis they could handle.

But three weeks later, they are still struggling to win back the confidence of consumers. Partial bans on their products remain in a quarter of India's states, and a complex legal battle to overturn them is only just beginning. The companies acknowledge that, because of their own miscalculations, things have not gone smoothly.

Coke and Pepsi stumbled badly in their response to the pesticide allegations: they underestimated how quickly this would spiral into a nationwide scandal, misjudged the speed with which local politicians would seize on an Indian environmental group's report to attack powerful global brands, and failed to respond swiftly to quell the anxieties of their customers.

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 unfolding battle offers a cautionary tale for multinational corporations doing business in developing countries, especially one like India where political sensitivity to foreign influences is so acute.

In some ways, Coke's and Pepsi's immediate responses came right out of crisis management textbooks. As soon as the Center for Science and the Environment announced that drinks made by the two companies in India contained on average more than 24 times the safe limits of pesticides, both companies knew they were headed for trouble.

They formed committees in India and the United States, working in parallel on legal and public relations issues. They worked around the clock fashioning rebuttals. They commissioned their own laboratories to conduct tests and opted to wait until the results came through before commenting in detail.

This approach quickly backfired: Their reticence fanned consumer suspicion. They became bogged down in the technicalities of the allegations, instead of focusing on winning back the emotional support of consumers.

"They got behind the curve, and now they are chasing the crisis," said Richard Levick, president and chief executive of Levick Strategic Communications, a U.S. company specializing in advising businesses in this kind of crisis.

Coke and Pepsi executives concede that this has been a difficult fight.

"We have some way to go to restore consumer confidence in our brands," said Kari Bjorhus, Coca-Cola's communications director.

Rajeev Bakshi, who heads Pepsi in India, agreed that there was much work to be done. "Has our side of the story got across to the consumer yet?" he said. "Not really. I am concerned about that."

On Tuesday, the companies got a boost as India announced that the Center for Science and Environment's findings did not conclusively prove that the soft drinks contained pesticide residue. The federal Health Ministry, which constituted a special panel on Aug. 4 to look into the center's survey, sought additional details from the group.

"The conclusion of the expert committee is that the report of the CSE does not provide conclusive evidence for presence of different pesticides in the concentration reported," the health minister, Anbumani Ramadoss, told lawmakers in Parliament on Tuesday. He also said the government was seeking to put in place benchmarks for soft drinks sold in the country by January.

When the problem first surfaced, the companies were sure that they knew how to handle it, because this was the second time that they had fought identical allegations. The same environmental group said that it had found pesticide residues in their products in 2003, and lessons from that episode linger. Still, both companies were unprepared for the political controversy this time around.

Within days of the new allegations, first one state and then another announced partial bans on Coke and Pepsi products, preventing them from being sold in government offices, hospitals and schools. Politicians on the left and right instantly exploited the populist potential. The southern state of Kerala, which is left-leaning, introduced a total ban on the sale and production of colas.

"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 help resolve the problem. "These decisions are unfair. We would have expected politicians to make their decisions on the basis of facts and not reports."

Analysts wonder if the Indian employees' sensitivities to local priorities came into conflict with corporate hierarchies and the need to get approval from faraway headquarters. It is a question the companies are asking themselves.

Coke and Pepsi should have known better, said Suhel Seth, a public relations specialist in India and an adviser to Coca-Cola India. "Fringe politicians will continue to be publicly hostile to big Western companies, regardless of how eager they are for their investment," he said. "Large multinational corporations are still seen by pockets of consumers and opinion makers as marauders."

Levick, the American public relations consultant, agreed. "They underestimated their own importance," he said. "Much more than companies, they are symbols of the West."

With hindsight, Bjorhus, the Coke communications director, said he could now see how the environmental group had picked Coca-Cola as a way of attracting attention to the broader problem of pesticide contamination in Indian food products. Sunita Narain, who heads the group, "has serious concerns about pesticides in the food chain," Bjorhus said.

"By focusing her attention on the soft drinks industry, she gets a lot of attention," Bjorhus added.

Bakshi, the head of Pepsi in India, said, "You are not just up against the person holding the press conference, but also the people who seize on the allegations, the other constituencies who jump on the fray."

Because they failed to anticipate the political potency of the story, Coke and Pepsi initially hoped that the crisis would blow over and adopted a policy of virtual silence. "In the U.S. and the West there is a certain dignity to silence," said Seth, the Indian public relations expert. "But here people interpret silence as guilt. You have to roll up your sleeves and get into a street fight. Coke and Pepsi didn't understand that."

The companies also failed to realize how fast news travels in modern India.

"We have 36 news channels," said Amit Agnihotri, a public relations analyst in Delhi. "People are interested in what is happening around them. Coke and Pepsi haven't understood the power of this new India."

Coca-Cola decided to go on the attack, though indirectly. Coke officials in Delhi gave briefings during which they questioned the scientific credentials of their accusers. They directed reporters to blogs containing pro-Coke entries and handed out a cellphone number for the director of a group called the Center for Sanity and Balance in Public Life.

Public relations experts faulted this approach. "They needed to show leadership," Levick said. "These minimalist statements were not adequate."

For Coca-Cola and Pepsi, the situation began to spin rapidly out of control. Newspapers printed images of cans of the drinks with headlines like "toxic cocktail." News channels broadcast images of protesters pouring Coke down the throats of donkeys.

Although India represents only around 1 percent of Coca-Cola's global volume, it is seen as central to its long- term growth strategy. Coke decided to address customers directly, printing an advertisement asking, "Is there anything safer for you to drink?" and inviting Indians to visit its plants to see how the beverage was made.

Among the companies' hurdles was the complexity of the allegations. Standards for safe pesticide levels in drinks have been agreed on in India but never made a legal requirement. The industry argues over whether tests are needed for the final product or the water used in the drinks. There is also debate over how to cleanse sugar of its pesticide traces and a recognition that India's groundwater is so contaminated that most food products contain some pesticide residue.

Asim Parekh, a vice president of Coca- Cola India, said his "heart sank" when he first heard the allegations because he knew consumers would be easily confused. "I have tried my level best to communicate this information," he said. "But even terminology like PPB - parts per billion - is difficult to comprehend."

Bakshi, the Pepsi executive, also struggled with the message. "The subject is extremely technical," he said. "It is hard to explain the entire story."

For Levick, however, these figures were irrelevant. "Perception always trumps reality. It almost doesn't matter what the facts are," he said. "The companies have been arguing over the facts, rather than addressing the perception - which is that they are contaminated with harmful toxins."