VALUES CLASH AS ECONOMY EVOLVES

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BOMBAY-Eager Indian consumers are flocking to KFC in Bangalore but the restaurant, protected by armed police guards, is locked in a legal battle with anti-Western city authorities determined to close it down. In the meantime, the leader of the militant state farmers' association Karnatak Rajya Raitha Sangh is threatening to burn down the KFC restaurant on Nov. 1, no matter what the local court rules.

KFC is not alone. India is experiencing the growing pains of a traditional, protectionist society undergoing a rapid transition to a modern, consumer-driven economy. Increasingly, Western marketers are caught in the backlash.

Earlier this month, India External Affairs Minister Pranab Mukherjee went on CNN to deny that India is picking on international marketers.

"There's no question of any anti-Western feeling," he said.

With general elections nearing in early 1996, India's opposition parties are jockeying for power by attacking the Western companies the current progressive government of Prime Minister P.V. Narasimha Rao has courted since 1991. Local businesses suffering new competition are also quick to lobby against Western rivals.

In other moves, Bal Thackeray, leader of the opposition Shiv Sena party, is threatening to have Coca-Cola Co. thrown out of India if the soft drink marketer's subsidiary in neighboring Pakistan, an old enemy of India's, goes ahead with plans to sponsor Pakistan's cricket team.

And Warner Bros. has had to cancel half of a $100 million venture to open India's first multiplex cinemas in West Bengal and Maharashtra states. Although the cinemas would show Indian as well as Western films, the Communist-controlled West Bengal government withdrew permission for the Warner project to avoid the pernicious influence of Yankee culture.

But the highest profile clash between traditional values and Western culture comes from PepsiCo Restaurants International's $40 million plans to open 30 KFC outlets in India.

"While we are obviously disappointed with the fact that there is a motivated campaign against us, we have taken the view that such is life," said Ajay Banga, New Delhi-based director-marketing and business development for KFC/PepsiCo Restaurants International. "Consumers coming to our restaurant in Bangalore are very positive and supportive. Therefore our reason to exist remains intact."

Understandably, Mr. Banga is reluctant to disclose the location of the two restaurants KFC plans to open in the next six months "so that they can throw spears at us."

Like KFC, Western marketers don't want to give up on an enormous population of 937 million, a quarter of which is a rising middle class eager to buy Western products. Growth rates are phenomenal. Annual sales increases of 25% for TV sets and 40% for credit cards are the norm.

"The direction of reforms is very clear and the course won't change," said Jagdeep Kapoor, Bombay-based president of Samsika Marketing Consultants. "At best, the pace may vary because of political, social and economic reasons."

To counteract any impression to local voters that India is selling out to foreigners, the central government is getting tougher. Early entrants like Procter & Gamble Co., Sony Corp., Seagram Co. and Cadbury Schweppes were allowed to come to India as wholly owned subsidiaries. The Indian government is asking current applicants, including Reebok, Quaker Oats Co. and William Wrigley Jr. Co., to take local partners.

Angered by multinational auto ventures that do little local assembly, the government has re-introduced import licenses for cars. And Swedish cosmetics marketer Oriflame, poised to launch in India, had to change marketing strategy when its plans to sell wholly imported products were turned down.

The government has also decided to protect key industries. The civil aviation ministry recently nixed a proposal from Singapore Airlines and Bombay-based Tata Industries, India's biggest conglomerate, to form a domestic airline joint venture. The veto was a boon for Indian Airlines, the mismanaged state-run carrier whose market share has plummeted to 63% from a near monopoly since private Indian companies have been allowed to set up local airlines since the early '90s.

Telecommunications is one area multinationals are not only welcome but mandatory. In a country with only one phone line per 100 people, the Indian government hopes to make $41 billion from selling telecom licenses. One of the rules: all Indian companies must have a multinational partner to contribute technology and capital.

"I don't think there is a bias against multinational corporations," said Irfan Khan, general manager-corporate communications at Hindustan Lever, Bombay. "But since we are a democratic society, people may have different opinions."

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