'Big Cola' from Peru - Inspiration for Indian entrepreneurs

There is not a single recognizable Indian cola drink company left in the market after the sweeping entry of the big giants Coke and Pepsi.  While the Indian companies have surrendered or sold themselves off without a fight,  Aje, a cola company from Peru a far-off country from Latin America has had the audacity to bet on India. This small company with 'Big Cola' brand has succeeded in finding a niche market in India. 

Aje entered India in 2010 and has set up a bottling plant in Patalganga in Maharashtra. They produce 30 million litres and have a 8% share of the market in Maharashtra state. They plan to expand to the rest of India and set up 20 plants. They propose to add fruit juices, bottled water and energy drinks too later.The company employs four hundred Indians and five Peruvians.

Big Cola is about 20 % cheaper compared to Pepsi and Coke. Aje cuts the costs of production and distribution to the minimum. Aje is not in the multicrore game of cricket sponsorship. They run a modest marketing campaign with the slogan "Chhodo Purana, Badla he Zamana…!". 

Aje is targeting mainly the 'bottom of the pyramid' for whom Coke and Pepsi are expensive. They market themselves as a ' fair price' drink to low income consumers and talk about ' democratization of consumption'. With this strategy, they see a significant opportunity in the large and growing low income population segment of India. Aje has worked its way up and has put Big Cola in the shelves of Big Bazar, Reliance, D mart, Metro, Tesco and other chain stores. 

The credit for the success of Aje in India goes to Mr Clever Pantoja Cadillo, the head of the company in India since 2009. 

He came with some Asian experience after his stay in Thailand. But he found India to be very complicated and challenging. In the beginning, when he was searching for land for the plant, he was taken for a ride by the Indian real estate agents. Mr Pantoja, who lives in Navi Mumbai with his family, has now adapted well to Indian culture and has learnt how to do business in India. Although he knew that Gujarat offered more incentives and has lower taxes he chose Patalganga, between Mumbai and Pune which are huge high density population centers. 

Aje's origin is an interesting story. During the eighties, Peru became unsafe due to the terrorist war unleashed by the 'Shining Path' ( Sendero Luminoso) guerrillas. The trucks of Coke and Pepsi could not deliver to the interior areas controlled by the guerillas. The Ananos family saw a business opportunity  and started producing cola drinks in Ayacucho, a small town which was a major centre of guerrilla activities.  They founded Aje in 1988 and established their national presence in Peru by 1997.

Aje embarked on its international foray in the late nineties. It entered Venezuela in 1999, Ecuador in 2000, Mexico in 2002, Central America in 2004, Thailand in 2006, India, Vietnam and Indonesia in 2010 and Brazil in 2011. Aje's products are now sold directly or through agents in over 20 countries in Latin America, Asia and Africa. Besides its flagship brand Big Cola, the company has also got branded products of fruit juice, instant tea, bottled water, energy and sports drinks as well as beer. The Ananos family owns 100% of the shares and control of the company.

Aje is the fourth largest producer of carbonated soft drinks and the tenth largest soft drink company (by sales) in the world. It has 30 plants around the world and is vertically integrated. Its annual sales are 3 billion litres and it has an ambitious goal to be among the top 20 multinational companies by 2020. 

Aje does not consider itself as a competitor to Pepsi and Coke. They are content to be categorized as a B brand. Their focus is only on the emerging markets where there is growing number of lower middle class.

Aje's global ambition has been boosted particularly by their success in Mexico, one of the top soft drinks markets in the world with a high per capita consumption of carbonated drinks. They fought their way through the intense warfare between Pepsi and Coke and managed to get a sizable share of the market. With this success, they have gone on to get a double digit percentage of the market of Indonesia too. After conquering these two large emerging markets, Aje is confident of its growth in India too. 

The success of Aje is a lesson to the Indian entrepreneurs who face challenges from multinationals. It is also an inspiration for those Indian companies who aspire to go global and find niche markets for their products.

India's exports to Peru in 2014 reached 788 million dollars

India's exports in 2014 were 788 million dollars up by 16% from 679 m in 2013 and 465 m in 2010.

Peru has emerged as the fourth largest destination of India's exports after Brazil, Mexico and Colombia.

Vehicles were the leading export item followed by raw cotton, synthetic fibres, iron and steel, pharmaceuticals and plastic items.

India's imports from peru in 2014 were 321 million dollars down from 593 million in 2013. Gold and copper were the major import items.

Peru is expected to have the highest growth rate ( 4.6% ) in 2015 among the top seven Latin American trade partners of India.

India's pharmaceutical exports to Latin America can reach 2 billion dollars by 2020

India exported around 900 million dollars of pharmaceuticals to Latin America in 2013-14 (april-march). This was 7% of the total exports of India to Latin America, whose share in India's global pharma export was also around 7%.

Brazil was the leading destination of India's exports with 297 million followed by Mexico with 119 million. Interestingly Venezuela was the third largest market with 84 million. Exports to Colombia were 76 million, Peru-44 million, Chile-44, Argentina-42, Dominican Republic –26, Guatemala-23 and Ecuador –17.

Of the total pharma exports to Latin America, formulations accounted for 540 million and bulk drugs  360 million dollars. The large markets of Brazil, Mexico, Argentina and Colombia account for most of the bulk drug exports.

Some Indian companies such as Reddy labs, Ranbaxy, Glenmark, Lupin, Torrent, Zydus Cadilla and Cellofarm have invested in manufacturing in Brazil, Mexico and Argentina.

Argentina which did not allow Indian finished formulations under pressure from local industry lobby has removed the restriction in August 2014. After this, India had exported 15 million dollars of finished drugs. This should go up in the coming years.

Latin America's pharma market has been growing at an annual average of 7% reaching 80 billion dollars in 2014 and is expected to cross 100 billion in the next three years.  

India can target exports of 2 billion dollars in the next five years, given the following four favorable factors: 

-The governments of the region ( majority of them centre-left) are spending more on health care as part of their inclusive development agenda.

-Millions of people are coming out of poverty, thanks to the pro-poor policies of the governments and this new lower middle class can afford to buy medicines.

-The economies of the region have been growing, adding more consumers in the markets.

-The governments of the region are promoting generic medicines to cut the cost of health care for themselves as well as for the consumers. This has given a special and unmissable opportunity for the Indian pharma companies who have already established their reputation in Latin America and around the world. 

Mexico's manufacturing boom

The 'Make In India' campaign could learn from the manufacturing success story of Mexico which has come to be called as a 'rising global star in manufacturing'  and 'the China of the Americas'.  Prime Minister Modi could also get inspiration from President Enrique Penha Nieto who has brought about a dozen major reforms by forging a historic consensus with the opposition parties through the 'Mexico Pact'.The Indian business should pay more attention to Mexico which is quietly building itself as an economic power with market access to forty four FTA partner countries

Mexico's manufacturing boom

Mexico has overtaken China in 2013-14 as the world's top destination for automobile investment, according to Financial Times of 21 April 2015. Mexico had attracted 12.6% of global FDI in auto manufacturing as against 12.4% of China in 2013. In recent years, many global automakers have opened or announced plans to set up manufacturing units in Mexico whose car production projected to increase to 4.7 million vehicles by 2020 from 3.2 million in 2014. Mexico accounts for 20% of the vehicle production of North America and is the seventh largest producer of cars in the world. It has become the fourth largest exporter of vehicles in the world and exports 80% of its total production. Mexico's auto exports earned 85 billion dollars in 2014. 

Mexico has become competitive vis-a-vis China whose labour costs have gone up significantly. Average manufacturing labor costs in Mexico are now almost 20 percent lower than in China, whereas in 2000, Mexico’s labor costs were 58 percent more expensive than China’s. Chinese wages ( 5726 dollars per year) have become significantly higher than Mexico's annual wage of 3645 dollars for unskilled workers in the auto sector. Mexican productivity-adjusted labor costs are now estimated to be 13 percent lower than those of China. 

Boston Consulting Group in its August 2014 report 'The shifting economics of global manufacturing' has called Mexico as "a rising global star in manufacturing". BCG estimates that Mexico now has lower average manufacturing costs than China on a unit-cost basis. A decade ago, average direct manufacturing costs in China were estimated to be 6 percentage points cheaper than Mexico’s, Now, Mexico is estimated to be 4 percentage points cheaper. 

Mexico offers other advantages over China which poses increasing challenges to American multinationals. It has a large and growing young population unlike the ageing Chinese society. It offers better protection to intellectual property rights unlike China.  Not surprisingly, US imports from Mexico have started rising faster than those from China and Mexico is being talked of as the "China of the Americas".

Besides the lower wages, Mexico has made itself attractive for export-oriented manufacturing by its FTA with 44 countries. Mexico is a member of NAFTA, Pacific Alliance, APEC, OECD and TPP.Most foreign manufacturers use Mexico as the export platform for NAFTA.

Mexico has developed manufacturing clusters : Queretero for aerospace; central and northern industrial heartlands for automobiles; Gudalajara as a silicon valley ; and low-end manufacturing of goods like clothing and textiles in the southern part of the country. It also has a conducive ecosystem for manufacturing and exports with an integrated supply chain, reasonably good infrastructure, logistics and transport network as well as stable and predictable policies and tax regimes. 

Unlike the raw materials exporting South America, Mexico has emerged as a major exporter of manufactured products such as automobiles, electronics and aerospace equipments. Manufactured products account for 83% of the total exports of Mexico. Mexico is largest maker of  flat screen TVs and two door refrigerators and is a leading producer and exporter of white goods. 

The "Make in India"  campaign can learn from the manufacturing success story of Mexico which ranks 39th in World Bank's 2014 survey of 'Ease of doing business index' in comparison to India's 142nd. Of course the Indian growth model is different from the Mexican one of manufacturing for exports. India should, therefore, draw only the appropriate lessons for its own path and needs.  Prime Minister Modi could also get inspiration from President Enrique Penha Nieto who has brought about a dozen major reforms by forging a historic and unprecedented consensus with the opposition parties through the ' Mexico Pact'.

The Indian business would find it worthwhile to give more attention to Mexico which is quietly positioning itself to be a major economic force in the long term with its competitive manufacturing strength and market access through FTAs with a large number of countries. With a population of 114 million and GDP of over 1.3 trillion dollars Mexico is the second largest market and the largest trading nation in Latin America with exports of 398 billion dollars and imports of 400 billion in 2014.

India's exports to Mexico have made an impressive 30% increase, reaching 3727 million dollars in 2014 from 2720 million in 2013. Mexico is a regular source of crude oil imports of India. The imports in 2014 were 2291 million dollars. Over 30 Indian companies have invested in Mexico and eight Mexican companies have invested in India. The Indian IT firms use Mexico as the base for near-shore operations to service their North American clients. 

India's exports to Mexico are disadvantaged by tariffs vis-a-vis the products coming from Mexico's FTA partners which enter duty-free. The government of India needs to push for FTA negotiations with Mexico.