Pepsico Case

Abstract

As one of the world's largest food and beverage brands and top rated Fortune 500 Corporation, PepsiCo has become a global powerhouse with 22 brand lines than bring in a billion dollars each in annual revenue. Contributing to this revenue is the establishment as a multinational enterprise in countries such as China. Success doesn't come easy through the battles of foreign legal systems, political risks, and maintaining satisfied stakeholders in a foreign country comes with many challenges. PepsiCo has had much success in China with their appeal to the youth and social programs that give back to society. These programs have created what seem to be a long lasting relationship and a upper hand in the soda wars in Asia.

Introduction

PepsiCo generates $60 billion in net revenues in retail sales as one of the world's largest food and beverage brands and a top rated Fortune 500 Corporation. They sell a lot more than just Pepsi, including 22 product lines such as Quaker, Tropicana, Gatorade, SoBe, and Frito-Lay to name a few. PepsiCo product line brands give it a competitive advantage with each generating more than a $1 billion in sales. PepsiCo has the ability to capture enormous cross-selling opportunities. Many times a consumer will buy a snack and then also a refreshing beverage. This allows PepsiCo to capitalize on this trend with the type of products they provide. PepsiCo has made growth in renovating its beverage lineup to healthier alternatives as well as snacks that has boosted its sales in line with their Global Nutrition division. PepsiCo is a global community based in over 200 countries. One of these countries includes China, which voted PepsiCo as one of their top employers in 2013. For this scholarly activity I will focus on PepsiCo's efforts there.

Market and Legal Systems

Before 1978, China operated on a command type market system that is favored by communist countries and was the market system used by the former Soviet Union. A true command market system offers benefits such as similar quality of life, and no inflation due to government price controls. The drawbacks are it provides limited product selections, needs are determined without comparison to society needs, and restricts personal freedoms.

After 1978, China began to move from a command Soviet-style economy to more of a free market system. A free market system is driven by the goal of profit determined by demand while the government keeps more of a distance role. This transition has led to China quadrupling its gross domestic product in twenty years and the second largest economy in the world. Even though this decentralization has done wonders for their economy there is sometimes conflict with a still highly centralized political system and mixed legal system.

China operates on a mixed legal system which incorporates two or more preceding legal systems. China initially started off as a command market system and transitioned to more of a free market system using a mixed legal system. The mixed legal systems used by China consist of customary and civil law. The customary law is based on the norms of behaviors that have been practiced for many years. These type laws define the rights and responsibilities to the community members. Civil law is a legal system of jurisprudence based on statutory laws. Unlike the common law system where laws are created, the civil law system uses legal and procedural codes to resolve disputes.

PepsiCo gains significant revenue and profits through its overseas operations and emerging markets, China being one that presents a lot of profitability and future growth opportunities. Operations in China can be impacted in so many ways from the legal and market systems perspective. Legally, just from laws that cover employees such as minimum wages, overtime, insurance, maximum work weeks, and so on. On the market side there are so many directions that can effect operations from financing, with the majority of the Chinese banking sector being state-owned, to unreasonably big tax burdens. The Chinese government has made great strides to support freer commerce, embrace the global marketplace, which has led to a strong economy powerhouse that has almost tripled its GDP.

Political Risks

China like many foreign countries that participate in international commerce all has political risks tides along with impacts to operations. "More precisely, political risks are the likelihood that political decisions, events, or conditions will affect a country's business environment" (Daniels et al., 2011, p. 105). This has been seen in the recent global economic crisis that has turned the tables for many free markets to involve more political influence in the performance and drive of global markets.

PepsiCo assumes political risks in China with cultural differences, local competition, political conditions, and civil unrest. One unique political risk in China is the battle between the country's central government and the provincial and local governments over applicable law. This makes it difficult to know exactly what the rules are. If I was a political consultant