ANALYSING THE COMPLEXITIES OF PEPSICO’S

OPERATIONS IN THE GLOBAL ENVIRONMENT

MODULE NAME: GLOBAL BUSINESS ENVIRONMENT

TO: MR. SHADRACK MWANGANGI

FROM: SANDEEP PITROLA

Table of Contents
1.0 INTRODUCTION .................................................................................................................................. 3

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 1.2 PepsiCo’s Vision Statement ................................................................................................................. 5
1.3 Corporate social responsibility............................................................................................................. 5
1.4 PepsiCo’s Mission Statement............................................................................................................... 5
2.0 PepsiCo Evaluation................................................................................................................................. 6

2.1 Key Factors of cost, market, environment and competition driving global commerce and trade and
their impact upon the global business environment, including opportunities and challenges faced by
PepsiCo ...................................................................................................................................................... 6
2.1.1 Globalization................................................................................................................................. 6
2.2 PepsiCo PEST Analysis & Recommendations .................................................................................. 10
2.2.1 Political Factors Affecting PepsiCo’s Business.......................................................................... 10
2.2.2 Economic Factors Important to PepsiCo .................................................................................... 11
2.2.3 Sociocultural Factors Influencing PepsiCo’s Business Environment ......................................... 12
2.2.4 Technological Factors in PepsiCo’s Business ............................................................................ 14
2.3 Strategic challenges faced by PepsiCo whilst operating in a global business environment .............. 16
2.3.1 Planning and management training globally............................................................................... 16
2.3.2 International Trade Laws ............................................................................................................ 17
2.3.3 Demand and Supply .................................................................................................................... 19
2.3.4 Environmental Sustainability...................................................................................................... 21
2.4 Strategic challenges in context of risk and diversification strategies and the supply chain flow 23
2.4.1 Risk and Diversification ............................................................................................................. 23
2.4.2 Supply chain management .......................................................................................................... 24
2.5 The influences of globalization on PepsiCo with appropriate theories and models relating to
governance and leadership, structure, culture and functions ................................................................... 27
2.5.1 PepsiCo McKinsey 7S Model ..................................................................................................... 27
2.6 The influences of ethical and sustainable globalization on PepsiCo functions.................................. 29
2.6.1 Environmental Sustainability...................................................................................................... 30
2.6.2 Acting on Climate Change .......................................................................................................... 32
2.6.3 Recycling .................................................................................................................................... 33
2.6.4 People and Responsible Governance .......................................................................................... 34
2.6.5 Meeting PepsiCo’s people standards .......................................................................................... 34
2.6.6 Partnering with farmers through Sustainable Farming Initiative ................................................ 34
2.7 The different ways decision making can work effectively and the key barriers in doing business
internationally for organizations like PepsiCo and recommendations on how they can be
overcome.................................................................................................................................................. 37
2.7.1 The Business Opportunity .......................................................................................................... 37

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 2.7.2 Key Barriers in doing Business Internationally .......................................................................... 39
2.8 The various routes to Internationalization that PepsiCo may adopt, including key barriers ....... 45
2.8.1 Mergers, acquisitions, partnerships, licensing, contract manufacturing, joint ventures, and
affiliate operations ............................................................................................................................... 45
2.8.2 Key barriers to Internationalization ............................................................................................ 46
2.9 Strategies that can be adopted by PepsiCo whilst operating in a global business environment,
and how they should adapt their organizational structure and decision – making processes ........... 47
2.9.1 Strengths ..................................................................................................................................... 47
2.9.2 Weaknesses ................................................................................................................................. 49
2.9.3 Recommendations....................................................................................................................... 51
3.0 References ............................................................................................................................................ 52

Table of Figures
Figure 1: Market Analysis ............................................................................................................................ 9
Figure 2: PepsiCo Signage .......................................................................................................................... 17
Figure 3: McKinsey 7S Framework ............................................................................................................ 29
Figure 4:The decline of millions of liters of soda sold in the US ............................................................... 30
Figure 5: Environment Sustainability ......................................................................................................... 33
Figure 6:Revenue distribution in international markets .............................................................................. 52
Figure 7: SWOT Analysis ........................................................................................................................... 53

1.0 INTRODUCTION
Pepsi is a global food and beverage company with a complementary portfolio of enjoyable brands,
including Frito-Lay, Gatorade, Pepsi-Cola, Quaker and Tropicana. Through their operations,
authorized bottlers, contract manufacturers and other third parties, they make, market, distribute
and sell a wide variety of convenient and enjoyable beverages, foods and snacks, serving customers
and consumers in more than 200 countries and territories.

PepsiCo believe’s their performance is inextricably linked to the sustainability of the world in
which they operate. They call this approach Performance with Purpose and it is embedded into
their business and strategy. Their commitment to Performance with Purpose enabled them to meet
or exceed every financial goal they set for 2016. During 2016, they also continued their focus on
productivity, prudent capital allocation, reducing their cash flow cycle, operating with a leaner cost

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structure and embracing innovation. For example, since 2012 their productivity agenda has
delivered approximately $1 billion in annual savings by pursuing cost saving measures ranging
from developing agricultural technologies to sourcing more of their foods and beverages locally.
They continued to embrace automation across the company, leveraging new tools that they believe
will deliver higher rates of production in the United States and around the world. They also
continued to focus on skills upgrading and job retraining, creating new opportunities for their
workers which they believe will help them navigate continued geopolitical uncertainty and unrest.

As they look to 2017 and beyond, they believe their performance with purpose strategy will enable
them to continue delivering strong financial results while positioning their Company for long-term
sustainable growth. Pepsi recently announced new Performance with Purpose goals for the next
ten years. They plan to continue to focus on making healthier foods and beverages for their
consumers, generating healthy growth for their retail and food service partners; fostering a
healthier planet by reducing their environmental impact and boosting their bottom line; creating a
healthy workplace and culture for their associates; and promoting healthier communities wherever
they operate.

Pepsi’s strategies are also designed to address key challenges facing the Company, including:
consumer demand for healthier products; taxes or other limitations on the manufacture, sale or
distribution of their products in a changing regulatory environment; uncertain and volatile
macroeconomic conditions, including currency fluctuations; climate change and water scarcity;
and political, economic and social instability. They believe that many of these challenges also
create new opportunities for their Company and they intend to focus on some of the following
areas to address and adapt to these challenges and capitalize on these opportunities:

Healthier products - Consumer demand continues to shift towards healthier products, while the risk
of regulation, including taxation of certain products, continues to intensify. Given these consumer
and regulatory shifts, Pepsi continue’s to shift their portfolio toward more “good-foryou” and
“better-for-you” products, through both organic innovation and strategic mergers and acquisitions.
They increased their investment in research and development by 45 percent since 2011, investing
approximately $3.5 billion on research and development cumulatively over the past five years.

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Healthy retail growth- Pepsi’s success is dependent on the success of their retail partners. They
continue to collaborate with their retail partners to sell their products faster, increase cash flow and
engage consumers. They also intend to continue to invest in building the new capabilities they will
need to succeed in the digital marketplace, including the evolving e-commerce landscape, and to
focus on building and sustaining strong relationships with their retail partners (Pepsico.com, 2017).

1.2 PepsiCo’s Vision Statement

PepsiCo’s vision statement is “to deliver top-tier financial performance over the long term by
integrating sustainability into their business strategy, leaving a positive imprint on society and the
environment.” PepsiCo adds that this vision statement is built on the idea of “Performance with
Purpose.” Based on these considerations, PepsiCo’s vision statement has the following main
points:

Top financial performance

Sustainability

1.3 Corporate social responsibility

PepsiCo emphasizes high financial performance as one of the aims included in its vision statement.
This factor is a basic business expectation. In addition, the vision statement indicates that PepsiCo
integrates sustainability in business activities. Sustainability enhances corporate and brand image.
Also, PepsiCo’s vision statement includes corporate social responsibility. This factor is a major
influence on the company’s policies and strategies on organizational development, especially with
regard to its impact on stakeholders. All of these points of the vision statement motivate PepsiCo
to achieve high performance.

1.4 PepsiCo’s Mission Statement

PepsiCo’s mission statement is “to provide consumers around the world with delicious, affordable,
convenient and complementary foods and beverages from wholesome breakfasts to healthy and

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fun daytime snacks and beverages to evening treats.” This mission statement highlights PepsiCo’s
desire to satisfy customers. In conjunction with the mission statement, PepsiCo also states, “We
are committed to investing in our people, our company and the communities where we operate to
help position the company for long-term, sustainable growth.” The main points of PepsiCo’s
mission statement are as follows:

Consumers around the world

Delicious, healthy and fun products

Affordability

Convenience (Lombardo, 2017)

2.0 PepsiCo Evaluation

2.1 Key Factors of cost, market, environment and competition driving global
commerce and trade and their impact upon the global business environment,
including opportunities and challenges faced by PepsiCo

2.1.1 Globalization
According to Professor Theodore Levitt, globalization is the process of integrating nations and
peoples—politically, economically, and culturally—into a larger community. In this broad sense,
it is a little different from internationalization. Yet globalization is more than this incremental
process that over the centuries has brought people and nations closer together as technological
innovation dissolved barriers of time and distance, and enhanced flows of information promoted
greater awareness and understanding (Americanforeignrelations.com, 2017).

KEY FACTORS THAT DRIVE GLOBALISATION:

COST

The globalization of customer needs and the opportunities for scale and standardization it brings
will fundamentally alter the economics of many industries. Economies of scale and scope,
experience effects, and exploiting differences in factor costs for product development,
manufacturing, and sourcing in different parts of the world will assume a greater importance as

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determinants of global strategy. A simple fact is that a single market will no longer be large enough
to support a competitive strategy on a global scale in many industries. For instance Pepsi
experienced a soda sales decline in the United States as costs for potatoes, corn and other
commodities have led to its own price increases.

Global scale and scope economics are already having far-reaching effects. On one hand, the more
the new economies of scale and scope shape the strategies of incumbents in global industries, the
harder it will be for new entrants to develop an effective competitive threat. Thus, barriers to entry
in such industries will get higher. At the same time, the rivalry within such industries is likely to
increase, reflecting the broadening scope of competition among interdependent national and
regional markets and the fact that true differentiation in such a competitive environment may be
harder to achieve (2012books.lardbucket.org, 2017).

MARKET

As a result of declining soda sales in the U.S. Pepsi has made significant investments that it hopes
will boost business outside the US and bulk up its resources in other parts of the world. Most
recently the company decided to make a USD $ 500m investment to expand its operation in India.
Over the next three years, PepsiCo plans to increase manufacturing capacity, marketing and
research and development in India with the goal of tripling revenue in the South Asian nation in
the next five years, CEO Indra Nooyi told Bloomberg. We have sustained double-digit growth both
in volume and revenue and become the fourth-largest consumer products company in India," Nooyi
said. "We are making important gains in market share.

Bloomberg reported that PepsiCo made similar plans for Brazil, where it said it will invest $300
million to open at least three new food production plants. Pepsi also staked a claim in the Russian
juice market. In August, PepsiCo and the Pepsi Bottling Group paid $1.4 billion for a 75% holding
in JSC Lebedyansky, which is reported to be the world's sixth-largest juice manufacturer and the
largest in Russia. Pepsi is also looking forward to building Lebedyansky's portfolio of strong,
popular brands in one of the world's fastest-growing juice markets," said Michael White, PepsiCo
International CEO and vice chairman of PepsiCo. "It's yet another way we're transforming our
product lineup to include more beverages and foods that address the growing consumer interest in
health and wellness (Zubko, 2017)."

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 Figure 1: Market Analysis

(PepsiCo, 2017)

ENVIRONMENT

PepsiCo products are enjoyed by consumers one billion times a day in more than 200 countries and
territories around the world. PepsiCo generated more than $63 billion in net revenue in 2015, driven by a
complementary food and beverage portfolio that includes Frito-Lay, Gatorade, Pepsi-Cola, Quaker and
Tropicana. PepsiCo’s product portfolio includes a wide range of enjoyable foods and beverages, including
22 brands that generate more than $1 billion each in estimated annual retail sales.

At the heart of PepsiCo is Performance with Purpose – their fundamental belief that the success of the
company is inextricably linked to the sustainability of the world around. They believe that continuously
improving their products thatb they sell, operating responsibly to protect their planet and empowering
people around the world is what enables PepsiCo to run a successful global company that creates long-term
value for society and our shareholders.

PepsiCo, Inc. announced an ambitious global sustainability agenda designed to foster continued
business growth in a way that responds to changing consumer and societal needs. The company's
efforts, which focus on creating a healthier relationship between people and food, include specific

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2025 goals to continue transforming PepsiCo's food and beverage product portfolio, contribute to
a more sustainable global food system and help make local communities more prosperous
(Pepsico.com, 2017).

COMPETITION

Pepsico’s beverage, food and snack products are in highly competitive categories and markets and compete
against products of international beverage, food and snack companies that, like Pepsi, operate in multiple
geographies, as well as regional, local and private label manufacturers, economy brands and other
competitors. In many countries in which Pepsi’s products are sold, including the United States, The Coca-
Cola Company is Pepsi’s primary beverage competitor. Other beverage, food and snack competitors
include, but are not limited to, DPSG, Kellogg Company, The Kraft Heinz Company, International, Inc.,
Monster Beverage Corporation, Nestlé S.A., Red Bull GmbH and Snyder’s-Lance, Inc.

Many of Pepsi’s food and snack products hold significant leadership positions in the food and snack industry
in the United States and worldwide. In 2016, Pepsi’s and The Coca-Cola Company represented
approximately 24% and 20%, respectively, of the U.S. liquid refreshment beverage category by estimated
retail sales in measured channels, according to Information Resources, Inc. However, The Coca-Cola
Company has significant carbonated soft drink (CSD) share advantage in many markets outside the United
States.

Pepsico’s beverage, food and snack products compete primarily on the basis of brand recognition and
loyalty, taste, price, value, quality, product variety, innovation, distribution, advertising, marketing and
promotional activity, packaging, convenience, service and the ability to anticipate and effectively respond
to consumer preferences and trends, including increased consumer focus on health and wellness.

Pepsi believes that the strength of their brands, innovation and marketing, coupled with the quality of their
products and flexibility of their distribution network, allows them to compete effectively (including in
distributing their products effectively and cost efficiently through all existing and emerging channels of
trade, including through e-commerce), they may be unable to grow or maintain sales or category share or
they may need to increase capital, marketing or other expenditures, which may adversely affect their
business, financial condition or results of operations(Pepsico.com, 2017).

PepsiCo has been steadily losing market share to Coca-Cola in the carbonated soft drinks
market, but PepsiCo’s true strength lies in its diversified portfolio which partially shields it
from the woes of the carbonated soft drinks category. PepsiCo’s leadership in some of the

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fast growing beverage categories such as bottled water, juices and sports drinks further
enhances its chances to outperform its rival in the long run. This could play out to its
advantage as drink volumes in developed markets decline and as health concerns around
soft drinks consumption spread to growth markets(Forbes.com, 2017).

2.2 PepsiCo PEST Analysis & Recommendations

PepsiCo is the second biggest company in the global food and beverage industry. To keep this position,
PepsiCo’s strategic decision-making processes must account for the issues outlined in this PEST analysis.
The PEST analysis model is a strategic management tool that identifies various external factors relevant to
firms, based on the conditions of their remote or macro-environment. In PepsiCo’s case, these factors
determine the company’s growth path. The global market presents challenges that threaten PepsiCo while
creating opportunities for improvement. Thus, strategies and reforms based on the elements of the PESTEL
analysis model can boost PepsiCo’s long-term growth.

PepsiCo’s long-term growth trajectory is partly dependent on how the company addresses the
major issues identified in this PEST analysis. PepsiCo must develop strategies that enhance its
abilities to withstand the external factors in its remote or macro-environment (Meyer, 2017).

2.2.1 Political Factors Affecting PepsiCo’s Business

Governments are external factors that impose requirements on PepsiCo. This element of the PEST
analysis considers the effects of governmental action on companies’ remote or macroenvironment.
PepsiCo must address the following political factors:

Political stability in major economies (opportunity)

Improved intergovernmental cooperation (opportunity)

Government initiatives against carbonated drinks (threat)

Major economies like the United States and Canada are politically stable, thereby presenting
growth opportunities for PepsiCo. In addition, the trend of intergovernmental cooperation
improves opportunities for global expansion. However, government initiatives against sweetened
carbonated drinks are a threat that could reduce PepsiCo’s revenues from affected segments. In

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this element of the PEST analysis, PepsiCo must consider changing its products to overcome the
identified threat about carbonated drinks(Meyer, 2017).

Pepsico’s business, financial condition or results of operations could be adversely affected as a

result of political conditions in the markets in which their products are made, manufactured,
distributed or sold. Political conditions may be difficult to predict and may adversely affect their
business, financial condition and results of operations. For example, the decision by the United
Kingdom to leave the European Union has created uncertainty regarding how the United Kingdom
will interact with other European Union countries following its departure and during the time
leading up to its departure. In addition, many of the markets in which Pepsi’s products are made,
have recently held, or will hold in the near future, elections, the results of which could create
uncertainty regarding how existing laws and regulations may change, including with respect to
sanctions, climate change regulation, taxes, the movement of goods, services and people between
countries and other matters, and could result in exchange rate fluctuation, volatility in global stock
markets and global economic uncertainty. Any changes in, or the imposition of new, laws, regulations or
governmental policy and their related interpretations due to elections, referendums or other political
conditions could have an adverse impact on Pepsi’s business (PepsiCo, 2017) .

2.2.2 Economic Factors Important to PepsiCo

PepsiCo’s performance is directly linked to the economy. The influence of economic conditions
on the remote or macro-environment of businesses is covered in this element of the PEST analysis.
The political external factors that relate to PepsiCo are as follows:

Economic stability of most major markets (opportunity) Rapid growth of developing economies
(opportunity)

Slowdown of the Chinese economy (threat)

PepsiCo has opportunities for growth and expansion based on the economic stability of developed
countries like the United States, as well as the high growth rates of developing economies, such as
those in Asia. However, the current slowdown of the Chinese economy threatens PepsiCo’s
potential international growth, considering that China is among the biggest economies in the world.

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This element of the PEST analysis shows that PepsiCo must ensure market diversification to
achieve stable international growth(Meyer, 2017)

Exchange Rates - Fluctuations in exchange rates may have an adverse impact on PepsiCo’s
business, financial condition and results of operations. For Instance PepsiCo estimated that an
unfavorable 10% change in exchange rates would have decreased their net unrealized gains in 2016
by $122 million (PepsiCo, 2017).

Interest Rates - Adverse changes in interest rates may also negatively impact on PepsiCo’s business
and financial results (PepsiCo, 2017).

Economic growth rate – PepsiCo CEO says she’s never seen global economy this bumpy. PepsiCo
reported a higher than expected profit for the last quarter of 2015, helped by brisk sales for snacks
and beverages in the U.S.

Business in the rest of the world was tougher made difficult by a combination of depressed oil
prices, insane stock markets and the strong U.S. dollar.

The CEO reported a combination of sustained headwinds across most economies, combined with
high volatility across global financial markets. She noted slowing growth and recession across all
countries except the United States. On the bright side the Chinese market had been holding up in
2016 (Fortune, 2017).

2.2.3 Sociocultural Factors Influencing PepsiCo’s Business Environment

Many of PepsiCo’s consumers follow sociocultural trends. This element of the PESTEL analysis
identifies the impact of social conditions and changes on companies’ remote or macroenvironment.
The following are notable sociocultural external factors relevant to PepsiCo’s business:

Higher health consciousness (threat & opportunity)

Increasing busy lifestyles (opportunity)

More discriminating attitudes about product quality (opportunity)

Higher health consciousness is a threat to PepsiCo because of concerns about the sugar, salt, and
fat content of its products. However, this external factor also presents the opportunity for the
company to improve its products to address such concerns. PepsiCo can also take advantage of the
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busy lifestyles of consumers, especially in urbanized and industrializing markets around the world.
People with these lifestyles are more likely to purchase ready-to-eat food products like those of
PepsiCo. The company has the opportunity to continue enhancing product quality to maximize
revenues, with regard to consumers’ increasingly discriminating attitudes about product quality.
Based on this element of the PESTEL analysis, PepsiCo must align its products and marketing
strategies to changes in consumer behaviors) (Meyer, 2017).

Major growth opportunities for Pepsi:

Healthier products - Consumer demand continues to shift towards healthier products, while the
risk of regulation, including taxation of certain products, continues to intensify. Given these
consumer and regulatory shifts, Pepsi continue’s to shift their portfolio toward more “good-foryou”
and “better-for-you” products, through both organic innovation and strategic mergers and
acquisitions. The multinational has increased their investment in research and development by 45
percent since 2011, investing approximately $3.5 billion on research and development
cumulatively over the past five years.

A healthier planet - As a global food and beverage manufacturer, Pepsi’s success depends on the
availability of key natural resources required to make their products, including water. They believe
that embracing environmentally responsible business practices, such as water conservation, water
replenishment and energy efficiency will help sustain their business. Pepsi continue’s to take steps
to reduce their environmental footprint, which also allows them to streamline costs and reinvest
savings in their business. By improving their water and energy efficiency, reducing packaging
materials, cutting waste and promoting sustainable farming practices around the world, they have
saved over $600 million over the past five years.

A healthy workplace- Pepsi considers that their associates are their most valuable asset. They
believe that by engaging their associates with opportunities for personal development and
promoting ethics in the workplace they can attract the best talent, enhance productivity, spur
innovation and position their company to successfully navigate a constantly changing
macroeconomic environment.

Healthier communities. Pepsi is a global company, operating in more than 200 countries and
territories, but they consider themselves to be a member of every local community where they
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operate. By being responsible and responsive to the needs of their communities, they believe that
they strengthen their business, positioning the Company for long-term success (PepsiCo, 2017).

2.2.4 Technological Factors in PepsiCo’s Business

PepsiCo’s business is partly dependent on technologies. The link between technological change
and companies’ remote/macro-environment is examined in this element of the PEST analysis.
The technological external factors significant to PepsiCo are as follows:

Moderate R&D investments in the food and beverage industry (opportunity)

Improving knowledge management systems (opportunity)

Increasing automation in business (opportunity)

Based on moderate research and development (R&D) investments in the industry, PepsiCo can
boost its own R&D investments to improve its competency in this business aspect. Also, PepsiCo
can exploit the benefits of knowledge management systems to support its various business
processes, such as product innovation and strategic decision-making. In addition, an increase in
the number of automated processes in the company can enhance business performance. This
element of the PEST analysis indicates that PepsiCo must include new technologies as tools to
improve business competitiveness) (Meyer, 2017).

Research and Development - PepsiCo engager’s in a variety of research and development activities
and invests in innovation globally with the goal of meeting changing consumer demands and
preferences and accelerating sustainable growth which is a major opportunity for the multinational.
These activities principally involve: development of new ingredients, flavors and products;
reformulation and improvement in the quality and appeal of existing products; improvement and
modernization of manufacturing processes, including cost reduction; improvements in product
quality, safety and integrity; development of, and improvements in, dispensing equipment,
packaging technology, package design and portion sizes; including by developing products with
improved nutrition profiles that reduce sodium, saturated fat or added sugars, including through
the use of sweetener alternatives and flavor modifiers and innovation in existing sweeteners, and

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by offering more products with positive nutrition including whole grains, fruits and vegetables,
dairy, protein and hydration; and improvements in energy efficiency and efforts focused on
reducing their impact on the environment. The research centers are located around the world,
including in Brazil, China, India, Mexico, Russia, the United Arab Emirates, the United Kingdom
and the United States, and leverage nutrition science, food science, engineering and consumer
insights to meet their strategy to continue to develop nutritious and convenient beverages, foods
and snacks.

In 2016, they continued to refine their beverage, food and snack portfolio to meet changing
consumer demands by reducing added sugars in many of their beverages and saturated fat and
sodium in many of their foods and snacks, and by developing a broader portfolio of product
choices, including: continuing to expand their beverage options that contain no high-fructose corn
syrup and that are made with natural flavors; launching a state-of-the-art food and beverage healthy
vending initiative to increase the availability of convenient, affordable and enjoyable nutrition. All
the above technological initiatives by PepsiCo represent a major growth opportunity for the
company(PepsiCo, 2017).

PepsiCo’s PEST Analysis – Recommendations

PepsiCo remains one of the strongest companies in the food and beverage industry. This PEST
analysis indicates that the company has many opportunities and a number of threats regarding its
growth and international expansion. The following are some of the key points that PepsiCo must
address based on the results of the analysis:

Expansion in developing economies

Product innovation to address concerns on quality and health effects

Business sustainability

Supply chain diversification

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 Figure 2: PepsiCo Signage

(Meyer, 2017)

2.3 Strategic challenges faced by PepsiCo whilst operating in a global

business environment

2.3.1 Planning and management training globally

If PepsiCo is unable to recruit, hire or retain key employees or a highly skilled and diverse
workforce, it could have a negative impact on their business, financial condition or results of
operations. Pepsi’s continued growth requires them to recruit, hire, retain and develop their
leadership bench and a highly skilled and diverse workforce. PepsiCo competes to recruit and hire
new employees and then must train them and develop their skills and competencies. PepsiCo’s
employees are highly sought after by their competitors and other companies and their continued
ability to compete effectively depends on their ability to retain, develop and motivate highly skilled
personnel for all areas of their organization.

Any unplanned turnover or unsuccessful implementation of their succession plans to backfill

current leadership positions, including the Chief Executive Officer, or to hire and retain a highly

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skilled and diverse workforce could deplete the company’s institutional knowledge base and erode
their competitive advantage or result in increased costs due to increased competition for
employees, higher employee turnover or increased employee benefit costs. Any of the foregoing
could adversely affect their reputation, business, financial condition or results of operations
(PepsiCo, 2017).

To achieve the above PepsiCo has a University which is an invaluable resource. Through this their
associates can achieve both leadership and functional excellence. Given the complex, global
environment in which they operate, it’s imperative to develop their associates to perform at their
highest level, to share innovative best practices, to help build deep functional capabilities and
competencies, and to teach and reinforce the “PepsiCo Way” using tools and frameworks to
implement seamless, cross-disciplinary processes around the world.

Pepsi believes that their key differentiator is their people.

By offering timely learning opportunities in a range of disciplines, PepsiCo demonstrate their

unwavering commitment to the development of their associates — in all functions and businesses
and at all levels of leadership. They believe that providing relevant learning to their associates is a
must to attract, develop and retain the most talented professionals in the world, individuals who
will help PepsiCo sustain and strengthen its leadership for years to come.

PepsiCo’s Learning Architecture is designed to create a strong and integrated culture of learning
— as well as a common language that allows them to speak as one PepsiCo across all countries,
regions and sectors — as part of their global strategy. Their goal is to leverage learning as a
strategic tool that continually supports their employees and growth around the world
(Donheymann.com, 2017).

2.3.2 International Trade Laws

Changes in, or failure to comply with, laws and regulations applicable to PepsiCo’s products or
their business operations could adversely affect their business, financial condition or results of
operations. The conduct of their business is subject to various laws and regulations administered
by federal, state and local governmental agencies in the United States, as well as government
entities and agencies outside the United States, including laws and regulations relating to the
production, storage, distribution, sale, display, advertising, marketing, labeling, content, quality,

17
safety, transportation, disposal, recycling and use of their products, as well as their employment
and occupational health and safety practices.

In addition, in many jurisdictions, compliance with competition laws is of special importance to

the firm due to their competitive position in those jurisdictions, as is compliance with
anticorruption laws. Many of these laws and regulations have differing or conflicting legal
standards across the various markets where their products are made, manufactured, distributed or
sold and, in certain markets, such as developing and emerging markets, may be less developed or
certain. For example, products containing genetically engineered ingredients are subject to varying
regulations and restrictions in jurisdictions in which their products are made, manufactured,
distributed or sold. In addition, these laws and regulations and related interpretations may change,
sometimes dramatically and unexpectedly, as a result of a variety of factors, including political,
economic or social events. Such changes may include changes in: food and drug laws; laws related
to product labeling, advertising and marketing practices.

Changes in regulatory requirements, and competing regulations and standards, where PepsiCo
products are made, manufactured, distributed or sold, may result in higher compliance costs,
capital expenditures and higher production costs, which could adversely affect their business.

For example, if one jurisdiction in the United States imposes a tax on sugar-sweetened beverages
or foods, or imposes a specific labeling or warning requirement, other jurisdictions may impose
similar or other measures that impact the manufacture, sale or distribution of their products. The
foregoing may result in decreased demand for products, adverse publicity or increased concerns
about the health implications of consumption of ingredients or substances in products (whether or
not valid). In addition, studies are underway by third parties to assess the health implications of
consumption of certain ingredients or substances present in certain products, such as 4-MeI,
acrylamide, caffeine, added sugars, saturated fat and sodium.

Third parties, such as the World Health Organization, have also published documents or studies
claiming that taxes can address consumer consumption of sugar-sweetened beverages and other
foods high in sugar, sodium or saturated fat. If, as a result of these studies and documents or
otherwise, there is an increase in consumer concerns (whether or not valid) about the health

18
implications of consumption of products, an increase in the number of jurisdictions that impose
taxes on products, or an increase in new labeling, product or production requirements or other
restrictions on the manufacturing, sale or display of products, demand for products could decline,
or the company could be subject to lawsuits or new regulations that could affect sales of it’s
products, any of which could adversely affect business, financial condition or results of operations.

Although PepsiCo has policies and procedures in place that are designed to promote legal and
regulatory compliance, their employees, suppliers, or other third parties with whom they do
business could take actions, intentional or not, that violate these policies and procedures or
applicable laws or regulations. Violations of these laws or regulations could subject PepsiCo to
criminal or civil enforcement actions, including fines, penalties, disgorgement of profits or activity
restrictions, any of which could result in adverse publicity or affect their business. In addition,
regulatory authorities under whose laws the company operate may have enforcement powers that
can subject them to actions such as product recall, seizure of products or assets or other sanctions,
which could have an adverse effect on the sales of products in the PepsiCo portfolio or could lead
to damage to their reputation.(PepsiCo, 2017).

2.3.3 Demand and Supply

Demand for PepsiCo products may be adversely affected by changes in consumer preferences or
any inability on the corporation’s part to innovate or market their products effectively, and any
significant reduction in demand could adversely affect their business, financial condition or results
of operations. PepsiCo is a global food and beverage company operating in highly competitive
categories and markets. To generate revenues and profits, they rely on continued demand for their
products and therefore must sell products that appeal to their customers and consumers.

In general, changes in consumption in their product categories or consumer demographics could

result in reduced demand for products. Demand for products depends in part on the company’s
ability to anticipate and effectively respond to shifts in consumer trends and preferences, including
increased demand for products that meet the needs of consumers who are concerned with: health
and wellness (including products that have less sodium, added sugars and saturated fat);
convenience (including responding to changes in in-home and on-the-go consumption patterns);

19
or the location of origin or source of the ingredients and products (including the environmental
impact related to the production of their products).

Consumer preferences have been evolving, and are expected to continue to evolve, due to a variety
of factors, including: the aging of the general population; consumer concerns or perceptions
regarding the nutrition profile of certain products, including the presence of added sugar, sodium
and saturated fat in certain of products; growing demand for organic or locally sourced ingredients,
or consumer concerns or perceptions (whether or not valid) regarding the health effects of
ingredients or substances present in certain products, such as 4-MeI, acrylamide, artificial flavors
and colors, artificial sweeteners, aspartame, caffeine, high-fructose corn syrup, partially
hydrolyzed oils, saturated fat, sodium, sugar, trans fats or other product ingredients, substances or
attributes, including genetically engineered ingredients; taxes or other restrictions, including
labeling requirements, imposed on their products; consumer concerns or perceptions regarding
packaging materials, such as with respect to the environmental sustainability or chemical makeup
thereof; changes in package or portion size; changes in social trends that impact travel, vacation or
leisure activity patterns.

Any of these factors may reduce consumers’ willingness to purchase their products and any
inability on their part to anticipate or react to such changes could result in reduced demand for
products and erosion of competitive and financial position and could adversely affect their
business, reputation, financial condition or results of operations.

Demand for products is also dependent in part on product quality, product and marketing
innovation and production and distribution, including their ability to: maintain a robust pipeline of
new products; improve the quality of existing products; extend their portfolio of products in
growing markets and categories; respond to cultural differences and regional consumer preferences
(whether through developing or acquiring new products that are responsive to such preferences);
monitor and adjust their use of ingredients (including to respond to applicable regulations); develop
a broader portfolio of product choices and continue to increase non-carbonated beverage offerings
and other alternatives to traditional carbonated beverage offerings; develop sweetener alternatives
and innovation; improve the production, packaging and distribution of it’s products; respond to
competitive product and pricing pressures and changes in distribution channels, including in the

20
growing e-commerce channel; and implement effective advertising campaigns and marketing
programs, including successfully adapting to a rapidly changing media environment through the
use of social media and online advertising campaigns and marketing programs.

Although PepsiCo devote’s significant resources to the items mentioned above, there can be no
assurance as to their continued ability to develop, launch and maintain successful new products or
variants of existing products in a timely manner (including to correctly anticipate or effectively
react to changes in consumer preferences) or to develop and effectively execute advertising and
marketing campaigns that appeal to customers and consumers. Their failure to make the right
strategic investments to drive innovation or successfully launch new products or variants of
existing products could decrease demand for existing products by negatively affecting consumer
perception of existing brands and may result in inventory write-offs and other costs that could
adversely affect their business, financial condition or results of operations (PepsiCo, 2017).

2.3.4 Environmental Sustainability

Thought Leadership

According to PepsiCo’s Chairman and Chief Executive Officer, Indra k. Nooyi (Pepsico.com,
2017), PepsiCo has adopted a programme called “Performance with Purpose” which acts as a guide
in their sustainability journey. This has led to a reduction in the sugars, sodium and saturated fats
and dial up the nutrition in many of their foods and beverages, curbing their environmental
footprint, reinvesting in their workforce and creating opportunities across the markets they serve.

Climate change, water scarcity or legal, regulatory or market measures to address climate change
or water scarcity may negatively affect PepsiCo’s business and operations or damage their
reputation. There is concern that carbon dioxide and other greenhouse gases in the atmosphere may
have an adverse impact on global temperatures, weather patterns and the frequency and severity
of extreme weather and natural disasters. In the event that such climate change has a negative effect
on agricultural productivity, they may be subject to decreased availability or less favorable pricing
for certain commodities that are necessary for their products, such as sugar cane, corn, wheat, rice,
oats, potatoes and various fruits.

Natural disasters and extreme weather conditions may disrupt the productivity of their facilities or
the operation of the company’s supply chain and unfavorably impact the demand for, or their
21
consumer’s ability to purchase, their products. The predicted effects of climate change may also
exacerbate challenges regarding the availability and quality of water. As demand for water access
continues to increase around the world, they may be subject to decreased availability of water,
deteriorated quality of water or less favorable pricing for water, which could adversely impact their
manufacturing and distribution operations.

The continued increasing concern over climate change may result in new or increased regional,
federal and/ or global legal and regulatory requirements to reduce or mitigate the effects of
greenhouse gases, or to limit or impose additional costs on commercial water use due to local water
scarcity concerns. In the event that such regulation is more stringent than current regulatory
obligations or the measures that they are currently undertaking to monitor and improve their energy
efficiency and water conservation, they may experience disruptions in, or significant increases in
their costs of, operation and delivery and they may be required to make additional investments in
facilities and equipment or relocate their facilities.

In particular, increasing regulation of fuel emissions could substantially increase the cost of energy,
including fuel, required to operate their facilities or transport and distribute their products, thereby
substantially increasing the distribution and supply chain costs associated with their products. As
a result, the effects of climate change or water scarcity could negatively affect their business and
operations. In addition, any perception (whether or not valid) of their failure to effectively respond
to new, or changes in, legal or regulatory requirements concerning climate change or water scarcity
could result in adverse publicity and could adversely affect their business, reputation, financial
condition or results of operations.

There is also increased focus, including by governmental and non-governmental organizations,

investors, customers and consumers on these and other environmental sustainability matters,
including deforestation, land use, climate impact and water use. PepsiCo’s reputation could be
damaged if they or others in their industry do not act, or are perceived not to act, responsibly with
respect to their impact on the environment (PepsiCo, 2017).

How PepsiCo is striving for positive water impact:

PepsiCo is striving for positive water impact by using less water and returning more. They are also
improving water use efficiency in Agriculture. By 2025 their goal is for their direct agricultural

22
supply chain to be 15% more water efficient in high risk water areas. Presently the company is
leading in local water replenishment. They are also improving water impact in their direct
operations.

By 2025 PepsiCo intends to maximize water re-use in water risk areas and ensure 100% of waste
water from their operations meets Pepsico’s high standards. (Pepsico.com, 2017)

2.4 Strategic challenges in context of risk and diversification

strategies and the supply chain flow

2.4.1 Risk and Diversification

Unfavorable economic conditions may have an adverse impact on PepsiCo’s business, financial
condition or results of operations. Many of the countries in which their products are made,
manufactured, distributed and sold have experienced and continue to experience unfavorable
economic conditions, such as recessions or economic slowdowns. PepsiCo’s business or financial
results may be adversely impacted by unfavorable economic conditions in the United States and
globally, including: adverse changes in interest rates, tax laws or tax rates; volatile commodity
markets, including speculative influences; highly-inflationary economies, devaluation, fluctuation
or demonetization; contraction in the availability of credit in the marketplace due to legislation or
economic conditions; the effects of government initiatives, including demonetization, austerity or
stimulus measures to manage economic conditions and any changes to or cessation of such
initiatives.

The effects of any default by or deterioration in the credit worthiness of the countries in which
their products are made, manufactured, distributed or sold or of countries; reduced demand for
their products resulting from volatility in general global economic conditions or a shift in consumer
preferences for economic reasons or otherwise to regional, local or private label products or other
lower-cost products, or to less profitable channels; or a decrease in the fair value of pension or
post-retirement assets that could increase future employee benefit costs and/or funding
requirements of their pension or post-retirement plans.

23
In addition, the Corporation cannot predict how current or future economic conditions will affect
their customers, consumers, suppliers, bottlers, distributors, joint venture partners or other third
parties and any negative impact on any of the foregoing may also have an adverse impact on their
business. In addition, some of the major financial institutions with which they execute transactions,
including U.S. and non-U.S. commercial banks, insurance companies, investment banks and other
financial institutions, may be exposed to a ratings downgrade, bankruptcy, liquidity, default or
similar risks as a result of unfavorable economic conditions, changing regulatory requirements or
other factors beyond their control. A ratings downgrade, bankruptcy, receivership, default or
similar event involving a major financial institution, or changes (Pepsico.com, 2017).

The biggest challenge facing the beverage industry today is the declining consumption of
carbonated soft drinks in developed markets due to the prevalence of health related issues.Given
PepsiCo’s more diversified business, Forbes believe’s it has an edge over Coca-Cola in terms of
future cash potential primarily because its diverse snacks segment can still take advantage of
consumption growth in emerging markets while carrying less exposure to the vulnerable
carbonated soft drinks category (Forbes.com, 2017).

2.4.2 Supply chain management

PepsiCo’s business, financial condition or results of operations may be adversely affected by
increased costs, disruption of supply or shortages of raw materials, energy, water and other
supplies. Some of these raw materials and supplies are sourced from countries experiencing civil
unrest, political instability or unfavorable economic conditions, and some are available from a
limited number of suppliers or are in short supply when seasonal demand is at its peak.

The raw materials and energy, including fuel, that they use for the manufacturing, production and
distribution of their products are largely commodities that are subject to price volatility and
fluctuations in availability caused by many factors, including changes in global supply and
demand, weather conditions. Shortage of some of these raw materials and other supplies, sustained
interruption in their supply or an increase in their costs could adversely affect the business,
financial condition or results of operations.

24
Many of the firm’s ingredients, raw materials and commodities are purchased in the open market.
The prices they pay for such items are subject to fluctuation, and they manage this risk through the
use of fixed-price contracts and purchase orders, pricing agreements and derivatives. If commodity
price changes result in unexpected or significant increases in raw materials and energy costs,
PepsiCo may be unwilling or unable to increase their product prices or unable to effectively hedge
against commodity price increases to offset these increased costs without suffering reduced
volume, revenue, margins and operating results.

In addition, certain of the derivatives used to hedge price risk do not qualify for hedge accounting
treatment and, therefore, can result in increased volatility in their net earnings in any given period
due to changes in the spot prices of the underlying commodities. Water is also a limited resource
in many parts of the world. The lack of available water of acceptable quality and increasing
pressure to conserve water in areas of scarcity and stress may lead to: supply chain disruption;
adverse effects on their operations; higher compliance costs; capital expenditures (including
additional investments in the development of technologies to enhance water efficiency and reduce
water consumption); higher production costs; the cessation of operations at, or relocation of, their
facilities or the facilities of their suppliers, bottlers, contract manufacturers, distributors, joint
venture partners or other third parties; or damage to their reputation, any of which could adversely
affect their business, financial condition or results of operations (Pepsico.com, 2017).

Business disruptions could have an adverse impact on PepsiCo’s business, financial condition or
results of operations. The company’s ability, and that of their suppliers and other third parties,
including their bottlers, contract manufacturers, joint venture partners, distributors and customers,
to make, manufacture, transport, distribute and sell products in their portfolio is critical to their
success.

Damage or disruption to PepsiCo’s or their operations due to any of the following factors could
impair the ability to make, manufacture, transport, distribute or sell products in PepsiCo’s
portfolio: adverse weather conditions (including any potential effects of climate change) or
natural disaster, such as a hurricane, tornado, earthquake or flooding; government action;
economic or political uncertainties or instability in countries in which such products are made,
manufactured, distributed or sold, which may also affect their ability to protect the security of
their assets and employees; fire; terrorism; outbreak or escalation of armed hostilities; food
25
safety warnings or recalls, whether related to products in their portfolio or otherwise; health
epidemics or pandemics; supply and commodity shortages; unplanned delays or unexpected
problems associated with repairs or enhancements of facilities in which such products are made,
manufactured, distributed or sold; loss or impairment of key manufacturing sites; cyber incidents,
including the disruption or shutdown of computer systems or other information technology
systems at PepsiCo offices, plants, warehouses, distribution centers or other facilities; industrial
accidents or other occupational health and safety issues; telecommunications failures; power or
water shortages; strikes and other labor disputes; or other reasons beyond the firm’s control or
the control of suppliers and other third parties.

Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to
effectively manage such events if they occur, could adversely affect their business, financial
condition or results of operations, as well as require additional resources to restore operations
(Pepsico.com, 2017).

26
2.5 The influences of globalization on PepsiCo with appropriate
theories and models relating to governance and leadership, structure,
culture and functions.

2.5.1 PepsiCo McKinsey 7S Model

PepsiCo McKinsey 7S framework explains how important elements of businesses can be aligned
to increase the overall effectiveness. According to McKinsey 7S framework, strategy, structure
and systems are hard elements, whereas shared values, skills, style and staff represent soft elements
of businesses. The essence of the framework can be explained in a way that a change in one element
causes changes in others. As it is illustrated in Figure 1 below, shared values are positioned at the
core of PepsiCo McKinsey 7S framework, since shared values guide employee behavior with
implications in their performance (Dudovskiy, 2017).

Figure 3: McKinsey 7S Framework

(Dudovskiy, 2017).

Hard Elements:

Strategy. PepsiCo business strategy integrates the following six principles:

Achieving growth through mergers and acquisitions (M&A)

27
Forming strategic alliances in global scale

Focusing on emerging markets

Focusing on organizational culture

Developing and promoting the idea of One PepsiCo

Innovation in marketing initiative.

Moreover, as it is illustrated in Figure 2 below, the level of consumption of carbonated

drinks in the US has been consistently declining for the last ten years and this tendency is
expected to continue for the foreseeable future. PepsiCo strategy reflects this important
tendency and accordingly, the company has been increasing its portfolio to include food
and snacks product categories to decrease the dependency of the business on sodas and
carbonated drinks (Dudovskiy, 2017).

Figure 4:The decline of millions of liters of soda sold in the US

(Dudovskiy, 2017)

28
Along with strong financial performance, numerous customer awards is a convincing indicator of
appropriateness and effectiveness of PepsiCo business strategy. The list of awards won during the
year of 2015 alone include Innovation Supplier of the Year from 7-Eleven, Vendor of the Year
from Dollar General, the Think Customer Award from CVS, Supplier of the Year from Target,
and Food & Beverage Supplier of the Year from Walmart (Dudovskiy, 2017).

Structure. PepsiCo has a divisional organizational structure and the business is divided into six
divisions. Each division is led by a divisional CEO, who report to PepsiCo CEO and Chairman
Indra K. Nooyi. The company comprises the following divisions:

Frito-Lay North America (FLNA)

Quaker Foods North America (QFNA)

Latin America

Asia, Middle East & North America (AMENA)

Europe & Sub-Saharian Africa (ESSA)

North America Beverages (NAB)

Systems. PepsiCo business operations rely on a wide range of systems such as employee
recruitment and selection system, performance appraisals system, quality control system,
complaint handling system and others. The most noteworthy systems employed by the company
also include Smart Spending policies to rein in expenses and Lean Six Sigma training to cut waste
and boost efficiency (Dudovskiy, 2017).

2.6 The influences of ethical and sustainable globalization on PepsiCo

functions

PepsiCo is working to create a healthier future for people and their planet. Their Performance with
Purpose 2025 agenda is designed to deliver needed change, across their company, value chain,
industry and world.

29
2.6.1 Environmental Sustainability
PepsiCo has been a driving force for the advancement of global water stewardship, providing
unwavering support and technical insights in the beverage sector’s journey towards maximizing
positive impact at the watershed level as part of their environmental sustainability agenda.

PepsiCo contributes to replenishing watersheds that source their operations in high-water-risk

locations. Their aim is to return billions of liters to the local communities where they’re needed
most.

In 2016, PepsiCo replenished 2.7 billion liters of water in high-water-risk areas, bringing them
26% of the way to their goal of 100% replenishment by 2025.

Replenishment benefits claimed for local activities are capped at 100% of PepsiCo consumption
volume to prevent overachieving projects from inflating global progress measurement. Examples
include projects in India and Jordan, where their actual replenishment total exceeds their local
consumption (PEPSICO perfomance with purpose 2025 agenda, sustainability report 2016).

30
 Figure 5: Environment Sustainability

(PepsiCo Report, 2016)

The journey of Tropicana juice sourced in Florida, elaborated below, shows how PepsiCo is
working to implement their 2025 Agenda at every stage of their value chain. Throughout the life
cycles of thousands of their products, they work to increase nutrition, reduce environmental impact
and enhance livelihoods.

31
Hundreds of the Florida orange groves from which PepsiCo sources use state-of-the-art irrigation
and high-tech tools to maximize yields and reduce environmental impact(PEPSICO
PERFOMANCE WITH PURPOSE 2025 AGENDA , SUSTAINABILITY REPORT 2016,)

At their Ft. Pierce, Fla. facility, harvested rainwater reduces municipal water use by 11%, and 20%
of electricity comes from a carbon-neutral source. Also, here and at other sites, unused parts of
oranges become feed for U.S. dairy farmers— resulting in zero food waste.

Shipping product by trains and sprinter vans, both more fuel efficient than traditional delivery
trucks, significantly reduces carbon emissions.

An expanding family of Tropicana beverages, including organic, probiotic and reduced-calorie

options, make it easier for consumers to make nutritious choices.

Polyethylene terephthalate (PET) packaging, accepted by virtually all municipal recycling systems,
is used for many of Tropicana products.

2.6.2 Acting on Climate Change

PepsiCo’s aim is to move beyond their four walls to tackle supply chain emissions, accounting for
92% of their carbon footprint.

ACTING ON CLIMATE SCIENCE - PepsiCo believes industry and governments should commit
to science-based action to limit global temperature increases to no more than 2˚ Celsius above
preindustrial levels. PepsiCo’s 2030 GHG emission reduction goal accounts for both their current
footprint and anticipated business growth between now and 2030.

PepsiCo has an on-site energy generation, fleet fuel, purchased electricity plant in Mexico progress.

PepsiCo Mexico Foods initiated a power purchase agreement, which supplied 73% of its power
from wind energy, April–December 2016 (average monthly basis)

AGRICULTURE Land use, dairy farms, soil, applied fertilizer - emissions down 0.5 million
metric tons in 2016 — equivalent to 1% of their 2030 target reduction through reducing
emissions in their agricultural supply chain.

PACKAGING Materials, energy used in production - Increasing recyclable materials in packaging

and developing alternative packaging materials.

32
Product coolers, home refrigerators, product use - Upgrading their vending and cooling
equipment, and using HFC-free refrigerants, resulting in a 12% reduction in emissions from this
equipment in 2016 (PEPSICO perfomance with purpose 2025 agenda , sustainability report
2016,).

2.6.3 Recycling
PepsiCo is rethinking how they package many of their products to address a range of associated
environmental and social challenges. This includes working with others to support and leverage
new technology and scale solutions, encouraging consumers to recycle and funding recycling
infrastructure.

They are developing new packaging materials with less environmental impact. For example, they
are working with biotechnology leader Danimer Scientific on developing bio-based compostable
packaging for PepsiCo’s snack brands.

The company is reducing their use of packaging material and increasing their use of recycled
material. For example, in 2016, in select markets PepsiCo used 143 million pounds of food-grade
recycled polyethylene terephthalate (rPET), an increase of approximately 3 percent, or 4 million
pounds, versus 2015.

The organization is removing the materials that make their packaging non-recyclable. For
example, they are converting shrink sleeves (a frequently used label on beverage containers and
other packages) to recyclable material on Gatorade and Lipton Pure Leaf products.

PepsiCo is funding local recycling programs in many markets to make sure their bags and bottles
have the best chance of being reused. The PepsiCo Foundation is a founding member of the Closed
Loop Fund, which is investing $100 million to raise recycling rates in the U.S. They are also a
partner of The Recycling Partnership, working to improve curbside recycling for 20 million U.S.
households (PEPSICO PERFOMANCE WITH PURPOSE 2025 AGENDA , SUSTAINABILITY
REPORT 2016,).

2025 GOAL: Strive to design 100% of their packaging to be recoverable or recyclable, and partner
to increase packaging, recovery and recycling rates.

33
2.6.4 People and Responsible Governance
Persistent inequalities in income and opportunity. High unemployment rates, especially among
young people. Skill gaps related to technology. These are among the factors undermining shared
prosperity today. And in agriculture — which accounts for nearly 70 percent of employment in
low-income countries unjust labor practices and human rights violations often endure. United
Nations Sustainable Development Goal 8 provides a shared platform to create growth and more
humane and fulfilling work for all people.

2.6.5 Meeting PepsiCo’s people standards

PepsiCo’s Supplier Code of Conduct sets out the expectations that they have of their business
partners in the areas of business integrity, labor practices, health and safety, and environmental
management. It is their practice to include compliance with the Code as a condition of their supplier
contracts training in which is available online in six languages(PEPSICO PERFOMANCE WITH
PURPOSE 2025 AGENDA , SUSTAINABILITY REPORT 2016,).

In 2016, approximately 95% of PepsiCo’s top targeted key suppliers completed Supplier code of
conduct training— up from 88% in 2015.

In 2016, 794 on-site audits of first-tier suppliers were conducted by the SSP using the Sedex
Members Ethical Trade Audit procedure, which is a compilation of good practice in ethical audit
technique, or recognized through its Mutual Audit Recognition Process.

2.6.6 Partnering with farmers through Sustainable Farming Initiative

Through SFI – Sustainable farming initiative, PepsiCo encourages and support’s best practices that benefit
growers, their workers and PepsiCo’s business. As part of the larger SFI Framework, which comprises
additional environmental and economic goals, PepsiCo works with participating growers to achieve the
social goals below— to promote the well-being of agricultural workers and surrounding communities.

Health and Safety: Provide working conditions that protect and support worker health and safety and
promote personal wellness.

Employment Practices: Protect workers’ rights, including freedom of association and nondiscrimination,
and uphold international standards for employment practices.

34
Community: Protect and improve the local community through positive social impacts and mitigation of
adverse environmental effects related to land and natural resources (such as through the use of i-crop to
reduce water use)

Employment Conditions: Provide working and living conditions, including proper hours, wages and housing
that protect workers’ rights and ensure fair and reasonable treatment.

Support for PepsiCo Coconut Growers and Careful Utilization of Raw Materials:

• Contracts to fulfill - PepsiCo supply needs and support’s growers’ sales throughout the
year, helping minimize seasonal price and demand variations.
• Cash Advances are provided when needed.
• Training on irrigation, fertilization and pest management practices.
• Lectures and workshops on coconut nutrition, personal protective equipment and other
relevant topic • An annual Field Day, where growers share experiences, techniques and
tools, and a visit to the Kero Coco manufacturing facility, where production processes can
be learned firsthand.
• And for PepsiCo employees who work on their farm, financial support and incentives to
attend school part-time while working

A LOCAL APPROACH

PepsiCo recognize’s that fostering inclusion and engagement in their business and surrounding
communities around the world requires distinct approaches suited to the local markets where they
operate. For example, they support racial and gender diversity among their workforce in North
America, the development of underrepresented populations in countries like South Africa, and the
broader inclusion of women in emerging and developing markets (PEPSICO perfomance with
purpose 2025 agenda, sustainability report 2016).

Women in Management:

35
 In 2016, 38 percent of management roles throughout PepsiCo were filled by women, up
from a baseline of 37 percent in 2015.

Action:

• Developed a food safety internship program in 2016 with the U.S. Pakistan Women’s
Council

Draws female talent from top universities across Pakistan, including the young women at
left attending a training session

Provides immersion and training in supply chain management, safety and manufacturing

Progress:

• Multiple universities specializing in agriculture and food technology have joined

• PepsiCo will continue to work toward gender parity in management roles, using programs
and tools tailored to the diverse countries where they work

Workforce Readiness Action

• PepsiCo India is running the Nayee Disha program which encompasses:

 Supports long-term expansion of the female talent pool in India

 Aims to increase female participation rates in the Indian workforce
 One of lowest in the world –Launched in coordination with a consortium of large Indian as
well as multinational organizations, including the UN Development Programme

PROGRESS:

 Outreach to 11,000 young women at over 50 colleges to date

 PepsiCo is the first company to visit many of these colleges
 More than 2,000 Indian women have been certified as qualified for job and internship placements
through the program
 More outreach to come (PepsiCo perfomance with purpose 2025 agenda , sustainability report
2016,).

36
2.7 The different ways decision making can work effectively and the
key barriers in doing business internationally for organizations
like PepsiCo and recommendations on how they can be overcome
The different ways decision making can work effectively:

2.7.1 The Business Opportunity

As a business, PepsiCo has less reliance on soda and carbonated beverages than its competitors.
Unlike Coca-Cola only half of PepsiCo's revenues come from beverages, with snacks and food a
major source of revenue. This both differentiates and diversifies its product portfolio, a competitive
benefit that shows PepsiCo to have organizational ambidexterity.

Organizational ambidexterity refers to an organization's ability to be efficient in managing today's

business while remaining capable of coping with tomorrow's changing demands. The evidence
over 20 years of research shows a clear pattern: organizational ambidexterity is positively
associated with sales growth. Because companies cannot expect to survive by merely exploiting
market share, brand loyalty, current capabilities, or rely on smart management, as these things
change over time, they need to explore or exploit opportunities. These are capabilities long a
hallmark of PepsiCo's success.

For example, PepsiCo responded to the Philadelphia soda tax by pulling 2-liters and 12-packs of
its products from Philadelphia grocery store shelves and replacing them with smaller cans and
bottles. Even when adjusted for the tax, the products have a lower package price point but a higher
price per ounce, thus a higher profit margin. PepsiCo is also using the opportunity to market more
water and unsweetened drinks.

PepsiCo's organizational ambidexterity is even more obvious in other ways, as they have adapted
and engaged in exploration born of M&As,(mergers and acquisitions) alliances, opening new
geographic and product markets, engaging old customers and welcoming new customers (this often
means stealing share from competitors).

Consistent with organizational ambidexterity, PepsiCo has sought product sustainability through

37
"Performance with Purpose" and their aspirational goals for their various products offered as -
good for you, fun for you, better for you. To that end, PepsiCo announced in October 2016 product
development significantly influenced by the World Health Organization (WHO). It included
reducing added sugars, saturated fat and sodium levels, while focusing on offering more positive
nutrition through whole grains, fruits and vegetables, dairy, protein and hydration.

In moving "Performance with Purpose" forward, on May 11, 2017, PepsiCo announced an alliance
with "Partnership for a Healthier America." According to Chairman and CEO, Indra Nooyi,
"PepsiCo's continued focus on delivering "Performance with Purpose" has fueled their growth and
is positioning the company for future success. They continue to place great emphasis on
transforming their product portfolio to meet changing consumer and societal needs, and they are
proud of the progress they have achieved to date. Their agenda for the next ten years includes
ambitious goals to further improve the nutritional profile of their products and expand their range
of wholesome and nutritious offerings. They are deeply committed to working to achieve these
goals."

The "Partnership for a Healthier America" (PHA) is devoted to working with the private sector to
ensure the health of American youth by solving the childhood obesity crisis. According to PHA
CEO Lawrence A. Soler, "PepsiCo's vision to transform their products to meet consumer demand
for healthier options is a win for the company and a win for consumers. PHA look’s forward to
evaluating PepsiCo's progress and sharing it publicly" (PepsiCo: The Soda Tax Is The Opportunity,
2017)

Sensitive to the recommendations by the WHO and other related health organizations, PepsiCo is
committed to "Performance with Purpose" and is adapting and improving product offerings in
response to changing consumer tastes. This is important because the political-legal-regulatory
issues will not go away and, in reality, soda taxes and fat taxes are less about reducing obesity and
more about gaining tax revenues.. In the future, they must do so to ameliorate risks and take
advantage of the competitive opportunities presented.

While PepsiCo has challenges ahead, with R&D expenditures up about 15% over the past 5 years,
it is creating products differentiated in ways that reduce sugar, salt, and saturated fat, while offering
more unsweetened beverages, whole grains, fruits, and vegetables to provide healthier options for

38
consumers. Entering into the agreement with the "Partnership for a Healthier America" and its
unbiased, public assessment on progress is a clear-eyed effort to position PepsiCo as willing and
able to provide healthier consumer choices.

With its ambidexterity as a competitive advantage, PepsiCo is able to adapt and create innovative
products that meet the needs of changing consumer tastes and, as they pursue revenue growth, still
enable the company to address many of the environmental and competitive challenges they
face(PepsiCo: The Soda Tax Is The Opportunity, 2017).

2.7.2 Key Barriers in doing Business Internationally

Channel Barriers

Some barriers that PepsiCo has faced during their journey of globalization are channels. Channels
are other large companies that have high production like Coke. Coke has been monopolizing
markets which makes it harder for PepsiCo to enter a certain country. Supply chain economics and
certain labour laws or lack of have caused many challenges for PepsiCo and other companies
(Grant, 2012).

Cultural Barriers

PepsiCo Brasil faces challenges since it has the most less paid minimum wage, a large working
union, extremely poor work force and there is discrimination in the manufacturing units (Grant,
2012).

With millennials entering the workforce in large numbers, PepsiCo need’s to transform their
workplace and culture to make sure they are meeting the evolving expectations of a new generation
of associates. These societal trends that were challenging the firm like never before—is what gave
rise to the approach that everybody has come to know as “Performance with Purpose.”

From the start, Performance with Purpose has been more than a slogan, more than a single program.
It has been an overarching vision—a governing philosophy—guiding every aspect of their
business. Some of the guiding principles that are helping the company overcome cultural barriers
are: creating a healthy workplace and culture for their associates; and promoting healthier

39
communities wherever they operate (PEPSICO 2016 Annual Report, Perfomance with Purpose,
2017).

PepsiCo just unveiled a new soda containing a plant-based sweetener called stevia. All the major
soda companies are investing so much in stevia — despite negative reactions to its taste — because
an increasing number of consumers are rejecting artificially sweetened products.

"The carbonated soft drink business has been in decline for about 10 years in the U.S. and recently,
diet sodas have been underperforming the regular sugared sodas," said John Sicher, the publisher
of Beverage Digest. "Coke and Pepsi need to innovate dramatically and aggressively" to stay in
business, he said.

PepsiCo told CNBC that it took three years to develop the ideal blend of sugar and stevia for Pepsi
True.

"It's taken us three years to get to a place we feel good about," said Simon Lowden, chief marketing
officer at Pepsi Beverages North America. "No one is willing to give up on taste. Taste is
king"(Peterson, 2017).

PepsiCo will have to innovate radically in order to cater for the health conscious consumers yet
not compromising on taste.

Tariff Barriers

It is PepsiCo’s policy to abide by the laws and regulations around the world that apply to their
businesses.

Certain jurisdictions have either imposed, or are considering imposing, new or increased taxes on
the manufacture, sale or distribution of their products, ingredients or substances contained in, or
attributes of, their products or commodities used in the production of their products. These taxes
vary in scope and form: some apply to all beverages, including non-caloric beverages, while others
apply only to beverages with a caloric sweetener (e.g., sugar). Similarly, some measures apply a
single tax rate per liquid ounce while others apply a graduated tax rate depending upon the amount
of added sugar in the beverage.

40
For example, effective January 2017, the City of Philadelphia, Pennsylvania in the United States
enacted a per-ounce surcharge on all sweetened beverages (including artificially and non-caloric
sweetened beverages). By contrast, the U.K. has proposed a graduated tax, in which the per-ounce
tax rate is tied to the amount of added sugar present in the beverage: the higher the amount of
added sugar, the higher the per-ounce tax rate. These tax measures - whatever their scope or form
- could increase the cost of their products, reduce overall consumption of their products, lead to
negative publicity (whether based in scientific fact or not ) or leave consumers with the perception
(whether or not valid) that their products do not meet their health and wellness needs. Such factors
could adversely affect their business, financial condition or results of operations.

In order to overcome the above tariff / tax barriers PepsiCo needs to address the issue of added
sugar in their products by substituting it with natural sweetners at the same time not compromising
the taste.

In addition, legislation has been enacted in certain U.S. states and in certain other countries where
their products are sold that requires collection and recycling of containers or that prohibits the sale
of their beverages in certain non-refillable containers, unless a deposit, ecotax or other fee is
charged.

PepsiCo is also subject to national and local environmental laws in the United States and in foreign
countries in which they do business. They have made, and plan to continue making, necessary
expenditures for compliance with applicable environmental laws and regulations.

PepsiCo has to be in compliance with the above mentioned recycling and environmental laws in
order not to be in violation of the same or attract fines.

Imposition of taxes on their products or the ingredients or substances used in their products by any
country could be a barrier or affect their results of operation.

Unfavorable tax laws and regulations of the jurisdictions in which their products are made can also
affect their business.

Increases in income tax rates, changes in income tax laws or disagreements with tax authorities
could adversely affect their business,

41
PepsiCo is subject to income taxes in the United States and in certain foreign jurisdictions in which
they operate. Increases in income tax rates or other changes in income tax laws in any particular
jurisdiction could reduce their after-tax income from such jurisdiction. Their operations outside
the United States generate a significant portion of their income and income tax associated with
repatriation of foreign earnings to the United States could adversely affect their business, financial
condition or results of operations.

In addition, many of the countries in which their products are made, manufactured, distributed or
sold, including countries in which they have significant operations, are actively considering
changes to existing tax laws. Changes in how U.S. multinational corporations are taxed on foreign
earnings, including changes in how existing tax laws are interpreted or enforced, could adversely
affect their business, financial condition or results of operations.

They are also subject to regular reviews, examinations and audits by the Internal Revenue Service
(IRS) and other taxing authorities with respect to income and non-income based taxes both within
and outside the United States. Economic and political pressures to increase tax revenues in
jurisdictions in which they operate, or the adoption of new or reformed tax legislation or regulation,
may make resolving tax disputes more difficult and the final resolution of tax audits and any related
litigation could differ from their historical provisions and accruals, resulting in an adverse impact
on their business, financial condition or results of operations (PEPSICO 2016 Annual Report,
Perfomance with Purpose, 2017).

PepsiCo would have to operate cautiously for their tax benefit and be in compliance with all tax
laws in order not to have disputes with the tax authorities.

Technological Barriers

PepsiCo Open Innovation Technology Request:

The PepsiCo Open Innovation team is the upstream, externally facing, department within PepsiCo
Global R&D. The Open Innovation team is actively scouting for, identifying, and developing
strategic partnerships with external collaborators. The ultimate goal of the Open Innovation team
is to locate key external insights, business models, and technical unlocks that, when partnered with

42
PepsiCo's robust internal R&D expertise, will yield disruptive innovation in their core products
and/or new and emerging products/markets.

The Open Innovation team is currently exploring novel technology spaces that can dramatically
impact their portfolio of beverages (Pepsi, Mountain Dew, Pure Leaf Tea, etc.), snacks (Lays,
Doritos, Cheetos, etc.), and nutrition (Quaker oats, Naked & Tropicana juice, Muller yogurt, etc.).
The Open Innovation team is interested in all facets of their supply chain and improving global
efficiencies including: crop science, ingredients, processing, packaging, sensors, analytical
equipment, point of sale equipment, distribution/fleet, e-commerce, etc.

Below is a brief list of some current high priority technology requests from each business category:
Snacks:

1. New/unique dehydration technologies for food manufacturing (other than baking, frying,
etc.).
2. New food manufacturing processes (e.g. injection molding of food). Cheetos is a great
example of a food manufacturing technique that leverages a core technology from another
industry (plastic extrusion). PepsiCo is looking for other manufacturing technologies and
processes that can be leveraged to run food materials such as starch to create unique and
novel snack foods.

Beverage

1. Next generation of plastic packaging – what is the next polyethylene terephthalate (PET),
cheaper, more sustainable, and with better barrier properties?
2. Enhancement to package barrier (through process, coating, etc.). The desire is for a cost
effective barrier that can be applied to bottles and cans inexpensively after forming. The barrier
can be applied prior to forming as long as it is robust enough to survive the forming process
and still be uniform in thickness with no imperfections. Solutions that provide for enhanced
barrier through process changes are also of interest.

Nutrition

43
1) Nontraditional binders for granola bars that would improve nutritional and ingredient
statement advantage (e.g. reduced sugar). The goal is also to reduce the amount of binder
required to agglomerate the food particles. Binders with no sweetness are desired because
they have diverse applications into savory snack clusters and bars.
2) Advances in sterilization/pasteurization technologies including alternative processes for
finished package/bottle. The technology scouting includes sterilization tolerant probiotics

and aseptic filling with particulates (fruit, grains, probiotics, etc.). The ultimate goal is
technologies that can produce sterilization kill rates equivalent to conventional thermal
sterilization, but at room temperatures. Technologies capable of reduced time and/or
temperature sterilization are also of interest. As PepsiCo's food and beverage portfolio
grows, technologies that can handle multi-phase products (liquid and solids) are becoming
more critical (Kozman, 2017).

44
2.8 The various routes to Internationalization that PepsiCo may
adopt, including key barriers.

Various routes to Internationalization:

2.8.1 Mergers, acquisitions, partnerships, licensing, contract manufacturing, joint ventures,

and affiliate operations.
In 1965, PepsiCo merged with snack maker Frito-Lay, as their complementary products of snacks
and drinks were expected to grow and flourish from a unified distribution chain. And grow it did.
Today, PepsiCo is the second largest soft drink maker, the second largest food and beverage
business in the world, and the largest in the United States. It also possesses twenty-two (22)
separate billion-dollar brands. And, relevant to the premise of this article, PepsiCo got that big
through multiple acquisitions among food, snack and drink businesses.

From 1985 to 1993, PepsiCo introduced, acquired, or formed joint ventures to distribute nine
beverages, including Lipton Original Iced Teas, Ocean Spray juices, All Sport drink, H2Oh!
sparkling water, Avalon bottled water, and Mug root beer.

In fact, as a result of mergers, acquisitions and partnerships pursued by PepsiCo in the 1990s and
2000s, its business has shifted to include a broader product base of foods, snacks and beverages;
with the product mix being fifty-three percent (53%) food/snacks and forty-seven percent (47%)
beverages. Amongst the products are twenty-two separate billion-dollar products; broken down
into six (6) main divisions: North American Beverages; Frito-Lay North America; Quaker Foods
North America, Latin America; Europe & Sub-Saharan Africa; Asia, Middle East & North Africa.
Growth in all regions is born of a mix of licensing, contract manufacturing, joint ventures, and
affiliate operations (PepsiCo: On M&A, The Hunter, Not The Hunted, 2017).

With its highly diversified portfolio of products, PepsiCo's market cap passed its long time soft
drink rival (and occasional competitive foil) Coca-Cola in December 2005. Acquisitions remain
part of their growth strategy and money is not an issue; PepsiCo has the cash. It appears that, at
least in the minds of management, the question will be the right company, for the right price, that
offers the best strategic fit.

45
In 1997, the company launched the Aquafina bottled water brand on a national basis and it quickly
gained the number one position in a fast-growing sector. In a move into the non-salty snack
category, Frito-Lay acquired the Cracker Jack brand in the same year.

in August 1998, PepsiCo opened up another front in its ongoing war with Coca-Cola by
acquiring juice-maker Tropicana Products, Inc. from the Seagram Company, Ltd. for $3.3 billion
in cash; to that date, the largest acquisition in PepsiCo history.

PepsiCo also acquired Quaker Oats in 2000 for $13.4 billion in stock.

In 2001, PepsiCo reached an agreement to acquire a majority stake in South Beach Beverage
Company, maker of the SoBe brand.

In November 2016, PepsiCo paid about $500 Million for the tuck-in acquisition of KeVita - a
sparkling probiotic U.S. Drinks Company.

With the company’s evident success with mergers, acquisitions, partnerships, mix of licensing,
contract manufacturing, joint ventures and affiliate ventures, they could further explore the various
models as they deem fit in other markets Internationally.

The above global alliances and overseas expansions are an advantage to the firm as further
acquisitions allow for an additional diversification of their snack and beverage product lines.
PepsiCo's remarkable successes in the 1960s and 1970s were the result of five (5) distinct policies
which included overseas expansion and acquisitions that allowed a diversification of their snack
and beverage product lines (PepsiCo: On M&A, The Hunter, Not The Hunted, 2017).

2.8.2 Key barriers to Internationalization.

PepsiCo needs to identify barriers to their globalization. Some barriers include:

An unestablished and ineffective supply chain.

High distribution costs (PepsiCo: On M&A, The Hunter, Not the Hunted, 2017).

PepsiCo can serve 90% of the market but the problem is bottling of the drink which requires
huge investments.

Customer loyalty / brand image.

46
 Significant margins to retailers.

Advertising / marketing costs (Cola war continues: Coke and Pepsi 21st century and battle
for Internationalization, 2017).

Tarrif / tax barriers

Technological barriers

Sluggish International Markets: While the U.S. economy remains on a sound footing, with
the labor situation continuing to improve, conditions are far more challenging in other,
strategically significant parts of the world. The Venezuelan operations have been
deconsolidated, a response to that country’s currency volatility and runaway inflation. And
business throughout the Eurozone may well deteriorate in the wake of the U.K.’s surprise
Brexit vote. These macroeconomic factors will almost certainly present obstacles for
PepsiCo over the next several quarters, as they will for most multinational U.S.-based
corporations.

Intense Competition: Coca-Cola is the clear soda giant, and has considerable scale
advantages in emerging parts of the world. This limits PepsiCo’s pricing power in the soft
drink category, which, in turn, hurts select profitability metrics. And Coca-Cola’s wider
geographic footprint could make it somewhat more difficult for PepsiCo to form needed
alliances in emerging countries (Publishing, 2017).

2.9 Strategies that can be adopted by PepsiCo whilst operating in a

global business environment, and how they should adapt their
organizational structure and decision – making processes

2.9.1 Strengths
1. PepsiCo portfolio is large and it comprises 22 brands in food, snack and beverage industry.
Despite the large number of companies it contains, PepsiCo product portfolio can be
described as highly focused because of the uniformity of product positioning across the
whole portfolio. According to marketing messages, the consumption of all products within

47
 PepsiCo portfolio is associated with being active and dynamic and enjoying life to the full
extent. Such a uniformity in product positioning provides significant advantages to PepsiCo
in terms of promoting its products in an efficient manner despite the vast range of product
categories within food, snack and beverage industry.
2. The majority of brands within PepsiCo portfolio such as Pepsi-Cola, Lay’s, Mountain Dew,
Gatorade and Tropicana enjoy high levels of customer loyalty with an evident positive
implications on the volume of sales. Such a loyalty has been developed during the course of
many years thanks to the high quality of products, efficient marketing strategy and a range
of other factors. High level of consumer loyalty is a considerable strength that is difficult to
be replicated by other competitors in general and new market entrants in particular.
3. Effective leadership of PepsiCo CEO Indra Nooyi has been the topic of many business case
studies and the company can further benefit from inspirational and charismatic leadership
style of its CEO. Industry experts note that “Nooyi, only the fifth person to run PepsiCo and
a dark-horse choice—a woman, a foreigner, a onetime strategy consultant—has outlasted all
but one of her predecessors and, at least for now, a powerful shareholder activist. An organic
growth of 5 per cent with a cash flow of more than USD 8.1 billion in 2015 alone. As a
continuation of PepsiCo’s solid financial performance during the last few years is a
convincing indicator of Nooyi’s effectiveness as the top person(Dudovskiy, 2017).
4. Extensive experience in mergers and acquisitions (M&A) is a considerable strength
possessed by PepsiCo. There are abundant real-life case studies in the business literature
where many M&As failed due to cross-cultural differences, ineffective change management
practices, clash of personality at the top level and many other reasons. In such an
environment, PepsiCo has grown to contain 22 brands in its portfolio via successful M&A
since its creation as Pepsi-Cola in the late 1890s by Caleb Bradham, a New Bern, N.C.
pharmacist. Proven competency in M&A is an important strength that can benefit PepsiCo
in the long-term perspective.
5. Integrated supply-chain and distribution practices across PepsiCo brands and extensive
experiences in mergers and acquisitions are additional advantages associated with the
company. For example, PepsiCo practices advanced outbound logistics operations in three
formats – direct-store-delivery, deliveries to customer warehouses and using distributor

48
 networks. Moreover, Pepsi Logistics Company, Inc. (PLCI) as a transportation division of
PepsiCo reduces the dependency of business operations on external parties.

The above strengths can further amplify the company’s foot-print globally and they can help
enhance and expand their business’s. These strengths will help the management in making
improved and better decisions.

2.9.2 Weaknesses
1. PepsiCo is highly dependent on domestic market in the USA and 56 per cent of total
revenues were generated in the USA. As it is illustrated in Figure 1 below, revenues
generated from Mexico, Russia and Brazil accounted to only 6 per cent, 4 per cent and 2
per cent of the total revenue respectively, despite the immense sizes of these markets. These
figures can also be interpreted as weak PepsiCo presence in these strategic markets, a
situation that needs to be addressed by senior level management in a timely and effective
manner (Dudovskiy, 2017).

Figure 6:Revenue distribution in international markets

(Dudovskiy, 2017)

2. Overdependence on large supermarkets in general and Wal-Mart in particular is PepsiCo’s

considerable weakness. In 2015, sales to Wal-Mart Stores, including Sam’s Club,
represented approximately 13 per cent of company’s net revenue. PepsiCo’s five retail

49
 customers represent approximately 32 per cent of its 2015 net revenue in North America,
with Wal-Mart (including Sam’s) representing approximately 18 per cent. Overdependence
on supermarket chains can be a weakness, primarily from the viewpoint of the bargaining
power (Dudovskiy, 2017)

The above weaknesses are a pointer to the management to make improved decisions. For instance
enhancing their business in other markets so as not to be over reliant on the domestic US market.
As well as not being overly dependent on large supermarkets like Walmart and diversifying their
customer base (Dudovskiy, 2017).

Figure 7: SWOT Analysis

(Dudovskiy, 2017).

50
2.9.3 Recommendations
PepsiCo is not using synergies of growth to cross market their products for instance in Kenya a
consumer cannot purchase a Pepsi drink along with Lays at the same location. The same goes for
their fast-food chains for instance KFC and Pizza hut. PepsiCo drinks and snacks are not available
at these establishments. This points to an improvement they need to make in their decision making.

PepsiCo’s late entrance into emerging markets for example Kenya. They did not study emerging
markets effectively pointing to bureaucracy in their organizational structure and decision making
processes. They could also offer more local specific products to boost locally their sales for
instance cassava crisps are very popular in Kenya. Additionally offering noodles or rice based
products in China. PepsiCo needs to adopt a more local approach. PepsiCo’s Starbuck’s coffee
shop would have also done very well in Kenya as Kenyans are embracing the coffee culture and
new cafes are always opening countrywide.

They could also embrace cross branding and more effective advertising and marketing in Kenya.
There is hardly any marketing / advertising visible presently for PepsiCo drinks in Kenya. In
contrast there is visibility for Pizza hut and KFC which they seem to be promoting well. They
could cross market Pizza hut and KFC with PepsiCo products such as the drinks and snacks which
would complement the fast food chain. By doing so their beverages and snacks would sell more.

Kenya is also very popular worldwide and known due to their athletes who have been winning
world championships consistently over the decades. PepsiCo could sponsor the athletes with their
brands to create exposure. An excellent product they could popularize in this regard is their
Gatorade – isotonic energy drink.

On the flipside all their products available globally are not available locally in Kenya. They should
have all their products available locally as it would only strengthen their product portfolio. This is
another pointer to poor decision making.

In addition PepsiCo in Kenya does not have any items for the lower end of the market. In contrast
Coke has smaller bottles for the budget market segment. PepsiCo’s packaging is also not as
dynamic as their main competitor’s – Coke. Despite Kenya having 40% youth, PepsiCo does not
have a strategy for the youth market. They could market their products in the youth segment by

51
having their beverage dispensers in institutions such as universities, colleges and other large
institutions which Coke is already doing. This points to poor decision making by PepsiCo.

Since globally people are becoming more health conscious and there is a decline for carbonated
soft drinks due to prevalence of diseases, PepsiCo should have healthier alternatives alongside
their soda’s for the consumers to choose and for them to not lose out on the sale. Their healthier
alternatives include Tropicana juice, Gatorade energy drink, Kevita probiotic drink, Vita coco
coconut water amongst others. The above alternatives to soda are not popular in Kenya. PepsiCo
could revise or better their decision making in this regard or have it as part of their marketing
strategy globally. Furthermore this would offer consumers more variety as well as enhance the
company’s brand image.

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