PepsiCo Inc Case Analysis 1-in one paragraph state the problem(s)/Issue(s) of the case The case deals with the Mexican soft-drink bottler’s (a company partially owned by PepsiCo Inc) $20 Million default on the loan that was credited by Citicorp -- one of the biggest lenders to the Third World. The issue has to do with the crisis of 1980’ and early 1990’s that affected many countries including Mexico. Usually, a loan in the amount of $20 Million advanced by the bank such as Citibank wouldn’t cause much trouble to this powerful corporation. However the case is worsened by the fact that PepsiCo refused to cover any parts of this loan or the other $50 Million in credits and leasing agreements made by other banks and credit suppliers. The real dilemma lies behind the fact that PepsiCo blames unstable Third World markets and unfavorable conditions in the world, but doesn’t show any intentions to take any responsibility for recovering the debts. Being a well-organized and financially stable company, PepsiCo presents a real challenge to Citicorp if the case goes to court. 2-Critically analyze the issues without parroting the case The main issue deals with the rivalry between PepsiCo and Coca-Cola. These two companies have always battled with each other trying to gain larger market shares and more profitable opportunities all over the world. These wars started reaching their picks in 1993 having Latin America and Mexico (the second largest soft-drink market in the world) as their battle ground. PepsiCo realizing it had to change the situation with considerably trailing Coca-Cola, decided to take drastic measures and gain larger market share by reducing its profit margins and increasing investments. Yet, because of the very unfavorable Peso rate and instability on the Mexican and Latin American markets, PepsiCo failed to achieve its objectives, and, what is more, weakened its already feeble position on the market.

The truth is that in Latin America no single brand name has been more widely advertised or more closely associated with American capitalism than Coca-Cola. Even before the First World War, Americans in places like Havana, Cuba, and Panama City, Panama were enjoying the taste of Coke. In 1990’s having learned lessons from its past failures, Coca Cola now took a very different approach to marketing in Latin America. Mexico, a familiar and nearby market for U.S. business, found itself the target of an intense Coke marketing campaign as giant Coca-Cola "bottles" danced in the bullfighting rings of Mexico City, and Coke signs sprouted throughout the country's rural villages (Allen 1994). By the early 1990s the company controlled 52 percent of a soft drink market. In Brazil, even the ardent nationalist government proved anxious to attract the U.S. beverage company, providing special tax breaks and other legal concessions. At the same time PepsiCo encountered a serious challenge in the Latin American market from locally produced soft drinks and, of course, from Coca-Cola. Furthermore, the Company launched a highly costly campaign to create local franchisees for the product. Pepsi-Cola Company had joined Coke in competing for the Brazilian market. In the past, the two U.S. soft drink corporations had captured 40 percent of the Brazilian market. PepsiCo’s former success derived in part from the package of services and support it offered local bottlers. In addition, like the auto companies it relied heavily on advertising to expand its market share. As in the United States, part of the success of these ad campaigns came from associating soft drinks with youth, beauty, athletics, and more generally "the good life." However, Coca-Cola was wining the battle in 1990’s because PepsiCo made a number of poor decisions that eventually cost it almost 50% of its market share in Latin America and Mexico, in particular.

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PepsiCo decided to form a joint venture with Gemex – Mexico’s leading bottler that faced big financial troubles when Peso started to fall as Gemex had a US Dollar denominated debt totaling $264 in 1992 – that would become PepsiCo anchor bottler in Mexico. The ownership of the newly formed company would be transferred to PepsiCo in 7 years after it paid Gemex a premium of $50 Million. Yet, again, the reality turned out to be different: Gemex accumulated more debt as years passed by and in 1995 99.8% of Gemex’ debt was denominated in US Dollars. It considerably undermined the success of the whole enterprise formed by Gemex and Pepsico. 3-Describe a potential solution(s) to the issue(s) PepsiCo should stop investing in companies that have fallen in serious financial troubles (e.g. Gemex) even if these organizations showed very high performance in the past. It should, instead, invest in the smaller companies (bottlers, for instance) that indicate strong potential growth and show good historical results. Once the profile of products and services is known (this is clearly the case of PepsiCo since the company knows all its ingredients and production parts), the analysis should progress to an identification of all resources which contribute to the product. These include those activities and resources which lead to the development, manufacture and sale of the product. By working back from the final product or service, all key resources leading to the final output should be identified. The types of resources that present potential solution to the PepsiCo’s troubles include: • physical manufacturing equipment • information technology • transportation, storage and logistics assets • telecommunications systems • financial resources • intellectual property • employees • buildings • subsidiaries or divisions which produce components, parts or materials The degree to which these resources contribute to the final product or service will determine the provisions that are chosen for their continuity.

4-Explain how your suggested solution(s) will resolve the problem(s). One way in which the above suggested solutions will assist PepsiCo is by indicating which business units are involved in creating a product or service in the organization that is considered for investment and which business units will be particularly successful in the changing business environment. In addition, the role of outside suppliers will be examined. The greater the number of in-house departments and/or suppliers that are used in a product or service, the wider the scope for an interruption to occur. This does not necessarily mean a greater likelihood of interruption, simply that there are more links in the chain that could fail. 5-Describe what the impact of the solution(s) on the company-will there be a reduction in labor, etc.? There will be some initial reduction in labor if the above considerations are accepted because PepsiCo will hire less workers when its buys smaller companies as opposed to large conglomerates that employ thousands of workers. In other words, provided that PepsiCo accepts the recommendations of relying on smaller yet potentially successful bottlers, it means that it won’t employ as many workers at first. Yet, when the company grows, PepsiCo will employ much more individuals who will have better and safer working conditions (more stability provided by lesser risk of company’s default). Whereas the previous components of the internal analysis deal with individual links, the final stage is to consider the whole chain together. The purpose of identifying the dependencies (success, labor, small or large company on the new market) is to determine how an interruption in one part of an organization could affect the ability to supply goods and services (Bulmer-Thomas 1994).

6-Discuss the ethical and social responsibility dilemmas of your solution(s) and how these issues can be resolved. Ethical and social responsibility dilemmas include hiring workers knowing that they will be fired in some time in the future because of the production or profit shortages. Therefore the dependencies depicted above are important linkages in which one activity must be preceded by another. If one activity fails, all other activities that are dependent upon it will fail. For example, the provision of Pepsi-Cola on supermarket shelves requires the production and transportation of each unit from a factory to the supermarket. Within this process there are many dependencies and potential points of failure. Thus the process is dependent upon the availability of raw materials, processing equipment and lorries to transport the finished goods. Within this stage of the internal analysis it is important to develop links with operational planning in order to ensure that future operational investments are examined. For instance, new investment in IT or automation may radically alter employee skills requirements, training, supervision and functional structures.

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