Case Study Description of Pepsico Changchun Joint Venture: Capital Expenditure Analysis
Pepsico, Inc. spanned more than 190 countries and accounted for approximately one-quarter of the world's soft drinks. The vice president of finance for Pepsico East Asia had been collecting data on the firm's proposed equity joint venture in Changchun, People's Republic of China (PRC). Although Pepsico was already involved in seven joint ventures in the PRC, this proposal would be one of the first two green-field equity joint ventures with Pepsico control over both the board and day-to-day management. Every investment project at Pepsico had to go through a systematic evaluation process that involved using capital budgeting tools, such as new present value and internal rate of return. The vice president of finance needed to decide whether the proposed Changchun joint venture would meet Pepsico's required return on investment. He was also concerned what the local partners would think of the project. The final decision would be made after a presentation to the president of Pepsico Asia-Pacific.
Authors :: Geoff Crum, Larry Wynant, Claude P. Lanfranconi, Peter Yuan
Swot Analysis of "Pepsico Changchun Joint Venture: Capital Expenditure Analysis" written by Geoff Crum, Larry Wynant, Claude P. Lanfranconi, Peter Yuan includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Pepsico Changchun facing as an external strategic factors. Some of the topics covered in Pepsico Changchun Joint Venture: Capital Expenditure Analysis case study are - Strategic Management Strategies, Financial management, Joint ventures and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Pepsico Changchun Joint Venture: Capital Expenditure Analysis casestudy better are - – increasing energy prices, there is backlash against globalization, technology disruption, cloud computing is disrupting traditional business models, increasing transportation and logistics costs, there is increasing trade war between United States & China, increasing inequality as vast percentage of new income is going to the top 1%,
customer relationship management is fast transforming because of increasing concerns over data privacy, geopolitical disruptions, etc
Introduction to SWOT Analysis of Pepsico Changchun Joint Venture: Capital Expenditure Analysis
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Pepsico Changchun Joint Venture: Capital Expenditure Analysis case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Pepsico Changchun, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Pepsico Changchun operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Pepsico Changchun Joint Venture: Capital Expenditure Analysis can be done for the following purposes –
1. Strategic planning using facts provided in Pepsico Changchun Joint Venture: Capital Expenditure Analysis case study
2. Improving business portfolio management of Pepsico Changchun
3. Assessing feasibility of the new initiative in Finance & Accounting field.
4. Making a Finance & Accounting topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Pepsico Changchun
Strengths Pepsico Changchun Joint Venture: Capital Expenditure Analysis | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Pepsico Changchun in Pepsico Changchun Joint Venture: Capital Expenditure Analysis Harvard Business Review case study are -
Low bargaining power of suppliers
– Suppliers of Pepsico Changchun in the sector have low bargaining power. Pepsico Changchun Joint Venture: Capital Expenditure Analysis has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Pepsico Changchun to manage not only supply disruptions but also source products at highly competitive prices.
Highly skilled collaborators
– Pepsico Changchun has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Pepsico Changchun Joint Venture: Capital Expenditure Analysis HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Organizational Resilience of Pepsico Changchun
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Pepsico Changchun does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Analytics focus
– Pepsico Changchun is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Geoff Crum, Larry Wynant, Claude P. Lanfranconi, Peter Yuan can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Learning organization
- Pepsico Changchun is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Pepsico Changchun is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Pepsico Changchun Joint Venture: Capital Expenditure Analysis Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Training and development
– Pepsico Changchun has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Pepsico Changchun Joint Venture: Capital Expenditure Analysis Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Diverse revenue streams
– Pepsico Changchun is present in almost all the verticals within the industry. This has provided firm in Pepsico Changchun Joint Venture: Capital Expenditure Analysis case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Superior customer experience
– The customer experience strategy of Pepsico Changchun in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
High brand equity
– Pepsico Changchun has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Pepsico Changchun to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Cross disciplinary teams
– Horizontal connected teams at the Pepsico Changchun are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Operational resilience
– The operational resilience strategy in the Pepsico Changchun Joint Venture: Capital Expenditure Analysis Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Pepsico Changchun digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Pepsico Changchun has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Weaknesses Pepsico Changchun Joint Venture: Capital Expenditure Analysis | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Pepsico Changchun Joint Venture: Capital Expenditure Analysis are -
Products dominated business model
– Even though Pepsico Changchun has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Pepsico Changchun Joint Venture: Capital Expenditure Analysis should strive to include more intangible value offerings along with its core products and services.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Pepsico Changchun Joint Venture: Capital Expenditure Analysis, in the dynamic environment Pepsico Changchun has struggled to respond to the nimble upstart competition. Pepsico Changchun has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Pepsico Changchun Joint Venture: Capital Expenditure Analysis, is just above the industry average. Pepsico Changchun needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Pepsico Changchun supply chain. Even after few cautionary changes mentioned in the HBR case study - Pepsico Changchun Joint Venture: Capital Expenditure Analysis, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Pepsico Changchun vulnerable to further global disruptions in South East Asia.
Need for greater diversity
– Pepsico Changchun has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Pepsico Changchun Joint Venture: Capital Expenditure Analysis HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Pepsico Changchun has relatively successful track record of launching new products.
Skills based hiring
– The stress on hiring functional specialists at Pepsico Changchun has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Lack of clear differentiation of Pepsico Changchun products
– To increase the profitability and margins on the products, Pepsico Changchun needs to provide more differentiated products than what it is currently offering in the marketplace.
Aligning sales with marketing
– It come across in the case study Pepsico Changchun Joint Venture: Capital Expenditure Analysis that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Pepsico Changchun Joint Venture: Capital Expenditure Analysis can leverage the sales team experience to cultivate customer relationships as Pepsico Changchun is planning to shift buying processes online.
Capital Spending Reduction
– Even during the low interest decade, Pepsico Changchun has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
Interest costs
– Compare to the competition, Pepsico Changchun has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Opportunities Pepsico Changchun Joint Venture: Capital Expenditure Analysis | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Pepsico Changchun Joint Venture: Capital Expenditure Analysis are -
Loyalty marketing
– Pepsico Changchun has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Pepsico Changchun can use these opportunities to build new business models that can help the communities that Pepsico Changchun operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Buying journey improvements
– Pepsico Changchun can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Pepsico Changchun Joint Venture: Capital Expenditure Analysis suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Pepsico Changchun in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Finance & Accounting segment, and it will provide faster access to the consumers.
Building a culture of innovation
– managers at Pepsico Changchun can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Finance & Accounting segment.
Creating value in data economy
– The success of analytics program of Pepsico Changchun has opened avenues for new revenue streams for the organization in the industry. This can help Pepsico Changchun to build a more holistic ecosystem as suggested in the Pepsico Changchun Joint Venture: Capital Expenditure Analysis case study. Pepsico Changchun can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Manufacturing automation
– Pepsico Changchun can use the latest technology developments to improve its manufacturing and designing process in Finance & Accounting segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Pepsico Changchun can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Pepsico Changchun to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Pepsico Changchun to hire the very best people irrespective of their geographical location.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Pepsico Changchun can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Leveraging digital technologies
– Pepsico Changchun can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Pepsico Changchun is facing challenges because of the dominance of functional experts in the organization. Pepsico Changchun Joint Venture: Capital Expenditure Analysis case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Finance & Accounting industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Pepsico Changchun can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Pepsico Changchun can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Threats Pepsico Changchun Joint Venture: Capital Expenditure Analysis External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Pepsico Changchun Joint Venture: Capital Expenditure Analysis are -
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Pepsico Changchun needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Pepsico Changchun Joint Venture: Capital Expenditure Analysis, Pepsico Changchun may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Finance & Accounting .
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Pepsico Changchun can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Pepsico Changchun Joint Venture: Capital Expenditure Analysis .
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Pepsico Changchun.
Environmental challenges
– Pepsico Changchun needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Pepsico Changchun can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
Shortening product life cycle
– it is one of the major threat that Pepsico Changchun is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Consumer confidence and its impact on Pepsico Changchun demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Pepsico Changchun with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Pepsico Changchun in the Finance & Accounting industry. The Finance & Accounting industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Easy access to finance
– Easy access to finance in Finance & Accounting field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Pepsico Changchun can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Increasing wage structure of Pepsico Changchun
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Pepsico Changchun.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Weighted SWOT Analysis of Pepsico Changchun Joint Venture: Capital Expenditure Analysis Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Pepsico Changchun Joint Venture: Capital Expenditure Analysis needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Pepsico Changchun Joint Venture: Capital Expenditure Analysis is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Pepsico Changchun Joint Venture: Capital Expenditure Analysis is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Pepsico Changchun Joint Venture: Capital Expenditure Analysis is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Pepsico Changchun needs to make to build a sustainable competitive advantage.