Investing in China: PepsiCo (case study)

While Chinese companies are showing continued interest in the West, PepsiCo is looking east for inspiration. Last month it opened a new research and development centre in Shanghai. The facility is described as “a hub of new product, packaging and equipment innovation for PepsiCo’s businesses throughout Asia” and a means of improving R&D processes across the food and drinks group.

As a result of lower operating costs in China, western multinationals like PepsiCo are able to develop quicker product cycles and access highly skilled labour and technology at lower expense than they could in their domestic markets. PepsiCo says the Shanghai facility, its largest outside of North America, is intended to help the company achieve “breakthrough innovation” across its portfolio of brands, which include Walkers crisps and Gatorade.

Mehmood Khan, chief scientific officer at PepsiCo, comments: “This centre will play an important role in our global R&D network by bringing cutting-edge technology and innovation to our businesses in China and throughout Asia Pacific and partnering with other PepsiCo locations to achieve new breakthroughs in other parts of the world.”

PepsiCo will also use the centre to tailor its food and beverage brands for local taste preferences in the Asia Pacific region, including Lay’s potato chips, where “locally relevant” flavours include cucumber, ice lemon tea, hot and sour fish soup and seaweed.

“Innovation has always fuelled PepsiCo’s growth engine and enabled us to build a portfolio of great-tasting, convenient food and beverage brands that are loved by consumers around the globe,” says Saad Abdul-Latif, chief executive of PepsiCo in Asia, the Middle East and Africa. “The Shanghai facility is a game-changer for our business that we expect will fast-forward our innovation throughout the entire region.”

The group calculates that it has nearly tripled its business in emerging and developing markets from $8bn (£5bn) revenue in 2006 to $22bn in 2011 and is targeting further growth through a series of tie-ups in China and other countries. This includes the opening of a manufacturing plant in Wuhan, China for its snack brand Frito-Lay. PepsiCo claims this factory is equipped with “one of the most advanced potato chip production lines in the world” and will support the expansion of its snacks business in China, where Lay’s is the top-selling chip brand.

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