Economics of Strategy: Pepsico Changchun Joint Venture
Economics of Strategy: Pepsico Changchun Joint Venture
Economics of Strategy: Pepsico Changchun Joint Venture
CHANGCHUN
JOINT VENTURE
Spartans
- Raasesh
- Anjana
Economics
- Banu Chander
- Jose
- Sabreena
of Strategy
• 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).
• While 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
• The proposal was for PepsiCo to control a 57.5 per cent interest
Venture • The Second Food Factory would hold 37.5 per cent.
• Beijing Chong Yin would hold the remaining five per cent.
• The company only starts to make profits from the third year into
the joint venture project.
NPV Exclusive • Moreover, the negative net present value means that the joint
of concentrate venture’s return is far less than the discount rate applied to
calculate the feasibility of the project.
sales • This shows that if PepsiCo does not incorporate the concentrate
sales, it is hardly able to achieve the minimum level of the
required rate of return, which is necessary to cover the costs
associated with this joint venture project.
• The positive net present value of the project shows that the
rate of return provided by the joint venture project is higher
than the discount rate opted for the calculations.
sales • This would enable PepsiCo to expand its business quickly into
the Chinese market along with increasing its market share in
the carbonated soft drink industry of China.