pepsi

1. Business case for PEPSI and
COKE
Lecture:
Corporate boundaries-to make or to buy?

2. COKE
Concentration
provider
Supply chain of COKE(PEPSI) before
1970
Bottlers
Whole Sale-ers
(WAT)
Customers
(End Points)
Assets focus:
 Manufacture of
concentration
 One plant to cover a regional
countries(asset-light)
 Lean operation of human resources
Branding Marketing campaign /TV etc.
R&D(new concentration in lower cost)
Diversity- Non-CSD products
(orange juice/water/tea drink)
Assets:
 Manufacture of bottling
 One plant to cover a few cities in a
few millions of USD (asset-heavy )
 Lean operation of human resources
 Have to invest in sales channel and
new development of customers
 Allocation of Advertising
 Promotion cost
 Fluctuation impact on sugar cost
 Distribution/logistics /warehouse
capabilities
 Relationship with whole sale
 Relationship with local government
Asset-light strategy- Use the market( bottlers who can provide better bottling price) and extend the business in
bigger scale of markets/geographic area/ channels)
TT
Traditional Trade
Production cost advantage Distribution advantage

3. COKE(PEPSI) strategic transformation of them business operation module regarding to
ownership and it corporate boundaries
Asset-light strategy
Balancing strategy to gain better control/governance to the market
 Challenges from PEPSI/ Variety of package size which raise the MES/ transportation cost was lowered
 New Sales channel appear(modern trade,ie. Mega market of Chain store.ie Waltmark/Carryfour etc.)
 Less number of bottlers
Assets
Focus:
 Ownership of bottling of over 50%
 Investment assets on Customers( auto vending machine/ coolers)
 Investment of Non-CSD production lines
 Better control and unified channel price
Assets:
 Sales force system to control secondary sales
 Analysis of Channel sales/ by different city and by different product
Key account customer
relationship
TT
Traditional Trade
MT
Modern Trade
New concentration of new ingrediency

4. COKE(PEPSI) strategic transformation of them business operation module regarding to
ownership and it corporate boundaries
Assets:
 Ownership of bottling of under 50%
 Attract the investment from stock market to minimizing the risk of investment from parent
company
 Integrating several bottlers then send to 2-3 big firms who have stronger capability or more
sufficient fund
Assets Focus:
 R&D center by regional area
for cater local favour
PBG group: stock market
TT
Traditional Trade
MT
Modern Trade
Key account customer
relationship

5. Questions
1.What are the advantages of buying components and raw materials from external suppliers? What
conditions are needed to ensure that the market provides these advantages?
1.1 Production cost advantage：
 Special know-how/technology to produce/Economies of scale to achieve lower cost
 If for firm to conduct internal product ,they will lack of incentive and lead to inefficiencies
Transaction cost of supervison/monitoring adds to the cost.
 By contrary, market will create high incentive and can be control by contract, can switch suppliers
2. What are ’transaction-specific assets’ and what effect do they have on market transactions?
Transaction-specific asset:
3. Why do car makers produce their own engines but buy mirrors from independent suppliers?
4. What examples can you think of from your own experience of • important inputs or services that were
bought on the market or outsourced? • importantcomponentsthatwereproducedoractivitiesconducted
internally?
Can you identify different levels of ’asset specificity’ in these examples?

6. Overall understanding to COKE/PEPSI
1. What factors do you think determined the geographic distribution of bottling plants in the early stages of development of the CSD
industry? Why did there need to be a large number of geographically dispersed plants?
-Manufacture cost/ transportation cost
-Cost of Human resource: Sales development /channel development etc./distribution
2. What transaction specific assets were involved?
-Bottling product lines/ land and buildings/ warehouses/ vehicles
3. What do you think would have determined the decision to contract bottling to independent firms rather than integrate bottling with
concentrate manufacture?
-High incentive was created by markets(bottlers);
-Independent bottling can easier switch different bottlers.
-Minimizing the cost of asset investment but still speedup the geographic development of customers/sales channel to concentration
business can maximize its profit and focus on banding
4. What were the key changes in the industry from the 1970s onward and how did these influence the location of transaction-specific
assets? Asset specificity has become higher than before due to variety of product and customer channels.
Key changes:
competitors’ challengs /
Customers : sales channels(customers)/
Technology: concentration cost etc./product variety and package size less bottlers

7. Overall understanding to COKE/PEPSI
5. How did the changes influence the ability to expropriate the value of these assets and what difference did the oraganisational changes
make?
-Concentration profit is less due to challenge of competitor and investment of high percentage discount(75%)/promotion
-New bottler production line need to investment
-Vending machine/cooler to gain penetration of key customers
Create COCA COLA enterprise:
Integrate botterler - public investment of Botterling group by separate from centration business group.