Multinational Corporations-PepsiCo




DR.S.B.Arya & Prof. V. Manikandan


Multinational Corporations-PepsiCo


I KISHORE SUSHIL AGARWAL student of M Com Part-1 Roll Number 201 hereby declare that the project on
FINANCE Submitted by me for Semester-II during the Academic year 2013-14, is based on actual work carried
out by me under the guidance and supervision of Dr. S.B.Arya. I further state that this work is original and not
submitted anywhere else for any examination.

Signature of the Student

This is to certify that the undersigned have assessed and evaluated the project on “MULTINATIONAL
CORPORATIONS_PEPSICO” in the subject Economics of Global Trade & Finance submitted by Kishore
Sushil Agarwal, student of M Com Part-II.
This project is original to the best of our knowledge and has been accepted for Internal Assessment.

Internal Examiner

Prof. V. Manikandan
External Examiner

I/C. Principal


Multinational Corporations-PepsiCo

I am pleased to write a Project Book on the subject called ‘MULTINATIONAL
CORPORATIONS-PEPSICO’. This book is basically written by the students of M.COM-II
for their semester studies under the guidelines of University of Mumbai. As I am well known
about the fact that writing a project book is obviously a challenging task under any certain
circumstances, henceforth I have tried my level best to pull up certain realistic details with
regards to some valuable statistics & also included good number of research based examples,
which is definitely going to be a better scope for them to grab the subject matter much more
easily & efficiently. I hope that the readers will find these useful for different purposes.
I hereby would like to thank one and all, from the bottom of my heart, those who have helped
me & constantly motivated me for writing this Project Book. I also thank each & every
resources from where I collected all the information & certain numbers of innovative idea to
end up writing this one.


Multinational Corporations-PepsiCo

The satisfaction and euphoria that accompany the successful completion of any task is
incomplete without the mention of people who made it possible.
So I take this as a great opportunity to pen down a few lines about the people to whom my
acknowledgement is due.
It is with the deepest sense of gratitude that I wish to place on record my sincere thanks to my
project guide Prof.S.B.Arya for providing me inspiration, encouragement, guidance, help and
valuable suggestions throughout the project.
I extend my gratitude towards the Principal V. Manikandan for his timely suggestion and
guidance throughout Semester II of M.Com Part I.
I hereby would like to thank one and all, from the bottom of my heart, those who have
helped me & constantly motivated me for writing this Project Book.


1 Chapter name Introduction Page no 6-10 2 General Information.Multinational Corporations-PepsiCo TABLE OF CONTENTS Sl. no. hypothesis 11-16 3 Concepts/ Review 17-22 4 Objectives of study 23-30 5 Method of Data Collection 31-31 6 Scope of study 32-32 7 Limitation of study 33-34 8 Findings and Recommendations 35-43 9 Suggestions and Conclusions 44-44 10 Bibliography and Reference 45-47 5 .

the multiple enterprises owned by parent firms. MNCs are the only firms that coordinate and internalize economic activity across national borders. If we add to this figure the trade 6 .459 parent firms that together own a total of 689. called intra-firm trade. This basic terminology allows us to gain a sense of the role that MNCs play in the contemporary international economy. they coordinate economic production among a number of different enterprises and internalize this coordination problem within a single firm structure. In discussing MNCs it is typical to distinguish between parent firms. A multinational corporation is “an enterprise that engages in foreign direct investment (FDI) and owns or controls value adding activities in more than one country” (Dunning 1993. Together. and cross-border investment.520 foreign affiliates. as they are also significant participants in international trade. In 1998 these affiliates employed approximately 6 million people worldwide. According to the United Nations Conference on Trade and Development. there are approximately 63. Second. The importance of multinational corporations is not limited to production. 3).Multinational Corporations-PepsiCo CHAPTER 1: INTRODUCTION Multinational Corporations in the Global Economy Multinational corporations sit at the intersection of production. and the foreign affiliates. accounts for about one-third of total world trade. It has been estimated that trade within MNCs. These two attributes distinguish MNCs from other firms. First. MNCs thus have two characteristics. While many firms control and coordinate the production of multiple enterprises. parent firms and their foreign affiliates produce about 25 percent of world gross domestic product (UNCTAD 2000). international trade. the corporate owner of the network of firms comprising the MNC. and while many other firms engage in economic transactions across borders. It is difficult to exaggerate the importance of MNCs in the contemporary global economy. a significant portion of the economic transactions connected with this coordinated activity take place across national borders.

Venezuela. Much of the cross-border investment in auto production undertaken within the advanced industrialized world fits into this category. During the 1980s and early 1990s.2 does list the world’s 100 largest MNCs. and Brazil are also home to MNC parent firms. China alone hosts 235. however. Developing countries host more than 355. about half of the total affiliates worldwide. Parent corporations are not exclusively a developed country phenomenon. Within the developing world. ninety-nine of the 100 largest firms are from the United States. and where are they located? While it is impossible to provide an extensive catalog of more than 60. These large MNCs are based almost exclusively in advanced industrialized countries. The fifty largest MNCs from developing countries control only $105 billion of foreign assets. Only one MNC parent based in a developing country. while advanced industrialized countries host only 94. account for more than 15 percent of all foreign assets controlled by all MNCs. then MNCs are involved in about two-thirds of world trade. less than ten percent of the assets controlled by the 50 largest developed country MNCs. These 100 MNCs. The distribution is reversed when we consider the affiliates.Multinational Corporations-PepsiCo that takes place between MNCs and other unaffiliated firms. creating a total of 239. ranked by their foreign assets. MNC affiliates are highly concentrated in a relatively small set of countries. Thus. South Korea. China.927 affiliates in this region. MNCs invest across borders to gain access to foreign markets. table 5. Here too 7 .3). Mexico.000 firms.324 MNC affiliates.269 (UNCTAD 2000. Western Europe. Petroleos de Venezuela. 11-13). Who are these firms. Thirteen countries in East Asia and Second. and for 22 percent of total sales by MNCs. among which are many familiar names. HongKong. MNCs are productive enterprises that by definition engage in cross-border investment and are heavily involved in international trade. or Japan and more than 5/6ths of all parent corporations are based in advanced industrial countries (see table 5.681 affiliates. but these firms are considerably smaller than developed country firms. MNCs have also invested heavily in Eastern and Central Europe during the 1990s. Japanese Latin America host 331.748 MNC affiliates. ranks among the world’s 100 largest.

even though there are more affiliates based in developing countries than in advanced industrialized countries. Beverages. Tobacco 9 10 Chemicals 12 8 Pharmaceuticals 6 8 Diversified 2 6 Telecommunications 2 6 Trading 7 4 Retailing 3 Utilities 3 Metals 6 2 Media 2 2 Construction 4 1 Machinery/engineering 3 Other 7 5 industrialized countries tend to be larger and more capital intensive than the affiliates created in developing countries. Hungary. the affiliates created in advanced Table 1. As we saw in chapter four. the Czech Republic. Thus. the vast majority of foreign direct investment flows into advanced industrialized countries rather than the developing world.1: Industry Composition of the Top 100 MNCs 1990 1998 Electronics/electrical equipment/computers 14 17 Motor Vehicle and Parts 13 14 Petroleum (exploration. distribution) and Mining 13 11 Food.Multinational Corporations-PepsiCo affiliates are concentrated in a few countries. and Poland host 135.997 of the affiliates active in this region. they are misleading to some extent. 8 . While these figures on the location of affiliates are interesting. refining.

First. for example. the capital. engines. and the more labor-intensive assembly of the individual components into automobiles is performed in developing countries. by rationalizing production and trying to exploit economies of specialization and scope. In electronics and computers as well as in the auto industry. electronics. MNCs engage in cross. as table 1. Concerned with postwar reconstruction and unwilling to risk the balance of payments consequences of capital 9 .Multinational Corporations-PepsiCo Total Source: UNCTAD 2000.intensive design and production of individual parts such as body panels. Third. In the auto industry.border investment to gain secure access to supplies of natural resources. while the more labor-intensive assembly stages of production are performed in developing countries. Two features characterized the immediate postwar period. the human and physical capital. with 11 of the largest firms engaged in either oil production or mining. firms allocate different elements of the production process to different parts of the world. American firms dominated foreign direct investment. the immediate postwar period spanning the years 1945 to 1960 and a second period since 1960. Indeed. Multinational corporations’ activities in the postwar international economy have evolved over time. and electrical equipment. In computers. 78 100 100 For what specific purposes do firms engage in foreign direct investment? MNC investment can be divided into three broad categories. the American copper mining firm Anaconda made large direct investments in mining operations in Chile in order to secure copper supplies for production done in the United States. petroleum and mining is the third most important industry represented in the top 100 MNCs. For example. which account for seventeen of the largest 100 MNCs (see table 1. First. are performed in the advanced industrialized countries.1). and transmissions is performed in developed countries.1 illustrates. An increasingly large share of cross-border investment in manufacturing fits into this category. MNCs make cross-border investments to improve the efficiency of their operations.intensive stages of production such as design and chip fabrication. It is common to divide this evolution into two distinct periods.

Other direct investments flowed to developing countries. and Australia for natural resource extraction. American MNCs engaged primarily in market. As Dunning (1996) notes.Multinational Corporations-PepsiCo outflows. European and Japanese governments had little interest in encouraging outward direct investment. while American firms continue to play a large role. MNCs increasingly view “each of their foreign affiliates and. The early dominance of American firms has been increasingly diminished as European and Japanese firms began to engage in foreign direct investment. as we saw in chapter four. 10 . Thus.” The shift to efficiency-oriented investments and integrated international production systems has been made possible in large part by developments in communications technology and. At the same time. but as part of a regional or global network of activities.and natural resource-oriented foreign direct investment dominated the immediate postwar period.and natural resource-oriented direct investment has fallen and that of efficiency-oriented investment has risen. and thus the early 1960s saw a rapid increase in the amount of market-oriented investment by American firms in the Common Market countries. frequently. their associated suppliers and industrial customers. As a consequence.thirds of the new affiliates created in this period. they are not nearly a dominant today as they were in the early postwar years. the bulk of MNC investment during this period was oriented toward Europe for the purpose of manufacturing. The push to invest in Europe was given additional impetus at the end of the 1950s by the creation of the European Economic Community. the relative importance of market. Second. by the reduction in trade barriers achieved through the GATT process. not as self-contained entities. The increased role of other industrialized nations has more recently been accompanied by the emergence of foreign direct investment by MNCs based in the Asian NICs and in Latin America. Canada. New investments are increasingly undertaken as part of an integrated international production system. American firms dominated MNC activity. Both of these characteristics of MNC activity have changed dramatically since 1960. accounting for about two. In short.

examining the nature of the bargaining relationship between MNCs and host-country governments and governments’ efforts. MNCs are. examining why firms engage in foreign direct investment and how FDI affects economic activity in the countries that host it. the driving force behind the deepening integration of the global economy. in many respects. particularly in the developing world. to craft an international investment regime. We then turn our attention to the political economy of MNCs. Most of these issues can be subsumed under a single question: What are the economic and political consequences of MNC activity? To answer this question we look first at the economics of multinational corporations. Some argue that FDI is highly beneficial to the host country. unsuccessful to date. In fact. 11 . HYPOTHESIS The Costs and Benefits of MNC Activity How are host countries affected by MNC activity? While it is clear that MNCs are motivated to engage in foreign direct investment to raise their profitability. during the last fifty years multinational corporations have grown to play a centrally important role in the international economy.Multinational Corporations-PepsiCo In summary. it is less obvious what impact these investments have on the countries that receive them. most of the controversy surrounding MNC activity arises from disputes over how foreign direct investment affects the host country. Here we look closely at two well-developed perspectives on the impact of foreign direct investment on host countries and then briefly consider what the existing empirical evidence suggests about the accuracy of these competing perspectives. CHAPTER 2: GENERAL INFORMATION. The central importance of MNCs in the contemporary international economy raises a large number of issues that we explore in the pages that follow. while others argue that MNCs have a negative impact on host countries.

direct investment does not raise host countries’ external indebtedness. because MNCs invest by creating domestic affiliates. then the technology transfer would have a positive externality on the Malaysian economy. 123-130). 77-8). Externalities arise when economic actors in the host country that are not directly involved in the MNC-local affiliate technology transfer also gain from this transaction. because MNCs create fixed investments. this form of cross-border capital flow is not subject to the problems often posed by financial capital flows. Because MNCs control proprietary assets. the benign model suggests that MNCs transfer managerial expertise to developing countries.Multinational Corporations-PepsiCo The benign model argues that MNCs make a significant contribution to economic development. In the absence of the technology transfer. Fixed investment is substantially less volatile than financial capital flows. which then developed the capacity to produce these circuit boards on its own (Moran 1999. If the Malaysian Motorola affiliate. FDI can usefully add to the capital available for physical investment. for example. In addition. was able to use the technology it acquired from Motorola to produce inputs for other Malaysian firms at a lower cost than these inputs were available elsewhere. Technology transfer can in turn generate significant positive externalities with wider implications for development (see Graham 1996. Because developing countries usually have low savings. which are often based on specialized knowledge. In Malaysia. the indigenous firm would not have been able to produce these products. Motorola Malaysia transferred the technology required to produce a particular type of printed circuit board to a Malaysian firm. for example. Moreover. In addition to transferring technology. The benign model also suggests that MNCs are important vehicles for the transfer of technology to host countries. Greater experience at managing large firms allows MNC personnel to organize production and coordinate the activities of multiple enterprises more 12 . and thus does not generate the kinds of boom and bust cycles. the investments they make in developing countries often lead to this knowledge being transferred to indigenous firms. Foreign direct investment is an important mechanism through which savings are transferred from the advanced industrialized world to the developing world.

it is argued that MNCs often borrow on the host country capital market rather than bring capital from their home country. Indigenous managers in these affiliates can then move to indigenous firms. with negative consequences on individual savings. are transferred back to the home country. the malign model argues that MNCs reduce domestic savings. the local affiliates of the MNC and the domestic firms that supply the MNC affiliate become integrated into a global marketing chain. it is suggested that MNCs earn rents— above normal profits—on their products and repatriate most of these earnings. Savings are reduced in two ways. but also began to supply these components to eleven Motorola plants worldwide. MNC investment therefore “crowds out” rather than adding to domestic investment. These opportunities would not have arisen had the firm not been able to link up with Motorola Malaysia. spreading managerial expertise into the host country. The amount of domestic savings available to finance projects therefore falls. The logic here is simple. As we saw above.Multinational Corporations-PepsiCo efficiently than host country managers. The Malaysian firm to which Motorola transferred the printed circuit board technology. Finally. First. The malign model also argues that MNCs exert tight control over technology and managerial positions. Second. Host country consumers therefore pay too much for the goods they buy. First. The malign model focuses on many of the same elements as the benign model. which could potentially be a source of savings and investment in the host country. for example. allowing them to operate more efficiently as well. but argues that these factors often operate to the detriment of host country economic development. the benign model suggests that MNCs enable developing country producers to gain access to marketing networks. This knowledge is applied to the host country affiliates. preventing the transfer of both. rather than transferring savings to developing countries. one of the principal reasons for MNC investment arises from the desire to maintain control over proprietary 13 . while MNC profits. wound up supplying not only Motorola Malaysia. When direct investments are made as part of a global production strategy. This opens up export opportunities that indigenous producers would not otherwise have.

Managerial expertise is not readily transferred either. and in one-third of the cases the impact was negative. and then once having done so begin to transfer this technology to host. they have no one to sell their intermediate goods. The authors found that in two-thirds of the cases foreign direct investment had a positive impact on the host country. thereby driving them out of business. Using best practices for management and state of the art technology. A similar study was conducted about ten years later. Finally. foreign direct investment is sometimes beneficial for and at other times detrimental to the host countries. MNCs can often under-price local firms. domestic firms producing in the same sector will face increased competition once an MNC begins selling in the domestic market. the second purported benefit of MNC—the transfer of technology and managerial expertise—can be stymied by the very logic that causes MNCs to undertake FDI. are suggestive in this regard. One study examined 88 MNC affiliates operating in six countries (Lall and Streeten 1977). domestic input producers in the same industry will find that as the domestic producers they supply are driven out of business. Two studies. Given this. MNCs often desire to assemble their finished goods from imported firms. the malign model suggests that MNCs can drive domestic producers out of business.Multinational Corporations-PepsiCo assets. it is indeed hard to understand why an MNC would make a large fixed investment in order to retain control over proprietary technology. Second. 14 . in large part because MNCs are reluctant to hire host-country residents into toplevel managerial positions. Which of these two models is correct? The short answer is that both are. This can happen in one of two ways. Thus. The benign and the malign models depict dramatically different consequences from MNC investment in developing country economies. this study found that between half and three quarters of the foreign investments yielded net benefits to the host countries. Thus. now somewhat dated. Focusing on 50 foreign direct investments. local input suppliers can also be driven out of business by MNCs. On the one hand. As a result.

For example. Market oriented and natural resource investments both carry biases that can limit the contribution they make to economic development in host countries. for example. both types of investment can have a negative impact on domestic producers in the host country. and the level of rents is correspondingly lower. 172). the international orientation of such firms creates opportunities for local firms to link themselves to global marketing networks. While any broad generalizations must therefore be treated with considerable caution. Moreover. Efficiency-oriented investments seem to carry fewer of the biases and offer the greatest chance that MNC activity will have a positive impact on host countries. for example. Finally. foreign direct investment sometimes operates in the manner suggested by the benign model. The research reported by Encarnation and Wells (1986) is consistent with the notion that efficiency-oriented investments contain fewer of the biases against development that are present in 15 . The industries in which these investments occur are usually quite competitive internationally. A range of considerations are important. hence the MNC’s drive for cost reduction measures. Finally. 173). First. What determines whether any particular investment will be beneficial or detrimental to the host country? It is extremely difficult to say anything systematic or conclusive in response to this question. one can suggest that some types of investment begin with a bias against host country development while other types of investment do not carry an initial bias. efficiency-oriented investments often “crowd-in” rather than “crowd out” investments by domestic firms. The absence of competition results in large rents accruing to firms operating in these areas. In particular. that recent investments by MNCs in copper mining in Chile may have substituted for investments that otherwise would have been made by the Chilean national copper company (CODELCO). with associated efficiency losses for the host country. Such investments can (but don’t always) create backward linkages to domestic input producers. Foreign affiliates in the extractive industries often gain monopoly control over the resource deposits of a given country. UNCTAD suggests.Multinational Corporations-PepsiCo while one-quarter to one-half of the projects imposed net costs onto the host country (Encarnation and Wells 1986). both types of investment take place under conditions of limited competition. “which is the largest copper mining enterprise in the world and operates with state-of-the-art technology” (UNCTAD 1999. and at other times it operates as the malign model suggests. Thus. including the specific agreement between the host-country government and the MNC upon which the investment is based. and thus can promote rather than retard local firm growth. while affiliates producing for the host-country market are often protected from external competition by high tariffs. neither resource oriented nor market oriented investment offers many opportunities for domestic producers to link into international marketing networks. For all of these reasons we might expect host countries to be most likely to suffer costs from natural resource and market-oriented investments. it has been estimated that Intel’s decision to construct a microprocessor plant in Costa Rica will likely give rise to additional investments by 40 Costa Rican firms (UNCTAD 1999.

86 percent of Singer’s local production was exported. Blueprints and part specifications were provided to all local parts producers.oriented investments. Singer was required to increase its exports from Taiwan rapidly. Singer was required to provide the local parts producers with standardized blueprints. Finally. substantial transfers of technology occurred. Singer first began producing in Taiwan in 1964. In addition. As a condition of Singer’s investment. Taiwanese sewing machine producers became more 16 . The case of Singer Sewing Machines experience in Taiwan is suggestive of the potential benefits available through well-managed foreign direct investment. Moreover. By the late 1960s Singer was sourcing all of the parts for its sewing machines produced in Taiwan from Taiwanese firms (except the needles). For all of these reasons we might expect host countries to benefit the most from efficiency-oriented investments. insisting that Singer source 83 percent of its parts from Taiwanese producers within one year. Producers—the very firms that comprised Singer’s competition —at no cost to these firms. In addition. the Taiwanese government imposed domestic content requirements. and significant backward linkages between the final sewing machine producers and the parts suppliers occurred. In addition. All of the export-oriented projects in the sample of MNC affiliates that they examined provided benefits to the host country. an export requirement was imposed. Singer was obliged to allow Taiwanese sewing machine producers to use the same parts it sourced from local parts producers at a cost close to the world price for these parts.Multinational Corporations-PepsiCo natural resource and market. As a direct result of these measures. the Taiwanese government imposed substantial conditions to ensure technology transfers. 211. thereby allowing them to work to common specifications and standards. and make available technical experts to assist in local firms’ efforts to produce the specified parts. At the time there were a number of local sewing machine producers using old technology and lacking standardization and therefore unable to compete in international markets. Singer held classes for local parts producers in the technical and managerial aspects of the business. Finally. Based on UNCTAD 1999.

Quaker. Tropicana. As a consequence. As we will see in the next section. These agreements can transform a natural resource investment into a highly beneficial proposition for a host country. MNC activity is sometimes beneficial for host country economic development. CHAPTER 3: CONCEPTS/REVIEW Pe p si C o’ s J o urn ey towa rd a n E t h i c a l an d S o c i al ly Re sp o n si b l e Cul t u re COMPANY OVERVIEW PepsiCo is one of the largest food and beverage companies in the world. MNC activity has historically been subject to political considerations. the impact of any particular investment on any particular host country is shaped by the particular agreement between the firm and the host country government. As local parts became standardized and of greater quality. while the preceding discussion is suggestive. and at other times is detrimental to such development. and they can transform an efficiencyoriented investment into a highly costly one. One might suggest that natural resource investments are the least likely to offer substantial benefits to host countries. It currently holds 36 percent of the total snack food market share in the U. PepsiCo encompasses the Pepsi Cola. In summary. sometimes offering benefits. Frito-Lay.S. Market oriented investments are likely to fall somewhere in between these two types.Multinational Corporations-PepsiCo competitive internationally. It manufactures and sells eighteen brands of beverages and snack foods and generates over $98 billion in retail sales. Taiwanese sewing machine producers also became able to export to foreign markets. the effect that any particular foreign direct investment will have on any particular host country will depend greatly on the specific details of the case. while efficiency oriented investments are the most likely to offer substantial benefits to host countries. and 25 percent of the market share of the refreshment 17 . It is important to re-emphasize the tentativeness of these broad generalizations. and Gatorade brands and offers products in over 200 countries. and at other times imposing costs. In other words.

Megargel.. and in 2007 Indra K. In 1931 the Pepsi-Cola Company underwent its second bankruptcy.” Bradham’s creation was renamed Pepsi-Cola in 1898 due to the pepsin and kola nut ingredients used. but Pepsi’s marketing campaigns and brand design helped Pepsi make it through the difficult period.000 gallons of the syrup annually. Nooyi became the CEO of PepsiCo. and in 1923 Bradham sold the trademark to Craven’s Holding Corp. and by 1910 Pepsi-Cola had franchises in 24 states and sold over 100. and in 1902 he decided to create the Pepsi-Cola Company so people everywhere could enjoy the drink. However. COMPANY AND MARKETING HISTORY The Pepsi recipe was developed by pharmacist Caleb Bradham in the 1890s. 18 . and earning the Green Award by the Environmental Protection Agency. To maintain a strong brand. who shortly after sold it to a New York stockbroker named Roy C. Awareness of Bradham’s new creation spread quickly. Michael D. For Those Who Think Young” to concentrate on a younger market. the Pepsi brand would encounter several rocky situations before becoming the success that it is today. In 1903 the patent became official. Guth began offering twice the amount of Pepsi for the same price. During the 1950s. Megargel fought to revitalize the company but failed. Through the Great Depression. as Americans became more health conscious. PepsiCo has received many awards and recognitions over the years. its marketing campaigns had to change too. Candy manufacturer Charles Guth. ranking number four overall by Diversity Inc. white.Multinational Corporations-PepsiCo beverage industry. nickel” slogan and introduced a more lively “More Bounce to the Ounce” slogan to the after-war population.” which was heard across the nation. World War II Continued to test Pepsi-Cola’s strength with introduced sugar rationing. For example. a tactic which met with resounding success. As more people began earning more disposable income. Pepsi carefully positioned itself as a low cost leader and made advertising history when it released the nation’s first jingle “nickel. and blue to show patriotism and declared that patriotic people drink Pepsi. With financially-strapped customers reluctant to pay a nickel for a drink. saw Pepsi-Cola as a great investment and decided to purchase the company. Pepsi’s success allowed it to begin marketing internationally in 1945. Pepsi-Cola recognized that the marketplace was changing.” Other new advertising campaigns included slogans such as “Be Sociable. Building a Brand Guth had many challenges to overcome in order to save the struggling brand. World War I proved to be an especially turbulent time for Pepsi-Cola. Pepsi changed the colors on the label to be red. For instance. Severe fluctuations in sugar prices caused the company to lose money. president of Loft Inc. White became the CEO of PepsiCo International. nickel. Pepsi evolved from the low cost price leader to a more lifestyle drink approach. Pepsi introduced slogans such as “The Light Refreshment” and “Refreshing without Filling. Originally marketed under the unassuming name “Brad’s Drink. Have a Pepsi” and “Now Its Pepsi. Within two years the company was earning over a million dollars and was on its way to making history. Pepsi therefore said goodbye to the long-running “nickel. including being ranked in the top 25 of the best global brands. In 2006.000 people. The company’s headquarters are in New York and employs over 200..

The company also pursued a major acquisition strategy as well as an expansion of its product line. of course. In 1988. It all started with Pepsi advertiser Alan Pottasch. More recently. (which would later be spun off from the company in 1997). Pepsi has used celebrity branding to build upon the Pepsi brand. and under Pottasch launched the “Pepsi Generation” campaign in 1963. and David Bowie. Fox.Cola’s market share was dropping. the company it is known as today. along with the Mountain Dew brand. In 1964. 7Up International in 1986. By far its biggest celebrity endorser in this time period was Michael Jackson. leading to a trade agreement in 1972 where Pepsi became the first foreign consumer product sold in the Soviet Union. Lipton Company in 1991 and a partnership with Starbucks in 1994 to develop coffee drinks. Yet perhaps its biggest milestone was Pepsi’s monumental merger with FritoLay Inc. Pepsi once again capitalized on the changing environment. Pepsi’s celebrity partnerships enabled the company to gain market share even as Coca.” and “Come Alive. A favorable relationship developed between the Soviet Union and the company. The singer and PepsiCo struck a $5 million partnership that linked the two together for the rest of the 1980s. The Pepsi Generation was taking control over the Soviet Union and still remained popular in Russia after the Soviet Union’s dissolution. Recent Years 19 . Pepsi also became the first advertiser to buy time on Soviet television. such as a joint venture with the Thomas J. You’re in the Pepsi Generation!” Pepsi successfully adapted its practices and product positioning with the times through its marketing campaigns.” “Catch that Pepsi Spirit!” “Pepsi Now!. With Jackson as its prime celebrity endorser. PepsiCo broke into the bottled water industry with its rollout of Aquafina bottled water in 1997. Celebrity Endorsements In more recent years. who was caught on camera drinking a Pepsi at the 1959 American National Exhibition in Moscow. The ads portrayed happy Americans living the American dream—with their Pepsis. Gloria Estefan. the post-war baby boomer generation was carefree and hopeful. Pepsi-Cola became the forerunner of lifestyle marketing. The 1980s brought in celebrity endorsers like Tina Turner. Another notable achievement in marketing history was the inroads Pepsi made into the Soviet market. to become PepsiCo Inc. Michael J. Perhaps the biggest (indirect) Soviet endorser of the product was the Soviet Premier Nikita Kruschev.Multinational Corporations-PepsiCo It was this younger target market and the post-war baby boom generation that set the stage for Pepsi’s long-lasting brand image. Pepsi has also profited through corporate partnerships. Pepsi’s Got a Lot to Give. trendy drink for the new generation. The campaign was an advertising breakthrough as it helped to set a new standard for advertising in America. and Tropicana Products in 1998. with slogans such as “You’ve Got a Lot to Live. A Pepsi advertisement that was aired later that year incorporated Soviet teenage actors to appeal to the younger generation. By associating its brand with youth and excitement. who recognized the different nature of the newest generation of consumers. Whereas consumers before the war were more cautious and price-conscious. Pepsi introduced Diet Pepsi in response to the nation’s noticeable lifestyle change toward health. PepsiCo was able to set itself up as the hip.. Other major PepsiCo acquisitions included Taco Bell and Pizza Hut Inc. Future campaigns continued to promote this brand image.

the Pepsi Beverages Company. including the original Pepsi brands. the Pepsi Bottling Group and Pepsi Americas. SoBe. Frito-Lay. in 2009 PepsiCo announced it would invest another $1 billion into Russia. In the restructuring process. International brands include Fiesta. In the U. and Africa. Indra Nooyi. developing healthier snacks. PepsiCo’s goals included focusing more on countries outside the U.. and Manzanita Sol. PepsiCo is also embarking on what it calls the “Power of One” business strategy. including Pepsi Beverages. and creating a better working environment. Honest Tea. Pepsi Light. This is troublesome news for PepsiCo’s most popular brand. which according to CEO Nooyi reflects Pepsi’s “long-term commitment” to the Russian market. Gatorade. PepsiCo also tapped into the celebrity status of Shaquille O’Neal and racecar driver Jeff Gordon. As a result of this merger. Everness. The purpose of PepsiCo’s recent actions is not 20 . These divisions are further split up into different businesses. PepsiCo has begun a restructuring of its Beverages division to create better integration between its units. however. The following are some of PepsiCo’s most well-known and profitable businesses. As part of the restructuring. Pepsi now has control over 80 percent of its bottling network. Until 2010. PepsiCo Europe. and more. Pepsi-Cola Brands Over the years.Multinational Corporations-PepsiCo PepsiCo has continued to use celebrity marketing throughout the 1990s and early 2000s.S. PepsiCo has also begun investing heavily in the countries in which it does business. having a net-zero impact on the environment. Cindy Crawford. leading to its current revenues of over $43 billion. PepsiCo is investigating ways it can bundle or combine its beverages with its food products. the growth of soft drinks has lowered due to a new wave of health consciousness sweeping the nation. which includes the Tropicana. and Latin American brands. Recently. Tropicana. Pepsi-Cola has gone above and beyond the original Pepsi beverage to incorporate a wide variety of brands. IZZE.. and PepsiCo Beverages Americas.S. To appeal to sports fans. PepsiCo Americas Foods. In 2006 PepsiCo got a new CEO. PepsiCo’s Americas Beverages consisted of one business unit led by Eric Foss. and PepsiCo Middle East. However. and vitamin water. the company decided to purchase and merge its two largest bottling companies. It requires PepsiCo to innovate in order to create or acquire healthier brands that appeal to the masses. who began reorganizing PepsiCo to focus on several different initiatives. and Aquafina beverages. In April. PepsiCo’s Americas Beverages now consists of two businesses. Sierra Mist. Some of these drinks include Muscle Milk. the Pepsi soft drink. including celebrities such as Ray Charles. some of the most well-known brands include Mountain Dew. and Britney Spears. Asia. in the last decade. For example. Pepsi Co Divisions and Brands PepsiCo consists of four divisions: PepsiCo Americas Beverages. Under this strategy. The worldwide success of PepsiCo reflects the company’s dynamic and adaptable strategy throughout the company’s history. Under her leadership. Sabritas.

They felt that the cartoon character was a negative and highly offensive stereotype of Mexicans and MexicanAmericans. Lay started selling potato chips. he originally began selling his newly acquired product from his Model T Ford. Among its many initiatives. Today. It started in 1932 with entrepreneurs C. Finally. Frito-Lay has experienced its share of controversies in its history. Frito-Lay had a successful business history. Lay. since its founding the Supplier Diversity Program has spent over $2. and Cracker Jack popcorn. Frito-Lay Even before the historic merger between Frito-Lay and Pepsi-Cola. Grandma’s Cookies. Doritos. The entire process is one additional way PepsiCo hopes to bounce back. The outer layer of 10. According to the company. Gatorade 21 . of course. On Earth Day 2010. but also to appeal to consumers’ desires to save money on multiple products.W. the two companies joined together to form the Frito-Lay Company. Frito-Lay introduced a cartoon character named Frito Bandito. He went and purchased the corn chip manufacturing company. The Mexican American population launched a series of protests. a Mexican bandit with a sombrero who stole other people’s corn chips by gunpoint. first launched in 1983. In 1967. He also purchased the manufacturing company and called it the H. it would merge with Pepsi-Cola to become the PepsiCo Company. Frito’s Corn Chips. C. the cartoon character was removed from the scene in the early 1970s. Doolin then began selling bags of FRITO corn chips.1 billion with minority and women. Four years later. Cheetos. Due to the wide popularity of the character.Multinational Corporations-PepsiCo only to encourage consumers to purchase its products. prompting the National Mexican-American Anti.owned entrepreneurs. Rather. which then turns the bags into tote bags or other products to sell.Defamation Committee and other groups to file a $670 million lawsuit against the company. Frito-Lay owns over 50 percent of the snack foods industry in America and includes such well-known brands as Lay’s Potato Chips. Also in 1932. During that year. SunChips. Frito-Lay has made strides in sustainability. Additionally. In 1961. Tostitos. Frito-Lay has converted its sales cars to hybrid vehicles and partnered with Terracycle to encourage employees and consumers to give used bags to its partner. but not from a retailer or a grocery store.E.000 people. as they are composed of a type of acid found in plants. a man named Herman W. As with all big companies.5 ounce SunChip bags are now biodegradable. Frito-Lay also offered its first compostable bags. Frito-Lay has many accomplishments to be proud of that go beyond its products. Doolin sampled corn chips in a Texas café and saw an opportunity for the small chip’s future. Frito-Lay refused to pull FritoBandito.E. The division contributes $11 billion to PepsiCo and employs over $48. One of its great prides is its Supplier Diversity Program. The controversy emphasized the importance of cultural sensitivity and stakeholder analysis when launching any campaign that might alienate company stakeholders. Doolin and Herman W. Lay & Company.

” The G Series has two major purposes in revitalizing the Gatorade brand: it seeks to demonstrate that Gatorade can be used for more than hydration and nutrient replacement. acquired Gatorade. Despite Gatorade’s success. PepsiCo also sees teenagers as the prime market for the new G Series. the official sports drink of the NBA and major league baseball. Gatorade (named after the Florida Gators team) was meant to be a solution to that problem by containing a balanced amount of electrolytes and carbohydrates that would rejuvenate players. the line has different types of Gatorade that are meant to be used in a three step process. particularly when laws vary from country to country. though PepsiCo has proved to be successful in continually updating its advertising campaigns. One of the problems Gatorade faces is the lack of appeal for the younger generation. The formula was developed by a group of scientists after a study revealed that players at the University of Florida were losing electrolytes and carbohydrates during games. who sees the beverage as something their parents drank. in both the U. PepsiCo hopes to effectively target two distinct markets. the company has encountered several problems that have caused tensions with different cultures. One of the biggest difficulties for any multinational organization is how to successfully enter into other countries. PepsiCo still faces heavy criticism for products that are viewed as largely unhealthy and whose packaging contributes to a large amount of waste. As a result. Consequently. Finally. PepsiCo has spent the largest amount of money in its history to create a new Gatorade campaign and lineup called the “G Series. 22 . In 1983. as it believes that people first become Gatorade fans at that age. a recent iPhone app developed to target the AMP Energy Drink market unleashed a stream of controversy for its potentially offensive content. Gatorade was a huge success among sports teams.” is protein-rich and is used after the game (the drinks are in different shaped bottles). With this new system of Gatorade drinks. CRITICISMS PepsiCo’s success has not come without major challenges or ethical dilemmas. the past few years have seen declining sales for Gatorade and added competition for the sports drink market. The first beverage. The second. dates back to 1965. The final.” is filled with carbohydrates and is meant to be used before a game. Gatorade has become the third most popular selling drink under PepsiCo (after Pepsi and Mountain Dew). and it is targeted more toward teens. PepsiCo is targeting every aspect of the athlete’s game time. Commercials for the new product show the evolution of the Gatorade product along with favorite athletes such as Michael Jordan or Orlando Magic player Dwight Howard. Quaker Oats Co. “Perform.Multinational Corporations-PepsiCo Gatorade. “Recover. “Prime. G Series Pro is an adult version of the G Series but is targeted toward marathon runners and personal trainers (along with other “elite athletes”).” is for during the game. Although PepsiCo takes great care in researching potential markets. leading to future innovation with products like the Gatorade Nutrition Shake and the Gatorade Bar. Adults are not forgotten either in Gatorade’s reinvention. With this strategy. and abroad. Additionally.S. which in turn was acquired by PepsiCo in 2001 when PepsiCo bought the Quaker Oats Co. but are given a separate line. The three products of the G Series can be purchased together for $7.

2. 3. 23 . To gain in-depth perception about Multinational Corporation-PepsiCo. To study the changing trends of Multinational Corporations.Multinational Corporations-PepsiCo CHAPTER 4: OBJECTIVES OF STUDY 1. To get the knowledge of new concepts of Multinational Corporations.

and since then the company has become one of the largest food and beverage companies in the country. Although there is not yet a law in place. making them less fertile for growing crops. PepsiCo must take the different levels of government into account. as well as the concerns of NGOs and individual Indians. BURMA 24 . making it. A study conducted in 1992 found that PepsiCo India and similar companies created 10. Furthermore. To study the position of existing Multinational corporations.Multinational Corporations-PepsiCo 4. concerning both farmers and government officials alike. Five other Indian states also instituted partial bans. The issue is still under investigation and the Indian government is trying to find a way to validly detect the pesticide levels and ultimately ban any trace in a soft drink.000 metric tons of plastic through their manufacturing and importation processes. INDIA PepsiCo first entered the Indian market in 1989. However. the Indian state of Kerala temporarily banned the sale of Pepsi and Coca-Cola. The company and other competitors in the industry have been heavily criticized about the quality and the quantity of the water used in their beverages. About 60-70 percent of this plastic was recyclable. the Centre for Science and Environment (CSE) claimed that the water which PepsiCo and other beverage companies in India were using contained toxins. PepsiCo found that it could still face considerable repercussions for what its stakeholders perceive to be unethical activities. some of the largest and longest running allegations of PepsiCo’s wrongdoing are also based in India. A thorough stakeholder orientation is needed to discover ethical courses of action and avoid negative repercussions. In solving these ethical dilemmas. When pesticides were once again reported in the soft drinks a few years later. In 2003. Similar allegations of waste and pollution arose again in 2006. According to the CSE. once again. creating a large amount of unnecessary plastic waste. Unfortunately for the company. the farmers complained that the PepsiCo plant takes the groundwater to run its operations. These extreme actions on the part of the local governments reveal the care multinational organizations must take to go above and beyond the national law in social responsibility. Another major concern in India cited by farmers is that the Pepsi manufacturing plants are polluting the lands. Pepsi soft drinks had 36 times the level of pesticide residues permitted under European Union Regulations. This allegation of unsafe levels of pesticide has been denied by both PepsiCo and the Coca-Cola Company. These toxins included pesticides that can contribute to cancer and the overall breakdown of the immune system. harder to effectively grow crops. no such law bans the presence of pesticides in India.

this only helps with the weight risk. already the company claims that $10 billion comes from healthy snacks the company offers. PepsiCo’s traditional snack items have met with similar criticism. The activist groups and the surrounding society were not satisfied with this move. Most companies refused to enter Burma at that time until the return of democracy. One of the goals of PepsiCo CEO Indra Nooyi is to invest more in health food. the Frito-Lay website has a special area devoted to health that describes the ingredients of Frito-Lay snacks and encourages consumers to practice moderation in snack food consumption. At the same time. Nooyi 25 . Pepsi sold its share of the franchise to its Burmese partner but kept the franchise agreement. However. The health issue is going to be an ongoing battle for the company due to the nature of the industry it is in. Some of the health concerns of drinking soda include the increased caloric intake as well as the possibility of tooth decay due to soda’s acidity. The acidic nature of the product can still damage the teeth. Although the battle may be a long one. Continual research and product development to offer healthier products is essential for PepsiCo’s future profitability. HEALTH The nature of the products manufactured and sold by PepsiCo has caused many problems for the company in the issue of health. caffeine dependence. including forced-labor and the destruction of any opposition. The Third World First organization in Europe also pressured Pepsi to get out of Burma. and other healthier alternatives. Although PepsiCo now has numerous products geared toward health. which was accused of human rights violations in the world. The expansion could backfire. and weaker bones. low fat. In 1991 PepsiCo partnered with Thein Tun to help with its entry into Burma. Pepsi has fought back by creating sodas that have low calorie and sugar content. Thein Tun was an ardent supporter of the Burmese military junta. Baked Cheetos. One major challenge these companies might encounter is whether to operate in a profitable market that is antagonistic to the parent country or that has been accused of human rights violations. its most popular product is still its signature Pepsi-Cola. Frito-Lay Company has tried to combat the issue by offering Baked Lays. natural items instead of processed sugary and salty foods. PepsiCo likely faced this risk in the middle of the Cold War when it began doing business in the Soviet Union. In response. SunChips. These alternatives are claimed to be healthier all-around. with citizens of the home country boycotting company products. a similar controversy did not have as good an outcome. As pressure continued to mount. Pepsi left Burma completely in 1997. Unfortunately. America is becoming more health-conscious and desires low calorie. PepsiCo is making strides to address these concerns. Most of the products are processed and contain a high amount of sodium and sugar as well as being highly caloric and fatty. For example. and the artificial sweeteners used also have their own set of health risks. The boycott of companies who were doing business in Burma became so extreme that the Free Burma Coalition initiated the movement to take Pepsi products out of all American universities.Multinational Corporations-PepsiCo Multinational companies should always investigate the status of the country in which it wants to operate.

compared with the 18. PepsiCo is now required to put the words “Public Water Source” on the label. A giant agribusiness. to tackle this issue. For example. PepsiCo is hiring people that are potential enemies of the organization: health officials.Multinational Corporations-PepsiCo anticipates that further investment will yield $30 billion in the future. the label on the Aquafina bottle had snow capped mountains on it. as PepsiCo inevitably discovered.S. and to promote the beverage PepsiCo released AMP Up Before You Score campaign using mobile phone apps. Aquafina was accused of not being transparent in its business practices. One success thus far has been the introduction of a zero-calorie natural sweetener called stevia into new brands. might have a picture of a traditional farm on its package. On top of the tap water dilemma. AQUAFINA TAP WATER The public’s attention was on Aquafina bottled water in 2007 when the watchdog group Corporate Accountability International claimed that the company was using tap water to fill the water bottles being sold. Interestingly enough. as in other countries. In these cases. Additionally.9 grams. The concept of the app was to help men “score” by categorizing women into 24 different groups and then giving the men clues 26 .5 grams in 2001. which seems to suggest that the water is purified spring water. The water was not regular tap water but came from a public water supply before processing. manufacturers do not have to label whether a food product contains genetically-modified ingredients. U. water bottle companies are dealing with criticisms for the amount of plastic these bottles contribute to land-fills. one of which has become a $100 million brand in less than a year. Formerly employed at institutions like the World Health Organization and the Mayo Clinic. It is clear that not only is healthier snack foods socially responsible. PepsiCo is in the process of developing bottles that use less amounts of plastic per bottle to help the waste issue. but it is also good business in an increasingly health-conscious marketplace. the increasing popularity of bottled water does not appear to be diminishing anytime soon. many consumers do not realize that labeling laws are not as strict in the U. for example. it is often the informed consumer or watchdog group that calls for action.. However. Many corporations utilize idyllic scenes on their packages that do not reflect reality. Additionally. Today. While the idea of mobile app marketing was a creative one. Some consumers find this to be misleading. There are movements around the country like the “Think Outside the Bottle” campaign to challenge people to go back to drinking tap water again in order to stop the amount of waste produced by the bottles. AMP is a new energy drink. This scenario brings up an ethical situation common in today’s marketplace. It was not publically known that the company’s procedures included a rigorous seven-step process which removes unwanted substances and is then branded as purified drinking water.S. these Pepsi employees are now researching healthier ingredients to put in PepsiCo snacks. and PepsiCo has set a goal to decrease its packaging by 350 million pounds by 2012. the general consensus was that the app was in poor taste. IPHONE APP In 2009 a PepsiCo iPhone app for its AMP Energy Drink unleased a stream of criticism. the Aquafina bottle weighs 10.

PepsiCo continually emphasizes its commitment to sustainable growth and its focus on generating healthy financial returns. This includes “going green” (for example. the environment. The trick for PepsiCo is to balance the need for convenience with the need for healthier food offerings. Because PepsiCo develops products using water. Part of PepsiCo’s commitment to this goal includes meeting consumer needs for a spectrum of convenient foods and beverages. and producing attainable outcomes. and packaging initiatives. Soon after the app was introduced. energy. Pepsi has been scrutinized for its unhealthy products and has been criticized for contributing to obesity. it does recognize the consumers’ desire for easy and accessible snack foods and beverages. but also in the best interest of its stakeholders. PepsiCo’s hard lesson proves that even with exciting new technology and marketing venues. and even providing them with opening lines for conversation. The app was immediately pulled and Pepsi is still being criticized for the insensitivity and offensive nature of the app. dates. This involves water recycling and treatment efforts.Multinational Corporations-PepsiCo about her personality. and actually sells bottled water. PepsiCo’s commitment to its community and toward sustainable growth is outlined in something it calls “Performance with Purpose. For PepsiCo. If a man was successful in “scoring” with that type of woman. As such. its message came out as crude and offensive. PepsiCo has recognized the importance of social responsibility to its reputation. it is actively implementing programs to reduce waste and conserve resources. he could create a “brag list” with names. PepsiCo engages in research to develop healthier products and reduce unnecessary editions. establishing and meeting goals. it was protested by activist groups and thousands of Facebook and Twitter users across the country. and other unhealthy ingredients. PepsiCo was trying to stay current and creatively reach its target market by being funny. These areas must be addressed for PepsiCo to be a socially responsible company. a large part of its sustainability efforts involves reducing the negative effects resulting from the production and consumption of its products. sugars. things she enjoys. through water conservation and the reduction of waste products) and reducing its carbon footprint. incorporating healthier options and reducing fat.” PepsiCo gives back to its communities and stakeholders while maintaining high standards. Although PepsiCo has made many changes to its product line. Instead. 27 . Acting in the interests of the consumers. PepsiCo claims to have saved 11 billion liters of water in 2009 alone. PepsiCo reduces its impact on the environment through various water. SOCIAL RESPONSIBILITY & SUSTAINABILITY Despite the many criticisms it has encountered throughout its long history. while giving back to those communities that it serves. but they do meet the consumers’ needs for easy access. where recycled water is treated thoroughly and reused within its products. companies must continue to create carefully designed and thought-out campaigns for their audiences. and details. These food products may not be the healthiest option. PepsiCo views its goal of decreasing its environmental impact not only as socially responsible. CEO Indra Nooyi claims that “Performance with Purpose” consists of three parts: products. and employees. This information could then be uploaded onto Facebook and Twitter. By making changes in its operations.

Additionally. Finally. it is important for PepsiCo to maintain mutual respect. Because it inspires a collaborative culture. More specific aspects of PepsiCo’s compliance program. our consumers and the world we live in. Training sessions are available online or through workshops. PepsiCo Guiding Principles 1. the company has what it calls an “Internal Audit methodology” and maintains a 24-hour anonymous ethics hotline to which employees can report concerns or ethical violations. Another aspect of Pepsi’s commitment to social responsibility is reflected in its support of and commitment to its employees. 4. integrity.Multinational Corporations-PepsiCo PepsiCo also invests in clean energy sources.000 employees. PepsiCo has reduced the amount of plastic used in its beverage containers. are audited externally. The company expects its workers to be familiar with its Code of Conduct and employs a chief compliance officer to enforce the Code. which supplies more than two-thirds of the power used in one year by its Mamandur beverage plant. PepsiCo provides annual ethics training programs for employees and noted a 49 percent increase in employee ethics training from 2008 to 2009. In order to maintain its commitment to its communities and assorted stakeholders. PepsiCo UK manufacturing facilities no longer send waste to landfills. such as its wind turbine project in India. Pepsi is actively creating partnerships with community organizations geared toward increasing recycling efforts. 5.S. PepsiCo values the talents of its employees and offers management courses at its institution Pepsi University to provide employees with the leadership skills necessary to take on managerial roles within the company. over 44. To measure its progress and to make certain that it remains focused. PepsiCo provides them with a biennial Organizational Health Survey to get their opinions on the organization and the workplace. Frito-Lay reduced the waste that ended up in landfills by over 45 percent in two years. such as its environmental activities. 6. PepsiCo’s compliance programs are frequently reviewed by independent third parties to pinpoint key risks. In 2009 alone. Balance short term and long term. This is valuable to PepsiCo because it sees this as an opportunity to benefit from new perspectives and to encourage creativity within the workplace. We must always strive to: . 3. Win with diversity and inclusion. participated in Code of Conduct trainings. PepsiCo has high standards for quality. including most managers. and in the U. 2. Speak with truth and candor. Additionally. Sell only products we can be proud of. PepsiCo aims to recruit and retain world-class talent through employee satisfaction—what PepsiCo terms “Talent Sustainability.” For instance. PepsiCo has developed the following six guiding principles that it uses to sustain its commitment. and safety in the workplace. which has significantly decreased the amount of waste sent to landfills. According to the company’s philosophy. PepsiCo has also developed a Code of Conduct that addresses various business ethics issues such as bribery and conflicts of interest. It is PepsiCo’s goal to encourage a diverse corporate culture along with employee engagement in the workplace and community. By adhering to processes and ensuring proper governance. to encourage employees (associates) to speak out. Care for our customers. 28 Respect others and succeed together. It understands that employees are a key to success and reflect what PepsiCo means to customers. the company attempts to uphold its responsibilities and earn the confidence of stakeholders. Finally.

and more. PepsiCo is taking a twist on the more conventional methods of marketing and advertising by launching a cause-related campaign. songs. The company has been running super bowl ads since 1987. In its place the company launched the Pepsi Refresh Project. The purpose of cause-related marketing is to get the consumer involved in social causes. movies. Pepsi has provided women with an interactive website designed to let them share stories that “inspire. laughter (Raven-Symone). a PepsiCo snack food under Frito-Lay. but after 23 years PepsiCo decided to sit out on the Super Bowl ads for 2010. did have various ads in Super Bowl XLIV. It decided to invest in cause. This year. it portrays the sponsoring company in a favorable light. In February 2010. giving them a platform to have their voices and opinions heard. In the process. In this type of campaign. PepsiCo uses Facebook to link the information that they post on their website to their Facebook Profile. Thus. So although Doritos. the consumers do the work—even in deciding who is awarded the grants. and love. hope. PepsiCo has used its Super Bowl ads to promote new products. are involved as spokespersons for different community outreach programs important to women.related marketing. the company’s title brand Pepsi did not. The entire process happens through social media. but instead of merely getting a product. using Pepsi’s website: pepsiweinspire. The Super Bowl is known as one of the highlights of many companies’ advertising budgets. consumers receive the added incentive of contributing to a social cause when they do business with a certain company. Cause-related marketing may do the same thing. such as Queen Latifah and commediene and actress Raven-Symone. Pepsi We Inspire was awarded the NAACP award for its leadership in promoting multicultural images and role models in the media. PepsiCo is getting consumers involved. influencing them to purchase their products by appealing to their emotions. however. They also represent six categories that have been identified by PepsiCo as being of great importance to women: beauty (Queen Latifah). They are encouraged to post photos and information in a blog-like Pepsi has decided to better use its funds to inspire people to get 29 . motivate.Multinational Corporations-PepsiCo WE INSPIRE CAMPAIGN Another of PepsiCo’s initiatives is to empower women. often using celebrities such as Britney Spears and Ozzy Osbourne. PEPSI REFRESH PROJECT PepsiCo took a risky move for the 2010 Super Bowl. and PepsiCo is no different. sharing intimate moments. wisdom. and propelling positive change. Basically. It was the biggest advertiser during the 2009 Super Bowl and has made the Super Bowl into a major part of its marketing strategy. inform and strengthen” their relationships. The Pepsi Refresh Project is a unique social responsibility initiative because while it donates grants for certain causes. Marketing strategies in the past have been focused on conveying a message to consumers. As a result. joy. instead of paying the nearly $3 million for a 30-second TV ad. This partnership strengthens PepsiCo’s ability to get women involved and to be inspired by powerful women who act as role models. Celebrity women. recipes. PepsiCo decided to do something innovative and different. it created the Pepsi We Inspire campaign to give women a platform to communicate.

businesses. In so doing. Then he or she scans the can or bottle’s barcode and puts it in the appropriate chute. MTV Networks. Grant awards are separated into four categories: $5. The Pepsi Refresh Project challenges people.S. Many of PepsiCo’s ads include the question: “What do you care about?” PepsiCo has been distributing ads around the country with captivating phrases and words. or other goods. The site is user-friendly and interactive.” These words capture a positive ‘can do’ attitude. all with the Pepsi logo placed in each letter “o. The process involves only a few steps. This will be encouraged with PepsiCo’s Dream Machine kiosks that act like reverse vending machines. Food & Shelter. it is quickly becoming a movement defining PepsiCo as a leader when it comes to social responsibility and sustainability. 30 . with its reality show “If I Can Dream. Ben-Gil Elementary Boosters. It dedicated at least $20 million. Every month PepsiCo tallies the votes and donates grant money to those with the most votes. and non-profits to look around their communities and identify things that they want to change. inspiring consumers to think about what matters and to act on those ideas they care most about. First. coupons. and the Waukee High School Earth Club. It is clear that in addition to its heavy reliance on web ads and public relations. $25. post their ideas for causes.000. The two partners want to see the U. even skeptics admit that it has generated a positive buzz around the company. the consumer registers on the kiosk. through the end of 2010. Although Pepsi’s decision to skip the Super Bowl is Other forms of social media that PepsiCo is using include Facebook. Arts & Culture.Multinational Corporations-PepsiCo involved in good causes.000. Consumers can go online to refresheverything. Neighborhoods. This is becoming more than just cause-related marketing used to engage customers. $50. Broadcast networks such as ABC and CBS will also be involved. Recipients who have been awarded funding for their proposed causes include the Kanzius Cancer Research Foundation. and Parade.000. particularly by busy consumers on the go. beverage container recycling rate increase from a mere 34 percent to 50 percent by 2018. PepsiCo will also be known as the sponsor of the first long-form series on the online video site Hulu. in support of the Dream Machine recycling initiative. the company hopes to reach its target market of a younger audience. The Planet. Yahoo!. as well as media partners like AOL. Twitter and Hulu. PepsiCo is utilizing the whole spectrum of social media outlets to bring its cause to fruition. for donations to local organizations and causes proposed by the public. 2010 (Earth Day) PepsiCo announced its multi-year partnership with Waste Management Inc.000. and $250. among others. The topic areas are being classified as Health. and Education. DREAM MACHINE On April 22. The Dream Machine kiosks are computerized receptacles that give consumers points when they recycle their bottles.” Hulu states that its site will be used to strengthen PepsiCo’s cause-related advertising campaign. and/or vote for those ideas already posted. The kiosk then issues the user a receipt that contains reward points that can be redeemed for such things as movie tickets. paving the way for new socially responsible and conscious advertising. The Dream Machine initiative recognizes that many plastic cans and bottles are needlessly thrown away each year. PepsiCo has been able to differentiate itself in an innovative way. a/index.html http://www. 2010. http://www. accessed June 2.htm http://www.thesustainabilityreview.Multinational Corporations-PepsiCo CHAPTER 5: METHOD OF DATA COLLECTION Source of Data: The project has been completed with the help of secondary data The information provided in this project is gathered from:  Projects  Books  Journals  WEBSITES        http://www.html. accessed August CHAPTER 6: SCOPE OF STUDY 31 http://www.pepsistore. http://www.

which still only owns beverages.Multinational Corporations-PepsiCo PEPSICO AND PUBLIC HEALTH: IS THE NATION’S LARGEST FOOD COMPANY A MODEL OF CORPORATE RESPONSIBILITY OR MASTER OF PUBLIC RELATIONS? While most people just think of soda when they hear the name Pepsi. the multinational conglomerate called PepsiCo is actually the largest food company in the United States and second largest in the world (Nestle´ is number one). Formed in 1965 through a merger of Pepsi-Cola with Frito-Lay. The goal of this article is to take a closer look at what the company says it’s doing. and the broader context for these actions. PepsiCo’s dizzying reach ex. PepsiCo stands out. what it’s actually doing. While industry responses have come in various forms. Add to that increasing pressures in schools and local communities to reduce or eliminate junk food marketing to children and it becomes clear that a company like PepsiCo has a pretty serious public relations challenge on its hands.” at least not on a regular basis. The company prides itself on being a leader in corporate social responsibility. many questions have been raised about the role of the food industry in contributing to a marketing environment in which unhealthy beverages and snacks have become the norm. sugary beverages and salty snacks are not exactly “part of a balanced diet. 32 . By any measure of good health. and sets it apart from industry competitor Coca-Cola. at least in terms of public relations.tends far beyond just fizzy sodas. Over the past decade. the company’s marriage of salty snacks with soft drinks has been key to the company’s success.

and Tropicana brands) Frito-Lay North America Quaker Foods North America Latin American foods Europe Asia. PepsiCo’s total net revenue in 2010 was more than $57 billion.4 billion $13 $1.6 billion billion billion billion billion To fully understand how the company is structured.4 billion in 2010. Increase the amount of whole grains. Reduce t h e average amount of saturated fat per serving in key global food brands. Reduce the average amount of added sugar per serving in key global beverage brands.8 $6. Indr Nooyi has become some. In its 2010 annual report. in key countries. Frito-Lay. saturated fat. organized by brands: Pepsi.Cola. For example. fruits. Middle East and Africa • • • • • 2010 Revenue $20. and added sugar are only “in key global food brands” and “in key countries. sweetened beverages have come under a lot of scrutiny for causing health problems. While these certainly sound like worthy goals. and in her native India. Her claim to fame is largely based on the company’s positioning itself as a national leader in “corporate social responsibility” in general and as it specifically relates to health and n u t r i t i o n . Quaker.some i n g r e d i e n t s that contribute to h e a l t h i e r eating and drinking. which include the costs of advertising and other marketing activities. Some of the company’s stated commitments with respect to its products are to: Provide more f o o d and beverage c h o i c e s made w i th whole. Gatorade. much of the language is vague and q u e s t i o n s loom re ga rd i ng accountability and evaluation. with profits topping $10 billion. Total marketing expenditures. Here is an excerpt from how PepsiCo is reporting its progress o n this issue: 33 . in key countries. Since becoming CEO in 2006.Multinational Corporations-PepsiCo CHAPTER 7: LIMTATIONS OF STUDY PEPSICO’S PERFORMANCE WITH PURPOSE It’s difficult t o comprehend the e n o r m i t y of this company. by 15% by 2020. PepsiCo needs to at least appear to be making some changes.” Which ones are “key”? Also. Often f i g u r e s are easier to place into context when they are broken down. PepsiCo is in charge of measuring any progress the company is making toward these goals. the pledges to reduce sodium. Given the criticism the company has come under for selling products like Mountain Dew and Cheetos (among many other brands). The c o m p a n y touts i t s “Performance with Purpose. with a 2006 baseline. Here are the company’s revenues for a few of its divisions. vegetables.3 $9 $6. and company e m p l o y e e s . Tropicana. PepsiCo u s e s more v a g u e language to show off how well they are doing in each category.thing of a corporate superstar. you have to think of PepsiCo as not just a soda and snack company. but bro.ken down into its five core divisions. and low-fat dairy in our global product portfolio. For example. nuts.S. recognized with numerous awards (including “CEO of the year”) and i n many publications both i n the U. in key countries. by 25% by 2020. totaled $ 3. PepsiCo Division PepsiCo Americas Beverages (includes Pepsi-Cola. Reduce t h e a v e r a g e a m o u n t of sodium p e r s e r v i n g in key global food brands. with a 2006 baseline.” w h i c h consists of a series of “commitments” in three areas: health. seeds. with a 2006 baseline. by 25% by 2015. and Gatorade. t h e environment.

” 34 .Multinational Corporations-PepsiCo While reducing added sugars in beverages is challenging—due to strong consumer taste preferences for sugar and complex regulatory processes for alternatives—we have set aggressive goals and are making progress toward achieving our 25 percent reduction target by 2020. except that the company i s hard at work to develop “ an all-natural s w e e t e n e r designed to replicate the taste and feel of sugar. Complaining about “ complex r e g u l a t o r y processes” is a way to excuse inaction. No further details are given. No wonder it’s a challenge when companies like PepsiCo have convinced Americans to drink soda and other sugary beverages instead of water.

” Encourage people to make informed choices and live healthier. especially in the school setting. as described by PepsiCo CEO Indra N o o y i in an interview with Fortune. More vague and self-serving language here. this public relations problem could be over. Rounding out the portfolio trifecta are the “goodfor-you” choices from the company’s Quaker.come. and SoBe Lifewater. while the “betterfor-you” category is comprised of allegedly healthier options including Diet Pepsi. we voluntarily discontinued direct sales of full-sugar soft drinks to K–12 schools in the U.for-you. The bottom line is that PepsiCo is in charge of everything: of what sort of changes they commit to. The company prides itself on a wide portfolio of products that are broken down into a trio of spin-centric “good-for-you. Ca. secondary schools in most of Europe. Advertise to children lower than 12 only products that meet our global science-based nutrition standards. Increase the r a n g e o f foods and b e v e r a g e s t h a t o f f e r solutions for managing calories. Australia and the majority of countries in the Arabian Peninsula (emphasis added).” PepsiCo has a huge challenge on its hands. Most of the corporate profits come from selling the very products that Americans need t o be eating less of nutritionally d efi c ie nt sugar-loaded soft d r i n k s and salty.” “better. in some cases. And what about t h e progress b e i n g made? More vague language from the annual report: For example. But PepsiCo has realized that by creating a continuum of “healthiness” in which the entire universe is defined by the company’s own products.” and “fun-for-you” products. It’s unclear exactly what the phrases in italics mean and how these qualifiers undercut the specifics and the spirit of the commitments. According to Nooyi. Tropicana. fatty snacks.” Trouble is that PepsiCo gets to decide the science —a company that has a vested interest in the outcome of that s cience . including the promise to only advertise to children under 12 “products that meet our global sciencebased nutrition standards. 35 .nada. Doritos and Lays. We also do not sell full-sugar soft drinks directly to primary and. Enter P e p s i C o speak. like portion sizes. Eliminate the direct sale of full-sugar soft drinks to primary and secondary s c h o o l s around the globe by 2012. of how any progress is evaluated and of course. Baked Lays. the “fun-for-you” products include full-octane brands such as Pepsi and Mountain Dew.Multinational Corporations-PepsiCo CHAPTER 8: FINDINGS AND RECOMMENDATIONS • • • • CUNY LAW REVIEW Given the public outcry regarding marketing to children. how the results are reported. between 2006 and 2009. SPINNING THE PRODUCT PORTFOLIO When it comes to claims of caring about people’s health and offering “wholesome foods and beverages. Display calorie count and key nutrients on our food and beverage packaging by 2012. Naked Juice.S. and Gatorade lines. and replaced them with smaller-portioned and lower-calorie beverage options. PepsiCo has also made the following commitments under “marketplace.

and with added vitamin C” and concludes that “kids w o u l d be better off e a t i n g an apple or a banana.”H o w exactly. flavored with additives. is downright shameful.signed to “squeeze more fruit into kid’s daily diets. “Since when is Gatorade equivalent to orange juice in its health benefits?” Nooyi also admits t h a t r i g h t n o w .” In an amalgam of the two. with the growth of the local food movement. an increasing segment of the population is concerned with where their food comes from.”In other words. The econo mic goal is to increase t h e current $10 billion i n revenues from “good-for-you” products to $30 billion over the next decade. that Nooyi places the entire line of Gatorade products in the “good-foryou” category is especially troubling.” “Better-for-you” raises the question. Nooyi says the company i s putting more R &D dollars behind developing additional “good-for-you” products and is “investing in new sweeteners and saltreduction technologies to make our ‘fun.” LAY’S CHIPS: FARMWASHING? While total lay’s sales topped $2 billion in 2009. As Professor Nestle put it. the company is hard a t work trying to engineer healthy Cheetos. But Pep.Lay as well as PepsiCo. to promote these products in schools. According to the New York Times: “Sales growth for Lay’s had slowed to less than 1 per-cent from 2005 to 2007.Multinational Corporations-PepsiCo In the world of PepsiCo nutrition. she also refers to the other 80% as the “core” brands of the company that they need t o focus on.” But nutrition expert M ar io n Nestle is not impressed. Food Studies. de. Also.speak: “We see the emerging opportunity to ‘snackify’ beverages and ‘drinkify’ snacks as the next frontier in food and beverage convenience. the p o r t f o l i o is only 20% “good for you” but she sees “growth” in that category.” Translation: the company is worried and looking for new ways to green washes i t s products. raising concern among executives at Frito. Still. Nooyi explains that the company w i l l achieve this in part with “fruit and vegetable offered in different forms. Most health experts say that except for marathon runners and tri-athletes. artificially thickened. Paulette Goddard Professor in the Department of Nutrition. “watery apple and banana sauce. Even worse. the made-up category of “sports drinks”— mostly sugar water with artificial coloring—is really unnecessary. in early 2011.for-you’ products better for you. whole grains or any other sort of super g r a i n s . And no wonder. where kids are barely getting any exercise these days. drinks li k e Diet Pepsi are “better-foryou” because they have zero calories. She describes it as. “Fun-foryou” is a brilliant way to spin “bad-for-you.sic PR professionals are all over that problem 36 . This is another public relations headache for a multinational company whose business model doesn’t exactly lend it to having booths at your local farmers market. and Public Health at New York University and author of Food Politics (among other books) is unimpressed with PepsiCo’s three-tiered approach: PepsiCo is leading t h e way to find health reasons t o sell junk food. better than w h a t ? It’s great the company isn’t claiming these products are health foods but I think PepsiCo is on a slippery slope in these categories. Marion Nestle. the company released a new product called “Tropicana Tropolis”—squeezable fruit. sweetened with fruit sugars. But that’s hardly a measure of good nutrition. growth—the key to continued success—was down in 2010. does a processed food c o m p a n y accomplish this? Nooyi explains in more Pepsi.

The addition of farmers to the ad campaign is an aim. seal the boxes and get them ready to leave the factories. just focus on the local farmers. And who can forget all the local truckers who have to drive the big trucks to the regional distribution centers before they can be delivered by yet other local truck drivers to all those local stores. (3) co-opt experts who would otherwise be critical of business practices. It was a personnel coup for PepsiCo whose new director of global health policy came with a pedigree the company must have been salivating over. an unprecedented global treaty that pitted Yach against the world’s most powerful tobacco i n d u s t r y l e a d e r s . the campaign featured ads of regional farmers in local markets.”28 Not wanting to miss out on the current “love your local farmer” movement. “to put the hometown face on it.honed strategy of the food industry. While the tactic takes number. Or the other numerous local factory workers who must work very hard turning those “simple ingredients” into fried chips. i t s goals are a l w a y s the s a m e . While plenty of other food companies are attempting to health wash their junk food products and menu items.” But how come the company didn’t put the “hometown face” of the local factory workers who pulverize the potatoes. Yach established the Center for Epidemiologic Research at the South African Medical Research Council. While at WHO. Then there are even more local factory workers on the assembly line where all of those many chips are put into bags. A native of South Africa where he did his medical training. says Gannon (2) position food makers’ own (biased) contributions to the scientific debate as legitimate and authoritative. that one of the world’s most respected public health experts w e n t to work for PepsiCo.oust forms. Marion Nestle aptly describes i t as “farm washing. and (4) ensure ultimately that people continue to consume food companies’ unhealthy products. There. Nope. and the hometown face is our farmers. at times finding himself at odds with Big Food. They also left out the local factory workers who put the bags into boxes. Ask anyone who’s been in the public health field for at least ten years if they’ve heard of Derek Yach. he’s a public health hero. Yach also became embroiled in food issues. But he earned his g l o b a l health hero reputation as Representative o f the Director General at the World Health Organization. many were shocked. what else? An ad campaign. which only 37 . and then douse the mixture in salt along with many gallons of (“all-natural”) oil.”But when the news came. t o : (1) c a s t doubt on findings that might threaten financial interests. vice president for portfolio marketing at Frito-Lay. along with an online “Happiness Exhibit” photo gallery at lays.Multinational Corporations-PepsiCo with.”At the helm is a public health professional who once worked for a much more prestigious institution: The World Health Organization. in 2007. Wonder why? CO-OPTING SCIENCE AND HEALTH PROFESSIONALS Shaking the foundations of sound p o l i c y -making i n attempts to control the scientific discourse on nutrition and health is a well. and the response is likely to be: “Of course. The compan y h a s an entire department with the official sounding name of “Global Health Policy. he helped cement the F r a m e w o r k C o n v e n t i o n on Tobacco C o n t r o l . his willingness to speak out about food politics ultimately led to his downfall at WHO. PepsiCo has emerged as the industry leader in the cooptation of health professionals. Indeed.

which updates the grim obesity statistics from around the nation.” Kahn worked at the Mayo Clinic and also served as division chief of endocrinology.” And why should he. author of Food Politics. Mehmood Kahn also for the newly created position of “Chief Scientific Officer. though. it was when he later joined Kelly Brownell’s team at the Rudd Center for Food Policy and Obesity at Yale University that things went downhill. right in the middle of the sobering data and potential policy solutions came an unexpected new entry: a two-page missive penned by Indra Nooyi herself. a native of Ghana. Centers for Disease Control and Prevention. heart dies. In the 2010 environment where scientists don’t feel out of place so they forget they’re working for a company that profits from the sales of salt. For the past eight years. Dr. science. PepsiCo has placed other health experts on its payroll for similar reasons. As you might expect. and fat. In late 2009. He lost on both counts.” Previously. He must have decided that outside advocates can’t get anywhere with food companies and that change has to come from within. sugar.ease and colorectal cancer. it reads more like a press release than scientific analysis: “We firmly believe companies have a responsibility to provide 38 . Their pedigrees span the world’s premier public health organization. metabolism and nutrition at the University of Minnesota Medical School. I’m dubious that meaningful changes from within are possible for a company that makes most of its money selling sodas and potato chips.S. offers her take on what happened: I first met Derek Yach when he was a public health hero at WHO for his efforts to get food companies to stop marketing junk foods to kids and to stop lobbying against proposed WHO advice to restrict sugars. I don’t feel like I’ve left public health. PepsiCo has hired a t least three noted International experts in medicine. Mensah explained his decision to work for PepsiCo: “The real role we play is to use the best science available to make sure everything we do supports our customers. Dr. Yach left Rudd f o r a brief stint at the Rockefeller F o u n d a t i o n before j o i n i n g P eps iCo in 2007. but that’s just me. Mensah. PepsiCo tapped Dr. when he is surrounded by other doctors? Great strategy: Create a re. heart attacks. In a 2010 interview. spent nearly a decade with the U. a nonprofit called Trust for America’s Health (TFAH) has published a report called F as in Fat.S. Dr.Multinational Corporations-PepsiCo furthered his public health hero status. George M e n s a h b e c a m e PepsiCo’s “Director of Heart Health and Global Health Policy. culling information mostly from respectable government sources. government. New York University Professor Marion Nestle. To recap: Since 2007. helping lead the federal agency’s efforts to fight strokes. America’s top public health governmental agency and the most respected medical and research academic institutions. but not for lack of trying. and public health. Ironically. FINDING SCIENTIFIC VEHICLES FOR MESSAGE THE CORPORATE Another disturbing sign that PepsiCo was co-opting the scientific conversation around public health and diet came in 2010 when CEO Indra Nooyi succeeded in infiltrating one of the nation’s most respected annual reports on obesity. Just a few months after Yach was hired. PepsiCo p l u c k e d its latest plum from the tried and true depository of scientific experts: the U. But PepsiCo d i d n o t s t o p t h e r e . But his g o v e r n m e n t ca r e e r got trumped by Cheetos.

in 2010. We need t o rely on credible science for sound d e c i s i o n making. “We reached out to a number of companies and Pepsi was the first one to respond. PepsiCo’s Frito-Lay North America infiltrated high school football season with its “Score for Your School” program for Texans that invited fans to help schools win up to a $10. PHILANTHROPHY DISGUISED AS MARKETING While most large corporations engage in some form of philanthropy. PepsiCo should never be looked to as an expert on anything other than what it does best: marketing and selling highly processed food and beverage products to the world. And w h a t b e t t e r place to s h o w h o w m u c h the company cares than in schools? Schools have become especially controversial in the food debate because of concerns that corpora. but rather one filtered through the corporate agenda. the nation’s largest health care foundation. and thus omit the less flattering aspects.” Why is PepsiCo infiltrating what used to be neutral reports from the Trust for American Health and the Robert Wood Johnson Foundation? Laura Segal.” says Segal.” Nooyi wrote. PepsiCo has demonstrated remarkable skill in this department as well.tins should n o t be targeting children in a learning (and captive) environment. says that having PepsiCo CEO Nooyi’s comments in the report was an innocent attempt to have the “industry perspective” and not the result of any shady financial r e l a t i o n s h i p . 39 .taken to promote themselves as good corporate citizens and undermine efforts to establish state and local policies to reduce consumption of sugar-sweetened beverages. Harold Goldstein. science plays a critical role in public policy debates. We want to represent a range of opinions and the industry segment is a significant co mpon ent of dealing w i t h obesity. In contrast.Multinational Corporations-PepsiCo consumers with more information and more choices so they can make better decisions. when food companies such as PepsiCo (even when speaking through their own scientific experts) opine on a major public health problem. For example. In the right hands. notes what Nooyi conveniently left out: She doesn’t mention the highly sophisticated multimillion dollar national marketing and lobbying campaign they have under. the Robert Wood Johnson Foundation (RWJF).000 d o n a t i o n for t h e i r sports p r o g r a m s . As more and more health experts and organizations slide down the slippery slope of accepting corporate funding. we are not about to hear the entire story.39 In other words. One of RWJF’s most ambitious goals is to “reverse the childhood obesity epidemic by 2015. or how many public health reports it infiltrates. which by definition must promote its bottom line. spokesperson for the Trust for America’s Health. which have been the single leading contributor to the obesity epidemic. That’s why no matter how many MDs or PhDs the company hires. So it’s critical that scientific research remain unfettered by corporate interests. executive dire ctor of the California Center for Public Health Advocacy. Even more troubling. we will ultimately lose a critical tool for effective policymaking. this report is co-published by its funder.

” The local reporter explains how the youngsters showed Pepsi employees their grat itude : The entire school signed a large. Teachers wore turquoise shirts that read. Moreover. Another disturbing aspect of the Pepsi Refresh Project is its cooptation of healthy food advocates. whether it’s vending machines or voting contests. a parochial elementary school in Alton. a farmers market in Illinois won $25. Of course its fine if PepsiCo wants to give back to the community. “Every Pepsi Refreshes the World.” and the children pinned on Pepsi buttons . forming a “Global Nutrition Group” in 2010. these grants give credibility to the notion that we can (and should) rely on Big Food to fix our broken food system.000 to help teach schoolchildren about eating fresh fruits and vegetables. According to the company’s annual report. including landing one shirt in the back row. The Pepsi Refresh website has an entire section devoted to education. A priest handing out Pepsi T-shirts. But they are really doing m o r e t o promote the Pepsi brand than they are to advance their own cause.000 to purchase com. . a worthy cause for sure.shot—Michel showed a good pitching arm as he deftly threw Pepsi shirts to all areas where students were sitting. the soda brand’s colors (emphasis added). PEPSICO IN THE DEVELOPING WORLD. In 2010. Some of the shirts landed in the students’ l a p s . the company has been gaining much positive PR with its ubiquitous Pepsi Refresh donation pro. they are undermining the very ideals they espouse. . But nothing could be further from the truth. and the younger students made individual thank-you drawings in red.” 40 . white and blue.gram. Illinois held a “thank you assembly” for Pepsi employees after the school won a Refresh Everything grant of $25. But Pepsi does not belong i n schools. AKA “ EMERGING MARKETS In addition to being America’s leading p u r v e y o r of processed Foods. The program comes complete w i t h a “Food and S h e l t e r A m b a s s a d o r ” t h a t i s making $ 5K grants for projects like school gardens and a cross-country bicycle potluck. An article describing the event showed the image of adorable six-year-old Matthew Dixon holding a “thank-you Pepsi” sign. so many groups would be desperate enough to turn to the nation’s largest purveyor of processed food to try and promote the healthy kind. PepsiCo is also positioning itself as global leader. but this is not philanthropy. this “groundbreaking initiative is intended to help accelerate the growth of our Good-for-You products from $10 billion in net revenue in 2010 to $30 billion by 2020. PepsiCo is happy to spend relatively small amounts of money in exchange for getting to hitch its PR wagon to the likes of farmers markets and school gardens.Multinational Corporations-PepsiCo For the past couple of years. thank-you poster. it doesn’t g e t any better than that for positive PR. it’s branding. Similar to professional baseball games—but minus the sling. But what about the mixed messages kids receive from all the promotion with Pepsi logos associated with these two projects? It’s no wonder that in these hard economic times.light of the 15-minute assembly in the gymnasium came when Father Delix Michel riled up the youngsters with a T-shirt toss. The high.putters. Indeed.47 And in another heartwarming kid project. This is the same company that has pledged to “[e]liminate the direct sale of full-sugar soft drinks to primary and secondary schools around the globe by 2012.

PepsiCo and other food companies that claim to be so responsible and care about the welfare of children have shown themselves to b e c o m p l e t e l y untrustworthy. In late 2005.” While it’s typical for global food companies to expand in this manner. to eradicate extreme poverty and hunger by 2015” and is “working toward developing nutritious fortified products to reduce hunger in India.”54 The company announced “a pilot program focusing on chronic hunger . sugary cereals. and the Food and Drug Administration— collectively known as the Interagency Working Group. it’s been a dismal failure. Middle East and Africa unit posting 13% growth in snack volume and 10% in beverage volume. The CFBAI consisted of a series of individual company “pledges” on food marketing to children. proposed voluntary “principles” for food companies to follow in hopes of curbing ads aimed at kids for fast food. India and Russia. .dia. In response. the company says that “in countries where malnutrition is a serious issue. Then in 2009 at the request of Congress. given alarming data on childhood obesity and the connection to child. At least three organizations. and in time.S. PepsiCo proudly announced a $2.” w hi c h in corporate speak means the developing world. South Africa. Centers for Disease Control and Prevention. Children Now.S. largely due to growth in China and In. . to add to the current 27 facilities.Multinational Corporations-PepsiCo These days no food company can survive globally without continuous expansion. For example. the Institute of Medicine recommended that Congress act within two years if industry showed no signs of progress through voluntary measures.”But are fortified processed foods really the answer to global hunger? PEPSI’S LOBBYING POWER PepsiCo Helping to Undermine Marketing to Children Regulation For years. soda. PepsiCo is also positioning itself as a source of good nutrition for malnourished nations. The soft drink and snack food giant intends to build a dozen new food and beverage plants. PepsiCo proudly t o u t s its membership in CFBAI. Nigeria. 41 . According to the Wall Street Journal: “Both beverage giants [Pepsi and Coke] are expanding aggressively in China. PepsiCo is very dependent on “emerging markets. candy. Global growth is also crucial because of threats of regulation and other public relations challenges here a t home. fast food and junk food peddlers banded together in 2006 to create the impressive-sounding Children’s Food and Beverage Advertising Initiative (CFBAI). the Yale Rudd Center for Food Policy and Obesity. It’s international business boosted 2010 first-quarter results. especially into the developing world. to say the least. Soft-drink sales have declined for five years in the U. among other emerging markets. Department of Agriculture. An “initiative” is industry’s favorite way to substitute for actual l aw . on top of the $1 billion the company has already spent there since 2008. with its Asia. and the Center for Science in the Public Interest have each conducted reviews of industry voluntary self-regulation on food marketing to children and found the system to be lacking. U. Only one problem: by all accounts.S. four government agencies— Federal Trade Commission. and a host of other nutrientdeficient food products.5 billion investment in China.targeted junk food ads. where growth is much faster than in the U. we offer products directly aimed at addressing chronic hunger.

”By August of 2011 PepsiCo. Mrs.70 Indeed.spite the increasing lip service given to corporate social responsibility—are legally required to make shareholders’ interests paramount. the company’s website contains an array of “policies” regarding marketing to children.”And the Wall Street Journal explained the problem this way: Hailed as a strategic visionary since taking PepsiCo’s reins nearly five years ago. No need for science-based. PepsiCo made political contributions in 14 states in 2010.000 in California and $40. records show.Multinational Corporations-PepsiCo The FTC even took pains to explain just how voluntary the rules would be: This is a report to Congress. all banding together trying to derail the federal proposal. a recent downturn in PepsiCo’s stock performance is causing some investment analysts to criticize the company. Time Warner.6 million on lobbying in the first quarter of 2011. both to individual campaigns and political action committees (PACs). so there’s n o proposed government regulation. what are the odds the final report will ever see the light of day? THE LAW A C C O R D I N G PEPSICO? TO PepsiCo clearly has no interest in anything the government has to say about how to regulate marketing to children. “They have to realize that at their core they are a sugary. its government re gu l at i on . it had spent over $2.67 With industry pulling out all the stops. a n d even the U. given the enormity of the c u r r e n t public health crisis of diet-related chronic disease? History has demonstrated that companies like PepsiCo cannot be trusted to put people before profits . PepsiCo’s myriad commitments and pledges are part of an overall strategy to placate critics and give policymakers the impression that the company has it covered. Kellogg. PepsiCo will decide all by itself how and when to control its behavior.800 on lobbying. corporations—de.S. which it doesn’t. In fact. 42 .63 “Overall. PepsiCo has it all figured out. spending the bulk of its money in California and Illinois. In fact. Chamber of Commerce. The p r e v i o u s y e a r . Viacom. So the FTC couldn’t issue a rule on this subject if it wanted to.5 million on lobbying the f e d e r a l g o v e r n m e n t . The group spent a cool $6. The company made political contributions of about $714.874. Nooyi is facing doubts from investors and industry insiders concerned that her push into healthier brands has distracted the company from some core products. the food industry launched an all-out offensive against this tame governmental attempt to rein in corporate marketing. Enter t h e “Sensible Food Policy Coalition” c o n s i s t i n g o f PepsiCo. If there’s one thing corporations hate more than bad PR. Indeed. fatty cola company a n d p e o p l e like that. And yet. the coalition’s main members [which includes PepsiCo] have spent nearly $60 million on lobbying since the start of the Obama administration. n o t a rulemaking proceeding. d e m o c r a t i c a l l y -determined laws t o protect public health. The P e ps i Co w e bs i t e is a veritable l e g a l document d ep o si t or y . Instead. PepsiCo e x p e n d e d $6.000 in Illinois. But is voluntary self-regulation sufficient. the FTC Act explicitly forbids the Commission from issuing a rule restricting food advertising to children. in July 2011. even going so far as to successfully lobby Congress to require a “cost benefit analysis” of the proposed voluntary principles68 (how to measure cost/benefit if compliance is not required is a mystery). PepsiCo f o c u s e d i t s energy o n a few states.

Nooyi acknowledged that she may have spent a disproportionate amount of time talking about healthier products. but that “PepsiCo has to satisfy critics about health concerns.Multinational Corporations-PepsiCo In the same article. She has to keep both investors and critics happy. while attempting to make things look good through clever public relations. What all this translates to is little change that will actually benefit public health. That’s why we have a system of laws and regulations d e s i g n e d to protect the p u b l i c f r o m c o r p o r a t e overreach.”7In other words. that system is under attack and constantly b e i n g eroded. The only way to accomplish both is by boosting the c o m p a n y ’s c o r e b r a n d s . Unfortunately. in the current anti-regulatory climate. Have we now replaced the democratic process with corporate public relations? What are the long-term consequences of allowing such a powerful multinational corporation like PepsiCo to call all the shots? Let’s hope w e don’t find out. 43 . Nooyi has a conflict on her ha nd s .

Some issues such as the nutritional concerns over soft drinks and snack foods create a serious dilemma in balancing the concerns of special-interest groups and the desires of consumers for good tasting food. starting with one man’s invention and becoming a multimillion dollar enterprise with operations all across the globe. The future of PepsiCo depends upon continuing to develop an ethical corporate culture built on values that help employees relate to the needs and desires of all stakeholders. PepsiCo has demonstrated a willingness to invest in innovative solutions for these problems. The current leadership at PepsiCo understands the importance of stakeholders and the need to develop effective dialogues and other communication to help PepsiCo resolve conflicts. PepsiCo is moving toward a more balanced stakeholder orientation by identifying those stakeholders that are relevant to the firm and trying to understand and respond to their concerns and needs. Yet the company could not avoid becoming involved in major controversies. While some of the company’s past challenges were likely inevitable. some were caused by not understanding stakeholder needs or by ethical lapses on the part of the company.Multinational Corporations-PepsiCo CHAPTER 9: SUGGESTIONS AND C O N C L U S I O N PepsiCo is the classic business success story. PepsiCo has faced its share of ethical dilemmas. If PepsiCo can continue to learn from its mistakes. it can make progress in solidifying a reputation as a socially responsible company. However. it has also become a major leader in the sustainability and social responsibility movement. 44 . Although it has a long way to go before its snacks can be considered healthy or its manufacturing processes truly sustainable. From a lack of cultural sensitivity to health concerns to environmental degradation.

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