Fatima Ritza A. Abualas
Jainab K. Anawari
Mynna Marie M. Barrientos
Roxanne A. Berhay
Michelle Anne W.S. Pamaran
Kier Luanne T. Sudiacal

PEPSI GROWS POTATOES Case Analysis

I. Problem Statement:
-What should Pepsi do to ensure the supply of quality of potatoes in the production of its chips given its growing demand?

II. Objectives
The main objective is to make the company less susceptible to supply fluctuations given the growing demand of potatoes in the market. In order to achieve this goal, the company must also look into some other objectives: a. Pepsi must explore ways to ensure a supply that can meet the growing demand of potatoes for the production of its chips, b. Pepsi must effectively and efficiently maximize its limited resources (growing a potato farm, and involving local farmers)

III. Areas of Consideration
In this case study, there are certain factors that need to be considered. First, the Chinese government had banned the import of potatoes and potato seeds so they cannot rely on the same suppliers they had in the US. Second, the potatoes bought at the local market were of poor quality and did not meet Lay’s standard. Third, as a US company, PepsiCo does not have a good knowledge about Chinese culture and natural environment in China thus brought about the need to employ local workers. Chinese farmers were reluctant to invest and become Pepsi’s supplier because hold-up risk is high due to thin market for high quality potatoes in China. By having a potato farm and a potato processing plant, PepsiCo could engage in backward integration and control the quantity, cost, and quality of the product's raw materials. There are also domestic potato companies that occupied the lower end of the market due to limitations in capital and experience which could become potential suppliers. It is also useful to take note that PepsiCo has ample financial resources that will enable them to modify its infrastructure significantly to accommodate technological changes and other industry innovations needed. Lastly, raw materials used are subject to price volatility and fluctuations in availability caused by changes in global supply and demand, weather conditions, agricultural uncertainty or governmental controls.

IV. SWOT Analysis Strengths | Weaknesses | -advanced technology-strong financial condition-successful marketing and advertising campaign-product diversity-high quality potatoes | -low productivity | Opportunities | Threats | -commercial potato growing-presence of local potato farmers-demonstration potato farm in a desert -growing demand of the product-continuous innovation | -China’s underdeveloped infrastructure-importation restriction-less producer of standardized products-local competition-cultural differences-weather condition |

V. Alternative Courses of Action

1. Pepsi needs to improve the cultivation of a group of local farmers and farming associations who will meet its growing needs for potatoes.

In 1997, when they started working together with local farmers, there were drawbacks that hindered them from sticking to this technique to supply them with their potato needs. These drawbacks included some large state-run farms that were reluctant in changing their farming conditions and the difficulty of finding interested farmers who are willing to work on modern environment. With the law banning them from importing potatoes, Pepsi should just stick to working with local farmers by continuing their efforts to supervise the farmers and help them in innovation capabilities.
Aside from improving their efforts, Pepsi should introduce the rewards system to attract farmers into working with them.

Advantages:
-Pepsi will be able to fully control their specific needs in terms of right variety, shape, size, and sugar and water contents.
-Crop yields will increase.
-Local farmers will acquire knowledge on modern farming techniques through Pepsi leading and assisting them.
-Pepsi will build their brand value.
-Pepsi will be able to craft a sustainable competitive advantage in the market.

Because Pepsi will have their own farm of potatoes by working with local farmers, they will have a full control on how they grow their potato crops to cater their demands on right variety, shape, size, and sugar and water contents. The problem on their previous techniques of acquiring potatoes from outside companies was that they were not able to satisfy what Pepsi needed with their potatoes. This is because the outside suppliers didn't have techniques to cater Pepsi's needs. With building their own group of local farmers and farms, they can build their own techniques to cater these needs. This will in turn increase their crop yields. They do not need to wait for more time before the crops will grow because of modern technology on farming is adapted. The local farmers will also be taught on modern farming technologies. Therefore, these farmers will acquire knowledge on this which they can use in the future for them to grow their own crops as well. In helping these farmers as well, Pepsi will build their brand value. The Chinese snack market will know that Pepsi had helped a lot of farmers. Also, the Chinese market will also be impressed that Pepsi was able to supply for themselves on top of their other product lines. Thus, Pepsi will also acquire a competitive advantage in the market.

Disadvantages:
-Added costs on training and farmers' payroll through reward system.
-The farmers will have a difficulty on adapting to change because of what farming techniques they have been used to for years.

Because the modern farming isn't known among the local farmers, Pepsi will have to add costs on teaching them the techniques. Also, because of the previous problem that they needed attract farmers to work with them by adapting a rewards system, it will also add costs to Pepsi. Lastly, like mentioned, the farmers are not familiar with the modern farming techniques. Even though they will be taught on that, the farmers will find it difficult to adapt to the sudden change considering that these local farmers had been farming for years using the techniques that they were used to before.

VI. Conclusion and Recommendation VII. Action Plan