Chapter 34 Marketing Case: Pepsi Cola encounters "earthquake" in Sichuan

The existence of common interests is the basic premise of Sino-foreign capital cooperation.However, the pursuit of maximizing their own interests makes the joint venture not only have to compete with the market, but also often have to face the game between the parties to the joint venture.The following case may serve as an illustration for this. On August 2, PepsiCo and PepsiCo (China) Investment Co., Ltd. filed an arbitration with the Arbitration Court of the Stockholm Chamber of Commerce in Sweden, requesting the termination of all cooperation contracts and agreements with Sichuan Pepsi Cola Beverage Co., Ltd., a cooperative enterprise established in Chengdu, Sichuan, and Require the Chinese side of the cooperative enterprise to pay economic compensation for its violations.PepsiCo (China) stated that it received a reply letter of acceptance on the same day as the arbitration application.

In this application for arbitration, PepsiCo proposed to terminate the contracts including: the trademark license contract, the concentrate supply contract, and the cooperation contract between PepsiCo (China) Investment Co., Ltd. and the current Chinese partner company.This means that PepsiCo will "severe ties" with Sichuan PepsiCo and terminate all cooperation. The direct response of Sichuan PepsiCo is: "I really appreciate the practice of submitting disputes to arbitration" and believes that "according to the contract, in addition to PepsiCo (China)'s insistence on refusing to use negotiation and board discussion to resolve disputes, arbitration may be a way to distinguish right from wrong. a rational choice".Sichuan Pepsi insisted in its reply letter to Pepsi (China): "Although this is the choice of Pepsi (China), it is believed that it is contrary to the fundamental interests of PepsiCo in China."

Sichuan Pepsi also sent a copy of the reply letter to the Chinese directors, general managers and Pepsi employees of all Pepsi bottling plants in China, expressing that they would "resolutely and uncompromisingly conduct arbitration in accordance with the law and in accordance with the contract, and let PepsiCo be responsible for its breach of contract." Pay the price and defend China's legitimate rights and interests."The latest news from Sichuan PepsiCo is that it has authorized Beijing Youbang Law Firm to actively prepare related legal affairs. Sichuan Pepsi is one of the 14 bottling plants of PepsiCo (China) in China (not including the bottling plants in Hong Kong, Taiwan, etc.), but it is not difficult to see that Sichuan PepsiCo is in PepsiCo after careful study of sales and profit indicators. An important position in the (China) camp: the annual sales volume is about 20 million TEUs, which is equivalent to the sales volume of PepsiCo in the Korean market; the total annual profit and tax exceeds 70 million yuan, and the profit level ranks second among the 14 PepsiCo bottling plants in China .More importantly, Sichuan Pepsi is one of the few companies in the world where "two happy cities" (where there are both Pepsi and Coca-Cola production plants) have "Pepsi's market share surpasses that of Coca-Cola". The ratio is roughly 5:1, which can be described as a huge disparity in power.

So, what is the "unspeakable secret" that makes both parties want to tear their skins apart and take the risk of collapsing a mature market? In fact, the contradiction between Pepsi (China) and Sichuan Pepsi has a long history. Sichuan Pepsi was established in January 1994 by the American PepsiCo and Sichuan Radio and Television Industry Development Corporation.At that time, the registered capital was more than 4 million US dollars, Sichuan Radio and Television held 73% of the shares, PepsiCo (China) held 27% of the shares, and each party had 3 members on the board of directors.In the same year, Sichuan Pepsi was authorized by PepsiCo to bottle and produce Pepsi series products.

In August 2001, Sichuan Radio and Television Industry Development Company was decoupled from Sichuan Radio, Film and Television Bureau, transferred to Sichuan Provincial State-owned Assets Management Company, and changed its name to Sichuan Rhythm Industry Development Company.This normal change of property rights within the system paved the way for future disputes.The anger of PepsiCo (China) lies in the fact that the partner has changed to a new owner, but he does not know it. "The Chinese party has changed its shares and equity, which has led to a change in actual control. If the contract is in the radio and television system and the control has not changed, we will not make such a move (file an arbitration application)." This is also what PepsiCo (China) said One of the main grounds for the first request for arbitration.

However, Sichuan Pepsi said that after the new company completed the industrial and commercial registration procedures, it had formally notified Pepsi (China) in accordance with the relevant terms of the contract between the two parties.Moreover, this is just a normal decoupling work carried out according to the deployment of the central government and the Sichuan provincial government. It only changes the affiliation and name, and there is no transfer of production rights at all. Of course, it is understood that the differences between Sichuan Pepsi and Pepsi (China) go far beyond that.In the many confrontations between the two sides, the development of new products is often mentioned.In the contract and the company's articles of association signed at the beginning of the cooperation between the two, there are clauses that allow Sichuan Pepsi to produce Chinese local brand beverages, and guarantee that local brand products will reach 15% of Sichuan Pepsi's total production.However, the cooperation between the two parties has been going on for 8 years, and the "production of beverages with local brands in China" is still at the stage of discussion on paper. Sichuan Pepsi has proposed plans many times, but Pepsi (China)'s answer is "the feasibility report is not sufficient".

The conflict between the two parties on the price of the concentrate has reached a point of tension.PepsiCo (China) requested to increase the price of the concentrate, but Sichuan PepsiCo believed that in the context of increasingly fierce competition in the beverage market and declining wholesale prices, the price increase violated the principle of "win-win" and mutual benefit, and took the lead in resolutely resisting it.Under the strong opposition from China and other Pepsi factories in China, Pepsi (China)'s desire to increase the price of concentrate failed to materialize. Without "Back to the sea and the sky", the rupture seems to be only a matter of time.

The point is, when all kinds of Chinese and foreign brands in the domestic beverage market are fighting for a broader market space, will PepsiCo be held back by its own internal shocks?A related question is, as a world-renowned brand, will such a large-scale internal shock develop to a deeper level? This has aroused the attention of all walks of life. Qiao Liang, a postdoctoral fellow of the Chinese Academy of Social Sciences and a young economist, said that as a well-known international brand of a company that ranks among the top 500 in the world and has a century-old history, it is indeed intriguing that PepsiCo and an excellent partner provoked an arbitration dispute.It highlights two issues and calls for rational actions: one is how to properly resolve the contradictions and conflicts between the contract, system and management model formed in history after China's accession to the WTO and the actual requirements; How does the Chinese party of an enterprise or a joint venture protect its legitimate rights and interests in accordance with the market rules after joining the WTO.