US beverage giant PepsiCo has announced a $1bn expansion into China, despite economic indicators pointing to a slowdown in the Chinese economy.
China is PepsiCo’s largest international market by volume and the expansion is a bid to mitigate declining sales in the US, which remains the company’s primary market.
The drinks giant, headquartered in Purchase, New York, has said it will use the investment to add to its existing operations in China by building more plants in western and inland regions. In addition, PepsiCo will expand its R&D capacity in the country and build a bigger sales force to broaden its distribution network. It will also invest in marketing and develop products tailored to the Chinese market.
PepsiCo’s expansion is regarded as a bid to rival its largest competitor in the Chinese market, Coca-Cola, which has captured half the country’s market share, representing more than double PepsiCo’s sales.
But the growth rate of China’s expanding economy is predicted to fall to 7.5% in 2009, a long way short of previous predictions of 9.2% just a few months ago and its slowest for nearly two decades, according to World Bank statistics. The slowdown comes after a period of rapid growth, which saw the economy boom by 11.9% last year and more than 10% since 2002.
World Bank economist in Bejing Louis Kiujs told the Financial Times: “The impact of the international financial and economic turmoil on China’s economy has been manageable so far but is expected to intensify.”
PepsiCo has said that while growth in emerging markets is cooling and the strengthening dollar is trimming profit from international operations, growth remains robust compared with the US. “This is our largest investment in China in the 30 or so years we have been doing business here, and it is consistent with our broader global strategy of investing in high-growth developing markets,” said PepsiCo CEO Indra Nooyi.
The China expansion is a sign that PepsiCo is sticking to a strategy of emerging economy investments. This included an announcement earlier this year that the company will invest $500m in the next three years in India to expand manufacturing, improve R&D and introduce new products, and another $3bn in Mexico during the next few years to enable growth of its Sabritas and Gamesa foods businesses, as well as its portfolio of beverage brands.