Benefits of Diversification to PepsiCo

PepsiCo definitely has enjoyed several benefits from applying diversification of merger and acquisition in its strategy of expanding its markets. But there are so many benefits that can gain from applying related diversification and unrelated diversification, and not all of the benefits have benefited PepsiCo. Advantages that shared by organization when applying related and unrelated diversification are listed in the below exhibit.

Related Diversification	Unrelated Diversification
Spreading risks	Spreading risks
Access to information	Escape from present business
Control of supplies in Quantity, Quality and Price.	Need to use excess cash or safeguard profits
Control Markets	Personal values or objectives of powerful figures
Cost savings	Benefits from synergistic effects
Resource utilization	Exploiting underutilized resources and competences
Building on core competences and technology	Even out cyclical effects in a given sector

Since the year of 1965 after merging with Frito-Lay, PepsiCo was able to increase its volume of sales and get a stronger market position through using diversification techniques and brand management. This has make PepsiCo to able to escape from its present business, because even until present days the Pepsi’s carbonated beverages division clearly remains behind the snack division in terms of profitability and share percentage of operation earnings.

What’s more with the diversification strategy of management has enabled PepsiCo to spread it risk taken within the same area. This is because after take over Mountain Dew, Pepsi has turned heavily on its focus towards gaining a better position in the beverage industry by finding new ways to differentiate from Coke and to take advantage of strategic alliances in the market.

Diversification also gives chance to PepsiCo to control of its supplies and to exploit underutilized resources and competences especially when PepsiCo started its Pepsi Bottling Group (PBG) Strategy in March 1999. This is because with PBG, PepsiCo’s can focus on what it does best now, which is developing its powerful brands and the world-class marketing programs depending on PBG’s superior sales execution, customer service, merchandising and operating excellence. Meanwhile PBG not only was given right by Pepsi Co to produce PepsiCo’s products, but also given right by Cadbury Schweppes to do Dr. Pepper and their other products.

Lastly with diversification, merger and acquisition that have helped a lot in PepsiCo cost savings. This is because with the latest computer technology, all PepsiCo have to do is to invest in a new and more efficient communication computer system called “GenerationNet”. With this, it can enable PepsiCo to serve both, lower cost and customer responsiveness as well as to advertise and to promote all PepsiCo products up in the internet.

Until here, all that have been discussed are regarding to expound on the benefits of diversification. And a corporate in this must be diversified to some degree in order to be competitive in this globalize market; none of the corporations wishes to “put all their eggs in one basket” and expose themselves to the inherent risk of holding only one single business line. But how far can a corporation go in spreading their bet? Is there any problems and limits that will be suffered by corporation when they applied diversification?