Limitation and Problem of Diversification

Since there is numerous of advantages to apply diversification, definitely there will be certain of limitation and failures of applying diversification. First limitation that will be encountered by PepsiCo during applying diversification was the bureaucratic costs and control. This is because control and bureaucratic costs of PepsiCo will be increased as the scope of its diversification widen once they planned to diversify its corporation. This is because diversification eventually will lead to decentralization within the corporation, especially during the merger with Frito-Lay as Pepsi-Cola would have to shift its resources and to make a huge movement into some unknown areas that will enquire huge decentralization of power from Pepsi-Cola into PepsiCo. This sometimes might lead to an over-decentralized situation where by the top managers of PepsiCo becomes isolated and even out-of-touch with his down management people.

Moreover an extensive diversification tends to depress rather than improve the profitability of an organization of which was experimented by PepsiCo when it acquired Mountain Dew, and created Pepsi blue. This acquisition intends to improve the quality of the company’s product and to boost up the product sales. However Pepsi blue was in fact was not as successful as hoped or planned.

Widen diversification such as PepsiCo might cause the company to be inability to identify the unique profit contribution by its business unit as well as to create an information overloaded situation within the organization. This is because PepsiCo shares its resources with other units such as Frito-Lay, Quaker Oats, and Mountain Dew. Once again this will caused the costs in these large, complex organizations to arise due to its managerial inefficiencies.

Lastly but not the least, there always a situation where by there would be some diversification failure cases. There would be diversification failure case when the diversification value is likely to be dissipates. Coca-cola has faced it when Coca-cola acquired Columbia Pictures and wine-producing businesses whereas PepsiCo suffered the acquisition error costs when it acquired the several fast food restaurants such as Kentucky Fried Chicken, Pizza Hut and Taco Bell as PepsiCo chain of distribution. This is because the acquisition has allowing its competitor Coca-Cola to secure rights of distribution in chains such as McDonald’s and Wendy’s who have a greater market share than either Pizza Hut, Taco Bell or even Kentucky Fried Chicken. This acquisition has caused a short term loss to PepsiCo whereby it suffers high cost rather than it was supposed to create value in the acquisition of these restaurants as its chain of distribution.

Eventually I know that the company of Pepsi-Cola has increased its net product sales after all the diversification mergers and acquisition. However it was not the real increase of Pepsi-Cola because the sales have increased due to all the new acquisitions and not because of its increased sales. For this reason I think that PepsiCo should consolidate its old products and try to increase its sales; of which means PepsiCo reconstructed its Pepsi-Cola, International Beverage sector.

I would advise that Pepsi should try to expand more on the certain geographical areas. By instead of just having one division based in New York, PepsiCo Beverages International should separate this division into several divisions for the rest of the world like in Asia, Europe etc.

Besides PepsiCo should focuses more on in the international marketplace as their key area of success for its future. It should enter into these globalize markets with enough resources and a good management structure in place before Coca-Cola. This in order to convince the consumers in it regarding about the Pepsi taste is the best.

Moreover PepsiCo should continue to pursue the Chinese and to operation in the Chinese market as an attempt to compete with Coca-Cola Enterprises. For the Chinese market, is one of the largest markets in the world for most organization including Pepsi-cola. Nevertheless PepsiCo should pay more attention of not getting involved itself against in any political scandals here in China. This is because China is totally has a different cultural, locally and governmental level than its local America and other global countries such as Mexico.

In addition PepsiCo should be aware that the old age of Pepsi-cola v Coca-cola has ended. This is because beside Pepsi-Cola and Coca-Cola, there are other up-and-coming beverage companies, such as Cott. So in order for PepsiCo to be succeeded in creating a successful company and as a dominant place in the market, PepsiCo should be outstanding enough in order to beat not only Coca-cola and Cott but others as well.

In order for PepsiCo to be outstanding enough, PepsiCo now not only has diversified food chain companies but also to more be involved in the entertainment industry. This is because entertainment industry can help to build strong reputation among consumers. The Pepsi World should also include or involve more in sport and music rather than just beverages and snack food. For example that Pepsi signed Michael Jackson in the 80’s for its advertisement and later sponsored in Michael albums and concert. Now PepsiCo has signed an agreement for sponsorship in the NFL, the largest football league in the US. I can see that PepsiCo will have great coverage at all games, enabling them to target their young and hip market. Moreover PepsiCo held a big celebration’s concert in Hong Kong in year 2003 and charity concert yearly over in Hong Kong.