Coke is not the only beverage company looking to expand in China. Pepsi has its eyes on China.

Pepsi has about one third of the carbonated beverage market in China, while Coke has about one half of the market. Since the Chinese are not big soda drinkers, Pepsi, like Coke, is focusing on the juice market. Pepsi is developing new drinks using ingredients from traditional Chinese medicine. Dates and wolfberries flavor one of Pepsi’s indigenous Chinese drinks, while chrysanthemum extract provides flavor for another.

But without any mergers or acquisitions currently planned, how will Pepsi catch up when Coke’s $2 billion investment in China dwarfs Pepsi’s $1 billion commitment? Pepsi must be counting on bigger sales from a superior product and marketing campaign. It doesn’t appear to be looking for large acquisition targets in the Chinese juice market.

Pepsi’s Legally Informed Strategy: Foresight or Luck?

Pepsi has been following a strategy of organic growth in China. As I recently discussed, Coke decided upon an organic growth strategy after its recent antitrust setback when it attempted to acquire the Huiyuan Juice Group. The Huiyuan example signaled that the Chinese government is unlikely to approve deals involving large domestic companies, especially those companies are associated with popular brands.

Testing the boundaries of the Chinese Anti-Monopoly Law (AML) at this time would only distract Pepsi from its executing this strategy. In deciding upon an organic growth strategy, did Pepsi decide that it did not want to be the guinea pig for the Chinese AML? Perhaps Pepsi let Coke be the test case, or perhaps Coke was a few moves ahead of Pepsi until the Huiyuan ruling. The answer is unclear.

Until the Chinese government’s antitrust policies become clearer, Pepsi is wisely foregoing the mergers and acquisitions route in China. Pepsi’s decision to stick with its organic growth strategy is another example of Legally Informed Strategy, where a company’s legal and business moves are closely coordinated.

Douglas Y. Park
Twitter: @DougYPark