Pepsi Grows Potatoes in China

PepsiCo introduced Lay potato chips in China in 1997. As its potato chip business in China grew, it faced increasing difficulties in ensuring a reliable supply of quality potatoes. In the North American market, Pepsi relied on outside suppliers for its potatoes, but in China it had problems with both local sourcing and sourcing potatoes from its American supplier. To make matters worse, the Chinese government had banned the import of potatoes. Given the many barriers to sourcing potatoes in China, how should Pepsi proceed to secure this vital input? Given China’s immature agribusiness, should you rely on outside suppliers or should you integrate backwards to grow your own potatoes?

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