In 1965, PepsiCo was formed as a result of the merger between Frito-Lay and Pepsi-Cola

Table of Contents

TOC o “1-3” h z u 1. Introduction PAGEREF _Toc86321326 h 32. Occurrence of Risk in Relation to Economic and Legal Implications PAGEREF _Toc86321327 h 32.1 Definition of risk PAGEREF _Toc86321328 h 32.2 Difference between risk and uncertainty PAGEREF _Toc86321329 h 32.3 Origins and the Nature of risks PAGEREF _Toc86321330 h 42.4 Business and societal setting PAGEREF _Toc86321331 h 52.5 Identification of risks in the context of economic and legal implications PAGEREF _Toc86321332 h 52.5.1 Compliance risks PAGEREF _Toc86321333 h 52.5.2 Hazard risks PAGEREF _Toc86321334 h 62.5.3 Control Risks PAGEREF _Toc86321335 h 62.5.4 Opportunity risk PAGEREF _Toc86321336 h 63. Risk management plan PAGEREF _Toc86321337 h 73.1 Control measures PAGEREF _Toc86321338 h 73.2 Corrective actions PAGEREF _Toc86321339 h 73.3 Record keeping and review frequencies PAGEREF _Toc86321340 h 84.0 Summary PAGEREF _Toc86321341 h 8References PAGEREF _Toc86321342 h 10

1. IntroductionIn 1965, PepsiCo was formed as a result of the merger between Frito-Lay and Pepsi-Cola. Since then, the company has expanded greatly to include more products than just its cola product. At present, the company is an MNC operating in almost all major markets in the world. One of its greatest competitors include the Coca-Cola company, RedBull, Monster, and other soft drinks manufacturers. The purpose of writing this report is that by studying PepsiCo’s risk and its economic and legal impact, and formulating a risk management plan, better decisions and policies can be made in future. The report further intends to contribute to the body of literature on the matter of risk and decisions related to the same. The report has reached the conclusion that firms must institute strategies to mitigate economic and legal implications of risk which pose the biggest threat to the success of the organization.

2. Occurrence of Risk in Relation to Economic and Legal Implications

2.1 Definition of risk

Ideally, risk is all about activities that lead to different possible outcomes where a probability can be assigned the probable outcome along with a measurable magnitude of impact. Relying upon the goal and viewpoint of a discourse, the word risk is described and discussed in a variety of ways. According to (Yusoff & Husnina, 2018) a risk is uncertainty that has the consequences of losses and/or sometimes damage. They imply that something unpredictable does not necessarily entail a danger; nonetheless, if an event is both unclear and involves a loss, it might be classified as a risk. Risk can be defined as a situation in which there is a probability of losing but also a chance of winning (Kahn & Zsidisin, 2012), because no one would be risking losing if there was no possibility of winning.

2.2 Difference between risk and uncertaintyThe relationship between uncertainty and risk, like the relationship between certainty and uncertainty, is not just theoretically significant, but also quite practical (Rachev, Stoyanov, and Fabozzi, 2011). The latter is especially important when making choices since the procedures and events that impact a firm’s or a commercial context’s condition could be in various states of uncertainty or risk, affecting the system’s functioning in various manner (Gifford, 2003). This is the reason why it is vital to differentiate uncertainty and risk, as well as the notes that separate them, in order to modify one’s perspective regarding them.

2.3 Origins and the Nature of risksThe French introduced the word “risqué” where the English took it as a negative concept as they perceive it as a feature that exposes people to a certain danger (Kittler, 2020). According to Fragouli and Nicolaidou (2020), the company faces a number of risk origins through the decision-making process, seasonality caused by business cycles, market preferences, regulations, competition, technology, and political compulsions. Pascal Wager mentions that risk originated from the human gamble regarding the existence of God or otherwise. Based on this argument, Pascal advices that people believe in God’s existence for the positive expected value that lay the foundation (Gregersen, 2006). While this may appear irrelevant in the sense of a marketing and risk management paper, it drives to a point that people gamble over decisions, a concept that applies in the same manner for businesses. Hopkin (2017) further developed the concept of risk to include compliance risks, hazard risks, control risks, and opportunity risks.

2.4 Business and societal setting

PepsiCo operates in the soft beverages industry. Its main competitors include RedBull and Coca-Cola, with latest entries including Monster and other soft drink companies. According to Maamoun (2020), PepsiCo’s target market comprises of 18 and 35 year olds. The company appeals to this group using unconventional marketing forms including social media and counter advertising to beat the influence of Coca-Cola and RedBull in international markets. The youth market provides a very diverse and vibrant market for PepsiCo, with both the female and male clientele being targeted equally. To operate in countries outside of the United States, PepsiCo looks at the economic stability, growth of the developing economies, and other issues relevant to its operations. For example, while operating in the Chinese market, PepsiCo looks at the opportunities through stability of the economy, the opportunities presented by the rapid growth of its economy, and the threat of a slowdown of the economy.

Identification of risks in the context of economic and legal implications2.5.1 Compliance risks

There is a ned to comply with all labor laws in relation to operations in China. Failure to comply may lead to penalties and withdrawal of operating licences. PepsiCo is facing compliance risks relating to the regulatory environment in its international operations. Regulatory compliance translates to increased costs and unforeseen expenses (Gifford, 2003), especially where PepsiCo is required to pay penalties and fees for lateness or other causes of noncompliance. Businesses are frequently obligated to follow at least one, if not several, pieces of legislations. For example, in the Chinese market, a reluctance to behave in line with government rules, industry standards, or recommended practice guidelines could expose PepsiCo to legal consequences, financial penalties, reputational damage, and financial loss.

2.5.2 Hazard risksPepsiCo is also exposed to a variety of hazard risks in its factories and work environment. These kinds of dangers arise from hazardous working conditions. For example, PepsiCo has to deal with biological risks which encompass viruses, bacteria, and other organisms that have the potential of harming one’s health. Also, chemical risks which encompass compounds that have the probability of causing harm. Additionally, physical risks which entail heights, noise, radiation, and force, all of which can cause harm to a worker are common issues for PepsiCo. Lastly, there has been psychosocial hazards are those encompassing aspects that have the potential to adversely affect a worker’s mental health or welfare. Sexual harassment, victimization, stress, and violence in the workplace are just a few instances.

2.5.3 Control Risks

PepsiCo faces a risk of integrity and ethic risks in financial records, reporting, and statements provided to the public. In an environment where the progress and growth of the organization depends on the image presented to the stakeholders, it is easy for the management to provide a false picture through inaccurate financial reporting, especially to stakeholders such as the partnering financial institutions, governments, and shareholders. The possibility of this risk occurring is very high for PepsiCo seeing that it is a global institution operating in various markets. Operations in China, for example, means heavy scrutiny from the government. The management may be inclined to provide a false representation of its financial and related records. Gifford (2003) found that organizations, especially MNCs like PepsiCo have higher ethics and integrity risks compared to national companies. The impact of this risk is significantly high because it could lead to legal ramifications, including sanctions and expiration of licences to operate abroad.

2.5.4 Opportunity riskPepsiCo faces a major opportunity risk relating to its operations abroad in China, such as buying new properties, selling new products, and changing its marketing strategies for the Chinese consumer. Opportunity risk is a type of risk connected with a loss that results from the unchangeable utilization of resources for a new opportunity, which prevents them from being utilized in the case of a superior chance (Ivascu & Cioca, 2014). This opportunity risk shows that there is business risks to every decision made, even where good ideas and opportunities are pursued. The risk of opportunities such as buying new properties, selling new products, and changing its marketing strategies for the Chinese consumer are medium to high. The new resources acquired may lead to losses and prompt PepsiCo to exit the Chinese market.

3. Risk management plan

Risk management is a technique that assists businesses in reducing risks associated with attaining their objectives. It is a process of discovering, analysing, and controlling threats to an organization’s capital and profitability. These risks arise from a range of causes, including financial uncertainty, legal liability, technological challenges, strategic management failures, accidents, and natural disasters. Effective risk and opportunity management both offer value to an organization (Singh and Gaur, 2021). The concept of opportunity management is comparable to that of risk management. Comprehensive risk and opportunity management is gradually being recognized as a competitive differentiator that may help firms succeed even in challenging economic times. Managing opportunities entails cultivating an environment conducive to innovation. A strong risk management program assists a business in considering all of the risks it confronts. Risk management also investigates the link between risks and the potential for them to have a cascade influence on an organization’s strategic goals.

3.1 Control measuresThe degree of risk is frequently classified based on the potential harm or adverse health consequence that the hazard may cause, the number of times people are exposed, and the number of people facing the said risk or hazard.

Among the ways to control business risk is by avoid sad risks. As it is often claimed that danger is unavoidable, it may appear ironic to advocate avoiding it. However, what this means is that businesses must try avoiding particular risks whenever necessary. Managers should consider options to avoid having to face the risk.

Secondly, it might be prudent to avoid the danger. Sometimes, it is only plausible to avert rather that engage in something or a procedure with known potential risks. For instance, in the case of the transport truck, it would be beneficial if corporations checked the weather before shipping out deliveries to ensure that they arrived at their intended destination. If a danger is identified, they should take steps to mitigate it, such as stopping delivery during inclement weather.

Last but not least, one can limit the danger. There exist certain risks that cannot be prevented or avoided. Organizations have the opportunity of containing risks whilst implementing safety nets. Because all organizations need access to the web, which is rife with hackers, they may implement better firewalls and other security procedures to secure their firm’s security.

PepsiCo faces several risks, including compliance, hazard, control, and opportunity. These risks range in their impact and probability of occurrence from medium to high. Therefore, it is important to ensure that these risks are controlled to avoid losses and other consequences relating to the business, its stakeholders, the financial part, and so on.

3.2 Corrective actionsThe first corrective action is ensuring that PepsiCo has a quality management system that will audit results, ensure conconforming materials, report safety incidents, and deal with customer complaints. This will help to deal with opportunity, hazard, control, and compliance risks. A defined workflow is also required. Finally, risk assessment should be implemented.

One of the corrective actions towards business risk is the transfer of risk approach. Risk transfer, also known as risk sharing, allows businesses to shift the effect of a negative outcome among multiple stakeholders. This may be in the form of business associates or employees, an outsourced company, or the purchase of an insurance plan. Risks that are improbable to materialize and may have a significant financial consequence are best shared (Cavusgil et al., 2020).

One can also adopt a strategy for reducing risk. Risk reduction entails taking steps to reduce the likelihood and severity of a risk occurrence. The goal is to bring the risk down to a manageable level, which is frequently referred to as a residual risk level. When practical and financially viable, many organizations should aim to limit risk. To minimize the worst risks, you may, for instance, implement additional safety measures, tighten internal controls, or diversify company activities.

Acceptance of risk is another corrective action. Accepting the risk essentially takes no steps to reduce its severity and likelihood (Saglam, Çankaya, and Sezen, 2020). This ‘do nothing’ strategy recognizes that some amount of loss is inevitable – typically the sort of loss that can be easily assimilated inside the company, at least initially. Nevertheless, if risk occurrences happen on a routine basis, business disruption and the expenses associated with managing it would almost certainly increase. It’s critical to weigh risk retention alternatives against other potential mitigation strategies in order to find a long-term solution.

3.3 Record keeping and review frequenciesThe main risk identified for PepsiCo is the ethics and integrity risk in financial reporting and compliance risks when operating in new environments. The success of managing risk, which prioritizes and recognizes hazards throughout an organization, determines the strength and efficiency of a record-keeping system. The recognition of relevant information is enabled by assigning the recognized risks into an organizational directory or a file plan architecture, which guarantees that the validity and security of electronic documents are managed (Zivania et al., 2014). From a risk aspect, documentation is required to establish that an organization has handled itself appropriately, as risk is related with avoiding or eliminating impediments to success. It is indeed impossible to verify that something occurred if nothing is recorded. Because of its ambiguity, weakness, and folk’s predisposition to recall things that never occurred, depending on human memory is risky (Ngoepe, 2014). This can result in records and information management hazards, which are defined as any risk to the company resulting from poor records management.

4.0 SummaryHazard risks, control risks, and opportunity risks are the three types of risks discussed in the paper, each of which has a different result. The first category, hazard risks, can only have a harmful consequence if they happen, thus the goal is to prevent or limit these disruptions from occurring. Organizations must learn to handle these risks up to a specific extent, and the tolerance level differs based on the firm. The acceptance of shoplifting, as an illustration of varied tolerance levels for hazardous risks, might range between various retail establishments. Control risks are defined as risks with a level of uncertainty in the results. For instance, there is always some element of uncertainty in various types of projects; on-time delivery and budget are only two examples of several. There must be a clear consistency between the intended outcome and the results achieved in order to manage control risks. Hopkin (2012) defines opportunity risks as the third type of risk. An acquisition of a corporation, comes under this category because it is a calculated risk made in the goal of profit. Entrepreneurs are persons who look for opportunities to take risks. 

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