Pepsi 2009 Annual Report Download - page 52

40 PepsiCo, Inc. 2009 Annual Report
Management’s Discussion and Analysis
In many jurisdictions, compliance with competition laws is of
special importance to us due to our competitive position in those
jurisdictions. Regulatory authorities under whose laws we operate
may also have enforcement powers that can subject us to actions
such as product recall, seizure of products or other sanctions,
which could have an adverse effect on our sales or damage our
reputation. See also “Regulatory Environment and Environmental
Compliance.”
If we are not able to build and sustain proper information
technology infrastructure, successfully implement our
ongoing business transformation initiative or outsource
certain functions effectively our business could suffer.
We depend on information technology as an enabler to improve
the effectiveness of our operations and to interface with our
customers, as well as to maintain financial accuracy and efficiency.
If we do not allocate and effectively manage the resources necessary
to build and sustain the proper technology infrastructure, we could
be subject to transaction errors, processing inefficiencies, the loss
of customers, business disruptions, or the loss of or damage to
intellectual property through security breach.
We have embarked on a multi-year business transformation
initiative that includes the delivery of an SAP enterprise resource
planning application, as well as the migration to common
business processes across our operations. There can be no certainty
that these programs will deliver the expected benefits. The failure to
deliver our goals may impact our ability to (1) process transactions
accurately and efficiently and (2) remain in step with the changing
needs of the trade, which could result in the loss of customers. In
addition, the failure to either deliver the application on time, or
anticipate the necessary readiness and training needs, could lead
to business disruption and loss of customers and revenue.
In addition, we have outsourced certain information technology
support services and administrative functions, such as payroll
processing and benefit plan administration, to third-party service
providers and may outsource other functions in the future to
achieve cost savings and efficiencies. If the service providers that
we outsource these functions to do not perform effectively, we
may not be able to achieve the expected cost savings and may
have to incur additional costs to correct errors made by such
service providers. Depending on the function involved, such errors
may also lead to business disruption, processing inefficiencies or
the loss of or damage to intellectual property through security
breach, or harm employee morale.
Our information systems could also be penetrated by outside
parties intent on extracting information, corrupting information or
disrupting business processes. Such unauthorized access could
disrupt our business and could result in the loss of assets.
The global economic downturn has resulted in unfavorable
economic conditions and increased volatility in foreign
exchange rates and may have an adverse impact on our
business results or financial condition.
The global economic downturn has resulted in unfavorable
economic conditions in many of the countries in which we
operate. Our business or financial results may be adversely impacted
by these unfavorable economic conditions, including: adverse
changes in interest rates or tax rates; volatile commodity markets;
contraction in the availability of credit in the marketplace potentially
impairing our ability to access the capital markets on terms
commercially acceptable to us; the effects of government initiatives
to manage economic conditions; reduced demand for our products
resulting from a slow-down in the general global economy or a
shift in consumer preferences for economic reasons to private label
products or to less profitable channels; or a further decrease in the
fair value of pension assets that could increase future employee
benefit costs and/or funding requirements of our pension plans.
The global economic downturn has also resulted in increased
foreign exchange rate volatility. We hold assets and incur liabilities,
earn revenues and pay expenses in a variety of currencies other
than the U.S. dollar. The financial statements of our foreign
subsidiaries are translated into U.S. dollars. As a result, our profit-
ability may be adversely impacted by an adverse change in foreign
currency exchange rates. In addition, we cannot predict how
current or worsening economic conditions will affect our critical
customers, suppliers and distributors and any negative impact on
our critical customers, suppliers or distributors may also have an
adverse impact on our business results or financial condition.
Our performance could suffer if we are unable to
compete effectively.
The food and beverage industries in which we operate are
highly competitive. We compete with major international food and
beverage companies that, like us, operate in multiple geographic
areas, as well as regional, local and private label manufacturers. In
many countries where we do business, including the United States,
The Coca-Cola Company, is our primary beverage competitor. We
compete on the basis of price, quality, product variety, distribution,
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