Pepsico Inc. said Tuesday that it signed an agreement to become a partner in a soft drink bottling operation in Vietnam, making it the first American industrial firm to disclose a specific deal to return to Vietnam after the United States lifts its economic embargo.
Purchase, N.Y.-based Pepsi signed a commitment letter to invest $10 million initially in a joint venture once the embargo is lifted, Barry J. Shea, Pepsi-Cola International's president for Southeast Asia, said during a ceremony in Ho Chi Minh City. Pepsi intends to eventually take about a one-third share of the venture.
The joint venture would be with International Beverage Co., which is half owned by a group of Singaporean investors known as the Mccomdray Group. The remainder of IBC is owned by three Ho Chi Minh City government firms, including two that have soft drink bottling interests.
While the U.S. embargo remains a significant handicap to American firms, former-President Bush approved a partial lifting of the ban in December, allowing U.S. firms to sign contracts, establish representative offices, hire staff and carry on technical and feasibility studies--just about everything short of executing contracts for doing business in Vietnam.
Bush's opening has set off a rush of U.S. firms to Hanoi to be the first in line to do business with Vietnam, believed to be the world's most significant untapped market for many products and services, including soft drinks.
"I wouldn't want to go so far as to say the embargo is dead, but it is pretty close to it," said Rob McDowell, a Bangkok-based consultant, who advises multinational companies about doing business in Vietnam.
"Every American company worth their salt is already there, has looked at the market and, if they are interested, are working to get back in." San Francisco-based Bank of America last week became the first U.S. financial institution to receive a license to open an office in Vietnam.
Pepsi's announcement comes just a month after Atlanta-based Coca-Cola Co. said it signed a memorandum of understanding with two Vietnam central government companies to continue discussions "which could lead to the eventual establishment of bottling operations."
Coca-Cola has been available in Vietnam for years. It is among several U.S. consumer products that Vietnamese have access to despite the trading ban.
But the Pepsi deal could give it an important, but not necessarily decisive lead in the race to penetrate a market now worth an estimated $50 million a year.
While Coke doesn't have as firm a deal as Pepsi, company officials insist that they are talking to Vietnam's most desirable potential partners: the state-owned Vietnam National Foodstuff Import & Export Corp., the nation's largest food and produce company, and the Chuong Duong Beverage Factory, which took over Coca-Cola's bottling operations after the U.S. departure from Vietnam in 1975.
McDowell said the two soft drink giants' different approaches to Vietnam is based partly on their different reading of the balance of power between Hanoi and Ho Chi Minh City, formerly Saigon. Pepsi has concentrated on the southern city, while Coke has put emphasis on solidifying relations with the central government in Hanoi.
Pepsi's tack could give it a lead in Vietnam's commercial heart in Ho Chi Minh City, which is where 60% of the current demand for soft drinks resides, but it may face an uphill battle in trying to distribute nationally or set up another plant in the north, observers said.