Chapter 344: Strategic Cooperation with PepsiCo
Several days later, on May 7, Zhou Haoran arrived at Changxing Tower and met with Yang Wendong.
"Yang Sheng, I met yesterday with the head of PepsiCo's Hong Kong office to express our interest. Since this is a fairly major proposal—especially with potential implications across Southeast Asia—he's already called headquarters in the U.S. A senior executive from their side will be coming to Hong Kong in a few days to meet with you in person."
"Mm, alright. I'm available during this period," Yang Wendong nodded.
A large-scale contract manufacturing deal, particularly one involving the Southeast Asian market, certainly needed to be negotiated by someone with actual decision-making power.
Zhou Haoran continued, "Also, I've done some research into the cola market across Southeast Asia. Just like in Hong Kong, Coca-Cola entered early. But the region is huge, with scattered populations, diverse languages, and varied local cultures. So even though Coca-Cola entered early, it's only established itself in a few major cities. Over 90% of the Southeast Asian market remains untapped."
"That's expected," Yang Wendong said with a smile. "Hong Kong is a single city, so population density makes it easy for any product to gain traction within months. Southeast Asia, though, is far more complex—more so than even Europe."
Even in his previous life, China took nearly two decades to transition cola from a luxury product to an everyday beverage—and that was with a single language and a unified cultural framework.
Southeast Asia in its current state was roughly equivalent to 1980s China. Infrastructure was weak, mass media barely existed, and illiteracy rates were high. For a Western beverage, this was only the very beginning of market penetration.
Zhou Haoran agreed, "Yes, but some parts of Southeast Asia are seeing economic growth. Mid-sized cities are beginning to develop, and with that, demand for imported consumer goods is rising—cola included.
Coca-Cola is expanding its Southeast Asia operations aggressively, but they still rely on Hong Kong as a production hub. Swire Group produces the beverages and then uses its shipping fleet to distribute across Southeast Asia.
Pepsi, on the other hand, entered the market later. They currently import drinks from Japan, and they don't control the shipping—so their costs are extremely high."
"So partnering with us is clearly in their best interest," Yang Wendong said with a chuckle.
Hong Kong might be a small city, but it had many advantages. Otherwise, it wouldn't have become a mini world factory in the 1970s.
Low taxes, high education levels (relative to Southeast Asia), a hardworking labor force, a well-developed shipping industry, and political stability—these features were eerily similar to what made mainland China powerful in Yang Wendong's previous life. Hong Kong far outperformed its regional competitors.
In the 1950s and 60s, many global companies had invested in Hong Kong to gain access to Asian markets. It wasn't until Singapore's founding in 1965 that another group of Chinese-led businesses emerged in a position to compete with Hong Kong.
And now, Yang Wendong had grown into Hong Kong's most powerful Chinese-owned conglomerate, specializing in industrial manufacturing. That made him an ideal partner for international giants seeking to break into Southeast Asia.
Zhou Haoran added, "Exactly. We're the only group in Hong Kong that can realistically become the 'next Swire.'"
"Alright. We'll wait for Pepsi's representatives," Yang Wendong said. Then he asked, "If we start working with Pepsi now, won't Swire cut off our sugar supply?"
"There's a chance they might," Zhou Haoran admitted. "But our current sugar usage is low. Herbal tea sales are nowhere near cola volumes. I can import sugar from Taiwan if needed.
And if we move forward with Pepsi, even if we can't set up sugar refining in the short term, we can always import raw sugar from Southeast Asia—there are plenty of sugar producers there."
"Asia's sugar industry?" Yang Wendong mused. "I remember Malaysia being a major player in sugar, isn't that right?"
Mentioning sugar brought to mind one of Asia's most famous future tycoons—Robert Kuok, the Sugar King.
Zhou Haoran replied, "Not quite a sugar superpower, but there's a notable Chinese businessman there—Robert Kuok. He became famous in the Asian sugar trade by leveraging various trade tactics. He does run sugar refineries, but his main approach is importing raw sugar from Thailand and South America for local processing."
"So Malaysia doesn't grow much cane itself?" Yang Wendong raised an eyebrow. "Interesting… That means what Robert Kuok does—importing raw sugar and refining it—we could do too."
"Exactly," Zhou Haoran nodded. "If we want to get deeper into the beverage industry, the first step is building a sugar refinery in Hong Kong. Then we can import raw sugar and refine it ourselves. There are plenty of global suppliers for raw sugar.
And even if we eventually invest in sugarcane farms abroad, we wouldn't ship cane back here. We'd refine it near the source and ship only the raw sugar—just like Swire does."
"Mm. Alright. Research the refinery model thoroughly. When we talk to Pepsi, we need to present our ability to reduce production costs—that's what will give them confidence to shift capacity to us."
"Understood," Zhou Haoran said.
In the days that followed, Yang Wendong, Zhou Haoran, and the central office staff dug through every book they could find about Coca-Cola, Pepsi, global cola markets, and Asian economic trends.
Without the internet, data was hard to come by. Fortunately, the Changxing Group's extensive network helped—they sourced books directly from libraries in Southeast Asian countries, paid top dollar, and had them flown to Hong Kong.
May 18 – Kai Tak Airport, Hong Kong
Two Westerners—one man, one woman—stepped out of the airport terminal.
The blonde woman looked visibly uneasy. "David, this airport is terrifying. I've been to airports in cities all over the world, and this one scared the life out of me."
The man, David, smiled and said, "Christine, Hong Kong's just a small island. Airport construction is limited. But safety-wise, it's fine. No need to worry."
Christine tilted her head. "If it's just an island… then why is headquarters treating this collaboration so seriously?"
David replied, "Because the company we're meeting is one of the biggest conglomerates in Hong Kong. They're also the largest manufacturing group here, with their own shipping company. That's exactly the kind of partner PepsiCo needs for Southeast Asia."
"The largest manufacturing group?" Christine asked, curious. "Do they make beverages?"
"No," David said, pointing at the rolling suitcase in his hand. "This. The rolling suitcase was invented by that company. Same goes for those Post-it notes we use all the time, and the adhesive wall hooks you see in every household—those too."
"My God, all of that was invented by someone in Hong Kong?" Christine's face was full of astonishment.
David nodded. "Yes, and not only are they brilliant innovators, their commercial operations are equally impressive. Before coming to Hong Kong, I did a lot of research. I even spoke to a Hong Kong student studying in the U.S. to get some firsthand insight. Let me give you a quick rundown.
The founder of this company is named Wendong Yang—he goes by Eric in English. Back in 1958, he was just a…"
Christine listened with growing disbelief, her expression shifting from surprise to admiration. "That's incredible. Building something from scratch in just five years? If that happened in America, it would be one of the most legendary entrepreneurship stories in the media."
"Exactly. That's why the board is taking this potential partnership very seriously," David replied. "We see this man as a future top business figure in Asia. Working with someone like him could help us make up lost ground in the Asian market, where we've been suppressed by Coca-Cola."
Christine nodded. "So, has the meeting been scheduled yet?"
"Two days from now," David said with a smile. "Let's take tonight to rest. Tomorrow we'll explore a bit and get a feel for the local environment. The day after, we'll officially meet and discuss the partnership."
Two Days Later — Changxing Tower
Zhou Haoran brought the two Westerners, along with several Chinese colleagues, to the top-floor meeting room.
"Yang Sheng, this is David, the Asia-Pacific Director of PepsiCo. David, this is my boss, Mr. Eric Yang."
"Pleasure to meet you," Yang Wendong greeted, extending his hand.
David shook firmly and smiled. "Very pleased to finally meet you."
"Please, have a seat," Yang Wendong said, gesturing to the table.
Assistants came over to take drink orders and soon served coffee or tea to everyone in the room. After a few minutes of casual conversation, the meeting officially began.
David took the lead. "Eric, PepsiCo's board of directors is very enthusiastic about this potential collaboration. There are just a few points we'd like to clarify with you."
"Go ahead," Yang Wendong replied.
David continued, "We can discuss financials and logistical details later. What I'd like to start with is strategic direction. We know your company also has its own beverage lines, including cola. That does put us in a potential competition scenario, which is a concern for us."
"I understand completely," Yang Wendong nodded. "But let me ask—does contract manufacturing for you mean I have to abandon my own beverage development? Look at Coca-Cola and Swire. Even though they work together, Swire still has its own branded drinks."
"Yes, but Swire doesn't have its own cola," David pointed out.
Yang Wendong had anticipated that question. "True, but my cola operation is very small—you're probably already aware of that. If trust is an issue, here's a proposal: I agree not to sell my cola in any market where I'm producing for Pepsi. How about that?"
"You mean, avoid any market where we contract you for production?" David repeated, pondering the idea.
"Exactly," Yang Wendong explained. "For example, if you assign me your Malaysia orders, then my cola won't enter the Malaysian market. That way, there's no conflict of interest.
However, this has to be a two-way agreement—you need to give us a certain volume of business. If you only give us small batches, it's not fair to restrict us completely. We could sign short-term agreements every few years and adjust terms accordingly."
Watsons' cola line was essentially non-existent. Even trying to grow it locally was hard, let alone exporting. Trading that for Pepsi's contract orders was more than fair.
But Yang Wendong wouldn't completely tie his own hands. If someday his cola brand took off, he didn't want to be stuck avoiding Pepsi markets—especially not the vast mainland China market.
"Sounds reasonable," David said. "What about your other beverage lines?"
Yang Wendong replied, "If I'm producing cola for you, I'll keep my own cola out of your markets. But for non-cola drinks—those are fair game. Surely you don't expect me to give up my entire beverage business just because I'm making some cola for you?"
Some restrictions on a contract manufacturer were understandable, but they had to be reasonable. Even Changxing wouldn't tolerate a supplier turning around and selling competing products—but outside of direct overlap, they wouldn't interfere.
Just like Changxing Industrial's plastic suppliers—they were free to make other plastic products for the general market.
"I'll note that down and check with our U.S. headquarters," David said, then moved to the next item. "Second, we'd like to clarify how this partnership will be structured. Will we build a joint venture factory together, or will your company handle all investments and supply us?"
"What's your preference?" Yang Wendong asked.
David replied, "We prefer the latter. PepsiCo does not want to invest directly in Hong Kong. If your company builds the facilities, you can factor your investment into future pricing and recover the cost over time."
"That's fine by me," Yang Wendong nodded.
Many foreign companies were reluctant to invest directly abroad unless absolutely necessary. Outsourcing was almost always the preferred route. Even early on, if Changxing Industrial hadn't needed full control due to real estate returns and long-term planning, Yang Wendong would've preferred to outsource as well.
Setting up a factory was no big deal—it didn't cost much, and he could use the opportunity to acquire land. But if he had to split property profits decades later with Pepsi, that would be a headache.
"Great." David was thrilled. He had thought this would be the hardest part of the negotiation, but Yang Wendong had agreed almost instantly.
"That brings us to the third point," David said. "Our U.S. headquarters will need you to provide proof that you can produce cola at a lower cost—or at least match Coca-Cola's costs."
"That'll be hard," Yang Wendong said, shaking his head. "Swire Group basically controls the entire beverage supply chain here. If I get your orders, I plan to replicate that model—starting from sugar production—but it will take time.
Initially, my production costs will definitely be higher than Coca-Cola's."
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