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Tapping Economic Powder Kegs
As the battle for global market share rages on, companies across most sectors continue to view nations such as China and India as bastions of growth. A pair of very different industry leaders, Abbott Labs (ABT) and PepsiCo (PEP), recently announced initiatives with seemingly similar end goals: To build formidable positions in these fast-growing markets. The drug and medical device maker looks to dive right into the Indian market by way of an acquisition. For the snack and beverage manufacturer, a surge of funding should help fortify its brand in China. Specifically, Abbott Laboratories has agreed to acquire the Healthcare Solutions business from India's Piramal Healthcare Limited. Under the terms of the deal, Abbott would pay $2.12 billion in cash up front, with annual payments of $400 million to follow for the next four years, for an aggregate purchase price of $3.72 billion.
The acquisition would make Abbott a leader in India's fast-growing pharmaceuticals market, which is expected to generate nearly $8 billion in sales this year and is currently expanding at a double-digit annual pace. Too, Abbott anticipates India's market will more than double by 2015, which may allow the company's local sales to expand at roughly 20% annually by 2020, to over $2.5 billion.
Furthermore, the move should help accelerate Abbott's emerging markets strategy, since it dovetails nicely with the company's $6.6 billion Solvay acquisition and its recent licensing agreement with India's Zydus Cadila to sell at least 24 pharmaceutical products in 15 emerging markets.
Taking a different approach, Pepsi kept its investments within the company in an effort to increase its geographic footprint with a greater focus on China's lucrative market. What makes China particularly appealing is the significant investment being made by the government in tandem with the private business sector. Too, the special emphasis being placed on developing the country's middle class (and its disposable income) holds promise, since that group will likely represent the largest segment of China's fast-growing population in the future.
With that in mind, Pepsi plans to invest about $2.5 billion in China over the next three years, in addition to the $1 billion the company has already committed since 2008. Pepsi will probably use the lion's share of funds to increase its manufacturing capacity by opening new plants and adding production lines to existing facilities. In addition, the company plans to direct more resources toward the development of healthier food and beverage options as part of a broader global response to the growing obesity epidemic and other health concerns.
Brand building presents another avenue for growth, and the company’s eye has widened beyond China’s borders to emerging markets, such as India and Russia. Indeed, this initiative should be a catalyst for long-term growth since it increases Pepsi's presence in these relatively untapped markets and allows the company to better compete with global players, namely rival Coca-Cola (KO).