Sustainable Trade Practices and Corporate Social Responsibility in Burge Limited - Case Study Example

Case Study Examination Overview Burge limited is one of the most renowned agribusiness companies which have integrated business operations from farm field to consumer goods. The business has a wide scale of geographical presence which is coupled with a wide range of products. There are basically four legs of the business which includes food products, agri-business, fertilizers and the relatively new bio energy segment. The company is weighing its options to invest in the alternative energy sources as this sector is posing some uncertainty to the business (Jansen, 2012). However, the opportunities in this sector are also abundant and this has increased since the fluctuation of the petroleum prices began. This kind of a physical spread creates both immense business opportunities and threats for the company. This paper aims to analyze the various external and the internal factors that are affecting the business of the company by application of the strategic management tools like PESTEL analysis and Porter’s competitive forces and VRIN analysis. The essay also discusses about the corporate social responsibility adopted by the company to enhance its competitive advantage. PESTEL Analysis Political: Since Bunge Limited has a global scale of operation so it is subjected to the political forces of a large number of countries. Its success in the various countries was dependent on suitably adjusting to the regulations faced in many countries. Government intervention in this industry can hugely impact its development as has been evidenced during the government intervention of Brazil to boost the bio fuel industry (Khanna, Mingo and West, 2007). The governments of a large number of countries including USA has commissioned and encouraged business in the investment of alternate technologies. In its food product and agribusiness when Bunge started its operation in India the company was constrained by the lack of transparency and infrastructure of the political environment of the country and the tax policies of the government (Khanna, Mingo and West, 2007). Economic: The economic factor which has been integral in creating difficult times for the business is the high price and the frequent fluctuations on the agribusiness industry. The conditions of economic uncertainty over the global economy over the oil prices have created a large number of subsidies for bio fuels which can impact the business prospects of Bunge. The management is however strict in its decision to form a definite approach towards energy business as subsidies are not permanent (Khanna, Mingo and West, 2007). Social: Social factors are extremely important determinants for impacting the agribusiness industry because it is seen as a key driver of societal and economic health of the nation. Two important factors are likely to determine the robustness of growth of the agribusiness industry namely the growth of the world population and the income of the individuals. Not only in the developed countries but also in the developing countries the demand for soybean meal is rising. Technological: The Company already has a strategic alliance with Du Pont to improve the quality of production of genetically engineered seeds. Technological aspects can significantly impact the production of bio fuels. Some technological uncertainties in the second generation bio fuel production like cellulosic ethanol have created a complicated situation in the market regarding the energy industry. Presently the business is weighing the technological options of ethanol based on sugarcane. Environmental: Environmental factors directly impact the food production which is one of the core businesses of Bunge Limited. Apart from the fluctuations in the prices of petroleum and oils several environmental factors like drought and flood can directly impact the prices of the agricultural products. Brazil, one of the leading centres of the business activities of Bunge, had been facing persistently bad weather conditions for the last two years which has impacted the profit of the business (Bell, et. al., 2009). Legal: As the business operates over various products and in different countries so naturally it is subject to legal proceedings in its day-to-day operations. One of the common factors that have implications on the business is the income and the other tax laws of the countries in which it operates. For instance in Brazil the subsidiaries of the company are subject to regulations of the federal, local and state tax authorities. Again in Argentina the company had faced different tax audit measures (Bunge, 2011). Key success factors One of the key factors which have been driving the success of the company is the decentralized organizational structure that has been adopted by the company. Though the organizational structure is decentralized yet the close integration in the value chain has provided the company with a competitive advantage. The business structure has been customized for each segment which has provided it a competitive advantage over the rivals in the industry. Key drivers of change The key drivers of change in the business come from a number of factors including the attitude of the government, the fluctuations in the price of the fuels and the attempt of globalization of food. The increasing attention of the government towards the development of alternative sources of energy and the rising demand of food from the world population is the key factors which propel the business. Threats and opportunities The rising demand for food from the developing countries has provided opportunities for the company to expand its business to the emerging countries of India and China. The strategic acquisition of Cereol had reflected the ambition of the company to become the largest oil seed producer. The company is also weighing its options to invest in the palm oil business in Malaysia and Indonesia. The biggest threat for the company is the stiff competition it faces from other major players in the agribusiness and the economic uncertainty that is present around the oil prices. Furthermore the complexity in the bio fuel production is also posing an uncertainty for the business to invest in this industry. Summary The PESTEL analysis brings out the detailed description of the macro environment in which the company operates. There are several external factors like fuel price fluctuations, attitude of the government and the global demand for food impact the business prospects. It has been observed that the company has actively utilized the opportunities and yet few threats like competition and uncertainty are still dominant. Porter 5 Forces Analysis Rivalry among existing firms: The rivalry between the firms in the industry like Cargill, ADM and Louis Drefus is quite high. The rivalry among the existing firms depends on: concentration and balance of competitors, industry growth, degree of differentiation, switching costs, economies of scale, excess capacity, and exit barriers. Presently the industry is experiencing high level of growth and the economies of scale are high as well. As the number of firms is abundant so the switching costs are relatively low. Regarding the energy line extension Cosan has been particularly acquiring the ethanol plants in Brazil can be a potential rival. Threat of New Entrants: In agribusiness the threat of new entrants is not very high. One of the relatively new market entrants in this industry is Wilamar which has established its position quite well. Generally it is difficult for the smaller firms to enter into the market because they lack the financial and technical knowledge that the larger firms have. Moreover the regulatory authority of the government in the form of high legal barriers also deters the new entrants from coming into the market. It is because of this that small firms do not gain the competitive advantage and effective leverages in the value chain (Bentley, et. al., 2009). Threat of substitute products: The threat of the substitute products is again not very strong in this industry. This is because the nature of the products like oilseeds, fertilizers and other food products does not have much substitute (Bentley, et. al., 2009). This wide range of product offerings makes substitute of products as a less credible threat. Threat of Buyers: The bargaining power of the customers is high primarily because the switching costs of the customers are low. In order to sustain in the industry the firms in this industry have to kept their prices low or else there is a tendency among the buyers to shift their business elsewhere. Also as most of the firms offer similar products so the firms cannot manipulate the buyers (Bentley, et. al., 2009). Threat of Suppliers: The supplier power of the agribusiness industry is again low as most of the suppliers include small farmers who do not have the adequate resources to bargain with the large multinational firms. Most of the produce of the firms are directly sold to the agents of the large multinational companies by the farmers directly. Summary The analysis of the Porter’s five competitive forces has revealed a clear picture regarding the existing conditions in the industry. It is now clear that the industry is mainly dominated by large firms with aggressive competition between them. The threat of the new entrants is low in this industry and the threat of substitute almost negligible. The bargaining power of the suppliers is not strong enough yet the bargaining power of the buyers is high. Resource Based Model One of the key factors that have contributed to the competitive advantage of Bunge Limited is the effective management of the value chain with the decentralized management of the organization. The management of the organization has been cautious enough to tailor made changes in the operational structure according to the country in which it operates. For instance, the company hires appropriate management staffs that have the ability to understand the local people to conduct the business smoothly. This has worked in the favour of the company. Though the company shares a decentralized management structure yet integration of information is very crucial for the business to survive in the industry. The company has always followed this which in turn has added to its competitive advantage. Due to the decentralized structure of the management, headquarter of the company does not impose the decisions on the subsidiaries; it rather allows a certain degree of autonomy in their functioning (Khanna, Mingo and West, 2007). Summary The management of the company clearly understands that if the new business launched across various geographies and technologies are to be successful then the integration of the information among the different sites is crucially important. The management sometimes faces issue in handling this tension and sometimes the inefficiency arising from it but so far it has been successful. VRINE Framework VRINE analysis is an effective method of locating the sustainable competitive of a firm. Table 1: VRINE Analysis Valuable Rare Inimitable Non-subtitutable Exploitable Brand Image yes no no No Yes Product Quality yes yes no no yes Logistics yes no no no yes Human Resource yes yes yes no yes (Source: Author’s creation) Summary The most valuable resource of the firm is the management practices adopted by the company which has been the source of competitive advantage. This has allowed the company to leverage its value chain to gain industry leadership. The company has been able to integrate and benefit from acquisitions like the acquisition of Cereol to become the leading processor of oilseed. The joint ventures undertaken by the company in China has provided Bunge with a strong Chinese presence. The company has been able to reduce its operational costs and raise its profit margin from this reduction. The research and development team of the company has been able to come up with products like low-linolenic soybean oil with low components of trans-fatty acids. This product was immediately met with success due to the increase in demand in the market for such low fat products. One of the major inimitable factors of the company is its effective human resource management which can provide it a sustainable competitive advantage over the other firms (Khanna, Mingo and West, 2007). Business Ethics Bunge Limited has been driven by fair trade practices as has been evident from the collaboration of the company with the trade associations to strengthen the position of the small farmers and the other suppliers in the value chain (Bunge, 2013). Burge has constantly raised the political issues that might affect the interest of the wider society and impact the life of the producers. Apart from helping the farmers who form an integral part of the value chain the company is also engaged in a number of social activities like investment in private educational institutions to strengthen the societal values. Also the company has been actively engaged in the training programmes of the farmers to empower them and help them to reduce the adverse environmental impacts. The management of the company also tries to help the farmers to maximize the use of finite natural sources. Bunge also complies with the Brazilian Regulatory Standard and National Commitment programs both of which aims at improving the lifestyle of the farmers (Fairtrade, 2013). Summary These factors show that the company has been trying to promote fair trading practices in conducting the business which is also extremely important for gaining sustainable competitive advantage over its competitors. The well being of the farmers are an important factor for the overall development of the organization because these help in the establishment of long run relationship with the suppliers. This objective goes in line with the corporate strategy of the business of the close integration of the value chain. Corporate Social Responsibility, Sustainable Development and Stakeholder Analysis Corporate social responsibility of the Bunge Limited Group is very high and the company is associated with a number of social activities to help the wider community. The company has undertaken a number of volunteer works like investment in the educational programs for children. This is a corporate volunteer program that helps in propagating reading as an educational practice among community centres and schools. Finally, the research and development team of the company has also been trying to reduce the waste disposal of the production system so that the business practices can become more sustainable in the long-run (Bunge, 2013). There are numerous sustainable development programs which are promoted by the company to promote best practices in business. For instance, the sustainable agricultural practices that are promoted by the company are aimed at reducing the adverse impact on the environment. In order to ensure that all the suppliers respect the practices promoted by the company it ensures that the non-compliant parties are subject to strict disciplinary actions like cancellation of contracts with Bunge. This is done to ensure that all the producers and the suppliers take part in the sustainability practices. Another example of sustainable practices promoted by the company is that the four sugarcane mills in Brazil by Bonsucro. This was done to ensure that the sustainable standards are met in the production process. This step promoted by the company has been very effective in reducing the adverse impacts on environment (Bunge, 2014a). The company had adopted the GRI standards back in 2006 in order to ensure that the satisfaction generated for the stakeholders is maximized (Murphy, Burch and Clapp, 2012). In order to ensure this goal the company ensures that the company has been producing its sustainability reports in consultation with the stake holders. This involvement of the stake holders makes the process transparent and effective. Stakeholders not only include the investors but also the common people who purchase the products. The social activities promoted by the company take care of these stakeholders (Bunge, 2014b). Summary It can be seen from the sustainable trade practices of the company that the sense of corporate social responsibility of the company is very high. The company has been trying to promote best business practices in the industry to ensure that it enjoys competitive advantage. The efficiency of the corporate governance along with corporate social responsibility is essential for the long-term development of the company. Reference List Bell, D. E., Goldberg, R., Ning, F. G. and Weisser, A., 2009. Agribusiness. [pdf] Harvard Business School. Available at: [Access 8 April 2014]. Bentley, S., King, N., Murphy, J., Norris, C. and Sanchez, G., 2009. Bunge Ltd. [pdf] Bunge. Available at: [Access 8 April 2014]. Bunge, 2011. Annual Report. [pdf] Bunge. Available at: [Access 8 April 2014]. Bunge, 2013. 10 Years reporting sustainable development in Brazil. [pdf] Bunge. Available at: < http://www.bunge.com.br/sustentabilidade/2013/eng/downloads/Bunge_AR13.pdf> [Access 8 April 2014]. Bunge, 2014a. Code of ethics. [online] . Available at: [Access 8 April 2014]. Bunge, 2014b. Environmental & social responsibility. [online] Available at: < http://www.bunge.com/citizenship/sugar_responsibility.html> [Access 8 April 2014]. Fairtrade, 2013. Powering up smallholder farmers to make food fair. [pdf] Fairtrade Foundation. Available at: [Access 8 April 2014]. Jansen, R. A., 2012. Second generation biofuels and biomass: essential guide for investors, scientists and decision makers. New Jersey: John Wiley & Sons. Khanna, T., Mingo, S. and West, J., 2007. Bunge: Food, fuel and world markets. [pdf] Harvard Business School. Available at: < file:///C:/Users/Saptarshi/Downloads/1054097_case_study.pdf> [Access 8 April 2014]. Murphy, S., Burch, D. and Clapp, J., 2012. Cereal secrets. [pdf] Oxfam Research Reports. Available at: < http://www.oxfam.org/sites/www.oxfam.org/files/rr-cereal-secrets-grain-traders-agriculture-30082012-en.pdf> [Access 8 April 2014]. Read More