Global Growing Challenges That a Plastic Bottle Manufacturing Company Logoplaste Was Facing - Research Paper Example

?Global Growing Challenges Table of Contents Introduction 3 Company Overview 3 Business Model 4 s 4 Distribution 5 Global Expansion 5 Competitors 5 Challenges Faced by Logoplaste 6 Strategic Analysis 7 Industry Evolution 7 PEST Analysis 8 Porter Diamond Model 9 SWOT Analysis 11 Critical Success Factor for Logoplaste 12 Conclusion and Recommendations 13 Works Cited 15 Name of the Student: Name of the Professor: Course: Year: Global Growing Challenges Introduction Managing organization globally has been a major challenge in business for centuries. The nature of the business operations are changing, which in turn is accelerating transformation of economic activities in North American, European, African, Asian and Latin American markets. It has been stated by McKinsey Global Institute research, that about 400 midsized cities in the world will be responsible for 40 percent growth of the global market in the next 15 years. International Monetary Fund has also confirmed the fact that the ten fastest growing economies of the world would be emerging as powerful nations in the near future (Dewhurst, Harris and Heywood “The Global Company’s Challenge”). Against this backdrop, the discussion in this report would be on the growing global challenges that a plastic bottle manufacturing company, Logoplaste was facing. The objective would be to conduct a strategic analysis of the company, its products and the industry it is functioning in. This would assist in identification of the critical success factors for the growth and development of the company. Company Overview Logoplaste, a company that produced rigid plastic containers, was established in the year 1976. This company has been a pioneer in the plastic packaging segment since a span of 35 years. It has more than 60 factories in 16 locations around the world. Logoplaste utilizes state-of-the-art machineries in its factories. It follows just-in-time and “Hole in the wall” method of product delivery, which gives the company an advantage over its competitors. Logoplaste is the third largest company for container transformer in Europe and second largest in Brazil. The goal of the company is to attend an annual growth of 15 percent in every country it has its operation in and acquire a new business contract every year. This goal of the company is inspired by its vision, which states that in order to retain the position in the industry; the company should keep on growing in terms of size and revenue (“Logoplaste Activity”). Business Model The business model of the company is based on five pillars; focus, close relation with customers, win-win approach, services and investment. In order to maintain a balance between these pillars, Logoplaste has certain strategies, which provides competitive edge to the company. Logoplaste consider itself to be a global player, so it focuses on the leading companies present in the market. The motto of the company is to invest in technology and innovate, so that not only the company can grow but its employees can mature in terms of their standard of living (“Logoplaste Activity”). Customers Logoplaste mainly functions in the fast moving consumer goods (FMCG) segment. The customers of Logoplaste are Procter & Gamble and Coca Cola are the largest customers of the company, which Logoplaste supplies containers and packages for many well-known FMCG companies around the world. The FMCG companies find the plastic containers to be the most convenient and cheap alternative for product packaging. Almost all the FMCG companies directly or indirectly avail plastic containers of Logoplaste (Alcacer and Leitao 1-19). Distribution Transporting the plastic containers in high volume is economically unviable because when they are empty there are ample chances of damage. This is the reason why the suppliers of the containers set their plants near the filter plants of the clients, so as to eliminate the cost of transportation, but this decreases the diversification benefits and scale (Alcacer and Leitao 1-19). Global Expansion The company started its journey from Portugal in 1990s and had no other choice but to grow in order to sustain. It expanded to Spain in 1992 by setting the bottle plants in Spain for a start-up mineral water plant, but the company failed due to financial obligations. In 1996, Logoplaste moved towards Brazil and thus could set a strong footing in the country. By 2003-2004, the company began its expedition to other countries of the world, which includes Northern and Central America, Eastern Europe, Asia-Pacific and China. By 2009, Logoplaste had positioned itself in one of the two target locations that is China (Pugel 104-140). Competitors The rigid packaging segment is fragmented because of metal and glass counterparts. There are around ten 10 global players, which supply 16 percent of world’s plastic containers. The major competitors are Amcor, Plastipak, Graham Packaging and Alpla-Werke. Amcor is the largest player in this segment. It is an Australian packaging company, which generates average revenue of around €5.4 billion (Alcacer and Leitao 1-19). However, the company has been lately facing sluggish and negative growth, which led the company to sales of its European PET operations. On the other hand Plastipak is an American firm, which generates average sales of €1.9 billion even during 2009. It offers products to PepsiCo. Alpla-Werke is an Austrian company that was established in 1955. It is privately held company which generates average revenue of €2.1 billion. Alpha mainly relies on producing organic products. Graham generates 86 percent of its sales from the North American market. Unlike Logoplaste most of Graham’s plants are off-site (Alcacer and Leitao 1-19). Challenges Faced by Logoplaste In this section of the study, the global challenges that Logoplaste has been facing would be discussed. The company started its journey through a small operation in a single country, so setting global footprint was indeed a challenge. The first challenge that Logoplaste encountered was during understanding and following the business structure of different countries, while setting its operation in foreign countries, during expansion. Maintaining the cost was yet another critical issue in this scenario. A strong price-competitiveness was already prevailing in the global market place, so requirement of can-do attitude and strong business knowledge was necessary. The second challenge for Logoplaste was financing the foreign operations. A small company, which is privately held, does not possess enough funds to finance its growth plans. So as the company started its expansion plans, it started facing financial crisis. The business model of Logoplaste was risky and banks were scared of extending loans. The senior management of the company had to spend considerable amount of time in developing relationship with the bankers. Strong publicity and promotion assisted the company in gaining confidence of the bankers (Alcacer and Leitao 1-19). Client recruitment was another challenge for the company and retaining them was another significant issue. The company was however successful in retaining 100 percent of its customers over a period of 18 years. Nevertheless, there are other reasons too, which indicates that the company requires fresh strategies. Firstly, because it is yet not the number one company in Brazil in plastic container production and packaging segment. Secondly, the profitability of the company has been showing a decreasing trend over a period of time. Thirdly, Logoplaste lacks agility when it comes to its response in the market, which is resulting in missing opportunities. Fourthly, paternalism is another reason which is checking growth of the company. Last but not the least, the company has lost its market space and it has not been successful in growth and expansion (Alcacer and Leitao 1-19). Strategic Analysis Strategic analysis is the method through which the strategic management tools can be utilized to determine the ways through which organizations can attain their goals and fulfill their objectives with the help of the available resources. Industry Evolution Industry evolves from one stage to another with the growth and development of the companies functioning within the industry. The industry evolution model states that there are four general stages through which the industry evolves. The initial stage is the uncoordinated innovation stages, in which the entrepreneurs come up and develop businesses in response to the customer demand. The second stage is building the marketplace, where similar product or service offering companies develop an infrastructure to have fixed set of policies, so that activities, growth or competition is regulated under similar parameters. The third stage is capturing the significance of the market. The final stage is the maturity stage, where the growth rates are slow and activities are steady. The industry in which Logoplaste is operating is in its maturity stage. The demand and growth is stable, yet low. Technological growth in form of innovation can be seen, which ensures that the products are being produced through standardized process. The companies can reduce cost attend operational efficiency (“Logoplaste”). PEST Analysis In order to evaluate the macro environmental factors, the PEST (political, economical, social and technological) analysis would be done in this section of the study. This will give the readers an idea regarding the external surrounding in which Logoplaste is carrying out its business operation. Political The plastic packaging and container manufacturing industry has change changes in regulation and laws in different countries as a part of the carbon-footprint reduction initiative of every country. Government regulations and company initiatives are working towards using recycled materials for manufacturing. This has assisted the Western companies in this industry to penetrate in the untapped Asian, African or Middle-eastern countries (Welsch 663-693) Economic Market fluctuations and economic downturn prevailing in global market is effecting growth and expansion plans (“The Good, the Bad, and the Ugly Side of Globalization”). Social Various environment related regulations for controlling carbon footprint is being developed by the European Union and other regulating bodies in different countries. So usage of recycled materials and less use of harmful plastic will have significant effect on this industry (“Trade and Globalization”). Technology State of the art machineries in plants, Innovation labs and concepts like Hole in the wall. Porter Diamond Model Porter Diamond model is used to evaluate the competitive advantage of nations or companies by considering certain factors that are available to them. It basically assist in investigate and improving the role of the nation in the competitive field. This model has been designed by Michael Porter for analyzing the level of competition and company strategy. Figure 1: Porter Diamond Model Source: (Jin and Moon 195-208) This phenomenon can be analyzed by classifying the six factors that can be seen in Figure 1. These are the key tools that are utilized for analyzing competitiveness. Factor Conditions Logoplaste utilizes technologically advanced machinery for manufacturing plastic bottles and other containers. The human resources consist of both skilled and unskilled employees. It terms of competitiveness, Logoplaste is among the top ten companies in the world in this industry, which signifies that the human resource of the company is efficient enough to handle other resources well (“Logoplaste”). Demand Conditions Logoplaste’s major customers are Procter & Gamble and Coca Cola and many other renowned companies in the FMCG industry. The company has been successful in expanding to major countries of the world. Supporting and Related Industry Logoplaste manufactures plastic containers and packages for FMCG companies around the world. This signifies that it plays a major role in mineral water, FMCG, Pharmaceutical, food and various other industries (“Logoplaste”). Structure, Rivalry and Firm Strategy Logoplaste operates on the strategy of Hole in the wall. The business model of the company is based on five strong pillars which have been discussed above. There are ten top companies in this industry, which captures 16 percent of the market. Competitiveness in the industry is extensive and every firm has their own competitive strategy and unique selling proposition (Jin and Moon 195-208). Government Since Logoplaste manufactures rigid plastic package, so government regulation in this segment has become strict for reducing the carbon footprint. Chance The economic crisis around the world has affected the steady growth and development of rigid plastic container industry. Many firms in this industry have to close down their less productive operation in few countries. SWOT Analysis After a comprehensive analysis of Logoplaste’s operational functions, the focus in this section would be towards discussing the strengths, weaknesses, opportunities and threats of the company. Strengths Logoplaste has a well developed customer base. It has been successful in developing these through diversified operations and through its capacity to develop quality products. The company sets up its plains near the filling station for reducing the cost of transportation and distribution. Logoplaste also offers a wide range of products (“Trade and Globalization”). Weaknesses The sector in which Logoplaste is operating has to face instability due to economic downturn, stricter environment norms, etc. Logoplaste also had to face challenge in financing its expansion plans and operations in foreign countries. Opportunities Prospect for the production of eco-friendly products. Using recycled material for production of containers. The innovation labs of the company can introduce a breakthrough in raw material for the industry. New FMCG companies developing in various parts of the world are the prospective clients for the company. Threats Risks associated with financing and expansion. Environmental concerns (“Trade and Globalization”) Critical Success Factor for Logoplaste The critical success factors describe the elements that are necessary for the organizations to achieve its objective and mission. Every firm operates in different industry and diverse external environment, so the critical success factors are different for different companies. Figure 2 below explains how the requirements of Logoplaste have changed with time and accordingly the success factors that are critical for the business have also altered. Figure 2: Critical Success Factors Source: (“Transforming an Organization’s Management Model from “Command and Control” to “Beyond Budgeting”: The Logoplaste Case”) Since the 1990s up till now Logoplaste has been operating on the basis of a set of critical success factor. It includes transparency of process and functions in the organization, recruiting skilled employees and fulfilling their demands in return of the services that they are offering. Retaining customers around the world was another issue because there are many players in the industry and customers are disloyal (“Critical Success Factors”). They move to those companies, who are offering them good products at fewer prices. There is extensive price pressure on the company in this regards because when there is minimum quality difference among competitors, they compete in terms of product price. Apart from this flexibility towards unpredictable situations and maintaining short life cycles are also factors of success. However, the present scenario demands efforts beyond the above factors of success. Success in future can be achieved through ethical behavior, maintaining customer relationship, innovation, better work environment, ethical behavior and faster response to customer demand (“Critical Success Factors”). Conclusion and Recommendations In order to discuss the global growing challenges that organizations are facing around the world, the report considered the case of Logoplaste for evaluating the challenges that the company faced in the global marketplace. In order to scrutinize the micro, meso as well as macro environment in which Logoplaste is operating, a strategic analysis has been conducted. The strategic management tools have been used to identify issues that Logoplaste is facing. Logoplaste uses Hole in the Wall strategy which gives the company an edge over its competitors. It operates in most of the countries in the world, yet the major challenge the company is facing is financing and maintaining its foreign expansion and operation. Apart from this, the environmental norms and stricter regulation are also becoming a challenge for the company. These challenges can be successfully eliminated by the company by considering the critical success factors that would be helpful to sustain in future. Introducing recyclable materials for production, maintaining good customer relationship attending operational excellence through ethical behavior and better machinery are few factors that can be considered for success. Works Cited Alcacer, Juan and John Leitao, “Logoplaste: Global Growing Challenges” Harvard Business Review, 9(2013): 1-19. Print. “Critical Success Factors” Mind Tools. Mind Tools Ltd., 2013. Web. 15 November 2013. Dewhurst, Martin, Jonathan Harris and Suzanne Heywood. “The Global Company’s Challenge” McKinsey Quarterly. McKinsey & Company, June 202. Web. 15 November 2013. Jin, Byoungho and Hwy-Chang Moon, "The Diamond Approach to the Competitiveness of Korea's Apparel Industry: Michael Porter and Beyond", Journal of Fashion Marketing and Management, 10.2(2006): 195 – 208. Print. “Logoplaste Activity” Logoplaste. Logoplaste, 2013. Web. 15 November 2013. “Logoplaste” Prezi. Prezi Inc., 2013. Web. 15 November 2013. Pugel, Thomas. International Economics. 12 ed. McGraw Hill, 2004. Print. “Trade and Globalization”. Globalization. The Levin Institute. Web. 15 November 2013. “Transforming an Organization’s Management Model from “Command and Control” to “Beyond Budgeting”: The Logoplaste Case” Logoplaste. Logoplaste, 21 February 2008. Web. 15 November 2013. “The Good, the Bad, and the Ugly Side of Globalization”. Forbes. Forbes.com. Web. 31 October 2013. Welsch, Heinz. “Corruption, Growth, and the Environment: A cross-country analysis.” Environment and Development Economics, 5.10(2004): 663-693. Print. Read More