Corporate Strategy of Tate & Lyle Company - Term Paper Example

Tate & Lyle Tate & Lyle (T&L) is a leading manufacturer of renewable food and industrial ingredients. Tate & Lyle was founded in the UK in 1921 and the group's ingredient portfolio includes sweeteners, performance and basic starches, acidulates, gums, sugars and Splenda Sucralose. It is headquartered in London, the United Kingdom and employs about 6,900 people in its subsidiaries with a further 2,300 employed in joint ventures The group participates mainly in four markets: food and beverage; industrial; pharmaceutical and personal care; and animal feed. Of these markets, food and beverage and industrial are the most significant. It principally sells ingredients, ingredient solutions and services to manufacturers in these two markets and they use the ingredients to manufacture their consumer and industrial products. In the food sector, it also sells end products directly through retail distribution channels to retail customers in certain markets. The customer base includes many of the world's major global food, beverage and industrial companies. Their ingredients can be found in the products of nearly all the world's top 100 food and beverage companies. The products include cereal sweeteners and starches, Proteins, Acidulants Sweeteners, Enrichers, Stabilisers, Acidulants, Biogum,Ethanol, Aquasta, Bio-PDOBlending,Nutritive Low-calorie Non-nutritive Dietary fibres Fortifiers Hydrocolloids Emulsifiers Fat-replacers Speciality protein, Starch, Gums, Starches, Proteins, Maltodextrins ,Polydextrose, Citric acid (Product Display) Strategies The Group has embarked on a strategy of building a stronger value added business from a low-cost commodity base whilst, at the same time, reducing the impact of exposure to volatile markets. Acquisitions Acquisition refers to a strategy wherein a company can enter a foreign market rapidly and retain maximum control.. New acquisitions underline the UK group's strategy of achieving a truly diverse added value ingredients portfolio. These bolt-on acquisitions are an excellent fit with Tate & Lyle's stated growth strategy. They represent a further step in broadening the product mix, technology and customer base in rapidly expanding areas. The group continually evaluates acquisition opportunities that would add strategic value by enabling it to enter new markets or add products, technologies and knowledge more efficiently. The acquisition of CCI has enabled Tate & Lyle to advance these initiatives by bringing new expertise in the areas of dairy stabilisers, hydrocolloids systems, emulsifiers, vitamins and flavours. Together they will be more responsive in developing distinctive and innovative solutions for the food industry as part of value added growth strategy (Fletcher, 2006). Recently the company signed an agreement to acquire an 80% holding in German speciality food ingredients group G.C. Hahn & Co. in order to broaden both product offering and customer base.(Annual Report,2007) Patenting The firms have the freedom to control the rights to inventions. A patent is a grant from the Government to disclose the invention to public and thus excludes others from using that invention for a certain period of time.(Onkvisit,Shaw ,182) The company maintains a significant number of patents to support the businesses and protect their competitive advantage. It currently has 32 different patents (from commercial blends and products to processing) protecting Splenda. Much of the product innovation and development work carried out by research and development teams results in patentable or proprietary new technology. The company personnel monitor market developments closely to identify any potential violations of patents and intellectual property and take appropriate legal action where considered necessary. Joint Venture A joint venture is a partnership at a corporate level where ownership and control is shared and the partners are from more than one country. Through it, the amount of resources each partner contributes is also reduced. Through a joint venture, the firm can penetrate new discrete market with the other partner's local knowledge (Kotler,418).The company has established a joint venture plant with DuPont in Loudon, Tennessee, to produce Bio-PDO from renewable resources and it has been a tremendous achievement in bringing on-line a unique bio-refinery process The expansion of Sagamore plant in the US increases capacity for making a variety of value added starches used by its customers in dairy, beverages, baking. Both these expansions also bring significant environmental benefits by reducing energy consumption and emissions. Diversification Another strategy adopted by the company to manage its growth plans is diversification. It has chosen a horizontal diversification strategy by entering into flavored water market.(Staff Writer) .It has entered into the growing flavored water market, launching two new products as part of its Rebalance range. Both the products contain the firm's sucralose sweetener Splenda, and fructose,polydextrose, enabling drinks makers to reduce the calorie-content of commercially available flavored waters by up to 66 per cent. The global soft drinks industry has been hit by a consumer shift away from sugary carbonated beverages towards healthier options. Manufacturing This strategy involves all or some manufacturing in a foreign country. Tate and Lyle follows this strategy and they have a number of manufacturing facilities in various countries in order to achieve economies of scale. This strategy allows access to cheap labour costs, cuts on the transportation costs. Trade barriers and import taxes could be avoided which would in turn lead to low costs of production Value added food ingredient The key driver of growth for the business is value added food ingredients. Value added ingredients utilise technology or intellectual property enabling customers to produce distinctive products and Tate & Lyle to obtain a price premium and/or sustainable higher margins. In this market the company operates primarily within three categories: sweeteners such as SPLENDA Sucralose and polyols; texturants such as starch and gums; and wellness ingredients such as fibre, protein and probiotics. (Fletcher) Business Model The firm's newly launched CORE business model - which stands for Create, Optimise, Rebalance and Enrich - is designed to achieve the evolution towards becoming a more flexible and responsive business partner. Create is about developing new products such as textures, shapes and flavours; Optimise is about helping manufacturers to reduce costs; Rebalance is about taking regular brands such as ice cream and making them more nutritionally balanced and Enrich is about fortifying products with ingredients such as fibre. The purpose of the CORE strategy therefore is to tap into exactly what consumers want, and then help manufacturers to deliver Consumer research Customer understanding drives all that the company does. The company uses market research to understand the consumer, the markets and customers' needs. The consumer is its customer's customer. Therefore it works hard to understand consumer drivers and trends so it can help its customers anticipate and respond to new challenges. To accelerate the growth strategy for its value added food ingredients business and to strengthen further the commitment to delivering excellent customer service, in October 2005 it formed the Global Food Ingredients Group (Annual Report, 2007) This group combines the marketing, research and development and sales teams from their value added portfolio into one team. It focuses on coordinating the customer-focused activities so as to maximise the profitability and market reach of value added and functional food ingredients. To develop customer relationship further throughout business, it has set up cross-functional teams to work with customers to provide consumer and customer insights and to support them in looking for new product innovation opportunities. Product Innovation Tate & Lyle is an active product innovator. It launches products offering new customer benefits through extensive research. Tate & Lyle is set to launch two flexible new wheat protein isolates that have been developed from a new patent-protected form of wheat protein processing. They will help food manufacturers achieve a wide variety of goals, from providing true non-dairy products to offering 100 per cent vegetarian confectionery that can reach a wider customer base.(staff writer) .Bio-PDO, an innovative monomer made from corn by DuPont Tate & Lyle Bio-PDO is an excellent addition to Tate & Lyle's industrial ingredient portfolio which utilizes the company's core competencies of fermentation and separation. By continuing to invest in research, and through strategic partnerships, it can help meet the world's increasing demand for products from renewable resources that match or exceed the functionality of petroleum-based alternatives (http://duponttateandlyle.com/faqs.html).It has launched a new range of instant waxy maize starches designed to help European snack manufacturers reduce product fat content without impacting upon taste or texture as 82% of European consumers believe that fat needs to be limited in order to have a healthy diet and 66% say they are always looking for ways to eat more healthily (Tate & Lyle launches new MERIGEL 300 / 301 instant starches,2008) Product line expansion The company has expanded its product offering by using the raw ingredients of corn and sugar to become a producer and distributor of a range of alcohol products. These are used in the manufacture of beverages and vinegar, as well as in industrial products such as paint. It also produces ethanol, which can be blended with gasoline and used as a fuel. New Export Market It has developed new export markets within the EU such as Italy and has made significant investments in efficiency projects at Thames Refinery. Storage of Molasses Molasses is a versatile by-product of sugar production and is also used in a diverse range of other industrial processes. The company has been able to leverage its position as a leading sugar manufacturer to become a market leader in the international trading, distribution and storage of molasses. It has developed the expertise gained from storing molasses to establish an ancillary business of storing other commodities for their customers in bulk liquid storage facilities around the world Research And Development The company has over 260 people in R&D team worldwide working to develop innovative ingredients from renewable resources. It has an extensive product development pipeline across several markets and additional resources have been deployed to help facilitate the process. It has increased investment in research and development capabilities to develop innovative solutions that meet customers' product challenges.. To help develop talent, improve leadership and help their employees succeed, it operates various programmes designed to ensure the right skills at all levels to grow their business. Ethical Initiatives Tate & Lyle would move its entire retail cane sugars range to Fairtrade, marking the largest ever switch to the ethical labeling scheme by any major UK food or drink brand. The major scale of Tate & Lyle's conversion to Fairtrade sugar has involved two years in planning. The company has worked in partnership with the UK-based Fairtrade Foundation and its international organisation to help cane farmers in Northern Belize meet Fairtrade standards. This includes working with the sole sugar processor in the country, Belize Sugar Industries, and over 6,000 smallholder farmers, represented by the Belize Sugar Cane Farmers Association (Tate & Lyle plans). The first product to be licensed to carry the FAIRTRADE Mark will be Tate & Lyle Granulated White Cane Sugar, sourced from Belize; Tate & Lyle's first accredited grower-partner, from whom it has purchased sugar for over 35 years. Evaluation of Strategy The year 2007 has been good for the company. Sales from total operations (including both continuing and discontinued operations) were 4,070 million (2006 - 3,720 million). Adjusted profit before tax from total operations increased by 14% to 336 million (2006 - 295 million). Profit before tax from total operations including a net gain from exceptional items of 10 million and amortisation of 9 million was 337 million (2006 - 42 million). The evaluation of the overall strategy is as under: Acquisition could be a complex and risky strategy as the value of currency could increase or decrease the cost of acquisition.A buyer whose home currency is stronger would see the cost go up but will benefit if currency becomes stronger. Also it is quite challenging to detemine a fair price, overcome language differences, employee resentment. So this strategy needs to be followed carefully in order to avoid problems later. Tate and Lyle should invest more in setting manufacturing plants abroad especially Asia as the cost of labour is cheap here. Patenting is a good strategy but the group has to be careful about the me too products that are cheap imitations of the original and keep renewing the patenting rights of its exclusive products. Diversification should be ongoing for a global business firm through product line extensions or purchase of distribution channel in order to adjust with changing preferences of customers. Tate & Lyle is doing well here. In order to deal with the political risks peculiar to socialist countries, joint ventures seems to be a good option. Also in countries where foreign firms' entry is limited to some sort of cooperative arrangements, this is a good option. And with consumers increasingly turning towards sugar-free and low-calorie products, food makers are increasingly on the lookout for cheap sugar alternatives. Through joint ventures, the cost could be controlled. 2.The firms in other sectors could learn important lessons from this case study involving food additive industry. Failure to manage joint venture or partnership relationships effectively could be detrimental to any business. The companies should recognise that joint ventures and other commercial arrangements must be managed effectively to ensure that both partners' objectives are aligned and to maximise financial and operational performance. At the same time, the partners should be selected carefully so as to avoid the potential negative impacts on growth or profit levels of an unsuccessful relationship. Exchange rate fluctuations could create earnings and balance sheet volatility If a group operates in many different countries, then it is subject to currency fluctuations arising on transactional foreign currency exposures and the translation of overseas subsidiaries' results. For example, a weakening of the US dollar and euro against sterling would have a negative impact on the sterling reported net assets and shareholders' funds. If the competitors were able to identify, develop and introduce on a commercial basis a major technological step change, such as significantly improving the efficiency of the production process and lowering costs or introducing a new product with better functionality, effort must be made to least match or exceed competitors' service and quality performance. Competitors may achieve significant competitive advantage through technological step change or higher service levels. So competitor strategies' analysis should be constantly done. In the fiercely competitive business world, the commercial success depends, in part, on obtaining and maintaining patent protection on certain products and successfully defending these patents against third-party challenge or infringements as the competitors could independently develop similar technologies or independently duplicate the technologies. The patents may expire or remain in existence for only a short period following commercialisation. This would reduce or eliminate any advantage of the patents and have a material adverse effect on its business, financial condition and results of operations. A company must provide accurate and timely information to the market to deliver long-term shareholder value. The share price on the stock market is based on the expectations of a wide variety of market participants such as analysts, brokers, investment funds and other investors. Media stories or rumours can influence these expectations. Failure to provide accurate and timely information, failure to meet Group targets, or failure to respond in an appropriate way could lead to uncertainty and volatility in the share price and the erosion of shareholder value. The customers in the food additive industry are often sophisticated and aggressive, global, branded food and soft drink manufacturers. These customers are able to drive prices down and attempt to ensure that such prices never fully recover. Thus as per Porter's Five Forces Model (Kotler,283), the bargaining power of buyers is more in this segment. This characteristic is segment specific. As the battle for future growth in saturated and post-saturated industries and markets intensifies, competitors must develop the means for ensuring that they maintain the loyalty of their existing customers, whilst seeking to attract new customers from rival firms. Tate & Lyle must adopt strategies cautiously to maintain its leadership and a positive image. List Of References Kotler P, (1995), Principles of Marketing, Prentice Hall,8th edition Onkvisit, Shaw (1998),International Marketing, Prentice Hall, 182, 3rd edition Tate & Lyle completes CCI acquisition , Anthony Fletcher (http://www.confectionerynews.com),24-Jan-2006 Tate & Lyle targets added value ingredient demand Anthony Fletcher (http://www.confectionerynews.com) 25-Nov-2005 - Tate & Lyle taps into flavoured water market,Staff Writer (http://www.confectionerynews.com),16-Aug-2005 http://duponttateandlyle.com/faqs.html www.tateandlyle.presscentre.com/ 19/03/2008 10:30 Tate & Lyle launches new MERIGEL 300 / 301 instant starches www.tateanddyle.com/annual report 2007 Product display http://www.marketresearch.com/product Tate & Lyle plans to switch to Fairtrade sugar, AGENCIES http://economictimes.indiatimes.com 23 Feb, 2008, 1636 hrs IST Read More