East Asiatic Company Nutrition - Essay Example

EAC Nutrition Introduction EAC (East Asiatic Company) deals in nutrition business. Launching its first milk product in Asia in 1953, it has extended its product offerings to a variety of milk powders commonly known by the brand name of Dumex, Mamex and Mamil by 1970. The people up to 50 years of age in the countries where EAC started its business have used its products through out their lives. Milk products are loved by Asian consumers because they are stored without proper refrigeration for a few days. About 90 percent of EAC sales are made in 3 important Asian markets. China is now becoming a favorite market because of its size, potential, infrastructure, policy stability, tariffs and rapid economic growth. It is hoped that EAC will continue to grow and expand its business in the world markets in coming years. Economics of Infant Nutrition Industry Economics of the infant nutrition industry means what are the financial considerations or economically significant aspects of industry? The nutrition business mainly centers round the production and sale of milk powder and other products for new born and growing children under the various brand names. The recent economic recession requiring an increase in the commodity prices because of rising cost of raw material, has decreased the sale of EAC Nutrition’s in Thailand and Malaysia. There has been a decrease in the stock price on account of the investor’s lack of trust on the Asian economy and fear of neck-throat competition. Thanks to the successful restructuring of the company, the share price has increased during June 1998 in 2002.The management is making all out efforts to further enhance stock price and to rebuild the confidence of stock holders in the company. A dynamic growth strategy ensuring that EAC would continue to grow and expand in the years to come is being chalked out. There was a time when the company suffered decreasing profit margins and a heavy dead burden because of diversification in manufacturing and distribution services. This was because the group was not able to focus on any profitable part. As a result, the business with definite growth potential was ignored and resources were shifted to under performing sectors. A new management team took over in 1998, and restored financial strength by shifting money from under performing business units to viable units. As a result, business units amounting to over US $ 1.4bn (DKK 12bn) in annual sales and US $36.4 million (DKK 300 millions) in annual loses were profitably divested. In (2001) 25% of group sales were contributed by EAC nutrition and 34% of group operating profit with an EBIT margin between 8 to 10% were also given. Operating Profit Margin An EAC group financial ratio shows that operating profit margin percentage continue to rise from 1997 to 2000 It was 1.5 in 1997, 2.3 in 1998, 4.3 in 1999, and 8.8 in 2000 Return on invested capital Return on invested capital was 5.3 in 1997 and 6.7, 16.6 and 29.8 from 1998 to 2000 respectively. Graph of EAC shows an increasing return. Earning per share Earning per share was 72.3, 70.8, 77.3, 112.0, and 131.8 from 1997 to 2001. Capabilities do firms need to succeed in this industry 1. Pursuit of excellence with strong name for brands. 2. The maintenance of standard and quality product. 3. Presence in the world market. 4. Ever readiness to compete with competitors in new business opportunities. 5. Formation of a highly committed and educated work force. 6. Achievement of objectives as per targets given. 7. Better relationships with persons who matter in the business such as pediatricians and Journalists in nutrition. 8. Motivation of sales representative to successfully meet the objectives. 9. Building consumer confidence by public awareness program and high standard of quality. 10. Quick redressing of complaints regarding the product. 11. Continues innovations and high standard of hygiene. 12. Offering experts advice through website and news letters regarding child nutrition. 13. Establish strong relationship with parents. 14. Building up strong network and good reputation with in the local market. 15. Creation of employment opportunities in the local market. 16. Provisions of better health facilities, transport, and education for its employees 17. An enforcement of dependable system of check and balance, reward and punishment to employees. 18. Investment in social development programs in the community. Attractiveness of the Expansion options available to EAC Driven by the increase in GDP growth in many countries especially China, Singapore and India, the domestic market capacity for high quality dairy products will go on escalating leading to higher demand of dairy products especially infant milk for large scale production or joint ventures in collaboration with local businessman. Entry into small markets can be made with the help of low risk distributors while into big markets like China by joint ventures. Plants can be set up in big cities for large scale production with manufacturing facilities available. EAC has already gained enough ground in shanghai and now requires to move forward with its expansion plans. Some other markets may be full of foreign competitors but also contain enough potential for growth and development. Attractiveness of Expansions Options, China China is the most attractive option for company’s expansion programs. The people republic of China has an annual growth rate of about 9 percent which is a fairly good rate. The fruits of this growth will definitely reach up to the middle income group and lower income groups increasing demand for food products especially dairy milk for infants because when income of lower income groups increases, demand for food products responds immediately. Growth in Chinese Infant Nutrition Market We have seen Chinese infant nutrition market growing at a fast pace over last few years. The business friendly policies of China, its growing market oriented economy and its government opening windows of opportunities for foreign investment has gone a long way to boost foreign investment. In addition to this there has been marked improvement in the infrastructure in rural areas. Road accesses to remote areas resulting in expansion of markets for the baby food suppliers have been made. Exploration of other prospects in dairy food industry EAC should also look for opportunities to expand its business in other related field such as sport nutrition’s, wait management, junior foods, protein foods etc Possibilities of Expansion in India India’s economy is also exhibiting growth rate up to 6 %. She is the second most populous country in the world with a unique strategic importance in the region. Its infants and dairy product markets have lot of potentials to grow. No big international company can ignore it. Most Effective Option 1. China is the world’s fastest growing country. As a result of growth, the income of people goes on increasing putting pressure on demand of consumer goods and in particular food products in the initial stages. Increase in the income of middle class makes them shift from locally arranged unhygienic milk to good tasting high energy infant foods of strong brands having proven record of quality. Same will be true in India. 2. As a result of economic growth women also start working in factories and other places. So they do not find time to breast feed their babies. So, the young ones have no choice but to drink powdered milk. It means that expansion in China and India is the most attractive option hiving potential for growth but EAC should not forget its market in Thailand and Malaysia. Competitors respond to the adoption of the different expansion alternatives by EAC Following are the companies’ major competitors in the business of dairy products. a. Nestle EAC has to compete with Nestle, Wyeth, Mead Johnson, and Royal Numico all over the globe. Nestle has a unique advantage of having a strong name which is not only a sign of superior quality but is well known all over the world. We can safely call it the number one in the global food market in infant nutrition. Nestle is also expanding its business into new Asian markets such as china, India Korea and Malaysia. After china, India is the world’s greatest market. b. Wyeth Wyeth is also the other leading company in the competitive market with global sales volume more than US dollar 14 billion. The company occupies the position of major provider of pharmaceuticals-based infant nutrition. However, Wyeth story is not all a success story at some places it has not successfully communicate the value of its high quality product to consumer’s at the tail end. It had to sell of its operation in Japan. It’s only plus point is strong network and relations with in the medical community c. Mead Johnson This company holds good market position undeveloped market like Taiwan , Hong Kong and other markets such as Thailand ,China , Philippines. Mead Johnson has also been expanding its operations in developing markets keeping in view the emerging market trends. Response of Competitors to expansion programs All the above major competitors and a lot of minor firms in the same business at once give response to the efforts made by EAC to expand its business. In the cut thought competition in world market intense battles are fought with the help of advertising on print and electronic media. Any move by any company to convince the people to buy its product is countered by the other company immediately. EAC nutrition business is not so large and it has less powerful organizational resources than that of other companies but it has a kind of monopoly in selling milk powders in Asia. It focuses on selling milk powder while other multinational companies sell wide range of products. Effect to EAC decision The EAC management has to keep a watch on the development and advertising strategy of its competitors. Any advertising campaign launched by the competitors is to be countered by an equally vigorous advertising campaign with focus on EAC on new product development, trends and taste of customers and customer company relation. Expansion option recommend to EAC In today’s highly competitive market EAC should concentrate on the more and more production of low price high quality milk powders for infants and follow up brands for babies. EAC should also market a good brand of milk for breast feeding mother’s which in turn will be highly useful for their new born. 1. “Another expansion can be made in fresh milk for ‘juniors’. It should be good tasting high energy, and protein rich milk. 2. Better milk for aging population, especially old people around seventy should not be ignored. It may not be profitable but it contain lot of other invaluable benefits 3. Relations with the doctors and other people of medical community must be further strengthened because they are the primary target group. 4. Milk for sports men’s may be produced. Expansion of Market The future emerging global markets will put more and more demand on the companies producing milk for infant and children. Recently china’s infant and young child milk powder market has grown at a satisfactory pace of 22.96 percent. The market capacity increased from 100,000 tons in 1999 to 495,000 tons in 2007. During the current year the demand is also at a high level. At present china imports infant formula milk powder from another countries. So, there are immense possibilities for top class companies to expand their business of dairy products in the world’s fastest growing market. The future market has even higher demands It can safely be ascertained that China’s infant and child formula milk powder market will continue to grow at a rate of twenty percent. The dairy industry in china will definitely grow but with a limited supply of cows fresh milk because more and more land is being put to agriculture use, so the demand for powdered milk and premixes to fresh milk will continue to rise. The Use of Milk in school going Children will go on increasing as growth trends over the last few years show. They will like to drink milk right from the pack and not by boiling etc. Therefore, EAC should also take care of this aspect by providing milk in air tight containers capable of six months life without refrigeration. Criteria Used to evaluate these options 1. China and India are the major present and future food markets. China is undergoing fast track reforms to boost household income especially those of medium and low income groups. When income of poor people is increased, the demand for food products rises giving a boost to food industry. 2. The Chinese policy makers are also making efforts to encourage spending by reducing precautionary savings and buy other fiscal measures resulting in surplus income in the hands of lower and middle income group for spending on consumer products. 3. The policies of the Chinese government to create more and more jobs and raise income will definitely increase the consumption. 4. The Chinese government is giving special attention to increase household incomes of rural areas. As the income of a rural household rises, the demand for dairy product will also rise. 5. As a result of economic development, the population becomes more health conscious and responds more to the better nutrition requirements especially low in fat contents, with less sugar and no preservatives, so China will remain future hub of business activities of all kinds. In view of the above mentioned facts, we can conclude that the country with the world’s largest population is the present and future market for various businesses including milk, coffee, confectionary and instant drinks besides liquid milk. Increase In demand due to Birth rate Birth rate in china is 13.71 births (1000 population) while total population of the country is 1.25 billion its means that one out of every five persons in the lives in china, a country that has exhibited amazing growth and expansion of markets in the recent years. Such a high number of populations with increasing per capita income will definitely create different markets especially food markets. Increasing Trend of Bottle feeding In china, Malaysia and Singapore the mothers prefer bottle feeding to breast feeding. A great majority of working ladies in china and Singapore either do not find time to breast feed their babies or do not like to do so. This trend is likely to increase further as the employment opportunities for ladies will go on increasing as a result of development. Conclusion It is estimated that market capacity for milk powder will definitely grow in the years to come. Milk powder industry will grow leading to ever higher demand for milk. Infant and young child milk powder market will also develop even in the face of tough competition. EAC should carefully re-evaluate it policy to strengthen trade volume in the region and beyond the region. Appropriate administrative measures should be taken before hand to enhance capacity to respond in time to the demands of export markets. Bibliography EAC Highlights [online]. (2005). [Accessed 27 May 2009]. Available from World Wide Web: . Christmann, P. (2001). Eac Nutrition: Regional Expansion Strategy [online]. [Accessed 27 May 2009]. Available from World Wide Web: . Nurani , N. (2007). Malaysian Business. Malaysia: Unknown. Read More