Kepak and the Future of the Irish Beef Industry - Case Study Example

Kepak and the Future of Irish Beef Industry College Introduction The Irish beef industry suffered an unfavorable business environment in 2010. This led Kepak, a leading Beef Industry in Ireland, to realize a significant investor recession. The firm’s profits took a huge dive. In the early 90’s, Kepak’s founder, Keating, died. At around the same time, there was a great devaluation of the Sterling. This contributed to the firm’s economic decline. Formal strategic planning involves analyzing the organization’s external competitive environment to identify opportunities and threats. This is followed by the analysis of the organization’s internal operating environment to identify the organization’s strengths and weaknesses (Irish Fresh Meat Exporters, Ireland 1981). The firm should then select the strategies that build on the organization’s strengths and correct its weaknesses in order to take advantage of the external opportunities and counter external threats. The final step would be to implement the strategies (Bell, Mcloughlin, Shelman, 12). The implied (Strengths, Weaknesses, Opportunities and Threats) SWOT analysis, however, is not entirely sufficient (United States Department of Agriculture Risk Management Agency, 2009). Other strategies need to be adapted as will be discussed in this paper. Kepak’s challenges inspired its CEO, John Horgan, to formulate new business strategies that will influence the firms resurface. Having realized its unfavorable business environment, Kepak adapted new business strategies that were sustainable. Kepak’s Business Environment Kepak’s business environment suffered threats because of external forces. The Irish beef industry consequently faced adverse economic constraints. These external forces endangered the integrity and profitability of the company’s business. Kepak found itself competing against firms in markets with substantially lower costs structures. Policy makers began to undervalue the potential of the food and agribusiness sector. Another challenge in Kepak’s business environment was the unpredictability in financial performance from year to year. There were no listed companies, so access to capital was through borrowing or trading profits which is a very cash-hungry business. Kepak suffered from the swings and roundabouts of the beef market. It also suffered the inability to plan effectively for the future (Bell, Mcloughlin, Shelman 2-3) Kepak’s competitive forces within its business environment can be analyzed using The Porter Five Forces Model illustrated on the following page. It was developed by Michael E. Porter at the Harvard Business School. The model focuses on the forces that shape competition within the industry. These are the risk of entry by potential competitors, the intensity and rivalry among established companies within an industry, bargaining power of buyers and closeness of substitutes to an industry’s products (Hill, Jones 49). Potential competitors who posed a entry threat included Brazil, Australia and the US. Ireland was the fourth-largest beef exporter in the world. Kepak discovered that its focus was mainly on disposing what was produced rrather than tailoring it to suit consumer needs. Competitors took into consideration this factor therefore posing greater threat to Kepak’s business environment (Dublin and Teagasc, 2001). Source: http://www.mindtools.com/pages/article/newTMC_08.htm Analysis of Kepak’s Strategy Firms can become proactive by choosing to operate in the environment in which the opportunities and threats match the firm’s strengths and weaknesses (Orcullo, 43). However, being proactive goes beyond focusing only on a firm’s strengths, weaknesses, opportunities and threats. The Evolution and Revolution Theory propounded by Charles Darwin suggests that for a business undertaking to be ongoing and profitable, it has to adapt itself to market changes otherwise it will go bankrupt and fold up (Himmerlfab, 1996). On the other hand, Edward Chamberlin’s economic theories anchored on the context of evolutionary environmental change. The theory espouses that a single firm can clearly distinguish itself from its competitors. This view is associated with focus as well differentiation strategies advocated by many proponents (Orcullo, 42).The suggestions in these theories manifest in Kepak’s strategic actions. Kepak’s Meat Division Kepak’s Meat Division (KMD) is one of Kepak’s strategic business units. Meat was the core of Kepak’s business unit and it accounted for 70 % of revenue. The firm sold cut beef to Irish and EU retailers for their own label. Approximately 25% of the beef volume and the highest quality products went through special programs where Kepak took control of cattle from birth in response to the increasingly rigorous quality standards of its customers. (Bell, Mcloughlin, Shelman, 3). KMD managed to win retailers which included Musgrave’s in Ireland and Coop Italia in Italy. Kepak also served McDonald’s all over Europe. KMD enabled Kepak to differentiate itself from its competitors as proposed by Edward Chamberlin’s economic theory. Analysis of consumer trends was also highly beneficial to KMD. Charles Darwin’s Evolution and Revolution theory gives insight into the value of adapting to customer needs. Consumer preferences and lifestyles are in constant change. For instance, time-pressed families preferred to purchase meat of their preferences because they did not have time to cook. This inspired Kepak to adapt a new strategy under KMD whereby it served pre-cooked meat. This meat would only be heated hence saving such families time spent on cooking. The Agra Trading Agra trading, an arm of Kepak, worked closely with Kepak Group and with all major reputed global producers and suppliers. This ensured that a variety of products were processed and delivered to exact specifications. Agra’s success strategy was the philosophy to develop long and lasting relationships with both suppliers and customers. Agra also made use of highly trained personnel. Kepak Convenience Foods (KCF) Over the last decade, Kepak Convenience Foods has played a key role in the UK snacks market. It has made retailers appreciate its importance. Its first achievement was with the Rustler’s brand which became a hit in the target market. There also was the beef burger business as a way to make use of left-over meat the traditional cut had KCF. Speedy Snacks was another product of KCF. This was produced for mothers with young children who needed quick and healthy snacks. It was sold at a value price which made the business strategy very effective as it realized huge sales. A little while later, Kepak found out a shift in consumer needs. This way, it had to adapt another strategy. Darwin in his Revolution theory advocated for adapting new market strategies. Kepak therefore came up with Ugo’s Deli Café Panini’s. Ugo’s produced microwaveable sandwiches which appealed to middle-age females. Kepak’s KFC later relocated to the UK to minimize transportation costs and to be closer to a readily available consumer market. In an exclusive interview with The Grocery Trader, KFC’s Marketing Director, John Armstrong, pointed out that the UK market has been constantly growing in value especially for the hot snacks. Armstrong further said that Rustlers has huge presence in Germany supplying over 1200 stores. These new environments are certainly a favorable business strategy for Kepak. The adoption of the Irish beef supply chain was beneficial to Kepak. Ireland in 2009 produced 680% of its own beef requirements. The beef supply chain was a simple one in which producers sold cattle to processors, who marketed the product internationally. It was notable for the internationalization of its customer base and for the role of the national food marketing agency, Bord Bia, in its operation (Bell, Mcloughlin, Shelman, 6). Strategy Appraisal Business strategies need to be sustainable and guarantee competitive advantage. Competitive advantage is realized when a strategy that is not being used is put into practice. The strategy should promise sustainability, it should also not be in use in other competitor firms. Kepak stands a future competitive advantage owing to its business viable strategies. Barney’s (1991) VRIN framework is critical in Kepak’s strategy appraisal considering its tenets. It is a Resource Based View (RBV) framework. VRIN framework upholds business strategies that are Valuable, Rare, Inimitable and Non-substitutable. Kepak’s Business Strategy is Valuable Kepak’s competitive advantage arises from its ability to create value for its consumers that exceeds cost of its creation. Kepak has offered lower prices to its buyers unlike their competitors. When prices generally go up in the market, Kepak have made their increases minimal as compared to its competitors. John Armstrong, KFC’s Marketing Director, in an interview with The Grocery Trader said that sometimes the prices go up out of necessity. The Rustlers, for instance, at one point saw a slight increase in price. Armstrong said that they have kept the hikes as low as possible therefore managing to retain their consumers. Value also lies in Kepak’s ability to neutralize threats and to exploit opportunities in new business environments. This is evident in Kepak’s presence in UK, Europe, South Americca and all major EU and international markets. The Asian market has been an uprising competitor, but Kepak through Agra has expanded its product range to focus mainly on the lowest value items which consumers demand. Furthermore, it continues to expand its export base in major meat producing regions. Kepak’s Business Strategy Rare Resources that are rare gain a competitive advantage in the market. Valuable resources that are easily available suffer a competitive disadvantage in the market. Contrarily, valuable and rare resources stand infinite survical in the market. Kepak’s variety of resources is not common among their competitors. These include KCF products like Speedy Snacks, Big Al’s, Rustlers and Ugo’s. Kepak’s international physical presence cannot as well be compared to that to that of its competitors. Inimitable Business Strategy This refers to the inability of a competitor to imitate a firm’s business strategy. When one company controls a resource, it forms basis for a competitive advantage of the firm. Other firms are not able to imitate the strategy, even in attempts to imitate the strategy; they will not be able to do it perfectly. A company’s reputation can be considered as resource. Kepak’s international reputation has been accumulated over a long period of time rendering it inimitable. Competitors are not able to perfectly imitate this resource. In the case that a competitor manages to imitate the resource, it will certainly not have similar impact because the resource has been acquired and developed over a long period of time. As a beef producer, Ireland had many qualities that were in demand. These included grass-fed beef, animal welfare assurances, full traceability, a production system with strong sustainability credentials and a good reputation internationally with retailers, food service customers and consumers (Bell, Mcloughlin, Shelman, 11). This gave it a competitive advantage as it was an inimitable strategy. Kepaks ‘co-opetition’ strategy also offered it a competitive advantage. This business strategy involved firms competing in certain areas and cooperating in others. This enabled the cooperating firms to reduce costs and to work together to supply a large customer. Kepak’s Business Strategy Non-Substitutable A business strategy that is non-substitutable means that other resources available cannot be functional substitutes. Competitors should not be able to substitute the resource with another equivalent. Competitors have not stepped up to Kepak’s resources, strategies and knowledge base. Kepak’s products remain varied and unique having not been substituted with any other competitor product. Conclusion A company definitely achieves competitive advantage when it meets the VRIN criteria. This implies that the business strategies employed by the firm are sustainable. Competitors always try to erode a company’s competitive advantage. They attempt to achieve this by developing their own uunique build up in competitive advantage. Once they achieve a build-up in competitive advantage they embark on the competitive advantage erosion (Werbach, 2009). Critics of formal planning strategies argue that we live in a world in which uncertainty, complexity and ambiguity dominate. Small chance events can have a large and unpredictable impact on outcomes. In such cases, they claim that even the most carefully thought-out strategic plans are prone to being rendered useless by rapid and foreseen change. In such an unpredictable environment, it is important to be able to respond quickly to changing circumstances and to alter their strategies accordingly (Hill, Jones, 2001). Another contrasting view suggests that formal planning systems help managers make better strategic decisions. Studies have concluded that, on average, strategic planning has a positive impact on company performance even in unstable business environment (Hill, Jones, 26). Kepak’s business strategies, nonetheless, remain sustainable. This is because they have been planned in the context of the current competitive environment and also in the context of the future competitive environment (Gregor and Gossy 2008). Bibliography Adam Werbach (2009). Strategy for Sustainabilty: A Business Manifesto. New York: Prime Press. Anita Talaja.(2009). Testing VRIN Framework: Resource-Based Value and Rareness as Sources of Competitive Advantage and Above Average Performance. Ire: Ires Press. Charles W. L. Hill, Gareth R. Jones. (2010). Strategic Management Theory. London: Oxford Publishers. David E. Bell, Damien P. McLoughin, Mary Shelman. (2008). Kepak and the Future of the Irish Beef Industry. Manchester: Mac Press. Dublin, Teagasc (2001). An econometric model of Irish beef exports. London: Oxford Press. Grant, R.M. and Jordan, J. (2012). Foundations of Strategy. A View from the Top. Hallow: Prentice Hall. New York: Prime Press. Gregor Gossy (2008). A Stakeholder Rationale for Risk Management: Implications for Corporate Finance Decisions. New York: Prime Press. Irish Fresh Meat Exporters, Ireland (2011). A Strategy for the Development of the Irish Cattle and Beef Industry. London: Prime Press. N. Orcullo (2007). Fundamentals of Strategic Management. London: Oxford Publishers. Moore McDowell, Vincent Hogan, Peter Bacon (200). Irish Beef Processing: Trends, Market Structure and Value Chain Analysis. Oxford Press. Gertrude Himmerlfarb (2006). Darwin and the Darwinian Revolution. Chicago: Swam Press. United States Department of Agriculture. Risk Management Agency (2009). SWOT Analysis; A Tool for Making Better Business Decisions. New York: Prime Press. Read More