Corporate and Global Strategy - Term Paper Example

 Corporate and Global Strategy – Cadbury Schweppes I. Introduction When activating in the global commercial market, a company has to consider all the particular issues that will ensure its positive performance. Towards this direction, the company’s strategy has to focus on the firm’s survival in its market as well as on its possible expansion to new markets. However, in today’s extremely competitive corporate environment, the survival and the expansion of a company is a really difficult task which is depended from a series of variables (Parnell, 2003). On the other hand, there are cases where the local markets are characterized by lack of flexibility and adaptability to the new demands of the commercial area and this can result to the limitation of a company’s prospects in a specific market (Thomsen, 2005). Although the performance of a company is mainly depended from its financial and commercial environment, the role of the corporate strategy (both locally and globally) is really significant (Paredes 2004, David, 2003). This paper examines the general corporate strategy of Cadbury Schweppes, a company that produces and sells candy, chocolates and drinks. The presence of the company both in its local as well as in the global market is really impressive. Its strategy is examined in order to find out the reasons of its success and to locate possible points that should be considered in the future. The above examination is taking place through the relevant literature and the presentation and analysis of the company’s external environment as well as of its structure and method of operation in its daily activities. The financial performance of the company the last years is also presented in order to support its strategy as applied in its local and the global commercial market. II. Literature review When a firm operates in the modern market, it has to face a lot of difficulties and a hard competition from its competitors (Sugden et al., 2005). The expansion of the globalisation has made the above situation even harder for the firms around the world. As Guillen (2001, 235) accepted, globalization can be considered as ‘a process fueled by, and resulting in, increasing cross-border flows of goods, services, money, people, information, and culture or as a decoupling or "distanciation" between space and time’. He has also accepted the views of geographer David Harvey (1989) and political scientist James Mittelman (1996) who observed that ‘globalization entails a "compression" of space and time, a shrinking of the world’. Moreover, it is noticed that the globalization has also an informational aspect under the influence of which the global economy becomes ‘an economy with the capacity to work as a unit in real time on a planetary scale’. On the other hand, Ernst and Kim (2001, 1) refer to ‘a particular organisational innovation, namely networks that combine concentrated dispersion of the value chain across firm and national boundaries, with a parallel process of integration of hierarchical layers of network participants’. Gereffi et al. (1994, 2) regarded globalization from a totally different aspect and stated the theory of ‘global commodity chains’ which ‘consist of sets of inter-organizational networks clustered around one commodity or product, linking households, enterprises, and states to one another within the world-economy; these networks are situationally specific, socially constructed, and locally integrated, underscoring the social embeddedness of economic organization...Specific processes or segments within a commodity chain can be represented as boxes or nodes, linked together in networks; each successive node within a commodity chain involves the acquisition and/or organization of inputs (e.g. raw materials or semi-finished products), labour power (and its provisioning), transportation, distribution (via markets or transfers) and consumption’. Regardless the global markets, the conditions in the local markets are also very competitive (Portes et al., 2001). In order for a company to survey, it has to proceed to the design and application of a well structured strategy that can guarantee the protection of the company’s financial performance (from unexpected turbulences) as well as the existence of prospects for growth in a short – term or in a long – term basis (Pritsker, 1997). Towards this direction Porter et al. (1985, Table 1) created the theory of ‘five forces’ which – if applied with accuracy – can offer the company a series of advantages towards its competitors. On the other hand (Parnell, 2003, 16) an organization's strategic managers may ‘choose to commit to a course of action for an extended period and enjoy the benefits of organizational learning and a clear customer image; alternatively, an organization can remain flexible so that it does not become committed to products, technology, or market approaches that may become outdated; in a perfect world, organizations commit to predictable, successful courses of action, and strategic change is incremental; however, outcomes are not always predictable in a dynamic environment; hence, for most firms, strong arguments can usually be made for substantial strategic shifts, even when performance is not lacking’. Table 1 - Porter’s Five Forces of Industry Competition (Porter, M.E., Millar, V.E., 1985, ‘How Information gives you competitive advantage’, Harvard Business Review, July-August) Threat of New Entrants Bargaining Power of Suppliers The Industry: Jockeying for position among Rivals Bargaining Power of Customers Threat of Substitute Products or Services On the other hand, Wiseman (1985) tried to explore the strategic options available to a company in accordance with its position in the market and its nature of operation. He found (Table 2) that in order for a company to survive, it has to design its strategy based on its customers’ preferences, its suppliers’ differentiation and its competitors’ position. Table 2 - Wiseman’s Strategic Option Generator (Wiseman, C., 1985, ‘Strategy and Computers’, Dow Jones – Ivwin) What is the strategic target? Supplier Customer Competitor What is the strategic thrust? Differentiation Cost Innovation Growth Alliance What is the mode? Offensive Defensive What is the direction? Use Provide At a next level, McFarlan et al. (1983, Table 3) stated the theory of ‘strategic grid’ which is based on the level of influence of a series of variables to the company’s development strategy. This theory can be characterized as rather simple to its application, it is though rather incomplete regarding the presence of the stakeholders and the competitors in the company’s daily activities. Table 3 - Strategic Grid (McFarlan, F.W., McKenney, J.L., 1983, Corporate Information Systems Management: The Issues Facing Senior Executives, Irwin Strategic impact of application development portfolio Low High Low Support Turnaround High Factory Strategic Moreover, the role of strategic analysis has been considered as major from a series of researchers. According to the view of Pritsker (1997, 32) ‘industry analysis typically focuses on a company's external dimensions such as its markets, customers, and competitors’. In this context the ‘research on industry structure has investigated the influence of economic structure on competition, the advantages of strategic industry control, and the industry factors that influence profitability whereas research stream has examined how external changes such as changing customer needs, new technology, government policy, globalization, and economic cycles affect a company's strategy’. Furthermore, Nattermann (200, 22) examined another tool of strategic analysis, this of benchmarking. According to his study ‘Best-practice benchmarking--the measurement and implementation of the most successful operational standard or strategy available in an industry--can be one of the most effective tools for increasing a corporation's efficiency, productivity, and, ultimately, earnings; broadly speaking, strategic decision making occurs along three dimensions: product characteristics, price, and market opportunity; when a company enters a new market, management's choices are restricted to the first two dimensions; the third element, market opportunity, consists of consumer preferences and income, which are beyond a company's ability to influence directly’. However, he noticed that benchmarking may be an ‘important way to increase operational efficiency’ but it cannot be characterized as a ‘tool for strategic decision making’. In any case the strategy that a company chooses to follow should be visible to the public at least to its shareholders. According to Parnell (2003, 16) ‘in many respects, the evidence for the existence of a strategy can permeate an organization; its customers appreciate knowing what a company is attempting to accomplish and prospective investors tend to hesitate when they do not have a clear grasp of the firm's position and future priorities; sharing strategic information with lower-level managers and employees may enhance both job comprehension and organizational commitment; hence, the arguments for a "public" strategy are intuitively obvious’. III. Cadbury Scweppes – Strategic Analysis IIIa. Corporation Overview Cadbury Schweppes plc is a confectionery and beverage company with its headquarters in London. However, it does not manufacture Schweppes beverages for Ireland or the United Kingdom, having sold its trademarks there to The Coca-Cola Company. In 1783, Jacob Schweppes developed a method to make carbonated water in the Swiss city of Geneva. Independently, in 1824, John Cadbury began vending tea, coffee, and (later) chocolate in Birmingham in England and sometime in Pakistan. After John Cadbury's retirement, his sons, Richard and George, opened a major factory in the purpose-built suburb of Bournville, four miles south of the city. The two companies merged to form Cadbury Schweppes in 1969. Cadbury also operates factories in Dublin (Ireland), Dunedin (New Zealand), Ringwood (Melbourne, Australia) and Claremont (Tasmania, Australia) [2]. Today the company is one of the world’s largest confectionery companies [1] and has a strong regional presence in beverages in the Americas and Australia. The company’s products - which include brands such as Cadbury, Schweppes, Halls, Trident, Dr Pepper, Snapple, Trebor, Dentyne, Bubblicious and Bassett - are enjoyed in almost every country around the world. The company’s employees can be estimated to around 50,000 people. In 2004 the company had a turnover of £6,738m while on 2003 it was £6,441 (a significant increase). In general, the financial performance of the company tends to be increased on an annual basis, a fact that can be explained mainly by the application of a flexible corporate strategy (Carpenter, 2004). As stated by the firm [1], its first goal and overarching objective is to deliver superior shareowner returns; performance in respect of this goal is measured by comparing Cadbury Schweppes' Total Shareowner Return (TSR) against a set of 28 international fast moving consumer goods peers. Moreover, the Group believes there is a direct link over time between superior business performance and superior shareowner returns. For this reason the Group measures its annual performance based on three key business performance indicators: sales, margins, and cash flow. It measures achievement of performance within set goal ranges. These performance ranges are: a) Turnover growth in the base business of between 3% and 5% per annum at constant currency; b) Underlying operating margin growth (before goodwill/intangibles amortisation and exceptional items) of between 50 and 75 basis points per annum at constant currency; and c) Free cash flow totalling £1.5 billion over the four year period to 2007 at constant currency. IIIb. Mission Statement The company’s goals are changing regularly in order to be in accordance with the current demands of the commercial markets. For the period 2004 – 2005 [1] the company has been committed to the following issues: a) deliver superior shareowner performance, b) profitably and significantly increase global confectionery share, c) profitably secure and grow regional beverages share, d) ensure its capabilities are best in class, e) reinforce reputation with employees and society, e) invest, innovate and execute, f) motivate, develop and reward its people and g) refine supply chain disciplines. It seems from the above that the company has set as priorities the profitability and the expansion as well as the relationship with its supply chain (employers, suppliers) and its stakeholders in general (shareholders, customers). IIIc. Social Responsibility Issues The company is trying to apply a strategy that will be sensitive regarding all the issues involved with the society. At a first level [1], the company has precluded the use of forced labour (ensuring that children are employed only under circumstances which protect them from physical risk without disrupting their education) and has also recognized the rights of its employees to join legally recognized labour unions. On the other hand, the company can guarantee a health and safe work environment for each employee. As for the diversity in the workplace, the company applies a human resource management that promotes and capitalizes on cultural and individual differences to create competitive advantage. IIId. Remote environment 1. Economic Elements The challenges that every company faces in the modern financial markets are many. In fact it has been observed that the financial environment keeps on changing in accordance with the changes occur in the other market areas (mostly the commercial one). The above pressure is more intensive in corporations that operate globally. In the above context, if a firm desires to secure its position both in its local but also in the global market, it has to consider a series of issues. Its main responsibility is to design a strategy that can handle effectively all these issues and can help the company to survive even under hard and unexpected pressures (Gassmann, 1996). Such a strategy will have to be characterized by flexibility and integrity (Copeland et al., 1998) as well as adaptability to the daily alterations of the commercial area. 2. Social Elements The company based its activities on a specific social policy which is characterized by flexibility and sensitivity towards the customer as well as towards the general social and natural environment. More specifically the company [1] gives a high level of priority to the core labour rights and dignity at work, health and safety in the workplace, fair remuneration, diversity and respect for differences and opportunity for development. Furthermore, the company aims to apply a strategy that will be always socially responsible [1] through the following principles: respect of the economic, social, cultural, political and civil rights of those involved in its operations, compliance with all local human rights legislation and implementation of programmes across its worldwide operations and with its supply chain partners. 3. Technology Elements The role and the influence of technology, although important, cannot be considered as premium factor for the constant increase of the corporate performance in its market. Technology can only be considered as very important at the level of production (use of equipment for the test of the quality of the material used, use of machineries for the formulation of the final product). However, at the distribution level, technology does not have a significant role as the whole procedure is controlled by the company’s supply chain controllers (employees and distributors). 4. Political Elements The company operates in a political environment which is very unstable. This assumption does not refer specifically to the local political conditions in Britain but mostly in the global ones which are characterized by constant changes and severe turbulences. However, the influence of these variables to the company’s operation cannot be considered as major as the company has created a secure and stable operational environment (through the establishment of brands in many countries and the acquisition of numerous competitors) so that it can faces the challenges set by the political changes effectively. IIIe. Industry environment Threat of entrants Although the specific market has a significant number of companies, it seems that there is no danger for the entrance of a major competitor (regarding the position and the financial performance of the specific company). Moreover, this market seems that it has been formulated with Cadbury Schweppes to be the major company and its competitors to follow (Mars can be considered though as an important competitor). In this context, the entrance of new competitors should not be considered as threat at least in this period of time, however the possible merger of the company’s competitors could possibly influence its performance in the future. Powerful Suppliers The materials that are used for the creation and the production of the company’s products can be found in all price levels around the market. There is no single material of that kind that would be provided by a specific supplier exclusively. Therefore, the danger for the power of the suppliers of the company cannot be viewed as possible – at least at this point of time. However, the Group has proceed to the application of specific measures (entering into forward agreements and long-term contracts where such agreements and contracts are available) in order to minimise [1] the impact of price fluctuations and ensure security of supply. Powerful Buyers In a very competitive environment, like the one of the financial markets area, the customers can choose the company of their preference in order to use for its products for their daily transactions. In this case, the rates could be forced to go down whereas the other type of benefits offered to the clients (like the minimum amount paid with each installment etc.) could be really very important. Substitute Products The threat from substitute products can only occur in cases where the cost for the products/ services offered by the companies that are operating in a specific area is high and the consumers may prefer to choose other types of products that could be characterized as substitutes. Regarding the specific company, it should be noticed that it does not seem that such a danger could be exist. This can explained by the low cost of the company’s products, a fact that could be act negatively towards the possible influence of consumers from the competitors’ products. Jockeying position The area in which Cadbury Swheppes operates is a very competitive one. However, there are not many companies that can successful compete the specific company as its position in the market is really very strong. More specifically the only company that could possibly be considered as a major competitor is Mars which is rather close to Cadbury Schweppes regarding their recently financial performance. IIIf. Operating environment Competitive position It has to be noticed that the confectionery and soft drinks industries are highly competitive [1]: the Group's brands compete with many other multi-national, national and regional companies and private label suppliers in various markets; the above competition refers mainly to quality, taste and price of products and seeks to develop and enhance brand recognition through the introduction of new products, new packaging, extensive advertising and promotional programmes. Cadbury Schweppes is the leading confectionery group [1] in the world by sales value (see Table 4). The chocolate confectionery market is primarily a branded market. Four groups account for over 40% of the world chocolate confectionery market; each group's market share is built on regional strengths. Cadbury Schweppes' 7.8% chocolate share is built on strong positions in the UK, Ireland, Australia, New Zealand and India. The gum market is also a branded market. It is more global in nature with brands and products being more consistent across different geographies. Two groups account for over 60% of total share. Cadbury Schweppes' number two position is built on strong market shares in the Americas, parts of Continental Europe, Japan and Thailand. The sugar confectionery market is significantly more fragmented, with a greater presence of local and regional brands and private label products. Cadbury Schweppes has the leading 6.8% share of the global sugar confectionery market. As the table below shows, the company is the leader in its market with all its competitors to be limited to low percentages of performance (except perhaps Mars which can be considered as a ‘close’ competitor). Table 4 – Position of Cadbury Schweppes in its market [1] 2004 $ Share Total Chocolate Sugar Gum Cadbury Schweppes 9.9% 7.8% 6.8% 26.3% Mars 9.3% 15.2% 3.1% 0.2% Nestle 7.8% 12.3% 3.6% - Hershey 5.8% 8.4% 3.1% 1.7% Kraft 4.9% 7.3% 2.7% 0.5% Wrigley 4.8% - 0.3% 35.4% Customer profiles The company operates in a sector (candy and beverages) which is characterized by the existence of an extensive number of customers. It should be noticed however that the success of the company cannot be explained just by the type of its market but has to be related with the strategy followed by the management team. Moreover, even if the specific commercial market can guarantee a certain level of profit for all the participants/ traders it is however difficult to achieve such a level of growth globally without the application of a relevant strategy. It has to be noticed that the company has a variety of programmes [1] in place to ensure that consumer insights are built into its commercial strategy. In 2004, the Group put in place a new approach to consumer segmentation and commercial strategy development, based on rigorous and extensive consumer research in its key confectionery markets. This is being extended to its key beverage markets in 2005. Suppliers Regarding the company’s suppliers, they do not have a power of ‘exclusive offer’ as the raw materials that the company needs for its operation can be found in several sources. In its way, there are chances for competitive discounts and good prices and the company can use this situation to reduce its costs and to increase its potential for profit. The Group uses a wide range of raw materials [1] in the production of its confectionery and beverage products. The main raw materials are: cocoa beans, sugar and other sweeteners (including polyols and artificial sweeteners such as aspartame), dairy products including milk, fruit and nuts. Cocoa beans are imported from West Africa and the Far East. West Africa accounts for over 60% of world production. The Group buys cocoa beans and cocoa butter from a range of suppliers. For the future, the Group plans to minimise the effect of cocoa price movements and secure its future cocoa requirements by entering into forward and future contracts for cocoa beans and cocoa butter. Moreover, it has to be stated that the company purchases most of its sugar at prices essentially set by the European Union or maintained by various national governments through quotas and duties. Only a relatively small proportion of the Group's sugar requirements are purchased at fluctuating world prices. The company has not experienced and does not anticipate difficulty in obtaining adequate supplies of sugar for its operations, with sources available from numerous supplies. According to its current strategy, the company tries to refine its supply chain which could be possibly interpreted as an effort to renew its suppliers in order to achieve higher levels of profit and to secure its annual rate of growth. Creditors When operating in a vast market, the risk of loss is relatively increased than when being limited to a local market. In this case every company has to rely on its creditors in order to secure its payments towards its suppliers and to cover its operational costs. As the company’s financial performance shows, the need for credit is very limited. Even given the fact that the company operates in a global market, its financial position can be characterized as very positive offering prospects for more growth in the future. Summary The operation of Cadbury Schweppes has characterized by a significant success both regarding its national as well as the international market. The company has achieved to gain the control of its market mostly through the acquisition of its competitors. Apart from this strategy, the company has achieved to create a cooperative internal environment (through the recognition of the employees’ value and their reward) as well as a well structured supply chain which supports the high volume of production and distribution without delays or other problems. The existence of other competitors cannot be considered as important as the specific company seems to control the whole market effectively. Other elements that are related with the company’s performance (high level of social responsibility, application of ethical principles, and high protection for the stakeholders) have created a secure internal environment which acts as the basis for the company’s expansion into new markets. Under these terms, its strategy has been proved to be perfectly designed and applied throughout the corporate entity. References Carpenter, G.M. (2004). 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Corporate Governance, 5 (4), 11-27. http://www.cadburyschweppes.com/EN [1] http://en.wikipedia.org/wiki/Cadbury-Schweppes [2] http://uk.finance.yahoo.com/q/pr?s=cbry.l [3] Read More