External Environment of the Company - Case Study Example

Introduction: External environment plays an essential role in the functioning of any business and it is essential to have a clear view and idea of the competitors and the various threats that are being faced. This paper aims at understanding the external environment of a company. The chosen company for this study is J. M. Smucker. Details about the company have been discussed below. The following sections will deal with the Porter’s Five Force model on the company and a PEST Analysis of the company as well. The main aim of this report is to identify the external factors and the impact that these have on the performance of Smuckers About the Company: J.M Smucker Company is one of the leading brands in North America for fruit spreads, peanut butter, shortening and oils, ice cream toppings, sweetened condensed milk and health and natural foods beverages (Smuckers). The company owns several brands which include: a) Smucker’s ®, b) Jif ®, c) Crisco ®, d) Eagle Brand ®, e) Hungry Jack ®, f) Martha White ®, g) White Lily ®, h) Krundsen Family ®, i) Robin Hood V, j) Five Roses ®, and k) Bick’s ®(Smuckers). The company was founded in 1897, and has had strong and well planned values and roots which is still followed until this day. The company continues to work on the basic belief that quality, people. Growth, Ethics and Independence are the most essential. The company has had its headquarters for over 108 years in the city of Orrville, Ohio, and the company has been run by four generations. The company has also been able to make it to the top 100 companies by the Fortune Magazine for the United States and it ranks at the first position. The following sections will deal with the external forces that impact the business. This will include a) Porter’s Five Force Model, and b) PEST Analysis. I. Porter’s Five Force Model: Michael Porter developed a framework in 1979, where an industry is faced with an influence of five factors. These factors can be used to gain an edge over the other companies and to market the home product. In short, the managers can use this analysis to develop methods of better performance for the company. The diagram presented below provides the companies to gain a clear and concise approach for the marketers of a company. a) Bargaining Power of Suppliers: J.M Smuckers has a major part of its business which is dependent on the suppliers. The company sells its products through direct sales, and brokers to food retailers as well. The company also sells to food wholesalers, drug stores, club stores, mass merchandisers, dollar shops, and several others like food service distributors and operators, restaurants, schools, colleges, healthcare options, and also military commissaries. The company has a high level of dependency on the suppliers and the major suppliers of the company include Wal Mart which has almost 24% of the company’s total sales. The Wal Mart Stores subsidiaries also play a major role in the total sales of J M Smuckers and the subsidiaries amount to almost 20%, 20% and 18%, for the years 2008, 2007 and 2006, respectively (Pederson and Ferrara). b) Threat of New Entrants: The current industry that the company deals in has a medium importance to the system. The company has several smaller brands that it possesses and the business portfolio like that of Smucker’s. The company can use this as a barrier for entry of new companies. c) Bargaining Power of Buyers: The buyer power for the case o J M Smucker’s is medium in nature. The company has built a strong product name and provided the customer with direct results. This however is not possible without the demand of the customers for the organic foods and a continuous shift of the demand of the customer in the future as well. d) Threat of Substitutes: The Company is however placed with a high level of threat of substitutes. The company deals with consumer goods and the with the growing interest of consumers becoming health conscious and the company provides a solution for all. e) Competitive Rivalry within the Industry: The company competes with other food product producers, private labels and also branded products. The company is not faced by a single company as competition and currently the company has three main competitors, a) Unilever, b) Kraft Foods, and c) Conagra Foods. The competition among the three companies sis clearly seen in the following table: Key Numbers Annual Sales ($ mil.) Employees Market Cap ($ mil.) Smucker 3,757.90 4,700 6,285.30 ConAgra 12,731.20 25,600 9,549.50 Kraft Foods 42,201.00 98,000 39,897.80 Unilever 57,117.20 174,000 -- II. PEST Analysis: There are several other factors that also have a major impact on the company. These include a) Political factors, b) Economical Factors, c) Social Factors and d) Technological factors. a) Political Factors: Since the company deals with food industry, there are several rules that they need to adhere to and these include, i) The occupational safety and health act, ii) Federal Food, iii) Drug and Cosmetic Act, iv) several environmental statues, v) The dietary supplement Health and Education Act of 1994 and vi) Numerous other acts which include, production, transportation, sale, advertising, labeling, and safety. The company also requires to keep in track with several other acts and to comply to several standard requirements and regulation requirements. b) Economical Factors: he economical factors include several others like the slowdown of the country and the recession that is faced. Also as discussed earlier, the company highly depends on the retails stores like Wal Mart. The company also requires keeping in mind almost the first fifty percent of the net sales. If any of the retailers are hurt by the several market forces then Smuckers will also be affected to a great extent. c) Social Factors: In the current time, people tend to prefer buying organic and healthier options to rebuild the stamina and strength. However the level of demand has see a continuous growth and increase, which can lead the promoting the product on the store shelves. d) Technological Factors: The newest and most advanced form of information is becoming a major part of the project to help the company reach out to number of customers. This is - online banking. Also use of several newer systems helps the company to grow back to a decent amount when the company can also use newer technology for the cartridge. Works Cited Pederson, Jay P. and Miranda H. Ferrara. "Wal-Mart Stores, Inc." International Directory of Company Histories, Volume 63 (2004). Smuckers. About Us. 2009. 8 November 2009 . Read More