Kraft Foods' Strategy to Lead the Global Food Processing Companies Market - Case Study Example

work: Kraft Foods Total Number of Words: 2,062 Introduction Back in 1903, Kraft Foods, Inc. started the business in the United States (Kraft Foods, 2009c). After many years of business expansion by entering into a joint-venture with other food related companies, Kraft Foods managed to become the second largest food and beverage processing company around the world (Funding Universe, 2009; Kraft Foods, 2009b). Because of the company’s continuous global market expansion, Kraft Foods is currently employing 98,000 workers around the world (Kraft Foods, 2009a). As of 2008, Kraft Foods Inc. is marketing a total of nine major food product brands which includes: (1) Kraft; (2) Jacobs; (3) LU; (4) Maxwell House; (5) Milka; (6) Nabisco; (7) Oreo; (8) Philadelphia; and (9) Oscar Mayer (Kraft Foods, 2009b). Over the next few years to come, the company is expected to increase the number of food product brands the company would be marketing in the global markets. With regards to Kraft Foods’ international business expansion strategies, the business objectives and strategies used by the company will be identified followed by determining the company’s strength and business opportunities in the global markets. Considering the external factors that could hinder the business growth of Kraft Foods, possible trade barriers such as regulations and other legislations will be analyzed and discussed. Eventually, other challenges such as the factors that could trigger internal problems due to the merging or joint-venture plans of Kraft Food with other international food companies will be tackled in details. Business Objectives and Strategies of Kraft Foods One of the main business objectives of Kraft Foods is to be able to market food products safety based on the food quality that meets the expectations of the company’s customers. In order to remain competitive in the global market, Kraft Foods implements four major business strategies which includes: (1) improving its organizational growth that aims at improving the overall performance of its employees; (2) categorizing its products as ‘Snacks’, ‘Beverages’, ‘Convenient Meals’, and ‘Grocery’ to make the company easily market Kraft Foods items; (3) exploit the company’s sales capabilities by developing powerful sales forces within the global food industry; and (4) taking advantage of minimizing the cost of production without compromising the quality of Kraft Foods products (Kraft Foods, 2009b & d). The four major business strategies used by Kraft Foods enables the company to sell Kraft Foods products at a competitive price. Because of heavy market competition in the global food market, Kraft Foods should be able to lower down its operational costs in order to make them able to sell the finish products at a more competitive price. In line with this, Kraft Foods should take advantage of bargaining the unit cost of its raw materials because of the company’s ability to purchase raw materials by bulk. This will attract more consumers to purchase Kraft Foods products. Since Kraft Foods has been successful in establishing a strong brand name within the global food industry, the company should take it as an advantage to strengthen its global market sales forces. By attracting competitive sales people to join the company, it will be easier for Kraft Foods to constantly increase the company’s annual sales in each foreign market. In line with this, categorizing Kraft Foods items into four major categories (snacks, beverages, convenient meals, and grocery) will make the company’s production and marketing people easier to identify specific Kraft Foods product. For example: In case the supply of Maxwell House coffee in store A needs to be replenish, the marketing and sales manager of Kraft Foods could easily identify Maxwell House coffee product under beverages (Kraft Foodservice, 2090e). Improving the organizational growth is also necessary in terms of expanding Kraft Foods business globally. Since the company is trying to expand its market internationally, the company would need more human resources to make the business expansion work. In line with this, it is crucial on the part of Kraft Foods management to be able to maximize the use of its available human resources. Basically, hiring too many employees without improving their overall work performance would mean increasing the operational costs without increasing the company’s return on investment (ROI). Therefore, increasing the number of Kraft Foods employees should be aligned with improving the overall work performance of its employees. Strength and Business Opportunities of Kraft Foods in the Global Markets Being the second largest food company around the world, Kraft Foods is enjoying annual revenues of $42 billion each year (Kraft Foods, 2009b). Because of the company’s strong sales force in the global markets, Kraft Foods managed to successfully tap the market of approximately 150 countries as of 2008 (Kraft Foods, 2009b). In line with the continuous increase in the company’s profitability and international market growth, Kraft Foods is expanding its business opportunities in the global markets by either entering into merger and acquisitions or a joint-venture with a foreign business organization. Kraft Foods is targeting at being able to penetrate the markets of China (Pinto, 2009). In line with this, merger and acquisitions is a corporate strategy used by most business owners when dealing with the buying, selling, or combining with another company to ease their finances or expand the business in order to grab more of the local or global market shares. In line with acquisitions or merger, the company is able to gain the benefits of having better economies of scale in order to meet the global market demands. Economies of scale is necessary in the profitability strategy of the company since it will enable them to save more money in line with the fixed operational cost. By doing so, the company will be able to produce their products and services at a much affordable market price. In the process of entering merger and acquisitions, Kraft Foods is expected to earn more profit since their products and services will become more competitive in the global market (Gugler & Mueller, 2003). Considering the tight competition in the global market today, merger and acquisitions will also enable companies to acquire new assets and technology needed to improve their products and services to make them have a better competitive edge against their competitors within the same industry. Today, there is a growing competition on which company could enjoy the benefits of acquiring the Cadbury brand. Aiming to penetrate the market of China, Kraft Foods aims to gain control over the global markets for chocolate products by bidding for Cadbury PLC – UK chocolate brand (Pinto, 2009). In line with this particular business expansion strategy, Kraft Foods is willing to trade up to 1.15% at %27.28 Kraft Foods shares or $16.8 billion just to gain control of Cadbury brand (MSN money, 2009; Tse, 2009). Considering the strong brand name of Cadbury in the international chocolate confectionary market, other chocolate producers like Hershey’s and Ferrero are also bidding for Cadbury brand (Andrejczak, 2009; Chang, 2009; Goldstein & Andrejczak, 2009). Despite the fact that Kraft Foods offered a bidding price of $17 billion just to gain control of Cadbury back on the 7th of September 2009, the British confectionery company rejected the offer claiming that the said amount is too low for Cadbury brand (Financial Times, 2009; The Economist, 2009). This gives option for other food companies like Hershey’s and Ferrero to bid for Cadbury brand. On the other hand, joint-venture is another business option that will enable Kraft Foods to tap a foreign market without the need to take too much risk with regards to the cultural differences between the U.S.-based Kraft Foods and its target foreign market. This will save more money and prevent unnecessary business errors due to the possibility of not being able to market Kraft Foods product based on the preferences of its target consumers. For example: Kraft Foods can develop a strong business relationship with a food marketing company based in China. This strategy will enable Kraft Foods to easy tap the Chinese market without the need to open up retail stores in its target foreign countries. Regulations and other Legislations that can Hinder the International Business Expansion of Kraft Food In China, foreign companies are expected to follow the current Chinese labour law and legislations designed to improve the remuneration, treatment of employees, health and safety within the work place, and other standards required for the benefits of the Chinese workers (Costello, Smith, & Brecher, 2006). Since Chinese employees are protected by the law against foreign business owners, there is a possibility that the low-cost of labour in China would eventually become less competitive in the next few years to come. In case Kraft Foods would like to establish a company in China, the company should follow the requirements as stipulated under the establishment of Company Law (2005) and file the company name with the registration authority as either a limited liability company (LLC) or a joint stock limited company (China Daily, 2006). Although there are some advantages out of registering LLC in China, there is also a long list of disadvantages out of using this type of business structure. With the use of LLC, earnings of the business owners and shareholders are subjected to self-employment tax. Likewise, the business owners are refrained from taking advantage of incentive stock options nor engage in a tax-free reorganization (Liability Company Center, 2009). Since LLC is a partnership between two or more business owners, Kraft Foods will be required to enter into a joint-venture with a local based company in China. Factors that could Result to Internal Problems due to Acquisitions or Joint-venture Plans of Kraft Foods As part of expanding the business in the global markets, there are internal and external factors that could enable Kraft Foods take advantage of its acquisition and joint-venture activities. In line with this, one of the most common factors that may contribute to the integration problem is the differences between two cultures and business practices present within the two companies involved (Hopkins, 1999). For example: In case Kraft Foods is able to acquire Cadbury, joining between Kraft Foods and Cadbury could result to misaligned daily business transactions in case Kraft Foods decided to retain some of Cadbury’s existing employees. In line with this, retaining some of Cadbury’s existing employees is necessary to enable Kraft Foods acquire the business technology that Cadbury has been using to enable Kraft Foods produce the same quality of chocolates that Cadbury consumers are accustomed with. The acquisition of a new brand could lead to a temporary decrease in the total output of Cadbury products. This is possible since it would take some time for Kraft Foods employees to get used to the technology transfer between Cadbury and Kraft Foods (Gugler & Burcin Yurtoglu, 2004). There is also a strong possibility that combining the existing Kraft Foods employees and those who used to work with Cadbury to clash with one another in terms of power grabbing within the business organization. To avoid such internal conflicts between the two groups of employees, Kraft Foods management should carefully plan on how they could integrate the two groups of employees without triggering organizational conflicts. Discussion As of July 2009, the total population in China has reached approximately 1,338,612,968 individuals. In case Kraft Foods can penetrate the market in China and persuade 10% of the total population to purchase Kraft Food products, the company will be able to sell Kraft Foods products to 133,861,296 individuals. Assuming that each individual would spend an average of US$ 4 per consumer each year, the company will be able to gain additional market sales of US$535,445,184 each year. Given that Kraft Foods is already earning US$42 billion each year (Kraft Foods, 2009b), penetrating the market in China will enable Kraft Foods to earn additional half-a-billion dollar each year. (See Computation below) US ($) Kraft Foods Annual Sales 42,000,000,000 Potential Sales in China 535,445,184 Total 43,535,445,184 Conclusion Despite the fact that Kraft Foods is already the second largest food processing company around the world, the company continuously expand its market globally in order to compete with Nestle as the number one largest food processing company around the world. There are two ways that enables Kraft Foods expand its market globally. First, the company acquires the existing food brands that are able to successfully establish a strong name in international markets. Another strategy is to enter a joint-venture agreement with a foreign business company that are capable of distributing Kraft Foods products around its target country. *** End *** References Andrejczak, M. (2009, Novmeber 20). The Wallstreet Journal. 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