Ici-Fili, Russian Ice Cream Producer - Case Study Example

Ici-Fili, Russian Ice Cream Producer This paper entails the application of the principles of strategic analysis to the case of Russian Ice Cream Produce, Ici-Fili. The paper will undertake analyses of the various components of the strategy of the company. It will evaluate the external environment of the company and examine the significant aspects of the Russian and Global Business Environment that affected Ici-Fili over the past number of years. The research will then examine the internal environment and structures of Ici-Fili. It will evaluate the aspects of the company and its role in the strategy of the company. An evaluation of the competitive environment will be done by conducting industrial analysis of the Russian ice and food/snack producing industry. The research will conclude with recommendations of the strategies that Ici-Fili could employ to get to the next stages of its growth. Internal Environment Upon the analysis of Ici-Fili's strategy, there are some strengths and weaknesses that are identified in its internal structures. SWOT analysis is one of the most important methods of examining the key variables of a company in relation to its environment (Bohm, 33) Strengths and Opportunities Ici-Fili has a long standing expertise and history with the Russian customer base. They have consolidated their control over the markets through the years of Soviet rule which made them one of the few ice cream producers in the country. Ici-Fili controls 8% of the Russian ice-cream market which is quite high, because of the size of the country. The three phases of modernization of Ici-Fili's equipment base has allowed it to gain control over the value chain. Ici-Fili's new approach towards privatization has also allowed it to raise the much needed capital to fund the company's operations. This has led to the current status where the company seeks to raise an extra $50 million in capital to fund its expansion drive. Ici-Fili also has some control cost strengths that it apparently inherited from the Soviet era. It produces at very low costs and remains in control of its costs. This means that it can always maintain low prices and vary them to meet its expectations. The employees of Ici-Fili have the necessary expertise. Many of them have worked for over 20 years and have the necessary skills that is needed to grow the business and expand it. Ici-Fili has acquired a reputation for using health conscious products and other systems. This enables the company to remain favored in the eyes of the masses. Ici-Fili also controls a wide diversity of suppliers which allows it to maintain a strong position in bargaining. Weaknesses and Threats Ici-Fili seem to have inherited some structural weaknesses that can be traced back to the advantages it enjoyed in the Soviet era. First of all the technology the company has been using is not the best. This is because for a company of the caliber of Ici-Fili which has the vision of expanding to other parts of the world, there is the need for them to maintain strong and efficient equipment and systems. The current stock of equipment imported from Denmark does not seem to be sufficient to meet the expansion capacity that has the company seeks to attain. The company relies on a weak distribution system. 70% of the sales of Ici-Fili is done through some form of kiosk. There is a lot of potential to work distribute to groceries which is now less than 30% of sales. Service-Fili is autonomous and does not seem to be fully concentrating on the growth and development of Ici-Fili. There is a serious problem with the size and capacity of the key distribution partners. Also, the brands of Ici-Fili seem to lack the necessary brand exposure. They do not have a marketing department and rely on the outdated commercial department system. The entire industry spends as little as $5 million on advertisement. External Environment The external environment within which Ici-Fili is strongly influenced by the Soviet era matters and affairs. The Soviet control and matters appear to have favored Ici-Fili whilst it existed. However, the collapse of the Soviet Union has had very strong consequences on Ici-Fili and there is the need for further changes to be conducted by the business to meet realistic requirements of the global business environment. Economically, it seems that Ici-Fili is strongly connected to affairs in the Russian economy. In the case where the country undergoes tough economic reforms or encounter financial crises, Ici-Fili seem to be affected severely. This is because Ici-Fili is strongly based in the Russian Federation and has little investments anywhere else. Socially, the customers of ice cream in Russia seem to be so much focused on the health implications of what they eat. More diabetic customers and other related customers are now becoming more and more dominant in demanding for reasonable health consideration in the production of various ice-creams in the Russian market. Technologically, most companies in Russia can rely on local producers of equipment. However, these equipment seem to be a little too outmoded for large scale production and efficient production. This therefore means that a firm that has the vision of expanding like Ici-Fili will need to look to the West to find better equipment. Competitor Analysis Porter's Five Forces is a tool that is used to examine competitive forces in the operation of a given industry (Hill & Jones, 29). The model identifies that five main forces determine competition in a given industry. They are: 1. Risk or possibility of entry by potential competitors. 2. Rivalry amongst companies within the industry 3. Bargaining power of buyers 4. Bargaining powers of suppliers 5. Possibility of substitutes taking over an industry.. Porter's Five Forces model can be used to analyze the main factors that determine the profitability trends in a given industry (Ahlstrom & Bruton 210). Possibility of New Entrants Generally, it appears that the barriers to entry into the Russian ice-cream industry are quite low. This is because there is a huge pool of equipment producers who can always be called upon to produce equipment that can be used to manufacture ice-creams in the different parts of the company. There seem to be no real barrier or state restrictions to the beginning of such ice-cream manufacturers. These firms can grow to become major competitors of Ici-Fili. Rivalry amongst companies The main sources of competitive rivalry in the Russian ice-cream market is the state-own ice cream manufacturers like Ici-Fili and the foreign entrants like Nestle and Baskin-Robbins. This is because such producers control huge and efficient production systems and lines that can manufacture a lot of ice-cream for a larger segment of the market. Bargaining Powers of Buyers Ici-Fili and other former Soviet owned businesses seem to maintain a high reliance on the various distribution networks in the country. If a good distribution company is to emerge that can link up the ice-cream market of the Russian Federation, that business is likely to gain control over the ice-cream industry. Bargaining Power of Sellers Also, the suppliers of raw materials seem to sell at very low costs to ice-cream producers in Russia. Such sellers can conveniently find ways of processing their milk and chocolate and begin producing ice-creams. Threats of Substitutes Products like beer, soda, yoghurts, chocolates and confectioneries seem to be competing with ice-creams for the same market in Russia. This means that such products can also be packaged and sold conveniently to the same customers of the ice-cream producers. There is evidence that beer companies spent as much as $90 million as compared to the mere $5million spent by the ice-cream manufacturers. This shows that the beer manufacturers are already in line to capture the markets from the ice-cream manufacturers. Recommendations In light with the findings of this research, the following strategic recommendations are made for Ici-Fili Corporate Strategy 1. Geographical expansion should be considered and new branches should be opened in other regions of Russia. 2. New technology must be acquired to boost the production efficiency of the company. 3. The company must set up a proper marketing department. Business Level Strategy 1. Brand exposition should be made a priority. 2. Ici-Fili must provide different brand that will target different consumers with specific ice-cream desires. This is in line with Porter's Generic Strategies which encourage companies to undertake differentiation and cost leadership. They should categorize different products for different groups in the society. This will blend differentiation and appropriate cost requirements. Although labor costs are as low as 13%, there are several other variables that can be reduced to cut down cost to enable Ici-Fili to pursue a cost leadership strategy. 3. Identification of cheaper and more diversified raw materials around the world. International Strategy 1. Instead of seeking to expand to Germany which seems a little more sophisticated, Ici-Fili can consider expanding into the republics of the former Soviet Union and other developing countries like China, India and Africa where the markets are similar to the Russian markets. 2. They should consider acquiring raw materials from foreign countries. 3. They can consider strategic alliances that will help them attain best results in certain key units of their operations Acquisitions 1. Ici-Fili should consider diversifying by acquiring producers of substitutes like beer, yoghurts and soda. 2. Ici-Fili can acquire producers of raw materials to control the costs of raw materials. 3. I strongly recommend that Ici-Fili acquires majority shares in Service-Fili and use it as a foundation to form a marketing department which will seek to distribute and promote the Ici-Fili brands Works Cited Ahlstrom, David & Bruton, Garry. International Management Strategy & Culture in the Emerging World Mason, OH: Cengage. Print. 2010. Print. Bohm Anja The SWOT Analysis Norderstedt, Germany: GRIN Verlag. 2008. Print. Hill, Charles & Jones, Gareth. Strategic Management Theory: An Integrated Approach Mason, OH: Cengage. 2011. Print. Read More