Situation Analysis - HW Greenham & Sons Pty Ltd - Case Study Example

Contents Introduction 2 Company’s Product and Situation Analysis 3 Product and Market Analysis 4 Business Model 5 Benefits and Limitations of Exportation 6 Benefits 6 Limitations 7 Market Profile 7 Product Analysis 10 SWOT Analysis 11 Global Market Research 12 Socio-Economic Factors 13 Infrastructure 15 Political and Legal Factors 16 Possible Entry strategies 18 Direct exports 18 Turnkey projects 18 Licensing and franchising 18 Wholly owned subsidiary 19 Conclusion 19 References 20 Introduction Most companies are faced with various issues during entrance into the foreign markets. These companies target foreign consumers amidst fast technological advances and stiff competitions in the global market. Corresponding to the complexity of entering the foreign markets, various performance barriers immensely challenge the going concern and profitability of such companies (Hill et.al, 2013). The challenges include; cultural divergences, varying climatic conditions, labor force diversity, economic and political determinants. This report seeks to analyze a multinational company (HW Greenham & Sons Pty Ltd), its entrance into such markets and its performance strategies. The company is faced with the issue of decreasing exports and requires to target new markets or advance the existing ones. Picking out this meat-processing firm from a pool of other multinational companies has been prompted by: Perpetual product diversification in over 20 countries globally and customers’ needs orientation. Competitive advantage in terms of quantity and quality assurance, customer-based social responsibility and unbeatable marketing strategies. The table below shows the ranking of the company against other meat processers in Australia Fig 1.0 Figure 1: Ranking of Greenham and Sons Pty Ltd. In Australia among all meat processors. Source: (Meat & Livestock Australia, 2007) Company’s Product and Situation Analysis Established in the 1860s as a sole proprietorship in Australia, Greenham & Sons Pty prides itself in products such as Burgers, dairy, beef and mutton products. Since then, the company has made major strides such as being notably the first company to invest in cost reduction and effective enhancement projects such as The Hot Boning Plant in Tongala in 1993. The company entered into a contract with its employees, a step which inhibited trade unions from interfering with the operations of its slaughterhouses. The diagram below presents a summary of the company’s history. Fig 1.1 Brief History of the HW Greenham and Sons Pty Ltd. Source: [GRE14] Product and Market Analysis Australia benefits from a climate that is favorable for livestock farming (Reid, 2013). Subsequently, Greenham is popular for its high quality beef product; serving both the domestic and foreign markets. Research indicates that despite Australia’s high quality beef production, only 40% of the product is consumed domestically while the rest is exported. As such, exports are the domain of this business, which is particularly reinforced by the high demand for Australian beef (Hochman et.al, 2013). The main export destinations for Australia are America, Japan and Korea. The company specifically targets Japan and America. A 10% increase in beef exports to America have been recorded in the recent one year while exports to Japan are steadily above 10,000tons annually. Business Model Greenham is a meat processer for local and international markets. The company rears a variety of beef cattle or purchases them locally using over-the-hooks or live-weighing procedures. Processing plants in different parts of the country are used to process the meat, which is then distributed to the required markets (De marchi et.al, 2013). To cater for the dynamic customer tastes and preferences, the company only purchases its stocks from attested and reliable dealers. Research by quality assurance agencies has confirmed Greenham’s position as a top quality meat processor. The company has further employed AQIS researchers to ensure that their customers are satisfied by the products they buy (Mortimore, 2013). The company as evidenced by the Tongala laboratory, which specializes in freezing meat products, employs only qualified workers. With regard to international standards, the company has established its slaughterhouses in harmony with American market standards, which are generally accepted globally. The company has a boning plant for freezing market surpluses right away awaiting future demand. Greenham’s employees are considered as invaluable assets and are remunerated fairly and engaged in in-service training and development. Benefits and Limitations of Exportation Benefits Australia is the third largest beef exporter globally. As mentioned earlier, most exports are to America, Japan and Korea. Other countries that import beef from Australia include china, Indonesia, Taiwan, Chile, Russia and Philippines. Beef farming, and agriculture as a whole are the largest revenue contributors for the Australian economy compared to other sectors (Gray et.al, 2013). Greenham is a significant contributor to exportation of processed and frozen meat, which has rising demands in the global markets. The ranking of the leading international beef exporters is outlined below, with Australia proudly at the third position. Fig 1.2 Top Ten world beef exporters Greenham further enjoys a competitive advantage over other companies in the country that deal with domestic markets. As the demand for these beef products is relatively lower domestically in comparison to the global markets, the company earns itself the pride and a positive rapport in the international markets. An additional merit concerns the livestock farming popularity of Australia. The country is appreciated for its favorable climate to this activity, while being free of diseases that affect livestock, especially beef cattle, in other competing countries ( Hacker et.al, 2013). This advantage can be used as a marketer for Greenham’s products. Limitations Greenham operates in liberalized markets of Australia (Lyons, 2014). In an international perspective, this could result to unpleasant performances in comparison to other companies in the same sector that operate contrary to liberalization. For instance, there are countries that offer the same products as Greenham, but their products are highly subsidized. This results to serious pricing problems, which could eventually result to losses. A second demerit for Greenham is the volatility in the international markets. This volatility makes it difficult to predict market behaviors. The impact of this is uncertainty in production, which could lead to shortages or surpluses; both ways result to decreases profits for the company. Market Profile The Australian domestic market is favorable to the beef industry. There was a rapid increase in meat production between the year 2012 and 2013, an outcome that was much accredited to the depreciating trend of the Australian Dollar. The figure below shows the production trend in the Australian beef industry. Fig 1.3 Australian Beef and Veal Production. The sector is currently experiencing decreases in exports based on the countries inability to produce beef products in its fullest potential. This drift is as a result of previous optimum beef slaughters in the countries that were followed by a drought situation in the country (Qureshi et.al, 2013). This downward trend is expected to continue in the near future until the country is able to reach its full supply capacity again. With respect to the major export destinations (USA, Japan and Korea), the trend is the same. The country has seen lower exports to these countries recently. With respect to Japan markets, the downward trend can be attributed to stiffer competitions especially with USA where exports from Australia are re-exported to Japan. The table below presents the trend of the Japanese market. Fig 1.4 Australian Beef Exports to Japan Concerning USA markets, there has been a steady flow of exports in terms of volumes but export values are trending downwards, possibly due to the depreciation of the US Dollar and unfavorable climatic conditions that have been prevailing in Australia. It is also forecasted that the US will be producing and exporting more beef in the near future, hence lowering its imports from Australia. The trend is outlined below. Fig 1.5 . Australian Beef Exports to US Currently, the company’s market profile is deficient, based on the current trends and future prospects. The country needs to open up its markets to more countries so as to counter the declining demand and low sales volumes in the current trade partners, notably the US and Japan. Domestic marketing should also be enhanced to cater for the compromised taste and preferences of local consumers as a result of the recent economic crisis. Product Analysis The Australian climate, quality beef production and processing and improvement procedures have placed Australia on top of the business. There is a rich variety of other foods in Australia that are currently acting as substitutes for meat, due to the defective purchasing power of many Australians after the crisis. These foods include miso, tempeh, vegemite, cooked beans, tofu, kernels and bread. Tofu and tempeh rank highest in this competition, with tempeh being the closest substitute for meat (Nagle et.al, 2015). Though the companies that process these proteinious products have reported lower sales in comparison to Greenham locally, the future is rather unpredictable. This issue needs to be handled before it gets out of hand. Greenham should use its competitive advantage over these local companies to regain the previous momentum of local sales. SWOT Analysis Strengths: Greenham is a major meat exporter with a recently improved and effecting production system. The company’s product have acquired the symbol of Green Products, meaning that they are environmental friendly and sustainable (Zeng-qi, 2013). Moreover, the company’s reputation with regard to social responsibility is high. This reputation is attached to the company’s provision of employment to the local residents. Such opportunities include vetenarians, chemicals and fodder suppliers, insurance, stockmen, feedlot dealers and helicopter mustering services. Weaknesses: the company lacks a way of predicting the dynamic global product market. As a result, the company is not able to produce at its optimal potential at all times. Correspondingly, the positioning of the company’ plants is inadequate due to its inclination towards concentration of processing plants. Opportunities: the company has a capacity to expand its market both domestically and internationally. Asian markets are opening up to more demands of such products as produced by Greenham & Sons Pty ltd. Threats: unpredictable climatic deteriorations pose the biggest threat to the company and country as a whole (Qureshi et,al, 2013). Additionally, though Australia enjoys favorable disease-free climatic conditions, a disease outbreak could cause serious trouble for the sector especially because it has never happened previously. Furthermore, due to investment in systems improvements, cost of production has gone up which would subsequently lead to high prices, hence low demand of products. Global Market Research Greenham, being a major exporter, cannot ignore the global market trends. The company’s management is therefore keen to observe the global markets with respect to possibility of entrance into such markets. The table below ranks world markets with respect to meat consumption per capita, from the highest to the lowest. Fig 1.6 Meet Consumption per Capita on Map of the whole World To have a clearer image of the global markets, it is important to consider a number of factors. In essence, trading globally exposes a company to diverse social factors such as cultures, values, attitudes and beliefs. There are also additional political, economic and technological factors. Socio-Economic Factors Greenham has to expand its markets globally. As such, it is crucial to examine social attributes of people in particular target markets as well as their economic preferences. When analyzing economic factors, the company should focus on currency and exchange rates of the country. This will determine the currency and exchange risks that will probably arise when doing business with that particular country. A thorough study of resource allocation in the country will be important so as to determine the debt feasibility of that economy’s sectors (Lindberg et.al, 2013). GDP, unemployment and inflation rates are imperative to consideration. This is in accordance to the companies requirements in terms of profits and growth while doing business with the country in question. Social factors, particularly language and cultures can pose challenging barriers in business. Following a survey by the World Bank concerning economic factors in business globally, the following data is presented. Fig 1.7 Statistical Data for 2013, retrieved from: [Wor13] (definitions of variables used are given in the appendix In this respect, Japan wins among these target markets. Japan is rated as the third best economy in the world, making it a good country to invest in. though its GDP has declined due to disasters such as the tsunami, the country has recovered progressively and has a notably low inflation rate (Nakazono, 2013). Along with its high meat consumption rates, Greenham should seize the opportunity of more exports to the country. This will of course face the challenge of competing with the US, which has increased meat exports to Japan recently. This however does not reject the importance of investing more in the country. Furthermore, healthy competition is crucial in business. Infrastructure The company is compelled to do a comprehensive analysis of infrastructure used in target markets. Infrastructure is a basic factor to consider before starting any business. It is therefore important to have relevant data, considering better market prospects in future. The World Bank provides meaningful information concerning infrastructure in the various global economies. Fig 1.8 . Statistical Data for 2013, retrieved from: [Wor13] (definitions of variables used are given in the appendix Japan’s infrastructure is greatly advanced even in comparison with other distinguished economies as shown above. The ports in Tokyo are especially significant for Japan’s exports alongside magnificent airlines, electric railway systems and an outstanding transport sector (Takken et.al, 2013). Japan is also renowned for its technological advances. This is a reflection that it is well placed in terms of meat business capital inputs such as reliable refrigeration facilities. Greenham & Sons should not be left behind as countries compete for shares in this excellent economy. More exports to the country will help in growth and profitmaking of the company. Political and Legal Factors Prior to entry into foreign markets, such issues as political stability, local laws and regulations must be studied. Start-up costs should also be considered as well as terms of importing goods from other countries. Subsequently, the world bank gives valid information pertaining startup procedures, tariffs and duties, merchandise trade and goods and services imported in various countries (political and legal factors). Fig 1.9 . Statistical Data for 2013, retrieved from: [Wor13] (definitions of variables used are given in the appendix As shown in the table, Japan imports less food products in comparison to Russia and Saudi Arabia. Tariffs and duties are significantly lower in Japan with future prospects of more food being demanded in the country. Japan has a liberalized import policy with some imports even being tariff-free (Razzaque, 2013). Though there is a higher level of corruption in Japan, it is more favorable to invest there in comparison with other economies such as Russia which have strict entry strategies. Possible Entry strategies Direct exports This strategy involves purely exporting products to the target market. The advantage of the strategy is that it helps the company to avoid much expenditure such as those involved by other strategies where plants have to be constructed in the market country. This is the strategy being used currently by Greenham, hence only expansion would be required. Turnkey projects the strategy involves employing a dealer who performs all trade activities on behalf of a foreign company for a given period. Once the agreed period or project is finished, the dealer hands over the premises back to the foreign company (Peh & Low, 2013). This strategy is most feasible for projects that involve advanced technology and for short periods of time. It is therefore not the best option for Greenham especially with entry into the Japanese market. Licensing and franchising This should be the one of the best entry strategies in to the Japanese market for Geenham, although it has various challenges. It involves giving licenses to any meat processor in Japan who wishes to do business under the specifications of Greenham, for the specified period. Both licensing and franchising require the issuing company, Greenham in this case, to strictly control quality of products and business operations. The main disadvantage is that the company will be forced to invest more on quality control thereby reducing profits. Quality may also be compromised due to long distance control (Peh & Low, 2013). Wholly owned subsidiary This strategy involves setting up another company in the foreign country. The result is a full control over finances, technology and all business operations (Peh & Low, 2013). It is therefore the best means for Greenham to enter the Japanese market, as it will have full control over the new subsidiary. Conclusion This paper has reflected on the major issues facing Greenham as a multinational company in its operations. The company, being faced by market deteriorations requires a market expansion. The best solution has therefore been reflected herein, as to establish a subsidiary company in Japan. Though there are many challenges such as start-up costs, the strategy will be meaningful especially in terms of stiff competition by the US. Operating from within Japan and being in full control of all operations will enable the company to have full access of the market and will give it a competitive advantage. The other underlying issues of socio-economic, political-legal and infrastructure have been well attended by locating the company in a country that is friendly for business. References De Marchi, M., Penasa, M., Cecchinato, A., & Bittante, G. (2013). The relevance of different near infrared technologies and sample treatments for predicting meat quality traits in commercial beef cuts. Meat science, 93(2), 329-335. Gray, E. M., Oss-Emer, M., & Davidson, A. Australian Government–Department of Agriculture, Fisheries and Forestry A research publication by the Australian Bureau of Agricultural and Resource Economics and Sciences Looking beyond the farm gate closer vertical coordination along value chains as a means of improving farm performance. Hacker, A., Puachuay, M., Shelton, H. M., Dalzell, S., Al Dabbagh, H., Jewell, M., ... & Lambrides, C. J. (2013). Potential of Australian bermudagrasses (Cynodon spp.) for pasture in subtropical Australia. Tropical Grasslands-Forrajes Tropicales, 1(1), 81-83. Hill, C. W., Cronk, T., & Wickramasekera, R. (2013). Global business today. McGraw-Hill Education (Australia). Hochman, Z., Carberry, P. S., Robertson, M. J., Gaydon, D. S., Bell, L. W., & McIntosh, P. C. (2013). Prospects for ecological intensification of Australian agriculture. European Journal of Agronomy, 44, 109-123. Lindberg, P., Voss, C. A., & Blackmon, K. L. (Eds.). (2013). International manufacturing strategies: context, content and change. Springer Science & Business Media. Lyons, K. (2014). Urban Food Advocates' tactics to rebuild food systems Convergence and divergence in food security and food sovereignty discourses. Dialogues in Human Geography, 4(2), 212-217. Mortimore, S., & Wallace, C. (2013). HACCP: A practical approach. Springer Science & Business Media. Nagle, C. M., Wilson, L. F., Hughes, M. C. B., Ibiebele, T. I., Miura, K., Bain, C. J., ... & Webb, P. M. (2015). Cancers in Australia in 2010 attributable to the consumption of red and processed meat. Australian and New Zealand journal of public health, 39(5), 429-433. Nakazono, Y., & Ueda, K. (2013). Policy commitment and market expectations: Lessons learned from survey based evidence under Japan's quantitative easing policy. Japan and the World Economy, 25, 102-113. Peh, L. C., & Low, S. P. (2013). Business Strategies and Organization Design. In Organization Design for International Construction Business (pp. 87-110). Springer Berlin Heidelberg. Razzaque, J. (2013). Environmental Governance in Europe and Asia. Reid, R. L. (Ed.). (2013). The manual of Australian agriculture. Elsevier. Takken, R. (2013). Bentley's Year In Infrastructure 2013. GeoInformatics, 16(8), 40. Waldron, S., Brown, C. G., & Zhang, C. (2004). MLA Chinese Sheepmeat Project: Analysis of agribusiness and policy developments in China’s sheepmeat industry of relevance to the Australian industry for Meat and Livestock Australia. Qureshi, M. E., Hanjra, M. A., & Ward, J. (2013). Impact of water scarcity in Australia on global food security in an era of climate change. Food Policy, 38, 136-145. Zeng-qi, P. E. N. G., & Hui-chao, L. (2013). Green Manufacturing Technology: A Challenge and Opportunity for the Meat Industry. Food Science, 7, 074. Read More