Options to North Western Incorporated Board of Directors and Management - Essay Example

? of Management Report Executive Summary This report will present four possible options to North Western Incorporated Board of Directors and Management for consideration, as it look to strategically decide how to reduce cost, and increase its profitability, and market share in the United States and Europe. Armed with a financial budget of approximately $500m, the company should consider whether it will pursue Foreign Direct Investments in South Africa and Vietnam, because of the prevailing GEAR strategy in the former, as well as the one party political climate, as well as the population of the market segment be targeted in the latter. Consolidation in the United States with a penetrating strategy was also chosen based on the fact that the major competitors were on the verge of facing very adversity publicity, and the company had a product that could do the reverse nutritionally, if it is able to capitalize on the opportunity. Investment in terms of alliance in organic farming in Europe where projections are for double digits growth in that sector was also a viable option that North Western could pursue, due to the complementarities of both products to a growing health conscious society. In moving into such an alliance, the present management structure would require significant changes, as experts in this field will have to be recruited to strengthen perceived areas of weaknesses in advance, so that timely and informed decisions can be made. Going oversees in term of South Africa and or the Vietnamese markets will definitely challenged the competence of the organization, especially from cultural perspectives, as well as the levels of leadership representation required to negotiate with the government and private sector interest. Sensitivity to the needs of the environment, especially as it relates to environmentalists groups will require the adoption of new approach to maintain the stable climates that are conducive to its growth and development on a continuous basis, will prove crucial. North Western will do well to look at its financial commitment, the threats from competitors, the dwindling sales and market shares, as well as the attractive market options that are available now but may not be six months later, and make decisions, even changes in the leadership structure to reflect what qualities will be required to meet challenges in the national and global environments. Strategic Development Directions 1 North Western Corporation is a major manufacturer of health drinks and distributor of fusion nutrition health drink. Presently it has a 15% market share in the US and 12% in Europe. However, these percentages were much higher six months ago. There is a cause for concern insofar as the strategy to deploy to change the scenario, increase percentage profitability, and consolidate its position as a major competitor in the market place. The managing director Leslie Owen and his Oregon City team knows that economic down turn is only one of the reasons why his company is not doing so well as this point in time. This team of managers are going to be provided with the options to consider, with a bank balance in excess of $500 million dollars, a Research and Development that is has to produce at least five new brands for the market, are advantages to bear in mind insofar as options are presented. Strategy Development Directions for North Western Corporation will include four different approach, from which management will make the choice that will reflect its best interest. Based on market intelligence North Western prices are competitive with other products in the market. However, the company is not satisfied with its returns and market share, and has decided to engage in market penetration strategy to reduce the level of competition. The company has already profited from all these products and is in the process of introducing additional products to the market. This is reminiscent of Sony according to Berkowitz, et al (2000), which in1995, introduced the Play Station in Japan and then in the United Sates. The Penetration Strategy according to Berkowitz (2000) was designed to quickly gain market share, attract price sensitive customers, and discourage competitors from entering the market. Mass market appeal was achieved by the strategy, and this is one option North Western has in its armory to release. The Research and Development Department plans to introduce five new categories of beverages to market, as month after month, market momentum can be maintained. Revenue projections will see 50 million products being marketed to possible generate sales in the region of $300 million and market share increase of at least 3%. Strategic Development Directions 2 North Western is also considering targeting new American Public Schools with a special new brand called Fusion Health and Nutrition Drinks. According to the University of Michigan, obesity and overweight in the US is a troubling and growing problem, in that the percentage of children in the 6-11 age groups have more than doubled in the past twenty years, and the percentage of teens more than tripled during the same period. It is also estimated that 15% of the 6-19 year old range are obese and more than 10 % of those in the 2-5 year old range are also obese. The health of our children is in danger and North Western has an opportunity in the midst of the threat to market its product to nearly 40 million children entering the school system each year, as well as those already in the system. According to the United States Department of Education, public school enrollment at the elementary level rose from 29.9 million in 1990 to 34.2 million in 2003, and after a 1% decrease during the fall 2003 to fall 2004, has gradually increased to a projected 35 million in fall 2009. Projections are for the trend to continue into 2018. Targeting this market with specialty developed brands of Fusion, can bring according to our research team, returns of $225 m annually at the low end, and as much as $2 billion at the high end, given aggressive advertising and marketing. Tapping into the taste buds of these kids at an early age is expected to bring us exponential growth and profitability well past 2018. The question might be in the air, how much are we going to spend on a strategy development program of this magnitude? According to National Federation of Independent Business (NFIB) (2011), there are a four ways to set an advertising budget and they are, (a) using a fixed percentage of sales, b) use a budget comparable to the competition, c) by using an objective and task based option, or d) the maximum amount available. North Western will use the comparable to competition option to market the new Fusion line of products to the 40 million students entering schools across the United States annually. This approach will be used because of the financial advantage the company is presently in, and the returns that will be generated for the next decade. Companies like Coca-Cola and Pepsi have spent $1,867 million and $1.3 billion for advertising as far back as 1999, according to Adams (2005), but there are adverse reports concerning them that North Western can capitalize on, in its advertising campaigns which will equate to one percentage of the market share of $30 million. According to William Duffy, a product like Coca-Cola which contains known poisons and destroys one’s teeth and stomach, has one of the most stunning campaigns in the history of the western world, while the phosphoric acid present is enough to destroy nails if left in a can for a few hours (Adam, M. 2005). The Cancer Institute is losing the race comparatively, according to Cutser of “Flat Land: How American Became the Tallest People in the World”, in that they spent a paltry $1 m promoting fruit and vegetables consumption compared to the upward of $600 million disposed of by the soft drink industry (Adam, M. 2005). This is North Western’s moment to capitalize on the weakness of these major giants, and promote Fusion to represent the opposite of what they are doing to the health of the nation’s young children. The should be no excuse not to market this strategy because, according to John Robbins of “The Front Revolution: How You Diet Can help Save or Life and Our World”, Coca-Cola and other soft drink companies are giving millions of dollars to cash strapped school districts in return for their exclusive rights to sell their products. In one such deal in the state of Colorado, a teacher was required to push Coca-Cola consumption in the classrooms whenever sales fell below the contracted obligation (Adam, M. 2005). Strategic Development Directions 3 A third option that may be adopted by North Western is that of acquisition of strategically identified companies both nationally and in Europe. Acquisition according to Johnson, G., et al (2005), are strategies developed by taking ownership of another organization, it also provides an opportunity to exploit an organizations core competence in a new area. According to Links Organic, there are over 638 organic operations in the U.S., Europe and other countries, including Australia and Uruguay that produces complementary products to North Western’s Fusion nutrition drinks (Links Organic 2011). The North American market for organic food and drink also continues to show health growth according to www.TriplePundit.com , and has taken over the European market to become the largest in the world. Presently according to Triple Pundit.com, organic farming is practiced on 35 million hectares in 154 countries, and most of the increase is expected in developing countries, where the bulk of the revenues are expected (www.triplepundit.com, 2010). This is new territory for North Western to venture in. However, the market is too attractive to ignore, in that according to www.TriplePundit.com , revenues are projected to exceed $60 billion this year, after recovery from the $18 billion in 2000. By marketing Fusion products in these areas, we project revenues into the region of $290 million, but in order to ensure we build a sustainable industry, North Western can adopt Werbach five dimensions of a health network in both US and Europe, although sales are presently falling in both regions (Werbach 2009). According to Werbach (2009), a Health Network has five dimensions, namely protocols, activity, strong nodes, transparency and administration. Protocols will help to abide by rules like good manufacturing practices practiced in the drug industry, while activity enables us to connect with all stockholders who may negatively affect our corporate image, and be able to resolve issues before they affect sales revenues. Nodes on the other hand enable vital contacts to be established with all the major experts in the organic food industry, and tap into their knowledge to guard our strategy development directions toward maximum gain. According to Werbach (2009), a network is only as good as the roles of people who participate. Transparency in our core values enable, will us to provide information on our operations to help solve problems, resolve issues, and enable the global community to see us in a positive light consistently, while our administration will strive to ensure that it does not dominate the communications.. McDonald was an example of such a company, in that it was found to be causing problems with soy beans produced in Brazil and exported to Sun Valley in Liverpool, England who uses the product to feed the chicken used by McDonalds in its Chicken Menu, it cooperated with Greenpeace and called in its suppliers to solve the problem. (Werbach 2009) North Western by adopting this strategy in its Strategy Development Direction at the outset will be able to prevent environmentalist from targeting it for global purposes which can destroy its revenue base as well as market share. Strategic Development Directions 4 The fourth and final strategy Development Direction entails foreign direct investment in both South Africa and Vietnam. African Countries according to Mwelme (2003) sees foreign direct investment as a major stimulus to gain access to foreign market, facilitate efficient income growth, and overcome scarcity of resources such as capital and entrepreneurship, to gain access to foreign market, facilitate efficient management technique transferred, as well as technology and innovation into the country. South Africa in particular, according to www.bizaims.com provides incentives like tax holidays, exemptions on export and import duties, a subsidized infrastructure, as well as limits on workers’ rights to companies to invest into it. Foreign direct investment in this country is what North Western team of executives should seriously consider for the reasons stated above and much more. The country according to Mwelme (2003) has seen foreign direct investment outflows exceed inflows between 1994 and 2000 by as much as R9b and is hungry to reverse the process. Ernest and Young, according to South Africa Information Business (2006) independently report, that mergers and acquisitions involving South African companies rose 63% from R165b to 269.1b between 2004 and 2005. Business Day analyzed the statistics and reported that R57b of the growth was inward investment, and served as proofs that local companies were ripe and ready for foreign direct investment in them, according to South Africa Information Business (2006). South Africa GEAR program has been launched according to Streak (1998), with great emphasis on rapid expansion on the non-gold export business, as well as for increase in private investment, and as such Foreign Direct Investment is regarded as a savior for the successful implementation of the strategy. Northwestern should also take note of the fact that a survey was conducted among 25 senior executives of foreign companies operating in South Africa, concerning factors they believe were driving Foreign Direct Investment in the country, and according to Lyn, Leape, (2005), several critical features of the investment climate were revealed, that should motivate us in that direction. The features were, a) South Africa has a long history of investment by foreign and multinationals and existing investors are important sources of new FDI, b) the developed corporate sectors and stock exchange offers a wide channel for foreign investment, c) most firms have strong focus on domestic market thereby reflecting market seeking objectives, d) investors commonly use the local workforce as well as local inputs, e) the level of profitability indicate a positive outlook for South Africa, f) the stability of the business environment, the economic policy, growth rate, political stability, and the quality of the infrastructure except for the rails and ports, were ideal for investors to use to develop their business ventures Lyn and Leape 2005). On the negative side of the investment equation according to Lyn and Leape (2005), there were concerns for crime and violence, the volatile nature of the stock exchange, the role of MIDP, and the lack of clarity of the role the Black Economic Empowerment organization on the issue of transferring equity, as well as the requirement for compliance. A look at the positives as well as the trend in the country paints an excellent picture of a place North Western should consider investing in before the market becomes saturated. According to UNICEF of the 50 million people in South Africa, 87,000 are enrolled for school every year during the period 2005-2009. This segment of the market is also ideal for the fusion nutrition product could be targeted with compelling advertising packages that would generate billions of dollars. In order for this project to work North Western must find and analyzes the different alliances that are available, their distribution network, market share, levels capitalization, and performance history, so that the best option can be chosen. Should company make this zone of the world the choice to boost its market share, it use the same budgeted figure as in the previous program, and based on the present climate and the prevalence of the GEAR Strategy should generate receptivity from the South African Board of Education. According to Lynne and Leape the majority of new investments coming into the country are in the automotive sector, oil and natural gas, mining and steel, other metals, and paper. This makes the investment strategic alliance even more favorable given the low number of competitors in the beverage segment of the market. The motive of the strategy was lower cost and to increase market share, and this strategy as well as the fact that the company periodically will plough back some of the profits into the local economy to stimulate further growth and development, makes this option one of the most attractive to date. Foreign direct investment in to Vietnam is also a compelling option when the unique features of the country are analyzed, and link up with North Western financial capabilities. Presently according to www.bbc.co.uk , the Vietnamese economy is experiencing an inflation rate of 13.9%, with Consumer Price Index rising 2.2% in February. The Vietnamese Dong according to www.rates.cx/foreign-exchange/vnd-to-usd-exchange- rate/ is 20790 units to a US Dollar, a trend that has prevailed since the start of the year, and makes the investment of North Western a very attractive option given the low capital investment cost compare to the other options. Politically the country of Vietnam is very stable in that it is a one party Communist State, but holds ambition to become a developed nation by 2020 according to BBC News. However the country according to Altman (2007) has not been always easy to enter into to do business, because as countries try to make use of the low exchange rate, many controversies has erupted, ranging from accusations of substandard treatment of workers, to wrecked indigenous cultures. One major exception is that if Intel the chip maker according to Altman who studied the culture, then made partnerships with influential government ministers, and sold thousands computers right across the country, inclusive of the farmers in several regions to the 960 hospitals and 260 universities, and manage to generate win/win situations for both itself as well as the government. Internet connections were made available to address multiple needs of the citizens, and Intel was able to do this through sponsorship of massive educational programs, as well as providing ways people could use the technology to better their lives. North Western could use the260 universities and 14, 518 primary schools, and 1034 combined schools throughout the country according to the World Bank, to market its Fusion nutrition drink, by following the strategy adopted by Intel. The Vietnamese Government has adopted a comprehensive 2006-2010 educational program which only lacks adequate financing according to the World Bank report, and North Western should seize the opportunity to market its products. In addition to this segment of the market, there is also a growing consumer market of middle class young people who are high of consumer goods like electronics and luxury goods according to BBC News, and with the levels of disposable income available, North Western, sees a viable market to target with it s products as soon as it will be able to negotiate a win/win agreement with the government or another viable partner. Implications of Strategic Development Directions for leadership Management Change Management of the organization through this period will have to exercise great flexibility and consensus towards the strategy proposals, in order to survive. Any strategy that involves Foreign Direct Investment will require new management structures for the organization, as it will have larger markets to manage, and certain critical decisions will require using on the spot leadership, or the use of virtual leadership technology to communicate efficiently. Duties will also have to be delegated in ways that are new to the company, and it will take time to achieve competence, proactive measures are not instituted. The company will also have to utilize external marketing and distribution personnel, in terms of the organic farms acquisition in Europe, as well as for the South African and Vietnamese environment. In terms of the Vietnamese proposition, it will require the presence of top managers in the country for extended period to work with the communist organization, because without adequate knowledge of the culture of the country, as well as the presence of an authoritative source progress may be limited, and golden opportunities may be lost forever. References 1. ADAMS, M. (2005). Soft Drink Company Marketing Tactic: The Sound Off, Natural News www.naturalnews.com/003914.html 03/27/11 2. Altman, D., (2007). Connected 24 hours in the Global Economy, Farar, Strauss and Girous, New York, NY pp.35-44 3. Berkowitz, E.N, Kerin, R.A., Hartley. S.W., Rudelius, W. (2000) Marketing 6th Edition, Irwin / McGraw-Hill Boston, MA p.387. 4. British Broadcasting Corporation (2011) Vietnam Inflation Soars-13.9% 5. www.bbc.co British Broadcasting Corporation (2011) Vietnam Profile www.bbc.co.uk/2/hi/asian/pacific/country/profiles/1243338.stm, 03/27/11 .uk , 03/24/11 6. Johnson, G., Scholes, K., Wellington, R. (2005) Explaining Corporate Strategy 7th edition www.peazoned.cb.uk/ema uk he Johnson ex corp---------------- 7/26/6677/1709/360.cw index html 03/25/11 7. Links Organic (2011) Organic Food and Organic Product Business Directory, www.linksorganic.com/uk 03/27/11 8. Lynne, T., Leape, J., (2005). Foreign Direct Investment in South Africa : The initial impact of the Trade, Development, and Cooperation Agreement between South Africa and the European Union. www.ise.ac.uk/depts/crefsa/pdf/crefrsa_businessmap_fdi_in_south_africa_october20005.pdf , 03/27/11 9. Mwelme, N. (2003). Foreign Direct Investment in Africa, African Labor Research Network www.sarpon.or.za/DOCUMENTS/d0000883/p9994-African_Social_observatory_PilotPROJECT_FDI.PDF 03/25/11 10. National Federation of Independent Business (NFIB) (2011). How to Set an Advertising Budget www.NFIB.com (business-resources/business-resources-item?CMSID=50601 03/27/11 11. Rate.CX. (2011).Vietnamese Dong to US Dollar www.rates.cx/foreign-exchange/vnd-to-usd-exchange- rate/ 12. Streak, Judith. (1998). The Determinants of FDI and South African Industrial Development Strategy: Towards a Research Agenda, School of Economics, University of Cape Town www.tips.org.za/files/188.pdf , 03/25/11 13. University of Michigan, Physical Education in Americas’ Public Schools Physical Education and School Performance www.Umich.edu/356?pergren/obesity_overweight_epedemic_among_children_ins 03/27/11 14. US Department of Education, Institute of Education Science, Fast Facts www.NCES.est.gov/fastfacts/display.asp?id=65 15. UNICEF (2010). South Africa Statistics www.unicef.org/infobycountry/southafrica_statistics.html , 03/27/11 16. Werbach, A. (2009). Strategy for Sustainability Harvard Business Press Boston MA p.144-154. 17. World Bank (2006). Education in Vietnam: Development, History, Challenges, and Solutions, www.worldbasnk.org/EDUCATION/resources278200 03/27/11 Read More