Cork Industry in Portugal - Term Paper Example

MEETING THE CHALLENGE OF SUSTAINABLE BUSINESS - CORK INDUSTRY IN PORTUGAL Lecturer Executive summary Most companies’ main objective is to make profit. In order to make profit, companies have to outline a strategic plan that will ensure sustainability in the ever changing global market. One of the effective means to survive in the contemporary business environment is through internalization. Companies are fast shifting focus to the international business environment in the wake of continuing globalization. It should be noted that prior to effecting internationalization strategies, management must come up with effective evaluation of the markets and overall environment that a company seeks to engage in. Internationalization strategies vary from company to company. For instance, a company may opt to seek a different strategy after an in depth analysis of the target market and the type the business or the line of products the company deals in. however, for a company that want to survive it has to ensure that its strategy is effective and efficient. This paper tries to analyse the sustainability strategy for Amorim. The Amorim Company focuses on the Cork products business. Its research and design department contributed immensely towards the discovery, examination and implementation of the most appropriate practices in cork oak forest in Portugal. The department further develops in-depth studies into the cultivation of the oak trees that provide cork harvests. In order to ensure sustainability, Amorim fosters strict association with both external and internal research platforms. This strategy aims at guaranteeing the quality of cork oak by-products, as well as the vitality of the forests. Therefore, the company collaborates with institutes associated with forestry and agriculture. The paper analyses the business strategies, PESTEL Analysis and the trends that exhibit the company. Situating Sustainability in current Business Background Information on Amorim Cork Despite not owning a forest, the Amorim Company focuses on the Cork products business. Its research and design department contributed immensely towards the discovery, examination and implementation of the most appropriate practices in cork oak forest in Portugal. The department further develops in-depth studies into the cultivation of the oak trees that provide cork harvests. As a result, the company provides the appropriate mechanisms for diseases and pests control of the oak tree (Aronson, 2009, 5). The West Mediterranean Basin boasts of two point two million hectares of Cork oak forests. Roughly ninety percent of the forest area of the cork oak species can be found in Spain, Portugal, Algeria and Morocco. Farmers in this regions harvest approximately three hundred and forty tons every year. Geographically, a third of the total forest cover can be found in Portugal. Therefore, Portugal provides an estimate of fifty-five percent of cork produced globally. Research indicates that Cork oak woodlands employs and guarantees survival for the locals. More than one-hundred farmers in the Mediterranean depend on the cork industries both directly and indirectly. Therefore, cork can be considered as a regional employment for the rural communities. This employment can be categorized as cork harvesting and silviculture (Acácio et al., 2007, p.7). Research and Design In order to ensure sustainability, Amorim fosters strict association with both external and internal research platforms. This strategy aims at guaranteeing the quality of cork oak by-products, as well as the vitality of the forests. Therefore, the company collaborates with institutes associated with forestry and agriculture. Additionally, the company cooperates with universities, for instance, the University of Aveiro. Through a joint project between Amarim and the Department of Biology of the aforementioned University, research attempts to simulate cultivation of oaks with the already contaminated environment. The researchers believe that the 2, 4, 6-Trichloroanisole (TCA) contamination causes cork taint in wine. Through research, the project attempts to examine the accumulation or absorption of the compound into oak tree barks (Acácio et al., 2010, p.17). Being the top supplier of cork stoppers, the company considers improving the cork cultivation through leadership in innovation. Amorim concentrates hugely on eradicating the unpleasant flavors of cork stoppers in wine. Therefore, Amorim relies on research and development and innovation as its strategic pillar to leadership in various segments. Since its primary focus is to strengthen knowledge and improve the quality of its products, the company optimizes the technological strategies in developing new processes, products and business units (Aronson, 2009, p.34). In its history, the company begun as a laboratory set up to study development of new processes and products. Currently, the research and development and innovation department of the company engages a massive investment worth six million Euros every year. The state of the art technology and exclusive processes in production contribute towards many upcoming patents associated with cork products and by-products. Some of the patents fall in the pharmaceutical, fashion and interior décor spheres. The culture of innovation fostered internally in the company encourages the employees to come up with new ideas through the CORK.IN program. This promotes the importance of innovation and its benefits towards adding value to the business among the personnel (Marañón et al., 2013, p.12). Manufactured cork significantly contributes to the total Portuguese exports. Seventy percent of the manufactured cork constitutes the stoppers. Ninety percent of the manufactured corks are mainly for export. Ultimately, they contribute to more than two percent of the total Portuguese exports. Due to its vital role in Portugal, the Portuguese Parliament declared the cork oak tree a National Tree. Consequently, since the thirteenth century, the law protects these forests (Bravo, 2008, p.23). Environmental Factors The cork oak forests also known as montados, significantly contribute towards the economic, environmental and social pillar in the Mediterranean regions. These forests constitute a fragile and unique ecology which provides habitats for endangered and rare species. Together with Borneo, African Savanna and the Amazonia, the Mediterranean forests create a foundation for preserving biodiversity. This is because the forests host thirty-five ecosystems that are considered to be highly vital in maintaining biodiversity. More specifically, more than two-hundred animal species and one-hundred and thirty-five plant species can only survive in the ideal conditions within the cork oak forests (Cruz, 2013, p.13). The cork oak forests thrive in arid soils and warm climate. Therefore, they prevent erosion and the resultant desertification from occurring. Additionally, the fire resistance capability of cork acts as a barrier to devastating forests fires. Furthermore, the forests play a vital role in regulating the hydrological cycle. In this aspect, the trees produce a significant amount of oxygen into the atmosphere and similarly absorb carbon dioxide. This helps to reduce the carbon emissions which eventually accelerate the global warming consequences (Mosquera-Losada, Rigueiro & Mcadam, 2005, p.12). While focusing on its importance on the hydrological cycle, researchers noted that the cork oak forests retain more than fourteen million tons of carbon dioxide in the atmosphere. The researchers further noted that the oak forests play a significant role in reducing greenhouse gas emitted into the atmosphere. Therefore, the forests significantly derail climate change. Equally surprising, cork oak absorbs increases its absorption of greenhouse gases during its regeneration processes. Therefore, the manufactured cork products absorb five times more greenhouse gases on average (Florence, 2004, p.43). The cork oak forests occur as the most appropriate balance between sustainable development and preserving the environment. This unique occurrence can be attributed to the fact that cork harvesting does not require tree felling. It only requires stripping the bark off the trees. Additionally, the cork oak trees create a foundation for economies of the future. This is because the forests enhance sustainable development while by allowing individuals to own the forests and further sustaining thousands of jobs. According to the WWF, – World Wild Fund for Nature, seven-hundred companies directly depend on the cork oak forests economy (Levia, 2011, 5). Policies Associations of farmers who grow cork provide adequate information on the policies that apply to the practise. Governmental support and restrictions alternatively could be acquired from other corporates and stakeholders of cork oak cultivation. Portugal lacks an appropriate national strategy for managing climate change and other issues like water shortages. The government needs to adopt a forestry sustainable development plan (Levia, 2011, 5). Trend analysis for future business The Marketing Environment This section evaluates the business environments at the Amarim Company. The Amarim Company has consulted the PriceWaters Coopers Audit Company to conduct an indepth analysis. For this paper, we use a 50 year plan made and implanted by Unilever. As a result, this examination assesses the prospects of Amorim as a potential contemplation for investment. The resultant framework would enable the leaders and linked corporations to collaborate towards sustainability of the cork industry (Marañón et al., 2013, p.11) The environmental assessment regularly captures three aspects. The three aspects include industry analysis using the Porter’s Five Forces model, the macro environmental analysis using the PESTEL and the organizational analysis using the SWOT model. This section however only captures the organizational and environmental analysis (Marañón et al., 2013, p.11). PESTEL Analysis. The PESTEL model enables one to evaluate a company within the aspects of one particular geographical location. This analysis discusses the political, economic, social, technology, environmental and legal aspects of the business environment. The investors often evaluate their levels of confidence with a particular venture by studying the PESTEL. Any negative sentiments within any of the aspects in consideration could gravely influence the operations of a business. Often, the PESTEL influence the market share prices of large companies globally. Companies like Apple Inc., Volkswagen and Toshiba, pose a vital attribute in the PESTEL of their operations. Therefore, following a perceived weakness in a particular country, consideration needs to be taken for contagion effects, as well as indirect repercussions (Merlo & Croitoru, 2005, p.23). Political The Portuguese government provides stable democratic governance. The governing system strongly influences the customs and laws of the country as well as its neighbouring countries. The Portuguese Parliament unanimously adopted the cork oak tree as a national tree. The Laws of Portugal protect the forests against any deforestation or misuse. The political structure, however, faces threats to its stability following the existence of numerous cartels (REIS, 2007, p.8). Economic According to the World Bank, the forests provide an income for a large population of the Mediterranean region. Besides environmental protection, the cork oak forests contribute towards poverty alleviation. Furthermore, the cork products contribute to more than two percent of the total exports. The existence of the wine industry symbiotically results in the growth of the cork industry. The Mediterranean forests provide over fifteen billion cork stoppers sold to wine industries (Regato, & Salman, 2008, p.19). Social The government continually works towards alleviating poverty and raising the living standards of the Portuguese. More than a hundred thousand locals rely on the oak forests for a living. In the cultural aspects, many oak species bear aromatic and medicinal values to the Portuguese. Also, the locals use the forests for grazing and hunting (Regato & Salman, 2008, p.21). Technology The Amorim prioritizes technological development and innovation. With in-depth research and massive investments in research, design and development, the company uses technology for product specialization. Over the years, the company has registered an increase in an application for patents of cork linked innovations. This therefore translates into a growing market share against the preceding substitutes of cork (Ribeiro, 2009, p.6). Environmental The cork oak landscapes contribute towards maintaining balanced biodiversity and reducing pollution. Consequently, pollution and biodiversity loss does not concern the world. Primarily, the forests serve to ensure soil conservation, water protection and carbon sequestration and energy conservation. In soil conservation, the forests eradicate wind erosion. Additionally, the trees help in increasing infiltration of rainwater to recharge the groundwater. The rate of water erosion tends to be lower significantly in the upland woodlands and forests areas (Ribeiro, 2009, p.11). In water protection, the forests portray a high capacity for water retention due to organic content and high porosity. Often, the eroded soils tend to drain into rivers and streams that are then deposited in the reservoirs for irrigation and hydro-electricity projects. These occurrences could shorten the life and capacity of these highly valuable and beneficial investments. In energy conservation and carbon sequestration, cork oak landscapes significantly absorb carbon dioxide from the atmosphere (Turula, 1970, p.32). Legal Portugal promotes transparent, organized and efficient legal systems. The legislative systems build trust and confidence in investors through providing high levels of freedom in business. The main challenges include threats of terrorism and massive tax evasion (Ribeiro, 2009, p.11). Create a future business scenario set in 2055 In order to acquire market leadership for the company, this section provides means to gain competitive advantage. Oak business enables the locals to improve their living standards. With reliable income, the economy of Portugal tends to be registering a higher Gross Domestic Product. Through intensive research in the research and design department of Amorin, more companies have registered patents. Previously, the discovery of foul taste in corked wine resulted in a decrease in the sales. Consequently, the plastic and rubber stoppers were absorbed at a higher rate by the wine industries (Vázquez-Piqué, Pereira & González-Pérez, 2008, p.12). The ever changing business environment has prompted many companies to set effective strategies for future business operations. Companies are fast shifting focus to the international business environment in the wake of continuing globalization. The results of such moves are notable in increased market existence and subsequent amplified profitability. It should be noted that prior to effecting internationalization strategies, management must come up with effective evaluation of the markets and overall environment that a company seeks to engage in. This is what Amorin aims to achieve by the year 2055. What has happened? What has changed? How have environmental limitations impacted your industry, society and global markets? By 2025, as globalization spreads, the quality of life increases. Additionally, the transfer of human resources across nations could lead to cultural exchanges across the world. While focusing on the marketing strategy that incorporates the people, place, price and product aspects, the cork business can be analyzed adequately. First, we will concentrate on the product. The cork products bear various advantages such as resistance to heat, light weight and ability to absorb carbon from the atmosphere. The contemporary world aims at promoting production and environmentally friendly products and environment conservation. This aspect could increase the demand for cork products (Gutiérrez et al., 2014, p.9). By 2035, the economic value of biodegradable products could be accelerated. Most companies would want to use cork as a luxurious component in both fashion and real estate. While focusing on the aspect of price, the standards will be higher in this decade. As humans improve their economic status, the farmers in the Mediterranean forests consequently register a rise in their incomes. By 2045, the human population is predicted to have increased due to increased fertility rates. Additionally, innovation is expected to be more vigilant due to technological advances. By 2050, the Amorim would have made economic, social and environmental impact on the Portugal outlook. For sustainability of the cork oak business, the PESTEL model needs to be taken into consideration (Rodà, 1999, p.23). How can the company respond? How do the specifics of your home country interact with the limitations and impacts? In responses to the ever increasing global demand, Amorin responds by venturing into the global demand. This include an effective marketing strategies, greater value chain analysis. When manufacturing becomes more efficient and effective, little or no scrap is created and what remains are turned into materials an inputs for new products. In response to the global competitions and international regulations on cork production, recycling should work effectively for Amorin as the firm has majorly inclined to recycling as a way of reducing wastes as a means of improving, gaining and advancing on their technical design of products. This will enable the company to reduce its production costs hence more profitability by the year 2055. It is also worth noting that working for the right manufacturers and partners is one of the positive expectations from value chain. This is because it allows for better and improved insight and thus control of quality. There is always limitations that arise locally in trying to achieve the 2055 strategic plans. One of the challenges is the regulations that effects the industry. Through the Cork Quality Council, Portugal is able to legislate and implement various set of rules to ensure effective use of the product. In this regard, Amorin must adhere to these rules and regulations. These regulations determines what is harvested at raw level and eventually produced as finished products. Why did you approach the business development strategy as you did? Marketing is one of the effective tools of production. In this case marketing stands-out to be one of the business development strategies that the company will use to realize the 2055 objectives. Considering the projected production output, Amorin will have to make some productions in other countries. This has a net effect on the pricing of their products. While keeping the production costs low, Amorin will benefits from cost advantage over its rivals. However, this will not only influence their pricing, but a greater percentage of the revenue saved from production is channelled towards the promotion budget. The effect of this expenditure is a sustained attraction of top class customers to the firm which in most cases will result in larger volume of sales. Opportunities There is an increasing demand for cork products both in the local market and international market. There is a niche market in producing cutleries using cork as a raw material. This can present a great ground for Amorin to differentiate its products to meet the divergent demands of various customers. In addition, engaging in sponsorship such as the Istanbul Design Biennial will help Amorim to improve on its brand. Why might the business model need to change? 2055 is 40 years from today. A 40 year strategic plan therefore should not be static but should be flexible to current economic, political and social changes. There are numerous situations that will arise between now and 2055, therefore the plan should give provisions for changes whenever a scenario arise. One of the strategies that need to change is the business model. With the increasing globalization and global competition, it is clear that doing business in the next 20 years will be different from today. In this regard, the strategic plan should be able to capture the emerging issues and project the circumstances that might arise and suggest respective solutions. The political, economic and social environment will influence business in the future. For instance, there might be numerous innovations in the cork industry or a business trend that need to be followed. All these factors might be captured in the plan, and hence a provision for changes set aside in case any arise. Recommendation and Conclusion The Mediterranean provides habitats for numerous species of animals and birds. Furthermore, the forests support some vital and endangered ecosystems. Amorim needs to take corporate responsibility in ensuring the sustainability of the forests besides its business operations. Amorim needs to align its visions with those of the WWF. The WWF has fifty year time plan for the oak forests. 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