Arcor Case Analysis - Term Paper Example

?Arcor Case Analysis Table of Contents Arcor Case Analysis Table of Contents 2 Introduction 3 Situation analysis 3 SWOT Analysis 3 Competitive analysis 5 External Environment 6 Assumptions of the study 7 Statements of the problems facing Arcor 7 Developmental alternatives and evaluation 8 Implementation of selected alternative 10 Reference 11 Introduction Arcor is a locally owned company of Argentina specialized in production of confectionery, ice creams, chocolates and cookies and various other food products. The company is one of the largest exporters of Argentina and private sector employers (International Finance Corporation, 2011). The company was founded in the year 1951, producing a wide range of products ranging from confectioneries to personal hygiene products and also frozen goods. At present the company operates in over 120 countries worldwide and Arcor was also ranked 14th amongst the top 100 candy companies at US in the year 2009 with a revenue of US $ 2.2 billion. The company provides high quality products and on the other hand to reduce the cost of the product Arcor vertically integrated the packaging system into their system. In the year the company was nominated as the ‘best company’ in Argentina from the chamber of commerce of US. This award recognizes the company who includes management sustainability in their corporate practices. The Company also encourages in promotion of education at Argentina and Brazil. This social responsibility is aimed to minimize the problems arising at workplace and the impacts of environment at the manufacturing plants (Innovalatino, 2010). Situation analysis SWOT Analysis The growth of the company and sustainable survival in the industry the SWOT analysis is conducted by the company. It helps the company to understand the strength, weaknesses, opportunities and threats of the company identification of which can assist in the implementation of strategies according to the needs of development. Strength Arcor has a great brand name at Argentina. The company’s huge percentage in the domestic market share with around 54% in the candy and 33% at chocolate market gave the company immense popularity in the international market due to its strong base. International acquisition strategy of Arcor with small third party to reduce its price to the end user along with the vertical integration structure for manufacturing of different ingredients facilitates the process of reducing price for the company. This is the major strength of the company which keeps the price low for the firm without affecting the quality of the product. Weaknesses The production plants of the company are all located in domestic country thus distribution of the company is a very important aspect to look after by the company. Proper training of the distribution channel and salesperson are required by the company failing to which might create problem for the company to reach to the customers in foreign countries. Building own distribution system can help the company to cope with this problem. Opportunity New product line from the company with over 50 new candy compared to 10 from each competitor can create a huge potential for the company in developing countries where the demand for candies are growing in recent years. Demand for chocolate and confectionery are also increasing which can be a great opportunity for the firm to launch new products in this category (Ghemawt, Rukstad, Illes, 2009, p. 5). Threats Financial crisis and economical slowdown is one of the major threats for the company. While entering into new market the political factor is also a possible threat as change in policies of the government can increase the tax on import and export duties which might force the company to increase price for the products, thus loosing the title of being the cost leader in the market. Competitive analysis To get an extra edge in the competitive environment Arcor should analyze the external environment of the firm and understand the threats from different dimensions like new entrants, suppliers, customer bargaining power, direct competitors and the substitute products. Being one of the leaders in the market the company has less threats from new entrants also for new entrants it involves huge investment in setting plants which very few companies can afford to invest. Arcor, since follows the vertical integration system do not rely on suppliers for different ingredients. Thus the company faces no bargaining power issues from the suppliers. Since there are moderate numbers of players in the market the quality of the products are needed to be maintained to deal with moderate bargaining power of customers. Many players like Nestle, Cadbury and Kraft are also present in the market as the leaders. Competing with these brands is not an easy task for the company. Arcor should follow a product differentiation strategy to survive with these direct competitors of the market. The increasing price is also leading many consumers to buy substitute products like ice cream from different leaders in that particular industry. Thus moderate threats are present from the substitutes for the company to operate in the competitive market. External Environment The company mainly deals with the confectionery section along with various other product lines. The total revenue earned from the confectionery industry in the year 2001 was approximately $125 billion at retail level. Of the total revenue earned the chocolate confectionery accounts for about 60 % and it is expected to grow at a very fast pace for the next coming years at 5% increase per year. On the other hand the sugar confectioneries accounted for 40 % of the revenue and growing at 1% rate per year. North America and Western Europe are the major contributors of industry’s revenue accounting two third of the total revenue. Latin America with Brazil, Mexico and Argentina are the largest market for the confectionery industry. Asia is also a contributor to the revenue with about 10 % for chocolate, 20 % for candy revenues mainly from India, China and Vietnam. In developed countries chocolate confectionery are more in demand than candy while in developing countries the consumers are more price sensitive just generating lower margin of profit for emerging producers like Arcor. Industry report shows that 80 % of the revenue of the largest competitors of Arcor like Nestle, Mars is generated from chocolate in comparison to sugar confectioneries. Internationalization has also increased in confectionery industry amounting to around 15 % of world’s production (Ghemawat, Rukstad, Illes, 2009, p.1). Assumptions of the study The case study provided mainly concentrates on the SWOT analysis and the condition of the external environment in which the company operates in along with the other players of the industry. But it hardly contains information about the human resource and the structure of the company and the HRD needs of the firm which could have been of great help for the analysis process for a clear understanding of the internal environment of Arcor. Thus in the analysis process it has been assumed that the internal environment of the company do not generate any issues which is a hindrance for conducting the research on Arcor. All the data explored during the study are publicly available data only and the financial data available in the case study are not recent figures which are thus assumed to have continued same trend in recent years on the basis of which the analysis has been done for the company. Assuming the internal condition of the firm to be at good state and the problem is mainly due to the financial crisis of Argentina this research has been conducted. Internal information if available could have comprehended all the problems with Arcor confectionery. Statements of the problems facing Arcor Argentina industry produces around 300 tons of confectioneries yearly and local groups like Arcor are the major players of the Argentina food industry (Whittle, 1998, p. 115). But suddenly due to financial crisis at Argentina during the year 1999 to 2001 various industries affected very badly due to the devaluation of the currency and hurting the export of Argentina of which 30 % are traded to Brazil. Argentina continued this financial crisis and poor economic condition even during the year 2000 though the government estimated a growth in GDP rate by 2.5 % in the following year (Hornbeck, 2002, p. 2-3). Argentina was heavily affected by this crisis mainly during the late 2001 and Argentine peso was devalued by around 70 % and all the bank operation for withdrawals was frozen during the period. The candy and chocolate industry was also affected heavily due to this crisis and though Arcor survived this issues but it was also affected in their domestic business with a huge downfall on its revenue from $650 million to $300 million in a one year period. Arcor was able to generate moderate amount of revenue from its international business from $350 million to $450 million in that period. International business of the company is also affected to some extent as the regions located near to Argentina like Brazil are also affecting due to this financial crisis. Brazil being the second largest manufacturer has a great market potential for the company (USA International Business Publications, 2002, p. 247). With the stabilization of the Argentine market the management’s main statement of problem is to decide their business strategies to cope this kind of crisis of the environment. Arcor needs to rethink their international strategy evaluating the location to expand, selecting the appropriate products for the market, understanding the need to emphasize on brand building and managing international business growth. Developmental alternatives and evaluation In order to maintain the profitability and sustainable growth in the industry the company needs to evaluate alternative strategies which can generate revenue in case of failing of the current strategies. Alternative strategies can be evaluated from the Ansoff Matrix as mentioned below in the figure where we can find four different alternatives where the company could focus to get an extra edge in the market understanding the needs of the market and the suitable sustainable growth strategy. Figure 1: Ansoff’s Strategic Matrix (Source: Luck, 2008, p.346) Since the company is already operating capturing good market share at Argentina alternate growth strategy for the company can be new market development with the existing product. The company is constantly expanding internationally. Understanding the trend and demographic of the international market can identify prospective market for the company where the company can grow targeting the market. Product development can be another alternative strategy for the company to capture the market. With new diversified product line the company can also grab the existing market for generating revenues from the domestic as well as international market where the company is already located. The company can also introduce new product into a new market. Entering into the new market internationally with experience of the market can help the company to introduce new products into the market according to the preferences of the market. This alternative strategy of expansion can generate some extra revenue for firm as well as at critical situations the company can survive with the business processes from foreign investments. Implementation of selected alternative The selective strategy alternatives are needed to be evaluated very carefully by the company before entering into the market. Proper knowledge of the market is one of the major requirements for the firm thus they need to conduct research on the demographics, economical factor, political condition and the taste of the market. The company can involve in merger and acquisition program with the other food producing firms of the entering country to reduce the cost of distribution in the new country. Arcor follows the vertical integration strategy for reducing the cost of their product and with more reduction in the distribution channel of the company the company can get an extra edge over its competitors to place their products in the new market. Product placement should be done by the company after understanding the taste and age group of the location. Candy and chocolate are more popular amongst the young age group thus target market of the company should be towards this age group. Launching country specific products will give better prospect for the firm to flourish in international market. The distribution network of the country is also needed to be evaluated by the company. Possessing an effective distribution channel will reduce the cost for the firm and offer the end user products at very less price which will attract the price sensitive market also. Advertisement and promotion campaign of the product in the market will help the company to reach to the customers and help in brand building for the company to place their image on the mind of the customers. Reference 1. Ghemawat, P., Rukstad, M., Illes, J., (2009). The Confectionery Industry. 2. Hornbeck, J. (2002). The Argentine Financial Crisis: A Chronology of Events. Retrieved on July 15th 2011 from http://fpc.state.gov/documents/organization/8040.pdf. 3. International Finance Corporation. (2011). Arcor WC. Retrieved on July 15th 2011 from http://www.ifc.org/ifcext/spiwebsite1.nsf/0/F60F13170346225B852576BA000E2D29. 4. Innovalatino. (2010). Grupo Arcor. Retrieved on July 15th 2011 from http://www.innovalatino.org/argentina.html. 5. Luck, D. (2008). CIM Coursebook Assessing the Marketing Environment. Butterworth-Heinemann. 6. USA International Business Publications. (2002). Brazil: Business & Investment Opportunities Yearbook. Int'l Business Publications. 7. Whittle, J., (1998). Argentina business: the portable encyclopedia for doing business with Argentina. World Trade Press. Read More