External and Internal Environments - Case Study Example

Running head: external and internal environments 17th July Introduction Hershey Company is the largest chocolate manufacturing firm in Northern America. Being headquartered in Hershey, Pennsylvania, the company which was founded by Milton Hershey has emulated extensive marketing strategies an aspect that has made it to attain a competitive edge. Some of the areas in US that Hershey has established its operations include Illinois, Stuart Draft, Lancaster, Pennsylvania, Guadalajara, Robinson, Hazleton and Memphis among other places. The first plant to be established outside Hershey in 1963 was the one based at Pennsylvania. The company high sales and profit has been as the result of the product diversification strategies as well as its international operations. Some of the notable chocolate based products that are produced by Hershey include Hersheys Milk Chocolate, Hersheys Special Dark, Hersheys Almonds and Toffee Symphony, Almond Joy King Sized Bar and Hersheys Bliss Cherry among many others. According to the 2013 financial report, Hershey revenue stood at US$7.146 billion while the operating income was US$900 billion. The company’s net income stood at US$820 billion while the total assets as at 2013 stood at US$5.3575billion. With a total number of employees standing at approximately 14, 800, the company has able to offer and distribute quality brands in many countries. This paper seeks to discuss key aspects that relates to the internal and external environment of Hershey Company. General environment General environment, which consist of six segments including technological, political, demographic, economic, sociocultural and global has an impact on every firm either operating locally or internationally. One of the notable segment of the general environment that has significantly influenced the operations and the profitability of Hershey Company is sociocultural. The sociocultural segment for Hershey Company is based on the company strong values for human services, diversity, providing support to cocoa communities, education and health care. Apart from being the largest Chocolate firm in North America as indicated earlier, Hershey is noted to be one of the most profitable companies globally. The company involvement in the corporate social responsibility has made it to achieve strong customer awareness locally and in the international market thus increased sales. For example, in 2011, Hershey Company achieved the level of B+ in the Global Reporting Initiatives (GRI). The company involves all its stakeholders including employees, consumers, investors, local government, business partners and local communities in all its corporate social responsibilities. The company pillars as far as CSR is concerned include workplace, market place, community and environment with each pillar having its own goals. For example, one of the goals of the market place pillar was to form a partnership with the NGOs and cocoa companies in order to introduce a sustainable cocoa farming. The second segment that has a strong impact on the performance of Hershey is economic segment. Since 2007, when the company net sales stood at $ 4.9 billion, the sales have continued to increase making the company to expand in more regions. In addition to improved earning per share, the company initiated an Insight Driven Performance that is focused at growing the activities of the company in order to increase the company income. Forces of competition The five forces of competition includes threat of new entrants, threat of substitute products, bargaining power of customers, bargaining power of suppliers and intensity of competitive rivalry. Two major forces of competition that have significant impact on the activities of Hershey Company include threat of substitute products as well as intensity of competitive rivalry (Brenner, 2000). Within the chocolate and cocoa industry the threat of substitute is high. Based on the high demand of the chocolate related products locally and globally, many firms have entered the industry with an aim of increasing their profits. Hershey Company competes with other brands that include lemon and vanilla. In the recent past, the company has invested in its brands. Hershey principal brands include confectionery products that are sold in the form of bar goods, boxed items, chocolate drink mixes, beverages, desert toppings and bagged items. As a result, Hershey Company has been able to effectively deal with the competitors. The company has also established sugar free brands that are highly demanded in the local market these include Black Forest Mini Cheesecakes and Velvety Chocolate Cream Ple. Hershey is involved in an industry that has partially differentiated products even though the rivalry among the competitors is stiff. Some of the notable aspects of chocolate industry include numerous and equally balanced competitors, high fixed and storage costs as well as high exit barriers. In order to face off its competitors in the industry, Hershey has embarked on investing in product lines and high quality brands as well as customer service. As a result, the company has been able to benefit from high sales due to a strong positive customer brand relationship in the local and foreign markets. Hershey ways of improving the forces of competition in the near future In order to ensure that Hershey maintains strong relationship with its customers in the future, the company will need to effectively face off the threats of substitute products. One of the ways that the company may undertake is extensive advertising especially in the developing markets. Based on the increasing number of chocolate consumers, competitors may come up with new brands in their efforts to face Hershey products. On its part, Hershey Company may initiate an extensive promotion and advertising of its products in order to ensure that it attains strong customer awareness. Additionally, the company may extensively educate its consumers on the benefits of its products thus making them to increase their demand for the company brands. In its effort to face off the threat of competitive rivalry in the chocolate industry, Hershey Company may embark in diversification of its brand portfolio in order to ensure that it attains an expansive market segment as compared to its competitors. In the contemporary world, technology is being used to improve the quality of products making them to meet the current needs of the consumers. In this regard, Hershey Company may embark on using modern technology in all its departments across the world so as to improve the quality of services and products. Through emulating the upcoming methods of communication, Hershey will be in a position to put in place effective communication between the employees and the customers. In this way, the company will create a strong positive relationship with its customers thus ensuring repeated purchases thus out doing its competitors in the market. Hershey Company’s external threats and opportunities External threats Despite its strong marketing strategies, Hershey is faced with a number of external threats. First, the company is faced with stiff competition from Nestle, Mars and Cadbury companies. Thus, the Hershey has to increase its expenditure to face off its rivals. Secondly, due to the increased cases of diabetes, Hershey products face reduction in demand. Thirdly, as the result of the changing prices of raw materials in various geographic areas, the company products increase its prices an aspect that may make the customers to look for substitutes. Fourthly, there has been a decrease in the agricultural areas especially in the developed countries due to the establishment of factories and buildings. As a result, Hershey is faced with the threat of inadequate materials in future. Fifthly, the occurrence of natural disasters for instance the hurricanes is affecting the growth of chocolate ingredients an aspect that may affect the production capacity for Hershey Company. Opportunities One of the key opportunities for Hershey is that it serves dark chocolate which provides health benefits. As a way of eliminating the child labor regulations in the African region, the company involved the International Cocoa Initiative Foundation, thus resulting to strong customer awareness. Another significant opportunity is that the company is producing cocoa in new areas such as India. In this way, the company has effectively dealt with the problem of reduced agricultural lands in other parts of the world. Due to the expanding global trade, Hershey Company has an opportunity of increasing its market areas thus increasing its sales and profit. Hershey greatest strengths and most significant weaknesses and how to address them Strengths One of the major strength that has made Hershey Company to benefit from a strong positive image was the establishment of The Milton Hershey School. The school which is located in Hershey, Pennsylvania, cares for orphan boys. In this way, the company is viewed by the community as a firm that values corporate social responsibilities. The company has a strong brand image due to being one of the largest manufacturers of chocolate products. As a result, large number of consumers is loyal towards the company products. Based to the Hershey focus on many industries which includes restaurants, entertainment, commercial and resort, the company is able to spread its name across many markets. Additionally, through a strong cooperation that the company has initiated between the professors and students, it provides good opportunity where individuals can undertake their research. Key strategy that Hershey should adopt in order to take advantage of its strengths is to establish more outlets and plants in the developing countries (Kurt, 2001). In this way, it will enjoy the support of the local communities and government due to the positive image it portrays in the home country. Weaknesses As compared to its major competitors, Hershey has more long term debts. This is due to the large amount of funds the company obtained from external sources that is directed towards expansion programs. Hershey advertisement is high as compared to the competitors thus reducing its profits. In order to fix the weaknesses, it is imperative that the company come up with strategy of expanding its investment portfolio so as to generate more income instead of external borrowing. Additionally, the company should control its cost of advertising by using cheaper but effective methods of advertising for example through the social media or in health magazines. Hershey Company’s resources, capabilities, and core competencies Hershey success has not only been achieved due to the skilled and experienced employees, but also due to strong management team. This includes John Bilbrey who is the Chief Executive Officer. Other members that make up global leadership team include Humberto Alfonso, and Michele Buck who are the International and North America presidents respectively, Terence ODay, William Papa, David Tacka and Leslie Turner among others. As at 2012, the company total assets stood at US$ 4.755 billion. As a result of expanding its operations, Hershey total assets increased in 2013 to reach US$ 5.3575 billion The company facilities were designed in such a way that it has parks and schools were employees are trained on the various courses that results to a high level of motivation. Based on its effort to meet the needs of the customers, the company has increased its production to produce wide range of chocolates as well as gum. Highly experienced employees as well as good working relationships are key competencies that have made Hershey to remain a competitive firm (Preston, 2012). This has also been as the result of high level of ethics that the company has maintained in its Ethical Business Conduct document which is available in 8 languages namely English, Japanese, Portuguese, Chinese, French, Spanish, Korean, Tamil and Japanese. Hershey creation of value using its resources, capabilities, and core competencies In 1990s, Hershey was faced with problems in its supply chain. These included problems in implementation of ERP as well as rapid growth. However, by effective use of high revenue and assets that the company has, it has been able to establish flexible distribution centers. The company can create value by establishing decision-support systems in the developing countries that can be managed by its experienced workforce. By creating strong positive relationships as indicated in the Ethical Business Conduct document, the distributors and wholesalers as well as consumers will be able to assist each other leading to higher sales for the company (Wieland and Wallenburg, 2013). As a result of the high revenue that Hershey continues to get, it should expand its asset base especially by establishing more production facilities in the emerging markets. Conclusion Based on the above discussion, it is clear that Hershey success has been as a result of various strategies that the management team has implemented. Through product diversification and focusing in many industries, the company has been able to increase its profits resulting to an increase in the earnings per share. To face off the stiff competition in the chocolate industry, Hershey maintains a motivated workforce that produces quality brands that meets the needs of its customers. Additionally, the expansions of asset base and skilled management team under the leadership of Humberto Alfonso are notable competencies for the company. References Brenner, G. (2000). The Emperors of Chocolate: Inside the Secret World of Hershey & Mars. New York: Broadway Books. Information about Hershey Company. Available from http://www.hersheys.com/ Kurt, C. (2001). Hershey Kisses Its Supply-chain Inefficiency Good-bye. Available from http://www.supplychainbrain.com/content/industry-verticals/food-beverage/single-article-page/article/hershey-kisses-its-supply-chain-inefficiency-good-bye/ Preston, J. (2012). Hersheys Packer Fined by OSHA for Safety Violations. New York: Macmillan Publishers. Wieland, A and Wallenburg, M. (2013). The influence of relational competencies on supply chain resilience: a relational view. International Journal of Physical Distribution & Logistics Management. Vol. 43, No. 4, pp. 295-300. Read More