Cocoa Production in African and South American ountries - Case Study Example

BIG CHOCOLATE By Name Course Instructor Institution City/State Date Table of Contents Big Chocolate 1.0 Cocoa Production Situations Inclusive of a PESTEL 1.1 Côte d'Ivoire, Indonesia and Dominican Republic According to World Atlas (2016), Côte d'Ivoire supplies 30% of the total cocoa in the world, and supplies cocoa to renowned companies like Cadbury and Nestle. Furthermore, Cocoa contributes almost two-thirds of the country’s trade revenue. However, the country has been associated with issues such as child labour and physical abuse in the farms producing large amount of cocoa in the country. In addition to harsh working conditions, most children in the country lack access to education. Indonesia started growing cocoa in the early 1980s, and is currently considered as the third leading cocoa beans producer in the world. Recently, the country’s cocoa industry has been damaged by pod borer insect. The Dominican Republic is considered as the world’s hub for ethical production of cocoa since the government has been working tirelessly to make sure that the production of cocoa happens in an environmentally sustainable way. The Dominican Republic is the world’s leader in ‘Fair-trade-certified’ cocoa production (World Atlas, 2016). Fair-trade products are ones that the global trade organizations have vetted to make sure that farmers are compensated sufficiently for their crops. PESTLE Analysis Côte d'Ivoire Indonesia Dominican Republic Political Factors Rapid reforms have been made in terms of economic policy and political stability. The country’s political system is democratic and is guided by rules and regulations developed in line with the Roman-Dutch law. The Dominican Republic has a democratic political system, divided into judicial, executive, and legislative branches. Economic Factors Ivory Coast’s GDP expansion as of 2016 was 8.7 per cent; there is potential for further growth owing to the country’s increasingly diversified and stable base. As a developing country, the Indonesian government has taken numerous steps to improve the country’s GDP growth. The country is considered as an upper middle-income developing country, and GDP growth depends primarily on government services and natural resources. Social Factors Ivory Coast has an impressive cultural diversity. The country’s agricultural and urban workers, fishermen, herders and traders, chiefdoms and villages make an enormous contribution to the national mosaic. Most Indonesians live in urban areas and have a good average life. The country’s literacy rate stands impressively at 90.4%. Most of the Indonesians are Muslim, and the other few are Hindus, catholic, and Protestants Most of the Dominicans are Roman Catholic, and their culture is a mixture of African slaves, Spaniard colonists, as well as Taíno natives. Technological Factors The country’s ICT sector has experienced enormous growth, and it received 3G certification in 2012. Ivory Coast has created new incubators as well as technologies like the Orange Techno Centre. Indonesia has developed a state-of-the-art communication system, and many Indonesians are connected to the Internet as evidenced by the high number of smartphones users. The country’s telecommunications infrastructure is well-developed and has a landline and mobile phone services. Most parts of the country have Cable Internet and 3G wireless internet service Legal Factors Ivory Coast’s Trade is facilitated enormously by numerous international and regional trade agreements such as Free Trade Agreement (FTA), Economic Community of West Africa (UEMOA), and Common External Tariff (CET). Investment code was replaced by new code which offers tax exemptions and reductions to investors. Indonesia has implemented new regulations to ensure that all employees get the right income share. People are required by law to work for 7 hours, and the income tax is implemented on the individuals as well as on the companies. The legal system of Dominican Legal System is largely derived from statutes or laws recognised as a Napoleonic code. Environmental Factors The country has more than 15 international agreements on issues such as tropical timber, hazardous wastes, climate change, among others. The country has implemented a number of laws to curb deforestation, reduce soil erosion and forest fire. The country has established basic requirements and principles for the environmental protection of natural resources.  1.2 Peru and Mexico Cocoa growing capacity in Peru is limited by ferocious competition for agricultural land. Only, 48,000 hectares of land is used to produce cocoa, which translates to cocoa beans output of 71,175 tonnes. On the other hand, cocoa production is Mexico is facilitated mainly by chocolate giants such as Ferrero and Hershey. Still, the country’s cocoa production has since the early 2000s declined by nearly half. The decline in Mexico’s cocoa production is attributed to Frosty pod rot, but new hybrid plants are providing hope since they are somewhat resistant to the disease. PESTLE Analysis Peru Mexico Political Factors After President Alberto Fujimori was impeached, Peru has experienced enormous political change such as reduction of corruption and bribery.  The Mexican local governments often offer incentives with the aim of attracting business to the area. The drug trafficking menace and political factors have resulted in widespread poverty. Economic Factors Recently Peru has been recognised for its safe investment environment and ease of business with low political risk. The country GDP growth depends on the industry, agriculture, trade and services. The country is considered as an upper-middle-income country (Somvanshi, 2016). Social Factors Aside from being a democratic republic, Peru is divided into twenty-five regions. Economic growth has led to a reduction of the poverty level in the country. Mexico is mainly a Spanish-speaking country, and almost 76 percent of the people are living in the urban areas. Technological Factors ICT infrastructure and telecom capacity in Peru is advancing rapidly. Most people in the country have access to the internet because of a high number of service providers. The use of Internet has changed the buying patterns and lifestyle of many Mexican consumers. Legal Factors The country’s inefficient and corrupt judiciary poses an obstruction to investors since commercial disputes are mostly compromised (Monteblanco, 2014). The majority of Mexican laws have led to higher prices for customers. Environmental Factors The government has formulated environmental regulations to secure water supply and protect forest coverage. Mexico is experiencing natural resource and environmental issues attributed to rapid industrialisation, population growth, and urbanisation. 1.3 Brazil and Cameroon Cocoa production in Brazil has consistently dipped, and the country remains America’s largest cocoa producer. For many years, Cameroon has been one of the largest cocoa producers in the world, but the cocoa business has recently been under threat. The decline in cocoa production in Cameroon has been attributed to poor cocoa crop management (World Atlas, 2016). PESTLE Analysis Brazil Cameroon Political Factors Proactive and stable government Corruption is high in all government departments Economic Factors High potential for economic growth The GDP growth is projected to average 4.8% between 2014 and 2018. Social Factors There is a progressive increase in middle-class citizens The country is rich in cultural diversity and its native music styles  Technological Factors High internet usage amongst the people Technology advancement has led to enhancement of the country’s ICT infrastructure. Legal Factors Extremely high bureaucratic country The country is considered a bijural system having French Civil Law and English Common. Environmental Factors Environmental agencies are tasked with overseeing compliance with environment legislation through public class actions, civil investigation, as well as criminal lawsuits (Garcia & Feldmann, 2016). Several legislations associated with sustainable development and environment has been implemented. 1.4 Ghana and Nigeria In Nigeria, the increasing global demand, prices, as well as the accessibility of the cutting-edge agricultural technology have led to enormous growth in the country’s cocoa industry. In most Nigerian cocoa farm, gender equality is a major issue. In Ghana, cocoa production accounts for nearly 17% of country’s GDP. PESTLE Analysis Nigeria Ghana Political Factors Uninterrupted civilian government but with a high level of corruption. A democratic system of governance. Economic Factors Mono-economy with large reliance on oil revenue Export activities are largely attributed to cocoa and Gold Social Factors The country is diversified in term of religion and ethnicity High population growth rate Technological Factors Most Nigerians are computer savvy, and there is high penetration of Internet. Underdeveloped technological infrastructure Legal Factors There is minimum wage of $59 dollars a month Mixed system of customary law and English common law Environmental Factors High levels of air and pollution (Oluwole, 2016) Natural resources are overused 2.0 Hershey - Exposure Analysis 2.1 Company Overview With its headquarters in Hershey, Pennsylvania, the Hershey Company is a global company renowned for bringing goodness through great-tasting snacks such as chocolate, mints, and sweets. The company has nearly 18,000 workers and over 80 brands across the globe. Some of its brands include Ice Breakers, Jolly Rancher, as well as Hershey's Kisses. The company focuses on expanding its operations to key international markets and retaining its North America’s competitive advantage. The company has numerous plants like in Ashland, whereby Hershey’s Premium cocoa powders and brand chocolates are manufactured. Other plants in the United States are located in Hazleton, Stuarts Draft, Robinson, Memphis, and Lancaster. The company has subsidiaries in Brazil, Greater China, Canada, India, Japan, Mexico, Korea, Malaysia, Singapore, Philippines and the United Aran Emirates. In terms of market position, Hershey's has for many years remained the leading chocolate company in the U.S. with approximately 44.1% market share as of 2016. At the international market, the company was ranked 6th in 2014 lagging behind Mars, Mondelez International, Ferrero, as well as Nestle. The company’s poor ranking at the international market is attributed to its overreliance on North America market (Key, 2015). 2.2 Five Forces Analysis Bargaining power of suppliers The suppliers’ bargaining power is high because of the cocoa shortage across the globe, and the number of suppliers is limited. Hershey’s depends on the suppliers to meet customers’ needs, food regulations and deliver high-quality cocoa. Bargaining power of buyers The buyers’ bargaining power is low to moderate since cocoa and chocolate products are differentiated. The market players such as Hershey’s, Nestle and Mars have strong customer loyalty and brand identification that increases the switching cost of the buyers. Threat of new entrants The threat of new entrants in chocolate industry is extremely low since consumers are strongly loyal to Hershey’s products. For that reason, switching to competitor’s products could be costly. Furthermore, the cost of penetrating the market is large since it is associated with labour costs, raw materials, production equipment, and so forth. Threat of substitute The threat of substitute to Hershey’s products is moderate to high since other products such as flavourings can be used as substitutes. In addition, customers could utilise flavourings for cooking and industrial use rather than utilising cocoa and chocolate products. Industry Rivalry The Rivalry in the chocolate industry is extremely high since they are numerous industry leaders that result in an intense rivalry. Hershey’s competitors such as Mars, Mondelez International, Ferrero, as well as Nestle offer the same products and normally engage in advertising wars. 2.3 Appropriate Strategic Recommendations The prices in Cocoa industry according to Ingram (2015) are generally attributed to market transactions, which indicate the value of goods. Therefore, a price could be considered as an ‘objective’ value measure in the chocolate market since it is very competitive; thus, exhibiting the values placed by companies on their commodities. Hershey’s must understand the externalities in pricing since they have an indirect or direct effect on the environment. Normally, such externalities are unseen, but the result in inefficiencies and economic distortions, that lead to scores of wicked global problems like pollution, climate change, biodiversity loss, inequality, and poverty (Ingram, 2015). Understanding the externalities will enable Hershey’s overcome such problems and improve its brand reputation. According to Ingram (2015), chocolate’ supply chain problems normally happen at farm level attributed mainly to political and natural disasters and violent conflicts. Besides that, the cocoa shortage is attributed to sovereignty barriers when importing governments try to change the behaviour of firms that operate in the exporting country. Most of the exporting governments are reluctant to enforce or change the existing labour laws, fearing that foreign companies could remove capital entirely and invest in jurisdictions having cheaper labour and relaxed labour laws (Manza, 2014). In this case, Hershey’s should impose certain standards on the exporting countries to make sure they observe the international laws. As mentioned by Idris et al. (2011), a company can retain its effective technical, creative, and strategic control in the global market if the characteristics of their home base are favourable. Therefore, Hershey’s can develop and maintain competitive advantages through upgrading, innovation and improvement as well as make sure that it stays ahead of the competitors by moving early and assertively. Hershey’s should work with countries that have a comparative advantage in cocoa production such as Indonesia and Ghana so as to meet the increasing demand for cocoa beans (Rifin, 2013). More importantly, the company should focus on integrating cocoa processing, cocoa bean production, as well as chocolate manufacturing. As suggested by He (2012) companies should differentiate themselves from competitors by offering unique brand and products in order to gain more market share. Hershey’s should ensure that its strategy completely depends on the company’s ability to transform cocoa production resources into a competitive advantage. More importantly, the company should manage the input price and volatility risks associated with interest rate by using derivatives or hedging. To solve the risks associated with cocoa production, the company should offer the farmers training in order to enhance their knowledge in managing diseases that affect cocoa trees (Kwame et al., 2013). In addition, the company should ensure that the farmers access quality farm inputs like chemicals and fertilisers. References Garcia, L.P. & Feldmann, R., 2016. Environment & Climate Change Law 2016. [Online] Available at: HYPERLINK "https://iclg.com/practice-areas/environment-and-climate-change-law/environment-and-climate-change-law-2016/brazil" https://iclg.com/practice-areas/environment-and-climate-change-law/environment-and-climate-change-law-2016/brazil [Accessed 27 March 2017]. He, N., 2012. How to Maintain Sustainable Competitive Advantages - Case Study on the Evolution of Organizational Strategic Management. International Journal of Business Administration, vol. 3, no. 5, pp.45-51. Idris, N., Hameed, A.A.A., Niti, M.A. & Arshad, F.M., 2011. Export performance and trade competitiveness of the Malaysian cocoa products. African Journal of Business Management, vol. 5, no. 31, pp.12291-308. Ingram, V., 2015. The true price of chocolate? Agro FOOD Industry Hi Tech, vol. 26, no. 1, pp.29-33. Key, D., 2015. An Overview of Hershey, America’s Largest Chocolatier. [Online] Available at: http://marketrealist.com/2015/10/glance-hersheys-leadership-us-confectionery-industry/ [Accessed 27 March 2017]. Kwame, O.S., Alexander, O.F. & Kwabena Anin, E., 2013. An Assessment of Supply Chain Risks in the Cocoa Industry in the Ashanti Region, Ghana. International Journal of Humanities and Social Science, vol. 3, no. 19, pp.191-201. Manza, K., 2014. Making Chocolate Sweeter: How to Encourage Hershey Company to Clean Up Its Supply Chain and Eliminate Child Labor. Boston College International and Comparative Law Review, vol. 37, no. 2, pp.389-418. Monteblanco, S.O., 2014. The Peru Legal System. [Online] Available at: HYPERLINK "http://www.peruvianlaw.com/peru-legal-system/" http://www.peruvianlaw.com/peru-legal-system/ [Accessed 27 March 2017]. Oluwole, A., 2016. Doing Business in Nigeria – PESTEL Analysis. [Online] Available at: HYPERLINK "http://legitsmallbusiness.com/nigeria/" http://legitsmallbusiness.com/nigeria/ [Accessed 3 March 2017]. Rifin, A., 2013. Competitiveness of Indonesia’s Cocoa Beans Export in the World Market. International Journal of Trade, Economics and Finance, vol. 4, no. 5, pp.279-81. Somvanshi, K.K., 2016. World Bank to change classification of countries; India will now be called ‘lower-middle income’. [Online] Available at: HYPERLINK "http://economictimes.indiatimes.com/news/economy/indicators/world-bank-to-change-classification-of-countries-india-will-now-be-called-lower-middle-income/articleshow/52512636.cms" http://economictimes.indiatimes.com/news/economy/indicators/world-bank-to-change-classification-of-countries-india-will-now-be-called-lower-middle-income/articleshow/52512636.cms [Accessed 27 March 2017]. World Atlas, 2016. Top 10 Cocoa Producing Countries. [Online] Available at: HYPERLINK "http://www.worldatlas.com/articles/top-10-cocoa-producing-countries.html" http://www.worldatlas.com/articles/top-10-cocoa-producing-countries.html [Accessed 27 March 2017]. Read More