COMPANY CHOSEN FOR CASE STUDY ANALYSIS:FERRERO
1.HISTORY AND INTRODUCTION:
Ferrero, which is the forth largest chocolate manufacturer in the world, is a global company founded in northern Italy in 1946 by Pietro Ferrero. As a family-owned multinational company, Ferrero has developed six different products to adapt markets in different areas(Ferrero, 2016).
In this case study, the focus will be on the marketing aspect of operating in a global environment.
1. MARKETING SWOT ANALYSIS:
• Strong brand portfolio and customer loyalty
• Globally available
• Initiatives to improve the position in the industry
• Lack of scale and global channel intermediaries
• Strong competition in the market
• Introducing new varieties of products
• Increasing trend to buy healthy food
Considering the main marketing strengths, Ferrero has a diversified and a strong product portfolio which includes bakery products, chocolates, drinks, and snacks which are available across Europe, the Americas, Asia, Oceania, and Africa. The wide variety of products offering enables the company to acquire different kinds of customers, and the high quality of goods guarantees their loyalty.
The lack of scale is the major weakness of Ferrero, indeed most of its main competitors as Mars and Nestlé are much larger in terms of size and revenues. For instance, Nestlé expands its portfolio of products in China from coffee to food, while Ferrero only focus on chocolate market.
Moreover, the main opportunity is to develop more cheaper products in certain areas such as China, for instance the main product distributed in China is Ferrero Rocher which has a particularly high price comparing to other products famous in Europe.
Finally, the increasing interest in healthy food in the food market can be considered as a threat for its marketing.
3. PEST ANALYSIS:
• Consider political policies, taxation, and laws
• Global competition
• Value is net of depreciation and operating costs
• Caring local people, employees, customers, families
• “Sharing values to create value”
• Innovative research and production processes
According to the political factor of the PEST analysis, Ferrero should consider the political policies, taxation, laws, and norms in various countries where it started its sales. The group also has to do business in favor of the ruling parties in respective countries.
Moreover, the economic context in which Ferrero operates is very difficult due to its expansion in all over the world and the global competition. The economic value generated during the reporting period is the net of depreciation and operating costs, which includes payments to suppliers ("Ferrero CSR - Valore aggiunto Ferrero", 2015).
Considering the social issue, the term corporate social responsibility has always meant for Ferrero caring local people, their employees, customers, families, and the local communities where it has its sales. The company's social responsibility strategy is “Sharing values to create value” (“Ferrero-Core Values”,2015).
Finally, as a technological aspect, Ferrero group always takes the challenge of creating unique products. They use an innovative research and production processes as well as using their own technologies ("Ferrero - Core Values", 2016).
4. CORPORATE AND BUSINESS LEVEL STRATEGY
At a corporate level, Ferrero is a global company and it is focused on delivering high-quality products using the best raw materials in every country. The company targets on people aged between 15-40 years old who are at middle or high-income level; it also does some vertical integration to have more control over the pricing and the availability of supplies. Furthermore, Ferrero is trying to realize the diversity of its brands and expand the corporation's portfolio of businesses.
As for business level, Ferrero will specialize their products to meet their customer's variant need.
5. STRUCTURE AND CONTROLLING SYSTEM:
Ferrero's previous success is based on its ‘Family Business' structure and centralized controlling system, which gives rise to Ferrero's steady increase in turnover and generates a wide range of products. This centralized system could maintain the reputation by ensuring the quality and brilliant design of its products.
5. CHALLENGES AND SOLUTIONS:
The challenges of Ferrero's structure emerge after joining in international market.
As a multinational company, as a first challenge, a centralized structure may not be flexible enough to meet the diversity of complex market. For instance, Ferrero merely sells chocolate to supermarket in Chinese market, without cooperating with local intermediaries, it could possibly lead to the monotonic of products and lose market share in international market. This becomes more severe when comparing with its main competitor Nestlé, which has already expanded its products portfolio from coffee to food by cooperating with local retailers and intermediators.
It is certain that ‘Family Business' structure turns out to lower risk, but to be more competitive in international market, Ferrero's structure and controlling system should be more flexible and make more efforts to expand its business, for example by introducing more products in the international market and seeking for more cooperation with local intermediaries.
Another challenge maybe that the relevance of each brands of Ferrero is not well advertised, which makes brands like Nutella cannot take the advantage of customers' loyalty to Ferrero since Nutella is not commonly recognised in China as a products of Ferrero company.
The possible solution for Ferrero might be focus more on conjunction of each brand and ensure brand awareness of the company to settle the problem of losing loyal customers due to misunderstanding of original company of the product.
Anon (2015) Ferrero CSR - Valore aggiunto Ferrero [online]. Available from: https://www.ferrerocsr.com/ferrero-group/added-value/generated-and-distributed
Anon (2016) [online]. Available from: https://www.static.ferrero.com/globalcms/documenti/1586.pdf
Anon (2015) Ferrero - Corporate Social Responsibility [online]. Available from: https://www.ferrero.com/the-ferrero-group/our-values/attention-towards-consumers
Anon (2017) The Business process of the Ferrero organization.
Anon (2017) [online]. Available from: https://www.static.ferrero.com/globalcms/documenti/1963.pdf?nsukey=Hnp%2FIo9%2Fh4Ys%2FLqTdP9089fxTrx9iS9unTq6GI5u0piIeQb37tWX%2BGPZpeHkYVwuqK555XwcQaB6nCvnAWiE8BwlUxq1gmtt18qcmsTHxLDtCBlyr4pX1q4niRAmjRPwITn1vxNdliIY6sKDX9tCfD2e517nC557oGk%2BSQ8ys0r375mwVgoMEAlZTYDtWRen
Anon (2017) [online]. Available from: http://content.ebscohost.com/ContentServer.asp?T=P&P=AN&K=118252905&S=R&D=bth&EbscoContent=dGJyMNXb4kSeprA4v%2BvlOLCmr0%2Bep69Ssqe4SrWWxWXS&ContentCustomer=dGJyMPGrrkixr7FMuePfgeyx44Dt6fIA
Garcia, M. & Garcia, M. (2017) Business Level Strategy Vs. Corporate Level Strategy | eHow [online]. Available from: http://www.ehow.com/info_7900064_business-vs-corporate-level-strategy.html
WEEK 2:SMALL AND MEDIUM-SIZED ENTERPRISES(SMEs) AND INTERNATIONALISATION
COMPANY CHOSEN FOR CASE STUDY ANALYSIS: MAST-JÄGERMEISTER
1.HISTORY AND INTRODUCTION:
Mast-Jägermeister UK is a subsidiary born in 2014 from the bigger German company. In 2015 Mast-Jägermeister UK has been declared as the third best-selling spirit brand in the UK (Mast Jegermeister, 2016).
The following analysis had been developed in order to introduce the entrance of Mast-Jägermeister UK in the Chinese market.
• Recipe that contains various herbs
• Lengthy liqueur-making process
• Therapeutic effect
• Good kitchen seasoning Weakness:
• Transportation costs
• Only suitable for drinking in the summer
• Profound drinking culture in China
• Relatively empty market of herbal liqueurs Threat:
• Powerful competitors of domestic company
• Lower acceptability to imported alcohol among Chinese consumers
In the international market, the main strength of Mast-Jägermeister is that the product consists of over 50 different herbs and takes one year to be filtered and stored, then another year to ensure the quality (Woolse, 2014). The complexity of the recipe is extraordinary in Chinese alcohol industry.
Considering the weaknesses, Mast-Jägermeister would have high costs on transport when imported in China and the product only targets on summer drinks (Mast Jagermeister, 2017) of which the sales performance may decrease in other seasons.
Moreover, drinking liquors is a traditional custom in China and few imported herbal liqueurs have entered Chinese market. Therefore, there is a great consumption and demand of Chinese liqueurs industry, which constitutes a great opportunity.
Finally, in China, wine and domestic liquors are still the major consumption of alcohol. Liqueurs like Mast-Jägermeister are still a newly developing in Chinese alcohol industry, which constitutes a threat for the company.
• Follow political conventions and policies Economical
• Fluctuation in currency exchange rates and the financial position of the country
• Sell drinks to responsible and eligible people Technological
• Stick with its original recipe but not to change with emerging technology
• Check the effects of natural disasters
• Age limit for drinking in different countries
As far as the political aspect of the PESTEL analysis is concerned, the company must run its sales according to the political and taxation policies placed by the ruling parties like UK government.
Considering the economic issue, the main challenge in the international market is given by the fluctuation in currency exchange rates in different countries and their financial stability.
According to the social aspect, Mast-Jägermeister must consider the effects of alcohol consumption and it should supply to the eligible adults who are willing to drink
(“Corporate & Social Responsibility-Mast-jaegermeister”,2017).For instance, in some Islamic countries, alcohol consumption is very less.
Furthermore, Mast-Jägermeister uses its secret recipe which is more than 80 years old. In a technological view, they try to innovate with fresh ideas but without spoiling the original ‘spirit' of the drink (Mast-jaegermeister,2017).
The environmental factor is relevant, indeed if a natural calamity or a disaster occurs, there will be a huge impact on forests. As a result, the company will lose its main raw material such as natural herbs.
Finally, the most relevant legal issue is that the company must consider the minimum age required to drink in different countries, for instance in China people must be at least 18 to drink.
4.PORTER'S FIVE FORCES ANALYSIS IN THE CHINESE MARKET:
As far as the Porter's analysis is concerned, three main existing competitors can be identified in the Chinese market: Chivas Regal, Johnnie Walker, and Pernod Ricard, all having higher prices compared to Mast-Jägermeister.
Moreover, the potential entrants in the Chinese market could be the brand partners of Mast-Jägermeister UK, these are: Funkin Cocktails, Monin and Old Jamaica. But, generally, in the spirit market entry barriers are high due to the costs of the production plants.
Then, the main buyers are distribution channels as supermarkets and hypermarkets, such as clubs and bars. They have a relative bargaining power.
In the spirit market, potential substitutes could be other alcoholic beverages, such as beers and wines, but also non-alcoholic beverages and flavored alcoholic beverages preferred by women.
Finally, the bargaining power of suppliers in the spirit market is commonly weak, this is because the main ingredients such as ginger, cinnamon, star anise, cardamom and orange peel are easy to find. But, in order to succeed, the SME has to build strong relationships with suppliers.
From these analysis two main challenges have emerged.
The first one is the unknown consumption potential. Though entering China means facing a larger market, but the language barrier makes it even harder to find out what the exact consumption is.
From Porter's five forces analysis, it is found that the existing imported alcohol brands are at a higher price level than Mast-Jägermeister. On one hand, it could represent a relatively empty market of low-priced imported alcohol. On the other hand, it may be caused by the lower acceptability to low-priced imported alcohol among Chinese consumers.
The second challenge is a threat of low-price strategy made of two main points:
a) High transportation risk:
Due to the fact that the glass bottles are fragile, it may cost a lot to transport them.
b) Heavy burden on customs:
China imposes a specific tariff on imported alcohol and this policy may be a threat for Mast-
Jägermeister's low-price strategy.
To summarize, different pros and cons could be identified while entering in the Chinese market:
• Profound drinking culture in China
• Relatively empty market of herbal liqueurs
• Fast growing consumer market (Anon.,2017) • New enterer in Chinese market
• No existing Chinese distributor and transportation risk
• Language barrier
• Strong competition from domestic enterprises(Anon.,2017)
In conclusion, it could be suggested to Mast-Jägermeister UK to enter in the Chinese market by using a contractual entry mode.
In particular, Original Equipment Manufacturer (OEM) could be an effective way to enter in the market, lower the price and reduce the risk during the transportation of bottles. For example, Mast Jägermeister could provide its Chinese corporative factory with unique ingredients and equipment, which could ensure their liqueur's quality and reputation (Whitford 2000, p. 7). Furthermore, OEM could significantly decrease the costs, which makes its price a competitive advantage in Chinese liqueur market. What's more, cooperating with local distributor such as ASC and Fu long and selling it online in Taobao or Amazon China could properly adapt to Chinese culture.
Finally, compared with setting factory in China, OEM is a more secure way due to its lower cost which could be considered as a method to test Chinese consumer's acceptability for low-priced imported alcohol.
Anon (2017) [online]. Available from: http://mast-jaegermeister.de/wp-content/uploads/2016/07/jagermeister-marketing-code_en.pdf
Anon (2017) Corporate & Social Responsibility - Mast Jaegermeister [online]. Available from: http://www.mast-jaegermeister.co.uk/our-company/corporate-social-responsibility/
Anon (2017) Import/Export in China: Startup Overseas [online]. Available from: http://www.startupoverseas.co.uk/import-and-export-with-china
Anon (2017) Exporting to China - GOV.UK [online]. Available from: https://www.gov.uk/guidance/exporting-to-china
Anon (2017) EBSCO Publishing Service Selection Page [online]. Available from: http://web.a.ebscohost.com/Legacy/Views/static/html/Error.htm?aspxerrorpath=/ehost/pdfviewer/pdfviewer
Anon (2017) Playing the long game - Mast Jaegermeister [online]. Available from: http://www.mast-jaegermeister.co.uk/playing-the-long-game/
("Down the Line--supplier Upgrading, Evolving OEM-supplier Relations, and Directions for Future Manufacturing Modernization Policy and Research in Wisconsin", 2017)
Woolsey, B. (2014) 16 Things You Didn't Know About Jägermeister [online]. Available from: https://www.thrillist.com/drink/berlin/things-you-didnt-know-facts-about-jagermeister
WEEK 3:MULTI-NATIONAL COORPORATIONS AND INTERNATIONALISATION
COMPANY CHOSEN FOR CASE STUDY ANALYSIS: GUCCI
1. History and introduction
Guccio Gucci founded Gucci's company in 1923 in Italy. Gucci had become an international luxury brand by the 1970s and expanded its business through Europe, Asia and the U.S.A. However, Gucci faced the problem of brand dilution because of limited shareholding structure and poor management. In order to rebuild its reputation around the world, the Chairman decided to restructure the company as well as rethink over the international market.
In this case study, the focus has been on the PESTEL and the Five Forces analysis for the external factors, while the SWOT, the value chain and the corporate strategy analysis have been developed for the internal factors.
2. PESTEL analysis:
• Look into political policies in various countries Economic
• Consider the customer's capability of expenditure Social
• Running business without harming any local religion, community, or culture
• Continuously tries to satisfy the tastes of modern world Environmental
• Tries to not create any impact on environment by its production Legal
• Follows all the legal rules and regulations laid down by various countries
As far as the social aspect of the PESTEL analysis is concerned, Gucci's company policy states that it always protects and respects diverse national and international communities(“Gucci Official Site International”,2017).
For the environmental issue, the company will try to reduce the impact of its manufacturing process by saving and reusing of energy(Gucci,2017).
Moreover, the company provides working conditions according to the legal rules. It does not support child labour and provide equal opportunity to all(“Code Of Ethics-Kering”,2013).
Considering the technological aspect, Gucci always produces according to the changing tastes of the modern world. For instance, it had come up with sunglasses made up of liquid wood (“Gucci's sustainable products| Kering”,2017).
Furthermore, as an economic factor, Gucci should set up its prices according to the sensitivity of the customers in various countries.
The political policies and acts should be taken into consideration before setting up the manufacturing industries or for exporting in other countries.
3. Five forces analysis:
As far as the five forces analysis is concerned, different existing competitors of Gucci can be identified in the international market, such as: Chanel, Prada and Louis Vuitton.
Considering the potential entrants, they all have a low bargaining power due to the high entry barriers and the strong brand reputation of Gucci and its competitors.
Generally, Gucci's customers are wealthy and they may change their preferences frequently. It has also to be considered that Gucci delivers high quality products and it is “one of the world's most desirable fashion houses” (Gucci, 2017). Therefore, the bargaining power of buyers is moderate.
Moreover, consumers may choose a cheaper product as a substitute in a period of recession, or they may prefer other luxury goods such as cars and vacations.
Finally, every supplier in the luxury market wishes to work with a strong brand as Gucci; hence, they have a lower bargaining power.
4. Value Chain:
Firm Infrastructure: General management, finance, accounting, law, quality management etc.
Human Resource Management Recruitment Training, Development Salary
Technology Development Manufacturing technology,
Product development Market research, Information systems User application technology
Procurement Transport service,
Raw material supply Raw material,
Power source Transport service,
Raw materials supply Raw material supply
Raw materials inspection,
Control management of delivery, warehousing, inventory Production process varies for different kinds of products Order processing,
Tax management Quotes and pricing,
Market research After-sales service,
Inbound Logistics Operations Outbound Logistics Marketing and Sales Service
(Carcano, A. , 2011)
From the value chain, it can be demonstrated that, becoming multinational, benefits Gucci a lot on value creation.
Firstly, going multinational gives Gucci access to raw materials of higher quality and
raises popularity of brand globally. For instance, Italy is not an ideal country to get textile for clothing. By setting factories in countries such as China, Gucci opened up a cheaper and easier channel to high quality raw materials while making itself a more popular brand in China.
Furthermore, entering into international market helps Gucci to cooperate with other multinational companies to develop new products. For instance, recently, Adidas cooperated with Gucci and developed a new sport shoe (Zh.buyma.us., 2017)..
However, although becoming multinational can help attract overseas investments, it will also put the company in risk of heavy debt. In the early 90's, Gucci had 3 billion debt which put it on the verge of bankruptcy (Moore, 2005) .
5. Swot analysis:
• Strong brand image and brand equity
• Huge product portfolio
• Advanced advertising and marketing
• Effective distribution channel Weaknesses:
• Brand dilution by huge product portfolio
• Fake imitations in international market
• Emerging luxury market in fast-growing countries
• Other luxury brand
• Vulnerable to global price fluctuations
Considering the strengths of Gucci, the company is becoming a symbol of status and wealth by representing as a high-quality luxury brand. The portfolio of Gucci is huge and it contains apparel, clothing, wallets, watches, etc. (Gucci 2017). Gucci's excellent advertising and marketing programs could lead to an increase of its brand reputation.
Moreover, Gucci should have to face the unpredictable risk in international market, such as fake imitations which would harm the brand's reputation and this may cause brand dilution.
The need in luxury market has increased significantly in recent years, this represents an opportunity especially in fast- growing economies like India and China.
Finally, luxury brands such as Burberry can be a threat for Gucci. On the other hand, in international markets, controlling price is as important as holding adequate competitive advantage.
6. Corporate Strategy:
Gucci is reinventing a wholly modern approach to fashion and aims to be innovative, influential, and progressive. The company focuses on various luxury goods including handbags, shoes, watches, and perfumes by producing the best quality products.
7. PROs and CONs of operating internationally and recommendations:
To summarise, different PRO's and CON's of operating internationally can be identified for Gucci:
Corporate strategy • Expand its reputation • Harder control on branches
Process of value creation • Access to better raw material overseas
• Cooperate with other multinational company
• Attract overseas investment • Heavy debt
• Lower efficiency on human resources management
Market choice (China) • More accessible to consumers
• China is a big market with a large population • Increasing competition
• Risky in developing country
• Fake imitations
As far as the main CONs are concerned, the first recommendation is to set up a particular department to communicate with branches in order to make the control easier. This department could hire people who are able to speak foreign languages and understand culture differences in order to improve the communication efficiency.
Then, to reduce heavy debt, it could be useful to minimize the costs by locating production in countries with cheaper labour costs.
Finally, in order to face competition for example in China, it is necessary to build a stronger Guanxi with the government. As a result of this relationship, it is more convenient for the company to promote its goods in China.
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Anon (2017) Gucci's sustainable products | Kering [online]. Available from: http://www.kering.com/en/sustainability/achievements/guccis_sustainable_products.
Anon (2017) Gucci Official Site United Kingdom [online]. Available from: https://www.gucci.com/uk/en_gb/.
Anon (2017) Gucci Official Site International [online]. Available from: https://www.gucci.com/int/en/st/about-gucci.
Anon (2017) [online]. Available from: https://www.gucci.com/documents/Corporate_Sustainability_Resposability_Policy.pdf.
Anon (2017) [online]. Available from: https://www.gucci.com/documents/Environmental_Policy.pdf.
Anon (2013) [online]. Available from: https://www.gucci.com/documents/code_of_ethics_en.pdf
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Christopher M. Moore, Grete Birtwistle, (2005) [online]"The nature of parenting advantage in luxury fashion retailing – the case of Gucci group NV", International Journal of Retail & Distribution Management, Vol. 33 Issue: 4, pp.256-270, Available from: https://doi.org/10.1108/09590550510593194
Carcano, A. (2011) Why luxury firms are often family firms? Family identity, symbolic capital and value creation in luxury-related industries [online]. Available from: http://www.redalyc.org/html/433/43320760003/
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Jackson, Tim and Haid, Carmen (2002) Gucci Group - The New Family of Luxury Brands. International Journal of New Product Development and Innovation Management, 4 (2). pp. 161-172. ISSN 15405880
Zh.buyma.us. (2017). adidas NMD GUCCI Glitch Sneakers Is The Most Trend Now. - BUYMA. [online] Available at: https://zh.buyma.us/contents/adidas-nmd-gucci-glitch-sneakers/?set_country=GBR&set_lang=zh [Accessed 2 Aug. 2017].
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