Big Chocolate Analysis - Case Study Example

BIG CHOCOLATE Student’s Name Course Name & Number Instructor Institution Date of Submission Table of Contents BIG CHOCOLATE 1 Table of Contents 2 Big Chocolate 3 1.0 An analysis and summary of the Côte d'Ivoire, Indonesian and Dominican Republic cocoa production situations inclusive of a PESTEL 3 1.2 An analysis and summary of the Peru and Mexico cocoa production situations inclusive of a PESTEL 4 1.3 An analysis and summary of the Brazil and Cameroon cocoa production situations inclusive of a PESTEL 6 1.4 An analysis and summary of the Ghana and Nigeria cocoa production situations inclusive of a PESTEL 7 2.0 A synopsis of the Mondelez International, its holdings current market position, and Five Forces Analysis 8 2.1 Company Overview 8 Big Chocolate 1.0 An analysis and summary of the Côte d'Ivoire, Indonesian and Dominican Republic cocoa production situations inclusive of a PESTEL Cote d’Ivoire is the world’s number one cocoa producer responsible for about 40% of the total cocoa produced in the world and is the leading export earner (Verdin 2016). In 2016, the country’s production capacity stood at 1.57 million tons down from the previous year’s 1.75 million tons (Verdin 2016). However, cocoa is produced under harsh conditions and involved the use of child labour some of whom are trafficked from neighbouring countries. Indonesia is ranked third in terms of cocoa production with a production capacity of about 350,000 tons annually. However, cocoa production has been declining in the country. Most cocoa plantations are grown in small plantations. Dominican Republic is known for the production of high-grade, ethically grown organic cocoa with cocoa being a major export earner contributing significantly to the country’s GDP. The country’s annual production capacity currently stands at 70,000, though this is a decline from the previous years (UNDP 2015). PESTLE Analysis Côte d'Ivoire Indonesia Dominican Republic Political Political stability an issue as the country is politically volatile and prone to civil war and corruption index remains high The country has introduced reforms that aim to liberalize cocoa industry High tax on cocoa (34%) is a big issue Modern democracy and enjoys political stability. Corruption remains an issue as it increases cost of doing business Growing democratic space with political stability High corruption increases cost of doing business Economic Low-income country with high unemployment rate Middle-income economy and is among the fastest emerging economies in Southeast Asia GDP per capita of $11,126 and growth rate of 4.8% (2016) High unemployment and poverty remains an issue The second largest economy in central America and Caribbean and falls among the upper-middle income economies with a GDP per capita of $14,984. High unemployment and poverty an issue Social Poverty, diseases, such as malaria and HIV/Aids remains high Country records high population growth due to high fertility and low life expectancy Majority are young people High illiteracy rates Young population Average life expectancy High rural to urban migration Growing literacy Low population with slightly over 10.8 million people but population growth rate remains high Majority are young people High rural to urban migration Technological Low investment in technology, R&D Country records rapid growth in internet connectivity Country has increased investment in science and technology and R&D Country has increased investment on science and technology High growth of internet connectivity Legal High taxation of 34% for cocoa export Favourable taxation laws Government has enacted laws prohibiting use of child labour High taxation Country has enacted laws prohibiting child labour Environmental Government has created regulations to protect soil natural resources, such as forests No tough laws on environment but there is growing pressure from civil society on environmental issues Depletion of soil and destruction of rain forests for cocoa farming has created protest from pressure groups. 1.2 An analysis and summary of the Peru and Mexico cocoa production situations inclusive of a PESTEL Peru is the 13th largest cocoa producing country with approximately 145,000 hectors of cocoa plantations (Held 2015). Like in most country, most cocoa in Peru is grown by small scale farmers. In 2014, the country produced about 70,000 tons of cocoa and the government is strong involved in cocoa farming by providing farmers with support in the form of education and subsidies. Mexico also produce a significant amount of cocoa with an annual production of about 23,878 tons in 2007, which is a significant decline compared to 2005’s 50,000 tons (Cocoa-Mexico 2016). Decline in cocoa in Mexico has been linked to perennial outbreak of frosty pod rot diseases coupled with the aging trees. PESTLE Analysis Peru Mexico Political Modern democracy and enjoys political stability though situation become volatile during presidential elections High corruption index affect businesses   Country has a democratic government and enjoys political stability Conflict with the U.S. over illegal immigrants affect businesses Drug trafficking is widespread and creates relative instability in the country Corruption is relatively low in government which lowers the cost of doing business. Economic Free economy and ranks among the safest investment decision Recording faster economic growth of 6.4% and per capita GDP of $10,900 High unemployment rate of 7.7% and 31.3% poverty prevalence a concern Middle-income economy with a per capita of GDP of 18,500 and GDP growth of 2.2 (2015) Open economy with high FDI flow High unemployment affects the country Social Factors Young population of about 30 million people High rural to urban migration Society dominated by Roman Catholics Spanish-speaking country Up to 76% of the population live in urban areas. Faster aging population Technological Increased investment in science and technology Country records growing internet access High technology development with the majority having access to internet services that has transformed the way Mexicans interact and do business Legal Factors Corruption at the judiciary and police affects investor confidence Relatively transparent legal system High taxes on cocoa exports Environmental Government has enacted laws and regulations to protect soil, water and rainforest from degradation Mexican government has enacted laws to protect the environment, such as forests and soil. 1.3 An analysis and summary of the Brazil and Cameroon cocoa production situations inclusive of a PESTEL Brazil is the largest cocoa producer in Latin America with a production capacity of 256,186 tons in 2016 (Pekit 2014). However, this marks a significant decline from the previous years. Cocoa production is projected to dip further in 2018. Cameroon also remains one of Africa’s largest cocoa producers with a production level of 275,000 tons in 2013 (The World Bank 2017). s However, cocoa farming in Cameroon is being affected by poor management of cocoa farms. PESTLE Analysis Brazil Cameroon Political Enjoys political stability despite the recent removal of president from office High corruption perception index Dictatorship is high current president having stayed in power for more than 3 decades Corruption perception index is high Economic Among the fasted emerging economies with per capita GDP of $15,615 Growing middle income consumers Unemployment and inflation are high at 7.2% and 9% respectively Low-income economy and among the poorest in the world with per capita GDP of $1,328.64 Economy recording positive growth of 5.6% in 2016 High unemployment and poverty in the country Social Factors Increasing middle-income population Among the world’s most populous countries with over 201.5 million people High life expectancy and high illiteracy at 20% Population of 23.3 million comprising mainly of the youths High birth rate and child mortality rates HIV prevalence high  Technological High investment in science and technology High internet access and connectivity Country has increased investment in science and technology. Legal Factors Corruption with the judicial system Adopt a bijural system operating on both French Civil Law and English Common. Environmental Has enacted laws aimed at protecting the natural habitat from pollution and degradation. Country promotes sustainability by enacting laws requiring conservation of environment 1.4 An analysis and summary of the Ghana and Nigeria cocoa production situations inclusive of a PESTEL Nigeria is among the world’s largest cocoa producers with a production capacity of 367,000 tons, according to 2013 statistics (GBN 2015). However, product has been declining in recent years and currently stands at only 250,000 with only about 650 hectares used as cocoa plantations. Child labour is prevalent in Nigeria’s cocoa farming. Ghana is the second largest producer of cocoa in the world. Like most cocoa producing countries, cocoa production in Ghana has been declining. Currently, cocoa accounts for about 17% of Ghana’s GDP (Buhari 2016). PESTLE Analysis Nigeria Ghana Political Modern democracy with political stability though Boko Haram remains a threat to the stability One of the most corrupt countries in the world Regarded as most democratic country in Africa Corruption perception low Economic Emerging economy and is the largest economy in Africa growth spurred mainly by oil exports Low income economy with per capita GDP of $4,266 High unemployment and poverty an issue Social Factors Africa’s most populous country with more than 179 million people Growing middle-class population High literacy rates Young population Population of about 27 million people, majority are youths High population growth rate Technological High technology and Internet penetration Increased investment on science and technology, which remains low Legal Factors Corruption in legal system Low wage country with minimum wage rates standing at $59 monthly Adopts customary and English common law Environmental Government and pressure groups pushing for tougher laws on environment degradation and pollution Environmental pollution and degradation a big issue 2.0 A synopsis of the Mondelez International, its holdings current market position, and Five Forces Analysis 2.1 Company Overview Mondelez International is an American multinational confectionary, beverage and snack firm (Statista. 2017). The Illinois-based company was founded in 2005 but now operates on international scale, including Africa, Latin America, North America, Middle East, Europe and Asia, where it operates in different market segments, including biscuits, chocolate, beverages, gum and candy. In the chocolate industry, Mondelez currently controls about13.6% of the total market share (Statista 2016). Porter’s Five Forces Rivalry among existing firms (High) Mondelez face stiff competition from established brand, such as Mars, Nestle, Hershey all of which offer similar quality chocolate (Euromonitor International 2016). Threat of new entrants (low) Existing brand, such as Mondelez has built customer loyalty and this makes it costly to switch to another brand High investment cost required to enter the industry also create strong barrier to new entrants (Euromonitor International 2016). Supplier power (high) Suppliers have high bargaining power because of increasing scarcity of cocoa Buyer power (low to moderate) High switching cost result in low bargaining power of buyers Buyer power is moderate because chocolate products are differentiated Threat of substitutes (moderate) The existence of substitutes such as flavourings results threat of substitution (Euromonitor International 2016). 2.3 Suitable Strategic Recommendations The analysis of cocoa production situation in the world’s leading cocoa producers show that the world is experiencing declining cocoa production (Ford et al. 2014). In all the major cocoa producing countries, cocoa, which is use as the raw material for chocolate manufacturing has been declining steadily and this affects Mondelez that depends on cocoa supply to manufacture chocolate. Therefore, as cocoa production continues to decline, this means that Mondelez would not be able to get enough cocoa for chocolate production. Besides, the small quantities that it will be getting will be selling at high cost because of still competition for cocoa and this will in turn results in increased cost of chocolate production, which Mondelez might not be able to sustain in the long-run (Euromonitor International 2016). As a result, in the event that the shortage persists, Mondelez might be forced to abandon chocolate production and diversify to other markets to ensure continued operations. References Buhari, S 2016, Why Nigerian cocoa production is on steady decline. Daily Trust 16 Dec., viewed 18 March 2017 http://www.dailytrust.com.ng/news/agriculture/why-nigerian-cocoa-production-is-on-steady-decline/176228.html Cocoa-Mexico 2016, Cocoa problematic in Mexico and opportunities, viewed 18 March 2017 http://www.cacaomexico.org/?page_id=207&lang=en Euromonitor International 2016, Global chocolate confectionery overview: challenges, opportunities and risks, viewed 30 March 2017 http://www.euromonitor.com/global-chocolate-confectionery-overview-challenges-opportunities-and-risks/report Ford, T., Vit, J., Neate, R., Branigan, T., & Saner, E 2014, The cocoa crisis: why the world’s stash of chocolate is melting away. The Guardian 21 Nov., viewed 18 March 2017 https://www.theguardian.com/lifeandstyle/2014/nov/21/cocoa-crisis-world-chocolate-stash-melting-away GBN 2015, The sad story of Ghana’s cocoa industry and the way forward, viewed 18 March 2017 https://www.ghanabusinessnews.com/2015/06/22/the-sad-story-of-ghanas-cocoa-industry-and-the-way-forward/ Held, S 2015, Peru cacao up, but risks on the horizon, viewed 18 March 2017 http://organicwellnessnews.com/en/peru-cacao-up-but-risks-on-the-horizon/ Pekit, V 2014, Uncertain future for Brazilian cocoa production, viewed 18 March 2017 http://www.confectionerynews.com/Commodities/Brazil-s-cocoa-production-to-fall-next-decade Statista. 2017, Mondelez International's market share of the global chocolate market from 2012 to 2016, viewed March 30 2017 https://www.statista.com/statistics/650162/mondelez-international-market-share-of-the-global-chocoloate-market/ The World Bank 2017, Cameroon: Overview, viewed 18 March 2017 http://www.worldbank.org/en/country/cameroon/overview http://www.undp.org/content/undp/en/home/presscenter/pressreleases/2015/06/17/rep-blica-dominicana-se-compromete-a-fortalecer-el-sector-del-cacao-.html UNDP 2015, Dominican Republic commits to strengthening cocoa sector for 40,000 farmers, viewed 18 March 18, 2017 http://www.undp.org/content/undp/en/home/presscenter/pressreleases/2015/06/17/rep-blica-dominicana-se-compromete-a-fortalecer-el-sector-del-cacao-.html Verdin, M 2016, Cote d'Ivoire cocoa prospects 'much more favorable' for 2016-17, viewed 18 March 2017 http://www.agrimoney.com/news/cote-divoire-cocoa-prospects-much-more-favourable-for-2016-17--9888.html Read More