Greens Foods Holdings - International Market Assessment - Case Study Example

International Market Assessment, Selection and Market Entry Report: Green’s Foods Holdings Name: Lecturer: Course: Date: Executive Summary Green’s Foods Holdings faces immense challenges that hamper its growth prospects due to Australia’s crumbling biscuit manufacturing industry and consistently maintaining a small market share in the country. It is proposed that the company should consider expanding to China since India presents more market risks. India presents more technological, economic and political risks compared to China. China has a more stable political environment compared to India. Green’s Foods Holdings should enter the Chinese market through strategic alliances. Table of Contents Executive Summary 2 Table of Contents 3 Introduction 4 Company and Product Background 4 Company objectives and corporate strategies 4 Corporate values and objectives 6 Company Performance 7 Market strategies 7 Key strategic challenges 8 Resource base in readiness of international market 9 Comparative Country and Product Market Attractiveness 10 Option 1: China Industry Analysis and Trends 10 Option 2: India Industry Analysis and Trends 12 Comparative Analysis 14 Market Entry Strategy 16 Conclusion 18 References 19 Introduction Green’s Foods Holdings is an Australian owned manufacturer and distributor of food products under its household brand named Green’s. The company specializes in savoury making biscuits, in addition to other foods such as pastas, breakfast cereals and cake mixes (Green's 2014). Currently, the company encounters immense challenges that hinder its growth prospect. First, Australia’s biscuit manufacturing industry has tumbled over the past five years due to the change in customer dietary trends, increased competition, and fluctuating input prices (IBIS World (2014). Second, the company maintains a small market share compared to its key competitor Arnott’s. To attain its objective of increasing revenues and sales, expansion serves as a likely strategy towards this end. Therefore, Green’s Foods Holding seeks to boost its market share through expansion by at least 20 percent by 2018. Drawing on these, the company seeks to either expand in China or India (Greens’ 2014). This report explores Chinese and Indian market, selects the right market and proposes a market entry method for the company. Company and Product Background Company objectives and corporate strategies Green’s Foods Holdings promotes itself as a food and nutrition company. The company believes that strengthening its leadership in the market is the core drive for its corporate strategy (Green's 2014). The biscuit market is featured as one where the primary motivators of impulse purchases by consumers is due to the fads about their nutritional content. Indeed, this has been the company’s selling point. In a bid to reinforce the company’s competitive advantage in the area, Green’s Foods Holdings created an autonomous nationwide business department within the company, which takes charge of the profit and loss and operational responsibility for the claims-based business of performance nutrition, healthcare nutrition, and children nutrition (Porter 1980). The department seeks to deliver superior business performance by providing the consumers with consumers trusted and quality biscuits (Green's 2014). The Greens’ and Waterwheel biscuits are the most successful brands in Australia. The target market include school going children, college students and office workers who need fast snacks for lunch. The company seeks to boost its market share through expansion by at least 20 percent by 2018, with the hope that this would be hurtled through acquisitions of major industry players in Australia. Indeed, the company’s strategy has also been dealing with diversified range of products and acquisition of local biscuit business to create a group of independent regional managers who understand the cultures of the local markets (Porter 1996). The company’s comfortable debt equity and consistent cash flow has endowed it with adequate muscles to take over small companies. For instance, in 2013 Green’s Foods Holdings acquired Waterwheel Biscuits Company that owned Waterwheel, Roccas Deli and Waterthins brands. The company also took over Paradise Biscuit Company, which produces some of the most popular brand of cookies in Australia, such as Veri Deli, Paradise, and Cottage Cookies (Green's 2014). Indeed, the acquisitions enabled the company to intensify competition within the Australian food market. The acquisitions may as well enable the company to become more competitive. This provides Green’s Foods Holdings with a novel opportunity of initiating a new segmentation strategy similar to that of Arnott’s, which currently dominates the market with a market share of 61 percent (EuroMonitor 2014a). Despite this, Green’s Foods Holdings is presented with immense challenges since it will have to commit more expertise and resources to the sector in the hope that it ultimately augment its market share (Raduan et al. 2009). However, as an alternative, the company has to seek expansion in the emerging markets by offering low- and mid-level priced biscuit to the low-end segment of consumers rather than the high-end segment. The reason of centring on the entry-level segment is that it will allow the company to acquire an idle market segment by meeting the consumers demands (Porter 1980). Corporate values and objectives Green’s Foods Holdings has distinctive practices targeted at encouraging interpersonal relations using its values and styles of organizational management. The company seeks to promote organizational culture by encouraging its members of staff to espouse certain desirable attitudes that conform to the corporate objectives (Green's 2014). The company's core values include working together to promote safety and quality, so as to ensure consumer-focused integrity. The vision statement for its marketing strategy is to deliver quality food products that make stupendous business. The company also seeks to show understanding and insights into divergent cultures, so as to satisfy the complicated consumer demands (Ahlstrom & Bruton 2009). The vision statement offers an elemental connection to Greens’ business priorities and opportunities. Company Performance Greens Foods Holdings is recognized in the Australian marketplace for having unparalleled quality brand and product portfolio. The company offers one of the most extensive portfolios of brands in the biscuit sector. It has 10 brands that earn more than AUS$10 million in annual revenues. The company seeks to persistently introduce innovative and redesigned biscuits each year, which has strengthened its competitive edge against the major player Arnott’s, which takes up some 61 percent of the Australian market share. This also implies that the company has a meagre share of the biscuit market in Australia (EuroMonitor 2014a). Greens Foods Holdings has a well established geographic presence and distribution channels across Australia. However, this is not reflected internationally. At any rate, it has extensive distribution channels nationwide that supports its Australian operation. Additionally, the company has proven competence in securing acquisitions. Over the recent years, the company has acquired major biscuit manufacturers in Australia, with the hope of growing and securing leadership in the biscuit market (Green's 2014). Market strategies Over the last three years, the company positioned itself as an inventive foods manufacturer and distributor. This positioning has allowed Green’s Foods Holding to prosper amid technological changes and change in consumer demands (GlobalData, 2013). During the first quarter of 2013, Green’s Foods Holdings began to re-position itself in the biscuit market through acquisitions. As a result, the company made a strategic move to acquire Waterwheel Biscuits Company and Paradise Biscuit Company. The acquisitions were expected to facilitate the re-launching of the company into biscuit market. In this way, the company expected to compete against its arch competitor Arnott’s, which owns majority of the market share in Australia (EuroMonitor 2014a). Because of the broad spectrum of biscuit brands, Green’s Foods Holdings offers, it potentially has a wide-ranging customer base. Green’s Foods Holding uses integrated media for marketing such as internet, billboards, radio and television campaigns to generate reach across a wide range of consumers. It also employs the use of mobile advertisement and social media to trigger conversations and to engage with customers (Green's 2014). Despite this, Green’s Foods Holdings maintains a smaller market share compared to its key competitor Arnott’s (EuroMonitor 2014a). This is an indication that Green’s Foods Holding should adopt branding strategies focused on consolidating new customers, rather than retaining them. Green’s Foods Holdings uses a one-family strategy, which seeks to promote a family of its 10 brands of biscuits. The strategy is targeted at leading the company into reorganizing its function rather than just its range of products (Green's 2014). The elementary goal of this strategy is to push the ‘Greens’ brand name. Critically, its marketing campaigns are focused on brand rather than product. Additionally, the concept of ‘diversity’ and ‘addition’ are often evident in the marketing strategy. At present, its marketing strategy includes creating relationships with local retailers and distributors. Key strategic challenges After the company’s historic acquisitions of Waterwheel and Paradise Biscuit Company over the last three years, it experienced growth in revenue base. Critically, its diversity of products has increased its revenue, after acquiring of Waterwheel and Paradise Biscuit Company have bolstered the company’s strategy of being the market leader. The children and the youth have been the company’s target group. Despite this, the company has faced diverse challenges, which justify the need for expansion in the emerging countries. Australia’s biscuit manufacturing industry has tumbled over the past five years. This has challenged the company’s growth prospects. As established by IBIS World (2014), the decline has been due to the change in customer dietary trends, increased competition and fluctuating input prices. Additionally, health and nutrition campaigns against foods that have calorific content such biscuits have also been attributed to the declined sales of biscuits. This in addition to other factors such as increased accessibility of healthy alternatives such as nut-based snacks, fruits, bakery products and fortified bread have also contributed to the diminished sale of biscuits. Indeed, the industry is projected to approximately decline by 0.5 percent in 2014, to reach $985.0 million. The company seeks to boost its market share through expansion by at least 20 percent by 2018, with the hope that this would be hurtled through acquisitions of major industry players in Australia. To attain its objective of increasing revenues and sales, expansion serves as a likely strategy towards this end. While it is critical that Greens’ continues to improve the quality of its products, it should also look at satisfying the needs of vibrant markets outside the borders of Australia. Resource base in readiness of international market Unlike its key competitor Arnott’s, which operates in over 40 countries across the globe, Greens’ Foods is yet to pursue global frontiers. Greens’ has concentrated on the Australian market. The products have the potential to compete with other global brands (EuroMonitor 2014a). At present, Greens’ has the required technological resources needed for expansion to the international market. The company currently has an employee base of 1,000 workers. It also has the required finances to enter into the global market (Greens’ 2014). The company has the capacity to distribute its products across Australia, which implies it has the capacity to manage cross-country supply chain and logistics (Raduan et al. 2009). Comparative Country and Product Market Attractiveness Option 1: China Industry Analysis and Trends The Chinese consumers are increasingly becoming conscious about their consumption habits. Studies of the Chinese market show that the consumers are increasingly favouring healthier options of food. At the same time, the Chinese consumers tend to entreat themselves to indulgent products and impulse buying. The rise in consumption levels paralleled with the increased per capita income and shifts in consumer behaviour have been cited to be among stimulator of the growth of the industry. According to IBIS World (2014), the expansion of the consumer spectrum and increase number of the youth who prefer biscuits have also stimulated growth in consumption. Due to the increased frantic schedules, brought about by the increased pressures of an increasingly developing economy, the Chinese marketplace has supported growth of companies that offer snacks for food (PwC 2013). Hence, the function of biscuits has been transformed into one that offers substitute for breakfast cereals and home baked foods into one that is considered an indulgent treat. Additionally, the biscuit manufacturers are increasingly seeking to increase sales during special events, such as Christmas, Valentine’s Day, and Spring Festival. The Chinese market leader is Mondelez China Inc. It is expected to continue leading in biscuit manufacturing. The company currently maintains a market share of 16 percent. The Mondalez bicuit maker runs a multi-brand strategy and manufactures and sales products such as Pacific, Princr, Uguan, Orea and Ritz. According to EuroMonitor (2014), Mondalez ranges of products are the most popular in the Chinese market. The brands maintain consumer awareness. The company also enjoys a reputation for producing the most quality biscuits in the market. For instance, the company’ flagship product, and controls some 62 percent of the volume. At the same time, it is also considered as the most vibrantly growing brand in China. Given China biscuit market’s maturity, the Chinese products have been predicted to record a slow growth of 5 percent, over the new decade. Because of the higher income levels, the target consumers may continue to seek higher quality and premium biscuits, which may fuel growth of sales (PwC 2013). Similarly, increase in demand for indulgent foods has also the potential to increase the consumption of biscuits over the next decade. The leading brands in China have also been projected to gain significant market share over the next decade because of increased health consciousness and brand awareness (Campbell 2014). China’s biscuit production industry witnessed fast growth over the past five years. According to IBIS World statistics, revenues from the industry increased at an approximated rate of 15.7 percent annually. In 2014, revenue from the industry is expected to reach about $25.2 billion, representing a $9.5 percent rise from the previous year (IBIS Word 2014). The growth of the biscuit production industry is triggered by the extensive domestic demand, increased rate of private investments, the rise in foreign direct investments in China and the high production that boosted the total output of the industry. China has low entry barriers, since the market entrants prefer low levels of capital to investment in production facilities. Despite this, the entry barrier is higher for industry players looking to heighten competition within the high-end market segment and the higher national level (PwC 2013). This is since the requirements for quality are high. Similarly, investments in high-tech production equipment are compulsory for effective and thriving operation. The available foreign players such as Kraft, manufacture locally. They have managed to attain the benefits of lower costs over the foreign entrants who only serve to import into China. Because of this, the production of localization processes within the last five years has heightened the barriers of entry for the foreign players to a considerable extent, relative to the already established foreign biscuit manufacturers. The Chinese consumer class witnessed rapid growth in sophistication and experience with foreign brands. Option 2: India Industry Analysis and Trends India has experienced steady economic growth leading to increased disposable incomes among the country’s consumers. At the same time, the urban residents in the country are increasingly conscious about their health and are seeking healthy alternatives (EuroMonitor 2013). At the same time, Indian consumers have increasingly showed the readiness to spend more contentiously. Additionally, as more women in the country have joined the working population, they have showed regard for convenience, while saving time has become a critical factor among those living in the urban areas (Mapsofindia.com 2010). Consumers have also taken to snacks and other baked food as the alternative to traditional breakfast, following the launch of various biscuit brands considered as fast breakfast alternative among the children and women. These have been instrumental in driving the sale of biscuits, particularly the sandwich biscuits. In India, the biscuit manufacturing industry is dominated by Parle Products, Britannia Industries and ITC. The three hold a market share of 80 percent. The three are the well-established domestic manufacturers, which have well-established distribution networks across India. IBIS World (2013) estimates show that the Indian biscuit segment will grow by 10 percent over the next five years. Currently, the industry contributes some 33-percent of the overall production in the country’s bakery industry. Some 70-percent of the cookies and biscuits produced in the country originate from small-scale players consisting of the cottage industry and factory workers. According to Mapsofindia.com (2010), the small-scale sector has prevented the major companies like Cadbury, Brooke Bond, and Nestle from seeking substantial share of the biscuit market. The per capita consumption of biscuits in the country is approximated at 2 kilograms (Mapsofindia.com 2010). The leading Indian states that are considered the largest biscuit consumers include Uttar Pradesh, West Bengal, Andhra Pradesh, Karnataka, and Maharashtra. The rural sector in the country accounts for nearly 55 percent of the biscuit consumption. The Indian biscuit manufacturing industry is considered the largest among the food based industries that operate in the nation (Mapsofindia.com 2010). Since the Indian consumers are willing to spend on indulgent products, there has been a shift in their eating habits. The current trends indicate that consumers are fast moving towards premium biscuits brands. Additionally, consumers have increased their consumption of sandwich biscuits and cookies. The industry trend is expected to sustain over the next five years. At the same time, the premium biscuits are expected to experience steady growth over the next five years (Mapsofindia.com 2010). The Indian biscuit manufacturing industry became more prominent in the late 20th century at time when the urban population started gaining interest in ready-made food and convenience of cost. Previously, biscuits were considered to be for ill individuals. In the current market scene however, it has become among the top preferences across diverse age groups. Biscuit popularity has catapulted since it is portable and provides a wide multiplicity of tastes (EuroMonitor 2013). Comparative Analysis Unlike China, India relies basically on a market-based economy. In China, the government controls almost every sector. This also implies that unlike Australia, China witnesses more involvement of the state in the industry affairs. In Australia, the growing demand for commodities from Asia has implied increased prices for the commodities. This has led to trade boom (Baksh 2011). Furthermore, China has managed to control inflation within the targeted range, as a result contributing to flexibility in exchange rates and stabilized commodity prices. The Australian biscuit manufacturing industries encounter increased domestic cost pressures as a result of competition among the players, for the domestic factors of production. Despite Australia managing to contain the inflation rate, the country continues to witness changes in relative consumer prices (Baksh 2011; Bishop et al. 2013). Like China and India, Australia’s consumer markets are heterogeneous due to varying tastes, levels of income and westernization. However, the constant fluctuating exchange rates and increased in prices in India and China have eroded away the country’s cost advantages. Critically however, more risks would be faced in India and Australia, compared to China (EuroMonitor 2013). For instance, Greens’ Foods Holdings is likely to face limited risks of fluctuating biscuit prices in China than India due to prevalent government control of prices. Additionally, India presents more technological risks, as it is less technologically advanced compared to China. China has a more stable political environment compared to India. The Chinese market therefore reflects technologically advances and politically safe economy analogous to that of Australia. Additionally, the existing legal restrictions in China, in addition to recurrent policy changes due to huge government intervention in the industry means that that Greens’ Foods Holdings would face more restrictions on imports, taxation, environmental law or even compliance with the accounting standards compared to India, or even Australia. Compared to India, both China and India provide vast market opportunities due to their large populations. For instance, Australia only has about 23.6 million people compared to China’s 1.35 billion people and India’s 1.25 billion people. However, compared to India, China would provide better market opportunity for Greens’ Foods Holdings as the country has a larger urbanized population who seek premium products. Indeed, China is experiencing shifts in regional demographics that favour biscuit consumption. China had an urbanization rate of nearly 51 percent in 2011. Additionally, its domestic market estimated to expand extraordinarily in the next decade. China also grew by 14 percent in 2012, where the foreign brands were highlighted as the key beneficiaries (PWC 2013). Compared to China, competition in India is stiffer, given the infinite number of biscuit sellers operating in the cottage industry. While Australia and India present more significant market risks, the risks in China are mild. Among the key risks in China include its increasingly ageing population. It is hence estimated that demand could slow growth in China because of this change (Baksh 2011; Bishop et al. 2013). The same is, however, expected in Australia. In the case of china, individuals aged 50 and beyond are projected as likely to reach more than 40-percent of the entire Chinese population in 2020 (Bishop et al. 2013; PwC 2013). The result could be contracted demand for biscuits. Additional risks include the Chinese consumers’ unrealistic expectations that parallel that of Australia. India offers a more complacent consumer population. Essentially therefore, Greens’ Foods Holdings should consider expanding to China since India presents more market risks. Market Entry Strategy Strategic alliances are proposed as the entry strategy that Greens’ Foods Holdings should use to enter into the Chinese biscuit market. The selection of strategic alliances is based on the Co-evolution theory of exploitative and explorative logic (Akio 2004). The theory proposes that companies would first seek to achieve organic growth at a fast rate, penetrate new accessible markets, attain proficiency in serving foreign demands, minimize the cost of research and development, benefit from learning and application of new technology, and to benefit from vast managerial resources (Comi & Eppler 2006; Judge & Dooley 2006). Overall, Greens’ Foods Holdings is likely to benefit from diverse economic advantages, through strategic alliances. Seeking a strategic alliance with established companies in China would provide the company with significant value-creating strategy and a capacity to tap into the huge 1.3 billion consumer market (Duysters et al. 2007). Based on reports in published literature, Chinese companies have attracted the foreign investors' attention, especially the manufacturing plants. The Chinese government has since the 1980s encouraged foreign direct investments and strategic alliances in the country. The country is also a technology power. Hence, it would provide Greens’ with the much-needed technologies it anticipates (Duysters et al. 2007). Additionally, the major cities that provide the targeted market, such as Shanghai and Beijing encourage creation of strategic alliances with foreign firms by providing preferential treatment policies. The Chinese alliance companies have complementary skills, technical and human resources and find it easy to access distribution systems and the Chinese biscuit market. Further, the Chinese biscuit manufacturers may offer country-specific contacts, knowledge-base, management skills and regulatory authorities (Duysters et al. 2007). Overall, the strategic alliances would provide ease of entry into the Chinese market, due to sharing of the cost of marketing, warehousing, greater economies of scale, as well as greater synergy and economic advantage. Strategic alliance would also allow the company to share economic risks, such as the likelihood of making losses during first entry (Isoraite 2009). Greens’ would also benefit from sharing of managerial expertise in the Chinese market, such as managing taxations and ensuring compliance with market regulation. Despite this perceived advantages, China is still undergoing a transitional period and therefore shows signs of emerging market economies such as limited experience in dealing with international markets and investors (Das & Teng 2000). Conclusion Greens’ Foods Holdings will need to bring its global brand to China, modify its flavours and packaging to meet consumer expectations and then focus on establishing sales and distribution channels. India presents fewer market risks compared to Australia, which presents more technological, economic and political risks compared to China. Green’s Foods Holdings should enter the Chinese market through strategic alliances. The method would provide ease of entry into the Chinese market, due to sharing of the cost of marketing, and warehousing. It would also allow the company to share economic risks, such as the likelihood of making losses during first entry. Greens’ would also benefit from sharing of managerial expertise in the Chinese market, such as managing taxations and ensuring compliance with market regulation. The company has to seek expansion to China by offering low- and mid-level priced biscuit to the low-end segment of consumers rather than the high-end segment. The reason of centring on the entry-level segment is that it will allow the company to acquire an idle market segment by meeting their demands. The company should also promote its brands using integrated media such as internet on strategic sites visited by its target markets, or billboards at major roads leading to schools and colleges in China. The promotion message should be pushing the Greens’ and Waterwheel biscuits as healthy foods that provide cheap convenient food alternative for the busy students and workers. To appeal to a wider customer segment, the Greens’ Foods should consider participating in trade fairs at schools during sports. The company could also offer free giveaways and freebies that sale its brand among its target market segments. 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