Smithfield Food’s Vertical Integration Strategy free essay sample

What are the most important elements of Smithfield Food’s strategy? 1. They chose the food industry – in particular the red meat sector. 2. Their core business focus was on mainly pork, and beef to a lesser extent. 3. The company opted for an aggressive growth strategy which is primarily based on amongst others a geographic expansion: oThey carried out 32 acquisitions since 1981. oThey expanded into foreign markets – Smithfield made acquisitions in Canada, France, Romania and Poland. Acquired meat processors in Poland and Romania; including a hog farming operation in the latter country. . They followed a product diversification strategy, in order to grow: 5. This resulted in diversification into new product segments – they marketed chops, roasts, lions, ground pork, bacon, hams, sausages, sliced deli meats 6. Most importantly, they followed a vertical integration strategy into the pork business: oThis entailed a full or partial integration (depending on location), with operations ranging from operations in hog farming, feed mill, meat packing plants and distribution. We will write a custom essay sample on Smithfield Food’s Vertical Integration Strategy or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page 7. They also carried out joint ventures 8. Established joint ventures in Spain, Mexico, and China . In addition to that they sought to become a low cost provider: 10. They employed the newest technology available, their plants were efficient, their wages were low and operating costs were relatively low. The pricing was as such very competitive. â€Å"Every effort was made to reduce costs† There was a concerted effort to lower costs and push up sales. Not withstanding the company’s financial performance, this strategy has facilitated the rapid adoption of new technology, improved quality control, assured markets for the hogs and provided a steady flow of hogs for processing. This essentially created economies of scale and lowered production costs. The customers benefited as the company was able to respond to their changing preferences for quality and convenience type products. 2. Is there a moral problem with Smithfield Food’s vertical integration strategy and its resulting concentration of thousands of hog farms and several meat-packing plants within a relatively small geographic area? Is it socially responsible for a company like Smithfield Foods to pursue a rapid growth strategy when that strategy poses environmental problems and adversely affects living conditions in the communities where it operates? Should the company be proud of its business model and strategy? oNo, there is no moral problem with this strategy. Neither the vertical integration strategy nor concentration of operations in small geographic areas poses a moral dilemma. â€Å"A company’s strategy relates broadly to competitive initiatives and action plan for running the business† Hough et al (2008: 7). In a free, capitalist society, this remains the prerogative of the individual firm on how to compete, to make profit and grow the business. Against this background, the company’s strategy is an attempt to contain volatile pricing in the market by controlling the every stage of production, thereby ensure the satisfaction of consumers’ changing preferences. The case study does not make reference to unfair competitive practices, but rather the focus is on ethics and social responsibility. oThe local communities where Smithfield ran its hog farming operation complained about its imposition on them, implying lack of consultation. More importantly, there were allegations of substantial adverse effects of low wages and environmental degradation. Lack of consultation in running business operation is neither paramount nor mandatory; however allegations of environmental damage and unfair labour practices infringe laws of any democratic country. They must therefore be seen in serious light and investigated by authorities. It must be borne in mind that prior to Smithfield’s introduction of the concept of factory farming; the prices of hogs were on the decline, resulting in closure of local packing plants. Smithfield stabilized the local economy and changed the distribution of income. They saved local farms and brought jobs to this region. They also shouldered the risk of hog prices, thereby protecting the farmers. Smithfield was also able to satisfy customer demands of better products at lower prices. The local farming community showed their tacit support by their eagerness to do business with Smithfield as there was a two year long waiting list in 1998 for farmers wishing to enter into contract farming! oThe company should be proud of its business model. A business model refers to how and why the business will generate revenues, cover costs, and produce profits and a positive ROE. Annual sales in 2006 of $11 billion from $1. 5 billion in 1995 and an average compound growth rate of 24% during the decade speak volumes. However attention is required in addressing the following: †¢Concerns from the industry observers on contract farming – more specifically their â€Å"debt laden† nature †¢Allegations of unfair labour practices- low pay/ low quality, in addition the recruitment of migrant labour from Central or South America that may be open to exploitation. Allegations of detrimental environmental practices – impact of concentrated cluster of hog farms on the environment. †¢Limited purchase of feed, machinery and fuel from local sources. †¢Although, trivial the issue of the â€Å"smell† in the air Essentially this business model was able to ensure profitability and sustainability of the com pany, because economies of scale in production and marketing. 3. Does Smithfield Food’s hog raising operation in North Carolina harm anyone? Yes, the following were affected: †¢Grain Farmers Feed grains were no longer purchased locally. At times, grains were imported at lower cost from Australia and Argentina †¢Milling companies – Grain was purchased and milled in the Midwest †¢Farm equipment dealers – Local farm equipment dealers were forced to close as Smithfield purchased equipment directly from the manufacturers. †¢Local fuel dealers – Diesel fuel was purchased directly from the refineries. †¢Local truck dealers – All truck purchases were made in Detroit from national dealers. †¢Local farmers – Inability to bargain and exposure to the risk of default on contract by Smithfield should it suit them to cancel the contract. Furthermore, they could hardly negotiate the terms and conditions of the loans received from Smithfield, as the demand for contracting farming was huge, they became price takers. †¢Workers – Working conditions were hard and unpleasant. Their wages were low. High labour turnover was prevalent as a result of the stressful work environment. †¢Local store butchers – Most grocery chains opted to buy fresh meat cuts, wrapped, packaged and ready for sale from Smithfield. †¢Environment – Allegations were abound that : a. Contaminants from hog lagoons were getting into ground water b. Industry is running out of places to spread the waste c. Emission of large amounts of ammonia gas from hog farms †¢Local community a. The quality of the air declined because of the sharp, pungent odour from hog farms. b. Decline in jobs despite a rise in hog production c. Decline in property prices, perceived to be aftermath of the â€Å"new† look and smell of the countryside. d. Decline in tourism – as a result of the poor image of environment damage, more discernibly the pungent smell. 4. Who is benefited by Smithfield Foods strategy in the hog raising business? It goes without saying that, primarily, the strategy would have benefited the company, its management, employees and shareholders. This is evident in the good financial performance that resulted in the last decade. However other stakeholders also benefited: oFarmers – they were guaranteed a set price per hog hence market access or freedom from market risk. Processors paid the hog producers their full cost of production on average over time or they would have no hogs supplied to them by the farmers. Access to funding in the form of loans was readily available for capital investment on the farms. Inputs, of the right quality were in constant supply. Smithfield also offered them a free veterinarian service. This essentially resulted in the survival of over 1000 family farms. This strategy reduced the risk and managerial demands on the farmers, while increasing availability of credit. oEmployment creation – This resulted in the creation of new agricultural jobs. A typical farm employed five people. Total number of employees by Smithfield increased from 9000 in 1995 to 46 400 in 2004. oConsumers – Increasing concentration of hog raising and ultimately processing, resulted in the decrease of the marketing margins because of economies of scale, and this benefit was passed onto to the consumer as lower food prices. Local economies – Increased efficiency of labour and other resources in agriculture over time accounted for the higher standard of living. Prior to Smithfield hog raising strategy, the local economies were on the decline. oShareholders – Earnings per share increased from $0. 40 in 1995 to $2. 03 in 2004. Net income increased by almost $200 million over the same period. 5. What is your assessment of Smithfield Foods’ environmental policy (as represented in case Exhibit 3)? What evidence indicates that the policy is merely window dressing?

Market and Value Chain Analysis of Starbucks The WritePass Journal

Market and Value Chain Analysis of Starbucks 2.0 Research methodology: Market and Value Chain Analysis of Starbucks 1.0 Introduction:2.0 Research methodology:2.1 Primary Research:2.1.1 Questionnaire:  2.2 Secondary Research:3.0   Starbucks an Overview:3.1 The Performance:3.2 Competition and Market strategy:3.3 Value Chain at Starbucks:3.3.1 Inbound Logistics 3.3.2 Operations 3.3.3 Marketing and Sales 3.3.4 Outbound Logistics 3.3.5 Service3.3.6 Human Resources3.3.7 Technological4 ConclusionsReferences:Related 1.0 Introduction: Market research is often conducted by various companies in order to determine its niche market position as well as to determine the direction that it must take on order to remain competitive and succeed. Variety of methods is utilized while collecting date. Quantitative market research has historically been the territory of professional researchers with backgrounds in statistics, economics or mathematics. For any company producing various products, there may exist an almost infinite number of combinations of price, packaging, convenience and perceived value additions by its customers. Marketing research offers a set of well defined and generally accepted methods for identifying which combination may have the greatest likelihood of success. This report describes such market research endeavor undertaken to gauge the performance of the coffee giant Starbucks. The research obtains data by collecting primary data from the consumers using an interview questionnaire method and obtains secon dary data using various published research and reports. 2.0 Research methodology: 2.1 Primary Research: Large, established companies, typically expend considerable resources conducting marketing research, either through their own internal research departments or by contracting with outside research firms. There is always a need to develop ways to monitor customers and identify their needs and demands and this could be done by asking questions such as why a consumer chooses a particular purchase, or not purchase, a particular product. While qualitative data may be useful in assessing customers’ feelings about a product, offers little insight as to how many customers in a given marketing area might actually purchase it, unless of course, every potential customer is questioned about his or her intentions. 2.1.1 Questionnaire: A questionnaire could be developed by the company to identify these issues. Various questions that could be asked are as under: Consumer’s preference: The question can be designed to assess why consumers use this particular brand and what are their preferences. For example in case of coffee why people would prefer Starbuck coffee over other brands and if they chose to come to Starbuck then what could be their most preferred choice. The consumer may be asked about the variety of coffee at the outlets. The consumers may be asked about the price. The consumers may be asked about the availability of various sizes. If the consumers prefer some other addition to the variety It is important to know not only which attributes customers desire, or are repulsed by as in the milk example, but also to be able to estimate the cost of adding these attributes to the product. It is ultimately the difference in the cost of adding attributes, otherwise known as value, compared with what the customer is willing to pay these attributes, that determines whether to bring a product to market.      2.2 Secondary Research: The most obvious benefit of secondary data is that it already exists and does not require additional time and expense to collect. The disadvantage, of course, is that it is not likely to be tailored specifically to the questions that the producer wishes to answer. Nonetheless, it may be used to glean much useful information at very little cost. External secondary data may be available from a number of sources including government publications and industry trade groups. A third source, syndicated data, is available for purchase from private data collection agencies such as Morningstar, Hoover or Yahoo finance.    3.0   Starbucks an Overview: Starbucks was founded by Jerry Baldwin, Zev Siegel, and Gordon Bowker as a small store called Starbucks Coffee, Tea, and Spice in Pikes Place Market in Seattle in the year 1971. The mission of the corporation is perhaps one of the reasons for its success.   Starbucks seeks to maintain a balance between fiscal responsibility and social responsibility by growing its business in not only coffee, but also in â€Å"third-place environments† (places people can gather that aren’t work or home).   Their mission statement itself is relatively simple: â€Å"to establish Starbucks as the most recognized and respected brand in the world† (Starbucks.com). 3.1 The Performance: Starbucks is a public limited company operates from Seattle Washington and is traded at NASDAQ as SUBX. Ever since its inception the company has shown strong sales and growth record. According to Hoover (2010), there are more than 16600 Starbucks coffee shops in 40 countries across the globe. As of September 2009 Starbucks had notched up an impressive annual revenues of $ 9774.6 million with a net income of $ 3908 million (Yahoo Finance 2010). Starbucks had some 142,000 employees globally in year 2009 (Hoover, 2010). The Company has a wide variety of products to offer.   It provides tips on how to make good coffee at home. It offers biscotti, some salads, pastries, as well as sandwiches to go with the coffee. Majority of stores are modeled on Italian themes providing the customers an unmatched experience of Italian experience a little luxury. It also offers a variety of Italian products that may include lattes, cappuccinos and mochas.   (Fletcher Brown 2005) Customer care is most important for Starbucks towards and therefore employees are specially trained towards customer orientation and customer satisfaction. It is not unusual to see employees asking customers about their coffee preferences and taking feedback on customer’s experience at Starbucks. Starbucks has been successful owing to changing lifestyle and a high availability of Disposable Personal Income (DPI). The baby boomers have moved towards a healthy lifestyle. This phenomenon is further coupled with the fact that is more and more people world over are shifting towards non alcoholic drinks implying further demand of Starbucks products. (Borden 1978) 3.2 Competition and Market strategy: The success does not come easy: along with success come many competitors and that’s what has happened to Starbucks. There are many companies imitating Starbucks in terms of the store layouts and light furniture.   (Hoovers 2010) In addition to this, some competitors have copied Starbucks rapid expansion plan. The example being Seattles Best Coffee Company that has been waiting for Starbucks to engage in aggressive consumer education about the importance of coffee, and then it goes to those same locations and opens up stores there. This has caused a lot of competition for Starbucks as they have to keep watching their backs. Another major competitor is Second Cup with the distinction of expanding rapidly in the US retail market growing in numbers and eroding the market share of Starbucks. The company realizes that it has reached a saturation in the US coffee market with competition breathing down its neck and is thus gearing itself for new markets in hitherto unexplored and uninitiated international markets. Starbucks enjoys a well established brand name having a niche market; however off late they have been challenged by dwindling profit margins dues to increased coffee prices. All these factors prompt Starbucks to expand internationally. (Benter and Booms, 1981) 3.3 Value Chain at Starbucks: 3.3.1 Inbound Logistics In order to deliver on its promise to customers of offering products at everyday low prices at its stores, Starbucks utilizes economies of scale in its inbound logistics activities by having excellent supply chain methodology that involves negotiating globally with managers negotiating with and developing strategic alliances with vendor partners for products. 3.3.2 Operations Starbucks has global operations spread over 40 countries. These stores are set up in similar fashion and most offer a large variety of products. Operational efficiency is critical to the overall success of Starbucks as well as augurs well for a superior customer service. By setting up outlets in a similar fashion, Starbucks gains greater control that can be sustained at the corporate level however individual stores are allowed and encouraged to make modifications with justification. 3.3.3 Marketing and Sales Starbucks employs economies of scale in its overall national-level strategic marketing and advertising campaigns, at the same time providing some degree of autonomy and financial independence to execute seasonal or tactical sales promotional campaigns. Starbucks is able to generate cost savings in advertising because of economies of scale and at the same time, create customer value through local adaptation of promotional campaigns. 3.3.4 Outbound Logistics The nature of the business ensures that Starbucks has minimal shipping and distribution traffic, mainly. However, as an option for customers who prefer to have their goods delivered, Starbucks has carefully built up a distribution network, which has the capability to deliver products to customers homes 3.3.5 Service Starbucks places extra emphasis on its primary business goal i.e. to serve its customers needs by efficiently and with a personal touch. Its managers are expected to spend more time on the shop floors, listening to their customers and employees, thereby enabling them to make decisions that respond quickly to the unique needs of target customers. By taking a decentralized approach to its operations, Starbucks is able to deliver on what it sees is its core value proposition to its customers: superior service. 3.3.6 Human Resources Starbucks has a strong commitment to investing in their employees, which they feel is their greatest competitive advantage. The Company values its employees and considers them as important stakeholders in the business. Starbucks management believes that when all the needs of employees have been dealt with adequately then they will do their part in provision of quality services. On top of that, the Companys leaders like its CEO Schultz believe that all employees should feel appreciated. Compensation plans such as performance bonuses and employee stock ownership plans help in retention of employees as well as recognition programs and emphasizing an open-door policy with management. 3.3.7 Technological From a technological standpoint Starbucks have both internal and external issues to deal with. External issues pertaining to product development and improvement, patenting and RD can be looked as mainly a supplier based concern. Even though the majority of that burden is on the suppliers, there are many internal technological issues that especially in Information technology. Expansion in this area is definitely an area of growth opportunity and positioning within the overall industry. 4 Conclusions Marketing research almost invariably centers on collecting and analyzing the information necessary to make decisions about how to most effectively market a product. Quantitative data, unlike attitudes, perceptions or ideas, refers to information that can be measured, such as the quantity of a product that is sold during a specified time period, the sales price or the population of potential customers residing in a particular marketing area. Various aspects of Starbuck’s operations in the wake of its market position, current capabilities and various critical success factors make Starbucks Corporation an excellent model for success. References: Benter, J. and Booms, B. (1981): business development strategies and organizational structures for service firms, in Donnelly, J. and George, W. Marketing, American Marketing Association, Chicago. Borden, N. (1978): The Concept of the business development. Journal of Advertising Research, June, Vol. 2, (Available in Schwartz G. Science in Management, John Wiley Sons,)Crynes, Bryan.   â€Å"Starbucks Overview.†Ã‚   www.seasim.org/archive/sim102002b.pdf Fletcher, R Brown, L. (2005): International business development skills, 3rd edition, Pearson prentice hall, Frenchs Forest Starbucks Corporation, Company Description Hoovers (2010); hoovers.com/company/Starbucks_Corporation/rhkchi-1-1njdap.html Starbucks (SBUX) Income statement; Yahoo Finance Retrieved on 23rd April 2010, from  http://finance.yahoo.com/q/is?s=SBUXannual