Assignment: Strategic Management
Submitted by Vivek Kumar(19638343)
1) Analysis and summary 4
2) Strategic recommendations 7
Cocoa is a crop which remains in demand around the world. Coffee and Chocolate industries are totally depend on cocoa seeds. This assignment contains information related with the case studies and companies learning for the production of cocoa. Firstly, there is analysis about the countries, namely Cote d’lvoire , Indonesia and Dominican republic as regarding their consumption and production of cocoa through PESTLE analysis. Further, there is analysis about “Barry Callebaut”, a chocolate manufacturing organisation and there is also Porter’s analysis about the company. The analysis would be done to assess information regarding shortage of cocoa in coming future and impact over the chocolate manufacturing companies. The practical example would aid in defining the situation in a more precise and relevant manner. ?
1) Analysis and summary:
Indonesia is among agricultural dependent countries. Employment of around 30.27% is generated through agricultural sector and there are large people who live below poverty line. There is large production of cocoa in the regions of the country, There is cultivation of cocoa over 1.5 million hectares and the cocoa industry has witnessed significant growth in the past 25 years and has aided farmers in significant expansion through smallholder farmer participation (Witjaksono, 2016).
Figure: describing the cocoa production
Source: (Witjaksono, 2016)
Cote d Ivoire: In the West Africa, Cote d Ivoire has the most suitable for the climate of cocoa production. The movement of cocoa production is largest and is through private sector. The regions in West Africa like Cote d Ivoire provides high quality of cocoa and there is large export of cocoa production. Thus, cocoa production provides large revenues , foreign reserves through selling of cocoa production.
Dominican Republic: This country has also quite a suitable atmosphere for production of cocoa and coffee flavors. The farmers use this crop for cultivation purpose and make large revenues through the cultivation purpose. The government of the country ensures that the cocoa production is done suitably and in an environmentally friendly manner. The cocoa production is also certified into the certified category with a view to ensuring that fair trade practice might occur and farmers get sufficient prices for its products.
Political: The conditions of these countries are quite relevant and friendly in accordance with cocoa production. These regions are quite friendly for such acts and hence, official authorities also promote cocoa production. Since these countries population are majorly dependent on agricultural production and cocoa production provides a large source of revenues (Hütz-et. al., 2016).
Economic: The countries of West Africa are not that developed and cocoa production is quite useful as a source of earnings and revenues for the country. Cocoa production has a high effect on employment, GDP production, the source of foreign reserves, revenue earnings etc. In last few years, cocoa production contributes a lot in terms of economic stability for these countries. The issue with the agricultural production is that it is mostly dependent on natural climatic conditions and hence, the production varies in accordance with the changing production (Hütz-et. al., 2016).
Social: Coffee and cocoa are majorly consumed and has a significant market sector with the large customer base. Thus, the trend of cocoa and its consumables products are high and there is high future growth in future as well. But the degrading agricultural production and reduced natural agricultural environment, it is most likely that the cocoa and its products would face a shortfall. The shortfall would put stress over substitutes for chocolate products and the cocoa production industry will lose market concentration.
Technological: Since cocoa production is agricultural dependent and there are uses of the agricultural component which are used for agricultural production. With the technological advancement, various machines are being used for development of agricultural produced and these countries are introducing such equipment for the ease of agriculture. To increase the level of production of cocoa, they are improving their farming skills by new techniques like huge machinery for cultivation , pesticides , fertilizers and many more, which results in inclined productivity. (McIntire, and Varangis, 2012).
Legal: Varied legislations are formulated with a view to the development of agricultural production. The legislations such as selling and purchase of agricultural produce must be regulated through legislations so as to protect the interest of farmers, consumers and other associated persons. For instance: Dominican Republic government has declared the cocoa production to be under certified products which means that there would be fair dealing for cocoa products and also worked for fair treatment to farmers. These are done so as to encourage farmers for increased production as they produce large revenues to the country.
Environment: Cocoa is vulnerable crop to climate. Rate of rainfall plays an important role in production of cocoa. These countries are having the favourable climatic conditions for cocoa. With the increase in agricultural production and technological advancement, there are varied environmental issues faced by the society such as soil erosion, degradation, deforestation and industrial pollution. Moreover, with increased urbanization, there are emerging social waste, wrongful farming techniques etc. which are degrading agricultural development and also do not lead to much agricultural growth and expansion. For effective development, there is a need for improvisation of environment boundaries (McIntire, and Varangis, 2012).
2) Strategic recommendations
Barry Callebut: It is a big organization which produces a wide variety of cocoa and chocolate products. A factory is located in Great Britain and produces the large and high quality of cocoa products and also produces large chocolates. The company has established into different continents namely, America, Asian market, European market and in the global market as well. The company has made quite good sales in most of the region but has not been able to perform much into the Asian market. The CEO of the company has put its potential into the Asian market so as to capture the developing economies market also. With the increase revenue growth of cocoa products, there is large essential that the company will cover many new and other countries as well (Callebut, 2018).
(Source: Callebut, 2018)
The above image presents the large growth of Barry Callebut and the company is also planning to increase its share in Asia sector as well.
Group analysis: The group of the company has developed after emergence through merging between Callebut and Cacao in 1996. The Callebut was developed by Belgian chocolate maker and Cocoa was by a French producer. There merging between both the companies has led to the development of “Barry Callebut”. Since, then the organization was listed over Swiss exchange in 1998 (Callebut, 2018).
Its holdings: The shareholdings structure of the company includes Jacobs’s holdings is around 50.11%, Renata Jacobs has a shareholding of 8.48% and Massachusetts mutual life insurance company has a shareholding of 3.64% (Callebut, 2018). All the other shareholdings belong to a group which does not have a percentage of 2%.
Current market position: Currently, the company has revenues of 1.9 million tons sales volume and has around 55 factories across worldwide. The company has employed around 11,000 employees and also its 36% is sustainable sourced cocoa (Callebut, 2018).
Porter’s five forces analysis: five forces analysis is done to make an analysis about the external factors like the threat of new entrants, threat substitutes, bargaining power of buyers, bargaining power of suppliers, and degree of rivalry. The Barry Callebut is analyzed as below:
• Threats of new entry: The threat of new entrants is high since there are no much big capital requirements. Capital requirements are limited as there is no big hardcore machinery requirement and new startup does not find it difficult. But as far as the distribution channels are concerned, it is limited and hence, there is difficulty in distributing products. Barry Callebut is an organization which has invested ample amount and has also established itself in the market but the threat remains at a high point (Mitchell, 2014).
• The threat of substitutes: The threat for chocolate substitute is quite high as there are large numbers of regions whereby chocolates are not much popular and hence, chocolate substitutes are easily popularised. Also, the degrading situation of cocoa production might lead to focus on the establishment of a cocoa substitute. There have been a large production of cocoa in the last century. But the increasing inconsistencies in climatic changes such as inconsistent rains, polluted soil components, eroded by-products, deforestation has led to degradation of cocoa production which might lead for the shortage of products. Barry Callebut possesses threats for substitutes as the substitute has a high potential for becoming popular among chocolate lovers (Maurice, and Davis, 2011).
• Bargaining power of buyers: the bargaining power of buyers is quite high as there are limited choices in the field of chocolates. Barry Callebut is a large organization with large customer’s base and is also gaining new customers base (Nieburg, 2017).
• Bargaining power of suppliers: the chocolate market is dominated by few big sellers and these have gained the entire market. Few suppliers dominate market and supplies products worldwide. Such as Barry Callebut’s is the largest Cadbury manufacturer and works for organizations like Hershey, Unilever, Magnum, and Ben etc. But the shortage of cocoa is mainly due to degradation of the agricultural environment and also
• The degree of rivalry: There is a high degree of rivalry among chocolate makers. There are few chocolate makers which find it quite difficult for the chocolate makers to differentiate their products from others (Nieburg, 2017).
As discussed above, Cocoa plays a significant role in developing Cote d’ivoire, Indonesian and Dominican republic. Not only this, these countries have also introduced new techniques to enhance the cocoa production, It can be ascertained that cocoa production is a major source of earning and agricultural produce for many of the countries but the increasing depletion of natural environment and degradation, there is an assessment of shortage of cocoa production which might lead to the downfall of the chocolate manufacturer.
• Barry Callebut, 2018. About us. Online barry Callebut.com. Available at: https://www.barry-callebaut.com/. (Accessed as on 29th march, 2018).
• Barry Callebut, 2018. Key share data. Online barry Callebut.com. Available at: https://www.barry-callebaut.com/about-us/investors/share/key-share-data. (Accessed as on: 29th march, 2018).
• Hütz-Adams, F., Huber, C., Knoke, I., Morazán, P. and Mürlebach, M., 2016. Strengthening the competitiveness of cocoa production and improving the income of cocoa producers in West and Central Africa. Sudwind eV: Bonn, p.156.
• Maurice, N. and Davis, J., 2011. Unravelling the underlying causes of price volatility in world coffee and cocoa commodity markets.
• McIntire, J. and Varangis, P., 2012. Reforming Cote d’Ivoire’s cocoa marketing and pricing system.
• Mitchell, M.I., 2014. Land tenure reform and politics in post-conflict Côte d’Ivoire: a precarious peace in the western cocoa regions. Canadian Journal of African Studies/La Revue canadienne des études africaines, 48(2), pp.203-221.
• Nieburg, O., 2017. Barry Callebut taps Unilever for innovation chief, names new Americas president. Online confectionary.com. Available at: https://www.confectionerynews.com/Article/2017/08/24/Barry-Callebaut-taps-Unilever-for-R-D-chief-names-Americas-president. (Accessed as on: 29th march, 2018).
• Witjaksono, J., 2016. Cocoa Farming System in Indonesia and Its Sustainability Under Climate Change. Online sciencepublishinggroup.com. Available at: http://article.sciencepublishinggroup.com/html/10.11648.j.aff.20160505.15.html. (Accessed as on: 29th march, 2018).