Kraft AND Cadbury PDF

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KRAFT FOODS AND CADBURY 1) Complete an environmental analysis of the company and its industry. Which issues brought these companies together in this international business partnership? Consider the perspective of each partner. a) SWOT KRAFT FOODS STRENGTHS -

Diversified product offer Strong production and distribution capacities Strong R&D and innovation

WEAKNESSES -

Dependence on Large Retail Customers Instances of product recall have affected the brand image

Large liquidity reserve Very high quality of products Presence in more than 70 countries

OPPORTUNITIES -

Growth in demand for "well-being and health" products and services Growth in the foodservice market Product line extension with launch of pet food

THREATS -

Increased competition Increased food safety standard Wage increases in the United States and Canada Eurozone crisis and global economic slowdown

b) SWOT CADBURY

WEAKNESSES

STRENGTHS

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World leader in chocolates

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Rural distribution

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Brand name, branD equity and Brand loyalty

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Quality control

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Positioning as gift

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Promotions

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Indian Connect

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Placement and distribution

OPPORTUNITIES

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Rural markets (what is a weakness can become an opportunity)

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New tastes

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Better quality image

THREATS

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Cost and price increase

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Health consciousness on the rise

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Decreasing importance of festivals

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Rising demand of people, growing purchasing power

That is some reasons why Kraft Foods choose to capture Cadbury: as we can see with the two swots, some weaknesses of Kraft Foods are completed by the strengths of Cadbury and vice versa. In fact, Cadbury is a big company, which means that they have a lot of liquidity (it is a first reason to acquired them), then the products of Cadbury are known to present a very good quality, it is a good thing because Kraft Foods needs this image and new controls about quality to make the customer satisfaction better. Moreover, there is a rising demand of people: so by capturing Cadbury, Kraft Foods will answer positively to this demand. c) 5 forces of Porter

As regards the first force, the power of buyers is low on the confectionary market. Goods are neither premium and nor very expensive. For instance, 100 g of Cadbury chocolate worth £1.44. The second force is the power of supplier. The latter is high since in case of a shortage or refusal of supplying one of the raw materials of chocolate such as sugar or cocoa by African partners is quite a risk. Losing such resources which mainly come from Ivory coast, Ghana or Cameroon entails a bullwhip effect for any chocolate company. Hence, it would have to find other inputs in another continent ; which is an expensive and complex organization. The third force is the new entrance threat which is in fact high for these fast moving consumer goods ; it is easy to enter this market but also easy to be overwhelmed by the competitive market. The penultimate force is the threat of substitutes which is high. On the confectionary market, there are not only chocolates but candies, milk chocolates, (almond) paste and also (hazelnut) spread. The last force is the competitivity which is high. Few large groups such as Procter & Gamble or Unilever (with many brands such as Mars) are significant competitors on the confectionary market as they hold a huge market share and appeal to mass consumers. 2) Identify the entry mode / type of partnership chosen. What are the advantages and limitations of this type of partnership ? Equity (FDI) modes => => WOS => foreign full acquisit° since 2009 : Kraft Foods own Cadbury Why Acquisition ?

ADVANTAGES

LIMITATIONS

100 % ownership 100 % profits 100 % control for Kraft Foods no risk of loosing control compared to a JV No loss of proprietary knowledge

Be careful to succeed in their internal organisation : challenge to swallow Cadbury by Kraft Foods

More customers => more profits and return

Foreign integration issues: managerial organisation to Kraft Foods company (employee resistance to partnership)

Expand sales

High risk

Potential increase market share in a new market : confectionary market

Costly for Kraft Foods: $10.2 billion

Speed acquiring resources & skills

Currency barrier

No language barrier & similar culture according to Hofstede graph

Reluctance by Brits : steal their own know how, values

More competitive because no more threat of Cadbury Stakeholder satisfaction Strategic geographic localization

Hostile takeover at the 1st offer : Cadbury wanted to be independent buy another company but not be bought

Improve image for Kraft Foods on the confectionary market

Hostile takeover : Kraft Foods not wellknow on the confectionary market

Pros and Cons of this partnership : Pros : 1) Potential increase market share in a new market : confectionary market The acquisition of Cadbury allowed Kraft Foods to gain market shares and enter markets where it had never been before. For example they entered the chewing-gum market thanks to this acquisition and could stand up to Hollywood and Malabar. When the confectionary market is concerned, it made Kraft Foods a big rival of Mars with a market share of 15%. 2) Speed acquiring resources & skills They were two very different companies in many ways so when reunited they have more resources and skills. They didn’t have the same strengths : Cadbury was number 2 on the confectionary market and Kraft Foods number one on the biscuit market. Kraft Foods could benefit of Cadbury’s knowledge and power on the confectionary market. 3) No language barrier & similar culture according to Hofstede graph As we can see on the Hofstede diagram they have very similar cultures so it shall be easy working together and adjust their management to one another shouldn’t be that big of a problem. Besides they speak the same language which is a huge advantage. 4) More competitive because no more threat of Cadbury

Cadbury was a big rival to Kraft Foods: it kept Kraft Foods from developing its products in Great Britain although Kraft Foods had lot of success in other european countries especially in scandinavian countries. Cadbury was the obstacle to enter British market. At the same time, Cadbury almost doesn’t exist outside of Great Britain. 5) Stakeholder satisfaction Kraft Foods invested in cadbury’s british factories especially the Somerdale factory which was about to close doors. The shareholders will gain market shares. Cons : 1) The first problem occuring is how to manage two firms that became one? They don’t have the same habits, firm culture. They have different perceptions of how things should be done. This acquisition demands a certain amount of changes in managing the team. It is also hard to convince the employees of the good of this acquisition. Some might be reluctant to the change because it is scary so it could be a cause of trouble. 2) The Brits were really reluctant to the acquisition. They considered Cadbury to be very much their own and didn’t want anything to do with Kraft. They see Kraft as an invader. So there was a risk in the end that people wouldn’t buy from Cadbury anymore since it had been bought by an american firm. 3) This was a hostile takeover. At first Cadbury wanted to buy another company and not be bought but the offer was too big to be declined. Besides, for Kraft it was a good deal because they bought knowledge on the confectionary market, but Cadbury had not much to gain except money. 3) Analyse the potential influence of culture (national and organisational) in the chosen partnership

Power Distance : British people care a lot about inequalities in company and do not focus on hierarchy. This results is really contradictory to british national culture. In fact it’s very far from traditional United Kingdom as we usually know. Americans have more inequalities in their culture, but overall it’s still close to the British culture. In american management practices, the employee have free will. In English one the more you are high in hierarchy the more you have free will. Individualism : British and Americans’ level of individualism is close. However it’s not very relevant because british employees are often constituted with people from different cultures from immigration. There are a lot of people from India or Pakistan in United Kingdom for example who tend to be more collectivist. Masculinity : Both are very into competition what’s good for performance’s efficiency. For example, they will tend to display and talk freely about their successes and achievement in life. This is an advantage for the partnership because their behaviours are close. Uncertainty avoidance : Americans don’t fear risk. They have fair degree of acceptance for new ideas whereas british people are more fearful. This point can be a disadvantage but the difference of rate is not too big. Long term orientation : Here is the biggest difference of culture between these countries. English people are more attached to their culture than Americans . Americans are more practical, being reflected by the “can-do” mentality. Indulgence : Both are indulgent, it would be a big advantage. they place a higher degree of importance on leisure time, act as they please and spend money as they wish.

To conclude both countries have similar culture what will make the partnership efficient and easier to set up compared to others. However, the Brits were reluctant to it as they see American people as stealers of their chocolate......