Analyzing the External Environment

ANALYZING THE EXTERNAL ENVIRONMENT

EXTERNAL ENVIRONMENT ANALYSIS

TRIDENT UNIVERSITY INTERNATIONAL

AVIE MARIE JOHNSTONE

STRATEGIC MANAGEMENT

MGT599 MODULE 2 CASE ASSIGNMENT

PROFESSOR LARRY BANKS

OCTOBER 22, 2012

Summary

The external environments of an organization are those factors outside the company that affect the company's ability to function. Some external elements can be manipulated by company marketing, while others require the organization to make adjustments. Monitor the basic components of your company's external environment, and keep a close watch at all times. Your customers are among the external elements you can attempt to influence, via marketing and strategic release of corporate information. But ultimately, your relationship with your clients is based on finding ways to influence them to purchase your products. Market research is used to determine the effectiveness of your marketing messages, and to decide what changes can be made to future marketing programs to involve sales. (Arnold Anderson). (March 2011).

Government regulations in product development, packaging and shipping play a significant role in the cost of doing business and the ability to expand into new markets. If the government places new regulations on how to package the company's product for shipment, which can increase unit costs and affect profit margins. International laws create processes that the company must follow to get the company's product into foreign markets. As with the majority of the elements of the organization's external environment, the company must be efficient at monitoring the economy and learning how to react to it, rather than trying to manipulate it. (Arnold Anderson). (March 2011).Economic factors affect how the competitor market products, how much money you can spend on business growth, and the kind of target markets you will pursue. Finally, competition had a significant effect on how the business would do and how the target market is addressed. The choices that are made to find markets that the competition is not active in, or one can decide to take on the competition directly in the same target market. The success and failure of these various competitors also determines a portion of the marketing planning, as well. For example, if a long-time competitor in a particular market suddenly decides to drop out due to financial losses, then this other competitor will need to adjust planning to take advantage of the situation. (Arnold Anderson). (March 2011).

Introduction

This analyses of Kraft Foods, provides an overview of the company followed by PEST and Porter's Five Forces analyses. The PEST analysis assesses Political, Economic, Social, Technological, Environmental and Legal factors affecting Kraft Foods. The Porter's 5 Forces analysis discusses the bargaining power of customers, bargaining power of suppliers, threat of new entrants, threat of substitute products, and intensity of competitive rivalry of Kraft Foods. (.Aruvian's R'search). (March 2011).

Porter's Five Forces

Threat of Entry:

 The Kellogg Company, headquartered in Michigan, manufactures and markets ready to eat cereal and convenience foods.

 Kellogg holds 34.2% of the cereal market in the U.S.

 Kellogg's has managed to consistently post increases in sales revenue and net profits since 2005.

 PepsiCo Americas Food is the division most applicable to this industry. Within this division, is Quaker Foods North America.

 QFNA holds about 8.0% of cereal market in the U.S.

 QFNA operates four manufacturing plants in the United States. QFNA grew at an annual rate of 2.2% in the five years to 2010 (Ruonan Ding). (30-Nov-2010).

Rivalry:

 PAI was selling its 50% stake in Yoplait and GIS is the front runner

 GIS has had franchise agreements with Yoplait since 1977 which is one of their top businesses

 General Mills buys Mountain High Yogurt

 Faces the risk of losing Yoplait because French Dairy Sodima (50% owner of Yoplait) wants to severe their licensing by 2012

 Rising food costs are pressuring food makers and retailers to pass on the costs to consumers

 GIS expects input costs to rise 4%-5% in FY2011

Recently raised prices on some cereal brands and baking products

The Company

The Future

 Increase CapEx to ~$700 million in FY2011

 Increase manufacturing capacity for cereals and Yoplait yogurt

 Expand International production capacity for Wanchai and Haagen Daz products

 Continue HMM throughout supply chain

 Targeting $1 Billion in savings through HMM in the next 3 years

 Expects increase in energy and commodity prices

 Makes use of hedging instruments to manage the fluctuation in input costs

 Expects cost savings from HMM to offset rising COGS

 Share repurchase program

Reduce outstanding shares by 2% every year

 Kraft Foods Inc. is the largest food and beverage company in North America and the second largest in the world.

 In 2007, Kraft discontinued the cereal production