Before you read this i have a request, please send me a draft for question 1 to question 4 by 26/09/2015 Saturday morning Singapore time 9 am. The draft need to include references. PLEASE don’t describe but analyse it and give your answer. please include content page thank you.This is an essay research paper but some part may require graphs or table but don’t give too many just maybe 1 or 2 will do. if you do give graphs or table please explain clearly.
This is a research case on the co-operation between Kellogg the american food manufacturer and wilmar international ltd, the Singaporean producer , to work in the Chinese market (initially reported in 2012 and now facing some challenges . research and analysis should continue until February 2015.
Please answer the 5 Question accordingly 600 words for each question.All subheading are counted in the word counts for the assignment except for reference sub heading . no Wikipedia all references and index citation must be genuine and will be scanned truly by lecturers and turnitin too. please make sure whatever are been reference need to be inside the assignment. please state in the reference which reference is for which question thank you.all answer need to very precise.Use own understanding to write don’t copy directly.Each assignment carry 20 marks to pass this assignment it require the 30 references minimum so if need more please do so thank you. Part B will be self reflection.
Question 1: With reference to the academic literature and using your analysis or relevant environmental factors , suggest the most important external issues and trends which drove Kellogg and wilmar together. Which is causing issue today? in which area are the expected internal benefits and synergies for both companies involved?
For this question 1: it has 4 parts first you need to find both countries china and USA on the pestel which is known as political,economic sociological, technological environmental and legislative and also the porters 5 forces before giving your answer for Kellogg and wilmar. the countries for both porter 5 forces and Pestel need to be separated.This question require research from 2007-2015 this yr .
2. Kellogg’s annual report (2011)reported as follow: ”The china business(Navigable foods) generated operating losses since the acquisition and that trend was expected to continue. As a result, management determined in 2010 the current business has not proven to be the right vehicle for entry into the Chinese market and began exploring carious strategic alternative to reduce operating losses in the future.
explain Kellogg town attempts to enter the Chinese market (Zhenghang food company in 2008 and wilmar international Ltd. in 2012) by describing the difference between vehicles their relative risks. Why would partnership with Wilmar be considered more likely to succeed?
3. By applying appropriate theory and using evidence from the research of these companies Kellogg and wilmar, analyse the national and corporate cultures involved.Speculate on the impact or both on this ‘partnership’ between Kellogg and wilmar international during the exploratory stages and now that the co-operation is operational.
This question is on culture and the theories models need to use will be one of these to explain. Either its, schein,harrisons,hofstede, trompenaars, hall,adler,kluckhohn & strodtbeck or crig.
4. Drawing Upon academic literature and theory, critically discuss the possible effects critically discuss the possible effects, both positive and negative , of exchange rate movement on the partnership.
identify three(3) specific aspects of doing business internationally that you have come to appreciate through the lecturers, seminars or expert lectures on this module.Explain why these are significant to you personally and to your future in the international business.
Doing Business Globally and Internationally
Important External issues
There is factors that favor the growth or the failure of the business. Both the challenging and motivating factors encouraged the formation of the partnership. The discussion will accurately reveal the issues and trends by analyzing the environment in the United States of America and in China.
External Issues and Trends
The market in the USA has so many producers of the cereals. The cereals are ready to eat. Michael Porter described the competition in terms of the five forces. First, there are no barriers to entering the market. Kellogg Company faces stiff competition from the companies like Associated British Foods plc, Mondelez International, Inc., and the Hain Celestial Group, Inc. These companies produce similar products and; therefore, the buyer can switch easily from one company product to another. The market in the USA is highly concentrated by many retailers who are ready to sell similar products at discounted price (Kellogg Company, 2014). With that, the buyers have a wide range of the products to choose from. It is difficult to differentiate the foods produced from the cereals. Thus, the buyer’s power is very high in the USA. To cope with the increased international and local competition, Kellogg had to seek a strong partner who will help compete effectively.
Increased cost of production
The increased cost is an economic factor that that affects the profitability of the Kellogg negatively. Currently, the company cannot recover the increased cost of the inputs such as wheat, cocoa, diesel natural gas, and corn. The goal of the company intends to reduce the cost of the production. The partnership with the Wilmer International Limited would enable Kellogg to acquire food products at a lower price such as rice, sugar, grains, and the biodiesel. Wilmar International has also has been experiencing similar difficulties. The revenues of the Wilmar International have been decreasing annually with the recent decrease of 4.2% and 2.6% in the Australia and Europe (Wilmar International Limited, 2015). Thus, in their bid to invest in China they want to reduce the cost of the initial investments by forming a partnership.
Expected growth in the China market
The market for the cereals and the beverage is expected to grow largely in China. The middle-class consumers in the major cities are the potential consumers (Kellogg Company, 2012). They demand different varieties of the food. From the year 2008 to the year 2012, the market recorded a growth of 44% (Kellogg Company, 2012). The partnership will ensure that the companies can operate at a very low cost and keep away other firms due to economies of scale.
The one bringing issues today
The Wilmer International relationship with the environment agencies has been troubled. In the year 2013, Wilmar International faced several accusations related to the environmental degradation. First, the palm oil that Wilmar International grew in the Tesso Nilo Park in the Indonesia was said to be illegally grown by the World Wildlife Fund. At the same time, it was accused of burning forests in the effort to set up plantations for the palm (Barbara & Fredrick, 2014). Since the company partners with Roundtable on Sustainable Palm Oil, it is discouraged to be involved in such acts. This means the reputation of the Wilmer International has gone down affecting the partnership formed with the Kellogg Company.
The unrests have grown from the public and the consumers of the Kellogg products. The decision by the Kellogg Company to form a partnership with the Wilmar International has been protested (Barbara & Fredrick, 2014). The protesters against the partnership argue that it is against the social responsibility of the Kellogg.
Expected Internal Benefits and Synergies
The joint venture made will facilitate the reductions of the cost and consequently the increased profit. Besides, the companies will benefit from the reduced cost of production and marketing. It was expected that Wilmar International contribute off the supply chain, infrastructure, and a distribution network as well as a market expertise (Kellogg Company, 2012). On the other hand, the Kellogg will contribute recognized international brands as well as the expertise in the field. The cost sharing will help in the reduction of the initial cost of investment.
Increased productions and sales
With economies of scale, the firm will have the ability produce and sell in bulk. The initial costs of entering the industry would be very high thus a reduced competition. As a result, profit of the both companies would increase significantly.
Initially, Kellogg Company decision to acquire Zhenghang was attracted by the huge profits expected in the sale of the cereal products in China. Therefore, it has not considered the cost of operation against the expected revenue. Kellogg estimated that the consumption of the cereal products would increase, as the milk was becoming a common drink for the people in China. Kellogg had estimated that the cereal market in China would arrive at $225.4 million (CTV News, 2012). Nevertheless, Kellogg underestimated the risks associated with the investment. Paul French had predicted that the scandals of milk at that time had prevented the development of cereals. In fact, most companies have been in the attempts to make the people of China consume cereals. Despite the small market in the USA there are competitors that may threaten the growth of the business, for instance, a joint venture established between the General Mills Inc and the Nestle.
The decision turned to be riskier than expected. First, the sale realized was not enough to cater for the costs of the operation. In the acquisition of the Zhenghang Food Company Limited, Kellogg paid $ 31 million in total in addition to the costs of acquiring assets and goodwill. The little revenue generated could not maintain the costs incurred (Kellogg Company, 2009). As a result, the company incurred continuous losses that were expected to continue (Kellogg Company, 2012). Besides, the assets acquired were impaired. The company incurred the impairments costs of $9 million.
The company required a partnership that would help in the reduction of the costs for the initial investment and the increased competitiveness. First, the joint venture formed was in the ratio f 1:1. Both companies participated in the management and the costs. The Wilmar International had already founded a successful subsidiary in China (Kellogg, 2012). That meant that Wilmer formed a partnership with a firm that has experience in trading in China. Thus, the Wilmar International was fit to contribute towards the assets and the distribution channel. That way, the operation costs were highly reduced. Wilmar International also involves in the agricultural productions. Kellogg can obtain goods like rice, flour, grains and sugar affordably. Wilmer International is also a firm internationally recognized with headquarters located in Singapore. The Wilmar International has a strong financial base. It recorded $43 084.9 million as revenue in the year 2014. With the combination of the two firms, they have the ability to invest in China at a lower cost. The market is slowly growing, and the great strategy relates to the reduction of the costs (Wilmer International Limited, 2013).
The two firms are of the international standards, and they would have the ability to compete favorably in China. The business of the Wilmer International is expected to grow at a faster rate due to increased prices of the crude oil. Wilmar International produces ethanol as an alternative source of fuel. Wilmar International business has been expanding year after year. The company has acquired other company’s like Goodman Fielder, Nexsol, and Hunstman. Most of the acquisition have been successful (Wilmer International Limited, 2013). The Kellogg will enjoy these benefits from a well-established business and a well-trusted partner.
The national and organizational cultures would be best be described by considering the Schein’s Organizational theory that describe the culture of the organization. Besides, the Hofstede’s Theory will be used to analyze the national cultures involved in the partnership.
Schein’s Organizational Theory
The organizational culture is composed of the belief that the members of the organizational have formed together. In the theory, the organizational culture was found that it could be a divided on three levels.
The artifacts in the organizational include all the tangible structures such as the technology, logos, languages, and the products. First, the culture in the partnership related to the utilization of the resources. First, it was the venture formed was a 50:50 partnership. Therefore, the companies had to contribute the resources on a ration of 1:1 (Wilmar International Limited, 2013). Also, there was an agreement that each company would contribute various specific assets. Wilmar International was to contribute to the infrastructure and a distribution network while the Kellogg was required to provide internationally renowned brands and the expertise. The brands that were used in the partnership included the Pringle and Kellogg’s.
- Espoused Beliefs
They refer to what the people in the organization consider important. It reflects the acceptable and aspects valued in the organization. The crucial cultural aspect in the partnership at this level is the employee’s values. The change of the brands name, cost sharing, and the infrastructure would involve a consideration of the employees. If they do not consider it as a vital, the partnership will not succeed.
- Underlying Assumptions
The assumptions refer to the beliefs of the members of the organization that are mostly held to be non-negotiable. Most of the times they remain un-noticed, and the leaders have to investigate on them.
The partnership between Wilmar International and the Kellogg would involve some changes in the normal operations of the two firms. First, the employees in Wilmar’s subsidiary in China will be under the management of two companies. Moreover, there will be sharing of the resources including employees in the two companies in China. There is need to effect a change that may be difficult if not all the stakeholders are involved in the change.
The theory provides a description of the national cultures in a country. The people in a culture share common practices. People from other cultures can copy the common practices, but it is difficult to imitate the values associated with that culture. This relates to the market in China. The people in China do not have the behavior of consuming cereals compared to people in the USA.
Hofstede identified five dimensions of the national culture. Nevertheless, only three that are vital in the explanation of the situations above. First, the power distance determines how people solve problems related to the inequality. Second, uncertainty avoidance refers to the people willingness to take the risk. Third, the individualism refers to ability to work as a group.
The way the government solves the inequality will determine national principles adopted against foreign companies. Many countries have adopted the culture of imposing tariffs and quotas. The uncertainty avoidance will determine whether the China nationals are willing to invest in highly risky projects (Poole & Van, 2004). It will determine the competition and the actions of the government towards the activities of the Wilmar International and the Kellogg Company in China. If the people in China are willing to invest in such risky investments, the government will impose higher tariffs to the partnership. The government will ensure that the people can compete effectively with the two international companies. If they are risk averse, the government will encourage the companies to invest in the country.
Whenever there is international trade, there is an exchange of the currencies. The Wilmar International with the headquarters located in Singapore is likely to use Singapore dollars. Kellogg Company is located in the USA and is likely to use the US dollars. China uses the Chinese Yuan in carrying out the daily transactions. One US dollar exchanges with about 1.43 Singapore dollars. Also, one US dollar exchanges with about 6.38 Chinese Yuan. Therefore, the Chinese Yuan is weak to both the US dollar and the Singapore dollar. In the discussion, effects on the partnership from the exchange movement will be compared between the US dollar and the Chinese Yuan.
Devalued Chinese Yuan
Initial investment enhanced
Most countries prefer to use flexible exchange rate. Mostly, the flexible exchange rates are influenced by the demand and the supply of the currencies involved. Yutaka (2013) stated that the currency fluctuations have the probability of favoring the developed nations. The initials investments would be made with the dollars (Ullrich, 2009). Thus, when the dollars are exchanged against the Chinese Yuan, the partnership would get more Chinese Yuan for Investment. The Wilmar International and the Kellogg would also have the ability to acquire the machines and capital goods at an affordable cost.
Effect on the borrowing
Once the business has been established in China, It would be generating revenue in terms of the Chinese Yuan. International borrowing is mostly done in US dollars. The US dollar is stable that most of the currencies (Wang, 2009). If the value of the dollar increases against the China Yuan, the business will pay a higher amount than the amount borrowed. The partnership can avoid such risks by creating future contracts where the lender agrees to take a certain amount of a given currency. The partnership can undertake to use other currencies obtained from trading in other countries.
Increased cost operation
Once the value of dollar increase against the Chinese Yuan, there would be increased cost of importing goods into the China country. The partnership business in China would be operating using Chinese Yuan (Sitkin, & Bowen, 2013). There is needed dollars to pay for the goods ordered from the USA. The cost of acquiring dollars with the Chinese Yuan will increase.
Export trade will be encouraged
When the value of the Chinese Yuan increases, it would promote the export trade of the partnership business (Kim & Kim, 2015). When the partnership exports the goods manufactured in Singapore and USA they will be paid in Dollars. Since the dollars have the higher value than the Chinese Yuan, they would end up getting a higher amount of Chinese Yuan than if the value of the Chinese Yuan increased.
Increased value of the Chinese Yuan
Once the value of the Chinese Yuan has increased against the US dollar, the opposite of the factors discussed above would happen (Griffith, & Yanhui, 2015). First, borrowing from the outside world would be favorable for the partnership. Second, import would be enhanced while the export trade would be discouraged (Yutaka, 2013). Third, the partnership can import capital goods from other countries at a lower cost. Both the increase and decrease in the value of the Chinese Yuan affects the partnership operations. It would encourage borrowing, importation, or exportation of goods to other countries. Thus, the exchange rate changes are a factors of consideration for international business.
Aspects of international trade
One of the major aspects of doing international business that I have appreciated is the legal aspect. As Parry & Steiner (2002) states, in every international business operation there must be the legal aspect of it if satisfying results are to be achieved. Personally the legal aspects of international business are of great importance in the process of any business transaction. For instance, the legal considerations required in international trade can help to transport goods and services successively across the borders if need be. One is required by the law to conduct an investigation into the existing customs about bilateral agreements, quotas, bans, as well as trade restrictions. With adequate information regarding the above aspects then the achievement of one’s aims and objectives in international trade is guaranteed. The legal aspects of the trade also take care of the uncertainties and risks involved in the trade. In that case, there is the requirement for issues such as notice periods, insurance as well as liability. Such concepts are important in that in case the goods are accidentally destroyed or lost; the insurance clause will provide the person liable for the loss (Correa & Yusuf, 2008). Therefore, with the legal aspects of the international trade, I believe that my engagement in international trade even in the future will be guaranteed of success.
Foreign exchange concept
Another important aspect of the international trade is the foreign exchange concept. As provided by Reuvid & Sherlock (2011), every transaction in the international trade requires the involvement of different currencies. The concept of exchange rates, is, therefore, vital to the trade. Personally the aspect of foreign exchange is important as it will help understand the value of different currencies and the implications they would have on the international transactions. With the understanding of the implications that a small change in the exchange rates could bring, then one would be more cautious of the variations in the rates and take necessary actions. For instance, there would be a decrease in the foreign investment when the value of a currency decreases. For example, if there is a decline in the value of the US dollar against the Euro, then the investors in Europe will shrink their investments in America (Yager, 2004). Understanding such aspects in the international trade helps one to reduce the risks involved in fluctuating exchange rates. Moreover, financial hedging methods could be adopted to reduce such risks. Therefore, my future in the international trade is well planned for given that such aspects are well analyzed.
The third important aspect of doing business internationally is the issue of competition. It is evident that in any business operation whether national or international, the issue of competition prevails. While doing business internationally, one faces competition from other countries providing the same products and services. Therefore, adopting measures that help to cope with the completion is a must. As Professor D. B, et al., (2011) provides, the main concepts in a competition are perfect competition and the general equilibrium. For the success of any international transactions, understanding such issues is of great importance. Personally, I get to understand that the actions of individual firms and consumers in the trade cannot influence the price of any good or service. Therefore, there have to be many firms operating in the international environment which eventually brings about competition. Besides, a general equilibrium in the international trade is achieved when the total market demand equals the total market supply (Heydon & Woolcock, 2012). A business person with the above knowledge of the competitive environment is guaranteed of a successful operation. It is, therefore, evident that even persons planning to enter the international market in the future will have to rely on such information.
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