Doing Business in Europe, Asia, and the Americas
With reference to the academic literature and using your analysis of relevant environmental factors, speculate how and why Kraft identified Cadbury as a potential ‘partner’. In which areas are the expected benefits and synergies for both companies involved?
In business, the main aim is to maximize profits at lowest cost possible. When an organization sees potential in another organization, it tries with all means possible to work together and expand their incomes. Cadbury was a well established company whose shares were trading high on the financial market. On realizing this, Kraft decided to acquire it so that they could share the big profits together… Every business has to react towards the outside happenings, also known as external factors since they affect the main internal functions of an organization, its objectives and strategies (Armstrong & Kotler, 2008). There are many relevant environmental factors that led Kraft to identify Cadbury as a potential partner Some of the environmental factors that are analyzed the social factors, legal factors, economic factors, political factors, technological factors, and ethical factors.
Kraft management identified the good relationship Cadbury had with customers within the marketing region. In addition, Cadbury employees offered good collaboration with Kraft staff encouraging them to form a combined business. Moreover, the legal factors encouraged acquisition since Kraft followed legal procedures in acquiring Cadbury therefore; Cadbury staffs build full trust in them. To add to this, Cadbury staff good corporate governance in addition to the good financial trend. Corporate governance and financial performance are two inseparable factors. This is due to the fact that, well-established corporate governance in a firm enhances its value, and the related operation performance. This is achieved via effective management, well established resource allocation means, and handling of stakeholders in a better way. After determining Cadbury financial performance, Kraft made a decision to acquire the organization. There exists a difference in the means of determining financial performance. The established accounting structure gives several indicators of performance. These include factors like asset growth and the revenue generated by the organization. However, the use of stock prices as a means of financial evaluation has been in existence for a long period (McWilliams, Siegel and Wright, 2006).
There are different areas where Kraft expects benefits from acquiring Cadbury Food Company. During the acquisition process, there is a property element towards the transaction whereby the acquiring company takes over the existing lease or has the alternative of negotiating a new lease for the target company’s existing premises. This assists in avoiding unnecessary delays at times when the final draft is produced since this might take the negotiators back to step one (Mc Call, 2011). To start with, Kraft expects to benefit from increased shares in the stock market. Cadbury used to trade high therefore, the combination will aid in improving the company’s share index. This enables the combination to lead in developing markets like, Brazil, Russia, India, China, and Mexico. Secondly, the combination will benefit from important additional scale in the consolidating confectionery segments. Cadbury is the top confectionery company in the world owning more than 10% market by 2006 and continues to grow therefore; it is in line with rapidly consolidating market (Euromonitor International, 2011).
Thirdly, the combination creates a good management of business activities and employees. Kraft will benefit from employing the best of employees from both organizations to carryout different chores in the organization. This has an advantage over a single company since the combined effort brings about many big ideas and innovations. In relation to this, Kraft Foods believes that the combined group will create opportunities for Cadbury employees and managers. This ensures that Cadbury employees do not lose their jobs after the match and that their terms of employment will remain unchanged, these include: pension rights and work cover claims. State labor legislation act ensures the employer is liable for employee, which requires that each employee’s safety by taking an accident cover irrespective of the type of work done so long as there is exposure to some risks (Fitzpatrick, Perrine and Dutton 2010).
With reference to the academic literature, explain the risks associated with the choice of acquisition as an approach to this particular ‘partnership’. Was there a feasible alternative? Justify your view.
In acquiring Cadbury Food, there were some risks associated with this process that made Cadbury to first neglect the offer. Entrepreneurship is a risky business and in avoiding such risks, organizations buy existing businesses since they demonstrate the ability to have a successful operation. Understanding the risks involved in acquiring a business premises is very essential for every organization. This helps organizations to concentrate and utilize the available resources and opportunities to realize profits and become competitive in the market (Armstrong and Kotler, 2008). In determining risks involved, proper assessment of the internal and external environments of the business is essential. The internal environment includes type and nature of product, marketing mix and the distribution constraints. On the other hand, the external environment may include the nature, type and distribution of customers and competition in the market. Other external environmental factors could include technology, cultural, politics, legal and the economic environment. Assessment of the environmental factors helps in the development of appropriate strategic distribution plans. A proper distribution strategy is required to execute the distribution plans to realize the marketing objectives.
To start with, Kraft Food Inc was faced with a risk of losing some of its shares. This came about since during the acquisition process, Kraft surrendered a percentage of its shares to Cadbury with the aim of gaining them after they combine. The only alternative to this option was for Kraft Food Inc buy shares from Cadbury and make them trade even higher so that the Cadbury Food management could gain trust in them. According to (Simchi, Kaminsky and Levi, 2003), different organizations have different goals due to their own nature and the nature of the market. It is through this that an organization can determine the best procedures to follow in order to acquire another company that will be of great benefit in the future. If Kraft Food Inc had not taken a risk of issuing some of its shares to Cadbury, then the combination could have failed.
Kraft Food Inc also took a risk of taking care of Cadbury Food employees after the combination. In doing so, Kraft was responsible for all the employees and management of Cadbury Food in that, all their complaints was directed to Kraft management. The market for food products is diverse in the world. Moreover, the rapidly changing technology and increasing competition require that any automobile business outlines a proper distribution strategy to enable the realization of the business objectives. According to Linton and Donnely (2009), analysis of the market coverage is very crucial especially for the automobile industry. Therefore, a distribution strategy that ensures effective delivery of products to the end user is important. This ensures that the products are available to customers at all times. A good strategy for use in the automobile is the intensive marketing and distribution strategy. In this strategy, products distribution occurs over a wide region where the market covers.
Understanding of the market characteristics ensures that the investor has full details of the business, which makes it easier to compete in the market. Some of the factors determining market characteristics include the critical risks and the critical success factors. The inventors in any business look for a risk free business determined by the competitor response to the new business entry, sales projections, suppliers, distributers, and business location. Europe food industry has less competition and the available businesses are willing to welcome the foreign investors. On the other hand, there is a big sales potential in the country due to introduction of new quality brands. When planning to invest in a certain business, the size of the market matters a lot since it determines the number of customers to serve since they eventually determines the amount of profit achieved. Market size and outlook is dependent on many factors including, the number of customers using the product, the available competition, and the potential sales. Marketing characteristic is also dependent on critical success factors (Birbaum Associates, 2009).
By applying appropriate theory, compare and contrast the national and corporate cultures involved. Critically evaluate the actual and potential impact of both on this ‘partnership’, including the role of government where applicable.
Cultural beliefs illustrate theories, facts, norms, values, or principles that an individual needs to uphold while in the society. The society has a perception on various issues that surround an individual’s life. As such, the individual needs to adopt the perceptions and uphold them while in a given social setting. This calls for the individual to form bias based on these cultural beliefs and perceptions. Therefore, the cultural beliefs and perceptions have a significant influence in bias formation. Individuals have an established belief and attitudes towards given information. Kraft Food Inc was so much concerned about the people’s culture right from the employees at Cadbury and the surrounding community. As such, Kraft management used this to develop a bias on any message that was approached in daily endeavors (Dutta, 2008).
This depicts that an organization has an established criterion of behavior evaluation in any given social setting. Therefore, an individual develops a behavioral attitude based on personal beliefs and perceptions. This results in formation of an attitude towards the behavior through extensive evaluation of the benefits and limitations of the behavior. In addition, an individual develops a susceptibility attitude towards behavior adoption. This occurs after consideration of benefits and limitation of outcomes. The driving force of this is the society expectations of one to uphold the cultural practices. The utilitarianism ethical philosophy developed by John Mill and Jeremy Bentham, calls for acting in the best way to benefit all the people in the society (Six Ethical Philosophies 1). Thus, an individual ends up forming a bias that reflects the society cultural expectations.
Organizations demonstrate some level of acceptable behavioral attributes with regard to personal characteristics (Carroll, 2001). These individuals are not monolithic on social concerns, cultural backgrounds, or personal preferences. As such, individuals have a low regard of cultural beliefs and perceptions and form bias based on personal characteristics. The individuals use association of gender, personal principles and ideologies for the purpose of bias formation. Moreover, some individuals have a high sensitivity of gender; therefore, they form bias in many applications based on the gender status. This depicts that biological factors have a key influence of bias formation among the individuals. Cultural beliefs and perception have a significant influence in bias formation. In this, they dictate the expected moral aspect of an individual in the society. Therefore, an individual has to form a bias that has an element of upholding the cultural beliefs of the society. However, some individuals form bias based on personal characteristics, or influenced by intra-institutional factors rather than cultural beliefs and perceptions.
The government played a big role in formation of this coalition since there are rules and regulations that the acquiring company, in this instance Kraft Food Inc, has to abide by. In Europe, the government assisted in speeding up the legalization of registration activities for acquisition. As such, due to the existence of cultural distance, individuals engaging in international business have to adjust their business policies in order to fit in the new business operation environment (Lee, Shenkar, &Lid, 2007). The dimensions inherent within cultural distance include culture, language and religion. Hofstede’s culture dimensions include uncertainty avoidance, individualism-collectivism, masculinity and power distance (Richard, Hosfstede, & Bond, 2007).
Business organizations and their concurrent countries, always perform an analysis that aids in market entry strategies formulation (Hyllegard, & Eckman, n.d). The market, cost, competitive advantage and government forms the globalization drivers that the country analysis basis the focus. This depicts weaknesses and strengths for a business to participate actively in the international market. Multinational business analysis, on the other hand, outlines the potentiality of the business to gain from the market participation. The analysis incorporates strategic levers such as marketing, location and product, and organization analysis such as culture, people, management and structure.
Cultural dimensions aid in comprehending the different cultures found in different regions, in the universe. As such, for one to strategize management ensures that need for adoption in a given country there is a need of comprehending empathy and knowledge existing in the local environment. This is because people in other countries may depict different actions, thinking capacity and feelings towards societal problems (The Executive Fast Track, 2011). This confronts the tendency of human beings to act, feel and think based on personal experiences at the instant of working internationally. Culture has a myriad of dynamics; therefore, predicting the effect of culture on behavior is quite impossible (Mead, 2005). This depicts that there are situations in which culture has an insignificant influence in the decision making process, and there are times that decision-making process is quite reliable on the cultural systems established in a given region. Moreover, cultural dimensions affect the management processes for organizations effectively. The processes affected include training, leadership styles, and promotion methods among others.
Analyse the four “key benefits” Kraft outlined in their final offer document (above) and, using extensive reinforcement from appropriate literature, come to a critical judgement about the relative importance of each of these “key benefits” to Kraft shareholders. Your analysis should incorporate a critique of major shareholder Warren Buffet’s claim that he is poorer as a result of the deal.
Kraft analyzed four key benefits associated with acquiring Cadbury Food. The first benefit was that the combination was expected to provide a potential for meaningful revenue synergies over time from investment in distribution, marketing and product development (YouTube, 2011). A key method of minimizing ideas generated about acquiring a given organization by a company is having a market research conducted. In this, the consumer preferences for the products, the price of related products, the brand name of related products and the target market information is gathered. The information is then analyzed and presented to the company. The ideas generated by the company about the new product are then sorted out in line with the results of the research. The ideas found to fully meet the desires of the target market are then adopted by the company and used for the product development. In addition, it is expected that pre-tax cost savings of at least USD 675 million annually can be realized by the end of the third year following completion. Total one-off implementation cash costs of approximately USD 1.3 billion are expected to be incurred in the first three years following completion.
The second benefit was associated with provision of an attractive opportunity for Cadbury Security holders. Cadbury was to benefit from 13.0 times the value of shares in the organization. This was of benefit to Kraft Food since after they combine; the dividends will be directed to their account. The enterprise value multiple is calculated assuming the exercise of all share options and vesting of all share awards held under the Cadbury Share Schemes.
The third benefit was on technological advancement. Moore and Pareek (2010) claim that, internet support by technology, has led to a cost-effective means of marketing that aims at interacting with the potential market, which could be one individual. Therefore, web marketing is more of direct marketing than mass marketing. In the interaction process of the internet, it involves one individual, although, the individual may gather pals around. This results in conveying the information directly to the individual. In addition, the individual may send the link to friends, and when they open, direct marketing occurs since the target person gets the information very fast. This form of marketing leads to development of customer loyalty and obtaining immediate customer feedback. However, web-marketing strategy results in mass marketing since many people end up receiving the conveyed information. Mass marketing deserves that customers get the information in a common pool when they are together. This does not happen with web marketing since it is only individual at a time that gets the information. Therefore, web marketing is more of direct marketing than mass marketing.
Fourthly Kraft Food would benefit from The board of Kraft Foods believes that a combination of Kraft Foods and Cadbury represents a strong and complementary strategic fit, creating a global confectionery leader, with a portfolio including more than 40 confectionery brands, each with annual sales in excess of USD 100 million. Globally, the Combined Group would be number one in the chocolate and sugar confectionery segments and a strong number two in the high growth gum segment. Change in an organization demands that the organization establishes the necessary mechanisms for managing, controlling, and implementing change. Most of the organizations have faced the challenge of change management and have ended up failing to adopt change.
Change acts as a steering gear towards optimization of organization performance and gaining better results. Appreciation of change by stakeholders of a given organization is a crucial step that aids in implementation of change. However, most organizations appreciate change extensively, but managing change becomes a significant challenge. Thus, there is a need of comprehending change management strategies in order to formulate the most effective measures that need adoption during change implementation process. The claim by Warren Buffer becoming poor after the deal was unsupported since there might be some conditions that the organization failed to fulfil. With all these benefits, every organization will be much willing to form a coalition as that formed between Kraft Food and Cadbury Food.
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