Term Paper on "Corporate Strategy Tate & Lyle's International Expansion"

Term Paper 5 pages (1731 words) Sources: 10 Style: Harvard

[EXCERPT] . . . .

Corporate Strategy

Tate & Lyle's international expansion strategy did not meet with success for a number of reasons. T&L sought to reduce geographic risk by increasing the number of international markets in which they operated. They also sought to develop higher value-added products in order to decrease their dependence on the low-value-added products they were focused on at the time.

One of the key missteps was to tie the two together. The international expansion strategy was fundamentally flawed and they eventually unwound many of their global positions. However, the new product strategy has now paid off and T&L would benefit from having those now-discarded global positions. The time frame for the new product part of the strategy was longer than the time frame for the global expansion part, something which T&L did not consider.

They also did not consider other important factors. They did not consider what, besides the theoretically reduction in risk, they were getting from their expansion. Such an expansion should be undertaken with the objective of either adding value or gaining sustainable advantage. Even had they maneuver succeeded in reducing risk, it did neither of the other two. None of the acquisitions had proprietary technology that T&L could leverage, nor did T&L bring any discernable improvements to the operations of the various acquisitions that would have made the purchases worthwhile.

The international expansion strategy also failed because it did not sufficiently address the biggest risk factors facing T&L. In Porter's five forces, the two strongest two forces squeezed T&L - the power of suppliers and the power of buyers. The supply of raw materials is subject to global commodity markets. T&L was either unwilling or unable to hedge their exposure to commodity price fluctuations. On the other side, the buyers exercised considerable power - in particular in the sweetener business where for example high fructose corn syrup plummeted from 75% of U.S. profits to 10% in a few years. A further threat to T&L's profitability can be derived from the PESTEL analysis - specifically the economic factor of currency risk. T&L simply failed to account for the additional currency risk they would face as a result of their international expansion and as a result they lost £41M in 1997 on currency transactions, a loss that could have been controlled with simple hedging techniques.

T&L was in a position where they needed to control either the cost of raw supplies or the price at which they could sell. Doing one or more of these could have resulted in a sustained competitive advantage, but the international expansion strategy accomplished neither of these objectives because it was undertaken piecemeal, with purchases made seemingly for the sake of making international purchases.

Instead of focusing on controlling either raw material costs or selling prices, T&L attempted to control costs by with internal cost-savings on the production side, but that strategy is a short-term fix as costs cannot be reduced indefinitely and it appears T&L had hit the point of diminishing returns by the time they started building a new facility in Belgium. Thus, they failed to take control of their financial future because they focused their efforts on the one area which had very little potential to yield sustainable competitive advantage.

The other key area were T&L's expansion strategy failed is that they failed to recognize the cost of adding complexity to their operations. Internaional expansion is an expensive way to reduce risk, and not necessarily effective. In T&L's case, they were expanding into relatively mature markets without a plan to make gains in these markets. The world market for sweeteners was more mature than the market for starches, so there did not appear to be much gained from expansion on the sweetener side of the business. T&L did not consider that they needed to add value in order to make the purchases worthwhile.

The opportunities were limited, but they did exist. For example, a significant change in the social environment created an opportunity as they expanded into Asia. The starch business is driven by processed foods. The increasing wealth in many Asian markets is driving shifts among consumers to a more Western lifestyle, including processed foods. Moreover, such a market could still offer some degree of first-mover advantage, and certainly would not be as likely to have well-entrenched competitors as many of their other markets. This provided an opportunity for growth yet T&L did not seem to put any focus on this, instead focusing on squeezing out margins in their more mature businesses.

Another opportunity we are seeing now is sucralose. Had T&L had a more cohesive strategy, they could have seen that the biggest benefit of their international expansion strategy was to provide a platform for the global launch of just such a patent-protected product. They knew sucralose had potential when they began to unwind their international positions and yet they did not have the foresight to stick it out until sucralose was ready to take to market.

So ultimately, T&L failed to seize an opportunity on the starch side of the business, and their shortsightedness has left them unable to capitalize on the sucralose opportunity to its fullest potential.

The lessons learned from the case of Tate & Lyle can translate to firms in other industries. Many of the strategic errors made by T&L were of the fundamental variety. They did not identify the key threats to their profitability and did not develop a plan to deal with these threats. Moreover, when they chose a strategy, they chose one that addressed only one threat, and did not offer adequate opportunities for growth. Lastly, when such opportunities arose, they failed to recognize them in time to capitalize on them.

When considering strategic alternatives of this type of scope, all organizations must give strong consideration to the issue. They need to have a solid understanding of the environment in which they operate. Organizations face many forms of risk, arising from factors both internal and external. Any major strategy, such as an international expansion, needs to be undertaken with a full understanding of these risk factors. There is a vital lesson in this case that all factors must be evaluated and incorporated into any potential strategy. Every organization has an operating environment, and is subject to the same risks, albeit in different degrees. So the fundamental principle that every aspect of the business's environment, including risk factors and opportunities, must be taken into account when formulating and executing strategy.

Another aspect of this case that applies across industries is the need to set objectives for strategy that make it worthwhile to undertake the strategy, in other words to either add value to their business or to gain a sustainable competitive advantage. T&L undertook a fundamental strategic shift to solve a problem that was not fundamental to the future of their business. In doing this, they ignored some of the environmental factors that were fundamental to the future of their business.

Organizations need to understand the full ramifications of their strategic undertakings. T&L's international expansion strategy did not offer sustainable competitive advantage until the sucralose product came along, by which point the firm had already retrenched from their expansion. Organizations need to understand the time frames they are dealing with when they make fundamental strategic decisions, in this case the time frame for a new product development that would have made the strategy a valuable one.

Another issue that is raised in this case is the need to continually re-evaluate strategy. This again translates to all organizations. Every organization will at some times embark on a major strategy initiative. Even with a firm set of goals in place, organizations need to continually re-evaluate the strategy vs. those goals, and re-evaluate the environmental factors as well. T&L is at risk of missing out on a huge opportunity with sucralose because they did not re-evaluate their strategy before unwinding it.

There are also some more specific lessons that certain types of firms can take. Many firms are faced with the issue of international expansion at some point in their existence. This case provides valuable insight into some of the issues that are unique to that situation. New risk factors are introduced - currency exchange risk, the complexity of operating multiple companies in multiple countries, plus additional layers of governmental and cultural issues.

There are limitations to the way that the lessons learned in this case can be applied to other industries. The fundamental lessons will remain the same for all organizations, but more specific lessons will diminish in valuable the further an organization's situation gets from that which T&L faced. For example, there are many lessons in this case regarding a firm's first foray into international expansion, but the value of these lessons is diminished for firms that are either too small to consider such an expansion, or firms that have already undertaken such an expansion but been successful.

Bibliography

Porter, Michael E. 1980 Competitive Strategy: Techniques for Analyzing Industries and Competitors. Free Press, New… READ MORE

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