Essay on "Strategic Management: Company Analysis"

Essay 10 pages (3371 words) Sources: 8 Style: Harvard

[EXCERPT] . . . .

Strategic Management: Company Analysis

Introduction to the Business and the Company

Analysis of Competitive Threats Faced by CSR

Analysis of Strengths and Weaknesses

Financial Performance

Overall Conclusions

CSR is the dominant player in the Australian sugar market, holding an approximately 40% share. They market sugar, ethanol and other related industry products. They are part of a larger conglomerate with three other major business lines. CSR's financial performance has been weak the past few years, due in part to challenges in the industry and also because CSR is not properly leveraging their strengths in response to the current industry conditions.

The industry is characterized by moderate intensity of rivalry, moderate buyer power, low supplier power, moderate to high threat of substitutes, and low to moderate threat of new entrants. This means that the industry is moderately challenging. The lack of growth increases those challenges.

CSR has some strengths such as vertical integration, logistics and economies of scale. They have weaknesses in that they remain vulnerable to global price shifts, they have relatively high fixed costs and a conglomerate structure.

CSR has economies of scale and operates with a strategy to control costs and leverage operational efficiencies to gain profit in their declining market. They do not have greater strategies to address the sluggishness in the domestic sugar industry, nor to penetrate some of the world's growing sugar markets, like China. Without these, CSR will continue have difficulties and their performance will continue to lag that of its potential.

Introduction to the Business and the Company

CSR was founded in 1855 as Colonial Sugar Refining Co, in Sydney, as a refiner of imported raw sugar. The company was incorporated in 1887, by which point it had expanded its operations to Melbourne and New Zealand. They began milling in 1870 in New South Wales, later adding milling operations in Queensland and Fiji. The Fiji and NSW operations were divested in the 1970s.

Today, CSR is a leading producer of sugar in Australia, and has expanded into other ventures as well. The sugar segment of their operations includes all manner of sugar types, and also includes ancillary sugar products. This includes ethanol and related products, which are derived from the sugar. Therefore, CSR's sugar division also produces solvents, cleaning solutions, refrigeration products, and organic fertilizer.

Overall, CSR recorded $3,231.3 million in revenues in 2008, an increase of 3.86% over the previous year. Of this, the sugar group accounted for $1,280.5 million, or 39.6% of the group total. Profits for the group were $213.8 m, down 30.5% from the previous year. The sugar segment's profits were $45.9m, which was down 49% from the previous year. In 2008 the sugar segment accounted for 21.4% of the group's profits.

The other major operational segments of CSR are building products (42.5% of group revenue, 40.1% of group profit); aluminium (17.1% of revenues, 25.4% of profits); and property (1.4% of revenue, 17.1% of group profit).

According to IBISWorld, CSR accounted for between 40.1-419% of the Australian sugar market in 2006-2007. This was approximately four times the size of their nearest competitors Finasucre, Mackay Sugar Co-operative, and ten times the size of industry #4 Manildra. Between 34.1-38.9% of the industry is comprised of "other," smaller firms and imports.

CSR does not have a mission or vision statement. The company's goals and objectives are alluded to in their annual report and on their website, but are never expressly stated. From what can be inferred, CSR wants to be an industry leader, and grow shareholder value. What can be deduced is that the company has only basic strategic goals shared by all public corporations, or that their strategic goals are something they feel they need to keep hidden. A lack of stated goals or objectives is not a critical problem, but it does not necessarily help the company develop a sense of focus.

According to Abell's model, a firm's industry is defined and described by evaluating three considerations - who is being satisfied, what is being satisfied, and how are customer needs being satisfied? For CSR's sugar business, they serve two main groups of customers - consumer and industrial. They market sugar directly to end users (consumers) and to other food manufacturing companies. They hold 40% of Australia's retail market. They market other sugar-derived industrial products to various industrial operations. Both products have broad-based target markets. The customer needs being satisfied are the needs for sugars and sugar-derived chemicals such as ethanol, food additives like sorbitol, solvents and cleaning solutions. These needs can be broken down more simply into a need for sweeteners, solvents, cleaners, etc. Much of CSR's product line in their sugar divisions consists of base products devoid of complex branding or production.

CSR achieves meets these market needs through a handful of distinctive competencies. Among them are experience, vertical integration, and first-mover advantages.

In terms of experience, CSR trades on 150 years in the sugar business, which has allowed them to adapt to changes in the industry, identify and capitalize upon opportunities and develop a strong brand in the marketplace. Vertical integration allows them to control costs and compete in many non-sugar markets. They leverage their access and experience in sugar production to produce everything from ethanol to power that they sell into the Queensland electrical grid. They have also managed to capitalize on first-mover advantages. They are a dominant player in the sugar industry in Australia, a position gained from their entry into the market 150+ years ago.

The company has made only vague statements regarding corporate social responsibility. On their website, they state the following:

CSR strives to be responsible and ethical, providing good returns for shareholders, and a safe and satisfying workplace for its people. But we have an equally strong responsibility to the broader community, by being a good corporate citizen, and helping to make our world a better place."

Their strategy for addressing the issue is outlined in their Safety, Health and Environment (SHE) program. This program is a well thought out, formalized program that allows CSR to adhere strictly to local and international laws. The program addresses issues of health and workplace environment that had previously caused issues for CSR, such as the Wittenoom asbestos debacle.

Analysis of the Opportunities and Threats Faced by CSR

Using Porter's Five Forces model, we can evaluate the industry structure. The five forces are: intensity of rivalry, buyer power, supplier power, threat of substitutes and threat of new entrants. The intensity of rivalry is moderate, but increasing. In the domestic market, CSR is dominant, but the market is mature, which increases the intensity of rivalry. In global markets, which account for 50% of dollar value and 80% of production in the Australian sugar industry, competition is intense. The United States has successfully implement tariffs limited Australia's ability to enter that market. India is becoming an increasingly strong competitor. Low product differentiation only serves to increase this competitive pressure.

The power of buyers is moderate. Competition in global markets results in low switching costs, increasing buyer power. Domestic demand is softening, but this increases the power for the strong buyers that remain, as they become increasingly important. Deregulation also lowers switching costs and barriers. Supplier power is low. CSR is vertically integrated, and typically deals in base commodities. CSR, however, has little pricing power over any raw sugar it needs to procure on the commodities market. That said, as the dominant market player, they have significant power over any suppliers they do have.

The threat of substitutes is moderate to high. Sugar products are suffering in terms of reputation, and there are many competitors who are trading on greater health benefits and/or lower cost. High fructose corn syrup in particular is a strong competitor, and its market penetration in Australia is lower than in, for example, North America. That said, many substitutes are inappropriate for certain products, which limits their threat. The threat of new entrants is low to moderate. Although the deregulation opens the doors to new entrants, there remain significant barriers to entry, including access to raw sugar, and the lack of growth in Australia's mature market. However, in global markets, new producers have been known to emerge, particularly during times of high commodity prices for sugar.

The domestic sugar industry is in a slight decline (IBISWorld, 2008). The only major factor expected to impact the structure of the industry would be significant shifts in commodity prices. These shifts can affect the power of buyers, and the intensity of rivalry. The latter is especially susceptible, as in a mature industry margins are typically under pressure. A decrease in sugar prices could reduce profits throughout the industry, resulting in an increase in competitive pressures. In the global sugar market, shifts are expected to be more significant, as new countries enter the market and demand in China drives the world market. Trade barriers are another potential impactive factor, in particular the current barriers to entry into the U.S. market.

There are no particular clusters in the sugar industry.… READ MORE

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