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China Resources Enterprise. ANALYSIS OF CORPORATE STRATEGY. Content. Problem SWOT Analysis –Overview Business Level Strategy - Focused geographical - Differentiation - Related- link Acquisition- based Strategy Recommendation. Problem. Recently restructured companies assets

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china resources enterprise

China Resources Enterprise


  • Problem
  • SWOT Analysis –Overview
  • Business Level Strategy

- Focused geographical

- Differentiation

- Related- link

  • Acquisition- based Strategy
  • Recommendation
  • Recently restructured companies assets
  • Low margins
    • CRE operating margin: 1.5% (2009 FY)
    • Sector average: 3.1%
  • Desire from investors for higher profit margin
  • Acquisitions currently a very important part of CRE’s strategy
  • CRE has yet to improve its margins through an acquisition based strategy
  • Should CRE continue acquisition based growth strategy or focus on fine-tuning their core business against the risks?
cre limited swot overview
CRE Limited, SWOT Overview
  • Source (Datamonitor)
business level strategy
Business-level strategy
  • Focused differentiation with related linked strategy
business level strategy1
Business-level strategy
  • Focused Geographical market: domestic Chinese market
  • leverage its strength : good understand of Chinese Market
  • better serve the segment
  • local/regional competitors : focus on more narrowly defined competitive segments: offer same source of differentiation at lower price
  • cannot tap the advantages of using global strategy: increased market size, ROI, economics of scales and learning
business level strategy2
Business-level strategy
  • Differentiation strategy in each business unit

“ Snow” Advertisement

beer analysis
Beer Analysis
  • Beer - "雪花 Snow“
  • SWOT – Strength-Single largest beer brand in Chinese Mainland- Market leader position further consolidated by acquisition of Kingway in Feb 2011- US $40m investment in Technology

-Legend of quality: unified technological and technical standards

- Appointed again as the official beer for NPC and CPPCC


Customer-Focused -Royal- looking and extravagant noble gold and jade inlaid and engraved vision -Focus shift from supply-driven to demand small bottles like imported beers


-Brand Promoton Campaign : “The Great Expedition” (勇闖天涯) more customer interactionattracted many customers due to its story (not actual taste)


SWOT –Weakness- Thin profit margin (Chinese: price-sensitive)[$2 per hectoliter, compared with $50 to $80 in Europe and the U.S]


SWOT –Opportunity

- Enlarged customer group : younger, higher income, more urban customers high-end : Snow Draft, Snow Super Premium

urban: Beijing

- Chinese robust economy - Chinese twelfth five-year plan


Five Forces

    • Rivalry with existing competitors

“Tsingtao”: great brand recognition, 15% of domestic market share

“Bud Light”: “Snow” outsold [Source: Pluto Logic]

    • Bargaining power of customers

High market reputation and strong customer loyalty“The Great Expedition” (“勇闖天涯”)

    • Bargaining power of suppliers

Raw materials + Packaging materials: hard to be replaced

    • Potential Entrants

Hard to gain a share in this competitive market

    • Product Substitutes

taste speciality

retail analysis
Retail Analysis
  • Retail
  • N0. 1 in the supermarket in the Chinese Mainland
  • National retailer
  • Generated 51% of revenues
  • Acquired a hypermarket chain in northern, north-western, north-eastern and central China
  • multi-format retailer and operates supermarkets, hypermarkets and convenience stores
  • Vanguard, Suguo, Ole, Vango, CR Care, VivoPlus, Voi_la!, Chinese Arts and Crafts
retail analysis1
Retail Analysis
  • Five Forces
    • Rivalry with existing competitors

Multinational retailers such as Wal-mart, Tesco, Carrefour expand their operations in second and third tier cities

They are expected to open 12-20 new stores each year according to PwC

    • Bargaining power of customers

 switching cost is moderate and is decreasing with growing experience in the market

retail analysis2
Retail Analysis
  • Bargaining power of suppliers

rather low for small suppliers such as small farming businesses

 higher for international brands like P&G as they have international brand awareness

  • Potential Entrants

High cost to entry due to the need to set up new distribution channels

 Competitors may retaliate with price war or bad publicity

  • Product Substitutes

Retailing could be bypassed by internet shopping therefore eliminating hypermarkets and supermarkets

 Traditional stores offering human contact are an alternative

beverage analysis
Beverage Analysis


Pacific Coffee

beverage analysis2
Beverage Analysis
  • Five Forces
    • Rivalry with existing competitors

“C’estbon”: Master Kong, Wahaha, Coca-Cola and Nestle

Pacific Coffee: Starbucks and Gourmet Maste

    • Bargaining power of customers

“C’estbon”: HIGH

Pacific Coffee: LOW

    • Bargaining power of suppliers

Pacific Coffee: HIGH

beverage analysis3
Beverage Analysis
  • Potential Entrants

China beverage industry is attractive to the potential entrants

  • Product Substitutes

Carbonated drinks, energy drinks and tea

food and processing distribution analysis
Food and Processing Distribution Analysis
  • Ng Fung Hong

Strength: premium food quality

  • vertically integrated meat supply system

- lower operational costs

- Allow quality tracking : control both food quality &food safety -- create value to customers

- brand building & consumer loyalty

- Widen operating margin ---higher investment return

- Build core competence to ensure continual growth

  • Remain in competitive position in the market ( 5 forces)
food and processing distribution analysis1
Food and Processing Distribution Analysis
  • Five Forces
    • Rivalry with existing competitors: medium
    • the monopoly live cattle importer from China
    • strong brand recognition & reputation
    • Competitors: Local farms(limited supply), frozen meat suppliers all over the world
    • Bargaining power of customers & product substitutes : medium to low
    • monopoly in live cattle market in HK
    • Substitutes: local meats, chilled/ frozen meats
    • Potential Entrants

monopoly in live cattle market in HK



  • increasing cost of production ( raw materials) --- pressure to raise the price of

- risk of diluting perceived differentiated features:

customer’s dissatisfaction of price increase of meat

price increase is not justified by perceived increase in quality



  • Economic growth in China: increasing pork consumption--- demand increase
  • market expansion in China: joint venture and acquisition --- penetrate into production, retailing and marine fishing


- Hong Kong Pork Traders Call For End In Monopoly Imports:buyers urged the government to open up the live cattle market --- break Ng Fung Hong's monopoly

business level strategy3
Business-level strategy
  • Related linked: SBU Form of Multidivisional Structure

- share some resource: distribution channels in different business units

food and retail
Food and retail
  • Development of self-owned retail stores and launchedmore than 120 meat counters and stores
  • Shanghai, Hangzhou, Nanning, Shenzhen and Ningbo, etc,
  • Leveraging the strong “Ng Fung” brand name and efficient supply chain
beverage and retail
Beverage and retail
  • Holders of Pacific Club Card enjoy discount in supermarkets operated by CRE

- sharing of marketing resources

  • Strategy to be No.1

- encircling the cities from rural areas - moving up-market

- promotion and branding strategy

pursuit of market power
Pursuit of Market Power
  • CRE has potential to further increase market power as a result of their related linked strategy
  • Proper execution will allow CRE to reduce the costs of its primary and support activities
  • CRE can further employ vertical integration via vertical acquisitions
pursuit of market power1
Pursuit of Market Power
  • Vertical Integration
    • Food, beer and beverage divisions provide inputs for CRE’s retail business segment
  • CRE can increase their market power using an integrated model
    • R&D, processing & distributing, storage, wholesaling, retailing
  • Limitations of vertical integration
    • Outside supplier may produce the input at a lower cost
    • Changes in consumer demands create capacity imbalance and coordination problems
pursuit of market power2
Pursuit of Market Power
  • Horizontal Acquisitions
    • CRE can integrate its own assets that complement their core competency
    • Key driver to top-line growth and market share
    • Ex. Strengthening retail position by acquiring supermarkets
  • Expand geographical coverage in the northern and central areas of mainland China
    • Help CRE further establish its network of primary activities
    • Ex. CRE recent push to acquire breweries in these locations
learn and develop new capabilities
Learn and Develop New Capabilities
  • Goal: Develop and exploit economies of scope between CRE’s businesses
  • Broaden knowledge base and leverage CRE’s core competences
  • Create value by pursuing Operational and corporate related acquisitions
learn and develop new capabilities1
Learn and Develop New Capabilities
  • Acquisitions to create operational relatedness
    • CRE can leverage its existing primary activities
      • Distribution systems
      • Sales networks
    • Also facilitate their support activities
      • Purchasing practices
      • Bargaining power
  • Has potential to improve existing profit margin
    • Increased revenues
    • Decreased costs
learn and develop new capabilities2
Learn and Develop New Capabilities
  • Limitations to acquisitions to further operational relatedness
    • Organizational integration may fail to create synergies
    • Success is dependent on CRE’s ability to integrate acquisitions into a cohesive structure that will allow sharing of activities to take place efficiently
    • Important that HQ implements controls to foster sharing of activities between related divisions
learn and develop new capabilities3
Learn and Develop New Capabilities
  • Enhancing corporate relatedness through acquisitions
    • Transferring CRE’s core competences to an acquired business
      • CRE has expert local market knowledge and a sophisticated distribution system
    • Transferring core competences of core business to CRE
      • Possible targets should include companies that can transfer cost saving related core competences to CRE
learn and develop new capabilities4
Learn and Develop New Capabilities
  • Downside of pursuing a combination operational relatedness and corporate relatedness acquisition based strategy
    • Cost of organization and compensation structure could be expensive leading to further decrease in CRE’s profit margins
risks of acquisition based strategy
Risks of Acquisition Based Strategy
  • Integration Challenges
    • Financial systems
    • Control systems
    • Building effective working relationships
risks of acquisition based strategy1
Risks of Acquisition Based Strategy
  • Inability to achieve synergy
    • Ideally want acquisitions to create economies of scope and share resources to benefit the company
    • Must focus on rational evaluation of private synergies
      • Business is worth more managed by CRE than by itself
    • Transaction costs
      • Due diligence fees (lawyers, investment banks, accountants, etc)
      • Managerial time to evaluate target firms, complete transaction
      • Transaction costs < expected synergies
risks of acquisition based strategy2
Risks of Acquisition Based Strategy
  • Too much diversification
    • CRE could begin to rely on acquisition activities to replace innovation
    • Managers may focus solely on financial performance of a business segment rather than strategic controls to evaluate business performance
  • CRE may be getting to big
    • Managers may implement more bureaucratic control to manage combined firm’s operations
    • Hinders innovation
risks of acquisition based strategy3
Risks of Acquisition Based Strategy
  • Managers overly focused on acquisitions
    • Large managerial cost associated with acquisitions
      • Searching for viable acquisitions
      • Completing due diligence process
      • Preparing for negotiations
      • Managing the integration process
    • Diverts attention from other matters that are necessary for long-term competitive success, such as identifying ways to drive cost-efficiencies
  • Beer

Raise avg. selling prices in certain strong regions to cover the increase in beer production materials

- divest non-core beer brands

- increase product mix - fine tune selling prices in certain regions - lift sales volume of premium beer



  • Increase the production capacity
    • Manufacture the products by themselves rather than by OEM factories
    • Pro: the supply chain become more vertically integrated
    • Con: costly
  • Develop healthy drinks
    • More people aware of healthy life style
    • Healthy drinks can be charged a higher premium
  • Product

- product quality improvement and innovation

  • Promotion
  • Increase brand awareness : superior product quality
  • Price: set a premium price
  • Place: Market expansion in China
  • Continue joint venture and acquisition with large food and processing companies