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China Resources Enterprise

China Resources Enterprise. STRATEGIC ANALYSIS AND MARKETING PLAN Prepared by Jessica Choi , Phoenix Tiu, Janet Poon , Cathy Ho & Timothy Sargeant. Presentation Overview. Problem SWOT Analysis –Overview Business Level Strategy - Focused geographical Corporate Level Strategy

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China Resources Enterprise

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  1. China Resources Enterprise STRATEGIC ANALYSIS AND MARKETING PLAN Prepared by Jessica Choi, Phoenix Tiu, Janet Poon, Cathy Ho & Timothy Sargeant

  2. Presentation Overview • Problem • SWOT Analysis –Overview • Business Level Strategy - Focused geographical • Corporate Level Strategy - Differentiation - Related- linked • Acquisition- based Strategy • Recommendation

  3. Problem • Low margins • CRE operating margin: 1.5% (2009 FY) • Sector average: 3.1% (Source: Datamonitor) • Desire from investors for higher profit margin • Acquisitions currently a very important part of CRE’s strategy

  4. Problem

  5. CRE Limited, SWOT Overview

  6. CRE Limited, SWOT Overview

  7. Business-level strategy • Focused differentiation with related linked strategy

  8. Business-level strategy Source: CRE 2010 Annual Report

  9. 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

  10. Beer Analysis

  11. Beer Analysis • Beer - "雪花 Snow“ • SWOT – Strength • China’s best-selling beer for 2009 in terms of sales volume • 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

  12. Beer Analysis • -Strong Brand AwarenessBrand Promotion Campaign : “The Great Expedition” (勇闖天涯) • more customer interaction • attracted many customers due to its story (not actual taste)

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

  14. Beer Analysis • 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

  15. Beer Analysis • SWOT –Threat • cost of production: raw materials, rent, utilities • increasing M&A cost

  16. Beer Analysis • Five Forces • Rivalry with existing competitors “Tsingtao”: great brand recognition, 15% of domestic market share [Snow: 20%] “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

  17. Beer Analysis • Differentiation strategy • product • Customer-Focused • Royal- looking and extravagant • noble gold and jade inlaid and engraved vision • Focus shift from supply-driven to demandsmall bottles like imported beers

  18. Retail Analysis • Regional leadership on a multi-format business platform

  19. Retail Analysis

  20. Retail Analysis

  21. 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

  22. 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

  23. Beverage Analysis C’estbon Pacific Coffee

  24. Beverage Analysis

  25. Beverage Analysis

  26. Beverage Analysis • Five Forces • Rivalry with existing competitors “C’estbon”: Master Kong, Wahaha, Nongfu & Coca-Cola Pacific Coffee: Starbucks and Gourmet Master (Taiwan brand)

  27. Beverage Analysis • Potential Entrants China beverage industry is attractive to the potential entrants Source: Canadean

  28. Beverage Analysis • Bargaining power of customers “C’estbon”: HIGH Pacific Coffee: LOW • Bargaining power of suppliers Pacific Coffee: HIGH • Product Substitutes Carbonated drinks, energy drinks and tea

  29. Food and Processing Distribution Analysis

  30. 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)

  31. 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

  32. Food and Processing Distribution Analysis Bargaining power of suppliers: Low • Many product sources

  33. Food and Processing Distribution Analysis • Weakness: • 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

  34. Food and Processing Distribution Analysis • Opportunities • Economic growth in China: increasing pork consumption--- demand increase • market expansion in China: joint venture and acquisition --- penetrate into production, retailing and marine fishing

  35. Food and Processing Distribution Analysis • Threats • 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

  36. Business-level strategy • Related linked: SBU Form of Multidivisional Structure • share some resource: distribution channels in different business units

  37. 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

  38. Beverage and retail • Holders of Pacific Club Card enjoy discount in supermarkets operated by CRE - sharing of marketing resources

  39. Current Corporate Level Strategy

  40. Key Acquisitions in 2010 • Acquisition of the Jialinshan project marked the Group’s expansion into the mineral water sector. • Acquired 80% interest in Pacific Coffee (Holdings) Limited from Chevalier Pacific Holdings Limited. • Ng Fung Hong won the bid to acquire a 60% stake in Jiaxing Food & Meat Co., Ltd.

  41. Acquisition-Based Strategy

  42. 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

  43. 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

  44. 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

  45. 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

  46. 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

  47. 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

  48. 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

  49. 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

  50. Risks of Acquisition Based Strategy • Integration Challenges • Financial systems • Control systems • Building effective working relationships

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