Describe about the Doing business Globally & Internationally for Largest Public Company.
1a. Most important external matter and trends which drove Kellogg and Wilmer together.
On September 25, 2012, Kellogg Company and Wilmer International limited have announced a 50:50 joint venture for the production, sale and distribution of wholesome snacks, snacks of savory, and cereal in China. Wilmer is a wholly owned subsidiary company in Singapore and Kellogg is a large public company selling their variety of cereal products in 180 countries around the world (Baldwin, 2012). They started a joint business with only one product –Kellogg’s Corn Flakes. But, today, after the 100 years since their foundation, they are become one the largest public company in the world. China is expected to be the largest beverages and food industry globally within the next few years. The consumers in China are mainly driven both by the growth of a middle-class people in the large cities. There is also a desire for a wide range of branded and packaged product in the China market. The consumption of cereal is increased in the global market along with the increased consumption of the milk products as well. The consumers want to eat healthy foods at their breakfast and cereals consider being a convenient food product available everywhere in the world (Bold, 2013).The Kellogg-Wilmer venture has followed certain marketing principles. Such principles are applied to track the environment they are operating in or planning to launch new project/product. In China, there are many political, social, technological, legal and environmental issues which might affect the partnership company at the time of business launch. The critical analyses of socio-economic factors are as follows:
Political: It is known that Government may influence particular types of industries or economy. The revenue generating structure is also get influenced by imposing new tax rules or duty structure of the Government. A political issue also includes Fiscal policy, trade tariff (Casson, 2013). The Kellogg-Wilmer Company found China’s tax policy favourable for exporting their Cereal products in that country.
Economic: Economic factors include interest rates, foreign exchange rate, inflation rate, economic growth pattern of the country. The Government of China encourages Cereal food products by FDI policy’s low rate of interest for foreign direct investment (Czinkota&Ronkainen, 2012).
Social: These factors highlights social environment of the market considering the factors like cultural trends, population analytics, geographic position. In China, demand for the food product is enormous due to huge population.
Technological: This factor pertains to innovation to technology that may directly affect the operations of the industry. The Wilmer International is famous for improved mechanism and technology which they used to produce high quality agricultural product globally (Kurtzman &Phumiwasana, 2013).
Legal: The legal issues like consumer law of the country, labour laws, safety standards. The Food Corporation of China is very active for maintaining country’s safety standards and consumer laws are also renewed recently. So food product for Kellogg-Wilmer is being secured by China’s legal structure.
Environmental: Factors of the business environmental analysis include weather, climate, and geographical environment. The climate of China is favourable for corn, rice production. Such factors would also go positive for cereal production in China (Peng, 2014).
Diagram-1 PESTEL analysis
(Source: Casson, 2013).
Highlighting key factors among PESTLE analysis that collaborated the two companies:
Environmental factors- Both the companies are situated in different countries and come together to flourish their business in China. The reason behind their collaboration is that Wilmer International is familiar with Asian work culture, because earlier the company have worked in the same environment (Cavusgilet at al, 2014). So, it expected to get good guidance at the time of business expansion in China.
Social factors- Both the companies were analysed huge demand of snacks and cookies products in China. So the Kellogg Company wanted to concentrate their brand expansion with the help of Wilmer International who is famous for integrated supply chain distribution in Asian Countries. So these reasons were considered at the time of Kellogg-Wilmer collaboration in China.
In supply chain management, the impact of the growing agricultural ingredients is the most important issue which drove Kellogg and Wilmer together. According to the new survey report, the agriculture is the single largest deforestation driver on Earth. Agriculture is the largest user of water, the biggest user of chemical and the largest users of the water population on Earth. The sustainable agricultural work of Kellogg focuses primarily on the grains like wheat, rice, corn and palm oil as well. The approach of the company involves working with breeders and growers of these products and in work as a joint venture in the other part of the world. To help the agricultural sector by maximizing the growth in all over the world is the main driving force for the co-venturing between the Kellogg and Wilmer in china market.
1b. Causing issues for being work together
The joint venture raised economic efficiency by introducing profit incentives to family firms like Kellogg at their initial stage, rural enterprises, small private businesses and foreign investors and traders. The environmental issues include the political intervention in the trade policy of a particular country. By the enough revenue achievement in the process of work together, the joint company can improve business performances and productivity of the agribusiness will enhance in China. The Wilmer uses high mechanism and technologies for food production system. The factor causing issue in the current the Kellogg is not familiar with utilizing such mechanism in production of Cereal products. Also, Kellogg Co chief executive officer John Bryant was strictly opposed the illegal deforestation that its partner Wilmer has been accused. He strongly believes that Kellogg Company publicly committed to sustainability. This difference of opinion may be of the main cause for their business collision.
1c. Areas of expected internal benefits and synergies for Kellogg and Wilmer ltd
The business expansion takes place for expanding sales, acquiring resources, and minimizing risk. Kellogg Company and Wilmer International ltd announce joint venture in China expecting internal benefits due to their partnership. Wilmer will contribute in the development of infrastructure, scale of supply chain, an extensive sales and distribution network in China. Kellogg will contribute a portfolio for their brands which are globally recognized. The huge population of China is the main reason for large demand for the food product. So the domestic industries of China are face problem to generate large volume of food production. So the Kellogg-Wilmer company would present variety of cereal foods which are new for the Chinese people. Also Kellogg-Wilmer has brought cereal products to China due to huge milk consumption of China people. They will provide variety of cereal, snacks products with different flavour which will attract the new customer base in China. After the joint venture the company together will leverage this complementary expertise to increase manufacturing and marketing synergies (Chor & Manova, 2012).Kellogg Chief Executive John Bryant is enthusiastic about the fact thatthe snack market of China is expected to reach an estimated $12 billion by two years which will be a higher than 44% in comparison with the year of 2008 (Baldwin, 2012). So the China’s huge market for these products is a positive for both the companies. To capture this growth, Kellogg and Wilmerwill leverage the key strength bring to the partnership like scale and regional market experience, mutual commitment to innovation focusing the requirement of the consumer in China (Forsgren&Johanson, 2014). Through this relationship both the companies are benefited by developing a strong working relationship and trust within an organization.
Wilmer is having a portfolio of high quality processed agricultural products in the diverse location of the world. The manufacturer of the food industries are preferred their services. Wilmer is also famous for their high quality supply chain services mainly in Asian Countries like Australia, Singapore, Thai land and many more. Wilmercan extract the value chain services of other company effectively and efficiently in the joint venture business (Czinkota & Ronkainen, 2012). This is a positive aspect in their partnership because high level of marketing is required for distribution of the product and expansion of sales volume.
2. Kellogg’s two attempts to enter the Chinese market with Zhenghang Food Company in 2008 and Wilmer International Limited din 2012.
a. Kellogg’s two attempts to enter the Chinese market (Zhenghang Food Company in 2008 and Wilmer International Ltd. in 2012)
Kellogg Company has tried international expansion for the cereal products in several times. Kellogg Company was first tried to enter in the china market in the year of 2008. As per the Kellogg’s Annual Report of 2011, the acquisition with Zhenghang was not worked for the company (Dunning, 2014). Things didn’t go what was expected. The company recorded impairment charges estimating $29 million in that context with Navigable foods which incorporated $20 million of goodwill (Fraser & Strategy, 2013).According to Kellogg Chief Executive John Bryant, the operating loss was huge since the acquisition and the trend was expected to continue. The bad financial record of the company was a major issue for the decline of business in China.
In the year of 2012, Kellogg Company was again attempt to enter China with Wilmer International for their business expansion. This joint venture would not repeat previous faults and made product considering the Chinese people preferences. Recently western food products are well accepted by China people, so market is ready to accept foreign food product whole heartedly.
b. Describing the difference between the two attempts and their relative risks.
Last time, Kellogg Company didn’t say to their customer that the cereals of the company would be sold in fresh Chinese flavours. So the Chinese customer didn’t know the product quality variation (Forsgren &Johanson, 2014). Though the Zhenghang Company was situated in china, the company is failed to provide high level of distribution network in China. Zhenghang was familiar in Chinese work-culture, but Kellogg was not aware the cultural preferences of Chinese people. Also in that space, there were lot of competitive companies presented their food product. The risk of domestic companies was also in the competition with the same kind of product in the market. The local brand like YUM was concentrated the local Chinese flavour and gained the popularity. The partnership with Wilmer Company has attempted other business policy while entering in China. The company was now concentrating domestic preferences and twist in taste as per the market suggests.
The risk associated with Wilmer International is currency rate difference of Singapore dollar and US dollar. The US dollar is considered the strongest currency in world economy. So imbalance in currency exchange may be a causing issue for internal transactions with both the companies. Also in recent time, the Kellogg Company faces intimate partner violence with Wilmer International. So, the Kellogg Company is highly in pressure to continue their partnership with Wilmer International.
c. Why would the partnership with Wilmer be considered more likely to succeed.
As per the Kellogg Annual report, 2012, the joint venture with the Wilmer has considered all the above facts for made it successful. Kellogg Company is famous for cereal products that have a high level of fibre content with added Chinese flavour in their products which was missing at the time of Kellogg’s partnership with Zhenghang Limited (Gesteland, 2012). The chief executive of Kellogg thoughts that by the help of Wilmerthe joint company can introduce improved level of delivery system. The joint company can share similar work culture because both the companies relate to Agricultural businesses and popular for well developed supply chain management. The Wilmer International is also known for product distribution in the Asian countries, which would be positive for market expansion in China. In the face of the global risk such as climate change, resource depletion, environmental degradation, Kellogg and Wilmerwould consider all such facts during the production (Gesteland, 2012). Wilmerand Kellogg would experience huge scale of operation because the number of employee in the joint venture company was huge. Through merchandising and distribution performed by the Wilmer, the newly formed company world experience wide range of agricultural product In the China market.
3b. Analysis the corporate culture of the partnership business in connection of the joint venture of Kellogg and Wilmer International Limited
The geographical business expansion is possible when the company focuses on domestic preferences as the key for the manufacture of the product. Before entering in the other country, the foreign company should study the local business market and preferences for that particular industry. The cultural difference may be the obstacle for make it successful. By it is the primary duty of the company to identify the local food habits, cultural behaviour of such country and the economic growth exposure of such country. Here Wilmer International Company launched their joint venture company at Shanghai for product manufacturing, selling and distributing snacks and cereals in China. In research the company found that the demand for snacks product is huge in China market. Also the position of the China’s sweet and savory snacks was $13bn in 2012 which will expect to increase $21 bn in 2017. So Kellogg-WilmerCompany would research the current China food market and concentrate to produce their product with some twist and turn as per the local preferences. The retail market exposure is also huge in China (Haley et al, 2013).
The Chinese companies are highly believed in technologies and mechanism.The Wilmer uses high mechanism for food production. They have also working experience in Asian Countries previously with other companies. So the Chinese corporate culture is well known for Kellogg-Wilmer. It is important for the joint company to utilize the combined resources of the organization towards the ultimate goal. The recently acquired Pringle brand by Kellogg Company created huge demand for the snacks product in China. So the demand for breakfast cereal would achieve huge potential in the China’s agricultural business. So the success of the partnership is about to analysis corporate culture and native culture of the country.
3c. Impact of the Partnership between Kellogg and Wilmer International in the initial stage of operation:
Business culture partnership helps to gain profit by strengthening their identification with their place of living, expanding their horizon, offering them new events and experiences. The organizational culture sets the stage for the relationship that develops. Here the Kellogg-Wilmer Company would develop their product after analyzing combine business values, belief and expectations. So the difference of work-culture should reduced by both the companies for smooth running of the new business (Ghemawat, 2013).
The impact of the partnership between Kellogg and Wilmer International during the exploratory stage is vast and huge. The exploratory stage is the first step of product life cycle. In this stage, the company mainly focuses the internal resources of the joint business and the market exposure regarding such business environment. The operational cooperation is mandatory for building a long-term Partnership. The internal resource of the Wilmer International is huge (Gesteland, 2012). Kellogg will get the workforce of 93000 people globally who are currently employed in Wilmer International. In the final stage of the product life cycle, the operational loss will be dividend fifty percent in both the companies. So the burden of financial loss will be segregated and controlled.
In the exploratory stage, Wilmer can contribute smart mechanism and advance technology through which fast production of cereal product can possible in China (Hill et al, 2013). And in the last stage of the operation, the joint company can use higher level revenue in the internal productivity enhancement program. So the impact of joint venture will make a huge difference in the initial stage of the production.
4. Critically discuss the possible effects of exchange rate movements on the partnership:
Exchange rate movements on the partnership:
When the company deals with different currencies, exchange rate difference can effect by the company. Foreign currency exchange rates have positive and negative effects in joint venture business.
Exchange rate movement arises, due to foreign direct investment. Foreign direct investment includes variety of transactions, such as purchase of stock, the creation of production facilities or of network of distribution and the acquisition of land for commercial or residential use. The movement of transactions can positively affect by decrease rate of interest in foreign country. The foreign company can invest more capital in those countries which provide low rate of interest. Also, this principle can help to built long-tem relationship in joint venture business. Stable trade policies are extremely important both for the economic welfare of the countries concerned and for the preservation of the multilateral trading system (Ghemawat, 2013). In this context, the china is having strong trade policy which is helpful for foreign direct investment. The Kellogg-Wilmer Company is facing the favourable market condition of Chinese market. The Wilmer is a Singaporean company where as Kellogg is mainly situated in United States. So in the joint venture, the partnership company make transactions with Yuan currency of China. However, the rate of currencies is different in both the countries, but the company would be benefited by low rate of interest in China. Wilmer will contribute regional knowledge in china market as well as steady infrastructure, an extensive sales and distribution network across the country, Kellogg will add the strong brand reputation and underpin growth with its expertise in the cereals and snacks products. So, there are lot of positive effects company will experience for currency movement in their new business.
Negative effects:The internal balance of the workforce will be an important aspect in the partnership business. The production will hamper if the internal balance of work-place lost their position due to geographical expansion of a particular business. In this case, Kellogg and Wilmer maintain their market sustainability with the integrated business activities and expand the internal resource application (Verbeke, 2013). In this case, the flexibility of the exchange rate movement is also considered by the management. Because China has a different tax procedure than Singapore or other Asian Countries like Australia, New Zeeland and many more. So the effects of exchange rate partnership are large in the partnership business context. Also the Chinese market condition is very volatile which carry a negative impact for the Kellogg-Wilmer Company (Persinger et al, 2011). The dollar is the strongest currency in the world economy. So it is always a big challenge for other country like China to maintain internal balance of exchange rate difference in business transactions.
China’s exchange rate policy is very volatile for political disturbances. Also movement of exchange rate may change due to price received by customer situated in other part of the world. The elasticity of export movement is estimated by China’s RBM movement. Secondly, Export Company may price their product as per the market cost of China, and adjust the price-cost margin with the optimization of export profits. The movements of exchange rate are not passed to the importers or customers in destination countries. A developed country like China reveals low exchange rate pass-through to price of the import at the aggregate level. Thirdly, the response of the exchange rate is not adjusted in intensive margins of trade. It means the firm is emphasized the extensive margin of trade. So the exchange rate movement has enormous effect on partnership business. The productivity of the cereal products in China is directly related to the movement policy of exchange rate. Though, then Government of the China has reduced the exchange rate for long-term bonding with the country, benefits will be increased in the long-run of the business.
The exchange rate appreciation has a negative effect in the large scale of export. An appreciation of native currency may reduce the probability of the firm’s export. It will effect in both the companies by the surviving probability of the existing market and that of entering a new market. By the China’s foreign trade policy, Kellogg-Wilmermay affect negatively for the exchange rate appreciation. In summary, the effect of currency appreciation on trade will largely affect the joint company. So at the time of price of the cereal product in China, the company needs to consider the volatility issue more seriously. Finally, the partnership company needs to research the firm-level data and examine how productivity affects the firm’s response of appreciation (Baldwin, 2012). In Kellogg-Wilmer business, companies were exposed to three types of risk caused by currency volatility. The exchange rate fluctuations in China have an effect on Kellogg-Wilmer Company’s obligations to make or receive payments.This are called transactional risk. Translational exposure arises from the effect of currency fluctuation. Also, the unanticipated exchange rate fluctuation can largely affect Kellogg-Wilmer Company’s competitive position in China in their economic exposure.
Diagram-2: Transactional, Translational and economic exposure of hedging and un- hedging risk of a business.
(Source: Bold, 2013)
5. The specific aspects undertaken by Kellogg’s for doing business internationally
It is to be indicated that the international business requires the maintenance of the business ethics more specifically. It is to be indicated that the joint venture process between Kellogg’s and Wilmer is required maintaining several Codes of Ethics, which are relevant enough in doing business internationally. The maintenance of the ethical consideration is the mostly required field in the international business market. However, the companies have undertaken three aspects, which are quite beneficial if used for the future prospects in time of doing business internationally. These three main aspects are elaborated below:
The teamwork of the companies is effective enough for reaching towards the same organizational goals and strengthening the business position in the competitive market. The Code of Ethics established by the joint venture process of Kellogg’s and Wilmaris significant enough for ensuring the strengthened business position in the globalised and internationalized business market (Verbeke, 2013). The Code of Ethics can even effectively resolve the internal conflict that may arise within the business. The fairness and the honest working performance are ensuring the business development as well. It is to be noted that the joint venture process has eliminated the involvement of the third parties other than the employees while performing the business tasks.
Fair Treatment of the Employees
According to (Schuleret al, 2011), the internationalized business occupies the employees from different cultures and traditional background. Therefore, it is very much important for the management of the companies to treat the employees fairly and equally. The fair treatments and appreciation will be beneficial for bringing out the better outcomes of their performance. The maintenance of the equal and fair treatment is thus very much important in considering the international business dealings.
Responsibilities of the managers
It pointed out that the business success and development in the international business market requires the support of the skilled management system. The managerial responsibilities are thus considered as the most significant aspects in time of the business establishment in the globalised competitive market (Terpstraet al, 2012).
The joint venture of Kellogg’s and Wilmer is is one of the significant mergers in the Chinese market. Both the companies are performing the business activities by determining the act of integrity and by showing respects. It is to be notified that in the process of joint venture between Kellogg’s and Wilmer, the employees are needed to be treated fairly. The human resource management has to play the most vital role in considering the motivational aspects and engaging the employees within the business activities. If the managers can motivate the employees by proper appreciations and providing the facilities, it will be justified enough for the employee retention process. In fact, in considering the joint venture process of Kellogg’s and Wilmer is keeping the concentration on the managerial responsibilities for the business establishment in the Chinese market (Zikmundet al, 2012). The maintenance of the managerial responsibilities is fruitful for bringing the skilled outcomes of the employees’ performance. The skilled performance of the employees will be strengthening the business position in the Internationalized Business Market. Such geographical expansion of the business will affect largely in the agricultural world. The future agricultural growth possibilities in China will be the main driving force for that partnership.
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