The inevitable evolution of growth

Introduction

Today’s food industry and the way it works is changing with a rapid speed. More and more companies are forming strategic alliances to drive operational efficiencies as well as drive down costs. The other reason to this kind of alliances are that it is a reaction to fierce competitive conditions and structural changes from the shift towards online market and continually going-on-discounts. 

The effects of strategic alliances

This pressure to remain competitive is leading many in the industry to form strategic alliances — sometimes with competitors — to keep pace with heightened customer expectations. Doing so, however, comes with its own set of challenges, making risk management and insurance critical components of these arrangements. (Marsh)

These alliances can be beneficial, allowing collaborating companies to:

  • Improve product development: Two minds are better than one. When two similar or complementary companies collaborate, they can bring different resources to bear, which can lead to real transformation. Rather than creating “separate but equal” standard products, they can unite to create truly innovative products that will move the needle for both companies.
  • Reduce costs: Innovation is not cheap, but it can cost less in a strategic alliance. The aligned parties can split the cost of procuring or implementing new technology and share facilities, which can reduce redundant capital expenditures for expensive technology and equipment at separate locations, and benefit from economies of scale along their supply chains. Ultimately, if a collaborative project fails, it usually costs less than if the parties were going it alone.
  • Enter new markets and grow more easily: Strategic alliances can speed up research, development, and production of new products and up the momentum on distribution of longstanding products debuting in new markets. Collaborating parties can piggyback off one another’s already established production or distribution platforms in specific locations. As such, companies are able to overcome production barriers and local cultural and operational obstacles that would otherwise hamper speed to market. (Marsh)

Unfortunately, strategic alliances often fail. Nearly half of the respondents to a 2014 study on strategic alliances by the CMO Council and Business Performance Innovation Network reported strategic alliance failure rates of 60% or more. (Marsh)

Figure 1. Mckeon 2014

A strategic alliance can bring its own risks. While the agreement is usually clear for both companies, there may be differences in how the firms conduct business. Differences can create conflict. Further, if the alliance requires the parties to share proprietary information, there must be trust between the two allies. In a long-term strategic alliance, one party may become dependent on the other. Disruption of the alliance can endanger the health of the company. (Kenton 2019)

In a summary, there are lots of benefits when forming strategic alliances, like improving product development, reducing costs and easier way to enter into new markets. And risks like failure in the management style and problems in the relationships between two companies. In addition, this kind of changes in the market will be tough for the suppliers, especially for the small suppliers. For example, Tesco and Carrefour, both have loads of own-brand-products. Once they form the strategic alliance, they want to reduce the costs and most likely keep producing more own products since it will be cheaper. Therefore, the small suppliers might suffer and lose the contracts to these food giants. 

Joseph Schumpeter’s theory of growth is one tool to understand and explain the strategic alliances. According to Schumpeter in a world characterised by a high degree of risk and uncertainty, only businessmen of exceptional ability and daring will be able to undertake innovations and launch enterprises and exploit opportunities for profit. (Ayesha) Schumpeter’s definition explain in one way, perfectly what is causing strategic alliances: the aim to get more profits and survive in today’s business world when creating new kind of forms of companies.

The causes of food inflation

Figure 2. FAO

During the last 5 years, the annual food price inflation in the world has decreased from 5% in 2014 to 4% in 2018 with divergent trends at regional level. (FAO)

Cost-push inflation occurs when we experience rising prices due to higher costs of production and higher costs of raw materials. Cost-push inflation is determined by supply-side factors (cost-push inflation is different to demand-pull inflation which occurs due to aggregate demand growing faster than aggregate supply). Food inflation causes this kind of cost-push inflation. (Pettinger 2016)

Figure 3. Pettinger 2016

According to The Balance (Amadeo 2019), there are five causes of inflation in world food prices. They will drive up food prices in the long run. There are also short-term factors that affect supply and demand. Those include the weather, animal diseases, and catastrophes. The following four reasons drive prices higher over time: 

1. High oil prices raise shipping costs. Food gets transported great distances. You can expect high gas prices about six weeks after an increase in oil futures.

Oil prices also affect farming. Oil by products are a significant component of fertilizer. That contributes 20% of the cost of raising grain. Between 2001 and 2007, high oil prices added 40% to the cost of growing corn, wheat, and soybeans. 

2. Climate change creates more extreme weather. Its cause is greenhouse gas emissions that trap heat, causing air temperatures to increase. Hot air absorbs more moisture. It rains less, water from lakes and rivers evaporate, and the land dries up. When it does rain, the water runs off the land instead of getting absorbed into the water table. That creates floods.  

3. The U.S. government subsidizes corn production for biofuels. That takes corn out of the food supply, raising prices. America now uses 40% of its corn crop to make ethanol. That’s up from 6% in 2000. 

4. The World Trade Organisation limits the amount of subsidized corn and wheat that countries can add to global stockpiles. The United States, the European Union, and some developing countries heavily subsidize their agricultural industries. Farmers in those countries receive an unfair trade advantage. The WTO limits stockpiling to lower this edge. But it also reduces the amount of food available in a shortage. That increases food price volatility. 

5. People around the world are eating more meat as they become more affluent. It takes more grain to feed the animals needed for meat-based meals than is necessary for grain-based meals. Higher demand for meat means higher grain prices. Over time, this could offset lower United States demand for meat and dairy.

Food inflation is not unequivocal subject. There are several major factors and some smaller ones to make impact on it. It is happening all over the world and something has to be done to slow it down. Climate change talk is very hot subject at the moment. More and more things are being done in the companies to slow down the climate change. There is still lot to improve to stop it. Trends affect a lot to how people are consuming and in that way it affects on the prices of the food. 

List of references

Amadeo, K. 2019. Why Food Prices Are Rising, Recent Trends, and 2019 Forecast. URL: https://www.thebalance.com/why-are-food-prices-rising-causes-of-food-price-inflation-3306099. Accessed: 25.6.2019.

Ayesha, J. Schumpeter’s Theory of Economic Development|Economics. URL: http://www.economicsdiscussion.net/economic-development/schumpeters-theory-economic-development/schumpeters-theory-of-economic-development-economics/30174

Food and Agriculture Organization of the United Nations (FAO). Inflation in consumer price index for food. URL: http://www.fao.org/economic/ess/ess-economic/cpi/en/#.XdUjQi2Q1QJ

Kenton, W. 2019. Strategic alliance. URL: https://www.investopedia.com/terms/s/strategicalliance.asp. Accessed: 5.9.2019.

Marsh. Emerging Risks Spur Strategic Alliances in Manufacturing and Automotive Industries. URL: https://www.marsh.com/us/insights/research/manufacturing-and-automotive-alliances.html

Mckeon, M. 2014. 9 Challenges to Developing and Managing Strategic Partnerships. URL: https://www.powerlinx.com/blog/strategic-partnership-challenges/. Accessed: 15.9.2014.

Pettinger, T. 2016. Cost-push inflation. URL: https://www.economicshelp.org/blog/2006/economics/cost-push-inflation-2/. Accessed: 19.20.2016.

Pettinger, T. 2016. Food inflation. URL: https://www.economicshelp.org/blog/2578/economics/food-inflation/. Accessed: 10.1.2016.

How mission and values are affected by company’s vision?

Introduction

TOKYO—In the 1960s, Fujifilm Holdings Corp. was a regional presence just starting to widen its focus globally and playing a distant catch-up to photographic-film leader Eastman Kodak Co.Fujifilm couldn’t have maintained revenue if it focused only on digital imaging, says CEO Shigetaka Komori. But in the subsequent 50 years that have relegated film to the margins, Kodak failed to keep pace, filing for Chapter 11 bankruptcy protection on 2012, while Fujifilm has transformed from a fairly narrow photographic supplier into a diversified company with significant health-care and electronics operations. What Fujifilm did was to look further than simply moving to digital photography from analog. Instead, the company tapped its chemical expertise for broader uses, such as drugs and liquid-crystal display panels. Cosmetics, as well: It seems the process for stopping photos from fading can be used on skin, too. (Inagaki, K & Osawa. J. 2012)

In today’s fast-paced world, companies are struggling to keep up with the rapidly changing demand of customers. Fast decision making is essential skill to have nowadays since businesses are changing all the time and. You need to be willing to take risks if needed to keep your company alive.

How businesses can research and identify the new market trends? 

In today’s business environment, sustaining growth and profitability is never a guarantee. Technological and scientific advances shorten life cycles of products and services, business models change and new competitors appear from outside the industry. This constant instability makes it necessary to seek new business opportunities. (Euromonitor International, 2017)

According to Euromonitor International, there are eight analysis types to identify market opportunities:

  • Consumer segmentation – To understand your demand, you must identify consumer segments that share common characteristics. These characteristics can be “hard” variables such as age, gender, place of residence, educational level, occupation and level of income or “soft” variables such as lifestyle, attitude, values ​​and purchasing motivations.
  • Purchase situation analysis – Looking at distribution channels, payment methods and all other circumstances that involve purchasing decisions can teach you how consumers buy and how you can position your product appropriately. Offering new shopping alternatives may bring new customers. For example, vending machines offering snacks like yoghurt and individual juices have been introduced in the hallways of the subway of Santiago de Chile, promoting on-the-go consumption.
  • Direct competition analysis – In addition to analysing demand and purchasing situations, it is important to analyse supply. Knowing the existing players in the market where you are competing or going to compete is important when evaluating opportunities. 
  • Indirect competition analysis – Opportunities can also be found by analysing substitute industries. For example, thanks to the decrease in airfares, airlines may look for opportunities in consumer segments currently supplied by other means of transport.
  • Analysis of complementary products and services – Companies should monitor the performance of other companies’ products, which are complementary to their own. For instance, a packaging company should monitor sales of products that it could potentially package, while a company producing coffee machines should gather insights on the evolution of different types of coffee sales. Trends in complementary markets should be taken into account when making investment decisions.
  • Analysis of other industries – In some cases, the objective of companies is not to continue operating within an industrial sector but to expand a certain business model or philosophy.  For example, a British holding of companies, Easy Group, started maximising the occupancy rate of flights with the airline Easy Jet. Easy Group understood that it was preferable to sell a seat at a lower price than not selling it at all. Easy Jet opted for a rate management model that depended on the occupancy rate of flights and the time remaining until the day of the flight. With this business model, it managed to increase occupancy rates. Easy applied the same model to cinemas when it created Easy Cinema and then with buses for Easy Bus. In any case, to enter a new industry it is important to learn about competition first: market sizes, market shares, growth rates, unit prices, per capita sales and brands positioning.
  • Foreign market analysis – When a company operates in a mature or saturated market, exploring other countries may lead to additional opportunities. Markets in different countries grow at different paces for several reasons, including disparities in the level of economic development and local habits. Knowing the evolution of per capita consumption of a given product in a given country can serve as an indicator of the maturity of the product’s life cycle. Having information on the size of the market and competitors in other countries will help to estimate the business potential.
  • Environment analysis – Market opportunities can also be identified by analysing changes in the environment with technological and scientific developments generating new business opportunities. For example, the growth of the Internet and smartphones’ penetration has enabled the arrival of companies with new business models such as Airbnb and Uber. 

There are many things to take under consideration when predicting the market trends. One more to add on the list is to make the most of digital tools and analytics to assess the industry behavior. Social media is huge thing nowadays and you can get the idea what consumers want and what is or will be trending. You can also reach many consumers with interesting and original campaigns in social media and make new trends by yourself as well. The most important thing again is to react fast to hints of what will be the next big thing. Overall it is crucial to follow what is happening in the business world and what other companies are doing – to follow the conversations and if possible, to participate to the discussions. It’s essential to understand consumer’s buying process, analyze the data you have about it. It is important to take under consideration the supply and demand theory about pricing and quantities of products you are making.

How can companies adapt to market changes?

Change is inevitable not only in life but in business too. As long as the people and the technology are progressing, so should the businesses around them. Hughes defined change as “any alteration in the status quo”. It is the start of a revolution, may it be small or not. If they do not adapt to their environment, the competitive edge they offer to their customers would likely be gone. The importance of adapting to change in business should be noted by owners. They should know what changes need to happen so that they can still provide a great experience for their consumers. Benefits of change in business can be seen in easy situations like how technology is adopted by most of them. Another example is the online world. As people are getting more preoccupied with other things, many of them do not go to physical stores but shop online. Because of this, many brands and businesses have adapted to it and made accounts in different social media and created their own website. As a result, those who adapted well to it have increased their revenue by far better than those who still have not. (Chua, 2019)

Great success story beside of Fujifilm is Amazon. They started as an online marketplace for books. Later on, they started to sell pretty much everything from clothes to electronics. Nowadays the company is also focusing and developing artificial intelligence which is far away from the online store for books. Now Amazon is even creating supermarkets where you can just walk-in, collect what you want to buy and your smartphone is acknowledging what you put in your cart and after you can just walk out from the store and the money goes from your bank account. What Amazon has done and is doing all the time, is adapting to new market changes. Like Fujifilm, it has reacted to rapidly evolving world. Either you adapt or you will in worst case scenario lose your company. 

The mobile giant Nokia has different kind of story. They used to rule the market, and then something happened. They had created the first mobile phone with touch screen, but they thought that no one would want to have this kind of phone. What happened is that Apple came and published this kind of product first – and it was a success story which is still continuing. Nokia had the technology that could have kept them be the market leader even now, in 2019. They failed to read the market trends and adapt to changing business world.

There are few theories and models about adapting and renewing your business model. One is Kurt Lewin’s change model. Kurt Lewin developed a change model involving three steps: unfreezing, changing and refreezing. The model represents a very simple and practical model for understanding the change process. For Lewin, the process of change entails creating the perception that a change is needed, then moving toward the new, desired level of behavior and finally, solidifying that new behavior as the norm. The model is still widely used and serves as the basis for many modern change models. (Study.com) Here are the three steps in Lewin’s model:

Unfreezing

Before a change can be implemented, it must go through the initial step of unfreezing. Because many people will naturally resist change, the goal during the unfreezing stage is to create an awareness of how the status quo, or current level of acceptability, is hindering the organization in some way. Old behaviors, ways of thinking, processes, people and organizational structures must all be carefully examined to show employees how necessary a change is for the organization to create or maintain a competitive advantage in the marketplace. Communication is especially important during the unfreezing stage so that employees can become informed about the imminent change, the logic behind it and how it will benefit each employee. The idea is that the more we know about a change and the more we feel it is necessary and urgent, the more motivated we are to accept the change. 

Changing

Now that the people are ‘unfrozen’ they can begin to move. Lewin recognized that change is a process where the organization must transition or move into this new state of being. This changing step, also referred to as ‘transitioning’ or ‘moving,’ is marked by the implementation of the change. This is when the change becomes real. It’s also, consequently, the time that most people struggle with the new reality. It is a time marked with uncertainty and fear, making it the hardest step to overcome. During the changing step people begin to learn the new behaviors, processes and ways of thinking. The more prepared they are for this step, the easier it is to complete. For this reason, education, communication, support and time are critical for employees as they become familiar with the change. Again, change is a process that must be carefully planned and executed. Throughout this process, employees should be reminded of the reasons for the change and how it will benefit them once fully implemented. 

Refreezing

Lewin called the final stage of his change model freezing, but many refer to it as refreezing to symbolize the act of reinforcing, stabilizing and solidifying the new state after the change. The changes made to organizational processes, goals, structure, offerings or people are accepted and refrozen as the new norm or status quo. Lewin found the refreezing step to be especially important to ensure that people do not revert back to their old ways of thinking or doing prior to the implementation of the change. Efforts must be made to guarantee the change is not lost; rather, it needs to be cemented into the organization’s culture and maintained as the acceptable way of thinking or doing. Positive rewards and acknowledgment of individualized efforts are often used to reinforce the new state because it is believed that positively reinforced behavior will likely be repeated.

Like we can see through companies like Fujifilm and Amazon is that once you adapt to change you have the possibilities to keep up with the changing world and keep your company alive. Nokia on the other hand shows what can be your company’s fate if you don’t adapt to market changes. Business world has always been crucial, but in today’s world even more because the technology is evolving faster then ever before, consumer’s demand more and faster things to happen and new startups are coming to the markets all the time. The competition is very high, and if you don’t keep up with the market changes and trends you will fail to succeed. Companies need to get creative to be able to diversify their business and products. Fujifilm did amazingly when applying their already existing technology into something totally new, like skin-care products.

References

In-text reference: (Euromonitor International, 2017)
List of references: Chehtman, A. 2017. 8 ways to identify market opportunities for business growth. URL: https://blog.euromonitor.com/8-ways-identify-market-opportunities-business-growth/. Accessed: 23.6.2017.

In-text reference: (Chua, 2019)
List of references: Chua, F. 2019. Adapt or die: The importance of adapting to change in business. URL: http://customerthink.com/adapt-or-die-the-importance-of-adapting-to-change-in-business/. Accessed: 28.1.2019.

In-text reference: (Inagaki, K & Osawa. J. 2012)
List of references: Inagaki, K & Osawa. J. (2012). Fujifilm Thrived by Changing Focus. The Wall Street Journal. January, 20, 2102. http://www.wsj.com/articles/SB10001424052970203750404577170481473958516. Accessed: 20.1.2017.

In-text reference: (Study.com)
List of references: Hartzell, S. Lewin’s 3-stage model of change: unfreezing, changing & refreezing. URL: https://study.com/academy/lesson/lewins-3-stage-model-of-change-unfreezing-changing-refreezing.html.