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Internalisation is one development factor and strategy that is behind the growth force of many corporations. Branding and promoting corporations products and services is the basis of internalisation, hence it has become a major sales and growth driving factor to create global institutions. Below an analysis of two corporations, Ferrero and Mars, is presented, as they are major participants in global trade and have adapted the internalisation strategies perfectly.
Ferrero Company Overview
Ferrero Company was started in 1942 and is apparently a holding company located in Luxembourg. It is a family owned business (Beckett 2008). It has at least seventy allied companies in more than one hundred countries globally. The company employs about 21,700 individuals worldwide. It has more than 6.6 billion sales. Its popular products are Kinder chocolate, Kinder Surprise eggs, Ferrero Rocher, and Mon Cheri.
Mars Corporation Company Overview
Mars is situated in the UK. It has many branches in different locations. These locations have more than 3,800 links. The company produces global favourites such as Snickers and Mars bars. It also produces confections such as Dove, Musketeers, Milky Way, Twix, and Skittles. The product collection also includes Klix and Flavia beverage systems, Combos and Kudos snacks, Seeds of Change organic food, Sheba, etc.
Key Success Factors
Both corporations have really learned major strategies and factors of internalisation. They both offer food and beverage products, hence in one way or another they come from one industry. Chocolate is one of their products. The chocolate manufacturing business remains flexible regardless of a recessive worldwide economy, changing commodity prices, decreasing disposable incomes, and rising competition from substitutes. The apparent health consciousness of the consumer requires the manufactures to be more accurate, original, and innovative with their products and be adaptive to the consumer changing tastes and preferences. Mars and Ferrero have intensified in some key factors that enable them to compete with the outside world. In order to identify their customers and their preferences, they endeavour in conducting research on what clients preferably consume. According to the two companies, consumption of their products is mostly among the youth of the ages between 16 and 29 years old (Sullivan 2008). Consumers also prefer products with less sugar. These products should also be wrapped individually but in one package. More so, the health changes in most nations have caused people to prefer healthy products and those containing minerals, milk, and vitamins. Therefore, the companies have reduced the sugar content in their products.
Another success factor is derived from customer relations and product quality and preference. They understand what customers need from suppliers; the two companies have been innovative to modernise their representation without alienating main loyalists to the consumers. They usually update their products and the mode of packaging. Ferrero, for instance, has been able to update Kinder which apparently beats the market in the UK. Kinder represents almost half of Ferrero’s total sales and 25% in the UK (Presilla 2009). The company is still trying to gear up for the UK launches of other lines of market apart from its accessible range of chocolate stored in chillers. Mars, on its side, keeps on innovating and updating its products annually. They know how to handle demands of competition. According to location theory of internalization, a company can increase their profits by establishing themselves in other locations. The two companies were among the first key companies to identify the new markets in China in 1990s. As they were able to compete for the market in China, they contributed a lot to the transformation of the Chinese economy. Ferrero, which is Italian chocolate producer, being one of the most exclusive and exotic brands in the world, also succeeded in China and other parts of the world. The company used an independent distribution partner and exploited many nations’ penchants by giving them expensive imported presents. They succeeded in selling to the people its foil-wrapped, fragile hazelnut treats (Amatory and Jones 2003). The company was amid the first of the big five companies to establish a feasible foundation in China. It has kept its prices high, its quality has remained outstanding, and its image has remained special and foreign. Ferrero has ensured their position in the Chinese market as the company maintains the quality of the product by shipping its Italian made chocolates to Hong Kong where they are packaged.
Further competitive advantage can be seen in the pricing mechanism of these companies. At Mars for instance, moved to the UK 20 years after being founded. Between this time the company had already gauged their price and seen that they could operate in the market and still make a profit. According to transaction cost theory, the commodity price operating in the market should be more than the internal price at the company to allow for returns. The time allowed for growth also made the company build its reputation, acquire production and human capital, and establish a mechanism through which they could acquire raw materials and market their goods. These are some of the highlights of the OLI-Model, which a corporation wishing to become an international entity can utilize.
Ferrero is a clear illustration of how the Uppsala model can be used to build competitive advantage for a company. The company was founded in Italy, and after some time it spread its operations to Germany and other countries. According to this model, a company, once established, it has to gain domestic experience before moving on to other parts of the world in order to look for greener pastures. Without this, a company may not be as successful in the international venture.
Both companies are strong players in their markets. They have survived in the industry for a long time since their establishment. This shows that they have utilized some feasible strategies in order to remain relevant and profitable. There are some strategies that international businesses have to incorporate in order to make it in the global front. First there is the global strategy. This is adopted by a company wishing to take its products to all continents. This is a very large geographical location, and with it comes a need to have resources capable of establishing numerous centres of operation. A company involved in the food industry, such as the two in question, can use this strategy since it is possible for them to operate on a global scale.
The other strategy is the transitional strategy. This is utilized by a company wishing to change its mode of operation from a local to a bigger scale. The international strategy is the most common. It is undertaken by a company wishing to take its operation to other countries, other than its country of origin. All multinational companies have undertaken this strategy at one time or another in the cause of their expansion. The multi domestic strategy involves increasing operations in their country of origin. For instance, after the founding of one factory in Italy in 1946, Ferrero has over the years established many more factories and industries in the country. This strategy is the basis of all expansion, since a company cannot spread its operations in other countries before it sets a strong base in its home country. A multi domestic approach also helps the company build a slightly differentiated product in any company that it is based.
Indeed in the same industry with relatively the same objectives, both corporations have proved to be competitive globally. There are various internalisation theories that will provide a proper preview of the rivalry between the two corporations. Mars has been able to maintain its high levels of sales through trade. This is because it purchases goods and services from sources where it costs reasonably less to manufacture them compared to Ferrero (Allen 2010). Limited capital tied up in the company to produce its products in the absence of trade is, therefore, liberated so that reasonably more of the other products are manufactured. Mars can acquire its raw materials internally but instead imports the commodities from Ghana, since obtaining the raw materials internally would be more costly than importing them. The second one could be the Economic of Scale theory. The output of Mars has increased considerably over years. This has been enhanced through technological indivisibilities in the individual plants that produce the confectionaries. Mars uses more advanced machines. The machines are a result of the cost saving technologies introduced after the company reaches a certain level of production (Presilla 2009). It has more specialised input suppaliers, more skilled labour and an advanced technological know-how which assist the company in reducing costs. These when related to Ferrero brings up a huge advantage of Mars in product and service delivery which has enabled the corporation to increase its purchases and sales.
The sole reason why Mars has manoeuvred in many nations with an exceeding passion compared to Ferrero is the fact that Mars is more dynamic while Ferrero follows only one custom. Ferrero, for example, is more resistant to change and mainly focuses on pleasing the ultimate consumer. Mars steadily expands by concentrating itself in cities where the economy of the consumer is growing, (Viesti 2013). The company constantly invests more in advertisement and public relations than Ferrero and the other competitors. This maintains its freshness and quality for a longer time. The management of Mars also has been strong. Its basic principle is mainly centred in recruiting nations’ workers with the ability to lead, (Justin 2011). Then the management trains them in house until they become competent and fit according to their requirement. Mars has extremely stabilised through this approach in China and other nations. The approach has given Mars a distance ahead of Ferrero.
Ferrero sells its products at considerably high prices compared to Mars since it imports much of its raw materials. This reduces the sales volume of the product, consequently resulting in small profit margin. It mostly focuses on the sweet spots that consist of retail outlets (Allen 2010). This is where the customers purchase chocolate. They also conduct seasonal gift giving events as the customers buy chocolate. Those who cannot afford chocolates get the pockets of chocolates. This helps in attracting more customers. Instead of importing some of the raw materials, Ferrero should device a way of getting the materials at cheaper prices. This would enable them to compete with the other companies producing similar products. Mars has natural advantage of the products it manufactures due to their ease of availability and the less health impacts the products pose to the consumers. Mars Company mostly uses cocoa, rice, peanuts, palm oil, fish, mint, and coffee in producing its brands which has less health effect. On the other hand, Ferrero uses sugar, eggs, palm oil, milk, coffee, and hazelnut, (Brenner 2008). Ferrero has the largest number of consumers of hazelnut in the world, its suppliers being mainly Italy and Turkey. This increases the prices of Ferrero’s products due to its high costs. Therefore, Ferrero is faced with more ingredients sourcing challenges, packaging materials and waste problems, nutrition and food quality obesity issues, and the advertising to children. Consequently, Mars more specialises in confectionaries. The reduced cost of production enables the company to conduct public relations and advertising with ease.
To achieve a greater and high profitability and stable competition a corporation needs credible and strong strategies. There are various strategies that can be used to accomplish such objectives. One of the common and successful strategies that have led huge corporations to success is joint ventures and sometimes mergers and acquisitions that are done either locally or internationally. Mergers provide a perfect opportunity to engage business in a ready working market, profit and assets hence these will lead to easier and faster development from one part of the industry. Joint ventures are much beneficiary as they seek to establish a bigger industry with a larger and collective capital and customer base that will in turn bring increased sales and revenue. A joint venture for the corporations will reach for stable competition and huge income. Also a multi-domestic strategy will ensure that the commodities or merchandise are customised in each nation. There will be a decentralised control in these markets and the decision making procedures will be localised. This strategy would only be used in countries with large differences (Brenner 2008). These will focus on local responsiveness and product differentiation advantage. The political risks will be minimised and the exchange rate risk will go down. A totally multi-local value chain contains many functions such as distribution and the services are done or performed completely at the lower levels in every market. The two companies will also be in a position to gain from entrepreneurial spirit. Products will be tailored to individual countries, and the confectionaries will have high qualities due to backward integration.
Transitional theory will help reach for work performance and result appraisal as these will retain global efficiency as well as retaining the responsiveness of the locals and integrating the local activities through collaboration of headquarters (Beckett 2008). In other words, these will generate and transit expertise both centrally and locally, having the ability to gain knowledge from every part of the organisation. There will be a need for a mode of international expansion applicable to the two companies. This includes exporting, licensing, franchising, strategic allegiance, joint venture, and wholly owned subsidiary. Exporting is the sale of the company’s products in another country (Brenner 2008). These are the main players involved in exporting and distributing the product. Reduction on the cost to licensee and investing less in licensing would also help attain a very large return on investments.
The best strategy of the ones highlighted above is to consider joint ventures with companies in other countries. The biggest advantage of this strategy is that the company will be able to enjoy already established mechanisms from the company with which it is joining. Trade advantages, an increased market are also advantages that the company will enjoy. Joint venture also has some other benefits such as access distribution channel and political connections. Both corporations will buy into a franchise of each other hence enhance marketing of new products to the outside world. This is because operating under the other companies name in markets where one of the company’s products has no preference will enable it to sell its products for a short period of time before its products get established in the market (Beckett 2008). Another notable strategy is to initiate wholly owned subsidiaries in the companies rather than handle separate divisions. This will give the companies tax break, consequently reducing the expenses. In the strategic alliance, the two companies will be encouraged to get together and assist each other in promotions, engage in many activities together such as shared advertisement in televisions, therapies magazines and even do some of the purchasing to reduce the costs. For example, Mars can suitably use its brand M&M’s on a Valentine Day therefore launching new colours such as light pink and dark red to enhance the latter.
In conclusion, as it has been outlined in the essay, the two companies face a competitive confectionary market. However, there are still chances to expand. Therefore, the two companies should endeavour in conducting more research which is specific to their products. This would assist them in making the final decision about the potential of the markets available. Both Mars and Ferrero have the potential and should utilise it for the maximum benefits.