Kraft Foods Romania Kraft Foods Romania Tudor Corneliu Master Fabiz, An II, Gr. II 12/23/2011 Tudor Corneliu Master Fabiz, An II, Gr. II 12/23/2011 Contents 1. Kraft Foods Int1 1. 1. History2 1. 2. The Business2 1. 3. Sales evolution3 1. 4. MNE characteristics4 2. The internationalization process of Kraft Foods5 2. 1. Kraft Foods in Romania5 2. 2. 2008/2009 turn around6 3. Kraft Foods strategic management7 3. 1. Kraft foods mission, vision and values8 3. 2. External analysis8 3. 2. 1. Competitors9 3. 2. 2. New entrants9 3. 2. 3. Substitutes10 3. 2. 4. Suppliers10 3. 2. 5. Buyers11 . 3. Internal analysis FCA/CSA Matrix11 3. 4. Oreo Campaign in Romania12 Appendix 1 (Financial Data)13 1. Kraft Foods Int Kraft Foods is the world’s second largest food company with revenues of .
2 billion and earnings from continuing operations before income taxes of $3. 6 billion in 2010. Kraft Foods was incorporated in 2000 in the Commonwealth of Virginia. They have approximately 127,000 employees worldwide, and they manufacture and market packaged food products, including biscuits, confectionery, beverages, cheese, convenient meals and various packaged grocery products.
They sell products to consumers in approximately 170 countries. At December 31, 2010, they had operations in more than 75 countries and made products at 223 manufacturing and processing facilities worldwide.
Also they had net assets of $35. 9 billion and gross assets of $95. 3 billion. They are a member of the Dow Jones Industrial Average, Standard ; Poor’s 500, the Dow Jones Sustainability Index and the Ethibel Sustainability Index.
At December 31, 2010, their portfolio included eleven brands with annual revenues exceeding $1 billion each: Oreo, Nabisco and LU biscuits; Milka and Cadbury chocolates; Trident gum; Jacobs and Maxwell House coffees; Philadelphia cream cheeses; Kraft cheeses, dinners and dressings; and Oscar Mayer meats. The portfolio included approximately 70 brands which each generate annual revenues of more than 0 million.
Because Kraft Foods Inc. is a holding company, their principal source of funds is from subsidiaries. 2. 1. History
Over the last one hundred years, Kraft has grown from a small Chicago cheese firm to a multinational manufacturer of dozens of food brands. Today, Kraft Foods is much more than just cheese. Kraft is an empire of popular brands in dairy, biscuits, cereal, confectionery, coffee, and beverages. This growth quickened in the last two decades as several large food companies merged to form today’s Kraft Foods. In 1909, J. L. Kraft founded his cheese business in Chicago. Kraft pioneered the mass production of sterilized, packaged cheese.
First, the company mastered the pasteurization of processed cheese. Later, the company developed cheese slices, Velveeta, and Cheez Whiz. But today cheese is only one part of Kraft. Several major mergers in the 1980s broadened Kraft’s brand base. First, in 1981, General Foods acquired Oscar Mayer. Then in Europe, Jacobs Kaffee merged with Suchard-Tobler in 1982. In 1985, two cigarette firms joined the merger wave: Philip Morris bought General Foods, and RJ Reynolds merged with Nabisco. Finally, in 1988, Philip Morris bought Kraft.
These mergers continued in the next decade, producing Kraft Foods. First, in 1990 Kraft General Foods bought Jacobs Suchard. Then, at the end of the decade, Philip Morris acquired Nabisco from RJ Reynolds, integrating the company into the current Kraft Foods. Also the last big acquisition in the industry happened in 2010 when Kraft Foods bought for 11. 5b Cadbury. 2. 2. The Business Kraft manufactures and distributes branded food products around the world. Kraft divides its dozens of brands into six categories: Biscuits, Confectionary, Beverages, Cheese, Grocery, and Convenient Meals.
Each of Kraft’s product categories contains major North American, European and developing countries brands: Our brands span six consumer sectors: * Biscuits – primarily cookies, crackers and salted snacks * Confectionery – primarily chocolate, gum and candy * Beverages – primarily coffee, packaged juice drinks and powdered beverages * Cheese – primarily natural, processed and cream cheeses * Grocery – primarily spoonable and pourable dressings, condiments and desserts * Convenient Meals – primarily processed meats, packaged dinners and lunch combinations Figure 1
As you can see from the graphs (Figure 1, Figure 2) the North American (&Canada) market is still a very important strategic position in the company portfolio, but with each year the importance of both European and developing countries market increases. Figure 2 2. 3. Sales evolution In the last 4 years Kraft Foods are on a positive trend with most of $49,207 billion of sales in the last year, 2010. The effects of the crisis can be also seen as 2009 is the only position when the trend was disrupted. In spite of this they their net profit continues to skyrocket (Appendix 1).
Table 1: Percentage of 2010 Net Revenues by Consumer Sector | Confect-| | | | | | | | Convenient| | Segment | Biscuits(2)| | ionery(2)| | Beverages| | Cheese| | Grocery| | Meals| | Total| Kraft Foods North America: U. S. Beverages – – 36. 5% – – – 6. 5% U. S. Cheese – – – 50. 6% – – 7. 2% U. S.
Convenient Meals – – – – – 63. 2% 6. 4% U. S. Grocery – 1. 0% – – 54. 0% 22. 1% 6. 9% U. S. Snacks 44. 5% 7. 8% – 0. 9% 1. 8% – 12. 2% Canada & N. A. Foodservice 7. % 4. 4% 6. 0% 21. 5% 21. 4% 7. 3% 9. 5% Total Kraft Foods North America 52. 4% 13. 2% 42. 5% 73. 0% 77. 2% 92. 6% 48. 7% Kraft Foods Europe 21. 5% 38. 2% 28. 7% 14. 0% 8. 3% 4. 9% 23. 6% Kraft Foods Developing Markets 26. 1% 48. 6% 28. 8% 13. 0% 14. 5% 2. % 27. 7% Total Kraft Foods 100. 0%100. 0%100. 0%100. 0%100. 0%100. 0%100. 0% Consumer Sector Percentage of Total Kraft Foods 21. 9% 27. 8% 17. 9% 14. 2% 8. 1% As Table 1 shows the crown jewels of Kraft Foods remain Biscuits and Confectionary with almost 50% of total revenues, where biscuits have a strategic position in USA & Canada and confectionary rely mostly on non USA markets. For the rest of the items (beverages, cheese, grocery and convenient meals) the USA market remains the company’s main focus. . 4. MNE characteristics A multinational or transnational enterprise is an enterprise that engages in foreign direct investment (FDI) and owns or, in some way, controls value-added activities in more than one country. This is the threshold definition of a multinational enterprise (MNE), and one that is widely accepted in academic and business circles, by data-collecting agencies such as the Organization for Economic Co-operation and Development (OECD), UNCTAD’s Division on Investment, Technology and Enterprise Development (DITE), and by most national governments and supranational entities.
The MNE is one of several organizations that engage in international business. In particular, it has two near relations. The first is the international trading firm, like which it exchanges goods and services across national boundaries, but unlike which it transacts these internally before or after adding value to them from the assets it owns or controls in a foreign country. Second, like a domestic multi-activity or diversified firm, it engages in multiple economic activities, but unlike this type of firm, it undertakes at least some of these in a country, or countries, other than the one in which it is incorporated.
As a consequence in the literature the MNEs have been identified to have 3 mains features: * It affiliates must be responsive to a number of important environmental forces, including competitors, customers, suppliers, financial institutions, and government; * It draws on a common pool of resources, including assets, patents, trademarks, information, and human resources; * It links together the affiliates and business partners with a common strategic vision.
Taking these 3 main criteria into consideration, Kraft Foods Inc is typical example of MNE with diversified activities (selling, marketing, producing) in more than 170 countries and both regional and global brands. The worldwide competition in the snacks market is very fierce with both large and small competitors. 2. The internationalization process of Kraft Foods The internalization process is a complex method through which companies may try to enter foreign markets.
Usually it is this process is done step by step as companies prefer to minimize their risk on foreign markets. As a consequence we can identify 5 stages (which are not compulsory): licensing, local distribution channel, own distribution channel and FDI. The theory of MNEs has, in combination with the heightened interest in FDI and MNEs, been expanded and fine-tuned during the years.
The theoretical literature on multinational firms rests on the seminal work by Dunning (1974, 1985, and 1988) in the so-called OLI approach, which was one of the first contributions in theoretical analyses of the multinational firms. Briefly, the OLI approach argues that multinational operations are determined by three factors: * (O) ownership-specific advantages, in which firms of one nationality possess advantages relative to those of another nationality in sourcing a market.
This could be in terms of firm-specific assets such as patents, technologies, know-how, or a brand name; * (L) location-specific advantages, in which it is profitable to combine the use of internalized ownership-specific advantages in a foreign country rather than in the home country; * (I) Internalization – specific advantages, in which firms find it profitable to use these advantages themselves through affiliates rather than to lease them to firms in foreign countries.
Regarding the question why to invest in a foreign country, MNEs are motivated primarily by what they perceive to be in the interests of their direct stakeholders, rather than that of the wider community of which they are part. These stakeholders include employees, managers and shareholders, all of whom must be recompensed for their contributions to the production process by an amount at least equal to the opportunity cost of the resources and capabilities they provide (that is, the highest return they could earn for their resources and capabilities if they were deployed differently).
Most of the literature in the tradition of neoclassical economics asserts that any residual of income earned by a firm over and above the opportunity cost of the stakeholders will accrue to the owners of the business in the form of profits, and that it is the maximization of these profits (net of tax and depreciation) in relation to the capital invested, which is the driving force of the modern business enterprise. 3. 5. Kraft Foods in Romania The company entered the Romanian market in 1994 with the purchase of majority stake of confectionery factory Poiana Brasov. In the 10 years we have invested in Romania over 22. 5 million dollars,” said Stephen Warley (Managing Director). “Much of this investment was directed towards the modernization of the two production units in Brasov”. Regarding the production equipment, much of Poiana Brasov’s were held as they could be used further and Kraft brought several high-precision machines that can make note of specific products as Kraft Foods International. Also, some of the staff is provided by the newly acquired factory, following that, for the rest, Kraft should recruit locally or from international sources.
The main products manufactured in Romania were already known name in the local market (which so far have been imported and distributed by local companies): * chocolate products: (3 lines of products) * Smash, * Milka, * Toblerone * Coffee Products: * Jacobs * Nova Brasilia * Cheese * Philadelphia cream cheese. Also, it will manufacture and market products tailored specially for Romania: * chocolate products: African, Glade, Suchardine * candy: Silvana and Sugus. Like other subsidiaries of Kraft Foods Inc the local Romanian subsidiary must assume certain responsibilities such as: * preparation of budgets; quarterly budget review; * explain variations in the budget; * access to corporate information sources; * implement marketing strategies specific to Romania; Because the company (located in Chicago, USA) gives discretion to subsidiaries so that they adapt their products and services to meet local need. 3. 6. 2008/2009 turn around Kraft Foods Inc closed the chocolate factory in Brasov in 2009 and transfered production to other company units, primarily in Bulgaria. “Developing strong business Kraft Foods Romania in recent years has generated additional needs of production capacities.
Because of space limitations in existing buildings and location Kraft production unit in the city, increasing production capacity in Brasov is not a viable option” said General Manager, Kraft Foods Romania, Lachlan Grave. Kraft Foods also stated that the decision to close the factory in Brasov is not related to the financial crisis. “We have been studied production capabilities within our plants and identified opportunities to strengthen our position in a more efficient way, so as to provide the size needed to support future development” continued Lachlan Grave.
He added that the transfer of production will not affect business development in Romania. At Brasov chocolate factory that different products are sold both on the market in Romania and other countries markets. The company signed a commercial contract with the company Rap Confectioney Brasov, part of Raptronic, which allowed continued manufacture of chocolate products extruded from Brasov. The company produces for Kraft Foods chocolate bar “Smash with peanuts” and candy “Chokotoff” as Kraft Foods continues to be the owner of these brands.
The last campaign on the Romanian market is the introduction of global brand Oreo. Over 1 million have be invested in the campaign to support this new product, through TV, print, outdoor street, Internet, sampling and in-store activities. Given this change of plans or restructuring, now Kraft Foods Romania is still the market leader. They are distributing their products through a range of local specialized companies and also directly to their worldwide customers (Carrefour, Cora etc. ); with most of the products being important from Bulgaria and other production centers.
In almost 20 years, Kraft Foods managed to use on the Romanian market all the internalization strategies, using local distribution, vertical and horizontal FDI strategies and even outsourcing. 3. Kraft Foods strategic management Seven months after acquiring Cadbury, Kraft announced a new global growth strategy. Centered on marketing leading consumer brands and pursuing growth opportunities consistent with consumer trends, this plan will ultimately increase shareholder value. Kraft? s CEO Irene Rosenfeld proclaimed that at Kraft, “we’re hitting our sweet spot. The plan builds on a set of four long-term strategic priorities – focusing on growth categories, expanding footprint in developing markets, expanding presence in instant consumption channels, and enhancing margins – are intended to further transform Kraft into a leading snack, confectionary and quick meals company. This focus on high cash flow segments and instant consumption channels will help fund Kraft’s growth in developing markets, which it predicts will make up one third of its business by 2013. Strategic estimates aim for organic revenues growth of 5% or more, margins in the mid- to high-teens, and EPS growth of 9-11%.
Kraft will implement these strategic priorities through the introduction of core brands into emerging markets. A prime example is its planned full-scale launch of Oreo biscuits in India, which can be used as a litmus test for future product introductions in similar markets. The fact that the company incurred an important amount of debt in acquiring Cadbury places even greater importance on the success of Kraft’s global growth strategy. 4. 7. Kraft foods mission, vision and values “Helping People Around the World Eat and Live Better” “Our vision captures the essence of who we are. Everything we do flows from our vision.
We just don’t happen to be a business that sells food – it’s what we’re all about. Our vision is about meeting consumers’ needs and making food an easier, healthier, more enjoyable part of life. ” “Our vision tells the world – our employees, customers, consumers and the communities where we make and sell our products – what we care about. It captures the importance of health and wellness, but it also embodies all the ways we can eat and live better, such as the enjoyment of a dessert, the convenience of a microwave meal, the safety and value of our products and the services and solutions we provide. Also their values are: Innovation – Satisfying real-life needs with unique ideas Quality – Fulfilling a promise to deliver the best Safety – Ensuring high standards in everything we make Respect – Caring for people, communities and the environment Integrity – Doing the right thing Openness – Listening to the ideas of others and encouraging an open dialogue These six values are what they stand for, the standard of conduct they hold themselves to and their commitment to the people who work with them, invest in them, and purchase their products.
They plainly communicate what the world can expect of Kraft and what they must expect of themselves. 4. 8. External analysis Kraft Foods Inc. operates in a vast industry generally defined as either Diversified Food and Beverages or Branded Foods and Beverages. This broad industry definition serves as an umbrella under which a variety of firms operate. Firms falling into this industry include Kraft, Kellogg, Nestle, General Mills, Unilever, Danone, Archer Daniels, ConAgra, Heinz, Frito-Lay, Hershey, Sara Lee, Wrigley, Hormel, Starbucks, Coca- Cola, Pepsi Co. , Anheuser-Busch, and a host of others.
For the purpose of analyzing the competitive landscape of the industry, we will restrict this broad group to large and diversified firms in the Branded Foods and Beverages industry. These firms are ConAgra Foods, Group Danone, Nestle, Sara Lee, Unilever, General Mills, and Kellogg, all of which have market capitalizations in excess of $10 billion. Firms in the industry are involved in the processing, packaging, marketing, and distribution of primarily food products. A geographic market definition is of lesser importance because of the mere size of the firms in the industry.
These firms are so large with such a variety of products that all operate both in the U. S. and internationally. In both geographic markets, the Branded Foods and Beverages Industry must compete with generally less expensive, private label products. Competition with this category of products will be further discussed in the substitutes and complements section of this analysis. 4. 9. 1. Competitors The main vehicle by which firms in the industry preserve market share is through brand loyalty and diversification.
In general, the products of these firms are highly elastic with consumers weighing the tradeoff between price and quality between companies and products. Consumers in the industry have minimal switching costs and there is never the guarantee of brand loyalty. Therefore, the way these firms maintain market share is by providing brand quality at an affordable price. Firms in the industry can further maintain and even increase their market share by offering new and innovative products. These products can be developed through internal innovation or through merger and acquisition activity.
Since market share is of such importance, and since consumers ultimately determine market share through their purchasing decisions, advertising and marketing of brands are of the utmost importance. Advertising and marketing is essential to promote brand awareness as well as to facilitate the acceptance of price increases among consumers. Thus, there is some cooperation among firms against the erosion of market share to private label products. With all firms promoting brand quality, there are signals passed onto the consumer that brand name products are superior to private label products in quality and elegance.
Firms in this industry are struggling to be profitable. There have been restructurings and realignments at Kraft and at other companies in the industry in order to increase volume and profitability despite increasing input costs, sluggish top line growth, margin contraction, and rising pension costs. Under the current conditions, firms are trying to run themselves as “lean” as possible by eliminating unprofitable brands, divesting unprofitable assets, and restoring product portfolios to core products.
There is room in the industry for firms to increase their market share, though because of the maturity of the industry, this will ultimately come at the expense of the market shares of other firms. The main method by which firms can increase market share is by increasing volume. This is ultimately related to the effectiveness and execution of marketing campaigns and consumers’ acceptance of new products. Firms will need to create new products that adapt to the changing lifestyles and preferences of consumers, which have shifted in the last decade toward a focus on health and wellness.
There is also the potential for growth through mergers and acquisitions, though this is limited by the degree of consolidation present at the large firm level. While the industry is still very fragmented at the local level, at the national level there are a few large companies that have strong brand recognition. 4. 9. 2. New entrants The Branded Foods and Beverage industry is a mature market and has already experienced significant consolidation at the large company level. Because of this, the threat of entry by a new competitor is slim.
The existing companies in the industry have already spent significant amounts of money on branding, and the quality associated with brands by consumers is difficult to overcome, though necessary for entrants to entice switching among consumers. A new entrant would have to offer the same quality as existing products and would have to beat existing companies on price to steal market share. Further, this is a relatively capital intensive industry with significant start-up costs. The fixed costs necessary for entry, including the costs of production and packaging facilities and distribution networks, are daunting.
These fixed costs serve as the largest barrier to entry. An entrant would also have to spend a disproportionate amount of money on marketing and advertising to induce switching among consumers. Even if a company were able to enter, it is doubtful they could acquire significant market share. The companies in the industry are large and established and have the advantage of significant economies of scale and scope in production, marketing, and distribution which enhances an entrant’s inability to compete on price, quality, or promotion.
Potential entrants must also realize the threat of predatory pricing. These are large firms who could easily reduce prices and take short run losses to deter entry. 4. 9. 3. Substitutes The threat of substitutes is significant for the Branded Foods and Beverages Industry. As mentioned earlier, private label products, also referred to as “generic” products, pose a serious threat to industry and firm profits. In Kraft’s 10Q, the Company writes that a potential risk is “a growing presence of hard discount retailers, primarily in Europe, with an emphasis on own-label products. Private label goods not only pose a problem for the industry because they are direct substitutes, but also because they deter companies within the industry from raising prices. Consumers evaluate the tradeoff between quality and price for both brand name products and private label products. Since these goods are elastic, any increases in the price differential adversely affects volume, these substitutes create a huge strain on Kraft’s profits because they prevent the company from passing on higher input prices to consumers. For international operations, this effect is amplified since private label products are widely accepted.
In order to differentiate products and prevent the substitution of private label products for brand name products, Kraft and other companies in the industry have increased their advertising and marketing expenses to facilitate the acceptance of an increase in the price differential and to differentiate their products from private labels in the eyes of the consumer. 4. 9. 4. Suppliers Companies that package and market products in the industry generally have more value added through packaging and distribution than companies involved in the lower margin business of processing agribusiness commodities.
Therefore, Kraft and its competitors should be able to maintain relatively consistent margins year after year under normal conditions. Prices of inputs for the industry are generally competitive and market determined, so suppliers of these inputs should never be able to hold a company in the industry hostage to extract profits. Hedging and the use of financial derivatives can also be employed to guarantee margin consistency. The industry as a whole is suffering from volatile commodity prices, specifically oil prices and petroleum based packaging products. Prices for pulp, aluminum, nuts, and sugar have also increased in recent quarters.
For most companies, sugar represents 5-10% of raw material costs. Kraft has a particularly high exposure to sugar prices of firms within the industry. Cheese, coffee, cocoa, and sugar are Kraft’s most valuable input commodities. Despite the rising commodity costs, most firms are reluctant to change their product recipes to save money on rising input costs for the fear of losing volume and brand quality. Even though suppliers do not have significant power in setting prices and extracting profits, the current environment of rising commodity prices is of significant concern for the industry. . 9. 5. Buyers The five largest customers account for approximately 26% of net revenues in 2010. The ten largest customers account for approximately 35% of our net revenues, where one of top customers, Wal-Mart Stores, Inc. , accounts for approximately 14% of net revenues in 2010. In the current environment, there is significant opportunity for buyers to extract industry and firm profits. The main factor contributing to the loss of profits is Wal-Mart. Wal-Mart has significant power to control the prices of the goods it purchases and has made clear the commitment to do so.
If firms are unwilling to negotiate with Wal-Mart on price, then Wal-Mart can threaten to or pull products and reduce a company’s volume sales. As Wal-Mart grows, the option of not selling to Wal-Mart for the sake of preserving price is becoming less and less of an option for companies in the industry who wish to maintain market share. The Wal-Mart effect places significant pressure on margins and sales. According to Kraft’s 10Q, “a trend toward increasing consolidation in the retail trade and consequent pricing pressure and inventory reductions” is a huge threat to Kraft’s success and profitability.
While no specific companies are listed in the 10Q, this appears to be a reference to Wal-Mart more than other retailers. Buyer power may also be created as Kraft reacts to the decline in USA consumption of food products and coffee. As discussed earlier, in order to compensate for lost at USA, Kraft has begun to sell more volume to restaurants, schools, and other institutions. In terms of coffee, Kraft has been forced to reduce prices to compete with Starbuck’s. If buyers are able to sense these weaknesses then they should have more power to negotiate on price. 4. . Internal analysis FCA/CSA Matrix International competitiveness ultimately depends upon the linkages between a firm’s unique, idiosyncratic capabilities (firm-specific advantages, FSAs) and its home country assets (country-specific advantages, CSAs). An FSA is defined as a unique capability proprietary to the organization. It may be built on product or process technology, marketing, or distributional skills. Second, there are country factors. These, of course, are unique to an international business course. They can lead to country-specific advantages (CSAs).
The CSAs can be based on natural resource endowments (minerals, energy, forests) or on the labor force and associated cultural factors. To help formulate the strategic options of the MNE, it is useful to identify the relative strengths and weaknesses of the CSAs and FSAs they possess. Figure 3, the competitive advantage matrix, provides a useful framework for discussion of these issues. The “strength” or “weakness” of FSAs and CSAs is a relative notion, depending on the relevant market and the CSAs and FSAs of potential competitors. A strong FSA implies that, under identical CSAs, a firm has a potential competitive advantage over its rivals.
Figure 3 Due to the evolution of Kraft Foods on the Romanian market we can say that the company moved from quadrant 3 to quadrant 4. Back in the 2000s the Romania could have been considered to have strong advantages through its location in Central Europe, its growing market, lack of competition, but also its production capacity and labor force. But due to reorganization at global level, the economic crisis, a lower labor cost efficiency, market maturity and limitations in production expansion, Romania lost its advantages when the group decided to shut down the production facility in Brasov. 4. 10.
Oreo Campaign in Romania Figure 4 Kraft Foods products are generally sold to supermarket chains, wholesalers, supercenters, club stores, mass merchandisers, distributors, convenience stores, gasoline stations, drug stores, value stores and other retail food outlets. In general, the retail trade for food products is consolidating. They distribute the products through distribution centers, satellite warehouses, company operated and public cold-storage facilities, depots and other facilities. They currently distribute most products in North America through a combination of direct store delivery and warehouse delivery.
Outside of North America, the products are distributed through warehouse delivery and through the services of independent sales offices and agents. Kraft Foods marketing efforts are conducted through three principal sets of activities: (i) consumer marketing in on-air, print, outdoor and digital media; (ii) consumer incentives such as coupons and contests; and (iii) trade promotions to support price features, displays and other merchandising of our products by our customers. One example of such a marketing campaign was the promotion of Oreo brand in Romania.
The artisan of this image campaign was Draftfcb. Over 1 million have be invested in the campaign to support this new product, through TV, print, outdoor street, Internet, sampling and in-store activities. “This special consumption ritual: twist, dip in milk and taste cream, defines how Oreo communicates for 20 years, and it’s part of its global identity,” said Rastislav Spavelko, Senior Brand Manager Cookies. Draftcb developed the creative concept of the campaign “Discover the biscuit that suits you” that promotes brands Belvi, TUC, Milka and Oreo.
The integrated campaign includes TV spots, radio spots, print, SOPE, an online component (www. biscuitiimei. ro) and a promotional campaign for consumers. In the promotion which ran from May 12 to June 30, consumers could enter the contest with cash voucher to purchase one of the products obtained: TUC, Milka, Belvi or Oreo or by registration on the site www. biscuitiimei. ro or by sending an SMS to dedicated number, or by sending the product packaging by mail. Winners’ awards consisted of a shopping card worth 5,000 lei, 5 shopping card worth 2000 lei and 1,400 boxes of the biscuits they prefer.
The campaign concept is that for any consumer there is a right biscuit there, depending on the type they represent. Thus, the campaign aimed at consumers who prefer Belvi crackers for energy, busy professionals who quench their hunger with the TUC, those who like to indulge themselves with Milka biscuits and happy families who opt for ritual of Oreo biscuits. “Because our customers are very different profiles, we launched the campaign ‘Discover biscuit that suits’ – a chance to provide appropriate snacks that meet the needs in the different times of day.
In this sense, a component of the integrated communication campaign is the promotions of tasting Oreo and TUC in partner stores where we provide them with information about their favorite crackers and about promotional campaign conducted nationwide” said Svetlana Macrina, Coordinator Biscuits Brand: Oreo, TUC, Milka, Kraft Foods Romania. 4. Kraft Foods strategic orientation MNEs have strategic predispositions toward doing things in a particular way, which help determine the specific decisions the firm will implement. There are four such predispositions: ethnocentric, polycentric, regiocentric, and geocentric.
In 2006 when Irene Rosenfelt was appointed as new CEO, the company had to undergo a dramatic change towards decentralization. Rewiring the organization was one of the four key strategies of their three-year turnaround plan to restore the company to sustainable, long-term growth. To achieve this, they had to essentially dismantle the exiting organizational matrix and to replace it with a decentralized structure that gave their newly reorganized business unites more direct lines of responsibility. It involved changing reporting lines, structures and operating units.
As Figure 5 shows, Kraft Foods uses a polycentric predisposing. An MNE with a polycentric predisposition will tailor its strategic plan to meet the needs of the local culture. If the firm is doing business in more than one culture, the overall plan will be adapted to reflect these individual needs. The basic mission of a polycentric MNE is to be accepted by the local culture and to blend into the country. Each subsidiary will decide which objectives to pursue, based on local needs. Profits will be put back into the country in the form of expansion and growth.
This modern approach lets each business unit tailor the products for its market particularities but having the advantage of HQ logistic support and economies of scale as well as a global knowledge network. This is how for example Oreo campaign in Romania had such a different approach than the one India, as each business unit focused on the cultural particularities of each market. As a consequence of the 2006/2007 organizational change their chart evolved from a matrix structure to a complex multinational or multi-BU matrix structure (Figure 5), a three-dimensional model because when it is drawn it has width, height, and depth.
This multidimensional matrix addresses three major areas: function, product, and geography or business unit. One of the major advantages of the multinational matrix is that it allows management to address more than one primary area of consideration. As Figure 5 shows, the company is able to focus on functional, product, and geographic considerations. MNEs that need to balance a product and a global location strategy can benefit from this type of structure. Figure 5 Appendix 1 (Financial Data) Kraft Foods Inc. Selected Financial Data—Five Year Review (in millions of dollars, except per share and employee data) 2010200920082007
Summary of Operations:Net revenues| | $49,207| | $38,754| | $40,492| | $34,580| | Cost of sales| | 31,305| | 24,819| | 27,164| | 22,848| | Operating income| | 5,666| | 5,183| | 3,576| | 3,939| | Operating margin| | 11. 5%| | 13. 4%| | 8. 8%| | 11. 4%| | Interest and other expense, net| | 2,024| | 1,237| | 1,240| | 604| | Earnings from continuing operations| before income taxes| 3,642| | 3,946| | 2,336| | 3,335| | Provision for income taxes| | 1,147| | 1,136| | 658| | 992| | Earnings and gain from discontinued operations, net of income taxes| 1,644| | 218| | 1,215| | 381| | Net earnings| 4,139| | 3,028| | 2,893| | 2,724| |
Noncontrolling interest| 25| | 7| | 9| | 3| | Net earnings attributable to Kraft FoodsBasic EPS attributable to Kraft Foods: Continuing operations| 4,1141. 44| | 3,0211. 90| | 2,8841. 11| | 2,7211. 47| | Discontinued operations| 0. 96| | 0. 14| | 0. 81| | 0. 24| | Net earnings attributable to Kraft Foods| 2. 40| | 2. 04| | 1. 92| | 1. 71| | Continuing operations| 1. 44| | 1. 89| | 1. 10| | 1. 46| | Discontinued operations| 0. 95| | 0. 14| | 0. 80| | 0. 24| | Net earnings attributable to Kraft Foods| 2. 39| | 2. 03| | 1. 90| | 1. 70| | Dividends declared per share| 1. 6| | 1. 16| | 1. 12| | 1. 04| | Dividends declared as a % of basic EPS| 48. 3%| | 56. 9%| | 58. 3%| | 60. 8%| | Dividends declared as a % of diluted EPS| 48. 5%| | 57. 1%| | 58. 9%| | 61. 2%| | Weighted-average shares – basic| 1,715| | 1,478| | 1,505| | 1,591| | Weighted-average shares – diluted| 1,720| | 1,486| | 1,515| | 1,600| | Net cash provided by operating activities| 3,748| | 5,084| | 4,141| | 3,571| | Capital expenditures| 1,661| | 1,330| | 1,367| | 1,241| | Free cash flow*| 2,087| | 3,754| | 2,774| | 2,330| | Depreciation| 1,229| | 905| | 963| | 873| |
Property, plant and equipment, net| 13,792| | 10,693| | 9,917| | 10,778| | Inventories, net| 5,310| | 3,775| | 3,881| | 4,238| | Total assets| 95,289| | 66,714| | 63,173| | 68,132| | Long-term debt| 26,859| | 18,024| | 18,589| | 12,902| | Total debt| 28,724| | 18,990| | 20,251| | 21,009| | Total long-term liabilities| 43,687| | 29,251| | 29,773| | 23,574| | Total Kraft Foods shareholders’ equity| 35,834| | 25,876| | 22,295| | 27,407| | Total equity| 35,942| | 25,972| | 22,356| | 27,445| | Book value per common share outstanding| 20. 0| | 17. 51| | 15. 18| | 17. 87| | Market price per Common Stockshare – high / low| 32. 67-27. 09| | 29. 84-20. 81| | 34. 97-24. 75| | 37. 20-29. 95| | Closing price of Common Stock atyear end| 31. 51| | 27. 18| | 26. 85| | 32. 63| | Price / earnings ratio at year end – basic| 13| | 13| | 14| | 19| | Price / earnings ratio at year end – diluted| 13| | 13| | 14| | 19| | Shares outstanding at year end| 1,748| | 1,478| | 1,469| | 1,534| | Number of employees| 127,000| | 97,000| | 98,000| | 103,000| | ——————————————– 1 ]. Kraft. Form 10-K. February 28, 2011. pp. 1-3. [ 2 ]. Kraft. “Kraft History. James Lewis Kraft. ” www. kraft. com/100/founders/JLKraft. html. [ 3 ]. Kraft. “Kraft History. 1980s. ” www. kraft. com/100/timeline/time_1980s. html. [ 4 ]. Kraft. “Kraft History. 1990s. ” www. kraft. com/100/timeline/time_1990s. html [ 5 ]. Kraft. “Kraft History. 2000s. ” www. kraft. com/100/timeline/time_2000s. html. [ 6 ]. Kraft. “Kraft History. 2000s. ” www. kraft. com/100/timeline/time_2010s. html. [ 7 ]. Kraft. Form 10-K. February 28, 2011. pp. 3-6. 8 ]. Kraft. Form 10-K. February 28, 2011. pp. 2. [ 9 ]. Dunning, J. H. , Multinational Enterprises and the Global Economy, 2nd ed, 2008, pp. 3. [ 10 ]. Collison, S. , International Business, 4th ed, 2006, pp. 40. [ 11 ]. Collison, S. , International Business, 4th ed, 2006, pp. 42. [ 12 ]. Kommerskollegium, The relationship between international trade and foreign direct investments for Swedish multinational enterprises, 2008, pp. 9-10. [ 13 ]. Dunning, J. H. , Multinational Enterprises and the Global Economy, 2nd ed, 2008, pp. 63-65. [ 14 ].
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