Successful Asian Businesses

1. Introduction

The aim of this report was to show the association of the global business strategy in the C.P. Group industry between of Thailand firm strategy and Multinational firm strategy. The C.P. Group is the one of Asia leading successfully businesses and affiliates within the agriculture business retail, real estate and telecommunication industries. Most of well-know food products to an Asia and European countries (Asian Institute of Technology 2009). This information is also linked in to the business overview of C.P. group industries, goal of business and through effective global company strategies. Moreover, this report has showed some most significant relevant of functional of the global business strategy has come into effect in the C.P. group industry system.

2. Company Background

The C.P. group industry is now become to the one of the top of the fast growing industry in Asia (Best Industry Group 2009). There are selling farm products, agriculture products, operating retail supermarkets (TESCO Lotus, Seven-Eleven), international trading, telecommunications (True corporation), plastics, pet foods, automotive, industrial products, real estates and land development (Charoen Pokphand Group 2009). The C.P. Group was founded in 1921 by the two Chearavanont brothers named Ek Chor and Chorncharoen in the heart centre of Bangkok’s China town in Thailand. The two brothers began by importing seed and vegetables from China and exporting pigs and eggs to Hong Kong. In 1951, they were ready to expand into other related line of businesses, reasoning quite rightly that the seeds they were selling to the farmers would produce to the raw material crops for animal feed and more importantly. China tailers would become their customers. In 1954, the Charoen Pokphand Feed mill was set up for the C.P. Group later. The development was lead expansion along vertical integration line, beginning with poultry, followed by swine. Moreover, in 1990 the C.P. Group has become totally feed mill corporations in Thailand and region it has become to the list of the fifth largest trade mill producer in the world (C.P food worldwide 2009). Nowadays, while retaining strong links to its native country the group also trades and invests internationally with more than 100,000 employees worldwide.

Applying to The Cultural Iceberg model (2004), (see in appendix 1) the C.P. Group has parts as organizational cultural thus;

• Surface Culture : the C.P. Group corporation is a well know as high profile food industries and other related line of businesses in Asia
• Hidden Culture: The CP Group’s organization structure is vertical structure. In term of financial investment the CP Group investing at least THB 123.6 billion (€2.5 billion) between 2008 to 2013, in a wide range of businesses including telecoms, property, banking and retail (Business Trade in Asia 2009)

3. Situation Analysis

3.1 Business Environment

Macro Environment Analysis

        It is very significant for CP Group industry to analyse Macro environment. Macro environment consist of Political, Economic, Social-cultural and technology factor. It will affect for CP Group business in Thailand.

Political – Thailand has unstable political environment effect from the political problem people are divided in two groups, one group support to the previous government another group support to the present government. Moreover, the 2009 group protests are also happening in Thailand. Thailand has a parliamentary democracy. Thai’ legal is follow by civil law concepts, which accept compulsory ICJ jurisdiction with reservation. Thailand enjoys international trade and investment, which has signed free trade agreements with several countries, including Thailand (FTA) and also a member of organizations such as WTO (Economist 2009).

Economic – In terms of its economy Thailand has low GDP rate (see appendix 3) effect from political problem. Thai’s economy is dominated by the agriculture product and travels (Thai Export Products 2009). Thai’s economy is expected to slow down in 2009 due to the political problem, global financial market issues and decrease in domestic demand. Moreover, the consumer price inflation seems to be a big problem. However, in term of trading it is still one of the great economic countries in South East Asia (Popline 2009)

Socio-Culture – Thailand is an unstable society that effect from political problem. Buddhist has become to the main religion follow by Islamic and Christian. There are around 64 million people are living in Thailand in 2009. The official national language is Thai. In term of developing countries, Thai people have a normal quality of physical environment, lifestyle and education (Thailand board of investment 2009).

Technology – Technology and infrastructure play a vital role in the Thailand economy. Its infrastructure is very good but the pollution problem seem to be the big issues in Thailand because lack of technology to control the pollution such as the water pollution from industrial areas. However, Thailand is the one of leader in term of communication and IT services.

4. Core Source of strategy

Nowadays, Charoen Pokphand Group is the biggest food company in Thailand which has invested and managed in numerous industries in both domestic and international. Agribusiness is mainly rooted of company to penetrate directly to international market. There are three benefit philosophy of company to do business including benefit to the Country, People and Company. ( CP company 2009)

The company believes in six guiding principle as they make the company different from competitor and they also useful for company to corporate in culture. The guiding principles consist of Professionalism, Product innovation, Customer satisfaction, Versatility and adaptability, Quality products at lowest prices and Dedication and loyalty of the workforce. The mission of company is to “energize the body and mind of communities to which we serve”. Energizing the body consist of cultivating and processing crop products for animal feed, production and further processing of livestock and aquaculture products , providing channel of food consumption thought food service and retail outlets. Energizing the mind comprise of providing integrated communication and content service through fixed, wireless and cable networks.” ( CP company 2009)

4.1 Global Strategy

CP has promoted as the first truly Thai global company which is planning to expand business slowly but confidently. (Bangkok Post 2003) CP focus to do R&D to analysis the target market before doing business in particular countries. (Umesh 2006) In addition, the company has more focus on logistic and distribution to be an important component for future growth. (Bangkok Post 2003) The company has granted franchise of 7-11 Inc in US to operate in Thailand. Nowadays, CP 7-11 network is the forth largest retails business in the worlds which there are more than 4,000 retails in Thailand. Moreover, the company has expanded their 7-11 networks to China and has the plan to get the license to set up 7-Eleven in Vietnam and Cambodia. (Jitpleecheep 2002) In terms of Tesco Lotus, it is a jointventure between CP Company and Tesco from the UK, it was the hypermarket of CP Company in both Thailand and China. Since 2003, CP Company had sold the share of Tesco Lotus in Thailand to Tesco because the Company want to focus on 7-11. However, the company has kept the share of Tesco Lotus in China by operating under Lotus trademark. (CP company 2003)

The Company also is planning to be a sponsor in Premier League team which can represent CP brand in the global market and create brand awareness before its competitors. (About CP company 2009)

The company is planning to expand 7-11 convenience storage and Lotus in particular country as it can help company to develop in logistics sector and also help the company to distribute their products. (Bangkok Post 2003) The company expects to expand 7-Eleven convenience stores by setting up more than 1000 outlets at PTT service station which is the largest fuel product retailer in Thailand. (Jitpleecheep 2002) Moreover, the company has used the strategic to make the difference in the retails by offering a new service to customers. In addition, CP have managed 500 shops of CP Fresh Mart shops worldwide and planning to expand to 700 shops within 2011.( (Bangkok Post 2002)

In terms of CP’s food industry, the company has integrated as a agro-business operator which provides production technology, aquaculture practices and also have product traceability system. (Charoen 2005) The company has promoted CP’s food safety standard to increase consumers confident and to complete in global market. CP expects to increase fresh eggs export business to support raising demand of consumers in Hong Kong, Africa and the Middle East.(Bangkok Post 2009) CP also expects to increase rice export from Thailand to many destinations. Thus, the company has to expand their rice’s supplier (millers) as the company does not mill rice by itself, the Company buys the rice and repack under Royal Umbrella brand.(Walailak 2008)

4.2 CP’s strategy in China

Since 1979, CP had established in China which received the first business registration certificate from Chinese government to set up the shop in specific economic zone located in Shenzhen. (CP company 2009) The company used Agribusiness as a concept to expand their business and to increase living standard. Moreover, CP Company also provided motorcycles, telecommunication, beer brewing, petrochemical and retail in China which employed more than 15,000 peoples. The company had the strategy to make a joint ventures with local company and farmer in every province to expand their business. In terms of, motorcycles sector, the company owned 70 percent of EK Chor China Motorcycle and was the first company in China on Wall Street since 1993.(Louise 1996) In 1994, the company produced more than 900,000 motorcycles. Moreover, CP had opened the first lotus Super centers in 1996 and also had the bank in Shanghai to cooperate with 4,000 SME which supplied the goods for Lotus.

Nowadays, the company has more confident to increase an investment since China had joint with WTO. CP Company has invested in China more than 30 years which more than 40 percent of revenue came from China market.(Bangkok Post 2009) The Company has invested to increase the retails and its property development especially in Shanghai (Pudong), the company built up Super Brand Mall which is the biggest Asia entertainment 0complex to support high purchasing power of 160,000 shoppers.(Walailak 2007) Moreover, CP company is expected to raise in sale volume in both Lotus and Shopping mall about 13 percent within 2009. (Bangkok Post 2009) In terms of motorcycles sectors, the company focus to increase their market in China’s provinces in stead of focusing in big city such as Beijig and Shanghai that motorcycles are not permitted to drive inner the city. As high competitive of manufacture in this sector, CP Company decided to reduce to price from 10,000 to 4,500 yuan per unit to stay in the market. (Thapanachai 2002)

4.3 CP’s SWOT analysis

Strengths

• High product quality

  The Charoen Pokphand Group (CP) has high reputation in marketplace in Thailand by using Agribusiness to be a concept for business. CP products have high quality and reliable which are be classified in high class products and they are acceptable in market.

• Strong policies to maintain organization growing

  The company focuses on theirs human resource management to maintain their company standard by promoting staff aged between 20-30 years and to give the chance for them to create idea and to run departments. The company also has job evaluations from psychometric testing and training program. Moreover, the company had set the long-term goal to be a guild line for employee to prepare themselves to achieve to objective.( (Bangkok Post 2003)

• Understanding the need of major market to raise living standard

  Thailand is land of agriculture which farmer is a majority occupation in the country. Company focuses on agriculture to be the core business by offering the seeds to farmer and provides retailer to buy the crop after harvesting. The company has integrated industrial farming. “the six major steps carried out by CP were seed production, animal husbandry, animal production, food processing and marketing.” All activities make the company to monopolies the agriculture market.

• Diversity of CP business

  CP has diversified the business to more than one business area that can help the company to reduce the risk. The company is not only to deal business in food industry but also to manage in telecommunications industry and to provide the retail such as 7-Eleven and Lotus to expand their food products.(Charoen 2006)

• Competitive price

  The company has used mass products to reduce the cost and to expand the market for the products. (Umseh 2007)

Weaknesses

• Low profitability

  In the recent years, CPF profitability has been decreased against the increasing of revenues to over 7.9% in 2006 to 2007. Moreover, both operating profit margin and the net profit margin declined from 3.9% to 2.9% and 2% to 0.9% from 2006 to 2007 respectively. Profitability decreasing represent that the company lack of control over an operating and it can make the company to realize its growth plans. (Business Source Complete 2008)

• Over dependence on Thailand market

  More than 86% of CP products had been sold in Thailand in the recently year, it represents that the company have more concern with Thai’s economy. Therefore, the fluctuation in Thailand might bring negative to company’s revenues.(Walailak 2007)

Opportunities

• Increasing exports of value added meat products

  After the spread of Bird Flu, some countries such as Europe and Japan have banned the import of uncooked meat from Thailand thus CP company has improved theirs uncooked meat products by adding value to be cooked meat products including egg boiled in herbs, grilled chicken, duck and sauced duck. On 2006, the cooked meat export worldwide had raised by 20-30% and the demand is expected to increase globally.(Charoen 2006)

• Free Trade Agreement between Thailand, Australia and New Zealand

  The Agreement have changed the company to be more competitive in Australian and New Zealand market. It brings the great benefit for company to improve the assessment to agriculture product such as mangosteen, longan, lychee and coconut.(Walailak 2007)

Threats

• Increasing of vegetarianism trend.

  The increasing health awareness of consumers drive the increasing demand to consume low carbohydrate and low calorie foods which affect to the increasing demand of vegetarian foods worldwide. The vegetarian food market worldwide is estimated to growth around $1,700 million within 2010 and Asia people are changing to become vegetarian. The vegetarianism trend might effect the sale volume of poultry and meat. ((Business Source Complete 2008)

• Bird and swine flu

  Flues become the important factor that affect the sale volume of company in both domestic and global market. In Thailand, Bird flue has hit domestic sales of chicken which chicken’s price went down 31 percent to approximately 24 baht per kg. In terms of global market, both European and Japan had ban the import of fresh meat from Thailand.(Charoen 2005)

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5. Issues

5.1 Global Financial Crisis

The financial and economic crisis in the US impacts other export markets, especially Europe and Japan. Thailand mainly export to the US, Europe and Japan. Overall Thailand’s exports are expected to drop at least 10 percent. This situation also impact on Thailand’s food exports. Thus, CP would invest in new market such as Africa, the Middle East, India and Eastern Europe, especially Russia and Ukraine. However, CP would face difficulty in expanding their business (Thai News Service, 2008).

5.2 EU quota changes

CP will face pressure because EU wants to modify tariff quota for processed poultry in 2009. Currently, EU had given Thailand a export quota allocation of 252,643 tonnes. It consists of 160,033 tonnes for processed chicken and 92,610 tonnes for salted poultry. Under the quota, the tariff is 8% of the price per tonne. For chicken exported above the quota, the tariff is 53% (Thai News Service, 2009). CP was closely monitoring this problem because it might impact the company’s poultry export. For this situation, Thai government is talking with the EU for maintaining or increasing the country’s export quota of processed poultry. CP will offer other trade benefits in exchange. Nevertheless, if Thai government cannot achieve the positive result in the negotiation, CP’s current sales will not be affected much but it may reduce CP’s chance to increase export volumes to the EU in the long term (Bangkok Post, 2009).

5.3 Bird flu

After the bird flu outbreak, many countries, especially Europe and Japan, have banned the uncooked meat from Thailand. It impacts on the CP’s uncooked meat exports. However, the growing global concerns the bird flu will increase the focus on cooked food and seafood products. CP is expected to sell these products 200 billion baht in 2010. Currently, cooked food, especially Thai ready-to-eat meals, gain a good response from consumers in the US, Europe and Australia. Moreover, CP will increase its fish and shrimp products in the domestic and international markets. Due to many consumers have more awareness of quality and food safety. Thus, CP should increase branding campaigns and consumer education in order to emphasize the firm’s food safety standards (Kittikanya, 2005).

5.4 Lack of managerial staff in China

CP launched the first Lotus Supercenter in China in 1998. Now, CP has 79 Lotus outlets in China. Currently, CP stops expanding of Lotus because of a lack of managerial staff. Moreover, CP changes strategy to improve the operational efficiency. CP plans to allow local staff to make the product that is suitable for customer in each province because China is huge (Keeratipipatpong, 2007).

6. Conclusion

Charoen Pokphand Group (CP) expands their business worldwide. Especially in China, CP is the largest food foreign company and also provides many kinds of product. Moreover, the development was lead expansion along vertical lines such as agriculture products, retail supermarkets (7-11 and Lotus), telecommunication, real -estate development and automotive products. CP expands their business slowly and confidently by using logistics and distribution as a key for hypermarket, it usually makes a joint venture with a local company to do the business in particular countries. CP also uses R&D to analysis the target market. In addition, the company focuses on logistics and distribution. Nowadays, China is big international market for CP’s products because there is high consumption from future increasing of Chinese population. Thus, this is an opportunity for CP company to increase the sale volume, brand awareness and this is a significant challenge for the next step of company’s growing.

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