Tate & Lyle
- Pages: 11
- Word count: 2557
- Category: Stock
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Tate & Lyle is a world-leading manufacturer of renewable food and industrial ingredients. All the ingredients of the firm are produced from renewable crops, predominantly corn (maize) and sugar cane. The firm takes these renewable crops and transforms them through the use of innovative technology into value added ingredients for food, beverage and industrial customers. In 1921, Tate & Lyle was founded in the UK, but its roots can be traced back to a number of firms established in the middle of the 19th century focused on sugars in Europe and corn milling in the US and Europe.
The definition of international strategy from the context of Tate & Lyle is to grow the business and create long-term value for the shareholders. To deliver this international strategy, the firm focuses on five key business objectives: serve the customers, operate efficiently and safely, invest in acquisitions and partnerships, invest in technology and people, and grow the contribution from value added products. On this corporate strategy, the firm is focusing on the importance of strategic planning. Mintzberg et al (2003) argues that strategy emerges over time as intentions collide with and accommodate a changing reality. Thus, one might start with a perspective and conclude that it calls for a certain position, which is to be achieved by way of a carefully crafted plan, with the eventual outcome and strategy reflected in a pattern evident in decisions and actions over time. Whittington (2001) describes strategy as the evolutionary process which appears from the relations between different, frequently unpredictable, events and processes these differences.
Corporate strategy can influence the performance of an organization (Mintzberg et al 2003). With a sound corporate strategy, a firm can reliably create high value through its integrated business activities; with a weak corporate strategy, the value of a firm’s business activities deteriorates (Goold et al 1994). Therefore, shareholders see corporate strategy as a significant substitute for the likely value of the firm (Day and Fahey, 1990).
Corporate strategy provides a course-plotting map to the analysts and investors and (Desai, 2000). According to Bukh et al. (2002) the effective communication of corporate strategy is significant because it creates relationships with and encourages the involvement of investors and analysts. Effective communication of corporate strategy can also improve shareholder satisfaction (Higgins and Bannister, 1992) and create employee morale (Grant, 2005). Credible communication further allows managers within the firm to crystallise and clearly articulate corporate strategy to investors and employees alike. This, in turn, helps managers redevelop or reinforce strategic choices (Angwin et al. 2006) and increases the confidence stakeholders place upon the strategic ability of management (Mintzberg et al., 2003).
Even though those within the firm attempt to better communicate corporate strategy, evidence suggests that shareholders also aim to better understand the strategic position of the firm. Possible explanations for this trend are as follows: (a) the environment in which several firms operate is ever more dynamic and competitive (Lynch, 2006; Mintzberg et al., 2003); or (b) traditional financial measures are no longer comprehensive indicators of internal management capabilities (Beattie, 1999).
The international corporate strategy of Tate & Lyle includes: delivering excellent customer service is at the core of everything the firm do. The firm aim to be the lowest-cost and most efficient producer in all markets particularly food, beverages and industrial market. The firm is also continually evaluate acquisition opportunities that would add strategic value by enabling the firm to enter new markets or add products, technologies and knowledge more efficiently than the firm could organically. Tate & Lyle have also increased investment in research and development capabilities to help develop innovative solutions that meet customers’ product challenges. The firm is also complementing their own capabilities through business and technology partnerships, university collaborations and investments in start-up companies. Lastly, the firm is committed to continuing to grow the contribution from value added products.
Using the framework below, this paper will illustrate the case of Tate & Lyle. The Porter (1985) five forces, shown below, determine the Tate & Lyle profitability because they influence the prices organisations can change for the goods and services of the firm, the prices the firm have to pay for the raw materials and the investments that the firm needs in order to make in position, marketing and sales.
Tate & Lyle participates mainly in four markets: food and beverage; industrial; pharmaceutical and personal care; and animal feed. Of these markets, food and beverage and industrial are the most significant. The firm primarily sells ingredients, ingredient solutions and services to manufacturers in these two markets. The firm use ingredients to manufacture their consumer and industrial products. In the food sector, the firm also sells end-products directly through retail distribution channels to retail customers in certain markets. Tate & Lyle customer base includes many of the world’s major global food, beverage and industrial companies. The firm ingredients can be found in the products of nearly all the world’s top 100 food and beverage companies.
Barrier to entry is the first to be analysed with regards to the Porter’s Five Forces. In these competitive forces, how strong the entry of barriers is depends on the food and beverages industry as well as industrial market. There are absolute regulatory barriers to entry that prevent new producers from setting up in UK. British Sugar is the sole holder of the UK quota for the production of sugar from beet. On the UK market for industrial sugar, barriers to entry are relatively high. In addition, barriers to entry on the UK industrial sugar market are expected to be reinforced by the gradual withdrawal of the EC quota system proposed by the Commission, which will involve a reduction by 16% of the overall sugar production in the EU.
On the UK market for industrial sugar, the two main suppliers are Tate & Lyle and British Sugar. These two firms sell both directly to industrial and retail customers and indirectly through a group of sugar merchants (namely Napier Brown and James Budgett). The only other supplies to the UK are some imports (mostly from Ireland) by sugar merchants and by certain industrial sugar users. On this particular market, the transaction would decrease the number of significant competitors. Two of these suppliers (British Sugar and Tate & Lyle) would together account for almost 65% of sales, and three of them (British Sugar, Tate & Lyle and Napier Brown/James Budgett) would account for about 90% of the total market, which amounts to 2,200 thousand tonnes.
The threat of potential new entrants into the market depends on barriers to entry or exit, which influence the market contestability to the extent to which new firms can enter the market and contest for customers. Over supply of product, which can force price reductions throughout the food ingredients market are those factor that on a new entrants in the marketplace. Tate & Lyle benefits from the ACP Protocol, which allows the firm the sole right to import sugar cane from ACP countries in order to produce sugar in the UK. Under the sugar regime, new entrants cannot be awarded any part of the UK’s quota for sugar production, and thus it is not reasonably practical for a new producer to be established in the UK.
Due to high cost of entry and maintenance in the food and beverages market, it is unlikely for the firm to have a new entrant in the sector. Another thing is that, Tate & Lyle experienced in its field, which has given the firm an easy access to distribution channels, they also have cost advantage on a new entrants due to the knowledge in its fields. From the beginning, despite of the rise and fall battle on the food and beverages business, there were a few firm’s who saw the potential in the food, beverages and industrial market. It is better to understand that not many entry of barriers existed in this market.
In terms of new entrants, it shows that new entrants are potential competitors. New entrants are weak force in the food and beverages industry. The easier it is for new firms to enter the industry the greater the competition in the industry. It is better to understand that new entrants in food and beverages will often attempt to break into the industry with low prices, innovative products, or new features and benefits. A significant possibility for new entrants and expansion is to negotiate supply contracts with Tate & Lyle and other major players. As an alternative, supplies could be purchased from larger resellers (or from international sources) but if a new entrant was to develop to any important size, direct supplies from the producers would be significant. This need to secure supplies could prevent entry and limit expansion by new resellers whose relative negotiating power would be minimal when compared with the producers. In addition, the fact that the majority of the industrial customers enter into annual supply contracts with one or more suppliers (i.e. sugar) may limit the ability of new entrants to attract new customers away from the incumbents.
For power of buyers, it shows buyers/customers are a moderate force in the food, beverages and industrial market. Meaning to say powerful buyers drive down profitability because they bargain for lower prices, demand better food and beverages product for the same price, and play one competitor against another. According to Porter (1985) the stronger the power of buyers is, the less profitable the industry. Renewable food and industrial ingredients is central to the global food and beverages market, and continued to force value sales in 2007, due to higher commodity prices, increasing demand for premium sugar, acidulants, alcohol and proteins. The evidence in this paper suggests that the buyer power for example in industrial sugar the customers are weak. While the request nature of the market should promote keener price competition than if standardised prices existed, and it is relatively easy to switch supplier, industrial users have a limited ability to affect significantly the market price or the terms of delivery. In this case, some large industrial users stated that they could not get quotes for factory gate prices and thus, were unable to use their own transport contractors. This lack of negotiating power is showed by the fact that contract prices are adjusted every two weeks to take account of the effect of fluctuations in the euro exchange rate on the support price under the EU Sugar Regime.
With regards to the power of suppliers, it shows that suppliers are a moderate force in the food, beverages, industrial market because a powerful supplier’s drive downs the profitability of the Tate & Lyle in the industry because they can charge higher prices for the products and services they sell. The suppliers to this industry are mainly the providers of technology that food, beverages and industrial firms use in the conduct of their businesses. Tate & Lyle operates more than 60 production facilities in over 28 countries, throughout Europe, the Americas and South East Asia delivering products to some 6,000 customers worldwide. The firm employs 6,700 people in its subsidiaries with a further 4,800 employed in joint ventures. Dealing with thousands of suppliers, the firm needed an information capture system that would improve the efficiency and safety of its accounts payable process.
In terms of threat of substitute, it shows that the threats of substitutes allow the customers of Tate & Lyle to carry out the same activity as with current products. The substitute product provides the same functionality but is not identical to potentially competitive products. From the analysis, while such possibilities exist at all times, the threat of a product that can substitute cereal sweeteners and starches, sugar and other related products is very high. At best, there can be a different variety of cereal sweeteners and starches, sugar and other related products, which the existing players cannot easily make without changing much of their operations. Last is the competitive rivalry, it shows that the food, beverages, industrial market in which Tate & Lyle operates is highly competitive and is expected to strengthen in intensity. For example, the starch industry is focused around a small number of large players internationally who operate in several different application areas, including food, beverage, paper and pharmaceuticals.
The US accounts for over half of the international starch production. Tate & Lyle main competitors in the US for corn wet milling and starch-based products are Archer Daniels Midland Company, Corn Products International and Cargill. National Starch (a subsidiary of ICI PLC) is another major competitor in the US, specifically in relation to higher-value modified food and industrial starches, as is Penford Corporation in the North American paper starch industry. In Europe, Tate & Lyle main competitors in the starch industry are Cargill and Roquette Freres. In addition, competition for European sugar business comes mostly from British Sugar (a subsidiary of Associated British Foods plc), Sudzucker, Nordzucker and Tereos. The main competitors for the global food ingredients business are Cargill, Danisco, Kerry and National Starch.
There are several advantages that Tate & Lyle can exploit in this highly competitive industry. For, Tate & Lyle maintaining brand equity is an important force, as the firm spends a considerable amount of resources in order to maintain and enhance the firm products and services. Tate & Lyle international strategy defend the intellectual property to the end and to make sure the cost base is built low so that the firm can deal with generic competition. A rejuvenated Tate still only has a 7pc to 8pc share of the part (pounds sterling) 7bn food ingredients market giving plenty of headroom for growth. There is no doubt the big beast of the industry has taken more than a quick interest in the revival of Tate, but the firm’s ambitious to be a consolidator, rather than a trophy asset of a giant multinational.
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