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Part I: Key Issues
In 2010, Lain Jager, the CEO of Zespri, was facing with a material growth problem whether Zespri is on the right track to maintain its leadership in Kiwifruit industry and that the commitment of achieving its goal to reach its export earnings of $3 billion by 2020 is uncertain.
Part II: Advantages Analysis
Zespri was analyzed through VARINE and five forces and CAGE analysis in order to analyze the external and internal situation. The external analysis-VARINE Analysis:
1) VARINE analysis – Kiwifruit
The products of Zespri are valuable. The color and taste of gold kiwi is popular in Asian market. The quality of green kiwi and gold kiwi also is main reason to engage Zespri as the best exporters around world. Rarity
The kiwifruit of zespri is rare in the market especially Zespri gold kiwi because Zespri is the original country where controls the core technology of cultivating gold kiwi at the level of cultivating gold kiwifruits. Inimitable &non-substitutable
Zespri can be easily imitated because other existing primary kiwi exporters begin innovating gold kiwi. When doing offshore business, the cooperators are likely to copy Zespri’s core technology of gold kiwi so that it is easy for them to imitate. Exploitability
The products of Zespri have high exploitability in the market. The demand and consumption of gold kiwi and green kiwi are increasing dramatically for each year from different geographical markets. 2) VARINE analysis – Grower owned business structure
The grower owned business structure is valuable which guarantees Zespri has
stronger suppliers and the high quality of products. Rarity
The grower owned business structure is rare since this is unique Inimitable &non-substitutable
The grower owned business structure is inimitable. This structure brings high profits and high brand awareness of Zespri around world. Other country’s exporters will switch the structure likes Zespri to increase its brand awareness. Exploitability
The growers owned business structure ensure the quality and quantity of kiwifruits all year round with high exploitability in the market. 3) VARINE analysis – supply chain
The supply chain of Zespri is valuable. The basic purpose of it is to connect suppliers with customers to increase the ability of reflecting the changes of demand in the market. Rarity
The supply chain of Zespri is rare. One of the Zespri’s competitive advantages is to build supply chain with combination of suppliers to customers. Inimitable
The supply chain of Zespri is inimitable because other exporters can easily build the same supply to control main growers and market. Exploitability
The supply chain of Zespri is still exploitable because of growing demand from market and strategy of sustainable development in long-term perspective. Therefore, this supply chain will bring high profits from closing customers and growers. In conclusion, to assess the Zespri faced internal environment, this VRINE analysis help to point out that Zespri’s strengths of resources and capability compared to other competitors in the industry. The external analysis – Five Forces
Degree of rivalry
The degree of rivalry for Zespri is high. In the kiwifruit market of New Zealand, Zespri has capability competitors. These competitors already have own brand, supply chain and technology. In the market of world, Italy, China and Chile are other main countries to export kiwifruit. The buyer power
The buyer’s bargaining power is high for Zespri. There are lots of competitors and substitutes in the fruit market. Customers have various channels and choices to fruits. Therefore buyers have high ability to require low price in the kiwifruit market. The supplier power
The supplier power for Zespri is low in the industry. There are plenty of growers in the New Zealand and others countries of origin. There are over 2,700 individual growers in New Zealand, but reaching up to 82% growers are shareholders for Zespri. The threat of substitutes
The threat of substitutes of Zespri is high. Although Kiwifruit has high nutrition, kiwifruit does not the first choice in customer’s version. So the threat of substitutes is high. The threat of new entrants
The threat of new entrant is low. Zespri and other three main exporting countries already have stable market share, brand, high technology and loyal customers around world. In New Zealand, government recognizes Zespri as the only brand to export. In conclusion, five force analysis presents that there is high competitive pressure in the kiwi industry. The threat of substitutes, the degree of rivalry, and buyer’s bargaining power is high for Zespri. The supplier power and the threat of new entrant are low for Zespi.
The international analysis – CAGE Distance framework
Refer to this case, CAGE distance framework is very useful because it helps global company like Zespri to seek growth opportunities and decide international expansion strategy. Cultural distance
Different languages, different ethnicities and lack of connective ethnic or social networks, etc. all contribute to cultural distances. Fortunately, fruit products like kiwi are seldom affected by significant cultural differences and are easily accepted by western and eastern countries. Administrative Distance
This facet helps managers to examine whether political hostility and government policy factors will improve or favor the relationship between international companies and new targeted countries. For countries sharing the similar trading policies and capital structure, it’s relatively easier for them to enter the new market. For Zespri, apart from its original major exporting countries such as Italy, Greece and Chile, at present, Zespri is targeting at the new highly demand market–China and Japan. Geographic Distance
According to the case, although Italy was the largest producer in Europe, it was still difficult for Zespri to benefit a lot because the marketing of Italian fruit was not coordinated. However in China, production had dramatically grown with a targeted high-value fruit, but the exported kiwifruits are still fragile due to the various trading barriers and restrictions that cannot be controlled because of the geographic distance. Economic Distance
Considering the information given in this case, Zespri primarily exports kiwifruit to European countries due to its premium price and gain a huge success. The expensive fruits cause itself unaffordable to those under developed countries. However, Zespri can try exporting to other countries at a lower rate when it is oversupply.
From exhibits the case provided, grower performance, export quantities and export returns from 1999 to 2010 presented a stable and positive trend. And the average increasing rate of returns from fruit sales from 2005 to 2010 was 9.53%, which implied Zespri would achieve 3.4 billion dollars export earnings by 2025. However, the variation of increasing rate indicated uncertainty of the future growth. As a result, management and operation alternatives should be carried out to guarantee Zespri’s goal.
Part III: Alternatives
From the analysis above, alternatives must be carried out to address these issues mentioned at the beginning. Simultaneously, having criteria of Zespri business growth, each alternative followed must effectively support and achieve $3 billion exports goal. Alternatives A: Restructure the product allocated
This alternative is restructure the product allocated which according to different market demand to effectively allocate the export volume for three categories kiwi in order to further into existing markets. In the Japanese market, all green kiwi and gold kiwi are popular in the market. The sales of gold kiwi almost increase 90% from 1999 to 2009. Zespri can increase exporting volume of gold kiwi to attract more customers and extend Japanese market. In the Chinese market, the export sale of green kiwi and gold kiwi increases separately 60% and 80%. Zespri could increase the exporting volume of green and gold kiwi in Chinese market. In Europe, consumers can not accept gold kiwi. However the demand and price of green kiwi is high. Zespri could pay attention to only sell green kiwi in Europe. Pros
Effectively take advantage of the output of green and gold kiwi Difficult for Zespri accurate analyze the trend of customers’ demand Decrease carrying cost
Zespri will not quickly deal with the change of customers’ demand in the future Make more profit
Other competitors will take more market share
Attract more customers and increase customer’s satisfaction
Extend the target market
Alternative B：Developing brand value through tourism
Kiwifruit are cultivated among the famous plants in New Zealand and are precious for their quality and brand value. Although facing a prolonged global recession, gold growers were receiving substantially high returns and green growers had stabilized, which presented Zespri’s strategy of innovation. A feasible alternative for its further development can be aim at tourism, so that visiting New Zealand for tourist purpose because of Zespri’s kiwifruit has become an important activity, contributing to domestic income to some extent. For example, Zespri could invest certain amount of money within the budget, associated with national tourism campaign, to advertise the products and make it possible to establish widespread recognition. Therefore, the increasing appreciation of the Zespri
is able to significantly affect national tourism as well as their brand value. Pros
increase profit at high rate due to association with national tourism initial investment may be expensive, and target may not be reached in a short run all the customers around the world see the value the outcome may be unexpected boost competitive advantage this promotion approach cannot be easily imitated have potential room to exploit other value
To reach its $3 billion goal, Zespri has to expand its volume of production. Zespri needs to attract much more growers to join in as its shareholders. Italy, Chile and China should be considered at first because they rank among the top four kiwifruit producing countries as Exhibit 2 shows. However, the chart above indicates that returns of Italy kiwifruit growers were less than that of New Zealand kiwifruit growers, which implied salaries and satisfaction of Italian growers were far behind that of New Zealand’s. As a result, Italy presents a big potential for Zespri’s outsourcing growth. Zespri should persuade Italian producers to conclude contracts with them and issue more shares for Italian growers to buy. Taking this alternative, Zespri could assume large possibilities to achieve its goal.
Benefits Zespri and overseas growers
Huge overseas growers provide unlimited growth potential
A technique gap between New Zealand growers and overseas growers Will reduce cost when Zespri reaches economies of scale
High risks resulting from political and environmental variables Gain good reputation among overseas growers and consumers
Maintain growers relationship with Italian producers
Part IV: Implementation
According to the three alternatives above, Zespri should select the last alternative to satisfy increasing demand when New Zealand fruit is out of the market, and Zespri also needs to expand to more producers to develop vast amounts of kiwifruit during the off-season so that they are able to obtain their $3 billion dollars export goal. Considering that Zespri is the main exporters of kiwi around world which has stable brand and loyal customers. Now, Zespri needs to extend its exporting coverage through increase the product volume, product’s quality and customers’ satisfaction. Short term (5 years)
Launching research about the resource, capability and technology of Italy for purpose of evaluating the potential possibility of development in Italy. Based on the potential development of Italy to sign reasonable short term contracts with Italian farmers. Zespri will extend quickly into Italian market because Italy will become one original producer country of Zespri. Increasing the product volume by cooperating with Italian farmers which effectively avoids the seasonable problem of Zespri to offer kiwifruits all year to the market. Combing Italian’s technology and experience to increase the quality of kiwifruits. Starting an aggressive advertising campaign through website, business magazines, TVs, radios to enhance the brand awareness among target customers. Design the refreshing and unique slogan for the advertisements. Long term ( 10 years)
Signing reasonable long term contracts with 70% Italian farmers. In this way, Zespri becomes the primary partner with Italian kiwifruit growers thus increasing its brand influence in the Italian and other European market. Providing training and education program to the Italian farmers to guarantee the quality of kiwifruit. Innovating new kiwifruits which more suitable the market demands of Italy and other global market. Using product and service differentiation strategy to suit for the demand differential in global market. It’s necessary for Zespri to continue extending all around world and build corporate culture with other global exporters.
The strategic steps mentioned can be shown in the Gantt chart as follow.
If challenged by economic profits recession or growing rate slowdown, Zespri can have another option -to sell its licences to more local dealers or agencies. With the supervision and cooperation with local importers, the quality of exporting volumes can be insured.