A Work Project, presented as part of the requirements for the Award of a Master Degree in Management from the NOVA – School of Business and Economics.
Cheeses of the Atlantic
Internationalization of Insulac to the German Cheese Market
APPENDICES
Alexandra da Silva Lemos de Vasconcelos Franco MSc Student Number 2577
A Project carried out on the Master in Management Program, under the supervision of Professor Sara Alves.
2
Table of Contents
Appendix 1: Production Cycle into Three Different Categories
Source: Insulac’s Communication.
Appendix 2: Insulac’s Product Portfolio
Insulac Product Portfolio Line
Category VALFORMOSO
a
NAVEGADOR a INSULAC b
Cheese
Butter
Powdered Milk and Sweet Whey
Powder
a
3 Source: Own compilation from Insulac’s website information.
Appendix 3: Production in tons. from 2006 to 2015
Source: Insulac’s Annual Report.
Appendix 4: Sales per Goods in 2014 and 2015
Group of Goods Sales % Variance
2015 2014
Cheese 19 674 047,49 € 22 074 314,19 € -10,87%
Butter 2 331 764,86 € 2 421 131,26 € -3,69%
Powdered Milk 4 736 434,51 € 5 410 712,70 € -12,46%
Sweet Whey Powder 2 781 929,21 € 3 438 153,63 € -19,09%
Other Dairy Products 1 098 971,93 € 883 286,24 € 24,42%
Goods 29 877,04 € 50 070,69 € -40,33%
Services 7 520,08 € 4 686,38 € 60,47%
Total 30 660 545,12 € 34 282 355,09 € -10,56%
4
Appendix 5: Sales Volume from 2006 to 2015
Source: Insulac’s Annual Report.
Appendix 6: Sales Volume by Countries from 2013 to 20151
Source: Own compilation from information provided from Insulac.
1
5
Appendix 7: Cheese Market Size in 2015 (US$ Billion)
Source: Euromonitor International.
Appendix 8: Top 6 Cheese Market Countries in 2015 (US$ Billion)
6
Appendix 9: Global Direct Competitors’ Analysis
The Kraft Heinz Company is an American globally diversified food producer. It resulted of a very recent (July 2, 2015) merger between Kraft Foods and Heinz. Currently, it is the fifth-largest food and beverage company worldwide and the third largest in the USA. In 2015, it amounted $27.4 Billion of Turnover and it is present in nearly 200 countries through more than 200 global beloved brands including brands that represent more than $8 Billion at retail. Being a leader in the global community, Kraft Heinz Co. has been serving more than $2 Billion in meals to hungry children over the last decade through philanthropic focus. Its headquarters are in Pittsburgh and in Chicago. It offers an incomparable portfolio of powerful and iconic brands. It owns brands like Kraft, Heinz, ABC, Capri Sun, Classico, Jell-O, Kool-Aid, Lunchables,
Maxwell House, Ore-Ida, Oscar Mayer, Philadelphia, among many others. In the Dairy Market worldwide, they represent 1.9% of the whole market share, being specially known for offering brands as Kraft, Philadelphia, Kraft Singles and Velveeta.
Lactalis Groupe is a French company operating in the Dairy Market, being the leader dairy group in the world, leader dairy and cheese group in Europe, leader milk collector in Europe and the leader cheese producer in Europe. It owns a spread portfolio of recognized brands like Président, Galbani, Lactel, Bridel, Celia, Pride, Laicran, Valbreso, Le Roitelet, Société, amongst others. In 2015, it amounted a Turnover of €17
Billion from their brands’ presence at more than 100 countries. Their major brands are
Président and Galbani. Currently, Président is offered in 140 countries reaching more than €1.8 Billion of Turnover, while Galbani is accessible in 130 countries achieving a
7 whole market share, being particularly known for offering brands like Président,
Parmalat, Elegê, Galbani, Lactel, among others.
Bel Groupe is a French company operating in the Dairy Market, being the third worldwide in branded cheese, the leader in 25 countries and a Top-3 contender in 45 countries. Besides, it is responsible for four brands out of the world’s 20 leading cheese brands. It has presence around 33 countries from the 5 continents and its products are spread through 130 countries of the globe. In 2015, it reached the €2.9 Billion of
Turnover, representing a growth of 5.9% when compared with the performance of 2014. Its successful core brands are The Laughing Cow, Kiri, Mini Babybel, Leerdammer and Boursin that are the main drive of the company’s growth. In the Dairy Market worldwide, they represent 0.8% of the whole market share.
Source: Companies’ Website and Euromonitor International.
Appendix 10: Portuguese Direct Competitors’ Analysis
Bel Portugal (Bel Groupe) is a cheese specialist, leader in the cheese market in Portugal, through the brands Limiano and Terra Nostra produced in Portugal, as well as the commercialization of the already known A Vaca que Ri. It also produces the brands
Pastor and Loreto in Portugal. The brand Limiano is the cheese leader in Portugal, representing 11.7% of the brand share, followed by Terra Nostra that symbolizes 6.1% of the brand share.
8 of the brand share, followed by Agros that symbolizes 4.3% of the brand share in Portugal.
Source: Companies’ Website and Euromonitor International.
Appendix 11: The “Six Forces” Model
Threat of Substitution: Moderate and Increasing
Cheese and the dairy products in general are part of the daily life of the majority of people globally. Besides, as this industry offers a huge diversity of products, the prices vary greatly. Although it is possible to substitute cheese with, for example, vegan or soy cheeses, crumbled seasoned tofu, nutritional yeast flakes, yogurts or the common charcuterie products (ham, sausage), jams or other products to spread (peanut butter), it is more difficult to stop consuming the traditional dairy products, as they are healthier, nutritionally richer and they are present in the daily routine of the most people since their were born. This way, it is possible to declare that, with an increase of the price and taking into account the vast variety of the same, customers may firstly change to other cheaper cheeses or even start consuming smaller quantities (betting in smaller packages format or sliced cheeses that help to avoid wastes) instead of switching to other categories of products. However, it is important to highlight that, apart from breakfast cereals, vegan substitutes and soy beverages that are gaining popularity in many countries mainly due to health or dietary considerations, there is also the rising of a new trend of Asian cuisines, in the Western Europe and in the United States, which in turn do not usually use cheese in its composition resulting in a negative impact of its consumption2. Nevertheless, those cases are still seen as niche markets without need of
2
9 concern. Concluding the threat of substitutes is assessed as relatively Moderate and
Increasing.
Threat of Entry: Moderate and Stable
When a company wishes to enter in any industry it must considers the barriers of entry. Specifically in the global Dairy market, or even in the Cheese market, there will be numerous entry barriers to consider, so the new entrants cannot enter on equal conditions to those existing companies. One of the major barriers is the amount of capital required to sustain the production, the R&D, the quality control, the infrastructures and necessary machinery to make the milk transformation and support the whole company. In this type of industries, fragmented and competitive, with the leading of already very well established companies like Kraft Heinz Co., Lactalis Groupe or Bel Groupe, the firms that really want to survive globally, will have to adapt their processes to large-scale operations in order to achieve a certain level of cost efficiency that ensures economies of scale and, thus, profits3. Otherwise, new domestic entrants wanting to enter on a small scale, to a niche market, will have to accept the higher unit costs, which does not means they can not compete with the big brands and be profitable, yet in the local market4. Product differentiation is not a problem to the new entrants, as cheeses are very similar among it selves and this is an industry where new entrants can easily understand the know-how. The Store-Based Retailing (with about 97,5% of distribution share)5 is the most used distribution channel, like supermarkets or hypermarkets, to retail cheese expressing the importance of the already
3
M. Grant, R. (2010). Contemporary Strategy Analysis. 7th ed. John Wiley & Sons, Ltd, pp.71-73.
4
Hoovers. 2016. http://www.hoovers.com/industry-facts.dairy-products-manufacturing.1354.html. (Accessed October 30, 2016)
5
10 known cheese brands, as in this type of distributors the capacity is always very limited and restricted, knowing that more easily the retailers will promote their cheese private labels in a better shelf space than a low cheese brand recognition6. Also, there are some governmental and legal barriers to take into account as every country has its own standard rules even when we are dealing with a food product. To highlight that Insulac is very proud to be internationally certified facilitating the entrance in other foreign markets. In sum, the threat of new entrants is assessed as relatively Moderate and
Stable.
Buyer Power: High and Stable
Regarding the bargaining power of the buyers, they are mainly Store-Based Retailers7, including supermarkets, hypermarkets, independent small grocers, discounters, among others. Given the huge variety of dairy products offered, in this case, cheeses, and the small differentiation among the same, the buyer’s price sensitivity is smaller. Besides, according to Grant (2010), “the less differentiated the products of the supplying industry, the more willing the buyer is to switch suppliers on the basis of price”. This will result in a highly competitive and apprehensive environment between suppliers where price will be the key decision factor. Grant (2010) also states that, “the more intense the competition among buyers, the greater their eagerness for price reductions from their sellers”, which leads to great pressures to suppliers to decrease their prices. As more than 50% of the distribution channels used to retail cheese are Supermarkets (36,3% of distribution share) and Hypermarkets (19,8% of distribution share)8,each of
6
Euromonitor International: Cheese: Opportunities and Threats in the Mature Markets. 2016. http://www.portal.euromonito.com/portal/analysis/tab (Accessed October 30, 2016)
7
Euromonitor International. 2016. www.euromonitor.com. (Accessed October 30, 2016)
8
11 all will require a small amount of purchases and for those reasons, having a smaller cost of losing a determined supplier and, thus, an high relative bargaining power over the firms. It is also visible the vertical integration from some retailers that start producing and selling their own-brand cheeses, the private labels, practicing lower prices and, although the quality and the brand itself are many times determinant, increasingly consumers are willing to switch brands due to the lower price9. In consequence, besides the economic context and the consumers’ price sensitivity, the pricing strategies are the most relevant key factor for the retailers, making pressure on the suppliers to lower prices and, consequently, their profits, increasing their concern. Nonetheless, more and more retailers consider the innovation and the consumer trends of their offer, as they want to answer to the clients demand. Thus, the bargaining buyer power is assessed as moderately High and Stable.
Supplier Power:Low and Stable
To produce cheese, it is necessary milk, bacteria culture (suitable to the type of cheese), rennet (extracted from calves) and salt to form the rind. Apart from these ingredients, it includes storage and cheese treatment infrastructures. Within the cheese market, the suppliers are the dairy farmers that sell their milk to be transformed afterwards. Commonly, these dairy farmers are small-sized when compared to the stronger cheese producers they deal with, and thus their switching costs will be much higher than the buyer’s switching costs. Besides as milk is a non-differentiated product and buyers purchase huge quantities of milk, being extremely significant for the dairy farmer’s final revenues, it consequently results in a higher supplier’s price sensitivity.
9
12 Although, there are cheeses made from different types of milk from different animals, the farmers, usually, provide only one type of milk (for example, cow milk, goat milk or sheep milk), weakening their power. As they typically are smaller scale, besides of not having a huge impact on the market and given the non-differentiation of the raw material, their relative bargaining power is low. Sometimes, dairy farmers integrate vertically, by producing and selling their own cheese in the local and domestic markets. Yet, those cases usually do not influence the big companies’ revenues10. In the overall, the supplier power is relatively Low and Stable.
Industry Rivalry: High and Stable
Considering the competition within the global cheese market, as it can be understood through the Competitive Landscape, it is led by big companies like Kraft Heinz Co, Lactalis Groupe, Bel Groupe, Savencia Fromage & Dairy among many others that constitutes a highly fragmented industry. For example, in 2015, given the
Concentration Ratio of the four largest cheese producers (CR4) it is achieved a ratio of 18.4% (companies market shares: 6.4%+6.3%+3.0%+2.7%)11, meaning that this industry has a low degree of concentration, having better distribution among the firms. Even when analyzing the CR8, for the eight largest cheese producers, it is attained a ratio of 24%, which means that it continues to have a scarcely degree of concentration as none of the biggest companies owns a very large portion of the market, increasing the level of competition between them. Considering the diversity of competitors, being a highly fragmented and, thus, a competitive industry, apart from the pricing strategy,
10
MarketLine. 2016. http://fesrvsd.fe.unl.pt:2118/eds/pdfviewer/pdfviewer?sid=b2d10f49-4c4e-42a7-bef1-0bc56b889c6e%40sessionmgr4010&vid=1&hid=4205 (Accessed October 31, 2016)
11
13 competitors differentiate themselves through its country of origin (that usually has a level of aggregated quality) and the category of cheese they offer (ranging between fresh, soft, semi-soft, firm, hard and veined cheese12). For instance, Italian and French cheeses13 are very well known globally for its intrinsic characteristics related to the origin. In those cases, many brands can take advantage of the origin of the cheese, highlighting the quality associated and to avoid the pricing competition with other brands. Yet, as there are many players within the industry offering a great diversity, the price tends to be the truly decision maker. Thus, within a determined cheese category, customers will be easily willing to switch between cheeses, given the non-differentiation among them, encouraging the producers to lower their prices though it will lead to smaller profits. As we could perceive in the Market Size and Growth (External Analysis), the cheese market is expected to have a slow growth during the next years, which means that companies will be competing for each other’s market share, increasing the competition. Concluding, the industry rivalry is assessed as being relatively High and Stable.
Complementor’s: Moderate and Stable
Cheese does not have a single and unique complementor that can be highly related with its consumption, as it can be consumed in variable situations during the day, as for example, for breakfast, as a snack or even as an accompaniment to the main dish. This way, the consumption of bread, crackers, spreads like jams or chutneys14, some fruits,
12
Canadian Dairy Information Centre. 2016. http://cheese-fromage.agr.gc.ca/glossary-lexique_eng.cfm?menupos=1.3.4 (Accessed October 31, 2016)
13
Wisconsin Cheeseman. 2016. http://www.wisconsincheeseman.com/articles/most-popular-cheeses-in-the-world (Accessed October 31, 2016)
14
14 olives or nuts, olive oil or honey, wine or even meat15 stimulates the demand of cheese, depending on the different cultures around the world. Nevertheless, in the general, the most relevant ones can be grouped in baked goods, spreads, fruits, nuts, wine and meat. The categories that had the major Compounded Annual Growth Rate from 2011 to 2016, was the nuts, fruits and meat with a rate of 1,9%, 1,6% and 1,3% respectively and are foreseen to continue to grow until 202016. In the overall, the force of the cheese complementor’s is Moderate and it is assessed as Stable.
Source: Euromonitor International and M. Grant, R. (2010). Contemporary Strategy Analysis. 7th ed. John Wiley & Sons, Ltd.
Appendix 12: Key Success Factors
The success within the Cheese Industry can be achieved by different factors that make the company survive and grow. While some companies intend to compete on a price basis strategy, reaching a wide range of consumers, other firms compete via product innovation and differentiation, following the new consumer’s trends.
What do customers want? Analysis of Demand
How does the firm survive competition? Analysis of Competition
Key Success Factors
•Diversity of customers, with different preferences in terms of cheese type, texture, country of origin, taste;
•Customers willing to pay a higher price for a premium quality and for an innovative product (new trends);
•Majority of customers are highly price sensitive.
•Intense competition given the highly fragmented market, with a relatively similar product and easy to replicate;
•Differentiation can yield a superior competitive position practicing a price premium, but imitation is quite rapidly.
•Combination of innovation at prices not very high, given the competitive prices of the market;
•Constant updating to follow the new consumer trends and foster differentiation from the competitors;
15
Golden Age Cheese. 2015. http://goldenagecheese.blogspot.pt/2015/10/the-best-foods-to-complement-cheese-tray.html (Accessed October 31, 2016)
16
15
Appendix 13: Organizational Resources’ Platform
16 Through the illustrative assessment, we obtain that the Location, the Alimentary Safety Management System and the Research&Development are the three core resources to the business, meaning they are unique and sustainable within the company. Source: Own compilation.
Appendix 14: VRINNO Framework
With the company’s resources, the firm itself is creating potential for abnormal returns (profit earning potential), which means they have to capture its value to have a competitive advantage. To assess the resources’ platform, we need to check if they are Valuable, Rare, Inimitable, Non-substitutable, Non-transactional and Organizationally Embedded, so it can guarantee a Sustainable Competitive Advantage.
Location
Alimentary Safety Management
System
R&D
Temporary Competitive
Valuable
(Competitive Parity)
The Azorean dairy products are very well known for its high quality associated to the intrinsic characteristics of its naturally environment.
As we are dealing with a food product, this resource is critical to ensure to Insulac an higher credibility and
The department of R&D is extremely
important, because they are
17
Advantage associated quality.
Besides, customers will be more loyal and
it will facilitate its entrance in new foreign markets.
strive for further innovation and a more value-added
offer within the company.
Rare
Although there are competitors using the inputs
from the same location, they are as small as Insulac,
which means they are globally rare. Besides, as it is an archipelago, the area is
limited, increasing the importance of the already
existing products.
This can be assumes as a rare resource, as being part of Insulac’s priorities, they already collect many safety systems that require a lot of procedures and controls during the transformation of the input, yet requesting time and tolerance.
Although each company invests
in R&D, due to the high competitive industry, Insulac’s products have specific characteristics and
tastes, being, in a certain sense, rare.
Isolating Mechanisms
Inimitable
Cheeses are by itslef an imitable product, meaning
they can be easily replicated. However, given the unknown location by the
majority of people, that ensures the high quality of its products, the replication
is difficultier.
It is imitable as it can be replicated by other
competitors.
It is an imitable resource, being
able to be replicated by other companies.
Non-Substitutable
A location can not be substituted. Although, there
are many other places globally that also offer extremelly good conditions
to the cheese production.
Non-Transactional
A location can not be transferred and neither its inputs (milk), as it needs to
be very fresh to produce cheese with high quality.
Organizationally
Embedded
As it is where Insulac’s headquarters, factory and the whole processes happen,
it is completely organizationally embedded. Sustainable
Competitive Advantage
Source: Own compilation.
18 Source: Core Tool, GlobalEdge.
Appendix 16: Criteria’s Description
Criteria Description
Urban Population
The number of people living in urban areas, meaning its market potential size. It is seen as more relevant than total population, because there is a higher probability of availability of the product in the urban areas instead of the rural areas.
Index of Economic Freedom
The degree of a country’s market structure, where higher indexes represent freer markets. It is measured based on four pillars - Rule of Law, Limited Government, Regulatory Efficiency and Open Markets. The index is represented in an interval that ranges from 0 to 100 and it is divided into five categories – Free, Mostly Free, Moderately Free, Mostly Unfree and Repressed – where the scores below 50 are considered Repressed17.
Country Risk
The set of associated risks when investing in a foreign country (including sovereign risk, currency risk, banking sector risk, political risk and economic structure risk). It is represented in different possible levels such as AAA, AA, A, BBB, BB, B, CCC, CC and C, from the best or the lowest to the worst or the highest (that thus may discourage the foreign investment) country’s risk level respectively18.
Currency Risk
As currency varies within different countries, it is important to measure the exchange rate risk, meaning the impact of currency devaluation on an exporting company’s sales. It is represented in different possible levels as the Country Risk.
Political Risk
As the political system varies within different countries, it is important to consider the level of risk of the political system of the country, as it will have an impact on the profitability of the company given political changes within the country. It is represented in different possible levels similarly to the Country Risk and Currency Risk.
Appendix 17: Country Data on Preliminary Screening Criteria19
Urban Population Index of Economic Freedom Country Risk Currency Risk Political Risk
Albania 1,658,584.0 65,9 B B B
Austria 5,680,563.0 71,7 A BBB AA
Azerbaijan 5,271,567.0 60,2 B B CCC
Bosnia and Herzegovina
1,515,288.0 58,6 B B CC
China 762,590,291.0 52 BB BB B
17
Index of Economic Freedom. 2016. http://www.heritage.org/index/ (Accessed November 18, 2016)
18
Investopedia. 2016. http://www.investopedia.com/terms/c/countryrisk.asp [Accessed November 18, 2016)
19
19
Colombia 36,864,092.0 70,8 BB BB BB
Croatia 2,490,878.0 59,1 BB BB BB
Czech Republic 7,701,546.0 73,2 BBB BBB BBB
Denmark 4,976,492.0 75,3 A A AAA
Estonia 886,097.0 77,2 A BBB BBB
Finland 4,617,006.0 72,6 A BBB AA
Germany 61,304,912.0 74,4 A BBB AA
Hungary 7,012,074.0 66 BB BB BBB
Iceland 311,427.0 73,3 BB BB BBB
Ireland 2,934,827.0 77,3 BBB BBB BBB
Italy 41,931,550.0 61,2 BB BBB BB
Kazakhstan 9,341,721.0 63,6 B B B
Latvia 1,333,112.0 70,4 BBB BBB BBB
Lithuania 1,935,515.0 75,2 BBB BBB BBB
Luxembourg 513,620.0 73,9 AA BBB AAA
Macedonia 1,186,880.0 67,5 B BB CC
Malta 411,522.0 66,7 BBB BBB A
Moldova 1,599,190.0 57,4 CCC CCC CC
Norway 4,181,314.0 70,8 AA AA AAA
Poland 23,004,514.0 69,3 BBB BBB BBB
Portugal 6,568,080.0 65,1 BB BBB BBB
Serbia 3,943,289.0 62,1 B BB BB
Slovakia 2,907,182.0 66,6 A BBB A
Slovenia 1,024,661.0 60,6 BBB BBB BBB
Sweden 8,408,901.0 72 AA AA AA
Switzerland 6,125,070.0 81 AA A AA
Turkey 57,738,359.0 62,1 BB B B
Ukraine 31,500,885.0 46,8 CC CCC C
20 To proceed with the preliminary screening and reduce the initial set of countries, the macro criteria used to base the analysis were the Urban Population, the Index of Economic Freedom, Country Risk, Currency Risk and Political Risk. The countries were eliminated if they had less than 5 Million habitants in the Urban Population, as Insulac has the need to increase its production scale being limited by the market size, less than 59.9 of Index of Economic Freedom, comprising the Repressed and Mostly Unfree countries (the lowest levels of economic freedom), and with a Country Risk, Currency Risk and Political Risk level higher or equal to B, which represent the riskier levels.
Concluding, the preliminary screening resulted in a reduction of 23 countries, achieving a new set of 10 countries, namely, Austria, Colombia, Czech Republic, Germany, Hungary, Italy, Poland, Sweden, Switzerland and UK, to be now analysed in-depth. Portugal was also considered in terms of comparisons.
Appendix 18: Detailed Description of the Criteria
Criteria Description
Urban Population (Million)
The number of people living in urban areas, meaning its market potential size. It is seen as more relevant than total population, because there is a higher probability of availability of the product in the urban areas instead of the rural areas.
GNI PPP (Current International $)
Gross National Income transformed to international dollars using Purchasing Power to Parity method20.
GDP Growth (CAGR%)
Forecasted compounded Gross Domestic Product growth rate in US dollars, representing the prospects of a country’s economy growth, which are greatly correlated with the development of the disposable income in that country and, consequently, the triggering of expenditure on certain products and services.
GNI PPP Per Capita (Current International $)
Gross National Income Per Capita transformed to international dollars using Purchasing Power to Parity method, representing the market intensity and the country’s habitants’ individual disposable income.
20
21 Country Risk
The set of associated risks when investing in a foreign country (including sovereign risk, currency risk, banking sector risk, political risk and economic structure risk). It is represented in different possible levels such as AAA, AA, A,
BBB, BB, B, CCC, CC and C, from the best or the lowest to
the worst or the highest (that thus may discourage the foreign investment) country’s risk level respectively21.
Currency Risk
As currency vary within different countries, it is important to measure the exchange rate risk, meaning the impact of currency devaluation on an exporting company’s sales.
Political Risk
As the political system varies within different countries, it is important to consider the level of risk of the political system of the country, as it will have an impact on the profitability of the company given political changes within the country.
Index of Economic Freedom
The degree of a country’s market structure, where higher indexes represent freer markets. It is measured based on four pillars - Rule of Law, Limited Government, Regulatory Efficiency and Open Markets. The index is represented in an interval that ranges from 0 to 100 and it is divided into five categories – Free, Mostly Free, Moderately Free, Mostly Unfree and Repressed – where the scores below 50 are considered Repressed22.
Cheese Market Size (US dollars)
The total Cheese Market value, through the total sales generated by cheeses in a certain country in a one-determined year (converted to US dollars).
Cheese Market Growth Rate (CAGR%)
The forecasted Cheese Market annual growth rate, through the predicted compounded annual growth rate of the sales revenues.
Herfindahl-Hirschman Index (HHI)
The market concentration, where a highly concentration level represents a weakly competitive market, being thus more attractive23. It is computed:
Where Si is the market share of the firm i and n is the number of firms.
Importance of Cheese in the Dairy Products Industry
(%)
Relative importance of cheese in the dairy products industry, meaning the sales revenue generated by the cheeses divided by the revenues generated by the dairy products in a given year.
Expenditure on Cheese Per Capita (US$)
Assesses the estimated market intensity, in other words, it is the average consumer expenditure on cheeses per country in US dollars.
Consumption of Cheese Per Capita (Tons)
Assesses the estimated market intensity, in other words, it is the average consumer expenditure on cheeses per country. Tariff on Imports of Portuguese
Cheeses
The estimated tariff applied by the country to imports of Cheeses from Portugal.
21
Investopedia. 2016. http://www.investopedia.com/terms/c/countryrisk.asp (Accessed November 18, 2016)
22
Index of Economic Freedom. 2016. http://www.heritage.org/index/ (Accessed November 18, 2016)
23
22
Appendix 19: Criteria Year and Source of Data
Level Criteria Year Source Link
Macro
Indicators
Urban Population 2015
World Bank, World Development Indicators
http://data.worldbank.org/indicator/SP.UR B.TOTL.IN.ZS
GNI PPP 2015
World Bank, World Development Indicators 201624
http://wdi.worldbank.org/table/1.1
GDP Growth 2015-2021
International Monetary Fund, World Economic Outlook Database, October2016
http://www.imf.org/external/pubs/ft/weo/2 016/02/weodata/index.aspx
GNI Per Capita 2015 World Bank, World Development Indicators 2016
http://wdi.worldbank.org/table/1.1
Country Risk 2016 The Economist Intelligence Unit (October 2016)
http://country.eiu.com/AllCountries.aspx
Currency Risk 2016 The Economist Intelligence Unit (October 2016)
http://country.eiu.com/AllCountries.aspx
Political Risk 2016 The Economist Intelligence Unit (October 2016)
http://country.eiu.com/AllCountries.aspx Economic
Freedom 2016
The Heritage Foundation http://www.heritage.org/ind ex/
Micro and
Firm-Specific
Indicators
Cheese Market
Size 2015
Euromonitor International http://www.portal.euromonitor.com/portal/ statistics/tab
Cheese Market Growth
2016-2021
Euromonitor International http://www.portal.euromonitor.com/portal/ statistics/tab
Herfindahl-Hirschman Index 2015
Euromonitor International http://www.portal.euromonitor.com/portal/ statistics/tab
Importance of Cheese in the Dairy Industry
2015
Euromonitor International http://www.portal.euromonitor.com/portal/ statistics/tab
Expenditure on
Cheese Per Capita 2015
Euromonitor International http://www.portal.euromonitor.com/portal/ statistics/tab
Consumption of
Cheese Per Capita 2015
Euromonitor International http://www.portal.euromonitor.com/portal/ statistics/tab
Tariff from
Portugal 2015
International Trade Center, Trademap
http://www.trademap.org/Country_SelPro ductCountry.aspx?nvpm=1|620||||0406|||4|1 |1|2|1||2|1|1
Appendix 20: Standardization for the Scoring Model
Formula 1. 𝑆𝑖𝑗 = !!"!!"#.!
!"
𝑥99+1
Where Sij is the scaled final value for a determined country j for criteria i; Xij is the average score of the country j on criteria i; min.i is the minimum value of criteria i; and Ri is the range of criteria i. This formula provides a better and more intuitive comprehension of the index and it was developed by Cavusgil (2004)25.
24
World Development Indicators. 2016. https://issuu.com/world.bank.publications/docs/9781464806834?e=0/35179276 (Accessed November 20, 2016)
25
23
Appendix 21: Standardized Score of Each Selected Country per Criteria and Final Ranking Au st r ia Co lo m b ia Cz e c h Re p u b li c Ge r m a n y Hu n g a r y It a ly Po la n d Po r tu g a l Sw e de n Sw it z e r la nd UK
Urban Pop. 1 57 5 100 3 66 32 3 6 2 87
GNI PPP 5 12 3 100 1 53 20 2 7 8 65
GDP
Growth 52 100 21 51 31 29 71 49 47 29 1
GNI PC 71 1 36 72 24 47 25 32 70 100 56
Country
Risk 67 1 34 67 1 1 34 1 100 100 34
Currency
Risk 34 1 34 34 1 34 34 34 100 67 34
Political
Risk 100 1 34 100 34 1 34 34 100 100 67
Economic
Freedom 54 49 61 67 25 1 42 21 55 100 77
Market
Size 5 1 5 100 1 92 13 8 16 27 78
Market
Growth 38 84 58 57 41 1 100 54 44 41 19
HHI 61 27 73 97 58 94 79 74 1 99 100
Cheese in
Industry 47 1 54 60 24 100 31 62 56 82 49
Expendt.
Cheese PC 26 1 21 33 12 41 10 30 55 100 33
Consumpt.
Cheese PC 59 1 66 79 37 90 32 72 100 99 70
Tariff 100 1 100 100 100 100 100 100 100 100 100
Scoring 44 29 47 73 33 58 53 49 46 70 57 Std.
Scoring 35 1 42 100 9 67 56 45 40 92 63
Ranking 9 11 7 1 10 3 5 6 8 2 4
24
Appendix 22: Detailed PESTLE Analysis
Political
Germany is governed under a strong democratic system, where its government is constituted by the legislature, judiciary and executive powers. The federal government is the major source of authority that every state and municipality should obey. In 2014, Germany ranked 9326 percentile on the rule of law indicator in 2016, which measures the degree to which agents have confidence in and accept the rules of society (particularly, the quality of contract enforcement, the police, the courts, and the likelihood of crime and violence).
In 1958, Germany was one of the founding members of the European Community, then named as European Union in 1993. Besides, it is a prominent member of numerous international organizations such as the United Nations (UN), North Atlantic Treaty Organization (NATO), the International Monetary Fund (IMF), the G8, the G20, Organization for Security and Co-operation in Europe (OSCE) and the OECD27. It has been involved in peace-building missions in many places such as Afghanistan, the Middle East and Africa 28 . Germany performs fairly well in Transparency International’s Corruption Perception Index in 2015, being positioned at 10th out of the overall 167 countries.
26
Worldwide Governance Indicators. 2016. http://info.worldbank.org/governance/wgi/index.aspx#reports (Accessed November 25, 2016)
27
MarketLine. 2016. http://fesrvsd.fe.unl.pt:2260/eds/pdfviewer/pdfviewer?sid=f8818d90-5e83-474d-9111-3558389ece80%40sessionmgr103&vid=1&hid=120 (Accessed November 28, 2016)
28
25
Economic
Having a GDP of $3,356 trillions, Germany represents the world’s 5th largest economy in PPP terms and the greatest of the EU. About 69,1% of their GDP comes from the service sector, 30,4% from the industry and only 0,6% from the agriculture. It is a highly developed country specialized in the industrial sector and focused on engineering and chemical products, being globally well-known for its advancements, and having many examples of successful brands in the sectors of automobile, machinery, metals and chemical goods, such as Porsche, Mercedes Benz, Audi, BMW, Volkswagen, T-Mobile or SAP29. Consequently, Germany is the leading exporter of machinery, chemicals, automobiles and household equipment and benefits from a highly skilled labour force. The projected GDP compounded growth rate is around 3,40% for 2015-202130. Worldwide, it is the 4th largest exporter and importer. It mostly exports motor vehicles, machinery, chemicals, computer and electronic products, pharmaceuticals, metals, transport equipment, textiles and plastic products and it imports machinery, data processing equipment, vehicles, chemicals, oil and gas, metals, agricultural products and pharmaceuticals31.
Currently, it is facing critical economic challenges given the Eurozone crisis. From the industry perspective, it enjoys the availability of highly skilled labour force. Germany’s flexible labour markets and its highly innovative small and medium enterprises are the key reasons behind its economic resilience during the debt crisis. As a result, the unemployment rate in Germany was of 4,6% in 201532.
29
PESTLE Analysis. 2016. http://pestleanalysis.com/pest-analysis-for-germany/ (Accessed November 27, 2016)
30
Central Intelligence Agency. 2016. https://www.cia.gov/library/publications/the-world-factbook/geos/gm.html (Accessed November 25, 2016)
31
Central Intelligence Agency. 2016. https://www.cia.gov/library/publications/the-world-factbook/geos/gm.html (Accessed November 25, 2016)
32
26
Social
With the largest population of the EU, about 81 Million well-educated and cosmopolitan habitants, it is a highly culturally diversified country reflected by its different types of art spread through the nation (architecture, literature, music or sports). It is known by renowned people such as Ludwig van Beethoven, Johannes Brahms, Johann Sebastian Bach or famous buildings like the Abbey Church of St. Michaels or the Cologne Cathedral33. Given the economic crisis, Germany as well as the other Western European countries, has been facing demographic challenges that impact the sustained long-term growth. The ageing population, representing 21,45% of the total population in 2014, low fertility rates, of 1,47 children per woman in 2014, and a large increase in net immigration are increasing pressure on the country’s social welfare system.
Regarding the organizations, they are mostly structured by a hierarchy, where the power is on the top level senior managers. The functions and responsibilities are always very well planned and defined, encouraging the workers to be more individualists and less social with their colleagues within companies. Germany is one the countries with the most liberal immigration laws for highly skilled professionals, although it also exists gender disparities in the labour market, characterized by a devaluation of women. Although, one major quality of the Germans is that they are more rational than emotional (they are more persuaded by facts), being thus more objectives, they valorise and preserve the relationship with their families.
33
27
Technological
Germany is a country highly dedicated to the national science, technology and research34. They have a Ministry of Science and Technology, specially dedicated to manage this component within the country. Besides, they also contribute to the scientific and technological advancements within the European Union by the provision of funding to be spent in the area, scientists or laboratories35. Their infrastructural facilities are also one of their cores, helping the development of any business in Germany. Its telecommunication systems are known for being worldwide technologically advanced. In terms of media, about 90% of the German homes have cable or satellite TV36 which facilitates the spread of the brands’ communication. In 2015, about 91% of all households had access to computers from home and 90,3% had Internet access37, representing the 8th largest internet population in the world38. Regarding the transport system, they have an advanced full-blown system of roadways, railways, ports or airways.
Legal
Germany has a comprehensive legal and regulatory framework at the federal, state and regional levels, and boasts of strong investment and business freedom. According to the Index of Economic Freedom, Germany accomplished the score of 74,4 in 201639, being above the global average and symbolizing a strong system. As being a member of the European Union, Germany mostly follows free trade policies. It imposes no customs
34
PESTLE Analysis. 2016. http://pestleanalysis.com/pest-analysis-for-germany/ (Accessed November 27, 2016)
35
PESTLE Analysis. 2016. http://pestleanalysis.com/pest-analysis-for-germany/ (Accessed November 27, 2016)
36
BBC. 2016. http://www.bbc.com/news/world-europe-17301193 (Accessed November 26, 2016)
37
OECD. 2016.
https://data.oecd.org/searchresults/?r=%2Bf%2Ftype%2Findicators&r=%2Bf%2Ftopics_en%2Finnovation+and+technology (Accessed November 26, 2016)
38
Internet Users by Country. 2015. http://www.internetlivestats.com/internet-users-by-country/2015/ (Accessed November 26, 2016)
39
28 duty on the import of goods from other EU members and on industrial goods from Iceland, Liechtenstein, Norway and Switzerland. However, it imposes customs duty in the range of 0–20% on industrial goods shipped from non-EU countries. Besides, according to the World Bank’s Doing Business Report40, regarding the ease of doing business, Germany ranked the 17th position out of 190 countries.
The loopholes in the country’s taxation system are one of the worries of the German government, as German tax authorities lose billions of euros every year given the tax evasion and tax avoidance. Overregulation of professional services and licensing system are some of the other challenges threaten the future investment within the services sector.
Environmental
The German government aggressively supports the adoption of renewable energy, and really intends to replace nuclear power largely with renewable energy. Consequently, the share of renewable energy in gross electricity consumption has been increasing reaching a share of 31% in 201541. The Environmental Performance Index positions the strong performance of Germany as the 30th out of 180 countries42 in 2016, reflecting the government’s commitment to create a sustainable environment policy. Considering the air pollution, Germany faces a significant threat from airborne particulates, which contributes to the high pollution levels. Deaths caused from ambient air pollution are also one of the highest within the OECD economies.
40
The World Bank. 2016. http://www.doingbusiness.org/rankings (Accessed November 26, 2016)
41
EIA: U.S. Energy Information Administration. 2016. http://www.eia.gov/todayinenergy/detail.php?id=26372 (Accessed November 26, 2016)
42
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Appendix 23: Germany Dairy Product Sales Value % Share by Category in 2015
Source: Euromonitor International.
Appendix 24: Germany Cheese Market Sales: US$ Million in 2015
Source: Euromonitor International.
Appendix 25:German Cheese Market Competitors
Savencia Fromage & Dairy is a French company, being the 1st worldwide focused on cheese specialties, owning international and local brands, which are sold in 120
37%
21% 15%
15%
13%
Cheese
Other Dairy
Yoghurt and Sour Milk Products
Drinking Milk Products
Butter and Margarine
-15 -10 -5 0 5 10
6300 6800 7300 7800 8300 8800
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
30 countries. It is among the world’s leading milk processors, the 2nd cheese group in France and the 5th worldwide. It aggregated a Net Sales of €4.4 Billion in 201543.
Hochland SE is a German company with 85 years of expertise in the cheese production, being one of the largest manufacturers and refiners of cheese in Europe. It supplies all major cheese varieties to national and international markets. In 2015, it amounted a turnover of €1.2 Billion44.
Groupe Bel and Groupe Lactalis were already analysed in detail in the Global Direct Competitors’ Analysis (Appendix 11).
Appendix 26: Average Price of Cheese per Kilo
Range Average
Portugal 5€ - 10€ 7,21€
Germany 5€ - 12€ 7,58€
Source: Cost of Living45.
43
Savencia Fromage&Dairy. 2016. http://www.savencia-fromagedairy.com/en/ (Accessed November 29, 2016)
44
Hochland Group. 2016. http://www.hochland-group.com/HochlandGroup/en/default.asp (Accessed November 29, 2016)
45
