Tutorial

Globalisation

Competitive advantage of nations – Porters diamond

Complex organisations

Transaction costs theory – in relation to outsourcing

Tutorial Activities – Cadbury Schweppes

In pairs read through the case study and using porters diamond theory make notes on the following that Cadbury Schweppes would have taken into consideration as part of their strategy

Demand Conditions

Factor conditions

Related and supported industries

Firm strategy, structure and rivalry

Poland a developing market

Why did Cadbury Schweppes choose Poland as its point of entry into the Central and Eastern European confectionery markets? Because there was a number of significant developments taking place there.

The Central and Eastern European countries can be divided into two groups: those, which fell originally within the Soviet Union and others. The key difference is that the countries within the latter group only had communist regimes for 45 years and free enterprise still existed to some degree.

The four most advanced countries within this group were Poland, Hungary, the Czech Republic and Slovakia, of which Poland had the largest population and percentage of private sector business, as well as a strong consumer market. It also had good prospects for investment, offered a skilled labour force and faced neither ethnic strife nor border disputes.

Having developed a stable parliamentary democracy and signed an association agreement with the European Union, Poland recognised that to shed its former communist image and face market forces with a proactive, commercial approach would require major changes in its culture and attitude. One way in which it could do this was to encourage development in Poland by its European partners, and Poland already had a good relationship with the UK, which has a Polish community of some 150,000.

These rapidly changing political, economic and social factors were key influences in Cadbury Schweppes ‘decision to enter Poland's developing market. Another strong factor was that, despite Poland having, at that time, one of the largest confectionery markets in Central and Eastern Europe, none of Cadbury Schweppes' major international confectionery competitors had established strong businesses there.

Although the Company could have taken a 'wait and see' approach (running the risk of missing a vital opportunity to develop an early market lead), it decided that there were sufficient indicators to justify an investment in Poland.

Market entry

Cadbury Schweppes had three 'route to market' options to consider in order to respond to Poland's market needs. The options were:

· export from other Cadbury Schweppes companies

· acquire or form a joint venture with a local Polish company

· Establish its own factory locally.

When Poland first left the communist regime, the government pursued a policy of open trade, which resulted in a flood of imports. To protect local industry the Polish government established import duties, which were particularly high on goods such as confectionery.

Under these conditions, exporting to Poland was not an economically viable option to Cadbury Schweppes. Cadbury Schweppes evaluated the leading Polish confectionery companies to assess their suitability for acquisition or joint venture. However, several problems, such as over-staffing or lack of investment, were found to be common across all of them.

So, having rejected the first two options, Cadbury Schweppes decided to explore local manufacture as the most appropriate route into the Polish market.

Market strategy

Although the confectionery market in Poland was known to be large, market research was conducted to determine whether that market would be suitable for Cadbury Schweppes' products.

Tastes in confectionery vary the world over and Cadbury chose to manufacture products from its existing range, which would particularly suit the Polish taste. It also decided to manufacture a range of budget-priced products under the name of Piasten, Cadbury Schweppes' brand in Germany.

Having identified the product range and its acceptability to Polish consumers it was then possible for Cadbury Schweppes to forecast the potential sales which could be achieved in Poland.

This information, together with estimates of the costs involved in setting up and running the manufacturing operation, enabled the Company to determine that the project was financially viable. In 1993 Cadbury Schweppes took the decision to invest more than £20m in building a factory and developing a new confectionery business on a greenfield site in Poland.

Identifying the site

Cadbury Schweppes began by visiting Poland to evaluate sites in several locations to improve its understanding of the Polish infrastructure and administration procedures, and to assess the general employment situation and skills availability.

The decision to develop a greenfield site at Kobierzyce, near Wroclaw in south west Poland, was based on a number of criteria:

· overall cost

· geographical location

· climatic conditions

· availability of mains services

· access to highways and trunk roads

· distance from competitors

· large regional population.

A further factor was people. Cadbury Schweppes would be joining a local community and would work closely with the local mayor and his staff at Kobierzyce, who welcomed the new investment.

Construction and engineering process

It is not an easy task to build a factory in a foreign country. It requires careful co-ordination and considerable expertise.

Cadbury Schweppes appointed a team of engineering consultants to oversee all stages of the project, from selection of the contractors via a process of tendering, through to the completion of the factory construction.

The construction process was extremely challenging as the factory and offices, covering 9000 square metres, had to be completed, and production ready to start, within one year in order to meet the confectionery selling season of autumn to spring.

Time was not the only challenge. Temperature within a chocolate manufacturing plant is a major consideration in a country such as Poland, where the weather varies from -15 degrees C in winter to 33 degrees C in summer. The air conditioning, refrigeration and heating of the plant were key issues, all of which had to comply with local quality, hygiene, safety and environmental standards. The local community also had to construct water pipes, electrical power lines and telephone lines to the factory, and all were completed on time.

Building a factory is only one-step in the implementation of a production facility. It is important to consider how it will operate, what production techniques it will use and what products it will manufacture.

Cadbury Schweppes formed a technical team to design, engineer and procure all of the process plant and machinery required for the manufacture of the chosen product range.

Also required is a team of company experts who specialise in the business of making chocolate and who understand the technical complexities of making quality products.

Community benefits

A new business brings many benefits to the local community. One of the benefits derived from this project was that the funds generated by the sale of land to Cadbury Schweppes helped to enable a new school to be built in Kobierzyce.

Another key benefit was that, in an area of high unemployment, local applicants secured many of the factory jobs. Cadbury Schweppes is also committed to actively contribute to the communities in which it operates and to improve the environment in which people live and work. Its operating units support community activity through locally targeted programmes throughout the world. This may include financial support, commercial sponsorship and the provision of local facilities