The Amoy Food Case Study

Sep 14, 2017 in Research

The agro-food industry is continuously on demand that people are always in need of. There is a group of economist who argue that the industry is a great proof to the slowdown of the economy (Johnson & Turner 2003). This has made the industry to become, resilient and reliable very profitable industry. The products that have made the industry booming include wines, crackers, cakes, bakeries, biscuits, vegetables, confectionaries, and health products. The broad product range provides many entrepreneurial opportunities for businesses growth.

The Amoy Food group was founded as early as 1908 and its headquarter is situated at Tai Po, Hong Kong. The company operated as a subsidiary of Ajinomoto Company. The Amoy food corporation manufactures frozen food sauces, wines, olive oil and citrus fruit juice. It also offers stream dim sums, water dumpling, and oyster sauces. The main company markets are United Kingdom, Japan and Europe. It was formerly identified as Tao Fa but it changed its name in 1928 to Amoy Food Limited (Bentley College 1994).

The Amoy Food Limited is one of the worldwide leading food producing corporations based in China. The Company has been expanding in an increasing pace since 1997.The company main focus in expansion in the emerging markets especially in developing countries which are being considered as strategic development zones. In the year 2000, the sales by the Amoy Food company in the foreign market were over one billion which accounted for 10% of the global sales made by the Amoy Food company. In the Chinese market, the company has emerged to become the best player in the supply of wine, biscuits, flavored milk, frozen foods, and instant foods for heating in a microwave oven. The company development plan is to raise the sales abroad to around 20% in the next 10 years (Shyu 2009).

The Amoy Food company is one of major multinational agro-food investors, which has captured Chinese market of around 1.4 billion consumers, where the product demand is being fueled by the rising levels of consumer disposable income and also the emergence of the middle class group of people who are seeking for a quality, nutritious, safe and balanced dietary foods. For the agro-food industry, capturing the China market means placing themselves in global leadership position and for the regional player, winning the Chinese market would translate to earning a worldwide status. However, capturing the market in China is not an easy thing. The rapidly increasing competition, underdeveloped fragmented channels of distribution, escalating competition, poor transport and infrastructure, enjoined venture relationship and talents scarcity are recognized as some of the major success barriers. Due to the intense competition from other local firms, the Amoy Company has strategized to market its products in the external market especially to the developing countries.

Market Analysis Using Pest Analysis

Factors affecting the food industry using the pest analysis include: (Tanasupawat et al. 2009).

Economic Factors

The economic factors that affect the food industry include income parity, stability of prices, purchasing power, income status, and exchange rates. The above factors always affect the decision made by the food producing company. Since food is a basic need and thus is demanded by the individuals all over the world, it has been observed that the industry is not much sensitive to the economic factors change and its volatility. The factors affect the companies undertaking its production in Brazil, in the context, the reason why people do not purchase the processed food are the low incomes this country, instead they consider consuming products from their farms and those who purchase do it in smaller amounts. This lowers the cash inflows of the company and leads to it operating at a loss. (Min Yu & Nagurney 2013).

Political Factors

These are the factors that include trade barriers quotas, tax/tariffs, and the intervention by the government that could either be a benefit to the government or the people. In addition, it also incorporates the policy and systems that are adopted by the government with regard to how friendly the business is. Some policies like importing policy, regulation procedure, take over policies and amalgamation/acquisitions can affect the food supply to a country. Some of the chemicals and raw materials need to be imported and the high tariffs that may be imposed by the government affect the company due to inability in importing those materials. In Brazil the government also imposes high tariffs and high taxes on the foreign import, the imposition of these makes it difficult for the company to undertake the activities smoothly. The company will charge high prices on its commodities and people will not prefer high priced goods, hence, closedown of the company. (Business Perspectives on Emerging Markets 2012).

Social Factors

These factors include religion, nationality and culture of the people which affect the patterns and trends of demand of some food products. The awareness of food product brands, population distribution, sex, age, preference, income distribution and global attitude towards different food products differs across countries. A food industry must, first, embark on understanding the taste of the local people before the establishment of the firm. The commodities produced by the company like the wines may not be accepted by people in Brazil, like the Christians, these leads to dead stock. The Brazilian people may not be aware of the company’s commodity, which leads to incurance of extra expenses of the company to advertise. (Kempa 2012)

Technological Factors

These are the major factors that affect production and effectiveness of the food production plant operations. Employment of new technology in food production results to massive production, improved yield making the firm more reliable and efficient. Product innovation plus new inventions and improvements are also achieved with the help of new technological techniques. This assists the company to produce high quality food products. The level of technology in Brazil is very low compared to the one required by the company. This will lead the company to outsource or import its new machines for the production purposes. This effect of outsourcing makes the management hard to handle, for the company (Gilbert 2010).

Market Analysis using SWOT Analysis

SWOT is an acronym for Strength, Weakness, Opportunities and Threats. Marmot says that his tool of analysis is used to measure an idea in the business set up in order to make internal decisions (Marmot & Wilkinson 2006).

Strengths of the Amoy food industry

The Amoy Food has been the leader in the production of wine, citrus fruit juice, water dumpling, and oyster sauces production. They are among the world leading food manufacturers in certain parts of Asia and Japan. The Company has captured a substantial proportion of the market as a result of acquiring other firms and aggressive merging that has been taking place. The merging has made the company huge and thus it has been able to capture the market from its rivals. As a result, in the world countries, including Brazil, the company’s products will have a ready market upon introduction.

New technology: the Amoy Food company has been inventing new products due to use of the advanced technology. This has been giving the company a competitive edge over the other companies. In addition, the company has been acquiring firms that have technology in place thus boosting its production. This will assist the company much in Brazil to produce massive and quality products to meet the demand (SWOT analysis: a tool for making better business decisions 2008).

Brand loyalty: the company has been able to produce and maintain their product at high quality standards, which have created brand loyalty among their consumers. Hence, in Brazil upon the introduction of commodities, this loyalty will make the company maintain its strong base and have a guaranteed existence in the economy of Brazil.

Weakness

Launching new products: the company has been having difficulties in launching new products. This has been arising because the company has been expanding through acquiring and merging with other established firms. On the introduction stage of the product, the company incurs many expenses in Brazil where there is anonymity of the products among the citizens.

Declining sales in Japan: Amoy Food Company has been experiencing decrease in demand and, hence, declining sales in Japan. The competition arising from other leading food producers has been becoming very stiff as Japanese prefer Kraft Foods which are produced in that region. The decreased sales in its home country make the company lack backup in terms of capital to invest in Brazil and catch up with the stiff competition (Saich 2001).

Opportunities

Production of new organic products: since people have become of more concern to their health, the company should start producing organic food that is safer to the health of an individual. This can be achieved by forming joint venture with a company focused on healthy food production. This will see the people of Brazil forming the preferences in these products and, hence, the company acquires a quality market share.

International emerging markets: Amoy Food Company has been involved in export business and has even established plants operating in other countries. The firm can use this chance to expand in the emerging markets especially in the developing countries for them to increase their market share and also capture the markets that have not been tapped. This leads to awareness of more consumers about their products, which consequently leads to increasing sales (SWOT analysis Western Washington University College of Business and Economics 2009).

To operate in fast growing category Amoy Food should diversify the offered to the market products. This will help the company in competing in diverse categories thus decreasing the risk of loss. Diversifying in Brazil will create a large base of customers, who will purchase their numerous products.

Threats

Competition: the company is faced with stiff competition due to operating in the international market. Operating in international market leads to competition with the local firms in foreign markets. It, thus, becomes hard to capture the market as some of the local firms understand better the needs, local tastes and preferences of the people of the region (Mirza 1998). The company operating in Brazil, where the rate of competition is high, makes the involvement in marketing strategies which adds the expenses of the company and decreased profits.

Industry consolidation: The formation of mergers and acquisitions by Amoy Food company rivals exerts pressure in competing with them. This leads to the industry becoming highly competitive considering the number of players in the food industry market. The amalgamation of these local firms in Brazil against the Amoy Food Company will make it dig deep in its accounts in search for more capital to catch up with the competitors.

Market Analysis of Target

The most recent data shows that the wine production in Brazil amounted to around 58 million liters in 2012. In the same year, the level of exports and imports were 1.5 and 2.2 million liters respectively. This showed that Brazil was able to have outflow and inflow trade. A report printed by the state organization in charge of planning showed that not all production was officially registered despite thorough stringent checks and new regulations which had been introduced. The statistics in the year 2008 showed that the wine producing firms in Brazil were only able to meet 73.5% of their demand (Dyker 2012).

As can be seen from market of alcoholic beverages, the demands for wine in Brazil exceed the actual consumption. Beer and wine are the leading alcoholic beverages in the Brazil market. The figures from the regulatory authority in the 2003 showed that the production, export and imports consumption of beer grew from 450 million liters to around 815 million liters in the year 2010. It was observed that from the year 2005-2010, domestic wine and traditional wine consumption increased by 230% and 145% respectively. The trend is an indication that there is growth in consumption of wine and beer. It is also evident that many people are opting to consume domestic wine rather than traditional wine.

Wine producing firms in Brazil can be regarded as infant industries, which are struggling to meet the internal market demand but also to export, and in the two cases they are rapidly adapting to the new circumstances, as they also have to compete with the imported wine, which has different characteristics. In the past few years, the beer and wine industry were following an interesting path towards market positioning and consolidation. The largest firms have brands, which are recognized, and even though they do not sell huge volumes, they usually use all channels of distribution with the small firms specializing with the local market.

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