Corporate Strategy Analysis of China Resources Enterprise: Challenges and Opportunities
This report analyzes the corporate strategy of China Resources Enterprise (CRE), focusing on the company's recent restructuring, challenges with low operating margins, and the effectiveness of its acquisition-based growth strategy. It includes a SWOT analysis alongside business-level strategies for differentiation and geographic focus. The document evaluates whether CRE should continue its acquisition-driven approach or refine its core business operations in response to investor demands for improved profitability. Recommendations are provided to guide future strategic decisions.
Corporate Strategy Analysis of China Resources Enterprise: Challenges and Opportunities
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Presentation Transcript
China Resources Enterprise ANALYSIS OF CORPORATE STRATEGY Prepared by Jessica Choi, Phoenix Tiu, Janet Poon, Cathy Ho & Timothy Sargeant
Content • Problem • SWOT Analysis –Overview • Business Level Strategy - Focused geographical - Differentiation • Corporate Level Strategy - Related- link - Acquisition- based Strategy • Recommendation
Problem • Recently restructured companies assets • Low margins • CRE operating margin: 1.5% (2009 FY) • Sector average: 3.1% • Desire from investors for higher profit margin • Acquisitions currently a very important part of CRE’s strategy
Problem • CRE has yet to improve its margins through an acquisition based strategy • Should CRE continue acquisition based growth strategy or focus on fine-tuning their core business against the risks?
Business-level strategy Source: CRE 2010 Annual Report
Marketing Strategy • “ Snow” Advertisement http://www.snowbeer.com.cn/ How does this add value to the presentation, not sure that we can afford the time
Beer Analysis • Beer - "雪花 Snow“ • SWOT – Strength • China’s best-selling beer for 2009 in terms of sales volume • Market leader position further consolidated by acquisition of Kingway in Feb 2011 • US $40m investment in Technology • Legend of quality: unified technological and technical standards • Appointed again as the official beer for NPC and CPPCC
Beer Analysis • Customer-Focused • Royal- looking and extravagant • noble gold and jade inlaid and engraved vision • Focus shift from supply-driven to demandsmall bottles like imported beers
Beer Analysis • -Brand Promotion Campaign : “The Great Expedition” (勇闖天涯) • more customer interaction • attracted many customers due to its story (not actual taste)
Beer Analysis • SWOT –Weakness- Thin profit margin (Chinese: price-sensitive)[$2 per hectoliter, compared with $50 to $80 in Europe and the U.S] • HK $ right
Beer Analysis • SWOT –Opportunity • Enlarged customer group : • younger, higher income, more urban customers • high-end : Snow Draft, Snow Super Premium • urban: Beijing Chinese robust economy Chinese twelfth five-year plan
Beer Analysis • SWOT –Threat • cost of production: raw materials, rent, utilities • increasing M&A cost
Strength • - 2ndlargest retail organization in China in Retail Asia Pacific top 500 awards • - Multi-format business platform Retail Analysis
Retail Analysis • Regional leadership on a multi-format business platform
Weakness • - Lower average sales per store compare to competitors • Strength • - 2ndlargest retail organization in China in Retail Asia Pacific top 500 awards • - Multi-format business platform
Weakness • - Lower average sales per store compare to competitors • Strength • - 2ndlargest retail organization in China in Retail Asia Pacific top 500 awards • - multi-format business platform • Opportunity • - Increasing urbanization of China has expanded the consumption market • Threat • - Keen competition from Carrefour, Tesco, Wal-Mart
Beverage Analysis C’estbon Pacific Coffee
Beverage Analysis • Five Forces • Rivalry with existing competitors “C’estbon”: Master Kong, Wahaha, Nongfu & Coca-Cola Pacific Coffee: Starbucks and Gourmet Master (Taiwan brand)
Beverage Analysis • Potential Entrants China beverage industry is attractive to the potential entrants Source: Canadean
Beverage Analysis • Bargaining power of customers “C’estbon”: HIGH Pacific Coffee: LOW • Bargaining power of suppliers Pacific Coffee: HIGH • Product Substitutes Carbonated drinks, energy drinks and tea
Food and Processing Distribution Analysis • Ng Fung Hong Strength: premium food quality • vertically integrated meat supply system - lower operational costs - Allow quality tracking : control both food quality &food safety -- create value to customers - brand building & consumer loyalty - Widen operating margin ---higher investment return - Build core competence to ensure continual growth • Remain in competitive position in the market ( 5 forces)
Food and Processing Distribution Analysis • Five Forces • Rivalry with existing competitors: medium • the monopoly live cattle importer from China • strong brand recognition & reputation • Competitors: Local farms(limited supply), frozen meat suppliers all over the world • Bargaining power of customers & product substitutes : medium to low • monopoly in live cattle market in HK • Substitutes: local meats, chilled/ frozen meats • Potential Entrants monopoly in live cattle market in HK
Food and Processing Distribution Analysis Bargaining power of suppliers: Low • Many product sources
Food and Processing Distribution Analysis • Weakness: • increasing cost of production ( raw materials) - pressure to raise the price of • risk of diluting perceived differentiated features: • customer’s dissatisfaction of price increase of meat price increase is not justified by perceived increase in quality
Food and Processing Distribution Analysis • Opportunities • Economic growth in China: increasing pork consumption--- demand increase • market expansion in China: joint venture and acquisition --- penetrate into production, retailing and marine fishing
Food and Processing Distribution Analysis • Threats • Hong Kong Pork Traders Call For End In Monopoly Imports:buyers urged the government to open up the live cattle market --- break Ng Fung Hong's monopoly
Business-level strategy • Related linked: SBU Form of Multidivisional Structure • share some resource: distribution channels in different business units
Food and retail • Development of self-owned retail stores and launchedmore than 120 meat counters and stores • Shanghai, Hangzhou, Nanning, Shenzhen and Ningbo, etc, • Leveraging the strong “Ng Fung” brand name and efficient supply chain
Beverage and retail • Holders of Pacific Club Card enjoy discount in supermarkets operated by CRE - sharing of marketing resources
Beer • Strategy to be No.1 - encircling the cities from rural areas - moving up-market - promotion and branding strategy
Recommendation 1. Integrated cost leadership and differentiation strategy Increase efficiency: • Integrated value chain system: • Beverage: Manufacture the products by themselves rather than by OEM factories • Beer: divest non-core beer brands (e.x扎西德勒, Singo) --- focus investing in core brand • Flexible manufacturing system(FMS): Computer controlled process--- flexible quantities--- product variety with low cost - Food, Beverage and beer
Retail • locating supermarkets in self-owned or partially-owned property development projects
Benefits: - lower operational costs - Allow quality tracking --- create value to customers - Widen operating margin ---higher investment return - Build core competence to ensure continual growth
2. Differentiation • Product quality improvement and innovation • Beverage: Develop healthy drinks--- strength product portfolio --- offer health-conscious customers a wide range of products • Food: emphasis on its safe and high quality food products • Beer: increase product mix to meet variety seeking of customers
Benefits: - Customer loyalty: superior quality • Set a premium price • Food: justify high price • Drawback: - High cost : marketing research, new product development
