Example Marketing Plan Report

GMMSO: The Case of Sweetlix MBA 681 Global Strategic Management Fall Semester 2005 Basil Janavaras Minnesota State University By: Dustin Sedars and Dave Grosland _______________________

_______________________

December 12, 2005

GMMSO: The Case of Sweetlix

Executive Summary Purpose The purpose of this document is to present a study of the opportunities for Sweetlix to expand its business globally and to make an initial proposal that Sweetlix pursue opportunities in Brazil. Sweetlix has focused on its United States market, but opportunities exist to penetrate global markets. Methodology In order to complete this analysis, we used web-based Global Marketing Management System Online (GMMSO), which is a strategic planning and marketing tool designed to help complete global marketing analysis. Additional research for this project was completed through visiting with Sweetlix’ International Marketing Manager and through independent research using the Internet. Phase 1 - Key Findings Sweetlix is a leading manufacturer of feed block supplements for cattle in the United States but has minimal business overseas. After an evaluation of Sweetlix, its products, strategies, international involvement; the overall feed industry; the market; and the competition, our analysis indicated that global opportunities exist for entry by Sweetlix. The global readiness analysis suggests Sweetlix use a Foreign Sales Branch. Phase 2 - Key Findings Seven countries were evaluated using a macro screening methodology. Cattle population, land area, vegetation and land use, climate, and gross national product were identified as factors that would affect potential sales. These criteria were weighted to give a relative score for each country in an effort to narrow down our selection. Next, market accessibility was evaluated for our three remaining countries for Sweetlix and its block product. Protection of patents, transportation systems, tariffs, trade embargos, company attitude toward foreign investors, and location of country were each evaluated and scored to give another relative weight, which narrowed our selection to Brazil and Australia. Finally, a micro screening process of the level of competition and the local products was evaluated, and the results identified Australia and Brazil for further evaluation. Phase 3 - Key Findings Brazil and Australia have an abundance of cattle and would be ideal for Sweetlix to enter the market with its block supplement products. Through our analysis, we determined that Brazil appears to have the greatest potential because of its cattle population and the fact that no competitors exist in the block supplement feed business. All supplements are currently purchased as loose minerals. Our contacts are much stronger in Australia due to it being the headquarters of Ridley Corporation, Sweetlix’ parent company, but existing contacts with Brazilian feed

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GMMSO: The Case of Sweetlix manufacturers have previously been established. Based on this information, Brazil was selected for further analysis. Phase 4 - Key Findings We have determined through our analysis that a manufacturing joint venture would be the best entry strategy into Brazil for Sweetlix. Sweetlix will incorporate the pricing, distribution, and promotional strategies used in the United States into this new market in Brazil because the products are not affected by culture or product use and because the same distribution channels exist in Brazil. Overall, Sweetlix should continue to rely on its strengths (which include superior quality), its patented products, and diverse product line. In addition, Sweetlix should develop its brand like it did in the United States. Based on this analysis, we believe that by the third year Sweetlix could realistically achieve $9.6 million in earnings from an initial $27.5 million investment. Conclusions Sweetlix is a leading manufacturer of block feed supplement products in the Unites States but has limited global experience. Opportunities exist for Sweetlix to pursue global markets using its existing strengths. These opportunities show promise for improved returns for Sweetlix based on the industry market potential. Sweetlix’ superior quality, patented products, and diverse product lines are the framework for global success. A joint venture would be the best mode of entry for Sweetlix in Brazil and would result in a profitable investment. Recommendation We believe that Sweetlix should pursue establishing a foreign sales branch, likely through a manufacturing joint venture, and make its global entrance into Brazil. Further research should be completed prior to making the initial investment. We would recommend starting with additional market research completed within Brazil while simultaneously seeking potential partners. These partners must be able to provide the links needed for Sweetlix to become a dominant competitor in the industry. Once Sweetlix has established itself within Brazil, it must continue its quest to enter other global markets.

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GMMSO: The Case of Sweetlix

Table of Contents I. II.

Introduction..................................................................................................... 5 Phase I Report ................................................................................................. 6 A. Company Background ................................................................................ 6 B. Company Mission Statement ...................................................................... 7 C. Sales and Profits for the Last Three Years.................................................. 7 D. Sweetlix’ Product Lines.............................................................................. 8 E. Sweetlix’ Strategies .................................................................................... 9 F. Sweetlix’ International Involvement........................................................... 9 G. Industry Analysis ...................................................................................... 10 H. Target Market Profile................................................................................ 11 I. Product Profile .......................................................................................... 11 J. Global Readiness ...................................................................................... 12 K. Strengths, Weaknesses, Opportunities, and Threats (SWOT Analysis) ... 12 L. Phase I Conclusions and Recommendation .............................................. 13 III. Phase II Report.......................................................................................... 14 A. Country Selection...................................................................................... 14 B. Macro-Level Criteria Screening ............................................................... 14 C. Indicators of Market Accessibility............................................................ 15 D. Micro-Level Criteria Screening ................................................................ 16 E. Phase II Conclusions and Recommendation............................................. 16 IV. Phase III Report ........................................................................................ 17 A. Contacts and Competitive Analysis .......................................................... 17 B. Country Markets and Sweetlix Sales Potential......................................... 18 C. Market Entry and Channel Structures....................................................... 19 D. Determining the Best Target Market Country .......................................... 20 E. Phase III Conclusions and Recommendation ........................................... 20 V. Phase IV Report ............................................................................................ 21 A. Entry Mode ............................................................................................... 21 B. Market Segmentation ................................................................................ 22 C. Sales, Profits and Market Penetration....................................................... 22 D. Pricing Strategy and Plan.......................................................................... 23 E. Promotion Strategy and Plan .................................................................... 24 F. Distribution Strategy and Plan .................................................................. 24 G. Budgeting.................................................................................................. 25 H. Phase IV Conclusions and Recommendation ........................................... 27 VI. Summary, Conclusion and Recommendations ......................................... 28 VII. Bibliography ............................................................................................. 29 VIII. Appendices................................................................................................ 30

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GMMSO: The Case of Sweetlix

I.

Introduction

The purpose of this document is to present a study of the opportunities for Sweetlix to expand its business globally and to make an initial proposal that Sweetlix pursue opportunities in Brazil. In order to complete this analysis we have used web-based Global Marketing Management System Online (GMMSO), which is a strategic planning and marketing tool designed to help complete global marketing analysis. Additional research for this project was completed through visiting with Sweetlix’ International Marketing Manager and through independent research using the Internet. This research along with the GMMSO tool allowed us to prepare a thorough analysis of Sweetlix and its products in order to present global opportunities. The following document includes background information developed to establish a basis for Sweetlix’ current position and assisted with a strengths, weakness, opportunities, and threats analysis (SWOT analysis). Further analysis includes identification of global opportunities for Sweetlix along with selection criteria used to determine two optimal countries Sweetlix’ products would be best suited. Following this analysis we analyzed the market potential and sales potential for the two countries we had identified for Sweetlix and determined the best target market country. Finally, we developed entry strategies and marketing plans and give our conclusions and recommendations for pursuing this global opportunity, which we have identified as Brazil.

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GMMSO: The Case of Sweetlix

II.

Phase I Report

The objective of Phase 1 was to conduct an in-depth situation analysis to establish a basis to assist in determining an organization’s opportunities to compete on an international basis. The following presents this scenario for the case of Sweetlix. A. Company Background Sweetlix is a leading manufacturer and distributor of feed supplements for livestock, dairy cattle, beef cattle, horses, sheep, goats, and wildlife. Feed supplements are a component of the feed industry. Based in Mankato, MN, the company has plants in three locations: Syracuse, Indiana; Montgomery, Alabama; and Fort Worth, Texas. Sweetlix was founded in May of 2000 by Joe Brotherton and acquired by Ridley in July 2004. Ridley Inc. is a Canadian based company that is headquartered in Mankato, MN and was established by Ridley Corporation Limited of Australia in May 1994. Ridley manufactures and distributes animal feed and nutritional supplements throughout North America with sales in excess of $500 million. Approximately 30% of the Ridley’s sales are from Feed-Rite, the Canadian operation and 70% are from Hubbard Feeds, Ridley Block Operations and Sweetlix, the U.S. Operations. Both Feed-Rite and Hubbard were early proponents of scientifically formulated feed rations for livestock animals and became two of the largest feed suppliers in North America.

The map shows the locations of the three Sweetlix plants along with the four Ridley Block plants, which also competes in the feed supplement industry.

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GMMSO: The Case of Sweetlix

B. Company Mission Statement Sweetlix’ mission is to be the industry leader in providing animal health and growth products in the free choice supplement feed category by being an innovator in product development. Sweetlix will be a leader by developing high quality products that are cost-effective and provide a positive return on investment to its customers. Sweetlix will also foster long-lasting customer relationships by maintaining high standards of product quality, customer service and technological development. Sweetlix will provide a safe and rewarding working environment for all employees and will create an environment that fosters innovation in product development. In order to achieve and maintain market leadership, Sweetlix will only enter markets where there is a growth trend in the livestock headcounts. This mission must be accomplished while generating above average returns for its shareholders. C. Sales and Profits for the Last Three Years The following table illustrates Sweetlix’ income statement and balance sheet for the past three fiscal years, which end on June 30th. Year 1

Year 2

Year 3

(Most Recent) INCOME STATEMENT Net Sales Cost of Goods Sold Gross Profit (Loss) Operating Income (Loss) Net Profit (Loss) After Taxes

30,063,000 20,635,000 9,428,000 2,954,000 1,567,000

29,345,000 20,481,000 8,864,000 2,138,000 1,147,000

28,192,000 19,399,000 8,793,000 1,933,000 1,028,000

BALANCE SHEET Cash Marketable Securities Accounts Receivable Inventory Long-term Assets Total Assets

250,000 3,150,000 2,879,000 11,293,000 17,572,000

165,000 2,759,000 3,064,000 5,940,000 11,928,000

110,000 4,044,000 2,776,000 6,306,000 13,236,000

Current Liabilites Non-Current Liabilities Preferred Stock Total Common Equity Total Liabilities and Equity

1,755,000 8,967,000 6,850,000 17,572,000

1,321,000 5,324,000 5,283,000 11,928,000

1,709,000 7,391,000 4,136,000 13,236,000

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GMMSO: The Case of Sweetlix The following table illustrates the key performance indicators for Sweetlix using various ratio analyses: Year 1

Year 2

Year 3

(Most Recent) RATIOS: Current Ratio Quick Ratio

3.58 1.94

4.53 2.21

4.06 2.43

LEVERAGE Debt to Equity

1.57

1.26

2.2

10.18 6.94 2.04

8.63 7.01 2.33

N/A N/A N/A

5.0% 26.0% 8.0%

4.0% 24.0% 9.0%

4.0% N/A N/A

ACTIVITIY Receivables Turnover Inventory Turnover Asset Turnover PROFITABILITY Net Profit Margin ROE ROA

D. Sweetlix’ Product Lines Sweetlix offers a complete line of mineral, vitamin, protein and medicated supplements in a variety of forms and sizes. The company offers products for six different categories of animals: beef cattle, dairy cattle, horses, goats, sheep, and wildlife with the core categories being beef and dairy cattle. Under those categories, more subcategories further identify the need of consumers. For example, health, forage, nutrition, and growth are different needs a buyer might have for their livestock. The product forms, which make up the core product lines, include poured blocks, pressed blocks, and loose minerals. The following describes the qualities of the three products: •

Poured blocks - produced by mixing molasses and dry feed ingredients with a binding agent that hardens the mixture after it has been poured into a container. Poured blocks have higher moisture content than other types of blocks, which adds to its weight, volume, and freight cost.

•

Pressed blocks – produced by mixing a small amount of molasses with dry feed ingredients, vitamins and minerals and compressing the mixture in a pressing machine to form dense blocks. Pressed blocks are less durable than other forms of blocks but they are suited for smaller package sizes where appearance and cleanliness of the product (in a retail environment) are important.

•

Loose minerals - contain macro-minerals such as calcium, phosphorus, magnesium, potassium, and sulfur, as well as trace minerals such as copper, cobalt, iodine, iron, manganese, selenium, and zinc. Free-choice loose minerals balance the natural minerals obtained from hay, grass and other natural roughage.

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GMMSO: The Case of Sweetlix All three products belong to the product category called "free-choice supplementation", which means the products are provided separate from the feed ration and are normally made available as the animal is foraging on pastureland and can freely access the supplement source. E. Sweetlix’ Strategies Production Sweetlix production strategy is to promote a consistent quality approach within Sweetlix’ culture. Sweetlix uses a Total Quality Management (TQM) philosophy along with an organizational objective to achieve the International Standards Organization (ISO) accreditation through the Quality Standard ISO 9001 at every business within the group. The attainment and maintenance of this quality standard will ensure that business processes at all sites are continuously improved to deliver the highest levels of customer service and product quality. Distribution Sweetlix currently markets its products through dealers and distributors. The current distribution strategy allows Sweetlix to target traditional feed customers through traditional channels. This helps reduce costs associated with establishing new channels. Marketing Sweetlix seeks to develop new products and new markets through a diversification strategy. This is accomplished by being a product innovator and by seeking expansion with existing products and newly developed products. Human Resources Sweetlix seeks professionals in its office and production management positions and PhD’s for its nutritionist and R&D positions. The company also seeks to have a dynamic culture within the organization. Global Involvement Currently Sweetlix has limited experience at marketing products internationally, but the company continues to research opportunities to market its product overseas. In today’s environment this has become a core strategic initiative for Sweetlix. F. Sweetlix’ International Involvement Sweetlix’ international involvement is currently limited to direct exporting of products through distributors in Asia, Africa, and South America. These sales make up less than 1% of Sweetlix’ current business. Sweetlix’ largest U.S. competitors are also involved internationally but have already established export agents, overseas distributors, and joint ventures throughout Asia and to a lesser degree South America and Africa.

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GMMSO: The Case of Sweetlix Sweetlix is in the initial phase of determining how they can establish themselves overseas. They have identified an objective to compete internationally but lack a defined strategy. Therefore they do not have an established entry mode strategy. The global strategy will be developed following the completion of country and industry research. G. Industry Analysis Sweetlix is in the animal feed and nutrition industry but operates within a sub-group that specializes in "free-choice supplementation". Total feed industry sales are approximately $85 billion worldwide of which feed supplements is a component. The feed industry is overall a mature industry and is growing at a rate of approximately 1.6% annually. The feed supplement industry although is in the growth phase in the U.S. and around the world where there are limited competitors making the nature of competition an oligopoly. Industry regulation is moderate but has been increasing as concerns continue to rise about food safety with consumption of animal products. Economic Trends The price of cattle directly effects the consumption of livestock feed supplements. As the price of cattle decreases, the producers generally begin decreasing the cattle’s ration of feed and feed supplements. The producers are willing to let the animals grow slower on pasture grass because the economics no longer support feeding costly supplements to expedite growth. Other economic trends include consolidation within this mature feed industry. In general, the feed industry is becoming integrated with the animal producers. The exception at this point is beef cattle and dairy cattle, although dairy cattle producers are likely the next to integrate. Technological Trends New byproducts that can be used to make supplements continue to arise as organization continue to find new uses for corn and soybeans. Often these byproducts can be purchased for a price that is lower than importing molasses from Mexico. The industry may continue to evolve toward these new byproducts as supply exceeds demand and drives the price down further on the byproducts. Legal, Regulatory and Political Trends The major trend in the livestock feed industry is regulation for importing and exporting cattle and regulations on ingredients used in feed. The regulations are becoming stricter with the goal of protecting the consumer from diseases caused by consuming beef, pork and poulty infected with disease. Demographic and Socio Cultural Trends The trends in these areas are typically fads that come and go and include changes in peoples diets including Atkins diet, low-carb diets, cholesterol scare from eating eggs or milk, and other fads that are usually driven by media putting temporary fear in consumers.

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GMMSO: The Case of Sweetlix Major Competitors in the Industry The following companies each produce more than 4.5 million tonnes of feed per year: • Cargill - US • Charoen Pokphand - Thailand • Zennoh - Japan • Nutreco - Europe • Agribrands - USA • Purina Mills – US • Land O’Lakes - US H. Target Market Profile Domestic Target Market The end users of livestock feed supplements are cattle producers, which are located throughout the world. These cattle producers are typically geographically located in less densely populated areas where grazing is available. The majority of beef cattle producers are therefore located throughout grassy plains regions but can be located anywhere in the world through the use of livestock feed and supplements. The cattle producer business mostly consists of private family owned businesses. The decision maker under this structure is the owner who makes all major purchasing decisions. Key selection criteria include selecting a product that provides the greatest improvement in production, resulting in the greatest benefit. Cattle producers are willing to pay a premium for feed supplements that improve growth of beef cattle, increases milk production for dairy cows, or improves the health of the animals. Foreign Target Market The end user in foreign markets will be similar to those in the United States. The industrial user is typically a family owned business that will use the same value criteria for making purchasing decisions. I. Product Profile Sweetlix’ products are considered an industrial good that is used in the production of cattle for human consumption. Sweetlix competitive advantages include brand awareness in the United States, Food and Drug Administration approvals in the United States, and a high quality product that delivers improved production in the cattle producer industry. The main competitive disadvantages include inexperience in overseas business and working with foreign governments. In the United Sates, Sweetlix is overall entering the maturity phase as a company and industry but is in the growth phase for the feed supplement products. On an international basis Sweetlix and its products are between the introduction and growth phase.

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GMMSO: The Case of Sweetlix Sweetlix’ products carry a high level of quality but are sold at a price of approximately $310 per ton, which is considered average in the feed supplement industry. The technology level of these products is considered high in comparison to traditional feed products sold within the feed industry. Sales potential for Sweetlix products will mostly be affected by the country’s headcount of cattle. This will be the main determinant of how much livestock feed and supplements potential there is in the country. Additional factors affecting sales include the climate and geographic conditions which affect the need for additional nutritional supplementation. Weather that is either too hot or too cold can reduce forage growth and increase demand for nutritional supplements. J. Global Readiness Through the use of a questionnaire consisting of 22 questions on the company’s product and entry strategy in comparison to international competitors we were able to determine whether Sweetlix is ready to export its products. In addition the results gave a suggested entry strategy. Based on a company score of 94 out of 110, scoring an 85%, it was suggested that Sweetlix use a foreign sales branch. K. Strengths, Weaknesses, Opportunities, and Threats

(SWOT Analysis) The following SWOT Analysis captures key strengths and weaknesses within the company and describe the threats and opportunities facing Sweetlix. Strengths • Sweetlix has created strong brand reputation for its products. • The products are considered high quality and provide financial value to cattle producers. • Sweetlix possesses Food and Drug Administration (FDA)-controlled New Animal Drug Applications (NADAs) for the production of certain high value-added medicated blocks in which the supply is restricted to certain facilities. • Sweetlix has a diverse product line, which is beneficial for filling a full product offering for distributors and customers. Weaknesses • Sweetlix is highly dependent on the beef market. Negative effects to the beef market directly affect Sweetlix’ volume and profitability. • Sweetlix relies on molasses as the main ingredient in all of its products. Some competitors use grain byproducts for their energy source. Any disruption to the source of molasses could directly affect the way Sweetlix produces its products. • Sweetlix lacks international presence.

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GMMSO: The Case of Sweetlix Opportunities • Sweetlix has a manufacturing facility in Alabama that is near a port and is beneficial for shipping overseas. • New byproducts, which are often less costly than molasses, continue to evolve as new uses of commodities are discovered and create these new byproducts. • Additional research for new NADAs would create new products to enhance Sweetlix’ existing product line. • New market applications include goats, sheep, equine and wildlife. Sweetlix has developed these new products but has not developed the right channels for marketing and distribution. • Sales opportunities exist in South America where cattle production is large and growing, availability of molasses s tremendous, and competition has minimally penetrated the market. Threats • Reduction or elimination of the availability of molasses in the United States would be catastrophic to Sweetlix’ business. Sweetlix has already begun to feel pressures on the supply of molasses in the United States. • Decrease in demand for beef caused by a loss of consumer confidence in beef impacts the sale of Sweetlix’ products. This could be associated with either a real or perceived negative affect from consuming beef or dairy products. • New development of NADAs by competition could threaten the viability of Sweetlix’ existing products. • Significant growth of byproducts (that cannot be used in Sweetlix’ existing manufacturing process) could cause development of products that compete in the livestock feed supplement market. Development of these products could come from either new or existing competitors. L. Phase I Conclusions and Recommendation The information presented for Sweetlix and the livestock feed supplement market suggests that Sweetlix establish a Foreign Sales Branch. It is recommended that research be completed to determine which countries are best suited for establishment of a foreign sales branch.

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GMMSO: The Case of Sweetlix

III.

Phase II Report

The objective of Phase 2 was to identify high potential country markets for Sweetlix’ products for the purpose of either exporting or manufacturing products in selected markets. The following presents this analysis for the case of Sweetlix. A. Country Selection We reviewed seven possible countries where Sweetlix could enter its products into the foreign market. The main drivers for determining the list of countries to review included the estimated size of the cattle population by country and the overall trend of meat production in the given country. The countries chosen for review, based on the stated criteria, included the following: • • • • • • •

Brazil Chile South Korea China Japan New Zealand Australia

B. Macro-Level Criteria Screening In order to determine Sweetlix’ ability to internationalize its products we selected the following macro-level variables to analyze each identified country. It is believed that the following variables will impact Sweetlix’ success in these foreign countries: • • • • •

Cattle Population Land Area Gross National Product Vegetation and Land Use Climate

We determined that cattle population is the most critical variable, giving it a weight of 50%. The high weighting is because it is absolutely vital to Sweetlix’ success that the country is a producer of cattle. This is because Sweetlix’ product is solely used by cattle and animal producers. We weighted land area as the second most important criteria giving a weight of 20% because land area is a major determinant in where cattle are raised. There must be an abundance of land area for cattle to be raised. Gross national product, vegetation and land use, and climate are also an important factor in determining success of cattle production. Each were given a weight of 10%.

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GMMSO: The Case of Sweetlix Gross national product is important because the country must have enough wealth where citizens and cattle producers are willing to pay for feed supplement. Vegetation and land use and climate are also important for cattle production. The colder the temperatures, the more requirements there are for feeding supplements during the colder months. In addition, extremely warm climates cause forage to stop growing and results in the same affect as cold climates. Both result in requirements of supplements to keep cattle healthy and growing. C. Indicators of Market Accessibility In order to determine Sweetlix’ ability to internationalize its products we selected the following variables to analyze market accessibility for each identified country. It is believed that the following variables will impact Sweetlix’ success in these foreign countries: • • • • • • •

Protection of Patents and Trademarks Transportation Systems Tariffs/Duties Embargos Attitude Toward Imports Attitude Toward Foreign Direct Investments Location (distance from national operations)

Protection of patents/trademarks/copyrights is the most important criteria under market accessibility and was weighted 25%. This is critical in order to protect our legal assets, which is one of our competitive advantages. Transportation is also an important variable and was weighted 20%. Even if our customers can and will use our product, there has to be a way to get the product to the distributors and ultimately the cattle producers. We felt tariffs/duties were important and ranked it with 15% because if the tariffs or duties were too high, it would cut into our profit margin and may make exporting impossible or not logical. Embargos, attitude toward imports, attitude toward foreign direct investments and location from Sweetlix’ national operations are also important and we weighted each of them with 10%. Embargos are an obvious importance because if the United States doesn't allow us to trade with the country in question, we can't do our business overseas with them. Attitudes are definitely important. We have to make sure the attitudes towards imports are good and that the attitudes towards foreign direct investments are also good otherwise a company like Sweetlix would spend unnecessary energy and money establishing the business.

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GMMSO: The Case of Sweetlix Finally, if the product is to be shipped overseas from the national operations, the location of the country will be important because it will impact shipping costs and ultimately margins. D. Micro-Level Criteria Screening In order to determine Sweetlix’ ability to internationalize its products we selected the following micro-level variables to analyze each identified country. It is believed that the following variables will impact Sweetlix’ success in these foreign countries: • • • • •

Local Production of Comparable Products Local Competitors International Competitors Export of Sweetlix Products Competition Intensity

Local competition is the most critical variable in this category and we weighted it with 30%. The more local competitors, the harder it will be to penetrate the market. Local production of comparable products is also important and we gave it a weight of 30%. It will be important that the industry within the country is not flooded with local competition that results in margin erosion. International competitors are also important and we gave it a weight of 20%. International competition could try to export their product into the identified countries, which also can erode margins and volume. The existence of exporting of our product is also important. We will want to initially export our product to these countries while we are establishing an arrangement to produce within the country. Finally, competition intensity is important in any market or any industry and cannot be ignored. High competitive intensity will result in eroded margins in a segment of the industry that requires technology for innovation and must allow for healthy margins. E. Phase II Conclusions and Recommendation According to the analysis in Phase 2, Australia and Brazil prove to be the best options for developing Sweetlix’ products overseas. The other countries analyzed, Chile, South Korea, China, Japan, and New Zealand, were cited as having less opportunity for Sweetlix to be successful than compared to Australia and Brazil. Of the two countries accepted, it appears that Brazil is the better choice of the two based on the scores. Brazil scored an 89 out of 100 and Australia scored a 75 out of 100. Our recommendation is that we continue to analyze our options of producing and marketing Sweetlix’ product in Brazil and Australia.

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GMMSO: The Case of Sweetlix

IV.

Phase III Report

The objective of Phase 3 was to identify the best target market country for Sweetlix and its products. The following presents this analysis for the case of Sweetlix. A. Contacts and Competitive Analysis BRAZIL We identified three contacts within Brazil. Two of our contacts are sales agents that could help us establish our international business and help line us up with feed manufacturers that we could develop a relationship with to potentially create some form of an alliance. The third contact is a reputable feed manufacturer that our international marketing director has developed a relationship. Total Market Potential The total sales market potential for feed supplements in Brazil is estimated at $595 million. This estimate is based on a prediction that 30% of all cattle in Brazil consume feed supplements and that each cattle can consume 80 pounds of supplements per year at an estimated selling price of $310 per ton. Company Sales Potential The total sales potential for Sweetlix operating in Brazil is estimated at $238 million based on the total market potential multiplied by the desired market share, which is 40%. This high projected market share is based on the fact that there are currently no competitors in the feed supplement market in Brazil that provide the block products that Sweetlix manufactures. Market Competition We identified two competitors in Brazil and completed a comparative analysis of each to Sweetlix. The competitors identified in Brazil do not produce a block supplement product similar to Sweetlix’ and sell only complete feed and loose mineral supplements. Part of the reason for this is the fact that molasses is not sold to the feed industry but is used in alcohol production. Research shows that there is an abundance of molasses available and could be acquired at a price that is well below the rate in the United States. The pricing of products appears to allow for margins that can sustain a healthy business and the overall environment is not intensely competitive. This coupled with the opportunity to introduce a new product that can create added value is a positive sign for Sweetlix. The quality and service provided by the two competitors is similar to or below the standards that Sweetlix is accustomed to delivering.

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GMMSO: The Case of Sweetlix AUSTRALIA We identified two contacts within Australia. One of our contacts is a sales agent that could help us with our international business. The second contact is Ridley Corporation, which is the parent company of Ridley Inc. There is an abundance of resources that exist in Australia that Sweetlix could use to establish its foreign operations in Australia. Total Market Potential The total sales market potential for feed supplements in Australia is estimated at $286 million. This estimate is based on a prediction that 30% of all cattle in Australia consume feed supplements and that each cattle can consume 80 pounds of supplements per year at an estimated selling price of $310 per ton. Company Sales Potential The total sales potential for Sweetlix operating in Australia is estimated at $43 million based on the total market potential multiplied by the desired market share, which is 15%. This market share estimate is based on the fact that block products already exist in Australia but Sweetlix would be able to tap into Ridley Corporations distribution network. Market Competition We identified two competitors in Australia and completed a comparative analysis of each to Sweetlix. The competitors identified in Australia produce a block supplement product similar to Sweetlix. Overall the target market and products are comparable to the U.S. The pricing of products allows for a margin of $140 per ton before variable manufacturing costs, which is comparable to or slightly better than the U.S. The quality focus in Australia is similar to the U.S. with ISO manufacturing standards being achieved. Neither company provides additional services to the end customer for nutritional services or consulting. This is a lower standard compared to Sweetlix. B. Country Markets and Sweetlix Sales Potential BRAZIL Since there are virtually no competitors in the block supplement market in Brazil, the unrealized market potential is the full $595 million, which we originally established as the total market potential. We realize that the loose mineral manufacturers are serving the feed supplement market but the potential exists to convert these consumers to block products, which have benefits that outweigh the cost difference and ultimately improve cattle producers’ returns. Based on this information we estimated that Sweetlix could potentially achieve 40% of this market potential. AUSTRALIA Block supplement sales in Australia were approximately $160 million compared to the estimated market potential of $286 million, which leaves

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GMMSO: The Case of Sweetlix $126 million in unrealized market potential. Sweetlix estimates that it could achieve 15% of the total market potential by establishing a presence in Australia and using Ridley Corporation’s distribution. C. Market Entry and Channel Structures BRAZIL Payment and Financing Methods The products will be sold through an already existing dealer network in Brazil and will be sold based on terms currently used in Brazil. The terms typically include payment due within 10 to 20 days of sale or the end of the month. Import and Export Regulations Importing feed products into Brazil requires certification that the products have not been manufactured using animal byproducts. Licensing, Registration and Regulation Brazil requires registration of patents as does the United States and Australia in order to protect product rights. Brazil manufacturing has not embraced the same ISO and HAACP requirements that more developed countries like Australia and the U.S. The feed industry in Brazil is in the process of moving towards a more regulated industry because of the sensitivity to food safety throughout the world. Transportation and Documentation Brazil has 13 ports of entry for shipping and receiving products via water. In addition, Brazil has 461 airports with paved runways. Transportation within Brazil is not well established in areas where agricultural needs are the greatest. This will result in less efficient transportation to get the product to the end user. AUSTRALIA Payment and Financing Methods Australia is a developed country with banking that is well established. Payment terms in Australia are similar to the United States. Common terms are Net 20 days after End of Month. Import and Export Regulations Importing feed products into Australia requires certification that the products have not been manufactured using animal byproducts. Licensing, Registration and Regulation Australia and New Zealand together have partnered under the Food and Drug Institute to form Food Standards Australia New Zealand (FSANZ). This entity overseas safety of food and drugs distributed for human and animal consumption with the goal of creating overall food safety for human consumption. This group is similar to the FDA in the United States.

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GMMSO: The Case of Sweetlix Transportation and Documentation Australia has 14 ports of entry for shipping and receiving products via water. In addition, Australia has 139 airports with paved runways. Once in Australia, the country has well developed highways and uses transportation typical to the United States. D. Determining the Best Target Market Country Based on the in-depth analysis completed in Phase 3 we graded Brazil and Australia based on the following criteria giving a score of 1 to 20. • • • • •

Contacts – Quality and Strength Market Competition – Degree and Level of Competition Market Entry – Market Entry Conditions Market Channel Structure – Suitability of Market Channel Market Sales Potential – Total Potential

The results of the scores were 82 of 100 for Brazil and 75 of 100 for Australia, with Brazil achieving the highest score. The higher score for Brazil was mainly based on the low level of competition in Brazil along with the size of Brazil’s market potential. E. Phase III Conclusions and Recommendation Based on our in-depth market analysis and sales potential for each country we graded Brazil and Australia under five categories including quality and strength of our contacts in each country, the degree and level of market competition in each country, the most suitable market channel structure in each country, the most favorable market entry conditions in each country, and the highest market potential in each country. From this analysis it was determined that Brazil has the best target market for Sweetlix' products. It is our recommendation that Sweetlix develop an entry strategy and a local marketing plan for manufacturing, selling and distributing its products in Brazil.

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GMMSO: The Case of Sweetlix

V.

Phase IV Report

The objective of Phase 4 was to develop entry strategies and marketing plans for entering Brazil that are based on Sweetlix’ strengths relative to the competition. The following presents this analysis for the case of Sweetlix. A. Entry Mode In order to determine the best entry mode strategy we evaluated twelve possible modes of entry and evaluated them based on ten drivers. The following table presents the results from that analysis: Drivers Entry Mode Confirming Houses Indirect Export Direct Export Foreign Based Sales Branch Foreign Based Marketing Subsidiary Wholly Owned Manufacturing Subsidiary Joint Venture (Manufacturing) Joint Venture (Marketing) Franchising Licensing Management Contract E-commerce

2 5 3 2

3 4 5 4

4 4 2 2

3 4 3 3

3 2 2 4

3 2 2 3

2 3 3 3

5 4 4 3

2 3 4 4

2 3 4 4

Total Score 29 34 32 32

2

3

2

3

4

3

3

3

4

4

31

5

5

3

4

5

4

5

2

4

4

41

5

5

5

5

5

5

5

3

5

5

48

3 2 2 3 1

4 2 2 3 5

4 4 4 4 3

5 4 4 4 2

5 5 5 5 5

5 5 5 5 3

5 5 5 5 1

4 5 5 5 5

5 3 3 3 2

5 4 4 4 3

45 39 39 41 30

A

B

C

D

E

F

G

H

I

J

Drivers Key A = Goals/Objectives B = Control C = Resources D = Experiences E = Competition F = Regulations G = Market Size H = Risk I = Flexibility J = Feedback

The entry mode with the highest score was a manufacturing joint venture. This suggests that Sweetlix should develop a manufacturing joint venture as its entry mode strategy for Brazil. The results are based on Sweetlix desire to maintain control and involvement in production. In addition this arrangement along with some type a marketing arrangement would allow Sweetlix to learn about operating and marketing within Brazil from the local company.

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GMMSO: The Case of Sweetlix B. Market Segmentation In order to determine the target market that Sweetlix will pursue in Brazil we developed three variables that will help distinguish the target market. The following table presents these variables and the identified target classes to be pursued in Brazil: Variable

Variable Class

Target Class

Species

Beef Cattle Dairy Cattle Sheep Swine Goats Horses Wildlife

Beef Cattle Dairy Cattle Sheep

Distribution

Indirect Wholesale Indirect Retail Direct

Indirect Wholesale

Product Purpose

Growth Health Additive Dietary Supplement Full Nutrition Requirement

Growth Health Additive Dietary Supplement

This analysis shows that Sweetlix will pursue the beef cattle, dairy cattle and sheep through dealers (indirect wholesale) and will focus on products that improve growth, perform health improvement, and provide dietary supplements. C. Sales, Profits and Market Penetration Since no competition currently exists in the Brazilian market, opportunity exists for Sweetlix to literally achieve 100% of the market during entrance. The reason for the assumed decline in both the worst and best case market share is because there is high likelihood that new competitors will enter the market following Sweetlix' success, which will have an eroding effect on these companies' traditional feed business. The following table shows our estimates of worst-case and best-case scenarios for market share, sales, and profits for the first three years of operation in Brazil:

Page 22

GMMSO: The Case of Sweetlix Year 1 Market Share Worst Case Best Case

Year 2

70% 100%

Year 3 55% 90%

40% 80%

Sales Worst Case Best Case

$ $

28,000,000 40,000,000

$ $

55,000,000 90,000,000

$ $

100,000,000 200,000,000

Profits Worst Case Best Case

$ $

700,000 1,500,000

$ $

1,500,000 5,500,000

$ $

5,000,000 14,500,000

The overall assumption is that Sweetlix and/or other competitors will capture 7% of the entire $595,000,000 market potential by the first year followed by 17% by the second year and 42% in the third year. Since this is a new market for these products it is believed that it will take four to seven years for the full market potential to be realized. D. Pricing Strategy and Plan Sweetlix will use price skimming as it enters the Brazilian feed supplement market because there are no similar products in the market. Sweetlix will use a cost-plus pricing because the ingredients are all commodities that fluctuate daily. The price will be set based on an assumed longer-term cost and adjusted as costs rise outside of an acceptable threshold. The variable cost of Sweetlix’ products in the U.S. are approximately $270 per ton and the established retail price is $420 per ton with Sweetlix selling to the dealer at 75% of suggested retail. This gives Sweetlix approximately $50 per ton to cover fixed costs and the dealer approximately $100 to cover both its variable costs and fixed costs. The variable cost of Sweetlix products in Brazil is estimated to be $210 per ton and we have estimated a suggested retail price of $400. Sweetlix would sell to the dealers at 75% of suggested retail, which would give the dealer $100 in margin. Since cattle feed and loose minerals sell for a margin of $30 to $45 per ton in Brazil this will entice the dealers to sell the Sweetlix products. This lower cost is possible because molasses, which is a main ingredient in Sweetlix products, sells for approximately $60 per ton less than in the U.S. and because labor costs are lower in Brazil.

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GMMSO: The Case of Sweetlix E. Promotion Strategy and Plan PROMOTION MIX Advertising Sweetlix will use print advertising to reach the end consumer. The advertising will be included in trade magazines for cattle producers. In addition, Sweetlix will develop a publication on food safety and will distribute through its dealers. The publication will have articles that explain basic food safety for cattle producers and will be used as a platform to explain the benefits of Sweetlix' products. Sales Promotion Sweetlix will use a push strategy by creating a dealer incentive program that will encourage and reward dealers for selling Sweetlix products. The incentive program would give points to be used for advertising of Sweetlix products or for attending dealer meetings. The points would be earned based on total volume sales of Sweetlix points. Personal Selling Sweetlix will have its own sales staff that establishes and maintains dealer accounts. In addition, Sweetlix will use Nutritionists (PhD's) to visit the larger consumers and help them establish feeding programs. Quarterly dealer meetings will be held to give the dealers an opportunity to meet and discuss their strategies and actions to help pool the dealer's knowledge. This will also give Sweetlix an opportunity to gather this knowledge for distributing throughout the organization and to new dealers. Publicity The main publicity to be used will be trade shows, which is explained in more detail in the following section. TRADE SHOWS Sweetlix and the feed industry use organized trade shows to bring the consumer and the manufacturers in the agriculture industry together. Sweetlix would use this opportunity at South American trade shows to display its products and spread the word about the product benefits. TYPES OF MEDIA As explained in the "Promotion Mix" above, Sweetlix will use magazines to promote its products. In addition, Sweetlix will use its web page to allow users to browse the company and product information. Direct mailings to the cattle producer will also be completed in coordination with the dealer. These mailings will include the food safety publication and current product promotions. F. Distribution Strategy and Plan We have determined that the best strategy for distribution is a push strategy and the mode of transportation will be trucks. We identified this strategy Page 24

GMMSO: The Case of Sweetlix because an existing feed manufacturer will likely produce Sweetlix products in Brazil. Sweetlix will establish an arrangement where the feed manufacturer will produce the product and Sweetlix will market the product. The distribution of the product will go from the feed manufacturer/Sweetlix joint venture to the dealer network that currently exists for selling traditional feed and loose minerals. The objective would be to target a feed manufacturer that already has successfully established a dealer network in South America. The dealer will then sell the Sweetlix products to the cattle producers that the dealers currently sell feed. The push strategy becomes most effective because the dealer is given an incentive, the higher margins, to show the customer that the feed supplement block has benefits that can improve their returns in cattle production. Especially in this part of the world it will be critical for our message to be passed from the dealer to the customer. It will be the most successful method of reaching the targeted customer. G. Budgeting The following chart illustrates the projected income statement for Sweetlix for the first three years of operation within Brazil. All figures are in US dollars. Projected Income Statement Year 1 INCOME STATEMENT Ton Price per Ton

Year 2

100,000 $300

Net Sales Less: Variable Cost of Goods Fixed Manufacturing Costs Gross Profit (Loss) Less: Operating Expenses Costs of Entry Taxes

$

Net Profit (Loss) After Taxes Estimated 50% Equity Sweetlix Earnings from Alliance

$

30,000,000

220,000 $300 $

21,000,000 3,000,000 6,000,000 60 1,500,000 1,100,000 1,360,000

$

Year 3

2,040,000 $ 50.0% 1,020,000 $

66,000,000

460,000 $290 $

46,200,000 6,000,000 13,800,000 63 2,500,000 700,000 4,240,000 6,360,000 $ 50.0% 3,180,000 $

133,400,000 96,600,000 12,000,000 24,800,000 54 3,000,000 400,000 8,560,000 12,840,000 75.0% 9,630,000

It was assumed that Sweetlix would initially establish a joint venture with 50% equity in this new business but would increase the equity to 75% by year three. This assumption is based on Sweetlix management’s belief that a partner may not have available capital to expand at the aggressive rate that is identified. It is assumed that the partner would receive a portion of the earnings based on their respective equity percentage. It is assumed that the partner would already be established and would have an existing dealer network in Brazil. In addition, it is assumed that one single

Page 25

GMMSO: The Case of Sweetlix plant can handle approximately 100,000 to 120,000 ton of block supplement production and sales per year and will require approximately $4 million in working capital and $2 million in capital for buildings and equipment to manufacture the new products, which is displayed in the following balance sheet projection. Based on these estimates the projected volume will require four production facilities requiring a total investment of $27.6 million by the third year. The earnings stated above assume sales at $300 per ton offset by variable manufacturing costs, which are mostly ingredients, of $210 per ton. We assumed that as competition grew we would need to reduce sales to $290 per ton by year three. We also identified fixed manufacturing costs of $3,000,000 per plant. Operating expenses for administration, accounting and other support functions were estimated at $1.5 million, $2.5 million and $3.0 million for years one, two and three respectively. Costs of entry are estimated at $1.1 million for year one, $700,000 for year two and $400,000 for year three. The costs of entry for year one include: $500,000 for market research, consulting, and customer surveys; $300,000 for advertising agents, advertising, publications, promotions, and other sales training; $200,000 for legal costs to create the partner arrangement and for licensing, registration and patents; and $100,000 for travel and other costs to establish business in Brazil. Projected Balance Sheet Year 1 BALANCE SHEET Cash Marketable Securities Accounts Receivable Inventory Long-term Assets Alliance Share Total Assets Current Liabilites Non-Current Liabilities Preferred Stock Total Common Equity Total Liabilities and Equity

$

Year 2

Year 3

$

200,000 $ 3,000,000 3,000,000 2,000,000 (4,100,000) 4,100,000 $

300,000 $ 6,600,000 6,600,000 4,000,000 (8,750,000) 8,750,000 $

400,000 13,340,000 13,800,000 8,000,000 (8,000,000) 27,540,000

$

1,875,000 2,225,000 4,100,000

4,058,333 3,671,667 1,020,000 8,750,000

8,300,000 15,040,000 4,200,000 27,540,000

$

$

The following break-even analysis shows that the break-even sales in year one is $26.6 million based on one production plant. The reason for the breakeven sales being somewhat high is due to some of the one-time costs of entry. Year two and three break-even sales increase only because we are estimating additional fixed costs for expanding into additional plants. The same can be said for break-even tons, which are estimated at 88,667 tons in year.

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GMMSO: The Case of Sweetlix Break-Even Analysis Year 1 Percentage Gross Profit Sales Gross Profit % Gross Profit Break-Even Sales $ Fixed Costs Contribution Margin % Break-Even Sales $ Break-Even Tons Fixed Costs Contribution Margin per Ton Break-Even Tons

Year 2

Year 3

$

30,000,000 $ 9,000,000 30.0%

66,000,000 $ 19,800,000 30.0%

133,400,000 36,800,000 27.6%

$

7,980,000 $ 30.0% 26,600,000 $

16,620,000 $ 30.0% 55,400,000 $

27,170,000 27.6% 98,491,250

16,620,000 90 184,667

27,170,000 80 339,625

$

$ $

7,980,000 90 88,667

$ $

$ $

H. Phase IV Conclusions and Recommendation Sweetlix should enter a manufacturing joint venture with an existing Brazilian company. The identified target market for Sweetlix in Brazil are categorized by species type, distribution type and product purpose. Based on this Sweetlix should focus on serving the beef, dairy, and sheep markets through the use of indirect wholesalers and will be selling products that promote growth, improved health, and include dietary supplements. This identified market holds enough volume for Sweetlix to attain a large portion of the market share and ultimately be profitable starting in the first year. This can be accomplished through the identified pricing, promotion, and distribution strategies. We recommend that Sweetlix establish a joint venture with a local feed manufacturer in order to establish its block supplement business in Brazil. Sweetlix should focus on the identified cattle and sheep markets and should develop the identified pricing, promotion, and distribution strategies that were previously discussed.

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GMMSO: The Case of Sweetlix

VI.

Summary, Conclusion and Recommendations

A detailed analysis of the global opportunities for Sweetlix and its block supplement products has been completed using the GMMSO tool and through discussions with Sweetlix’ International Marketing Manager. The analysis illustrates that opportunity exists for Sweetlix to compete globally and that certain markets are a better match for its first global venture. After a thorough review, we have determined that Sweetlix should make its first global appearance in Brazil. The main reasons Brazil was selected over other countries is due to Brazil’s population of cattle, which is one of the largest in the world, and the fact that there are no competitors in the block supplement business. Currently all cattle in Brazil are fed loose minerals, which is a much less efficient feeding method and is not as easily controlled. The total market potential for block supplement feed sales is estimated at $595,000. The other reasons for Brazil being selected for global entrance is because other environmental factors are positive and include, weather, governmental regulations, transportation, dealer network in the feed industry, and their attitude towards foreign direct investments. We have determined through our analysis that a manufacturing joint venture would be the best entry strategy. This will allow Sweetlix to enter the market with a lesser investment because they will not have to duplicate certain facility costs. Furthermore, this will allow Sweetlix to use the existing dealers to move product toward the customer and will not have to reestablish a new distribution channel. Additional sales staff may be required, but for the most part the existing staff will continue to work with the existing dealer’s to sell the block supplement products. Sweetlix will incorporate a price skimming strategy early on because of the limited competition in the block supplement business and will use a cost-plus approach for developing pricing because of the nature of the ingredients, which are mostly commodities. The price will be initially set at a $400 per ton retail price and $300 per ton dealer price. This will give the dealer more margin than they currently make on traditional loose minerals and will give the Sweetlix joint venture $90 per ton to cover fixed costs. The promotional strategy will include advertising, a dealer incentive promotion, personal selling, dealer meetings, trade show appearances, and the use of the company website. Advertising will include articles and advertisements in industry trade magazines, an internal publication on food safety that will be distributed to the dealers and customers, and direct mailings to the end customer for current product promotions. We believe that Sweetlix should pursue the approach described in this report and make its global entrance into Brazil. We have analyzed the earnings potential and believe that by the third year Sweetlix could realistically achieve 9.6 million in earnings from an initial $27.5 million investment with 75 percent equity in the business. The initial equity would be 50 percent, but it is assumed that Sweetlix may need to increase its equity to continue the growth. This assumption is based on the joint venture partner not having capital to expand at the identified pace. Page 28

GMMSO: The Case of Sweetlix

VII. Bibliography Phase 1

Phase 2

Phase 3

Phase 4

Electronic Source www.Sweetlix.com

X

www.nationmaster.com

X

X

www.worldbank.com

X

X

www.nutron.com.br

X

www.tortuga.com.br

X

www.worldclimate.com www.odci.gov/cia/publications/factbook/geos/ as.html

X X

www.exportid.com www.ridleycorp.com

X X

X

X

www.nutrisul.com.br

X

www.usda.gov/nass

X

Other Sources George Ferre, International Marketing Manager for Sweetlix

X

X

X

X

"The Consoldidating Feed Industry" market study completed by Rabobank International in 1999

X

X

X

X

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GMMSO: The Case of Sweetlix

VIII. Appendices Appendix A (See Attached Reports) Phase 1 Report Phase 2 Report Phase 3 Report Phase 4 Report Appendix B (See Attached Report) Power Point Presentation Outline

Page 30