Management Strategy and Decision Making - Research Paper Example

?Management Strategy and Decision Making Contents Executive Summary 4 2 Introduction 4 3 Internal analysis 6 4 External analysis 7 5 Industry analysis 8 6 Performance analysis 9 7 Strategic analysis 11 8 Recommendation 13 9 Conclusion 14 10 Reflective statement 14 11 Reference 16 12 Appendix 20 1 Executive Summary Strategic analysis is a very important and critical area of strategic management. Every company at some or other time reviews its strategic position. This project focuses on the strategic position of Parmalat Ltd, a multinational company which operates in Australia. The research outlines the various strength and weakness of the company and the different threats and opportunities which they are facing in recent times. The research includes the organisational background and its history in Australia. This was done to get an idea of the company in Australia. The internal and external analysis has been done to get an idea of the different environmental factors affecting the company. The competitive factors has been also analysed to assess the industrial in which the company operates. This project also includes the financial analysis of the company’s performance and also the performance of non financial parameters. 2 Introduction Every company adopts different types of strategies during its course of life. The type of strategy the company chooses depends upon many factors like the competition the company is facing, the strength and weakness of the company, the phase of life cycle in which the industry is operating etc. In this project the strategic analysis has been done of the company Parmalat which operates in Australia. The company has been analysed from different angles in order to analyse the strategic position of the company. 2.1 Organization background Parmalat is a one of the biggest milk products producer multinational company in Australia. They have a variety of brands like Breaka, Pauls, Oak etc. They are famous for delivering products of high quality and as per the taste of the customers (Parmalat Australia-a, 2011). The history of Parmalat Australia Ltd dates back to 1923 when the company was a joint stock company and was registered under the name of Arctic Ice Creams Ltd. After that many mergers and take over followed which gave rise to changing the name of the company (Parmalat Australia-b, 2011). From 2003 onwards the company is known as Parmalat Australia Ltd. It is a part of Parmalat group which is listed in Italian stock exchange. The vision of the company is to maximise the value of the shareholders with the help of ethical practices and principles while conducting the business activities as well as fulfilling the social responsibility towards the society. The vision of the company is to be the world leader in food products by offering products of high quality and nutritional elements (Parmalat Australia-c, 2011). 2.2 Purpose and scope The purpose of this research is to analyse the strategic position of the company through strategic analysis. The research includes the assessment of the internal and external environment of the company including the industry analysis. The research includes the strategies of the company and the financial position of the company. The main objective of the research is to analyse the strategic position of the company Parmalat as a whole. This includes the identification of the competitive forces of the company and the external and internal factors which can influence the operations of the company. 2.3 Limitation Every research activity is done with utmost care but still it has some or limitation. The main limitation of this research is the collection of data. The data used in this research are mostly secondary data which are not highly updated or latest as a result the result can vary a bit. 3 Internal analysis Internal analysis of Parmalat has been done on the basis of value chain analysis (refer appendix). It is a process which describes how every activity adds value to the product this process had helped to identify the values added in each link. The company monitors the standard of its suppliers of raw materials through the combined policies of pricing and grading. The laboratory results reflect the quality of milk produced which decides the prices. Parmalat draws milk from three main sources. The transportation of milk from the farms to the centre of collection is done in two ways. The milk producers would use their own transportation or the company used its own collection route or contracts were made with small haulers for shipment of products (Pietrobelli & Rabellotti, 2006, p.69-70). The secondary activities of the company include human resource functions, infrastructure, innovation etc. The human resource department trains its employees to increase the skills so that they are able to compete in the global market coupled with compensation programs to attract, retain and motivate talents. Within the entire operational process Parmalat seeks to maintain quality standards through its procurement of raw materials till the distribution of the final products. Parmalat staff is located globally, majority in Italy and Canada followed by Australia. From the internal analysis one thing is clear that the main strategy of company is to enhance the quality of the products through its internal process. The current strategy of the company is to concentrate on the milk portfolio more and to add more value to the products and to bring more innovation (Parmalat S.p.A-1, 2011). 4 External analysis SWOT analysis helps in the improvement of development process (Westbrook & Hill, 1998). The external analysis comprises of SWOT analysis and PESTAL analysis. With the help of SWOT an organization can maximize its strength, minimize the weaknesses, and take advantage of the opportunities (Fine, 2009, p.2). Parmalat is one of the biggest companies in Italy and a leader in dairy products. This factor is analyzed as its strength. The company has extended itself globally; recently Colombia and Venezuela were also added in its list of countries where Parmalat is operating. Despite of being the biggest company, Parmalat suffers from certain set back which can be regarded as its weakness. It did not have a proper and systematic distribution channel nor had any alliances which would help it in achieving its goals (Haar, Simon & Robles, 2003, p.203). The scandal that took place in 2003, the auditors of the firm were involved with it. This highlights that the company had poor internal control. Parmalat opportunity lies in its innovation factor. Parmalat is known for its innovation. It had come up with a concept of tetra pack, a form of packaging to extend the preservation of milk which is more hygienic then the regular bottles (Clarke, 2007, p.374). When it comes to threat, the company may fear the possibility of being takeover by the big players in the market for example Nestle. Due to the scandal which occurred in 2003, there was a huge chance of getting acquired by other prevailing company. From the PESTEL analysis (refer appendix) it is clear that the political, economic and social factors of Australia are favourable for the business. As far as technology is concerned the country is technologically advanced country and thus the company can take full use of it for innovation purpose. Table 1: PESTEL analysis in brief Table 2: SWOT in brief 5 Industry analysis Industry analysis is done with the help of Porters Five Force Model. Porter is designated as one of the leading writers on strategy. The concept of porter’s forces is built on some effective tools, the five forces which determine the industry. The forces are widely around the world (Witzel, 2003, p.272). The forces are bargaining power of suppliers, bargaining power of buyers, threat of substitute, rivalry and threat of new entrants. After analyzing the industry of Parmalat, the threat of new entrant is high. It is because Parmalat deals in FMCG goods, this industry does not have any entry and exit barriers making it possible for new companies to set up business (refer Appendix). The threat of substitute in case of Parmalat is moderate. The company product line is such which is preferred by many and of all age groups. But health drinks may become substitute for milk and dairy products (Refer Appendix). Parmalat is the largest company in Italy with revenue of 4.3 billion dollar Euros. There are many buyers of the product and the company produces high valued products. Therefore the bargaining power of supplier is high. The bargaining power of buyer is low. This is because there are many buyers for Parmalat product as it supplies its product globally. Factors like differentiation of products, the size of the company etc decides the level of rivalry. Parmalat level of rivalry is moderate. (Refer appendix) 6 Performance analysis The performance of the company has been analysed on the basis of financial performance and non financial measures. The financial performance has been measured on the basis of ratio analysis. To analyse the overall financial performance of the company ratios are generally divided into ratios related to the liquidity of the company, efficiency, debt management, profitability and market value (Brigham and Houston, 2009, p.86). On analysing the financial statements it has been found that in 2009 the company had 3.5 euro of current asset to meet every 1 euro of current liability and in 2008 its every euro of current liability was backed by 2.9 euro of current assets. This indicates that liquidity position has slightly improved in 2009 compared to 2008. Moreover the quick ratio has also increased compared 2008 which indicate that company’s position to meet up the day to day expenses has also improved. But, in that same year the profitability of the company declined (refer appendix). It can be seen from table 3 that the efficiency ratios have declined in 2009 which means the managerial effectiveness has also declined in the year 2009 compared to the year 2008. In 2008 the inventory was replaced more through effective selling compared to 2009 (refer appendix). More over in 2008 the working capital was more effectively used for generating sales compared to 2009 refer appendix). Though, the long term solvency has improved. Table 3: Ratio Analysis In a study it was found that the traditional ratio analysis is not enough for analysing the performance of the company (Altman, 1968, p.609). Therefore nonfinancial parameters have also been used for analysis. Parmalat had almost 23% of global market share in liquid white in 2009 (Parmalat S.p.A.-b, 2011). This is a commendable performance of the company. Parmalat has also brought a number of innovations in its products in terms of quality and other innovative feature as a result it bagged the award of SIAL d'Or in 2008 (Parmalat S.p.A.-c, 2011). In measuring the non financial performance of the company one of the important tools which are generally used is balance scorecard (refer appendix). But balance scorecard also does not include all the parameters through which the future performance can be predicted (Norreklit, 2000, p.86). 7 Strategic analysis Parmalat is losing its market share in South Africa. The market for UTH milk comprises of only 8%. In order to increase the market share, Parmalat can introduce a product which would satisfy the needs of African people, or change the packaging. Packaging also plays an important role for a product to be successful. The company’s brand strategies must be revised. The products are available in different brand names, which can create confusion in the minds of the customers. The company can therefore, bring all the products under one brand name. Parmalat new strategy would be to concentrate on its existing product portfolio. The company is primarily focusing more on high valued products and in the process of innovation. Innovation has been the key factor of Parmalat success. Parmalat is planning to re-place the small local brands, so that it can slowly streamline its product portfolio. Parmalat is going to introduce itself as an umbrella brand for the local brands which are relatively strong, or which has a decent market share and possesses a high level of innovation in its production. The revenue generated by Parmalat would be used in the R&D of Parmalat products. The company would leverage its product and also process innovation globally (Parmalat, 2011). 7.1 Gap analysis Parmalat has been losing its market in South Africa. This is because the company specializes in the production of UHT milk while the market for the same in the region is quite small. The market share of Parmalat in South Africa is 8% while that of Nestle is 23% and Clover is 16%. Thus the product diversification plans for the company seems inadequate. Secondly, Parmalat markets its products through several brands, which also includes the recently introduced brand called Parmalat. However, these are demonstrating low sales volumes. With the introduction of large retail chains in Australia eating into market share, the company needs to revise its brand strategies as well (Parmalat, 2011). The market in Australia is found to be highly competitive with the emergence of a large number of retail chains expanding their operations in the discount retailing business and groceries. In this condition, Parmalat demonstrates a situation of lack of concern for consumers and market developments. Thus greater focus must be given to the emerging changes in consumers’ tastes and preferences and other changes in the market so as to survive in the market successfully (Parmalat, 2011). Due to the emergence of various brands and products in the market, Parmalat is found to be showing a lack of innovation of products and brands through research and development. Thus it must aim to make greater investments in R&D activities in order to come out with innovative products such as to have competitive advantage at the global level (Parmalat, 2011). 8 Recommendation This research concentrates on the strategic analysis of the company Parmalat which is a multinational company and operates across a number of countries including Australia. Though the company has suffered a decline in the profits in recent years but it has the potential to achieve its vision and mission statement. In order to increase the revenue from sales the company should concentrate on certain target customer and initiate promotional activities in order to boost up the sales. In the GAP analysis it has been found that the company is losing its market share in Australia with the introduction of large retail stores and other food and beverage companies. The company can tackle this type of situation with the help of branding strategy. The company should focus itself in developing a brand image of developing nutritional products. The company should try to build an image of high quality milk provider by improving its quality of products and promoting it to the target customers. 9 Conclusion The analysis done in the previous section has helped to identify the strategic position of the company Parmalat. This report states about the internal and external factors that affect Parmalat. Parmalat being one of the premier brands in Italy shows a positive growth rate, despite of a financial scandal which occurred in the year 2003. Parmalat strategy towards its success lies on the power of innovation and its expanding strategy. Parmalat is present worldwide. It has been found that Parmalat strength lies on the fact of being among the top players in the market which has proved to be a vital point during its hard times. Parmalat lost its market share in South Africa. The growth rate was only 8% as compared to other brands available in the market. The reason behind this was the introduction of UTH milk which as not preferred by the people. Therefore it was much needed that the company comes out with new strategy and captures the African market. Another strategy adopted by Parmalat was to introduce itself as an umbrella brand which would help it to grow in the local market. 10 Reflective statement A reflective statement can be defined as summarizing something which the writer has experienced or said (Mosley, Pietri and Mosley, 2010, p.183). In this segment the experience gathered while conducting this research has been described. Conducting a research work is generally a complex and time consuming and lengthy process. A research includes a lot of study on the theoretical and practical topics related to the research topic. Conducting a research also provides the opportunity to learn new topics and different aspects of the research work. It enables to learn the various ways in which the theoretical knowledge can be put into practice. As discussed earlier a research work includes many types of study and analysis therefore it is very important to plan the activities before hand. First of all a time plan has been prepared allotting various activities in different time schedule. This has helped to learn time management more accurately and more perfectly. Once the planning is done the second activity which was conducted was studying the various conceptual models which were to be used in the research. This was a time consuming process as a lot of books and journals were referred to understand the various aspects of the strategic analysis. This activity has helped to gain an in dept knowledge of the strategic analysis and the various concepts related to it. The third part of the research activity was to conduct the secondary research. The secondary research was mainly done on secondary data collected from various books, journals and informational and trusty worthy websites. The secondary research has helped to understand the internal and external factors influencing the operations of the company or which may influence the operations of the company in future. The weakness and strengths of the company has also been assessed during this part of the research. Once the secondary research was done the final and most important part was initiated that is analysing the finding of the research and drawing conclusion. This activity has helped to identify the exact strategic position of the company and has helped to identify the various ways in which the company can improve its overall position. 11 Reference Parmalat Australia-a. (2011). Home. Retrieved on September 29, 2011. from http://www.pauls.com.au/. Parmalat Australia-b. (2011). History. Retrieved on September 29, 2011. from http://www.pauls.com.au/index.php?option=com_content&view=article&id=429&Itemid=45. Parmalat Australia-c. (2011). Our vision. Retrieved on September 29, 2011. from http://www.pauls.com.au/index.php?option=com_content&view=article&id=30&Itemid=21. Brigham, E. F. and Houston, J. F. (2009). Fundamentals of Financial Management 12th ed. USA: Cengage Learning. Tracy, J. A. (2008). Accounting For Dummies 4th ed. USA: For Dummies. Brigham, E. F. and Ehrhardt, M. C. (2010). Financial Management Theory and Practice 13th ed. USA: Cengage Learning. Jayapandian, S. (2008). Accounting For Managers 2nd ed. India: Ane Books Pvt Ltd. Gibson, C. H. (2010). Financial Reporting & Analysis: Using Financial Accounting Information 12th ed. USA: Cengage Learning. Parmalat S.p.A. (2011). Did you know that. Retrieved on September 30, 2011. from http://www.parmalat.com/en/about_us/did_you_know/. Parmalat S.p.A-a. (2011). Financial targets. Retrieved on September 30, 2011. from http://www.parmalat.com/en/investor_relations/financial_data/financial_targets/. Altman, E. I. (1968). Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. Retrieved on September 30, 2011. from http://www.twd2u.com/wp-content/uploads/2008/11/z-score.pdf. Parmalat S.p.A.-b. (2011). The Global Dairy Market. Retrieved on September 30, 2011. from http://www.parmalat.com/en/investor_relations/market/. Parmalat S.p.A.-c. (2011). Awards. Retrieved on September 30, 2011. from http://www.parmalat.com/en/products_brands/awards/. Norreklit, H. (2000). The balance on the balanced scorecard a critical analysis of some of its assumptions. Retrieved on September 30, 2011. from http://members.home.nl/j.s.sterk/AQM/The%20Balance%20on%20the%20Balanced%20ScorecardA%20Critical%20Analysis%20of%20Some%20of%20Its%20Assumptions.pdf. Bruton, G.D. & Ahlstrom, D. (2009). International Management: Strategy and Culture in the Emerging World. Cengage Learning. Clarke, T. (2007). International corporate governance: a comparative approach. Rout ledge. Fine, L.G. (2009). The SWOT Analysis. Create Space. Haar, J.Simon, F. & Robles, F. (2003). Winning strategies for the new Latin markets. FT Press. Harris, F.H. Moyer, R.C. & McGuigan, J.R. (2010). Managerial Economics. Cengage Learning.Keegan. (2002).Global Marketing Management. Pearson Education India. Melis, A. (2005). Critical issues on the enforcement of the “true and fair view” accounting principle. Learning from Parmalat. Retrieved on September 29, 2011 from http://www.virtusinterpress.org/additional_files/journ_coc/paper03.pdf Parmalat. (2011). Strategy. Retrieved on September 30, 2011 from http://www.parmalat.com/en/about_us/strategy/ Peng, M.W. (2008). Global Strategy. Cengage Learning. Witzel, M. (2003). Fifty key figures in management. Routledge. Westbrook, R. & Hill, T. (1998). SWOT analysis: It's time for a product recall. Long Range Planning. Department of Foreign Affairs and Trade. (2008). About Australia. Retrieved on September 28, 2011 from http://www.dfat.gov.au/facts/investing_in_australia.html. US Department of State. (2011). Background Note: Australia. Retrieved on September 28, 2011 from http://www.state.gov/r/pa/ei/bgn/2698.htm. Department of Foreign Affairs and Trade-a. (2008). About Australia. Retrieved on September 28, 2011 from http://www.dfat.gov.au/facts/investing_in_Australia.pdf. Department of Environment and Conservation. (2011). Western Australian Government’s Environmental Offsets Policy. Retrieved on September 28, 2011 from http://www.dec.wa.gov.au/home/. Australian Government. (No Date). Consumer rights. Retrieved on September 28, 2011 from http://australia.gov.au/topics/business-and-industry/consumer-rights. Australian Government-a. (No Date). Employment and workplace. Retrieved on September 28, 2011 from http://australia.gov.au/topics/employment-and-workplace. Pietrobelli, C. & Rabellotti, R. (2006). Upgrading to Compete Global Value Chains, Clusters, and SMEs in Latin America. Retrieved on September 28, 2011 from http://biblioteca.fstandardbank.edu.ar/images/0/0b/Cadenas_12.pdf#page=314. Parmalat Annual Report 2009. (2009). Annual Report. Retrieved on September 28, 2011 from http://www.parmalat.com/attach/content/2777/Bilancio%20UK%202009.pdf. Parmalat. (2011). Parmalat in the world. Retrieved on September 28, 2011 from http://www.parmalat.com/en/about_us/parmalat_group/world/australia/. Citrix. (2004). Parmalat Australia Milks Benefits from a Citrix Solution. Retrieved on September 28, 2011 from http://citrix.com/site/resources/dynamic/customerStory/parmalat_01_04_cs_a4.pdf. Parmalat S.p.A-1. (2011). Strategy. Retrieved on September 28, 2011. from http://www.parmalat.com/en/about_us/strategy/. Mosley, D. C. Pietri, P. H. and Mosley. J. (2010). Supervisory Management 8th ed. USA: Cengage Learning. 12 Appendix 12.1 Value chain The following section would discuss the chain of activities undertaken in Parmalat. Not only does it describe the various activities needed for converting the raw materials into finished products but also identify the values added in each link. The following figure would depict the diagram of a value chain. Figure 1: Interaction of Value Chain and Environments (Source: Larsen, Kim & Theus, 2009, p.77) The primary activities include operations, inbound logistics, outbound logistics, sales and marketing; and service or maintenance. Parmalat collects 60% of the milk that it processes from the regions of Chontales and Boaco. The method used by the company to monitor the standards maintained by its suppliers of raw materials is through the combined policies of pricing and grading. Samples of milk are collected by the company from suppliers and tested for analysis. The laboratory results reflect the quality of milk produced which decides the prices. Parmalat primarily draws milk from three main sources. First is through its own collection centres located in Nicaragua. Cooperatives account for the second source of milk for the company with which Parmalat has contracts with regarding price, volume, quality etc. The third source of supply has been increasing and accounts for the local medium and large producers of milk. The transportation of milk from the farms to the centres of collection is done in two ways. Either milk producers use their motorized forms of transportation or the company’s own collection routes are used or contracts are made with small haulers for shipment of products (Pietrobelli & Rabellotti, 2006, p.69-70). Among the secondary activities of the company are its human resource functions, infrastructure, innovation etc. The company trains its human resources for raising their level of skills and making competitive in the global market, coupled with compensation programs to attract, retain and motivate talents. Performance identification, assessment, managing key resources and succession are some of the HR strategies of the firm. This is coupled with the use of best technologies, example Citrix technology (Citrix, 2004, p.1) for production and exports to international markets. Within the entire operational process Parmalat seeks to maintain quality standards through its procurement of raw materials till the distribution of the final products. The following diagram would reflect breakdown of its staff by countries. Figure 2: Breakdown of Parmalat's staff according to countries (Source: Parmalat Annual Report 2009, 2009, p.18) 12.2 SWOT SWOT analysis provides the internal factors as well as the external factors. The business structure of the company is examined by SWOT analysis. With the help of SWOT analysis an organization can maximize its strength, minimize the weaknesses, and take advantage of the opportunities (Fine, 2009, p.2). Strength Parmalat is the largest company in Italy. It has a good network with the diary industry. It maintains diary tradition which is reflected in the qualities of ice cream it produces. The expanding strategy can also become its strength. It has extended its business in Colombia and Venezuela (Haar, Simon & Robles, 2003, p.202). It maintains a good relationship between corporate governance and financial reporting (Melis, 2005, p.1). Weakness It did not have any effective distribution channels or systems nor had any alliances which would help it in achieving its goals (Haar, Simon & Robles, 2003, p.203). Parmalat weakness also lies on its internal control. This is evident from the fact that it had suffered a huge setback in the year 2003 and the auditors of the firm were involved with it. It was reported to be one of the biggest scandals in Italy. Opportunities It had come up with a concept of tetra pack, a form of packaging to extend the preservation of milk which is more hygienic then the regular bottles. With this it had got the opportunity to brand the tetra pack with its name-Parmalat (Clarke, 2007, p.374). It can create a brand name which would help the company to grow internationally again after such a setback of 2003. Threat The possibility of takeover by the big players in the market. Intense competition. 12.3 PESTEL PESTEL analysis provides the political, economic, social, technological, environmental and legal analysis of the macro economic factors impacting upon Parmalat, which is the global market leader in the production of pasteurized and ultra high temperature processed milk in Australia. Political Australia demonstrates an extremely stable and democratic political environment. Not only is it dominated by the Liberal Party which represents the interests of the urban interests, but it’s regulatory and government institutions are considered to be transparent, reliable, impartial and globally competitive. This provides investors with an extremely secure and safe business framework (Department of Foreign Affairs and Trade, 2008). Moreover the corporate tax rate in Australia is 30%, a figure which is globally competitive and is lower than USA and at par with UK. The country provides a moderate and effective intellectual property regime and does not impose restrictions on profit remittances, capital flows etc., or other payments related to trade. The Australian Labor Party which was started by the Labour Unions represents the interests of the workers; however its policies are moderately socialistic in nature. The Government Agencies make numerous investments in research and development accounting for one of the highest among the OECD nations. This is coupled with high tax concessions, incentives and support programs towards R&D (Department of Foreign Affairs and Trade, 2008). Thus, the complete political scenario in Australia scenario looks conducive for business establishment and growth. Economic Australia ranks among the top nations providing an extremely business friendly economy apart from a business environment which is highly flexible and stable. The economy demonstrates an estimated GDP growth of A$1.3 trillion in 2011 and a forecasted rate of inflation at 3.25%. The official rate of interest of the Reserve Bank of Australia is 4.75%. Moreover the country’s growth of exports of goods and services between 2009 and 2011 was 254.2 billion and China, Japan, India, South Korea and UK accounts for some of the major markets for its products. The low rates of inflation coupled with high GDP growth and low rates of interest are factors which favorably influences business decisions of companies (US Department of State, 2011). Social Australia hosts an innovative culture which is driven by great support from the government research and development institutions. The quality of life in the country is also one of the best in the world having a pristine and quiet natural environment. The citizens demonstrate immense environment and health consciousness which is why the levels of air and water pollutions are also low. The great recreational facilities, livings costs and business environment in the nation are some of the factors which attract investors and businessmen from across the world (Department of Foreign Affairs and Trade-a, 2008, p.4). Technological The strong combination of communication technology and world class information infrastructure coupled with the high degree of technological adaptability across various industrial sectors of the nation represents an excellent environment for conducting business operations. The nation holds the fourth position in the world in terms of internet usage and has an overall E-readiness of 8.83 out of 10. The high degree of E-readiness represents the ability of consumers and businesses to use information and communication technology to their advantage (Department of Foreign Affairs and Trade-a, 2008, p.3). Environmental The country seeks to preserve its biodiversity and environmental values for its present and future generations according to the Environmental Offsets Policy by the Western Australian Government. The policy seeks to ensure long term social and economic development (Department of Environment and Conservation, 2011). The country also shows high concerns over security issues which also reflects its efforts towards maintaining stability and environmental peace (US Department of State, 2011). Legal : The Australian Competition and Consumer Commission seek to promote fair trade and competition in the market place for benefiting businesses, consumers and the community on the whole. Its responsibility is to ensure abidance of consumer protection laws, fair trading and competition. It especially seeks to protect dealings with the customers, businesses, product labeling and safety, the codes of conduct in businesses, competition and professions (Australian Government, n.d.). Apart from that Australia tries to maintain interests of workers through fair work systems and provides assistance to the SMEs to adopt best practice initiatives. The employment laws also try to eliminate discrimination between men and women at the workplaces (Australian Government-a, n.d.). 12.4 Porter’s five force Porter’s five forces is a framework which identifies the threat to possibility with the help of five forces (Harris, Moyer & McGuigan, 2010, p.342). Threat of new entrant: New entrants to an organization raise the competition level. The threat depends on the entry and exist policy. Parmalat main products are milk and dairy products and beverages. It forms a part of the FMCG sector. Entry to this industry is very easy. There are no barriers to entry. Thus the threat of new entrant is high. Threat of substitute: The threat of substitute can lower the company’s profitability. It depends on factors like willingness of the buyer to substitute and the price factor (Bruton& Ahlstrom, 2009, p.131). Parmalat threat of substitute would be moderate since milk and dairy products are preferred by all age groups. Parmalat develops products which are of high value in order to improve the diet of its customers. But there is certain group who does not prefer milk; they prefer other health drinks. They could be a threat to Parmalat product. Bargaining power of suppliers: The bargaining power of suppliers depends upon the leverage that a company enjoys. The company has the option to increase its price or reduce the products quality (Keegan, 2002, p.307). Parmalat is the largest company in Italy with revenue of 4.3 billion dollar Euros. There are many buyers of the product and the company produces high valued products. Therefore the bargaining power of supplier is high. Bargaining power of buyer: Buyers are the group of people who creates demand for a particular industry (Peng, 2008, p.41. In case of Parmalat the bargaining power of buyer would be low. This is because there are many buyers for Parmalat product. It is a multinational food group with its presence in five continents. Parmalat supplies its product globally. Rivalry: The intensity of rivalry depends on various factors. The competition is high for small sale industries. Parmalat is one of the biggest company, thus its level of competition would be less. But it can face competition from big players like Nestle. Another factor is differentiation. Parmalat products are differentiated from the other dairy products available in the market. It has taken steps to improve the identity of the brand (Parmalat, 2011). Thus the intensity of rivalry is moderate. 12.5 Balance scorecard In this section the balance scorecard has been discussed in detail. The balance scorecard is a tool which is used for strategic planning. Balance scorecard is used to analyse and measure the performance of the company. To measure the non financial perspectives of the company balance scorecard is generally used. Figure 3: Balance Scorecard (Source: Balance Scorecard Institute, 2011) The balance score card has been prepared keeping in view the vision and mission of the company. Financial perspective Objective To increase the operating performance of the company. To increase the overall profitability of the company. To improve the liquidity position of the company. To increase revenue. To increase operating profit. Measures Measures are the methods which are used to measure the performance of the company in achieving the objectives. To measure the performance the measures which can be used are operating margin ratio, net profit ratio, current ratio quick ratio, revenue and EBITDA. Targets The target of the company will be to raise the operating margin by 10 percent and attain the current ratio, quick ratio and net profit ratio more than 3.5, 0.96 and 17% respectively. To increase the net revenue to 4400 million euro and EBITDA to 385 million euro in 2011(Parmalat S.p.A-a, 2011). Initiatives To achieve the targets the company should try to increase the sales of the products, decrease the production costs and add on current assets to improve the liquidity position. Customer perspective Objective To increase customer base. Measure The performance will be measured by the number of families who uses Parmalat product worldwide Target Presently about 200 million families consumes products of Parmalat worldwide (Parmalat S.p.A, 2011). Therefore the target of the company will be to increase the number by 10% by next year. Initiative The company should promote the product to the probable customer and also should try to improve the product quality. Internal process perspective Objective To reduce the operations costs. Measure The measure in this respect that can be used is the data of operating expenses. Target In 2009 the company incurred about 3609 million euro of operating expenses. The target of the company would be to reduce this by at least 10 percent by next year Initiative To achieve this objective the company should try to use the resources optimally. Learning perspective Objective To increase the number of employees. Measure Number of employees employed in the company. Target In 2009 about 13788 employees worked in the company worldwide. The target of the company would be to increase this number by 2% next year. Initiative The company should work for employee development in order to retain more employees. 12.6 Ratio analysis The following is the analysis of the financial position of the company based on the data of Parmalat’s 2009 annual report. Liquidity: The liquidity position of the company has been analysed on the basis of two ratios that are current ratio and quick ratio. The current ratio measure the company’s overall short term position. It measured by deducting the current liabilities form the current assets (Tracy, 2008, p.287). The current ratio of Parmalat in 2009 was 3.5 where as in 2008 it was 2.9. Profitability: To measure the profitability position of the company two types of profitability ratios have been used they are the operating margin ratio and the net profit ratio. The operating margin ratio is calculated by dividing the operating profit that is the earnings before interest and tax by sales. The net profit ratio is calculated by dividing the net income by the sales (Brigham and Ehrhardt, 2010, p.98). The operating profit margin in 2008 was about 18.7% which slipped down to 16.7% in 2009. The net profit margin was also slipped down drastically. Efficiency: The efficiency of the company has been measured with the help of working capital turnover ratio and inventory turnover ratio. The working capital ratio is calculated by dividing the sales by working capital and the inventory turnover is calculated by dividing the sale by inventory (Jayapandian, 2008, p.169). From the table given below it can be seen that both the efficiency ratios have been reduced from that of the previous year. Long term solvency: The long term solvency position of the company has been analysed with the help of debt equity ratio. This ratio has been calculated by dividing the total liabilities by shareholders’ equity (Gibson, 2010, p.268). Table 4: Ratios Read More