OSI in China Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

OSI in China

Mission Statement and Company Overview

The company has been a supplier of processed meat, fresh vegetables and other products to fast growing quick-service restaurants (QSR) such as Yum and McDonalds. It has received the “Supplier of the Year” award by McDonalds for its superior performance in the region. The mission of the company is to expand itself by incurring large investment, further processing its capacity and also introducing new facilities in poultry production.

Corporate Philosophy of the Company

The corporate philosophy of the company is to grow itself among the existing local and foreign suppliers within the Chinese region. The company is looking to expand itself based on the available resources and by actually utilizing all its core competencies.

External Analysis

Porter Five Force Model

Bargaining power of Buyer: High

The bargaining power of the buyer in the industry is high. With a lot of different fast food chains and quick-service restaurants (QSR) in the Chinese market, it gives the buyers an edge to quote prices and bargain with the suppliers to the maximum. All industry players look to offer lower prices and strong distribution network with on time delivery to actually facilitate every customer and its requirements.

Bargaining power of Supplier: Low

The bargaining power of supplier in the industry is low. The reason for this is the presence excessive number of local and international suppliers in the industry. Along with OSI, there are other local high-quality suppliers that are competent enough to meet requirements of international chains such as McDonald and Yum brands.

Threat of Substitutes: Medium

The threat of substitutes in the industry is also medium. People in China are more prices sensitive; they look for goods and products that are cheap; do not consider quality and look for less-priced products. People were using chicken products as a substitute for pork and beef. This was making the industry competitive amongst the substitutes available.

Rivalry among competitors: High

The rivalry among the industry players was high. The reason was the entrance of new companies that were internal brands in the Chinese market. OIS was facing stiff competition from primary and secondary competitors. Such as Keystone Foods, Chia Tai, Tyson Foods, Sunner, Duyo and secondary competitors such as China Yurun, Zhongpin, etc.

Threat of New Entrants: Medium

Although the industry is on the verge of growth but the threat of new entrants is medium because of the high start-up investment required to enter the industry. Along with this, the government rules and regulations on investing in the Chinese market made the new entrants think twice before actually entering the industry.

Positional Strength

The basic strength of the company that makes it stand out from the rest of the competitors is the quality of meat and raw material it provides to the QSR’s and fast food chains such as McDonalds and Yum brands. In addition to this, OSI has won “Supplier of the Year” award for the OSI’s superior performance in the Asia-Pacific region. The company has not only grown with improved quality but it has also reached revenue of $350 million in 2011. The company has become number one supplier for McDonalds and has made itself well equipped with a strong customer base and export network in China and Japan. While entering China, Lavin positioned OSI as a technology company that brought new equipment and automated operations in the region.

Nature of Competition in the Industry

The competition in the supplier industry that provides raw material and meat to Chinese and Foreign quick-service restaurants is quite intense. Although the overall industry is in its growth phase, with Yum looking to open new stores at a rate of 600 to 700 a year, McDonald’s also announced that it will reach 2,000 stores by the end of 2013 and other international chains were also entering and expanding. Along with this, local Chinese chains were also becoming strong competitions which were expected to meet Western QSR in the next 10 years. Along with this in 2012, China was the largest broiler market in the world with the volume of growth increasing. Increasing population, increased income, increase urban living and developed infrastructure were making the industry a positive prospect for investment. However, the supplier network for the Chinese fast food industry has not transformed enough to actually serve all the quick-service restaurants in the industry because of a number of reasons that include: unskilled labor, transport structure and government rules and regulations that are different for local and foreign supplier.

Macro environment

The extra or biased support of Chinese Government to the local suppliers has affected the industry in a negative way. With restrictions on foreign companies to comply all the requirements of health and safety increased the cost of products. However, local firms and suppliers were treated differently and were not required to follow and comply all the requirements. Therefore, OSI had to pay more for the rent and labor. Moreover, the production of raw material for poultry feed which was limited along with the production and commodity prices were increasing to make it difficult to keep prices down for foreign companies. Lack of qualified and skilled labor was a cause of concern that affected the industry negatively.

The changes and the biased inclination of Chinese Government has been affecting the industry in a negative way but the overall situation of the industry is quite productive for all the foreign companies because they have developed partnerships with local firms to increase their compatibility and worth in the Chinese market. Along with this, it has helped the QSR to integrate their operations vertically by developing alliance with local firms to deliver better products to the customer at lower prices.

Some of the additional opportunities in the industry are the fact that OSI can expand itself by exporting to other regions in Asia-Pacific market because of the low cost of raw material and low-cost broiler in the region. With this opportunity the company can expand and serve as an exporter to other regions like Japan and Taiwan. The additional threats in the industry will be the increasing dependence of foreign suppliers to develop partnerships with local suppliers. Not only do they learn the art of handling large orders but also learn the method of developing customer specific requirements................

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