CHINA’S BRIGHT FOOD OVERSEAS M&A STRATEGY Harvard Case Solution & Analysis

CHINA’S BRIGHT FOOD OVERSEAS M&A STRATEGY Case Study Solution

Introduction

In 2006, Chinese government had planned to consolidate all food and beverages related companies in order to create one largest combined company. Bright Food is the head of companies which is located in Shanghai and contains 19 subsidiaries, out of which only four are publicly listed companies. The consolidated company’s assets are valued at RMB $45.8 billion with the revenue generation of $45 billion.

It has been stated that consolidation is only initial part of nation policy in order to restructure companies owned by the state. Moreover, the government also wanted to increase international competitiveness. The larger companies that wereincurring losseshave been merged in order to perform consolidation.

Bright Food Company is operating in all supply chain parts of food processing industry such as agriculture, food processing, food production, retailing and distribution. The company was owning 3300 retail stores in the country. The major business activities of company were sugar, dairy, wine making, food brand operations, chain store operations, modern agriculture and other businesses such as taxi service,real estate and tourism. Being a market leader in China, some of the major food brands of company were Bright infant milk formula, Guanshengyan, Big white rabbit, Mailing, Sikumen and Hiju.

Due to continuous growth of the company and leading nationally in China, it wanted to adapt globalization strategy. Being global, company wanted to achieve goals of expanding its product in international market, exploiting overseas human and natural resources, acquisition of new and latest technologies and enhancing the corporate value for the company.

It has been recorded that 221 mergers and acquisitions have been taken place from 2008 to 2011, however, only eight of them were foreign mergers. The main focus of the company was to double up its revenue, in which mergers and acquisition would help the company to achieve its goal. Moreover, company also wanted to increase its revenue growth from 5% to 30% after making these merger.

More than seven mergers have taken place in 2010-2012. However, only four out of seven deals were successful. Moreover, two of the deals were taken by the subseries, named Bright Dairy and Shanghai Tangjiu group. Rest of them were taken by leading company, Bright food group. The four successfulcompanies include New Zealand Synliat Milk, Australia’s Mannasen’s food, UK’s Weetabix and France’s Diva Bordeaux. On the other hand, failure companies include Australia’s Sucrogen and France’s Yoplait.

Problem Statement

Despiteof making four successfulforeign acquisition, company wanted to increase its international exposure. Moreover, company has made bidding for other two international firms, however, it has not been confirmed. Therefore, company’s analysis and recommendation is required.

Analysis

SWOT Analysis

Strength:

Following are the strengths of Bright Foods Group:

1. Company is highly diversified and thus, not operating only in food industry but many other industries such as real state, transportation, apparels and biomedical products.
2. The continuous growth of company’s revenue and profit margin possess that company’s financials are highly strong and it can invest in more strategic options.
3. International expansion of company will not only increase Company’s profitability, but the brand image of company would also be highly affected in a positive way and thus, reputation of company will be increased.
4. The competitive advantage of company, which is being the market leader, have made difficult to create competitors of same level.

Weaknesses:

Following are the weaknesses of Bright Foods Group Industry:

1. The company might be facing complacent situation, under which itwould be enjoying its current status and wouldnot care about its upcoming threats.
2. As in 2008, company had to apologize for production of unhygienic infant milk which resulted in illness of many people. However, these mistakes would hurt company’s brand image and reputation in developed markets.
3. The company has been managing along with two other organizations which is Shanghai Local Administration and China’s Central Government’s State-owned Assets Supervision and Administration Commissions (CCGSASAC).

Opportunities:

Following are the opportunities that can be exploited by the company in order to achieve further success in future:

1. The growth of company’s existence internationally would facilitate company with strong existence in other countries as well.
2. The successful acquisitions of company would make it financially strong to achieve its goal of globalization.
3. The financial growth of the company would make it able to also acquire other remaining companies which have been left due to low bidding.
4. The company can increase its market penetration, first in China and later internationally.
5. The company could expand its products in Japanese market, as the taste buds of both countries’ people are highly similar.

CHINA’S BRIGHT FOOD OVERSEAS M&A STRATEGY Harvard Case Solution & Analysi

Threats:

Following threats could be faced by the company which would create hurdles for company’s future success:

1. Avoiding competition can createproblem for the company in future, if any strong competitor with full preparation would arise.
2. Any international food market could capture Chinese food industry completely, which will destroy company’s financial position in the market.
3. As the company is trying to launch international food in China, people may not like other foods which may result in losses of acquired companies.
4. The company has to follow government regulations, as it is working with CCGSASAC which is owned by the government. Therefore, change in any government policy would become threat for the company’s operations.....................

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