CME Group In 2019 Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

CME Group In 2019 Case Solution

Question-2:

How should CME Group bolster the competitive advantages of the agricultural products business given its current incumbent status?

It is undeniable that CME’s leading position is mainly based on the benchmarks set by CBOT and the US’s dominance in agriculture products, like: corn andsoya bean etc. Therefore, a shift in the production and trade flows in these agricultural products, in the presence of competitive threats from Chinese exchanges and the trade war between China and the US, tend to impact the leading position of the firm in the US exchange markets. Moreover, the production of these agricultural commodities is an external non-controllable factor for CME Group, which again creates problems for the firm to maintain its competitive position. In this situation, the only way left for the firm is to strengthen its competitive advantages with an inclusion of the future contracts sale for corn, soy and other agricultural commodities which are less affected by the on-going trade war. CME should divert its focus from soya bean, a major questionable crop in terms of price and number of contracts, to other crops like soy, corn etc. It can also strengthen its position by including those products with the number of agricultural commodities which analysts find feasible for the firm.

In light of the shifts in crop production and trade flows, would U.S.-based benchmarks remain relevant?

There are two different arguments in this regard: one supporting and the other, challenging the relevance of benchmarks even after the shifts in crop production and trade flows. In support of the relevance of benchmarks;Andriesen’s statement can be quoted, as he said:

“Many big companies have all their supply and procurement structures tied to the existing benchmark, so to switch to another contract, the whole ecosystem would have to change,” said Andriesen. “The switching costs tend to be very high.”

This supports the importance of benchmark to the companies, so that so, a shift from benchmarks can cause massive loss incurrences to the firms. However, this argument cannot be considered reliable in long term markets when the firm will gradually withdraw the benchmark contracts. As seen in the example of Brazil and Argentina’ssoya bean trade; in the period of just 30 to 40 years, the dynamics of trade flow and production has drastically changed. Therefore, in a very near future, the relevance of benchmark contacts will vanish. In light of the two arguments; it could be said that the relevance of benchmark contracts is for short term and the firm must find other ways to maintain its competitive position in the market.

Should CME Group resist the rationalization of price discovery in agricultural commodities, or should the firm attempt to disrupt its own business model by leading the change? I.e., an old business model in agricultural products may or may not be relevant anymore. If it’s not, what should be changed?

Resisting the regionalization of price discovery in agricultural commodities is an easy option to be considered for maintaining competitive position in the global financial market as compared to a disruption in the current business model, which has been followed for more than hundred years. Moreover, it will allow the mitigation of risk from various global players in the agricultural markets, such as: Argentina and Brazil in Soya Bean market. It will also allow the frim to mitigate any future changes in production and trade flow of an agricultural commodity. However, rationalization is not a sustainable option with dissatisfaction of traders and speculators presented in the four exchanges, especially in CBOT. The main competitive advantage of the firm, in form of liquidity of CBOT, will be affected by resisting the rationalization of price discovery due to a decline in reliability of price discovery offered by CBOT, for both speculators and traders. Therefore, it can be concluded that resisting the rationalization will be helpful for the firm only for a short time period. However, if the firm wants to sustain its leading position then it must work on changing its business model in light of the changing global politics and trade. It should focus on contracts and regions where it can set its benchmark contracts, using its global presence in 14 countries. By doing so, the firm will not only save its leading position in short term but will also sustain its position in long term, and on the global scale..................................

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CME Group In 2019 Harvard Case Solution & Analysis