Wednesday, April 2, 2008

Kikkoman Corporation in the Mid-1990s

1. Introduction:

Slow sales growth and underperforming stock price present new Kikkoman president Yuzaburo Mogi challenges as Kikkoman faces the end of the 1990s and the twenty-first century. The company, headed by 17 generations of the Mogi family and h
eld 50% of US soy sauce market and 30% of the world market , faces a mature market and slipping market share in Japan for its soy sauce, as well as challenges for its diversified product line in the 94 other countries in which the company distributes. By using Five-force model, SWOT, PEST, value chain analysis we understand internal and external envronment; then we use ratio and ROIC analysis to realize strength and weaknesses in financial situation of company. After all, through evaluating cost/benefit of 2 alternatives and choosing a long-term global strategy for Kikkoman, we come to r recommendation with a plan and steps of implementation aiming to solve facing problems. At last, we suggest using Balance Score card to measure our solution with described criteria.

2. Key Issues to address: Slow sales growth starting from the early 1996 ; Underperforming stock in Nikkei Exchange in relation to the market; Ongoing changes in taste preferences and dietary needs presented threats; How the company focus on and try to enhance US market while keeping hold of the Japanese market

3. Internal analysis

3.1 Corporate-level strategy: Kikkoman Focused on globalization keeping hold of the Japanese market with high assimilation and long term commitment

3.2 Business-level strategy company pursuing: Company follow a cost leadership strategy in Japan Continuous development of new recipes; Variations of its older products as well as development of new products (APPENDIX 2)

3.2 Distinctive competencies

Resources : Kikkoman has Expertise and more than 300 years of experience in production of soy sauce ; Know-how of esoteric technology developed by family; State-of-the-art laboratories ; A number of patents in Japan and US’ Non unionized dedicated labor force; Localized operation ; Economy of scale; Convenient location of the plant and closeness to main markets

Capabilities : Business network with wholesalers and distributors ; Harmony with society and local community; Good corporate citizen; Decisions made by consensus from the bottom up; Hard working mixed culture; Practice of rotating managers

3.3 Value chain analysis: Kikkoman has a long history of R&D (development of new recipes, number of patents), a family know-how and a marketing and distribution center for its product in the US (APPENDIX 4)

3.4 ROIC analysis / Profitability (APPENDIX 5, 6 )

Return on sales: Return on sales is the main factor that influences ROIC and has the same trend. The ratios of COGS to sales and SG&A to sales keep almost constant. We can infer that there is no big change on average prices of products compared to the cost of products. It is the change on amount of sales or market share that leads to the fluctuation of sales and ROIC. Market share and business strategy based on market share are vitally important to the development of the company.

Capital turnover: This rate has been decreasing in the last few years. Both the ratio of working capital to sales and the ratio of PPE to sales are increasing. We can infer the internal efficiency is decreasing.

4. External analysis through Five-Force Model:

· In Japan: Rivalry is intensive because mature market, Entry barrier is very low (commodity market; technology use is minimal, low capital needed, easy to establish production), Bargaining power of buyers is high (many brands with diversification and price variance, switching cost is low), Bargaining power of suppliers is low (materials are commodity and easy to supply), Complements power is high (cuisine culture).

· In US/Europe: Rivalry is moderate, because of consolidated market, Entry barriers are low (commodity market; technology use is minimal, low capital needed, easy to establish production), Bargaining power of buyers is high (switching cost is low, despite of the Asians consumers are early adopters), Bargaining power of suppliers is low (materials are commodity and easy to supply) . For details of External environment analysis, please see APPENDIX 1.

5. Evaluation of SWOT analysis:

-nal analy-



Brand name, management skills, long history, know-how, large market share, hardworking culture, good relation with community, R & D, advertising, Highest productivity in the industry

Longer production process compared to technology based competitors, Production process more expensive, more cerebration needed; decreased efficiency

Exter--nal analy--sis



Growing markets in USA and EU

Economic growth in USA

Increasing popularity of Orient cuisine

New emerging markets in Asia

Ongoing changes in taste preferences and dietary needs; highly sensitive to price

Competitors pressure at the retail level in Japan

Aggressive introduction of private brands

Country risk in foreign markets

Low entry barriers

Slowdown in Japanese economy

New automated chemical technology

· Evaluate SWOT analysis : Ongoing chages in taste create an opportunity to diffrentiate (product lines) and high sensitivity of demand to price will create a chance to differentiate product price. Keeping low cost at least in some products is an effective way to guard against external threats. And slowdown in Japanese economy makes an opportunity for Kikkoman to look for overseas markets to grow rapidly.

6. Alternative solutions:

6.1General strategy: Organizational structure: reform its corporate governance structure from a Japanese style to a more internationalized one.

Market strategy: apply blue ocean strategy, by expanding market boundaries to overseas markets. (APPENDIX 3)

6.2 Cost/benefit analysis of each alternative‘s actions

5. Recommendation: Based on above analysis, We suggest that Kikkoman choose Alternative solution #1 (total scores of alternative 1 > that of alternative 2).

6. Implementation plan:

7. Balance Scorecard to measure performance (APPENDIX 7)

  • Financial: to succeed financially and increase value of Kikkoman’s shareholders
  • Customers: to achieve Kikkoman vision, mission and strategies
  • Internal business process: to satisfy Kikkoman’s shareholders and customers
Learning and growth: to know how Kikkoman can sustain its ability to change and adapt to international environments

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