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Bunge

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Paul Nguyen
Paul Nguyen

A presentation made for my strategy and competition class at the John Molson School of Business. (COMM 401/ Summer 2014)

1 of 33
FOOD, FUEL & WORLD MARKETS
WORLD WIDE ISSUES &
PROBLEM STATEMENT “Given the volatility of the global petroleum market and increased awareness to environmentally friendly options, how does bunge position its operations to remain competitive?”
CURRENT STRATEGY Global Agribusiness Bunge’s strategy rests on its newly founded Bunge Global Agribusiness divisions whose focus is on vertically integrated operations improving value by linking different regional and international markets together.
CORE COMPETENCIES • A decentralized network of distinct regional offices • A vertically integrated value chain, allowing for economies of scale. • Most recognized fertilizer brand on the market with a 26% market share.
INTERNAL ANALYSIS STRENGTHS WEAKNESSES • Experience within the industry • Strong risk mgmt • Economies of scale & scope • Localization adaptation • No Global Brand Image, • Only entralized in Brazil • Too much capital in inventory during transport • Shareholders have a LT mandate
RESSOURCESPRODUCT LIFE CYCLE
GROWTH SHARE MATRIX (BCG)
VALUE CHAIN INBOUND LOGISTICS Farmers Use Fertilizer To Grow Crops OPERATIONS Sell Crops To Elevators DISTRIBUTION Loaded & Exported OUTBOUND LOGISTICS Oil Is Extracted SALES Buy Bottled Oils SERVICE Seeds Can Be Converted Into Biofuels SUPPORT Financial Report, IT, Fiscal Department
EXTERNAL ANALYSIS
• World population growth of 1.35% per year • World per capita income growth of 1.4% per year • Increasing demand for soybean meal due to higher income population EXTERNAL ANALYSIS
• Cheap and big quantity of corn tortillas in Mexico • Soybeans popular in China • Demand for soybean and vegetable oil has risen at 5% per year, especially in Asia. EXTERNAL ANALYSIS
• Concerns for the extent and durability of government subsidies • Lower import duties on edible oils in India • Restriction policies in China • Pro-alcohol policy contribution to Brazil EXTERNAL ANALYSIS
• Volatility and uncertainty of crop prices • Petroleum fuel’s volatility • Large investments increasing in energy markets • Indonesia and Malaysia produce 80% of world’s palm oil and has the lowest production costs EXTERNAL ANALYSIS
EXTERNAL ANALYSIS • Reduced production yields of sugarcane plantation due to poor weather in Brazil • Climate, soil conditions, and farming practices affect productivity and feedstock costs • Greenhouse-gas savings in sugarcane- based ethanol
• Experimental stage of second biofuels such as cellulosic ethanol EXTERNAL ANALYSIS
• Bunge’s major regions for corn exports are in North and South America and some in Europe • Their net sales to external customers are ranked highest in Europe and US • Middle East conflicts affect the global oil supply • EU-wide mandate of 5.75% biofuels inclusion EXTERNAL ANALYSIS
PORTER’S FIVE FORCES MODEL POWER OF BUYERS POWER OF SUPPLIERS SUBSTITUTES THREAT OF NEW ENTRANTS RIVALRY LOW LOW/ MODERATE MODERATE HIGH MODERATE
EXTERNAL ANALYSISBROADTARGET MARKET NARROW TARGETMARKET
FINANCIALS In Millions Agribusiness Fertilizer Food Products 2006 2005 2004 2006 2005 2004 2006 2005 2004 Net Sales 19,106 17,459 17,977 2,602 2,674 2,581 4,566 4,244 4,676 Operating Profits 86 275 358 202 81 372 155 100 120 Operating Margin 0.45% 1.58% 2% 7.76% 3.03% 14.41 % 3.39% 2.36% 2.57% % of Total Net Sales 72.72 % 71.62 % 71.24 % 9.90% 10.97 % 10.23 % 17.38 % 17.41 % 18.53 % % of Total Operating Profits 19.41 % 60.31 % 42.12 % 45.60% 17.76 % 43.76 % 34.99 % 21.93 % 14.12 % Total Assets 8,339 5,867 5510 2,979 2,774 2,428 2,022 2,070 2,020 Assets Turnovers 2.29 2.98 3.26 0.87 0.96 1.06 2.26 2.05 2.31 Return on Assets 1.03% 4.69% 6.50% 6.78% 2.92% 15.32 % 7.67% 4.83% 5.94% Capital Expenditure 285 267 211 106 135 158 112 120 68 Capital expenditure to sales ratio 1.49 1.53 1.17 4.07 5.05 6.12 2.45 2.83 1.45
ALTERNATIVE: OUTSOURCING SCOPE OUTSOURCE USING GLOBAL FREIGHT SERVICE PROS CONS • INCREASE IN PROFIT MARGINS • REDUCE RISK • CUSTOMER LOYALTY • INCREASING POPULATION • MORE CENTRALIZED STRATEGY • HIGH BARGAINING POWER OF SUPPLIERS • NOT VERTICALLY INTEGRATED • NOT DECENTRALIZED (CORE COMPETENCY) • ELIMINATE OPPORTUNITY FOR BIODIESEL
ALTERNATIVE: OUTSOURCING COST/BENEFIT ANALYSIS • Outsourcing will mean an increase in Freight supply agreements • Outsource storage facilities, transportation equipment and office facilities • Economies of scale on the increase of business resulting in additional Supply agreements of $150Million per year. (35% of current Supply agreements) • Initial cash inflow from the sale of transportation division ($614Million).
ALTERNATIVE: BIOFUEL SCOPE PROS CONS ACQUIRE ENERGY FOCUSED SMALL TO MEDIUM FIRMS IN USA & BRAZIL • LOW PRODUCTION COSTS IN BRAZIL • TAX CREDITS FOR PRODUCING IN USA • ENVIRONMENTALLY FRIENDLY INDUSTRY GROWTH • HIGH DEMAND • LACK EXPERIENCE • INCREASING COMPETITION • EXPENSIVE AND RISKY • NEGATIVE IMPACT ON BUNGE BRAND
ALTERNATIVE: BIOFUEL COST/BENEFIT ANALYSIS BENEFIT FROM INCREASING DEMANDS OF BIOFUEL : • EU 4 BILLION GALLONS OF BIOFUEL BY 2010 • USA 35 BILLION GALLONS BY 2017 • INVESTMENT IN ETHANOL PLANT AND PRODUCTION COSTS = 234.29 MILLION TO PRODUCE 43.4 MILLION GALLON OF ETHANOL IN BRAZIL (PER YEAR/PLANT)
ALTERNATIVE: GO ASIA SCOPE PROS CONS COOPERATIVE ALLIANCE WITH LOCALS • CAPTURE INCREASING DEMAND IN FOOD PRODUCTS (I.E. INDIA) • FIRST MOVERS ADVANTAGE • HIGHER ECONOMIES OF SCALE • POTENTIAL INCREASE IN MARKET SHARE • LOWER PRODUCTION COSTS • EXPENSIVE • EXISTING COMPETITORS • GOVERNMENT REGULATIONS (I.E. CHINA) • LACKING INFRASTRUCTURE
ALTERNATIVE: GO ASIA COST/BENEFIT ANALYSIS BUNGE WILL HAVE TO GO DOWN ITS VALUE CHAIN BUYING LANDS AND PLANTING THESE LANDS BY GOING INTO ASIA, BUNGE WILL BE ABLE TO CUTTING FREIGHT COSTS IN HALF IN COMPARISON TO BRAZIL BUT WITH LOW COSTS OF PRODUCTIONS JUST LIKE BRAZIL.
RECOMMENDATION ALTERNATIVE 1 ALTERNATIVE2
IMPLEMENTATIONIMPLEMENTATION SHORT-TERM 2~3 YEARS MEDIUM-TERM 5~6 YEARS LONG-TERM 8~10+ YEARS
• ACQUIRING ENERGY COMPANIES • RESTRUCTURING THE ACQUISITIONS • AQUIRING LOANS • OPEN NEW FACILITIES AND PLANTS IN USA IMPLEMENTATIONIMPLEMENTATION SHORT-TERM 2~3 YEARS
IMPLEMENTATIONIMPLEMENTATION MEDIUM-TERM 5~6 YEARS • IMPLEMENT BIOFUEL AT GAS STATIONS • ANALYZE NET POSITIVE CASH FLOWS • OPEN UP NEW FACILITIES • INCREASE BRAND RECOGNITION • EUROPEAN EXPANSION
IMPLEMENTATIONIMPLEMENTATION LONG-TERM 8~10+ YEARS • PROMOTE GREEN ENERGY/MOVEMENT • SPONSORSHIP • DOMINANCE IN THE US
CONCLUSION OUTCOMES RECOMMENDED SOLUTION ALTERNATIVES PROBLEM
THANK YOU. DO YOU HAVE ANY QUESTIONS?

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Bunge

  • 1. FOOD, FUEL & WORLD MARKETS
  • 3. PROBLEM STATEMENT “Given the volatility of the global petroleum market and increased awareness to environmentally friendly options, how does bunge position its operations to remain competitive?”
  • 4. CURRENT STRATEGY Global Agribusiness Bunge’s strategy rests on its newly founded Bunge Global Agribusiness divisions whose focus is on vertically integrated operations improving value by linking different regional and international markets together.
  • 5. CORE COMPETENCIES • A decentralized network of distinct regional offices • A vertically integrated value chain, allowing for economies of scale. • Most recognized fertilizer brand on the market with a 26% market share.
  • 6. INTERNAL ANALYSIS STRENGTHS WEAKNESSES • Experience within the industry • Strong risk mgmt • Economies of scale & scope • Localization adaptation • No Global Brand Image, • Only entralized in Brazil • Too much capital in inventory during transport • Shareholders have a LT mandate
  • 9. VALUE CHAIN INBOUND LOGISTICS Farmers Use Fertilizer To Grow Crops OPERATIONS Sell Crops To Elevators DISTRIBUTION Loaded & Exported OUTBOUND LOGISTICS Oil Is Extracted SALES Buy Bottled Oils SERVICE Seeds Can Be Converted Into Biofuels SUPPORT Financial Report, IT, Fiscal Department
  • 11. • World population growth of 1.35% per year • World per capita income growth of 1.4% per year • Increasing demand for soybean meal due to higher income population EXTERNAL ANALYSIS
  • 12. • Cheap and big quantity of corn tortillas in Mexico • Soybeans popular in China • Demand for soybean and vegetable oil has risen at 5% per year, especially in Asia. EXTERNAL ANALYSIS
  • 13. • Concerns for the extent and durability of government subsidies • Lower import duties on edible oils in India • Restriction policies in China • Pro-alcohol policy contribution to Brazil EXTERNAL ANALYSIS
  • 14. • Volatility and uncertainty of crop prices • Petroleum fuel’s volatility • Large investments increasing in energy markets • Indonesia and Malaysia produce 80% of world’s palm oil and has the lowest production costs EXTERNAL ANALYSIS
  • 15. EXTERNAL ANALYSIS • Reduced production yields of sugarcane plantation due to poor weather in Brazil • Climate, soil conditions, and farming practices affect productivity and feedstock costs • Greenhouse-gas savings in sugarcane- based ethanol
  • 16. • Experimental stage of second biofuels such as cellulosic ethanol EXTERNAL ANALYSIS
  • 17. • Bunge’s major regions for corn exports are in North and South America and some in Europe • Their net sales to external customers are ranked highest in Europe and US • Middle East conflicts affect the global oil supply • EU-wide mandate of 5.75% biofuels inclusion EXTERNAL ANALYSIS
  • 18. PORTER’S FIVE FORCES MODEL POWER OF BUYERS POWER OF SUPPLIERS SUBSTITUTES THREAT OF NEW ENTRANTS RIVALRY LOW LOW/ MODERATE MODERATE HIGH MODERATE
  • 20. FINANCIALS In Millions Agribusiness Fertilizer Food Products 2006 2005 2004 2006 2005 2004 2006 2005 2004 Net Sales 19,106 17,459 17,977 2,602 2,674 2,581 4,566 4,244 4,676 Operating Profits 86 275 358 202 81 372 155 100 120 Operating Margin 0.45% 1.58% 2% 7.76% 3.03% 14.41 % 3.39% 2.36% 2.57% % of Total Net Sales 72.72 % 71.62 % 71.24 % 9.90% 10.97 % 10.23 % 17.38 % 17.41 % 18.53 % % of Total Operating Profits 19.41 % 60.31 % 42.12 % 45.60% 17.76 % 43.76 % 34.99 % 21.93 % 14.12 % Total Assets 8,339 5,867 5510 2,979 2,774 2,428 2,022 2,070 2,020 Assets Turnovers 2.29 2.98 3.26 0.87 0.96 1.06 2.26 2.05 2.31 Return on Assets 1.03% 4.69% 6.50% 6.78% 2.92% 15.32 % 7.67% 4.83% 5.94% Capital Expenditure 285 267 211 106 135 158 112 120 68 Capital expenditure to sales ratio 1.49 1.53 1.17 4.07 5.05 6.12 2.45 2.83 1.45
  • 21. ALTERNATIVE: OUTSOURCING SCOPE OUTSOURCE USING GLOBAL FREIGHT SERVICE PROS CONS • INCREASE IN PROFIT MARGINS • REDUCE RISK • CUSTOMER LOYALTY • INCREASING POPULATION • MORE CENTRALIZED STRATEGY • HIGH BARGAINING POWER OF SUPPLIERS • NOT VERTICALLY INTEGRATED • NOT DECENTRALIZED (CORE COMPETENCY) • ELIMINATE OPPORTUNITY FOR BIODIESEL
  • 22. ALTERNATIVE: OUTSOURCING COST/BENEFIT ANALYSIS • Outsourcing will mean an increase in Freight supply agreements • Outsource storage facilities, transportation equipment and office facilities • Economies of scale on the increase of business resulting in additional Supply agreements of $150Million per year. (35% of current Supply agreements) • Initial cash inflow from the sale of transportation division ($614Million).
  • 23. ALTERNATIVE: BIOFUEL SCOPE PROS CONS ACQUIRE ENERGY FOCUSED SMALL TO MEDIUM FIRMS IN USA & BRAZIL • LOW PRODUCTION COSTS IN BRAZIL • TAX CREDITS FOR PRODUCING IN USA • ENVIRONMENTALLY FRIENDLY INDUSTRY GROWTH • HIGH DEMAND • LACK EXPERIENCE • INCREASING COMPETITION • EXPENSIVE AND RISKY • NEGATIVE IMPACT ON BUNGE BRAND
  • 24. ALTERNATIVE: BIOFUEL COST/BENEFIT ANALYSIS BENEFIT FROM INCREASING DEMANDS OF BIOFUEL : • EU 4 BILLION GALLONS OF BIOFUEL BY 2010 • USA 35 BILLION GALLONS BY 2017 • INVESTMENT IN ETHANOL PLANT AND PRODUCTION COSTS = 234.29 MILLION TO PRODUCE 43.4 MILLION GALLON OF ETHANOL IN BRAZIL (PER YEAR/PLANT)
  • 25. ALTERNATIVE: GO ASIA SCOPE PROS CONS COOPERATIVE ALLIANCE WITH LOCALS • CAPTURE INCREASING DEMAND IN FOOD PRODUCTS (I.E. INDIA) • FIRST MOVERS ADVANTAGE • HIGHER ECONOMIES OF SCALE • POTENTIAL INCREASE IN MARKET SHARE • LOWER PRODUCTION COSTS • EXPENSIVE • EXISTING COMPETITORS • GOVERNMENT REGULATIONS (I.E. CHINA) • LACKING INFRASTRUCTURE
  • 26. ALTERNATIVE: GO ASIA COST/BENEFIT ANALYSIS BUNGE WILL HAVE TO GO DOWN ITS VALUE CHAIN BUYING LANDS AND PLANTING THESE LANDS BY GOING INTO ASIA, BUNGE WILL BE ABLE TO CUTTING FREIGHT COSTS IN HALF IN COMPARISON TO BRAZIL BUT WITH LOW COSTS OF PRODUCTIONS JUST LIKE BRAZIL.
  • 29. • ACQUIRING ENERGY COMPANIES • RESTRUCTURING THE ACQUISITIONS • AQUIRING LOANS • OPEN NEW FACILITIES AND PLANTS IN USA IMPLEMENTATIONIMPLEMENTATION SHORT-TERM 2~3 YEARS
  • 30. IMPLEMENTATIONIMPLEMENTATION MEDIUM-TERM 5~6 YEARS • IMPLEMENT BIOFUEL AT GAS STATIONS • ANALYZE NET POSITIVE CASH FLOWS • OPEN UP NEW FACILITIES • INCREASE BRAND RECOGNITION • EUROPEAN EXPANSION
  • 31. IMPLEMENTATIONIMPLEMENTATION LONG-TERM 8~10+ YEARS • PROMOTE GREEN ENERGY/MOVEMENT • SPONSORSHIP • DOMINANCE IN THE US
  • 33. THANK YOU. DO YOU HAVE ANY QUESTIONS?