Cpw Cereal Case Study

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Question 1: How can General Mills (GM) and Nestle create international competitiveness by joining forces in CPW?

The CPW joint venture brings to both of the companies an advantage and increased international competitiveness by profiting from the core competences of each other.

GM is the second-largest cereal manufacturer in North America. It has technological and marketing expertise gained over more than 80 years of breakfast cereal market. GM is globally active with its products but they are very well known and strong in their home market. In 2006 only 16% of total sales came from outside of USA. This shows us that the heavy domestic dependence esp. in cereal market is very problematic for GM.

In this joint venture, GM brings the expertise and competence of upstream, including production and R&D. The joint venture will profit a lot from the core competence of GM in upstream of the value chain.

On the other side, the other partner of joint venture Nestle is the world’s largest global food and beverage company in terms of sale. The company is located in Europe acting on global basis. It has a very large product portfolio and a very wide spread sales & marketing organization worldwide with 406 subsidiaries. CPW can profit a lot from the wide marketing & sales expertise and distribution network of Nestle. In this case, the core competence of Nestle in downstream of the value chain contributes to the joint venture. The worldwide positive brand image of Nestle and esp. in Europe, its sales & marketing competence gives CPW a very good advantage to market cereals under Nestle brand name outside of USA.

By this joint venture both companies profit as GM is able to use the excellent sales & distribution network of Nestle and can concentrate on upstream and its own home market sales. In this way they may optimise their costs by economies of scale and also diverse their sales globally reducing the domestic dependence. They have access to the other markets without investing on sales & and marketing expertise. On the other hand Nestle having a big range of product is able to profit from the production and R&D competence of GM on cereals. It makes sense for a giant like Nestle to co-operate with a producer whose core business and competence is cereal production so that they profit from this expertise but sell worldwide cereal under their brand name.

Question 2: Evaluate the international competitiveness of CPW compared to Kellog Company.

Kellog Company (KC) is the world’s leading cereal producer. Their core business is ready-to-eat cereal production. They have historically started internationalization very early in 1914 and established a very strong brand globally. They have also concentrated their core competences in this business. Kellog is market leader in the most important and biggest markets like North America (home market), UK, Australia and Germany (largest market in Europe). KC has concentrated more in major markets and countries where they established a strong presence through their established brands. When we would like to compare the international competitiveness of CPW and KC, I think that the value chain of KC has some advantages compared to CPW. - Timing advantage : internationalization of KC was very early and has achieved a strong brand in major markets. This is an advantage for relative costs compared to CPW. - Due to this, the brand is ( probably) more well known and the perceived value could higher than CPW - Due to the economies of scale & timing advantages, I would expect that the relative cost of KC is better than CPW as the sales in volume is much higher because of the high market share in major markets esp. in North America.

I think that the major advantage of CPW compared to KC international competitiveness is their market leadership in smaller but emerging markets like Eastern Europe, Russia, China. In this case, the timing advantage is probably on behalf of GM as they...
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