Based on the 2011 financial report, the EBIT/ Total Revenues ratio equaled to 0,0095, indicating very low profitability. VION seems to struggle keeping earnings at a good level, as factors of its micro environment contribute to high expenses high and low profit margins at the same time. CASE STUDY: New Challenges
Threat of new entrants in the industry: Medium
VION mainly focuses on the European market. Even though the GDP is falling in the Euro area and EU27 by 0.5% and 0.3% respectively (Eurostat 2011) , the 711 million consumers market (Eurostat 2011) is still an attractive area for foreign firms to invest in. Barriers of entrance and also regulation increase difficulty and cost of entrance and operation. European regulation is particularly strict on animal welfare, food safety as well environmental friendliness of operations. The deteriorated use of antibiotics, growth hormones and clean livestock feed increase cost of animal breading and meat production. In addition, new firms face high investment costs as bank institutions and investors perceive meat market as a risky business and require increased interest rates and dividends. VION has adjusted to the regulatory environment, is operating with economies of scale and has reliable distribution channels, factors that postulate a completive advantage over any new entrant which can be also mirrored on the costs. Bargaining Power of suppliers: High
ZLTO and VION are two separate economic entities sharing common interests and profits. As ZLTO’s farmers sell their meat in the free market, rival firms can also purchase from this source, which enforces the power of meat producers. Since VION is not vertically integrated to meat agriculture level, ZLTO takes advantage of its power, as in 2011 despite the 7% increase in turnover, the operating results dropped down to 53% .There is high cost involved in case of VION decides to switch to alternative suppliers, since NCB is the only shareholder and will not allow...
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