Lauren Brady, Sylbia Choi, Pooja Doshi, Eliana Ritts, Margaret Rodriguez MGMT-101-213, Team 2
April 27, 2010
The Hershey Company
Recent trends toward globalization have revolutionized the confectionary industry. Although Hershey’s has traditionally focused on the American domestic market, it has recently attempted to diversify into international markets. However, these attempts have been largely unsuccessful, and Hershey’s global market share has decreased over the past five years. Hershey’s failure to expand internationally stems from two misfits. Hershey faces an external misfit between its business-level strategy of differentiation using American core values and changes in the global environment, as well as an internal misfit between its corporate-level strategy of international expansion and its formal organization. To resolve these issues, Hershey’s must align itself to meet the desires of its new customer base, while simultaneously uniting all members of its company. History
In 1894, Milton Hershey created The Hershey Company (Hershey’s) in Lancaster, Pennsylvania, beginning a revolution within the chocolate industry. Hershey’s soon mass- produced its chocolate, and in 1947 it produced 90% of the nation’s milk chocolate (Brenner). Following the success of his business, Milton Hershey turned his attention to charitable causes by establishing the Milton Hershey School, which provided free housing, medical care, and education to children in need. Moreover, he gave the majority of voting power within the Company to the Milton Hershey School Trust (Klick). Hershey continued to dominate the U.S. market in the twentieth century by leveraging on its strong American brand image. As the domestic market matured, however, Hershey’s was pressured to expand globally to remain competitive. The following analysis details Hershey’s subsequent problems and presents recommendations for moving forward. Hershey’s Reasons for Global Expansion and Current Challenges Recent changes in the general and competitive environments have decreased the attractiveness of the domestic confectionary market, and have motivated Hershey to adopt a corporate-level strategy of global expansion. An analysis of the industry life cycle indicates that the domestic confectionary market is in the mature stage of the industry life cycle. With a low growth-rate of only 3.2% and intense competition from a saturated market, firms are focusing on maintaining its market share by focusing on marketing and leveraging brand image CITATION Suz09 \l 1033 (Kapner). In addition, firms are focusing on process design; Hershey specifically employed the Global Supply Transformation Process to make production more efficient CITATION The07 \l 1033 (The Hershey Company). In addition to this, a Porter’s Five Forces analysis indicates that the confectionary market is an unattractive industry (See Exhibit 1). Historically, Hershey’s has been successful in such an unattractive environment due to their differentiation strategy that focused on the American brand and taste preferences. However, given the mature stage of the industry life cycle, this strategy has not produced the same results as it has in the past, and therefore Hershey has chosen to expand internationally to ensure future success. Over the past ten years, Hershey has acknowledged the importance of international expansion through a series of international joint ventures. However, Hershey has been unsuccessful in these attempts, and from 2005 to 2008 Hershey’s global market share decreased from 5.5 to 4.6 percent (Associated Press). Hershey’s failure to acquire Cadbury acquisition also reflects a failure to enter into the global markets on a large scale. These problems stem from external and internal misfits. External Misfit: Business-level Strategy vs. General and Competitive Environment Hershey’s external misfit stems from changes in the general and competitive environments and its...
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