tyson foods
DESCRIPTION
this report is based on the secondary market researchTRANSCRIPT
EXTERNAL ANALYSIS FOR TYSON FOODS
Introduction
Tyson Foods Inc. is an American based company which has its speciality in the meat
offerings like value added chicken, and red meat including beef and pork. The company makes
its product offering to the retailers, food service distributiors, returants, and national fast food
and full service restaurant chains (one source, 2011). Among the largest food processors in USA,
it holds second postion where Brazilian JBS S.A is listed at number one. The business operation
of the company are of wide nature which includes contract growing, chicken raising, feed
production, food processing etc. Tyson has also operations in the poultry business. The company
is having a joint venture with the companies from China for its poultry division (one source,
2011).
According to Forbes (2010), Tyson is one of the largest companies in the world which is
enaged in the meat production and processing. Moreover the company is listed in the top
hundred companies of Fortune list. Tyson Foods is currently listed at number 87 in the Fortune
1000 companies list (one source, 2011). As of 2010, it employed over one hundred thousand
employees in its manufacturing units aout of which over ninety thousand employees were
employed in the United States and more than fifteen thousand employees were in foreign
countries, primarily China, Mexico and Brazil. The company has over six thousand contract
chicken growers currently working (Tyson, 2010).
SWOT Analysis
SWOT Matrix
The SWOT analysis of Tyson Foods is as follows:
Strengths Brand equity Strong management
Weaknesses
Legal procedings
Diverse portfolio Weak profitability
Opportunities
Expansion High demand for organic products Acquisitions
Threats
Competition Economic slowdown Product substitution
Strengths
It is the one of the largest meat processing companies in the world (Forbes, 2010). The
company enjoys unique market position. This strong market position is due to the number of
brands it is offering in the market. The company enjoys diverse portfolio of products and mainly
covers four broad divisions: chicken, prepared food, beef and pork. The management at Tyson
Foods holds strong position and is the key of its success in the markets. The company has
employed vertical integration to all of its business units especially in its poultry production
division (Tyson, 2011)
Weaknesses
Tyson Foods have been the victim of various legal provisions against it. Among them are
the broiler room size issues, lawsuits for water and air pollution, ammonia discharge and
phosphorus pollution related issues, and discrimination cases for the African American
employees. It has paid large sums of money for the settlement of the cases. Together these and
all other operating costs and the costs of doing business impact its business operations in terms
of profitability, revenue and the sales (USSEC, 2010).
Opportunities
The company can expand its business operations to the other regions of the country as
well as around the world. The developing markets of Asia represents certain level of charm to
the large number of companies in terms of high profit returns and increased market shares. In
August 2009, the company completed the establishment of important joint ventures in China
referred to as Shandong Tyson Xinchang Foods. The average purchase price for the sixty per
cent equity interest was over twenty million US dollars, which excludes more than ninety million
US dollars used for cash transfer to the joint venture for future capital needs.
Moreover, In October 2008, the company acquired three vertically integrated poultry
companies in southern Brazil (Tyson, 2010). These strategic acquisitions have profound impact
on the business and the revenue of the company. The company can utilize the resources from
these acquisitions to master the production of fresh and organic products in order to satisfy the
large number of customers across borders.
Threats
Tyson is facing three main external threats that can negatively affect the profitability and
the sales of the company. Among them is the level of competition faced by the company in the
markets. Tyson faces stiff competition with its counterparts who are trying hard to win the
markets by their strategic choices and their applications. Its main competitors in the local
markets are Cargill, Incorporated, Pilgrim's Pride Corporation and Smithfield Foods, Inc.
respectively. The economic downturn is another problem faced by all the companies in the
markets. The US government has predicted that the economic slump will continue to the coming
years. In order to successfully deal with the economic downturn, patience and effective strategies
are required. These economic conditions have severely disturbed the confidence level of buyers
and they have almost retrieved from buying expensive products (Hitt, 2009). If these situations
continue to prevail then the likelihood of Tyson’s weak profit ratios will increase dramatically.
The increasing prices of products especially meat can lead people to shift their food choices to
vegetables. The people are less able to buy meat and other related items due to their inability to
purchase. This can lead to the big problem for Tyson Foods Company.
PESTEL Analysis
The PESTEL analysis contains the analysis of Political, Economic, Social, Technological,
Environmental and Legal environments of a country with reference to a particular object. The
PESTEL analysis of Tyson Foods is as follows:
Political
Tyson Foods after Wal-Mart is the biggest contributor to the political members of the
state in the Northern Arkansas. They have given donations through their political action
committees to the various members of congress to support them (Arkansas News, 2004). Its
representatives impact the public policy by direct interaction with the policy makers by
participation on industry committees and advisory boards (Tyson Foods, 2011). When taking
part in the policy development, Tyson’s priority issues (Tyson Foods, 2011) include the
following:
Balanced food and fuel policies: to support the development and use of renewable
fuels in order to reduce the dependence on oil.
Immigration Reform: it includes the comprehensive monitoring of immigration
reform to keep the track of legal and illegal immigrants.
Ensuring Food Safety: the company believes in commitment in working with the
federal government to ensure the safest possible food supply to the consumer in
the United States and around the world.
International Trade: it exports protein to more than 90 countries and their business
relies on a rules-based trading system that ensures fair market access for all
participants.
Tyson Foods has developed at TYPAC committee called the Tyson Political Action
Committee (TYPAC) which aims to develop and maintain relations with the elected officials
relating to their industry and company. These officials understand the business operations of
Tyson foods and help them provide more than hundred thousand jobs. Moreover, Tyson Foods
is the member of various industry groups and associations and works with them for representing
the industry and business community in discussions with the governmental agencies (Tyson
Foods, 2011).
Economic
According to the Tyson Foods US SEC Filings, its business is affected by the market
conditions of USA. They are using derivative financial instruments to reduce the effects of
exposure to market risks like changing commodity prices, interest rates and foreign exchange
rates etc. Their business is adversely affected by these economic changes and the effects of
governmental initiatives to manage economic conditions. If such conditions continued to prevail
in the long run then, any such changes could adversely affect the demand for products, or the
cost and availability of needed raw materials, cooking ingredients and packaging materials,
thereby negatively affecting the financial results (USSEC, 2010). Most of the business of Tyson
Foods is directed in the states of United States of America. Despite the economic conditions of
United States, the company is trying hard to position itself in the market to deal with the
economic downturn. The CEO of the company spoke to the press release that the company is
well versed to handle challenging economic conditions. He further claimed that “the company's
strong balance sheet, focus on execution and recent operational improvements have allowed the
company to compete effectively, even in the face of rising input costs” (Reuters, 2011; Meat
Trade News Daily, 2011).
Social
The food industry witnesses changing consumer trends, their demands and preferences.
These trends often chain and the failure to adapt and react to the changes can lead to reduced
demand and price reductions for the products which could have adverse effect on the financial
results of the companies. The company can suffer significant setbacks in terms of its sales and
the profits if the consumers plan changes or the market trends change significantly. Moreover, its
profits will fluctuate greatly if it lost one or more of its largest customers, including, for example,
Wal-Mart Stores, Inc., which accounted for around fifteen per cent of the sales in fiscal 2010
(USSEC, 2010).
In order to keep competitive in the markets, Tyson foods is engaged in various social
activities in the states it operates in. It strives to create value for the shareholders, customers, its
people and the communities it operates in. Its main philanthropic focus is on hunger relief, and
has become the leading private sector meat protein donor in the United States, providing over
nine million pounds of products to food banks and hunger relief organizations (Tyson Foods,
2011). It is also engaged in various other activities to promote the living standards of the people.
These activities include promoting education by Project A+, Strategic Community Involvement
Plans, Donations and Community Outreach, Volunteering for the disaster relief activities (Tyson
Foods, 2011).
Technological
Technology plays significant role in the food industry. If we look at the firms that are
highly profitable and market leaders, we’ll find out their competitive advantage is in
technological advancements. Tyson foods always have been a leader in food production
technology. In 2008, Tyson foods with the help of SecureNet, Inc., introduced a leading way in
security and access technology. By integrating SecureNet system it reached the security solutions
for both physical and logical assets, designed and installed a new multi-technology ID system.
This system allows the company to control the physical access to their processing sites. It
integrates technologies from Open Options software, Fargo card printer/encoders and HID cards
(SecureNet, 2008).
According to the US SEC Filings, the company is in search of different ways to
commercialize animal fats and other by-products from the operations, as well as the poultry
waste of their contract growers, to produce energy and other value-added products (USSEC,
2010). It has developed R&D department where the team of people are trying to enhance their
ability to develop new food solutions and bring them to market faster. This R&D department
includes Research Kitchen, USDA-Inspected Pilot Plant and Consumer Center. These three main
departments ensure the safe and healthy products from Tyson Foods in the markets (Tyson
Foods, 2011).
Environmental
According to Tyson Foods Environmental Policy, “Environmental stewardship is a core
value of Tyson Foods’ business philosophy because they believe protecting natural resources is
essential to achieving clean air, water, and land for our world.”(Tyson Foods, 2011).The
company is engaged in various environmental saving activities to limit the impact of its
operations on the environment, land, water and air in the areas of its operations. It has installed
various programs like continual environment efforts- Management Systems. These systems are
used to implement an environmental management system (EMS) at all of domestic processing
facilities.
Apart from EMS system, the company is working hard to enhance the natural farming
techniques of its collaborating farmers along with the initiatives to reduce the carbon dioxide,
ammonia reduction from its operations and the water saving techniques it is trying to implement
throughout its operations (Tyson Foods, 2011).
Legal
The operations of the company are subject to various rules, regulations, laws imposed by
the local and international governments based on the food production, safety, manufacturing,
packaging etc. of products. The company business units where the integrated processes related to
the business are conducted are also subject various laws relating to the protection of the
environment, including discharge of materials into the environment, health and safety issues of
employees (USSEC, 2010).
There are various incidences of law suits against the company in the history of Tyson
Foods. Among them are broiler farm related issues, environmental safety related legal actions,
employing undocumented immigrants, slaughtering methods, undisclosed use of antibiotics,
discriminating employees, and various others. These law suits and legal correspondences can
have adverse effects on the business practices of the company in long run. If the court decides to
go against the company then this will impair the Goodwill of the company and its brand image in
the markets (USSEC, 2010).
Porter’s Five Forces Analysis
Rivalry among established competitions
Tyson Foods specializes in the food distribution network that deals in business to
business ventures only. Many businesses use it as their primary distributor. It faces the threat of
rivalry from all the distributors nationwide. Some of its counterparts includes: Cargill,
Incorporated, Pilgrim's Pride Corporation and Smithfield Foods, Inc. All of these companies
offer a wide array of food products that can be delivered to a business. In order to be the most
successful company, it has to be able to differentiate its brand from the other companies and
develop unique selling point that offers the advantages of choosing their products over the
competition. The extent of rivalry among the existing competitors in the food industry is very
high.
Bargaining power of suppliers
The bargaining power of suppliers in the case of food industry is low. Tyson is a supplier
of meat products to the other businesses which gives it a position to maintain power over their
buyers. It has the power and position to impact the profitability of its clients by increasing or
decreasing the prices of its products. There are large numbers of food suppliers in the industry.
This quickly lower down the amount of power suppliers have over Tyson as it allows Tyson to
move between suppliers who provide the best products, service and prices. The suppliers do have
power in some areas, but Tyson is such a large company, with so many resources that limits the
power of suppliers.
The bargaining power of buyers
These food retailer companies are at the mercy of their customers. This industry
established its own market prices. As the economic crunch continues to less spending behavior,
the conscious and cautious buyers are hedging toward an economical solution that will please
their bottom line. Tyson works with over six thousand contract chicken growers (Forbes,
2010).The customer may ask for a lower price or may even ask for a special delivery of certain
products. Quiet often, if the customer requirements are not met at right time then there are
chances for the company to lose its valuable customers as the cost of switching is very low.
The threat of substitute products or services
The threat of substitute products is high in the case of food industry. Many large
companies are dependent on the food distributors like Tyson to distribute their products in the
markets. Many suppliers in this industry understand and recognize the crucial needs of their
supply chain partners to deliver goods and services to their customers. The wholesale food
distributors used to only be responsible for wholesaling and distributing activities. However, in
today’s time distributors are playing a new role by valuing their suppliers by creating opportunity
for profit gain, improving customer relationship, and improving productivity with the
distribution channels.
The threat of the entry of new competitors
The industry imposes certain barriers to the entry of the new companies in the markets.
This means that the level of threat of new entrants is relatively low in the industry. There are
varying reasons to the low rate of entry. Among them is the entry barriers imposed by the
industry. The new entrants will have to comply with the governmental regulations in order to
make their entry in the markets. Then the existing players are protected by the number of barriers
which makes it difficult for the new entrants to give hard time to them. Among them are: entry
restrictions, tariff rates, high capital requirement, distribution channels etc. These barriers limit
them to compete against the existing market players.
Recommendations
This study provided brief overview on the external environment analysis of Tyson Foods.
The findings of the study suggested that Tyson Foods should focus on the following factors in
order to excel its business and social image in the world:
1. The company is advised to remove the frills that are driving the profitability of the
company. The opportunity costs must be minimized in order to obtain maximum
profit.
2. Tyson foods can expand its business operations in other regions of the country and
world. The developing markets possess great opportunities of growth for the
company.
3. Make sure all of its products qualify the requirements of various local and
international food requirements in order to acquire large number of customers
worldwide.
4. Improve the social and corporate linkages in order to create recall and recognition
among the existing and potential customers.
References
Arkansas News, (2004) Wal-Mart, Tyson Foods open campaign wallets, Retrieved on June 30, 2011 from http://arkansasnews.com/2004/10/30/wal-mart-tyson-foods-open-campaign-wallets/
Fortune, (2010) America’s largest Corporations, Fortune 500, Retrieved on June 28, 2011 from http://money.cnn.com/magazines/fortune/fortune500/2010/states/TX.html
Meat Trade News Daily, (2011) USA Press Release: Tyson Foods Inc., Retrieved on June 30, 2011 from http://www.meattradenewsdaily.co.uk/news/170511/usa___press_release_source_tyson_foods_inc.aspx
One Source, (2011) Fortune 1000 companies list, Retrieved on June 29, 2011 from http://www.onesource.com/free/Company/FortuneList/Fortune/0
(2011) Tyson Foods, Retrieved on June 29, 2011 from http://www.onesource.com/free/Tyson-Foods-Inc/Company/Profile/28940
PAC Summary Data, (2008) Tyson Foods, Retrieved on June 30, 2011 from http://www.opensecrets.org/pacs/lookup2.php?strID=C00169821
Reuters, (2011) Tyson Foods Positioned for Continuous Success, Retrieved on June 30, 2011 from http://www.reuters.com/article/2011/03/10/idUS186824+10-Mar-2011+GNW20110310
SecureNet, (2008) Team Member ID Management System Saves Tyson Foods Time and Money, Retrieved on June 30, 2011 from http://www.securenetinc.com/news/articles/SecureNet_TysonFoods.pdf
Tyson Foods, (2010) Form 10-k, Annual Report, Retrieved on June 29, 2011 from http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDA3ODk3fENoaWxkSUQ9NDE3NDE4fFR5cGU9MQ==&t=1
(2010) Acquisitions, Annual Report, Retrieved on June 29, 2011 from http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDA3ODk3fENoaWxkSUQ9NDE3NDE4fFR5cGU9MQ==&t=1
(2011) Charitable Giving, Retrieved on June 30, 2011 from http://www.tysonfoods.com/Sustainability/2010/People/3_5.aspx
(2011) Environment, Retrieved on June 30, 2011 from http://www.tyson.com/Consumer/AboutTyson/TysonCares/Environment.aspx
(2011) Product Research and Development, Retrieved on June 30, 2011 from http://www.tysonfoods.com/Sustainability/2010/Products/5_3.aspx
(2011) Public Policy and Political Contributions, Retrieved on June 30, 2011 from http://www.tysonfoods.com/Sustainability/2010/Profits/6_7.aspx
USSEC, (2010) Tyson Foods, Form-10k, Retrieved on June 30, 2011 from http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDA3ODk3fENoaWxkSUQ9NDE3NDE4fFR5cGU9MQ==&t=1
(2010) Domestic and international government regulations could impose material costs, Retrieved on June 30, 2011 fromhttp://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDA3ODk3fENoaWxkSUQ9NDE3NDE4fFR5cGU9MQ==&t=1
(2010) Legal Proceedings, Retrieved on June 30, 2011 fromhttp://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDA3ODk3fENoaWxkSUQ9NDE3NDE4fFR5cGU9MQ==&t=1
(2010) Risk Factors, Annual Report, Retrieved on June 30, 2011 from http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDA3ODk3fENoaWxkSUQ9NDE3NDE4fFR5cGU9MQ==&t=1