Business Organizations and Environments in a Global Context

Cargill Canada Limited

Introduction

Cargill Limited is a leading merchandiser and processor in Canada. It deals with processing of meat, eggs, malt as well oilseed (Cargill Canada Limited, 2017). Also, the company manufactures livestock feed, and it is involved in the retail of crop input product and handling grain. The business distributes its products to an array of clients. The company should expand its egg and breakfast sector in Canada. The egg market in Canada is split into two. There are the processed eggs and table eggs. In 2016, the table egg market held 73% of the Canadian market. The processed egg market, on the other hand, represented 27% of the market (Canadian Poultry & Egg Processors Council, 2017). Research shows that the Canadian egg production market has increased by 4.4% (Egg production on the rise, 2017). The producers in the industry produced 64.5 million dozen of eggs since May 2016 to May 2017. In this case, it is obvious that the sector is growing which offers Cargill Canada Limited an excellent opportunity to expand its production of egg and breakfast products.

Background

W.W. Cargill founded Cargill Company; he focused on assisting farmers in enhancing their production and linking markets. Additionally, the founder of the company aimed at offering the consumers enhanced products. Cargill Company has been in existence for more than 150 years (Cargill, 2017). The company has continued to grow its operations in various parts of the world. The founder of the company believed in exploring new opportunities. Cargill provides various services ranging from the production of eggs and breakfast products, livestock feed and it is involved in the retail of crop input product and handling grain. Although the company is considered as one of the leading merchandiser and processor, it has gone through a financial crisis in the past. In 1908, the company decided to expand its operations to include ranching and land development among other projects (Cargill, 2017). However, the new project was not profitable thus putting a financial strain on the organization. In 1909, the company found itself in more financial constraints following the death of its founder. The new management had to find ways of clearing its debts. They sold a portion of Sawyer and Austin Lumber Company to raise funds. Nevertheless, the company was able to recover after the fluctuation of grain prices all over the world due to war in Europe.

Later, in 1928, Cargill Grain Company Limited expanded its operations into the Canadian market (Cargill, 2017). It was the first investment outside the United States. It is a privately owned organization. Cargill Canada has its head office in Winnipeg, and it has a workforce exceeding 8,000 employees (Cargill Limited, 2017). It focuses on being a world leader in nourishing people. It ensures that workers are satisfied and feel that they are part of the organization. They are highly engaged, and they are encouraged to take risks. The company’s management allows the workers to work in close collaboration with the clients and give back to the community.

Cargill Canada Limited deals with the production of food products. Therefore, it has maintained food safety systems that are based on international standards (Cargill Limited, 2017). Safe food is significant to the company’s success, nevertheless, due to its global scope and diversity, it is met with various challenges. The food safety systems take a preventive approach that deals with biological, chemical and physical hazards. It follows enhanced hygiene protocols, clear management responsibilities as well as HACCP.

In turn, Cargill has continued to report strong financials. The results of the year ended May 31, 2017, showed that the company has been performing positively. The revenue raised by 2% to $109.7 billion (Cargill, 2017). Also, the cash flow from its operations increased by 38% to $4.69 billion. It increased its earnings across all its business sectors in the fiscal year ended. Animal nutrition and protein played a huge part in the growth in the company’s earning. Another huge contributor was food ingredients and application which was the second biggest contributor to earnings.  It recorded positive outcome across the international ingredient portfolios in cocoa and corn and wheat based products. The sector concentrated on strengthening its operating efficiencies and financial abilities. Cargill limited introduced modernized deployment of sales, marketing as well as technical resources to enhance their customer services.  The origination and processing sector also recorded profit which led to an increase of its revenue.

Background to business environment

Cargill Canada Limited concentrates on developing distinctive value within the organization to influence success. It differentiates itself from its competitors and develops strong customer relations (Cargill Limited, 2017). Cargill limited adopts innovative approaches and delivers a consistent high performance which ensures that they provide unique services. The management also recognizes its employees. They make sure they feel proud to be part of that company that maintains the great integrity and a strong sense of purpose. Moreover, the management understands that clients want to associate with a business that fulfills its promises. The community supports the organization’s contribution to the quality of life. Another major contributor to its enhanced collaboration with the employees is its support of integrity. They ensure that all the clients are dealt with integrity and responsibility. Cargill also believes that the clients should be served with integrity as well as the suppliers that they rely on and community that they live. The company challenges its workers to take risks and work with the clients. The employees are also encouraged to give back to the community.

There are various rules that all organizations should follow in Canada. Cargill Canada needs to meet certain regulations and standards to remain compliant and to enhance their efficiency as well as the credibility of its operations. The expansion of the Cargill egg and breakfast products sector requires the company to focus on the health and safety regulations. The Canada Consumer Product Safety Act requires all the organizations that deal with manufacture, import, and sell products to make sure that they are safe. Companies such as Cargill are required to supply products that safe and labeled correctly (Health Canada, 2016). The act also states that organizations need to keep a record of purchases and sales to make it easy for them to trace the source of unsafe products. If by chance a company purchases hazardous products it should report to the necessary authority. In this case, Cargill Canada needs to consider the act as it expands its operations. The company also needs to follow stipulations laid down by the Food Inspection Agency in the country. There is a law linked to Canada Agricultural Products that contains egg rules.

First, the guidelines stipulate that a company can only import, export or sell eggs if they are prepared following the regulations. The eggs should not contaminate, and they need to be edible (Legislative Services Branch, 2017). Cargill Canada should ensure that the egg and breakfast product meet the requirement set by Food and Drugs law as well as Food and Drug Guidelines.  For a company to operate in Canada, it must have various licenses and permits from diverse government levels.

Canada recorded strong GDP growth in the initial quarter of 2017. It recorded 3.7% growth rate quarter-over-quarter (Evans, 2017). The total price of all goods and services sold in Canada increased by 0.9%. The GDP was influenced by the increase in investment in machinery and equipment. The household consumption raised by 1.1%. The population of Canada is at 36.6 million (Canada Population, 2017).

The main competitor in the egg and breakfast product market is McDonald’s. The company has launched all-day breakfast across Canada (Racco, 2017). They sell products such as scrambled egg wraps, oatmeal, and BLT bagels. The organization plans to transition to utilizing free-run eggs in its restaurants (Shaw, 2015). The company gets its supplies from farmers. They do not have specific suppliers. Some of the political factors that may affect the company include taxes. The political sector is not predictable for instance political instability.

Analytical approaches

PESTLE analysis

Political

The particular factors determine the government’s influence on the economy or market. For instance, the government may increase taxes or duty, Fiscal policy, and trade tariffs. This may affect the company’s revenue (Marmol et al., 2015). First, Canada is a federal jurisdiction it has ten provinces and three territories. The corporation tax rates include federal rates. Currently, the basic rate is 38% of your taxable income (Corporation tax rates, 2017). Companies that are controlled privately are demanding the small business deduction; the tax level is at 10.5%. Also, various trade barriers may affect the company’s operations. There are the technical regulations and standards that define a product’s characteristics (Canada – Trade BarriersCanada – Trade Barriers, 2017). For instance, the size and the function of the product. They also emphasize on the manner in which the product is labeled or packaged.  Cargill Canada needs to follow all the taxation guidelines.

Economic

The factors influence the performance of the economy that can have a direct impact on the organization. Such effects may have a long-term effect on the company’s performance (Marmol et al., 2015). For instance, the rise of inflation rate would affect the pricing of the company’s products as well as services. Interest rates are other factors that may have a direct impact on the organization. The Canadian financial markets have increased the interest rates. The Bank of Canada raised its interest rate to 0.75% (Wong, 2017). The particular hike was the first one in seven years. There were many expectations of the economic growth which influenced the increase in tax rates. The Bank of Canada expected the economic growth would be 2.8% in 2017. Hence, Cargill Canada Limited need to consider the rise of interest rates during its expansion.

Social

The factors assess the social environment of the market. They consider factors such as cultural trends, demographics, and population analytics among others (Marmol et al., 2015). For instance, the buying trends of people in Canada my affect Cargill’s operations.  The population of Canada is at 36.6 million (Canada Population, 2017). Research shows that there has been a growing interest in breakfast trends.  Most of the people in Canada take their breakfast at home more than other meals. They also get breakfast from food trucks; many people prefer ethnic flavors (Fernando, n.d.). The changing trends are presenting new opportunities for organizations that deal with processing food such as Cargill Canada Limited. People are spending less time making breakfast which means that they are more likely to take breakfast in a restaurant. They prefer taking readily to eat cereal for breakfast.

Technological

The factors involve technology that may influence the company’s operations (Marmol et al., 2015). The technology industry in Canada is fast growing. It is a major economic driver, and it is expected to continue growing. According to reports, the companies that deal with technology are projected to become significant influencers of GDP.  It includes 71,000 organizations operating in every part of Canada (Rodgers, 2016). People are also embracing technology; hence, companies are required to invest in technology to remain relevant in the market. The technology companies are investing in innovative research and development. Such measures are meant to change the Canadian market. Canada is ranked 22nd in innovation globally. Organizations are dedicated to researching economic trends and issues.

Legal factors

They include both external and internal laws that affect the company’s operations (Marmol et al., 2015). Every country has laws that affect its business environment. For example, Canada has different laws that affect businesses. There is the Canada Consumer Product Safety Act that requires all the organizations that deal with manufacture, import, and sell products to make sure that they are safe (Health Canada, 2016). The act also stipulates that organizations need to keep a record of purchases and sales to make it easy for them to trace the source of unsafe products. There is the Canada Agricultural Products Act that contains egg regulations. Organizations also need to consider Food and Drugs law as well as Food and Drug Principles.

Environmental

The surrounding environment determines the factors (Marmol et al., 2015). They are important for some of the organizations that deal with farming, and agriculture. They included climate, geographical location and the global changes in climate. Climate change is having a huge impact on the eco system as well as the economy (Impacts of climate change, 2017). Some areas experience extreme heat while others have cool weather. The climate change is expected to affect the water resources in various ways. Canada’s forests are also vulnerable to climate change. Such changes may have a direct or indirect impact on organizations.

Porters Model

Competition in the industry

An organization needs to understand the competitors in the market and how they affect its capability (Michaux et al., 2015). Currently, the number of the organization dealing with the production and selling of egg and breakfast products are few. The main competitor in the egg and breakfast product market is McDonald’s. The company has launched all-day breakfast across Canada (Racco, 2017). They sell products such as scrambled egg wraps, oatmeal, and BLT bagels. The organization plans to transition to utilizing free-run eggs in its restaurants (Shaw, 2015). Therefore, there is less competition in the industry. Large companies dominate the market, make it hard for others to invest.

Potential of new entrants

An organization is affected by new entrants in the industry. If there is less money required to start a business in the sector, it means that the new entrants can invest easily (Michaux et al., 2015). If they are is high capital required it shows that there is less threat of new entrants. The food processing industry requires high investments. A company has to come up with processing units. Therefore, it acts as an entry barrier affecting any organization that wants to invest in the market.

Power of suppliers

It focuses on how easily the providers can influence the price of goods and services. A high number of vendors in the market means that they cannot cause the rise of products’ prices (Michaux et al., 2015). Nevertheless, if they are few, it shows that they have more power. In this case, they have low bargaining power as the companies highly rely on the unorganized sector for products such as eggs. There is also a high number of suppliers for other breakfast products. Hence, it shows that they are less likely to affect the pricing of the goods.

Power of Consumers

It is the ability of the clients to drive the product prices down. It depends on the number of clients and how significant each one is to its operations (Michaux et al., 2015). Clients have different tastes and preferences. They change their preferences regularly which means that the company has to keep up with what the customers want. The brand loyalty is also low as the clients are likely to get new products. They can switch suppliers easily. Therefore, there is high customer bargaining power.

Threat of Substitutes

It focuses on how easy it is for clients to switch to other products (Michaux et al., 2015). Mainly, consumers can easily switch the products they take for breakfast. Companies are selling diverse types of meals during breakfast; hence, a company should keep up with all the changes. Also, the products are readily available in the market and consumers can buy them while still fresh. Data/graph/ tables

Cargill Competitors
MCdonald’s	It introduced its breakfast products in various parts of Canada. They include eggs in their products.

 

Canada’s Economic growth

(Evans, 2017)

Cargill Finances

(Cargill, 2017)

PESTLE analysis

Political factors	Economic factors
·         The corporation tax rates ·         There are the technical regulations and standards that define a product’s characteristics	·         The Canadian financial markets have increased the interest rates ·         The Bank of Canada expected the economic growth would be 2.8% in 2017
Social factors	Technological factors
·         Population ·         Demographic location ·         changing trends among consumers	·         Growing technology industry ·         The technology companies are investing in innovative research and development
Legal factors	Environmental factor
·         Canada has different laws that affect businesses ·         Canada Consumer Product Safety Act ·         Canada Agricultural Products Act	·         climate, geographical location and the global changes in climate

 

Financial performance 2016 per region

(Financial performance, 2016)

 

Conclusion

It is obvious that the sector of eggs and breakfast is growing which offers Cargill Canada Limited an excellent opportunity to expand its production of egg and breakfast products. It is a leading merchandiser and processor in Canada. The company deals with the production of foodstuffs. Although the company shows positive growth, there are factors that it needs to consider during its expansion process. First, the company should focus on the threat of competitors and business environment in Canada.  For instance, the company needs to concentrate on the political and legal factors such as taxes and laws that may affect its operations.

References

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(Accessed August 22, 2017)

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